EXHIBIT 10.3

 

THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY
OTHER SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF (1) AN EFFECTIVE REGISTRATION
STATEMENT COVERING SUCH SECURITIES UNDER THE ACT AND ANY OTHER APPLICABLE
SECURITIES LAWS, OR (2) AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

 

BIOSPHERE MEDICAL, INC.

 

WARRANT TO PURCHASE 200,000 SHARES OF

COMMON STOCK, PAR VALUE $0.01 PER SHARE

 

November 10, 2004

  Warrant No. 2004-1

 

For value received, BIOSPHERE MEDICAL, INC., a Delaware corporation (the
“Company”), hereby certifies that Cerberus Partners, L.P., or its registered
transferees, successors or assigns (each person or entity holding all or part of
this Warrant being referred to as a “Holder”), is the registered holder of
warrants (the “Warrants”) to subscribe for and purchase two hundred thousand
(200,000) shares (as adjusted pursuant to Section 3 hereof, the “Warrant
Shares”) of the fully paid and nonassessable common stock, par value $0.01 per
share (the “Common Stock”), of the Company, at a purchase price per share
initially equal to FOUR and 00/100 DOLLARS ($4.00) (the “Warrant Price”) on or
before, 5:00 P.M., Eastern Time, on November 10, 2009 (the “Expiration Date”),
subject to the provisions and upon the terms and conditions hereinafter set
forth. As used in this Warrant, the term “Business Day” means any day other than
a Saturday or Sunday on which commercial banks located in New York, New York are
open for the general transaction of business.

 

Section 1. Exercise.

 

(a) Method of Exercise; Payment; Issuance of New Warrant.

 

(i) Subject to the provisions hereof, the Holder may exercise this Warrant, in
whole or in part and from time to time, by the surrender of this Warrant (with
the Notice of Exercise attached hereto as Appendix A duly executed) at the
principal office of the Company, or such other office or agency of the Company
as it may reasonably designate by written notice to the Holder, during normal
business hours on any Business Day, and the payment by the Holder by cash,
certified check payable to the Company or wire transfer of immediately available
funds to an account designated to the exercising Holder by the Company of an
amount equal to the then applicable Warrant Price multiplied by the number of
Warrant Shares then being purchased, or in the event of a cashless exercise
pursuant to Section 1(b)

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below, with the Net Issue Election Notice attached hereto as Appendix B duly
executed and completed. On the date on which the Holder shall have satisfied in
full the Holder’s obligations set forth herein regarding an exercise of this
Warrant (provided such date is prior to the Expiration Date), the Holder (or
such other person or persons as directed by the Holder, subject to compliance
with applicable securities laws) shall be treated for all purposes as the holder
of record of such Warrant Shares as of the close of business on such date.

 

(ii) In the event of any exercise of the rights represented by this Warrant,
certificates for the whole number of shares of Common Stock so purchased shall
be delivered to the Holder (or such other person or persons as directed by the
Holder, subject to compliance with applicable securities laws) as promptly as is
reasonably practicable (but not later than five (5) Business Days) after such
exercise at the Company’s expense, and, unless this Warrant has been fully
exercised, a new Warrant representing the whole number of Warrant Shares, if
any, with respect to which this Warrant shall not then have been exercised shall
also be issued to the Holder as soon as reasonably practicable thereafter (but
not later than five (5) Business Days) after such exercise.

 

(b) Cashless Right to Convert Warrant into Common Stock. In addition to and
without limiting the rights of the Holder hereof under the terms of this
Warrant, the Holder may elect to receive, without the payment by the Holder of
the Warrant Price, Warrant Shares equal to the value of this Warrant or any
portion hereof by the surrender of this Warrant (or such portion of this Warrant
being so exercised) together with the Net Issue Election Notice annexed hereto
as Appendix B duly executed and completed, at the office of the Company, or such
other office or agency of the Company as it may reasonably designate by written
notice to the Holder, during normal business hours on any Business Day.
Thereupon, the Company shall issue to the Holder such number of fully paid,
validly issued and nonassessable Warrant Shares, as is computed using the
following formula:

 

X= Y(A-B)

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A

 

where

 

X = the number of shares of Common Stock to be issued to the Holder (or such
other person or persons as directed by the Holder, subject to compliance with
all applicable laws) upon such exercise of the rights under this Section 1(b)

 

Y = the total number of shares of Common Stock covered by this Warrant which the
Holder has surrendered for cashless exercise

 

A = the “Fair Market Value” of one share of Common Stock on the date that the
Holder delivers the Net Issue Election Notice to the Company as provided herein

 

B = the Warrant Price in effect under this Warrant on the date that the Holder
delivers the Net Issue Election Notice to the Company as provided herein

 

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The “Fair Market Value” of a share of Common Stock as of a particular date (the
“Valuation Date”) shall mean the following:

 

(i) if the Common Stock is then listed on a national securities exchange, the
average closing sale price of one share of Common Stock on such exchange over
the ten (10) trading days ending on the last trading day prior to the Valuation
Date; provided that if such stock has not traded in the ten (10) consecutive
trading days prior to the Valuation Date, the Fair Market Value shall be the
average closing price of one share of Common Stock in the most recent ten (10)
trading days during which the Common Stock has traded prior to the Valuation
Date;

 

(ii) if the Common Stock is then included in The Nasdaq Stock Market, Inc.
(“Nasdaq”), the average closing sale price of one share of Common Stock on
Nasdaq over the ten (10) trading days ending on the last trading day prior to
the Valuation Date or, if no closing sale price is available for any of such ten
(10) trading days, the closing sale price for such day shall be determined as
the average of the high bid and the low ask price quoted on Nasdaq as of the end
of such trading day; provided that if the Common Stock has not traded in the ten
(10) consecutive trading days prior to the Valuation Date, the Fair Market Value
shall be the average closing price of one share of Common Stock in the most
recent ten (10) trading days during which the Common Stock has traded prior to
the Valuation Date;

 

(iii) If the Common Stock is then included in the Over-the-Counter Bulletin
Board, the average closing sale price of one share of Common Stock on the
Over-the-Counter Bulletin Board over the ten (10) trading days ending on the
last trading day prior to the Valuation Date or, if no closing sale price is
available for any of such ten (10) trading days, the closing sale price for such
day shall be determined as the average of the high bid and the low ask price
quoted on the Over-the-Counter Bulletin Board as of the end of such trading day;
provided that if the Common Stock has not traded in the ten (10) consecutive
trading days prior to the Valuation Date, the Fair Market Value shall be the
average closing price of one share of Common Stock in the most recent ten (10)
trading days during which the Common Stock has traded prior to the Valuation
Date;

 

(iv) if the Common Stock is then included in the “pink sheets”, the average
closing sale price of one share of Common Stock on the “pink sheets” over the
ten (10) trading days ending on the last trading day prior to the Valuation Date
or, if no closing sale price is available for any of such ten (10) trading days,
the closing sale price for such day shall be determined as the average of the
high bid and the low ask price quoted on the “pink sheets” as of the end of such
trading day; provided that if the Common Stock has not traded in the ten (10)
consecutive trading days prior to the Valuation Date, the Fair Market Value
shall be the average closing price of one share of Common Stock in the most
recent ten (10) trading days during which the Common Stock has traded prior to
the Valuation Date; or

 

(v) if the Common Stock is not then listed on a national securities exchange or
quoted on Nasdaq or the Over-the-Counter Bulletin Board or the “pink sheets”,
the Fair Market Value of one share of Common Stock as of the Valuation Date
shall be determined in good faith by mutual agreement of the Board of Directors
of the Company (the “Board”) and the Holder; provided that if, in such case, the
Board and the Holder are unable to agree as to the Fair Market Value of a share
of Common Stock, such Fair Market Value shall be determined by an investment
banker of national reputation selected by the Company and reasonably acceptable
to the Holder, the fees and expenses of which shall be borne by the Company. The
Board shall respond promptly in writing to a written inquiry by the Holder prior
to the exercise hereunder as to the Fair Market Value of a share of Common
Stock.

 

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(c) Extension of Expiration Date. If the Company fails to cause any Registration
Statement covering “Registrable Securities” (as that term is defined in the
Investor Rights Agreement) to be declared effective prior to the applicable
Effectiveness Deadline set forth in the Investor Rights Agreement, or if any of
the events specified in Section 2(b)(ii) of the Investor Rights Agreement
occurs, and the “Allowed Delay” (as that term is defined in the Investor Rights
Agreement) (whether alone, or in combination with any other Allowed Delay)
continues for more than 30 days in any 24 month period, or for more than a total
of 60 days, then, notwithstanding anything herein to the contrary, the
Expiration Date of this Warrant shall be extended one day for each day beyond,
as applicable (x) the applicable Effectiveness Deadline during which the
applicable Registration Statement has not been declared effective, or (y) the
30-day or 60-day limits, as the case may be, that the Allowed Delay continues.

 

Section 2. Reservation of Shares; Stock Fully Paid; Listing. The Company shall
keep reserved a sufficient number of shares of the authorized and unissued
shares of Common Stock to provide for the exercise of the rights of purchase
represented by this Warrant in compliance with its terms. All Warrant Shares
issued upon exercise of this Warrant shall be, at the time of delivery of the
certificates for such Warrant Shares upon payment in full of the Warrant Price
therefor in accordance with the terms of this Warrant (or proper exercise of the
cashless exercise rights contained in Section 1(b) hereof), duly authorized,
validly issued, fully paid and non-assessable shares of Common Stock of the
Company. The Company shall during all times prior to the Expiration Date when
the shares of Common Stock issuable upon the exercise of this Warrant are
authorized for listing or quotation on any national securities exchange, Nasdaq
(or the Over-the-Counter Bulletin Board or the “pink sheets”, as the case may
be), use its best efforts to maintain the listing or quotation of the Common
Stock on such national securities exchange, Nasdaq (or the Over-the-Counter
Bulletin Board or the “pink sheets”, as the case may be).

 

Section 3. Adjustments and Distributions. The number and kind of securities
purchasable upon the exercise of this Warrant and the Warrant Price shall be
subject to adjustment from time to time upon the occurrence of certain events,
as follows:

 

(a) If the Company shall at any time or from time to time while this Warrant is
outstanding, pay a dividend or make a distribution on its Common Stock in shares
of Common Stock, subdivide its outstanding shares of Common Stock into a greater
number of shares or combine its outstanding shares of Common Stock into a
smaller number of shares, then the number of Warrant Shares purchasable upon
exercise of this Warrant and the Warrant Price in effect immediately prior to
the date upon which such change shall become effective shall be proportionally
adjusted by the Company so that the Holder thereafter exercising this Warrant
shall be entitled to receive the number of shares of Common Stock or other
capital stock which the Holder would have received if this Warrant had been
fully exercised immediately prior to such event upon payment of a Warrant Price
that has been proportionally adjusted to reflect such event. Such adjustments
shall be made successively whenever any event listed above shall occur.

 

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(b) If any recapitalization, reclassification or reorganization of the capital
stock of the Company (other than a change in par value or a subdivision or
combination as provided for in Section 3(a) above) shall be effected in such a
manner (including, without limitation, in connection with a consolidation or
merger in which the Company is the continuing corporation), that holders of
Common Stock shall be entitled to receive stock, securities, or other assets or
property (a “Reorganization”), then, as a condition of such Reorganization,
lawful and adequate provisions shall be made by the Company whereby the Holder
hereof shall thereafter have the right to purchase and receive (in lieu of the
shares of the Common Stock of the Company immediately theretofore purchasable
and receivable upon the exercise of the rights represented hereby) such shares
of stock, securities or other assets or property as may be issued or payable
with respect to or in exchange for a number of outstanding shares of such Common
Stock equal to the number of shares of such Common Stock immediately theretofore
purchasable and receivable upon the exercise of the rights represented hereby.
In the event of any Reorganization, appropriate provision shall be made by the
Company with respect to the rights and interests of the Holder of this Warrant
to the end that the provisions hereof (including, without limitation, provisions
for adjustments of the Warrant Price and of the number of Warrant Shares) shall
thereafter be applicable, in relation to any shares of stock, securities or
assets thereafter deliverable upon the exercise hereof. The provisions of this
Section 3(b) shall similarly apply to successive Reorganizations.

 

(c) If any consolidation or merger of the Company with another entity in which
the Company is not the survivor, or sale, transfer or other disposition of all
or substantially all of the Company’s assets to another entity shall be
effected, then, as a condition of such consolidation, merger, sale, transfer or
other disposition, lawful and adequate provision shall be made whereby the
Holder shall thereafter have the right to purchase and receive upon the basis
and upon the terms and conditions herein specified and in lieu of the Warrant
Shares immediately theretofore issuable upon exercise of this Warrant, such
shares of stock, securities or assets as would have been issuable or payable
with respect to or in exchange for a number of Warrant Shares equal to the
number of Warrant Shares immediately theretofore issuable upon exercise of this
Warrant, had such consolidation, merger, sale, transfer or other disposition not
taken place, and in any such case appropriate provision shall be made with
respect to the rights and interests of the Holder to the end that the provisions
hereof (including, without limitation, provision for adjustment of the Warrant
Price and of the number of Warrant Shares) shall thereafter be applicable, as
nearly equivalent as may be practicable, in relation to any shares of stock,
securities or properties thereafter deliverable upon the exercise thereof. The
Company shall not effect any such consolidation, merger, sale, transfer or other
disposition unless prior to or simultaneously with the consummation thereof the
successor entity (if other than the Company) resulting from such consolidation
or merger, or the entity purchasing or otherwise acquiring such assets or other
appropriate entity shall assume the obligation to deliver to the Holder such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, such Holder may be entitled to purchase, and the other obligations
under this Warrant. The provisions of this Section 3(c) shall similarly apply to
successive consolidations, mergers, sales, transfers or other dispositions.

 

(d) In case the Company shall fix a payment date for the making of a
distribution to all holders of Common Stock of evidences of indebtedness or
assets (other than dividends or distributions referred to in Section 3(a)
hereof), or subscription rights or warrants,

 

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the Warrant Price to be in effect after such payment date shall be determined by
multiplying the Warrant Price in effect immediately prior to such payment date
by a fraction, the numerator of which shall be the total number of shares of
Common Stock outstanding multiplied by the Fair Market Value per share of Common
Stock immediately prior to such payment date, less the fair market value (as
determined by the Board in good faith) of said assets or evidences of
indebtedness so distributed, or of such subscription rights or warrants, and the
denominator of which shall be the total number of shares of Common Stock
outstanding multiplied by such Fair Market Value per share of Common Stock
immediately prior to such payment date. Such adjustment shall be made
successively whenever such a payment date is fixed.

 

(i) In the event that any dividend or distribution for which this Section 3(d)
would require an adjustment is not so paid or made, the Warrant Price shall be
adjusted to be the Warrant Price which would then be in effect if such dividend
or distribution had not been declared.

 

(ii) In the event that the Company implements a new shareholder rights plan,
such rights plan shall provide that upon exercise of this Warrant the Holder
will receive, in addition to the Common Stock issuable upon such exercise, the
rights issued under such rights plan (as if the Holder had exercised this
Warrant prior to implementing the rights plan and notwithstanding the occurrence
of an event causing such rights to separate from the Common Stock at or prior to
the time of exercise). Any distribution of rights or warrants pursuant to a
shareholder rights plan complying with the requirements set forth in the
immediately preceding sentence of this paragraph shall not constitute a
distribution of rights or warrants for the purposes of this Section 3(d).

 

(e) For the term of this Warrant, in addition to the provisions contained above,
the Warrant Price shall be subject to adjustment as provided below. An
adjustment to the Warrant Price shall become effective immediately after the
payment date in the case of each dividend or distribution and immediately after
the effective date of each other event which requires an adjustment. No
adjustment to the Warrant Price shall be made in an amount less than $0.01, but
any such lesser amount shall be carried forward and shall be given effect in the
next Warrant Price adjustment, if any.

 

(f) In the event that, as a result of an adjustment made pursuant to this
Section 3, the Holder shall become entitled to receive any shares of capital
stock of the Company other than shares of Common Stock, the number of such other
shares so receivable upon exercise of this Warrant shall be subject thereafter
to adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Warrant Shares contained in
this Warrant.

 

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(g) Except as provided in Section 3(h) hereof, if and whenever the Company shall
issue or sell, or is, in accordance with any of Sections 3(g)(i) through
3(g)(vi) hereof, deemed to have issued or sold, any shares of Common Stock for a
consideration per share less than the Warrant Price in effect immediately prior
to the time of such issue or sale, then and in each such case (a “Trigger
Issuance”) the then-existing Warrant Price shall be reduced, as of the close of
business on the effective date of the Trigger Issuance, to a Warrant Price
determined as follows:

 

Adjusted Warrant Price =  

(A x B) + D

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          A+C

 

where

 

A = the number of shares of Common Stock outstanding (including any Additional
Shares of Common Stock (as defined below) immediately preceding such Trigger
Issuance)

 

B = the Warrant Price in effect immediately preceding such Trigger Issuance

 

C = the number of Additional Shares of Common Stock (as adjusted for stock
splits, stock combinations, recapitalizations, and dividends and the like)
outstanding or deemed outstanding hereunder as a result of such Trigger Issuance

 

D = the aggregate consideration, if any, received or deemed to be received by
the Company upon such Trigger Issuance

 

For purposes of this subsection (g), “Additional Shares of Common Stock” shall
mean all shares of Common Stock issued by the Company or deemed to be issued
pursuant to this Section 3(g), other than Excluded Issuances (as defined in
Section 3(h) hereof).

 

For purposes of this Section 3(g), the following Sections 3(g)(i) to 3(g)(vi)
shall also be applicable (subject, in each such case, to the provisions of
Section 3(h) hereof) and to each other subsection contained in this Section
3(g):

 

(i) Issuance of Rights or Options. If at any time the Company shall in any
manner grant (directly and not by assumption in a merger or otherwise) any
warrants or other rights to subscribe for or to purchase, or any options for the
purchase of, Common Stock or any stock or security convertible into or
exchangeable for Common Stock (such warrants, rights or options being called
“Options” and such convertible or exchangeable stock or securities being called
“Convertible Securities”), whether or not such Options or the right to convert
or exchange any such Convertible Securities are immediately exercisable, and the
price per share for which Common Stock is issuable upon the exercise of such
Options or upon the conversion or exchange of such Convertible Securities
(determined by dividing (A) the sum (which sum shall constitute the applicable
consideration) of (x) the total amount, if any, received or receivable by the
Company as consideration for the granting of such Options, plus (y) the
aggregate amount of additional consideration payable to the Company upon the
exercise of all such Options, plus (z) in the case of such Options which relate
to Convertible Securities, the aggregate amount of additional consideration, if
any, payable upon the issue or sale of such Convertible Securities and upon the
conversion or exchange thereof, by (B) the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon the conversion
or exchange of all such Convertible Securities issuable upon the exercise of
such Options) shall be less than the Warrant Price in effect immediately prior
to the time of the granting of such Options, then the total number of shares of
Common Stock issuable upon the exercise of such Options or upon conversion or
exchange of the total amount of such Convertible Securities issuable upon the
exercise of such Options shall be deemed to have been issued for

 

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such price per share as of the date of granting of such Options or the issuance
of such Convertible Securities and thereafter shall be deemed to be outstanding
for purposes of adjusting the Warrant Price. Except as otherwise provided in
Section 3(g)(iii), no adjustment of the Warrant Price shall be made upon the
actual issue of such Common Stock or of such Convertible Securities upon
exercise of such Options or upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities.\

 

(ii) Issuance of Convertible Securities. In case the Company shall in any manner
issue (directly and not by assumption in a merger or otherwise) or sell any
Convertible Securities, whether or not the rights to exchange or convert any
such Convertible Securities are immediately exercisable, and the price per share
for which Common Stock is issuable upon such conversion or exchange (determined
by dividing (A) the sum (which sum shall constitute the applicable
consideration) of (x) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities, plus (y) the
aggregate amount of additional consideration, if any, payable to the Company
upon the conversion or exchange thereof, by (B) the total number of shares of
Common Stock issuable upon the conversion or exchange of all such Convertible
Securities) shall be less than the Warrant Price in effect immediately prior to
the time of such issue or sale, then the total maximum number of shares of
Common Stock issuable upon conversion or exchange of all such Convertible
Securities shall be deemed to have been issued for such price per share as of
the date of the issue or sale of such Convertible Securities and thereafter
shall be deemed to be outstanding for purposes of adjusting the Warrant Price;
provided that, except as otherwise provided in Section 3(g)(iii), no adjustment
of the Warrant Price shall be made upon the actual issuance of such Common Stock
upon conversion or exchange of such Convertible Securities and no further
adjustment of the Warrant Price shall be made by reason of the issue or sale of
Convertible Securities upon exercise of any Options to purchase any such
Convertible Securities for which adjustments of the Warrant Price have been made
pursuant to the other provisions of Section 3(g).

 

(iii) Change in Option Price or Conversion Rate. If (A) the purchase price
provided for in any Option referred to in Section 3(g)(i) hereof, (B) the
additional consideration, if any, payable upon the conversion or exchange of any
Convertible Securities referred to in Sections 3(g)(i) or 3(g)(ii), or (C) the
rate at which Convertible Securities referred to in Sections 3(g)(i) or 3(g)(ii)
are convertible into or exchangeable for Common Stock shall increase or decrease
at any time (including, but not limited to, changes under or by reason of
provisions designed to protect against dilution), the Warrant Price in effect at
the time of such event shall forthwith be readjusted to the Warrant Price which
would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold, but only if as a result of such re-adjustment
of the Warrant Price then in effect hereunder is thereby reduced.

 

(iv) Consideration for Stock. In case any shares of Common Stock, Options or
Convertible Securities shall be issued or sold for cash, the consideration
received therefor shall be deemed to be the amount received by the Company
therefor, without deduction therefrom of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the Company in
connection therewith. In case any shares of Common Stock, Options

 

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or Convertible Securities shall be issued or sold for a consideration other than
cash or for a consideration including cash and such other consideration, the
amount of the consideration other than cash received by the Company shall be
deemed to be the fair value of such consideration as determined in good faith by
the Board, after deduction of any expenses incurred or any underwriting
commissions or concessions paid or allowed by the Company in connection
therewith. In case any Options shall be issued in connection with the issue and
sale of other securities of the Company, together comprising one integral
transaction in which no specific consideration is allocated to such Options by
the parties thereto, such Options shall be deemed to have been issued for such
consideration as determined in good faith by the Board. The determination of the
fair value of consideration (or the allocation thereof) for purposes of this
Section 3(g) need not be the amount recorded in the books and records of the
Company if the Board determines that the determination of different amounts for
different contexts is in the best interest of the Company and its stockholders
and creditors as a whole.

 

(v) Record Date. In case the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Stock, Options or Convertible Securities or
(B) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be. If the Company shall have taken a record of the holders of its Common Stock
for the purpose of entitling them to receive a dividend or distribution or
subscription or purchase rights and shall, thereafter and before the
distribution to stockholders thereof, legally abandon its plan to pay or deliver
such dividend, distribution, subscription or purchase rights, then thereafter no
adjustment shall be required by reason of the taking of such record and any such
adjustment previously made in respect thereof shall be automatically rescinded
and annulled.

 

(vi) Treasury Shares. The number of shares of Common Stock outstanding at any
given time shall not include shares owned or held by or for the account of the
Company or any of its wholly-owned subsidiaries, and the disposition of any such
shares (other than the cancellation or retirement thereof) shall be considered
an issue or sale of Common Stock for the purpose of this Section 3(g).

 

(h) Excluded Issuances. Anything herein to the contrary notwithstanding, the
Company shall not be required to make any adjustment of the Warrant Price: (x)
where such an adjustment would be duplicative of another adjustment of the
Warrant Price resulting from the same event that is made pursuant to other
provisions of this Warrant; or (y) in the case of (i) issuances upon the
exercise of any Options or Convertible Securities granted, issued and
outstanding on the date hereof, (ii) shares of Common Stock (or Options with
respect thereto) issued or issuable to employees, officers or directors of, or
consultants or advisors to, the Company or any of its subsidiaries, pursuant to
a plan, agreement or arrangement approved by the Board, (iii) issuances of
securities as consideration for a merger or consolidation with, or purchase of
assets from, a non-Affiliated third party, (iv) issuances of Common Stock upon
conversion of the Series A Preferred Stock, exercise of the this Warrant and the
other warrant(s) issued in connection therewith, or as payment-in-kind dividends
on the Series A Preferred Stock, and (v) shares of Common Stock issued or
issuable as a result of any stock split, combination,

 

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dividend, distribution, reclassification, exchange or substitution for which an
equitable adjustment has been made under Sections 3(a), (b) or (c)
(collectively, “Excluded Issuances”). As used herein, the term “Affiliate” means
any person or entity that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with a
person or entity, as such terms are used in and construed under Rule 144 under
the Securities Act.

 

(i) Adjustment of Number of Shares. Upon each adjustment in the Warrant Price
pursuant to this Section 3, the number of Warrant Shares purchasable hereunder
shall be adjusted, to the nearest whole share, to the product obtained by
multiplying the number of Warrant Shares purchasable immediately prior to such
adjustment by a fraction, (i) the numerator of which shall be the Warrant Price
immediately prior to such adjustment, and (ii) the denominator of which shall be
the Warrant Price immediately thereafter.

 

(j) Notice of Adjustments. With each adjustment pursuant to this Section 3, the
Company shall deliver a certificate signed by its chief financial or executive
officer setting forth, in reasonable detail, the event requiring the adjustment,
the amount of the adjustment, the method by which such adjustment was
calculated, and the Warrant Price and the number of Warrant Shares purchasable
hereunder after giving effect to such adjustment, which shall be mailed by first
class mail, postage prepaid to the Holder.

 

Section 4. Transfer Taxes. The Company will pay any documentary stamp taxes
attributable to the initial issuance of Warrant Shares issuable upon the
exercise of the Warrant; provided, however, that the Company shall not be
required to pay any tax or taxes which may be payable in respect of any transfer
involved in the issuance or delivery of any certificates for Warrant Shares in a
name other than that of the registered holder of this Warrant in respect of
which such shares are issued, and in such case, the Company shall not be
required to issue or deliver any certificate for Warrant Shares or any Warrant
until the person requesting the same has paid to the Company the amount of such
tax or has established to the Company’s reasonable satisfaction that such tax
has been paid.

 

Section 5. Mutilated or Missing Warrants. In case this Warrant shall be
mutilated, lost, stolen, or destroyed, the Company shall issue in exchange and
substitution of and upon cancellation of the mutilated Warrant, or in lieu of
and substitution for the Warrant lost, stolen or destroyed, a new Warrant of
like tenor and for the purchase of a like number of Warrant Shares, but only
upon receipt of evidence reasonably satisfactory to the Company of such loss,
theft or destruction of the Warrant, and with respect to a lost, stolen or
destroyed Warrant, reasonable indemnity or bond with respect thereto, if
requested by the Company.

 

Section 6. Fractional Shares. No fractional shares of Common Stock shall be
issued in connection with any exercise or cashless exercise hereunder, and in
lieu of any such fractional shares the Company shall make a cash payment
therefor to the Holder (or such other person or persons as directed by the
Holder, subject to compliance with all applicable laws) based on the Fair Market
Value of a share of Common Stock on the date of exercise or cashless exercise of
this Warrant.

 

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Section 7. Compliance with Securities Act and Legends. The Holder, by acceptance
hereof, agrees that it will not offer, sell or otherwise dispose of this
Warrant, or any shares of Common Stock to be issued upon exercise hereof except
under circumstances which will not result in a violation of the Securities Act
of 1933, as amended, or the rules and regulations promulgated thereunder, as
amended (the “Act”), or any state’s securities laws. All shares of Common Stock
issued upon exercise of this Warrant (unless registered under the Act) shall be
stamped or imprinted with a legend as follows:

 

THIS SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY OTHER SECURITIES LAWS
AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF (1) AN EFFECTIVE REGISTRATION STATEMENT COVERING THESE SECURITIES
UNDER THE ACT AND ANY OTHER APPLICABLE SECURITIES LAWS, OR (2) AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.

 

Section 8. Rights as a Stockholder. Except as expressly provided in this
Warrant, no Holder, as such, shall be entitled to vote or receive dividends or
be deemed the holder of Common Stock or any other securities of the Company
which may at any time be issuable on the exercise hereof for any purpose, nor
shall anything contained herein be construed to confer upon the Holder, as such,
any of the rights of a stockholder of the Company or any right to vote for the
election of the directors or upon any matter submitted to stockholders at any
meeting thereof, or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise, until this Warrant shall have been exercised
and the Warrant Shares purchasable upon the exercise hereof shall have become
deliverable, as provided herein.

 

Section 9. Modification and Waiver. This Warrant and any provision hereof shall
not be changed, waived, discharged or terminated except by an instrument in
writing signed by the Company and the then current Holder, and such change,
waiver, discharge or termination shall be binding on any future Holder, and any
and all such changes shall be applicable to the other warrants issued pursuant
to the Purchase Agreement.

 

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Section 10. Notices. Except as otherwise provided herein, all notices or other
communications required hereunder shall be in writing and shall be deemed to
have been received: (a) upon hand delivery (receipt acknowledged) or delivery by
telex (with correct answer back received) telecopy or facsimile (with
transmission confirmation report) at the address or number designated below (if
received by 8:00 p.m. Eastern Time), or the first Business Day following such
delivery (if received after 8:00 p.m. Eastern Time); or (b) on the second
Business Day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur; and shall be regarded as properly addressed if sent
to the parties or their representatives at the addresses given below:

 

To the Company:

     Biosphere Medical, Inc.        1050 Hingham Street        Rockland, MA
02370 USA        Attn: President        Fax: 781-681-5093 With a copy to:     
Wilmer Cutler Pickering Hale and Dorr LLP        60 State Street        Boston,
Massachusetts 02109        Attn: Susan W. Murley, Esq.        Fax: 617-526-5000
To the Holder:      Cerberus Partners, L.P.        299 Park Avenue, 22nd Floor  
     New York, New York 10171        Attn: Mr. Seth P. Plattus        Fax:
212-891-1541        and        Cerberus Partners, L.P.        299 Park Avenue,
22nd Floor        New York, New York 10171        Attn: Mr. Daniel Frank       
Fax: 212-284-7818 With a copy to:      Lowenstein Sandler PC        65
Livingston Avenue        Roseland, NJ 07068        Attn: Robert G. Minion, Esq.
       Fax: 973-597-2400

 

Any party hereto may change its address for purposes of this Section 10 by
giving the other party written notice of the new address in the manner set forth
herein.

 

Section 11. Descriptive Headings. The descriptive headings contained in this
Warrant are inserted for convenience only and do not constitute a part of this
Warrant.

 

Section 12. Governing Law. The validity, interpretation and performance of this
Warrant shall be governed by, and construed in accordance with, the laws of the
State of New York applicable to contracts made and to be performed entirely
within such State, regardless of the law that might be applied under principles
of conflicts of law. The Company and, by accepting this Warrant, the Holder,
each irrevocably submits to the jurisdiction of the state and federal courts
located in New York for the purpose of any suit, action, proceeding or judgment
relating to or arising out of this Warrant and the transactions contemplated
hereby. Service of process in connection with any such suit, action or
proceeding may be served on each party hereto anywhere in the world by the same
methods as are specified for the giving of notices

 

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under this Warrant. The Company and, by accepting this Warrant, the Holder, each
irrevocably consents to the jurisdiction of any such court in any such suit,
action or proceeding and to the laying of venue in such court. The Company and,
by accepting this Warrant, the Holder, each irrevocably waives any objection to
the laying of venue of any such suit, action or proceeding brought in such
courts and irrevocably waives any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum.

 

Section 13. Acceptance. Receipt and execution of this Warrant by the Holder
hereof shall constitute acceptance of and agreement to the foregoing terms and
conditions.

 

Section 14. Identity of Transfer Agent. The Transfer Agent for the Common Stock
is Mellon Investor Services. Upon the appointment of any subsequent transfer
agent for the Common Stock or other shares of the Company’s capital stock
issuable upon the exercise of the rights of purchase represented by this
Warrant, the Company will mail to the Holder a statement setting forth the name
and address of such transfer agent.

 

Section 15. No Impairment of Rights. The Company will not, by amendment of its
Certificate of Incorporation or through any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the holder of this Warrant against material impairment.

 

Section 16. Assignment. Subject to the terms hereof and compliance with
applicable federal and state securities laws, this Warrant may be transferred by
the Holder with respect to any or all of the Warrant Shares then purchasable
hereunder. Upon surrender of this Warrant to the Company, together with a
properly endorsed notice of transfer, for transfer of this Warrant in its
entirety by the Holder, the Company shall issue a new warrant of the same
denomination to the designated transferee. Upon surrender of this Warrant to the
Company, together with a properly endorsed notice of transfer, by the Holder for
transfer with respect to a portion of the Warrant Shares then purchasable
hereunder, the Company shall issue a new warrant to the designated transferee,
in such denomination as shall be requested by the Holder hereof, and shall issue
to such Holder a new warrant covering the number of Warrant Shares in respect of
which this Warrant shall not have been transferred. In addition to, and not in
limitation of, the foregoing, a Holder that is a corporation, a partnership or a
limited liability company, may distribute any portion of this Warrant to its
respective shareholders, partners or members. Unless and until the provisions
for assignment set forth herein have been fully complied with, the Company may
treat the last registered Holder as the absolute owner of this Warrant for all
purposes, notwithstanding any notice to the contrary.

 

[Remainder of Page Left Intentionally Blank]

 

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IN WITNESS WHEREOF, the Company and the Holder have caused this Warrant to be
executed on their behalf by one of their officers thereunto duly authorized.

 

BIOSPHERE MEDICAL, INC. By:  

/s/ Martin J. Joyce

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Name:   Martin J. Joyce Title:   Vice President and Chief Financial Officer

 

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APPENDIX A

 

NOTICE OF EXERCISE

 

To:    BIOSPHERE MEDICAL, INC.

 

1. The undersigned hereby irrevocably elects to purchase [            ] shares
of Common Stock of BIOSPHERE MEDICAL, INC. pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full, by [cash, certified check/wire transfer, or surrender of the originally
executed Warrant] [select the applicable method of payment].

 

2. Please issue a certificate or certificates representing said shares in the
name of the undersigned or in such other name or names as are specified below:

 

 

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

(Name)

 

--------------------------------------------------------------------------------

(Address)

(Signature)

--------------------------------------------------------------------------------

                                (Date)

--------------------------------------------------------------------------------

 

3. Please issue a new Warrant of equivalent form and tenor for the unexercised
portion of the attached Warrant in the name of the undersigned or in such other
name as is specified below:

 

 

--------------------------------------------------------------------------------

Date:

--------------------------------------------------------------------------------

(Warrantholder)

 

 

--------------------------------------------------------------------------------

Name: (Print)

 

 

--------------------------------------------------------------------------------

By:

--------------------------------------------------------------------------------

 

A-1

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APPENDIX B

 

Net Issue Election Notice

 

To:    BIOSPHERE MEDICAL, INC.

 

Date:[                    ]

 

The undersigned hereby elects under Section 1(b) of this Warrant to surrender
the right to purchase [                    ] shares of Common Stock pursuant to
this Warrant and hereby requests the issuance of [                    ] shares
of Common Stock. The certificate(s) for the shares issuable upon such net issue
election shall be issued in the name of the undersigned or as otherwise
indicated below.

 

 

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Signature

 

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Name for Registration

 

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Mailing Address

 

B-1