EX-10.2






EXHIBIT 10.2



THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS. THIS WARRANT AND THE
UNDERLYING SECURITIES MAY NOT BE TRANSFERRED UNLESS (I) THIS WARRANT AND THE UNDERLYING SECURITIES
HAVE BEEN REGISTERED FOR SALE PURSUANT TO THE SECURITIES ACT OR (II) THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT
REGISTRATION UNDER THE SECURITIES ACT OR QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS.



WARRANT




THIS CERTIFIES THAT, for value received, Theodore C. Skokos (the “Holder”) is entitled
to subscribe for and purchase up to 245,098 fully paid and nonassessable shares (the
“Shares”) of common stock, par value $0.01 per share (the “Common Stock”), of ATS
Medical, Inc., a Minnesota corporation (the “Company”), at $2.04 per share (such price and
such other price as shall result, from time to time, from the adjustments specified in Section 4
hereof is herein referred to as the “Warrant Price”), upon the terms and subject to the
conditions hereinafter set forth. This warrant is being issued on this 29th day of
June, 2008 (the “Date of Grant”).



This warrant is being issued in connection with that certain Subordinated Credit Agreement,
dated as of June 29, 2008 (the “Credit Agreement”), by and between the Company and the
Holder. Capitalized terms used and not defined herein shall have the meanings set forth in the
Credit Agreement.



1. Term. The right represented by this warrant is exercisable, in whole or in part,
at any time and from time to time from the earlier of the Date of Grant (the “Initial Exercise
Date”) until June 29, 2015 (the “Termination Date”).



2. Method of Exercise; Payment; Issuance of New Warrant. Subject to Section 1 hereof,
the purchase right represented by this warrant may be exercised by the Holder hereof, in whole or
in part and from time to time, at the election of the Holder hereof, as applicable, after the
Initial Exercise Date. At the time Holder elects to exercise this warrant, the Holder shall
(i) surrender this warrant (with the notice of exercise substantially in the form attached hereto
as Exhibit A-1 duly completed and executed) at the principal office of the Company and by the
payment to the Company, by certified or bank check, or by wire transfer to an account designated by
the Company (a “Wire Transfer”) of an amount equal to the then applicable Warrant Price
multiplied by the number of Shares then being purchased; or (ii) exercise the “net issuance” right
provided for in Section 9 hereof. In the event of any exercise of the rights represented by this
warrant pursuant to this Section 2, certificates for the shares of stock so purchased shall be
delivered to the Holder hereof as soon as practicable and in any event within three (3) business
days after such exercise and, unless this warrant has been fully exercised or expired, a new
warrant representing the portion of the Shares, if any, with respect to which this warrant shall
not then have been exercised shall also be issued to the Holder hereof as soon as practicable and
in any event within such thirty-day period; provided, however, if requested by the Holder of this
warrant, the Company shall use reasonable efforts to cause its transfer agent to deliver the
certificate representing Shares issued upon exercise of this warrant to a broker or other person
(as directed by the Holder exercising this warrant) within the time period required to settle any
trade made by the Holder after exercise of this warrant.



The person or persons in whose name(s) any certificate(s) representing shares of Common Stock shall
be issuable upon exercise of this warrant shall be deemed to have become the holder(s) of record
of, and shall be treated for all purposes as the record holder(s) of, the shares represented
thereby (and such shares shall be deemed to have been issued) immediately prior to the close of
business on the date or dates upon which this warrant is exercised.



3. Stock Fully Paid; Reservation of Shares. All Shares that may be issued upon the
exercise of the rights represented by this warrant will, upon issuance pursuant to the terms and
conditions herein, be fully paid and nonassessable, and free from all preemptive rights and taxes,
liens and charges with respect to the issue thereof. During the period within which the rights
represented by this warrant may be exercised, the Company will at all times have authorized, and
reserved for the purpose of the issue upon exercise of the purchase rights evidenced by this
warrant, a sufficient number of shares of Common Stock to provide for the exercise of the rights
represented by this warrant. If at any time during the term of this warrant the number of
authorized but unissued shares of Common Stock shall not be sufficient to permit exercise of this
warrant, the Company will take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock to such number of shares
as shall be sufficient for such purposes.



4. Adjustment of Warrant Price and Number of Shares. The number of shares of Common
Stock 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) Reclassification or Merger. In case of any reclassification or change of
securities of the class issuable upon exercise of this warrant (other than a change in par value,
or from par value to no par value, or from no par value to par value, or as a result of a
subdivision or combination), or in case of any merger of the Company with or into another
corporation (other than a merger with another corporation in which the Company is the acquiring and
the surviving corporation and which does not result in any reclassification or change of
outstanding securities issuable upon exercise of this warrant), the Company, or such successor or
purchasing corporation, as the case may be, shall (i) in the case of a merger described above,
execute and deliver to the Holder a new warrant (in form and substance reasonably satisfactory to
the Holder), so that the Holder shall have the right to receive, upon exercise of this warrant, at
a total purchase price equal to that payable upon the exercise of the unexercised portion of this
warrant, and in lieu of the shares of Common Stock theretofore issuable upon exercise of this
warrant, the kind and amount of shares of stock, other securities, money and property receivable
upon such merger or sale by a Holder of the number of shares of Common Stock then purchasable under
this warrant and (ii) in the case of a reclassification or change in the securities issuable upon
exercise of this warrant described above, the Holder shall have the right to receive, upon exercise
of this warrant, at a total purchase price equal to that payable upon the exercise of the
unexercised portion of this warrant, and (A) in lieu of the shares of Common Stock theretofore
issuable upon exercise of this warrant, the number of shares of Common Stock then purchasable under
this warrant upon such reclassification or other change in the securities issuable upon exercise of
this warrant or (B) in lieu of cash theretofore issuable upon exercise of this warrant, the amount
of cash then issuable under this warrant upon such reclassification or other change in the
securities issuable upon exercise of this warrant. Any new warrant shall provide for adjustments
that shall be as nearly equivalent as may be practicable to the adjustments provided for in this
Section 4. The provisions of this Section 4(a) shall similarly apply to successive
reclassifications, changes, mergers and sales.



(b) Subdivision or Combination of Shares. If the Company at any time while this
warrant remains outstanding and unexpired shall subdivide or combine its outstanding shares of
Common Stock, the Warrant Price shall be proportionately decreased and the number of Shares
issuable hereunder shall be proportionately increased in the case of a subdivision and the Warrant
Price shall be proportionately increased and the number of Shares issuable hereunder shall be
proportionately decreased in the case of a combination.



(c) Stock Dividends and Other Distributions. If the Company at any time while this
warrant is outstanding and unexpired shall (i) pay a dividend with respect to Common Stock payable
in Common Stock, then the Warrant Price shall be adjusted, from and after the date of determination
of shareholders entitled to receive such dividend or distribution, to that price determined by
multiplying the Warrant Price in effect immediately prior to such date of determination by a
fraction (A) the numerator of which shall be the total number of shares of Common Stock outstanding
immediately prior to such dividend or distribution, and (B) the denominator of which shall be the
total number of shares of Common Stock outstanding immediately after such dividend or distribution;
or (ii) make any other distribution with respect to Common Stock (except any distribution
specifically provided for in Sections 4(a) and 4(b)), then, in each such case, provision shall be
made by the Company such that the Holder of this warrant shall receive upon exercise of this
warrant a proportionate share of any such dividend or distribution as though it were the holder of
the Common Stock as of the record date fixed for the determination of the shareholders of the
Company entitled to receive such dividend or distribution.



(d) Adjustment of Number of Shares. Upon each adjustment in the Warrant Price, the
number of shares of Common Stock purchasable hereunder shall be adjusted, rounded up to the nearest
whole share, to the product obtained by multiplying the number of Shares purchasable immediately
prior to such adjustment in the Warrant Price by a fraction, the numerator of which shall be the
Warrant Price immediately prior to such adjustment and the denominator of which shall be the
Warrant Price immediately thereafter.



5. Notice of Adjustments. Whenever the Warrant Price or the number of Shares
purchasable hereunder shall be adjusted pursuant to Section 4 hereof, the Company shall make a
certificate signed by its acting chief financial 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 Shares purchasable hereunder after giving
effect to such adjustment, and shall cause copies of such certificate to be mailed to the Holder of
this warrant.



6. Fractional Shares. No fractional shares of Common Stock will be issued in
connection with any exercise hereunder, but in lieu of such fractional shares the Company shall
make a cash payment therefor based on the product resulting from multiplying the then fair market
value of the Common Stock (as determined pursuant to Section 9(c) below) on the date of exercise by
such fraction.



7. Compliance with Act; Disposition of Warrant or Shares of Common Stock.



(a) Compliance with Act. The Holder of this warrant, by acceptance hereof, agrees
that this warrant, and the shares of Common Stock to be issued upon exercise hereof are being
acquired for investment and that such Holder will not offer, sell or otherwise dispose of this
warrant, or any shares of Common Stock except under circumstances which will not result in a
violation of the Securities Act of 1933, as amended (the “Securities Act”), or any
applicable state securities laws. Upon exercise of this warrant, unless the Shares being acquired
are registered under the Securities Act and any applicable state securities laws or an exemption
from such registration is available, the Holder hereof shall confirm in writing that the shares of
Common Stock so purchased are being acquired for investment and not with a view toward distribution
or resale in violation of the Securities Act and shall confirm such other matters related thereto
as may be reasonably requested by the Company. This warrant and all shares of Common Stock issued
upon exercise of this warrant (unless registered under the Securities Act and any applicable state
securities laws) shall be stamped or imprinted with a legend in substantially the following form:



THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS. THE
SECURITIES REPRESENTED HEREBY MAY NOT BE TRANSFERRED UNLESS (I) SUCH SECURITIES HAVE
BEEN REGISTERED FOR SALE PURSUANT TO THE SECURITIES ACT OR (II) THE COMPANY HAS RECEIVED
AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH TRANSFER MAY LAWFULLY BE
MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OR QUALIFICATION UNDER APPLICABLE
STATE SECURITIES LAWS.



Said legend shall be removed by the Company, upon the request of a Holder, at such time as the
restrictions on the transfer of the applicable security have terminated.



(b) Disposition of Warrant or Shares. This warrant and any shares of Common Stock
acquired pursuant to the exercise or conversion of this warrant may be transferred only pursuant to
a registration statement filed under the Securities Act or an exemption from such registration.
Subject to such restrictions, the Company shall transfer this warrant from time to time upon the
books to be maintained by the Company for that purpose, upon surrender thereof for transfer
properly endorsed or accompanied by appropriate instructions for transfer and such other documents
as may be reasonably required by the Company, including, if required by the Company, an opinion of
counsel to the effect that such transfer is exempt from the registration requirements of the
Securities Act to establish that such transfer is being made in accordance with the terms hereof,
and a new warrant shall be issued to the transferee and the surrendered warrant shall be canceled
by the Company. Each certificate representing this warrant or the shares of Common Stock thus
transferred (except a transfer pursuant to Rule 144 or 144A) shall bear a legend as to the
applicable restrictions on transferability in order to ensure compliance with such laws, unless
such legend is not required in order to ensure compliance with such laws. The Company may issue
stop transfer instructions to its transfer agent in connection with such restrictions.



(c) Applicability of Restrictions. Neither any restrictions of any legend described
in this warrant nor the requirements of Section 7(b) above shall apply to any transfer of, or grant
of a security interest in, this warrant (or the Common Stock obtainable upon exercise hereof) or
any part hereof (i) to a partner of the Holder if the Holder is a partnership or to a member of the
Holder if the Holder is a limited liability company, (ii) to a partnership of which the Holder is a
partner or to a limited liability company of which the Holder is a member, or (iii) to any
affiliate of the Holder if the Holder is a corporation; provided, however, in any such transfer, if
applicable, the transferee shall on the Company’s request agree in writing to be bound by the terms
of this warrant as if an original Holder hereof.



8. Rights as Shareholders; Information. No Holder of this warrant, as such, shall be
entitled to vote or receive dividends or be deemed the holder of Common Stock issuable upon the
exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon
the Holder of this warrant, as such, any of the rights of a shareholder of the Company or any right
to vote for the election of directors or upon any matter submitted to shareholders 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 Shares purchasable upon the exercise
hereof shall have become deliverable, as provided herein.



9. Right to Convert Warrant into Stock: Net Issuance.



(a) Right to Convert. In addition to and without limiting the rights of the Holder
under the terms of this warrant, the Holder shall have the right to convert this warrant or any
portion thereof (the “Conversion Right”) into shares of Common Stock as provided in this
Section 9 at any time or from time to time during the term of this warrant. Upon exercise of the
Conversion Right with respect to a particular number of shares subject to this warrant (the
“Converted Warrant Shares”), the Company shall deliver to the Holder (without payment by
the Holder of any exercise price or any cash or other consideration) that number of shares of fully
paid and nonassessable Common Stock as is determined according to the following formula:



X = (B – A) divided by Y




	 	 	 	Where: X = the number of shares of Common Stock that shall be issued to Holder






	 	 	 	Y = the fair market value of one share of Common Stock






	 	 	 	A = the aggregate Warrant Price of the specified number of
Converted Warrant Shares immediately prior to the exercise of the Conversion
Right (i.e., the number of Converted Warrant Shares multiplied by the Warrant
Price)






	 	 	 	B = the aggregate fair market value of the specified number of
Converted Warrant Shares (i.e., the number of Converted Warrant Shares
multiplied by the fair market value of one Converted Warrant Share)





If shares of Common Stock are issuable pursuant to this Section 9, no fractional shares shall
be issuable upon exercise of the Conversion Right, and, if the number of shares to be issued
determined in accordance with the foregoing formula is other than a whole number, the Company shall
pay to the Holder an amount in cash equal to the fair market value of the resulting fractional
share on the Conversion Date (as hereinafter defined).



(b) Method of Exercise. The Conversion Right may be exercised by the Holder by the
surrender of this warrant at the principal office of the Company together with a written statement
(which may be in the form of Exhibit A-1) specifying that the Holder thereby intends to exercise
the Conversion Right and indicating the number of shares subject to this warrant which are being
surrendered (referred to in Section 9(a) hereof as the Converted Warrant Shares) in exercise of the
Conversion Right. Such conversion shall be effective upon receipt by the Company of this warrant
together with the aforesaid written statement, or on such later date as is specified therein (the
“Conversion Date”). Certificates for the shares issuable upon exercise of the Conversion
Right and, if applicable, a new warrant evidencing the balance of the shares remaining subject to
this warrant, shall be issued as of the Conversion Date and shall be delivered to the Holder within
thirty (30) days following the Conversion Date.



(c) Determination of Fair Market Value. For purposes of this Section 9, “fair
market value” of a share of Common Stock as of a particular date (the “Determination
Date”) shall mean: (i) if traded on a securities exchange, the fair market value of the Common
Stock shall be deemed to be the average of the closing prices of the Common Stock on such exchange
over the five trading days immediately prior to the Determination Date as reported by Bloomberg
Financial Markets (or a comparable reporting service of national reputation selected by the Company
and reasonably acceptable to the Holder if Bloomberg Financial Markets is not then reporting sales
prices of such security) (collectively, “Bloomberg”); (ii) if traded on a market that is
not a securities exchange, the fair market value of the Common Stock shall be deemed to be the
average of the closing bid prices of the Common Stock over the five trading days immediately prior
to the Determination Date as reported by Bloomberg; and (iii) if there is no public market for the
Common Stock, then fair market value shall be determined by the Board of Directors of the Company
in good faith.



(d) Automatic Exercise: If this Warrant would terminate or expire but for the
application of this Section 9(d), then if the fair market value of one share of Common Stock
exceeds the Warrant Price this Warrant shall be deemed automatically converted pursuant to this
Section 9 immediately prior to such termination or expiration.



10. Representations and Warranties. The Company represents and warrants to the Holder
of this warrant as follows:



(a) This warrant has been duly authorized and executed by the Company and is a valid and
binding obligation of the Company enforceable in accordance with its terms, subject to laws of
general application relating to bankruptcy, insolvency and the relief of debtors and the rules of
law or principles at equity governing specific performance, injunctive relief and other equitable
remedies.



(b) The Shares have been duly authorized and reserved for issuance by the Company and, when
issued in accordance with the terms hereof, will be validly issued, fully paid and nonassessable
and free from preemptive rights.



(c) The execution and delivery of this warrant are not, and the issuance of the Shares upon
exercise of this warrant in accordance with the terms hereof will not be, inconsistent with the
Company’s articles of incorporation or bylaws, do not and will not contravene any law, governmental
rule or regulation, judgment or order applicable to the Company, and do not and will not conflict
with or contravene any provision of, or constitute a default under, any indenture, mortgage,
contract or other instrument of which the Company is a party or by which it is bound or require the
consent or approval of, the giving of notice to, the registration or filing with or the taking of
any action in respect of or by, any federal, state or local government authority or agency or other
person, except for the filing of notices pursuant to federal and state securities laws, which
filings will be effected by the time required thereby.



11. Registration Rights.



(a) If requested by the Holder (the “Demand Registration Right”), the Company shall
prepare and, as soon as practicable but in no event later than 30 calendar days after receiving
such a request from the Holder (the “Filing Deadline”), file with the Commission a
Registration Statement on Form S-3 (the “Registration Statement”) covering the resale of
all of the shares of Common Stock issuable upon exercise of any Warrants issued to the Holder under
the Credit Agreement on or before the date of such demand (the “Registrable Securities”).
The Holder shall have only one Demand Registration Right, and such Demand Registration Right shall
apply to all Registrable Securities issuable to Holder on or before the date of the demand upon the
exercise of the Warrants issued by the Company to the Holder in connection with the transactions
contemplated by the Credit Agreement.



(b) The Registration Statement prepared pursuant hereto shall register the Registrable
Securities for resale, including the number of shares of Common Stock issuable upon exercise of the
Warrants by the Holder from time to time in accordance with the methods of distribution elected by
such Holder. The Company shall use its best efforts to have the Registration Statement declared
effective by the Commission as soon as practicable, but not later than 90 calendar days after the
Filing Deadline (the “Effectiveness Deadline”); provided, however, that if the Commission
reviews the Registration Statement and requires the Company to make modifications thereto, then the
Effectiveness Deadline shall be extended to 120 calendar days after the Filing Deadline. In the
event that, before the Registration Statement is declared effective, the offices of the Securities
and Exchange Commission are closed due to acts of God, war or terror (or similar circumstances),
the Effectiveness Deadline will be extended by a number of days equal to the days of any such
closure.



12. Modification and Waiver. This warrant and any provision hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the party against which
enforcement of the same is sought.



13. Notices. Any notice, request, communication or other document required or
permitted to be given or delivered to the Holder hereof or the Company shall be delivered, or shall
be sent by certified or registered mail, postage prepaid, to each such Holder at its address as
shown on the books of the Company or to the Company at the address indicated therefore on the
signature page of this warrant.



14. Binding Effect on Successors. This warrant shall be binding upon any corporation
succeeding the Company by merger, consolidation or acquisition of all or substantially all of the
Company’s assets, and all of the obligations of the Company relating to the Common Stock issuable
upon the exercise or conversion of this warrant shall survive the exercise, conversion and
termination of this warrant and all of the covenants and agreements of the Company shall inure to
the benefit of the successors and assigns of the Holder hereof.



15. Lost Warrants or Stock Certificates. The Company covenants to the Holder hereof
that, upon receipt of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this warrant or any stock certificate and, in the case of any such
loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or
in the case of any such mutilation upon surrender and cancellation of such warrant or stock
certificate, the Company will make and deliver a new warrant or stock certificate, of like tenor,
in lieu of the lost, stolen, destroyed or mutilated warrant or stock certificate.



16. Descriptive Headings. The descriptive headings of the various sections of this
warrant are inserted for convenience only and do not constitute a part of this warrant. The
language in this warrant shall be construed as to its fair meaning without regard to which party
drafted this warrant.



17. Governing Law. This warrant shall be construed and enforced in accordance with,
and the rights of the parties shall be governed by, the laws of the State of Minnesota.



18. Remedies. In case any one or more of the covenants and agreements contained in
this warrant shall have been breached, the Holder hereof (in the case of a breach by the Company),
or the Company (in the case of a breach by the Holder), may proceed to protect and enforce their or
its rights either by suit in equity and/or by action at law, including, but not limited to, an
action for damages as a result of any such breach and/or an action for specific performance of any
such covenant or agreement contained in this warrant.



19. No Impairment of Rights. The Company will not, by amendment of its articles of
incorporation or through any other means, 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 impairment.



20. Severability. The invalidity or unenforceability of any provision of this warrant
in any jurisdiction shall not affect the validity or enforceability of such provision in any other
jurisdiction, or affect any other provision of this warrant, which shall remain in full force and
effect.



21. Recovery of Litigation Costs. If any legal action or other proceeding is brought
for the enforcement of this warrant, or because of an alleged dispute, breach, default, or
misrepresentation in connection with any of the provisions of this warrant, the successful or
prevailing party or parties shall be entitled to recover reasonable attorneys’ fees and other costs
incurred in that action or proceeding, in addition to any other relief to which it or they may be
entitled.



22. Entire Agreement; Modification. This warrant constitutes the entire agreement
between the parties pertaining to the subject matter contained in it and supersedes all prior and
contemporaneous agreements, representations, and undertakings of the parties, whether oral or
written, with respect to such subject matter.



(Signature page follows)






1






The Company has caused this Warrant to be duly executed and delivered as of the Date of Grant
specified above.



ATS MEDICAL, INC.



By: /s/ Michael Kramer

Name: Michael Kramer

Title: Chief Financial Officer




Address: 3905 Annapolis Lane North


Suite 105


Minneapolis, MN 55447



2




EXHIBIT A-1




NOTICE OF EXERCISE




To: ATS MEDICAL, INC. (the “Company”)



1. The undersigned hereby:




	 	 	 	     elects to purchase     shares of common stock of the Company
pursuant to the terms of the attached warrant, and tenders herewith payment of
the purchase price of such shares in full, or






	 	 	 	     elects to exercise its net issuance rights pursuant to Section 9 of the
attached warrant with respect to     shares of common stock.





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



(Name)




(Address)




3. The undersigned represents that any aforesaid shares are being acquired for the account of
the undersigned for investment and not with a view to, or for resale in connection with, the
distribution thereof and that the undersigned has no present intention of distributing or reselling
such shares, all except as in compliance with applicable securities laws.



(Signature)




(Date)




3