OPTICAL SENSORS INC
AMENDMENT NO. 2 TO RIGHT AGREEMENT
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<TYPE>EX-10.1
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<FILENAME>0003.txt
<DESCRIPTION>AMENDMENT NO. 2 TO RIGHT AGREEMENT
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                                                                    EXHIBIT 10.1


                       AMENDMENT No. 2 TO RIGHTS AGREEMENT

         This Amendment No. 2 to Rights Agreement (this "Amendment") is between
Optical Sensors Incorporated, a Delaware corporation (the "Company"), and Wells
Fargo Bank, N.A., a national banking association (the "Rights Agent"), effective
as of August 8, 2000.

         A.       The Company and the Rights Agent have entered into a Rights
Agreement, dated as of December 3, 1996 , as amended by Amendment No. 1
("Amendment No. 1") to Rights Agreement effective as of March 9, 2000 (as
amended, the "Rights Agreement"). Capitalized terms used and not otherwise
defined herein will have the meaning given in the Rights Agreement.

         B.       Section 27 of the Rights Agreement provides that, prior to the
Distribution Date, the Company may amend the Rights Agreement, including without
limitation the definition of an Acquiring Person (as amended by Amendment No. 1)
as set forth in Section 1(a) thereof, upon the approval of at least a majority
of the Continuing Directors, and that, upon any such amendment, the Rights Agent
shall amend the Rights Agreement as the Company directs.

         C.       The Company desires, and hereby directs the Rights Agent, to
amend the definition of an Acquiring Person and Control Shares, and the Rights
Agent agrees to such amendments, on the terms and conditions hereof.
Accordingly, the Company and the Rights Agent agree as follows:

1.       Representations and Warranties. The Company represents and warrants to
         the Rights Agent that:

         (a)      to the best knowledge of the Company, the Distribution Date
         has not occurred prior to the effective date hereof; and

         (b)      this Amendment is authorized pursuant to the requirements of
         Section 27 of the Rights Agreement, having been approved by a majority
         of the Company's Continuing Directors.

2.       Amendment of Section 1(a). Section 1(a) of the Rights Agreement is
         hereby amended by deleting Section 1(a) in its entirety and
         substituting the following therefor:

         "Acquiring Person" shall mean any Person who or which, alone or
         together with all Affiliates and Associates of such Person, shall be
         the Beneficial Owner of 15% or more of the Common Shares then
         outstanding (the "Acquiring Person Trigger Amount") (other than as a
         result of a Permitted Offer (as hereinafter defined)), but shall not
         include the Company, any Subsidiary of the Company, or any employee
         benefit plan of the Company or of any Subsidiary of the Company or any
         Person organized, appointed or established by the Company for or
         pursuant to the terms of any such plan. Notwithstanding the foregoing,
         no Person shall become an "Acquiring Person": (i) as the result of an
         acquisition of Common Shares by the Company which, by reducing the
         number of Common Shares outstanding,
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         increases the proportionate number of Common Shares beneficially owned
         by such Person to the Acquiring Person Trigger Amount; provided,
         however, that if a Person shall become the Beneficial Owner of the
         Acquiring Person Trigger Amount by reason of Common Share purchases by
         the Company and shall thereafter become the Beneficial Owner of any
         additional Common Shares, other than pursuant to the receipt of stock
         dividends or stock splits on a pro rata basis on Common Shares already
         beneficially owned by such Person, then such Person shall be deemed to
         be an "Acquiring Person" or (ii) who is a Person who is the Beneficial
         Owner of the Acquiring Person Trigger Amount but who acquired
         Beneficial Ownership of Common Shares without any plan or intention to
         seek or affect control of the Company, if such Person promptly enters
         into an irrevocable commitment promptly to divest, and thereafter
         promptly divests (without exercising or retaining any power, including
         voting, with respect to such shares), sufficient shares of Common
         Shares (or securities convertible into, exchangeable into or
         exercisable for Common Shares) so that such Person ceases to be the
         Beneficial Owner of the Acquiring Person Trigger Amount or (iii) who
         beneficially owns Common Shares consisting solely of one or more (A)
         Common Shares beneficially owned pursuant to the grant for exercise of
         an option granted to such Person by the Company in connection with an
         agreement to merge with, or acquire, the Company entered into prior to
         a Section 11(a)(ii) Trigger Date, (B) Common Shares (or securities
         convertible into, exchangeable into or exercisable for Common Shares),
         beneficially owned by such Person or its Affiliates or Associates at
         the time of grant of such option or (C) Common Shares (or securities
         convertible into, exchangeable into or exercisable for Common Shares)
         acquired by Affiliates or Associates of such Person after the time of
         such grant which, in the aggregate, amount to less than 1% of the
         outstanding Common Shares. For purposes of the definition of "Acquiring
         Person", the Acquiring Person Trigger Amount for Hayden R. Fleming
         ("Fleming") or Circle F Ventures, LLC, a Georgia limited liability
         company ("Circle F") (Fleming and Circle F are collectively referred to
         as the "Circle F Group"), shall be 49.9% or more of the Common Shares
         then outstanding (the "Circle F Trigger Amount") which shall be
         applicable if any member of the Circle F Group has, or, together with
         any Affiliates and Associates of such member, shall be the Beneficial
         Owner of, such Circle F Trigger Amount. For purposes of the definition
         of "Acquiring Person", the Acquiring Person Trigger Amount for Special
         Situations Fund III, L.P., a Delaware limited partnership ("SSF III"),
         MGP Advisers Limited Partnership, a Delaware limited partnership
         ("MGP"), Special Situations Cayman Fund, L.P., a Cayman Islands limited
         partnership (SS Cayman"), AWM Investment Company, Inc., a Delaware
         corporation ("AWM"), Austin W. Marxe ("Marxe") or David Greenhouse
         ("Greenhouse") (SSF III, MGP, SS Cayman, AWM, Marxe and Greenhouse are
         collectively referred to as "Special Situations Group"), shall be 24%
         or more of the Common Shares then outstanding (the "Special Situations
         Trigger Amount") which shall be applicable if any member of the Special
         Situations Group has, or, together with any Affiliates and Associates
         of such member, shall be the Beneficial Owner of, such Special
         Situations Trigger Amount.
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3.       Amendment of Section 1(k). Section 1(k) of the Rights Agreement is
         hereby amended by deleting Section 1(k) in its entirety and
         substituting the following therefor:

         "Common Shares" when used with reference to the Company shall mean (A)
         the shares of Common Stock, par value $.01 per share, of the Company
         (the "Common Stock") and (B) the shares of Common Stock into which
         shares of Series A Preferred Stock, par value $.01 per share, are
         convertible. "Common Shares" when used with reference to any Person
         other than the Company shall mean: (i) in the case of Persons organized
         in corporate form, the shares of capital stock or units of equity
         security with the greatest voting power of such Person or, if such
         Person is a Subsidiary of another Person, of the Person or Persons
         which ultimately control or direct the management of such
         first-mentioned Person, and (ii) in the case of Persons not organized
         in corporate form, the units of beneficial interest which (A) represent
         the right to participate generally in the profits and losses of such
         Person (including without limitation any flow-through tax benefits
         resulting from an ownership interest in such Person) and (B) are
         entitled to exercise the greatest voting power of such Person or, in
         the case of a limited partnership, shall have the power to remove the
         general partner or partners.

4.       No Other Changes. Except as specifically amended by this Amendment, all
         other provisions of the Rights Agreement shall remain in full force and
         effect. This Amendment shall not constitute or operate as a waiver of,
         or estoppel with respect to, any provisions of the Rights Agreement by
         any party hereto.

5.       Counterparts. This Amendment may be executed in one or more
         counterparts, each of which shall be deemed an original, but all of
         which together shall constitute one and the same agreement.

         The Company and the Rights Agent have caused this Amendment to be duly
executed on their behalf by their respective duly authorized representatives as
of the date first written above.


OPTICAL SENSORS INCORPORATED                          WELLS FARGO BANK, N.A.

By:                                                   By:
     ------------------                                    ------------------
     Paulita M. LaPlante                                   Susan J. Roeder
     Its:  President and Chief Executive Officer           Its:  Vice President
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