Exhibit 10.19
Diametrics Medical, Inc.
Shares of Series F Convertible Preferred Stock and Common Stock Warrant
SUBSCRIPTION AGREEMENT
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January 14, 2004
Long View Fund LP
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Mercator Advisory Group LLC
Mercator Momentum Fund, LP
Mercator Momentum Fund III, LP
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Ladies and Gentlemen:
Diametrics Medical, Inc., a Minnesota corporation (the "Company"), hereby
confirms its agreement with you (the "Purchasers"), as set forth below.
1. The Securities. Subject to the terms and conditions herein
contained, the Company proposes to issue and sell to the Purchasers in two
separate tranches as set forth in Section 3 of this Agreement (a) an aggregate
of up to 30,000 shares (the "Shares") of its Series F Convertible Preferred
Stock, par value $0.01 per share (the "Series F Stock"), which shall be
convertible into shares (the "Conversion Shares") of the Company's Common Stock
(the "Common Stock") in accordance with the formula set forth in the Certificate
of Designation further described below and (b) a warrant, substantially in the
form attached hereto at Exhibit A (the "Warrant"), to acquire up to 6,000,000
shares of Common Stock (the "Warrant Shares"). The rights, preferences and
privileges of the Series F Stock are as set forth in the Certificate of
Designation of Series F Preferred Stock as filed with the Secretary of State of
the State of Minnesota (the "Certificate of Designation") in the form attached
hereto as Exhibit B. The numbers of Conversion Shares and Warrant Shares that
any Purchaser may acquire at any time are subject to limitation in the
Certificate of Designation and in the Warrant, respectively, so that the
aggregate number of shares of Common Stock of which such Purchaser and all
persons affiliated with such Purchaser have beneficial ownership (calculated
pursuant to Rule 13d-3 of the Securities Exchange Act of 1934, as amended) does
not at any time exceed 9.99% of the Company's then outstanding Common Stock.
The Shares and the Warrant are sometimes herein collectively referred
to as the "Securities." This Agreement and the Warrant are sometimes herein
collectively referred to as the "Transaction Documents."
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The Securities will be offered and sold to the Purchaser without such
offers and sales being registered under the Securities Act of 1933, as amended
(together with the rules and regulations of the Securities and Exchange
Commission (the "SEC") promulgated thereunder, the "Securities Act"), in
reliance on exemptions therefrom.
In connection with the sale of the Securities, the Company has made
available (including electronically via the Commission's ▇▇▇▇▇ system) to
Purchasers its periodic and current reports, forms, schedules, proxy statements
and other documents (including exhibits and all other information incorporated
by reference) filed with the SEC under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") since January 1, 2000. These reports, forms,
schedules, statements, documents, filings and amendments, are collectively
referred to as the "Disclosure Documents." All references in this Agreement to
financial statements and schedules and other information which is "contained,"
"included" or "stated" in the Disclosure Documents (or other references of like
import) shall be deemed to mean and include all such financial statements and
schedules, documents, exhibits and other information which is incorporated by
reference in the Disclosure Documents.
2. Representations and Warranties of the Company. The Company
represents and warrants to and agrees with Purchasers and Mercator Advisory
Group, LLC (collectively, the "Mercator Group") as follows:
(a) The Disclosure Documents as of their respective dates did
not (after giving effect to any updated disclosures therein), and as of the
Closing Date as defined in Section 3 below will not, contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading. The Disclosure Documents and the documents incorporated or
deemed to be incorporated by reference therein, at the time they were filed
(after giving effect to any updated disclosures therein) or hereafter are filed
with the Commission, complied and will comply in all material respects with the
requirements of the Securities Act and/or the Exchange Act, as the case may be,
as applicable.
(b) Each of the Company and its subsidiaries set forth on
Schedule A attached hereto (the "Subsidiaries") has been duly incorporated and
each of the Company and the Subsidiaries is validly existing in good standing as
a corporation under the laws of its jurisdiction of incorporation, with the
requisite corporate power and authority to own its properties and conduct its
business as now conducted as described in the Disclosure Documents and is duly
qualified to do business as a foreign corporation in good standing in all other
jurisdictions where the ownership or leasing of its properties or the conduct of
its business requires such qualification, except where the failure to be so
qualified would not, individually or in the aggregate, have a material adverse
effect on the business, condition (financial or other), properties, prospects or
results of operations of the Company and the Subsidiaries, taken as a whole (any
such event, a "Material Adverse Effect"); as of the Closing Date, the Company
will have the authorized, issued and outstanding capitalization set forth in the
Disclosure Documents (subject to the issuance of shares pursuant to options
outstanding under the Company's stock option plans, employee stock purchase
plans or outstanding warrants, 2,013,432 shares issuable upon conversion of
convertible notes, or other rights to acquire shares described in the
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Disclosure Documents, and subject to the filing of the Certificate of
Designation); except as set forth in the Disclosure Documents, the Company does
not have any subsidiaries or own directly or indirectly any of the capital stock
or other equity or long-term debt securities of or have any equity interest in
any other person; all of the outstanding shares of capital stock of the Company
and the Subsidiaries have been duly authorized and validly issued, are fully
paid and nonassessable and were not issued in violation of any preemptive or
similar rights and are owned free and clear of all liens, encumbrances,
equities, and restrictions on transferability (other than those imposed by the
Securities Act and the state securities or "Blue Sky" laws) or voting; except as
set forth in the Disclosure Documents, all of the outstanding shares of capital
stock of the Subsidiaries are owned, directly or indirectly, by the Company;
except as set forth in the Disclosure Documents, no options, warrants or other
rights to purchase from the Company or any Subsidiary, agreements or other
obligations of the Company or any Subsidiary to issue or other rights to convert
any obligation into, or exchange any securities for, shares of capital stock of
or ownership interests in the Company or any Subsidiary are outstanding; and
except as set forth in the Disclosure Documents, there is no agreement,
understanding or arrangement among the Company or any Subsidiary and each of
their respective stockholders or any other person relating to the ownership or
disposition of any capital stock of the Company or any Subsidiary or the
election of directors of the Company or any Subsidiary or the governance of the
Company's or any Subsidiary's affairs, and, if any, such agreements,
understandings and arrangements will not be breached or violated as a result of
the execution and delivery of, or the consummation of the transactions
contemplated by, the Transaction Documents.
(c) The Company has the requisite corporate power and authority
to execute, deliver and perform its obligations under the Transaction Documents.
Each of the Transaction Documents has been duly and validly authorized by the
Company and, when executed and delivered by the Company, will constitute a valid
and legally binding agreement of the Company, enforceable against the Company in
accordance with its terms except as the enforcement thereof may be limited by
(A) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally or (B) general principles of equity and the
discretion of the court before which any proceeding therefore may be brought
(regardless of whether such enforcement is considered in a proceeding at law or
in equity) (collectively, the "Enforceability Exceptions").
(d) The Shares and the Warrant have been duly authorized and,
when issued upon payment thereof in accordance with this Agreement, will have
been validly issued, fully paid and nonassessable. The Conversion Shares
issuable with respect to the Shares to be sold in the First Tranche have been
duly authorized and validly reserved for issuance, and when issued upon
conversion of the Shares in accordance with the terms of the Certificate of
Designation, will have been validly issued, fully paid and nonassessable. The
Conversion Shares issuable with respect to the Shares to be sold in the Second
Tranche, upon receipt by the Company of shareholder approval to increase the
number of authorized shares of Company Common Stock to an amount sufficient to
issue such Conversion Shares, will have been duly authorized and validly
reserved for issuance, and when issued upon conversion of the Shares in
accordance with the Certificate of Designation, will have been validly issued,
fully paid and nonassessable. The Warrant Shares have been duly authorized and
validly reserved for issuance, and when issued upon exercise of the Warrant in
accordance with the terms thereof, will have
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been validly issued, fully paid and nonassessable. The Common Stock of the
Company conforms to the description thereof contained in the Disclosure
Documents. The stockholders of the Company have no preemptive or similar rights
with respect to the Common Stock.
(e) No consent, approval, authorization, license, qualification,
exemption or order of any court or governmental agency or body or third party is
required for the performance of the Transaction Documents by the Company or for
the consummation by the Company of any of the transactions contemplated thereby,
or the application of the proceeds of the issuance of the Securities as
described in this Agreement, except for such consents, approvals,
authorizations, licenses, qualifications, exemptions or orders (i) as have been
obtained on or prior to the Closing Date, (ii) as are not required to be
obtained on or prior to the Closing Date that will be obtained when required, or
(iii) the failure to obtain which would not, individually or in the aggregate,
have a Material Adverse Effect.
(f) None of the Company or the Subsidiaries is (i) in material
violation of its articles of incorporation or bylaws (or similar organizational
document), (ii) in breach or violation of any statute, judgment, decree, order,
rule or regulation applicable to it or any of its properties or assets, which
breach or violation would, individually or in the aggregate, have a Material
Adverse Effect, or (iii) except as described in the Disclosure Documents, in
default (nor has any event occurred which with notice or passage of time, or
both, would constitute a default) in the performance or observance of any
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, deed of trust, loan agreement, note, lease, license,
franchise agreement, permit, certificate or agreement or instrument to which it
is a party or to which it is subject, which default would, individually or in
the aggregate, have a Material Adverse Effect.
(g) The execution, delivery and performance by the Company of
the Transaction Documents and the consummation by the Company of the
transactions contemplated thereby and the fulfillment of the terms thereof will
not (a) violate, conflict with or constitute or result in a breach of or a
default under (or an event that, with notice or lapse of time, or both, would
constitute a breach of or a default under) any of (i) the terms or provisions of
any contract, indenture, mortgage, deed of trust, loan agreement, note, lease,
license, franchise agreement, permit, certificate or agreement or instrument to
which any of the Company or the Subsidiaries is a party or to which any of their
respective properties or assets are subject, (ii) the articles of incorporation
or bylaws of any of the Company or the Subsidiaries (or similar organizational
document) or (iii) any statute, judgment, decree, order, rule or regulation of
any court or governmental agency or other body applicable to the Company or the
Subsidiaries or any of their respective properties or assets or (b) result in
the imposition of any lien upon or with respect to any of the properties or
assets now owned or hereafter acquired by the Company or any of the
Subsidiaries, which violation, conflict, breach, default or lien would,
individually or in the aggregate, have a Material Adverse Effect.
(h) The audited consolidated financial statements included in
the Disclosure Documents present fairly the consolidated financial position,
results of operations, cash flows and changes in shareholders' equity of the
entities, at the dates and for the periods to which they relate and have been
prepared in accordance with generally accepted accounting
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principles applied on a consistent basis; the interim unaudited consolidated
financial statements included in the Disclosure Documents present fairly the
consolidated financial position, results of operations and cash flows of the
entities, at the dates and for the periods to which they relate subject to
year-end audit adjustments and have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis with the audited
consolidated financial statements included therein; the selected financial and
statistical data included in the Disclosure Documents present fairly the
information shown therein and have been prepared and compiled on a basis
consistent with the audited financial statements included therein, except as
otherwise stated therein; and KPMG LLP, which has examined certain of such
financial statements as set forth in its report included in the Disclosure
Documents, is an independent certified public accountant as required by the
Securities Act for an offering registered thereunder.
(i) Except as described in the Disclosure Documents, there is
not pending or, to the knowledge of the Company, threatened any action, suit,
proceeding, inquiry or investigation, governmental or otherwise, to which any of
the Company or the Subsidiaries is a party, or to which their respective
properties or assets are subject, before or brought by any court, arbitrator or
governmental agency or body, that, if determined adversely to the Company or any
such Subsidiary, would, individually or in the aggregate, have a Material
Adverse Effect or that seeks to restrain, enjoin, prevent the consummation of or
otherwise challenge the issuance or sale of the Securities to be sold hereunder
or the application of the proceeds therefrom or the other transactions described
in the Disclosure Documents.
(j) The Company and the Subsidiaries own or possess adequate
licenses or other rights to use all patents, trademarks, service marks, trade
names, copyrights and know-how that are necessary to conduct their businesses as
described in the Disclosure Documents. None of the Company or the Subsidiaries
has received any written notice of infringement of (or knows of any such
infringement of) asserted rights of others with respect to any patents,
trademarks, service marks, trade names, copyrights or know-how that, if such
assertion of infringement or conflict were sustained, would, individually or in
the aggregate, have a Material Adverse Effect.
(k) Each of the Company and the Subsidiaries possesses all
licenses, permits, certificates, consents, orders, approvals and other
authorizations from, and has made all declarations and filings with, all
federal, state, local and other governmental authorities, all self-regulatory
organizations and all courts and other tribunals presently required or necessary
to own or lease, as the case may be, and to operate its respective properties
and to carry on its respective businesses as now or proposed to be conducted as
set forth in the Disclosure Documents ("Permits"), except where the failure to
obtain such Permits would not, individually or in the aggregate, have a Material
Adverse Effect and none of the Company or the Subsidiaries has received any
notice of any proceeding relating to revocation or modification of any such
Permit, except as described in the Disclosure Documents and except where such
revocation or modification would not, individually or in the aggregate, have a
Material Adverse Effect.
(l) Subsequent to the respective dates as of which information
is given in the Disclosure Documents and except as described therein, (i) the
Company and the Subsidiaries have not incurred any material liabilities or
obligations, direct or contingent, or
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entered into any material transactions not in the ordinary course of business or
(ii) the Company and the Subsidiaries have not purchased any of their respective
outstanding capital stock, or declared, paid or otherwise made any dividend or
distribution of any kind on any of their respective capital stock or otherwise
(other than, with respect to any of such Subsidiaries, the purchase of capital
stock by the Company), (iii) there has not been any material increase in the
long-term indebtedness of the Company or any of the Subsidiaries, (iv) there has
not occurred any event or condition, individually or in the aggregate, that has
a Material Adverse Effect, and (v) the Company and the Subsidiaries have not
sustained any material loss or interference with respect to their respective
businesses or properties from fire, flood, hurricane, earthquake, accident or
other calamity, whether or not covered by insurance, or from any labor dispute
or any legal or governmental proceeding.
(m) There are no material legal or governmental proceedings nor
are there any material contracts or other documents required by the Securities
Act to be described in a prospectus that are not described in the Disclosure
Documents. Except as described in the Disclosure Documents, none of the Company
or the Subsidiaries is in default under any of the contracts described in the
Disclosure Documents, has received a notice or claim of any such default or has
knowledge of any breach of such contracts by the other party or parties thereto,
except for such defaults or breaches as would not, individually or in the
aggregate, have a Material Adverse Effect.
(n) Each of the Company and the Subsidiaries has good and
marketable title to all real property described in the Disclosure Documents as
being owned by it and good and marketable title to the leasehold estate in the
real property described therein as being leased by it, free and clear of all
liens, charges, encumbrances or restrictions, except, in each case, as described
in the Disclosure Documents or such as would not, individually or in the
aggregate, have a Material Adverse Effect. All material leases, contracts and
agreements to which the Company or any of the Subsidiaries is a party or by
which any of them is bound are valid and enforceable against the Company or any
such Subsidiary, are, to the knowledge of the Company, valid and enforceable
against the other party or parties thereto and are in full force and effect.
(o) Each of the Company and the Subsidiaries has filed all
necessary federal, state and foreign income and franchise tax returns, except
where the failure to so file such returns would not, individually or in the
aggregate, have a Material Adverse Effect, and has paid all taxes shown as due
thereon; and other than tax deficiencies which the Company or any Subsidiary is
contesting in good faith and for which adequate reserves have been provided in
accordance with generally accepted accounting principles, there is no tax
deficiency that has been asserted against the Company or any Subsidiary that
would, individually or in the aggregate, have a Material Adverse Effect.
(p) None of the Company or the Subsidiaries is, or immediately
after the Closing Date will be, required to register as an "investment company"
or a company "controlled by" an "investment company" within the meaning of the
Investment Company Act of 1940, as amended (the "Investment Company Act").
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(q) None of the Company or the Subsidiaries or, to the knowledge
of any of such entities' directors, officers, employees, agents or controlling
persons, has taken, directly or indirectly, any action designed, or that might
reasonably be expected, to cause or result in the stabilization or manipulation
of the price of the Common Stock.
(r) None of the Company, the Subsidiaries or any of their
respective Affiliates (as defined in Rule 501(b) of Regulation D under the
Securities Act) directly, or through any agent, engaged in any form of general
solicitation or general advertising (as those terms are used in Regulation D
under the Securities Act) in connection with the offering of the Securities or
in any manner involving a public offering within the meaning of Section 4(2) of
the Securities Act. Assuming the accuracy of the representations and warranties
of the Purchasers in Section 6 hereof, it is not necessary in connection with
the offer, sale and delivery of the Securities to the Purchaser in the manner
contemplated by this Agreement to register any of the Securities under the
Securities Act.
(s) Except as set forth in the Disclosure Documents, there is no
strike, labor dispute, slowdown or work stoppage with the employees of the
Company or any of the Subsidiaries which is pending or, to the knowledge of the
Company or any of the Subsidiaries, threatened.
(t) Each of the Company and the Subsidiaries carries general
liability insurance coverage comparable to other companies of its size and
similar business.
(u) Each of the Company and the Subsidiaries maintains internal
accounting controls which provide reasonable assurance that (A) transactions are
executed in accordance with management's authorization, (B) transactions are
recorded as necessary to permit preparation of its financial statements and to
maintain accountability for its assets, (C) access to its material assets is
permitted only in accordance with management's authorization and (D) the
reported accountability for its material assets is compared with existing assets
at reasonable intervals.
(v) Except for a fee payable to Mercator Group, the Company does
not know of any claims for services, either in the nature of a finder's fee or
financial advisory fee, with respect to the offering of the Shares and the
transactions contemplated by the Transaction Documents.
(w) The Common Stock is listed on the Over-the-Counter Bulletin
Board (the "OTC Bulletin Board"). Except as described in the Disclosure
Documents, the Company currently is not in violation of, and the consummation of
the transactions contemplated by the Transaction Documents will not violate, any
rule of the National Association of Securities Dealers.
(x) The Company is eligible to use Form S-3 for the resale of
the Conversion Shares and the Warrant Shares by Purchaser or its transferees.
The Company has no reason to believe that it is not capable of satisfying the
registration or qualification requirements (or an exemption therefrom) necessary
to permit the resale of the Conversion Shares and the
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Warrant Shares under the securities or "blue sky" laws of any jurisdiction
within the United States that is the residence or domicile of any Purchaser.
3. Purchase, Sale and Delivery of the Shares. On the basis of the
representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell to the Purchasers, and Purchasers agree to purchase from the
Company, 15,000 Shares of Series F Stock at $100 per Share in the amounts shown
on the signature page hereto (the "First Tranche"). In connection with the
purchase and sale of Shares in the First Tranche, Purchasers will receive, for
no additional consideration, a Warrant to purchase up to an aggregate of
6,000,000 shares of Common Stock, subject to adjustment as set forth in the
Warrant.
One or more certificates in definitive form for the Shares that the
Purchasers have agreed to purchase in the First Tranche, as well as the Warrant,
shall be delivered by or on behalf of the Company, against payment by or on
behalf of the Purchasers, of the purchase price therefor by wire transfer of
immediately available funds to the account of the Company previously designated
by it in writing. Such delivery of and payment for the Shares in the First
Tranche and the Warrant shall be made at the offices of Sheppard, Mullin,
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, on
January 14, 2004 (the "First Closing"), or at such date as the Purchasers and
the Company may agree upon, such time and date of delivery against payment being
herein referred to as the "Closing Date." Upon completion of the First Closing,
the Company agrees to pay to Mercator Advisory Group, LLC a Due Diligence fee of
$150,000, payable by wire transfer of immediately available funds to an account
of Mercator Advisory Group, LLC previously designated by them in writing.
Subject to receipt of shareholder approval to increase the number of
authorized shares of Company Common Stock to an amount sufficient to issue the
Conversion Shares upon conversion of the remaining unsold Shares, the Company
agrees to issue and sell to Mercator Momentum Fund and Mercator Momentum Fund
III (the "Mercator Funds") and the Mercator Funds agree, at their sole
discretion, to purchase from the Company, an aggregate of 15,000 additional
Shares of Series F Stock at $100 per Share (the "Subsequent Closing"), in the
amounts shown on the signature page hereto (the "Second Tranche"). The
Subsequent Closing may take place at such time as mutually agreed upon by the
Company and the Mercator Funds, but no later than a date that is 30 days after
receipt of shareholder approval to increase the number of authorized shares of
Company Common Stock as described above.
4. Certain Covenants of the Company. The Company covenants and
agrees with each Purchaser as follows:
(a) None of the Company or any of its Affiliates will sell,
offer for sale or solicit offers to buy or otherwise negotiate in respect of any
"security" (as defined in the Securities Act) which could be integrated with the
sale of the Securities in a manner which would require the registration under
the Securities Act of the Securities.
(b) The Company will not become, at any time prior to the
expiration of three years after the Closing Date, an open-end investment
company, unit investment trust,
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closed-end investment company or face-amount certificate company that is or is
required to be registered under the Investment Company Act.
(c) None of the proceeds of the Series F Stock will be used to
reduce or retire any insider note or convertible debt held by an officer or
director of the Company.
(d) Subject to Section 10 of this Agreement, the Conversion
Shares and the Warrant Shares will be listed on the OTC Bulletin Board, or such
market on which the Company's shares are subsequently listed or traded,
immediately following their issuance.
(e) The Company will use its best efforts to ensure that no
officer or director of the Company sells any shares of Company Common Stock from
the Closing Date until the date that is 90 days following the effective date of
the First Registration Statement, as defined in Section 9 below. The Company
represents that each of its officers and directors is aware of this commitment
and has agreed to use his or her best efforts not to sell any shares of Company
Common Stock during this period.
(f) The Board of Directors of the Company will propose to the
Company's shareholders at the Company's 2004 Annual Meeting of Shareholders an
amendment to the Company's Articles of Incorporation to increase the number of
authorized shares of Company Common Stock to an amount at least sufficient to
issue the Conversion Shares upon conversion of the shares to be sold in the
Second Tranche.
(g) The Company will use its best efforts to do and perform all
things required to be done and performed by it under this Agreement and the
other Transaction Documents and to satisfy all conditions precedent on its part
to the obligations of the Purchasers to purchase and accept delivery of the
Securities.
5. Conditions of the Purchasers' Obligations. The obligation of each
Purchaser to purchase and pay for the Securities is subject to the following
conditions unless waived in writing by the Purchaser:
(a) The representations and warranties of the Company contained
in this Agreement shall be true and correct in all material respects (other than
representations and warranties with a Material Adverse Effect qualifier, which
shall be true and correct as written) on and as of the Closing Date; the Company
shall have complied in all material respects with all agreements and satisfied
all conditions on its part to be performed or satisfied hereunder at or prior to
the Closing Date.
(b) None of the issuance and sale of the Securities pursuant to
this Agreement or any of the transactions contemplated by any of the other
Transaction Documents shall be enjoined (temporarily or permanently) and no
restraining order or other injunctive order shall have been issued in respect
thereof; and there shall not have been any legal action, order, decree or other
administrative proceeding instituted or, to the Company's knowledge, threatened
against the Company or against any Purchaser relating to the issuance of the
Securities or any Purchaser's activities in connection therewith or any other
transactions contemplated by this Agreement, the other Transaction Documents or
the Disclosure Documents.
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(c) The Purchasers shall have received certificates, dated the
Closing Date and signed by the Chief Executive Officer and the Chief Financial
Officer of the Company, to the effect of paragraphs 5(a) and (b).
(d) The Purchasers shall have received an opinion of ▇▇▇▇▇▇ &
Whitney LLP, counsel to the Company, with respect to the authorization of the
Shares, the Warrant and the Warrant Shares and other customary matters in the
form attached hereto as Exhibit C.
(e) The Purchasers shall have a right of first refusal on any
financing in which the Company is the issuer of debt or equity securities
between the Closing Date and the date of effectiveness of the Second
Registration Statement.
(f) The Company shall have submitted to the Purchasers a six
month forward cash flow plan.
6. Representations and Warranties of the Purchasers.
(a) Each Purchaser represents and warrants to the Company that
the Securities to be acquired by it hereunder (including the Conversion Shares
and the Warrant Shares that it may acquire upon conversion or exercise thereof,
as the case may be) are being acquired for its own account for investment and
with no intention of distributing or reselling such Securities (including the
Conversion Shares and the Warrant Shares that it may acquire upon conversion or
exercise thereof, as the case may be) or any part thereof or interest therein in
any transaction which would be in violation of the securities laws of the United
States of America or any State. Nothing in this Agreement, however, shall
prejudice or otherwise limit a Purchaser's right to sell or otherwise dispose of
all or any part of such Conversion Shares or Warrant Shares under an effective
registration statement under the Securities Act and in compliance with
applicable state securities laws or under an exemption from such registration.
By executing this Agreement, each Purchaser further represents that such
Purchaser does not have any contract, undertaking, agreement or arrangement with
any person to sell, transfer or grant participation to any Person with respect
to any of the Securities.
(b) Each Purchaser understands that the Securities (including
the Conversion Shares and the Warrant Shares that it may acquire upon conversion
or exercise thereof, as the case may be) have not been registered under the
Securities Act and may not be offered, resold, pledged or otherwise transferred
except (a) pursuant to an exemption from registration under the Securities Act
(and, if requested by the Company, based upon an opinion of counsel acceptable
to the Company) or pursuant to an effective registration statement under the
Securities Act and (b) in accordance with all applicable securities laws of the
states of the United States and other jurisdictions.
Each Purchaser agrees to the imprinting, so long as appropriate, of
the following legend on the Securities (including the Conversion Shares and the
Warrant Shares that it may acquire upon conversion or exercise thereof, as the
case may be):
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The shares of stock evidenced by this certificate have not been
registered under the U.S. Securities Act of 1933, as amended, and may
not be offered, sold, pledged or otherwise transferred ("transferred")
in the absence of such registration or an applicable exemption
therefrom. In the absence of such registration, such shares may not be
transferred unless, if the Company requests, the Company has received
a written opinion from counsel in form and substance satisfactory to
the Company stating that such transfer is being made in compliance
with all applicable federal and state securities laws.
The legend set forth above may be removed if and when the Conversion
Shares or the Warrant Shares, as the case may be, are disposed of pursuant to an
effective registration statement under the Securities Act or in the opinion of
counsel to the Company experienced in the area of United States Federal
securities laws such legends are no longer required under applicable
requirements of the Securities Act. The Shares, the Conversion Shares and the
Warrant Shares shall also bear any other legends required by applicable Federal
or state securities laws, which legends may be removed when in the opinion of
counsel to the Company experienced in the applicable securities laws, the same
are no longer required under the applicable requirements of such securities
laws. The Company agrees that it will provide each Purchaser, upon request, with
a substitute certificate, not bearing such legend at such time as such legend is
no longer applicable. Each Purchaser agrees that, in connection with any
transfer of the Conversion Shares or the Warrant Shares by it pursuant to an
effective registration statement under the Securities Act, such Purchaser will
comply with all prospectus delivery requirements of the Securities Act. The
Company makes no representation, warranty or agreement as to the availability of
any exemption from registration under the Securities Act with respect to any
resale of the Shares, the Conversion Shares or the Warrant Shares.
(c) Each Purchaser is an "accredited investor" within the
meaning of Rule 501(a) of Regulation D under the Securities Act.
(d) Each Purchaser represents and warrants to the Company that
it has such knowledge, sophistication and experience in business and financial
matters so as to be capable of evaluating the merits and risks of the
prospective investment in the Securities, having been represented by counsel,
and has so evaluated the merits and risks of such investment and is able to bear
the economic risk of such investment and, at the present time, is able to afford
a complete loss of such investment.
(e) Each Purchaser represents and warrants to the Company that
(i) the purchase of the Securities to be purchased by it has been duly and
properly authorized and this Agreement has been duly executed and delivered by
it or on its behalf and constitutes the valid and legally binding obligation of
the Purchaser, enforceable against the Purchaser in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights generally and to general principals of equity; (ii) the
purchase of the Securities to be purchased by it does not conflict with or
violate its charter, by-laws or any law, regulation or court order applicable to
it; and (iii) the purchase of the Securities to be purchased by it does not
impose any penalty or other
-11-
onerous condition on Purchaser under or pursuant to any applicable law or
governmental regulation.
(f) Each Purchaser represents and warrants to the Company that
neither it nor any of its directors, officers, employees, agents, partners,
members, or controlling persons has taken, directly or indirectly, any actions
designed, or might reasonably be expected to cause or result in the
stabilization or manipulation of the price of the Common Stock.
(g) Each Purchaser acknowledges it or its representatives have
reviewed the Disclosure Documents and further acknowledges that it or its
representatives have been afforded (i) the opportunity to ask such questions as
it has deemed necessary of, and to receive answers from, representatives of the
Company concerning the terms and conditions of the offering of the Securities
and the merits and risks of investing in the Securities; (ii) access to
information about the Company and the Company's financial condition, results of
operations, business, properties, management and prospects sufficient to enable
it to evaluate its investment in the Securities; and (iii) the opportunity to
obtain such additional information which the Company possesses or can acquire
without unreasonable effort or expense that is necessary to verify the accuracy
and completeness of the information contained in the Disclosure Documents.
(h) Each Purchaser represents and warrants to the Company that
it has based its investment decision solely upon the information contained in
the Disclosure Documents and such other information as may have been provided to
it or its representatives by the Company in response to their inquiries, and has
not based its investment decision on any research or other report regarding the
Company prepared by any third party ("Third Party Reports"). Each Purchaser
understands and acknowledges that (i) the Company does not endorse any Third
Party Reports and (ii) its actual results may differ materially from those
projected in any Third Party Report.
(i) Each Purchaser understands and acknowledges that (i) any
forward-looking information included in the Disclosure Documents supplied to
Purchaser by the Company or its management is subject to risks and
uncertainties, including those risks and uncertainties set forth in the
Disclosure Documents; and (ii) the Company's actual results may differ
materially from those projected by the Company or its management in such
forward-looking information.
(j) Each Purchaser understands and acknowledges that (i) the
Securities are offered and sold without registration under the Securities Act in
a private placement that is exempt from the registration provisions of the
Securities Act and (ii) the availability of such exemption depends in part on,
and that the Company and its counsel will rely upon, the accuracy and
truthfulness of the foregoing representations and Purchaser hereby consents to
such reliance.
7. Covenants of Purchasers Not to Short Stock. Each Purchaser and
its affiliates and assigns agree not to short the Company Common Stock as
long as shares of the Series F Stock are outstanding.
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8. Termination.
(a) This Agreement may be terminated in the sole discretion of
the Company by notice to each Purchaser if at the Closing Date, with respect to
the First Tranche, or at the Subsequent Closing, with respect to the Second
Tranche:
(i) the representations and warranties made by any
Purchaser in Section 6 are not true and correct in all material respects; or
(ii) as to the Company, the sale of the Securities hereunder
(i) is prohibited or enjoined by any applicable law or governmental regulation
or (ii) subjects the Company to any penalty, or in its reasonable judgment,
other onerous condition under or pursuant to any applicable law or government
regulation that would materially reduce the benefits to the Company of the sale
of the Securities to such Purchaser, so long as such regulation, law or onerous
condition was not in effect in such form at the date of this Agreement.
(b) This Agreement may be terminated in the sole discretion of
Purchaser by notice to the Company given in the event that the Company shall
have failed, refused or been unable to satisfy all conditions on its part to be
performed or satisfied hereunder on or prior to the Closing Date, with respect
to the First Tranche, or on or prior to the Subsequent Closing, with respect to
the Second Tranche, or if after the execution and delivery of this Agreement and
immediately prior to the Closing Date, with respect to the First Tranche, or
immediately prior to the Subsequent Closing, with respect to the Second Tranche,
trading in securities of the Company or in securities generally on the New York
Stock Exchange, the American Stock Exchange, the Nasdaq National or Small Cap
Market or the OTC Bulletin Board shall have been suspended or minimum or maximum
prices shall have been established on any such exchange.
(c) This Agreement may be terminated in the sole discretion of
the Company with respect to the Second Tranche if, (i) prior to the Subsequent
Closing, the Company enters into a definitive agreement or plan for a merger,
consolidation, dissolution, recapitalization, or other business combination
involving the Company, or involving the sale of all or substantially all of the
Company's assets, or (ii) the Subsequent Closing shall not have occurred within
30 days following the Company's 2004 Annual Meeting of Shareholders.
(d) This Agreement may be terminated by mutual written consent
of both parties.
9. Registration.
(a) Within 30 days from the Closing Date, the Company shall
prepare and file with the SEC a Registration Statement covering the resale of
the maximum number of Conversion Shares issuable upon conversion of the Shares
issued in the First Tranche and the Warrant Shares (collectively, the "First
Registrable Securities") for an offering to be made on a continuous basis
pursuant to Rule 415 (the "First Registration Statement"). The First
Registration Statement required hereunder shall be on Form S-3 (except if the
Company is not then eligible to register for resale the First Registrable
Securities on Form S-3, in which case
-13-
such registration shall be on another appropriate form). The Company shall use
diligent efforts to cause such First Registration Statement to become effective
within 70 days after the initial filing with the SEC, but shall not be liable
for any damages should such effectiveness be delayed by the SEC review process.
The Company shall use diligent efforts to keep such First Registration Statement
continuously effective under the Securities Act until the date which is two
years after the date that such First Registration Statement is declared
effective by the SEC or such earlier date when all First Registrable Securities
covered by such First Registration Statement have been sold or may be sold
without volume restrictions pursuant to Rule 144(k) as determined by the counsel
to the Company pursuant to a written opinion to such effect addressed and
acceptable to the Company's transfer agent.
(b) Within 30 days from the Subsequent Closing, the Company
shall prepare and file with the SEC a Registration Statement covering the resale
of the maximum number of Conversion Shares issuable upon conversion of the
Shares issued in the Second Tranche (collectively, the "Second Registrable
Securities") for an offering to be made on a continuous basis pursuant to Rule
415 (the "Second Registration Statement"). The Second Registration Statement
required hereunder shall be on Form S-3 (except if the Company is not then
eligible to register for resale the Second Registrable Securities on Form S-3,
in which case such registration shall be on another appropriate form). The
Company shall use diligent efforts to cause such Second Registration Statement
to become effective within 70 days after the initial filing with the SEC, but
shall not be liable for any damages should such effectiveness be delayed by the
SEC review process. The Company shall use diligent efforts to keep such Second
Registration Statement continuously effective under the Securities Act until the
date which is two years after the date that such Second Registration Statement
is declared effective by the SEC or such earlier date when all Second
Registrable Securities covered by such Second Registration Statement have been
sold or may be sold without volume restrictions pursuant to Rule 144(k) as
determined by the counsel to the Company pursuant to a written opinion to such
effect addressed and acceptable to the Company's transfer agent.
10. Event of Default. If an Event of Default (as defined below)
occurs and remains uncured for a period of 10 days, the Purchasers shall have
the right to (i) exercise any or all of the rights given to the Purchasers
relating to the Securities, as further described in the Certificate of
Designation or (ii) immediately convert any or all of the Series F Stock into
shares of Common Stock. In addition, the price at which the shares of Series F
Stock may be converted into Common Stock shall be reduced from 75% of the Market
Price (as defined in the Certificate of Designation) to 65% of the Market Price.
An "Event of Default" shall include the commencement by the Company of a
voluntary case or proceeding under the bankruptcy laws or the Company's failure
to: (i) discharge or stay a bankruptcy proceeding within 60 days of such action
being taken against the Company, (ii) file the First Registration Statement with
the SEC within 30 days after the Closing Date, other than due to a delay not
caused by the Company, or (iii) the de-listing of the Company's Common Stock
from the OTC Bulletin Board.
11. Notices. All communications hereunder shall be in writing and
shall be hand delivered, mailed by first-class mail, couriered by next-day air
courier or by facsimile and confirmed in writing (i) if to the Company, at the
addresses set forth below, or (ii) if to Purchaser, to the address(es) set forth
on the signature page hereto.
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If to the Company:
Diametrics Medical, Inc.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇. ▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Financial Officer
Facsimile: 651/639-8549
with a copy to:
▇▇▇▇▇▇ & Whitney LLP
▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Facsimile: 612/340-7800
All such notices and communications shall be deemed to have been duly
given: (i) when delivered by hand, if personally delivered; (ii) five business
days after being deposited in the mail, postage prepaid, if mailed certified
mail, return receipt requested; (iii) one business day after being timely
delivered to a next-day air courier guaranteeing overnight delivery; (iv) the
date of transmission if sent via facsimile to the facsimile number as set forth
in this Section or the signature page hereof prior to 6:00 p.m. on a business
day, or (v) the business day following the date of transmission if sent via
facsimile at a facsimile number set forth in this Section or on the signature
page hereof after 6:00 p.m. or on a date that is not a business day. Change of a
party's address or facsimile number may be designated hereunder by giving notice
to all of the other parties hereto in accordance with this Section.
12. Survival Clause. The respective representations, warranties,
agreements and covenants of the Company and the Purchaser set forth in this
Agreement shall survive until the first anniversary of the Closing.
13. Fees and Expenses. The Company agrees to pay Purchasers'
documented out-of-pocket expenses incurred in connection with the preparation
and negotiation of the Transaction Documents up to $25,000. If any action at law
or in equity is necessary to enforce or interpret the terms of this Agreement,
the Warrant or the Certificate of Designation, the prevailing party or parties
shall be entitled to receive from the other party or parties reasonable
attorneys' fees, costs and necessary disbursements in addition to any other
relief to which the prevailing party or parties may be entitled.
14. Successors. This Agreement shall inure to the benefit of and be
binding upon Purchasers and the Company and their respective successors and
legal representatives, and nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any other person any legal or equitable
right, remedy or claim under or in respect of this Agreement, or any provisions
herein contained; this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person. Neither the Company nor any Purchaser may
assign this Agreement or any rights or obligation hereunder without the prior
written consent of the other party.
-15-
15. No Waiver; Modifications in Writing. No failure or delay on the
part of the Company or any Purchaser in exercising any right, power or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. The
remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to the Company or Purchaser at law or in equity
or otherwise. No waiver of or consent to any departure by the Company or
Purchaser from any provision of this Agreement shall be effective unless signed
in writing by the party entitled to the benefit thereof, provided that notice of
any such waiver shall be given to each party hereto as set forth below. Except
as otherwise provided herein, no amendment, modification or termination of any
provision of this Agreement shall be effective unless signed in writing by or on
behalf of each of the Company and the Purchaser. Any amendment, supplement or
modification of or to any provision of this Agreement, any waiver of any
provision of this Agreement, and any consent to any departure by the Company or
Purchaser from the terms of any provision of this Agreement shall be effective
only in the specific instance and for the specific purpose for which made or
given. Except where notice is specifically required by this Agreement, no notice
to or demand on the Company in any case shall entitle the Company to any other
or further notice or demand in similar or other circumstances.
16. Entire Agreement. This Agreement, together with Transaction
Documents, constitutes the entire agreement among the parties hereto and
supersedes all prior agreements, understandings and arrangements, oral or
written, among the parties hereto with respect to the subject matter hereof and
thereof.
17. Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby.
18. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MINNESOTA, WITHOUT
GIVING EFFECT TO PROVISIONS RELATING TO CONFLICTS OF LAW TO THE EXTENT THE
APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
19. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
-16-
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this Agreement shall constitute a binding agreement among the Company
and the Purchaser.
Very truly yours,
Diametrics Medical, Inc.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President and CEO
-17-
ACCEPTED AND AGREED:
Long View Fund, LP
By: /s/ S. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------
Name: S. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: Managing Member
Viking Asset Management, LLC, as General Partner
Number of Shares Purchased at First Closing: 5,000
Purchase Price: $500,000
Mercator Momentum Fund, LP Mercator Momentum Fund III, LP
By: Mercator Advisory Group LLC By: Mercator Advisory Group LLC
Its: General Partner Its: General Partner
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-------------------------------- --------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Managing Member Managing Member
Number of Shares Purchased at First Number of Shares Purchased at First
Closing: 3,500 Closing: 6,500
Purchase Price: $350,000 Purchase Price: $650,000
Number of Shares Purchased at Number of Shares Purchased at
Subsequent Closing: 5,250 Subsequent Closing: 9,750
Purchase Price: $525,000 Purchase Price: $975,000
Mercator Advisory Group LLC
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
--------------------------------
By: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Its: Managing Member
-18-
Addresses for Notice:
Long View Fund, LP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: _________________
Facsimile: (▇▇▇)-▇▇▇-▇▇▇▇
Mercator Advisory Group, LLC
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with copy to:
▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Sheppard, Mullin, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇/▇▇/ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
-19-
Schedule A
----------
Subsidiaries
Diametrics Medical, Ltd.
Schedule A
Exhibit A
---------
Warrant
(Filed Separately)
Exhibit A
Exhibit B
---------
Certificate of Designation of
Series F Convertible Preferred Stock
of
Diametrics Medical, Inc.
(Filed Separately)
Exhibit B
Exhibit C
---------
Form of Legal Opinion
1. The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Minnesota, with corporate
power to conduct any lawful business activity.
2. The Company has the corporate power to execute, deliver and
perform the Transaction Documents. The Transaction Documents have been duly
authorized by all requisite corporate action by the Company and constitute the
valid and binding obligations of the Company, enforceable in accordance with
their terms.
3. The authorized capital stock of the Company consists of 5,000,000
shares of Preferred Stock, $0.01 par value and 60,000,000 shares of Common
Stock, $0.01 par value. The shares of the Company's Series F Stock have been
duly authorized and, upon issuance, delivery, and payment therefor as described
in the Subscription Agreement, will be validly issued, fully paid and
nonassessable. The shares of the Company's Common Stock initially issuable upon
conversion of the shares of Series F Stock sold in the First Tranche have been
duly authorized and reserved for issuance and, upon issuance and delivery as
described in the Certificate of Designation, will be validly issued, fully paid
and nonassessable. The shares of the Company's Common Stock issuable upon
exercise of the Warrant have been duly authorized and reserved for issuance, and
upon issuance, delivery, and payment therefor, will be validly issued, fully
paid and nonassessable.
4. The Company's execution and delivery of the Transaction Documents
and the issue and sale of the Shares, on the terms and conditions set forth in
the Subscription Agreement, will not violate any law of the United States or the
State of Minnesota, any rule or regulation of any governmental authority or
regulatory body of the United States or the State of Minnesota or any provision
of the Company's Amended and Restated Articles of Incorporation or Bylaws.
5. No consent, approval, order or authorization of, and no notice to
or filing with, any governmental agency or body or any court is required to be
obtained or made by the Company for the issuance and sale of the Shares sold in
the First Tranche and Warrant pursuant to the Transaction Documents, except such
as have been obtained or made and such as may be required under applicable
securities laws.
6. On the assumption that the representations of the Purchasers in
the Subscription Agreement are correct, the offer and sale of the Shares and the
Warrant pursuant to the terms of the Subscription Agreement are exempt from the
registration requirements of Section 5 of the Securities Act of 1933, as
amended, and from the qualification requirements of Minnesota securities
statutes and regulations, and, under such securities laws as they presently
exist, the issuance of the Company's Common Stock upon conversion of the Shares
and exercise of the Warrant would also be exempt from such registration and
qualification requirements.
Exhibit C-1
7. We know of no pending or overtly threatened action, proceeding or
governmental investigation with respect to the Company's sale of Series F Stock
and Warrant pursuant to the Transaction Documents.
Exhibit C-2