Exhibit 10.7
Diametrics Medical, Inc.
Shares of Series E Convertible Preferred Stock and Common Stock Warrant
SUBSCRIPTION AGREEMENT
May 12, 2003
Mercator Momentum Fund, LP
Mercator Momentum Fund III, LP
Mercator Focus Fund, 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 Purchasers (a) 15,000
shares (the "Shares") of its Series E Convertible Preferred Stock, par value
$0.01 per share (the "Series E 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 735,000 shares of Common Stock (the
"Warrant Shares"). The rights, preferences and privileges of the Series E Stock
are as set forth in the Certificate of Designation of Series E 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 number of
Conversion Shares and the number of Warrant Shares are both subject to
adjustment as set forth in the Certificate of Designation and in the Warrant, so
that the aggregate number of shares of Common Stock issuable upon such
conversion and exercise shall in no event equal more than 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."
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 "Commission") 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 Securities and Exchange Commission 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 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 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 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
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 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 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 entered into any material transactions not
in the ordinary course of business (other than an amendment to the distribution
agreement between the Company and Philips Medical Systems, as further described
in a press release by the Company on April 11, 2003), (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 (other than an amendment to the distribution agreement between the
Company and Philips Medical Systems, as further described in a press release by
the Company on April 11, 2003). 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").
(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 and The ▇▇▇▇▇▇▇
Companies, 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 Nasdaq SmallCap Market.
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 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, the 15,000
Shares of Series E Stock at $100.00 per Share. In connection with the purchase
and sale of Shares hereunder, Purchasers will receive, for no additional
consideration, a Warrant to purchase up to 735,000 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 hereunder, 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 Series E Stock and the Warrant
shall be made at the offices of Sheppard, Mullin, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLP, ▇▇▇
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, on May 12, 2003, 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."
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, 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 E Stock will be used to
reduce or retire any insider note or convertible debt held by an officer or
director of the Company.
(d) The Company will promptly file a Listing of Additional Shares
Notification Form with the Nasdaq Stock Market with respect to the Conversion
Shares and the Warrant Shares. The Conversion Shares and the Warrant Shares will
be listed on the Nasdaq SmallCap Market, 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 do and perform all
things required to be done and performed by it under this Agreement and the
other Transaction Documents prior to or after the Closing Date 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.
(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.
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):
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 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 E Stock are outstanding.
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:
(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 or if after the
execution and delivery of this Agreement and prior to the Closing Date trading
in securities of the Company or in securities generally on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National or Small Cap Market
shall have been suspended or minimum or maximum prices shall have been
established on any such exchange.
(c) This Agreement may be terminated by mutual written consent of
both parties.
9. Registration. Within 15 days from the Closing Date, the Company
shall prepare and file with the Securities and Exchange Commission (the "SEC") a
Registration Statement covering the resale of the Conversion Shares and the
Warrant Shares (collectively, the "Registrable Securities") for an offering to
be made on a continuous basis pursuant to Rule 415 (the "Registration
Statement"). The Registration Statement required hereunder shall be on Form S-3
(except if the Company is not then eligible to register for resale the
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
Registration Statement to become effective within 50 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 Registration Statement continuously effective
under the Securities Act until the date which is two years after the date that
such Registration Statement is declared effective by the SEC or such earlier
date when all Registrable Securities covered by such 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. Lien on Assets upon Event of Default. If an Event of Default (as
defined below) occurs and remains uncured for a period of 10 days, the
Purchasers shall receive a first lien on the Company's assets associated solely
with its intermittent blood testing business (as further described in Exhibit D,
hereto) located in Roseville, Minnesota (hereinafter referred to as
"Intermittent Testing Business"). An "Event of Default" shall include the
commencement by the Company of a voluntary case or proceeding under the
bankruptcy laws prior to the sale of the Company's Intermittent Testing
Business, or the Company's failure to: (i) discharge or stay a bankruptcy
proceeding within 60 days of such action being taken against the Company prior
to the sale of the Company's Intermittent Testing Business; (ii) file the
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) sell the Company's
Intermittent Testing Business within 120 days of the Closing Date.
11. Put Option. In the event the Company sells the Intermittent
Testing Business any time after the Closing Date, each Purchaser shall have a
"put option," for the 30 day period immediately following such
sale, pursuant to which the Purchaser may sell up to 50% of their Shares back to
the Company at a purchase price of $100.00 per Share, plus 1% interest for each
month such Share was outstanding.
12. 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.
If to the Company:
Diametrics Medical, Inc.
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Attention: Chief Financial Officer
Facsimile: 651/638-1197
with a copy to:
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP
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▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
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.
13. 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.
14. Fees and Expenses. The Company agrees to pay Purchasers'
out-of-pocket expenses incurred in connection with the preparation and
negotiation of the Transaction Documents up to $25,000.
15. 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.
16. 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.
17. 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.
18. 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.
19. 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.
20. 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.
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/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chief Executive Officer
ACCEPTED AND AGREED:
Mercator Momentum Fund, LP Mercator Momentum Fund III, LP
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Title: Managing Partner Title: Managing Partner
Mercator Focus Fund, LP
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Title: Managing Partner
Address for Notice:
Mercator Group, LLC
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Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇