Exhibit 10.7
EXECUTION
COPY
Diametrics Medical,
Inc.
Shares of Series J Convertible
Preferred Stock
SUBSCRIPTION
AGREEMENT
September 20, 2006
M.A.G. Capital, LLC
Monarch Pointe Fund, Ltd.
Mercator Momentum Fund, L.P.
Mercator Momentum Fund III, L.P.
555 South Flower Street, Suite 4200
Los Angeles, California 90071
Ladies and Gentlemen:
Diametrics Medical, Inc., a
Minnesota corporation (the “ Company ”),
hereby confirms its agreement with Monarch Pointe Fund, Ltd.
(“ Monarch ”), Mercator Momentum Fund,
L.P. (“ MMF ”), Mercator Momentum Fund
III, L.P. (“ MMF III ”), each of the
undersigned additional accredited investors (each an
“Accredited Investor; collectively, the “ Accredited
Investors”) and M.A.G. Capital, LLC (“
MAG, ” and together with MMF III, Monarch, MMF
and the Accredited Investors, the “ Purchasers
”), as set forth below (the “ Agreement
”). For the avoidance of doubt, the term
“Company” does not include Vanguard SynFuels, LLC
(“VSF”).
1. The Securities . Subject
to the terms and conditions contained herein, the Company agrees to
issue and sell to the Purchasers an aggregate of Two Thousand Eight
Hundred Fifty (2,850) shares of its Series J Convertible
Preferred Stock (the “ Preferred Stock
”), which shall be convertible into shares (the “
Conversion Shares ”) of the Company’s
Common Stock, par value $1.00 per share (the “ Common
Stock ”), in accordance with the formula set forth in
the Certificate of Designations of the Series J Convertible
Preferred Stock further described below, the issuance of which
Conversion Shares is subject to the approval of the shareholders of
the Company of either (i) an amendment to the Company’s
Amended and Restated Articles of Incorporation or (ii) the
merger of the Company into a wholly owned subsidiary of the Company
incorporated in the State of Delaware, in either case resulting in
a sufficient number of authorized shares for the Company to reserve
a sufficient number of authorized but unissued shares of Common
Stock to issue the Conversion Shares (either such shareholder
approval being referred to herein as the “ Shareholder
Approval ,” and such date as the Company obtains the
Shareholder Approval being referred to herein as the “
Shareholder Approval Date ”). The number of
shares of Preferred Stock to be purchased by each of the Purchasers
is set forth in Schedule A. The rights, preferences and privileges
of the Preferred Stock are as set forth in the Certificate of
Designations of Series J Convertible Preferred Stock, as filed with
the Secretary of State of the State of Minnesota (the “
Certificate of Designations ”) in the form
attached hereto as Exhibit A . The number of Conversion
Shares that each Purchaser may elect to acquire at any time is
subject to limitation in the Certificate of Designations, such that
for any holder who so
elects, the aggregate number of shares of Common
Stock of which such Purchaser, together with 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.
This Agreement, the Certificate of
Designations, certain warrants to acquire up to 6,500,000 shares of
Common Stock (subject to adjustment) to be issued to MAG in
connection with MAG’s assignment to the Company of certain
rights to acquire VSF (respectively, the “ Assignment
Warrants ” and “ Assignment Warrant
Shares ”), those certain Voting Agreements, each
dated September 20, 2006, by and between the Company and the
shareholders or subscribers for the Preferred Stock parties
thereto, a certificate of designations for Series K Convertible
Preferred Stock of the Company (the “Series K Preferred
Stock”), and the Registration Rights Agreement by and among
the Company, the Purchasers and MAG entered into concurrently
herewith and attached hereto as Exhibit B , are sometimes
herein collectively referred to as the “ Transaction
Documents .”
The Preferred Stock will be offered
and sold to the Purchasers 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
Preferred Stock, the Company has made available (including
electronically via the SEC’s EDGAR system) to the 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 ”). The Company’s Annual
Report on Form 10-KSB for the year ended December 31, 2005,
its Quarterly Report on Form 10-QSB for the quarter ended
June 30, 2006 and all subsequent reports, forms, schedules,
statements, documents, filings and amendments filed by the Company
with the SEC under the Exchange Act, 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 . Except as set forth on the Disclosure Schedule
(the “ Disclosure Schedule ”) delivered
by the Company to Purchasers on the date hereof, the Company
represents and warrants to and agrees with Purchasers as of the
date of this Agreement and as of the Closing Date (as defined in
Section 4 below), as if such representations and warranties
were remade on the Closing Date, as follows:
(a) The Disclosure Documents as of
their respective dates did not, and will not (after giving effect
to any updated disclosures therein) as of the Closing Date, 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;
provided, however , that no representation or warranty is
made with respect to information contained in the Disclosure
Documents about VSF. The Disclosure Documents and
the documents incorporated or deemed to be
incorporated by reference therein, at the time they were filed or
hereafter are filed with the SEC, complied and will comply, at the
time of filing, in all material respects with the requirements of
the Securities Act and/or the Exchange Act, as the case may be, as
applicable.
(b) Except as set forth on the
Disclosure Schedule, there are no subsidiaries of the Company. The
Company has been duly incorporated and the Company 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 or lease, as applicable, and operate 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 each other jurisdiction
where the ownership or leasing of its properties or the conduct of
its business requires such qualification. As of the date hereof,
the Company has the authorized, issued and outstanding
capitalization set forth in on Schedule B attached hereto
(the “ Company Capitalization ”). The
Board of Directors of the Company (the “Board”) has
authorized, subject to Shareholder Approval, an aggregate of
6,592,755 shares of Common Stock for issuance to employees,
directors and consultants pursuant to the Company’s 2006
Incentive Compensation Plan. Except as set forth in the Disclosure
Documents or on the Disclosure Schedule , 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 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 or on the Disclosure Schedule, no options, warrants or
other rights to purchase from the Company, agreements or other
obligations of the Company 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 are outstanding; and
except as set forth in the Disclosure Documents or on the
Disclosure Schedule, there is no agreement, understanding or
arrangement among the Company and each of its stockholders or any
other person relating to the ownership or disposition of any
capital stock of the Company or the election of directors of the
Company or the governance of the Company’s affairs, and such
agreements, understandings and arrangements, if any, 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) Except as set forth on the
Disclosure Schedule, the Company has the requisite corporate power
and authority to execute, deliver and perform its obligations under
the this Agreement and the Transaction Documents to which it is a
party and to consummate the transactions contemplated hereby and
thereby. Each of the Transaction Documents has been duly and
validly authorized by all necessary corporate and shareholder
action on the part of 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 (i) bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or other similar laws now or
hereafter in effect relating to or affecting creditors’
rights generally or (ii) 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 Preferred Stock has been
duly authorized and, when issued upon payment thereof in accordance
with this Agreement, will have been validly issued, fully paid and
non-assessable. Subject to approval by the shareholders of the
Company, the Conversion Shares issuable with respect to the
Preferred Stock will have been duly authorized and validly reserved
for issuance, and when issued upon conversion of the Preferred
Stock in accordance with the terms of the Certificate of
Designations, will have been validly issued, fully paid and
non-assessable. The Common Stock of the Company conforms to the
description thereof contained in the Disclosure Documents. Except
as set forth in the Disclosure Schedule, the stockholders of the
Company have no preemptive or similar rights with respect to the
Common Stock.
(e) Except for the consents set
forth on the Disclosure Schedule, no consent, approval,
authorization, license, qualification, exemption or order of any
court or governmental agency or body or third party is required for
the execution, delivery, or performance of any obligations under
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 Preferred Stock
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, or (ii) as are not required to be obtained on or prior
to the Closing Date that will be obtained when required.
(f) Except as set forth on the
Disclosure Schedule, the Company is not (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, 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.
(g) Except as set forth in the
Disclosure Schedule, 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 (i) 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
(A) 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 is a party or to which any of their
respective properties or assets are subject, (B) the articles
of incorporation or bylaws of the Company or of any the
Subsidiaries (or similar organizational document) or (C) any
statute, judgment, decree, order, rule or regulation of any court
or governmental agency or other body applicable to the Company or
any of their respective properties or assets or (ii) 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.
(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 each of the auditors previously engaged by the Company
or to be engaged in the future by the Company is or will be 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 the Company 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,
would, individually or in the aggregate, have a material adverse
effect on the business, condition (financial or other), properties
or results of operations of the Company (any such event, a “
Material Adverse Effect ”) or that seeks to
restrain, enjoin, prevent the consummation of or otherwise
challenge the issuance or sale of the Preferred Stock to be sold
hereunder or the application of the proceeds therefrom or the other
transactions contemplated by the Transaction Documents or described
in the Disclosure Documents.
(j) The Company has not 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) The Company 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 properties and to carry on its
business as now conducted (“ Permits ”),
except where the failure to obtain such Permits would not,
individually or in the aggregate, have a Material Adverse Effect
and the Company has not received any notice of any proceeding
relating to revocation or modification of any such Permit, except
as described in the Disclosure Documents.
(l) Subsequent to June 30, 2006
and except for the Transaction Documents and the Contribution
Agreement, dated as of the date hereof, between the Company and the
members of VSF (the “Contribution
Agreement” ), or as described in the Company’s
Quarterly Report on Form 10-QSB for the quarter ended June 30,
2006 or in the Company’s Annual Report on Form 10-KSB for the
year ended December 31, 2005: (i) the Company has not
incurred any material liabilities or obligations, direct or
contingent, or entered into any material transactions not in the
ordinary course of business; (ii) the Company has not
purchased any of its outstanding capital stock, or declared, paid
or otherwise made any dividend or distribution of any kind on any
of its capital stock or otherwise; (iii) there has not been
any material increase in the long-term indebtedness of the Company;
(iv) there has not occurred any event or condition,
individually or in the aggregate, that has a Material Adverse
Effect, and (v) the Company has not sustained any material
loss or interference with respect to its 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 and
the Disclosure Schedule. Except as described in the Disclosure
Documents and the Disclosure Schedule, the Company is not in
default under any of the contracts described in the Disclosure
Documents, and the Company has not received a notice or claim of
any such default nor does it have knowledge of any breach of such
contracts by the other party or parties thereto.
(n) The Company has no owned real
property. The Company has good and marketable title to the
leasehold estate in the real property described in the Disclosure
Documents 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. Except as set forth in the
Disclosure Schedule, all material leases, contracts and agreements
to which the Company is a party or by which it is bound are valid
and enforceable against the Company and are, to the knowledge of
the Company, valid and enforceable against the other party or
parties thereto and in full force and effect, in each case subject
to the Enforceability Exceptions.
(o) The Company has filed all
necessary federal, state and foreign income and franchise tax
returns, and has paid all taxes shown as due thereon; and other
than tax deficiencies which the Company 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.
(p) The Company is not, and
immediately after the Closing Date will not 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) The Company has not, to the
knowledge of any of the Company’s directors, officers,
employees, agents or controlling persons, 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) Neither the Company nor any of
its Affiliates (as defined in Rule 501(b) of Regulation D
under the Securities Act, but excluding MAG and any Purchaser) has
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 Preferred Stock or engaged in any other conduct
that would cause such offering to be constitute 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 3 hereof, it is not necessary in
connection with the offer, sale and delivery of the Preferred Stock
to the Purchasers in the manner contemplated by this Agreement to
register any of the Preferred Stock under the Securities
Act.
(s) 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) The Company carries general
liability insurance coverage as set forth in the policy previously
made available for review by MAG.
(u) The Company maintains internal
accounting controls which provide reasonable assurance that
(i) transactions are executed in accordance with
management’s authorization, (ii) transactions are
recorded as necessary to permit preparation of its financial
statements and to maintain accountability for its assets,
(iii) access to its material assets is permitted only in
accordance with management’s authorization and (iv) the
values and amounts reported for its material assets are compared
with its existing assets at reasonable intervals.
(v) Except for certain fees owed to
MAG set forth on the Disclosure Schedule, the Company does not know
of any claims for services, either in the nature of a
finder’s fee, broker’s fee, financial advisory fee or
other like fee, that it has incurred with respect to the offering
of the Preferred Stock and the transactions contemplated by the
Transaction Documents.
(w) The Common Stock is eligible for
trading on the Over-the-Counter Bulletin Board (the “
OTC Bulletin Board ”). Except as described in
the Disclosure Documents, the Company currently is not, to its
knowledge, in violation of any rule of the National Association of
Securities Dealers. The consumma
