EXHIBIT 10.3
MEDICAL DISCOVERIES, INC.
SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK AND COMMON STOCK WARRANTS
SUBSCRIPTION AGREEMENT
December 3, 2004
Mercator Advisory Group LLC
Mercator Momentum Fund, LP
Mercator Momentum Fund III, LP
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Ladies and Gentlemen:
Medical Discoveries, Inc. a Utah corporation (the "COMPANY"), hereby confirms
its agreement with Mercator Momentum Fund, LP, a California limited partnership
and Mercator Momentum Fund III, LP, a California limited partnership
(collectively, the "PURCHASER") and Mercator Advisory Group, LLC, a California
limited liability company ("MAG"), as set forth below.
1. The Securities. Subject to the terms and conditions herein
contained, the Company proposes to issue and sell to the Purchaser an aggregate
of: (a) Thirty Thousand (30,000) shares of its Series A Convertible Preferred
Stock (the "SERIES A 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 Designations further
described below and (b) 22,877,478 warrants, substantially in the form attached
hereto at Exhibit A (the "WARRANTS"), to acquire an equal number of shares of
Common Stock (the "WARRANT SHARES"). The rights, preferences and privileges of
the Series A Stock are as set forth in the Certificate of Designations of
Preferences and Rights of Series A Convertible Preferred Stock as filed with the
Secretary of State of the State of Utah (the "CERTIFICATE OF DESIGNATIONS") in
the form attached hereto as Exhibit B. The number of Conversion Shares and
Warrant Shares that Purchaser may acquire at any time are subject to limitation
in the Certificate of Designations and in the Warrants, respectively, so that
the aggregate number of shares of Common Stock of which Purchaser and all
persons affiliated with 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 Series A Stock and the Warrants are sometimes herein
collectively referred to as the "SECURITIES." This Agreement, the Certificate of
Designations, Registration Rights Agreement and the Warrant Agreements 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
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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 SEC's ▇▇▇▇▇ system) to Purchaser 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"). 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. Except as set forth
on the Disclosure Schedule (the "DISCLOSURE SCHEDULE") delivered by the Company
to Purchaser on the Closing Date (as defined in Section 3 below), the Company
represents and warrants to and agrees with Purchaser and MAG 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. 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) Schedule A attached hereto sets forth a complete list of the
subsidiaries of the Company (the "SUBSIDIARIES"). Each of the Company and its
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 on
Schedule B attached hereto (the "COMPANY CAPITALIZATION"); except as set forth
in the Disclosure Documents or on Schedule A, 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,
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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
or on Schedule C, 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 Series A Stock and the Warrants have been duly
authorized and, when issued upon payment thereof in accordance with this
Agreement, will have been validly issued, fully paid and non-assessable. The
Conversion Shares issuable have been duly authorized and validly reserved for
issuance, and when issued upon conversion of the Series A Stock in accordance
with the terms of the Certificate of Designations, will have been validly
issued, fully paid and non-assessable. The Warrant Shares have been duly
authorized and validly reserved for issuance, and when issued upon exercise of
the Warrants in accordance with the terms thereof, 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. 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,
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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) Except as set forth on Schedule D, 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 Certificate 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 un-audited 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
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engaged in the future by the Company 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 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,
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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").
(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
engaged in any other conduct that would cause such offering to be constitute a
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public offering within the meaning of Section 4(2) of the Securities Act.
Assuming the accuracy of the representations and warranties of the Purchaser 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) 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, and (C) access to its
material assets is permitted only in accordance with management's authorization
and (D) the values and amounts reported for its material assets are compared
with its existing assets at reasonable intervals.
(v) Except for a due diligence fee payable to MAG and a
brokerage commission payable to Ascendiant Securities, LLC, 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 Securities and the
transactions contemplated by the Transaction Documents.
(w) The Common Stock is traded on the Over-the-Counter
Bulletin Board (the "OTC BB"). 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 SB-2 for the resale of the
Conversion Shares and the Warrant Shares by Purchaser or their transferees and
the Warrant Shares by Purchaser, MAG or their 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.
(y) Set forth on Schedule E is the Company's intended use of
the proceeds from this transaction.
(z) Except as set forth on Schedule F, none of the officers or
directors of the Company (i) has been convicted of any crime (other than traffic
violations or misdemeanors not involving fraud) or is currently under
investigation or indictment for any such crime, (ii) has been found by a court
or governmental agency to have violated any securities or commodities law or to
have committed fraud or is currently a party to any legal proceeding in which
either is alleged, (iii) has been the subject of a proceeding under
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the bankruptcy laws or any similar state laws, or (iv) has been an officer,
director, general partner, or managing member of an entity which has been the
subject of such a proceeding.
3. Purchase, Sale and Delivery of the Securities. 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 Purchaser, and Purchaser agree to purchase from the
Company, 30,000 shares of Series A Stock at $100.00 per share in the amounts
shown on the signature page hereto. In connection with the purchase and sale of
Series A Stock, for no additional consideration, the Purchaser and MAG will
receive Warrants to purchase up to an aggregate number of shares of Common Stock
as set forth in the Registration Rights Agreement attached hereto as Exhibit D,
subject to adjustment as set forth in paragraph 1 above.
The execution of definitive documents relating to the transactions
described herein (the "EXECUTION") shall take place at a time and on a date (the
"EXECUTION DATE") to be specified by the parties, which will be no later than
5:00 p.m. (Pacific time) on December 7, 2004. On the Execution Date, the Company
shall deliver (a) certificates in definitive form for the Series A Stock in the
names and amounts set forth on the signature page hereto, (b) Warrants, in the
names and amounts set forth on the signature page hereto, (c) the Subscription
Agreement, Certificate of Designation and Registration Rights Agreement, each
duly executed on behalf of the Company, and (d) the Opinion of Counsel in the
form attached hereto as Exhibit C. On the Execution Date, Purchaser shall
deliver (i) the Subscription Agreement and Registration Rights Agreement, each
duly executed on behalf of the Purchaser and MAG. The closing ("CLOSING") will
occur when the following contingencies (the "CONTINGENCIES") have been
satisfied: (a) all documents and instruments necessary or appropriate to effect
the transactions contemplated herein are exchanged by the parties, (b) no
default has occurred or exists under the terms of this Subscription Agreement,
(c) the officer certificates required pursuant to Section 5(c) of this
Subscription Agreement have been delivered to Purchaser and MAG, and (d) Company
has delivered to MAG and Purchaser copies of executed definitive documents
relating to the Acquisition by the Company of substantially all of the assets of
SaveTherapeutics AG (as further described in Schedule E Use of Proceeds) and
certified that such Acquisition has closed. All actions taken at the Closing
will be deemed to be taken simultaneously and the date on which such actions
take place shall be the "CLOSING DATE".
Upon satisfaction of the all of the Contingencies, Purchaser shall
deliver to the escrow holder via wire transfer the Purchase Price or $3,000,000.
Upon receipt of the funds, the escrow holder shall release (a) to the Company,
the sum of $2,750,000 (b) to MAG, the Due Diligence Fee of $90,000, and the
legal fees in the amount of $10,000, and (c) to Ascendiant Securities, LLC, the
sum of $150,000. In the event that all of the Contingencies are not satisfied on
or before January 31, 2004, then (x) the escrow holder shall return all funds to
Purchaser, (y) MAG shall return the Series A Stock certificates and the Warrants
to the Company, and (z) this Agreement and cancel and be of no further force or
effect.
4. Certain Covenants of the Company. The Company covenants and
agrees with Purchaser as follows:
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(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 A 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 eligible for trading on the OTC BB or such
market on which the Company's shares are subsequently listed or traded,
immediately following the effectiveness of the Registration Statement.
(e) The Company will use 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 Purchaser to purchase and accept delivery of the
Securities.
(f) Until the first anniversary of this Agreement, the
Purchaser shall have a right of first refusal on any financing in which the
Company is the issuer of debt or equity securities.
5. Conditions of the Purchaser' Obligations. The obligation of
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 Purchaser relating to the issuance of the
Securities or 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 Purchaser 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 Purchaser shall have received an opinion of Stoel
Rives LLP with respect to the authorization of the Series A Stock, the
Conversion Shares, the Warrants and the Warrant Shares and other customary
matters in the form attached hereto as Exhibit C.
6. Representations and Warranties of the Purchaser.
(a) Each of Purchaser and MAG 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, Purchaser further
represents that 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 of Purchaser and MAG 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 of Purchaser and MAG 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.
-10-
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 Series A Stock, the Warrants, 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
Purchaser, upon request, with a substitute certificate, not bearing such legend
at such time as such legend is no longer applicable. 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,
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 Series A Stock, the Warrants, the Conversion
Shares or the Warrant Shares.
(c) Each of Purchaser and MAG is an "accredited investor"
within the meaning of Rule 501(a) of Regulation D under the Securities Act.
Neither Purchaser nor MAG learned of the opportunity to acquire Securities or
any other security issuable by the Company through any form of general
advertising or public solicitation.
(d) Each of Purchaser and MAG 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) 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 principles 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 the Purchaser under or pursuant
to any applicable law or governmental regulation.
(f) Each of Purchaser and MAG represents and warrants to the
Company that neither it nor any of its directors, officers, employees, agents,
partners, members, controlling persons or shareholders holding 5% or more of the
Common Stock outstanding on the Closing Date, has taken or will take, directly
or indirectly, any actions designed, or might
-11-
reasonably be expected to cause or result in the stabilization or manipulation
of the price of the Common Stock.
(g) Each of Purchaser and MAG 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 of Purchaser and MAG 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"). 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 of Purchaser and MAG 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 of Purchaser and MAG 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.
(k) Purchaser has been duly formed and is validly existing in
good standing as an international business company under the laws of its
jurisdiction of incorporation. MAG has been duly organized and is validly
existing in good standing as a limited liability company under the laws of its
jurisdiction of organization.
7. Covenants of Purchaser Not to Short Stock. Purchaser, on behalf
of themselves and their affiliates, hereby covenant and agree not to, directly
or indirectly, offer to "short sell", contract to "short sell" or otherwise
"short sell" the securities of the Company, including, without limitation,
shares of Common Stock that will be received as a result of the conversion of
the Series A Stock or the exercise of the Warrants.
-12-
8. Termination.
(a) This Agreement may be terminated in the sole discretion of
the Company by notice to Purchaser if at the Closing Date:
(i) the representations and warranties made by 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 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 by Purchaser or MAG by
notice to the Company given in the event that the Company shall have failed,
refused or been unable to satisfy all material 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 immediately prior to the
Closing Date, trading in securities of the Company on the OTC BB shall have been
suspended.
(c) This Agreement may be terminated by mutual written consent
of all parties.
9. Registration. On or before December 15, 2004, 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 Series A
Stock and the Warrant Shares (collectively, the "REGISTRABLE SECURITIES"), as
set forth in the Registration Rights Agreement attached hereto as Exhibit D.
Within 90 days after filing the Registration Statement, such Registration
Statement must be declared effective by the SEC.
10. Event of Default. If an Event of Default (as defined below)
occurs and remains uncured for a period of 5 days, the Purchaser and MAG shall
have the right to exercise any or all of the rights given to the Purchaser and
MAG relating to the Securities, as further described in the Certificate of
Designations. In addition, the price at which the shares of Series A Stock may
be converted into Common Stock shall be reduced from 85% of the Market Price (as
defined in the Certificate of Designations) to 75% of the Market Price, subject
to the Ceiling Price and Floor Price as those terms are defined in the
Certificate of Designations.
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 Registration Statement
with the SEC on or before December 15, 2004, (iii) have the Registration
Statement deemed effective by the SEC within 90 days after the date
-13-
of filing of the Registration statement (iv) maintain trading of the Company's
Common Stock on the OTC BB except for any periods when the stock is listed on
the NASDAQ Small Stock Market, the NASDAQ National Stock Market, the AMEX or the
NYSE, (v) pay the expenses referred to below or the Due Diligence Fee within
three (3) days after the Closing; or (vi) deliver to Purchaser, or Purchaser
broker, as directed, Common Stock that Purchaser have converted within three (3)
business days of such conversions.
IN THE EVENT THAT THE COMPANY FAILS TO FILE THE REGISTRATION STATEMENT WITH THE
SEC ON OR BEFORE DECEMBER 15, 2004, AS A REMEDY FOR SUCH AN EVENT OF DEFAULT ,
COMPANY SHALL PAY TO PURCHASER, IN CASH, $2,000.00 FOR EACH DAY THAT THE
REGISTRATION STATEMENT FILING IS DELAYED. PURCHASER AND COMPANY ACKNOWLEDGE AND
AGREE THAT THEY HAVE MUTUALLY DISCUSSED THE IMPRACTICALITY AND EXTREME
DIFFICULTY OF FIXING THE ACTUAL DAMAGES PURCHASER WOULD INCUR IN THE CASE OF
SUCH AN EVENT OF DEFAULT, AND THAT AS A RESULT OF SUCH DISCUSSION THE PARTIES
AGREE THAT $2,000.00 FOR EACH DAY THAT THE REGISTRATION STATEMENT FILING IS
DELAYED REPRESENTS A REASONABLE ESTIMATE OF THE ACTUAL DAMAGES WHICH PURCHASER
WOULD INCUR IN THE CASE OF SUCH AN EVENT OF DEFAULT. BY SIGNING IN THE SPACES
WHICH FOLLOW, PURCHASER AND COMPANY SPECIFICALLY AND EXPRESSLY AGREE TO ABIDE BY
THE TERMS AND PROVISIONS OF THIS PARAGRAPH CONCERNING LIQUIDATED DAMAGES.
Company:
Medical Discoveries, Inc.,
a Utah corporation
By: /s/ ▇. ▇. ▇▇▇▇▇▇▇▇
-------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President and CEO
[Printed Name and Title]
Mercator Momentum Fund, L.P.
By: Mercator Advisory Group, LLC
Its: General Partner
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Its: Managing Member
-14-
Mercator Momentum Fund III, L.P.
By: Mercator Advisory Group, LLC
Its: General Partner
By:__________________
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Its: Managing Member
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 a Purchaser or MAG, to the address set
forth for such party on the signature page hereto.
If to the Company:
Medical Discoveries, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Stoel Rives LLP
▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
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.
-15-
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. Within three (3) days of Closing, the Company
agrees to pay Purchaser' legal expenses incurred in connection with the
preparation and negotiation of the Transaction Documents up to $10,000. Any
amounts paid by Company upon execution of the Term Sheet will be credited
against this amount.
14. If any action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the Warrants or the Certificate of
Designations, 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.
15. Successors. This Agreement shall inure to the benefit of and be
binding upon Purchaser, MAG 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 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, MAG or 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, MAG or Purchaser at law or in
equity or otherwise. No waiver of or consent to any departure by the Company,
MAG 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, MAG 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, MAG 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
-16-
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 CONSTRURD IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, 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. THE
PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREE THAT ACTIONS, SUITS OR
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT MAY BE BROUGHT ONLY IN
STATE OR FEDERAL COURTS LOCATED IN THE CITY OF LOS ANGELES. CALIFORNIA AND
HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS FOR SUCH PURPOSE.
20. Counterparts. This Agreement may be executed in two or more
counterparts and may be delivered by facsimile transmission, each of which shall
be deemed an original but all of which together shall constitute one and the
same instrument.
21. 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, the
Purchaser and MAG.
Very truly yours.
Medical DISCOVERIES, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: President & CEO
-17-
ACCEPTED AND AGREED:
MERCATOR ADVISORY GROUP, LLC
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Managing Member
MERCATOR MOMENTUM FUND III, L.P.
By: Mercator Advisory Group, LLC
Its: General Partner
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Its: Managing Member
MERCATOR MOMENTUM FUND, L.P.
By: Mercator Advisory Group, LLC
Its: General Partner
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
---------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Its: Managing Member
Addresses for Notice to Purchaser and MAG:
Mercator Advisory Group, LLC
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇)▇▇▇-▇▇▇▇
with copy to:
▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Sheppard, Mullin, ▇▇▇▇▇▇▇ & Hampton LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
MERCATOR MERCATOR MERCATOR
MOMENTUM MOMENTUM ADVISORY
FUND, LP FUND III, LP GROUP, LLC TOTAL
------------ ----------------- ----------- -------------
INVESTMENT $ 1,775,000 $ 1,225,000 - $ 3,000,000
PREFERRED SHARES 17,750 12,250 - 30,000
WARRANTS 6,748,856 4,689,883 11,438,739 22,877,478
-18-
Schedule A
Direct and Indirect Subsidiaries of Medical Discoveries, Inc.
None.
-1-
Schedule B
Company Capitalization
(Fully Diluted)
Common Stock issued and outstanding 104,581,669
Common Stock pending issuance 1,950,000
Options outstanding under 1993 Stock Option Plan 3,483,000
Options outstanding under 2002 Stock Incentive Plan 16,000,000
Shares available under 2002 Stock Incentive Plan 3,500,000
Warrants Outstanding 8,437,488
-----------
Total Common stock and equivalents 137,952,157
===========
Series A Preferred Stock 42,000
===========
-1-
Schedule C
Other Arrangements
None other than outstanding warrants and option grants.
-1-
Schedule D
Violations
None.
-1-
Schedule E
Use of Proceeds
The proceeds shall be used by the Company for the acquisition of substantially
all of the assets of Save Therapeutics AG on terms acceptable to the Company.
-2-
Schedule F
Criminal Records and Bankruptcies
None.
-1-
Exhibit A
Warrant
-2-
Exhibit B
Certificate of Designations of
Series A Convertible Preferred Stock
of
Medical Discoveries, Inc.
-3-
Exhibit C
Form of Legal Opinion
Mercator Advisory Group
▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇., ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Re: Private Placement of Securities of Medical Discoveries Inc.
Ladies and Gentlemen:
This opinion is furnished to you pursuant to Section 5(d) of that
certain Subscription Agreement dated as of November 29,2004 (the "SUBSCRIPTION
AGREEMENT") by and among you, Monarch Pointe Fund, Ltd. ("PURCHASER"), and
Medical Discoveries Inc. (the "COMPANY").
We have acted as counsel to the Company in connection with the
proposed issuance and sale of (a) (30,000 shares of Series A Convertible
Preferred Stock (the "SERIES A STOCK") convertible into shares of Common Stock
of the Company and (b) stock purchase warrants (the "WARRANTS") sold pursuant to
the Subscription Agreement.
DOCUMENTS REVIEWED
In connection with rendering the opinions set forth herein, we
examined the Company's Amended and Restated Articles of Incorporation and its
By-Laws, each as amended to date, and the proceedings of the Company's Board of
Directors and shareholders taken in connection with issuing the Securities, and
the following additional documents:
1. The Subscription Agreement;
2. The Certificate of Designations of Preferences and Rights of
Series a Convertible Preferred Stock (the "CERTIFICATE OF DESIGNATIONS");
3. The Warrant to Purchase Common Stock (together with the
Subscription Agreement and the Certificate of Designations, the "TRANSACTION
DOCUMENTS"); and
4. A Good Standing Certificate,
dated___________________________________________,
2004, issued by the Utah Department of Commerce.
ASSUMPTIONS
In conducting our examination, we have assumed the following: (i)
the genuineness of all signatures, the legal capacity of natural persons, the
authenticity and accuracy of all documents submitted to us as originals, and the
conformity to originals of all documents submitted to us as copies, and (ii)
that the Subscription Agreement has been duly and validly authorized, executed,
and delivered by the parties thereto other than the Company.
-1-
OPINIONS
Based upon and subject to the assumptions, qualifications and
limitations set forth in this letter, we are of the opinion that:
1.The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Utah, with corporate power
to own its properties and to conduct its business.
2.The Company has the corporate power to execute, deliver and
perform the Transaction Documents, including the Exhibits, thereto. 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 except as rights to
indemnification thereunder may be limited by applicable law and except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or affecting creditors' rights generally
or by equitable principles.
(a) The authorized capital stock of the Company consists of
50,000,000 shares of Preferred Stock, and 250,000,000 shares of Common Stock.
(b) The shares of the Company's Series A Stock have been duly
authorized and, upon issuance, delivery, and payment therefor as described in
the Subscription Agreement, will be validly issued, folly paid and
non-assessable.
(c) The shares of the Company's Common Stock initially
issuable upon conversion of the shares of Series A Stock sold have been duly
authorized and reserved for issuance and, upon issuance and delivery upon
conversion of the Series A Stock as described in the Certificate of
Designations, will be validly issued, fully paid and non-assessable.
(d) The shares of the Company's Common Stock issuable upon
exercise of the Warrants have been duly authorized and reserved for issuance,
and upon issuance, delivery, and payment therefor in accordance with the
Warrants, will be validly issued, fully paid and non-assessable.
3. The Company's execution and delivery of the Transaction Documents
and the issue and sale of the Series A Stock and the Warrants, on the terms and
conditions set forth in the Subscription Agreement, will not violate any law of
the United States or the State of Utah, any rule or regulation of any
governmental authority or regulatory body of the United States or the State of
Utah, or any provision of the Company's Articles of Incorporation or Bylaws.
4. 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 Series A Stock
and the Warrants pursuant to the Transaction Documents, except such as have been
obtained or made and such as may be required under applicable securities laws.
-2-
5. On the assumption that the representations of the Purchaser and
you in the Subscription Agreement are correct and complete, the offer and sale
of the Series A Stock and the Warrants 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
California 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 Series A Stock and exercise of the Warrants would also be
exempt from such registration and qualification requirements.
6. To our knowledge there is no pending or overtly threatened
action, proceeding or governmental investigation with respect to the Company's
sale of Series A Stock and Warrants pursuant to the Transaction Documents.
LIMITATIONS
Whenever a statement herein is qualified by "to our knowledge," or
similar phrase, it is intended to indicate that, during the course of our
representation of the Company, no information that would give us current actual
knowledge of the inaccuracy of such statement has come to the attention of
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, the attorney in this firm who has rendered legal services in
connection with the transaction described in the first two paragraphs of this
letter. However, we have not undertaken any independent inquiry to determine the
accuracy of such statement, and any limited inquiry undertaken by us should not
be regarded as such an investigation. No inference as to our knowledge of any
matters bearing on the accuracy of such statement should be drawn from the fact
of our representation of the Company.
This opinion is based solely upon the laws of the United States and
the State of Utah, as currently in effect, and does not include an
interpretation or statement concerning the laws of any other state or
jurisdiction.
This opinion is subject to the following additional qualifications:
- We express no opinion as to the effects or availability of
rules of law governing specific performance, injunctive relief
or other equitable remedies (regardless of whether any such
remedy is considered in a proceeding at law or in equity); and
- This opinion is qualified by the limitations imposed by
statutes and principles of law and equity that provide that
certain covenants and provisions of agreements are
unenforceable where such covenants or provisions are
unconscionable or contrary to public policy or where
enforcement of such covenants or provisions under the
circumstances would violate the enforcing party's implied
covenant of good faith and fair dealing.
This opinion is rendered as of the date set forth above solely for
your benefit and the benefit of your counsel and may not be reviewed, relied
upon, used, circulated, referred to or quoted to any party without our prior
written consent.
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We make no undertaking to supplement this opinion if, after the date
hereof, facts or circumstances come to our attention or changes in the law occur
which could affect such opinion.
Very truly yours
STOEL RIVES LLP
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Exhibit D
Registration Rights Agreement
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