EXHIBIT 10
CEL-SCI CORPORATION
Schedule Required by Instruction 2 to Item 601
of Regulation S-K
Amount of
Name and Address Convertible Notes Number of Warrants
of Purchasers Purchased Purchased
SDS Merchant Fund, L.P. $300,000 550,000
c/o SDS Capital Partners
Old 53 Forest Avenue, Second Floor
Greenwich, CT 06870
Attention: Steve Derby
Fax no.: (203) 629-0345
Bristol Investment Fund, Ltd. $300,000 550,000
Caledonian House
Jennett Street
Georgetown, Grand Cayman
Cayman Islands
Attention: Amy Wang, Esq.
Fax No: (323) 468-8307
Maturity date of convertible notes: January 7, 2005
Original issue date of warrants: January 7, 2005
Exercise price of warrants: $0.25
Expiration date of warrants: January 7, 2010
NOTE AND WARRANT PURCHASE
AGREEMENT
Dated as of January 7, 2003
among
CEL-SCI CORPORATION
and
THE PURCHASERS LISTED ON EXHIBIT A
Table of Contents
Page
ARTICLE I Purchase and Sale of Notes and Warrants.......................1
Section 1.1 Purchase and Sale of Notes and Warrants....................1
Section 1.2 Purchase Price and Closing.................................1
Section 1.3 Escrow.....................................................2
Section 1.4 Warrants...................................................2
Section 1.5 Conversion Shares / Warrant Shares.........................2
ARTICLE II Representations and Warranties................................2
Section 2.1 Representations and Warranties of the Company..............2
Section 2.2 Representations and Warranties of the Purchasers..........12
ARTICLE III Covenants....................................................15
Section 3.1 Securities Compliance.....................................15
Section 3.2 Registration and Listing..................................15
Section 3.3 Inspection Rights.........................................15
Section 3.4 Compliance with Laws......................................16
Section 3.5 Keeping of Records and Books of Account...................16
Section 3.6 Reporting Requirements....................................16
Section 3.7 Amendments................................................16
Section 3.8 Other Agreements..........................................16
Section 3.9 Distributions.............................................17
Section 3.10 Subsequent Financings; Right of First Refusal............17
Section 3.11 Reservation of Shares....................................18
Section 3.12 Transfer Agent Instructions..............................18
Section 3.13 Disposition of Assets....................................19
Section 3.14 Repayment of Other Indebtedness..........................19
Section 3.15 Insiders Lock-Up.........................................19
Section 3.16 Intentionally Omitted....................................19
Section 3.17 Non-public Information...................................19
Section 3.18 Form S-3 Eligibility.....................................19
Section 3.19 Stockholder Approval.....................................20
Section 3.20 Registration Statement...................................20
Section 3.21 Investment Relations Firm................................20
Section 3.22 April Purchase Agreement.................................20
ARTICLE IV Conditions...................................................20
Section 4.1 Conditions Precedent to the Obligation of the
Company to Close and to Sell the Notes and
Warrants..................................................20
Table of Contents
(continued)
Section 4.2 Conditions Precedent to the Obligation of the
Purchasers to Close and to Purchase the Notes
and Warrants..............................................21
ARTICLE V Certificate Legend...........................................23
Section 5.1 Legend....................................................23
ARTICLE VI Termination..................................................24
Section 6.1 Termination by Mutual Consent.............................24
Section 6.2 Effect of Termination.....................................24
ARTICLE VII Indemnification..............................................25
Section 7.1 General Indemnity.........................................25
Section 7.2 Indemnification Procedure.................................25
ARTICLE VIII Miscellaneous................................................26
Section 8.1 Fees and Expenses.........................................26
Section 8.2 Specific Enforcement; Consent to Jurisdiction.............26
Section 8.3 Entire Agreement; Amendment...............................27
Section 8.4 Notices...................................................27
Section 8.5 Waivers...................................................28
Section 8.6 Headings..................................................28
Section 8.7 Successors and Assigns....................................28
Section 8.8 No Third Party Beneficiaries..............................29
Section 8.9 Governing Law.............................................29
Section 8.10 Survival.................................................29
Section 8.11 Counterparts.............................................29
Section 8.12 Publicity................................................29
Section 8.13 Severability.............................................29
Section 8.14 Further Assurances.......................................29
NOTE AND WARRANT PURCHASE AGREEMENT
This NOTE AND WARRANT PURCHASE AGREEMENT is dated as of January 7, 2003
(this "Agreement") by and between Cel-Sci Corporation, a Colorado corporation
(the "Company"), and the entities listed on Exhibit A hereto (each a "Purchaser"
and collectively, the "Purchasers").
The parties hereto agree as follows:
ARTICLE I
Purchase and Sale of Notes and Warrants
Section 1.1.Purchase and Sale of Notes and Warrants. Upon the following terms
and conditions, the Company shall issue and sell to the Purchasers, and the
Purchasers shall purchase from the Company, senior secured convertible
promissory notes in the aggregate principal amount of One Million Three Hundred
Fifty Thousand Dollars ($1,350,000.00) bearing interest at the rate of seven
percent (7%) per annum, convertible into shares of the Company's common stock,
par value $.001 per share (the "Common Stock"), in substantially the form
attached hereto as Exhibit B (the "Notes"), and warrants to purchase shares of
Common Stock, in substantially the form attached hereto as Exhibit C (the
"Warrants"), set forth with respect to such Purchaser on Exhibit A hereto. A
portion of the purchase price to be paid by Bristol Investment Fund, Ltd.
("Bristol") shall be paid with that certain demand promissory note issued by the
Company to Bristol in the principal amount of $25,000 issued on November 14,
2002 (the "Demand Note"), in the amount set forth on Schedule 1.1 attached
hereto. The Company and the Purchasers are executing and delivering this
Agreement in accordance with and in reliance upon the exemption from securities
registration afforded by Section 4(2) of the U.S. Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder (the "Securities
Act"), including Regulation D ("Regulation D"), and/or upon such other exemption
from the registration requirements of the Securities Act as may be available
with respect to any or all of the investments to be made hereunder.
Section 1.2.Purchase Price and Closing. The Company agrees to issue and sell to
the Purchasers and, in consideration of and in express reliance upon the
representations, warranties, covenants, terms and conditions of this Agreement,
the Purchasers agree to purchase the Notes and Warrants for an aggregate
purchase price of One Million Three Hundred Fifty Thousand Dollars
($1,350,000.00) (the "Purchase Price"). The Company acknowledges and agrees that
a portion of the Purchase Price for Bristol for the Notes and Warrants will be
paid to the Company with the Demand Note in the amount set forth on Schedule 1.1
attached hereto. The closing of the execution and delivery of this Agreement
shall occur upon delivery by facsimile of executed signature pages of this
Agreement and all other documents, instruments and writings required to be
delivered pursuant to this Agreement to Jenkens & Gilchrist Parker Chapin LLP,
The Chrysler Building, 405 Lexington Avenue, New York, New York 10174. The Notes
and Warrants shall be sold and funded in two separate closings (each, a
"Closing"). The initial closing under this Agreement (the "Initial Closing")
shall take place no later than January 7, 2003 (the "Initial Closing Date") and
shall be funded in the amount of $600,000.00. The second closing under this
Agreement (the "Second Closing") shall take place no later than five (5)
business days (the "Second Closing Date") after the Securities and Exchange
Commission (the "Commission") declares the Registration Statement (as defined in
the Registration Rights Agreement) effective (the "Effectiveness Date") and
shall be funded in the amount of $750,000.00. Funding with respect to each
Closing shall take place by wire transfer of immediately available funds on or
prior to the applicable Closing Date (as defined below) to Jenkens & Gilchrist
Parker Chapin LLP, as escrow agent (the "Escrow Agent"), so long as the
conditions set forth in Article IV hereof shall be fulfilled or waived in
accordance herewith. Each Closing under this Agreement shall take place at the
offices of Jenkens & Gilchrist Parker Chapin LLP at 1:00 p.m. (eastern time)
upon the satisfaction of each of the conditions set forth in Article IV hereof
(each, a "Closing Date").
Section 1.3.Escrow. The parties agree to enter into a mutually acceptable escrow
agreement (the "Escrow Agreement") with the Escrow Agent, in the form of Exhibit
D attached hereto, which shall provide for the deposit of the Warrants, Notes
and Purchase Price at each Closing.
Section 1.4.Exchange of Demand Note. Prior to or at the Closing, Bristol shall
surrender to the Company the Demand Note. Upon the Closing, Bristol shall
receive in exchange for the surrender of its Demand Note, Notes representing the
principal amount of the Demand Note and all accrued interest outstanding
thereon.
Section 1.5.Warrants. At the Initial Closing, the Company shall have issued to
the Purchasers Warrants to purchase an aggregate of 1,100,000 shares of Common
Stock. The Warrants shall be exercisable for seven (7) years from the date of
issuance and shall have an exercise price equal to the Warrant Price (as defined
in the Warrants).
Section 1.6.Conversion Shares / Warrant Shares. The Company has authorized and
has reserved and covenants to continue to reserve, free of preemptive rights and
other similar contractual rights of stockholders, a number of its authorized but
unissued shares of its Common Stock equal to at least 200% of the aggregate
number of shares of Common Stock to effect the conversion of the Notes and any
interest accrued and outstanding thereon and exercise of the Warrants. Any
shares of Common Stock issuable upon conversion of the Notes and any interest
accrued and outstanding thereon and exercise of the Warrants (and such shares
when issued) are herein referred to as the "Conversion Shares" and the "Warrant
Shares," respectively. The Notes, the Warrants, the Conversion Shares and the
Warrant Shares are sometimes collectively referred to herein as the
"Securities".
ARTICLE II
Representations and Warranties
Section 2.1.Representations and Warranties of the Company. In order to induce
the Purchasers to enter into this Agreement and to purchase the Notes, the
Company hereby makes the following representations and warranties to the
Purchasers:
(a) Organization, Good Standing and Power. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Colorado and has the requisite corporate power to own, lease and
operate its properties and assets and to conduct its business as it is now being
conducted. The Company does not have any Subsidiaries (as defined in Section
2.1(g)) or own securities of any kind in any other entity except as set forth in
the Commission Documents (as defined in Section 2.1(f)) or on Schedule 2.1(g)
hereto. The Company and each such Subsidiary is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary except for any jurisdiction(s) (alone or in the
aggregate) in which the failure to be so qualified will not have a Material
Adverse Effect. For the purposes of this Agreement, "Material Adverse Effect"
means any adverse effect on the business, operations, properties, prospects or
financial condition of the Company or its Subsidiaries and which is material to
such entity or other entities controlling or controlled by such entity or which
is likely to materially hinder the performance by the Company of its obligations
hereunder and under the other Transaction Documents (as defined in Section
2.1(b) hereof).
(b) Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and perform this Agreement, the Registration
Rights Agreement, the Security Agreement, the Escrow Agreement, the Lock-Up
Agreement, the Notes, the Warrants and the Irrevocable Transfer Agent
Instructions (as defined in Section 3.12) (collectively, the "Transaction
Documents") and to issue and sell the Securities in accordance with the terms
hereof and the Notes and the Warrants, as applicable. The execution, delivery
and performance of the Transaction Documents by the Company and the consummation
by it of the transactions contemplated thereby have been duly and validly
authorized by all necessary corporate action, and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required. This Agreement has been duly executed and delivered by the Company.
The other Transaction Documents will have been duly executed and delivered by
the Company at the Initial Closing. Each of the Transaction Documents
constitutes, or shall constitute when executed and delivered, a valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditor's rights and remedies or by other
equitable principles of general application.
(c) Capitalization. The authorized capital stock of the Company and the
shares thereof currently issued and outstanding as of December 27, 2002 are set
forth on Schedule 2.1(c) hereto. All of the outstanding shares of the Company's
Common Stock and any other security of the Company have been duly and validly
authorized. Except as set forth in this Agreement and as set forth in the
Commission Documents or on Schedule 2.1(c) hereto, no shares of Common Stock or
any other security of the Company are entitled to preemptive rights or
registration rights and there are no outstanding options, warrants, scrip,
rights to subscribe to, call or commitments of any character whatsoever relating
to, or securities or rights convertible into, any shares of capital stock of the
Company. Furthermore, except as set forth in this Agreement and as set forth on
in the Commission Documents or on Schedule 2.1(c) hereto, there are no
contracts, commitments, understandings, or arrangements by which the Company is
or may become bound to issue additional shares of the capital stock of the
Company or options, securities or rights convertible into shares of capital
stock of the Company. Except for customary transfer restrictions contained in
agreements entered into by the Company in order to sell restricted securities or
as provided in the Commission Documents or on Schedule 2.1(c) hereto, the
Company is not a party to or bound by any agreement or understanding granting
registration or anti-dilution rights to any person with respect to any of its
equity or debt securities. Except as set forth on Schedule 2.1(c), the Company
is not a party to, and it has no knowledge of, any agreement or understanding
restricting the voting or transfer of any shares of the capital stock of the
Company. Except as set forth on Schedule 2.1(c) hereto, the offer and sale of
all capital stock, convertible securities, rights, warrants, or options of the
Company issued prior to the Closing complied with all applicable federal and
state securities laws, and no holder of such securities has a right of
rescission or claim for damages with respect thereto which could have a Material
Adverse Effect. The Company has furnished or made available to the Purchasers
true and correct copies of the Company's Articles of Incorporation as in effect
on the date hereof (the "Articles"), and the Company's Bylaws as in effect on
the date hereof (the "Bylaws").
(d) Issuance of Securities. The Notes and the Warrants to be issued at the
Initial Closing have been duly authorized by all necessary corporate action and,
when paid for or issued in accordance with the terms hereof, the Notes shall be
validly issued and outstanding, free and clear of all liens, encumbrances and
rights of refusal of any kind. When the Conversion Shares and Warrant Shares are
issued and paid for in accordance with the terms of this Agreement and as set
forth in the Notes and Warrants, such shares will be duly authorized by all
necessary corporate action and validly issued and outstanding, fully paid and
nonassessable, free and clear of all liens, encumbrances and rights of refusal
of any kind and the holders shall be entitled to all rights accorded to a holder
of Common Stock.
(e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby do not and will not (i) violate any
provision of the Company's Articles or Bylaws or any Subsidiary's comparable
charter documents, (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, mortgage, deed of trust, indenture, note, bond,
license, lease agreement, instrument or obligation to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries' respective properties or assets are bound, (iii) create or impose
a lien, mortgage, security interest, charge or encumbrance of any nature on any
property or asset of the Company or any of its Subsidiaries under any agreement
or any commitment to which the Company or any of its Subsidiaries is a party or
by which the Company or any of its Subsidiaries is bound or by which any of
their respective properties or assets are bound, or (iv) result in a violation
of any federal, state, local or foreign statute, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations)
applicable to the Company or any of its Subsidiaries or by which any property or
asset of the Company or any of its Subsidiaries are bound or affected, except,
in all cases other than violations pursuant to clauses (i) or (iv) above, for
such conflicts, defaults, terminations, amendments, acceleration, cancellations
and violations as would not, individually or in the aggregate, have a Material
Adverse Effect. The business of the Company and its Subsidiaries is not being
conducted in violation of any laws, ordinances or regulations of any
governmental entity, except for possible violations which singularly or in the
aggregate do not and will not have a Material Adverse Effect. Neither the
Company nor any of its Subsidiaries is required under federal, state, foreign or
local law, rule or regulation to obtain any consent, authorization or order of,
or make any filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations under the
Transaction Documents or issue and sell the Notes, the Warrants, the Conversion
Shares and the Warrant Shares in accordance with the terms hereof or thereof
(other than any filings which may be required to be made by the Company with the
Commission, the American Stock Exchange prior to or subsequent to the Closing,
or state securities administrators subsequent to the Closing, or any
registration statement which may be filed pursuant hereto).
(f) Commission Documents, Financial Statements. The Common Stock of the
Company is registered pursuant to Section 12(b) or 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, except as disclosed
on Schedule 2.1(f) hereto, the Company has timely filed all reports, schedules,
forms, statements and other documents required to be filed by it with the
Commission pursuant to the reporting requirements of the Exchange Act, including
material filed pursuant to Section 13(a) or 15(d) of the Exchange Act (all of
the foregoing including filings incorporated by reference therein being referred
to herein as the "Commission Documents"). The Company has delivered or made
available to the Purchasers true and complete copies of the Commission Documents
filed with the Commission since September 30, 2001. The Company has not provided
to the Purchasers any material non-public information or other information
which, according to applicable law, rule or regulation, should have been
disclosed publicly by the Company but which has not been so disclosed, other
than with respect to the transactions contemplated by this Agreement. At the
time of its filing, the Form 10-Q for the fiscal quarter ended June 30, 2002
(the "Form 10-Q") complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder and other federal, state and local laws, rules and regulations
applicable to such documents, and Form 10-Q did not contain any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of their respective
dates, the financial statements of the Company included in the Commission
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the Commission or other
applicable rules and regulations with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements), and fairly present
in all material respects the financial position of the Company and its
Subsidiaries as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments).
(g) Subsidiaries. The Commission Documents or Schedule 2.1(g) hereto set
forth each Subsidiary of the Company, showing the jurisdiction of its
incorporation or organization and showing the percentage of each person's
ownership of the outstanding stock or other interests of such Subsidiary. For
the purposes of this Agreement, "Subsidiary" shall mean any corporation or other
entity of which at least a majority of the securities or other ownership
interest having ordinary voting power (absolutely or contingently) for the
election of directors or other persons performing similar functions are at the
time owned directly or indirectly by the Company and/or any of its other
Subsidiaries. All of the outstanding shares of capital stock of each Subsidiary
have been duly authorized and validly issued, and are fully paid and
nonassessable. There are no outstanding preemptive, conversion or other rights,
options, warrants or agreements granted or issued by or binding upon any
Subsidiary for the purchase or acquisition of any shares of capital stock of any
Subsidiary or any other securities convertible into, exchangeable for or
evidencing the rights to subscribe for any shares of such capital stock. Neither
the Company nor any Subsidiary is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of the
capital stock of any Subsidiary or any convertible securities, rights, warrants
or options of the type described in the preceding sentence except as set forth
on Schedule 2.1(g) hereto. Neither the Company nor any Subsidiary is party to,
nor has any knowledge of, any agreement restricting the voting or transfer of
any shares of the capital stock of any Subsidiary.
(h) No Material Adverse Change. Since June 30, 2002, the Company has not
experienced or suffered any Material Adverse Effect, except as disclosed in the
Commission Documents or on Schedule 2.1(h) hereto.
(i) No Undisclosed Liabilities. Except as disclosed in the Commission
Documents or on Schedule 2.1(i) hereto, neither the Company nor any of its
Subsidiaries has any liabilities, obligations, claims or losses (whether
liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent
or otherwise) other than those incurred in the ordinary course of the Company's
or its Subsidiaries respective businesses since June 30, 2002 and which,
individually or in the aggregate, do not or would not have a Material Adverse
Effect on the Company or its Subsidiaries.
(j) No Undisclosed Events or Circumstances. Since June 30, 2002, except as
disclosed on Schedule 2.1(j) hereto, no event or circumstance has occurred or
exists with respect to the Company or its Subsidiaries or their respective
businesses, properties, prospects, operations or financial condition, which,
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed.
(k) Indebtedness. The Commission Documents or Schedule 2.1(k) hereto set
forth as of the date hereof all outstanding secured and unsecured Indebtedness
of the Company or any Subsidiary, or for which the Company or any Subsidiary has
commitments. For the purposes of this Agreement, "Indebtedness" shall mean (a)
any liabilities for borrowed money or amounts owed in excess of $25,000 (other
than trade accounts payable incurred in the ordinary course of business), (b)
all guaranties, endorsements and other contingent obligations in respect of
Indebtedness of others, whether or not the same are or should be reflected in
the Company's balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (c) the present value of
any lease payments in excess of $25,000 due under leases required to be
capitalized in accordance with GAAP. Except as disclosed on Schedule 2.1(k),
neither the Company nor any Subsidiary is in default with respect to any
Indebtedness.
(l) Title to Assets. Each of the Company and the Subsidiaries has good and
marketable title to all of its real and personal property, free and clear of any
mortgages, pledges, charges, liens, security interests or other encumbrances of
any nature whatsoever, except for those indicated in the Commission Documents or
on Schedule 2.1(l) hereto or such that, individually or in the aggregate, do not
have a Material Adverse Effect. All said leases of the Company and each of its
Subsidiaries are valid and subsisting and in full force and effect.
(m) Actions Pending. There is no action, suit, claim, investigation,
arbitration, alternate dispute resolution proceeding or other proceeding pending
or, to the knowledge of the Company, threatened against the Company or any
Subsidiary which questions the validity of this Agreement or any of the other
Transaction Documents or any of the transactions contemplated hereby or thereby
or any action taken or to be taken pursuant hereto or thereto. Except as set
forth in the Commission Documents or on Schedule 2.1(m) hereto, there is no
action, suit, claim, investigation, arbitration, alternate dispute resolution
proceeding or other proceeding pending or, to the knowledge of the Company,
threatened, against or involving the Company, any Subsidiary or any of their
respective properties or assets, which individually or in the aggregate, would
have a Material Adverse Effect. There are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against the Company or any Subsidiary or any officers or
directors of the Company or Subsidiary in their capacities as such, which
individually or in the aggregate, would have a Material Adverse Effect.
(n) Compliance with Law. The business of the Company and the Subsidiaries
has been and is presently being conducted in accordance with all applicable
federal, state and local governmental laws, rules, regulations and ordinances,
except as set forth in the Commission Documents or on Schedule 2.1(n) hereto or
such that, individually or in the aggregate, the noncompliance therewith would
not have a Material Adverse Effect. The Company and each of its Subsidiaries
have all franchises, permits, licenses, consents and other governmental or
regulatory authorizations and approvals necessary for the conduct of its
business as now being conducted by it unless the failure to possess such
franchises, permits, licenses, consents and other governmental or regulatory
authorizations and approvals, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
(o) Taxes. Except as set forth on Schedule 2.1(o) hereto, the Company and
each of the Subsidiaries has accurately prepared and filed all federal, state
and other tax returns required by law to be filed by it, has paid or made
provisions for the payment of all taxes shown to be due and all additional
assessments, and adequate provisions have been and are reflected in the
financial statements of the Company and the Subsidiaries for all current taxes
and other charges to which the Company or any Subsidiary is subject and which
are not currently due and payable. Except as disclosed on Schedule 2.1(o)
hereto, none of the federal income tax returns of the Company or any Subsidiary
have been audited by the Internal Revenue Service. The Company has no knowledge
of any additional assessments, adjustments or contingent tax liability (whether
federal or state) of any nature whatsoever, whether pending or threatened
against the Company or any Subsidiary for any period, nor of any basis for any
such assessment, adjustment or contingency.
(p) Certain Fees. Except as set forth on Schedule 2.1(p) hereto, the
Company has not employed any broker or finder or incurred any liability for any
brokerage or investment banking fees, commissions, finders' structuring fees,
financial advisory fees or other similar fees in connection with the Transaction
Documents.
(q) Disclosure. To the best of the Company's knowledge, neither this
Agreement or the Schedules hereto nor any other documents, certificates or
instruments furnished to the Purchasers by or on behalf of the Company or any
Subsidiary in connection with the transactions contemplated by this Agreement
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made herein or therein, in the light
of the circumstances under which they were made herein or therein, not
misleading.
(r) Operation of Business. The Company and each of the Subsidiaries owns or
possesses all patents, trademarks, domain names (whether or not registered) and
any patentable improvements or copyrightable derivative works thereof, websites
and intellectual property rights relating thereto, service marks, trade names,
copyrights, licenses and authorizations, including, but not limited to, those
listed in the Commission Documents or on Schedule 2.1(r) hereto, and all rights
with respect to the foregoing, which are necessary for the conduct of its
business as now conducted without any conflict with the rights of others.
(s) Environmental Compliance. Except as disclosed on Schedule 2.1(s)
hereto, the Company and each of its Subsidiaries have obtained all material
approvals, authorization, certificates, consents, licenses, orders and permits
or other similar authorizations of all governmental authorities, or from any
other person, that are required under any Environmental Laws. Schedule 2.1(s)
hereto sets forth all material permits, licenses and other authorizations issued
under any Environmental Laws to the Company or its Subsidiaries. "Environmental
Laws" shall mean all applicable laws relating to the protection of the
environment including, without limitation, all requirements pertaining to
reporting, licensing, permitting, controlling, investigating or remediating
emissions, discharges, releases or threatened releases of hazardous substances,
chemical substances, pollutants, contaminants or toxic substances, materials or
wastes, whether solid, liquid or gaseous in nature, into the air, surface water,
groundwater or land, or relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of hazardous
substances, chemical substances, pollutants, contaminants or toxic substances,
material or wastes, whether solid, liquid or gaseous in nature. Except as set
forth on Schedule 2.1(s) hereto, the Company has all necessary governmental
approvals required under all Environmental Laws and used in its business or in
the business of any of its Subsidiaries. The Company and each of its
Subsidiaries are also in compliance with all other limitations, restrictions,
conditions, standards, requirements, schedules and timetables required or
imposed under all Environmental Laws. Except for such instances as would not
individually or in the aggregate have a Material Adverse Effect, there are no
past or present events, conditions, circumstances, incidents, actions or
omissions relating to or in any way affecting the Company or its Subsidiaries
that violate or may violate any Environmental Law after the Closing or that may
give rise to any environmental liability, or otherwise form the basis of any
claim, action, demand, suit, proceeding, hearing, study or investigation (i)
under any Environmental Law, or (ii) based on or related to the manufacture,
processing, distribution, use, treatment, storage (including, without
limitation, underground storage tanks), disposal, transport or handling, or the
emission, discharge, release or threatened release of any hazardous substance.
"Environmental Liabilities" means all liabilities of a person (whether such
liabilities are owed by such person to governmental authorities, third parties
or otherwise) whether currently in existence or arising hereafter which arise
under or relate to any Environmental Law.
(t) Books and Records; Internal Accounting Controls. The records and
documents of the Company and its Subsidiaries accurately reflect in all material
respects the information relating to the business of the Company and the
Subsidiaries, the location and collection of their assets, and the nature of all
transactions giving rise to the obligations or accounts receivable of the
Company or any Subsidiary. The Company and each of its Subsidiaries maintain a
system of internal accounting controls sufficient, in the judgment of the
Company's board of directors, to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate actions are taken
with respect to any differences.
(u) Material Agreements. Except for the Transaction Documents and as set
forth in the Commission Documents or on Schedule 2.1(u) hereto, neither the
Company nor any Subsidiary is a party to any written or oral contract,
instrument, agreement, commitment, obligation, plan or arrangement, a copy of
which would be required to be filed with the Commission (collectively, "Material
Agreements") if the Company or any Subsidiary were registering securities under
the Securities Act. The Company and each of its Subsidiaries has in all material
respects performed all the obligations required to be performed by them to date
under the foregoing agreements, have received no notice of default and, to the
best of the Company's knowledge are not in default under any Material Agreement
now in effect, the result of which could cause a Material Adverse Effect. No
written or oral contract, instrument, agreement, commitment, obligation, plan or
arrangement of the Company or of any Subsidiary limits or shall limit the
payment of interest on the Notes, or dividends on its Common Stock.
(v) Transactions with Affiliates. Except as set forth in the Commission
Documents or on Schedule 2.1(v) hereto, there are no loans, leases, agreements,
contracts, royalty agreements, management contracts or arrangements or other
continuing transactions between (a) the Company, any Subsidiary or any of their
respective customers or suppliers on the one hand, and (b) on the other hand,
any officer, employee, consultant or director of the Company, or any of its
Subsidiaries, or any person owning any capital stock of the Company or any
Subsidiary or any member of the immediate family of such officer, employee,
consultant, director or stockholder or any corporation or other entity
controlled by such officer, employee, consultant, director or stockholder, or a
member of the immediate family of such officer, employee, consultant, director
or stockholder.
(w) Securities Act of 1933. The Company has complied and will comply with
all applicable federal and state securities laws in connection with the offer,
issuance and sale of the Notes, the Warrants, the Conversion Shares and the
Warrant Shares hereunder. Neither the Company nor anyone acting on its behalf,
directly or indirectly, has or will sell, offer to sell or solicit offers to buy
any of the Securities, or similar securities to, or solicit offers with respect
thereto from, or enter into any preliminary conversations or negotiations
relating thereto with, any person, or has taken or will take any action so as to
bring the issuance and sale of any of the Securities under the registration
provisions of the Securities Act and applicable state securities laws. Neither
the Company nor any of its affiliates, nor any person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the Securities Act) in connection with
the offer or sale of any of the Securities.
(x) Governmental Approvals. Except as set forth in the Commission Documents
or on Schedule 2.1(x) hereto, and except for the filing of any notice prior or
subsequent to the Closing that may be required under applicable state and/or
federal securities laws (which if required, shall be filed on a timely basis),
no authorization, consent, approval, license, exemption of, filing or
registration with any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, is or will be necessary
for, or in connection with, the execution or delivery of the Notes and the
Warrants, or for the performance by the Company of its obligations under the
Transaction Documents.
(y) Employees. Neither the Company nor any Subsidiary has any collective
bargaining arrangements or agreements covering any of its employees. Except as
set forth in the Commission Documents or on Schedule 2.1(y) hereto, neither the
Company nor any Subsidiary has any employment contract, agreement regarding
proprietary information, non-competition agreement, non-solicitation agreement,
confidentiality agreement, or any other similar contract or restrictive
covenant, relating to the right of any officer, employee or consultant to be
employed or engaged by the Company or such Subsidiary. Since June 30, 2002, no
officer, consultant or key employee of the Company or any Subsidiary whose
termination, either individually or in the aggregate, could have a Material
Adverse Effect, has terminated or, to the knowledge of the Company, has any
present intention of terminating his or her employment or engagement with the
Company or any Subsidiary.
(z) Absence of Certain Developments. Except as set forth in the Commission
Documents or on Schedule 2.1(z) hereto, since June 30, 2002, neither the Company
nor any Subsidiary has:
(i) issued any stock, bonds or other corporate securities or any
rights, options or warrants with respect thereto;
(ii) borrowed any amount or incurred or become subject to any
liabilities (absolute or contingent) except current liabilities incurred in
the ordinary course of business which are comparable in nature and amount
to the current liabilities incurred in the ordinary course of business
during the comparable portion of its prior fiscal year, as adjusted to
reflect the current nature and volume of the Company's or such Subsidiary's
business;
(iii) discharged or satisfied any lien or encumbrance or paid any
obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business;
(iv) declared or made any payment or distribution of cash or other
property to stockholders with respect to its stock, or purchased or
redeemed, or made any agreements so to purchase or redeem, any shares of
its capital stock;
(v) sold, assigned or transferred any other tangible assets, or
canceled any debts or claims, except in the ordinary course of business;
(vi) sold, assigned or transferred any patent rights, trademarks,
trade names, copyrights, trade secrets or other intangible assets or
intellectual property rights, or disclosed any proprietary confidential
information to any person except in the ordinary course of business or to
the Purchasers or its representatives;
(vii) suffered any substantial losses or waived any rights of material
value, whether or not in the ordinary course of business, or suffered the
loss of any material amount of prospective business;
(viii) made any changes in employee compensation except in the
ordinary course of business and consistent with past practices;
(ix) made capital expenditures or commitments therefor that aggregate
in excess of $25,000;
(x) entered into any other transaction other than in the ordinary
course of business, or entered into any other material transaction, whether
or not in the ordinary course of business;
(xi) made charitable contributions or pledges in excess of $25,000;
(xii) suffered any material damage, destruction or casualty loss,
whether or not covered by insurance;
(xiii) experienced any material problems with labor or management in
connection with the terms and conditions of their employment;
(xiv) effected any two or more events of the foregoing kind which in
the aggregate would cause a Material Adverse Effect; or
(xv) entered into an agreement, written or otherwise, to take any of
the foregoing actions.
(aa) Use of Proceeds. The proceeds from the sale of the Notes and the
Warrant Shares will be used by the Company for working capital purposes and
shall not be used to repay any outstanding Indebtedness or any loans to officer,
director, affiliate or insider of the Company.
(bb) Public Utility Holding Company Act and Investment Company Act Status.
The Company is not a "holding company" or a "public utility company" as such
terms are defined in the Public Utility Holding Company Act of 1935, as amended.
The Company is not, and as a result of and immediately upon Closing will not be,
an "investment company" or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended.
(cc) ERISA. No liability to the Pension Benefit Guaranty Corporation has
been incurred with respect to any Plan by the Company or any of its Subsidiaries
which is or would cause a Material Adverse Effect. The execution and delivery of
this Agreement and the issue and sale of the Notes, the Conversion Shares and
the Warrant Shares will not involve any transaction which is subject to the
prohibitions of Section 406 of ERISA or in connection with which a tax could be
imposed pursuant to Section 4975 of the Internal Revenue Code of 1986, as
amended, provided that, if any Purchaser, or any person or entity that owns a
beneficial interest in any Purchaser, is an "employee pension benefit plan"
(within the meaning of Section 3(2) of ERISA) with respect to which the Company
is a "party in interest" (within the meaning of Section 3(14) of ERISA), the
requirements of Sections 407(d)(5) and 408(e) of ERISA, if applicable, are met.
As used in this Section 2.1(cc), the term "Plan" shall mean an "employee pension
benefit plan" (as defined in Section 3 of ERISA) which is or has been
established or maintained, or to which contributions are or have been made, by
the Company or any Subsidiary or by any trade or business, whether or not
incorporated, which, together with the Company or any Subsidiary, is under
common control, as described in Section 414(b) or (c) of the Code.
(dd) Dilutive Effect. The Company understands and acknowledges that the
number of Conversion Shares issuable upon conversion of the Notes and the
Warrant Shares issuable upon exercise of the Warrants will increase in certain
circumstances. The Company further acknowledges that its obligation to issue
Conversion Shares upon conversion of the Notes in accordance with this Agreement
and its obligations to issue the Warrant Shares upon the exercise of the
Warrants in accordance with this Agreement and the Warrants, is, in each case,
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interest of other stockholders of the Company.
(ee) Bankruptcy. The Company has no knowledge of or reason to believe that
it will file for bankruptcy within one year of the Initial Closing Date.
Section 2.2.Representations and Warranties of the Purchasers. Each of the
Purchasers hereby makes the following representations and warranties to the
Company with respect solely to itself and not with respect to any other
Purchaser:
(a) Organization and Standing of the Purchasers. If the Purchaser is an
entity, such Purchaser is a corporation, limited liability company or
partnership duly incorporated or organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization.
(b) Authorization and Power. Each Purchaser has the requisite power and
authority to enter into and perform the Transaction Documents and to purchase
the Notes and Warrants being sold to it hereunder. The execution, delivery and
performance of the Transaction Documents by each Purchaser and the consummation
by it of the transactions contemplated hereby have been duly authorized by all
necessary corporate or partnership action, and no further consent or
authorization of such Purchaser or its Board of Directors, stockholders, or
partners, as the case may be, is required. This Agreement has been duly
authorized, executed and delivered by each Purchaser. The other Transaction
Documents constitute, or shall constitute when executed and delivered, a valid
and binding obligations of each Purchaser enforceable against such Purchaser in
accordance with their terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation,
conservatorship, receivership or similar laws relating to, or affecting
generally the enforcement of, creditor's rights and remedies or by other
equitable principles of general application.
(c) No Conflicts. The execution, delivery and performance of the
Transaction Documents by each Purchaser and the consummation by each Purchaser
of the transactions contemplated hereby and thereby do not and will not (i)
violate any provision of such Purchaser's Articles or Bylaws, (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which such Purchaser is a party or by which such Purchaser's properties or
assets are bound, (iii) create or impose a lien, mortgage, security interest,
charge or encumbrance of any nature on any property or asset of such Purchaser
under any agreement or any commitment to which such Purchaser is a party or by
which such Purchaser is bound or by which any of its properties or assets are
bound, or (iv) result in a violation of any federal, state, local or foreign
statute, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations) applicable to such Purchaser or by which
any property or asset of such Purchaser are bound or affected, except, in all
cases other than violations pursuant to clauses (i) or (iv) above, for such
conflicts, defaults, terminations, amendments, acceleration, cancellations and
violations as would not, individually or in the aggregate, have a material and
adverse effect on the operations of the Purchasers. The business of each
Purchaser is not being conducted in violation of any laws, ordinances or
regulations of any governmental entity, except for possible violations which
singularly or in the aggregate do not and will not have a material and adverse
effect on the operations of the Purchasers. Each Purchaser is not required under
federal, state, foreign or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under the Transaction Documents or to purchase the Notes, the
Warrants, the Conversion Shares and the Warrant Shares in accordance with the
terms hereof or thereof.
(d) Acquisition for Investment. Each Purchaser is purchasing the Notes and
acquiring the Warrants solely for its own account for the purpose of investment
and not with a view to or for sale in connection with distribution. Each
Purchaser does not have a present intention to sell any of the Securities, nor a
present arrangement (whether or not legally binding) or intention to effect any
distribution of any of the Securities to or through any person or entity;
provided, however, that by making the representations herein and subject to
Section 2.2(f) below, each Purchaser does not agree to hold any of the
Securities for any minimum or other specific term and reserves the right to
dispose of any of the Securities at any time in accordance with federal and
state securities laws applicable to such disposition. Each Purchaser
acknowledges that it (i) has such knowledge and experience in financial and
business matters such that Purchaser is capable of evaluating the merits and
risks of Purchaser's investment in the Company and is (ii) able to bear the
financial risks associated with an investment in the Securities and (iii) that
it has been given full access to such records of the Company and the
Subsidiaries and to the officers of the Company and the Subsidiaries as it has
deemed necessary or appropriate to conduct its due diligence investigation.
(e) Rule 144. Each Purchaser understands that the Securities must be held
indefinitely unless such Securities are registered under the Securities Act or
an exemption from registration is available. Each Purchaser acknowledges that
such person is familiar with Rule 144 of the rules and regulations of the
Commission, as amended, promulgated pursuant to the Securities Act ("Rule 144"),
and that such Purchaser has been advised that Rule 144 permits resales only
under certain circumstances. Each Purchaser understands that to the extent that
Rule 144 is not available, such Purchaser will be unable to sell any Securities
without either registration under the Securities Act or the existence of another
exemption from such registration requirement.
(f) General. Each Purchaser understands that the Securities are being
offered and sold in reliance on a transactional exemption from the registration
requirements of federal and state securities laws and the Company is relying
upon the truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of such Purchaser set forth herein in order
to determine the applicability of such exemptions and the suitability of such
Purchaser to acquire the Securities. Each Purchaser understands that no United
States federal or state agency or any government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
(g) Opportunities for Additional Information. Each Purchaser acknowledges
that such Purchaser has had the opportunity to ask questions of and receive
answers from, or obtain additional information from, the executive officers of
the Company concerning the financial and other affairs of the Company, and to
the extent deemed necessary in light of such Purchaser's personal knowledge of
the Company's affairs, such Purchaser has asked such questions and received
answers to the full satisfaction of such Purchaser, and such Purchaser desires
to invest in the Company.
(h) No General Solicitation. Each Purchaser acknowledges that the
Securities were not offered to such Purchaser by means of any form of general or
public solicitation or general advertising, or publicly disseminated
advertisements or sales literature, including (i) any advertisement, article,
notice or other communication published in any newspaper, magazine, or similar
media, or broadcast over television or radio, or (ii) any seminar or meeting to
which such Purchaser was invited by any of the foregoing means of
communications.
(i) Accredited Investor. Each Purchaser is an accredited investor (as
defined in Rule 501 of Regulation D), and such Purchaser has such experience in
business and financial matters that it is capable of evaluating the merits and
risks of an investment in the Securities. Each Purchaser acknowledges that an
investment in the Securities is speculative and involves a high degree of risk.
(j) Limitations on Short Sales. The Purchasers agree that they will not
enter into any Short Sales (as hereinafter defined) from the period commencing
on the Closing Date and ending on the date which all of the Notes have been
converted and all of the Warrants have been exercised and such Conversion Shares
and Warrant Shares are covered by the Registration Statement (as defined in the
Registration Rights Agreement). For purposes of this Section 2.2(j), a "Short
Sale" by a Purchaser shall mean a sale of Common Stock by a Purchaser that is
marked as a short sale and that is made at a time when there is no equivalent
offsetting long position in Common Stock held by such Purchaser. For purposes of
determining whether there is an equivalent offsetting long position in Common
Stock held by a Purchaser, Conversion Shares that have not yet been converted
pursuant to the Notes and Warrant Shares that have not yet been issued upon
exercise of the Warrants shall be deemed to be held long by such Purchaser, and
the amount of shares of Common Stock held in a long position shall be the number
of Conversion Shares issuable upon conversion of the Notes assuming such holder
converted all the outstanding principal amount of the Notes on such date and
with respect to Warrant Shares, the number of Warrant Shares issuable upon
exercise of the Warrants assuming such holder exercised all of the Warrants on
such date.
ARTICLE III
Covenants
The Company covenants with each Purchaser as follows, which covenants are
for the benefit of each Purchaser and their respective permitted assignees.
Section 3.1.Securities Compliance. The Company shall notify the Commission
in accordance with their rules and regulations, of the transactions contemplated
by any of the Transaction Documents and shall take all other necessary action
and proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to the
Purchasers, or their respective subsequent holders.
Section 3.2.Registration and Listing. The Company will cause its Common
Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, will comply in all respects with its reporting and filing obligations under
the Exchange Act, will comply with all requirements related to any registration
statement filed pursuant to this Agreement, and will not take any action or file
any document (whether or not permitted by the Securities Act or the rules
promulgated thereunder) to terminate or suspend such registration or to
terminate or suspend its reporting and filing obligations under the Exchange Act
or Securities Act, except as permitted herein. The Company shall take all action
necessary to continue the listing or trading of its Common Stock on the American
Stock Exchange or any successor market. The Company will promptly file the
"Listing Application" for, or in connection with, the issuance and delivery of
the Conversion Shares and the Warrant Shares.
Section 3.3.Inspection Rights. The Company shall permit, during normal
business hours and upon reasonable request and reasonable notice, a Purchaser or
any employees, agents or representatives thereof, so long as a Purchaser shall
be obligated hereunder to purchase the Notes or shall beneficially own the
Notes, or shall own Conversion Shares, Warrant Shares or the Warrants to
purchase Warrant Shares which, in the aggregate, represent more than two percent
(2%) of the total combined voting power of all voting securities then
outstanding, to examine and make reasonable copies of and extracts from the
records and books of account of, and visit and inspect, during the term of the
Notes and Warrants, the properties, assets, operations and business of the
Company and any Subsidiary, and to discuss the affairs, finances and accounts of
the Company and any Subsidiary with any of its officers, consultants, directors,
and key employees.
Section 3.4.Compliance with Laws. The Company shall comply, and cause each
Subsidiary to comply, with all applicable laws, rules, regulations and orders,
noncompliance with which could have a Material Adverse Effect.
Section 3.5.Keeping of Records and Books of Account. The Company shall keep
and cause each Subsidiary to keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Company and its
Subsidiaries, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
Section 3.6.Reporting Requirements. The Company shall furnish three (3)
copies of the following to the Purchasers in a timely manner so long as the
Purchasers shall be obligated hereunder to purchase the Notes or shall
beneficially own the Notes or Warrants, or shall own Conversion Shares or
Warrant Shares which, in the aggregate, represent more than one percent (1%) of
the total combined voting power of all voting securities then outstanding:
(a) Quarterly Reports filed with the Commission on Form 10-Q as soon as
available, and in any event within forty-five (45) days after the end of each of
the first three (3) fiscal quarters of the Company;
(b) Annual Reports filed with the Commission on Form 10-K as soon as
available, and in any event within one hundred six (106) days after the end of
each fiscal year of the Company; and
(c) Copies of all notices and information, including without limitation
notices and proxy statements in connection with any meetings, that are provided
to holders of shares of Common Stock, contemporaneously with the delivery of
such notices or information to such holders of Common Stock.
Section 3.7.Amendments. The Company shall not amend or waive any provision
of the Articles or Bylaws of the Company in any way that would adversely affect
the exercise rights, voting rights, prepayment rights or redemption rights of
the holder of the Notes or the Warrants.
Section 3.8.Other Agreements. The Company shall not enter into any
agreement in which the terms of such agreement would restrict or impair the
right or ability to perform of the Company or any Subsidiary under any
Transaction Document.
Section 3.9.Distributions. Except as set forth on Schedule 3.9 hereto and
with respect to the Company's series E convertible preferred stock, so long as
any Notes remain outstanding, the Company agrees that it shall not, without the
prior written consent of a majority of the Purchasers pursuant to Section 8.3,
which consent may be granted or denied in the sole discretion of the Purchasers
(i) declare or pay any dividends (other than a stock dividend or stock split) or
make any distributions to any holder(s) of Common Stock or (ii) purchase or
otherwise acquire for value, directly or indirectly, any Common Stock or other
equity security of the Company.
Section 3.10 Subsequent Financings; Right of First Refusal. (a) So long as
the Notes remain outstanding, during the period commencing on the Initial
Closing Date and ending on the later of (i) the one hundred eightieth (180th)
day after the Effectiveness Date and (ii) the date that (A) fifty percent (50%)
of each Purchaser's Notes are no longer outstanding and (B) fifty percent (50%)
of all of the Notes in the aggregate are no longer outstanding, the Company
covenants and agrees that it will not, without the prior written consent of the
holders of a majority of the principal amount of the Notes outstanding at the
time consent is required, enter into any subsequent offer or sale to, or
exchange with (or other type of distribution to), any third party (a "Subsequent
Financing"), of Common Stock or any securities convertible, exercisable or
exchangeable into Common Stock, including convertible and non-convertible debt
securities (collectively, the "Financing Securities"). For purposes of this
Agreement, a Permitted Financing (as defined hereinafter) shall not be
considered a Subsequent Financing. A "Permitted Financing" shall mean (1) shares
of Common Stock to be issued to strategic partners and/or in connection with a
strategic merger or acquisition; (2) shares of Common Stock or the issuance of
options to purchase shares of Common Stock to employees, officers, directors,
consultants and vendors in accordance with the Company's equity incentive
policies; (3) the issuance of securities pursuant to the conversion or exercise
of convertible or exercisable securities issued or outstanding prior to the date
hereof; (4) shares of Common Stock to be issued pursuant to the Common Stock
Purchase Agreement dated as of April 11, 2001 by and between the Company and the
purchaser named therein (the "April Purchase Agreement") so long as the Company
complies with the terms and provisions of Section 3.22 hereof; and (v) shares of
Common Stock to be issued to key officers of the Company in lieu of their
respective salaries; provided, however, that such key officers execute a Lock-Up
Agreement in substantially the form as Exhibit H hereto, and provided, further,
that the shares of Common Stock to be issued to such key officers in lieu of
their respective salaries does not exceed the amount of such salary divided by
the closing bid price of the Common Stock on the date prior to the issuance of
such shares of Common Stock.
(b) So long as the Notes remain outstanding, the Company covenants and
agrees to promptly notify (in no event later than five (5) days after making or
receiving an applicable offer) in writing (a "Rights Notice") the Purchasers of
the terms and conditions of any proposed Subsequent Financing. The Rights Notice
shall describe, in reasonable detail, the proposed Subsequent Financing, the
proposed closing date of the Subsequent Financing, which shall be within thirty
(30) calendar days from the date of the Rights Notice, including, without
limitation, all of the terms and conditions thereof. The Rights Notice shall
provide each Purchaser an option (the "Rights Option") during the thirty (30)
calendar day period following delivery of the Rights Notice (the "Option
Period") to purchase such amount as the Company and each Purchaser may agree to
up to such Purchaser's pro rata portion of the Purchase Price or if the Second
Closing is not consummated, the amount purchased pursuant to the First Closing,
of the securities being offered in such Subsequent Financing on the same,
absolute terms and conditions as contemplated by such Subsequent Financing (the
"First Refusal Rights"). Delivery of any Rights Notice constitutes a
representation and warranty by the Company that there are no other material
terms and conditions, arrangements, agreements or otherwise except for those
disclosed in the Rights Notice, to provide additional compensation to any party
participating in any proposed Subsequent Financing, including, but not limited
to, additional compensation based on changes in the Purchase Price or any type
of reset or adjustment of a purchase or conversion price or to issue additional
securities at any time after the closing date of a Subsequent Financing. If the
Company does not receive notice of exercise of the Rights Option from any of the
Purchasers within the Option Period, the Company shall have the right to close
the Subsequent Financing on the scheduled closing date with a third party;
provided that all of the terms and conditions of the closing are the same as
those provided to the Purchasers in the Rights Notice. If the closing of the
proposed Subsequent Financing does not occur on that date, any closing of the
contemplated Subsequent Financing or any other Subsequent Financing shall be
subject to all of the provisions of this Section 3.10, including, without
limitation, the delivery of a new Rights Notice.
(c) Commencing on the Initial Closing Date and ending on the date that all
of the Notes are no longer outstanding, if the Company enters into any
Subsequent Financing on terms more favorable than the terms governing the Notes
and Warrants, then the Purchasers in their sole discretion may exchange the
Notes and Warrants together with accrued but unpaid interest (which interest
shall be payable, at the sole option of the Purchasers, in cash or in the form
of the new securities to be issued in the Subsequent Financing) for the
securities issued or to be issued in the Subsequent Financing. The Company
covenants and agrees to promptly notify in writing the Purchasers of the terms
and conditions of any such proposed Subsequent Financing.
Section 3.11 Reservation of Shares. So long as the Notes or Warrants remain
outstanding, the Company shall take all action necessary to at all times have
authorized, and reserved for the purpose of issuance, 200% of the maximum number
of shares of Common Stock to effect the conversion of the Notes and any interest
accrued and outstanding thereon and exercise of the Warrants.
Section 3.12 Transfer Agent Instructions. The Company shall issue
irrevocable instructions to its transfer agent, and any subsequent transfer
agent, to issue certificates, registered in the name of the Purchasers or their
respective nominee(s), for the Conversion Shares and the Warrant Shares in such
amounts as specified from time to time by the Purchasers to the Company upon
conversion of the Notes or exercise of the Warrants, in the form of Exhibit E
attached hereto (the "Irrevocable Transfer Agent Instructions"). Prior to
registration of the Conversion Shares and the Warrant Shares under the
Securities Act, all such certificates shall bear the restrictive legend
specified in Section 5.1 of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 3.12 will be given by the Company to its transfer agent and that
the Securities shall otherwise be freely transferable on the books and records
of the Company as and to the extent provided in this Agreement. Nothing in this
Section 3.12 shall affect in any way the Purchasers' obligations and agreements
set forth in Section 5.1 to comply with all applicable prospectus delivery
requirements, if any, upon the resale of the Conversion Shares and the Warrant
Shares. If a Purchaser provides the Company with an opinion of counsel, in a
generally acceptable form, substance and scope, to the effect that a public
sale, assignment or transfer of the Securities may be made without registration
under the Securities Act or the Purchasers provide the Company with reasonable
assurances that the Securities can be sold pursuant to Rule 144 without any
restriction as to the number of securities acquired as of a particular date that
can then be immediately sold, the Company shall permit the transfer, and, in the
case of the Conversion Shares and the Warrant Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by the Purchasers and without any restrictive legend.
The Company acknowledges that a breach by it of its obligations under this
Section 3.12 will cause irreparable harm to the Purchasers by vitiating the
intent and purpose of the transaction contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Section 3.12 will be inadequate and agrees, in the event of a breach
or threatened breach by the Company of the provisions of this Section 3.12, that
the Purchasers shall be entitled, in addition to all other available remedies,
to an order and/or injunction restraining any breach and requiring immediate
issuance and transfer, without the necessity of showing economic loss and
without any bond or other security being required.
Section 3.13 Disposition of Assets. So long as the Notes remain
outstanding, neither the Company nor any Subsidiary shall sell, transfer or
otherwise dispose of any of its properties, assets and rights including, without
limitation, its software and intellectual property, to any person except for
sales to customers in the ordinary course of business or with the prior written
consent of the holders of a majority of the principal amount of the Notes then
outstanding.
Section 3.14 Repayment of Other Indebtedness. So long as the Notes remain
outstanding, the Company shall not repay any Indebtedness for borrowed money
owed by the Company to any officer, director, affiliate or insider of the
Company.
Section 3.15 Insiders Lock-Up. The persons listed on Schedule 3.15 hereto
shall be subject to the terms and provisions of a lock-up agreement in
substantially the form as Exhibit H hereto (the "Lock-Up Agreement"), which
shall provide the manner in which such persons will sell, transfer or dispose of
their shares of the Company's Common Stock.
Section 3.16 Intentionally Omitted.
---------------------
Section 3.17 Non-public Information. Neither the Company nor any of its
officers or agents shall disclose any material non-public information about the
Company to the Purchasers and neither the Purchasers nor any of their
affiliates, officers or agents will solicit any material non-public information
from the Company.
Section 3.18 Form S-3 Eligibility. The Company meets the requirements for
the use of Form S-3 under the Securities Act to register for re-sale the shares
of Common Stock pursuant to the Registration Rights Agreement.
Section 3.19 Stockholder Approval. If required as a result of the issuance
of the Notes and Warrants, the Company shall obtain the vote of its shareholders
as required by the applicable rules and regulations of the American Stock
Exchange (or any successor entity) applicable to approve the issuance of shares
of Common Stock upon conversion of the Notes and/or exercise of the Warrants in
excess of 19.99% of the number of shares of Common Stock outstanding immediately
prior to the date hereof.
Section 3.20 Registration Statement. The Company shall not file any
registration statement under the Securities Act registering shares of Common
Stock issued to any insiders of the Company until the date that is at least two
hundred seventy (270) days following the Effectiveness Date.
Section 3.21 Investment Relations Firm. So long as the Notes remain
outstanding, the Company shall continue to employ the services of a nationally
recognized investment relations firm satisfactory to the Purchasers (the
"Investment Relations Firm").
Section 3.22 April Purchase Agreement. If the Company maintains a balance
of less than $1,000,000 (the "Minimum Balance") in its bank account in any
month, it may draw down the maximum amount allowable for such month under the
April Purchase Agreement. If the Company maintains a balance of greater than the
Minimum Balance in its bank account in any month, it may draw down up to
$235,000 per month pursuant to the April Purchase Agreement; provided, however,
that if the Company draws down in excess of $235,000 pursuant to the April
Purchase Agreement in any month during which the Company maintains a balance of
greater than the Minimum Balance in its bank account, the Company shall repay
the principal amount of the Notes equal to the amount drawn down in excess of
$235,000 at a price equal to 130% of the aggregate principal amount of the Notes
plus all accrued and unpaid interest. The Minimum Balance shall be increased to
$1,500,000 upon the later of (i) January 1, 2003 and (ii) the date that (A)
fifty percent (50%) of each Purchaser's Notes are no longer outstanding and (B)
fifty percent (50%) of all of the Notes in the aggregate are no longer
outstanding.
ARTICLE IV
Conditions
Section 4.1.Conditions Precedent to the Obligation of the Company to Close
and to Sell the Notes and Warrants. The obligation hereunder of the Company to
close and issue and sell the Notes and the Warrants to the Purchasers at the
Closing Date is subject to the satisfaction or waiver, at or before the Closing
of the conditions set forth below. These conditions are for the Company's sole
benefit and may be waived by the Company at any time in its sole discretion.
(a) Accuracy of the Purchasers' Representations and Warranties. The
representations and warranties of each the Purchaser shall be true and correct
in all material respects as of the date when made and as of the Closing Date as
though made at that time, except for representations and warranties that are
expressly made as of a particular date, which shall be true and correct in all
material respects as of such date.
(b) Performance by the Purchasers. Each Purchaser shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Purchasers at or prior to the Closing Date.
(c) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.
(d) Delivery of Purchase Price. The Purchase Price for the Notes and
Warrants has been delivered to the Escrow Agent at the applicable Closing Date.
(e) Delivery of Transaction Documents. The Transaction Documents have been
duly executed and delivered by the Purchasers to the Company at the Initial
Closing Date.
Section 4.2.Conditions Precedent to the Obligation of the Purchasers to
Close and to Purchase the Notes and Warrants. The obligation hereunder of the
Purchasers to purchase the Notes and Warrants and consummate the transactions
contemplated by this Agreement is subject to the satisfaction or waiver, at or
before the Closing Date, of each of the conditions set forth below. These
conditions are for the Purchasers' sole benefit and may be waived by the
Purchasers at any time in their sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each of the
representations and warranties of the Company in this Agreement, the
Registration Rights Agreement, the Security Agreement and the Notes shall be
true and correct in all material respects as of the Closing Date, except for
representations and warranties that speak as of a particular date, which shall
be true and correct in all material respects as of such date.
(b) Performance by the Company. The Company shall have performed, satisfied
and complied in all respects with all covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
Company at or prior to the Closing Date.
(c) No Suspension, Etc. From the date hereof to each Closing Date, trading
in the Company's Common Stock shall not have been suspended by the Commission
(except for any suspension of trading of limited duration agreed to by the
Company, which suspension shall be terminated prior to the Closing), and, at any
time prior to each Closing Date, trading in securities generally as reported by
Bloomberg Financial Markets ("Bloomberg") shall not have been suspended or
limited, or minimum prices shall not have been established on securities whose
trades are reported by Bloomberg, or on the New York Stock Exchange, nor shall a
banking moratorium have been declared either by the United States or New York
State authorities, nor shall there have occurred any national or international
calamity or crisis of such magnitude in its effect on any financial market
which, in each case, in the reasonable judgment of the Purchasers, makes it
impracticable or inadvisable to purchase the Notes.
(d) No Injunction. No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.
(e) No Proceedings or Litigation. No action, suit or proceeding before any
arbitrator or any governmental authority shall have been commenced, and no
investigation by any governmental authority shall have been threatened, against
the Company or any Subsidiary, or any of the officers, directors or affiliates
of the Company or any Subsidiary seeking to restrain, prevent or change the
transactions contemplated by this Agreement, or seeking damages in connection
with such transactions.
(f) Opinion of Counsel, Etc. The Purchasers shall have received an opinion
of counsel to the Company, dated the date of such Closing, in the form of
Exhibit F hereto and such other certificates and documents as the Purchasers or
their counsel shall reasonably require incident to such Closing.
(g) Warrants and Notes. At the Initial Closing, the Company shall have
delivered the originally executed Warrants (in such denominations as each
Purchaser may request) to the Escrow Agent. At each Closing, the Company shall
have delivered the originally executed Notes (in such denominations as each
Purchaser may request) to the Escrow Agent being acquired by the Purchasers at
such Closing.
(h) Resolutions. The Board of Directors of the Company shall have adopted
resolutions consistent with Section 2.1(b) hereof in a form reasonably
acceptable to the Purchasers (the "Resolutions").
(i) Reservation of Shares. As of each Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for the purpose
of effecting the conversion of the Notes and the exercise of the Warrants, a
number of shares of Common Stock equal to at least 200% of the aggregate number
of Conversion Shares issuable upon conversion of the Notes outstanding on each
Closing Date and the number of Warrant Shares issuable upon exercise of the
Warrants assuming the Warrants were granted on the Initial Closing Date (after
giving effect to the Notes and the Warrants to be issued on each Closing Date
and assuming the Notes and Warrants were fully convertible or exercisable on
such date regardless of any limitation on the timing or amount of such
conversions or exercises).
(j) Transfer Agent Instructions. The Irrevocable Transfer Agent
Instructions, in the form of Exhibit E attached hereto, shall have been
delivered to and acknowledged in writing by the Company's transfer agent.
(k) Secretary's Certificate. The Company shall have delivered to the
Purchasers a secretary's certificate, dated as of each Closing Date, as to (i)
the Resolutions, (ii) the Articles, (iii) the Bylaws, each as in effect at the
Closing, and (iv) the authority and incumbency of the officers of the Company
executing the Transaction Documents and any other documents required to be
executed or delivered in connection therewith.
(l) Officer's Certificate. On each Closing Date, the Company shall have
delivered to the Purchasers a certificate of an executive officer of the
Company, dated as of each Closing Date, confirming the accuracy of the Company's
representations, warranties and covenants as of each Closing Date and confirming
the compliance by the Company with the conditions precedent set forth in this
Section 4.2 as of each Closing Date.
(m) Security Agreement. As of the Initial Closing Date, the parties shall
have entered into the security agreement in the form of Exhibit G attached
hereto.
(n) UCC-1 Financing Statements. The Company shall have filed all UCC-1
financing statements in form and substance satisfactory to the Purchasers at the
appropriate offices to create a valid and perfected security interest in the
Collateral (as defined in the Security Agreement).
(o) Judgment, Lien and UCC Search. A judgment, lien and UCC financing
statement search shall have been completed by the Purchasers.
(p) Lock-Up Agreement. As of the Initial Closing Date, the persons listed
on Schedule 3.15 hereto shall have delivered to the Purchasers a fully executed
Lock-Up Agreement in the form of Exhibit H attached hereto.
(q) Escrow Agreement. As of the Initial Closing Date, the parties shall
have entered into the Escrow Agreement in the Form of Exhibit D attached hereto.
(r) Fees and Expenses. As of each Closing Date, all fees and expenses
required to be paid by the Company shall have been or authorized to be paid by
the Company as of each Closing Date.
(s) Registration Rights Agreement. As of the Initial Closing Date, the
parties shall have entered into the Registration Rights Agreement in the Form of
Exhibit I attached hereto.
(t) Material Adverse Effect. No Material Adverse Effect shall have
occurred.
(u) Investment Relations Firm. The Company shall have retained the services
of the Investment Relations Firm.
(v) Unqualified Opinion. As of each Closing Date, the Company's auditors
shall have issued an unqualified opinion to the Company.
ARTICLE V
Certificate Legend
Section 5.1.Legend. Each certificate representing the Notes, the Conversion
Shares, the Warrants and the Warrant Shares shall be stamped or otherwise
imprinted with a legend substantially in the following form (in addition to any
legend required by applicable state securities or "blue sky" laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE
SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR CEL-SCI
CORPORATION SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT
REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE
PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
The Company agrees to reissue certificates representing any of the
Securities, without the legend set forth above if at such time, prior to making
any transfer of any such Securities, such holder thereof shall give written
notice to the Company describing the manner and terms of such transfer and
removal as the Company may reasonably request. Such proposed transfer will not
be effected until: (a) the Company has notified such holder that either (i) in
the opinion of Company counsel, the registration of the Notes, Conversion
Shares, Warrants or Warrant Shares under the Securities Act is not required in
connection with such proposed transfer; or (ii) a registration statement under
the Securities Act covering such proposed disposition has been filed by the
Company with the Commission and has become effective under the Securities Act;
and (b) the Company has notified such holder that either: (i) in the opinion of
Company counsel, the registration or qualification under the securities or "blue
sky" laws of any state is not required in connection with such proposed
disposition, or (ii) compliance with applicable state securities or "blue sky"
laws has been effected. The Company will use its best efforts to respond to any
such notice from a holder within five (5) days. In the case of any proposed
transfer under this Section 5, the Company will use reasonable efforts to comply
with any such applicable state securities or "blue sky" laws, but shall in no
event be required, in connection therewith, to qualify to do business in any
state where it is not then qualified or to take any action that would subject it
to tax or to the general service of process in any state where it is not then
subject. The restrictions on transfer contained in Section 5.1 shall be in
addition to, and not by way of limitation of, any other restrictions on transfer
contained in any other section of this Agreement.
ARTICLE VI
Termination
Section 6.1.Termination by Mutual Consent. If the Initial Closing has not
been consummated by January 10, 2003, this Agreement shall automatically
terminate unless extended by the mutual written consent of the Company and the
Purchasers.
Section 6.2.Effect of Termination. In the event of termination by the
Company or the Purchasers, written notice thereof shall forthwith be given to
the other party and the transactions contemplated by this Agreement shall be
terminated without further action by either party. If this Agreement is
terminated as provided in Section 6.1 herein, this Agreement shall become void
and of no further force and effect, except for Sections 8.1 and 8.2, and Article
VII herein. Nothing in this Section 6.2 shall be deemed to release the Company
or any Purchaser from any liability for any breach under this Agreement, or to
impair the rights of the Company and such Purchaser to compel specific
performance by the other party of its obligations under this Agreement.
ARTICLE VII
Indemnification
Section 7.1.General Indemnity. The Company agrees to indemnify and hold
harmless each Purchaser (and its respective directors, officers, affiliates,
agents, successors and assigns) from and against any and all losses,
liabilities, deficiencies, costs, damages and expenses (including, without
limitation, reasonable attorneys' fees, charges and disbursements) incurred by
each Purchaser as a result of any inaccuracy in or breach of the
representations, warranties or covenants made by the Company herein. The
Purchasers severally but not jointly agree to indemnify and hold harmless the
Company and its directors, officers, affiliates, agents, successors and assigns
from and against any and all losses, liabilities, deficiencies, costs, damages
and expenses (including, without limitation, reasonable attorneys' fees, charges
and disbursements) incurred by the Company as result of any inaccuracy in or
breach of the representations, warranties or covenants made by the Purchasers
herein.
Section 7.2.Indemnification Procedure. Any party entitled to
indemnification under this Article VII (an "indemnified party") will give
written notice to the indemnifying party of any matters giving rise to a claim
for indemnification; provided, that the failure of any party entitled to
indemnification hereunder to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Article VII except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any action, proceeding or claim is brought against an
indemnified party in respect of which indemnification is sought hereunder, the
indemnifying party shall be entitled to participate in and, unless in the
reasonable judgment of the indemnified party a conflict of interest between it
and the indemnifying party may exist with respect to such action, proceeding or
claim, to assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. In the event that the indemnifying party advises an
indemnified party that it will contest such a claim for indemnification
hereunder, or fails, within thirty (30) days of receipt of any indemnification
notice to notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying party
elects in writing to assume and does so assume the defense of any such claim,
proceeding or action, the indemnified party's costs and expenses arising out of
the defense, settlement or compromise of any such action, claim or proceeding
shall be losses subject to indemnification hereunder. The indemnified party
shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the indemnified party which relates to such action or claim. The indemnifying
party shall keep the indemnified party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
the indemnifying party elects to defend any such action or claim, then the
indemnified party shall be entitled to participate in such defense with counsel
of its choice at its sole cost and expense. The indemnifying party shall not be
liable for any settlement of any action, claim or proceeding effected without
its prior written consent. Notwithstanding anything in this Article VII to the
contrary, the indemnifying party shall not, without the indemnified party's
prior written consent, settle or compromise any claim or consent to entry of any
judgment in respect thereof which imposes any future obligation on the
indemnified party or which does not include, as an unconditional term thereof,
the giving by the claimant or the plaintiff to the indemnified party of a
release from all liability in respect of such claim. The indemnification
required by this Article VII shall be made by periodic payments of the amount
thereof during the course of investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred, so long as the
indemnified party irrevocably agrees to refund such moneys if it is ultimately
determined by a court of competent jurisdiction that such party was not entitled
to indemnification. The indemnity agreements contained herein shall be in
addition to (a) any cause of action or similar rights of the indemnified party
against the indemnifying party or others, and (b) any liabilities the
indemnifying party may be subject to pursuant to the law.
ARTICLE VIII
Miscellaneous
Section 8.1.Fees and Expenses. Each party shall pay the fees and expenses
of its advisors, counsel, accountants and other experts, if any, and all other
expenses, incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement, provided, however, that
the Company shall pay such fees and expenses set forth on Schedule 2.1(p)
hereto, including a documentation and due diligence fee of $15,000 and all
reasonable attorneys' fees and expenses (exclusive of disbursements and
out-of-pocket expenses) incurred by the Purchasers in connection with the
preparation, negotiation, execution and delivery of this Agreement and the other
Transaction Documents and the transactions contemplated thereunder up to
$50,000. In addition, the Company shall pay all reasonable fees and expenses
incurred by the Purchasers in connection with any amendments, modifications or
waivers of this Agreement or any of the other Transaction Documents or incurred
in connection with the enforcement of this Agreement and any of the other
Transaction Documents, including, without limitation, all reasonable attorneys'
fees, disbursements and expenses.
Section 8.2.Specific Enforcement; Consent to Jurisdiction.
---------------------------------------------
(a) The Company and the Purchasers acknowledge and agree that irreparable
damage would occur in the event that any of the provisions of this Agreement or
the other Transaction Documents were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement or the other Transaction Documents
and to enforce specifically the terms and provisions hereof or thereof, this
being in addition to any other remedy to which any of them may be entitled by
law or equity.
(b) The Company and each Purchaser (i) hereby irrevocably submit to the
exclusive jurisdiction of the United States District Court sitting in the
Southern District of New York and the courts of the State of New York located in
New York county for the purposes of any suit, action or proceeding arising out
of or relating to this Agreement or any of the other Transaction Documents or
the transactions contemplated hereby or thereby and (ii) hereby waive, and agree
not to assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. The Company and each Purchaser consent to
process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing in this Section 8.2 shall affect
or limit any right to serve process in any other manner permitted by law. The
Company and the Purchasers hereby agree that the prevailing party in any suit,
action or proceeding arising out of or relating to the Notes, this Agreement,
the Registration Rights Agreement or the Warrants, shall be entitled to
reimbursement for reasonable legal fees from the non-prevailing party.
Section 8.3.Entire Agreement; Amendment. This Agreement and the Transaction
Documents contain the entire understanding and agreement of the parties with
respect to the matters covered hereby and, except as specifically set forth
herein or in the other Transaction Documents, neither the Company nor any
Purchaser make any representation, warranty, covenant or undertaking with
respect to such matters, and they supersede all prior understandings and
agreements with respect to said subject matter, all of which are merged herein.
No provision of this Agreement may be waived or amended other than by a written
instrument signed by the Company and the holders of at least a majority of the
principal amount of the Notes then outstanding, and no provision hereof may be
waived other than by a written instrument signed by the party against whom
enforcement of any such amendment or waiver is sought. No such amendment shall
be effective to the extent that it applies to less than all of the holders of
the Notes then outstanding. No consideration shall be offered or paid to any
person to amend or consent to a waiver or modification of any provision of any
of the Transaction Documents unless the same consideration is also offered to
all of the parties to the Transaction Documents or holders of Notes, as the case
may be.
Section 8.4.Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telecopy or facsimile at the
address or number designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the second
business day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:
If to the Company: Cel-Sci Corporation
8229 Boone Boulevard
Suite 802
Vienna, Virginia 22182
Attention: Geert Kersten
Telecopier: (703) 506-9460
Telephone: (703) 506-9471
with copies (which copies
shall not constitute notice
to the Company) to: William T. Hart, Esq.
Hart & Trinen L.L.P.
1624 Washington Street
Denver, Colorado 80203
Telecopier: (303) 839-5414
Telephone: (303) 839-0061
If to any Purchaser: At the address of such Purchaser set
forth on Exhibit A to this Agreement.
with copies to: Christopher S. Auguste, Esq.
Jenkens & Gilchrist Parker Chapin LLP
The Chrysler Building
405 Lexington Ave.
New York, New York 10174
Telecopier: (212) 704-6288
Telephone: (212) 704-6000
Any party hereto may from time to time change its address for notices by
giving at least ten (10) days written notice of such changed address to the
other party hereto.
Section 8.5.Waivers. No waiver by either party of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such right
accruing to it thereafter.
Section 8.6.Headings. The article, section and subsection headings in this
Agreement are for convenience only and shall not constitute a part of this
Agreement for any other purpose and shall not be deemed to limit or affect any
of the provisions hereof.
Section 8.7.Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns. After
the Closing, the assignment by a party to this Agreement of any rights hereunder
shall not affect the obligations of such party under this Agreement. The
Purchasers may assign the Notes, the Warrants and its rights under this
Agreement and the other Transaction Documents and any other rights hereto and
thereto without the consent of the Company.
Section 8.8.No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 8.9.Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to the choice of law provisions. This Agreement shall not be
interpreted or construed with any presumption against the party causing this
Agreement to be drafted.
Section 8.10 Survival. The representations and warranties of the Company
and the Purchasers contained in Sections 2.1(o) and 2.1(s) should survive
indefinitely and those contained in Article II, with the exception of Sections
2.1(o) and 2.1(s), shall survive the execution and delivery hereof and the
Closing until the date three (3) years from the Closing Date, and the agreements
and covenants set forth in Articles I, III, V, VII and VIII of this Agreement
shall survive the execution and delivery hereof and the Closing hereunder.
Section 8.11 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and shall become effective when counterparts have been signed by each
party and delivered to the other parties hereto, it being understood that all
parties need not sign the same counterpart.
Section 8.12 Publicity. The Company agrees that it will not disclose, and
will not include in any public announcement, the names of the Purchasers without
the consent of the Purchasers in accordance with Section 8.4, which consent
shall not be unreasonably withheld or delayed, or unless and until such
disclosure is required by law, rule or applicable regulation, and then only to
the extent of such requirement.
Section 8.13 Severability. The provisions of this Agreement are severable
and, in the event that any court of competent jurisdiction shall determine that
any one or more of the provisions or part of the provisions contained in this
Agreement shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision or part of a provision of this Agreement and this Agreement
shall be reformed and construed as if such invalid or illegal or unenforceable
provision, or part of such provision, had never been contained herein, so that
such provisions would be valid, legal and enforceable to the maximum extent
possible.
Section 8.14 Further Assurances. From and after the date of this Agreement,
upon the request of the Purchasers or the Company, the Company and each
Purchaser shall execute and deliver such instruments, documents and other
writings as may be reasonably necessary or desirable to confirm and carry out
and to effectuate fully the intent and purposes of this Agreement, the Notes,
the Warrants, the Security Agreement and the Registration Rights Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the date first above
written.
CEL-SCI CORPORATION
By: /s/ Geert R. Kersten
---------------------------------------
Name: Geert R. Kersten
Title: Chief Executive Officer
SDS MERCHANT FUND, L.P.
By: /s/ Steve Derby
---------------------------------------
Name: Steve Derby
Title: Managing Member
BRISTOL INVESTMENT FUND, LTD.
By: /s/ Paul Kessler
---------------------------------------
Name: Paul Kessler
Title: Director
January 7, 2003
Cel-Sci Corporation
8229 Boone Boulevard
Suite 802
Vienna, Virginia 22182
Attention: Geert Kersten
Re: Note and Warrant Purchase Agreement dated as of July 12,
2002
Gentlemen:
Reference is hereby made to (i) the Note and Warrant Purchase Agreement
(the "July 2002 Purchase Agreement") dated as of July 12, 2002 by and among
Cel-Sci Corporation (the "Company"), SDS Merchant Fund, L.P. and Bristol
Investment Fund, Ltd. (collectively, the "Purchasers"); (ii) the Convertible
Promissory Notes dated July 12, 2002 and September 16, 2002 issued to each of
the Purchasers (the "Notes"); (iii) the Warrants dated December 31, 2001 and
July 12, 2002 issued to each of the Purchasers (the "Warrants"); and (iv) the
Registration Rights Agreement (the "Registration Rights Agreement") dated as of
July 12, 2002 by and among the Company and the Purchasers. Capitalized terms
used and not otherwise defined herein shall have the meanings set forth for such
terms in the July 2002 Purchase Agreement.
Section 3.10 of the July 2002 Purchase Agreement requires that the
Purchasers consent to any Subsequent Financing of the Company. Notwithstanding
the terms and provisions of Section 3.10 of the July 2002 Purchase Agreement,
the Purchasers hereby consent to the entering into and consummation of the
$1,350,000 convertible debt transaction between certain investors and the
Company (the "Proposed Transaction"). Additionally, the Purchasers hereby
acknowledge that the entering into and consummation of the Proposed Transaction
shall not be deemed a default or a breach of any covenant under the Notes, the
July 2002 Purchase Agreement, the Warrants or the Registration Rights Agreement
and the issuance of any securities pursuant to the Proposed Transaction shall
not trigger any anti-dilution rights in favor of the Purchasers under the Notes
or Warrants.
Sincerely,
SDS MERCHANT FUND, L.P.
By: _____________________________
Name: Steve Derby
Title: Managing Member
BRISTOL INVESTMENT FUND, LTD.
By: _____________________________
Name: Paul Kessler
Title: Director
Schedule 1.1
Demand Note issued by Company to Bristol Investment Fund, Ltd.:
Principal Amount of Note: $25,000.00
Issue Date: November 14, 2002
Interest Rate: 7% per annum
Interest accrued as of Initial Closing Date: $258.90
Total Amount Due: $25,258.90
CEL-SCI CORPORATION
Schedule 2.1(c):
Common Stock
Number of
Shares
Shares of common stock outstanding as of
January 7, 2003 (see attachment H) 46,741,331
The following lists additional shares of CEL-SCI's common stock which may
be issued pursuant to the equity line of credit agreement, as the result of the
conversion of CEL-SCI's Series E Preferred stock and upon the exercise of other
outstanding options or warrants issued by CEL-SCI:
Number of Note
Shares Reference
Shares issuable pursuant to equity line of credit: Unknown A
Shares issuable upon exercise of warrants issued
in connection with equity line of credit (see 200,800 A
attachment A)
Shares issuable upon conversion of Series E 61,841 B
preferred stock
Shares issuable upon exercise of Series E 815,351 B
Warrants (see attachment B)
Shares issuable upon conversion of Series F 705,500 C
Warrants (See )
Shares issuable upon conversion of Notes Unknown D
Shares issuable upon converson of Series G 900,000 D
Warrants (See attachment D)
Shares issuable upon exercise of options granted 205,000 E
to investor relations consultants (See attachment E)
Shares issuable upon exercise of Public Warrants 116,405 F
(See attachment F)
Shares issuable upon exercise of options and 5,646,642 G
warrants granted to CEL-SCI's officers,
directors, employees, consultants, and third
parties (see attachment G)
Shares issuable to Cambrex Bio Sciences, Inc. Unknown H
A. An unknown number of shares of common stock are issuable under the equity
line of credit agreement between CEL-SCI and Paul Revere Capital Partners. As
consideration for extending the equity line of credit, CEL-SCI granted Paul
Revere Capital Partners warrants to purchase 200,800 shares of common stock at a
price of $1.64 per share at any time prior to April 11, 2004.
Under the equity line of credit agreement, Paul Revere Capital Partners
has agreed to provide CEL-SCI with up to $10,000,000 of funding prior to June
22, 2003. During this twenty-four month period, CEL-SCI may request a drawdown
under the equity line of credit by selling shares of its common stock to Paul
Revere Capital Partners and Paul Revere Capital Partners will be obligated to
purchase the shares. CEL-SCI may request a drawdown once every 22 trading days,
although CEL-SCI is under no obligation to request any drawdowns under the
equity line of credit.
During the 22 trading days following a drawdown request, CEL-SCI will
calculate the amount of shares it will sell to Paul Revere Capital Partners and
the purchase price per share. The purchase price per share of common stock will
be based on the daily volume weighted average price of CEL-SCI's common stock
during each of the 22 trading days immediately following the drawdown date, less
a discount of 11%.
CEL-SCI may request a drawdown by faxing a drawdown notice to Paul Revere
Capital Partners, Ltd., stating the amount of the drawdown and the lowest daily
volume weighted average price, if any, at which CEL-SCI is willing to sell the
shares. The lowest volume weighted average price will be set by CEL-SCI's Chief
Executive Officer in his sole and absolute discretion.
If CEL-SCI sets a minimum price which is too high and CEL-SCI's stock
price does not consistently meet that level during the 22 trading days after its
drawdown request, the amount CEL-SCI can draw and the number of shares CEL-SCI
will sell to Paul Revere Capital Partners will be reduced. On the other hand, if
CEL-SCI sets a minimum price which is too low and its stock price falls
significantly but stays above the minimum price, CEL-SCI will have to issue a
greater number of shares to Paul Revere Capital Partners based on the reduced
market price.
B. In December 1999 and January 2000, CEL-SCI sold 1,148,592 shares of its
common stock, plus Series A and Series B warrants, to Advantage Fund II, Koch
Investment Group Limited and Mooring Capital Fund LLC for $2,800,000. The Series
A warrants allowed the holders to purchase up to 402,007 shares of CEL-SCI's
common stock at a price of $2.925 per share at any time prior to December 8,
2002. CEL-SCI issued 274,309 shares of common stock upon the exercise of the
Series B warrants, which have since expired.
In March 2000, CEL-SCI sold 1,026,666 shares of its common stock, plus
Series C and Series D warrants, to the same private investors referred to above
for $7,700,000. The Series C warrants allowed the holders to purchase up to
413,344 shares of CEL-SCI's common stock at a price of $8.50 per share at any
time prior to March 21, 2003. The Series D warrants allowed the holders, to the
extent they held any shares purchased in the March 2000 offering, to acquire
additional shares of CEL-SCI's common stock at a nominal price in the event the
price of CEL-SCI's common stock fell below $7.50 per share prior to certain
fixed vesting dates. On the first fixed vesting date the price of CEL-SCI's
common stock was $1.47 and on the second, and final vesting date, the price of
CEL-SCI's common stock was $1.08. As a result, and in accordance with the terms
of the Series D warrants, the private investors were entitled to receive
5,734,155 additional shares of CEL-SCI's common stock, of which 3,520,123 shares
had been issued and 959,340 shares had been sold as of August 15, 2001.
On August 16, 2001 CEL-SCI, Advantage Fund II and Koch Investment Group
agreed to restructure the terms of the Series A, C and D warrants in the
following manner:
Advantage Fund II, Koch Investment Group Limited and Mooring Capital Fund
LLC exchanged the 3,588,564 shares of CEL-SCI's common stock which they owned,
plus their unexercised Series D Warrants, for 6,288 shares of CEL-SCI's Series E
Preferred stock. At the holder's option, each Series E Preferred share is
convertible into shares of CEL-SCI's common stock on the basis of one Series E
Preferred share for shares of common stock equal in number to the amount
determined by dividing $1,000 by the lesser of $5 or 93% of the average closing
bid prices (the "Conversion Price") of CEL-SCI's common stock on the American
Stock Exchange for the five days prior to the date of each conversion notice.
Notwithstanding the above, a maximum 923 shares of common stock are
issuable upon the conversion of each Series E Preferred share prior to August
16, 2003.
Each Series E Preferred share can be redeemed by CEL-SCI at a price of
$1,200 per share, plus accrued dividends, at any time prior to July 18, 2003. At
any time on or after July 18, 2003 and prior to the close of business on August
16, 2003 CEL-SCI may redeem any outstanding Series E Preferred shares at a price
of $1,000 per share.
Preferred shares that have not been redeemed or converted by August 16,
2003 will automatically convert to twice the number of shares of common stock
which such shares would otherwise convert into based upon the Conversion Price
on such date. On August 16, 2003 CEL-SCI will also be required to issue the
holders of any Series E Preferred shares which are then outstanding Series E
warrants which will allow the holders of the warrants to purchase shares of
CEL-SCI's common stock equal in number to 33% of the common shares which were
issued upon the conversion of the remaining Series E Preferred shares. These
warrants, if issued, will be exercisable at any time prior to August 17, 2006 at
a price equal to 110% of the volume weighted average price of CEL-SCI's common
stock for the five days prior to August 16, 2003.
Each Series E Preferred share is entitled to a quarterly dividend of $60
per share, payable in cash. Dividends not declared will accumulate. Except as
otherwise provided by law the Series E Preferred shares do not have any voting
rights. The Series E Preferred shares have a liquidation preference over
CEL-SCI's common stock.
As part of this transaction the three investors exchanged their Series A
and Series C warrants for new Series E warrants. The Series E warrants
collectively allow the holders to purchase up to 815,351 additional shares of
CEL-SCI's common stock at a price of $1.19 per share at any time prior to August
16, 2004.
With respect to the shares issuable upon the conversion of the Series E
Preferred shares or the exercise of the Series E warrants, Advantage II and Koch
have each agreed to limit their respective weekly sales of CEL-SCI's common
stock to 9% of the average of the four prior weeks traded volume as listed by
Bloomberg, while Mooring Financial will limit its weekly sales of CEL-SCI's
common stock to 2.14% of the average of the four prior weeks trading volume as
listed by Bloomberg. If CEL-SCI's trading volume reaches 200,000 shares or more
on any given day, each of Advantage II and Koch will be allowed to sell an
additional 4.5% of that day's trading volume on each of that day and the
following day, while Mooring Financial will be allowed to sell an additional 1%
of that day's trading volume on each of that day and the following day.
As of December 18, 2002 6,221 Series E Preferred shares had been converted
into 5,723,912 shares of CEL-SCI's common stock. The actual number of shares
issuable upon the conversion of the Series E Preferred shares will vary
depending upon a number of factors, including the price of CEL-SCI's common
stock at certain dates. Accordingly, the number of shares of common stock which
will be issued upon the conversion of the Series E Preferred shares cannot be
determined at this time. However, prior to August 16, 2003, CEL-SCI would not be
required to issue more than additional 61,841 shares of its common stock upon
the conversion of the Series E Preferred shares.
C. In December 2001 and January 2002, CEL-SCI sold convertible notes, plus
Series F warrants, to a group of private investors for $1,600,000. At the
holder's option the notes are convertible into shares of CEL-SCI's common stock
equal in number to the amount determined by dividing each $1,000 of note
principal to be converted by the Conversion Price. The Conversion Price is 76%
of the average of the 3 lowest daily trading prices of CEL-SCI's common stock on
the American Stock Exchange during the 20 trading days immediately prior to the
conversion date.
As of November 19, 2002 all of the convertible notes had been coverted
into 6,592,461 shares of CEL-SCI's common stock.
Series F warrants allow the holders to purchase up to 751,000 shares of
the Company's common stock at a price of $0.153 per share at any time prior to
December 31, 2008. If CEL-SCI sells any additional shares of common stock, or
any securities convertible into common stock, at a price below the then
applicable warrant exercise price or the market price of CEL-SCI's common stock,
the warrant exercise price and the number of shares of common stock issuable
upon the exercise of the warrant may be subject to adjustment. Every three
months after May 17, 2002 the warrant exercise price will be adjusted to an
amount equal to 110% of the Conversion Price of the notes on that date, provided
that the adjusted price is lower than the warrant exercise price on that date.
D. In July and September 2002, the Company sold convertible notes, plus Series G
warrants, to a group of private investors for $1,300,000. At the holder's option
the notes are convertible into shares of the Company's common stock equal in
number to the amount determined by dividing each $1,000 of note principal to be
converted by the Conversion Price. The Conversion Price is 76% of the average of
the three lowest daily trading prices of the Company's common stock on the
American Stock Exchange during the 15 trading days immediately prior to the
conversion date. The Conversion Price may not be less than $0.18. However, if
the Company's common stock trades for less than $0.24 per share for a period of
20 consecutive trading days, the $0.18 minimum price will no longer be
applicable. The Conversion Price will decline from 76% to 60% if (i) on any
trading day after September 9, 2002 the closing daily price of the Company's
common stock multiplied by the total number of shares of common stock traded on
that day is less than $29,977, (ii) the Company defaults in the performance of
any material covenant, condition or agreement with the holders of the notes or,
(iii) the Company's common stock is delisted from the American Stock Exchange.
As of December 18, 2002 convertible notes in the principal amount of
$740,000 had been converted into 4,857,923 shares of the Company's common stock.
The actual number of additional shares issuable upon the conversion of the notes
which remain outstanding will vary depending upon a number of factors, including
the price of the Company's common stock at certain dates. Accordingly, the
number of shares which may be issued upon the conversion of the notes cannot be
determined at this time.
The Series G warrants allow the holders to purchase up to 900,000 shares
of the Company's common stock at a price of $0.18 per share at any time prior to
July 12, 2009.
If the Company sells any additional shares of common stock, or any
securities convertible into common stock at a price below the then applicable
warrant exercise price, the warrant exercise price will be lowered to the price
at which the shares were sold or the lowest price at which the securities are
convertible, as the case may be. If the warrant exercise price is adjusted, the
number of shares of common stock issuable upon the exercise of the warrant will
be increased by the product of the number of shares of common stock issuable
upon the exercise of the warrant immediately prior to the sale multiplied by the
percentage by which the warrant exercise price is reduced.
E. CEL-SCI has granted options for the purchase of 205,000 shares of common
stock to certain investor relations consultants in consideration for services
provided to CEL-SCI. The options are exercisable at prices ranging between $1.63
and $ 3.50 per share and expire between June 2003 and June 2006.
F. The Public Warrants are exercisable at $3.00 per share and expire on February
6, 2003.
G. The options are exercisable at prices ranging from $0.16 to $11.00 per share.
CEL-SCI may also grant options to purchase additional shares under its Incentive
Stock Option and Non-Qualified Stock Option Plans.
H. In November 2001 the Company gave a promissory note to Cambrex Bio Sciences,
Inc., the owner of the manufacturing facility used by the Company to produce
MULTIKINE for the Company's clinical trials. The promissory note was in the
principal amount of $1,172,517 and represented the cost of the Company's use of
the Cambrex manufacturing facility for the three months ended January 10, 2002.
The amount due Cambrex bears interest at the prime interest rate plus 3% which
is adjusted monthly. The original due date of the note was January 3, 2002. In
December 2002, the Company negotiated an agreement to extend the note which is
due in full, including accrued interest, on January 2, 2004. Pursuant to the
agreement, of the Company surrendered a cash deposit and transfer title of
certain equipment to Cambrex, which reduced the amount due by $225,000. The
amount due Cambrex at December 30, 2002, excluding accrued interest, was
$947,517. Until the note is paid in full, the Company has agreed to pay Cambrex
$150,000 from its next financing, plus 10% of the amounts received by the
Company, net of financing costs, from any future financings, including amounts
received by the Company from its equity line of credit. Cambrex, at its option,
may convert all or part of the amount due Cambrex into shares of the Company's
common stock. The number of shares to be issued to Cambrex upon any conversion
of the note will be determined by dividing that portion of the note to be
converted by the Conversion Price. The "Conversion Price" is an amount equal to
90% of the average of the closing prices of the Company's common stock for the
three trading days immediately prior to the conversion date. However, the
Conversion Price may not be less than $0.22.
The shares referred above are being, or will be, offered for sale by means
of registration statements which have been filed with the Securities and
Exchange Commission.
Preferred Stock
Authorized Preferred shares: 200,000
Outstanding shares of Series E Preferred Stock: 67
Series F Notes and Warrants
Remaining principal amount due on Convertible Notes: $0
Warrants outstanding: 705,500
Other Registration Rights
Since June 30, 2002, the Company has issued 2,364,801 shares of its common
stock to officers, employees, directors, consultants, suppliers and vendors for
services and materials provided to the Company. The Company has agreed to file a
registration statement with the Securities and Exchange Commission to permit the
resale of these shares in the public market.
CEL-SCI CORPORATION
Schedule 2.1(f): Not applicable
Schedule 2.1(g): Subsidiaries
Viral Technologies
MaxPharma
Schedule 2.1(h): Not applicable
Schedule 2.1(i): Not applicable
Schedule 2.1 (j): Not applicable
Schedule 2.1(k): The Company signed a promissory note with Cambrex
Bioscience for $1,172,517. The note is due
January 2, 2004.
Schedule 2.1 (l): The Company surrendered certain equipment to Cambrex
Bioscience.
Schedule 2.1(m): Not applicable
Schedule 2.1(n): Not applicable
Schedule 2.1(o): Not applicable
Schedule 2.1(p): The Company shall pay a management fee on the Initial
Closing Date in an amount equal to [$35,333] to Chalfont
Hill Capital, LLC and shall pay a management fee on the
Second Closing Date in an amount equal to [$44,667] to
Chalfont Hill Capital, LLC.
The Company shall pay a management fee on the Initial
Closing Date in an amount equal to [$17,667] to Bristol
Investment Fund, Ltd. and shall pay a management fee on
the Second Closing Date in an amount equal to [$22,333]
to Bristol Investment Fund, Ltd.
Schedule 2.1(r): Not applicable
Schedule 2.1(s): The Company has a current Radioactive Material License
and a Radioactive Waste Transport Permit from the
Maryland Department of the Environment.
Schedule 2.1 (u): Not applicable
Schedule 2.1(v): Not applicable
Schedule 2.1(x): The Company will require the approval of its
shareholders to issue more than 20% of its outstanding
shares upon the conversion of the Note or the exercise
of the Warrant.
Schedule 2.1(y): Not applicable
Schedule 2.1(z)(i): Since June 30, 2002 the Company issued 12,390,799
shares of its common stock. (See attachment H)
Since June 30, 2002 the Company granted 20,000 options.
(See attachment I)
Schedule 2.1(z)(ii): The Company signed a promissory note, with Cambrex
Biocience for $1,172,517. The note is due January 4,
2004.
Schedule 3.15: Persons subject to Lockup Agreement:
o Maximilian de Clara
o Geert R. Kersten, Esq.
o Patricia B. Prichep
o Dr. Eyal Talor
o Dr. Daniel H. Zimmerman
o Alexander G. Esterhazy
o Dr. C. Richard Kinsolving
o Dr. Peter Young
ATTACHMENT A
- --------------------
Warrants
Equity Line of Credit
Issue Date:
04/11/01
Experation Date = 04/11/04
Total issued = 200,800
Exercise Price = $1.64
#warrants
Issued to Date issued Price
- ---------------------------------------------------
Paul Revere Capital 4/11/01 200,800 1.64
ATTACHMENT B
- ---------------------
Preferred Series E - Warrants Series E - Issued August 16, 2001
Total issued = 815,351
Exercise Price = $1.19
Expiration Date = 08/16/04
Advantage Fund II
- --------------------------------
Total # of
Warrants
------------
8/16/01
501,903
Koch Investment Group Limited
- --------------------------------
Total # of
Warrants
8/16/01 232,838
Mooring Capital Fund LLC
- --------------------------------
Total # of
Warrants
8/16/01 80,610
ATTACHMENT C
- ----------------------------------------
Series F - Warrants - Issued 12/31/01
Total Issued - 960,000
Expiration Date = 12/31/08
Total # of Exercise # warrantsConversion Common Stock Warrants
Warrants Date converted Price Issued Remaining
- --------------------------------------------------------------------------
420,000 09/12/02 50,000 0.19 50,000 370,000
370,000 12/9/02 150,000 0.153 150,000 220,000
-------- --------
Total converted: 200,000 200,000
Periscope Partners, L.P.: 120,000
- ----------------------------------------
Total # of Exercise # warrantsConversion Common Stock Warrants
Warrants Date converted Price Issued Remaining
- --------------------------------------------------------------------------
120,000 4/17/02 54,000 0.24 54,500 65,500
--------- ---------
Total converted: 54,500 54,500
SDS Merchant Fund, L.P.: 420,000
- ----------------------------------------
Total # of Exercise # warrantsConversion Common Stock Warrants
Warrants Date converted Price Issued Remaining
- --------------------------------------------------------------------------
420,000 420,000
ATTACHMENT D
- -----------------------------
Series G - Warrants
900,000 - 7/12/02
Bristol Investment Fund, Ltd.: 450,000
- --------------------------------------
Total # of
Warrants
-----------------
7/12/02 450,000
SDS Merchant Fund, L.P.:
450,000
- -----------------------------
Total # of
Warrants
-----------------
7/12/02 450,000
ATTACHMENT E
- -------------------
CEL-SCI
CORPORATION
STOCK OPTIONS:
Shares
Issuable
Upon
Exercise Date of Expiration
Issued to Date of Options Price Grant Date
- -----------------------------------------------------------------------------
Keys, Daryll 8/5/98 5,000 3.50 6/3/98 6/3/03
Gelles, Jonathan 2/4/99 50,000 2.50 2/4/99-25,000 2/4/04
3/4/99-12,500
8/4/99-12,500
Investor
Relations Group 6/1/01 150,000 1.63 6/01/01-12,500 6/1/06
7/01/01-12,500
8/01/01-12,500
9/01/01-12,500
10/1/01-12,500
11/1/01-12,500
12/1/01-12,500
01/1/02-12,500
2/01/02-12,500
3/01/02-12,500
4/01/02-12,500
5/01/02-12,500
--------
Total 205,000
ATTACHMENT F
- ---------------------
Public Warrants - Series A
Price - $3.00
Warrants Exp. Date
- ---------------------
116,405 2/6/03
ATTACHMENT G
- ---------------------
Total Shares Shares Reseved Remaining
Reserved Under for Outstanding Shares Issued Options/Shares
Name of Plan Plans Options as Stock Bonus Under Plans
- -----------------------------------------------------------------------------------
Incentive Stock
Option Plans 2,100,000 1,251,100 N/A 762,315
Non-Qualified Stock
Option Plans 5,760,000 4,023,434 N/A 589,105
Other
- ---------------------
Lamey Corp. 272,108
J. Rubin 75,000
Reedland Capital 25,000
Total Options Issued
- ---------------------
5,656,642
ATTACHMENT H
- ----------------------
Shares Issued since June 30, 2002
Shares
Shareholder Issue Date # Shares Price Program Outstanding
Advantage Fund II 07/31/02 193,419 1.08342 Series E Preferred 34,543,951
SDS Merchant Fund, L.P. 08/01/02 116,077 0.1723 Series F Convertible 34,660,028
Steve Dutton 08/12/02 7,500 0.20 n/a 34,667,528
Yvonne Duzant 08/12/02 15,000 0.20 n/a 34,682,528
Prakash George 08/12/02 3,646 0.20 n/a 34,686,174
Aaron Labrocca 08/12/02 19,798 0.20 n/a 34,705,972
Anna Lloyd 08/12/02 20,000 0.20 n/a 34,725,972
Tracey Ruane 08/12/02 20,000 0.20 n/a 34,745,972
Rebecca Santorios 08/12/02 20,000 0.20 n/a 34,765,972
Karen Cobb 08/15/02 844 0.16 n/a 34,766,816
Dawn Davis 08/15/02 1,203 0.16 n/a 34,768,019
Maximilian de Clara 08/15/02 267,190 0.16 n/a 35,035,209
Gavin de Windt 08/15/02 13,594 0.16 n/a 35,048,803
Geert Kersten 08/15/02 275,103 0.16 n/a 35,323,906
W. Brooke Jones 08/15/02 46,251 0.16 n/a 35,370,157
Patricia Prichep 08/15/02 79,667 0.16 n/a 35,449,824
Eyal Talor 08/15/02 101,694 0.16 n/a 35,551,518
M. Douglas Winship 08/15/02 31,012 0.16 n/a 35,582,530
Daniel Zimmerman 08/15/02 81,251 0.16 n/a 35,663,781
C. Richard Kinsolving 08/15/02 12,500 0.16 n/a 35,676,281
Peter Young 08/15/02 6,250 0.16 n/a 35,682,531
Advantage Fund II 08/27/02 242,640 1.08342 Series E Preferred 35,925,171
SDS Merchant Fund, L.P. 08/27/02 315,706 0.12670 Series F Convertible 36,240,877
Bristol DLP, LP 09/12/02 50,000 0.19 Series F Warrants 36,290,877
Bristol DLP, LP 09/19/02 277,778 0.18 Series G Convertible 36,568,655
SDS Merchant Fund, L.P. 09/20/02 125,313 0.1596 Series F Convertible 36,693,968
Paul Revere Capital 09/23/02 171,181 0.2337 Equity Line 36,865,149
Advantage Fund II 09/27/02 292,283 1.08342 Series E Preferred 37,157,432
William Stevens 09/30/02 13,171 0.20 n/a 37,170,603
Roy Carambula 09/30/02 10,959 0.20 n/a 37,181,562
CEL-SCI 401(k) (9/30/02) 09/30/02 73,580 0.18 Bonus Plan 37,255,142
Bristol DLP, LLC 10/4/02 277,778 0.18 Series G Convertible 37,532,920
SDS Merchant Fund, L.P. 10/7/02 27,654 0.18 Interest Series G 37,560,574
SDS Merchant Fund, L.P. 10/7/02 22,608 0.1469 Interest Series F 37,583,182
Paul Revere Capital 10/7/02 15,620 0.2328 Equity Line 37,598,802
Bristol DLP, LLC 10/16/02 138,889 0.18 Series G Convertible 37,737,691
Bristol DLP, LLC 10/16/02 138,889 0.18 Series G Convertible 37,876,580
SDS Merchant Fund, L.P. 10/17/02 287,150 0.1393 Series F Convertible 38,163,730
Advantage Fund II 10/17/02 366,363 1.08342 Series E Preferred 38,530,093
Bristol DLP, LLC 10/23/02 251,256 0.1393 Series G Convertible 38,781,349
Paul Revere Capital 10/24/02 168,476 0.1929 Equity Line 38,949,825
Bristol DLP, LLC 10/29/02 242,382 0.1444 Series G Convertible 39,192,207
Bristol DLP, LLC 11/1/02 346,260 0.1444 Series G Convertible 39,538,467
Bristol DLP, LLC 11/1/02 346,260 0.1444 Series G Convertible 39,884,727
Advantage Fund II 11/4/02 297,021 1.08342 Series E Preferred 40,181,748
Paul Revere Capital 11/7/02 179,489 0.1811 Equity Line 40,361,237
SDS Merchant Fund, L.P. 11/7/02 207,756 0.1444 Series F Convertible 40,568,993
TGR Group 11/11/02 250,000 0.21 n/a 40,818,993
Bristol DLP, LLC 11/12/02 519,391 0.1444 Series G Convertible 41,338,384
Bristol DLP, LLC 11/12/02 865,651 0.1444 Series G Convertible 42,204,035
SDS Merchant Fund, L.P. 11/13/02 277,008 0.1444 Series F Convertible 42,481,043
SDS Merchant Fund, L.P. 11/20/02 207,756 0.1444 Series F Convertible 42,688,799
Bristol DLP, LLC 11/26/02 519,391 0.1444 Series G Convertible 43,208,190
Paul Revere 11/26/02 362,486 0.2069 Equity Line 43,570,676
Advantage Fund II 11/26/02 129,189 1.08342 Series E Preferred 43,699,865
Geert Kersten 11/26/02 230,587 0.20 n/a 43,930,452
M. de Clara 11/26/02 213,752 0.20 n/a 44,144,204
Gavin de Windt 11/26/02 12,000 0.20 n/a 44,156,204
W. Brooke Jones 11/26/02 39,221 0.20 n/a 44,195,425
Patricia B. Prichep 11/26/02 63,733 0.20 n/a 44,259,158
Eyal Talor 11/26/02 87,564 0.20 n/a 44,346,722
Daniel Zimmerman 11/26/02 65,000 0.20 n/a 44,411,722
C. Richard Kinsolving 11/26/02 10,000 0.20 n/a 44,421,722
Peter Young 11/26/02 10,000 0.20 n/a 44,431,722
Bristol DLP, LLC 11/27/02 367,893 0.1495 Series G Convertible 44,799,615
SDS Merchant Fund, L.P. 12/04/02 253,696 0.15960 Series G Convertible 45,053,311
SDS Merchant Fund, L.P. 12/09/02 312,409 0.1621 Series G Convertible 45,365,720
Bristol DLP, LLC 12/10/02 150,000 0.1530 Series G Warrants 45,515,720
Paul Revere 12/12/02 347,591 0.2158 Equity Line 45,863,311
Advantage Fund II 12/12/02 177,586 1.08342 Series E Preferred 46,040,897
Pharmacon Research 12/17/02 262,731 0.26 n/a 46,303,628
Paul Revere 12/31/02 381,618 0.1965 Equity Line 46,685,246
CEL=SCI 401(K) 12-31-02 12/31/02 56,085 0.20 Bonus Plan 46,761,331
12,390,799
===========
ATTACHMENT I
- ----------------
Stock Options issued since June 30, 2002
2000 Non-Qualified
Plan
- --------------------------------------------------------------------------------
Shares Exercise Shares Expiration
Issued to Date Issued Price Date Exerciseable Date
- --------------------------------------------------------------------------------
Young, Peter 08/15/02 20,000 0.16 08/15/03 6,667 08/15/12
08/15/04 6,667
08/15/05 6,666
----------
20,000
Schedule 2.1(p)
The Company shall pay a management fee on the Initial Closing Date in an amount
equal to 35,333 to Chalfont Hill Capital, LLC and shall pay a management fee on
the Second Closing Date in an amount equal to $44,667 to Chalfont Hill Capital,
LLC.
The Company shall pay a management fee on the Initial Closing Date in an amount
equal to $17,667 to Bristol Investment Fund, Ltd. and shall pay a management fee
on the Second Closing Date in an amount equal to $22,333 to Bristol Investment
Fund, Ltd.
EXHIBIT A
LIST OF INVESTORS
Names and Addresses of Number of Warrants Dollar Amount
Purchasers Purchased of Investment
SDS Merchant Fund, L.P. 550,000 $300,000
c/o SDS Capital Partners, LLC
53 Forest Avenue, Second Floor
Old Greenwich, CT 06870
Attention: Steve Derby
Fax no.: (203) 967-5851
Bristol Investment Fund, Ltd. 550,000 $300,000
Caledonian House
Jennett Street
Georgetown, Grand Cayman
Cayman Islands
Attention: Amy Wang, Esq.
Fax No: (323) 468-8307
EXHIBIT B
FORM OF NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
RECEIPT BY THE MAKER OF AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE REASONABLY
ACCEPTABLE TO THE MAKER) IN THE FORM, SUBSTANCE AND SCOPE REASONABLY
SATISFACTORY TO THE MAKER THAT THIS NOTE MAY BE SOLD, TRANSFERRED, OR OTHERWISE
DISPOSED OF, UNDER AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH STATE
SECURITIES LAWS.
CEL-SCI CORPORATION
Senior Secured Convertible Promissory Note
due January 7, 2005
No. CN-03__ $300,000
Dated: January 7, 2003
For value received, CEL-SCI CORPORATION, a Colorado corporation (the
"Maker"), hereby promises to pay to the order of _______________________
(together with its successors, representatives, and permitted assigns, the
"Holder"), in accordance with the terms hereinafter provided, the principal
amount of ________________________ ($______________), together with interest
thereon. Concurrently with the issuance of this Note, the Company is issuing
separate notes (the "Other Notes") to separate purchasers (the "Other Holders")
pursuant to the Purchase Agreement (as defined in Section 1.1 hereof).
All payments under or pursuant to this Note shall be made in United States
Dollars in immediately available funds to the Holder at the address of the
Holder first set forth above or at such other place as the Holder may designate
from time to time in writing to the Maker or by wire transfer of funds to the
Holder's account, instructions for which are attached hereto as Exhibit A. The
outstanding principal balance of this Note shall be due and payable on January
7, 2005 (the "Maturity Date") or at such earlier time as provided herein.
ARTICLE I
Section 1.1 Purchase Agreement. This Note has been executed and delivered
pursuant to the Note and Warrant Purchase Agreement, dated as of January 7, 2003
(the "Purchase Agreement"), by and between the Maker and the purchaser listed
therein. Capitalized terms used and not otherwise defined herein shall have the
meanings set forth for such terms in the Purchase Agreement.
Section 1.2 Interest. Beginning on the date of receipt of funds by the
Maker for the purchase of this Note, the outstanding principal balance of this
Note shall bear interest, in arrears, at a rate per annum equal to seven percent
(7%), payable quarterly or upon conversion unless earlier converted or prepaid
as provided herein, with the first quarterly payment due and payable on April 1,
2003. Interest shall be computed on the basis of a 360-day year of twelve (12)
30-day months and shall accrue commencing on the issuance date of this Note (the
"Issuance Date"). The interest shall be payable at the Holder's option in cash
or shares of the Maker's common stock, par value $.001 per share (the "Common
Stock"); provided, however, that if the Holder elects to be paid in shares of
Common Stock, the Maker shall issue to the Holder restricted shares of Common
Stock. The number of shares of Common Stock to be issued as payment of accrued
and unpaid interest shall be determined by dividing (a) the total amount of
accrued and unpaid interest to be converted into Common Stock by (b) the
Conversion Price (as defined in Section 3.2(a) hereof). Furthermore, upon the
occurrence of an Event of Default (as defined in Section 2.1 hereof), then to
the extent permitted by law, the Maker will pay interest to the Holder, payable
on demand, on the outstanding principal balance of the Note from the date of the
Event of Default until such Event of Default is cured at the rate of the lesser
of fifteen percent (15%) and the maximum applicable legal rate per annum.
Section 1.3 Security Agreement. The obligations of the Maker hereunder
shall be secured by, and the Holder shall be entitled to the rights and security
granted by the Maker pursuant to, the Security Agreement dated as of the date
hereof by the Maker for the benefit of the Holder (the "Security Agreement").
Section 1.4 Senior Note. This Note shall be senior to all other
Indebtedness of the Maker.
Section 1.5 Payment on Non-Business Days. Whenever any payment to be made
shall be due on a Saturday, Sunday or a public holiday under the laws of the
State of New York, such payment may be due on the next succeeding business day
and such next succeeding day shall be included in the calculation of the amount
of accrued interest payable on such date.
Section 1.6 Transfer. This Note may be transferred or sold, subject to the
provisions of Section 4.8 of this Note, or pledged, hypothecated or otherwise
granted as security by the Holder.
Section 1.7 Replacement. Upon receipt of a duly executed, notarized and
unsecured written statement from the Holder with respect to the loss, theft or
destruction of this Note (or any replacement hereof), and without requiring an
indemnity bond or other security, or, in the case of a mutilation of this Note,
upon surrender and cancellation of such Note, the Maker shall issue a new Note,
of like tenor and amount, in lieu of such lost, stolen, destroyed or mutilated
Note.
ARTICLE II
EVENTS OF DEFAULT; REMEDIES
Section 2.1 Events of Default. The occurrence of any of the following
events shall be an "Event of Default" under this Note:
(a) the Maker shall fail to make the payment of any amount of principal
outstanding on the date such payment is due hereunder; or
(b) the Maker shall fail to make any payment of interest in cash or shares
of Common Stock for a period of five (5) days after the date such interest is
due; or
(c) the failure of the Registration Statement to be declared effective by
the Securities and Exchange Commission ("SEC") on or prior to the date which is
ninety (90) days after the Initial Closing Date (as defined in the Purchase
Agreement); or
(d) the suspension from listing or the failure of the Common Stock to be
listed on the American Stock Exchange for a period of five (5) consecutive
Trading Days; or
(e) the Maker's notice to the Holder, including by way of public
announcement, at any time, of its inability to comply (including for any of the
reasons described in Section 3.8(a) hereof) or its intention not to comply with
proper requests for conversion of this Note into shares of Common Stock; or
(f) the Maker shall fail to (i) timely delivery the shares of Common Stock
upon conversion of the Note or any interest accrued and unpaid, (ii) timely file
the Registration Statement (as defined in the Registration Rights Agreement) or
(iii) make the payment of any fees and/or liquidated damages under this Note,
the Purchase Agreement or the Registration Rights Agreement, which failure in
the case of items (i) and (iii) of this Section 2.1(f) is not remedied within
seven (7) business days after the incurrence thereof; or
(g) while the Registration Statement is required to be maintained effective
pursuant to the terms of the Registration Rights Agreement, the effectiveness of
the Registration Statement lapses for any reason (including, without limitation,
the issuance of a stop order) or is unavailable to the Holder for sale of the
Registrable Securities (as defined in the Registration Rights Agreement) in
accordance with the terms of the Registration Rights Agreement, and such lapse
or unavailability continues for a period of ten (10) consecutive Trading Days,
provided that the cause of such lapse or unavailability is not due to factors
primarily within the control of Holder; or
(h) default shall be made in the performance or observance of (i) any
material covenant, condition or agreement contained in this Note (other than as
set forth in clause (f) of this Section 2.1) and such default is not fully cured
within five (5) business days after the occurrence thereof or (ii) any material
covenant, condition or agreement contained in the Purchase Agreement (other than
Section 3.22 thereof), the Security Agreement, the Other Notes, the Registration
Rights Agreement, the Escrow Agreement or the Lock-Up Agreement which is not
covered by any other provisions of this Section 2.1 and such default is not
fully cured within seven (7) business days after the occurrence thereof; or
(i) any material representation or warranty made by the Maker herein or in
the Purchase Agreement, the Security Agreement, the Escrow Agreement, the
Lock-Up Agreement, the Registration Rights Agreement or the Other Notes shall
prove to have been false or incorrect or breached in a material respect on the
date as of which made; or
(j) the Maker shall issue any debt securities which are not subordinate to
this Note and the Other Notes on such terms as are acceptable to the Holders of
a majority of the outstanding principal amount of this Note and the Other Notes
purchased under the Purchase Agreement; or
(k) the consummation of any of the following transactions: (i) the
consolidation, merger or other business combination of the Maker with or into a
person or entity (other than (A) pursuant to a migratory merger effected solely
for the purpose of changing the jurisdiction of incorporation of the Maker or
(B) a consolidation, merger or other business combination in which holders of
the Maker's voting power immediately prior to the transaction continue after the
transaction to hold, directly or indirectly, the voting power of the surviving
entity or entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity or
entities), except if in the case of a consolidation merger or other business
combination of the Maker, the Maker shall have given the Holder not less than
fifteen (15) business days prior written notice thereof (the "Transaction
Notice") and shall have furnished the Holder with such information regarding the
consolidation, merger or other business combination (including, without
limitation, the counterparties thereto) as the Holder may reasonably request in
order for the Holder to determine if it will exercise its conversion rights
hereunder prior to the consummation of such consolidation, merger or other
business combination; (ii) the sale or transfer of all or substantially all of
the Maker's assets; or (iii) the consummation of a purchase, tender or exchange
offer made to the holders of more than 30% of the outstanding shares of Common
Stock; or
(l) if required by applicable law, rule or regulation, the stockholders of
the Maker shall fail to approve the proposal presented and recommended by the
Board of Directors of the Maker to approve the Holder acquiring in excess of
19.99% of the issued and outstanding shares of Common Stock upon conversion of
this Note and/or exercise of the Warrants.
(m) the Maker shall (i) default in any payment of any amount or amounts of
principal of or interest on any Indebtedness (other than the Indebtedness
hereunder) the aggregate principal amount of which Indebtedness is in excess of
$25,000 or (ii) default in the observance or performance of any other agreement
or condition relating to any Indebtedness or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event shall
occur or condition exist, the effect of which default or other event or
condition is to cause, or to permit the holder or holders or beneficiary or
beneficiaries of such Indebtedness to cause with the giving of notice if
required, such Indebtedness to become due prior to its stated maturity; or
(n) the Maker shall (i) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its property or assets, (ii) make a general
assignment for the benefit of its creditors, (iii) commence a voluntary case
under the United States Bankruptcy Code (as now or hereafter in effect) or under
the comparable laws of any jurisdiction (foreign or domestic), (iv) file a
petition seeking to take advantage of any bankruptcy, insolvency, moratorium,
reorganization or other similar law affecting the enforcement of creditors'
rights generally, (v) acquiesce in writing to any petition filed against it in
an involuntary case under United States Bankruptcy Code (as now or hereafter in
effect) or under the comparable laws of any jurisdiction (foreign or domestic),
(vi) issue a notice of bankruptcy or winding down of its operations or issue a
press release regarding same, or (vii) take any action under the laws of any
jurisdiction (foreign or domestic) analogous to any of the foregoing; or
(o) a proceeding or case shall be commenced in respect of the Maker,
without its application or consent, in any court of competent jurisdiction,
seeking (i) the liquidation, reorganization, moratorium, dissolution, winding
up, or composition or readjustment of its debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of it or of all or any
substantial part of its assets in connection with the liquidation or dissolution
of the Maker or (iii) similar relief in respect of it under any law providing
for the relief of debtors, and such proceeding or case described in clause (i),
(ii) or (iii) shall continue undismissed, or unstayed and in effect, for a
period of sixty (60) days or any order for relief shall be entered in an
involuntary case under United States Bankruptcy Code (as now or hereafter in
effect) or under the comparable laws of any jurisdiction (foreign or domestic)
against the Maker or action under the laws of any jurisdiction (foreign or
domestic) analogous to any of the foregoing shall be taken with respect to the
Maker and shall continue undismissed, or unstayed and in effect for a period of
sixty (60) days; or
(p) the failure of the Maker to instruct its transfer agent to remove any
legends from shares of Common Stock eligible to be sold under Rule 144 of the
Securities Act and issue such unlegended certificates to the Holder within three
(3) business days of the Holder's request so long as the Holder has provided the
standard representations regarding the Rule 144 sale; or
(q) the failure of the Maker to pay any amounts due to the Holder herein or
in the Purchase Agreement, the Security Agreement, the Escrow Agreement, the
Lock-Up Agreement or the Registration Rights Agreement within three (3) business
days of receipt of notice to the Maker; or
(r) the occurrence of an Event of Default under the Other Notes; or
(s) a breach of Section 3.22 of the Purchase Agreement.
Section 2.2 Remedies Upon An Event of Default. If an Event of Default shall
have occurred and shall be continuing, the Holder of this Note may at any time
at its option (a) declare the entire unpaid principal balance of this Note,
together with all interest accrued hereon, due and payable, and thereupon, the
same shall be accelerated and so due and payable, without presentment, demand,
protest, or notice, all of which are hereby expressly unconditionally and
irrevocably waived by the Maker; provided, however, that upon the occurrence of
an Event of Default described in (i) Sections 2.1 (m), (n) or (o), the
outstanding principal balance and accrued interest hereunder shall be
automatically due and payable and (ii) Sections 2.1 (c)-(l), demand the
prepayment of this Note pursuant to Section 3.7 hereof, (b) demand that the
principal amount of this Note then outstanding and all accrued and unpaid
interest thereon shall be converted into shares of Common Stock at a Conversion
Price per share calculated pursuant to Section 3.1 hereof assuming that the date
that the Event of Default occurs is the Conversion Date (as defined in Section
3.2(a) hereof), or (c) exercise or otherwise enforce any one or more of the
Holder's rights, powers, privileges, remedies and interests under this Note, the
Purchase Agreement, the Security Agreement, the Registration Rights Agreement or
applicable law. No course of delay on the part of the Holder shall operate as a
waiver thereof or otherwise prejudice the right of the Holder. No remedy
conferred hereby shall be exclusive of any other remedy referred to herein or
now or hereafter available at law, in equity, by statute or otherwise.
ARTICLE III
CONVERSION; ANTIDILUTION; PREPAYMENT
Section 3.1 Conversion Option. At any time on or after the Issuance Date,
this Note shall be convertible (in whole or in part), at the option of the
Holder (the "Conversion Option"), into such number of fully paid and
non-assessable shares of Common Stock (the "Conversion Rate") as is determined
by dividing (x) that portion of the outstanding principal balance under this
Note as of such date that the Holder elects to convert by (y) the Conversion
Price (as hereinafter defined) then in effect on the date on which the Holder
faxes a notice of conversion (the "Conversion Notice"), duly executed, to the
Maker (facsimile number (703) 506-9471, Attn.: Chief Financial Officer) (the
"Conversion Date"), provided, however, that the Conversion Price shall be
subject to adjustment as described in Section 3.6 below. The Holder shall
deliver this Note to the Maker at the address designated in the Purchase
Agreement at such time that this Note is fully converted. With respect to
partial conversions of this Note, the Company shall keep written records of the
amount of this Note converted as of each Conversion Date.
Section 3.2 Conversion Price.
(a) Subject to the provisions of subsection (b) below, the term
"Conversion Price" shall mean an amount equal to the Discount Percentage (as
defined below) multiplied by the average of the three (3) lowest daily trading
prices of the Common Stock during the fifteen (15) Trading Days immediately
prior to the Conversion Date, except that if during any period (a "Black-out
Period"), a Holder is unable to trade any Common Stock issued or issuable upon
conversion of the Notes immediately due to the postponement of filing or delay
or suspension of effectiveness of a registration statement or because the Maker
has otherwise informed such Holder that an existing prospectus cannot be used at
that time in the sale or transfer of such Common Stock, such Holder shall have
the option but not the obligation on any Conversion Date within ten (10) Trading
Days following the expiration of the Black-out Period of using the Conversion
Price applicable on such Conversion Date or any Conversion Price selected by
such Holder that would have been applicable had such Conversion Date been at any
earlier time during the Black-out Period or within the ten (10) Trading Days
thereafter. In no event shall the Black-out Period have any effect on the
Maturity Date of this Note. The Conversion Price shall equal the lesser of the
(1) Conversion Price adjusted pursuant to Section 3.6 hereof and (2) the
Conversion Price as of the Conversion Date.
(b) The Conversion Price shall be subject to a minimum floor of an
amount equal to seventy-five percent (75%) of the Closing Price (the "Floor
Price"); provided, however, the Floor Price shall be adjusted if the Conversion
Price is calculated to be less than the Floor Price as a result of any of the
events contemplated by Section 3.6 hereof. The "Closing Price" shall mean the
average of the trading price of the Common Stock for the three (3) Trading Days
having the lowest trading price during the fifteen (15) Trading Days immediately
prior to the Closing Date. If the Per Share Market Value (as defined below) of
the Common Stock is less than the Closing Price for a period of twenty (20)
consecutive Trading Days, the Floor Price shall no longer be applicable. The
term "Discount Percentage" shall initially mean seventy-six percent (76%);
provided, however, the Discount Percentage shall mean seventy percent (70%) if
(i) the Registration Statement (as defined in the Registration Rights Agreement)
has not been declared effective by the Commission by the sixtieth (60th) day
following the Filing Date (as defined in the Registration Rights Agreement), or
(ii) the closing price of the Common Stock equals or exceeds $.50 on any trading
day, provided, however, that the Discount Percentage shall increase to
seventy-six percent (76%) on the trading day following the date that the closing
price of the Common Stock falls below $.50; and provided, further, the Discount
Percentage shall mean sixty percent (60%) if (A) a default shall be made in the
performance or observance of any material covenant, condition or agreement
contained in this Note, the Purchase Agreement, the Security Agreement, the
Other Notes, the Registration Rights Agreement, the Escrow Agreement or the
Lock-Up Agreement, (B) the Common Stock is delisted from the American Stock
Exchange, or (C) the Registration Statement (as defined in the Registration
Rights Agreement) has not been declared effective by the Commission by the
seventy-fifth (75th) day following the Filing Date (as defined in the
Registration Rights Agreement).
(c) The term "Per Share Market Value" means on any particular date
(a) the closing bid price of the Common Stock on such date on the American Stock
Exchange or other registered national stock exchange on which the Common Stock
is then listed or if there is no such price on such date, then the closing bid
price on such exchange or quotation system on the date nearest preceding such
date, or (b) if the Common Stock is not listed then on the American Stock
Exchange or any registered national stock exchange, then the lowest intra-day
price for a share of Common Stock, as reported by Bloomberg L.P. or similar
organization or agency succeeding to its functions of reporting prices) at the
close of business on such date, or (c) if the intra-day price for a share of
Common Stock is not then reported, then the average of the "Pink Sheet" quotes
for the relevant conversion period, as determined in good faith by the Holder,
or (d) if the Common Stock is not then publicly traded the fair market value of
a share of Common Stock as determined by an Independent Appraiser (as defined in
Section 4.13 hereof) selected in good faith by the Holders of a majority in
interest of the Notes; provided, however, that the Maker, after receipt of the
determination by such Independent Appraiser, shall have the right to select an
additional Independent Appraiser, in which case, the fair market value shall be
equal to the average of the determinations by each such Independent Appraiser;
and provided, further that all determinations of the Per Share Market Value
shall be appropriately adjusted for any stock dividends, stock splits or other
similar transactions during such period. The determination of fair market value
by an Independent Appraiser shall be based upon the fair market value of the
Issuer determined on a going concern basis as between a willing buyer and a
willing seller and taking into account all relevant factors determinative of
value, and shall be final and binding on all parties. In determining the fair
market value of any shares of Common Stock, no consideration shall be given to
any restrictions on transfer of the Common Stock imposed by agreement or by
federal or state securities laws, or to the existence or absence of, or any
limitations on, voting rights.
Section 3.3 Mechanics of Conversion.
(a) Not later than three (3) Trading Days after any Conversion Date, the
Maker or its designated transfer agent, as applicable, shall issue and deliver
to the Depository Trust Company ("DTC") account on the Holder's behalf via the
Deposit Withdrawal Agent Commission System ("DWAC") as specified in the
Conversion Notice, registered in the name of the Holder or its designee, for the
number of shares of Common Stock to which the Holder shall be entitled. In the
alternative, not later than three (3) Trading Days after any Conversion Date,
the Maker shall deliver to the applicable Holder by express courier a
certificate or certificates which shall be free of restrictive legends and
trading restrictions (other than those required by Section 5.1 of the Purchase
Agreement) representing the number of shares of Common Stock being acquired upon
the conversion of this Note. If in the case of any Conversion Notice such
certificate or certificates are not delivered to or as directed by the
applicable Holder by the third Trading Day after the Conversion Date (the
"Delivery Date"), the Holder shall be entitled by written notice to the Maker at
any time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion, in which event the Maker shall
immediately return this Note tendered for conversion, whereupon the Maker and
the Holder shall each be restored to their respective positions immediately
prior to the delivery of such notice of revocation, except that any amounts
described in Sections 3.3(b) and (c) shall be payable through the date notice of
rescission is given to the Maker.
(b) The Maker understands that a delay in the delivery of the shares of
Common Stock upon conversion of this Note beyond the Delivery Date could result
in economic loss to the Holder. If the Maker fails to deliver to the Holder such
certificate or certificates pursuant to this Section hereunder by the Delivery
Date, the Maker shall pay to such Holder, in cash, an amount per Trading Day for
each Trading Day until such certificates are delivered, together with interest
on such amount at a rate of 10% per annum, accruing until such amount and any
accrued interest thereon is paid in full, equal to the greater of (A) (i) 1% of
the aggregate principal amount of the Notes requested to be converted for the
first five (5) Trading Days after the Delivery Date and (ii) 2% of the aggregate
principal amount of the Notes requested to be converted for each Trading Day
thereafter and (B) $2,000 per day (which amount shall be paid as liquidated
damages and not as a penalty). Nothing herein shall limit a Holder's right to
pursue actual damages for the Maker's failure to deliver certificates
representing shares of Common Stock upon conversion within the period specified
herein and such Holder shall have the right to pursue all remedies available to
it at law or in equity (including, without limitation, a decree of specific
performance and/or injunctive relief). Notwithstanding anything to the contrary
contained herein, the Holder shall be entitled to withdraw a Conversion Notice,
and upon such withdrawal the Maker shall only be obligated to pay the liquidated
damages accrued in accordance with this Section 3.3(b) through the date the
Conversion Notice is withdrawn.
(c) In addition to any other rights available to the Holder, if the Maker
fails to deliver to the Holder such certificate or certificates pursuant to
Section 3.3(a) by the Delivery Date and if after the Delivery Date the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by such Holder of the Conversion Shares which
the Holder anticipated receiving upon such conversion (a "Buy-In"), then the
Maker shall pay in cash to the Holder (in addition to any remedies available to
or elected by the Holder) an amount equal to (A) the aggregate amount paid by
such Holder for the shares of Common Stock so purchased minus (B) the aggregate
amount of net proceeds, if any, received by such Holder from the sale of the
shares of Common Stock issued by the Maker pursuant to such conversion, together
with interest thereon at a rate of the lesser of 15% and the maximum applicable
legal rate per annum, accruing until such amount and any accrued interest
thereon is paid in full (which amount shall be paid as liquidated damages and
not as a penalty). For example, if the Holder purchases shares of Common Stock
having a total purchase price of $11,000 to cover a Buy-In with respect to an
attempted conversion of $10,000 aggregate principal amount of this Note, the
Maker shall be required to pay the Holder $1,000, plus interest. The Holder
shall provide the Maker written notice indicating the amounts payable to the
Holder in respect of the Buy-In.
Section 3.4 Ownership Cap and Certain Conversion Restrictions.
-------------------------------------------------
(a) Notwithstanding anything to the contrary set forth in Section 3 of this
Note, at no time may a holder of this Note convert this Note if the number of
shares of Common Stock to be issued pursuant to such conversion would exceed,
when aggregated with all other shares of Common Stock owned by such holder at
such time, the number of shares of Common Stock which would result in such
holder owning more than 4.999% of all of the Common Stock outstanding at such
time; provided, however, that upon a holder of this Note providing the Maker
with sixty-one (61) days notice (pursuant to Section 4.1 hereof) (the "Waiver
Notice") that such holder would like to waive this Section 3.4 with regard to
any or all shares of Common Stock issuable upon conversion of this Note, this
Section 3.4 will be of no force or effect with regard to all or a portion of the
Note referenced in the Waiver Notice; provided, further, that this provision
shall be of no further force or effect during the sixty-one (61) days
immediately preceding the Maturity Date.
(b) The Holder may not convert any Note hereunder to the extent such
conversion would result in the Holder beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and the rules thereunder) in
excess of 9.999% of the then issued and outstanding shares of Common Stock,
including shares issuable upon conversion of the Note held by the Holder after
application of this Section.
(c) Notwithstanding anything to the contrary set forth herein, the Maker
shall not be obligated to issue in excess of an aggregate of 9,348,265 shares of
Common Stock upon conversion of the Notes and any shares of Common Stock
issuable in connection with the Purchase Agreement, which number of shares shall
be subject to adjustment pursuant to Section 3.6, and such number of shares, the
"Issuable Maximum". The Issuable Maximum equals 19.999% of the number of shares
of Common Stock outstanding immediately prior to the Closing. Shares of Common
Stock issued in respect of penalties and liquidated damages hereunder shall not
count towards the 9,348,265 share limit set forth in this paragraph and shall be
paid in cash as provided herein unless otherwise agreed to by the Holders. If on
any Conversion Date (A) the Common Stock is listed for trading on the American
Stock Exchange, (B) the Conversion Price then in effect is such that the
aggregate number of shares of Common Stock previously issued at a discount upon
conversion of Notes or otherwise issued in connection with the Purchase
Agreement, would equal or exceed the Issuable Maximum, and (C) the Maker shall
not have previously obtained the vote of shareholders (the "Shareholder
Approval"), if any, as may be required by the applicable rules and regulations
of the American Stock Exchange (or any successor entity) applicable to approve
the issuance of shares of Common Stock in excess of the Issuable Maximum
pursuant to the terms hereof, then the Maker shall issue to the Holder so
requesting such number of shares of Common Stock equal to such Holder's pro rata
portion of the Issuable Maximum as of the initial purchase date and, with
respect to the remainder of shares of Common Stock which would result in an
issuance of shares of Common Stock in excess of the Issuable Maximum (the
"Excess Shares"), the Maker shall have the option to either (1) use its
reasonable efforts to obtain the Shareholder Approval applicable to such
issuance as soon as is possible, but in any event not later than the 90th day
after such request, or (2) deliver to such holder cash in an amount equal to the
product of (x) the Per Share Market Value on the applicable Conversion Date, and
(y) the number of shares of Common Stock in excess of such Holder's pro rata
portion of the Issuable Maximum that would have otherwise been issuable to the
Holder but for the provisions of this Section (such amount of cash being
hereinafter referred to as the "Discount Equivalent"). If the Maker fails to pay
the Discount Equivalent in full pursuant to this Section within fifteen (15)
days after the Maker fails to obtain Shareholder Approval pursuant to (1) above
or the date payable pursuant to (2) above, the Maker will pay interest thereon
at a rate of 10% per annum to the Holder, accruing daily from the applicable
Conversion until such amount, plus all such interest thereon, is paid in full.
The Maker and the Holder understand and agree that shares of Common Stock issued
to and then held by the Holder as a result of conversion of the Notes or as a
result of exercise of the Warrants shall not be entitled to cast votes on any
resolution to obtain Shareholder Approval.
Section 3.5 Intentionally Omitted.
Section 3.6 Adjustment of Conversion Price.
(a) The Conversion Price shall be subject to adjustment from time to time
as follows:
(i) Adjustments for Stock Splits and Combinations. If the Maker shall at
any time or from time to time after the Issuance Date, effect a stock split of
the outstanding Common Stock, the applicable Conversion Price in effect
immediately prior to the stock split shall be proportionately decreased. If the
Maker shall at any time or from time to time after the Issuance Date, combine
the outstanding shares of Common Stock, the applicable Conversion Price in
effect immediately prior to the combination shall be proportionately increased.
Any adjustments under this Section 3.6(a)(i) shall be effective at the close of
business on the date the stock split or combination occurs.
(ii) Adjustments for Certain Dividends and Distributions. If the
Maker shall at any time or from time to time after the Issuance Date, make or
issue or set a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in shares of Common
Stock, then, and in each event, the applicable Conversion Price in effect
immediately prior to such event shall be decreased as of the time of such
issuance or, in the event such record date shall have been fixed, as of the
close of business on such record date, by multiplying, as applicable, the
applicable Conversion Price then in effect by a fraction:
(1) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date; and
(2) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date plus the number of
shares of Common Stock issuable in payment of such dividend or distribution.
(iii) Adjustment for Other Dividends and Distributions. If the Maker
shall at any time or from time to time after the Issuance Date, make or issue or
set a record date for the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in other than shares of Common
Stock, then, and in each event, an appropriate revision to the applicable
Conversion Price shall be made and provision shall be made (by adjustments of
the Conversion Price or otherwise) so that the holders of this Note shall
receive upon conversions thereof, in addition to the number of shares of Common
Stock receivable thereon, the number of securities of the Maker which they would
have received had this Note been converted into Common Stock on the date of such
event and had thereafter, during the period from the date of such event to and
including the Conversion Date, retained such securities (together with any
distributions payable thereon during such period), giving application to all
adjustments called for during such period under this Section 3.6(a)(iii) with
respect to the rights of the holders of this Note and the Other Notes.
(iv) Adjustments for Reclassification, Exchange or Substitution. If
the Common Stock issuable upon conversion of this Note at any time or from time
to time after the Issuance Date shall be changed to the same or different number
of shares of any class or classes of stock, whether by reclassification,
exchange, substitution or otherwise (other than by way of a stock split or
combination of shares or stock dividends provided for in Sections 3.6(a)(i),
(ii) and (iii), or a reorganization, merger, consolidation, or sale of assets
provided for in Section 3.6(a)(v)), then, and in each event, an appropriate
revision to the Conversion Price shall be made and provisions shall be made (by
adjustments of the Conversion Price or otherwise) so that the holder of this
Note shall have the right thereafter to convert this Note into the kind and
amount of shares of stock and other securities receivable upon reclassification,
exchange, substitution or other change, by holders of the number of shares of
Common Stock into which such Note might have been converted immediately prior to
such reclassification, exchange, substitution or other change, all subject to
further adjustment as provided herein.
(v) Adjustments for Reorganization, Merger, Consolidation or Sales
of Assets. If at any time or from time to time after the Issuance Date there
shall be a capital reorganization of the Maker (other than by way of a stock
split or combination of shares or stock dividends or distributions provided for
in Section 3.6(a)(i), (ii) and (iii), or a reclassification, exchange or
substitution of shares provided for in Section 3.6(a)(iv)), or a merger or
consolidation of the Maker with or into another corporation, or the sale of all
or substantially all of the Maker's properties or assets to any other person (an
"Organic Change"), then as a part of such Organic Change an appropriate revision
to the Conversion Price shall be made and provision shall be made (by
adjustments of the Conversion Price or otherwise) so that the holder of this
Note shall have the right thereafter to convert such Note into the kind and
amount of shares of stock and other securities or property of the Maker or any
successor corporation resulting from Organic Change. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 3.6(a)(v) with respect to the rights of the holder of this Note
after the Organic Change to the end that the provisions of this Section
3.6(a)(v) (including any adjustment in the applicable Conversion Price then in
effect and the number of shares of stock or other securities deliverable upon
conversion of this Note and the Other Notes) shall be applied after that event
in as nearly an equivalent manner as may be practicable.
(vi) Adjustments for Issuance of Additional Shares of Common Stock.
(1) In the event the Maker, shall, at any time, from time to
time, issue or sell any shares of additional shares of common stock (including
Treasury Shares) to a third party ("Additional Shares of Common Stock") other
than the Holder for a consideration per share less than the Conversion Price
then in effect for the Note immediately prior to the time of such issue or sale,
then, forthwith upon such issue or sale, the Conversion Price then in effect for
the Notes shall be reduced to a price equal to the consideration per share paid
for such Common Stock and the number of shares of Common Stock for which this
Note is convertible shall be increased by the product of the number of shares of
Common Stock for which this Note is convertible immediately prior to such
issuance or sale multiplied by the Dilution Percentage. "Dilution Percentage"
shall mean the percentage by which the Conversion Price then in effect is
reduced pursuant to this Section 3.6(a)(vi).
(2) If at any time the Maker shall at any time issue or sell
any Additional Shares of Common Stock to a third party other than the Holder in
exchange for consideration in an amount per Additional Share of Common Stock
less than the Per Share Market Value at the time the Additional Shares of Common
Stock are issued or sold, then, forthwith upon such issue or sale, the
Conversion Price then in effect for the Notes shall be reduced by the product of
the Conversion Price then in effect multiplied by the Market Dilution Percentage
and the number of shares of Common Stock for which this Note is convertible
shall be increased by the product of the number of shares of Common Stock for
which this Note is convertible immediately prior to such issuance or sale
multiplied by the Market Dilution Percentage. "Market Dilution Percentage" shall
mean the percentage by which such issuance or sale is below the lesser of the
Per Share Market Value or the per share market value of the Common Stock as
calculated pursuant to the terms of any other financings of the Maker.
(3) If at any time the Maker shall issue or sell any
Additional Shares of Common Stock to a third party other than the Holder in
exchange for consideration in an amount per Additional Share of Common Stock
which is less than the Conversion Price or the Per Share Market Value at the
time the Additional Shares of Common Stock are issued or sold, the adjustment
required under this Section 3.6(a)(vi) shall be made in accordance with the
formula in paragraph (1) or (2) above which results in the lower Conversion
Price following such adjustment. The provisions of paragraphs (1) and (2) of
this Section 3.6(a)(vi) shall not apply to any issuance of Additional Shares of
Common Stock for which an adjustment is provided under Sections 3.6(a)(ii) or
3.6(a)(iii) hereof. No adjustment of the number of shares of Common Stock for
which this Note shall be convertible shall be made under paragraph (1) or (2) of
this Section 3.6(a)(vi) upon the issuance of any Additional Shares of Common
Stock which are issued pursuant to the exercise of any warrants or other
subscription or purchase rights or pursuant to the exercise of any conversion or
exchange rights in any Convertible Securities, if any such adjustment shall
previously have been made upon the issuance of such warrants or other rights or
upon the issuance of such Convertible Securities (or upon the issuance of any
warrant or other rights therefor) pursuant to Section 3.6(a)(vii) hereof.
(4) If the Maker, at any time after the Issuance Date, shall
issue any Additional Shares of Common Stock to the Holder, at a price per share
less than the applicable Conversion Price then in effect or without
consideration, then the applicable Conversion Price upon each such issuance
shall be adjusted to that price (rounded to the nearest cent) determined by
multiplying the applicable Conversion Price then in effect by a fraction:
(A) the numerator of which shall be equal to the sum of
(x) the number of shares of Common Stock outstanding immediately prior to the
issuance of such Additional Shares of Common Stock plus (y) the number of shares
of Common Stock (rounded to the nearest whole share) which the aggregate
consideration for the total number of such Additional Shares of Common Stock so
issued would purchase at a price per share equal to the applicable Conversion
Price then in effect, and
(B) the denominator of which shall be equal to the
number of shares of Common Stock outstanding immediately after the issuance of
such Additional Shares of Common Stock.
The provisions under paragraph (4) of this subsection
3.6(a)(vi) shall not apply under any of the circumstances for which an
adjustment is provided in subsections (i), (ii), (iii), (iv) or (v) of this
Section 3.6(a). No adjustment of the applicable Conversion Price shall be made
under this subsection (a)(vi) upon the issuance of any Additional Shares of
Common Stock which are issued pursuant to any Common Stock Equivalent (as
defined below) if upon the issuance of such Common Stock Equivalent (x) any
adjustment shall have been made pursuant to subsection (vii) of this Section
3.6(a) or (y) no adjustment was required pursuant to subsection (vii) of this
Section 3.6(a). No adjustment of the applicable Conversion Price shall be made
under this subsection (vi) in an amount less than $.01 per share, but any such
lesser adjustment shall be carried forward and shall be made at the time and
together with the next subsequent adjustment, if any, which together with any
adjustments so carried forward shall amount to $.01 per share or more; provided
that upon any adjustment of the applicable Conversion Price as a result of any
dividend or distribution payable in Common Stock or Convertible Securities (as
defined below) or the reclassification, subdivision or combination of Common
Stock into a greater or smaller number of shares, the foregoing figure of $.01
per share (or such figure as last adjusted) shall be adjusted (to the nearest
one-half cent) in proportion to the adjustment in the applicable Conversion
Price.
(vii) Issuance of Common Stock Equivalents. If the Maker, at any
time after the Issuance Date, shall issue any securities convertible into or
exchangeable for, directly or indirectly, Common Stock ("Convertible
Securities"), other than this Note, or any rights or warrants or options to
purchase any such Common Stock or Convertible Securities, shall be issued or
sold (collectively, the "Common Stock Equivalents") and the price per share for
which Additional Shares of Common Stock may be issuable thereafter pursuant to
such Common Stock Equivalent shall be less than the applicable Conversion Price
then in effect, or if, after any such issuance of Common Stock Equivalents, the
price per share for which Additional Shares of Common Stock may be issuable
thereafter is amended or adjusted, and such price as so amended shall be less
than the applicable Conversion Price in effect at the time of such amendment,
then the applicable Conversion Price upon each such issuance or amendment shall
be adjusted as provided in the first sentence of subsection (vi) of this Section
3.6(a) on the basis that (1) the maximum number of Additional Shares of Common
Stock issuable pursuant to all such Common Stock Equivalents shall be deemed to
have been issued (whether or not such Common Stock Equivalents are actually then
exercisable, convertible or exchangeable in whole or in part) as of the earlier
of (A) the date on which the Maker shall enter into a firm contract for the
issuance of such Common Stock Equivalent, or (B) the date of actual issuance of
such Common Stock Equivalent, and (2) the aggregate consideration for such
maximum number of Additional Shares of Common Stock shall be deemed to be the
minimum consideration received or receivable by the Maker for the issuance of
such Additional Shares of Common Stock pursuant to such Common Stock Equivalent.
No adjustment of the applicable Conversion Price shall be made under this
subsection (vii) upon the issuance of any Convertible Security which is issued
pursuant to the exercise of any warrants or other subscription or purchase
rights therefor, if any adjustment shall previously have been made to the
exercise price of such warrants then in effect upon the issuance of such
warrants or other rights pursuant to this subsection (vii). If no adjustment is
required under this subsection (vii) upon issuance of any Common Stock
Equivalent or once an adjustment is made under this subsection (vii) based upon
the Per Share Market Value in effect on the date of such adjustment, no further
adjustment shall be made under this subsection (vii) based solely upon a change
in the Per Share Market Value after such date.
(viii) Consideration for Stock. In case any shares of Common Stock
or any Common Stock Equivalents shall be issued or sold:
(1) in connection with any merger or consolidation in which
the Maker is the surviving corporation (other than any consolidation or merger
in which the previously outstanding shares of Common Stock of the Maker shall be
changed to or exchanged for the stock or other securities of another
corporation), the amount of consideration therefore shall be, deemed to be the
fair value, as determined reasonably and in good faith by the Board of Directors
of the Maker, of such portion of the assets and business of the nonsurviving
corporation as such Board may determine to be attributable to such shares of
Common Stock, Convertible Securities, rights or warrants or options, as the case
may be; or
(2) in the event of any consolidation or merger of the Maker
in which the Maker is not the surviving corporation or in which the previously
outstanding shares of Common Stock of the Maker shall be changed into or
exchanged for the stock or other securities of another corporation, or in the
event of any sale of all or substantially all of the assets of the Maker for
stock or other securities of any corporation, the Maker shall be deemed to have
issued a number of shares of its Common Stock for stock or securities or other
property of the other corporation computed on the basis of the actual exchange
ratio on which the transaction was predicated, and for a consideration equal to
the fair market value on the date of such transaction of all such stock or
securities or other property of the other corporation. If any such calculation
results in adjustment of the applicable Conversion Price, or the number of
shares of Common Stock issuable upon conversion of the Notes, the determination
of the applicable Conversion Price or the number of shares of Common Stock
issuable upon conversion of the Notes immediately prior to such merger,
consolidation or sale, shall be made after giving effect to such adjustment of
the number of shares of Common Stock issuable upon conversion of the Notes.
(b) Record Date. In case the Maker shall take record of the holders of its
Common Stock for the purpose of entitling them to subscribe for or purchase
Common Stock or Convertible Securities, then the date of the issue or sale of
the shares of Common Stock shall be deemed to be such record date.
(c) Certain Issues Excepted. Anything herein to the contrary
notwithstanding, the Conversion Price shall not be adjusted and the Maker shall
not be required to make any adjustment of the number of shares of Common Stock
issuable upon conversion of the Notes upon the grant after the Issuance Date of,
or the exercise after the Issuance Date of: (i) the shares of Common Stock
issuable upon exercise of the warrants issued pursuant to the Purchase
Agreement; (ii) shares of Common Stock issuable upon conversion of this Note and
the Other Notes; (iii) shares of Common Stock to be issued to strategic partners
and/or in connection with a strategic merger or acquisition; (iv) shares of
Common Stock or the issuance of options to purchase shares of Common Stock to
employees, officers, directors, consultants and vendors in accordance with the
Company's equity incentive policies; (v) the issuance of securities pursuant to
the conversion or exercise of convertible or exercisable securities issued or
outstanding prior to the date hereof; (vi) shares of Common Stock to be issued
pursuant to the Common Stock Purchase Agreement dated as of April 11, 2001 by
and between the Issuer and the purchaser named therein so long as the Issuer
complies with the terms and provisions of Section 3.22 of the Purchase
Agreement; and (vii) shares of Common Stock to be issued to key officers of the
Maker in lieu of their respective salaries; provided, however, that such key
officers execute a Lock-Up Agreement in substantially the form as Exhibit H to
the Purchase Agreement, and provided, further, that the shares of Common Stock
to be issued to such key officers in lieu of their respective salaries does not
exceed the amount of such salary divided by the Per Share Market Value on the
date prior to the issuance of such shares of Common Stock.
(d) No Impairment. The Maker shall not, by amendment of its Articles
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Maker, but will at all
times in good faith, assist in the carrying out of all the provisions of this
Section 3.6 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the Holder against
impairment. In the event a Holder shall elect to convert any Notes as provided
herein, the Maker cannot refuse conversion based on any claim that such Holder
or any one associated or affiliated with such Holder has been engaged in any
violation of law, violation of an agreement to which such Holder is a party or
for any reason whatsoever, unless, an injunction from a court, or notice,
restraining and or adjoining conversion of all or of said Notes shall have
issued and the Maker posts a surety bond for the benefit of such Holder in an
amount equal to 130% of the amount of the Notes the Holder has elected to
convert, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Holder in the event it obtains judgment.
(e) Certificates as to Adjustments. Upon occurrence of each
adjustment or readjustment of the Conversion Price or number of shares of Common
Stock issuable upon conversion of this Note pursuant to this Section 3.6, the
Maker at its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to the Holder a certificate setting
forth such adjustment and readjustment, showing in detail the facts upon which
such adjustment or readjustment is based. The Maker shall, upon written request
of the Holder, at any time, furnish or cause to be furnished to such holder a
like certificate setting forth such adjustments and readjustments, the
applicable Conversion Price in effect at the time, and the number of shares of
Common Stock and the amount, if any, of other securities or property which at
the time would be received upon the conversion of this Note. Notwithstanding the
foregoing, the Maker shall not be obligated to deliver a certificate unless such
certificate would reflect an increase or decrease of at least one percent (1%)
of such adjusted amount.
(f) Issue Taxes. The Maker shall pay any and all issue and other
taxes, excluding federal, state or local income taxes, that may be payable in
respect of any issue or delivery of shares of Common Stock on conversion of this
Note pursuant thereto; provided, however, that the Maker shall not be obligated
to pay any transfer taxes resulting from any transfer requested by any holder in
connection with any such conversion.
(g) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of this Note. In lieu of any fractional shares to which
the Holder would otherwise be entitled, the Maker shall pay cash equal to the
product of such fraction multiplied by the average of the Per Share Market
Values of the Common Stock for the five (5) consecutive Trading Days immediately
preceding the Conversion Date.
(h) Reservation of Common Stock. The Maker shall at all times when
this Note shall be outstanding, reserve and keep available out of its authorized
but unissued Common Stock, such number of shares of Common Stock as shall from
time to time be sufficient to effect the conversion of this Note and all
interest accrued thereon; provided that the number of shares of Common Stock so
reserved shall at no time be less than 200% of the number of shares of Common
Stock for which this Note and all interest accrued thereon are at any time
convertible. The Maker shall, from time to time in accordance with the Colorado
Business Corporation Law, as amended, increase the authorized number of shares
of Common Stock if at any time the unissued number of authorized shares shall
not be sufficient to satisfy the Maker's obligations under this Section 3.6(h).
(i) Regulatory Compliance. If any shares of Common Stock to be
reserved for the purpose of conversion of this Note or any interest accrued
thereon require registration or listing with or approval of any governmental
authority, stock exchange or other regulatory body under any federal or state
law or regulation or otherwise before such shares may be validly issued or
delivered upon conversion, the Maker shall, at its sole cost and expense, in
good faith and as expeditiously as possible, endeavor to secure such
registration, listing or approval, as the case may be.
Section 3.7 Prepayment.
(a) Prepayment Upon an Event of Default. Notwithstanding anything to
the contrary contained herein, upon the occurrence of an Event of Default
described in Sections 2.1(c)-(k) hereof, the Holder shall have the right, at
such Holder's option, to require the Maker to prepay all or a portion of this
Note at a price equal to Prepayment Price (as defined in Section 3.7(c) below)
applicable at the time of such request. Nothing in this Section 3.7(a) shall
limit the Holder's rights under Section 2.2 hereof.
(b) Prepayment Option Upon Major Transaction. In addition to all
other rights of the holder of this Note contained herein, simultaneous with the
occurrence of a Major Transaction (as defined below), the holder of this Note
shall have the right, at such holder's option, to require the Maker to prepay
all or a portion of such holder's Notes at a price equal to the greater of (i)
130% of the aggregate principal amount of this Note plus all accrued and unpaid
interest and any other payments due from the Maker to the Holder under or in
connection with this Note and (ii) the product of (A) the Conversion Rate and
(B) the Per Share Market Value of the Common Stock on the Trading Day
immediately preceding such Major Transaction ("Major Transaction Prepayment
Price").
(c) Prepayment Option Upon Triggering Event. In addition to all
other rights of the holder of this Note contained herein, after a Triggering
Event (as defined below), the holder of this Note shall have the right, at such
holder's option, to require the Maker to prepay all or a portion of such
holder's Notes at a price equal to the greater of (i) 130% of the aggregate
principal amount of this Note plus all accrued and unpaid interest and any other
payments due from the Maker to the Holder under or in connection with this Note
and (ii) the product of (A) the Conversion Rate at such time and (B) the Per
Share Market Value of the Common Stock calculated as of the date immediately
preceding such Triggering Event on which the exchange or market on which the
Common Stock is traded is open ("Triggering Event Prepayment Price").
(d) Intentionally Omitted.
(e) "Major Transaction." A "Major Transaction" shall be deemed to
have occurred at such time as any of the following events:
(i) the consolidation, merger or other business combination of
the Maker with or into another Person (as defined in Section 4.13 hereof) (other
than (A) pursuant to a migratory merger effected solely for the purpose of
changing the jurisdiction of incorporation of the Maker or (B) a consolidation,
merger or other business combination in which holders of the Maker's voting
power immediately prior to the transaction continue after the transaction to
hold, directly or indirectly, the voting power of the surviving entity or
entities necessary to elect a majority of the members of the board of directors
(or their equivalent if other than a corporation) of such entity or entities).
(ii) the sale or transfer of all or substantially all of the
Maker's assets; or
(iii) consummation of a purchase, tender or exchange offer
made to the holders of more than 30% of the outstanding shares of Common Stock.
(f) "Triggering Event." A "Triggering Event" shall be deemed to have
occurred at such time as any of the following events:
(i) the failure of the Registration Statement to be declared
effective by the SEC on or prior to the date which is 90 days after the Closing
Date, provided that the Maker has failed to file the Registration Statement on
or before the Filing Date (as defined in the Registration Rights Agreement) or
respond to any and each of the SEC's comments within ten (10) business days of
the Maker's receipt of each of the SEC's comments;
(ii) while the Registration Statement is required to be
maintained effective pursuant to the terms of the Registration Rights Agreement,
the effectiveness of the Registration Statement lapses for any reason
(including, without limitation, the issuance of a stop order) or is unavailable
to the holder of this Note for sale of the Registrable Securities (as defined in
the Registration Rights Agreement) in accordance with the terms of the
Registration Rights Agreement, and such lapse or unavailability continues for a
period of ten (10) consecutive Trading Days, provided that the cause of such
lapse or unavailability is due to factors within the control of the Maker and
not due to factors solely within the control of the holder of this Note;
(iii) the suspension from trading or the failure of the Common
Stock to be traded on the American Stock Exchange for a period of five (5)
consecutive days, provided, that such suspension from listing or failure to be
listed is due to factors within the control of the Maker, including, but not
limited to, failure to timely file all reports required to be filed with the SEC
or to meet the net tangible assets requirements for listing, if any;
(iv) the Maker's notice to any holder of the Notes, including
by way of public announcement, at any time, of its inability to comply
(including for any of the reasons described in Section 3.8) or its intention not
to comply with proper requests for conversion of any of the Notes into shares of
Common Stock;
(v) the Maker's failure to comply with a Conversion Notice
tendered within ten (10) business days after the receipt by the Maker of the
Conversion Notice and the original Note; or
(g) Intentionally Omitted.
(h) Mechanics of Prepayment at Option of Holder Upon Major
Transaction. No sooner than fifteen (15) days nor later than ten (10) days prior
to the consummation of a Major Transaction, but not prior to the public
announcement of such Major Transaction, the Maker shall deliver written notice
thereof via facsimile and overnight courier ("Notice of Major Transaction") to
the holder of this Note and holders of the Other Notes. At any time after
receipt of a Notice of Major Transaction (or, in the event a Notice of Major
Transaction is not delivered at least ten (10) days prior to a Major
Transaction, at any time within ten (10) days prior to a Major Transaction), any
holder of the Notes then outstanding may require the Maker to prepay, effective
immediately prior to the consummation of such Major Transaction, all of the
holder's Notes then outstanding by delivering written notice thereof via
facsimile and overnight courier ("Notice of Prepayment at Option of Holder Upon
Major Transaction") to the Maker, which Notice of Prepayment at Option of Holder
Upon Major Transaction shall indicate (i) the number of Notes that such holder
is electing to prepay and (ii) the applicable Major Transaction Prepayment
Price, as calculated pursuant to Section 3.7(b) above.
(i) Mechanics of Prepayment at Option of Holder Upon Triggering
Event. Within one (1) day after the occurrence of a Triggering Event, the Maker
shall deliver written notice thereof via facsimile and overnight courier
("Notice of Triggering Event") to each holder of the Notes. At any time after
the earlier of a holder's receipt of a Notice of Triggering Event and such
holder becoming aware of a Triggering Event, any holder of this Note and the
Other Notes then outstanding may require the Maker to prepay all of the Notes on
a pro rata basis by delivering written notice thereof via facsimile and
overnight courier ("Notice of Prepayment at Option of Holder Upon Triggering
Event") to the Maker, which Notice of Prepayment at Option of Holder Upon
Triggering Event shall indicate (i) the number of Notes that such holder is
electing to prepay and (ii) the applicable Triggering Event Prepayment Price, as
calculated pursuant to Section 3.7(c) above.
(j) Intentionally Omitted.
(k) Payment of Prepayment Price. Upon the Maker's receipt of a
Notice(s) of Prepayment at Option of Holder Upon Triggering Event or a Notice(s)
of Prepayment at Option of Holder Upon Major Transaction from any holder of the
Notes, the Maker shall immediately notify each holder of the Notes by facsimile
of the Maker's receipt of such Notice(s) of Prepayment at Option of Holder Upon
Triggering Event or Notice(s) of Prepayment at Option of Holder Upon Major
Transaction and each holder which has sent such a notice shall promptly submit
to the Maker such holder's certificates representing the Notes which such holder
has elected to have prepaid. The Maker shall deliver the applicable Triggering
Event Prepayment Price, in the case of a prepayment pursuant to Section 3.7(i),
to such holder within five (5) business days after the Maker's receipt of a
Notice of Prepayment at Option of Holder Upon Triggering Event and, in the case
of a prepayment pursuant to Section 3.7(k), the Maker shall deliver the
applicable Major Transaction Prepayment Price immediately prior to the
consummation of the Major Transaction; provided that a holder's original Note
shall have been so delivered to the Maker; provided further that if the Maker is
unable to prepay all of the Notes to be prepaid, the Maker shall prepay an
amount from each holder of the Notes being prepaid equal to such holder's
pro-rata amount (based on the number of Notes held by such holder relative to
the number of Notes outstanding) of all Notes being prepaid. If the Maker shall
fail to prepay all of the Notes submitted for prepayment (other than pursuant to
a dispute as to the arithmetic calculation of the Prepayment Price), in addition
to any remedy such holder of the Notes may have under this Note, the Security
Agreement and the Purchase Agreement, the applicable Prepayment Price payable in
respect of such Notes not prepaid shall bear interest at the rate of 2.0% per
month (prorated for partial months) until paid in full. Until the Maker pays
such unpaid applicable Prepayment Price in full to a holder of the Notes
submitted for prepayment, such holder shall have the option (the "Void Optional
Prepayment Option") to, in lieu of prepayment, require the Maker to promptly
return to such holder(s) all of the Notes that were submitted for prepayment by
such holder(s) under this Section 3.7 and for which the applicable Prepayment
Price has not been paid, by sending written notice thereof to the Maker via
facsimile (the "Void Optional Prepayment Notice"). Upon the Maker's receipt of
such Void Optional Prepayment Notice(s) and prior to payment of the full
applicable Prepayment Price to such holder, (i) the Notice(s) of Prepayment at
Option of Holder Upon Triggering Event or the Notice(s) of Prepayment at Option
of Holder Upon Major Transaction, as the case may be, shall be null and void
with respect to those Notes submitted for prepayment and for which the
applicable Prepayment Price has not been paid, (ii) the Maker shall immediately
return any Notes submitted to the Maker by each holder for prepayment under this
Section 3.7(h) and for which the applicable Prepayment Price has not been paid
and (iii) the Conversion Price of such returned Notes shall be adjusted to the
lesser of (A) the Conversion Price as in effect on the date on which the Void
Optional Prepayment Notice(s) is delivered to the Maker and (B) the lowest Per
Share Market Value during the period beginning on the date on which the
Notice(s) of Prepayment of Option of Holder Upon Major Transaction or the
Notice(s) of Prepayment at Option of Holder Upon Triggering Event, as the case
may be, is delivered to the Maker and ending on the date on which the Void
Optional Prepayment Notice(s) is delivered to the Maker; provided that no
adjustment shall be made if such adjustment would result in an increase of the
Conversion Price then in effect. A holder's delivery of a Void Optional
Prepayment Notice and exercise of its rights following such notice shall not
effect the Maker's obligations to make any payments which have accrued prior to
the date of such notice. Payments provided for in this Section 3.7 shall have
priority to payments to other stockholders in connection with a Major
Transaction.
(l) Holder Prepayment Option. At the sole option of the Holder, the
Holder may grant the Maker the option to prepay all or any portion of the
outstanding principal amount of this Note together with all accrued and unpaid
interest thereon within ten (10) days of the Holder granting the option to the
Maker. If the Maker elects to exercise the prepayment option, the Maker shall
upon five (5) days prior written notice to the Holder (the "Maker's Prepayment
Notice") prepay all or a portion of the outstanding Notes equal to 130% of the
aggregate principal amount of this Note plus any accrued but unpaid interest
(the "Maker's Prepayment Price"); provided, however, that if a holder has
delivered a Conversion Notice to the Maker or delivers a Conversion Notice after
receipt of the Maker's Prepayment Notice, the Notes designated to be converted
may not be prepaid by the Maker; provided further that if during the period
between delivery of the Maker's Prepayment Notice and the Maker's Prepayment
Date (as defined below), a holder shall become entitled to deliver a Notice of
Prepayment at Option of Holder Upon Major Transaction or Notice of Prepayment at
Option of Holder upon Triggering Event, then the such rights of the holders
shall take precedence over the previously delivered Maker Prepayment Notice. The
Maker's Prepayment Notice shall state the date of prepayment which date shall be
the sixth (6th) day after the Maker has delivered the Maker's Prepayment Notice
(the "Maker's Prepayment Date"), the Maker's Prepayment Price and the amount of
Notes to be prepaid by the Maker. The Maker shall deliver the Maker's Prepayment
Price to the Holder within five (5) business days after the Maker has delivered
the Maker's Prepayment Notice, provided, that if the holder(s) delivers a
Conversion Notice before the Maker's Prepayment Date, then the portion of the
Maker's Prepayment Price which would be paid to prepay the Notes covered by such
Conversion Notice shall be returned to the Maker upon delivery of the Common
Stock issuable in connection with such Conversion Notice to the holder(s). On
the Maker's Prepayment Date, the Maker shall pay the Maker's Prepayment Price,
subject to any adjustment pursuant to the immediately preceding sentence, to the
holder(s) on a pro rata basis, provided, however, that upon receipt by Maker of
the certificates representing the Notes to be prepaid pursuant to this Section
3.7(l), the Maker shall, on the next business day following the date of receipt
by the Maker of the original Note, pay the Maker's Prepayment Price to the
holder(s) on a pro rata basis. If the Maker fails to pay the Maker's Prepayment
Price by the sixth (6th) business day after the Maker has delivered the Maker's
Prepayment Notice, the prepayment will be declared null and void and the Maker
shall lose its right to serve a Maker 's Prepayment Notice pursuant to this
Section 3.7(l) in the future.
(m) Maker Prepayment Option. The Maker may prepay all or a portion
of this Note after the Effectiveness Date at a price equal to 130% of the
aggregate principal amount of the Notes plus all accrued and unpaid interest by
providing ten (10) days written notice (the "Maker Prepayment Option Notice") to
the Holder. Nothing contained in this Section 3.7(m) shall preclude the Holder
from converting its Note within such ten (10) day period; provided, however,
that subject to the terms and provisions of Section 3.2 hereof, the Conversion
Price for purposes of this Section 3.7(m) shall be an amount equal to the
Discount Percentage of the average of the Per Share Market Value for the three
(3) Trading Days having the lowest Per Share Market Value during the twenty (20)
Trading Days immediately prior to the date of delivery of the Maker Prepayment
Option Notice.
Section 3.8 Inability to Fully Convert.
(a) Holder's Option if Maker Cannot Fully Convert. If, upon the
Maker's receipt of a Conversion Notice, the Maker cannot issue shares of Common
Stock registered for resale under the Registration Statement for any reason,
including, without limitation, because the Maker (w) does not have a sufficient
number of shares of Common Stock authorized and available, (x) is otherwise
prohibited by applicable law or by the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Maker or any of its securities from issuing all of
the Common Stock which is to be issued to the Holder pursuant to a Conversion
Notice or (y) fails to have a sufficient number of shares of Common Stock
registered for resale under the Registration Statement, then the Maker shall
issue as many shares of Common Stock as it is able to issue in accordance with
the Holder's Conversion Notice and, with respect to the unconverted portion of
this Note, the Holder, solely at Holder's option, can elect to:
(i) require the Maker to prepay that portion of this Note for which the
Maker is unable to issue Common Stock in accordance with the Holder's Conversion
Notice (the "Mandatory Prepayment") at a price per share equal to the Prepayment
Price as of such Conversion Date (the "Mandatory Prepayment Price");
(ii) if the Maker's inability to fully convert is pursuant to Section
3.8(a)(y) above, require the Maker to issue restricted shares of Common Stock
equal to one hundred twenty percent (120%) of the number of shares of Common
Stock the Maker is unable to deliver in accordance with such holder's Conversion
Notice;
(iii) void its Conversion Notice and retain or have returned, as the case
may be, this Note that was to be converted pursuant to the Conversion Notice
(provided that the Holder's voiding its Conversion Notice shall not effect the
Maker's obligations to make any payments which have accrued prior to the date of
such notice).
(b) Mechanics of Fulfilling Holder's Election. The Maker shall
immediately send via facsimile to the Holder, upon receipt of a facsimile copy
of a Conversion Notice from the Holder which cannot be fully satisfied as
described in Section 3.8(a) above, a notice of the Maker's inability to fully
satisfy the Conversion Notice (the "Inability to Fully Convert Notice"). Such
Inability to Fully Convert Notice shall indicate (i) the reason why the Maker is
unable to fully satisfy such holder's Conversion Notice, (ii) the amount of this
Note which cannot be converted and (iii) the applicable Mandatory Prepayment
Price. The Holder shall notify the Maker of its election pursuant to Section
3.8(a) above by delivering written notice via facsimile to the Maker ("Notice in
Response to Inability to Convert").
(c) Payment of Prepayment Price. If the Holder shall elect to have
its Notes prepaid pursuant to Section 3.8(a)(i) above, the Maker shall pay the
Mandatory Prepayment Price in cash to the Holder within five (5) days of the
Maker's receipt of the Holder's Notice in Response to Inability to Convert,
provided that prior to the Maker's receipt of the Holder's Notice in Response to
Inability to Convert the Maker has not delivered a notice to the Holder stating,
to the satisfaction of the Holder, that the event or condition resulting in the
Mandatory Prepayment has been cured and all Conversion Shares issuable to the
Holder can and will be delivered to the Holder in accordance with the terms of
this Note. If the Maker shall fail to pay the applicable Mandatory Prepayment
Price to the Holder on a timely basis as described in this Section 3.8(c) (other
than pursuant to a dispute as to the determination of the arithmetic calculation
of the Prepayment Price), in addition to any remedy the Holder may have under
this Note and the Purchase Agreement, such unpaid amount shall bear interest at
the rate of 2.0% per month (prorated for partial months) until paid in full.
Until the full Mandatory Prepayment Price is paid in full to the Holder, the
Holder may (i) void the Mandatory Prepayment with respect to that portion of the
Note for which the full Mandatory Prepayment Price has not been paid, (ii)
receive back such Note, and (iii) require that the Conversion Price of such
returned Note be adjusted to the lesser of (A) the Conversion Price as in effect
on the date on which the Holder voided the Mandatory Prepayment and (B) the
lowest Per Share Market Value during the period beginning on the Conversion Date
and ending on the date the Holder voided the Mandatory Prepayment.
Section 3.9 No Rights as Shareholder. Nothing contained in this Note shall
be construed as conferring upon the Holder, prior to the conversion of this
Note, the right to vote or to receive dividends or to consent or to receive
notice as a shareholder in respect of any meeting of shareholders for the
election of directors of the Maker or of any other matter, or any other rights
as a shareholder of the Maker.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Notices. Any notice, demand, request, waiver or other
communication required or permitted to be given hereunder shall be in writing
and shall be effective (a) upon hand delivery by telex (with correct answer back
received), telecopy or facsimile at the address or number designated in the
Purchase Agreement (if delivered on a business day during normal business hours
where such notice is to be received), or the first business day following such
delivery (if delivered other than on a business day during normal business hours
where such notice is to be received) or (b) on the second business day following
the date of mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.
The Maker will give written notice to the Holder at least ten (10) days prior to
the date on which the Maker closes its books or takes a record (x) with respect
to any dividend or distribution upon the Common Stock, (y) with respect to any
pro rata subscription offer to holders of Common Stock or (z) for determining
rights to vote with respect to any Organic Change, dissolution, liquidation or
winding-up and in no event shall such notice be provided to such holder prior to
such information being made known to the public. The Maker will also give
written notice to the Holder at least ten (10) days prior to the date on which
any Organic Change, dissolution, liquidation or winding-up will take place and
in no event shall such notice be provided to the Holder prior to such
information being made known to the public. The Maker shall promptly notify the
Holder of this Note of any notices sent or received, or any actions taken with
respect to the Other Notes.
Section 4.2 Governing Law. This Note shall be governed by and construed in
accordance with the internal laws of the State of New York, without giving
effect to the choice of law provisions. This Note shall not be interpreted or
construed with any presumption against the party causing this Note to be
drafted.
Section 4.3 Headings. Article and section headings in this Note are
included herein for purposes of convenience of reference only and shall not
constitute a part of this Note for any other purpose.
Section 4.4 Remedies, Characterizations, Other Obligations, Breaches and
Injunctive Relief. The remedies provided in this Note shall be cumulative and in
addition to all other remedies available under this Note, at law or in equity
(including, without limitation, a decree of specific performance and/or other
injunctive relief), no remedy contained herein shall be deemed a waiver of
compliance with the provisions giving rise to such remedy and nothing herein
shall limit a holder's right to pursue actual damages for any failure by the
Maker to comply with the terms of this Note. Amounts set forth or provided for
herein with respect to payments, conversion and the like (and the computation
thereof) shall be the amounts to be received by the holder thereof and shall
not, except as expressly provided herein, be subject to any other obligation of
the Maker (or the performance thereof). The Maker acknowledges that a breach by
it of its obligations hereunder will cause irreparable and material harm to the
Holder and that the remedy at law for any such breach may be inadequate.
Therefore the Maker agrees that, in the event of any such breach or threatened
breach, the Holder shall be entitled, in addition to all other available rights
and remedies, at law or in equity, to seek and obtain such equitable relief,
including but not limited to an injunction restraining any such breach or
threatened breach, without the necessity of showing economic loss and without
any bond or other security being required.
Section 4.5 Enforcement Expenses. The Maker agrees to pay all costs and
expenses of enforcement of this Note, including, without limitation, reasonable
attorneys' fees and expenses.
Section 4.6 Binding Effect. The obligations of the Maker and the Holder set
forth herein shall be binding upon the successors and assigns of each such
party, whether or not such successors or assigns are permitted by the terms
hereof.
Section 4.7 Amendments. This Note may not be modified or amended in any
manner except in writing executed by the Maker and the Holder.
Section 4.8 Compliance with Securities Laws. The Holder of this Note
acknowledges that this Note is being acquired solely for the Holder's own
account and not as a nominee for any other party, and for investment, and that
the Holder shall not offer, sell or otherwise dispose of this Note. This Note
and any Note issued in substitution or replacement therefore shall be stamped or
imprinted with a legend in substantially the following form:
" THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR RECEIPT BY THE
MAKER OF AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE REASONABLY
ACCEPTABLE TO THE MAKER) IN THE FORM, SUBSTANCE AND SCOPE REASONABLY
SATISFACTORY TO THE MAKER THAT THIS NOTE MAY BE SOLD, TRANSFERRED,
HYPOTHECATED OR OTHERWISE DISPOSED OF, UNDER AN EXEMPTION FROM
REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES LAWS."
Section 4.9 Consent to Jurisdiction. Each of the Maker and the Holder (i)
hereby irrevocably submits to the exclusive jurisdiction of the United States
District Court sitting in the Southern District of New York and the courts of
the State of New York located in New York county for the purposes of any suit,
action or proceeding arising out of or relating to this Note and (ii) hereby
waives, and agrees not to assert in any such suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction of such court, that
the suit, action or proceeding is brought in an inconvenient forum or that the
venue of the suit, action or proceeding is improper. Each of the Maker and the
Holder consents to process being served in any such suit, action or proceeding
by mailing a copy thereof to such party at the address in effect for notices to
it under the Purchase Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing in this
Section 4.9 shall affect or limit any right to serve process in any other manner
permitted by law. Each of the Maker and the Holder hereby agree that the
prevailing party in any suit, action or proceeding arising out of or relating to
this Note shall be entitled to reimbursement for reasonable legal fees from the
non-prevailing party.
Section 4.10 Parties in Interest. This Note shall be binding upon, inure to
the benefit of and be enforceable by the Maker, the Holder and their respective
successors and permitted assigns.
Section 4.11 Failure or Indulgence Not Waiver. No failure or delay on the
part of the Holder in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege.
Section 4.12 Maker Waivers. Except as otherwise specifically provided
herein, the Maker and all others that may become liable for all or any part of
the obligations evidenced by this Note, hereby waive presentment, demand, notice
of nonpayment, protest and all other demands' and notices in connection with the
delivery, acceptance, performance and enforcement of this Note, and do hereby
consent to any number of renewals of extensions of the time or payment hereof
and agree that any such renewals or extensions may be made without notice to any
such persons and without affecting their liability herein and do further consent
to the release of any person liable hereon, all without affecting the liability
of the other persons, firms or Maker liable for the payment of this Note, AND DO
HEREBY WAIVE TRIAL BY JURY.
(a) No delay or omission on the part of the Holder in exercising its rights
under this Note, or course of conduct relating hereto, shall operate as a waiver
of such rights or any other right of the Holder, nor shall any waiver by the
Holder of any such right or rights on any one occasion be deemed a waiver of the
same right or rights on any future occasion.
(b) THE MAKER ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS NOTE IS A
PART IS A COMMERCIAL TRANSACTION, AND TO THE EXTENT ALLOWED BY APPLICABLE LAW,
HEREBY WAIVES ITS RIGHT TO NOTICE AND HEARING WITH RESPECT TO ANY PREJUDGMENT
REMEDY WHICH THE HOLDER OR ITS SUCCESSORS OR ASSIGNS MAY DESIRE TO USE.
Section 4.13 Definitions. For the purposes hereof, the following terms
shall have the following meanings:
"Independent Appraiser" means a nationally recognized or major regional
investment banking firm or firm of independent certified public accountants of
recognized standing (which may be the firm that regularly examines the financial
statements of the Issuer) that is regularly engaged in the business of
appraising the Capital Stock or assets of corporations or other entities as
going concerns, and which is not affiliated with either the Issuer or the Holder
of any Warrant.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Trading Day" " means (a) a day on which the Common Stock is traded on the
American Stock Exchange or other registered national stock exchange on which the
Common Stock has been listed, or (b) if the Common Stock is not listed on the
American Stock Exchange or any registered national stock exchange, a day or
which the Common Stock is traded in the over-the-counter market, as reported by
the OTC Bulletin Board, or (c) if the Common Stock is not quoted on the OTC
Bulletin Board, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices); provided, however, that in the event that the Common Stock is
not listed or quoted as set forth in (a), (b) and (c) hereof, then Trading Day
shall mean any day except Saturday, Sunday and any day which shall be a legal
holiday or a day on which banking institutions in the State of New York are
authorized or required by law or other government action to close.
CEL-SCI CORPORATION
By: /s/ Geert R. Kersten
-------------------------------
Name: Geert R. Kersten
Title: Chief Executive Officer
EXHIBIT A
WIRE INSTRUCTIONS.
Payee: ________________________________________________________
Bank: ________________________________________________________
Address: _____________________________________________________
------------------------------------------------------
Bank No.: _____________________________________________________
Account No.: __________________________________________________
Account Name: _________________________________________________
FORM OF
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Note)
The undersigned hereby irrevocably elects to convert $ ________________ of the
principal amount of the above Note No. ___ into shares of Common Stock of
CEL-SCI CORPORATION (the "Maker") according to the conditions hereof, as of the
date written below.
Date of Conversion _________________________________________________________
Applicable Conversion Price __________________________________________________
Signature___________________________________________________________________
[Name]
Address:__________________________________________________________________
-----------------------------------------------------------------------
EXHIBIT C
FORM OF WARRANT
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER
APPLICABLE STATE SECURITIES LAWS OR CEL-SCI CORPORATION SHALL HAVE RECEIVED AN
OPINION OF ITS COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES
ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED.
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
CEL-SCI CORPORATION
Expires January 7, 2010
No.: W-03-__ Number of Shares: _________
Date of Issuance: January 7, 2003
FOR VALUE RECEIVED, subject to the provisions hereinafter set forth, the
undersigned, Cel-Sci Corporation, a Colorado corporation (together with its
successors and assigns, the "Issuer"), hereby certifies that
________________________________ or its registered assigns is entitled to
subscribe for and purchase, during the period specified in this Warrant, up to
____________________________ (__________) shares (subject to adjustment as
hereinafter provided) of the duly authorized, validly issued, fully paid and
non-assessable Common Stock of the Issuer, at an exercise price per share equal
to the Warrant Price then in effect, subject, however, to the provisions and
upon the terms and conditions hereinafter set forth. Capitalized terms used in
this Warrant and not otherwise defined herein shall have the respective meanings
specified in Section 9 hereof.
1. Term. The right to subscribe for and purchase shares of Warrant Stock
represented hereby shall commence on the date of issuance of this Warrant and
shall expire at 5:00 p.m., eastern time, on January 7, 2010 (such period being
the "Term").
2. Method of Exercise Payment; Issuance of New Warrant; Transfer and
Exchange.
(a) Time of Exercise. The purchase rights represented by this Warrant may
be exercised in whole or in part at any time and from time to time during the
Term.
(b) Method of Exercise. The Holder hereof may exercise this Warrant, in
whole or in part, by the surrender of this Warrant (with the exercise form
attached hereto duly executed) at the principal office of the Issuer, and by the
payment to the Issuer of an amount of consideration therefor equal to the
Warrant Price in effect on the date of such exercise multiplied by the number of
shares of Warrant Stock with respect to which this Warrant is then being
exercised, payable at such Holder's election (i) by certified or official bank
check or by wire transfer to an account designated by the Issuer, (ii) by
"cashless exercise" by surrender to the Issuer for cancellation of a portion of
this Warrant representing that number of unissued shares of Warrant Stock which
is equal to the quotient obtained by dividing (A) the product obtained by
multiplying the Warrant Price by the number of shares of Warrant Stock being
purchased upon such exercise by (B) the Per Share Market Value as of the date of
such exercise, or (iii) by a combination of the foregoing methods of payment
selected by the Holder of this Warrant. In any case where the consideration
payable upon such exercise is being paid in whole or in part pursuant to the
provisions of clause (ii) of this subsection (b), such exercise shall be
accompanied by written notice from the Holder of this Warrant specifying the
manner of payment thereof and containing a calculation showing the number of
shares of Warrant Stock with respect to which rights are being surrendered
thereunder and the net number of shares to be issued after giving effect to such
surrender.
(c) Issuance of Stock Certificates. In the event of any exercise of the
rights represented by this Warrant in accordance with and subject to the terms
and conditions hereof, (i) certificates for the shares of Warrant Stock so
purchased shall be dated the date of such exercise and delivered to the Holder
hereof within a reasonable time, not exceeding three (3) Trading Days after such
exercise, and the Holder hereof shall be deemed for all purposes to be the
Holder of the shares of Warrant Stock so purchased as of the date of such
exercise, and (ii) unless this Warrant has expired, a new Warrant representing
the number of shares of Warrant Stock, if any, with respect to which this
Warrant shall not then have been exercised (less any amount thereof which shall
have been canceled in payment or partial payment of the Warrant Price as
hereinabove provided) shall also be issued to the Holder hereof at the Issuer's
expense within such time.
(d) Transferability of Warrant. Subject to Section 2(e), this Warrant may
be transferred by a Holder without the consent of the Issuer. If transferred
pursuant to this paragraph and subject to the provisions of subsection (e) of
this Section 2, this Warrant may be transferred on the books of the Issuer by
the Holder hereof in person or by duly authorized attorney, upon surrender of
this Warrant at the principal office of the Issuer, properly endorsed (by the
Holder executing an assignment in the form attached hereto) and upon payment of
any necessary transfer tax or other governmental charge imposed upon such
transfer. This Warrant is exchangeable at the principal office of the Issuer for
Warrants for the purchase of the same aggregate number of shares of Warrant
Stock, each new Warrant to represent the right to purchase such number of shares
of Warrant Stock as the Holder hereof shall designate at the time of such
exchange. All Warrants issued on transfers or exchanges shall be dated the
Original Issue Date and shall be identical with this Warrant except as to the
number of shares of Warrant Stock issuable pursuant hereto.
(e) Compliance with Securities Laws.
(i) The Holder of this Warrant, by acceptance hereof, acknowledges
that this Warrant or the shares of Warrant Stock to be issued upon
exercise hereof are being acquired solely for the Holder's own account
and not as a nominee for any other party, and for investment, and that
the Holder will not offer, sell or otherwise dispose of this Warrant or
any shares of Warrant Stock to be issued upon exercise hereof except
pursuant to an effective registration statement, or an exemption from
registration, under the Securities Act and any applicable state
securities laws.
(ii) Except as provided in paragraph (iii) below, this Warrant and
all certificates representing shares of Warrant Stock issued upon
exercise hereof shall be stamped or imprinted with a legend in
substantially the following form:
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY
NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED
UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS
OR CEL-SCI CORPORATION SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL
THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND
UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED.
(iii) The restrictions imposed by this subsection (e) upon the
transfer of this Warrant or the shares of Warrant Stock to be purchased
upon exercise hereof shall terminate (A) when such securities shall have
been resold pursuant to an effective registration statement under the
Securities Act, (B) upon the Issuer's receipt of an opinion of counsel,
in form and substance reasonably satisfactory to the Issuer, addressed to
the Issuer to the effect that such restrictions are no longer required to
ensure compliance with the Securities Act and state securities laws or
(C) upon the Issuer's receipt of other evidence reasonably satisfactory
to the Issuer that such registration and qualification under the
Securities Act and state securities laws are not required. Whenever such
restrictions shall cease and terminate as to any such securities, the
Holder thereof shall be entitled to receive from the Issuer (or its
transfer agent and registrar), without expense (other than applicable
transfer taxes, if any), new Warrants (or, in the case of shares of
Warrant Stock, new stock certificates) of like tenor not bearing the
applicable legend required by paragraph (ii) above relating to the
Securities Act and state securities laws.
(f) Continuing Rights of Holder. The Issuer will, at the time of or at any
time after each exercise of this Warrant, upon the request of the Holder hereof,
acknowledge in writing the extent, if any, of its continuing obligation to
afford to such Holder all rights to which such Holder shall continue to be
entitled after such exercise in accordance with the terms of this Warrant,
provided that if any such Holder shall fail to make any such request, the
failure shall not affect the continuing obligation of the Issuer to afford such
rights to such Holder.
3. Stock Fully Paid; Reservation and Listing of Shares; Covenants.
(a) Stock Fully Paid. The Issuer represents, warrants, covenants and
agrees that all shares of Warrant Stock which may be issued upon the exercise of
this Warrant or otherwise hereunder will, upon issuance, be duly authorized,
validly issued, fully paid and non-assessable and free from all taxes, liens and
charges created by or through Issuer. The Issuer further covenants and agrees
that during the period within which this Warrant may be exercised, the Issuer
will at all times have authorized and reserved for the purpose of the issue upon
exercise of this Warrant a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant.
(b) Reservation. If any shares of Common Stock required to be reserved for
issuance upon exercise of this Warrant or as otherwise provided hereunder
require registration or qualification with any governmental authority under any
federal or state law before such shares may be so issued, the Issuer will in
good faith use its best efforts as expeditiously as possible at its expense to
cause such shares to be duly registered or qualified. If the Issuer shall list
any shares of Common Stock on any securities exchange or market it will, at its
expense, list thereon, maintain and increase when necessary such listing, of,
all shares of Warrant Stock from time to time issued upon exercise of this
Warrant or as otherwise provided hereunder, and, to the extent permissible under
the applicable securities exchange rules, all unissued shares of Warrant Stock
which are at any time issuable hereunder, so long as any shares of Common Stock
shall be so listed. The Issuer will also so list on each securities exchange or
market, and will maintain such listing of, any other securities which the Holder
of this Warrant shall be entitled to receive upon the exercise of this Warrant
if at the time any securities of the same class shall be listed on such
securities exchange or market by the Issuer.
(c) Covenants. The Issuer shall not by any action including, without
limitation, amending the Articles of Incorporation or the by-laws of the Issuer,
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such actions as may be necessary or appropriate to protect
the rights of the Holder hereof against dilution (to the extent specifically
provided herein) or impairment. Without limiting the generality of the
foregoing, the Issuer will (i) not permit the par value, if any, of its Common
Stock to exceed the then effective Warrant Price, (ii) not amend or modify any
provision of the Articles of Incorporation or by-laws of the Issuer in any
manner that would adversely affect in any way the powers, preferences or
relative participating, optional or other special rights of the Common Stock or
which would adversely affect the rights of the Holders of the Warrants, (iii)
take all such action as may be reasonably necessary in order that the Issuer may
validly and legally issue fully paid and nonassessable shares of Common Stock,
free and clear of any liens, claims, encumbrances and restrictions (other than
as provided herein) upon the exercise of this Warrant, and (iv) use its best
efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be reasonably
necessary to enable the Issuer to perform its obligations under this Warrant.
(d) Loss, Theft, Destruction of Warrants. Upon receipt of evidence
satisfactory to the Issuer of the ownership of and the loss, theft, destruction
or mutilation of any Warrant and, in the case of any such loss, theft or
destruction, upon receipt of indemnity or security satisfactory to the Issuer
or, in the case of any such mutilation, upon surrender and cancellation of such
Warrant, the Issuer will make and deliver, in lieu of such lost, stolen,
destroyed or mutilated Warrant, a new Warrant of like tenor and representing the
right to purchase the same number of shares of Common Stock.
(e) Registration Rights. The Warrant Stock of the Issuer is entitled to
the benefits and subject to the terms of the Registration Rights Agreement dated
the date hereof between the Issuer and the Holder and shall carry standard
piggy-back registration rights on any registration statement filed by the Issuer
under the Securities Act.
4. Adjustment of Warrant Price and Warrant Share Number. The number of
shares of Common Stock for which this Warrant is exercisable, and the price at
which such shares may be purchased upon exercise of this Warrant, shall be
subject to adjustment from time to time as set forth in this Section 4. The
Issuer shall give the Holder notice of any event described below which requires
an adjustment pursuant to this Section 4 in accordance with Section 5.
(a) Recapitalization, Reorganization, Reclassification, Consolidation,
Merger or Sale.
(i) In case the Issuer after the Original Issue Date shall do any of
the following (each, a "Triggering Event"): (a) consolidate with or merge
into any other Person and the Issuer shall not be the continuing or
surviving corporation of such consolidation or merger, or (b) permit any
other Person to consolidate with or merge into the Issuer and the Issuer
shall be the continuing or surviving Person but, in connection with such
consolidation or merger, any Capital Stock of the Issuer shall be changed
into or exchanged for Securities of any other Person or cash or any other
property, or (c) transfer all or substantially all of its properties or
assets to any other Person, or (d) effect a capital reorganization or
reclassification of its Capital Stock, then, and in the case of each such
Triggering Event, proper provision shall be made so that, upon the basis
and the terms and in the manner provided in this Warrant, the Holder of
this Warrant shall be entitled (x) upon the exercise hereof at any time
after the consummation of such Triggering Event, to the extent this
Warrant is not exercised prior to such Triggering Event, to receive at the
Warrant Price in effect at the time immediately prior to the consummation
of such Triggering Event in lieu of the Common Stock issuable upon such
exercise of this Warrant prior to such Triggering Event, the Securities,
cash and property to which such Holder would have been entitled upon the
consummation of such Triggering Event if such Holder had exercised the
rights represented by this Warrant immediately prior thereto, subject to
adjustments (subsequent to such corporate action) as nearly equivalent as
possible to the adjustments provided for elsewhere in this Section 4 or
(y) to sell this Warrant (or, at such Holder's election, a portion hereof)
concurrently with the Triggering Event to the Person continuing after or
surviving such Triggering Event, or to the Issuer (if Issuer is the
continuing or surviving Person) at a sales price equal to the amount of
cash, property and/or Securities to which a holder of the number of shares
of Common Stock which would otherwise have been delivered upon the
exercise of this Warrant would have been entitled upon the effective date
or closing of any such Triggering Event (the "Event Consideration"), less
the amount or portion of such Event Consideration having a fair value
equal to the aggregate Warrant Price applicable to this Warrant or the
portion hereof so sold.
(ii) Notwithstanding anything contained in this Warrant to the
contrary, the Issuer will not effect any Triggering Event unless, prior to
the consummation thereof, each Person (other than the Issuer) which may be
required to deliver any Securities, cash or property upon the exercise of
this Warrant as provided herein shall assume, by written instrument
delivered to, and reasonably satisfactory to, the Holder of this Warrant,
(A) the obligations of the Issuer under this Warrant (and if the Issuer
shall survive the consummation of such Triggering Event, such assumption
shall be in addition to, and shall not release the Issuer from, any
continuing obligations of the Issuer under this Warrant) and (B) the
obligation to deliver to such Holder such shares of Securities, cash or
property as, in accordance with the foregoing provisions of this
subsection (a), such Holder shall be entitled to receive, and such Person
shall have similarly delivered to such Holder an opinion of counsel for
such Person, which counsel shall be reasonably satisfactory to such
Holder, stating that this Warrant shall thereafter continue in full force
and effect and the terms hereof (including, without limitation, all of the
provisions of this subsection (a)) shall be applicable to the Securities,
cash or property which such Person may be required to deliver upon any
exercise of this Warrant or the exercise of any rights pursuant hereto.
(iii) If with respect to any Triggering Event, the Holder of this
Warrant has exercised its right as provided in clause (y) of subparagraph
(i) of this subsection (a) to sell this Warrant or a portion thereof, the
Issuer agrees that as a condition to the consummation of any such
Triggering Event the Issuer shall secure such right of Holder to sell this
Warrant to the Person continuing after or surviving such Triggering Event
and the Issuer shall not effect any such Triggering Event unless upon or
prior to the consummation thereof the amounts of cash, property and/or
Securities required under such clause (y) are delivered to the Holder of
this Warrant. The obligation of the Issuer to secure such right of the
Holder to sell this Warrant shall be subject to such Holder's cooperation
with the Issuer, including, without limitation, the giving of customary
representations and warranties to the purchaser in connection with any
such sale. Prior notice of any Triggering Event shall be given to the
Holder of this Warrant in accordance with Section 13 hereof.
(b) Stock Dividends, Subdivisions and Combinations. If at any time the
Issuer shall:
(i) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Additional Shares of Common Stock,
(ii) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then (1) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (2) the Warrant Price then in
effect shall be adjusted to equal (A) the Warrant Price then in effect
multiplied by the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to the adjustment divided by (B) the number of
shares of Common Stock for which this Warrant is exercisable immediately after
such adjustment.
(c) Certain Other Distributions. If at any time the Issuer shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive any dividend or other distribution of:
(i) cash (other than a cash dividend payable out of earnings
or earned surplus legally available for the payment of dividends under the
laws of the jurisdiction of incorporation of the Issuer),
(ii) any evidences of its indebtedness, any shares of stock of
any class or any other securities or property of any nature whatsoever
(other than cash, Common Stock Equivalents or Additional Shares of Common
Stock), or
(iii) any warrants or other rights to subscribe for or
purchase any evidences of its indebtedness, any shares of stock of any
class or any other securities or property of any nature whatsoever (other
than cash, Common Stock Equivalents or Additional Shares of Common Stock),
then (1) the number of shares of Common Stock for which this Warrant is
exercisable shall be adjusted to equal the product of the number of shares of
Common Stock for which this Warrant is exercisable immediately prior to such
adjustment multiplied by a fraction (A) the numerator of which shall be the Per
Share Market Value of Common Stock at the date of taking such record and (B) the
denominator of which shall be such Per Share Market Value minus the amount
allocable to one share of Common Stock of any such cash so distributable and of
the fair value (as determined in good faith by the Board of Directors of the
Issuer and supported by an opinion from an investment banking firm of recognized
national standing acceptable to the Holder) of any and all such evidences of
indebtedness, shares of stock, other securities or property or warrants or other
subscription or purchase rights so distributable, and (2) the Warrant Price then
in effect shall be adjusted to equal (A) the Warrant Price then in effect
multiplied by the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to the adjustment divided by (B) the number of
shares of Common Stock for which this Warrant is exercisable immediately after
such adjustment. A reclassification of the Common Stock (other than a change in
par value, or from par value to no par value or from no par value to par value)
into shares of Common Stock and shares of any other class of stock shall be
deemed a distribution by the Issuer to the holders of its Common Stock of such
shares of such other class of stock within the meaning of this Section 4(c) and,
if the outstanding shares of Common Stock shall be changed into a larger or
smaller number of shares of Common Stock as a part of such reclassification,
such change shall be deemed a subdivision or combination, as the case may be, of
the outstanding shares of Common Stock within the meaning of Section 4(b).
(d) Issuance of Additional Shares of Common Stock.
(i) In the event the Issuer, shall, at any time, from time to time,
issue or sell any shares of Common Stock (including Treasury Shares) to a third
party other than the Holder of this Warrant for a consideration per share less
than the Warrant Price then in effect for the Warrant immediately prior to the
time of such issue or sale, then, forthwith upon such issue or sale, the Warrant
Price then in effect for the Warrants shall be reduced to a price equal to the
consideration per share paid for such Common Stock and the number of shares of
Common Stock for which this Warrant is exercisable shall be increased by the
product of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such issuance or sale multiplied by the
Dilution Percentage. "Dilution Percentage" shall mean the percentage by which
the Warrant Price then in effect is reduced pursuant to this Section 4(d).
(ii) If at any time the Issuer shall at any time issue or sell any
Additional Shares of Common Stock to a third party other than the Holder of this
Warrant in exchange for consideration in an amount per Additional Share of
Common Stock less than the Per Share Market Value at the time the Additional
Shares of Common Stock are issued or sold, then, forthwith upon such issue or
sale, the Warrant Price then in effect for the Warrants shall be reduced by the
product of the Warrant Price then in effect multiplied by the Market Dilution
Percentage and the number of shares of Common Stock for which this Warrant is
exercisable shall be increased by the product of the number of shares of Common
Stock for which this Warrant is exercisable immediately prior to such issuance
or sale multiplied by the Market Dilution Percentage. "Market Dilution
Percentage" shall mean the percentage by which such issuance or sale is below
the lesser of the Per Share Market Value or the per share market value of the
Common Stock as calculated pursuant to the terms of any other financings of the
Company.
(iii) If at any time the Issuer shall issue or sell any Additional
Shares of Common Stock to a third party other than the Holder of this Warrant in
exchange for consideration in an amount per Additional Share of Common Stock
which is less than the Warrant Price or the Per Share Market Value at the time
the Additional Shares of Common Stock are issued or sold, the adjustment
required under Section 4(d) shall be made in accordance with the formula in
paragraph (i) or (ii) above which results in the lower Warrant Price following
such adjustment. The provisions of paragraphs (i) and (ii) of Section 4(d) shall
not apply to any issuance of Additional Shares of Common Stock for which an
adjustment is provided under Section 4(b) or 4(c). No adjustment of the number
of shares of Common Stock for which this Warrant shall be exercisable shall be
made under paragraph (i) or (ii) of Section 4(d) upon the issuance of any
Additional Shares of Common Stock which are issued pursuant to the exercise of
any warrants or other subscription or purchase rights or pursuant to the
exercise of any conversion or exchange rights in any Common Stock Equivalents,
if any such adjustment shall previously have been made upon the issuance of such
warrants or other rights or upon the issuance of such Common Stock Equivalents
(or upon the issuance of any warrant or other rights therefor) pursuant to
Section 4(f).
(iv) If the Issuer, at any time while this Warrant is outstanding,
shall issue any Additional Shares of Common Stock to the Holder of this Warrant
(otherwise than as provided in the foregoing subsections (a) through (c) of this
Section 4), at a price per share less than the Warrant Price then in effect or
without consideration, then the Warrant Price upon each such issuance shall be
adjusted to that price determined by multiplying the Warrant Price then in
effect by a fraction:
(A) the numerator of which shall be equal to the sum of (x)
the number of shares of Common Stock outstanding immediately prior
to the issuance of such Additional Shares of Common Stock plus (y)
the number of shares of Common Stock which the aggregate
consideration for the total number of such Additional Shares of
Common Stock so issued would purchase at a price per share equal to
the greater of the Per Share Market Value then in effect and the
Warrant Price then in effect, and
(B) the denominator of which shall be equal to the number of
shares of Common Stock outstanding immediately after the issuance of
such Additional Shares of Common Stock.
(v) The provisions of paragraph (iv) of Section 4(d) shall not apply
to any issuance of Additional Shares of Common Stock for which an adjustment is
provided under Section 4(a) through 4(c). No adjustment of the number of shares
of Common Stock for which this Warrant shall be exercisable shall be made under
paragraph (iv) of Section 4(d) upon the issuance of any Additional Shares of
Common Stock which are issued pursuant to the exercise of any Common Stock
Equivalents, if any such adjustment shall previously have been made upon the
issuance of such Common Stock Equivalents (or upon the issuance of any warrant
or other rights therefor) pursuant to Section 4(f).
(e) Intentionally Omitted.
(f) Issuance of Common Stock Equivalents. If at any time the Issuer shall
take a record of the Holders of its Common Stock for the purpose of entitling
them to receive a distribution of, or shall in any manner (whether directly or
by assumption in a merger in which the Issuer is the surviving corporation)
issue or sell, any Common Stock Equivalents, whether or not the rights to
exchange or convert thereunder are immediately exercisable, and the price per
share for which Common Stock is issuable upon such conversion or exchange shall
be less than the Warrant Price in effect immediately prior to the time of such
issue or sale, then the number of shares of Common Stock for which this Warrant
is exercisable and the Warrant Price then in effect shall be adjusted as
provided in Section 4(d) on the basis that the maximum number of Additional
Shares of Common Stock necessary to effect the conversion or exchange of all
such Common Stock Equivalents shall be deemed to have been issued and
outstanding and the Issuer shall have received all of the consideration payable
therefor, if any, as of the date of actual issuance of such Common Stock
Equivalents. No further adjustments of the number of shares of Common Stock for
which this Warrant is exercisable and the Warrant Price then in effect shall be
made upon the actual issue of such Common Stock upon conversion or exchange of
such Common Stock Equivalents.
(g) Superseding Adjustment. If, at any time after any adjustment of the
number of shares of Common Stock for which this Warrant is exercisable and the
Warrant Price then in effect shall have been made pursuant to Section 4(f) as
the result of any issuance of warrants, other rights or Common Stock
Equivalents, and (i) such warrants or other rights, or the right of conversion
or exchange in such other Common Stock Equivalents, shall expire, and all or a
portion of such warrants or other rights, or the right of conversion or exchange
with respect to all or a portion of such other Common Stock Equivalents, as the
case may be shall not have been exercised, or (ii) the consideration per share
for which shares of Common Stock are issuable pursuant to such Common Stock
Equivalents, shall be increased solely by virtue of provisions therein contained
for an automatic increase in such consideration per share upon the occurrence of
a specified date or event, then for each outstanding Warrant such previous
adjustment shall be rescinded and annulled and the Additional Shares of Common
Stock which were deemed to have been issued by virtue of the computation made in
connection with the adjustment so rescinded and annulled shall no longer be
deemed to have been issued by virtue of such computation. Upon the occurrence of
an event set forth in this Section 4(g) above, there shall be a recomputation
made of the effect of such Common Stock Equivalents on the basis of: (i)
treating the number of Additional Shares of Common Stock or other property, if
any, theretofore actually issued or issuable pursuant to the previous exercise
of any such warrants or other rights or any such right of conversion or
exchange, as having been issued on the date or dates of any such exercise and
for the consideration actually received and receivable therefor, and (ii)
treating any such Common Stock Equivalents which then remain outstanding as
having been granted or issued immediately after the time of such increase of the
consideration per share for which shares of Common Stock or other property are
issuable under such Common Stock Equivalents; whereupon a new adjustment of the
number of shares of Common Stock for which this Warrant is exercisable and the
Warrant Price then in effect shall be made, which new adjustment shall supersede
the previous adjustment so rescinded and annulled.
(h) Purchase of Common Stock by the Issuer. If the Issuer at any time
while this Warrant is outstanding shall, directly or indirectly through a
Subsidiary or otherwise, purchase, redeem or otherwise acquire any shares of
Common Stock at a price per share greater than the Per Share Market Value, then
the Warrant Price upon each such purchase, redemption or acquisition shall be
adjusted to that price determined by multiplying such Warrant Price by a
fraction (i) the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such purchase, redemption or acquisition
minus the number of shares of Common Stock which the aggregate consideration for
the total number of such shares of Common Stock so purchased, redeemed or
acquired would purchase at the Per Share Market Value; and (ii) the denominator
of which shall be the number of shares of Common Stock outstanding immediately
after such purchase, redemption or acquisition. For the purposes of this
subsection (h), the date as of which the Per Share Market Price shall be
computed shall be the earlier of (x) the date on which the Issuer shall enter
into a firm contract for the purchase, redemption or acquisition of such Common
Stock, or (y) the date of actual purchase, redemption or acquisition of such
Common Stock. For the purposes of this subsection (h), a purchase, redemption or
acquisition of a Common Stock Equivalent shall be deemed to be a purchase of the
underlying Common Stock, and the computation herein required shall be made on
the basis of the full exercise, conversion or exchange of such Common Stock
Equivalent on the date as of which such computation is required hereby to be
made, whether or not such Common Stock Equivalent is actually exercisable,
convertible or exchangeable on such date.
(i) Registration Adjustment. On the Effectiveness Date (as defined in the
Purchase Agreement) and every three (3) months following the Effectiveness Date,
the Warrant Price shall be adjusted to an amount equal to 110% of the Conversion
Price, provided that such adjusted price is lower than the Warrant Price.
(j) Other Provisions applicable to Adjustments under this Section. The
following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock for which this Warrant is exercisable and the
Warrant Price then in effect provided for in this Section 4:
(i) Computation of Consideration. To the extent that any Additional
Shares of Common Stock or any Common Stock Equivalents (or any warrants or other
rights therefor) shall be issued for cash consideration, the consideration
received by the Issuer therefor shall be the amount of the cash received by the
Issuer therefor, or, if such Additional Shares of Common Stock or Common Stock
Equivalents are offered by the Issuer for subscription, the subscription price,
or, if such Additional Shares of Common Stock or Common Stock Equivalents are
sold to underwriters or dealers for public offering without a subscription
offering, the initial public offering price (in any such case subtracting any
amounts paid or receivable for accrued interest or accrued dividends and without
taking into account any compensation, discounts or expenses paid or incurred by
the Issuer for and in the underwriting of, or otherwise in connection with, the
issuance thereof). To the extent that such issuance shall be for a consideration
other than cash, then, except as herein otherwise expressly provided, the amount
of such consideration shall be deemed to be the fair value of such consideration
at the time of such issuance as determined in good faith by the Board of
Directors of the Issuer. In case any Additional Shares of Common Stock or any
Common Stock Equivalents (or any warrants or other rights therefor) shall be
issued in connection with any merger in which the Issuer issues any securities,
the amount of consideration therefor shall be deemed to be the fair value, as
determined in good faith by the Board of Directors of the Issuer, of such
portion of the assets and business of the nonsurviving corporation as such Board
in good faith shall determine to be attributable to such Additional Shares of
Common Stock, Common Stock Equivalents, or any warrants or other rights
therefor, as the case may be. The consideration for any Additional Shares of
Common Stock issuable pursuant to any warrants or other rights to subscribe for
or purchase the same shall be the consideration received by the Issuer for
issuing such warrants or other rights plus the additional consideration payable
to the Issuer upon exercise of such warrants or other rights. The consideration
for any Additional Shares of Common Stock issuable pursuant to the terms of any
Common Stock Equivalents shall be the consideration received by the Issuer for
issuing warrants or other rights to subscribe for or purchase such Common Stock
Equivalents, plus the consideration paid or payable to the Issuer in respect of
the subscription for or purchase of such Common Stock Equivalents, plus the
additional consideration, if any, payable to the Issuer upon the exercise of the
right of conversion or exchange in such Common Stock Equivalents. In case of the
issuance at any time of any Additional Shares of Common Stock or Common Stock
Equivalents in payment or satisfaction of any dividends upon any class of stock
other than Common Stock, the Issuer shall be deemed to have received for such
Additional Shares of Common Stock or Common Stock Equivalents a consideration
equal to the amount of such dividend so paid or satisfied.
(ii) When Adjustments to Be Made. The adjustments required by this
Section 4 shall be made whenever and as often as any specified event requiring
an adjustment shall occur, except that any adjustment of the number of shares of
Common Stock for which this Warrant is exercisable that would otherwise be
required may be postponed (except in the case of a subdivision or combination of
shares of the Common Stock, as provided for in Section 4(b)) up to, but not
beyond the date of exercise if such adjustment either by itself or with other
adjustments not previously made adds or subtracts less than one percent (1%) of
the shares of Common Stock for which this Warrant is exercisable immediately
prior to the making of such adjustment. Any adjustment representing a change of
less than such minimum amount (except as aforesaid) which is postponed shall be
carried forward and made as soon as such adjustment, together with other
adjustments required by this Section 4 and not previously made, would result in
a minimum adjustment or on the date of exercise. For the purpose of any
adjustment, any specified event shall be deemed to have occurred at the close of
business on the date of its occurrence.
(iii) Fractional Interests. In computing adjustments under this
Section 4, fractional interests in Common Stock shall be taken into account to
the nearest one one-hundredth (1/100th) of a share.
(iv) When Adjustment Not Required. If the Issuer shall take a record
of the holders of its Common Stock for the purpose of entitling them to receive
a dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then thereafter no adjustment shall be required by reason of the taking
of such record and any such adjustment previously made in respect thereof shall
be rescinded and annulled. In addition, no adjustment shall be required under
Section 4(d)(i) hereof in the event the Issuer issues or sells Additional Shares
in a transaction whose primary purpose is to establish a relationship with the
recipient thereof for strategic reasons and not to raise capital.
(k) Form of Warrant after Adjustments. The form of this Warrant need not
be changed because of any adjustments in the Warrant Price or the number and
kind of Securities purchasable upon the exercise of this Warrant.
(l) Escrow of Warrant Stock. If after any property becomes distributable
pursuant to this Section 4 by reason of the taking of any record of the holders
of Common Stock, but prior to the occurrence of the event for which such record
is taken, and the Holder exercises this Warrant, any shares of Common Stock
issuable upon exercise by reason of such adjustment shall be deemed the last
shares of Common Stock for which this Warrant is exercised (notwithstanding any
other provision to the contrary herein) and such shares or other property shall
be held in escrow for the Holder by the Issuer to be issued to the Holder upon
and to the extent that the event actually takes place, upon payment of the
current Warrant Price. Notwithstanding any other provision to the contrary
herein, if the event for which such record was taken fails to occur or is
rescinded, then such escrowed shares shall be cancelled by the Issuer and
escrowed property returned.
5. Notice of Adjustments. Whenever the Warrant Price or Warrant Share
Number shall be adjusted pursuant to Section 4 hereof (for purposes of this
Section 5, each an "adjustment"), the Issuer shall cause its Chief Financial
Officer to prepare and execute a certificate setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated (including a description of the
basis on which the Board made any determination hereunder), and the Warrant
Price and Warrant Share Number after giving effect to such adjustment, and shall
cause copies of such certificate to be delivered to the Holder of this Warrant
promptly after each adjustment. Any dispute between the Issuer and the Holder of
this Warrant with respect to the matters set forth in such certificate may at
the option of the Holder of this Warrant be submitted to one of the national
accounting firms currently known as the "big five" selected by the Holder,
provided that the Issuer shall have ten (10) days after receipt of notice from
such Holder of its selection of such firm to object thereto, in which case such
Holder shall select another such firm and the Issuer shall have no such right of
objection. The firm selected by the Holder of this Warrant as provided in the
preceding sentence shall be instructed to deliver a written opinion as to such
matters to the Issuer and such Holder within thirty (30) days after submission
to it of such dispute. Such opinion shall be final and binding on the parties
hereto. The fees and expenses of such accounting firm shall be paid by the
Issuer.
6. Fractional Shares. No fractional shares of Warrant Stock will be issued
in connection with and exercise hereof, but in lieu of such fractional shares,
the Issuer shall make a cash payment therefor equal in amount to the product of
the applicable fraction multiplied by the Per Share Market Value then in effect.
7. Ownership Cap and Certain Exercise Restrictions.
(a) Notwithstanding anything to the contrary set forth in this Warrant, at
no time may a holder of this Warrant exercise this Warrant if the number of
shares of Common Stock to be issued pursuant to such exercise would exceed, when
aggregated with all other shares of Common Stock owned by such holder at such
time, the number of shares of Common Stock which would result in such holder
owning more than 4.999% of all of the Common Stock outstanding at such time;
provided, however, that upon a holder of this Warrant providing the Issuer with
sixty-one (61) days notice (pursuant to Section 13 hereof) (the "Waiver Notice")
that such holder would like to waive this Section 7(a) with regard to any or all
shares of Common Stock issuable upon exercise of this Warrant, this Section 7(a)
will be of no force or effect with regard to all or a portion of the Warrant
referenced in the Waiver Notice; provided, further, that this provision shall be
of no further force or effect during the sixty-one (61) days immediately
preceding the expiration of the term of this Warrant.
(b) The Holder may not exercise the Warrant hereunder to the extent such
exercise would result in the Holder beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and the rules thereunder) in
excess of 9.999% of the then issued and outstanding shares of Common Stock,
including shares issuable upon exercise of the Warrant held by the Holder after
application of this Section.
(c) Notwithstanding anything to the contrary set forth herein, the Issuer
shall not be obligated to issue in excess of an aggregate of ____________ shares
of Common Stock upon exercise of the Warrant and any shares of Common Stock
issuable in connection with the Purchase Agreement, which number of shares shall
be subject to adjustment pursuant to Section 4, and such number of shares, the
"Issuable Maximum". The Issuable Maximum equals 19.999% of the number of shares
of Common Stock outstanding immediately prior to the Closing. Shares of Common
Stock issued in respect of penalties and liquidated damages hereunder shall not
count towards the __________ share limit set forth in this paragraph and shall
be paid in cash as provided herein unless otherwise agreed to by the Holders. If
on any Warrant exercise date (A) the Common Stock is listed for trading on the
American Stock Exchange, (B) the Warrant Price then in effect is such that the
aggregate number of shares of Common Stock previously issued at a discount upon
exercise of Warrants or otherwise issued in connection with the Purchase
Agreement, would equal or exceed the Issuable Maximum, and (C) the Issuer shall
not have previously obtained the vote of shareholders (the "Shareholder
Approval"), if any, as may be required by the applicable rules and regulations
of the American Stock Exchange (or any successor entity) applicable to approve
the issuance of shares of Common Stock in excess of the Issuable Maximum
pursuant to the terms hereof, then the Issuer shall issue to the holder so
requesting such number of shares of Common Stock equal to such holder's pro rata
portion of the Issuable Maximum as of the initial purchase date and, with
respect to the remainder of shares of Common Stock which would result in an
issuance of shares of Common Stock in excess of the Issuable Maximum (the
"Excess Shares"), the Issuer shall have the option to either (1) use its
reasonable efforts to obtain the Shareholder Approval applicable to such
issuance as soon as is possible, but in any event not later than the 90th day
after such request, or (2) deliver to such holder cash in an amount equal to the
product of (x) the Per Share Market Value on the applicable Warrant exercise
date, and (y) the number of shares of Common Stock in excess of such holder's
pro rata portion of the Issuable Maximum that would have otherwise been issuable
to the holder but for the provisions of this Section (such amount of cash being
hereinafter referred to as the "Discount Equivalent"). If the Issuer fails to
pay the Discount Equivalent in full pursuant to this Section within fifteen (15)
days after the Issuer fails to obtain Shareholder Approval pursuant to (1) above
or the date payable pursuant to (2) above, the Issuer will pay interest thereon
at a rate of 10% per annum to the holder, accruing daily from the applicable
exercise until such amount, plus all such interest thereon, is paid in full. The
Issuer and the Holder understand and agree that shares of Common Stock issued to
and then held by the Holder as a result of exercise of the Warrant or as a
result of conversion of the Notes shall not be entitled to cast votes on any
resolution to obtain Shareholder Approval.
8. Intentionally Omitted.
9. Definitions. For the purposes of this Warrant, the following terms have
the following meanings:
"Additional Shares of Common Stock" means all shares of Common Stock
issued by the Issuer after the Original Issue Date, and all shares of
Other Common, if any, issued by the Issuer after the Original Issue Date,
except (i) the Warrant Stock; (ii) shares of Common Stock issuable upon
conversion of the Notes; (iii) shares of Common Stock to be issued to
strategic partners and/or in connection with a strategic merger or
acquisition; (iv) shares of Common Stock or the issuance of options to
purchase shares of Common Stock to employees, officers, directors,
consultants and vendors in accordance with the Issuer's equity incentive
policies; (v) the issuance of Securities pursuant to the conversion or
exercise of convertible or exercisable securities issued or outstanding
prior to the date hereof; (vi) shares of Common Stock to be issued
pursuant to the Common Stock Purchase Agreement dated as of April 11, 2001
by and between the Issuer and the purchaser named therein so long as the
Issuer complies with the terms and provisions of Section 3.22 of the
Purchase Agreement; and (vii) shares of Common Stock to be issued to key
officers of the Issuer in lieu of their respective salaries; provided,
however, that such key officers execute a Lock-Up Agreement in
substantially the form as Exhibit H to the Purchase Agreement, and
provided, further, that the shares of Common Stock to be issued to such
key officers in lieu of their respective salaries does not exceed the
amount of such salary divided by the Per Share Market Value on the date
prior to the issuance of such shares of Common Stock.
"Articles of Incorporation" means the Articles of Incorporation of
the Issuer as in effect on the Original Issue Date, and as hereafter from
time to time amended, modified, supplemented or restated in accordance
with the terms hereof and thereof and pursuant to applicable law.
"Board" shall mean the Board of Directors of the Issuer.
"Capital Stock" means and includes (i) any and all shares,
interests, participations or other equivalents of or interests in (however
designated) corporate stock, including, without limitation, shares of
preferred or preference stock, (ii) all partnership interests (whether
general or limited) in any Person which is a partnership, (iii) all
membership interests or limited liability company interests in any limited
liability company, and (iv) all equity or ownership interests in any
Person of any other type.
"Common Stock" means the Common Stock, par value $.001 per share, of
the Issuer and any other Capital Stock into which such stock may hereafter
be changed.
"Common Stock Equivalent" means any Convertible Security or warrant,
option or other right to subscribe for or purchase any Additional Shares
of Common Stock or any Convertible Security.
"Conversion Price" means seventy-nine percent (79%) of the average
of the three lowest trading prices for the Common Stock during the fifteen
Trading Days immediately prior to any adjustment dates.
"Convertible Securities" means evidences of Indebtedness, shares of
Capital Stock or other Securities which are or may be at any time
convertible into or exchangeable for Additional Shares of Common Stock.
The term "Convertible Security" means one of the Convertible Securities.
"Governmental Authority" means any governmental, regulatory or
self-regulatory entity, department, body, official, authority, commission,
board, agency or instrumentality, whether federal, state or local, and
whether domestic or foreign.
"Holders" mean the Persons who shall from time to time own any
Warrant. The term "Holder" means one of the Holders.
"Independent Appraiser" means a nationally recognized or major
regional investment banking firm or firm of independent certified public
accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Issuer) that is regularly engaged
in the business of appraising the Capital Stock or assets of corporations
or other entities as going concerns, and which is not affiliated with
either the Issuer or the Holder of any Warrant.
"Issuer" means Cel-Sci Corporation, a Colorado corporation, and its
successors.
"Majority Holders" means at any time the Holders of Warrants
exercisable for a majority of the shares of Warrant Stock issuable under
the Warrants at the time outstanding.
"Nasdaq" means The Nasdaq National Market.
------
"Notes" means the senior secured convertible promissory notes issued
in connection with the Purchase Agreement.
"Original Issue Date" means January 7, 2003.
-------------------
"OTC Bulletin Board" means the over-the-counter electronic bulletin
board.
"Other Common" means any other Capital Stock of the Issuer of any
class which shall be authorized at any time after the date of this Warrant
(other than Common Stock) and which shall have the right to participate in
the distribution of earnings and assets of the Issuer without limitation
as to amount.
"Person" means an individual, corporation, limited liability
company, partnership, joint stock company, trust, unincorporated
organization, joint venture, Governmental Authority or other entity of
whatever nature.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on the
American Stock Exchange or another registered national stock exchange on
which the Common Stock is then listed, or if there is no such price on
such date, then the closing bid price on such exchange or quotation system
on the date nearest preceding such date, or (b) if the Common Stock is not
listed then on the American Stock Exchange, Nasdaq or any other registered
national stock exchange, the closing bid price for a share of Common Stock
in the over-the-counter market, as reported by the OTC Bulletin Board or
in the National Quotation Bureau Incorporated or similar organization or
agency succeeding to its functions of reporting prices) at the close of
business on such date, or (c) if the Common Stock is not then reported by
the OTC Bulletin Board or the National Quotation Bureau Incorporated (or
similar organization or agency succeeding to its functions of reporting
prices), then the average of the "Pink Sheet" quotes for the relevant
conversion period, as determined in good faith by the holder, or (d) if
the Common Stock is not then publicly traded the fair market value of a
share of Common Stock as determined by an Independent Appraiser selected
in good faith by the Majority Holders; provided, however, that the Issuer,
after receipt of the determination by such Independent Appraiser, shall
have the right to select an additional Independent Appraiser, in which
case, the fair market value shall be equal to the average of the
determinations by each such Independent Appraiser; and provided, further
that all determinations of the Per Share Market Value shall be
appropriately adjusted for any stock dividends, stock splits or other
similar transactions during such period. The determination of fair market
value by an Independent Appraiser shall be based upon the fair market
value of the Issuer determined on a going concern basis as between a
willing buyer and a willing seller and taking into account all relevant
factors determinative of value, and shall be final and binding on all
parties. In determining the fair market value of any shares of Common
Stock, no consideration shall be given to any restrictions on transfer of
the Common Stock imposed by agreement or by federal or state securities
laws, or to the existence or absence of, or any limitations on, voting
rights.
"Purchase Agreement" means the Note and Warrant Purchase Agreement
dated as of January 7, 2003 among the Issuer and the investors a party
thereto.
"Securities" means any debt or equity securities of the Issuer,
whether now or hereafter authorized, any instrument convertible into or
exchangeable for Securities or a Security, and any option, warrant or
other right to purchase or acquire any Security. "Security" means one of
the Securities.
"Securities Act" means the Securities Act of 1933, as amended, or
any similar federal statute then in effect.
"Subsidiary" means any corporation at least 50% of whose outstanding
Voting Stock shall at the time be owned directly or indirectly by the
Issuer or by one or more of its Subsidiaries, or by the Issuer and one or
more of its Subsidiaries.
"Term" has the meaning specified in Section 1 hereof.
"Trading Day" means (a) a day on which the Common Stock is traded on
the American Stock Exchange, or (b) if the Common Stock is not listed on
the American Stock Exchange, a day on which the Common Stock is traded on
any other registered national stock exchange, or (c) if the Common Stock
is not traded on any other registered national stock exchange, a day on
which the Common Stock is traded on the OTC Bulletin Board, or (d) if the
Common Stock is not traded on the OTC Bulletin Board, a day on which the
Common Stock is quoted in the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or
agency succeeding its functions of reporting prices); provided, however,
that in the event that the Common Stock is not listed or quoted as set
forth in (a), (b) and (c) hereof, then Trading Day shall mean any day
except Saturday, Sunday and any day which shall be a legal holiday or a
day on which banking institutions in the State of New York are authorized
or required by law or other government action to close.
"Voting Stock" means, as applied to the Capital Stock of any
corporation, Capital Stock of any class or classes (however designated)
having ordinary voting power for the election of a majority of the members
of the Board of Directors (or other governing body) of such corporation,
other than Capital Stock having such power only by reason of the happening
of a contingency.
"Warrants" means the Warrants issued and sold pursuant to the
Purchase Agreement, including, without limitation, this Warrant, and any
other warrants of like tenor issued in substitution or exchange for any
thereof pursuant to the provisions of Section 2(c), 2(d) or 2(e) hereof or
of any of such other Warrants.
"Warrant Price" means U.S. $.25, as such price may be adjusted from
time to time as shall result from the adjustments specified in this
Warrant, including Section 4 hereto.
"Warrant Share Number" means at any time the aggregate number of
shares of Warrant Stock which may at such time be purchased upon exercise
of this Warrant, after giving effect to all prior adjustments and
increases to such number made or required to be made under the terms
hereof.
"Warrant Stock" means Common Stock issuable upon exercise of any
Warrant or Warrants or otherwise issuable pursuant to any Warrant or
Warrants.
10. Other Notices. In case at any time:
(A) the Issuer shall make any distributions to the
holders of Common Stock; or
(B) the Issuer shall authorize the granting to all
holders of its Common Stock of rights to subscribe
for or purchase any shares of Capital Stock of any
class or of any Common Stock Equivalents or other
rights; or
(C) there shall be any reclassification of the Capital
Stock of the Issuer; or
(D) there shall be any capital reorganization by the
Issuer; or
(E) there shall be any (i) consolidation or merger
involving the Issuer or (ii) sale, transfer or
other disposition of all or substantially all
of the Issuer's property, assets or business
(except a merger or other reorganization in
which the Issuer shall be the surviving
corporation and its shares of Capital Stock
shall continue to be outstanding and unchanged
and except a consolidation, merger, sale,
transfer or other disposition involving a
wholly-owned Subsidiary); or
(F) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the
Issuer or any partial liquidation of the Issuer or
distribution to holders of Common Stock;
then, in each of such cases, the Issuer shall give written notice to the Holder
of the date on which (i) the books of the Issuer shall close or a record shall
be taken for such dividend, distribution or subscription rights or (ii) such
reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding-up, as the case may be, shall take place.
Such notice also shall specify the date as of which the holders of Common Stock
of record shall participate in such dividend, distribution or subscription
rights, or shall be entitled to exchange their certificates for Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, disposition, dissolution, liquidation
or winding-up, as the case may be. Such notice shall be given at least ten (10)
days prior to the action in question and not less than ten (10) days prior to
the record date or the date on which the Issuer's transfer books are closed in
respect thereto. The Issuer shall give to the Holder notice of all meetings and
actions by written consent of its stockholders, at the same time in the same
manner as notice of any meetings of stockholders is required to be given to
stockholders who do not waive such notice (or, if such requires no notice, then
two (2) Trading Days written notice thereof describing the matters upon which
action is to be taken). The Holder shall have the right to send two (2)
representatives selected by it to each meeting, who shall be permitted to
attend, but not vote at, such meeting and any adjournments thereof. This Warrant
entitles the Holder to receive copies of all financial and other information
distributed or required to be distributed to the holders of the Common Stock.
11. Amendment and Waiver. Any term, covenant, agreement or condition in
this Warrant may be amended, or compliance therewith may be waived (either
generally or in a particular instance and either retroactively or
prospectively), by a written instrument or written instruments executed by the
Issuer and the Majority Holders; provided, however, that no such amendment or
waiver shall reduce the Warrant Share Number, increase the Warrant Price,
shorten the period during which this Warrant may be exercised or modify any
provision of this Section 11 without the consent of the Holder of this Warrant.
12. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAW.
13. Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earlier of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified for notice prior to 5:00 p.m., eastern time, on a
Trading Day, (ii) the Trading Day after the date of transmission, if such notice
or communication is delivered via facsimile at the facsimile telephone number
specified for notice later than 5:00 p.m., eastern time, on any date and earlier
than 11:59 p.m., eastern time, on such date, (iii) the Trading Day following the
date of mailing, if sent by nationally recognized overnight courier service or
(iv) actual receipt by the party to whom such notice is required to be given.
The addresses for such communications shall be with respect to the Holder of
this Warrant or of Warrant Stock issued pursuant hereto, addressed to such
Holder at its last known address or facsimile number appearing on the books of
the Issuer maintained for such purposes, or with respect to the Issuer,
addressed to:
Cel-Sci Corporation
8229 Boone Boulevard
Suite 802
Vienna, Virginia 22182
Attention: Geert Kersten
Telecopier: (703) 506-9460
Telephone: (703) 506-9471
with copies (which copies shall not constitute notice to the Company) to:
William T. Hart, Esq.
Hart & Trinen L.L.P.
1624 Washington Street
Denver, Colorado 80203
Telecopier: (303) 839-5414
Telephone: (303) 839-0061
Copies of notices to the Holder shall be sent to Jenkens & Gilchrist Parker
Chapin LLP, The Chrysler Building, 405 Lexington Avenue, New York, New York
10174, Attention: Christopher S. Auguste, Esq., Telecopier no.: (212) 704-6288.
Any party hereto may from time to time change its address for notices by giving
at least ten (10) days written notice of such changed address to the other party
hereto.
14. Warrant Agent. The Issuer may, by written notice to each Holder of
this Warrant, appoint an agent having an office in New York, New York for the
purpose of issuing shares of Warrant Stock on the exercise of this Warrant
pursuant to subsection (b) of Section 2 hereof, exchanging this Warrant pursuant
to subsection (d) of Section 2 hereof or replacing this Warrant pursuant to
subsection (d) of Section 3 hereof, or any of the foregoing, and thereafter any
such issuance, exchange or replacement, as the case may be, shall be made at
such office by such agent.
15. Remedies. The Issuer stipulates that the remedies at law of the Holder
of this Warrant in the event of any default or threatened default by the Issuer
in the performance of or compliance with any of the terms of this Warrant are
not and will not be adequate and that, to the fullest extent permitted by law,
such terms may be specifically enforced by a decree for the specific performance
of any agreement contained herein or by an injunction against a violation of any
of the terms hereof or otherwise.
16. Successors and Assigns. This Warrant and the rights evidenced hereby
shall inure to the benefit of and be binding upon the successors and assigns of
the Issuer, the Holder hereof and (to the extent provided herein) the Holders of
Warrant Stock issued pursuant hereto, and shall be enforceable by any such
Holder or Holder of Warrant Stock.
17. Modification and Severability. If, in any action before any court or
agency legally empowered to enforce any provision contained herein, any
provision hereof is found to be unenforceable, then such provision shall be
deemed modified to the extent necessary to make it enforceable by such court or
agency. If any such provision is not enforceable as set forth in the preceding
sentence, the unenforceability of such provision shall not affect the other
provisions of this Warrant, but this Warrant shall be construed as if such
unenforceable provision had never been contained herein.
18. Headings. The headings of the Sections of this Warrant are for
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
IN WITNESS WHEREOF, the Issuer has executed this Warrant as of the day and
year first above written.
CEL-SCI CORPORATION
By:
---------------------------------------
Name:
Title:
EXERCISE FORM
CEL-SCI CORPORATION
The undersigned _______________, pursuant to the provisions of the within
Warrant, hereby elects to purchase _____ shares of Common Stock of Cel-Sci
Corporation covered by the within Warrant.
Dated: _________________ Signature ___________________________
Address _____________________
---------------------
ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _____________, attorney, to transfer the said
Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address _____________________
---------------------
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the right to purchase _________ shares of Warrant Stock
evidenced by the within Warrant together with all rights therein, and does
irrevocably constitute and appoint ___________________, attorney, to transfer
that part of the said Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address _____________________
---------------------
FOR USE BY THE ISSUER ONLY:
This Warrant No. W-_____ canceled (or transferred or exchanged) this _____
day of ___________, _____, shares of Common Stock issued therefor in the name
of _______________, Warrant No. W-_____ issued for ____ shares of Common
Stock in the name of _______________.
EXHIBIT D
FORM OF ESCROW AGREEMENT
ESCROW AGREEMENT
ESCROW AGREEMENT (this "Escrow Agreement") dated as of January 7, 2003, by
and among Cel-Sci Corporation, a Colorado corporation (the "Company"), the
investors listed on Schedule A attached hereto (the "Investors") and Jenkens &
Gilchrist Parker Chapin LLP, as escrow agent (the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, pursuant to a Note and Warrant Purchase Agreement dated as of
January 7, 2003 by and among the Company and the Investors (the "Purchase
Agreement"), the Company and the Investors desire to have (i) warrants (the
"Warrants") to purchase shares of the Company's common stock, $.001 par value
per share (the "Common Stock"); (ii) senior secured convertible promissory notes
(the "Notes"); and (iii) 7,000,000 shares of Common Stock representing a minimum
of one-third (1/3) of 200% of the maximum number of shares of Common Stock to
effect the exercise of the Warrants and conversion of the Notes and any interest
accrued and outstanding thereon (collectively, the "Escrow Shares"), delivered
to the Escrow Agent to hold, along with immediately available funds for the
purchase of the Notes and Warrants (the "Escrow Funds"), and the Escrow Agent
has agreed to receive, hold and redeliver the Warrants, Notes, Escrow Shares and
the Escrow Funds, all upon the terms and subject to the conditions hereinafter
set forth;
WHEREAS, the Purchase Agreement contemplates that the Escrow Funds shall
be paid into escrow and the Warrants, Notes and the Escrow Shares to be
purchased by the Investors shall be held in escrow and the Escrow Agent has
agreed to receive, hold and pay such Escrow Funds and to receive and deliver the
Warrants, Notes and Escrow Shares, upon the terms and subject to the conditions
hereinafter set forth; and
WHEREAS, the Company acknowledges and agrees that this Escrow Agreement
shall serve as irrevocable authorization and direction by the Company to the
Escrow Agent to receive, hold, and ultimately deliver the Escrow Funds,
Warrants, Notes and Escrow Shares, upon the terms and subject to the conditions
of this Escrow Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties to this Escrow Agreement hereby agree
as follows:
1. Defined Terms. Capitalized terms used and not otherwise defined herein
shall have the meanings respectively assigned to them in the Purchase Agreement.
2. Escrow of Escrow Funds, Warrants and Notes. On the date hereof, the
Investors shall deliver or cause to be delivered to the Escrow Agent the
applicable Escrow Funds. On the Initial Closing Date, the Company shall deliver
or cause to be delivered to the Escrow Agent the Warrants and Notes. On the
Initial Closing Date, the Escrow Agent shall pay such fees and expenses as set
forth on Schedule 2.1(p) to the Purchase Agreement and shall wire transfer the
Escrow Funds to the Company after the deduction of such fees and expenses. With
respect to the Second Closing, within three (3) days of the Effectiveness Date,
the Company shall deliver the applicable Notes to the Escrow Agent, the
Investors shall wire transfer the Escrow Funds to the Escrow Agent and the
Escrow Agent shall pay such fees and expenses as set forth on Schedule 2.1(p) to
the Purchase Agreement. Subject to the terms of this Escrow Agreement and the
Purchase Agreement, on or before the Second Closing Date (the fifth (5th)
business day after the Effectiveness Date), the Escrow Agent shall wire transfer
the Escrow Funds to the Company. Prior to the wiring of the Escrow Funds to the
Company pursuant to each Closing, the Investors shall confirm to the Escrow
Agent that the conditions contained in Article IV of the Purchase Agreement have
been either met by the Company or waived by the Investors.
3. Escrow Shares. The Company shall deliver or cause to be delivered to the
Escrow Agent the common stock share certificates representing the Escrow Shares
(the "Certificates"), registered in the name of the Investors (or any nominee
designated by Investors), free and clear of all liens, claims, charges and
encumbrances, representing a minimum of one-third (1/3) of 200% of the maximum
number of shares of Common Stock to effect the exercise of the Warrants and
conversion of the Notes and any interest accrued and outstanding thereon. If an
Event of Default (as that term is defined in the Note or the Security Agreement)
occurs, the Company shall deliver or cause to be delivered to the Escrow Agent
200% of the maximum number of shares of Common Stock to effect the exercise of
the Warrants and conversion of the Notes and any interest accrued and
outstanding thereon (the "Escrow Share Minimum"). If an Event of Default occurs,
the Company shall maintain the Escrow Share Minimum in the Escrow Account (as
defined below) at all times throughout the term of this Escrow Agreement. At any
time after an Event of Default occurs, if the number of Escrow Shares falls
below 175% of the maximum number of shares of Common Stock to effect the
exercise of the Warrants and conversion of the Notes and any interest accrued
and outstanding thereon, the Company shall replenish the Escrow Account with
such number of additional shares to maintain the Escrow Share Minimum (the
"Replenishment Shares") by delivering the Replenishment Shares to the Escrow
Agent by the second (2nd) business day of each month. Upon exercise of the
Warrants and/or upon conversion of the Notes, the Investors shall deliver a copy
of the duly executed notice of exercise or notice of conversion, as the case may
be, to the Escrow Agent. Within one (1) business day after receipt of such
notice, the Escrow Agent shall deliver one or more Certificates to Computershare
Trust Company, Inc., the transfer agent for the Company (the "Transfer Agent"),
for removal of any restrictive legends pursuant to the Irrevocable Transfer
Agent Instructions, and upon receipt of such Certificates, shall cause same to
be delivered to or for the benefit of the Investors pursuant to written
instructions of the Investors.
4. Escrow Period. The Certificates delivered to the Escrow Agent pursuant
to this Escrow Agreement, if any, shall be deposited for safekeeping with the
Escrow Agent (the "Escrow Account"). During the period beginning on the date
hereof and continuing until all shares of Common Stock issuable upon exercise of
the Warrants and conversion of the Notes are sold pursuant to the Registration
Statement (as defined in the Registration Rights Agreement) (the "Escrow
Period"), none of such Escrow Shares deposited in the Escrow Account shall
become the property of the Investors or any other entity or be subject to the
debts of the Investors or any other entity except as expressly provided herein,
and the Escrow Agent shall neither make nor permit any disbursements or
deliveries from the Escrow Account except as expressly provided herein.
Notwithstanding the foregoing, if any Escrow Shares remain in the Escrow
Account, all such Escrow Shares then remaining in the Escrow Account shall be
forwarded to the Transfer Agent within five (5) business days thereafter upon
written request given to Escrow Agent by the Company.
5. Holding of Shares. The Escrow Agent shall hold the Escrow Shares, if
any, in a segregated escrow account where it normally holds such Escrow Shares.
6. Further Assurances. The Company and the Investors agree to do such
further acts and to execute and deliver such statements, assignments,
agreements, instruments and other documents as the Escrow Agent, from time to
time, may reasonably request in connection with the administration, maintenance,
enforcement or adjudication of this Escrow Agreement in order (a) to give the
Escrow Agent confirmation and assurance of the Escrow Agent's rights, powers,
privileges, remedies and interests under this Escrow Agreement and applicable
law, (b) to better enable the Escrow Agent to exercise any such right, power,
privilege, remedy or interest, or (c) to otherwise effectuate the purpose and
the terms and provisions of this Escrow Agreement, each in such form and
substance as may be reasonably acceptable to the Escrow Agent.
7. Conflicting Demands. If conflicting or adverse claims or demands are
made or notices served upon the Escrow Agent with respect to the escrow provided
for herein, the Company and the Investors agree that the Escrow Agent shall
refuse to comply with any such claim or demand and withhold and stop all further
performance of this escrow so long as such disagreement shall continue. In so
doing, the Escrow Agent shall not be or become liable for damages, losses,
costs, expenses or interest to any or any other person for its failure to comply
with such conflicting or adverse demands. The Escrow Agent shall be entitled to
continue to so refrain and refuse to so act until such conflicting claims or
demands shall have been finally determined by a court or arbitrator of competent
jurisdiction or shall have been settled by agreement of the parties to such
controversy, in which case the Escrow Agent shall be notified thereof in a
notice signed by such parties. The Escrow Agent may also elect to commence an
interpleader or other action for declaratory judgment for the purpose of having
the respective rights of the claimants adjudicated, and may deposit with the
court the Escrow Shares and the Escrow Funds held hereunder pursuant to this
Escrow Agreement; and if it so commences and deposits, the Escrow Agent shall be
relieved and discharged from any further duties and obligations under this
Escrow Agreement.
8. Disputes. Each of the parties hereto hereby covenants and agrees that
the Federal or state courts located in the County of New York, State of New York
shall have jurisdiction over any dispute with the Escrow Agent or relating to
this Escrow Agreement.
9. Expenses of the Escrow Agent. The Company agrees to pay any and all
out-of-pocket costs and expenses up to $5,000 per year (excluding the costs and
expenses incurred by the Escrow Agent in connection with the commencement of an
interpleader pursuant to Section 7 hereof) incurred by the Escrow Agent in
connection with all waivers, releases, discharges, satisfactions, modifications
and amendments of this Escrow Agreement, the administration and holding of the
Escrow Shares and the investment of the Escrow Funds, and the enforcement,
protection and adjudication of the Escrow Agent's rights hereunder by the Escrow
Agent, including, without limitation, the out-of-pocket disbursements of the
Escrow Agent itself and expenses and costs of other attorneys it may retain, if
any. The Company shall be liable to the Escrow Agent for any expenses payable by
the Escrow Agent.
10. Reliance on Documents and Experts. The Escrow Agent shall be entitled
to rely upon any notice, consent, certificate, affidavit, statement, paper,
document, writing or communication (which to the extent permitted hereunder may
be by telegram, cable, telecopier, or telephone) reasonably believed by it to be
genuine and to have been signed, sent or made by the proper person or persons,
and upon opinions and advice of legal counsel (including itself or counsel for
any party hereto), independent public accountants and other experts selected by
the Escrow Agent and mutually acceptable to the Company and the Investors.
11. Status of the Escrow Agent, Etc. The Escrow Agent is acting under this
Escrow Agreement as a stakeholder only. No term or provision of this Escrow
Agreement is intended to create, nor shall any such term or provision be deemed
to have created, any joint venture, partnership or attorney-client relationship
between or among the Escrow Agent and the Company or the Investors. This Escrow
Agreement shall not be deemed to prohibit or in any way restrict the Escrow
Agent's representation of the Investors, who may be advised by the Escrow Agent
on any and all matters pertaining to this Escrow Agreement. To the extent the
Investors have been represented by the Escrow Agent, each Investor hereby waives
any conflict of interest and irrevocably authorizes and directs the Escrow Agent
to carry out the terms and provisions of this Escrow Agreement fairly as to all
parties, without regard to any such representation and irrespective of the
impact upon such Investor. The Escrow Agent's only duties are those expressly
set forth in this Escrow Agreement, and the Company and the Investors authorize
the Escrow Agent to perform those duties in accordance with its usual practices
in holding funds of its own or those of other escrows. The Escrow Agent may
exercise or otherwise enforce any of its rights, powers, privileges, remedies
and interests under this Escrow Agreement and applicable law or perform any of
its duties under this Escrow Agreement by or through its partners, employees,
attorneys, agents or designees.
12. Exculpation. The Escrow Agent and its designees, and their respective
partners, employees, attorneys and agents, shall not incur any liability
whatsoever for the investment or disposition of the Escrow Funds or the Escrow
Shares or the taking of any other action in accordance with the terms and
provisions of this Escrow Agreement, for any mistake or error in judgment, for
compliance with any applicable law or any attachment, order or other directive
of any court or other authority (irrespective of any conflicting term or
provision of this Escrow Agreement), or for any act or omission of any other
person selected with reasonable care and engaged by the Escrow Agent in
connection with this Escrow Agreement (other than for such Escrow Agent's or
such person's own acts or omissions breaching a duty owed to the claimant under
this Escrow Agreement and amounting to gross negligence or willful misconduct as
finally determined pursuant to applicable law by a governmental authority having
jurisdiction); and the Company and the Investors hereby waive any and all claims
and actions whatsoever against the Escrow Agent and its designees, and their
respective partners, employees, attorneys and agents, arising out of or related
directly or indirectly to any and all of the foregoing acts, omissions and
circumstances. Furthermore, the Escrow Agent and its designees, and their
respective partners, employees, attorneys and agents, shall not incur any
liability (other than for a person's own acts or omissions breaching a duty owed
to the claimant under this Escrow Agreement and amounting to gross negligence or
willful misconduct as finally determined pursuant to applicable law by a
governmental authority having jurisdiction) for other acts and omissions arising
out of or related directly or indirectly to this Escrow Agreement; and the
Company and the Investors hereby expressly waive any and all claims and actions
(other than the Escrow Agent's or such person's own acts or omissions breaching
a duty owed to the claimant and amounting to gross negligence or willful
misconduct as finally determined pursuant to applicable law by a governmental
authority having jurisdiction) against the Escrow Agent and its designees, and
their respective partners, employees, attorneys and agents, arising out of or
related directly or indirectly to any and all of the foregoing acts, omissions
and circumstances.
13. Indemnification. The Escrow Agent and its designees, and their
respective partners, employees, attorneys and agents, shall be indemnified,
reimbursed, held harmless and, at the request of the Escrow Agent, defended,
jointly and severally by the Company and the Investors from and against any and
all claims, liabilities, losses and expenses (including, without limitation, the
reasonable disbursements, expenses and fees of their respective attorneys) that
may be imposed upon, incurred by, or asserted against any of them, arising out
of or related directly or indirectly to this Escrow Agreement or the Escrow
Shares, except such as are occasioned by the indemnified person's own acts and
omissions breaching a duty owed to the claimant under this Escrow Agreement and
amounting to willful misconduct or gross negligence as finally determined
pursuant to applicable law by a governmental authority having jurisdiction.
14. Notices. Any notice, request, demand or other communication permitted
or required to be given hereunder shall be in writing, shall be sent by one of
the following means to the addressee at the address set forth below (or at such
other address as shall be designated hereunder by notice to the other parties
and persons receiving copies, effective upon actual receipt) and shall be deemed
conclusively to have been given: (a) upon hand delivery by telecopy or facsimile
at the address or number designated below (if delivered on a business day during
normal business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a business day
during normal business hours where such notice is to be received) or (b) on the
second business day following the date of mailing by express courier service,
fully prepaid, addressed to such address, or (c) upon actual receipt of such
mailing, whichever shall first occur.
If to the Company: Cel-Sci Corporation
8229 Boone Boulevard
Suite 802
Vienna, Virginia 22182
Attention: Geert Kersten
Telecopier: (703) 506-9460
Telephone: (703) 506-9471
with a copy to: William T. Hart, Esq.
Hart & Trinen L.L.P.
1624 Washington Street
Denver, Colorado 80203
Telecopier: (303) 839-5414
Telephone: (303) 839-0061
If to any Investor: at the address of such Investor set
forth on Schedule A to this Escrow Agreement, with a
copy to the Investor's counsel as set forth on
Schedule A or as specified in writing by such
Investor.
If to the Escrow Agent: Jenkens & Gilchrist Parker Chapin LLP
The Chrysler Building
405 Lexington Avenue
New York, New York 10174
Attention: Christopher S. Auguste
Fax No.: (212) 704-6288
15. Section and Other Headings. The section and other headings contained in
this Escrow Agreement are for convenience only, shall not be deemed a part of
this Escrow Agreement and shall not affect the meaning or interpretation of this
Escrow Agreement.
16. Governing Law. This Escrow Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of New York,
without regard to principles of conflicts of law. The Company and the Investors
(i) hereby irrevocably submit to the jurisdiction of the United States District
Court sitting in the Southern District of New York for the purposes of any suit,
action or proceeding arising out of or relating to this Agreement or the
Purchase Agreement and (ii) hereby waive, and agree not to assert in any such
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of such court, that the suit, action or proceeding is brought in an
inconvenient forum or that the venue of the suit, action or proceeding is
improper. The Company and the Investors consent to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing in this Section 16 shall affect or limit any right to serve
process in any other manner permitted by law.
17. Counterparts. This Escrow Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original but all such counterparts shall together constitute one and
the same agreement.
18. Resignation of Escrow Agent. The Escrow Agent may, at any time, at its
option, elect to resign its duties as Escrow Agent under this Escrow Agreement
by providing notice thereof to the Company and the Investors. In such event, the
Escrow Agent shall deposit the Escrow Funds and the Escrow Shares to a successor
independent escrow agent to be appointed by (a) the Company and the Investors
within thirty (30) days following the receipt of notice of resignation from the
Escrow Agent, or (b) the Escrow Agent if the Company and the Investors shall
have not agreed on a successor escrow agent within the aforesaid 30-day period,
upon which appointment and delivery of the Escrow Funds and the Escrow Shares,
the Escrow Agent shall be released of and from all liability under this Escrow
Agreement.
19. Successors and Assigns; Assignment. Whenever in this Escrow Agreement
reference is made to any party, such reference shall be deemed to include the
successors, assigns and legal representatives of such party, and, without
limiting the generality of the foregoing, all representations, warranties,
covenants and other agreements made by or on behalf of the Company and the
Investors in this Escrow Agreement shall inure to the benefit of any successor
escrow agent hereunder; provided, however, that nothing herein shall be deemed
to authorize or permit the Company or the Investors to assign any of its rights
or obligations hereunder to any other person (whether or not an affiliate of the
Company or the Investors) without the written consent of each of the other
parties nor to authorize or permit the Escrow Agent to assign any of its duties
or obligations hereunder except as provided in this Section 19 hereof.
20. No Third Party Rights. The representations, warranties and other terms
and provisions of this Escrow Agreement are for the exclusive benefit of the
parties hereto, and no other person, including the creditors of the Company or
the Investors, shall have any right or claim against any party by reason of any
of those terms and provisions or be entitled to enforce any of those terms and
provisions against any party.
21. No Waiver by Action, Etc. Any waiver or consent respecting any
representation, warranty, covenant or other term or provision of this Escrow
Agreement shall be effective only in the specific instance and for the specific
purpose for which given and shall not be deemed, regardless of frequency given,
to be a further or continuing waiver or consent. The failure or delay of a party
at any time or times to require performance of, or to exercise its rights with
respect to, any representation, warranty, covenant or other term or provision of
this Escrow Agreement in no manner (except as otherwise expressly provided
herein) shall affect its right at a later time to enforce any such term or
provision. No notice to or demand on the Company or the Investors in any case
shall entitle such party to any other or further notice or demand in the same,
similar or other circumstances. All rights, powers, privileges, remedies and
interests of the parties under this Escrow Agreement are cumulative and not
alternatives, and they are in addition to and shall not limit (except as
otherwise expressly provided herein) any other right, power, privilege, remedy
or interest of the parties under this Escrow Agreement or applicable law.
22. Modification, Amendment, Etc. Each and every modification and amendment
of this Escrow Agreement shall be in writing and signed by all of the parties
hereto, and each and every waiver of, or consent to any departure from, any
covenant, representation, warranty or other provision of this Escrow Agreement
shall be in writing and signed by the party granting such waiver or consent.
23. Entire Agreement. This Escrow Agreement contains the entire agreement
of the parties with respect to the matters contained herein and supersedes all
prior representations, agreements and understandings, oral or otherwise, among
the parties with respect to the matters contained herein.
IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement
on the date first written above.
CEL-SCI CORPORATION
By:_____________________________________
Name: Geert R. Kersten
Title: Chief Executive Officer
JENKENS & GILCHRIST PARKER CHAPIN LLP
By:_____________________________________
Name: Christopher S. Auguste
Title: Partner
SDS MERCHANT FUND, L.P.
By:_____________________________________
Name: Steve Derby
Title: Managing Member
BRISTOL INVESTMENT FUND, LTD.
By:_____________________________________
Name: Paul Kessler
Title: Director
Schedule A
Names and Addresses of Investors
SDS Merchant Fund, L.P.
c/o SDS Capital Partners, LLC
53 Forest Avenue, Second Floor
Old Greenwich, CT 06870
Attention: Steve Derby
Fax no.: (203) 967-5851
with a copy to:
Jenkens & Gilchrist Parker Chapin LLP
The Chrysler Building
405 Lexington Avenue
New York, NY 10174
Telephone No.:(212) 704-6000
Facsimile No: (212) 704-6288
Attention: Christopher S. Auguste, Esq.
Bristol Investment Fund, Ltd.
Caledonian House
Jennett Street
Georgetown, Grand Cayman
Cayman Islands
Attention: Amy Wang, Esq.
Fax No: (323) 468-8307
EXHIBIT E
FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
CEL-SCI CORPORATION
as of January 7, 2003
Computershare Trust Company, Inc.
12039 W. Alameda Parkway
Suite Z-2
Lakewood, Colorado 80228
Ladies and Gentlemen:
Reference is made to that certain Note and Warrant Purchase Agreement,
dated as of January 7, 2003, by and among Cel-Sci Corporation, a Colorado
corporation (the "Company"), and the purchasers named therein (the "Purchasers")
pursuant to which the Company is issuing to the Purchasers senior secured
convertible promissory notes, (the "Notes") and warrants (the "Warrants") to
purchase shares of the Company's common stock, par value $.001 per share (the
"Common Stock"). This letter shall serve as our irrevocable authorization and
direction to you (provided that you are the transfer agent of the Company at
such time) to issue shares of Common Stock upon conversion of the Notes (the
"Conversion Shares") and exercise of the Warrants (the "Warrant Shares") to or
upon the order of a Purchaser from time to time upon (i) surrender to you of a
properly completed and duly executed Conversion Notice or Exercise Notice, as
the case may be, in the form attached hereto as Exhibit I and Exhibit II,
respectively, and (ii) in the case of the conversion of a Note, a copy of the
Note (with the originals delivered to the Company) or, in the case of a Warrant
being exercised, a copy of the Warrant (with the original Warrant delivered to
the Company) being exercised (or, in each case, an indemnification undertaking
with respect to such Note or the Warrants in the case of their loss, theft or
destruction). So long as you have previously received (x) written confirmation
from counsel to the Company that a registration statement covering resales of
the Conversion Shares or Warrant Shares, as applicable, has been declared
effective by the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "1933 Act"), and no subsequent notice by
the Company or its counsel of the suspension or termination of its effectiveness
and (y) a copy of such registration statement, and if the Purchasers represent
in writing that the Conversion Shares or the Warrant Shares, as the case may be,
were sold pursuant to the Registration Statement, then certificates representing
the Conversion Shares and the Warrant Shares, as the case may be, shall not bear
any legend restricting transfer of the Conversion Shares and the Warrant Shares,
as the case may be, and should not be subject to any stop-transfer restriction.
Provided, however, that if you have not previously received (i) written
confirmation from counsel to the Company that a registration statement covering
resales of the Conversion Shares or Warrant Shares, as applicable, has been
declared effective by the SEC under the 1933 Act, and (ii) a copy of such
registration statement, then the certificates for the Conversion Shares and the
Warrant Shares shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE
SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS, OR CEL-SCI
CORPORATION SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT
REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER
THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED."
and, provided further, that the Company may from time to time notify you to
place transfer restrictions on the certificates for the Conversion Shares and
the Warrant Shares in the event a registration statement covering the Conversion
Shares and the Warrant Shares is subject to amendment for events then current.
A form of written confirmation from counsel to the Company that a
registration statement covering resales of the Conversion Shares and the Warrant
Shares has been declared effective by the SEC under the 1933 Act is attached
hereto as Exhibit III.
Please be advised that each Purchaser is relying upon this letter as an
inducement to enter into the Purchase Agreement and, accordingly, each Purchaser
is a third party beneficiary to these instructions.
Please execute this letter in the space indicated to acknowledge your
agreement to act in accordance with these instructions. Should you have any
questions concerning this matter, please contact me at ___________.
Very truly yours,
CEL-SCI CORPORATION
By:
---------------------------------
Name:
--------------------------
Title:
------------------------
ACKNOWLEDGED AND AGREED:
COMPUTERSHARE TRUST COMPANY, INC.
By: ------------------------------------
Name: ------------------------------------
Title:------------------------------------
Date: ------------------------------------
cc: List of Purchasers
EXHIBIT I
CEL-SCI CORPORATION
CONVERSION NOTICE
(To be Executed by the Registered Holder in order to Convert the Note)
The undersigned hereby irrevocably elects to convert $ ________________ of the
principal amount of the above Note No. ___ into shares of Common Stock of
CEL-SCI CORPORATION (the "Maker") according to the conditions hereof, as of the
date written below.
Date of Conversion _________________________________________________________
Applicable Conversion Price __________________________________________________
Signature___________________________________________________________________
[Name]
Address:__________________________________________________________________
-----------------------------------------------------------------------
EXHIBIT II
FORM OF EXERCISE NOTICE
EXERCISE FORM
CEL-SCI CORPORATION
The undersigned _______________, pursuant to the provisions of the within
Warrant, hereby elects to purchase _____ shares of Common Stock of Cel-Sci
Corporation covered by the within Warrant.
Dated: _________________ Signature ___________________________
Address _____________________
---------------------
ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the within Warrant and all rights evidenced thereby and does
irrevocably constitute and appoint _____________, attorney, to transfer the said
Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address _____________________
---------------------
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto
__________________ the right to purchase _________ shares of Warrant Stock
evidenced by the within Warrant together with all rights therein, and does
irrevocably constitute and appoint ___________________, attorney, to transfer
that part of the said Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address _____________________
---------------------
FOR USE BY THE ISSUER ONLY:
This Warrant No. W-_____ canceled (or transferred or exchanged) this _____
day of ___________, _____, shares of Common Stock issued therefor in the name
of _______________, Warrant No. W-_____ issued for ____ shares of Common
Stock in the name of _______________.
EXHIBIT III
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
Computershare Trust Company, Inc.
12039 W. Alameda Parkway
Suite Z-2
Lakewood, Colorado 80228
Re: Cel-Sci Corporation
Ladies and Gentlemen:
We are counsel to Cel-Sci Corporation, a Colorado corporation (the
"Company"), and have represented the Company in connection with that certain
Note and Warrant Purchase Agreement (the "Purchase Agreement"), dated as of
January 7, 2003, by and among the Company and the purchasers named therein
(collectively, the "Purchasers") pursuant to which the Company issued to the
Purchasers senior secured convertible promissory notes (the "Notes") and
warrants (the "Warrants") to purchase shares of the Company's common stock, par
value $.001 per share (the "Common Stock"). Pursuant to the Purchase Agreement,
the Company has also entered into a Registration Rights Agreement with the
Purchasers (the "Registration Rights Agreement"), dated as of January 7, 2003,
pursuant to which the Company agreed, among other things, to register the
Registrable Securities (as defined in the Registration Rights Agreement),
including the shares of Common Stock issuable upon conversion of the Notes and
exercise of the Warrants, under the Securities Act of 1933, as amended (the
"1933 Act"). In connection with the Company's obligations under the Registration
Rights Agreement, on ________________, 2003, the Company filed a Registration
Statement on Form S-3 (File No. 333-________) (the "Registration Statement")
with the Securities and Exchange Commission (the "SEC") relating to the resale
of the Registrable Securities which names the Purchasers as selling stockholders
thereunder.
In connection with the foregoing, we advise you that a member of the SEC's
staff has advised us by telephone that the SEC has entered an order declaring
the Registration Statement effective under the 1933 Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge, after
telephonic inquiry of a member of the SEC's staff, that any stop order
suspending its effectiveness has been issued or that any proceedings for that
purpose are pending before, or threatened by, the SEC and accordingly, the
Registrable Securities are available for resale under the 1933 Act pursuant to
the Registration Statement.
Very truly yours,
[COMPANY COUNSEL]
By:
---------------------------------
cc: [LIST NAME OF PURCHASERS]
EXHIBIT F
FORM OF OPINION
1. The Company is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Colorado and has the requisite
corporate power to own, lease and operate its properties and assets, and to
carry on its business as presently conducted. The Company is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the failure to so qualify would have a Material Adverse Effect.
2. The Company has the requisite corporate power and authority to enter
into and perform its obligations under the Transaction Documents and to issue
the Notes, the Conversion Shares, the Warrants and the Warrant Shares. The
execution, delivery and performance of each of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated thereby have
been duly and validly authorized by all necessary corporate action and no
further consent or authorization of the Company or its Board of Directors is
required. Each of the Transaction Documents have been duly executed and
delivered, and the Notes and the Warrants have been duly executed, issued and
delivered by the Company and each of the Transaction Documents constitutes a
legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its respective terms. The Conversion Shares and the
Warrant Shares are not subject to any preemptive rights under the Articles of
Incorporation or the Bylaws.
3. The Notes have been duly authorized and, when delivered against payment
in full as provided in the Purchase Agreement, will be validly issued. The
Warrant Shares, have been duly authorized and reserved for issuance, and, when
delivered upon exercise or against payment in full as provided in the Warrants,
will be validly issued, fully paid and nonassessable. The Conversion Shares,
have been duly authorized and reserved for issuance, and, when delivered upon
exercise or against payment in full as provided in the Notes, will be validly
issued, fully paid and nonassessable.
4. The execution, delivery and performance of and compliance with the
terms of the Transaction Documents and the issuance of the Notes, the Conversion
Shares, the Warrants and the Warrant Shares do not (a) violate any provision of
the Articles of Incorporation or Bylaws, (b) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, mortgage, deed of
trust, indenture, note, bond, license, lease agreement, instrument or obligation
to which the Company is a party and which is known to us, (c) create or impose a
lien, charge or encumbrance on any property of the Company under any agreement
or any commitment known to us to which the Company is a party or by which the
Company is bound or by which any of its respective properties or assets are
bound, or (d) result in a violation of any Federal, state, local or foreign
statute, rule, regulation, order, judgment, injunction or decree (including
Federal and state securities laws and regulations) applicable to the Company or
by which any property or asset of the Company is bound or affected, except, in
all cases other than violations pursuant to clauses (a) and (d) above, for such
conflicts, default, terminations, amendments, acceleration, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect.
5. No consent, approval or authorization of or designation, declaration or
filing with any governmental authority on the part of the Company is required
under Federal, state or local law, rule or regulation in connection with the
valid execution, delivery and performance of the Transaction Documents, or the
offer, sale or issuance of the Note, the Conversion Shares, the Warrants or the
Warrant Shares other than filings as may be required by applicable Federal and
state securities laws and regulations and the Nasdaq rules and regulations.
6. To our knowledge, there is no action, suit, claim, investigation or
proceeding pending or threatened against the Company which questions the
validity of the Agreement or the transactions contemplated thereby or any action
taken or to be taken pursuant thereto. There is no action, suit, claim,
investigation or proceeding pending, or to our knowledge, threatened, against or
involving the Company or any of its properties or assets and which, if adversely
determined, is reasonably likely to result in a Material Adverse Effect. There
are no outstanding orders, judgments, injunctions, awards or decrees of any
court, arbitrator or governmental or regulatory body against the Company or any
officers or directors of the Company in their capacities as such.
7. The offer, issuance and sale of the Notes and the Warrants and the
offer, issuance and sale of the Conversion Shares and the Warrant Shares
pursuant to the Agreement, the Notes and the Warrants, as applicable, are exempt
from the registration requirements of the Securities Act of 1933, as amended.
8. The Company is not, and as a result of and immediately upon Closing
will not be, an "investment company" or a company "controlled" by an "investment
company," within the meaning of the Investment Company Act of 1940, as amended.
EXHIBIT G
FORM OF SECURITY AGREEMENT
SECURITY AGREEMENT
SECURITY AGREEMENT, dated January 7, 2003 (this "Agreement"), by
---------
CEL-SCI CORPORATION, a Colorado corporation having its principal place of
business at 8229 Boone Boulevard, Suite 802, Vienna, Virginia 22182 (the
"Grantor"), for the benefit of SDS Merchant Fund, L.P. and Bristol Investment
Fund, Ltd. (the Secured Parties").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, on the date hereof, the Grantor has executed senior secured
convertible promissory notes, in favor of each of the Secured Parties in an
aggregate principal amount of $1,350,000.00 (the "Notes"), issued pursuant to
the Note and Warrant Purchase Agreement, dated as of the date hereof among the
Grantor and the Secured Parties (the "Purchase Agreement"). In order to provide
security for the payment of all of the obligations of the Grantor to the Secured
Parties under the Notes, the Grantor has agreed to grant to the Secured Parties
a continuing lien and security interest in all of the Grantor's personal
property and to execute this and such other security agreements and instruments
as are necessary to grant such lien and security interest and enable the Secured
Parties to perfect such security interest.
NOW, THEREFORE, in consideration of the premises contained herein and
in the Notes and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Grantor agrees with the Secured
Parties as follows:
Section 1. DEFINITIONS.
Capitalized terms used in this Security Agreement which are not
otherwise defined herein shall have the following meanings:
"Account" shall have the meaning assigned to such term in the Code.
"Books and Records" shall mean all books of account, records, files,
correspondence, software and data bases of the Grantor, in whatever form
appearing.
"Chattel Paper" shall have the meaning assigned to such term in the
Code.
"Code" shall mean the Uniform Commercial Code as in effect in the State
of New York from time to time.
"Collateral" shall have the meaning assigned thereto in Section 2 of
this Agreement.
"Contract Rights" shall mean all Accounts, Chattel Paper, Documents,
General Intangibles and Instruments (whether or not any of the same are created
or evidenced by a Related Contract), and every other right which the grantor may
have from time to time under any Related Contract.
"Document" shall have the meaning assigned to that term in the Code.
"Equipment" shall have the meaning assigned to that term in the Code.
"General Intangibles" shall have the meaning assigned to that term in
the Code, and shall include, without limitation, all Marks.
"Governmental Authority" shall mean any governmental,
quasi-governmental, judicial, public or statutory instrumentality, authority,
agency, bureau, body or entity or the United States of America or of any state,
county, municipality or other political subdivision located therein.
"Instrument" shall have the meaning assigned to that term in the Code.
"Inventory" shall have the meaning assigned to that term in the Code.
"Marks" shall mean all trademarks, copyrights and service marks
(registered or unregistered), all registrations, recordings and applications
made, filed or recorded in the United States Patent and Trademark Office or any
similar office or agency of any other Governmental Authority for trademarks or
service marks, all other trademarks, copyrights, trade names, fictitious
business names, business names, company names, corporate names, business
identifiers, trade styles, trade dress, service marks, logos or designs, and all
other property or rights of similar nature, all renewals, reissues and
extensions of any of the foregoing, the goodwill of the Grantor's business
symbolized by any of the foregoing, all licenses and license agreements by any
of the foregoing, all licenses and license agreements with respect to any of the
foregoing, and all Proceeds of and rights associated with any of the foregoing
(including, but not limited to, all license royalties, all claims of right or
priority of use and all causes of action and rights to collect damages now or
hereafter existing by reason of any past, present or future infringement or
dilution of any of the foregoing of injury to the associated goodwill).
"Proceeds" shall mean whatever is received by the Grantor upon the
sale, exchange, collection or other disposition of any Collateral or any
proceeds therefrom, and shall include, without limitation, all "proceeds" as
that term is defined in the Code.
"Related Contract" shall mean any contract, instrument or other
document which creates, evidences, secures or guarantees any Contract Right.
Section 2. GRANT OF SECURITY INTEREST.
The Grantor hereby pledges, assigns and grants to the Secured Parties a
continuing security interest in and lien on all personal property of the
Grantor, wherever located and whether now or hereafter existing and whether now
owned or hereafter acquired, of every kind and description, tangible or
intangible, including, without limitation, all Accounts, Contract Rights,
Equipment, Inventory, Proceeds, Books and Records and, to the extent not
otherwise included all payments under insurance (whether or not any of the
Secured Parties is the loss payee) or under any indemnity, warranty, guaranty or
government award which is payable by reason of any damage to, or any loss,
taking or condemnation of, any of the foregoing (collectively, the
"Collateral").
Section 3. OBLIGATIONS SECURED.
The Collateral hereunder constitutes and will constitute continuing
security for the strict performance and observance by the Grantor of the prompt
payment, when due, of all present and future obligations and indebtedness of the
Grantor to the Secured Parties under the Notes (after giving effect to any
offset rights of the Grantor thereunder with respect thereto) and of the Grantor
under this Agreement (collectively, the "Obligations").
Section 4. GRANTOR REMAINS LIABLE.
Anything herein to the contrary notwithstanding, in the absence of the
Secured Parties' express prior written consent thereto, (a) the Grantor shall
remain liable under any and all contracts and agreements included in the
Collateral to the extent set forth therein to perform all of its duties and
obligations thereunder to the same extent as if this Agreement had not been
executed, (b) the exercise by the Secured Parties of any of the rights hereunder
shall not release the Grantor from any of its duties or obligations under any
contracts and agreements included in the Collateral, and (c) the Secured Parties
shall not have any obligation or liability under any contracts and agreements
included in the Collateral by reason of this Agreement, nor shall the Secured
Parties be obligated to perform any of the obligations or duties of the Grantor
under any such contract or agreement or to take any action to collect or enforce
any claim for payment assigned hereunder.
Section 5. REPRESENTATIONS AND WARRANTIES.
The Grantor represents and warrants to the Secured Parties that:
5.1 The Grantor is a corporation duly organized, validly existing and in
good standing under the laws of its state of incorporation, is duly qualified
and in good standing under the laws of each jurisdiction where the character of
its properties or the transaction of its business makes such qualification
necessary, and has full power to own or hold under lease its properties and
assets and to carry on its business as now being conducted.
(a) The Grantor has full power and authority to execute, deliver and
perform this Agreement which has been duly authorized by all necessary and
proper corporate action. No consent of stockholders or of any public authority
is required as a condition to the validity of this Agreement. The making and
performance by the Grantor of this Agreement will not violate any provision of
law and will not conflict with or result in the breach of any order, writ,
injunction or decree of any court or government instrumentality, or its charter
or by-laws or create a default under any agreement, note or indenture to which
it is a party or by which it is bound or to which any of its property is
subject, or result in the imposition of any lien, charge, security interest or
encumbrance of any nature whatsoever upon any of its properties or assets,
except for the liens created under this Agreement.
(b) This Agreement has been duly executed and delivered, and constitutes
the legal, valid and binding obligation of the Grantor, enforceable in
accordance with its terms.
5.2 Except as provided on Exhibit A hereto, the Grantor has good title to
and is the lawful owner of the Collateral free from all claims, liens,
encumbrances, charges or security interests whatsoever. Except as provided in
Section 6.9 of this Agreement, the Collateral will at all times be kept at the
location(s) set forth on Exhibit A hereto.
5.3 The provisions of this Agreement create a valid and perfected security
interest in the Collateral, enforceable in accordance with its terms.
5.4 There are no judgments outstanding against the Grantor and there are no
actions or proceedings before any court or administrative agency pending or, to
the knowledge of the Grantor, threatened against the Grantor which, if
determined adversely to the Grantor, would affect the Collateral.
5.5 The Grantor's principal office and place of business where it maintains
its records concerning the Collateral is at its address stated above. The
Grantor has no other office or place of business except as indicated on Exhibit
A hereto.
Section 6. COVENANTS.
The Grantor covenants and agrees that from the date of this Agreement
until payment in full of all of the Obligations:
6.1 The Grantor shall keep and maintain the Collateral insured against loss
or damage by fire and all other risks as is customarily maintained by similar
businesses for the full insurable value thereof. Such policies shall by their
terms provide that the Secured Parties be given at least 30 days prior written
notice of any amendment, modification or cancellation thereof and that the
Secured Parties shall have the option, but not the obligation, to pay the
premiums to continue such insurance in effect or obtain like coverage. The
originals or certificates of all such policies shall be delivered to the Secured
Parties. The Grantor agrees that any payment made by the Grantor pursuant to the
foregoing authorization, shall bear interest thereon at the rate of 10% from the
date of such payment and shall become part of the Obligations and be shall
secured by the Collateral pursuant to the terms of this Agreement. The Grantor
hereby appoints the Secured Parties as its attorney-in-fact to make, adjust or
settle any claim under any insurance policy insuring the Collateral.
6.2 The Grantor shall maintain the Collateral in good repair, working order
and condition, subject to normal wear and tear, and make all reasonable repairs,
replacements, additions and improvements thereto.
6.3 The Grantor shall give the Secured Parties full and free access to the
Collateral and to all books, correspondence and records of the Grantor with
respect thereto upon reasonable notice and at all reasonable times, and shall
permit upon the occurrence and continuance of an Event of Default (as
hereinafter defined) the Secured Parties and their representatives to examine
the same and to make extracts therefrom all at the Grantor's expense.
6.4 The Grantor shall promptly pay and discharge or cause to be paid and
discharged all its obligations and liabilities including, without limitation,
all taxes, assessments and governmental charges upon it or its income or
properties, when due unless and to the extent only that the same shall be
contested in good faith and by appropriate proceedings and then only to the
extent that a bond is filed in cases where the filing of a bond is necessary to
avoid the creation of a lien against any of its property.
6.5 The Grantor shall do, or cause to be done, all things necessary to
preserve and keep in full force and effect its corporate existence and all
franchises, rights and privileges necessary for the proper conduct of its
business, and continue to engage in the business of the same type as now
conducted by it.
6.6 The Grantor shall not grant, permit or suffer to exist any lien, claim,
security interest or encumbrance upon the Collateral, except those in favor of
the Secured Parties.
6.7 The Grantor shall notify the Secured Parties in writing within 5
business days after the occurrence thereof, of the occurrence of any event which
constitutes, or which with notice or lapse of time, or both, would constitute an
Event of Default (as hereinafter defined).
6.8 The Grantor shall execute and deliver such further or additional
instruments and assurances, and take all such additional action as the Secured
Parties may require for the purpose of carrying out the provisions of this
Agreement.
6.9 The Grantor shall not sell, assign, lease or otherwise dispose of the
Collateral except in the ordinary course of business.
6.10 The Grantor shall not change its principal office or the place where
it maintains its records pertaining to the Collateral as specified in Section
5.6 hereof without giving the Secured Parties at least 30 days prior written
notice thereof.
6.11 The Grantor shall not remove or permit the removal of the Collateral
from its present location as set forth on Exhibit A hereto except in the
ordinary course of business without the prior written consent of the Secured
Parties.
6.12 If an Event of Default (as defined in Section 8 hereof) occurs
pursuant to Section 8.5 of this Agreement, the Grantor covenants and agrees to
permit the Secured Parties to appoint a trustee or receiver for the Grantor.
Section 7. OPTION TO PERFORM OBLIGATION OF THE GRANTOR IN RESPECT OF THE
COLLATERAL.
If the Grantor fails or refuses to make any payment, perform any
covenant or obligation, or take any other action which the Grantor is obligated
hereunder to perform, observe, take or do, then the Secured Parties may, at
their option, without notice or demand upon the Grantor and without releasing
the Grantor from any obligation or covenant hereof, perform, observe, take or do
the same in such manner and to such extent as the Secured Parties may deem
necessary to protect any of the Collateral and their rights hereunder including,
without limitation, obtaining insurance and the payment of any taxes and the
payment of any sums necessary to discharge liens or security interests at any
time levied or placed on the Collateral.
Section 8. EVENTS OF DEFAULT.
For purposes of this Agreement, any of the following events shall
constitute an "Event of Default":
8.1 The Grantor shall fail to make any payment when due of principal and
interest on the Notes when such payment is due thereunder;
8.2 The Grantor shall default in the performance or observance of any
covenant or agreement contained in this Agreement;
8.3 Any representation or warranty made by or on behalf of the Grantor in
this Agreement or the other Transaction Documents (as defined in the Purchase
Agreement) or in any other certificate, agreement, instrument or statement
delivered to the Secured Parties by or on behalf of the Grantor shall at any
time prove to have been incorrect when made in any material respect;
8.4 There shall be a defect in the Grantor's title to any of the Collateral
and such defect in title shall not have been cured or removed within 20 days
after the Grantor's receipt of written notice thereof;
8.5 The Grantor shall become insolvent, make an assignment for the benefit
of creditors, file a petition in bankruptcy, be adjudicated insolvent or
bankrupt, admit in writing its inability to pay its debts as they mature,
petition or apply for, consent to, or acquiesce in the appointment of, a trustee
or receiver for the Grantor or for a substantial part of its property; or any
other bankruptcy, reorganization, debt arrangement or other proceeding under any
bankruptcy, insolvency law, or any dissolution or liquidation proceeding shall
be instituted by or against the Grantor, and if instituted against it, shall be
consented to or acquiesced in by the Grantor or shall not be dismissed or, if
contested, stayed within a period of 90 days; or any judgment, writ of
attachment or execution or any similar process shall be issued or levied against
a substantial part of the property of the Grantor and shall not be released,
stayed, bonded or vacated within a period of 90 days after its issue or levy;
8.6 The Grantor shall, at any time without the prior written consent of the
Secured Parties, enter into an agreement to change the location of the
Collateral or permit any change in such location of the Collateral from that
specified in Section 5.3 hereof except as permitted by Section 6.9 of this
Agreement, and/or
8.7 The lien created hereunder shall, for any reason other than by or
through the conduct of the Secured Parties, cease to be valid.
Section 9. REMEDIES.
In case any Event of Default shall have occurred and be continuing, the
Secured Parties shall have, in addition to all other rights and remedies given
it by this Agreement or the Notes, those allowed by law and the rights and
remedies of a secured party under the Uniform Commercial Code as enacted in any
jurisdiction in which any of the Collateral may be located and, without limiting
the generality of the foregoing, the Secured Parties may immediately, without
demand of performance and without notice of intention to sell or of time or
place of sale or redemption or other notice or demand whatsoever to the Grantor,
all of which are hereby expressly waived, and without advertisement, enter onto
the premises where the Collateral is located and take possession thereof without
liability for any lawsuit or action, and sell, lease or otherwise dispose of all
or any part of the Collateral or any interest which the Grantor may have
therein, either at pubic or private sale or otherwise, and after deducting from
the proceeds of sale or other disposition of the Collateral all expenses
(including all reasonable fees and expenses of counsel) as provided in Section
14 hereof, shall apply the residue of such proceeds toward the payment of the
Obligations. If notice of any sale or other disposition is required by law to be
given, the Grantor hereby agrees that a notice sent at least 5 days before the
time of any intended public sale or before the time after which any private sale
or other disposition of the Collateral is to be made shall be reasonable notice
of such sale or other disposition. The Grantor agrees to assemble the
Collateral, or cause it to be assembled, at such place or places as the Secured
Parties may designate by written notice to the Grantor. At any such sale or
other disposition, the Secured Parties may purchase the whole or any part of the
Collateral, free from any right of redemption on the part of the Grantor, which
right is hereby waived and released. Without limiting the generality of the
rights and remedies conferred upon the Secured Parties under this Section 9, the
Secured Parties may: (a) enter upon the premises of the Grantor and take
immediate possession of the Collateral, either personally or by means of a
receiver appointed by a court therefor, using all necessary force to do so; (b)
at the Secured Parties' option, use, operate, manage and control the Collateral
in any lawful manner; (c) collect and receive all rents, income, revenue,
earnings, issue and profits therefrom; and (d) maintain, repair, renovate, alter
or remove the Collateral as the Secured Parties may determine in their
discretion and any monies so collected or received by the Secured Parties shall
be applied to, or may be accumulated for application upon the Obligations and
the Grantor shall be liable for any deficiency.
Section 10. POWER OF ATTORNEY.
The Grantor authorizes the Secured Parties and does hereby make,
constitute and appoint the Secured Parties and agents of the Secured Parties
with full power of substitution, as the Grantor's true and lawful
attorney-in-fact with power, in its own name or in the name of the Grantor, upon
the occurrence and continuance of any Event of Default, to endorse any notes
checks, drafts, money orders, or other instruments of payment (including,
payments under or in respect of any policy of insurance) in respect of the
Collateral that may come into possession of the Secured Parties; to sign and
endorse any documents relating to the Collateral; to pay or discharge taxes,
liens, security interests or other encumbrances at any time levied or placed on
or threatened against the Collateral; to grant, collect, receipt or, compromise,
settle and sue for monies due in respect of the Collateral; and generally, to do
at the Secured Parties' option and at the Grantor's expense, at any time, or
from time to time all act and things which the Secured Parties deem necessary to
protect, preserve and realize upon the Collateral and the Grantor's security
interests therein in order to effect the intent of this Agreement, as fully and
effectually as the Grantor might or could do; and the Grantor hereby ratifies
all that said attorney shall do or cause to be done by virtue hereof. THIS POWER
OF ATTORNEY IS COUPLED WITH AN INTEREST AND SHALL BE IRREVOCABLE FOR AS LONG AS
ANY OF THE OBLIGATIONS SHALL BE OUTSTANDING. The Grantor agrees that any
reasonable fees, costs and expense incurred by the Secured Parties pursuant to
the foregoing authorization, and interest thereon at the rate prescribed in the
Notes from the date of incurring any such reasonable fees, costs and expense,
shall become part of the Obligations and be secured by the Collateral.
Section 11. NOTICES.
All notices, requests, demands and other communications to or upon the
respective parties hereto shall be deemed to have been given or made when
deposited in the mails and sent by registered or certified mail, postage
prepaid, return receipt requested, or when delivered personally, to the parties
at their addresses hereinabove provided, or to such other addresses as may
hereafter be designated in writing by the respective parties hereto.
Section 12. NO WAIVER; REMEDIES CUMULATIVE.
No failure on the part of the Secured Parties to exercise, and no delay
in exercising any right hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise by the Secured Parties of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
Section 13. FINANCING STATEMENTS; FURTHER ASSURANCES; FILING.
On the dates thereof, the Grantor shall deliver UCC-1 financing
statements in form and substance satisfactory to the Secured Parties and with
the Secured Parties' security interest duly noted thereon with respect to the
Collateral for filing at the appropriate offices. Thereafter, within 10 business
days after the Secured Parties' written request therefor, the Grantor shall
cause such additional Uniform Commercial Code financing statements with respect
to the Collateral or any modifications or amendments to any such financing
statements (all in form and substance reasonable satisfactory to the Secured
Parties) to be delivered to the Secured Parties for filing at the appropriate
offices. The Grantor from time to time, at its sole expense, will promptly
execute and deliver all further instruments and documents, and take all further
action, that may be reasonably necessary or desirable, or that the Secured
Parties may reasonably request, and hereby authorizes the Secured Parties to
take all action (including the filing of any financing statements, continuation
statements or amendments thereto with respect to the Collateral without the
signature of the Grantor where permitted by law) as the Secured Parties in each
case may deem reasonably necessary, proper or desirable in order to perfect and
protect any security interest granted or purported to be granted hereby or to
enable the Secured Parties to exercise and enforce its rights and remedies
hereunder with respect to any Collateral. A carbon, photographic or other
reproduction of this Agreement or any financing statement covering the
Collateral or any part thereof shall be sufficient as a financing statement
where permitted by law. The Secured Parties shall execute terminations to any
such financing statements within 3 business days of the Grantor's request
therefore upon payment of the Obligations.
Section 14. COSTS AND EXPENSES.
The Grantor shall reimburse the Secured Parties for all costs and
expenses incurred by them and shall pay the reasonable fees and disbursements of
counsel to the Secured Parties in connection with enforcement of the Secured
Parties' rights hereunder.
Section 15. AMENDMENTS.
No amendment, modification or waiver of any provision of this Agreement
nor consent to any departure by the Grantor therefrom shall be effective unless
the same shall be in writing and signed by the Secured Parties and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
Section 16. TERMINATION.
Upon the payment in full of all Obligations, the Secured Parties shall
execute and deliver to the Grantor all such documents and instruments as shall
be necessary to evidence termination of this Agreement and the security
interests created hereunder; provided, however, the obligations of the Grantor
under Section 13 hereof shall survive any termination under this Section 16.
Section 17. GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OR
CHOICE OF LAW.
Section 18. ASSIGNMENT, ETC.
The Grantor shall not assign, pledge, mortgage, sublet or otherwise
transfer or encumber any of its rights or obligations, as the case may be, under
this Agreement without the Secured Parties' prior written consent. Any such
purported assignment, pledge, mortgage, sublet, transfer or other action without
such written consent shall be void. This Agreement shall be binding upon each of
the Grantor and its successors and shall inure to the benefit of the Secured
Parties and their successors and assigns.
Section 19. SEVERABILITY.
The provisions of this Agreement are severable, and if any provision
shall be held invalid or unenforceable in whole or in part in any jurisdiction,
then such invalidity or unenforceability shall not in any manner affect such
provision in any other jurisdiction or any other provision of this Agreement in
any jurisdiction.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their authorized representatives on the date first above
written.
CEL-SCI CORPORATION
By:_____________________________
Name: Geert R. Kersten
Title: Chief Executive Officer
SDS MERCHANT FUND, L.P.
By:_____________________________
Name: Steve Derby
Title: Managing Member
BRISTOL INVESTMENT FUND, LTD.
By:_____________________________
Name: Paul Kessler
Title: Director
Exhibit A
to
Security Agreement
Grantor's Places of Business
The following address is the location where the Collateral is kept in
accordance with the Security Agreement:
8229 Boone Boulevard
Suite 802
Vienna, Virginia 22182
EXHIBIT H
FORM OF LOCK-UP AGREEMENT
LOCK-UP AGREEMENT
THIS AGREEMENT dated as of January 7, 2003 (this "Agreement"), by and among
Maximilian de Clara, Geert R. Kersten, Patricia B. Prichep, Dr. Eyal Talor, Dr.
Daniel H. Zimmerman, Alexander G. Esterhazy, Dr. Richard Kinsolving and Dr.
Peter Young (individually, a "Shareholder" and collectively, the "Shareholders")
and Cel-Sci Corporation, a Colorado corporation (the "Company").
WHEREAS, to induce the investors (the "Investors") to enter into that
certain Note and Warrant Purchase Agreement dated the date hereof (the "Purchase
Agreement") by and among the Company and the Investors, the Shareholders have
agreed not to sell any shares of the common stock, par value $.001 per share, of
the Company that such Shareholders presently own (the "Common Stock"), except in
accordance with the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the covenants and conditions
hereinafter contained, the parties hereto agree as follows:
1. Restriction on Transfer; Term. The Shareholders hereby agree with the
Company that the Shareholders will not offer, sell, contract to sell, assign,
transfer, hypothecate, pledge or grant a security interest in, or otherwise
dispose of, or enter into any transaction which is designed to, or might
reasonably be expected to, result in the disposition of (whether by actual
disposition or effective economic disposition due to cash settlement or
otherwise by the Company or any affiliate of the Company or any person in
privity with the Company or any affiliate of the Company), directly or
indirectly, any of the shares of Common Stock until twenty-five (25) days
following the effective date of the Registration Statement (as defined in the
Purchase Agreement); provided, however, that such shares of Common Stock are
registered pursuant to an effective registration statement under the Securities
Act of 1933, as amended (the "Act"), or can be sold pursuant to Rule 144
promulgated under the Act.
2. Ownership. During the Period, the Shareholders shall retain all rights
of ownership in the Common Stock, including, without limitation, voting rights
and the right to receive any dividends, if any, that may be declared in respect
thereof.
3. Company and Transfer Agent. The Company is hereby authorized to disclose
the existence of this Agreement to its transfer agent. The Company and its
transfer agent are hereby authorized to decline to make any transfer of the
Common Stock if such transfer would constitute a violation or breach of this
Agreement and the Purchase Agreement.
4. Notices. All notices, demands, consents, requests, instructions and
other communications to be given or delivered or permitted under or by reason of
the provisions of this Agreement or in connection with the transactions
contemplated hereby shall be in writing and shall be deemed to be delivered and
received by the intended recipient as follows: (i) if personally delivered, on
the business day of such delivery (as evidenced by the receipt of the personal
delivery service), (ii) if mailed certified or registered mail return receipt
requested, four (4) business days after being mailed, (iii) if delivered by
overnight courier (with all charges having been prepaid), on the business day of
such delivery (as evidenced by the receipt of the overnight courier service of
recognized standing), or (iv) if delivered by facsimile transmission, on the
business day of such delivery if sent by 6:00 p.m. in the time zone of the
recipient, or if sent after that time, on the next succeeding business day (as
evidenced by the printed confirmation of delivery generated by the sending
party's telecopier machine). If any notice, demand, consent, request,
instruction or other communication cannot be delivered because of a changed
address of which no notice was given (in accordance with this Section 4), or the
refusal to accept same, the notice, demand, consent, request, instruction or
other communication shall be deemed received on the second business day the
notice is sent (as evidenced by a sworn affidavit of the sender). All such
notices, demands, consents, requests, instructions and other communications will
be sent to the following addresses or facsimile numbers as applicable.
If to the Company:
Cel-Sci Corporation
8229 Boone Boulevard
Suite 802
Vienna, Virginia 22182
Attention: Geert Kersten
Telecopier: (703) 506-9460
Telephone: (703) 506-9471
With copies to:
William T. Hart, Esq.
Hart & Trinen L.L.P.
1624 Washington Street
Denver, Colorado 80203
Telecopier: (303) 839-5414
Telephone: (303) 839-0061
and to:
Jenkens & Gilchrist Parker Chapin LLP
The Chrysler Building,
405 Lexington Avenue
New York, New York 10174
Telephone: (212) 704-6000
Facsimile: (212) 704-6288
Attention: Christopher S. Auguste, Esq.
If to any Shareholder:
Name of Shareholder
c/o Cel-Sci Corporation
8229 Boone Boulevard
Suite 802
Vienna, Virginia 22182
Telecopier: (703) 506-9460
Telephone: (703) 506-9471
or to such other address as any party may specify by notice given to the other
party in accordance with this Section 4.
5. Amendment. This Agreement may not be modified, amended, altered or
supplemented, except by a written agreement executed by each of the parties
hereto.
6. Entire Agreement. This Agreement contain the entire understanding and
agreement of the parties relating to the subject matter hereof and supersedes
all prior and/or contemporaneous understandings and agreements of any kind and
nature (whether written or oral) among the parties with respect to such subject
matter, all of which are merged herein.
7. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
and to be performed in that state, without regard to any of its principles of
conflicts of laws or other laws which would result in the application of the
laws of another jurisdiction. This Agreement shall be construed and interpreted
without regard to any presumption against the party causing this Agreement to be
drafted.
8. Waiver of Jury Trial. EACH OF THE PARTIES HEREBY UNCONDITIONALLY AND
IRREVOCABLY WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION, SUIT OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY. EACH OF THE PARTIES UNCONDITIONALLY AND IRREVOCABLY
CONSENTS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK
LOCATED IN NEW YORK COUNTY AND THE FEDERAL DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK WITH RESPECT TO ANY SUIT, ACTION OR PROCEEDING ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, AND
EACH OF THE PARTIES HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY OBJECTION
TO VENUE IN NEW YORK COUNTY OR SUCH DISTRICT, AND AGREES THAT SERVICE OF ANY
SUMMONS, COMPLAINT, NOTICE OR OTHER PROCESS RELATING TO SUCH SUIT, ACTION OR
OTHER PROCEEDING MAY BE EFFECTED IN THE MANNER PROVIDED IN SECTION 4.
9. Severability. The parties agree that if any provision of this Agreement
be held to be invalid, illegal or unenforceable in any jurisdiction, that
holding shall be effective only to the extent of such invalidity, illegally or
unenforceability without invalidating or rendering illegal or unenforceable the
remaining provisions hereof, and any such invalidity, illegally or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. It is the intent of the
parties that this Agreement be fully enforced to the fullest extent permitted by
applicable law.
10. Binding Effect; Assignment. This Agreement and the rights and
obligations hereunder may not be assigned by any party hereto without the prior
written consent of the other parties hereby. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
11. Headings. The section headings contained in this Agreement (including,
without limitation, section headings and headings in the exhibits and schedules)
are inserted for reference purposes only and shall not affect in any way the
meaning, construction or interpretation of this Agreement. Any reference to the
masculine, feminine, or neuter gender shall be a reference to such other gender
as is appropriate. References to the singular shall include the plural and vice
versa.
12. Third Parties. Except as expressly permitted by Section 10 hereof,
nothing herein is intended or shall be construed to confer upon or give to any
person, firm or entity, other than the parties hereto, any rights, privileges or
remedies under or by reason of this Agreement.
13. Counterparts. This Agreement may be executed in two or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original, and all of which, when
taken together, shall constitute one and the same document. This Agreement shall
become effective when one or more counterparts, taken together, shall have been
executed and delivered by all of the parties.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above herein.
CEL-SCI CORPORATION
By:________________________________
Name: Geert R. Kersten
Title: Chief Executive Officer
SHAREHOLDER
By:_________________________________
Name: Maximilian de Clara
Title: Shareholder
SHAREHOLDER
By:_________________________________
Name: Geert R. Kersten
Title: Shareholder
SHAREHOLDER
By:_________________________________
Name: Patricia B. Prichep
Title: Shareholder
SHAREHOLDER
By:_________________________________
Name: Dr. Eyal Talor
Title: Shareholder
SHAREHOLDER
By:_________________________________
Name: Dr. Daniel H. Zimmerman
Title: Shareholder
SHAREHOLDER
By:_________________________________
Name: Alexander G. Esterhazy
Title: Shareholder
SHAREHOLDER
By:_________________________________
Name: Dr. C. Richard Kinsolving
Title: Shareholder
SHAREHOLDER
By:_________________________________
Name: Dr. Peter Young
Title: Shareholder
Acknowledged and agreed:
SDS MERCHANT FUND, L.P.
By:_________________________________
Name: Steve Derby
Title: Managing Member
BRISTOL INVESTMENT FUND, LTD.
By:_________________________________
Name: Paul Kessler
Title: Director
EXHIBIT I
FORM OF REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of January 7, 2003, by and among Cel-Sci Corporation, a Colorado
corporation (the "Company"), and the purchasers listed on Schedule I hereto (the
"Purchasers").
This Agreement is being entered into pursuant to the Note and
Warrant Purchase Agreement, dated as of the date hereof among the Company and
the Purchasers (the "Purchase Agreement").
The Company and the Purchasers hereby agree as follows:
1. Definitions.
Capitalized terms used and not otherwise defined herein shall have
the meanings given such terms in the Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:
"Advice" shall have meaning set forth in Section 3(m).
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "control," when used with
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.
"Board" shall have meaning set forth in Section 3(n).
"Business Day" means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
state of New York generally are authorized or required by law or other
government actions to close.
"Closing Date" means the date of the closing of the purchase and
sale of the Notes and Warrant Shares pursuant to the Purchase Agreement.
"Commission" means the Securities and Exchange Commission.
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"Common Stock" means the Company's Common Stock, par value $0.001
per share.
"Effectiveness Date" means with respect to the Registration
Statement the earlier of the 90th day following the Initial Closing Date or the
date which is within five (5) days of the date on which the Commission informs
the Company that the Commission (i) will not review the Registration Statement
or (ii) that the Company may request the acceleration of the effectiveness of
the Registration Statement and the Company makes such request.
"Effectiveness Period" shall have the meaning set forth in Section
2.
"Event" shall have the meaning set forth in Section 7(e).
"Event Date" shall have the meaning set forth in Section 7(e).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Filing Date" means the 20th day following the Initial Closing Date.
"Holder" or "Holders" means the holder or holders, as the case may
be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section
5(c).
"Indemnifying Party" shall have the meaning set forth in Section
5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference in such Prospectus.
"Registrable Securities" means the shares of Common Stock issuable
upon conversion of the Notes and the shares of Common Stock issuable upon
exercise of the Warrants; provided, however, that Registrable Securities shall
include (but not be limited to) a number of shares of Common Stock equal to no
less than 200% of the maximum number of shares of Common Stock which would be
issuable upon conversion of the Notes and upon exercise of the Warrants,
assuming such conversion and exercise occurred on the Closing Date or the Filing
Date, whichever date would result in the greater number of Registrable
Securities. Such registered shares of Common Stock shall be allocated among the
Holders pro rata based on the total number of Registrable Securities issued or
issuable as of each date that a Registration Statement, as amended, relating to
the resale of the Registrable Securities is declared effective by the
Commission. Notwithstanding anything herein contained to the contrary, if the
actual number of shares of Common Stock issuable upon conversion of the Notes
and upon exercise of the Warrants exceeds 200% of the number of shares of Common
Stock issuable upon conversion of the Notes and upon exercise of the Warrants
based upon a computation as at the Closing Date or the Filing Date, the term
"Registrable Securities" shall be deemed to include such additional shares of
Common Stock.
"Registration Statement" means the registration statements and any
additional registration statements contemplated by Section 2, including (in each
case) the Prospectus, amendments and supplements to such registration statement
or Prospectus, including pre- and post-effective amendments, all exhibits
thereto, and all material incorporated by reference in such registration
statement.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
"Special Counsel" means any special counsel to the Holders, for
which the Holders will be reimbursed by the Company pursuant to Section 4.
2. Shelf Registration.
On or prior to the Filing Date the Company shall prepare and file
with the Commission a "shelf" Registration Statement covering all Registrable
Securities for an offering to be made on a continuous basis pursuant to Rule
415. The Registration Statement 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 in
accordance herewith). The Company shall (i) not permit any securities other than
the Registrable Securities to be included in the Registration Statement and (ii)
use its best efforts to cause the Registration Statement to be declared
effective under the Securities Act as promptly as possible after the filing
thereof, but in any event prior to the Effectiveness Date, and to keep such
Registration Statement continuously effective under the Securities Act until
such date as is the earlier of (x) the date when all Registrable Securities
covered by such Registration Statement have been sold or (y) the date on which
the Registrable Securities may be sold without any restriction pursuant to Rule
144 as determined by the counsel to the Company pursuant to a written opinion
letter, addressed to the Company's transfer agent to such effect (the
"Effectiveness Period"). If at any time and for any reason, an additional
Registration Statement is required to be filed because at such time the actual
number of shares of Common Stock into which the Notes are convertible and the
Warrants are exercisable exceeds the number of shares of Registrable Securities
remaining under the Registration Statement, the Company shall have twenty (20)
Business Days to file such additional Registration Statement, and the Company
shall use its best efforts to cause such additional Registration Statement to be
declared effective by the Commission as soon as possible, but in no event later
than forty-five (45) days after filing. If at such time in the reasonable
opinion of the Purchasers there is not or will not be a sufficient number of
Registrable Securities to be issued upon conversion of the principal amount of
the Notes then outstanding, or upon the exercise of the Warrants then
outstanding, the Purchasers shall be entitled to demand that the Company prepare
and file an additional Registration Statement.
3. Registration Procedures.
In connection with the Company's registration obligations hereunder,
the Company shall:
(a) Prepare and file with the Commission on or prior to the Filing
Date, a Registration Statement on Form S-3 (or if the Company is not then
eligible to register for resale the Registrable Securities on Form S-3 such
registration shall be on another appropriate form in accordance herewith) in
accordance with the method or methods of distribution thereof as specified by
the Holders (except if otherwise directed by the Holders), and cause the
Registration Statement to become effective and remain effective as provided
herein; provided, however, that not less than five (5) Business Days prior to
the filing of the Registration Statement or any related Prospectus or any
amendment or supplement thereto (including any document that would be
incorporated therein by reference), the Company shall (i) furnish to the Holders
and any Special Counsel, copies of all such documents proposed to be filed,
which documents (other than those incorporated by reference) will be subject to
the review of such Holders and such Special Counsel, and (ii) cause its officers
and directors, counsel and independent certified public accountants to respond
to such inquiries as shall be necessary, in the reasonable opinion of counsel to
such Holders, to conduct a reasonable investigation within the meaning of the
Securities Act. The Company shall not file the Registration Statement or any
such Prospectus or any amendments or supplements thereto to which the Holders of
a majority of the Registrable Securities or any Special Counsel shall reasonably
object in writing within three (3) Business Days of their receipt thereof.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective as to the
applicable Registrable Securities for the Effectiveness Period and prepare and
file with the Commission such additional Registration Statements in order to
register for resale under the Securities Act all of the Registrable Securities;
(ii) cause the related Prospectus to be amended or supplemented by any required
Prospectus supplement, and as so supplemented or amended to be filed pursuant to
Rule 424 (or any similar provisions then in force) promulgated under the
Securities Act; (iii) respond as promptly as possible, but in no event later
than ten (10) business days, to any comments received from the Commission with
respect to the Registration Statement or any amendment thereto and as promptly
as possible provide the Holders true and complete copies of all correspondence
from and to the Commission relating to the Registration Statement; and (iv)
comply in all material respects with the provisions of the Securities Act and
the Exchange Act with respect to the disposition of all Registrable Securities
covered by the Registration Statement during the applicable period in accordance
with the intended methods of disposition by the Holders thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold and any
Special Counsel as promptly as possible (and, in the case of (i)(A) below, not
less than five (5) days prior to such filing) and (if requested by any such
Person) confirm such notice in writing no later than one (1) Business Day
following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to the Registration Statement is filed; (B) when the
Commission notifies the Company whether there will be a "review" of such
Registration Statement and whenever the Commission comments in writing on such
Registration Statement and (C) with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time any of the representations and warranties of the
Company contained in any agreement contemplated hereby ceases to be true and
correct in all material respects; (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (vi) of the occurrence of any event that makes any statement made
in the Registration Statement or Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
(d) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of, (i) any order suspending the effectiveness of the
Registration Statement or (ii) any suspension of the qualification (or exemption
from qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.
(e) If requested by the Holders of a majority in interest of the
Registrable Securities, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the Registration Statement such information as the
Company reasonably agrees should be included therein and (ii) make all required
filings of such Prospectus supplement or such post-effective amendment as soon
as practicable after the Company has received notification of the matters to be
incorporated in such Prospectus supplement or post-effective amendment.
(f) Furnish to each Holder and any Special Counsel, without charge,
at least one conformed copy of each Registration Statement and each amendment
thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference, and all exhibits
to the extent requested by such Person (including those previously furnished or
incorporated by reference) promptly after the filing of such documents with the
Commission.
(g) Promptly deliver to each Holder and any Special Counsel, without
charge, as many copies of the Prospectus or Prospectuses (including each form of
prospectus) and each amendment or supplement thereto as such Persons may
reasonably request; and the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders in connection with the offering and sale of the Registrable Securities
covered by such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities, use its
best efforts to register or qualify or cooperate with the selling Holders and
any Special Counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any Holder requests in writing, to
keep each such registration or qualification (or exemption therefrom) effective
during the Effectiveness Period and to do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by a Registration Statement; provided, however,
that the Company shall not be required to qualify generally to do business in
any jurisdiction where it is not then so qualified or to take any action that
would subject it to general service of process in any such jurisdiction where it
is not then so subject or subject the Company to any material tax in any such
jurisdiction where it is not then so subject.
(i) Cooperate with the Holders to facilitate the timely preparation
and delivery of certificates representing Registrable Securities to be sold
pursuant to a Registration Statement, which certificates shall be free of all
restrictive legends, and to enable such Registrable Securities to be in such
denominations and registered in such names as any Holder may request at least
two (2) Business Days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section
3(c)(vi), as promptly as possible, prepare a supplement or amendment, including
a post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
(k) Use its best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on the American Stock
Exchange, OTC Bulletin Board or any other securities exchange, quotation system
or market, if any, on which similar securities issued by the Company are then
listed as and when required pursuant to the Purchase Agreement.
(l) Comply in all material respects with all applicable rules and
regulations of the Commission and make generally available to its security
holders earning statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 not later than 45 days after the end of any 12-month
period (or 90 days after the end of any 12-month period if such period is a
fiscal year) commencing on the first day of the first fiscal quarter of the
Company after the effective date of the Registration Statement, which statement
shall conform to the requirements of Rule 158.
(m) The Company may require each selling Holder to furnish to the
Company information regarding such Holder and the distribution of such
Registrable Securities as is required by law to be disclosed in the Registration
Statement, and the Company may exclude from such registration the Registrable
Securities of any such Holder who unreasonably fails to furnish such information
within a reasonable time after receiving such request.
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (if such reference to such Holder by name or otherwise
is not required by the Securities Act or any similar federal statute then in
force) the deletion of the reference to such Holder in any amendment or
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
Each Holder covenants and agrees that (i) it will not sell any
Registrable Securities under the Registration Statement until it has received
copies of the Prospectus as then amended or supplemented as contemplated in
Section 3(g) and notice from the Company that such Registration Statement and
any post-effective amendments thereto have become effective as contemplated by
Section 3(c) and (ii) it and its officers, directors or Affiliates, if any, will
comply with the prospectus delivery requirements of the Securities Act as
applicable to them in connection with sales of Registrable Securities pursuant
to the Registration Statement.
Each Holder agrees by its acquisition of such Registrable Securities
that, upon receipt of a notice from the Company of the occurrence of any event
of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or
3(c)(vi), such Holder will forthwith discontinue disposition of such Registrable
Securities under the Registration Statement until such Holder's receipt of the
copies of the supplemented Prospectus and/or amended Registration Statement
contemplated by Section 3(j), or until it is advised in writing (the "Advice")
by the Company that the use of the applicable Prospectus may be resumed, and, in
either case, has received copies of any additional or supplemental filings that
are incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement.
(n) If (i) there is material non-public information regarding the
Company which the Company's Board of Directors (the "Board") reasonably
determines not to be in the Company's best interest to disclose and which the
Company is not otherwise required to disclose, or (ii) there is a significant
business opportunity (including, but not limited to, the acquisition or
disposition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer or other similar transaction) available to
the Company which the Board reasonably determines not to be in the Company's
best interest to disclose, then the Company may postpone or suspend filing or
effectiveness of a registration statement for a period not to exceed 20
consecutive days, provided that the Company may not postpone or suspend its
obligation under this Section 3(n) for more than 45 days in the aggregate during
any 12 month period; provided, however, that no such postponement or suspension
shall be permitted for consecutive 20 day periods, arising out of the same set
of facts, circumstances or transactions.
4. Registration Expenses.
All fees and expenses incident to the performance of or compliance
with this Agreement by the Company, except as and to the extent specified in
Section 4, shall be borne by the Company whether or not the Registration
Statement is filed or becomes effective and whether or not any Registrable
Securities are sold pursuant to the Registration Statement. The fees and
expenses referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including, without limitation,
fees and expenses (A) with respect to filings required to be made with the
American Stock Exchange and each other securities exchange or market on which
Registrable Securities are required hereunder to be listed, (B) with respect to
filings required to be made with the National Association of Securities Dealers,
Inc. and the NASD Regulation, Inc. and (C) in compliance with state securities
or Blue Sky laws (including, without limitation, fees and disbursements of
counsel for the Holders in connection with Blue Sky qualifications of the
Registrable Securities and determination of the eligibility of the Registrable
Securities for investment under the laws of such jurisdictions as the Holders of
a majority of Registrable Securities may designate)), (ii) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses if the printing of
prospectuses is requested by the holders of a majority of the Registrable
Securities included in the Registration Statement), (iii) messenger, telephone
and delivery expenses, (iv) fees and disbursements of counsel for the Company
and Special Counsel for the Holders, in the case of the Special Counsel, to a
maximum amount of $5,000, (v) Securities Act liability insurance, if the Company
so desires such insurance, and (vi) fees and expenses of all other Persons
retained by the Company in connection with the consummation of the transactions
contemplated by this Agreement, including, without limitation, the Company's
independent public accountants (including the expenses of any comfort letters or
costs associated with the delivery by independent public accountants of a
comfort letter or comfort letters). In addition, the Company shall be
responsible for all of its internal expenses incurred in connection with the
consummation of the transactions contemplated by this Agreement (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, the
fees and expenses incurred in connection with the listing of the Registrable
Securities on any securities exchange as required hereunder.
5. Indemnification.
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents, brokers (including brokers who
offer and sell Registrable Securities as principal as a result of a pledge or
any failure to perform under a margin call of Common Stock), investment advisors
and employees of each of them, each Person who controls any such Holder (within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act) and the officers, directors, agents and employees of each such controlling
Person, to the fullest extent permitted by applicable law, from and against any
and all losses, claims, damages, liabilities, costs (including, without
limitation, costs of preparation and attorneys' fees) and expenses
(collectively, "Losses"), as incurred, arising out of or relating to any untrue
or alleged untrue statement of a material fact contained in the Registration
Statement, any Prospectus or any form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in the light of the
circumstances under which they were made) not misleading, except to the extent,
but only to the extent, that such untrue statements or omissions are based
solely upon information regarding such Holder or such other Indemnified Party
furnished in writing to the Company by such Holder expressly for use therein,
which information was reasonably relied on by the Company for use therein or to
the extent that such information relates to such Holder or such Holder's
proposed method of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Holder expressly for use in the
Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto. The Company shall notify the Holders promptly
of the institution, threat or assertion of any Proceeding of which the Company
is aware in connection with the transactions contemplated by this Agreement.
(b) Indemnification by Holders. Each Holder shall, severally and not
jointly, indemnify and hold harmless the Company, the directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review), as incurred, arising solely out of or based solely upon
any untrue statement of a material fact contained in the Registration Statement,
any Prospectus, or any form of prospectus, or arising solely out of or based
solely upon any omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or form
of prospectus or supplement thereto, in the light of the circumstances under
which they were made) not misleading, to the extent, but only to the extent,
that such untrue statement or omission is contained in any information so
furnished in writing by such Holder or other Indemnified Party to the Company
specifically for inclusion in the Registration Statement or such Prospectus and
that such information was reasonably relied upon by the Company for use in the
Registration Statement, such Prospectus or such form of prospectus or to the
extent that such information relates to such Holder or such Holder's proposed
method of distribution of Registrable Securities and was reviewed and expressly
approved in writing by such Holder expressly for use in the Registration
Statement, such Prospectus or such form of Prospectus.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall
be brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party promptly shall notify the Person
from whom indemnity is sought (the "Indemnifying Party) in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel (which shall be reasonably acceptable to the
Indemnifying Party) that a conflict of interest is likely to exist if the same
counsel were to represent such Indemnified Party and the Indemnifying Party (in
which case, if such Indemnified Party notifies the Indemnifying Party in writing
that it elects to employ separate counsel at the expense of the Indemnifying
Party, the Indemnifying Party shall not have the right to assume the defense
thereof and such counsel shall be at the expense of the Indemnifying Party). The
Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not be unreasonably
withheld or delayed. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any pending
Proceeding in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from all
liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within ten (10)
Business Days of written notice thereof to the Indemnifying Party (regardless of
whether it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section 5(a)
or 5(b) is unavailable to an Indemnified Party because of a failure or refusal
of a governmental authority to enforce such indemnification in accordance with
its terms (by reason of public policy or otherwise), then each Indemnifying
Party, in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such Losses, in
such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party and Indemnified Party in connection with the actions,
statements or omissions that resulted in such Losses as well as any other
relevant equitable considerations. The relative fault of such Indemnifying Party
and Indemnified Party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission of a material fact, has been
taken or made by, or relates to information supplied by, such Indemnifying,
Party or Indemnified Party, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such action, statement or
omission. The amount paid or payable by a party as a result of any Losses shall
be deemed to include, subject to the limitations set forth in Section 5(c), any
reasonable attorneys' or other reasonable fees or expenses incurred by such
party in connection with any Proceeding to the extent such party would have been
indemnified for such fees or expenses if the indemnification provided for in
this Section was available to such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section
are in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties
6. Rule 144.
As long as any Holder owns Shares, Conversion Shares, Warrants or
Warrant Shares, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to Section
13(a) or 15(d) of the Exchange Act and to promptly furnish the Holders with true
and complete copies of all such filings. As long as any Holder owns Shares,
Conversion Shares, Warrants or Warrant Shares, if the Company is not required to
file reports pursuant to Section 13(a) or 15(d) of the Exchange Act, it will
prepare and furnish to the Holders and make publicly available in accordance
with Rule 144(c) promulgated under the Securities Act annual and quarterly
financial statements, together with a discussion and analysis of such financial
statements in form and substance substantially similar to those that would
otherwise be required to be included in reports required by Section 13(a) or
15(d) of the Exchange Act, as well as any other information required thereby, in
the time period that such filings would have been required to have been made
under the Exchange Act. The Company further covenants that it will take such
further action as any Holder may reasonably request, all to the extent required
from time to time to enable such Person to sell Conversion Shares and Warrant
Shares without registration under the Securities Act within the limitation of
the exemptions provided by Rule 144 promulgated under the Securities Act,
including providing any legal opinions relating to such sale pursuant to Rule
144. Upon the request of any Holder, the Company shall deliver to such Holder a
written certification of a duly authorized officer as to whether it has complied
with such requirements.
7. Miscellaneous.
(a) Remedies. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any of its
subsidiaries has, as of the date hereof entered into and currently in effect,
nor shall the Company or any of its subsidiaries, on or after the date of this
Agreement, enter into any agreement with respect to its securities that is
inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof. Except as disclosed in Schedule
2.1(c) of the Purchase Agreement, neither the Company nor any of its
subsidiaries has previously entered into any agreement currently in effect
granting any registration rights with respect to any of its securities to any
Person. Without limiting the generality of the foregoing, without the written
consent of the Holders of a majority of the then outstanding Registrable
Securities, the Company shall not grant to any Person the right to request the
Company to register any securities of the Company under the Securities Act
unless the rights so granted are subject in all respects to the prior rights in
full of the Holders set forth herein, and are not otherwise in conflict with the
provisions of this Agreement.
(c) No Piggyback on Registrations. Neither the Company nor any of
its security holders (other than the Holders in such capacity pursuant hereto or
as disclosed in Schedule 2.1(c) of the Purchase Agreement) may include
securities of the Company in the Registration Statement, and the Company shall
not after the date hereof enter into any agreement providing such right to any
of its securityholders, unless the right so granted is subject in all respects
to the prior rights in full of the Holders set forth herein, and is not
otherwise in conflict with the provisions of this Agreement.
(d) Piggy-Back Registrations. If at any time when there is not an
effective Registration Statement covering (i) Conversion Shares or (ii) Warrant
Shares, the Company shall determine to prepare and file with the Commission a
registration statement relating to an offering for its own account or the
account of others under the Securities Act of any of its equity securities,
other than on Form S-4 or Form S-8 (each as promulgated under the Securities
Act) or their then equivalents relating to equity securities to be issued solely
in connection with any acquisition of any entity or business or equity
securities issuable in connection with stock option or other employee benefit
plans, the Company shall send to each holder of Registrable Securities written
notice of such determination and, if within thirty (30) days after receipt of
such notice, any such holder shall so request in writing, (which request shall
specify the Registrable Securities intended to be disposed of by the
Purchasers), the Company will cause the registration under the Securities Act of
all Registrable Securities which the Company has been so requested to register
by the holder, to the extent requisite to permit the disposition of the
Registrable Securities so to be registered, provided that if at any time after
giving written notice of its intention to register any securities and prior to
the effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register or to
delay registration of such securities, the Company may, at its election, give
written notice of such determination to such holder and, thereupon, (i) in the
case of a determination not to register, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration (but
not from its obligation to pay expenses in accordance with Section 4 hereof),
and (ii) in the case of a determination to delay registering, shall be permitted
to delay registering any Registrable Securities being registered pursuant to
this Section 7(d) for the same period as the delay in registering such other
securities. The Company shall include in such registration statement all or any
part of such Registrable Securities such holder requests to be registered;
provided, however, that the Company shall not be required to register any
Registrable Securities pursuant to this Section 7(d) that are eligible for sale
pursuant to Rule 144(k) of the Securities Act. In the case of an underwritten
public offering, if the managing underwriter(s) or underwriter(s) should
reasonably object to the inclusion of the Registrable Securities in such
registration statement, then if the Company after consultation with the managing
underwriter should reasonably determine that the inclusion of such Registrable
Securities, would materially adversely affect the offering contemplated in such
registration statement, and based on such determination recommends inclusion in
such registration statement of fewer or none of the Registrable Securities of
the Holders, then (x) the number of Registrable Securities of the Holders
included in such registration statement shall be reduced pro-rata among such
Holders (based upon the number of Registrable Securities requested to be
included in the registration), if the Company after consultation with the
underwriter(s) recommends the inclusion of fewer Registrable Securities, or (y)
none of the Registrable Securities of the Holders shall be included in such
registration statement, if the Company after consultation with the
underwriter(s) recommends the inclusion of none of such Registrable Securities;
provided, however, that if Securities are being offered for the account of other
persons or entities as well as the Company, such reduction shall not represent a
greater fraction of the number of Registrable Securities intended to be offered
by the Holders than the fraction of similar reductions imposed on such other
persons or entities (other than the Company).
(e) Failure to File Registration Statement and Other Events. The
Company and the Purchasers agree that the Holders will suffer damages if the
Registration Statement is not filed on or prior to the Filing Date and not
declared effective by the Commission on or prior to the Effectiveness Date and
maintained in the manner contemplated herein during the Effectiveness Time or if
certain other events occur. The Company and the Holders further agree that it
would not be feasible to ascertain the extent of such damages with precision.
Accordingly, if (A) the Registration Statement is not filed on or prior to the
Filing Date, or is not declared effective by the Commission on or prior to the
Effectiveness Date (or in the event an additional Registration Statement is
filed because the actual number of shares of Common Stock into which the Notes
are convertible and the Warrants are exercisable exceeds the number of shares of
Common Stock initially registered is not filed and declared effective with the
time periods set forth in Section 2), or (B) the Company fails to file with the
Commission a request for acceleration in accordance with Rule 461 promulgated
under the Securities Act within five (5) Business Days of the date that the
Company is notified (orally or in writing, whichever is earlier) by the
Commission that a Registration Statement will not be "reviewed," or not subject
to further review, or (C) the Registration Statement is filed with and declared
effective by the Commission but thereafter ceases to be effective as to all
Registrable Securities at any time prior to the expiration of the Effectiveness
Period, without being succeeded immediately by a subsequent Registration
Statement filed with and declared effective by the Commission, or (D) trading in
the Common Stock shall be suspended or if the Common Stock is delisted from the
American Stock Exchange or the OTC Bulletin Board for any reason for more than
three Business Days in the aggregate, or (E) the conversion rights of the
Holders are suspended for any reason, or (F) the Company breaches in a material
respect any covenant or other material term or condition to this Agreement, the
Security Agreement, the Purchase Agreement (other than a representation or
warranty contained therein) or any other agreement, document, certificate or
other instrument delivered in connection with the transactions contemplated
hereby and thereby, and such breach continues for a period of thirty days after
written notice thereof to the Company, or (G) the Company has breached Section
3(n) (any such failure or breach being referred to as an "Event," and for
purposes of clauses (A) and (E) the date on which such Event occurs, or for
purposes of clause (B) the date on which such five day period is exceeded, or
for purposes of clause (C) after more than fifteen Business Days, or for
purposes of clause (D) the date on which such three Business Day period is
exceeded, or for clause (F) the date on which such thirty day period is
exceeded, being referred to as "Event Date"), the Company shall pay, at the
option of the Holder, an amount in cash or shares of Common Stock, as liquidated
damages to each Holder equal to 2% for the first calendar month and 3% per
calendar month thereafter or portion thereof of the principal amount of the
Notes held by such Holder plus the principal amount of any Notes that have been
converted to the extent any of the Conversion Shares issued upon such conversion
have not been sold from the Event Date until the applicable Event is cured.
Payments to be made pursuant to this Section 7(e) shall be due and payable
immediately upon demand in immediately available funds. If the Holder elects to
be paid in shares of Common Stock, the number of such shares of Common Stock
shall be based on the liquidated damage amount divided by the Conversion Price
(as defined in the Notes).
(f) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and each of the Holders. Notwithstanding the foregoing, a waiver or consent to
depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of Holders and that does not directly or indirectly
affect the rights of other Holders may be given by Holders of at least a
majority of the Registrable Securities to which such waiver or consent relates;
provided, however, that the provisions of this sentence may not be amended,
modified, or supplemented except in accordance with the provisions of the
immediately preceding sentence.
(g) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earlier of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified for notice prior to 5:00 p.m., New York
City time, on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified for notice later than 5:00 p.m., New York
City time, on any date and earlier than 11:59 p.m., New York City time, on such
date, (iii) the Business Day following the date of mailing, if sent by
nationally recognized overnight courier service or (iv) actual receipt by the
party to whom such notice is required to be given. The addresses for such
communications shall be with respect to each Holder at its address set forth
under its name on Schedule 1 attached hereto, or with respect to the Company,
addressed to:
Cel-Sci Corporation
8229 Boone Boulevard
Suite 802
Vienna, Virginia 22182
Attention: Geert Kersten
Telecopier: (703) 506-9460
Telephone: (703) 506-9471
or to such other address or addresses or facsimile number or numbers as any
such party may most recently have designated in writing to the other parties
hereto by such notice. Copies of notices to the Company shall be sent to
Hart & Trinen L.L.P., 1624 Washington Street, Denver, Colorado 80203,
Attention: William T. Hart, Esq., Facsimile No.: (303) 839-5414.
(h) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns
and shall inure to the benefit of each Holder and its successors and assigns.
The Company may not assign this Agreement or any of its rights or obligations
hereunder without the prior written consent of each Holder. Each Purchaser may
assign its rights hereunder in the manner and to the Persons as permitted under
the Purchase Agreement.
(i) Assignment of Registration Rights. The rights of each Holder
hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall be
automatically assignable by each Holder to any Affiliate of such Holder or any
other Holder or Affiliate of any other Holder of all or a portion of the Notes
or the Registrable Securities if: (i) the Holder agrees in writing with the
transferee or assignee to assign such rights, and a copy of such agreement is
furnished to the Company within a reasonable time after such assignment, (ii)
the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (a) the name and address of such transferee or
assignee, and (b) the securities with respect to which such registration rights
are being transferred or assigned, (iii) following such transfer or assignment
the further disposition of such securities by the transferee or assignees is
restricted under the Securities Act and applicable state securities laws, (iv)
at or before the time the Company receives the written notice contemplated by
clause (ii) of this Section, the transferee or assignee agrees in writing with
the Company to be bound by all of the provisions of this Agreement, (v) such
transfer shall have been made in accordance with the applicable requirements of
the Purchase Agreement, and (vi) at least 100,000 shares of Registrable
Securities (appropriately adjusted for any stock dividend, split or combination
of the Common Stock) are being transferred to such transferee or assignee in
connection with such assignment of rights. In addition, each Holder shall have
the right to assign its rights hereunder to any other Person with the prior
written consent of the Company, which consent shall not be unreasonably
withheld. The rights to assignment shall apply to the Holders (and to
subsequent) successors and assigns.
(j) Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.
(k) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without regard to
principles of conflicts of law thereof.
(l) Cumulative Remedies. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.
(m) Severability. If any term, provision, covenant or restriction of
this Agreement is held to be invalid, illegal, void or unenforceable in any
respect, the remainder of the terms, provisions, covenants and restrictions set
forth herein shall remain in full force and effect and shall in no way be
affected, impaired or invalidated, and the parties hereto shall use their
reasonable efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(n) Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
(o) Shares Held by the Company and its Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than any Holder or transferees or successors or assigns
thereof if such Holder is deemed to be an Affiliate solely by reason of its
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed by their respective authorized persons as
of the date first indicated above.
CEL-SCI CORPORATION
By:_____________________________________
Name: Geert R. Kersten
Title: Chief Executive Officer
SDS MERCHANT FUND, L.P.
By:_____________________________________
Name: Steve Derby
Title: Managing Member
BRISTOL INVESTMENT FUND, LTD.
By:_____________________________________
Name: Paul Kessler
Title: Director
Schedule I
SDS Merchant Fund, L.P.
c/o SDS Capital Partners, LLC
53 Forest Avenue, Second Floor
Old Greenwich, CT 06870
Attention: Steve Derby
Fax no.: (203) 967-5851
Bristol Investment Fund, Ltd.
Caledonian House
Jennett Street
Georgetown, Grand Cayman
Cayman Islands
Attention: Amy Wang, Esq.
Fax No: (323) 468-8307