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
- ---------------- ----------------- ------------------
Iroquois Master Fund Ltd. $2,000,000 1,162,791
641 Lexington Avenue, 26th Floor
New York, NY 10022
Smithfield Fiduciary $1,000,000 581,395
c/o Highbridge Capital Management LLC
9 57th Street, 27th Floor
New York, NY 10019
Castlerigg Master Investments Ltd. $1,000,000 581,395
c/o Sandell Asset Management
40 West 57th Street, 26th Floor
New York, NY 10019
Portside Growth and Opportunities Fund $ 600,000 348,837
c/o Carmen
Hayes
Prime Brokerage Global Equity Finance
Citigroup Global Markets Inc.
390 Greenwich Street, 5th Floor
New York, NY 10013
Bristol Capital Advisors, LLC $ 600,000 348,837
10990 Wilshire Boulevard, Suite 1410
Los Angeles, CA 90024
Cranshire Capital, LP $ 500,000 290,698
3100 Dundee Rd, Suite 703
Northbrook, IL 60062
Rockmore Investment Master Fund Ltd $ 500,000 290,698
c/o Rockmore Capital
650 Firth Avenue, 24th Floor
New York, NY 10019
Longview Fund, LP $ 500,000 290,698
c/o Viking Asset Management
600 Montgomery St. 44th Floor
San Francisco, CA 94111
Nite Capital, LP $ 400,000 232,558
100 East Cook Avenue, Suite 201
Libertyville, IL 60048
Crescent International Ltd. $ 400,000 232,558
c/o Cantara (Switzerland) SA
84 Av. Louis - Casai CH1216
COINTRIN
Switzerland
Truk Opportunity Fund, LP $ 364,000 211,628
c/o Atoll Asset Management, LLC
One East 52nd Street, 6th Floor
New York, NY 10011
Truk Opportunity International Fund, LP $ 36,000 20,930
c/o Atoll Asset Management, LLC
One East 52nd Street, 6th Floor
New York, NY 10011
RAQ LLC
c/o Paramount BioCapital Investments LLC $ 200,000 116,279
787 Seventh Avenue 48th Floor,
New York, NY 10017
Paragon Capital LP $ 200,000 116,279
110 East 59th Street 29th Floor
New York, NY 10022
Maturity date of convertible notes: August 4, 2011
Original conversion price of notes: $0.86
Original issue date of warrants: August 4, 2006
Exercise price of warrants: $0.95
Expiration date of warrants: February 4, 2012
EXECUTION COPY
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement is entered into and dated as of August
4, 2006 (this "Agreement"), by and among CEL-SCI Corporation, a Colorado
corporation (the "Company"), and each of the purchasers identified on the
signature pages hereto (each, a "Purchaser" and collectively, the "Purchasers").
WHEREAS, subject to the terms and conditions set forth in this Agreement
and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act"), and Rule 506 promulgated thereunder, the Company desires to
issue and sell to each Purchaser, and each Purchaser, severally and not jointly,
desires to purchase from the Company, certain securities of the Company pursuant
to the terms set forth herein.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser,
severally and not jointly, agree as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, the following terms shall have the meanings set forth in this Section
1.1:
"Affiliate" means any Person that, directly or indirectly through
one or more intermediaries, controls or is controlled by or is under common
control with a Person, as such terms are used in and construed under Rule 144
under the Securities Act. With respect to a Purchaser, any investment fund or
managed account that is managed on a discretionary basis by the same investment
manager as such Purchaser will be deemed to be an Affiliate of such Purchaser.
"Bankruptcy Event" means any of the following events: (a) the
Company or any Subsidiary commences a case or other proceeding under any
bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
relating to the Company or any Subsidiary thereof; (b) there is commenced
against the Company or any Subsidiary any such case or proceeding that is not
dismissed within 60 days after commencement; (c) the Company or any Subsidiary
is adjudicated insolvent or bankrupt or any order of relief or other order
approving any such case or proceeding is entered; (d) the Company or any
Subsidiary suffers any appointment of any custodian or the like for it or any
substantial part of its property that is not discharged or stayed within 60
days; (e) the Company or any Subsidiary makes a general assignment for the
benefit of creditors; (f) the Company or any Subsidiary fails to pay, or states
that it is unable to pay or is unable to pay, its debts generally as they become
due; (g) the Company or any Subsidiary calls a meeting of its creditors with a
view to arranging a composition, adjustment or restructuring of its debts; or
(h) the Company or any Subsidiary, by any act or failure to act, expressly
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indicates its consent to, approval of or acquiescence in any of the foregoing or
takes any corporate or other action for the purpose of effecting any of the
foregoing.
"Business Day" means any day except Saturday, Sunday and any day
which shall be a federal legal holiday or a day on which banking institutions in
the State of New York are authorized or required by law or other governmental
action to close.
"Change of Control" means the occurrence of any of the following in
one or a series of related transactions: (i) an acquisition after the date
hereof by an individual or legal entity or "group" (as described in Rule
13d-5(b)(1) under the Exchange Act) of more than one-third of the voting rights
or equity interests in the Company; (ii) a replacement of more than one-third of
the members of the Company's board of directors that is not approved by those
individuals who are members of the board of directors on the date hereof (or
other directors previously approved by such individuals); (iii) a merger or
consolidation of the Company or any Subsidiary or a sale of more than one-third
of the assets of the Company in one or a series of related transactions, unless
following such transaction or series of transactions, the holders of the
Company's securities prior to the first such transaction continue to hold at
least two-thirds of the voting rights and equity interests in of the surviving
entity or acquirer of such assets; (iv) a recapitalization, reorganization or
other transaction involving the Company or any Subsidiary that constitutes or
results in a transfer of more than one-third of the voting rights or equity
interests in the Company; (v) consummation of a "Rule 13e-3 transaction" as
defined in Rule 13e-3 under the Exchange Act with respect to the Company, or
(vi) the execution by the Company or its controlling shareholders of an
agreement providing for or reasonably likely to result in any of the foregoing
events.
"Closing" means the closing of the purchase and sale of the
Securities pursuant to Section 2.1.
"Closing Date" means the date of the Closing.
"Closing Price" means, for any date, the price determined by the
first of the following clauses that applies: (a) if the Common Stock is then
listed or quoted on an Eligible Market or any other national securities
exchange, the closing bid price per share of the Common Stock for such date (or
the nearest preceding date) on the primary Eligible Market or exchange on which
the Common Stock is then listed or quoted; (b) if prices for the Common Stock
are then quoted on the OTC Bulletin Board, the closing bid price per share of
the Common Stock for such date (or the nearest preceding date) so quoted; (c) if
prices for the Common Stock are then reported in the "Pink Sheets" published by
the National Quotation Bureau Incorporated (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent closing bid
price per share of the Common Stock so reported; or (d) in all other cases, the
fair market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by a majority in interest of the Purchasers.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock of the Company, par value
$0.01 per share, and any securities into which such common stock may hereafter
be reclassified.
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"Common Stock Equivalents" means, collectively, Options and
Convertible Securities.
"Company Counsel" means Hart & Trinen.
"Convertible Securities" means any stock or securities (other than
Options) convertible into or exercisable or exchangeable for Common Stock.
"Effective Date" means the date that the Registration Statement is
first declared effective by the Commission.
"Eligible Market" means any of the New York Stock Exchange, the
American Stock Exchange, the Nasdaq National Market and the Nasdaq Capital
Market.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Excluded Stock" means the issuance of Common Stock (A) upon
exercise or conversion of any options or other securities described in Schedule
3.1(g) (provided that such exercise or conversion occurs in accordance with the
terms thereof, without amendment or modification, and that the applicable
exercise or conversion price or ratio is described in such schedule); or (B) in
connection with any issuance of shares or grant of options to employees,
officers, directors or consultants of the Company pursuant to any stock option
plan or employee benefit plan described in Schedule 3.1(g) or hereafter adopted
by the Company and approved by its shareholders or in respect of the issuance of
Common Stock upon exercise of any such options, (C) pursuant to a bona fide firm
commitment underwritten public offering with a nationally recognized underwriter
(excluding any equity lines) in an aggregate offering amount greater than
$15,000,000, or (D) in connection with a bona fide joint venture, strategic
partnership, or strategic alliance the primary purpose of which is not to raise
cash.
"Filing Date" means the 40th day following the Closing Date with
respect to the initial Registration Statement required to be filed hereunder,
and, with respect to any additional Registration Statements that may be required
pursuant to Section 6.1(f), the 15th day following the date on which the Company
first knows, or reasonably should have known, that such additional Registration
Statement is required under such Section.
"Losses" means any and all losses, claims, damages, liabilities,
settlement costs and expenses, including without limitation costs of preparation
of legal action and reasonable attorneys' fees.
"Notes" means the Senior Secured Convertible Notes due August 4,
2011 with an aggregate principal face amount of $10,000,000 issued by the
Company to the Purchasers hereunder in the form of Exhibit A hereto.
"Options" means any rights, warrants or options to subscribe,
directly or indirectly for or purchase Common Stock or Convertible Securities.
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"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or 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 or deemed to be incorporated by reference in
such Prospectus.
"Purchaser Counsel" means Malhotra & Associates LLP, counsel to
Iroquois Master Fund, Ltd.
"Registrable Securities" means any Common Stock (including
Underlying Shares) issued or issuable pursuant to the Transaction Documents,
together with any securities issued or issuable upon any stock split, dividend
or other distribution, recapitalization or similar event with respect to the
foregoing.
"Registration Statement" means the initial registration statement
required to be filed under Article VI and any additional registration statements
contemplated by Section 6.1(f), 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 or deemed to be incorporated by reference in
such registration statement.
"Required Effectiveness Date" means (i) with respect to the initial
Registration Statement required to be filed hereunder, the 90th day following
the Closing Date, or if the initial Registration Statement is reviewed by the
Commission, the 120th day following the Closing Date, and (ii) with respect to
any additional Registration Statements that may be required pursuant to Section
6.1(f), the 60th day following the date on which the Company first knows, or
reasonably should have known, that such additional Registration Statement is
required under such Section.
"Rule 144," "Rule 415," and "Rule 424" means Rule 144, Rule 415 and
Rule 424, respectively, promulgated by the Commission pursuant to the Securities
Act, as such Rules 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" means the Notes, the Warrant and the Underlying Shares
issued or issuable (as applicable) to the applicable Purchaser pursuant to the
Transaction Documents.
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"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreement" means the Security Agreement dated as of the
Closing Date, among the Company, Iroquois Master Fund, Ltd., as agent, and the
Purchasers substantially in the form of Exhibit E.
"Subsidiary" means any subsidiary of the Company that is required
to be listed on Schedule 3.1(a).
"Trading Day" means (a) any day on which the Common Stock is listed
or quoted and traded on its primary Trading Market, or (b) if the Common Stock
is not then listed or quoted and traded on any Trading Market, then any Business
Day.
"Trading Market" means, the American Stock Exchange or any other
Eligible Market or any national securities exchange, market or trading or
quotation facility on which the Common Stock is then listed or quoted.
"Transaction Documents" means this Agreement, the Notes, the
Warrant, the Security Agreement, the Transfer Agent Instructions and any other
documents or agreements executed or delivered in connection with the
transactions contemplated hereby.
"Transfer Agent Instructions" means the Company's transfer agent
instructions in the form of Exhibit C.
"Underlying Shares" means the shares of Common Stock issuable (i)
upon conversion or redemption of the Notes, or as payment of interest or
principal on, the Notes, (ii) upon exercise of the Warrants, and (iii) in
satisfaction of any other obligation of the Company to issue shares of Common
Stock pursuant to the Transaction Documents, and in each case, any securities
issued or issuable in exchange for or in respect of such securities.
"VWAP" means on any particular Trading Day or for any particular
period the volume weighted average trading price per share of Common Stock on
such date or for such period on an Eligible Market as reported by Bloomberg
L.P., or any successor performing similar functions; provided, however, that
during any period the VWAP is being determined, the VWAP shall be subject to
adjustment from time to time for stock splits, stock dividends, combinations and
similar events as applicable.
"Warrant" means, collectively, the Common Stock warrants issued and
sold under this Agreement, in the form of Exhibit B.
ARTICLE II.
PURCHASE AND SALE
2.1 Closing. Subject to the terms and conditions set forth in this
Agreement, at the Closing, the Company shall issue and sell to each Purchaser,
and each Purchaser shall, severally and not jointly, purchase from the Company,
the Notes, the Warrant for the purchase price set forth on Schedule A hereto
under the heading "Purchase Price". The Closing shall take place at the offices
of Purchaser Counsel or at such other location or time as the parties may agree.
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2.2 Closing Deliveries.
(a) At the Closing, the Company shall deliver or cause to be delivered to
each Purchaser the following:
(i) a Note, registered in the name of such Purchaser, in the
principal amount indicated on Schedule A hereto under the heading "Note
Principal Amount";
(ii) a Warrant, registered in the name of such Purchaser,
pursuant to which such Purchaser shall have the right to acquire such number of
Underlying Shares indicated on Schedule A hereto under the heading "Warrant
Shares";
(iii) the legal opinion of Company Counsel, in the form of
Exhibit D, executed by such counsel and delivered to the Purchasers;
(iv) the Security Agreement, in the Form of Exhibit E, executed
by the parties thereto;
(v) copies of the Uniform Commercial Code financing statements
and other documents or agreements required by the Security Agreement with
respect to the security granted thereby, and evidence of the filing of such
financing statement, documents or agreements;
(vi) duly executed Transfer Agent Instructions acknowledged by
the Company's transfer agent; and
(vii) any other document reasonably requested by the Purchasers
or Purchaser Counsel.
(b) At the Closing, each Purchaser shall deliver or cause to be delivered
to the Company (i) the purchase price indicated below such Purchaser's name on
the signature page of this Agreement under the heading "Purchase Price", in
United States dollars and in immediately available funds, by wire transfer to an
account designated in writing by the Company for such purpose, and (ii) the
Security Agreement executed by such Purchaser.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. The Company hereby makes
the following representations and warranties to the Purchasers:
(a) Subsidiaries. The Company does not directly or indirectly control or
own any interest in any other corporation, partnership, joint venture or other
business association or entity (a "Subsidiary"), other than those listed in
Schedule 3.1(a). Except as disclosed in Schedule 3.1(a), the Company owns,
directly or indirectly, all of the capital stock or comparable equity interests
of each Subsidiary free and clear of any lien, charge, claim, security interest,
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encumbrance, right of first refusal or other restriction (collectively,
"Liens"), and all the issued and outstanding shares of capital stock or
comparable equity interests of each Subsidiary are validly issued and are fully
paid, non-assessable and free of preemptive and similar rights.
(b) Organization and Qualification. Each of the Company and the
Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. Neither the Company nor any Subsidiary is in violation
of any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents. Each of the
Company and the Subsidiaries is duly qualified to conduct business and is in
good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not, individually or in the aggregate, (i)
adversely affect the legality, validity or enforceability of any Transaction
Document, (ii) have or result in a material adverse effect on the results of
operations, assets, prospects, business or condition (financial or otherwise) of
the Company and the Subsidiaries, taken as a whole, or (iii) adversely impair
the Company's ability to perform fully on a timely basis its obligations under
any Transaction Document (any of (i), (ii) or (iii), a "Material Adverse
Effect").
(c) Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated hereunder and thereunder have been duly authorized by
all necessary action on the part of the Company and no further consent or action
is required by the Company, its Board of Directors or its stockholders. Each
Transaction Document has been (or upon delivery will be) duly executed by the
Company is, or when delivered in accordance with the terms hereof, will
constitute, the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms. Neither the Company nor any Subsidiary
is in violation of any of the provisions of its certificate or articles of
incorporation, by laws or other organizational or charter documents.
(d) 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) conflict
with or violate any provision of the Company's or any Subsidiary's certificate
or articles of incorporation, bylaws or other organizational or charter
documents, or (ii) conflict with, or constitute a default (or an event that 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 (with or
without notice, lapse of time or both) of, any agreement, credit facility, debt
or other instrument (evidencing a Company or Subsidiary debt or otherwise) or
other understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including federal and
state securities laws and regulations and the rules and regulations of any
self-regulatory organization to which the Company or its securities are
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subject), or by which any property or asset of the Company or a Subsidiary is
bound or affected; except in each case as, individually or in the aggregate, do
not have or are not reasonably be expected to result in a Material Adverse
Effect.
(e) Filings, Consents and Approvals. The Company is not required to obtain
any consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other than
(i) the filing with the Commission of a Form 8-K Current Report, (ii) the filing
with the Commission of the Registration Statement, (iii) the application(s) to
each Trading Market for the listing of the Underlying Shares for trading
thereon, (iv) the notification to the Trading Market of the change in the number
of shares outstanding, and (v) applicable Blue Sky filings (collectively, the
"Required Approvals").
(f) Issuance of the Securities. The Securities are duly authorized and,
when issued and paid for in accordance with the Transaction Documents, will be
duly and validly issued, fully paid and nonassessable, free and clear of all
Liens (other than restrictions under applicable securities laws), and shall not
be subject to preemptive rights or similar rights of shareholders. The
Securities are issued in compliance with applicable securities laws, rules and
regulations. The Company has reserved from its duly authorized capital stock the
maximum number of shares of Common Stock issuable under the Transaction
Documents.
(g) Capitalization. The number of shares and type of all authorized, issued
and outstanding capital stock, options and other securities of the Company
(whether or not presently convertible into or exercisable or exchangeable for
shares of capital stock of the Company) is set forth in Schedule 3.1(g). All
outstanding shares of capital stock are duly authorized, validly issued, fully
paid and nonassessable and have been issued in compliance with all applicable
securities laws. No securities of the Company are entitled to preemptive or
similar rights, and no Person has any right of first refusal, preemptive right,
right of participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents. Except as a result of the purchase
and sale of the Securities and except as disclosed in Schedule 3.1(g), there are
no outstanding options, warrants, script rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exchangeable for, or giving any Person any right
to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common Stock.
The issue and sale of the Securities will not obligate the Company to issue
shares of Common Stock or other securities to any Person (other than the
Purchasers) and will not result in a right of any holder of Company securities
to adjust the exercise, conversion, exchange or reset price under such
securities. To the knowledge of the Company, except as specifically disclosed in
Schedule 3.1(g), no Person or group of related Persons beneficially owns (as
determined pursuant to Rule 13d-3 under the Exchange Act), or has the right to
acquire, by agreement with or by obligation binding upon the Company, beneficial
ownership of in excess of 5% of the outstanding Common Stock, ignoring for such
purposes any limitation on the number of shares of Common Stock that may be
owned at any single time.
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(h) SEC Reports; Financial Statements. The Company has filed all reports
required to be filed by it under the Securities Act and the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was required by
law to file such material) (the foregoing materials being collectively referred
to herein as the "SEC Reports" and, together with the Schedules to this
Agreement, the "Disclosure Materials") on a timely basis or has received a valid
extension of such time of filing and has filed any such SEC Reports prior to the
expiration of any such extension. The Company has delivered to the Purchasers a
copy of all SEC Reports filed within the 10 days preceding the date hereof. As
of their respective dates, the SEC Reports complied in all material respects
with the requirements of the Securities Act and the Exchange Act and the rules
and regulations of the Commission promulgated thereunder, and none of the SEC
Reports, when filed, contained 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. The financial statements of the Company included
in the SEC Reports comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing. Such financial statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the periods involved ("GAAP"), except as may be
otherwise specified in such financial statements or the notes thereto, and
fairly present in all material respects the financial position of the Company
and its consolidated subsidiaries as of and for 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, immaterial, year-end audit adjustments.
All material agreements to which the Company or any Subsidiary is a party or to
which the property or assets of the Company or any Subsidiary are subject are
included as part of or specifically identified in the SEC Reports.
(i) Material Changes. Since the date of the latest audited financial
statements included within the Company's report on Form 10-Q for the three
months ended March 31, 2006, except as specifically disclosed on Schedule 3.1(i)
and the SEC Reports or in Schedule 3.1(i), (i) there has been no event,
occurrence or development that, individually or in the aggregate, has had or
that could result in a Material Adverse Effect, (ii) the Company has not
incurred any liabilities (contingent or otherwise) other than (A) trade payables
and accrued expenses incurred in the ordinary course of business consistent with
past practice and (B) liabilities not required to be reflected in the Company's
financial statements pursuant to GAAP or required to be disclosed in filings
made with the Commission, (iii) the Company has not altered its method of
accounting or the identity of its auditors, (iv) the Company has not declared or
made any dividend or distribution of cash or other property to its stockholders
or purchased, redeemed or made any agreements to purchase or redeem any shares
of its capital stock, and (v) the Company has not issued any equity securities
to any officer, director or Affiliate, except pursuant to existing Company stock
option plans. The Company does not have pending before the Commission any
request for confidential treatment of information.
(j) Absence of Litigation. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company, any Subsidiary or any of
their respective properties before or by any court, arbitrator, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) (collectively, an "Action") which (i) adversely affects or challenges
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the legality, validity or enforceability of any of the Transaction Documents or
the Securities or (ii) could, if there were an unfavorable decision,
individually or in the aggregate, have or result in a Material Adverse Effect.
Neither the Company nor any Subsidiary, nor any director or officer thereof, is
or has been the subject of any Action involving a claim of violation of or
liability under federal or state securities laws or a claim of breach of
fiduciary duty. There has not been, and to the knowledge of the Company, there
is not pending or contemplated, any investigation by the Commission involving
the Company or any current or former director or officer of the Company. The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.
(k) Employee Matters. Neither the Company nor any of the Subsidiaries is
engaged in any unfair labor practice (as defined in the National Labor Relations
Act); except for matters which would not, individually or in the aggregate, have
a Material Adverse Effect, (i) there is (A) no unfair labor practice complaint
pending or, to the Company's knowledge after due inquiry, threatened against the
Company or any of the Subsidiaries before the National Labor Relations Board,
and no grievance or arbitration proceeding arising out of or under collective
bargaining agreements is pending or threatened, (B) no strike, labor dispute,
slowdown or stoppage pending or, to the Company's knowledge, threatened against
the Company or any of the Subsidiaries and (C) no union representation dispute
currently existing concerning the employees of the Company or any of the
Subsidiaries, and (ii) to the Company's knowledge, there has been no violation
of any applicable federal, state, local or foreign law relating to
discrimination in the hiring, promotion or pay of employees, any applicable wage
or hour laws or any applicable provision of the Employee Retirement Income
Security Act of 1974 or the rules and regulations promulgated thereunder
concerning the employees of the Company or any of the Subsidiaries.
(l) Compliance. Neither the Company nor any Subsidiary (i) is in default
under or in violation of (and no event has occurred that has not been waived
that, with notice or lapse of time or both, would result in a default by the
Company or any Subsidiary under), nor has the Company or any Subsidiary received
notice of a claim that it is in default under or that it is in violation of, any
indenture, loan or credit agreement or any other agreement or instrument to
which it is a party or by which it or any of its properties is bound (whether or
not such default or violation has been waived), (ii) is in violation of any
order of any court, arbitrator or governmental body, or (iii) is or has been in
violation of any statute, rule or regulation of any governmental authority,
including without limitation all foreign, federal, state and local laws relating
to taxes, environmental protection, occupational health and safety, product
quality and safety and employment and labor matters, except in each case as does
not, individually or in the aggregate, have or reasonably be expected to result
in a Material Adverse Effect.
(m) Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not, individually or in the aggregate, have or
result in a Material Adverse Effect ("Material Permits"), and neither the
Company nor any Subsidiary has received any notice of proceedings relating to
the revocation or modification of any Material Permit.
10
(n) Title to Assets. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them that is
material to the business of the Company and the Subsidiaries and good and
marketable title in all personal property owned by them that is material to the
business of the Company and the Subsidiaries, in each case free and clear of all
Liens, except for Liens as do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be made of
such property by the Company and the Subsidiaries. Any real property and
facilities held under lease by the Company and the Subsidiaries are held by them
under valid, subsisting and enforceable leases of which the Company and the
Subsidiaries are in compliance.
(o) Patents and Trademarks. The Company and the Subsidiaries have, or have
rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and other similar
rights that are necessary or material for use in connection with their
respective businesses as described in the SEC Reports and which the failure to
so have could have a Material Adverse Effect (collectively, the "Intellectual
Property Rights"). Neither the Company nor any Subsidiary has received a written
notice that the Intellectual Property Rights used by the Company or any
Subsidiary violates or infringes upon the rights of any Person. To the knowledge
of the Company, all such Intellectual Property Rights are enforceable and there
is no existing infringement by another Person of any of the Intellectual
Property Rights.
(p) Insurance. The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which the Company and
the Subsidiaries are engaged. Neither the Company nor any Subsidiary has any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business without a
significant increase in cost.
(q) Transactions With Affiliates and Employees. Except as set forth in SEC
Reports, none of the officers or directors of the Company and, to the knowledge
of the Company, none of the employees of the Company is presently a party to any
transaction with the Company or any Subsidiary (other than for services as
employees, officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of the
Company, any entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner.
(r) Internal Accounting Controls. The Company and the Subsidiaries maintain
a system of internal accounting controls sufficient 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 GAAP 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 action is taken with respect to any
differences.
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(s) Solvency. Based on the financial condition of the Company as of the
Closing Date, (i) the Company's fair saleable value of its assets exceeds the
amount that will be required to be paid on or in respect of the Company's
existing debts and other liabilities (including known contingent liabilities) as
they mature; (ii) the Company's assets do not constitute unreasonably small
capital to carry on its business for the current fiscal year as now conducted
and as proposed to be conducted including its capital needs taking into account
the particular capital requirements of the business conducted by the Company,
and projected capital requirements and capital availability thereof; and (iii)
the current cash flow of the Company, together with the proceeds the Company
would receive, were it to liquidate all of its assets, after taking into account
all anticipated uses of the cash, would be sufficient to pay all amounts on or
in respect of its debt when such amounts are required to be paid. The Company
does not intend to incur debts beyond its ability to pay such debts as they
mature (taking into account the timing and amounts of cash to be payable on or
in respect of its debt).
(t) Certain Fees. Except as described in Schedule 3.1(t), no brokerage or
finder's fees or commissions are or will be payable by the Company to any
broker, financial advisor or consultant, finder, placement agent, investment
banker, bank or other Person with respect to the transactions contemplated by
this Agreement. The Purchasers shall have no obligation with respect to any fees
or with respect to any claims made by or on behalf of other Persons for fees of
a type contemplated in this Section that may be due in connection with the
transactions contemplated by this Agreement. The Company shall indemnify and
hold harmless the Purchasers, their employees, officers, directors, agents, and
partners, and their respective Affiliates, from and against all claims, losses,
damages, costs (including the costs of preparation and attorney's fees) and
expenses suffered in respect of any such claimed or existing fees, as such fees
and expenses are incurred.
(u) Private Placement. Neither the Company nor any Person acting on the
Company's behalf has sold or offered to sell or solicited any offer to buy the
Securities by means of any form of general solicitation or advertising. Neither
the Company nor any of its Affiliates nor any Person acting on the Company's
behalf has, directly or indirectly, at any time within the past six months, made
any offer or sale of any security or solicitation of any offer to buy any
security under circumstances that would (i) eliminate the availability of the
exemption from registration under Regulation D under the Securities Act in
connection with the offer and sale of the Securities as contemplated hereby or
(ii) cause the offering of the Securities pursuant to the Transaction Documents
to be integrated with prior offerings by the Company for purposes of any
stockholder approval provisions under the rules and regulations of any Trading
Market. Assuming the accuracy of the Purchasers representations and warranties
set forth in Section 3.2, no registration under the Securities Act is required
for the offer and sale of the Securities by the Company to the Purchasers as
contemplated hereby. The issuance and sale of the Securities hereunder does not
contravene the rules and regulations of the Trading Market and no shareholder
approval is required for the Company to fulfill its obligations under the
Transaction Documents. The Company is not a United States real property holding
corporation within the meaning of the Foreign Investment in Real Property Tax
Act of 1980.
(v) Reserved.
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(w) Listing and Maintenance Requirements. Except as indicated on Schedule
3.1(w) the Company has not, in the two years preceding the date hereof, received
notice (written or oral) from any Eligible Market on which the Common Stock is
or has been listed or quoted to the effect that the Company is not in compliance
with the listing or maintenance requirements of such Eligible Market. The
Company is, and has no reason to believe that it will not in the foreseeable
future continue to be, in compliance with all such listing and maintenance
requirements.
(x) Registration Rights. Except as described in Schedule 3.1(x), the
Company has not granted or agreed to grant to any Person any rights (including
"piggy back" registration rights) to have any securities of the Company
registered with the Commission or any other governmental authority that have not
been satisfied.
(y) Application of Takeover Protections. The Company and its Board of
Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar anti
takeover provision under the Company's Certificate of Incorporation (or similar
charter documents) or the laws of its state of incorporation that is or could
become applicable to the Purchasers as a result of the Purchasers and the
Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation the Company's issuance of
the Securities and the Purchasers' ownership of the Securities.
(z) Disclosure. The Company confirms that neither it nor any other Person
acting on its behalf has provided any of the Purchasers or their agents or
counsel with any information that constitutes or might constitute material,
non-public information. The Company understands and confirms that the Purchasers
will rely on the foregoing representations in effecting transactions in
securities of the Company. All disclosure provided to the Purchasers regarding
the Company, its business and the transactions contemplated hereby, including
the Schedules to this Agreement, furnished by or on behalf of the Company are
true and correct and do not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or information exists with
respect to the Company or any of its Subsidiaries or its or their business,
properties, prospects, operations or financial conditions, 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. The
Company acknowledges and agrees that no Purchaser makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 3.2.
(aa) No Violation. The issuance and sale of the Securities contemplated
hereby does not conflict with or violate any rules or regulations of the Trading
Market.
(bb) Acknowledgment Regarding Purchasers' Purchase of Securities. The
Company acknowledges and agrees that each of the Purchasers is acting solely in
the capacity of an arm's length purchaser with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that no
Purchaser is acting as a financial advisor or fiduciary of the Company or any
13
other Purchaser (or in any similar capacity) with respect to this Agreement and
the transactions contemplated hereby and any advice given by any Purchaser or
any of their respective representatives or agents in connection with this
Agreement and the transactions contemplated hereby is merely incidental to such
Purchaser's purchase of the Securities. The Company further represents to each
Purchaser that the Company's decision to enter into this Agreement has been
based solely on the independent evaluation of the Company and its
representatives. The Company further acknowledges that no Purchaser has made any
promises or commitments other than as set forth in this Agreement, including any
promises or commitments for any additional investment by any such Purchaser in
the Company.
(cc) Investment Company. The Company is not, and is not an Affiliate of, an
investment company within the meaning of the Investment Company Act of 1940, as
amended.
(dd) Ranking. Except as set forth on Schedule 3.1(dd), as of the date of
this Agreement, no indebtedness of the Company is senior to, or pari passu with,
the Notes in right of payment, whether with respect to interest or upon
liquidation or dissolution, or otherwise.
(ee) Indebtedness. Except as set forth on Schedule 3.1(ee) and trade
payables arising in the ordinary course of business not more than sixty (60)
days past due, the Company does not have any indebtedness.
(ff) Taxes. The Company and each of its Subsidiaries (i) has made or filed
all federal, foreign and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject, (ii) has paid
all taxes and other governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports and declarations,
except those being contested in good faith and (iii) has set aside on its books
provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.
(gg) Environmental. The Company and the Subsidiaries and their properties,
assets and operations are in compliance with, and hold all permits,
authorizations and approvals required under, Environmental Laws (as defined
below), except to the extent that failure to so comply or to hold such permits,
authorizations or approvals would not, individually or in the aggregate, have a
Material Adverse Effect; except as set forth on Schedule 3.1(gg), there are no
past or present events, conditions, circumstances, activities, practices,
actions, omissions or plans that could reasonably be expected to give rise to
any material costs or liabilities to the Company or the Subsidiaries under, or
to interfere with or prevent compliance by the Company or the Subsidiaries with,
Environmental Laws; except as would not, individually or in the aggregate, have
a Material Adverse Effect, neither the Company nor any of the Subsidiaries (i)
is the subject of any investigation, (ii) has received any notice or claim,
(iii) is a party to or affected by any pending or threatened action, suit or
proceeding, (iv) is bound by any judgment, decree or order or (v) has entered
into any agreement, in each case relating to any alleged violation of any
Environmental Law or any actual or alleged release or threatened release or
cleanup at any location of any Hazardous Materials (as defined below) (as used
herein, "Environmental Law" means any federal, state, local or foreign law,
statute, ordinance, rule, regulation, order, decree, judgment, injunction,
14
permit, license, authorization or other binding requirement or common law
(including any applicable regulations and standards adopted by the International
Maritime Organization) relating to health, safety or the protection, cleanup or
restoration of the environment or natural resources, including those relating to
the distribution, processing, generation, treatment, storage, disposal,
transportation, other handling or release or threatened release of Hazardous
Materials, and "Hazardous Materials" means any material (including, without
limitation, pollutants, contaminants, hazardous or toxic substances or wastes)
that is regulated by or may give rise to liability under any Environmental Law).
(hh) Sarbanes-Oxley Act. The Company is in compliance with applicable
requirements of the Sarbanes-Oxley Act of 2002 and applicable rules and
regulations promulgated by the Commission thereunder in effect as of the date of
this Agreement, except where such noncompliance could not be reasonably expected
to have, individually or in the aggregate, a Material Adverse Effect.
3.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, as to itself only and for no other Purchaser, represents and warrants to
the Company as follows:
(a) Organization; Authority. Such Purchaser is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with the requisite corporate, limited liability company or
partnership power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations hereunder and thereunder. The execution, delivery and performance by
such Purchaser of this Agreement have been duly authorized by all necessary
corporate or limited liability company action on the part of such Purchaser.
This Agreement has been duly executed by such Purchaser and, when delivered by
such Purchaser in accordance with terms hereof, will constitute the valid and
legally binding obligation of such Purchaser, enforceable against it in
accordance with its terms.
(b) Investment Intent. Such Purchaser is acquiring the Securities for its
own account and not with a view to or for distributing or reselling such
Securities or any part thereof, without prejudice, however, to such Purchaser's
right, subject to the provisions of this Agreement, at all times to sell or
otherwise dispose of all or any part of such Securities pursuant to an effective
registration statement under the Securities Act or under an exemption from such
registration and in compliance with applicable federal and state securities
laws. Nothing contained herein shall be deemed a representation or warranty by
such Purchaser to hold Securities for any period of time. Such Purchaser is
acquiring the Securities hereunder in the ordinary course of its business.
(c) Purchaser Status. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, an "accredited investor" as
defined in Rule 501(a) under the Securities Act. Such Purchaser is not a
registered broker-dealer under Section 15 of the Exchange Act.
(d) Experience of Such Purchaser. Such Purchaser, either alone or together
with its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and has so evaluated the
15
merits and risks of such investment. Such Purchaser is able to bear the economic
risk of an investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.
(e) General Solicitation. Such Purchaser is not purchasing the Securities
as a result of any advertisement, article, notice or other communication
regarding the Securities published in any newspaper, magazine or similar media
or broadcast over television or radio or presented at any seminar or any other
general solicitation or general advertisement.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 Transfer Restrictions.
(a) The Securities may only be disposed of pursuant to an effective
registration statement under the Securities Act or pursuant to an available
exemption from the registration requirements of the Securities Act, and in
compliance with any applicable state securities laws. In connection with any
transfer of Securities other than pursuant to an effective registration
statement or to the Company or pursuant to Rule 144(k), except as otherwise set
forth herein, the Company may require the transferor to provide to the Company
an opinion of counsel selected by the transferor, the form and substance of
which opinion shall be reasonably satisfactory to the Company, to the effect
that such transfer does not require registration under the Securities Act.
Notwithstanding the foregoing, the Company hereby consents to and agrees to
register on the books of the Company and with its transfer agent, without any
such legal opinion, any transfer of Securities by a Purchaser to an Affiliate of
such Purchaser, provided that the transferee certifies to the Company that it is
an "accredited investor" as defined in Rule 501(a) under the Securities Act.
(b) The Purchasers agree to the imprinting, except as otherwise permitted
by Section 4.1(c), the following legend on any certificate evidencing
Securities:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [EXERCISABLE] [CONVERTIBLE]] HAVE [NOT] BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS. NOTWITHSTANDING THE
FOREGOING, THESE SECURITIES AND THE SECURITIES ISSUABLE UPON [EXERCISE]
16
[CONVERSION] OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A
BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED
BY SUCH SECURITIES.
(c) Certificates evidencing Securities shall not be required to contain the
legend set forth in Section 4.1(b) or any other legend (i) while a Registration
Statement covering the resale of such Securities is effective under the
Securities Act, or (ii) following any sale of such Securities pursuant to Rule
144, or (iii) if such Securities are eligible for sale under Rule 144(k), or
(iv) if such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements issued by
the Staff of the Commission). The Company shall cause its counsel to issue the
legal opinion included in the Transfer Agent Instructions to the Company's
transfer agent on the Effective Date. Following the Effective Date or at such
earlier time as a legend is no longer required for certain Securities, the
Company will no later than three Trading Days following the delivery by a
Purchaser to the Company or the Company's transfer agent of a legended
certificate representing such Securities, deliver or cause to be delivered to
such Purchaser a certificate representing such Securities that is free from all
restrictive and other legends. The Company may not make any notation on its
records or give instructions to any transfer agent of the Company that enlarge
the restrictions on transfer set forth in Section 4.1(b). For so long as any
Purchaser owns Securities, the Company will not effect or publicly announce its
intention to effect any exchange, recapitalization or other transaction that
effectively requires or rewards physical delivery of certificates evidencing the
Common Stock.
(d) The Company acknowledges and agrees that a Purchaser may from time to
time pledge or grant a security interest in some or all of the Securities in
connection with a bona fide margin agreement or other loan or financing
arrangement secured by the Securities and, if required under the terms of such
agreement, loan or arrangement, such Purchaser may transfer pledged or secured
Securities to the pledgees or secured parties. Such a pledge or transfer would
not be subject to approval of the Company and no legal opinion of the pledgee,
secured party or pledgor shall be required in connection therewith. Further, no
notice shall be required of such pledge. At the appropriate Purchaser's expense,
the Company will execute and deliver such reasonable documentation as a pledgee
or secured party of Securities may reasonably request in connection with a
pledge or transfer of the Securities, including the preparation and filing of
any required prospectus supplement under Rule 424(b)(3) of the Securities Act or
other applicable provision of the Securities Act to appropriately amend the list
of selling stockholders thereunder.
4.2 Acknowledgment of Dilution/Short Sales.
--------------------------------------
(a) The Company acknowledges that the issuance of the Securities (including
the Underlying Shares) will result in dilution of the outstanding shares of
Common Stock, which dilution may be substantial under certain market conditions.
The Company further acknowledges that its obligations under the Transaction
Documents, including without limitation its obligation to issue the Securities
(including the Underlying Shares) pursuant to the Transaction Documents, are
unconditional and absolute and not subject to any right of set off,
counterclaim, delay or reduction, regardless of the effect of any such dilution
or any claim that the Company may have against any Purchaser. Anything in this
Agreement or elsewhere herein to the contrary notwithstanding, it is understood
and agreed by the Company (i) that none of the Purchasers have been asked to
17
agree, nor has any Purchaser agreed, to desist from purchasing or selling, long
and/or short, securities of the Company, or "derivative" securities based on
securities issued by the Company or to hold the Securities for any specified
term; (ii) that future open market or other transactions by any Purchaser,
including short sales, and specifically including, without limitation, short
sales or "derivative" transactions, after the closing of this or future private
placement transactions, may negatively impact the market price of the Company's
publicly-traded securities; (iii) that any Purchaser, and counter parties in
"derivative" transactions to which any such Purchaser is a party, directly or
indirectly, presently may have a "short" position in the Common Stock, and (iv)
that each Purchaser shall not be deemed to have any affiliation with or control
over any arm's length counter-party in any "derivative" transaction.
(b) Other than the transaction contemplated by the Transaction Documents,
each Purchaser has not directly or indirectly, nor has any Person acting on
behalf of or pursuant to any understanding with such Purchaser, made (or will
make) any disposition, including short sales, in the securities of the Company
during the period commencing from July 10, 2006 through the date of Closing.
Notwithstanding the foregoing, in the case of a Purchaser that is a
multi-managed investment vehicle whereby separate portfolio managers manage
separate portions of such Purchaser's assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of such Purchaser's assets, the representation set forth
above shall only apply with respect to the portion of assets managed by the
portfolio manager that made the investment decision to purchase the Securities
covered by this Agreement. Other than to other Persons party to this Agreement,
such Purchaser has maintained the confidentiality of all disclosures made to it
in connection with this transaction (including the existence and terms of this
transaction).
4.3 Furnishing of Information. As long as any Purchaser owns Securities,
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 the Exchange Act. Upon the request
of any Purchaser, the Company shall deliver to such Purchaser a written
certification of a duly authorized officer as to whether it has complied with
the preceding sentence. As long as any Purchaser owns Securities, if the Company
is not required to file reports pursuant to such laws, it will prepare and
furnish to the Purchasers and make publicly available in accordance with
paragraph (c) of Rule 144 such information as is required for the Purchasers to
sell the Securities under Rule 144. The Company further covenants that it will
take such further action as any holder of Securities may reasonably request to
satisfy the provisions of Rule 144 applicable to the issuer of securities
relating to transactions for the sale of securities pursuant to Rule 144.
4.4 Integration. The Company shall not, and shall use its best efforts to
ensure that no Affiliate of the Company shall, sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market.
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4.5 Reservation and Listing of Securities.
(a) The Company shall maintain a reserve from its duly authorized shares of
Common Stock for issuance pursuant to the Transaction Documents in such amount
as may be required to fulfill its obligations in full under the Transaction
Documents.
(b) The Company shall (i) in the time and manner required by each Trading
Market, prepare and file with such Trading Market an additional shares listing
application covering all of the shares of Common Stock issued or issuable under
the Transaction Documents, (ii) take all steps necessary to cause such shares of
Common Stock to be approved for listing on each Trading Market as soon as
possible thereafter, (iii) provide to the Purchasers evidence of such listing,
and (iv) maintain the listing of such Common Stock on each such Trading Market
or another Eligible Market.
(c) In the case of a breach by the Company of Section 4.5(a), in addition
to the other remedies available to the Purchasers, the Purchasers shall have the
right to require the Company to either: (i) use its best efforts to obtain the
required shareholder approval necessary to permit the issuance of such shares of
Common Stock as soon as is possible, but in any event not later than the 60th
day after such notice, or (ii) within five Trading Days after delivery of a
written notice, pay cash to such Purchaser, as liquidated damages and not as a
penalty, in an amount equal to the number of shares of Common Stock not issuable
by the Company times 115% of the arithmetic average of the VWAP for each of the
five Trading Days immediately prior to the date of such notice or, if greater,
the five Trading Days immediately prior to the date of payment (the "Cash
Amount"). If the exercising or converting Purchaser elects the first option
under the preceding sentence and the Company fails to obtain the required
shareholder approval on or prior to the 60th day after such notice, then within
three Trading Days after such 60th day, the Company shall pay the Cash Amount to
such Purchaser, as liquidated damages and not as penalty. If the exercising or
converting Purchaser elects the second option under the preceding sentence the
Company will have no obligation to deliver shares for which the Cash Amount has
been paid.
4.6 Subsequent Placements.
(a) From the date hereof until 30 Trading Days following the Effective
Date, the Company will not, directly or indirectly, offer, sell, grant any
option to purchase, or otherwise dispose of (or announce any offer, sale, grant
or any option to purchase or other disposition of) any of its or the
Subsidiaries' equity or equity equivalent securities, including without
limitation any debt, preferred stock or other instrument or security that is, at
any time during its life and under any circumstances, convertible into or
exchangeable or exercisable for Common Stock or Common Stock Equivalents (any
such offer, sale, grant, disposition or announcement being referred to as a
"Subsequent Placement").
(b) From the Effective Date and for so long as the Notes are outstanding,
the Company will not, directly or indirectly, effect any Subsequent Placement
unless the Company shall have first complied with this Section 4.6(b).
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(i) The Company shall deliver to each Purchaser a written notice (the
"Offer") of any proposed or intended issuance or sale or exchange of the
securities being offered (the "Offered Securities") in a Subsequent Placement,
which Offer shall (w) identify and describe the Offered Securities, (x) describe
the price and other terms upon which they are to be issued, sold or exchanged,
and the number or amount of the Offered Securities to be issued, sold or
exchanged, (y) identify, if known to the Company, the Persons or entities to
which or with which the Offered Securities are to be offered, issued, sold or
exchanged and (z) offer to issue and sell to or exchange with each Purchaser (A)
an amount equal to such Purchaser's Pro Rata Portion multiplied by (i) 66% of
the Offered Securities, if 100% of the initial aggregate principal amount of
such Purchaser's Notes are outstanding, (ii) 50% of the Offered Securities, if
50% through 99.99% of the initial aggregate principal amount of such Purchaser's
Notes are outstanding, and (iii) 25% of the Offered Securities, if less than 50%
of the initial aggregate principal amount of such Purchaser's Notes are
outstanding, in each case based on such Purchaser's pro rata portion of the
aggregate principal amount of the Notes purchased hereunder (the "Basic
Amount"), and (B) with respect to each Purchaser that elects to purchase its
Basic Amount, any additional portion of the Offered Securities attributable to
the Basic Amounts of other Purchasers as such Purchaser shall indicate it will
purchase or acquire should the other Purchasers subscribe for less than their
Basic Amounts (the "Undersubscription Amount"). For the purposes of this
Agreement, "Pro Rata Portion" shall mean, with respect to each Purchaser, the
quotient obtained by dividing (i) such Purchaser's initial principal amount of
Notes, by (ii) the initial aggregate principal amount of Notes for all
Purchasers.
(ii) To accept an Offer, in whole or in part, a Purchaser must deliver a
written notice to the Company prior to the end of the five (5) Trading Day
period of the Offer, setting forth the portion of the Purchaser's Basic Amount
that such Purchaser elects to purchase and, if such Purchaser shall elect to
purchase all of its Basic Amount, the Undersubscription Amount, if any, that
such Purchaser elects to purchase (in either case, the "Notice of Acceptance").
If the Basic Amounts subscribed for by all Purchasers are less than the total of
all of the Basic Amounts, then each Purchaser who has set forth an
Undersubcription Amount in its Notice of Acceptance shall be entitled to
purchase, in addition to the Basic Amounts subscribed for, the Undersubscription
Amount it has subscribed for; provided, however, that if the Undersubscription
Amounts subscribed for exceed the difference between the total of all the Basic
Amounts and the Basic Amounts subscribed for (the "Available Undersubscription
Amount"), each Purchaser who has subscribed for any Undersubscription Amount
shall be entitled to purchase on that portion of the Available Undersubscription
Amount as the Basic Amount of such Purchaser bears to the total Basic Amounts of
all Purchasers that have subscribed for Undersubscription Amounts, subject to
rounding by the Board of Directors to the extent its deems reasonably necessary.
(iii) The Company shall have five (5) Trading Days from the expiration of
the period set forth in Section 4.6(b)(ii) above to issue, sell or exchange all
or any part of such Offered Securities as to which a Notice of Acceptance has
not been given by the Purchasers (the "Refused Securities"), but only to the
offerees described in the Offer and only upon terms and conditions (including,
without limitation, unit prices and interest rates) that are not more favorable
20
to the acquiring Person or Persons or less favorable to the Company than those
set forth in the Offer.
(iv) In the event the Company shall propose to sell less than all the
Refused Securities (any such sale to be in the manner and on the terms specified
in Section 4.6(b)(iii) above), then each Purchaser may, at its sole option and
in its sole discretion, reduce the number or amount of the Offered Securities
specified in its Notice of Acceptance to an amount that shall be not less than
the number or amount of the Offered Securities that the Purchaser elected to
purchase pursuant to Section 4.6(b)(ii) above multiplied by a fraction, (i) the
numerator of which shall be the number or amount of Offered Securities the
Company actually proposes to issue, sell or exchange (including Offered
Securities to be issued or sold to Purchasers pursuant to Section 4.6(c)(ii)
above prior to such reduction) and (ii) the denominator of which shall be the
original amount of the Offered Securities. In the event that any Purchaser so
elects to reduce the number or amount of Offered Securities specified in its
Notice of Acceptance, the Company may not issue, sell or exchange more than the
reduced number or amount of the Offered Securities unless and until such
securities have again been offered to the Purchasers in accordance with Section
4.6(b)(i) above.
(v) Upon the closing of the issuance, sale or exchange of all or less than
all of the Refused Securities, the Purchasers shall acquire from the Company,
and the Company shall issue to the Purchasers, the number or amount of Offered
Securities specified in the Notices of Acceptance, as reduced pursuant to
Section 4.6(b)(iv) above if the Purchasers have so elected, upon the terms and
conditions specified in the Offer. The purchase by the Purchasers of any Offered
Securities is subject in all cases to the preparation, execution and delivery by
the Company and the Purchasers of a purchase agreement relating to such Offered
Securities reasonably satisfactory in form and substance to the Purchasers and
their respective counsel. Notwithstanding anything to the contrary contained in
this Agreement, if the Company does not consummate the closing of the issuance,
sale or exchange of all or less than all of the Refused Securities within 7
Trading Days of the expiration of the period set forth in Section 4.6(b)(ii),
the Company shall issue to the Purchasers the number or amount of Offered
Securities specified in the Notices of Acceptance, as reduced pursuant to
Section 4.6(b)(iv) above if the Purchasers have so elected, upon the terms and
conditions specified in the Offer.
(vi) Any Offered Securities not acquired by the Purchasers or other Persons
in accordance with Section 4.6(b)(iii) above may not be issued, sold or
exchanged until they are again offered to the Purchasers under the procedures
specified in this Agreement..
(c) The restrictions contained in paragraphs (b) of this Section 4.6 shall
not apply to Excluded Stock.
(d) For so long as any Notes remain outstanding the Company shall not, in
any manner, enter into or affect any issuances of additional shares of Common
Stock or Common Stock Equivalents (as defined in the Notes) at an Effective
Price (as defined in the Notes) less than the Conversion Price (as adjusted in
accordance with the terms of the Notes to such date) (a "Dilutive Issuances") if
21
as a result of such Dilutive Issuance the number of Conversion Shares issuable
upon conversion of the Notes, but for the Issuable Minimum (as defined in the
Notes), would exceed the Issuable Minimum.
4.7 Conversion and Exercise Procedures. The form of Exercise Notice
included in the Warrants and the form of Holder Conversion Notice included in
the Notes set forth the totality of the procedures required by the Purchasers in
order to exercise the Warrants or convert the Notes. No additional legal opinion
or other information or instructions shall be necessary to enable the Purchasers
to exercise their Warrants or convert their Notes. The Company shall honor
exercises of the Warrants and conversions of the Notes and shall deliver
Underlying Shares in accordance with the terms, conditions and time periods set
forth in the Transaction Documents.
4.8 Securities Laws Disclosure; Publicity. On or before 8:30 a.m., New York
time, on the Trading Day following the date of this Agreement, the Company shall
issue a press release acceptable to the Purchasers disclosing all material terms
of the transactions contemplated hereby. Within two Business Days of the date of
this Agreement, the Company shall file a Current Report on Form 8-K with the
Commission (the "8-K Filing") describing the terms of the transactions
contemplated by the Transaction Documents and including as exhibits to such
Current Report on Form 8-K this Agreement and the form of Notes and Warrants, in
the form required by the Exchange Act. Thereafter, the Company shall timely file
any filings and notices required by the Commission or applicable law with
respect to the transactions contemplated hereby and provide copies thereof to
the Purchasers promptly after filing. Except with respect to the 8-K Filing and
the press release referenced above (a copy of which will be provided to
Purchaser Counsel for its review as early as practicable prior to its filing),
the Company shall, at least two Trading Days prior to the filing or
dissemination of any disclosure required by this paragraph, provide a copy
thereof to the Purchasers for their review. The Company and the Purchasers shall
consult with each other in issuing any press releases or otherwise making public
statements or filings and other communications with the Commission or any
regulatory agency or Trading Market with respect to the transactions
contemplated hereby, and neither party shall issue any such press release or
otherwise make any such public statement, filing or other communication without
the prior consent of the other, except if such disclosure is required by law, in
which case the disclosing party shall promptly provide the other party with
prior notice of such public statement, filing or other communication.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of any Purchaser, or include the name of any Purchaser in any filing with the
Commission or any regulatory agency or Trading Market, without the prior written
consent of such Purchaser, except to the extent such disclosure (but not any
disclosure as to the controlling Persons thereof) is required by law or Trading
Market regulations, in which case the Company shall provide the Purchasers with
prior notice of such disclosure. The Company shall not, and shall cause each of
its Subsidiaries and its and each of their respective officers, directors,
employees and agents not to, provide any Purchaser with any material nonpublic
information regarding the Company or any of its Subsidiaries from and after the
filing of the 8-K Filing without the express written consent of such Purchaser.
In the event of a breach of the foregoing covenant by the Company, any of its
Subsidiaries, or any of its or their respective officers, directors, employees
and agents, in addition to any other remedy provided herein or in the
Transaction Documents, a Purchaser shall have the right to require the Company
to make a public disclosure, in the form of a press release, public
advertisement or otherwise, of such material nonpublic information. No Purchaser
shall have any liability to the Company, its Subsidiaries, or any of its or
22
their respective officers, directors, employees, shareholders or agents for any
such disclosure. Subject to the foregoing, neither the Company nor any Purchaser
shall issue any press releases or any other public statements with respect to
the transactions contemplated hereby; provided, however, that the Company shall
be entitled, without the prior approval of any Purchaser, to make any press
release or other public disclosure with respect to such transactions (i) in
substantial conformity with the 8-K Filing and contemporaneously therewith and
(ii) as is required by applicable law and regulations (provided that in the case
of clause (i) Purchaser Counsel shall be consulted by the Company in connection
with any such press release or other public disclosure prior to its release).
Each press release disseminated during the 12 months prior to the Closing Date
did not at the time of release contain any untrue statement of a material fact
or omit 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.
4.9 Use of Proceeds. The Company shall use the net proceeds from the sale
of the Securities hereunder (i) to lease and equip a manufacturing facility to
be located in Baltimore, Maryland area which will be used to manufacture
Multikine and for payment of a security deposit with respect to the lease in an
amount not to exceed $3,000,000, and (ii) for working capital purposes and not
for the satisfaction of any portion of the Company's debt (other than payment of
trade payables and accrued expenses in the ordinary course of the Company's
business and prior practices), to redeem any Company equity or equity-equivalent
securities or to settle any outstanding litigation.
4.10 Indebtedness.
(a) At any time after the date of this Agreement, neither the Company nor
any Subsidiary of the Company, directly or indirectly, shall incur any
indebtedness for borrowed money of any kind, liability or obligation that is
senior to, or pari passu with, the Notes in right of payment, whether with
respect to interest or principal or upon liquidation or dissolution, or
otherwise.
(b) Notwithstanding the foregoing, the Company may:
(i) in the ordinary course of business, incur indebtedness secured by
purchase money security interests (which will be senior only as
to the underlying assets covered thereby) and indebtedness under
capital lease obligations (which will be senior only as to the
underlying assets covered thereby).
(ii) incur indebtedness if the proceeds received in respect thereof
are used for repayment of the Notes in full (to the extent such
repayment in full is permitted under the Notes).
(c) The provisions of this Section 4.10 shall terminate and be of no
further force or effect upon the conversion or indefeasible repayment in full of
the Notes and all accrued interest thereon and any and all expenses or
liabilities relating thereto.
23
4.11 Repayment of Notes. Each of the parties hereto agrees that all
repayments of the Notes (including any accrued interest thereon) by the Company
(other than by conversion of the Notes) will be paid pro rata to the holders
thereof based upon the principal amount then outstanding to each of such
holders.
4.12 No Impairment. At all times after the date hereof, the Company will
not take or permit any action, or cause or permit any Subsidiary to take or
permit any action that impairs or adversely affects the rights of the Purchasers
under the Agreement or the Notes.
4.13 Fundamental Changes.
(a) In addition to any other rights provided by law or set forth herein,
from and after the date of this Agreement and for so long as any Notes remain
outstanding, the Company shall not without first obtaining the approval (by vote
or written consent, as provided by law) of the holders of a majority of the
outstanding principal face amount of the Notes:
(i) purchase, redeem (other than pursuant to equity incentive
agreements with non-officer employees giving the Company the right to
repurchase shares upon the termination of services) or set aside any sums
for the purchase or redemption of, or declare or pay any dividend
(including a dividend payable in stock of the Company) or make any other
distribution with respect to, any shares of capital stock or any other
securities that are convertible into or exercisable for such stock;
(ii) change the nature of the Company's business to any business which
is fundamentally distinct and separate from the business currently
conducted by the Company; or
(iii) cause or permit any Subsidiary of the Company directly or
indirectly to take any actions described in clauses (a) through (b) above,
other than issuing securities to the Company.
(b) From the date of this Agreement until the 30th Trading Day following
the Effective Date, the Company shall not without first obtaining the approval
(by vote or written consent, as provided by law) of the holders of a majority of
the outstanding principal face amount of the Notes:
(i) acquire or merge with any other business entity;
(ii) sell a substantial portion of assets not in the ordinary course of
business;
(iii) enter into a transaction that results in or cause a Change of
Control;
(iv) amend the Company's charter or by-laws;
(v) change the nature of the Company's business to any business which is
fundamentally distinct and separate from the business currently
conducted by the Company;
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(vi) create, incur, assume or suffer to exist indebtedness greater than
$100,000 in aggregate;
(vii) create or suffer to exist any Lien or transfer upon or against any of
its property or assets now owned or hereafter acquired, except for
indebtedness less than $100,000 in aggregate; or
(viii) cause or permit any Subsidiary of the Company directly or indirectly
to take any actions described in clauses (i) through (viii) above,
other than issuing securities to the Company.
4.14 Reimbursement. In consideration of each Purchaser's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Purchaser and each other holder of the Securities and all of their stockholders,
partners, members, officers, directors, employees and direct or indirect
investors and any of the foregoing Persons' agents or other representatives
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Related
Persons") from and against any and all actions, causes of action, suits, claims
and Losses in connection therewith (irrespective of whether any such Related
Person is a party to the action for which indemnification hereunder is sought),
and including reasonable attorneys' fees and disbursements (the "Indemnified
Liabilities"), incurred by any Related Person as a result of, or arising out of,
or relating to (a) any misrepresentation or breach of any representation or
warranty made in the Transaction Documents or any other certificate, instrument
or document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation contained in the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby or (c) any
cause of action, suit or claim brought or made against such Related Person by a
third party (including for these purposes a derivative action brought on behalf
of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, or (iii) the
status of such Purchaser or holder of the Securities as an investor in the
Company. To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. Except as otherwise set forth herein, the
mechanics and procedures with respect to the rights and obligations under this
Section 4.14 shall be the same as those set forth in Section 6.4(c) below.
Notwithstanding the above, (x) the Company shall not, in connection with any one
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstance, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for all Purchasers and Related Parties and (y) the Company
will have no liability under this section if any Indemnified Liability results
from the gross negligence or breach of contract by any Purchaser or any Related
Person.
4.15 Shareholders Rights Plan; 10b-5 Plans. No claim will be made or
enforced by the Company or any other Person that any Purchaser is an "Acquiring
Person" under any shareholders rights plan or similar plan or arrangement in
25
effect or hereafter adopted by the Company, or that any Purchaser could be
deemed to trigger the provisions of any such plan or arrangement, by virtue of
receiving Underlying Shares under the Transaction Documents or under any other
agreement between the Company and the Purchasers. For so long as any Notes are
outstanding, the Company shall use its best efforts to not, directly or
indirectly, permit any officer or director of the Company or any of its
Subsidiaries to sell any Common Stock pursuant to a contract, instruction or
plan in accordance with Rule 10b-5 of the Exchange Act.
4.16 Reverse Merger. For so long as any Notes remain outstanding, the Company
shall not effect a reverse stock split of one or more classes of the Company's
Common Stock.
ARTICLE V.
CONDITIONS
5.1 Conditions Precedent to the Obligations of the Purchasers. The
obligation of each Purchaser to acquire Securities at the Closing is subject to
the satisfaction or waiver by such Purchaser, at or before the Closing, of each
of the following conditions:
(a) Representations and Warranties. The representations and warranties of
the Company contained herein shall be true and correct in all material respects
(except for those representations and warranties that are qualified by
materiality or Material Adverse Effect, which shall be true and correct in all
respects) as of the date when made and as of the Closing as though made on and
as of such date;
(b) Performance. The Company and each other Purchaser shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by the Transaction Documents to be performed, satisfied
or complied with by it at or prior to the Closing;
(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 that prohibits
the consummation of any of the transactions contemplated by the Transaction
Documents;
(d) Adverse Changes. Since the date of execution of this Agreement, no
event or series of events shall have occurred that reasonably would be expected
to have or result in a Material Adverse Effect; and
(e) No Suspensions of Trading in Common Stock; Listing. Trading in the
Common Stock shall not have been suspended by the Commission or any Trading
Market (except for any suspensions of trading of not more than one Trading Day
solely to permit dissemination of material information regarding the Company) at
any time since the date of execution of this Agreement, and the Common Stock
shall have been at all times since such date listed for trading on an Eligible
Market.
5.2 Conditions Precedent to the Obligations of the Company. The obligation
of the Company to sell Securities at the Closing is subject to the satisfaction
or waiver by the Company, at or before the Closing, of each of the following
conditions:
26
(a) Representations and Warranties. The representations and warranties of
the Purchasers contained herein shall be true and correct in all material
respects as of the date when made and as of the Closing Date as though made on
and as of such date;
(b) Performance. The Purchasers shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by the Purchasers at or prior to the Closing; and
(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 that prohibits
the consummation of any of the transactions contemplated by the Transaction
Documents.
ARTICLE VI.
REGISTRATION RIGHTS
6.1 Shelf Registration.
(a) As promptly as possible, and in any event on or prior to the Filing
Date, the Company shall prepare and file with the Commission a Registration
Statement covering the resale of all Registrable Securities for an offering to
be made on a continuous basis pursuant to Rule 415. If for any reason the
Commission does not permit all of the Registrable Securities to be included in
such Registration Statement, then the Company shall prepare and file with the
Commission a separate Registration Statement with respect to any such
Registrable Securities not included with the initial Registration Statements, as
expeditiously as possible, but in no event later than the date which is 30 days
after the date on which the Commission shall indicate as being the first date
such filing may be made. The Registration Statement shall be on Form S-1 and
shall contain (except if otherwise directed by the Purchasers) the "Plan of
Distribution", substantially as attached hereto as Exhibit F. The Company will
attempt to register the Registrable Securities on Form S-3 as soon as such form
is available, provided that the Company shall maintain the effectiveness of the
Registration Statements then in effect until such time as a Registration
Statement on Form S-3 covering the Registrable Securities has been declared
effective by the Commission.
(b) The Company shall use its best efforts to cause the Registration
Statement to be declared effective by the Commission as promptly as possible
after the filing thereof, but in any event prior to the Required Effectiveness
Date, and shall use its best efforts to keep the Registration Statement
continuously effective under the Securities Act until the earlier of (i) the
fifth anniversary of the Effective Date, (ii) the date when all Registrable
Securities covered by such Registration Statement have been sold publicly, or
(iii) the date on which the Registrable Securities are eligible for sale without
registration pursuant to subparagraph (k) of Rule 144 (the "Effectiveness
Period").
(c) The Company shall notify each Purchaser in writing promptly (and in any
event within one business day) after receiving notification from the Commission
that the Registration Statement has been declared effective.
27
(d) If: (i) any Registration Statement is not filed on or prior to the
Filing Date (if the Company files such Registration Statement without affording
the Purchasers the opportunity to review and comment on the same as required by
Section 6.2(a) hereof, the Company shall not be deemed to have satisfied this
clause (i)), or (ii) the Company fails to file with the Commission a request for
acceleration in accordance with Rule 461 promulgated under the Securities Act,
within five Trading Days after 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 will not be subject to further review, or
(iii) the Company fails to respond to any comments made by the Commission within
10 Trading Days in the case of a comment letter which does not pertain to the
Company's financial statements and 20 Trading Days in the case of a comment
letter which pertains to the Company financial statements after the receipt of
such comments, or (iv) a Registration Statement filed hereunder is not declared
effective by the Commission by the Required Effectiveness Date, or (v) after a
Registration Statement is filed with and declared effective by the Commission,
such Registration Statement ceases to be effective as to all Registrable
Securities to which it is required to relate at any time prior to the expiration
of the Effectiveness Period, or the Purchaser shall not be permitted to resell
any Registrable Securities under the Registration Statement, in either case, for
three or more consecutive Trading Days or five Trading Days (which need not be
consecutive Trading Days in any twelve-month period), or (vi) an amendment to a
Registration Statement is not filed by the Company with the Commission within
ten Trading Days (or 20 Trading Days in the case of any amendment which involves
the Company's financial statements or requires the consent of the Company's
accountants) after the Commission's having notified the Company that such
amendment is required in order for such Registration Statement to be declared
effective, or (vii) the Common Stock is not listed or quoted, or is suspended
from trading on it Trading Market for a period of three consecutive Trading Days
(or seven days, which need not be consecutive Trading Days in any twelve month
period), or (viii) the exercise rights of the Purchasers pursuant to the
Warrants are suspended for any reason (any such failure or breach being referred
to as an "Event," and for purposes of clause (i), (iv) or (viii) the date on
which such Event occurs, or for purposes of clause (ii) the date on which such
five Trading Day period is exceeded, or for purposes of clauses (iii) or (vi)
the date which such ten Trading Day-period (or 20 day Trading Period if
applicable) is exceeded, or for purposes of clause (v) the date which such three
Trading Day period (or 5 day Trading Period if applicable) is exceeded, or for
purposes of clause (vii) the date on which such three Trading Day period (or 7
day Trading Period if applicable) is exceeded, being referred to as "Event
Date"), then: (x) on each such Event Date the Company shall pay to each
Purchaser an amount in cash, as partial liquidated damages and not as a penalty,
equal to 1.5% of the aggregate purchase price paid by such Purchaser; and (y) on
each monthly anniversary of each such Event Date thereof (if the applicable
Event shall not have been cured by such date) until the applicable Event is
cured, the Company shall pay to each Purchaser an amount in cash, as partial
liquidated damages and not as a penalty, equal to 1.5% of the aggregate purchase
price paid by such Purchaser. Such payments shall be in partial compensation to
the Purchasers and shall not constitute the Purchaser's exclusive remedy for
such events. If the Company fails to pay any liquidated damages pursuant to this
Section in full within seven days after the date payable, the Company will pay
interest thereon at a rate of 18% per annum (or such lesser maximum amount that
is permitted to be paid by applicable law) to the Purchaser, accruing daily from
the date such liquidated damages are due until such amounts, plus all such
interest thereon, are paid in full. Notwithstanding the above, the 1.5% referred
to in clauses (x) and (y) above will be increased to 2% if the Event or the
28
Event Date, as the case may be, occurs 180 days after the Closing Date. The
Company will not have any liability (i) under clauses (i) to (vi) of this
Section 6.1(d) when the shares of common stock issued or issuable upon the
conversion of the Notes or the exercise of the Warrants can be sold pursuant to
Rule 144(k) or (ii) under clauses (i) to (viii) of this Section 6.1(d) to any
Purchaser which elects the option provided by Section 8(b) of the Notes.
(e) The Company shall not, prior to the Effective Date of the Registration
Statement, 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.
(f) If the Company issues to the Purchasers any Common Stock pursuant to
the Transaction Documents that is not included in the initial Registration
Statement, then the Company shall file an additional Registration Statement
covering such number of shares of Common Stock on or prior to the Filing Date
and shall use it best efforts, but in no event later than the Required
Effectiveness Date, to cause such additional Registration Statement to become
effective by the Commission.
6.2 Registration Procedures. In connection with the Company's registration
obligations hereunder, the Company shall:
(a) Not less than three Trading Days prior to the filing of a Registration
Statement or any related Prospectus or any amendment or supplement thereto
(including any document that would be incorporated or deemed to be incorporated
therein by reference), the Company shall (i) furnish to the Purchasers and
Purchaser Counsel copies of all such documents proposed to be filed, which
documents (other than those incorporated or deemed to be incorporated by
reference) will be subject to the review of such Purchasers and Purchaser
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 respective counsel, to conduct a reasonable
investigation within the meaning of the Securities Act. The Company shall not
file a Registration Statement or any such Prospectus or any amendments or
supplements thereto to which Purchasers holding a majority of the Registrable
Securities shall reasonably object.
(b) (i) Prepare and file with the Commission such amendments, including
post-effective amendments, to each Registration Statement and the Prospectus
used in connection therewith 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; (iii)
respond as promptly as reasonably possible, and in any event within ten days, to
any comments received from the Commission with respect to the Registration
Statement or any amendment thereto and as promptly as reasonably possible
provide the Purchasers 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
29
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Purchasers thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.
(c) Notify the Purchasers of Registrable Securities to be sold and
Purchaser Counsel as promptly as reasonably possible, and (if requested by any
such Person) confirm such notice in writing no later than one Trading Day
thereafter, of any of the following events: (i) the Commission notifies the
Company whether there will be a "review" of any Registration Statement; (ii) the
Commission comments in writing on any Registration Statement (in which case the
Company shall deliver to each Purchaser a copy of such comments and of all
written responses thereto); (iii) any Registration Statement or any
post-effective amendment is declared effective; (iv) the Commission or any other
Federal or state governmental authority requests any amendment or supplement to
any Registration Statement or Prospectus or requests additional information
related thereto; (v) the Commission issues any stop order suspending the
effectiveness of any Registration Statement or initiates any Proceedings for
that purpose; (vi) the Company receives notice of any suspension of the
qualification or exemption from qualification of any Registrable Securities for
sale in any jurisdiction, or the initiation or threat of any Proceeding for such
purpose; or (vii) the financial statements included or incorporated by reference
in any Registration Statement become ineligible for inclusion or incorporation
therein or any statement made in any Registration Statement or Prospectus or any
document incorporated or deemed to be incorporated therein by reference is
untrue in any material respect or any revision to a Registration Statement,
Prospectus or other document is required so that 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 any Registration
Statement, or (ii) any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction, as soon as possible.
(e) Furnish to each Purchaser and Purchaser 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.
(f) Promptly deliver to each Purchaser and Purchaser 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. The Company hereby consents to the use of such Prospectus
and each amendment or supplement thereto by each of the selling Purchasers in
connection with the offering and sale of the Registrable Securities covered by
such Prospectus and any amendment or supplement thereto.
(g) (i) In the time and manner required by each Trading Market, prepare and
file with such Trading Market an additional shares listing application covering
all of the Registrable Securities; (ii) take all steps necessary to cause such
30
Registrable Securities to be approved for listing on each Trading Market as soon
as possible thereafter; (iii) provide to the Purchasers evidence of such
listing; and (iv) maintain the listing of such Registrable Securities on each
such Trading Market or another Eligible Market.
(h) Prior to any public offering of Registrable Securities, use its best
efforts to register or qualify or cooperate with the selling Purchasers and
Purchaser 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 Purchaser 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.
(i) Cooperate with the Purchasers to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be delivered to
a transferee pursuant to a Registration Statement, which certificates shall be
free, to the extent permitted by this Agreement, of all restrictive legends, and
to enable such Registrable Securities to be in such denominations and registered
in such names as any such Purchasers may request.
(j) Upon the occurrence of any event described in Section 6.2(c)(vii), as
promptly as reasonably 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) Cooperate with any due diligence investigation undertaken by the
Purchasers in connection with the sale of Registrable Securities, including,
without limitation, by making available any documents and information; provided
that the Company will not deliver or make available to any Purchaser material,
nonpublic information unless such Purchaser specifically requests in advance to
receive material, nonpublic information in writing.
(l) Comply with all applicable rules and regulations of the Commission.
6.3 Registration Expenses. The Company shall pay (or reimburse the
Purchasers for) all fees and expenses incident to the performance of or
compliance with this Agreement by the Company, including without limitation (a)
all registration and filing fees and expenses, including without limitation
those related to filings with the Commission, any Trading Market and in
connection with applicable state securities or Blue Sky laws, (b) printing
expenses (including without limitation expenses of printing certificates for
Registrable Securities and of printing prospectuses requested by the
Purchasers), (c) messenger, telephone and delivery expenses, (d) fees and
disbursements of counsel for the Company and up to $5,000 for the Purchaser
Counsel, (e) fees and expenses of all other Persons retained by the Company in
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connection with the consummation of the transactions contemplated by this
Agreement, and (f) all listing fees to be paid by the Company to the Trading
Market.
6.4 Indemnification.
(a) Indemnification by the Company. The Company shall, notwithstanding any
termination of this Agreement, indemnify and hold harmless each Purchaser, the
officers, directors, partners, members, 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 Purchaser
(within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) and the officers, directors, partners, members, agents and
employees of each such controlling Person, to the fullest extent permitted by
applicable law, from and against any and all 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 (i)
such untrue statements, alleged untrue statements, omissions or alleged
omissions are based solely upon information regarding such Purchaser furnished
in writing to the Company by such Purchaser expressly for use therein, or to the
extent that such information relates to such Purchaser or such Purchaser's
proposed method of distribution of Registrable Securities and was reviewed and
expressly approved in writing by such Purchaser expressly for use in the
Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto or (ii) in the case of an occurrence of an event
of the type specified in Section 6.2(c)(v)-(vii), the use by such Purchaser of
an outdated or defective Prospectus after the Company has notified such
Purchaser in writing that the Prospectus is outdated or defective and prior to
the receipt by such Purchaser of the Advice contemplated in Section 6.5.
(b) Indemnification by Purchasers. Each Purchaser shall, severally and not
jointly, indemnify and hold harmless the Company, its 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) arising solely out of any 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 arising solely out of
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 (i) such untrue
statements or omissions are based solely upon information regarding such
Purchaser furnished in writing to the Company by such Purchaser expressly for
inclusion in such Registration Statement or such Prospectus, or to the extent
that such information relates to such Purchaser or such Purchaser's proposed
method of distribution of Registrable Securities and was reviewed and expressly
32
approved in writing by such Purchaser expressly for use in the Registration
Statement, such Prospectus or such form of Prospectus or in any amendment or
supplement thereto or (ii) in the case of an occurrence of an event of the type
specified in Section 6.2(c)(v)-(vii), the use by such Purchaser of an outdated
or defective Prospectus after the Company has notified such Purchaser in writing
that the Prospectus is outdated or defective and prior to the receipt by such
Purchaser of the Advice contemplated in Section 6.5. In no event shall the
liability of any selling Purchaser hereunder be greater in amount than the
dollar amount of the net proceeds received by such Purchaser upon the sale of
the Registrable Securities giving rise to such indemnification obligation.
(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 shall promptly 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: (i) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (ii) 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 (iii) 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 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) provided, however, that the Indemnifying Party shall
not, in connection with any one action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstance, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys at any time for all such Indemnified
Parties.. 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. 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
33
Section) shall be paid to the Indemnified Party, as incurred, within ten Trading
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 6.4(a) or
(b) is unavailable to an Indemnified Party (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 6.4(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 6.4(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.
Notwithstanding the provisions of this Section 6.4(d), no Purchaser shall be
required to contribute, in the aggregate, any amount in excess of the amount by
which the net proceeds actually received by such Purchaser from the sale of the
Registrable Securities subject to the Proceeding exceeds the amount of any
damages that such Purchaser has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. 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.
6.5 Dispositions. Each Purchaser agrees that it will comply with the
prospectus delivery requirements of the Securities Act as applicable to it in
connection with sales of Registrable Securities pursuant to the Registration
Statement. Each Purchaser further agrees that, upon receipt of a notice from the
Company of the occurrence of any event of the kind described in Sections
6.2(c)(v), (vi) or (vii), such Purchaser will discontinue disposition of such
Registrable Securities under the Registration Statement until such Purchaser's
receipt of the copies of the supplemented Prospectus and/or amended Registration
34
Statement contemplated by Section 6.2(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. The Company may provide
appropriate stop orders to enforce the provisions of this paragraph.
6.6 No Piggyback on Registrations. Except as set forth on Schedule 3.1(x)
neither the Company nor any of its security holders (other than the Purchasers
in such capacity pursuant hereto) may include securities of the Company in the
Registration Statement other than the Registrable Securities, and the Company
shall not after the date hereof enter into any agreement providing any such
right to any of its security holders.
6.7 Piggy-Back Registrations. If at any time during the Effectiveness
Period there is not an effective Registration Statement covering all of the
Registrable Securities and 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, then the Company shall send to each Purchaser written notice of
such determination and if, within fifteen days after receipt of such notice, any
such Purchaser shall so request in writing, the Company shall include in such
registration statement all or any part of such Registrable Securities such
Purchaser requests to be registered.
ARTICLE VII.
MISCELLANEOUS
7.1 Termination. This Agreement may be terminated by the Company or any
Purchaser, by written notice to the other parties, if the Closing has not been
consummated by the third Trading Day following the date of this Agreement;
provided that no such termination will affect the right of any party to sue for
any breach by the other party (or parties).
7.2 Fees and Expenses. At the Closing, the Company shall pay to Iroquois
Master Fund, Ltd. an aggregate of $50,000 for their legal fees and expenses
incurred in connection with the preparation and negotiation of this Agreement,
of which amount $20,000 has been previously paid by the Company. In lieu of the
foregoing remaining payment, Iroquois Master Fund, Ltd. may retain such amount
at the Closing. Except as expressly set forth in the Transaction Documents to
the contrary, each party shall pay the fees and expenses of its advisers,
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. The Company shall pay all transfer agent fees,
stamp taxes and other taxes and duties levied in connection with the issuance of
any Securities.
7.3 Entire Agreement. The Transaction Documents, together with the Exhibits
and Schedules thereto, contain the entire understanding of the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
35
acknowledge have been merged into such documents, exhibits and schedules. At or
after the Closing, and without further consideration, the Company will execute
and deliver to the Purchasers such further documents as may be reasonably
requested in order to give practical effect to the intention of the parties
under the Transaction Documents.
7.4 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 earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Section prior to 6:30 p.m. (New York City 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 number specified in
this Agreement later than 6:30 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 Trading Day
following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given. The address for such notices and communications shall be
as follows:
If to the Company: CEL-SCI Corporation
8229 Boone Blvd. #802
Vienna, VA 22182
Attn: Geert Kersten
Fax No.: 703-506-9471
With a copy to: With a copy to:
Hart & Trinen
1624 Washington Street
Denver, CO 80203
Attn: William T. Hart
Fax No.: 303-839-5414
If to the Purchasers: To the address set forth under such
Purchaser's name on the signature pages
attached hereto.
or such other address as may be designated in writing hereafter, in the
same manner, by such Person.
7.5 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and holders collectively holding 51% of the aggregate principal
amount outstanding under the Notes or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver 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 subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right. 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 Purchasers under Article VI and
36
that does not directly or indirectly affect the rights of other Purchasers may
be given by Purchasers holding at least a majority of the Registrable Securities
to which such waiver or consent relates.
7.6 Construction. 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. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
7.7 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers. Any Purchaser may assign
its rights under this Agreement to any Person to whom such Purchaser assigns or
transfers any Securities, provided such transferee agrees in writing to be
bound, with respect to the transferred Securities, by the provisions hereof that
apply to the "Purchasers." Notwithstanding anything to the contrary herein,
Securities may be assigned to any Person in connection with a bona fide margin
account or other loan or financing arrangement secured by such Securities.
7.8 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except that each Related Person is an intended third party
beneficiary of Section 4.14 and each Indemnified Party is an intended third
party beneficiary of Section 6.4 and (in each case) may enforce the provisions
of such Sections directly against the parties with obligations thereunder.
7.9 Governing Law; Venue; Waiver of Jury Trial. All questions concerning
the construction, validity, enforcement and interpretation of this Agreement
shall be governed by and construed and enforced in accordance with the internal
laws of the State of New York, without regard to the principles of conflicts of
law thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by any
of the Transaction Documents (whether brought against a party hereto or its
respective Affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York, Borough of Manhattan. Each party hereto hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
the City of New York, Borough of Manhattan for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of any of this
Agreement), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is
improper. Each party hereto hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) 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
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. Each party hereto hereby irrevocably waives, to
37
the fullest extent permitted by applicable law, any and all right to trial by
jury in any legal proceeding arising out of or relating to this Agreement or any
of the Transaction Documents or the transactions contemplated hereby or thereby.
If either party shall commence an action or proceeding to enforce any provisions
of this Agreement or any Transaction Document, then the prevailing party in such
action or proceeding shall be reimbursed by the other party for its reasonable
attorneys' fees and other reasonable costs and expenses incurred with the
investigation, preparation and prosecution of such action or proceeding.
7.10 Survival. The representations, warranties, agreements and covenants
contained herein shall survive the Closing and the delivery, exercise and/or
conversion of the Securities, as applicable.
7.11 Execution. This Agreement may be executed in two or more counterparts,
all of which when taken together shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid and 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
page were an original thereof.
7.12 Severability. If any provision of this Agreement is held to be invalid
or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
7.13 Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights.
7.14 Replacement of Securities. If any certificate or instrument evidencing
any Securities is mutilated, lost, stolen or destroyed, the Company shall issue
or cause to be issued in exchange and substitution for and upon cancellation
thereof, or in lieu of and substitution therefor, a new certificate or
instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.
7.15 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
38
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.
7.16 Payment Set Aside. To the extent that the Company makes a payment or
payments to any Purchaser hereunder or pursuant to the Notes or Warrants or any
Purchaser enforces or exercises its rights hereunder or thereunder, and such
payment or payments or the proceeds of such enforcement or exercise or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside, recovered from, disgorged by or are required to be refunded, repaid
or otherwise restored to the Company by a trustee, receiver or any other Person
under any law (including, without limitation, any bankruptcy law, state or
federal law, common law or equitable cause of action), then to the extent of any
such restoration the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.
7.17 Usury. To the extent it may lawfully do so, the Company hereby agrees
not to insist upon or plead or in any manner whatsoever claim, and will resist
any and all efforts to be compelled to take the benefit or advantage of, usury
laws wherever enacted, now or at any time hereafter in force, in connection with
any claim, action or proceeding that may be brought by any Purchaser in order to
enforce any right or remedy under any Transaction Document. Notwithstanding any
provision to the contrary contained in any Transaction Document, it is expressly
agreed and provided that the total liability of the Company under the
Transaction Documents for payments in the nature of interest shall not exceed
the maximum lawful rate authorized under applicable law (the "Maximum Rate"),
and, without limiting the foregoing, in no event shall any rate of interest or
default interest, or both of them, when aggregated with any other sums in the
nature of interest that the Company may be obligated to pay under the
Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum
contract rate of interest allowed by law and applicable to the Transaction
Documents is increased or decreased by statute or any official governmental
action subsequent to the date hereof, the new maximum contract rate of interest
allowed by law will be the Maximum Rate of interest applicable to the
Transaction Documents from the effective date forward, unless such application
is precluded by applicable law. If under any circumstances whatsoever, interest
in excess of the Maximum Rate is paid by the Company to any Purchaser with
respect to indebtedness evidenced by the Transaction Documents, such excess
shall be applied by such Purchaser to the unpaid principal balance of any such
indebtedness or be refunded to the Company, the manner of handling such excess
to be at such Purchaser's election.
7.18 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. The decision of each Purchaser to
purchase Securities pursuant to this Agreement has been made by such Purchaser
independently of any other Purchaser and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company or of the Subsidiary which may have been
made or given by any other Purchaser or by any agent or employee of any other
Purchaser, and no Purchaser or any of its agents or employees shall have any
39
liability to any other Purchaser (or any other Person) relating to or arising
from any such information, materials, statements or opinions. Nothing contained
herein or in any Transaction Document, and no action taken by any Purchaser
pursuant thereto, shall be deemed to constitute the Purchasers as a partnership,
an association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Document. The Company hereby confirms that it understands and agrees
that the Purchasers are not acting as a "group" as that term is used in Section
13(d) of the Exchange Act. Each Purchaser acknowledges that no other Purchaser
has acted as agent for such Purchaser in connection with making its investment
hereunder and that no other Purchaser will be acting as agent of such Purchaser
in connection with monitoring its investment hereunder. Each Purchaser shall be
entitled to independently protect and enforce its rights, including without
limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose. Each
Purchaser represents that it has been represented by its own separate legal
counsel in its review and negotiations of this Agreement and the Transaction
Documents and each party represents and confirms that Malhotra & Associates LLP
represents only Iroquois Master Fund, Ltd. in connection with this Agreement and
the other Transaction Documents.
7.19 Adjustments in Share Numbers and Prices. In the event of any stock
split, subdivision, dividend or distribution payable in shares of Common Stock
(or other securities or rights convertible into, or entitling the holder thereof
to receive directly or indirectly shares of Common Stock), combination or other
similar recapitalization or event occurring after the date hereof, each
reference in this Agreement to a number of shares or a price per share shall be
amended to appropriately account for such event.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOLLOW]
40
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
CEL-SCI CORPORATION
By:
----------------------------------------
Name:
Title:
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES OF PURCHASERS FOLLOW.]
41
Iroquois Master Fund, Ltd.
By: _________________________
Name: _________________________
Title:_________________________
Note Principal Amount: $_________
Address for Notice:
Iroquois Master Fund Ltd.
641 Lexington Avenue, 28th Floor
New York, NY 10022
Facsimile No.:212-207-3452
Telephone No.:212-974-3070
Attn: Joshua Silverman
With a copy to:
Malhotra & Associates LLP
11 Penn Plaza, 5th Floor
New York, New York 10001
Facsimile No.: (212) 504-0863
Telephone No.: (212) 593-2284
Attn: Gary Malhotra, Esq.
[Signature Page to Securities Purchase Agreement]
42
[Purchaser]
By: _________________________
Name: _________________________
Title:_________________________
Note Principal Amount: $_________
Address for Notice:
------------------------
------------------------
------------------------
Facsimile No.:
Telephone No.:
Attn:
[Signature Page to Securities Purchase Agreement]
43
Exhibits:
A. Form of Note
B. Form of Warrant
C. Transfer Agent Instructions
D. Form of Opinion of Company Counsel
E. Form of Security Agreement
F. Plan of Distribution
44
Schedule A
- --------------------------------------------------------------------------------
NOTE PRINCIPAL WARRANT
PURCHASERS AMOUNT SHARES Purchase Price
- --------------------------------------------------------------------------------
Iroquois Master Fund, Ltd.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CEL-SCI CORPORATION
Schedule 3.1:
3.1(a) Subsidiaries: Viral Technologies Inc.
3.1(g) Capitalization:
Exercise
Authorized Outstanding Price
---------- ----------- --------
Common Stock 200,000,000 81,502,038
Incentive Stock Option Plan 6,100,000 3,969,433
Non-Qualified Stock Option Plan 9,760,000 6,078,062
Stock Bonus Plan 3,940,000 1,540,864 *
Stock Compensation Plan 1,500,000 25,050 *
Outstanding Warrants
--------------------
Jena Holdings LLC Ltd. 271,370 $ 0.55
Lamey Corporation 272,108 $ 1.75
Karen Carson 15,000 $ 0.73
Lucci Financial Group 100,000 $ 1.50
Lucci Financial Group 80,000 $ 1.00
Lucci Financial Group 80,000 $ 2.00
Mooring Capital 23,758 $ 0.77
Eastern Biotech 400,000 $ 0.47
Eastern Biotech 800,000 $ 1.25
Bristol Capital, LLC 197,863 $ 0.83
Longview Fund, LP 70,588 $ 1.32
Longview International Equity Fund, LP 70,588 $ 1.32
Longview Equity Fund, LP 105,882 $ 1.32
Capital Ventures International 176,460 $ 1.32
Enable Growth Partners 35,294 $ 1.32
Robert Schacter 48,400 $ 1.32
Thomas Griesel 12,115 $ 1.32
Eric Sloane 26,000 $ 1.32
Financial West Group 4,500 $ 1.32
Cher Ami Holdings 591,176 $ 0.56
Cher Ami Holdings 375,000 $ 0.65
Cher Ami Holdings 800,000 $ 0.82
Wachovia Capital 76,642 $ 1.37
Riviera Ventures Inc. 375,000 $ 0.73
* These shares are included in the total number of Common Stock outstanding
listed above.
Maxim group will receive 4% warrant coverage in connection with this
financing.
Schedule 3.1(i): None
Schedule 3.1(t): Maxim Group: 6% commission and 4% warrant coverage
Schedule 3.1(w): CEL-SCI Corporation received a letter on June 23,
2005 stating that the Company did not meet the continued
listing requirements for the American Stock Exchange. On
June 6, 2006, the Company received a letter from the
American Stock Exchange stating that the Company has
resolved all continued listing deficiencies.
Schedule 3.1(x): The Company has agreed to register the shares
issuable to the Maxim Group LLC upon the exercise of
warrants which will be issued to the Maxim Group in
connection with the Notes.
Schedule 3.1(dd): None
Schedule 3.1(ee): None
Schedule 3.1 (gg):None
MA Draft 7/24/06
Exhibit A
- ---------
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS OR BLUE SKY LAWS. NOTWITHSTANDING THE FOREGOING, THESE
SECURITIES AND THE SECURITIES ISSUABLE UPON CONVERSION OF THESE SECURITIES MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.
No. [ ] $[ ]
Date: August 4, 2006
CEL-SCI CORPORATION
SENIOR SECURED CONVERTIBLE NOTE
THIS NOTE is one of a series of duly authorized and issued Notes of
CEL-SCI Corporation, a Colorado corporation (the "Company"), designated as
its Senior Secured Convertible Notes due August 4, 2011, in the aggregate
principal amount of $________ (the "Notes").
FOR VALUE RECEIVED, the Company promises to pay to the order of [Holder]
or its registered assigns (the "Holder"), the principal sum of [__________]
$(__________) on August 4, 2011 (the "Maturity Date"), or such earlier date as
the Notes are required or permitted to be repaid as provided hereunder, and to
pay interest to the Holder on the aggregate unconverted and then outstanding
principal amount of this Note in accordance with the provisions hereof. The
principal amount of this Note may be increased as set forth in Section 2(d)
below. Notwithstanding the foregoing, the Company hereby unconditionally
promises to pay to the order of the Holder interest on any principal or interest
payable hereunder that shall not be paid in full when due, whether at the time
of any stated interest payment date or principal payment date or maturity or by
prepayment, acceleration or declaration or otherwise, for the period from and
including the due date of such payment to but excluding the date the same is
paid in full, at a rate of 18% per annum (but in no event in excess of the
maximum rate permitted under applicable law).
Interest payable under this Note shall be computed on the basis of a year
of 360 days and actual days elapsed (including the first day but excluding the
last day) occurring in the period for which interest is payable.
Payments of principal and interest shall be made in lawful money of the
United States of America to the Holder at its address as provided in Section 13
or by wire transfer to such account specified from time to time by the Holder
hereof for such purpose as provided in Section 13.
1. Definitions. In addition to the terms defined elsewhere in this Note,
(a) capitalized terms that are not otherwise defined herein have the meanings
given to such terms in the Securities Purchase Agreement, dated as of August 4,
2006, among the Company and the Purchasers identified therein (the "Purchase
Agreement"), and (b) the following terms have the meanings indicated:
"Conversion Date" means either (i) the date a Conversion Notice is
delivered to the Company together with the Conversion Schedule pursuant to
Section 6(a) or (ii) the date a conversion takes place pursuant to Section
6(b).
"Conversion Notice" means a written notice in the form attached
hereto as Schedule 1.
"Conversion Price" means $0.86, subject to adjustment from
time to time pursuant to Section 10.
"Equity Conditions" means, with respect to a specified issuance of
Common Stock, that each of the following conditions is satisfied: (i) the
number of authorized but unissued and otherwise unreserved shares of
Common Stock is sufficient for such issuance; (ii) such shares of Common
Stock are registered for resale by the Holder and may be sold by the
Holder pursuant to an effective Registration Statement covering the
Underlying Shares or all such shares may be sold without volume
restrictions pursuant to Rule 144(k) under the Securities Act; (iii) the
Common Stock is listed or quoted (and is not suspended from trading) on an
Eligible Market and such shares of Common Stock are approved for listing
upon issuance; (iv) such issuance would be permitted in full without
violating Section 6(c) hereof or the rules or regulations of any Trading
Market; (v) no Bankruptcy Event has occurred; (vi) the Company is not in
default with respect to any material obligation hereunder or under any
other Transaction Document; and (vii) no public announcement of a pending
or proposed Change of Control transaction has occurred that has not been
consummated.
"Event Equity Value" means 115% of the arithmetic average of the
VWAP for each of the five Trading Days preceding the date of delivery of
the notice requiring payment of the Event Equity Value, provided that if
the Company does not make such required payment (together with any other
payments, expenses and liquidated damages then due and payable under the
Transaction Documents) when due or, in the event the Company disputes in
good faith the occurrence of the Triggering Event pursuant to which such
2
notice relates, does not instead deposit such required payment (together
with such other payments, expenses and liquidated damages then due) in
escrow with an independent third-party escrow agent within five Trading
Days of the date such required payment is due, then the Event Equity Value
shall be 115% of the greater of (a) the arithmetic average of the VWAP for
each of the five Trading Days preceding the date of delivery of the notice
requiring payment of the Event Equity Value and (b) the arithmetic average
of the VWAP for each of the five Trading Days preceding the date on which
such required payment (together with such other payments, expenses and
liquidated damages) is paid in full.
"Initial Interest Period" means the period beginning on the Closing
Date and ending on September 30, 2006.
"Interest Period" means a period of six months for the calculation
of the interest on the Note, provided that any such period (i) shall start
on the last day of the preceding period (other than the Initial Interest
Period); (ii) which would otherwise end on a day which is not a Trading
Day shall be extended to the next succeeding day which is a Trading Day
and the following interest period shall then end on the day on which it
would have ended if the preceding interest period had not been so
extended; and (iii) which would otherwise overrun the Maturity Date shall
be shortened to end on the Maturity Date.
"Interest Rate" has the meaning set forth in Section 2(a) herein.
"LIBOR" means, in respect of a six-month Interest Period (i) the
rate of interest per annum (expressed with a maximum of 4 decimals)
offered for deposits in the relevant currency and amount which appears on
Telerate page 3750 or on any other relevant Telerate, Bloomberg or Reuter
page as of 11:00 a.m. London time two (2) Business Days prior to the
commencement of the relevant Interest Period; or (ii) should such
quotation not be published on the relevant day and time such interest rate
per annum according to such other widely published LIBOR quotation as the
Company may select for the relevant Interest Period as of 11:00 a.m.
London time two (2) Business Days prior to the commencement of the
Interest Period.
"Original Issue Date" means the date of the first issuance of any
Notes, regardless of the number of transfers of any particular Note.
"Principal Payment Date" means any date on which payment of a
principal amount of this Note shall be due and payable by the Company in
accordance with Section 2(b).
"Triggering Event" means any of the following events: (a) the
Company fails for any reason to deliver a certificate evidencing any
Securities to a Purchaser within five Trading Days after delivery of such
certificate is required pursuant to any Transaction Document or the
exercise or conversion rights of the Holders pursuant to any Transaction
Document are otherwise suspended for any reason; (b) the Company fails to
have available a sufficient number of authorized but unissued and
3
otherwise unreserved shares of Common Stock available to issue Underlying
Shares upon any exercise of the Note; (c) at any time after the Closing
Date, any Common Stock issuable pursuant to the Transaction Documents is
not listed on an Eligible Market; (d) the Company effects or publicly
announces its intention to effect any exchange, recapitalization or other
transaction that effectively requires or rewards physical delivery of
certificates evidencing the Common Stock; (e) the effectiveness of the
Registration Statement lapses for any reason or the Holder shall not be
permitted to resell any Underlying Shares under the Registration
Statement, in either case, for three or more consecutive Trading Days or
five Trading Days (which need not be consecutive Trading Days in any
twelve month period) and the common stock issued or issuable upon the
conversion of this Note cannot be sold pursuant to Rule 144(k); (f) the
Company fails to make any payment of cash or stock required under the
Transaction Documents and such failure is not cured within five days after
notice of such default is first given to the Company by a Purchaser; or
(g) the Company breaches any representation or warranty or covenant or
defaults in the timely performance of any other obligation under the
Transaction Documents and such breach or default continues uncured for a
period of 20 days after the date on which notice of such breach or default
is first given to the Company by a Purchaser (it being understood that no
prior notice need be given in the case of a breach or default that cannot
reasonably be cured within 20 days).
2. Principal and Interest.
(a) The Company shall pay interest to the Holder on the aggregate
unconverted and then outstanding principal amount of this Note for each Interest
Period at a rate (the "Interest Rate") which is the greater of (i) 8% per annum,
and (ii) LIBOR plus 300 basis points per annum. Each Interest Period, other than
the Initial Interest Period shall begin on March 31, June 30, September 30 and
December 31 of each year occuring prior to the Maturity Date. Interest shall be
payable quarterly in arrears on each March 31, June 30, September 30 and
December 31, except if such date is not a Trading Day, in which case such
interest shall be payable on the next succeeding Trading Day (each, an "Interest
Payment Date"). The first Interest Payment Date shall be September 30, 2006. The
amount of interest paid on each Interest Payment Date shall be referred to as
the "Interest Payment Amount").
(b) Beginning on the first Trading Day on the seven month anniversary of
the Original Issue Date and on the first Trading Day for each of the next 29
months thereafter (each, a "Principal Payment Date"), the Company shall pay 2.5%
of the original principal amount of this Note to the Holder (each, a "Monthly
Installment").
(c) Subject to the conditions and limitations set forth below, the Company
may pay interest or principal on this Note in (i) cash or (ii) shares of Common
Stock. The Company must deliver written notice to the Holder indicating the
manner in which it intends to pay interest and principal at least 20 Trading
Days prior to each Interest Payment Date (a "Interest Payment Notice") or
Principal Payment Date (a "Principal Payment Notice", and together with the
Interest Payment Notice, each a "Payment Notice"), as applicable, but the
Company may indicate in any such notice that the election contained therein
shall continue for subsequent Interest Payment Dates or Principal Payment Dates
4
until revised. Failure to timely provide such written notice shall be deemed an
election by the Company to pay the amount of any interest or principal in cash.
(d) Notwithstanding the foregoing, the Company may not pay interest or
principal by issuing shares of Common Stock unless (i) all of the Equity
Conditions are then satisfied with respect to all shares of Common Stock then
issuable upon conversion of all outstanding Notes, and (ii) as to such Interest
Payment Date and Principal Payment Date, prior to or on the date of the
applicable Payment Notice or if any Payment Notice indicates that such election
contained therein shall continue for subsequent Interest Payment Dates or
Principal Payment Dates, prior to or on the 20th Trading Day prior to such
Interest Payment Date or Principal Date (in each case, a "Share Delivery Date"),
as the case may be, the Company shall have delivered to the Holder's account
with The Depository Trust Company ("DTC") (or by physical certificate if the
Holder does not have an account with the DTC) a number of shares of Common Stock
(the "Conversion Shares") to be applied against such Interest Payment Amount or
Monthly Installment, as applicable, equal to:
(A) with respect to an Interest Payment Amount, the quotient of (x) the
applicable Interest Payment Amount divided by (y) the lesser of (I) the then
Conversion Price and (II) 90% of the arithmetic average of the VWAP for each of
the 20 Trading Days ending immediately prior to the 23rd Trading Day that is
immediately prior to the applicable Interest Payment Date (subject to adjustment
for any stock dividend, stock split, stock combination or other similar event
affecting the Common Stock during such 20 Trading Day period); and
(B) with respect to a Monthly Installment, the quotient of (x) the applicable
Monthly Installment divided by (y) the lesser of (I) the then Conversion Price
and (II) 90% of the arithmetic average of the VWAP for each of the 20 Trading
Days ending immediately prior to the 23rd Trading Day that is immediately prior
to the applicable Principal Payment Date (subject to adjustment for any stock
dividend, stock split, stock combination or other similar event affecting the
Common Stock during such 20 Trading Day period).
Within 3 Trading Days of each Interest Payment Date or Principal Payment Date,
as applicable, the Company shall pay to the Holder additional shares of Common
Stock required to meet its obligations under Section 2(e) below (to the extent
the previously delivered Conversion Shares were not sufficient), or credit
against future interest or principal payments to be made on subsequent Interest
Payment Dates or Principal Payment Dates or Share Delivery Dates, as the case
may be, the excess of the Conversion Shares delivered to the Holders pursuant to
this Section 2(d) over the amount of shares of Common Stock due under Section
2(e). If the Company is required to pay interest in cash on any Interest Payment
Date but fails to do so, the Holder may (but shall not be required to) treat
such interest as if it had been added to the principal amount of this Note as of
such Interest Payment Date or accept any number of shares of Common Stock in
lieu of such interest payment.
(e) In the event that the Company elects to pay interest or principal on
any Interest Payment Date or Principal Payment Date, as applicable, in shares of
Common Stock, the number of shares of Common Stock to be issued to each Holder
as such interest or principal shall be (i) with respect to interest, determined
by dividing the aggregate amount of interest then payable to such Holder by the
lower of (y) the Conversion Price (as adjusted in accordance herewith) and (z)
5
the Market Price (as defined below) as of the applicable Interest Payment Date,
and rounding up to the nearest whole share, (ii) with respect to principal,
determined by dividing the total principal then payable to such Holder by the
lower of (y) the Conversion Price (as adjusted in accordance herewith) and (z)
the Market Price as of the applicable Principal Payment Date, and rounding up to
the nearest whole share, and (iii) paid to such Holder in accordance with
Section 2(f) below, taking into account the Conversion Shares delivered pursuant
to Section 2(d). The term "Market Price" shall mean 90% of the arithmetic
average of the VWAP for each of the 20 Trading Days ending immediately prior to
the applicable Interest Payment Date or Principal Payment Date, as the case may
be (not including such date).
(f) In the event that any interest or principal is paid in Common Stock,
the Company shall within three Trading Days of such Interest Payment Date or
Principal Payment Date or on or before the Share Delivery Date (i) issue and
deliver to such Holder a certificate, free of restrictive legends, 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, or (ii) at all times after the Holder has
notified the Company that this clause (ii) shall apply, credit the number of
shares of Common Stock to which the Holder shall be entitled to the Holder's or
its designee's balance account with The DTC through its Deposit Withdrawal Agent
Commission System.
(g) Except as otherwise set forth herein, the Notes may not be prepaid in
whole or part absent written consent from the Holder.
3. Ranking and Covenants.
(a) Except as set forth in Schedule 3.1(dd) or as otherwise permitted in
Section 4.10(a) of the Purchase Agreement (the "Existing Indebtedness"), no
indebtedness of the Company is senior to, or pari passu with, this Note in right
of payment, whether with respect to interest, damages or upon liquidation or
dissolution or otherwise. Other than the Existing Indebtedness and any renewal,
refinancing or replacement thereof that does not exceed the aggregate amount of
the Existing Indebtedness and the borrowing availability under the related
credit or loan agreements on the date hereof, the Company will not, and will not
permit any Subsidiary to, directly or indirectly, enter into, create, incur,
assume or suffer to exist any indebtedness of any kind, that is senior or pari
passu in any respect to the Company's obligations under the Notes, other than
indebtedness secured by purchase money security interests (which will be senior
only as to the underlying assets covered thereby) and indebtedness under capital
lease obligations (which will be senior only as to the assets covered thereby);
and the Company will not, and will not permit any subsidiary to, directly or
indirectly, incur any Lien on or with respect to any of its property or assets
now owned or hereafter acquired or any interest therein or any income or profits
therefrom.
(b) So long as any Notes are outstanding, neither the Company nor any
Subsidiary shall, directly or indirectly, (i) redeem, purchase or otherwise
acquire any capital stock or set aside any monies for such a redemption,
purchase or other acquisition or (ii) issue any Common Stock Equivalents with an
effective price or a number of underlying shares that floats or resets or
otherwise varies or is subject to adjustment based (directly or indirectly) on
market prices of the Common Stock (a "Floating Price Security).
6
(c) The Company covenants that it will at all times reserve and keep
available out of its authorized but unissued and otherwise unreserved Common
Stock, solely for the purpose of enabling it to issue Underlying Shares as
required hereunder, the number of Underlying Shares which are then issuable and
deliverable upon the conversion of (and otherwise in respect of) this entire
Note (taking into account the adjustments set forth in Section 10 and
disregarding any limitations set forth in Section 6(c)), free from preemptive
rights or any other contingent purchase rights of Persons other than the Holder.
The Company covenants that all Underlying Shares so issuable and deliverable
shall, upon issuance in accordance with the terms hereof, be duly and validly
authorized and issued and fully paid and nonassessable.
4. Registration of Notes. The Company shall register the Notes upon records
to be maintained by the Company for that purpose (the "Note Register") in the
name of each record holder thereof from time to time. The Company may deem and
treat the registered Holder of this Note as the absolute owner hereof for the
purpose of any conversion hereof or any payment of interest or principal hereon,
and for all other purposes, absent actual notice to the contrary.
5. Registration of Transfers and Exchanges. The Company shall register the
transfer of any portion of this Note in the Note Register upon surrender of this
Note to the Company at its address for notice set forth herein. Upon any such
registration or transfer, a new Note, in substantially the form of this Note
(any such new Note, a "New Note"), evidencing the portion of this Note so
transferred shall be issued to the transferee and a New Note evidencing the
remaining portion of this Note not so transferred, if any, shall be issued to
the transferring Holder. The acceptance of the New Note by the transferee
thereof shall be deemed the acceptance by such transferee of all of the rights
and obligations of a holder of a Note. This Note is exchangeable for an equal
aggregate principal amount of Notes of different authorized denominations, as
requested by the Holder surrendering the same. No service charge or other fee
will be imposed in connection with any such registration of transfer or
exchange.
6. Conversion.
(a) At the Option of the Holder. All or any portion of this Note shall be
convertible into shares of Common Stock (subject to the limitations set forth in
Section 6(c)), at the option of the Holder, at any time and from time to time
from and after the Original Issue Date. The number of Underlying Shares issuable
upon any conversion hereunder shall equal the outstanding principal amount of
this Note to be converted, plus the amount of any accrued but unpaid interest on
this Note through the Conversion Date, divided by the Conversion Price on the
Conversion Date. The Holder shall effect conversions under this Section 6(a) by
delivering to the Company a Conversion Notice together with a schedule in the
form of Schedule 2 attached hereto (the "Conversion Schedule"). If the Holder is
converting less than all of the principal amount of this Note, or if a
conversion hereunder may not be effected in full due to the application of
Section 6(c), the Company shall honor such conversion to the extent permissible
hereunder and shall promptly deliver to the Holder a Conversion Schedule
indicating the principal amount (and accrued interest) which has not been
converted.
7
(b) At the Option of the Company.
(i) If, at any time following the one year anniversary of the
Effective Date, the VWAP for any 20 consecutive Trading Days exceeds 200%
of the Conversion Price (the "Threshold Price"), then the Company may
require the Holder to convert all or any part of the outstanding principal
amount of the Notes into Common Stock based on the Conversion Price (the
"Conversion Right").
(ii) The Company may require a conversion pursuant to Section 6(b)(i)
above by delivering to the Holder an irrevocable written notice of its
exercise of its Conversion Right not more than 5 Trading Days after the end
of the 20 consecutive Trading Day period contemplated by Section 6(b)(i),
and the 15th Trading Day after the date any such notice is delivered to the
Holder will be the "Conversion Date" for such required conversion.
(iii) Notwithstanding anything to the contrary, the Company may not
require any conversion under this Section 6 (and any notice thereof will be
void), unless from the beginning of the 20 consecutive Trading Days used to
determine whether the Common Stock has achieved the Threshold Price through
the Conversion Date (the "Conversion Period") (i) the VWAP for each Trading
Day during such Conversion Period exceeds the Threshold Price, (ii) the
Equity Conditions are satisfied (or waived in writing by the applicable
Holder) on each Trading Day with the respect to all Underlying Shares
issuable upon conversion of the portion of the Notes being converted, and
(iii) the average daily trading volume as reported on Bloomberg, L.P.
during such Conversion Period (determined by calculating the arithmetic
average of the daily trading volume for each Trading Day in such Conversion
Period) is greater than 250,000 shares. Any conversion pursuant to this
Section 6(b) shall be pro rata among all of the Holders, based on such
Holders then outstanding principal amount of Notes.
(c) Certain Conversion Restrictions.
(i) Subject to Section 6(c)(ii), the number of shares of Common
Stock that may be acquired by a Holder upon any conversion of Notes (or
otherwise in respect hereof) shall be limited to the extent necessary to
insure that, following such conversion (or other issuance), the total
number of shares of Common Stock then beneficially owned by such Holder
and its Affiliates and any other Persons whose beneficial ownership of
Common Stock would be aggregated with such Holder's for purposes of
Section 13(d) of the Exchange Act, does not exceed 4.999% (the "Threshold
Percentage") or 9.999% (the "Maximum Percentage") of the total number of
issued and outstanding shares of Common Stock (including for such purpose
the shares of Common Stock issuable upon such conversion). For such
purposes, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder.
(ii) Notwithstanding the provisions of Section 6(c)(i), by written
notice to the Company, the Holder shall have the right (x) at any time and
from time to time to reduce its Maximum Percentage immediately upon notice
to the Company in the event and only to the extent that Section 16 of the
8
Exchange Act or the rules promulgated thereunder (or any successor statute
or rules) is changed to reduce the beneficial ownership percentage
threshold thereunder to a percentage less than 9.999% and (y) at any time
and from time to time, to waive the provisions of this Section insofar as
they relate to the Threshold Percentage or to increase its Threshold
Percentage (but not in excess of the Maximum Percentage) unless the Holder
shall have, by written instrument delivered to the Company, irrevocably
waived its rights to so increase its Threshold Percentage, but (i) any
such waiver or increase will not be effective until the 61st day after
such notice is delivered to the Company, and (ii) any such waiver or
increase or decrease will apply only to the Holder and not to any other
holder of Notes.
(iii) If the Company has not previously obtained Shareholder
Approval (as defined below), then the Company may not issue in excess of
the Issuable Maximum upon conversions of the Notes. The "Issuable Maximum"
means a number of shares equal to 19.99% of the of the Company's
outstanding shares on the Closing Date. Each Holder shall be entitled to a
portion of the Issuable Maximum equal to the quotient obtained by
dividing: (x) the principal amount of Notes issued and sold to such Holder
on the Original Issue Date by (y) the aggregate principal amount of Notes
issued and sold by the Company on the Original Issue Date. If any Holder
shall no longer hold Notes, then such Holder's remaining portion of the
Issuable Maximum shall be allocated pro-rata among the remaining Holders.
If on any Conversion Date: (A) the aggregate number of shares of Common
Stock that would then be issuable upon conversion in full of all then
outstanding principal amount of Notes would exceed the Issuable Maximum,
and (B) the Company shall not have previously obtained the vote of
shareholders to approve the issuance of shares of Common Stock in excess
of the Issuable Maximum pursuant to the terms hereof (the "Shareholder
Approval"), then, the Company shall issue to the converting Holder a
number of shares of Common Stock equal to such Holder's pro-rata portion
(which shall be calculated pursuant to the terms hereof) of the Issuable
Maximum and, with respect to the remainder of the principal amount of
Notes then held by such Holder for which a conversion would result in an
issuance of shares of Common Stock in excess of such Holder's pro-rata
portion (which shall be calculated pursuant to the terms hereof) of the
Issuable Maximum (the "Excess Principal Amount"), the applicable Holder
shall have the right to require the Company to either: (1) 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)
pay cash, in an amount equal to the Excess Principal Amount (and accrued
and unpaid interest thereon). If a Holder shall have elected the second
option pursuant to the immediately preceding sentence then within thirty
(30) days day, the Company shall pay cash to such Holder an amount equal
to Excess Principal Amount (and accrued and unpaid interest thereon). The
outstanding principal amount of Notes shall be reduced by the Excess
Principal Amount upon the Holder's receipt of the Excess Principal Amount
pursuant to the terms hereof. The Company and the Holder understand and
agree that shares of Common Stock issued to and then held by the Holder as
a result of conversions of Notes shall not be entitled to cast votes on
any resolution to obtain Shareholder Approval pursuant hereto.
If, despite the Company's reasonable best efforts the Stockholder Approval
is not obtained on or prior to such 90th day, the Company shall cause an
9
additional stockholder meeting to be held every six (6) months thereafter until
such Stockholder Approval is obtained or the Notes are no longer outstanding.
7. Mechanics of Conversion.
(a) Upon conversion of this Note, the Company shall promptly (but in no
event later than three Trading Days after the Conversion Date) issue or cause to
be issued and cause to be delivered to or upon the written order of the Holder
and in such name or names as the Holder may designate a certificate for the
Underlying Shares issuable upon such conversion, free of restrictive legends
unless a registration statement covering the resale of the Underlying Shares and
naming the Holder as a selling stockholder thereunder is not then effective and
such Underlying Shares are not then freely transferable without volume
restrictions pursuant to Rule 144 under the Securities Act. The Holder, or any
Person so designated by the Holder to receive Underlying Shares, shall be deemed
to have become holder of record of such Underlying Shares as of the Conversion
Date. The Company shall, upon request of the Holder, use its best efforts to
deliver Underlying Shares hereunder electronically through the DTC or another
established clearing corporation performing similar functions.
(b) The Holder shall not be required to deliver the original Note in order
to effect a conversion hereunder. Execution and delivery of the Conversion
Notice shall have the same effect as cancellation of the original Note and
issuance of a New Note representing the remaining outstanding principal amount.
Upon surrender of this Note following one or more partial conversions, the
Company shall promptly deliver to the Holder a New Note representing the
remaining outstanding principal amount.
(c) The Company's obligations to issue and deliver Underlying Shares upon
conversion of this Note in accordance with the terms hereof are absolute and
unconditional, irrespective of any action or inaction by the Holder to enforce
the same, any waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or any action to enforce the same,
or any set-off, counterclaim, recoupment, limitation or termination, or any
breach or alleged breach by the Holder or any other Person of any obligation to
the Company or any violation or alleged violation of law by the Holder or any
other Person, and irrespective of any other circumstance which might otherwise
limit such obligation of the Company to the Holder in connection with the
issuance of such Underlying Shares.
(d) If by the third Trading Day after a Conversion Date the Company fails
to deliver to the Holder such Underlying Shares in such amounts and in the
manner required pursuant to Section 7(a), then the Holder will have the right to
rescind such conversion.
(e) If by the third Trading Day after a Conversion Date the Company fails
to deliver to the Holder such Underlying Shares in such amounts and in the
manner required pursuant to Section 7(a), and if after such third Trading Day
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
Underlying Shares which the Holder anticipated receiving upon such conversion (a
"Buy-In"), then the Company shall either (i) pay cash to such Purchaser in an
amount equal to such Purchaser's total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased (the "Buy-In
Price"), at which point the Company's obligation to deliver such certificate
10
(and to issue such Common Stock) shall terminate, or (ii) promptly honor its
obligation to deliver to such Purchaser a certificate or certificates
representing such Common Stock and pay cash to such Purchaser in an amount equal
to the excess (if any) of the Buy-In Price over the product of (A) such number
of shares of Common Stock, times (B) the Closing Price on the date of the event
giving rise to the Company's obligation to deliver such certificate.
8. Events of Default.
(a) "Event of Default" means any one of the following events (whatever the
reason and whether it shall be voluntary or involuntary or effected by operation
of law or pursuant to any judgment, decree or order of any court, or any order,
rule or regulation of any administrative or governmental body):
(i) any default in the payment (free of any claim of subordination) of
principal, interest or liquidated damages in respect of any Notes, as and
when the same becomes due and payable (whether on a date specified for the
payment of interest or the date on which the obligations under the Note
mature or by acceleration, redemption, prepayment or otherwise);
(ii) the occurrence of a Triggering Event;
(iii) the Company or any Subsidiary defaults in any of its obligations
under any other note or any mortgage, credit agreement or other facility,
indenture agreement, factoring agreement or other instrument under which
there may be issued, or by which there may be secured or evidenced, any
indebtedness for borrowed money or money due under any long term leasing or
factoring arrangement of the Company or any Subsidiary in an amount
exceeding $1,000,000, whether such indebtedness now exists or is hereafter
created, and such default continues for a period of 5 days and results in
such indebtedness becoming or being declared due and payable prior to the
date on which it would otherwise become due and payable; or
(iv) a final judgment or judgments for the payment of money
aggregating in excess of $250,000 are rendered against the Company or any
of its Subsidiaries and which judgments are not, within sixty (60) days
after the entry thereof, bonded, discharged or stayed pending appeal, or
are not discharged within sixty (60) days after the expiration of such
stay; provided, however, that any judgment which is covered by insurance or
an indemnity from a creditworthy party shall not be included in calculating
the $250,000 amount set forth above so long as the Company provides the
Holder a written statement from such insurer or indemnity provider (which
written statement shall be reasonably satisfactory to the Holder) to the
effect that such judgment is covered by insurance or an indemnity and the
Company will receive the proceeds of such insurance or indemnity within
thirty (30) days of the issuance of such judgment;
(v) the occurrence of a Bankruptcy Event.
(b) At any time or times following the occurrence of an Event of Default,
the Holder shall have the option to elect, by notice to the Company (an "Event
Notice"), to require the Company to repurchase all or any portion of (i) the
outstanding principal amount of this Note, at a repurchase price equal to the
11
greater of (A) 115% of such outstanding principal amount, plus all accrued but
unpaid interest thereon through the date of payment, or (B) the Event Equity
Value of the Underlying Shares issuable upon conversion of such principal amount
and all such accrued but unpaid interest thereon, and (ii) any Underlying Shares
issued to such Holder upon conversion of Notes and then owned by the Holder, at
a price per share equal to the Event Equity Value of such issuable and issued
Underlying Shares. The aggregate amount payable pursuant to the preceding
sentence is referred to as the "Event Price." The Company shall pay the Event
Price to the Holder no later than the third Trading Day following the date of
delivery of the Event Notice, and upon receipt thereof the Holder shall deliver
this Note and certificates evidencing any Underlying Shares so repurchased to
the Company (to the extent such certificates have been delivered to the Holder).
(c) Upon the occurrence of any Bankruptcy Event, all amounts pursuant to
Section 8(b) shall immediately become due and payable in full in cash, without
any further action by the Holder.
(d) In connection with any Event of Default, the Holder need not provide
and the Company hereby waives any presentment, demand, protest or other notice
of any kind, and the Holder may immediately and without expiration of any grace
period enforce any and all of its rights and remedies hereunder and all other
remedies available to it under applicable law. Any such declaration may be
rescinded and annulled by the Holder at any time prior to payment hereunder. No
such rescission or annulment shall affect any subsequent Event of Default or
impair any right consequent thereto.
9. Charges, Taxes and Expenses. Issuance of certificates for Underlying
Shares upon conversion of (or otherwise in respect of) this Note shall be made
without charge to the Holder for any issue or transfer tax, withholding tax,
transfer agent fee or other incidental tax or expense in respect of the issuance
of such certificate, all of which taxes and expenses shall be paid by the
Company; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Underlying Shares or Notes in a name other than that of
the Holder. The Holder shall be responsible for all other tax liability that may
arise as a result of holding or transferring this Note or receiving Underlying
Shares in respect hereof.
10. Certain Adjustments. The Conversion Price is subject to adjustment from
time to time as set forth in this Section 10.
(a) Stock Dividends and Splits. If the Company, at any time while this Note
is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes
a distribution on any class of capital stock that is payable in shares of Common
Stock, (ii) subdivides outstanding shares of Common Stock into a larger number
of shares, or (iii) combines outstanding shares of Common Stock into a smaller
number of shares, then in each such case the Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding immediately before such event and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to clause (i) of this
Section 10(a) shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution,
12
and any adjustment pursuant to clause (ii) or (iii) of this Section 10(a) shall
become effective immediately after the effective date of such subdivision or
combination.
(b) Pro Rata Distributions. If the Company, at any time while this Note is
outstanding, distributes to holders of Common Stock (i) evidences of its
indebtedness, (ii) any security (other than a distribution of Common Stock
covered by the preceding paragraph), (iii) rights or warrants to subscribe for
or purchase any security, or (iv) any other asset (in each case, "Distributed
Property"), then in each such case the Conversion Price in effect immediately
prior to the record date fixed for determination of stockholders entitled to
receive such distribution shall be adjusted (effective on such record date) to
equal the product of such Conversion Price times a fraction of which the
denominator shall be the average of the Closing Prices for the five Trading Days
immediately prior to (but not including) such record date and of which the
numerator shall be such average less the then fair market value of the
Distributed Property distributed in respect of one outstanding share of Common
Stock, as determined by the Company's independent certified public accountants
that regularly examine the financial statements of the Company, (an
"Appraiser"). In such event, the Holder, after receipt of the determination by
the Appraiser, shall have the right to select an additional appraiser (which
shall be a nationally recognized accounting firm), in which case such fair
market value shall be deemed to equal the average of the values determined by
each of the Appraiser and such appraiser. As an alternative to the foregoing
adjustment to the Conversion Price, at the request of the Holder delivered to
the Company in writing before the 90th day after such record date, the Company
will deliver to such Holder, within five Trading Days after such request (or, if
later, on the effective date of such distribution), the Distributed Property
that such Holder would have been entitled to receive in respect of the
Underlying Shares for which this Note could have been exercised immediately
prior to such record date. If such Distributed Property is not delivered to a
Holder pursuant to the preceding sentence, then upon conversion of this Note
that occurs after such record date, such Holder shall remain entitled to
receive, in addition to the Underlying Shares otherwise issuable upon such
conversion (if applicable), such Distributed Property.
(c) Fundamental Changes. If, at any time while this Note is outstanding,
(i) the Company effects any merger or consolidation of the Company with or into
another Person, (ii) the Company effects any sale of all or substantially all of
its assets in one or more transactions, (iii) any tender offer or exchange offer
(whether by the Company or another Person) is completed pursuant to which
holders of Common Stock are permitted to tender or exchange their shares for
other securities, cash or property, or (iv) the Company effects any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property (other than as a result of a subdivision or
combination of shares of Common Stock described in Section 10(a)) (in any such
case, a "Fundamental Change"), then upon any subsequent conversion of this Note,
the Holder shall have the right to receive, for each Underlying Share that would
have been issuable upon such conversion absent such Fundamental Change, the same
kind and amount of securities, cash or property as it would have been entitled
to receive upon the occurrence of such Fundamental Change if it had been,
immediately prior to such Fundamental Change, the holder of one share of Common
Stock (the "Alternate Consideration"). If holders of Common Stock are given any
choice as to the securities, cash or property to be received in a Fundamental
Change, then the Holder shall be given the same choice as to the Alternate
Consideration it receives upon any conversion of this Note following such
Fundamental Change. In the event of a Fundamental Change, the Company or the
13
successor or purchasing Person, as the case may be, shall execute with the
Holder a written agreement providing that:
(x) this Note shall thereafter entitle the Holder to purchase the
Alternate Consideration,
(y) in the case of any such successor or purchasing Person, upon
such consolidation, merger, statutory exchange, combination, sale or
conveyance such successor or purchasing Person shall be jointly and
severally liable with the Company for the performance of all of the
Company's obligations under this Note and the Purchase Agreement, and
(z) if registration or qualification is required under the
Securities Act of 1933 or applicable state law for the public resale by
the Holder of shares of stock and other securities so issuable upon
exercise of this Note, such registration or qualification shall be
completed prior to such reclassification, change, consolidation, merger,
statutory exchange, combination or sale.
If, in the case of any Fundamental Change, the Alternate Consideration includes
shares of stock, other securities, other property or assets of a Person other
than the Company or any such successor or purchasing Person, as the case may be,
in such Fundamental Change, then such written agreement shall also be executed
by such other Person and shall contain such additional provisions to protect the
interests of the Holder as the Board of Directors of the Company shall
reasonably consider necessary by reason of the foregoing. At the Holder's
request, any successor to the Company or surviving Person in such Fundamental
Change shall issue to the Holder a new Note consistent with the foregoing
provisions and evidencing the Holder's right to convert such Note into Alternate
Consideration. The terms of any agreement pursuant to which a Fundamental Change
is effected shall include terms requiring any such successor or surviving Person
to comply with the provisions of this Section 10(c) and insuring that this Note
(or any such replacement security) will be similarly adjusted upon any
subsequent transaction analogous to a Fundamental Change. If any Fundamental
Change constitutes or results in a Change of Control, then at the request of the
Holder delivered to the Company in writing before the 45th day after such
Fundamental Change, the Company (or any such successor or surviving entity) will
purchase this Note from the Holder for a purchase price, payable in cash within
five Trading Days after such request (or, if later, on the effective date of the
Fundamental Transaction), equal to the greatest of (i) the Black Scholes value
of the remaining unexercised portion of this Note on the date of such request,
(ii) 115% of the outstanding principal amount, plus all accrued but unpaid
interest thereon through the date of payment, and (iii) the Event Equity Value.
(d) Subsequent Equity Sales.
(i) If, at any time while this Note is outstanding, the Company or any
Subsidiary issues additional shares of Common Stock or rights, warrants,
options or other securities or debt convertible, exercisable or
exchangeable for shares of Common Stock or otherwise entitling any Person
to acquire shares of Common Stock (collectively, "Common Stock
Equivalents") at an effective net price to the Company per share of Common
Stock (the "Effective Price") less than the Conversion Price (as adjusted
14
hereunder to such date), then the Conversion Price shall be reduced to
equal the Effective Price. If, at any time while this Note is outstanding,
the Company or any Subsidiary issues Common Stock or Common Stock
Equivalents at an Effective Price greater than the Conversion Price (as
adjusted hereunder to such date) but less than the average Closing Price
over the five Trading Days prior to such issuance (the "Adjustment Price"),
then the Conversion Price shall be reduced to equal the product of (A) the
Conversion Price in effect immediately prior to such issuance of Common
Stock or Common Stock Equivalents times (B) a fraction, the numerator of
which is the sum of (1) the number of shares of Common Stock outstanding
immediately prior to such issuance, plus (2) the number of shares of Common
Stock which the aggregate Effective Price of the Common Stock issued (or
deemed to be issued) would purchase at the Adjustment Price, and the
denominator of which is the aggregate number of shares of Common Stock
outstanding or deemed to be outstanding immediately after such issuance.
For purposes of this paragraph, in connection with any issuance of any
Common Stock Equivalents, (A) the maximum number of shares of Common Stock
potentially issuable at any time upon conversion, exercise or exchange of
such Common Stock Equivalents (the "Deemed Number") shall be deemed to be
outstanding upon issuance of such Common Stock Equivalents, (B) the
Effective Price applicable to such Common Stock shall equal the minimum
dollar value of consideration payable to the Company to purchase such
Common Stock Equivalents and to convert, exercise or exchange them into
Common Stock (net of any discounts, fees, commissions and other expenses),
divided by the Deemed Number, and (C) no further adjustment shall be made
to the Conversion Price upon the actual issuance of Common Stock upon
conversion, exercise or exchange of such Common Stock Equivalents.
(ii) If, at any time while this Note is outstanding, the Company or
any Subsidiary issues Common Stock Equivalents with an Effective Price or a
number of underlying shares that floats or resets or otherwise varies or is
subject to adjustment based (directly or indirectly) on market prices of
the Common Stock (a "Floating Price Security"), then for purposes of
applying the preceding paragraph in connection with any subsequent
conversion, the Effective Price will be determined separately on each
Conversion Date and will be deemed to equal the lowest Effective Price at
which any holder of such Floating Price Security is entitled to acquire
Common Stock on such Conversion Date (regardless of whether any such holder
actually acquires any shares on such date).
(iii) Notwithstanding the foregoing, no adjustment will be made under
this paragraph (d) in respect of Excluded Stock.
(e) Calculations. All calculations under this Section 10 shall be made to
the nearest cent or the nearest 1/100th of a share, as applicable. The number of
shares of Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company, and the disposition of any
such shares shall be considered an issue or sale of Common Stock.
(f) Notice of Adjustments. Upon the occurrence of each adjustment pursuant
to this Section 10, the Company at its expense will promptly compute such
adjustment in accordance with the terms hereof and prepare and deliver to the
15
Holder a certificate describing in reasonable detail such adjustment and the
transactions giving rise thereto, including all facts upon which such adjustment
is based.
(g) Notice of Corporate Events. If the Company (i) declares a dividend or
any other distribution of cash, securities or other property in respect of its
Common Stock, including without limitation any granting of rights or warrants to
subscribe for or purchase any capital stock of the Company or any Subsidiary,
(ii) authorizes or approves, enters into any agreement contemplating or solicits
stockholder approval for any Fundamental Change or (iii) authorizes the
voluntary dissolution, liquidation or winding up of the affairs of the Company,
then the Company shall deliver to the Holder a notice describing the material
terms and conditions of such transaction, at least 20 days prior to the
applicable record or effective date on which a Person would need to hold Common
Stock in order to participate in or vote with respect to such transaction, and
the Company will take all steps reasonably necessary in order to insure that the
Holder is given the practical opportunity to convert this Note prior to such
time so as to participate in or vote with respect to such transaction; provided,
however, that the failure to deliver such notice or any defect therein shall not
affect the validity of the corporate action required to be described in such
notice.
11. No Fractional Shares. The Company shall not issue or cause to be issued
fractional Underlying Shares on conversion of this Note. If any fraction of an
Underlying Share would, except for the provisions of this Section 11, be
issuable upon conversion of this Note, the number of Underlying Shares to be
issued will be rounded up to the nearest whole share.
12. Redemption.
(a) Holder Redemption.
(i) At any time following the 36 month anniversary of the Original
Issue Date (any such day, a "Holder Redemption Date"), the Holder shall
have the right to require the Company to redeem all or any portion of the
outstanding principal amount of the Notes, plus all accrued but unpaid
interest thereon to the date of payment (for each redemption on a Holder
Redemption Date, the "Holder Redemption Price") on each such Holder
Redemption Date; provided, however, that on the 60th month -------- -------
anniversary of the Original Issue Date, the Company shall redeem 100% of
any remaining outstanding principal amount of the Notes, plus accrued but
unpaid interest thereon to the date of payment. The Holder must deliver a
notice of the redemption at least twenty (20) Trading Days prior to the
Holder Redemption Date, which notice shall state the aggregate principal
amount of the Notes to be redeemed.
(ii) The Company shall pay the Holder Redemption Price in cash.
(b) Company Prepayment.
(i) At any time following the one year anniversary of the Effective
Date, upon delivery of an irrevocable written notice to the Holder (a
"Company Prepayment Notice" and the date such notice is delivered by the
Company, the "Company Notice Date") delivered at least 20 Trading Days
16
prior to the date of the prepayment (the "Company Prepayment Date"), the
Company shall be entitled to prepay all of the outstanding principal amount
of this Note plus any accrued and unpaid interest thereon for an amount in
cash equal to the Company Prepayment Price (as defined below).
Notwithstanding anything to the contrary, the Company shall only be
entitled to deliver a Company Prepayment Notice pursuant to the terms
hereof if (i) the Equity Conditions are satisfied (or waived in writing by
the applicable Holder) with the respect to all Underlying Shares issuable
pursuant to the Transaction Documents on the Company Notice Date and (ii)
the average daily trading volume as reported on Bloomberg, L.P. during 20
Trading Days prior to the date of the prepayment (determined by calculating
the arithmetic average of the daily trading volume for each Trading Day in
such period) is greater than 250,000 shares. If any of the Equity
Conditions or the trading volume requirement shall cease to be in effect
during the period between the Company Notice Date and the date the Company
Prepayment Price is paid in full, then the Holder subject to such
prepayment may elect by written notice to the Company given at any time
after any of the Equity Conditions shall cease to be in effect, to
invalidate ab initio such optional prepayment, notwithstanding anything
herein contained to the contrary. The Holder may, at any time prior to the
payment of the Company Prepayment Price, convert any portion of the
outstanding principal amount of this Note and any accrued and unpaid
interest thereon subject to a Company Prepayment Notice. Once delivered,
the Company shall not be entitled to rescind a Company Prepayment Notice.
(ii) The Company Prepayment Price shall be due in cash on the Company
Prepayment Date. Any such prepayment shall be free of any claim of
subordination. If any portion of the Company Prepayment Price shall not be
timely paid by the Company, interest shall accrue thereon at the rate of
18% per annum (or the maximum rate permitted by applicable law, whichever
is less) until the Company Prepayment Price plus all such interest is paid
in full, which payment shall constitute liquidated damages and not a
penalty. In addition, if any portion of the Company Prepayment Price
remains unpaid after such date, the Holder subject to such prepayment may
elect by written notice to the Company to invalidate ab initio such Company
Prepayment Notice with respect to the unpaid amount, notwithstanding
anything herein contained to the contrary and no interest shall be owed to
the Holder in respect thereof. If the Holder makes such an election, the
principal amount of this Note, together with the accrued and unpaid
interest thereon shall be reinstated with respect to such unpaid amount and
the Company shall no longer have any prepayment rights under this Section
12(b).
(iii) Notwithstanding anything to the contrary herein, the Company may
not elect a prepayment pursuant to Section 12(b) unless the Company makes
such prepayment election to all of the Holder's of the Notes and for all of
each such Holders then outstanding principal amount of Notes.
(iv) For the purposes of this Section 12(b), the term "Company
Prepayment Price" shall mean 120% of the aggregate outstanding principal
amount of this Note plus any accrued and unpaid interest thereon.
17
13. Notices. Any and all notices or other communications or deliveries
hereunder (including any Conversion Notice) shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Section 13 prior to 6:30 p.m. (New York City time) on a
Trading Day, (ii) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number
specified in this Section 13 on a day that is not a Trading Day or later than
6:30 p.m. (New York City time) on any Trading Day, (iii) the Trading Day
following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given. The addresses for such communications shall be: (i) if to
the Company, to 8229 Boone Blvd. #802, Vienna, VA 22182, facsimile:
703-506-9471, attention Chief Executive Officer, or (ii) if to the Holder, to
the address or facsimile number appearing on the Company's Noteholder records or
such other address or facsimile number as the Holder may provide to the Company
in accordance with this Section 13.
14. Miscellaneous.
(a) This Note shall be binding on and inure to the benefit of the parties
hereto and their respective successors and permitted assigns. The Company shall
not be permitted to assign this Note.
(b) Subject to Section 14(a), nothing in this Note shall be construed to
give to any person or corporation other than the Company and the Holder any
legal or equitable right, remedy or cause under this Note.
(C) GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. ALL QUESTIONS CONCERNING
THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS NOTE SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF
THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW
THEREOF. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF
THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF
MANHATTAN, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION
HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN
(INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE TRANSACTION DOCUMENTS),
AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR
PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF
ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH PARTY
HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS
BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF
VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF
DELIVERY) 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 CONTAINED HEREIN SHALL BE DEEMED
TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.
THE COMPANY HEREBY WAIVES ALL RIGHTS TO A TRIAL BY JURY.
(d) Upon receipt or delivery by the Company of any notice in accordance
with the terms of this Note, unless the Company has in good faith determined
that the matters relating to such notice do not constitute material, nonpublic
18
information relating to the Company or its Subsidiaries, the Company shall
within one (1) Business Day after any such receipt or delivery publicly disclose
such material, nonpublic information on a Current Report on Form 8-K or
otherwise. In the event that the Company believes that a notice contains
material, nonpublic information, relating to the Company or its Subsidiaries,
the Company shall indicate to the Holder contemporaneously with delivery of such
notice, and in the absence of any such indication, the Holder shall be allowed
to presume that all matters relating to such notice do not constitute material,
nonpublic information relating to the Company or its Subsidiaries.
(e) The headings herein are for convenience only, do not constitute a part
of this Note and shall not be deemed to limit or affect any of the provisions
hereof.
(f) In case any one or more of the provisions of this Note shall be invalid
or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Note shall not in any way be affected or
impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Note.
(g) In the event of any stock split, subdivision, dividend or distribution
payable in shares of Common Stock (or other securities or rights convertible
into, or entitling the holder thereof to receive directly or indirectly shares
of Common Stock), combination or other similar recapitalization or event
occurring after the date hereof, each reference in this Note to a price shall be
amended to appropriately account for such event.
(h) No provision of this Note may be waived or amended except in a written
instrument signed, in the case of an amendment, by the Company and the Holder
or, or, in the case of a waiver, by the Holder. No waiver of any default with
respect to any provision, condition or requirement of this Note shall be deemed
to be a continuing waiver in the future or a waiver of any subsequent default or
a waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
19
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed
by a duly authorized officer as of the date first above indicated.
CEL-SCI CORPORATION
By ______________________________
Name:
Title:
20
Schedule 1
FORM OF CONVERSION NOTICE
(To be executed by the registered Holder
in order to convert Note)
The undersigned hereby elects to convert the specified principal amount of
Senior Secured Convertible Notes (the "Notes") into shares of common stock,
$0.01 par value (the "Common Stock"), of CEL-SCI Corporation, a Colorado
corporation, according to the conditions hereof, as of the date written below.
Notwithstanding anything to the contrary contained herein, this Conversion
Notice shall constitute a representation by the holder of the Note submitting
this Conversion Notice that, after giving effect to the conversion provided for
in this Conversion Notice, such holder (together with its affiliates) will not
have beneficial ownership (together with the beneficial ownership of such
Person's affiliates) of a number of shares of Common Stock which exceeds the
Maximum Percentage of the total outstanding shares of Company Common Stock as
determined pursuant to the provisions of Section 6(c)(i) of the Note.
___________________________________________________
Date to Effect Conversion
___________________________________________________
Principal amount of Notes owned prior to conversion
___________________________________________________
Principal amount of Notes to be converted
(including accrued but unpaid interest thereon)
___________________________________________________
Number of shares of Common Stock to be Issued
___________________________________________________
Applicable Conversion Price
___________________________________________________
Principal amount of Notes owned subsequent to Conversion
___________________________________________________
Name of Holder
By _____________________________________________
Name:
Title:
21
Schedule 2
CONVERSION SCHEDULE
-------------------
This Conversion Schedule reflects conversions of the Senior Secured Convertible
Notes issued by CEL-SCI Corporation.
Aggregate Principal Amount
Remaining Subsequent to
Date of Conversion Amount of Conversion Conversion
- ------------------------- ------------------------ -----------------------------
- ------------------------- ------------------------ -----------------------------
- ------------------------- ------------------------ -----------------------------
- ------------------------- ------------------------ -----------------------------
- ------------------------- ------------------------ -----------------------------
- ------------------------- ------------------------ -----------------------------
- ------------------------- ------------------------ -----------------------------
- ------------------------- ------------------------ -----------------------------
- ------------------------- ------------------------ -----------------------------
- ------------------------- ------------------------ -----------------------------
- ------------------------- ------------------------ -----------------------------
- ------------------------- ------------------------ -----------------------------
- ------------------------- ------------------------ -----------------------------
- ------------------------- ------------------------ -----------------------------
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22
MA DRAFT - 7/24/06
EXHIBIT B-1
NEITHER THESE SECURITIES NOR THE SECURITIES FOR WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE
SECURITIES OR BLUE SKY LAWS. THESE SECURITIES AND THE SECURITIES ISSUABLE UPON
EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
CEL-SCI CORPORATION.
WARRANT
Warrant No. [ ] Dated: August 4, 2006
CEL-SCI Corporation, a Colorado corporation (the "Company"), hereby
certifies that, for value received, [Name of Holder] or its registered assigns
(the "Holder"), is entitled to purchase from the Company up to a total of [ ]
shares of common stock, $0.01 par value per share (the "Common Stock"), of the
Company (each such share, a "Warrant Share" and all such shares, the "Warrant
Shares") at an exercise price equal to $0.95 per share (as adjusted from
time to time as provided in Section 9, the "Exercise Price"), at any time and
from time to time from and after February 4, 2007 and through and including
February 4, 2012 (the "Expiration Date"), and subject to the following terms and
conditions. This Warrant (this "Warrant") is one of a series of similar warrants
issued pursuant to that certain Securities Purchase Agreement, dated as of
August 4, 2006, by and among the Company and the Purchasers identified therein
(the "Purchase Agreement"). All such warrants are referred to herein,
collectively, as the "Warrants."
1. Definitions. In addition to the terms defined elsewhere in this Warrant,
capitalized terms that are not otherwise defined herein have the meanings given
to such terms in the Purchase Agreement.
2. Registration of Warrant. The Company shall register this Warrant, upon
records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
1
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, absent actual notice to the contrary.
3. Registration of Transfers. The Company shall register the assignment and
transfer of any portion of this Warrant in the Warrant Register, upon surrender
of this Warrant, with the Form of Assignment attached hereto on Annex B duly
completed and signed, to the Company's transfer agent or to the Company at its
address specified herein. Upon any such registration or transfer, a new warrant
to purchase Common Stock, in substantially the form of this Warrant (any such
new warrant, a "New Warrant"), evidencing the portion of this Warrant so
transferred shall be issued to the transferee and a New Warrant evidencing the
remaining portion of this Warrant not so transferred, if any, shall be issued to
the transferring Holder. The acceptance of the New Warrant by the transferee
thereof shall be deemed the acceptance by such transferee of all of the rights
and obligations of a holder of a Warrant.
4. Exercise and Duration of Warrants.
(a) This Warrant shall be exercisable by the registered Holder at any
time and from time to time on or after the date hereof to and including the
Expiration Date. At 6:30 P.M., New York City time on the Expiration Date, the
portion of this Warrant not exercised prior thereto shall be and become void and
of no value; provided that, if the average of the Closing Prices for the five
Trading Days immediately prior to (but not including) the Expiration Date
exceeds the Exercise Price on the Expiration Date, then this Warrant shall be
deemed to have been exercised in full (to the extent not previously exercised)
on a "cashless exercise" basis at 6:30 P.M. New York City time on the Expiration
Date if a "cashless exercise" may occur at such time pursuant to Section 10
below. Notwithstanding anything to the contrary herein, the Expiration Date
shall be extended for each day following the Effective Date that the
Registration Statement is not effective.
(b) A Holder may exercise this Warrant by delivering to the Company (i)
an exercise notice, in the form attached hereto on Annex A (the "Exercise
Notice"), appropriately completed and duly signed, and (ii) payment of the
Exercise Price for the number of Warrant Shares as to which this Warrant is
being exercised (which may take the form of a "cashless exercise" if so
indicated in the Exercise Notice and if a "cashless exercise" may occur at such
time pursuant to this Section 10 below), and the date such items are delivered
to the Company (as determined in accordance with the notice provisions hereof)
is an "Exercise Date." The Holder shall not be required to deliver the original
Warrant in order to effect an exercise hereunder. Execution and delivery of the
Exercise Notice shall have the same effect as cancellation of the original
Warrant and issuance of a New Warrant evidencing the right to purchase the
remaining number of Warrant Shares.
5. Delivery of Warrant Shares.
(a) Upon exercise of this Warrant, the Company shall promptly (but in no
event later than three Trading Days after the Exercise Date) issue or cause to
be issued and cause to be delivered to or upon the written order of the Holder
and in such name or names as the Holder may designate, a certificate for the
Warrant Shares issuable upon such exercise, free of restrictive legends unless a
registration statement covering the resale of the Warrant Shares and naming the
2
Holder as a selling stockholder thereunder is not then effective and the Warrant
Shares are not freely transferable without volume restrictions pursuant to Rule
144 under the Securities Act. The Holder, or any Person so designated by the
Holder to receive Warrant Shares, shall be deemed to have become holder of
record of such Warrant Shares as of the Exercise Date. The Company shall, upon
request of the Holder, use its best efforts to deliver Warrant Shares hereunder
electronically through the Depository Trust Corporation or another established
clearing corporation performing similar functions.
(b) This Warrant is exercisable, either in its entirety or, from time to
time, for a portion of the number of Warrant Shares. Upon surrender of this
Warrant following one or more partial exercises, the Company shall issue or
cause to be issued, at its expense, a New Warrant evidencing the right to
purchase the remaining number of Warrant Shares.
(c) In addition to any other rights available to a Holder, if the Company
fails to deliver to the Holder a certificate representing Warrant Shares by the
third Trading Day after exercise of this Warrant in full compliance with Section
4(b), and if after such third Trading Day the Holder purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the Warrant Shares that the Holder
anticipated receiving from the Company (a "Buy-In"), then the Company shall,
within three Trading Days after the Holder's request and in the Holder's
discretion, either (i) pay cash to the Holder in an amount equal to the Holder's
total purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased (the "Buy-In Price"), at which point the Company's
obligation to deliver such certificate (and to issue such Common Stock) shall
terminate, or (ii) promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such Common Stock and pay cash to the
Holder in an amount equal to the excess (if any) of the Buy-In Price over the
product of (A) such number of shares of Common Stock, times (B) the Closing
Price on the date of the event giving rise to the Company's obligation to
deliver such certificate.
(d) The Company's obligations to issue and deliver Warrant Shares in
accordance with the terms hereof are absolute and unconditional, irrespective of
any action or inaction by the Holder to enforce the same, any waiver or consent
with respect to any provision hereof, the recovery of any judgment against any
Person or any action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the
Holder or any other Person of any obligation to the Company or any violation or
alleged violation of law by the Holder or any other Person, and irrespective of
any other circumstance which might otherwise limit such obligation of the
Company to the Holder in connection with the issuance of Warrant Shares. Nothing
herein shall limit a Holder's right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Company's
failure to timely deliver certificates representing shares of Common Stock upon
exercise of the Warrant as required pursuant to the terms hereof.
6. Charges, Taxes and Expenses. Issuance and delivery of certificates for
shares of Common Stock upon exercise of this Warrant shall be made without
charge to the Holder for any issue or transfer tax, withholding tax, transfer
agent fee or other incidental tax or expense in respect of the issuance of such
certificates, all of which taxes and expenses shall be paid by the Company;
3
provided, however, that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the registration of any
certificates for Warrant Shares or Warrants in a name other than that of the
Holder or an Affiliate thereof. The Holder shall be responsible for all other
tax liability that may arise as a result of holding or transferring this Warrant
or receiving Warrant Shares upon exercise hereof.
7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary and
reasonable indemnity, if requested.
8. Reservation of Warrant Shares. The Company covenants that it will at all
times reserve and keep available out of the aggregate of its authorized but
unissued and otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue Warrant Shares upon exercise of this Warrant as herein
provided, the number of Warrant Shares which are then issuable and deliverable
upon the exercise of this entire Warrant, free from preemptive rights or any
other contingent purchase rights of persons other than the Holder (taking into
account the adjustments and restrictions of Section 9). The Company covenants
that all Warrant Shares so issuable and deliverable shall, upon issuance and the
payment of the applicable Exercise Price in accordance with the terms hereof, be
duly and validly authorized, issued and fully paid and nonassessable. The
Company will take all such action as may be necessary to assure that such shares
of Common Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of any securities exchange
or automated quotation system upon which the Common Stock may be listed.
9. Certain Adjustments. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to
time as set forth in this Section 9.
(a) Stock Dividends and Splits. If the Company, at any time while this
Warrant is outstanding, (i) pays a stock dividend on its Common Stock or
otherwise makes a distribution on any class of capital stock that is payable in
shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into
a larger number of shares, or (iii) combines outstanding shares of Common Stock
into a smaller number of shares, then in each such case the Exercise Price shall
be multiplied by a fraction of which the numerator shall be the number of shares
of Common Stock outstanding immediately before such event and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to clause (i) of this
paragraph shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution,
and any adjustment pursuant to clause (ii) or (iii) of this paragraph shall
become effective immediately after the effective date of such subdivision or
combination.
(b) Pro Rata Distributions. If the Company, at any time while this Warrant
is outstanding, distributes to holders of Common Stock (i) evidences of its
indebtedness, (ii) any security (other than a distribution of Common Stock
covered by the preceding paragraph), (iii) rights or warrants to subscribe for
or purchase any security, or (iv) any other asset (in each case, "Distributed
4
Property"), then in each such case the Exercise Price in effect immediately
prior to the record date fixed for determination of stockholders entitled to
receive such distribution shall be adjusted (effective on such record date) to
equal the product of such Exercise Price times a fraction of which the
denominator shall be the average of the Closing Prices for the five Trading Days
immediately prior to (but not including) such record date and of which the
numerator shall be such average less the then fair market value of the
Distributed Property distributed in respect of one outstanding share of Common
Stock, as determined by the Company's independent certified public accountants
that regularly examine the financial statements of the Company, (an
"Appraiser"). In such event, the Holder, after receipt of the determination by
the Appraiser, shall have the right to select an additional appraiser (which
shall be a nationally recognized accounting firm), in which case such fair
market value shall be deemed to equal the average of the values determined by
each of the Appraiser and such appraiser. As an alternative to the foregoing
adjustment to the Exercise Price, at the request of the Holder delivered to the
Company in writing before the 90th day after such record date, the Company will
deliver to such Holder, within five Trading Days after such request (or, if
later, on the effective date of such distribution), the Distributed Property
that such Holder would have been entitled to receive in respect of the Warrant
Shares for which this Warrant could have been exercised immediately prior to
such record date. If such Distributed Property is not delivered to a Holder
pursuant to the preceding sentence, then upon any exercise of the Warrant that
occurs after such record date, such Holder shall remain entitled to receive, in
addition to the Warrant Shares otherwise issuable upon such exercise (if
applicable), such Distributed Property.
(c) Fundamental Transactions. If, at any time while this Warrant is
outstanding, (i) the Company effects any merger or consolidation of the Company
with or into another Person, (ii) the Company effects any sale of all or
substantially all of its assets in one or a series of related transactions,
(iii) any tender offer or exchange offer (whether by the Company or another
Person) is completed pursuant to which holders of Common Stock are permitted to
tender or exchange their shares for other securities, cash or property, or (iv)
the Company effects any reclassification of the Common Stock or any compulsory
share exchange pursuant to which the Common Stock is effectively converted into
or exchanged for other securities, cash or property (other than as a result of a
subdivision or combination of shares of Common Stock covered by Section 9(a)
above) (in any such case, a "Fundamental Transaction"), then the Holder shall
have the right thereafter to receive, upon exercise of this Warrant, the same
amount and kind of securities, cash or property as it would have been entitled
to receive upon the occurrence of such Fundamental Transaction if it had been,
immediately prior to such Fundamental Transaction, the holder of the number of
Warrant Shares then issuable upon exercise in full of this Warrant (the
"Alternate Consideration"). The aggregate Exercise Price for this Warrant will
not be affected by any such Fundamental Transaction, but the Company shall
apportion such aggregate Exercise Price among the Alternate Consideration in a
reasonable manner reflecting the relative value of any different components of
the Alternate Consideration. If holders of Common Stock are given any choice as
to the securities, cash or property to be received in a Fundamental Transaction,
then the Holder shall be given the same choice as to the Alternate Consideration
it receives upon any exercise of this Warrant following such Fundamental
Transaction. In the event of a Fundamental Transaction, the Company or the
successor or purchasing Person, as the case may be, shall execute with the
Holder a written agreement providing that:
5
(x) this Warrant shall thereafter entitle the Holder to purchase the
Alternate Consideration in accordance with this section 9(c),
(y) in the case of any such successor or purchasing Person, upon
such consolidation, merger, statutory exchange, combination, sale or
conveyance such successor or purchasing Person shall be jointly and
severally liable with the Company for the performance of all of the
Company's obligations under this Warrant and the Purchase Agreement, and
(z) if registration or qualification is required under the
Securities Act of 1933 or applicable state law for the public resale by
the Holder of shares of stock and other securities so issuable upon
exercise of this Warrant, such registration or qualification shall be
completed prior to such reclassification, change, consolidation, merger,
statutory exchange, combination or sale.
If, in the case of any Fundamental Transaction, the Alternate Consideration
includes shares of stock, other securities, other property or assets of a Person
other than the Company or any such successor or purchasing Person, as the case
may be, in such Fundamental Transaction, then such written agreement shall also
be executed by such other Person and shall contain such additional provisions to
protect the interests of the Holder as the Board of Directors of the Company
shall reasonably consider necessary by reason of the foregoing. At the Holder's
request, any successor to the Company or surviving entity in such Fundamental
Transaction shall issue to the Holder a new warrant consistent with the
foregoing provisions and evidencing the Holder's right to purchase the Alternate
Consideration for the aggregate Exercise Price upon exercise thereof. The terms
of any agreement pursuant to which a Fundamental Transaction is effected shall
include terms requiring any such successor or surviving entity to comply with
the provisions of this paragraph (c) and insuring that the Warrant (or any such
replacement security) will be similarly adjusted upon any subsequent transaction
analogous to a Fundamental Transaction. If any Fundamental Transaction
constitutes or results in a Change of Control, then at the request of the Holder
delivered to the Company in writing before the 90th day after such Fundamental
Transaction, the Company (or any such successor or surviving entity) will
purchase this Warrant from the Holder for a purchase price, payable in cash
within five Trading Days after such request (or, if later, on the effective date
of the Fundamental Transaction), equal to the Black-Scholes value of the
remaining unexercised portion of this Warrant on the date of such request.
(d) Subsequent Equity Sales.
(i) If, at any time while this Warrant is outstanding, the Company or
any Subsidiary issues additional shares of Common Stock or rights,
warrants, options or other securities or debt convertible, exercisable or
exchangeable for shares of Common Stock or otherwise entitling any Person
to acquire shares of Common Stock (collectively, "Common Stock
Equivalents") at an effective net price to the Company per share of Common
Stock (the "Effective Price") less than the Exercise Price (as adjusted
hereunder to such date), then the Exercise Price shall be reduced to equal
the Effective Price. If, at any time while this Warrant is outstanding, the
Company or any Subsidiary issues Common Stock or Common Stock Equivalents
6
at an Effective Price greater than the Exercise Price (as adjusted
hereunder to such date) but less than the average Closing Price over the
five Trading Days prior to such issuance (the "Adjustment Price"), then the
Exercise Price shall be reduced to equal the product of (A) the Exercise
Price in effect immediately prior to such issuance of Common Stock or
Common Stock Equivalents times (B) a fraction, the numerator of which is
the sum of (1) the number of shares of Common Stock outstanding immediately
prior to such issuance, plus (2) the number of shares of Common Stock which
the aggregate Effective Price of the Common Stock issued (or deemed to be
issued) would purchase at the Adjustment Price, and the denominator of
which is the aggregate number of shares of Common Stock outstanding or
deemed to be outstanding immediately after such issuance. For purposes of
this paragraph, in connection with any issuance of any Common Stock
Equivalents, (A) the maximum number of shares of Common Stock potentially
issuable at any time upon conversion, exercise or exchange of such Common
Stock Equivalents (the "Deemed Number") shall be deemed to be outstanding
upon issuance of such Common Stock Equivalents, (B) the Effective Price
applicable to such Common Stock shall equal the minimum dollar value of
consideration payable to the Company to purchase such Common Stock
Equivalents and to convert, exercise or exchange them into Common Stock
(net of any discounts, fees, commissions and other expenses), divided by
the Deemed Number, and (C) no further adjustment shall be made to the
Exercise Price upon the actual issuance of Common Stock upon conversion,
exercise or exchange of such Common Stock Equivalents.
(ii) If, at any time while this Warrant is outstanding, the Company or
any Subsidiary issues Common Stock Equivalents with an Effective Price or a
number of underlying shares that floats or resets or otherwise varies or is
subject to adjustment based (directly or indirectly) on market prices of
the Common Stock (a "Floating Price Security"), then for purposes of
applying the preceding paragraph in connection with any subsequent
exercise, the Effective Price will be determined separately on each
Exercise Date and will be deemed to equal the lowest Effective Price at
which any holder of such Floating Price Security is entitled to acquire
Common Stock on such Exercise Date (regardless of whether any such holder
actually acquires any shares on such date).
(iii) Notwithstanding the foregoing, no adjustment will be made under
this paragraph (d) in respect of Excluded Stock.
(e) Number of Warrant Shares. Simultaneously with any adjustment to the
Exercise Price pursuant to paragraphs (a), (b) or (d) of this Section, the
number of Warrant Shares that may be purchased upon exercise of this Warrant
shall be increased or decreased proportionately, so that after such adjustment
the aggregate Exercise Price payable hereunder for the increased or decreased
number of Warrant Shares shall be the same as the aggregate Exercise Price in
effect immediately prior to such adjustment.
(f) Calculations. All calculations under this Section 9 shall be made to
the nearest cent or the nearest 1/100th of a share, as applicable. The number of
shares of Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company, and the disposition of any
such shares shall be considered an issue or sale of Common Stock.
7
(g) Notice of Adjustments. Upon the occurrence of each adjustment pursuant
to this Section 9, the Company at its expense will promptly compute such
adjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such adjustment, including a statement of the adjusted
Exercise Price and adjusted number or type of Warrant Shares or other securities
issuable upon exercise of this Warrant (as applicable), describing the
transactions giving rise to such adjustments and showing in detail the facts
upon which such adjustment is based. The Company will promptly deliver a copy of
each such certificate to the Holder within 10 Trading Days of the occurrence of
such adjustment.
(h) Notice of Corporate Events. If the Company (i) declares a dividend or
any other distribution of cash, securities or other property in respect of its
Common Stock, including without limitation any granting of rights or warrants to
subscribe for or purchase any capital stock of the Company or any Subsidiary,
(ii) authorizes or approves, enters into any agreement contemplating or solicits
stockholder approval for any Fundamental Transaction or (iii) authorizes the
voluntary dissolution, liquidation or winding up of the affairs of the Company,
then the Company shall deliver to the Holder a notice describing the material
terms and conditions of such transaction, at least 20 calendar days prior to the
applicable record or effective date on which a Person would need to hold Common
Stock in order to participate in or vote with respect to such transaction, and
the Company will take all steps reasonably necessary in order to insure that the
Holder is given the practical opportunity to exercise this Warrant prior to such
time so as to participate in or vote with respect to such transaction; provided,
however, that the failure to deliver such notice or any defect therein shall not
affect the validity of the corporate action required to be described in such
notice.
10. Payment of Exercise Price. The Holder shall pay the Exercise Price in
immediately available funds; provided, however, that if the Registration
Statement is not effective at a time when the Holder elects to exercise all or a
portion of this Warrant, then with respect to such particular exercise, the
Holder may satisfy its obligation to pay the Exercise Price through a "cashless
exercise," in which event the Company shall issue to the Holder the number of
Warrant Shares determined as follows:
X = Y [(A-B)/A]
where:
X = the number of Warrant Shares to be issued to
the Holder.
Y = the number of Warrant Shares with respect to
which this Warrant is being exercised.
A = the arithmetic average of the VWAP for the five
Trading Days immediately prior to (but not
including) the Exercise Date.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is
intended, understood and acknowledged that the Warrant Shares issued in a
cashless exercise transaction shall be deemed to have been acquired by the
Holder, and the holding period for the Warrant Shares shall be deemed to have
8
commenced, on the date this Warrant was originally issued pursuant to the
Purchase Agreement.
At any time, the Company, by notice to the Holder, may allow the Holder to
exercise this Warrant by means of a cashless exercise.
11. Limitation on Exercise. (a) Notwithstanding anything to the contrary
contained herein, the number of shares of Common Stock that may be acquired by
the Holder upon any exercise of this Warrant (or otherwise in respect hereof)
shall be limited to the extent necessary to insure that, following such exercise
(or other issuance), the total number of shares of Common Stock then
beneficially owned by such Holder and its Affiliates and any other Persons whose
beneficial ownership of Common Stock would be aggregated with the Holder's for
purposes of Section 13(d) of the Exchange Act, does not exceed 4.999% (the
"Threshold Percentage") or 9.999% (the "Maximum Percentage") of the total number
of issued and outstanding shares of Common Stock (including for such purpose the
shares of Common Stock issuable upon such exercise). For such purposes,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder. The Company's
obligation to issue shares of Common Stock in excess of the limitation referred
to in this Section shall be suspended (and shall not terminate or expire
notwithstanding any contrary provisions hereof) until such time, if any, as such
shares of Common Stock may be issued in compliance with such limitation. By
written notice to the Company, the Holder shall have the right (x) at any time
and from time to time to reduce its Maximum Percentage immediately upon notice
to the Company in the event and only to the extent that Section 16 of the
Exchange Act or the rules promulgated thereunder (or any successor statute or
rules) is changed to reduce the beneficial ownership percentage threshold
thereunder to a percentage less than 9.999% and (y) at any time and from time to
time, to waive the provisions of this Section insofar as they relate to the
Threshold Percentage or to increase or decrease its Threshold Percentage (but
not in excess of the Maximum Percentage) unless the Holder shall have, by
written instrument delivered to the Company, irrevocably waived its rights to so
increase or decrease its Threshold Percentage, but (i) any such waiver, increase
or decrease will not be effective until the 61st day after such notice is
delivered to the Company, and (ii) any such waiver or increase or decrease will
apply only to the Holder and not to any other holder of Warrants.
(b) Notwithstanding anything to the contrary contained herein, the
maximum number of shares of Common Stock that the Company may issue pursuant to
the Transaction Documents at an effective purchase price less than the Closing
Price on the Trading Day immediately preceding the Closing Date equals 19.99% of
the outstanding shares of Common Stock immediately preceding the Closing Date
(the "Issuable Maximum"), unless the Company obtains stockholder approval in
accordance with the rules and regulations of such Trading Market. If, at the
time any Holder requests an exercise of any of the Warrants, the Actual Minimum
(excluding any shares issued or issuable at an effective purchase price in
excess of the Closing Price on the Trading Day immediately preceding the Closing
Date) exceeds the Issuable Maximum (and if the Company has not previously
obtained the required stockholder approval), then the Company shall issue to the
Holder requesting such exercise a number of shares of Common Stock not exceeding
such Holder's pro-rata portion of the Issuable Maximum (based on such Holder's
share (vis-a-vis other Holders) of the aggregate purchase price paid under the
Purchase Agreement and taking into account any Warrant Shares previously issued
9
to such Holder). For the purposes hereof, "Actual Minimum" shall mean, as of any
date, the maximum aggregate number of shares of Common Stock then issued or
potentially issuable in the future pursuant to the Transaction Documents,
including any Underlying Shares issuable upon exercise in full of all Warrants,
without giving effect to (x) any limits on the number of shares of Common Stock
that may be owned by a Holder at any one time, or (y) any additional Underlying
Shares that could be issuable as a result of any future possible adjustments
made under Section 9(d).
12. Fractional Shares. The Company shall not be required to issue or cause
to be issued fractional Warrant Shares on the exercise of this Warrant. If any
fraction of a Warrant Share would, except for the provisions of this Section, be
issuable upon exercise of this Warrant, the number of Warrant Shares to be
issued will be rounded up to the nearest whole share or right to purchase the
nearest whole share, as the case may be. 13. Notices. Any and all notices or
other communications or deliveries hereunder (including without limitation any
Exercise Notice) shall be in writing and shall be deemed given and effective on
the earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile number specified in this Section prior
to 6:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day
after the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile number specified in this Section on a day that is not
a Trading Day or later than 6:30 p.m. (New York City time) on any Trading Day,
(iii) the Trading Day following the date of mailing, if sent by a nationally
recognized overnight courier service, or (iv) upon actual receipt by the party
to whom such notice is required to be given. The address for such notices or
communications shall be as set forth in the Purchase Agreement.
14. Warrant Agent. The Company shall serve as warrant agent under this
Warrant. Upon 30 days' notice to the Holder, the Company may appoint a new
warrant agent. Any corporation into which the Company or any new warrant agent
may be merged or any corporation resulting from any consolidation to which the
Company or any new warrant agent shall be a party or any corporation to which
the Company or any new warrant agent transfers substantially all of its
corporate trust or stockholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder's last
address as shown on the Warrant Register.
15. Miscellaneous.
(a) Subject to the restrictions on transfer set forth on the first page
hereof, this Warrant may be assigned by the Holder. This Warrant may not be
assigned by the Company except to a successor in the event of a Fundamental
Transaction. This Warrant shall be binding on and inure to the benefit of the
parties hereto and their respective successors and assigns. Subject to the
preceding sentence, nothing in this Warrant shall be construed to give to any
Person other than the Company and the Holder any legal or equitable right,
remedy or cause of action under this Warrant. This Warrant may be amended only
in writing signed by the Company and the Holder and their successors and
assigns.
10
(b) The Company will not, by amendment of its governing documents 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 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 action as may be necessary or appropriate in order
to protect the rights of the Holder against impairment. Without limiting the
generality of the foregoing, the Company (i) will not increase the par value of
any Warrant Shares above the amount payable therefor on such exercise, (ii) will
take all such action as may be reasonably necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable Warrant
Shares on the exercise of this Warrant, and (iii) will not close its stockholder
books or records in any manner which interferes with the timely exercise of this
Warrant.
(C) GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. ALL QUESTIONS CONCERNING
THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS WARRANT SHALL
BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE CITY OF NEW YORK,
BOROUGH OF MANHATTAN, FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED
HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE TRANSACTION
DOCUMENTS), AND HEREBY IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT,
ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS
IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND
CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY
MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY
(WITH EVIDENCE OF DELIVERY) 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 CONTAINED HEREIN
SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER
PERMITTED BY LAW. THE COMPANY HEREBY WAIVES ALL RIGHTS TO A TRIAL BY JURY.
(d) The headings herein are for convenience only, do not constitute a part
of this Warrant and shall not be deemed to limit or affect any of the provisions
hereof.
(e) In case any one or more of the provisions of this Warrant shall be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Warrant shall not in any way be affected
or impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
11
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
CEL-SCI CORPORATION
By: __________________________
Name: __________________________
Title:__________________________
12
Annex A
-------
FORM OF EXERCISE NOTICE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To: CEL-SCI CORPORATION
The undersigned is the Holder of Warrant A No. _______ (the "Warrant")
issued by CEL-SCI Corporation, a Colorado corporation (the "Company").
Capitalized terms used herein and not otherwise defined have the respective
meanings set forth in the Warrant.
1. The Warrant is currently exercisable to purchase a total of
______________ Warrant Shares.
2. The undersigned Holder hereby exercises its right to purchase
_________________ Warrant Shares pursuant to the Warrant.
3. The Holder intends that payment of the Exercise Price shall be made as
(check one):
____ "Cash Exercise" under Section 10
____ "Cashless Exercise" under Section 10 (if permitted)
4. If the holder has elected a Cash Exercise, the holder shall pay the sum
of $____________ to the Company in accordance with the terms of the Warrant.
5. Pursuant to this exercise, the Company shall deliver to the holder
_______________ Warrant Shares in accordance with the terms of the Warrant.
6. Following this exercise, the Warrant shall be exercisable to purchase a
total of ______________ Warrant Shares.
7. Notwithstanding anything to the contrary contained herein, this Exercise
Notice shall constitute a representation by the holder of the Warrant submitting
this Exercise Notice that, after giving effect to the shares issuable in
connection with this Exercise Notice, such holder (together with its affiliates)
will not have beneficial ownership (together with the beneficial ownership of
such holder's affiliates) of a number of shares of Common Stock which exceeds
the Maximum Percentage of the total outstanding shares of Company Common Stock
as determined pursuant to the provisions of Section 11(a) of the Warrant.
Dated: , Name of Holder:
----------- -----
(Print)
By:
Name:
Title:
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
13
Annex B
-------
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of CEL-SCI Corporation
to which the within Warrant relates and appoints ________________ attorney to
transfer said right on the books of CEL-SCI Corporation with full power of
substitution in the premises.
Dated: ____________, _____
________________________________________
(Signature must conform in all respects to
name of holder as specified on the face of the
Warrant)
________________________________________
Address of Transferee
________________________________________
________________________________________
________________________________________
In the presence of:
_______________________________
14
EXHIBIT C
IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
Computershare Trust Company, Inc.
350 Indiana St., Suite 800
Golden, CO 80401-5099
Reference is made to the Securities Purchase Agreement (the "Purchase
Agreement"), dated as of August 4, 2006, among CEL-SCI Corporation, a Colorado
corporation (the "Company"), and the purchasers named therein (the "Holders")
pursuant to which the Company is issuing (i) senior convertible notes
convertible into the Company's common stock, par value $0.001 per share (the
"Common Stock") and (ii) Warrants (the "Warrants") which shall be exercisable
into shares of Common Stock. The shares of Common Stock issuable and
transferable upon exercise or conversion of the Notes and Warrants are
collectively referred to herein as the "Underlying Shares." Capitalized terms
that are not otherwise defined herein have the meanings given to such terms in
the Purchase Agreement.
The Company has agreed with the Holders that it will instruct you to: (A)
issue the Underlying Shares free of all restrictive and other legends if, at the
time of such issue, (i) a registration statement covering the resale of such
Underlying Shares has been declared effective by the Commission under the
Securities Act and such Registration Statement is then effective, (ii) such
Underlying Shares are eligible for sale under Rule 144(k) of the Securities Act
or (iii) such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and guidance or other
pronouncements issued by the Staff of the Commission); or (B) reissue the
Underlying Shares (if such shares were originally issued with a restrictive
legend) free of all restrictive and other legends (i) upon the effectiveness of
a registration statement covering the resale of the Underlying Shares, (ii)
following any sale of such Underlying Shares pursuant to Rule 144, (iii) such
Underlying Shares are eligible for sale under Rule 144(k) or (iv) if such legend
is not required under applicable requirements of the Securities Act (including
judicial interpretations and guidance or other pronouncements issued by the
Staff of the Commission).
In furtherance of this instruction, upon the effectiveness of the
Registration Statement, we have instructed our counsel to deliver to you its
opinion letter in the form attached hereto as Exhibit 1 to the effect that the
Registration Statement has been declared effective by the Commission and that
Underlying Shares are freely transferable by the Holders and accordingly may be
issued (or reissued, as applicable) and delivered to the Holders free of all
restrictive and other legends.
We will advise you if the Registration Statement ceases to be effective,
the Company suspends sales under the Registration Statement, the Commission
issues any stop order or if a post-effective amendment is being prepared or
filed. Unless you have been so notified, you need not require further letters
from us or our counsel to effect any future issuance or reissuance of Underlying
Shares to the Holders as contemplated by the Purchase Agreement and this letter.
This letter shall serve as our standing irrevocable instructions with regard to
this matter.
Please be advised that the Holders have relied upon this instruction
letter as an inducement to enter into and consummate the Purchase Agreement.
Please execute this letter in the space indicated to acknowledge your agreement
to act in accordance with these instructions.
Very truly yours,
CEL-SCI CORPORATION
By _____________________________________
Name:
Title:
ACKNOWLEDGED AND AGREED:
Computershare Trust Company, Inc.
350 Indiana St., Suite 800
Golden, CO 80401-5099
By _________________________________
Name:
Title:
Exhibit 1 to Irrevocable Transfer Agent Instructions
----------------------------------------------------
HART & TRINEN, LLP
ATTORNEYS AT LAW
1624 Washington Street
Denver, CO 80203
William T. Hart, P.C. ________ Email: harttrinen@aol.com
Donald T. Trinen Facsimile: (303) 839-5414
(303) 839-0061
Computershare Trust Company, Inc.
350 Indiana St., Suite 800
Golden, CO 80401-5099
Re: CEL-SCI CORPORATION
-------------------
To Whom It May Concern:
We are writing on behalf of our client, CEL-SCI Corporation, a Colorado
corporation (the "Company"), in connection with the Company's recent filing of a
Registration Statement on Form S-1 (Registration No. ______) (the "Registration
Statement") with the Securities and Exchange Commission (the "SEC") relating to
____ shares of the Company's common stock, par value $___ per share (the
"Registrable Securities"), issued or to be issued to the selling stockholders
(the "Selling Stockholders") listed in the selling stockholders table at pages
__ of the final prospectus, a copy of which is attached hereto as Exhibit A.
In connection with the foregoing, we advise you that the SEC has entered
an order declaring the Registration Statement effective under the Securities Act
of 1933, as amended (the "1933 Act"), on ___ __, 2006. A copy of the
Registration Statement is included for your file. We have no knowledge 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.
If you have any questions relating to the foregoing, please feel free to
call me at (303) 839-0061.
Very truly yours,
HART & TRINEN, L.L.P.
By
William T. Hart
WTH:tg
EXHIBIT D
HART & TRINEN
Attorneys at Law
1624 Washington Street
Denver, Colorado 80203
(303) 839-0061
(303) 839-5414 (fax)
August 4, 2006
Iroquois Master Fund Ltd.
641 Lexington Avenue, 28th Floor
New York, NY 10022
Ladies and Gentlemen:
We have acted as counsel to CEL-SCI Corporation, a corporation organized
under the laws of Colorado (the "Company"), in connection with the execution and
delivery by the Company of the Securities Purchase Agreement dated as of August
4, 2006 (the "Agreement"), by and among the Company and the purchasers
identified on the signature pages thereto (the "Purchasers"). This opinion is
given to you pursuant to Section 2.2(a)(iv) of the Agreement. (Capitalized terms
not otherwise defined herein are defined as set forth in the Agreement.)
We have participated in the preparation and negotiation of the Agreement
and the Exhibits and Schedules thereto, and the other documents referred to
therein. We also have examined such certificates of public officials, corporate
documents and records and other certificates, opinions, agreements and
instruments and have made such other investigations as we have deemed necessary
in connection with the opinions hereinafter set forth.
Based on the foregoing and upon such investigation as we have deemed
necessary, we give you our opinion as follows:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Colorado. The Company has all
requisite power and authority, and all material governmental licenses,
authorizations, consents and approvals, required to own and operate its
properties and assets and to carry on its business as now conducted. The Company
is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure to qualify could have a material adverse
effect on the Company.
2. Each of the following subsidiaries of the Company (the "Subsidiaries")
is a corporation, duly organized and in good standing under the laws of its
jurisdiction of organization: Viral Technologies, Inc.
3. The Company has all requisite power and authority to execute, deliver
and perform the Agreement and each other document or instrument executed by it,
or any of its officers, in connection herewith or therewith or pursuant hereto
or thereto (collectively, the "Transaction Documents"), to issue, sell and
deliver the Securities pursuant to the Transaction Documents, to issue and
deliver the Underlying Shares, and to carry out and perform its obligations
under, and to consummate the transactions contemplated by, the Transaction
Documents.
4. All corporate action on the part of the Company, its directors and its
stockholders necessary for the authorization, execution and delivery by the
Company of the Transaction Documents, the authorization, issuance, sale and
delivery of the Securities pursuant to the Agreement, the issuance and delivery
of the Underlying Shares upon conversion or exercise of the Securities, and the
consummation by the Company of the transactions contemplated by the Transaction
Documents has been duly taken. The Transaction Documents have been duly and
validly executed and delivered by the Company and constitute the legal, valid
and binding obligation of the Company, enforceable against the Company in
accordance with their terms, except (a) that such enforceability may be limited
by bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights in general and (b) that the remedies of specific performance
and injunctive and other forms of injunctive relief may be subject to equitable
defenses.
5. After giving effect to the transactions contemplated by the Agreement,
and immediately after the Closing, the authorized capital stock of the Company
will consist of:
(i) an aggregate of 200,000,000 shares of Common Stock, of which
81,502,038 shares will be issued and outstanding,
(ii) The rights, privileges and preferences of the Common Stock are as
stated in the Company's Articles of Incorporation.
(iii) All presently issued and outstanding shares of Common Stock have
been duly authorized and validly issued and are fully paid and nonassessable and
free of any preemptive or similar rights, and have been issued in compliance
with applicable securities laws and regulations. The Securities which are being
issued on the date hereof pursuant to the Agreement have been duly authorized
and validly issued and are fully paid and nonassessable and free of preemptive
or similar rights, and have been issued in compliance with applicable securities
laws, rules and regulations. Except as may be limited by the number of the
Company's authorized shares the Underlying Shares issuable upon conversion of
the Notes have been duly and validly authorized and reserved for issuance, and
when issued in accordance with the conversion of the Notes, will be validly
issued, fully paid and nonassessable, and free of any preemptive or similar
rights.
(iv) to our knowledge 5,007,744 shares are reserved for issuance upon
conversion of issued and outstanding options, warrants and other derivative
securities (other than the warrants to be issued to the Maxim Group LLC in
connection with this transaction), 21,300,000 shares are reserved for issuance
to employees, officers and directors under the Company's Stock Option, Stock
Bonus and Stock Compensation Plans, of which 3,969,433 shares are subject to
2
currently outstanding incentive stock option grants and 6,078,062 shares are
subject to currently outstanding non-qualified stock option grants, and
(v) to our knowledge, except for rights described in Schedule 3.1(f)
of the Agreement, there are no other options, warrants, conversion privileges or
other rights presently outstanding to purchase or otherwise acquire from the
Company any capital stock or other securities of the Company, or any other
agreements to issue any such securities or rights.
6. The Company meets the eligibility requirements for the use of Form S-1 for
the registration of the Securities and Underlying Shares.
7. Based in part upon the representations of the Purchasers contained in
the Securities Purchase Agreement, the Securities may be issued to the
Purchasers without registration under the Securities Act of 1933, as amended.
8. To our knowledge, the execution, delivery and performance by the Company
of, and the compliance by the Company with the terms of the Transaction
Documents, the issuance, sale and delivery of the Securities pursuant to the
Agreement, and the issuance and delivery of the Securities do not (a) conflict
with or result in a violation of any provision of law, rule or regulation having
applicability to the Company or its Subsidiaries or of the certificate of
incorporation or by-laws or other similar organizational documents of the
Company or its Subsidiaries, (b) conflict with, result in a breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or result in or permit the termination or
modification of, any agreement, instrument, order, writ, judgment or decree
known to us to which the Company of its Subsidiaries is a party or is subject or
(c) result in the creation or imposition of any lien, claim or encumbrance on
any of the Company's or its Subsidiaries' assets or properties.
9. To our knowledge, there is no claim, action, suit, proceeding,
arbitration, investigation or inquiry, pending or threatened, before any court
or governmental or administrative body or agency, or any private arbitration
tribunal, against the Company or its Subsidiaries, or any of its officers,
directors or employees (in connection with the discharge of their duties as
officers, directors and employees), or affecting any of its properties or
assets.
10. With the exception of the American Stock Exchangeno consent, license,
permit, waiver, approval or authorization of, or designation, declaration,
registration or filing with, any court, governmental or regulatory authority, or
self-regulatory organization, is required in connection with the valid
execution, delivery and performance by the Company of the Documents, or the
offer, sale, issuance or delivery of the Securities (and the Underlying Shares
issuable upon conversion of the Securities) or the consummation of the
transactions contemplated thereby.
11. The Company is not an Investment Company within the meaning of the
Investment Company Act of 1940, as amended.
12. The Security Agreement creates in favor of the Agent (as defined in the
Security Agreement), a security interest under the Colorado Uniform Commercial
Code in the Collateral (as such term is defined in the Security Agreement), to
the extent the Company has rights in or the power to transfer rights in such
3
Collateral and to the extent Article 9 of the Uniform Commercial Code as in
effect in the state of Colorado as of the date hereof is applicable thereto
(collectively, the "Article 9 Collateral").
13. Assuming that the Financing Statements have been duly and properly
filed with the Colorado Secretary, the Agent will have a perfected security
interest in that part of the Article 9 Collateral in which a security interest
is perfected by filing Financing Statements under the Uniform Commercial Code as
in effect in the State of Colorado as of the date hereof.
14. The Security Agreement, together with the delivery of the certificates
representing the Pledged Stock (as defined in the Security Agreement) to the
Agent in the State of New York indorsed to or issued in the name of the Agent or
in blank, create in favor of the Agent, a perfected security interest in the
Pledged Stock under the Colorado Uniform Commercial Code. Assuming the Agent is
acquiring its security interest in the Pledged Stock without notice of any
adverse claim (as such phrase is used in Section 8-105 of the New York Uniform
Commercial Code), the Agent is acquiring its security interest in the Pledged
Stock free of adverse claims.
15. The enforcement of any rights pursuant to the Security Agreement may be
limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights in general.
All persons identified as Purchasers in the Agreement can rely on this
opinion.
We express no opinion as to any matters governed by any laws other than
the laws of Colorado, and the Federal laws of the United States of America.
Very truly yours,
HART & TRINEN, L.L.P.
By
William T. Hart
EXHIBIT E
SECURITY AGREEMENT
This SECURITY AGREEMENT, dated as of August 4, 2006 (the
"Agreement") is by and among CEL-SCI Corporation, a company duly organized and
validly existing under the laws of Delaware (the "Company"), the Purchasers
identified on the signature pages hereto (each, a "Purchaser" and collectively,
the "Purchasers") and Iroquois Master Fund Ltd., as agent for the Purchasers (in
such capacity, together with its successors in such capacity, the "Agent").
The Company and each of the Purchasers are parties to a Securities
Purchase Agreement dated as of August 4, 2006 (as modified and supplemented and
in effect from time to time, the "Purchase Agreement"), that provides, subject
to the terms and conditions thereof, for the issuance and sale by the Company to
each of the Purchasers, severally and not jointly, Notes and Warrants as more
fully described in the Purchase Agreement.
To induce each of the Purchasers to enter into the Purchase
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company has agreed to pledge
and grant a security interest in the Collateral (as hereinafter defined) as
security for the Secured Obligations (as hereinafter defined). Accordingly, the
parties hereto agree as follows:
Section 1. Definitions. Each capitalized term used herein and not otherwise
-----------
defined shall have the meaning assigned to such term in the Purchase
Agreement. In addition, as used herein:
"Accounts" shall have the meaning ascribed thereto in Section 3(d)
hereof. --------
"Business" shall mean the businesses from time to time, now or
hereafter, conducted by the Company and its Subsidiaries.
"Collateral" shall have the meaning ascribed thereto in Section 3
hereof. -----------
"Copyright Collateral" shall mean all Copyrights, whether now owned
---------------------
or hereafter acquired by the Company, that are associated with the Business.
"Copyrights" shall mean all copyrights, copyright registrations and
------------
applications for copyright registrations, including those shown on Annex 3
hereto, and, without limitation, all renewals and extensions thereof, the right
to recover for all past, present and future infringements thereof, and all other
rights of any kind whatsoever accruing thereunder or pertaining thereto.
"Documents" shall have the meaning ascribed thereto in Section 3(j)
hereof. -----------
"Equipment" shall have the meaning ascribed thereto in Section 3(h)
hereof. ----------
"Event of Default" shall have the meaning ascribed thereto in
------------------
Section 8 of the Notes.
"Excluded Collateral" shall mean the assets of the Company which
---------------------
secure the Permitted Indebtedness and the assets listed on Annex 2 hereto.
"Instruments" shall have the meaning ascribed thereto in Section
3(e) hereof. ------------
"Intellectual Property" shall mean, collectively, all Copyright
----------------------
Collateral, all Patent Collateral and all Trademark Collateral, together with
(a) all inventions, processes, production methods, proprietary information,
know-how and trade secrets used or useful in the Business; (b) all licenses or
user or other agreements granted to the Company with respect to any of the
foregoing, in each case whether now or hereafter owned or used including,
without limitation, the licenses or other agreements with respect to the
Copyright Collateral, the Patent Collateral or the Trademark Collateral; (c) all
customer lists, identification of suppliers, data, plans, blueprints,
specifications, designs, drawings, recorded knowledge, surveys, manuals,
materials standards, processing standards, catalogs, computer and automatic
machinery software and programs, and the like pertaining to the operation by the
Company of the Business; (d) all sales data and other information relating to
sales now or hereafter collected and/or maintained by the Company that pertain
to the Business; (e) all accounting information which pertains to the Business
and all media in which or on which any of the information or knowledge or data
or records which pertain to the Business may be recorded or stored and all
computer programs used for the compilation or printout of such information,
knowledge, records or data; (f) all licenses, consents, permits, variances,
certifications and approvals of governmental agencies now or hereafter held by
the Company pertaining to the operation by the Company and its Subsidiaries of
the Business; and (g) all causes of action, claims and warranties now or
hereafter owned or acquired by the Company in respect of any of the items listed
above.
"Inventory" shall have the meaning ascribed thereto in Section 3(f)
hereof. -----------
"Issuers" shall mean, collectively, the respective entities
---------
identified on Annex 1 hereto, and all other entities formed by the Company or
entities in which the Company owns or acquires any capital stock or similar
interest.
"Motor Vehicles" shall mean motor vehicles, tractors, trailers and
----------------
other like property, whether or not the title thereto is governed by a
certificate of title or ownership.
"Patent Collateral" shall mean all Patents, whether now owned or
------------------
hereafter acquired by the Company that are associated with the Business.
"Patents" shall mean all patents and patent applications, including
---------
those shown on Annex 3 hereto, and without limitation, the inventions and
improvements described and claimed therein together with the reissues,
divisions, continuations, renewals, extensions and continuations-in-part
thereof, all income, royalties, damages and payments now or hereafter due and/or
payable under and with respect thereto, including, without limitation, damages
and payments for past or future infringements thereof, the right to sue for
past, present and future infringements thereof, and all rights corresponding
thereto throughout the world.
2
"Permitted Indebtedness" shall mean the Company's existing
-----------------------
indebtedness, liabilities and obligations as disclosed on Annex 5 hereto and any
future capitalized leases, purchase money indebtedness and the Notes.
"Permitted Liens" shall mean (i) the Company's existing Liens as
-----------------
disclosed in the Current SEC Report or Annex 6 hereto, (ii) the security
interests created by this, (iii) Liens of local or state authorities for
franchise, real estate or other like taxes, (iv) statutory Liens of landlords
and liens of carriers, warehousemen, bailees, mechanics, materialmen and other
like Liens imposed by law, created in the ordinary course of business and for
amounts not yet due, (v) tax Liens not yet due and payable and (vi) existing
Liens which do not materially affect the value of the Company's property and do
not materially interfere with the use made and proposed to be made of such
property by the Company and the Subsidiaries.
"Pledged Stock" shall have the meaning ascribed thereto in Section
3(a) hereof. -------------
"Real Estate" shall have the meaning ascribed thereto in Section
3(l) hereof. -----------
"Secured Obligations" shall mean, collectively, the principal of and
--------------------
interest on the Notes issued or issuable (as applicable) by the Company and held
by the applicable Purchaser and all other amounts from time to time owing to
such Purchasers by the Company under the Purchase Agreement and the Notes.
"Stock Collateral" shall mean, collectively, the Collateral
-----------------
described in clauses (a) through (c) of Section 3 hereof and the proceeds of and
to any such property and, to the extent related to any such property or such
proceeds, all books, correspondence, credit files, records, invoices and other
papers.
"Trademark Collateral" shall mean all Trademarks, whether now owned
---------------------
or hereafter acquired by the Company, that are associated with the Business.
Notwithstanding the foregoing, the Trademark Collateral does not and shall not
include any Trademark which would be rendered invalid, abandoned, void or
unenforceable by reason of its being included as part of the Trademark
Collateral.
"Trademarks" shall mean all trade names, trademarks and service
------------
marks, logos, trademark and service mark registrations, and applications for
trademark and service mark registrations, including those shown on Annex 3
hereto and without limitation, all renewals of trademark and service mark
registrations, all rights corresponding thereto throughout the world, the right
to recover for all past, present and future infringements thereof, all other
rights of any kind whatsoever accruing thereunder or pertaining thereto,
together, in each case, with the product lines and goodwill of the business
connected with the use of, and symbolized by, each such trade name, trademark
and service mark.
"Uniform Commercial Code" shall mean the Uniform Commercial Code as
-------------------------
in effect in the State of Colorado from time to time.
3
Section 2. Representations and Warranties. The Company represents and
---------------------------------
warrants to each of the Purchasers that:
a. the Company is the sole beneficial owner of the Collateral and no Lien
exists or will exist upon any Collateral at any time (and, with
respect to the Stock Collateral, no right or option to acquire the
same exists in favor of any other Person), except for Permitted Liens
and the pledge and security interest in favor of each of the
Purchasers created or provided for herein which pledge and security
interest will constitute a first priority perfected pledge and
security interest in and to all of the Collateral (other than
Intellectual Property registered or otherwise located outside of the
United States of America) upon the filing of the applicable financing
statements or delivery of stock certificates required hereunder;
b. the Pledged Stock directly or indirectly owned by the Company in the
entities identified in Annex 1 hereto is, and all other Pledged Stock,
whether issued now or in the future, will be, duly authorized, validly
issued, fully paid and nonassessable, free and clear of all Liens
other than Permitted Liens and none of such Pledged Stock is or will
be subject to any contractual restriction, preemptive and similar
rights, or any restriction under the charter or by-laws of the
respective Issuers of such Pledged Stock, upon the transfer of such
Pledged Stock (except for any such restriction contained herein);
c. the Pledged Stock directly or indirectly owned by the Company in the
entities identified in Annex 1 hereto constitutes all of the issued
and outstanding shares of capital stock of any class of such Issuers
beneficially owned by the Company on the date hereof (whether or not
registered in the name of the Company) and said Annex 1 correctly
identifies, as at the date hereof, the respective Issuers of such
Pledged Stock;
d. the Company owns and possesses the right to use, and has done nothing
to authorize or enable any other Person to use, all of its Copyrights,
Patents and Trademarks, and all registrations of its material
Copyrights, Patents and Trademarks are valid and in full force and
effect. Except as may be set forth in said Annex 3, the Company owns
and possesses the right to use all material Copyrights, Patents and
Trademarks, necessary for the operation of the Business;
e. to the Company's knowledge, (i) except as set forth in Annex 3 hereto,
there is no violation by others of any right of the Company with
respect to any material Copyrights, Patents or Trademarks,
respectively, and (ii) the Company is not, in connection with the
Business, infringing in any respect upon any Copyrights, Patents or
Trademarks of any other Person; and no proceedings have been
instituted or are pending against the Company or, to the Company's
knowledge, threatened, and no claim against the Company has been
4
received by the Company, alleging any such violation, except as may be
set forth in said Annex 3;
f. the Company does not own any material Trademarks registered in the
United States of America to which the last sentence of the definition
of Trademark Collateral applies; and
Section 3. Collateral. As collateral security for the prompt payment in
full when due (whether at stated maturity, by acceleration or otherwise) of the
Secured Obligations, the Company hereby pledges, grants, assigns, hypothecates
and transfers to the Agent on behalf of the Purchasers as hereinafter provided,
a security interest in and Lien upon all of the Company's right, title and
interest in, to and under all personal property and other assets of the Company,
whether now owned or hereafter acquired by or arising in favor of the Company,
whether now existing or hereafter coming into existence, whether owned or
consigned by or to, or leased from or to the Company and regardless of where
located, except for the Excluded Collateral, (all being collectively referred to
herein as "Collateral") including:
a. the Company's direct or indirect ownership interest in the respective
shares of capital stock of the Issuers and all other shares of capital
stock of whatever class of the Issuers, now or hereafter owned by the
Company, together with in each case the certificates evidencing the
same (collectively, the "Pledged Stock");
b. all shares, securities, moneys or property representing a dividend on
any of the Pledged Stock, or representing a distribution or return of
capital upon or in respect of the Pledged Stock, or resulting from a
split-up, revision, reclassification or other like change of the
Pledged Stock or otherwise received in exchange therefor, and any
subscription warrants, rights or options issued to the holders of, or
otherwise in respect of, the Pledged Stock;
c. without affecting the obligations of the Company under any provision
prohibiting such action hereunder or under the Purchase Agreement or
the Notes, in the event of any consolidation or merger in which any
Issuer is not the surviving corporation, all shares of each class of
the capital stock of the successor corporation (unless such successor
corporation is the Company itself) formed by or resulting from such
consolidation or merger (the Pledged Stock, together with all other
certificates, shares, securities, properties or moneys as may from
time to time be pledged hereunder pursuant to clause (a) or (b) above
and this clause (c) being herein collectively called the "Stock
Collateral");
d. all accounts and general intangibles (each as defined in the Uniform
Commercial Code) of the Company constituting any right to the payment
of money, including (but not limited to) all moneys due and to become
due to the Company in respect of any loans or advances for the
purchase price of Inventory or Equipment or other goods sold or leased
5
or for services rendered, all moneys due and to become due to the
Company under any guarantee (including a letter of credit) of the
purchase price of Inventory or Equipment sold by the Company and all
tax refunds (such accounts, general intangibles and moneys due and to
become due being herein called collectively "Accounts");
e. all instruments, chattel paper or letters of credit (each as defined
in the Uniform Commercial Code) of the Company evidencing,
representing, arising from or existing in respect of, relating to,
securing or otherwise supporting the payment of, any of the Accounts,
including (but not limited to) promissory notes, drafts, bills of
exchange and trade acceptances (herein collectively called
"Instruments");
f. all inventory (as defined in the Uniform Commercial Code) of the
Company and all goods obtained by the Company in exchange for such
inventory (herein collectively called "Inventory");
g. all Intellectual Property and all other accounts or general
intangibles of the Company not constituting Intellectual Property or
Accounts;
h. all equipment (as defined in the Uniform Commercial Code) of the
Company (herein collectively called "Equipment");
i. each contract and other agreement of the Company relating to the sale
or other disposition of Inventory or Equipment;
j. all documents of title (as defined in the Uniform Commercial Code) or
other receipts of the Company covering, evidencing or representing
Inventory or Equipment (herein collectively called "Documents");
k. all rights, claims and benefits of the Company against any Person
arising out of, relating to or in connection with Inventory or
Equipment purchased by the Company, including, without limitation, any
such rights, claims or benefits against any Person storing or
transporting such Inventory or Equipment;
l. all estates in land together with all improvements and other
structures now or hereafter situated thereon, together with all
rights, privileges, tenements, hereditaments, appurtenances,
easements, including, but not limited to, rights and easements for
access and egress and utility connections, and other rights now or
hereafter appurtenant thereto ("Real Estate");
m. all other tangible or intangible property of the Company, including,
without limitation, all proceeds, products and accessions of and to
any of the property of the Company described in clauses (a) through
(l) above in this Section 3 (including, without limitation, any
proceeds of insurance thereon), and, to the extent related to any
property described in said clauses or such proceeds, products and
6
accessions, all books, correspondence, credit files, records, invoices
and other papers, including without limitation all tapes, cards,
computer runs and other papers and documents in the possession or
under the control of the Company or any computer bureau or service
company from time to time acting for the Company.
Section 4. Further Assurances; Remedies. In furtherance of the grant of the
pledge and security interest pursuant to Section 3 hereof, the Company hereby
agrees with the Agent and each of the Purchasers as follows:
4.01 Delivery and Other Perfection. The Company shall:
-----------------------------
a. if any of the above-described shares, securities, monies or property
required to be pledged by the Company under clauses (a), (b) and (c)
of Section 3 hereof are received by the Company, forthwith either (x)
transfer and deliver to the Agent such shares or securities so
received by the Company (together with the certificates for any such
shares and securities duly endorsed in blank or accompanied by undated
stock powers duly executed in blank) all of which thereafter shall be
held by the Agent, pursuant to the terms of this Agreement, as part of
the Collateral or (y) take such other action as the Agent shall
reasonably deem necessary or appropriate to duly record the Lien
created hereunder in such shares, securities, monies or property
referred to in said clauses (a), (b) and (c) of Section 3;
b. deliver and pledge to the Agent, at the Agent's request, any and all
Instruments, endorsed and/or accompanied by such instruments of
assignment and transfer in such form and substance as the Agent may
request; provided, that so long as no Event of Default shall have
occurred and be continuing, the Company may retain for collection in
the ordinary course any Instruments received by it in the ordinary
course of business and the Agent shall, promptly upon request of the
Company, make appropriate arrangements for making any other Instrument
pledged by the Company available to it for purposes of presentation,
collection or renewal (any such arrangement to be effected, to the
extent deemed appropriate by the Agent, against trust receipt or like
document);
c. give, execute, deliver, file and/or record any financing statement,
notice, instrument, document, agreement or other papers that may be
necessary (in the reasonable judgment of the Agent) to create,
preserve, perfect or validate any security interest granted pursuant
hereto or to enable the Agent to exercise and enforce their rights
hereunder with respect to such security interest, including, without
limitation, causing any or all of the Stock Collateral to be
transferred of record into the name of the Agent or its nominee (and
the Agent agrees that if any Stock Collateral is transferred into its
name or the name of its nominee, the Agent will thereafter promptly
7
give to the Company copies of any notices and communications received
by it with respect to the Stock Collateral), provided that notices to
account debtors in respect of any Accounts or Instruments shall be
subject to the provisions of Section 4.09 below;
d. upon the acquisition after the date hereof by the Company of any
Equipment covered by a certificate of title or ownership cause the
Agent to be listed as the lienholder on such certificate of title and
within 120 days of the acquisition
thereof deliver evidence of the same to the Agent;
e. keep accurate books and records relating to the Collateral, and stamp
or otherwise mark such books and records in such manner as the Agent
may reasonably require in order to reflect the security interests
granted by this Agreement;
f. furnish to the Agent from time to time (but, unless an Event of
Default shall have occurred and be continuing, no more frequently than
quarterly) statements and schedules further identifying and describing
the Copyright Collateral, the Patent Collateral and the Trademark
Collateral, respectively, and such other reports in connection with
the Copyright Collateral, the Patent Collateral and the Trademark
Collateral, as the Agent may reasonably request, all in reasonable
detail;
g. permit representatives of the Agent, upon reasonable notice, at any
time during normal business hours to inspect and make abstracts from
its books and records pertaining to the Collateral, and permit
representatives of the Agent to be present at the Company's place of
business to receive copies of all communications and remittances
relating to the Collateral, and forward copies of any notices or
communications by the Company with respect to the Collateral, all in
such manner as the Agent may reasonably require; and
h. upon the occurrence and during the continuance of any Event of
Default, upon request of the Agent, promptly notify each account
debtor in respect of any Accounts or Instruments that such Collateral
has been assigned to the Agent hereunder, and that any payments due or
to become due in respect of such Collateral are to be made directly to
the Agent.
4.02 Other Financing Statements and Liens. Except with respect to Permitted
------------------------------------
Indebtedness or as otherwise permitted under Schedule 3.1(a) of the Purchase
Agreement, without the prior written consent of the Agent, the Company shall not
file or suffer to be on file, or authorize or permit to be filed or to be on
file, in any jurisdiction, any financing statement or like instrument with
respect to the Collateral in which the Agent is not named as the sole secured
party for the benefit of each of the Purchasers.
4.03 Preservation of Rights. The Agent shall not be required to take steps
----------------------
necessary to preserve any rights against prior parties to any of the Collateral.
8
4.04 Special Provisions Relating to Certain Collateral.
-------------------------------------------------
a. Stock Collateral.
(1) The Company will cause the Stock Collateral to constitute at all
times 100% of the total number of shares of each class of capital
stock of each Issuer then outstanding that is owned directly or
indirectly by the Company.
(2) So long as no Event of Default shall have occurred and be
continuing, the Company shall have the right to exercise all
voting, consensual and other powers of ownership pertaining to
the Stock Collateral for all purposes not inconsistent with the
terms of this Agreement, the Purchase Agreement, the Notes or any
other instrument or agreement referred to herein or therein,
provided that the Company agrees that it will not vote the Stock
Collateral in any manner that is inconsistent with the terms of
this Agreement, the Purchase Agreement, the Notes or any such
other instrument or agreement; and the Agent shall execute and
deliver to the Company or cause to be executed and delivered to
the Company all such proxies, powers of attorney, dividend and
other orders, and all such instruments, without recourse, as the
Company may reasonably request for the purpose of enabling the
Company to exercise the rights and powers which it is entitled to
exercise pursuant to this Section 4.04(a)(2).
(3) Unless and until an Event of Default has occurred and is
continuing, the Company shall be entitled to receive and retain
any dividends on the Stock Collateral paid in cash out of earned
surplus.
(4) If any Event of Default shall have occurred, then so long as such
Event of Default shall continue, and whether or not the Agent
exercises any available right to declare any Secured Obligations
due and payable or seeks or pursues any other relief or remedy
available to it under applicable law or under this Agreement, the
Purchase Agreement, the Notes or any other agreement relating to
such Secured Obligations, all dividends and other distributions
on the Stock Collateral shall be paid directly to the Agent and
retained by it as part of the Stock Collateral, subject to the
terms of this Agreement, and, if the Agent shall so request in
writing, the Company agrees to execute and deliver to the Agent
appropriate additional dividend, distribution and other orders
and documents to that end, provided that if such Event of Default
is cured, any such dividend or distribution theretofore paid to
the Agent shall, upon request of the Company
9
(except to the extent theretofore applied to the Secured Obligations)
be returned by the Agent to the Company.
b. Intellectual Property.
(1) For the purpose of enabling the Agent to exercise rights and
remedies under Section 4.05 hereof at such time as the Agent
shall be lawfully entitled to exercise such rights and remedies,
and for no other purpose, the Company hereby grants to the Agent,
to the extent assignable, an irrevocable, non-exclusive license
(exercisable without payment of royalty or other compensation to
the Company) to use, assign, license or sublicense any of the
Intellectual Property (other than the Trademark Collateral or
goodwill associated therewith) now owned or hereafter acquired by
the Company, wherever the same may be located, including in such
license reasonable access to all media in which any of the
licensed items may be recorded or stored and to all computer
programs used for the compilation or printout thereof.
(2) Notwithstanding anything contained herein to the contrary, so
long as no Event of Default shall have occurred and be
continuing, the Company will be permitted to exploit, use, enjoy,
protect, license, sublicense, assign, sell, dispose of or take
other actions with respect to the Intellectual Property in the
ordinary course of the business of the Company. In furtherance of
the foregoing, unless an Event of Default shall have occurred and
is continuing, the Agent shall from time to time, upon the
request of the Company, execute and deliver any instruments,
certificates or other documents, in the form so requested, which
the Company shall have certified are appropriate (in its
judgment) to allow it to take any action permitted above
(including relinquishment of the license provided pursuant to
clause (1) immediately above as to any specific Intellectual
Property). Further, upon the payment in full of all of the
Secured Obligations or earlier expiration of this Agreement or
release of the Collateral, the Agent shall grant back to the
Company the license granted pursuant to clause (1) immediately
above. The exercise of rights and remedies under Section 4.05
hereof by the Agent shall not terminate the rights of the holders
of any licenses or sublicenses theretofore granted by the Company
in accordance with the first sentence of this clause (2).
4.05 Events of Default, etc. During the period during which an Event of
Default shall have occurred and be continuing:
10
a. the Company shall, at the request of the Agent, assemble the
Collateral owned by it at such place or places, reasonably convenient
to both the Agent and the Company, designated in its request;
b. the Agent may make any reasonable compromise or settlement deemed
desirable with respect to any of the Collateral and may extend the
time of payment, arrange for payment in installments, or otherwise
modify the terms of, any of the Collateral;
c. the Agent shall have all of the rights and remedies with respect to
the Collateral of a secured party under the Uniform Commercial Code
(whether or not said Code is in effect in the jurisdiction where the
rights and remedies are asserted) and such additional rights and
remedies to which a secured party is entitled under the laws in effect
in any jurisdiction where any rights and remedies hereunder may be
asserted, including, without limitation, the right, to the maximum
extent permitted by law, to exercise all voting, consensual and other
powers of ownership pertaining to the Collateral as if the Agent were
the sole and absolute owner thereof (and the Company agrees to take
all such action as may be appropriate to give effect to such right);
d. the Agent in its discretion may, in its name or in the name of the
Company or otherwise, demand, sue for, collect or receive any money or
property at any time payable or receivable on account of or in
exchange for any of the Collateral, but shall be under no obligation
to do so; and
e. the Agent may, upon 10 Business Days, prior written notice to the
Company of the time and place, with respect to the Collateral or any
part thereof which shall then be or shall thereafter come into the
possession, custody or control of the Agent, or any of its respective
agents, sell, lease, assign or otherwise dispose of all or any of such
Collateral, at such place or places as the Agent deems best, and for
cash or on credit or for future delivery (without thereby assuming any
credit risk), at public or private sale, without demand of performance
or notice of intention to effect any such disposition or of time or
place thereof (except such notice as is required above or by
applicable statute and cannot be waived) and the Agent or anyone else
may be the purchaser, lessee, assignee or recipient of any or all of
the Collateral so disposed of at any public sale (or, to the extent
permitted by law, at any private sale), and thereafter hold the same
absolutely, free from any claim or right of whatsoever kind, including
any right or equity of redemption (statutory or otherwise), of the
Company, any such demand, notice or right and equity being hereby
expressly waived and released. In the event of any sale, assignment,
or other disposition of any of the Trademark Collateral, the goodwill
of the Business connected with and symbolized by the Trademark
Collateral subject to such disposition shall be included, and the
Company shall supply to the Agent or its designee, for inclusion in
such sale, assignment or other disposition, all Intellectual Property
11
relating to such Trademark Collateral. The Agent may, without notice
or publication, adjourn any public or private sale or cause the same
to be adjourned from time to time by announcement at the time and
place fixed for the sale, and such sale may be made at any time or
place to which the same may be so adjourned.
The proceeds of each collection, sale or other disposition under this Section
4.05, including by virtue of the exercise of the license granted to the Agent in
Section 4.04(b)(1) hereof, shall be applied in accordance with Section 4.09
hereof.
The Company recognizes that, by reason of certain prohibitions
contained in the Securities Act of 1933, as amended, and applicable state
securities laws, the Agent may be compelled, with respect to any sale of all or
any part of the Collateral, to limit purchasers to those who will agree, among
other things, to acquire the Collateral for their own account, for investment
and not with a view to the distribution or resale thereof. The Company
acknowledges that any such private sales to an unrelated third party in an arm's
length transaction may be at prices and on terms less favorable to the Agent
than those obtainable through a public sale without such restrictions, and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner and that the Agent
shall have no obligation to engage in public sales and no obligation to delay
the sale of any Collateral for the period of time necessary to permit the
respective Issuer thereof to register it for public sale.
4.06 Deficiency. If the proceeds of sale, collection or other realization
of or upon the Collateral pursuant to Section 4.05 hereof are insufficient to
cover the costs and expenses of such realization and the payment in full of the
Secured Obligations, the Company shall remain liable for any deficiency.
4.07 Removals, etc. Without at least 30 days' prior written notice to the
Agent or unless otherwise required by law, the Company shall not (i) maintain
any of its books or records with respect to the Collateral at any office or
maintain its chief executive office or its principal place of business at any
place, or permit any Inventory or Equipment to be located anywhere other than at
the address indicated for the Company in Section 7.4 of the Purchase Agreement
or at one of the locations identified in Annex 4 hereto or in transit from one
of such locations to another or (ii) change its corporate name, or the name
under which it does business, from the name shown on the signature page hereto.
4.08 Private Sale. The Agent shall incur no liability as a result of the
sale of the Collateral, or any part thereof, at any private sale to an unrelated
third party in an arm's length transaction pursuant to Section 4.05 hereof
conducted in a commercially reasonable manner. The Company hereby waives any
claims against the Agent arising by reason of the fact that the price at which
the Collateral may have been sold at such a private sale was less than the price
which might have been obtained at a public sale or was less than the aggregate
amount of the Secured Obligations, even if the Agent accepts the first offer
received and does not offer the Collateral to more than one offeree.
12
4.09 Application of Proceeds. Except as otherwise herein expressly
provided, the proceeds of any collection, sale or other realization of all or
any part of the Collateral pursuant hereto, and any other cash at the time held
by the Agent under this Section 4, shall be applied by the Agent:
First, to the payment of the costs and expenses of such collection,
sale or other realization, including reasonable out-of-pocket costs and expenses
of the Agent and the fees and expenses of its agents and counsel, and all
expenses, and advances made or incurred by the Agent in connection therewith;
Next, to the payment in full of the Secured Obligations in each case
equally and ratably in accordance with the respective amounts thereof then due
and owing to each of the Purchasers; and
Finally, to the payment to the Company, or its successors or
assigns, or as a court of competent jurisdiction may direct, of any surplus then
remaining.
As used in this Section 4, "proceeds" of Collateral shall mean cash, securities
and other property realized in respect of, and distributions in kind of,
Collateral, including any thereof received under any reorganization, liquidation
or adjustment of debt of the Company or any issuer of or obligor on any of the
Collateral.
4.10 Attorney-in-Fact. Without limiting any rights or powers granted by
this Agreement to the Agent while no Event of Default has occurred and is
continuing, upon the occurrence and during the continuance of any Event of
Default, the Agent is hereby appointed the attorney-in-fact of the Company for
the purpose of carrying out the provisions of this Section 4 and taking any
action and executing any instruments which the Agent may deem necessary or
advisable to accomplish the purposes hereof, which appointment as
attorney-in-fact is irrevocable and coupled with an interest. Without limiting
the generality of the foregoing, so long as the Purchasers shall be entitled
under this Section 4 to make collections in respect of the Collateral, the Agent
shall have the right and power to receive, endorse and collect all checks made
payable to the order of the Company representing any dividend, payment, or other
distribution in respect of the Collateral or any part thereof and to give full
discharge for the same.
4.11 Perfection. (i) Prior to or concurrently with the execution and
delivery of this Agreement, the Company shall file such financing statements and
other documents in such offices as the Agent may request to perfect the security
interests granted by Section 3 of this Agreement, and (ii) at any time requested
by the Agent, the Company shall deliver to the Agent all share certificates of
capital stock directly or indirectly owned by the Company in the entities
identified in Annex 1 hereto, accompanied by undated stock powers duly executed
in blank.
4.12 Termination. When all Secured Obligations shall have been paid in full
under the Purchase Agreement, this Agreement shall terminate, and the Agent
shall forthwith cause to be assigned, transferred and delivered, against receipt
but without any recourse, warranty or representation whatsoever, any remaining
Collateral and money received in respect thereof, to or on the order of the
Company and to be released and cancelled all licenses and rights referred to in
Section 4.04(b)(1) hereof. The Agent shall also execute and deliver to the
13
Company upon such termination such Uniform Commercial Code termination
statements, certificates for terminating the Liens on the Motor Vehicles and
such other documentation as shall be reasonably requested by the Company to
effect the termination and release of the Liens on the Collateral.
4.13 Expenses. The Company agrees to pay to the Agent all out-of-pocket
expenses (including reasonable expenses for legal services of every kind) of, or
incident to, the enforcement of any of the provisions of this Section 4, or
performance by the Agent of any obligations of the Company in respect of the
Collateral which the Company has failed or refused to perform upon reasonable
notice, or any actual or attempted sale, or any exchange, enforcement,
collection, compromise or settlement in respect of any of the Collateral, and
for the care of the Collateral and defending or asserting rights and claims of
the Agent in respect thereof, by litigation or otherwise, including expenses of
insurance, and all such expenses shall be Secured Obligations to the Agent
secured under Section 3 hereof.
4.14 Further Assurances. The Company agrees that, from time to time upon
the written request of the Agent, the Company will execute and deliver such
further documents and do such other acts and things as the Agent may reasonably
request in order fully to effect the purposes of this Agreement.
4.15 Indemnity. Each of the Purchasers hereby jointly and severally
covenants and agrees to reimburse, indemnify and hold the Agent harmless from
and against any and all claims, actions, judgments, damages, losses,
liabilities, costs, transfer or other taxes, and expenses (including, without
limitation, reasonable attorneys' fees and expenses) incurred or suffered
without any bad faith or willful misconduct by the Agent, arising out of or
incident to this Agreement or the administration of the Agent's duties
hereunder, or resulting from its actions or inactions as Agent.
Section 5. Miscellaneous.
-------------
5.01 No Waiver. No failure on the part of the Agent or any of its agents to
exercise, and no course of dealing with respect to, and no delay in exercising,
any right, power or remedy hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise by the Agent or any of its agents of any
right, power or remedy hereunder preclude any other or further exercise thereof
or the exercise of any other right, power or remedy. The remedies herein are
cumulative and are not exclusive of any remedies provided by law.
5.02 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the law of the State of Colorado.
5.03 Notices. All notices, requests, consents and demands hereunder shall
be in writing and facsimile (facsimile confirmation required) or delivered to
the intended recipient at its address or telex number specified pursuant to
Section 7.4 of the Purchase Agreement and shall be deemed to have been given at
the times specified in said Section 7.4.
5.04 Waivers, etc. The terms of this Agreement may be waived, altered or
amended only by an instrument in writing duly executed by the Company and the
Agent. Any such amendment or waiver shall be binding upon each of the Purchasers
and the Company.
14
5.05 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the respective successors and assigns of the Company and each
of the Purchasers (provided, however, that the Company shall not assign or
transfer its rights hereunder without the prior written consent of the Agent).
5.06 Counterparts. This Agreement may be executed in any number of
counterparts, all of which together shall constitute one and the same instrument
and any of the parties hereto may execute this Agreement by signing any such
counterpart.
5.07 Agent. Each Purchaser agrees to appoint Iroquois Master Fund Ltd. as
its Agent for purposes of this Agreement. The Agent may employ agents and
attorneys-in-fact in connection herewith and shall not be responsible for the
negligence or misconduct of any such agents or attorneys-in-fact selected by it
in good faith.
5.08 Severability. If any provision hereof is invalid and unenforceable in
any jurisdiction, then, to the fullest extent permitted by law, (i) the other
provisions hereof shall remain in full force and effect in such jurisdiction and
shall be liberally construed in favor of the Purchasers in order to carry out
the intentions of the parties hereto as nearly as may be possible and (ii) the
invalidity or unenforceability of any provision hereof in any jurisdiction shall
not affect the validity or enforceability of such provision in any other
jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement
to be duly executed as of the day and year first above written.
COMPANY: CEL-SCI CORPORATION
By: ______________________________
Name:
Title:
AGENT: IROQUOIS MASTER FUND LTD.
By: ______________________________
Name:
Title:
15
PURCHASERS: IROQUOIS MASTER FUND LTD.
By: ______________________________
Name:
Title:
OTHER PURCHASERS
By: ______________________________
Name:
Title:
16
ANNEX 1
ENTITIES IN WHICH THE COMPANY IS PLEDGING ITS CAPITAL STOCK
Approximate
Entity Percentage Interest
------ -------------------
Viral Technologies, Inc. 100%
17
ANNEX 2
EXCLUDED COLLATERAL
18
ANNEX 3
COPYRIGHTS, PATENTS AND TRADEMARKS
Application Filing Patent
Patent Country Number Date Number Issue Date Status
----------------------------------------------------------------------------------------
CELL-100 US 08/354,751 12/8/1994 5,652,342 7/29/1997 Patent
CELL-100.01 US 08/469,923 6/6/1995 6,096,315 8/1/2000 Patent
CELL-100 Australia 37779/89 12/14/1990 633,007 5/14/1993 Patent
CELL-100 Europe 89 907 546.9 6/12/1989 0 420 913 11/15/1995 Patent
CELL-104 US 09/509/593 3/20/2000 6,572,860 6/3/2003 Patent
CS-110 US 111,602 4/26/2002 Pending
CS-111 US 111,645 4/26/2002 6,995,237 B1 2/7/2006 Patent
CS-111/CIP US Pending
CS-111/Cont US
CS-111 PCT PCT/US00/416 10/27/2000 Demand filed
CS-111 Japan 538937/01 4/26/2002 Pending
CS-111/DIV Europe 05014859.2 6/28/2005 Pending
CS-112 US 10/296317 11/22/2002 6,951,647 10/4/2005 Patent
CS-112 PCT PCT/US01/167 5/24/2001 WO 01/89286* 11/29/2001 PCT App filed
CS-112 Europe 01939376.8 11/22/2002 Pending
CS-112 Japan 585542/01 11/22/2002 Pending
CS-114 US 10/502,331 7/23/2004 Pending
CS-114 PCT PCT/US03/018 1/23/2003 PCT App filed
CS-114 Europe 03732027.2 8/23/2004 Pending
CS-114 Japan 561536/03 7/22/2004 Pending
CS-118 US 10/502,328 7/23/2004 Pending
CS-118 PCT PCT/US03/018 1/23/2003 (PCT from CS-115, 116, and 117) PCT App filed
CS-118 Europe 037320264 8/23/2004 Pending
CS-120 US 10/611,914 7/3/2003 6,896,879 5/24/2005 Patent
CS-120/CIP US 10/878,563 6/29/2004 Pending
CS-120/Div1 US 11/033,834 1/13/2005 Pending
CS-120/Div2 US 11/033,835 1/13/2005 Pending
19
Application Filing Patent
Patent Country Number Date Number Issue Date Status
----------------------------------------------------------------------------------------
CS-120 PCT PCT/US04/020 7/1/2004 PCT App filed
CS-120 Europe 04777305.6 1/25/2006 Pending
CS-120 India 1/30/2006 Pending
CS-120 Japan 1/30/2006 Pending
CS-120 China 1/30/2006 Pending
CS-120 Austral 2004257601 1/12/2006 Pending
CS-120 Canada 02531322 Pending
CS-120/CIP/DIV PCT 6/29/2005 PCT App filed
CS-120/CIP PCT PCT/US05/226 1/27/2006 PCT App filed
CS-121/Cont US 3/24/2005 (continuation of 10/682,979) Pending
CS-122 P1 US 60/576,600 6/4/2004 Pending
CS-122 P2 US 60/576,601 6/4/2004 Pending
CS-122 US Pending
CS-122 PCT 6/3/2005 PCT App filed
CS-123P US 60/592,121 6/30/2004 Pending
CS-123 US Pending
CS-123 PCT 6/29/2005 PCT App filed
CS-124P US 11/125,176 5/10/2005 Pending
CS-124 US Pending
CS-124 PCT 5/10/2006 PCT App filed
CS-125P US 4/3/2006 Pending
L.E.A.P.S.** US 75/214,482 12/17/1996 2,494,550 10/2/2001 Trademark
Multikine** US 74/384,017 4/29/1993 2,072,043 6/17/1997 Trademark
**Trademark *Publication Number
20
ANNEX 4
LIST OF LOCATIONS
8229 Boone Blvd. #802
Vienna, VA 22182
4820-C Seton Drive
Baltimore, MD 21215
21
ANNEX 5
PERMITTED INDEBTEDNESS
All liabilities shown in the Company's 10-Q report for the three months
ended March 31, 2006 and all liabilities subsequently incurred in the normal
course of business.
22
ANNEX 6
PERMITTED LIENS
23
Exhibit G
---------
Plan of Distribution
--------------------
The selling stockholders may, from time to time, sell any or all of their
shares of common stock on any stock exchange, market or trading facility on
which the shares are traded or in private transactions. These sales may be at
fixed or negotiated prices. The selling stockholders may use any one or more of
the following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o short sales;
o broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The selling stockholders may also engage in short sales against the box,
puts and calls and other transactions in our securities or derivatives of our
securities and may sell or deliver shares in connection with these trades.
The selling stockholders may sell shares of common stock short and deliver
shares of common stock covered by this prospectus to close out short positions
and to return borrowed shares in connection with such short sales.
Broker-dealers engaged by the selling stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved. Any
profits on the resale of shares of common stock by a broker-dealer acting as
principal might be deemed to be underwriting discounts or commissions under the
Securities Act. Discounts, concessions, commissions and similar selling
expenses, if any, attributable to the sale of shares will be borne by a selling
stockholder. The selling stockholders may agree to indemnify any agent, dealer
or broker-dealer that participates in transactions involving sales of the shares
if liabilities are imposed on that person under the Securities Act.
The selling stockholders may from time to time pledge or grant a security
interest in some or all of the shares of common stock owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell the shares of common stock from time to time under
this prospectus after we have filed an amendment to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act of 1933 amending
the list of selling stockholders to include the pledgee, transferee or other
successors in interest as selling stockholders under this prospectus.
The selling stockholders also may transfer the shares of common stock in
other circumstances, in which case the transferees, pledgees or other successors
in interest will be the selling beneficial owners for purposes of this
prospectus and may sell the shares of common stock from time to time under this
prospectus after we have filed an amendment to this prospectus under Rule
424(b)(3) or other applicable provision of the Securities Act of 1933 amending
the list of selling stockholders to include the pledgee, transferee or other
successors in interest as selling stockholders under this prospectus.
The selling stockholders and any broker-dealers or agents that are involved
in selling the shares of common stock may be deemed to be "underwriters" within
the meaning of the Securities Act in connection with such sales. In such event,
any commissions received by such broker-dealers or agents and any profit on the
resale of the shares of common stock purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the registration
of the shares of common stock. We have agreed to indemnify the selling
stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
The selling stockholders have advised us that they have not entered into
any agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their shares of common stock, nor is there
an underwriter or coordinating broker acting in connection with a proposed sale
of shares of common stock by any selling stockholder. If we are notified by any
selling stockholder that any material arrangement has been entered into with a
broker-dealer for the sale of shares of common stock, if required, we will file
a supplement to this prospectus. If the selling stockholders use this prospectus
for any sale of the shares of common stock, they will be subject to the
prospectus delivery requirements of the Securities Act.
The anti-manipulation rules of Regulation M under the Securities Exchange
Act of 1934 may apply to sales of our common stock and activities of the selling
stockholders.
2
EXHIBIT A
to
UCC Financing Statement
-----------------------
Debtor: Secured Party:
CEL-SCI Corporation Iroquois Master Fund Ltd.
8229 Boone Blvd. #802 641 Lexington Avenue, 28th Floor
Vienna, VA 22182 New York, NY 10022
The Financing Statement covers the following types of items of property of
the Debtor, whether now existing or hereafter arising:
a. the Company's direct or indirect ownership interest in the
respective shares of capital stock of the Issuers and all
other shares of capital stock of whatever class of the
Issuers, now or hereafter owned by the Company, together
with in each case the certificates evidencing the same
(collectively, the "Pledged Stock");
b. all shares, securities, moneys or property representing a
dividend on any of the Pledged Stock, or representing a
distribution or return of capital upon or in respect of the
Pledged Stock, or resulting from a split-up, revision,
reclassification or other like change of the Pledged Stock
or otherwise received in exchange therefor, and any
subscription warrants, rights or options issued to the
holders of, or otherwise in respect of, the Pledged Stock;
c. without affecting the obligations of the Company under any
provision prohibiting such action hereunder or under the
Purchase Agreement or the Notes, in the event of any
consolidation or merger in which any Issuer is not the
surviving corporation, all shares of each class of the
capital stock of the successor corporation (unless such
successor corporation is the Company itself) formed by or
resulting from such consolidation or merger (the Pledged
Stock, together with all other certificates, shares,
securities, properties or moneys as may from time to time be
pledged hereunder pursuant to clause (a) or (b) above and
this clause (c) being herein collectively called the "Stock
Collateral"); ------
-----------
d. all accounts and general intangibles (each as defined in the
Uniform Commercial Code) of the Company constituting any
right to the payment of money, including (but not limited
to) all moneys due and to become due to the Company in
respect of any loans or advances for the purchase price of
Inventory or Equipment or other goods sold or leased or for
services rendered, all moneys due and to become due to the
Company under any guarantee (including a letter of credit)
of the purchase price of Inventory or Equipment sold by the
Company and all tax refunds (such accounts, general
intangibles and moneys due and to become due being herein
called collectively "Accounts");
--------
e. all instruments, chattel paper or letters of credit (each as
defined in the Uniform Commercial Code) of the Company
evidencing, representing, arising from or existing in
respect of, relating to, securing or otherwise supporting
the payment of, any of the Accounts, including (but not
limited to) promissory notes, drafts, bills of exchange and
trade acceptances (herein collectively called
"Instruments");
f. all inventory (as defined in the Uniform Commercial Code) of
the Company and all goods obtained by the Company in
exchange for such inventory (herein collectively called
"Inventory");
g. all of the Company's Patents, Trademarks, Copyrights or
other Intellectual Property);
h. all equipment (as defined in the Uniform Commercial Code) of
the Company (herein collectively called "Equipment");
i. each contract and other agreement of the Company relating to
the sale or other disposition of Inventory or Equipment;
j. all documents of title (as defined in the Uniform Commercial
Code) or other receipts of the Company covering, evidencing
or representing Inventory or Equipment (herein collectively
called "Documents");
k. all rights, claims and benefits of the Company against any
Person arising out of, relating to or in connection with
Inventory or Equipment purchased by the Company, including,
without limitation, any such rights, claims or benefits
against any Person storing or transporting such Inventory or
Equipment;
l. all estates in land together with all improvements and other
structures now or hereafter situated thereon, together with
all rights, privileges, tenements, hereditaments,
appurtenances, easements, including, but not limited to,
rights and easements for access and egress and utility
connections, and other rights now or hereafter appurtenant
thereto ("Real Estate");
m. all other tangible or intangible property of the Company,
including, without limitation, all after acquired property
and all proceeds, products and accessions of and to any of
the property of the Company described in clauses (a) through
(l) above in this Section 3 (including, without limitation,
any proceeds of insurance thereon), and, to the extent
related to any property described in said clauses or such
proceeds, products and accessions, all books,
correspondence, credit files, records, invoices and other
papers, including without limitation all tapes, cards,
2
computer runs and other papers and documents in the
possession or under the control of the Company or any
computer bureau or service company from time to time acting
for the Company.
Capitalized items used in this Exhibit A shall have the meanings ascribed
to such terms in that certain Security Agreement dated as of August 4, 2006 by
and among Cel-SCI Corporation, the Purchasers identified on the signature pages
thereto and Iroquois Master Fund Ltd., as agent for the Purchasers (in such
capacity, together with its successors in such capacity, the "Agent").
3