EXHIBIT 10(aa)
CEL-SCI CORPORATION
Schedule Required by Instruction 2 to
Item 601 of Regulation S-K
Shares of Series A
Name of Claimant Address of Claimant Preferred Stock (1) Amount of Note (1)
--------------- ------------------- ------------------- ------------------
Iroquois Master Fund Ltd. 641 Lexington Ave., 26th FL. 1,142 $1,395.917.18
New York, New York 10022
Attn: Mitchell R. Kulick
Smithfield Fiduciary LLC c/o Highbridge Capital Management, LLC 372 $454,542.68
40 West 57th Street
New York, NY 10019
American Capital Management, LLC 112 West 18th Street -- Suite 3A 411 $502,583.99
as successor-in-interest to New York, NY 10011
Castlerigg Master Investments, Attn: Philip Mirabelli
Ltd.
Portside Growth and Opportunities c/o Ramius LLC 336 $410,900.24
Fund 599 Lexington Avenue - 19th Floor
New York, NY 10022
Attn: Greg Sandukas, Esq.
Bristol Investment Fund, Ltd. c/o Bristol Capital Advisors, LLC 284 $347,116.37
6353 W. Sunset Blvd., Suite 4006
Hollywood, CA 90028
Attn: Amy Wang, Esq.
Paul Kessler
Cranshire Capital, L.P. 3100 Dundee Road, Suite 703 293 $358,247.35
Northbrook, Illinois 60062
Attn: Mitchell P. Kopin
Rockmore Investment Master Fund, Ltd. c/o Rockmore Capital, LLC 303 $369,788.89
150 East 58th Street - 28th Floor
New York, NY 10155
Attn: Michael DiLernia, Esq.
Longview Fund, LP c/o Viking Asset Management, LLC 182 $222,098.82
66 Bovet Road
San Mateo, CA 94402
Attn: S. Michael Rudolph
American Capital Management, LLC 112 West 18th Street -- Suite 3A 191 $233,573.14
as successor-in-interest to New York, NY 10011
Crescent International, Ltd. Attn: Philip Mirabelli
Option Opportunities Company 716 Oak Street 310 $378,866.71
Winnetka, IL 60093
Attn: Daniel Warsh
Hudson Bay Overseas Fund, Ltd. 120 Broadway, 40th Floor 53 $65,022.58
New York, New York 10271
Attention: Yoav Roth
Hudson Bay Fund, LP 120 Broadway, 40th Floor 30 $36,575.32
New York, New York 10271
Attention: Yoav Roth
Otago Partners, LLC c/o Roth Capital Partners 83 $101,597.82
730 5th Avenue - 25th Floor
New York, NY 10019
Attn: Michael Chill
Paragon Capital, LP 110 East 59th Street - 22nd Floor 60 $73,168.91
New York, NY 10022
Attn: Alan P. Donenfeld
Totals: 4,050 $4,950,000.00
===== =============
(1) Issuance of shares and notes is contingent upon closing of Exchange
Agreement.
EXCHANGE AGREEMENT
This EXCHANGE AGREEMENT (the "Agreement"), dated May 16, 2011, is by
and among CEL-SCI Corporation, a Colorado corporation (the "Company"), Iroquois
Master Fund Ltd., Smithfield Fiduciary LLC, Portside Growth and Opportunity
Fund, Cranshire Capital LP, Rockmore Investment Master Fund Ltd., American
Capital Management, LLC, Longview Fund, LP, Option Opportunities Corp., Hudson
Bay Fund LP, Hudson Bay Overseas Fund Ltd., Otago Partners, LLC, Paragon Capital
LP and Bristol Investment Fund, Ltd. (collectively, the "Claimants" and each
individually, a "Claimant").
RECITALS
A. Iroquois Master Fund Ltd., Smithfield Fiduciary LLC, Castlerigg Master
Investments Ltd., Portside Growth and Opportunity Fund, Bristol Investment
Fund, Ltd., Cranshire Capital LP, Rockmore Investment Master Fund Ltd., Longview
Fund, LP, Nite Capital, LP, Crescent International Ltd., Truk Opportunity Fund,
LLC, Truk International Fund, LP, Otago Partners, LLC, and Paragon Capital LP
(collectively, the "Original Purchasers") entered into a Securities Purchase
Agreement, dated as of August 4, 2006 (the "Securities Purchase Agreement"),
with the Company. All capitalized terms used herein and not otherwise defined
shall have the meanings ascribed to such terms in the Securities Purchase
Agreement.
B. Pursuant to the Securities Purchase Agreement, the Company issued to
the Original Purchasers (i) Senior Secured Convertible Notes due August 4, 2011,
in the aggregate original principal amount of $8,300,000, which were convertible
into shares of Common Stock (as defined below) pursuant to the terms thereof and
(ii) warrants to initially purchase up to 4,825,581 shares of Common Stock in
the aggregate.
C. The Claimants (or one of their predecessor(s) in interest) brought an
action in the United States District Court for the Southern District of New York
(the "Court"), docket number 09 Civ. 8912 (HB) (THK) (the "Action"), alleging
that the Company breached various terms of the Securities Purchase Agreement and
various other provisions of the Transaction Documents (as defined in the
Securities Purchase Agreement).
D. The Company denies the allegations asserted in the Action and asserts
affirmative defenses.
E. The Company and each of the Claimants desire to settle all disputes
between them in accordance with the terms of this Agreement so as to avoid the
risk, expense and inconvenience of litigation and not as an admission of
liability or merit with respect to any claims or defenses asserted by any of
them.
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F. In exchange for the Claimant Claims (as defined below), the Company has
authorized (i) the payment of $3,000,000 in the aggregate to the Claimants, (ii)
the issuance of a series of preferred stock entitled the "Series A Convertible
Preferred Stock" (the "Preferred Stock"), which Preferred Stock shall be
convertible into shares of the Company's common stock, $0.01 par value per share
(the "Common Stock"), (as converted, collectively, the "Preferred Conversion
Shares") in accordance with the terms of the Preferred Stock (the aggregate
stated value of all shares of Preferred Stock shall be $4,050,000) and (iii) the
issuance of senior secured convertible notes in the aggregate original principal
amount of $4,950,000, in the form attached hereto as Exhibit A (each a "Note"
and collectively, the "Notes"), which Notes shall be convertible into shares of
Common Stock (as converted, collectively, the "Note Conversion Shares"), in
accordance with the terms of the Notes.
G. The rights, preferences and other terms and provisions of the Preferred
Stock are set forth in the Certificate of Designations of Series A Convertible
Preferred Stock in the form attached hereto as Exhibit B (the "Certificate of
Designations"). The Preferred Conversion Shares and the Note Conversion Shares
are collectively referred to herein as the "Conversion Shares." The Preferred
Stock, the Preferred Conversion Shares, the Notes and the Note Conversion Shares
are collectively referred to herein as the "Securities."
H. Except as expressly contemplated by the Security Documents (as defined
below), the Notes will be secured by a first priority perfected security
interest in all of the assets of the Company and its Subsidiary (as defined
below) as evidenced by a security agreement, in substantially the form attached
hereto as Exhibit C (the "Security Agreement" and together with the other
security documents and agreements entered into in connection with this Agreement
and each of such other documents and agreements, as each may be amended or
modified from time to time, collectively, the "Security Documents"), and the
Company's Subsidiary will execute a guaranty, in the form attached hereto as
Exhibit D (each a "Guaranty" and collectively, the "Guaranties"), in favor of
each Claimant pursuant to which each of them guarantees the obligations of the
Company under certain of the Transaction Documents (as defined below).
I. The exchange of the Claimant Claims for the $3,000,000 in the
aggregate, the Preferred Stock, the Notes and the Guaranties will be made in
reliance upon the exemption from registration provided by Section 3(a)(10) of
the Securities Act of 1933, as amended (the "1933 Act").
AGREEMENTS
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
hereinafter set forth, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, each Claimant and the
Company hereby agree as follows:
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1. Court Order; Filing of Additional Listing Application; Closing.
(a) Court Order and Additional Listing Application. Upon the execution and
delivery of this Agreement, the parties will cause their respective counsel to
file a joint application with the Court seeking the Court's approval of the
terms of this Agreement and the transactions contemplated hereunder and under
the other Transaction Documents (such order is referred to herein as the "Court
Order" which will be filed with the Court under seal to the extent necessary to
preserve the confidentiality of the bank account information on Schedule 1
hereto). On or before the third (3rd) Business Day immediately following the
entry of the Court Order on the docket of the Court, the Company shall file an
Additional Listing Application with the Principal Market covering all of the
Conversion Shares (the "Listing Application").
(b) Closing. The closing of the transactions contemplated by this Agreement
(the "Closing") shall take place at the offices of the Company's counsel, Wilk
Auslander LLP, at 675 Third Avenue, New York, New York 10017, commencing at
10:00 a.m. local time on the third (3rd) Business Day immediately following the
Company's receipt of written approval of the Listing Application by the
Principal Market for all of the Conversion Shares (such approval of the Listing
Application for all of the Conversion Shares is referred to herein as the
"Listing Approval"), or such other date and time as the Claimants and the
Company may mutually determine (the "Closing Date"). The deliveries actually
delivered under Section 1(c) and Section 1(d) at the Closing shall be deemed
delivered simultaneously.
(c) Company's Deliveries at the Closing. Subject to each Claimant's
compliance with Section 1(d), at the Closing the Company shall:
(i) pay an aggregate of $3,000,000 by wire transfer of immediately
available funds, to the account set forth on Schedule 1 attached hereto;
(ii) deliver to each Claimant a stock certificate representing the
number of shares of Preferred Stock as is set forth opposite such
Claimant's name in column (3) on the Schedule of Claimants attached hereto,
duly executed on behalf of the Company and registered in the name of such
Claimant or its designee;
(iii) deliver to each Claimant a Note in the original principal amount
as is set forth opposite such Claimant's name in column (4) on the Schedule
of Claimants attached hereto, duly executed on behalf of the Company and
registered in the name of such Claimant or its designee;
(iv) deliver its signature page to the Escrow Agreement (as defined
below) to Kobre & Kim LLP;
(v) deliver the Subordination and Intercreditor Agreement, in the form
attached hereto as Exhibit E (the "Subordination Agreement"), executed by
Maximilian de Clara and the Company; and
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(vi) deliver the other documents, instruments and certificates set forth in
Section 7(a).
(d) Claimant's Deliveries at the Closing. Subject to the Company's compliance
with Section 1(c), at the Closing each Claimant shall deliver to the
Company:
(i) a Stipulation of Dismissal, in the form attached hereto as Exhibit F (the
"Stipulation"), executed by Kobre & Kim LLP, pursuant to which the
Claimants voluntarily dismiss the Action with prejudice in accordance with
Federal Rules of Civil Procedure 41(a);
(ii) an escrow agreement executed by Kobre & Kim LLP as counsel to the
Claimants, and such Claimant regarding the Confessions of Judgment (as
defined below) in the form attached hereto as Exhibit G (the "Escrow
Agreement"); and
(iii) the documents set forth in Section 7(b).
2. No Legends; Stop Transfer Instructions. Except for the legend expressly
required by Section 4(c)(vi) of the Certificate of Designations, neither the
shares of Preferred Stock, nor the Notes nor any certificates evidencing any
Conversion Shares shall bear any restrictive or other legends. Except for the
restrictions on transfer of the Notes and shares of Preferred Stock expressly
set forth in Section 15 of the Notes and Section 20 of the Certificate of
Designations, respectively, the Company shall not, and the Company shall not
cause any other Persons (as defined in the Notes) to, issue any stop-transfer
order, instruction or other restriction with respect to any of the shares of
Preferred Stock, any of the Notes or any of the Conversion Shares.
3. Company Release. The Company, on its own behalf and on behalf of its
Subsidiaries and its and their respective officers and directors (the Company
and all of the foregoing Persons are referred to herein as ("Company
Releasors"), hereby irrevocably, fully and unconditionally releases and forever
discharges each Claimant and each of such Claimant's present and former
directors, officers, shareholders, members, partners, managers, employees,
investment managers, investment advisers, Affiliates (as defined below) (and any
other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding the lack of such title or any other title) and each
Person, if any, who controls each Claimant within the meaning of the 1933 Act or
the Securities Exchange Act of 1934, as amended (the "1934 Act"), and each of
the present and former directors, officers, shareholders, members, partners,
employees, and representatives (and any other Persons with a functionally
equivalent role of a Person holding such titles notwithstanding the lack of such
title or any other title) of such controlling Persons (each Claimant and all
such other Persons referred to above in this paragraph are referred to herein
collectively as the "Claimant Releasees") from all claims, actions, obligations,
causes of action, suits, losses, omissions, damages, contingencies, judgments,
fines, penalties, charges, costs (including, without limitation, court costs,
reasonable attorneys' fees and costs of defense and investigation), expenses and
liabilities, of every name and nature, whether known or unknown, absolute or
contingent, suspected or unsuspected, matured or unmatured, both at law and in
equity, (collectively, "Claims") which any Company Releasor may now own, hold,
have or claim to have against any of the Claimant Releasees for, upon, or by
reason of any nature, cause, action or inaction or thing whatsoever which arises
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from the beginning of the world to the date and time of this Agreement relating
to the Company and its Subsidiaries (collectively, the "Company Claims"),
including, without limitation, all the Company Claims in any way based upon,
arising out of, or in connection with the Action. The Company, on behalf of
itself and its successors, assigns and other legal representatives and all of
the other Company Releasors, covenants that it will not (and that it will cause
all other Persons who may seek to claim as, by, through or in relation to any of
the Company Releasors or the matters released by the Company Releasors in this
Agreement not to) sue any of the Claimant Releasees on the basis of or related
to or in connection with any Company Claim herein released and discharged, as
provided in this paragraph. Notwithstanding the foregoing, nothing contained in
this paragraph shall (i) release or relieve any obligations of any Claimant
under this Agreement or under any other Transaction Document to which it is a
party or (ii) prohibit the applicable Company Releasor from asserting any
affirmative defense or counterclaim that arose prior to the date and time of
this Agreement against the applicable Claimant Releasee who is not a Claimant
Releasor in any action brought by such Claimant Releasee against such Company
Releasor for a Claim arising prior to the date and time of this Agreement (it
being understood and agreed for clarification purposes that Claimant Releasors
are not permitted to bring any action for any Claimant Claims). "Affiliate,"
with respect to a Person, has the meaning set forth in Rule 405 promulgated by
the SEC under the 1933 Act.
4. Claimant Release. Each Claimant, on its own behalf and on behalf of its
officers and directors (or managers (as applicable)) (such Claimant and all of
the foregoing Persons are referred to herein as ("Claimant Releasors"), hereby
irrevocably, fully and unconditionally releases and forever discharges the
Company and its present and former officers, directors, employees, Subsidiaries
and Affiliates (and any other Persons with a functionally equivalent role of a
Person holding such titles notwithstanding the lack of such title or any other
title) and each Person, if any, who controls the Company within the meaning of
the 1933 Act or the 1934 Act, and each of the present and former directors,
officers, shareholders, members, partners, employees, and representatives (and
any other Persons with a functionally equivalent role of a Person holding such
titles notwithstanding the lack of such title or any other title) of such
controlling Persons (the Company and all such other Persons referred to above in
this paragraph are referred to herein collectively as the "Company Releasees")
from all Claims which such Claimant Releasors may now own, hold, have or claim
to have against any of the Company Releasees for, upon, or by reason of any
nature, cause, action or inaction or thing whatsoever which arises from the
beginning of the world to the date and time of this Agreement relating to the
Company and its Subsidiaries (collectively, the "Claimant Claims"), including,
without limitation, all such Claimant's Claimant Claims in any way based upon,
arising out of, or in connection with the Action. Each Claimant on behalf of
itself and its successors, assigns and other legal representatives and its other
Claimant Releasors, covenants that it will not (and that it will cause all other
Persons who may seek to claim as, by, through or in relation to such Claimant's
Claimant Releasors or the matters released by such Claimant's Claimant Releasors
in this Agreement not to) sue any of the Company Releasees on the basis of or
related to or in connection with any of such Claimant's Claimant Claims herein
released and discharged, as provided in this paragraph. Notwithstanding the
foregoing, nothing contained in this paragraph shall (i) release or relieve any
obligations of the Company or any Subsidiary under this Agreement or any of the
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other Transaction Documents, (ii) release or relieve any obligations of the
Company under any warrants to purchase Common Stock held by any Claimant
(provided that it is expressly understood and agreed that Claimant Claims that
are being released include, without limitation, all claims arising out of the
Company's transaction with Byron Biopharma in March 2009 and all claims related
to anti-dilution adjustments under the Warrants and the notes issued pursuant to
the Securities Purchase Agreement) or (iii) prohibit the applicable Claimant
Releasor from asserting any affirmative defense or counterclaim that arose prior
to the date and time of this Agreement against the applicable Company Releasee
who is not a Company Releasor in any action brought by such Company Releasee
against such Claimant Releasor for a Claim arising prior to the date and time of
this Agreement (it being understood and agreed for clarification purposes that
Company Releasors are not permitted to bring any action for any Company Claims).
5. Company Representations and Warranties. The Company represents and
warrants to each of the Claimants that:
(a) Organization. The Company is duly organized and validly existing and in
good standing under the laws of the jurisdiction in which it is formed, and has
the requisite power and authority to own its properties and to carry on its
business as now being conducted and as presently proposed to be conducted. Each
Subsidiary is duly organized and validly existing and in good standing under the
laws of the jurisdiction in which it is formed, and has the requisite power and
authority to own its properties and to carry on its business as now being
conducted and as presently proposed to be conducted. The Company has no
Subsidiaries other than Viral Technologies, Inc. "Subsidiaries" means any Person
in which the Company, directly or indirectly, (I) owns all or substantially all
of the outstanding capital stock or holds all or substantially all equity or
similar interest of such Person or (II) controls or operates all or
substantially all of the business, operations or administration of such Person,
and each of the foregoing, is individually referred to herein as a "Subsidiary."
(b) Authorization; Enforcement; Validity. The Company has the requisite
power and authority to enter into and perform its obligations under this
Agreement and the other Transaction Documents (as defined below) and to issue
the Securities in accordance with the terms hereof and thereof. Each Subsidiary
has the requisite power and authority to enter into and perform its obligations
under the Transaction Documents to which it is a party. The execution and
delivery of this Agreement and the other Transaction Documents by the Company
and its Subsidiaries, and the consummation by the Company and its Subsidiaries
of the transactions contemplated hereby and thereby (including, without
limitation, the issuance of the shares of Preferred Stock and the reservation
for issuance and issuance of the Preferred Conversion Shares issuable upon
conversion of the shares of Preferred Stock and the issuance of the Notes and
the reservation for issuance and issuance of the Note Conversion Shares issuable
upon conversion of the Notes) have been duly authorized by the Company's board
of directors and each of its Subsidiaries' board of directors or other governing
body, as applicable, and except for the filing of the Certificate of
Designations, no further filing, consent or authorization is required by the
Company, its Subsidiaries, their respective boards of directors or their
stockholders or other governing body. This Agreement has been, and the other
Transaction Documents will be prior to the consummation of the transactions
contemplated hereby, duly executed and delivered by the Company, and each
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constitutes the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with its respective terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of applicable creditors'
rights and remedies and except as rights to indemnification and to contribution
may be limited by federal or state securities law. Prior to the consummation of
the transactions contemplated hereby, the Transaction Documents to which each
Subsidiary is a party will be duly executed and delivered by each such
Subsidiary, and shall constitute the legal, valid and binding obligations of
each such Subsidiary, enforceable against each such Subsidiary in accordance
with their respective terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of applicable creditors' rights and
remedies and except as rights to indemnification and to contribution may be
limited by federal or state securities law. "Transaction Documents" means,
collectively, this Agreement, the Notes, the Certificate of Designations, the
Security Documents, the Guaranties, the Escrow Agreement, the Subordination
Agreement, the Confessions of Judgment, the Irrevocable Transfer Agent
Instructions (as defined below) and each of the other agreements and instruments
entered into or delivered by any of the parties hereto or any of the
Subsidiaries in connection with the transactions contemplated hereby and
thereby, as they may be amended from time to time.
(c) Issuance of Securities. The issuance of the shares of Preferred Stock
and the Notes has been duly authorized, and upon issuance in accordance with the
terms of the Transaction Documents, will be validly issued, fully paid and
non-assessable and free from all preemptive or similar rights, taxes, liens,
charges and other encumbrances with respect to the issue thereof. As of the date
hereof, the Company shall have reserved from its duly authorized capital stock
not less than 100% of the sum of (i) the maximum number of Preferred Conversion
Shares issuable upon conversion of the shares of Preferred Stock (assuming for
purposes hereof that the shares of Preferred Stock are convertible at the
initial Conversion Price (as defined in the Certificate of Designations) and
without taking into account any limitations on the conversion of the shares of
Preferred Stock set forth in the Certificate of Designations) and (ii) the
maximum number of Note Conversion Shares issuable upon conversion of the Notes
(assuming for purposes hereof that the Notes are convertible at the initial
Conversion Price (as defined in the Notes) and without taking into account any
limitations on the conversion of the Notes as set forth in the Notes). Upon
conversion in accordance with the Certificate of Designations or the Notes (as
the case may be), the Preferred Conversion Shares and the Note Conversion
Shares, respectively, when issued, will be validly issued, fully paid and
non-assessable and free from all preemptive or similar rights, taxes, liens,
charges and other encumbrances with respect to the issue thereof, with the
holders being entitled to all rights accorded to a holder of Common Stock. The
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offer and issuance by the Company of the shares of Preferred Stock, the Notes
and the Guaranties is exempt from registration pursuant to Section 3(a)(10)
under the 1933 Act. The issuance by the Company of the Preferred Conversion
Shares and the Note Conversion Shares will be exempt from registration pursuant
to Section 3(a)(9) under the 1933 Act. The offer and issuance by the Company of
the Securities and the Guaranties is exempt from the Trust Indenture Act of
1939, as amended. Except for the restrictions on transfer expressly set forth in
Section 15 of the Notes and Section 4(c)(iv) of the Certificate of Designations,
all of the Securities are freely transferable and freely tradable by each of the
Claimants without restriction.
(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and its Subsidiaries and the consummation
by the Company and its Subsidiaries of the transactions contemplated hereby and
thereby (including, without limitation, the issuance of the shares of Preferred
Stock, the Preferred Conversion Shares, the Notes and the Note Conversion Shares
and the reservation for issuance of the Preferred Conversion Shares and Note
Conversion Shares) will not (i) result in a violation of the Articles of
Incorporation (as defined in the Certificate of Designations) (including,
without limitation, any certificate of designation contained therein) or other
organizational documents of the Company or any of its Subsidiaries, any capital
stock of the Company or any of its Subsidiaries or bylaws of the Company or any
of its Subsidiaries, (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its Subsidiaries is a party or (iii) result in a violation of any law,
rule, regulation, order, judgment or decree (including, without limitation,
foreign, federal and state securities laws and regulations and the rules and
regulations of the NYSE Amex (the "Principal Market")) applicable to the Company
or any of its Subsidiaries or by which any property or asset of the Company or
any of its Subsidiaries is bound or affected except, in the case of clause (ii)
or (iii) above, to the extent such violations could not reasonably be expected
to have a Material Adverse Effect. "Material Adverse Effect" means any material
adverse effect on (i) the business, properties, assets, liabilities, operations
(including results thereof), condition (financial or otherwise) of the Company
or any Subsidiary, either individually or taken as a whole, (ii) the
transactions contemplated hereby or in any of the other Transaction Documents or
(iii) the authority or ability of the Company or any of its Subsidiaries to
perform any of their respective obligations under any of the Transaction
Documents.
(e) Consents. Except for the filing of the Certificate of Designations, the
approval of the Listing Application by the Principal Market and the Court Order,
neither the Company nor any Subsidiary is required to obtain any consent from,
authorization or order of, or make any filing or registration with any court,
governmental agency or any regulatory or self-regulatory agency or any other
Person in order for it to execute, deliver or perform any of its respective
obligations under, or contemplated by, the Transaction Documents, in each case,
in accordance with the terms hereof or thereof. Except for the filing of the
Certificate of Designations, the filing of the Listing Application with the
Principal Market, and the approval thereof, and the Court Order, all consents,
authorizations, orders, filings and registrations which the Company or any
Subsidiary is required to obtain at or prior to the consummation of the
transactions contemplated by this Agreement have been obtained or effected on or
prior to the consummation of the transactions contemplated by this Agreement,
and neither the Company nor any of its Subsidiaries are aware of any facts or
circumstances which might prevent the Company or any Subsidiary from obtaining
or effecting any of the registration, application or filings contemplated by the
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Transaction Documents. The Company is not in violation of the requirements of
the Principal Market and has no knowledge of any facts or circumstances which
could reasonably lead to delisting or suspension of the Common Stock in the
foreseeable future.
(f) Application of Takeover Protections; Rights Agreement. The Company and
its board of directors have taken all necessary action, if any, in order to
render inapplicable any control share acquisition, interested stockholder,
business combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Articles of
Incorporation, bylaws or other organizational documents or the laws of the
jurisdiction of its incorporation or otherwise which is or could become
applicable as a result of the transactions contemplated by this Agreement,
including, without limitation, the Company's issuance of the Securities and each
Claimant's ownership of the Securities, together with all other securities now
or hereafter owned or acquired by such Claimant. The Company and its board of
directors have taken all necessary action, if any, in order to render
inapplicable any shareholder rights plan or similar arrangement relating to
accumulations of beneficial ownership of shares of Common Stock or a change in
control of the Company or any of its Subsidiaries.
(g) Transfer Taxes. On the date hereof, all stock transfer or other taxes
(other than income or similar taxes) which are required to be paid in connection
with the offer, issuance and transfer of the Securities to be issued to each
Claimant hereunder and under the other Transaction Documents will be, or will
have been, fully paid or provided for by the Company, and all laws imposing such
taxes will be or will have been complied with.
(h) Equity Capitalization(i) . As of the date hereof, the authorized
capital stock of the Company consists of (i) 450,000,000 shares of Common Stock,
of which, 207,940,300 are issued and outstanding and 84,931,547 shares are
reserved for issuance pursuant to Convertible Securities (as defined in the
Notes) and Options (as defined in the Notes) and (ii) 200,000 shares of
preferred stock, of which, none are issued and outstanding. No shares of Common
Stock are held in treasury. All of such outstanding shares are duly authorized
and have been, or upon issuance will be, validly issued and are fully paid and
non-assessable.
(i) Ranking of Notes. Subject to the terms of the Subordination Agreement
(as defined in the Notes), no Indebtedness (as defined in the Notes) of the
Company will be senior to, or pari passu with, the Notes in right of payment,
whether with respect to payment or redemptions, interest, damages, upon
liquidation or dissolution or otherwise.
(j) Investment Company Status. The Company is not, and upon the
consummation of the transactions contemplated by this Agreement will not be, an
"investment company," an affiliate of an "investment company," a company
controlled by an "investment company" or an "affiliated person" of, or
"promoter" or "principal underwriter" for, an "investment company" as such terms
are defined in the Investment Company Act of 1940, as amended.
(k) Disclosure. The Company confirms that neither it nor any other Person
acting on its behalf has provided any of the Claimants or their agents or
counsel with any information that constitutes or could reasonably be expected to
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constitute material, non-public information concerning the Company or any of its
Subsidiaries, other than the settlement of the Action, the existence of the
transactions contemplated by this Agreement and the other Transaction Documents
and the terms thereunder. The Company understands and confirms that each of the
Claimants will rely on the foregoing representations in effecting transactions
in securities of the Company.
(l) Assignment of Claims. There has been no actual assignment or transfer
or purported assignment or other transfer by any Company Releasor of all or any
portion of any Company Claim or other matter or any interest which has been
released by any Company Releasor by any provision of this Agreement. The Company
is the sole owner and real party-in-interest regarding all Company Claims and
other matters released by the Company Releasors pursuant to this Agreement.
(m) Evaluation. The Company has read this Agreement, has had sufficient
opportunity to investigate and ask questions of its counsel, and to inform
itself of whatever information and facts that the Company desires to receive and
know in order to knowingly enter into this Agreement and the transactions
contemplated by this Agreement.
(n) Compliance. During the period commencing on April 4, 2011, and ending
immediately prior to the execution of this Agreement by the Company, the Company
has not, directly or indirectly, (i) engaged in any conduct designed to
manipulate the price of the Common Stock or (ii) violated in any material
respect any provision of the 1933 Act or the 1934 Act (including the rules and
regulations promulgated thereunder) applicable to the Company.
6. Claimant Representations and Warranties. Each Claimant, severally and
not jointly, represents and warrants to the Company with respect to only itself
that:
(a) Organization. Such Claimant is an entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization with the requisite power and authority to enter into and to
consummate the transactions contemplated by this Agreement and the other
Transaction Documents and otherwise to carry out its obligations hereunder.
(b) Validity; Enforcement. Each of this Agreement, and the other
Transaction Documents to which such Claimant is a party, has been duly and
validly authorized, executed and delivered on behalf of such Claimant and
constitutes the legal, valid and binding obligations of such Claimant
enforceable against such Claimant in accordance with their respective terms,
except as such enforceability may be limited by general principles of equity or
to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
and other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
(c) No Conflicts. The execution, delivery and performance by such Claimant
of this Agreement and the other Transaction Documents to which it is a party and
the consummation by such Claimant of the transactions contemplated hereby and
10
thereby will not (i) result in a violation of the organizational documents of
such Claimant, (ii) conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which such Claimant is a party, or
(iii) result in a violation of any law, rule, regulation, order, judgment or
decree (including federal and state securities laws) applicable to such
Claimant, except in the case of clauses (ii) and (iii) above, for such
conflicts, defaults, rights or violations which would not, individually or in
the aggregate, reasonably be expected to have a material adverse effect on the
ability of such Claimant to perform its obligations hereunder and thereunder.
(d) Advice of Counsel. Such Claimant has read this Agreement, has had
sufficient opportunity to investigate and ask questions of its counsel, and of
the Company (including the review of the Company's documents filed with the SEC
(as defined below)) and to inform itself of whatever information and facts that
such Claimant desires to receive and know in order to knowingly enter into this
Agreement and the transactions contemplated by this Agreement and the other
Transaction Documents.
(e) Certain Trading Activities Prior to Execution. Such Claimant has not
directly or indirectly, nor has any Person acting on behalf of or pursuant to
any understanding with such Claimant during the period commencing on April 4,
2011, and ending immediately prior to the execution of this Agreement by such
Claimant: (i) engaged in any transactions in the securities of the Company
(including, without limitation, any Short Sales (as defined in the Notes)
involving the Company's securities), (ii) engaged in any conduct designed to
manipulate the price of the Common Stock or (iii) violated in any material
respect any provision of the 1933 Act or the 1934 Act (including the rules and
regulations promulgated thereunder) applicable to such Claimant solely with
respect to transactions in securities of the Company.
(f) Assignment of Claims. There has been no actual assignment or transfer
or purported assignment or other transfer by such Claimant of all or any portion
of any of such Claimant's Claimant Claim or other matter or any interest which
has been released by such Claimant by any provision of this Agreement. Such
Claimant is the sole owner and real party-in-interest regarding such Claimant's
Claimant Claims and other matters released by such Claimant pursuant to this
Agreement.
7. Additional Deliveries.
(a) The Company shall deliver to each Claimant (other than as expressly set
forth in Section 7(a)(xii) at the Closing:
(i) Duly executed versions of the other Transaction Documents to which
the Company is a party.
(ii) Duly executed versions of the Transaction Documents to which the
Subsidiary is a party.
11
(iii) The opinion of Hart & Trinen, LLP, the Company's counsel, in the
form previously approved by the Claimants.
(iv) A copy of the Irrevocable Transfer Agent Instructions that have
been delivered to and acknowledged in writing by the Transfer Agent.
(v) A certificate evidencing the formation and good standing of the
Company and the Subsidiary in each such entity's jurisdiction of formation
issued by the Secretary of State (or comparable office) of such
jurisdiction of formation as of a date within twenty (20) days prior to the
date of the Court Order.
(vi) A certificate evidencing the Company's qualification as a foreign
corporation and good standing issued by the Secretary of State (or
comparable office) of each jurisdiction in which the Company conducts
business and is required to so qualify, as of a date within twenty (20)
days prior to the date of the Court Order.
(vii) A certified copy of the Articles of Incorporation, and all
amendments thereto, as of a date within twenty (20) days prior to the date
of the Court Order as certified by the Colorado Secretary of State.
(viii) A certified copy of the Certificate of Designations as
certified by the Colorado Secretary of State.
(ix) A certified copy of the Subsidiary's certificate of incorporation
or formation as certified by the Secretary of State (or comparable office)
of the Subsidiary's jurisdiction of incorporation or formation within ten
(10) days prior to the date of the Court Order.
(x) A certificate, in the form previously provided to the Company,
executed by the Secretary of the Company and the Subsidiary dated as of the
date of the Court Order, certifying as to (i) the resolutions consistent
with Section 5(b) as adopted by the Company's and the Subsidiary's board of
directors, (ii) the Articles of Incorporation and the organizational
documents of the Subsidiary then in effect and (iii) the bylaws of the
Company and the Subsidiary then in effect.
(xi) In accordance with the terms of the Security Documents,
appropriate financing statements on Form UCC-1 to be duly filed in such
office or offices as may be necessary or, in the opinion of any Claimant,
desirable to perfect the security interests purported to be created by each
Security Document.
(xii) Deliver to Kobre & Kim LLP, as counsel to the Claimants,
Affidavits of Confession of Judgment, in the forms of Exhibit H attached
hereto (the "Confessions of Judgment"), executed by the Company.
(b) Each Claimant shall deliver to the Company at the Closing duly executed
signature pages by such Claimant to the Transaction Documents to which such
Claimant is a party, including the signature page to such Claimant's Note.
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8. Transfer Agent Instructions. On or before the Closing, the Company shall
issue irrevocable instructions to Computershare Trust Company, Inc. (together
with any subsequent transfer agent, the "Transfer Agent") in the form previously
provided to the Company (the "Irrevocable Transfer Agent Instructions") to issue
certificates or credit shares to the applicable balance accounts at the
Depository Trust Company ("DTC") through DTC's Fast Automated Securities
Transfer Program, registered in the name of each Claimant or its respective
nominee(s), for the Preferred Conversion Shares and the Note Conversion Shares
in such amounts as specified from time to time by each Claimant to the Company
upon conversion of shares of Preferred Stock or Notes (as the case may be). The
Company represents and warrants that no instruction other than the Irrevocable
Transfer Agent Instructions referred to in this Section 8 will be given by the
Company to its Transfer Agent with respect to the Securities, and that, except
for the restrictions on transfer expressly set forth in Section 15 of the Notes
and Section 20 of the Certificate of Designations, the Securities shall
otherwise be freely transferable on the books and records of the Company. If a
Claimant effects a sale, assignment or transfer of Conversion Shares, the
Company shall permit the transfer and shall promptly instruct the Transfer Agent
to issue one or more certificates or credit shares to the applicable balance
accounts at DTC in such name and in such denominations as specified by such
Claimant to effect such sale, transfer or assignment.
9. Listing. The Company shall use best efforts to maintain the listing or
designation for quotation (as the case may be) of all Conversion Shares from
time to time issuable under the terms of the Transaction Documents on such
national securities exchange or automated quotation system, as the Common Stock
may be listed or designated for quotation (as the case may be). The Company
shall use best efforts to maintain the Common Stock's listing or designation for
quotation (as the case may be) on the Principal Market, The New York Stock
Exchange, the Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq
Capital Market or the OTC Bulletin Board, or in each case, any successor
thereto. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section 9.
10. "Blue Sky" Compliance. The Company shall take such action as the
Company shall reasonably determine is necessary in order to obtain an exemption
for, or to, qualify the Securities for issuance to each Claimant pursuant to
this Agreement under applicable securities or "Blue Sky" laws of the states of
the United States (or to obtain an exemption from such qualification), and upon
written request, shall provide evidence of any such action so taken to each
Claimant. Without limiting any other obligation of the Company under this
Agreement, the Company shall timely make all filings and reports relating to the
offer and issuance of the Securities required under all applicable securities
laws (including, without limitation, all applicable federal securities laws and
all applicable "Blue Sky" laws), and the Company shall comply with all
applicable federal, state, local and foreign laws, statutes, rules, regulations
and the like relating to the offering and issuance of the Securities to each of
the Claimants.
11. Entire Agreement. This Agreement contains the entire agreement and
understanding among the parties solely as to the settlement and compromise of
all Company Claims and Claimant Claims between the parties and supersedes and
replaces all prior settlement negotiations and proposed agreements, written or
oral; provided, however, nothing contained in this Agreement or any other
Transaction Document shall (or shall be deemed to) (except as expressly
contemplated by Section 4) (i) have any effect on any agreements any Claimant
13
has entered into with, or any instruments any Claimant has received from, the
Company or any of its Subsidiaries prior to the date hereof with respect to any
prior investment made by such Claimant in the Company or (ii) waive, alter,
modify or amend in any respect any obligations of the Company or any of its
Subsidiaries, or any rights of or benefits to any Claimant or any other Person,
in any agreement entered into prior to the date hereof between or among the
Company and/or any of its Subsidiaries and any Claimant, or any instruments any
Claimant received from the Company and/or any of its Subsidiaries prior to the
date hereof, and all such agreements and instruments shall continue in full
force and effect. Except as specifically set forth herein or in the other
Transaction Documents, neither the Company nor any Claimant makes any
representation, warranty, covenant or undertaking with respect to the matters
contained herein or therein. The parties hereto acknowledge that no other party,
or agent, representative or attorney of any other party, has made any promise,
representation, or warranty whatsoever, express or implied, not contained in
this Agreement concerning the subject matter hereof, to induce this Agreement or
otherwise, and the parties acknowledge that they have not executed this
Agreement in reliance upon such promise, representation, or warranty not
contained herein. No party hereto has granted any waiver or release except as,
and to the extent, expressly set forth in this Agreement. For clarification
purposes, the Recitals are part of this Agreement. No consideration shall be
offered or paid to any Person to amend or consent to a waiver or modification of
any provision of any of the Transaction Documents unless the same consideration
also is offered to all of the parties to the Transaction Documents.
12. Governing Law; Jurisdiction; Jury Trial. All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than 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, 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 brought in an inconvenient forum or that the
venue of 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 to such
party at the address for such 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. Nothing contained herein shall
be deemed or operate to preclude any Claimant from bringing suit or taking other
legal action against the Company or any Subsidiary in any other jurisdiction to
enforce a judgment or other court ruling in favor of such Claimant. EACH OF THE
PARTIES HERETO ACKNOWLEDGE AND AGREE THAT THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK COURT IN WHICH THE ACTION WAS PENDING ON THE
DATE THE COURT ORDER WAS ENTERED, DOCKET NUMBER 09 CIV. 8912 (HB) (THK), SHALL
BE THE COURT TO RETAIN JURISDICTION TO ENFORCE THE TERMS OF THIS AGREEMENT. EACH
PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.
14
13. Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) Business Day after deposit
with an overnight courier service with next day delivery specified provided
confirmation of delivery is kept on file by the sending party), in each case,
properly addressed to the party to receive the same, provided that all such
notices, consents, waivers or other communications required or permitted to be
given under the terms of this Agreement to the Company must also be sent via
electronic mail to each of the following email addresses: Mrs. Patricia B.
Prichep at: pprichep@cel-sci.com, Mr. Gavin de Windt at: gdewindt@cel-sci.com
and Mr. Geert R. Kersten at: grkersten@cel-sci.com. The addresses and facsimile
numbers for such communications shall be:
If to the Company:
CEL-SCI Corporation
8229 Boone Boulevard, Suite 802
Vienna, VA 22182
Telephone: (703) 506-9460
Facsimile: (703) 506-9471
Attention: Ms. Patricia B. Prichep, Senior VP of Operations
With the mandatory emails to the three email addresses set forth above
as contemplated above
With a copy (for informational purposes only) to:
William T. Hart, Esq.
Hart & Trinen, LLP
1624 Washington Street
Denver, CO 80203
Telephone: (303) 839-0061
Facsimile: (303) 839-5414
Attention: William T. Hart, Esq.
If to a Claimant:
To its address or facsimile number (as the case may be) set forth on
the Schedule of Claimants attached hereto,
or to such other address and/or facsimile number and/or e-mail address (as the
case may be) and/or to the attention of such other Person as the recipient party
15
has specified by written notice given to each other party five (5) days prior to
the effectiveness of such change. Written confirmation of receipt (A) given by
the recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine or
e-mail transmission containing the time, date and recipient facsimile number or
e-mail address or (C) provided by a courier or overnight courier service shall
be rebuttable evidence of personal delivery, receipt by facsimile or receipt
from a recognized overnight delivery service in accordance with clause (i), (ii)
or (iii) above, respectively.
14. Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which 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 parties. In the event that any signature is delivered by
facsimile transmission or by an e-mail which contains a portable document format
(.pdf) file of an executed signature page, such signature page shall create a
valid and binding obligation of the party executing (or on whose behalf such
signature is executed) with the same force and effect as if such signature page
were an original thereof.
15. Headings; Gender. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement. Unless the context clearly indicates otherwise, each pronoun herein
shall be deemed to include the masculine, feminine, neuter, singular and plural
forms thereof. The terms "including," "includes," "include" and words of like
import shall be construed broadly as if followed by the words "without
limitation." The terms "herein," "hereunder," "hereof" and words of like import
refer to this entire Agreement instead of just the provision in which they are
found.
16. Severability. If any provision of this Agreement is prohibited by law
or otherwise determined to be invalid or unenforceable by a court of competent
jurisdiction, the provision that would otherwise be prohibited, invalid or
unenforceable shall be deemed amended to apply to the broadest extent that it
would be valid and enforceable, and the invalidity or unenforceability of such
provision shall not affect the validity of the remaining provisions of this
Agreement so long as this Agreement as so modified continues to express, without
material change, the original intentions of the parties as to the subject matter
hereof and the prohibited nature, invalidity or unenforceability of the
provision(s) in question does not substantially impair the respective
expectations or reciprocal obligations of the parties or the practical
realization of the benefits that would otherwise be conferred upon the parties.
The parties will endeavor in good faith negotiations to replace the prohibited,
invalid or unenforceable provision(s) with a valid provision(s), the effect of
which comes as close as possible to that of the prohibited, invalid or
unenforceable provision(s).
17. Disclosure of Transactions and Other Material Information. The Company
shall, between 4:00 p.m. and 5:30 p.m., New York time, on any Business Day on or
before the fourth (4th) Business Day following the earlier to occur of (i) the
date of entry of the Court Order on the docket of the Court and (ii) the date of
this Agreement, file a Current Report on Form 8-K or a Quarterly Report on Form
10-Q with the SEC (as defined below) describing all the material terms of the
transactions contemplated by the Transaction Documents in the form required by
the 1934 Act and attaching all the material Transaction Documents (including,
without limitation, this Agreement, the Certificate of Designations, the form of
the Security Documents, the form of Guaranty, the form of Escrow Agreement, the
form of Confessions of Judgment, the form of Subordination Agreement and the
16
form of the Notes (but expressly excluding Schedule 1 attached hereto))
(including all attachments, the "SEC Filing"). From and after the filing of the
SEC Filing, the Company shall have disclosed all material, non-public
information (if any) delivered to any of the Claimants by the Company or any of
its Subsidiaries, or any of their respective officers, directors, employees or
agents in connection with the settlement of the Action and the transactions
contemplated by the Transaction Documents. The Company shall not, and the
Company shall cause each of its Subsidiaries and each of its and their
respective officers, directors, employees and agents not to, issue any
announcement or press release, make any filing with the Securities and Exchange
Commission (the "SEC") or otherwise make any public disclosure relating to the
transactions contemplated by the Transaction Documents, prior to the filing of
the SEC Filing with the SEC. The Company shall not, and the Company shall cause
each of its Subsidiaries and each of its and their respective officers,
directors, employees and agents not to, provide any Claimant with any material,
non-public information regarding the Company or any of its Subsidiaries from and
after the filing of the SEC Filing without the express prior written consent of
such Claimant. In the event of a breach of any of the foregoing covenants by the
Company, any of its Subsidiaries, or any of its or their respective officers,
directors, employees and agents (as determined in the reasonable good faith
judgment of such Claimant), in addition to any other remedy provided herein or
in the Transaction Documents, such Claimant shall have the right to make a
public disclosure, in the form of a press release, public advertisement or
otherwise, of such material, non-public information with one (1) Business Day's
prior notice to the Company. No Claimant shall have any liability to the
Company, any of its Subsidiaries, or any of its or their respective officers,
directors, employees, stockholders or agents, for any such disclosure made in
strict conformity with the terms of this Agreement. Without the prior written
consent of the applicable Claimant, the Company shall not (and shall cause each
of its Subsidiaries and affiliates not to) disclose the name of such Claimant in
any written public statement or in any public presentations (other than in
substantial conformity with the SEC Filing); provided, however, no prior written
consent of any Claimant is required if such disclosure: (x) includes the names
of all of the Claimants, or (y) is made in response to an unsolicited inquiry.
Notwithstanding anything contained in this Agreement to the contrary and without
implication that the contrary would otherwise be true, the Company expressly
acknowledges and agrees that after the disclosure of the transactions as
contemplated by this Section 17 no Claimant shall have (unless expressly agreed
to by a particular Claimant after the date hereof in a written definitive and
binding agreement executed by the Company and such particular Claimant (it being
understood and agreed that no Claimant may bind any other Claimant with respect
thereto)), any duty of confidentiality with respect to, or a duty not to trade
on the basis of, any information regarding the Company or any of its
Subsidiaries.
18. Successors and Assigns; No Third Party Beneficiaries; Amendments and
Waivers. This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and permitted assigns. No party may
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the other parties hereto, provided that a Claimant may assign
some or all of its rights hereunder in connection with any transfer of any of
its Securities without the consent of the other parties hereto, in which event
such assignee shall be deemed to be a Claimant hereunder with respect to such
assigned rights, provided further that such Claimant will provide the Company
with a copy of such assignment (specifying which rights are assigned to the
assignee, or retained by the Claimant) within five (5) Business Days after the
date of such assignment. This Agreement is intended for the benefit of the
17
parties hereto and their respective permitted successors and assigns, and is not
for the benefit of, nor may any provision hereof be enforced by, any other
Person, other than the Company Releasees and the Claimant Releasees. No
provision of this Agreement may be amended other than by an instrument in
writing signed by the parties hereto. No waiver shall be effective unless it is
in writing and signed by an authorized representative of the waiving party.
19. Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
any other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
20. No Pledge of Notes or Shares of Preferred Stock. The Notes and the
shares of Preferred Stock may not be pledged by any Claimant or transferee or
assignee thereof, including, but not limited to a pledge in connection with a
bona fide margin agreement or other loan or financing arrangement that is
secured by a Note or shares of Preferred Stock, provided that security interests
and liens granted by a Claimant to such Claimant's prime broker and other
clearing brokers in such Claimant's Note and/or shares of Preferred Stock shall
not be deemed to be a pledge hereunder.
21. Expenses. Except as otherwise set forth in the Transaction Documents,
each party to this Agreement shall bear its own expenses in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement and the other Transaction Documents.
22. Indemnification.
(a) In consideration of each Claimant's execution and delivery of the
Transaction Documents to which it is a party and acquiring the Securities
hereunder and in addition to all of the other obligations of the Company and its
Subsidiaries under the Transaction Documents, the Company shall defend, protect,
indemnify and hold harmless each Claimant Releasee from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Claimant Releasee is a party to the action for which
indemnification hereunder is sought), and including reasonable attorneys' fees
and disbursements (the "Claimant Indemnified Liabilities"), incurred by any
Claimant Releasee as a result of, or arising out of, or relating to (a) any
material misrepresentation or material breach of any representation or warranty
made by the Company or any Subsidiary in any of the Transaction Documents, or
(b) any material breach of any covenant, agreement or obligation of the Company
or any Subsidiary contained in any of the Transaction Documents, in each case as
finally determined by a court of competent jurisdiction. 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 Claimant Indemnified Liabilities which is permissible under
applicable law.
(b) In consideration of the Company's execution and delivery of the
Transaction Documents to which it is a party and issuance of the Securities, and
cash payments hereunder, each Claimant shall severally, but not jointly, defend,
protect, indemnify and hold harmless each Company Releasee from and against any
and all actions, causes of action, suits, claims, losses, costs, penalties,
18
fees, liabilities and damages, and expenses in connection therewith
(irrespective of whether any such Company Releasee is a party to the action for
which indemnification hereunder is sought), and including reasonable attorneys'
fees and disbursements (the "Company Indemnified Liabilities"), incurred by any
Company Releasee as a result of, or arising out of, or relating to (a) any
material misrepresentation or material breach of any representation or warranty
made by such Claimant in any of the Transaction Documents, or (b) any material
breach of any covenant, agreement or obligation of such Claimant contained in
any of the Transaction Documents, in each case as finally determined by a court
of competent jurisdiction. To the extent that the foregoing undertaking by a
Claimant may be unenforceable for any reason, the Claimant shall make the
maximum contribution to the payment and satisfaction of each of the Company
Indemnified Liabilities which is permissible under applicable law.
23. Survival. The representations and warranties made herein shall survive
the execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement and the other Transaction Documents.
Except as set forth in Section 29, all covenants shall survive the execution and
delivery of this Agreement and the consummation of the transactions contemplated
by this Agreement and the other Transaction Documents, or the termination hereof
or thereof. Each Claimant shall be responsible only for its own representations,
warranties, agreements and covenants hereunder.
24. Construction. 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. No specific
representation or warranty shall limit the generality or applicability of a more
general representation or warranty.
25. Remedies. The Company, each Claimant and each holder of any Securities
shall have all rights and remedies set forth in the Transaction Documents and
all rights and remedies which such parties have been granted at any time under
any other agreement or contract and all of the rights which such parties have
under any law.
26. Independent Nature of Claimants' Obligations and Rights. The
obligations of each Claimant under the Transaction Documents are several and not
joint with the obligations of any other Claimant, and no Claimant shall be
responsible in any way for the performance of the obligations of any other
Claimant under any Transaction Document. Nothing contained herein or in any
other Transaction Document, and no action taken by any Claimant pursuant hereto
or thereto, shall be deemed to constitute the Claimants as, and the Company
acknowledges that the Claimants do not so constitute, a partnership, an
association, a joint venture or any other kind of group or entity, or create a
presumption that the Claimants are in any way acting in concert or as a group or
entity with respect to such obligations or the transactions contemplated by the
Transaction Documents or any matters, and the Company acknowledges that the
Claimants are not acting in concert or as a group, and the Company shall not
assert in any legal proceeding that the Claimants are acting in concert or as a
group in connection with the transactions contemplated by the Transaction
Documents. The decision of each Claimant to acquire Securities pursuant to the
Transaction Documents has been made by such Claimant independently of any other
Claimant. Each Claimant acknowledges that no other Claimant has acted as agent
for such Claimant in connection with such Claimant making its acquisition
19
hereunder and that no other Claimant will be acting as agent of such Claimant in
connection with monitoring such Claimant's position in the Securities or
enforcing its rights under the Transaction Documents. Each Claimant shall be
entitled to independently protect and enforce its rights, including, without
limitation, the rights arising out of this Agreement or out of any other
Transaction Documents, and it shall not be necessary for any other Claimant to
be joined as an additional party in any proceeding for such purpose. The use of
a single agreement to effectuate the issuance and acquisition of the Securities
contemplated hereby was solely in the control of the Company, not the action or
decision of any Claimant, and was done solely for the convenience of the Company
and its Subsidiaries and not because it was required or requested to do so by
any Claimant. It is expressly understood and agreed that each provision
contained in this Agreement and in each other Transaction Document is between
the Company, each Subsidiary and a Claimant, solely, and not between the
Company, its Subsidiaries and the Claimants collectively and not between and
among the Claimants.
27. Certain Trading Activities After Execution. Each Claimant covenants and
agrees solely with the Company that such Claimant shall not, directly or
indirectly, nor will any person acting on behalf of or pursuant to any
understanding with such Claimant, effect any transactions in the securities of
the Company (including, without limitation, any Short Sales involving the
Company's securities) during the period commencing at the time of such
Claimant's execution of this Agreement and ending on the filing of the SEC
Filing.
28. Non-Disparagement. The Company shall not (and the Company shall cause
its executive officers and directors not to, and shall use its reasonable best
efforts to cause its other employees not to) disparage (or induce or encourage
others to disparage) any of the following: (i) any Claimant, (ii) any Person who
is known by the Company or any of its executive officers or directors to be a
Claimant Releasor or (iii) any Person who is known by the Company or any of its
executive officers or directors to be an employee, officer, director, member of
a limited liability company (other than a passive equity holder thereof),
manager, partner or principal of any Claimant or any general partner, investment
manager or investment adviser of, or to, any Claimant. Each Claimant shall not
(and each Claimant shall cause all of such Claimant's Claimant Releasors not to)
disparage (or induce or encourage others to disparage) any of the following: (1)
the Company or (2) any Person who is known by such Claimant or such Claimant's
Claimant Releasors to be an employee, officer or director of the Company. The
obligations of this Section 28 do not preclude any party from providing truthful
testimony in response to a subpoena or in any other legal proceeding or when
otherwise required by law.
29. Termination. Notwithstanding anything contained in this Agreement to
the contrary, (a) if (i) Listing Approval is not received from the Principal
Market by the Company within ten (10) Business Days after the date the Court
Order is entered on the docket of the Court, (ii) the Company has not complied
with its obligations under Section 1(c) within three (3) Business Days after the
Listing Approval is received from the Principal Market, (iii) the Company
breaches any of its material obligations under this Agreement prior to the
Closing or (iv) the Closing shall not have occurred (other than as a result of a
breach by any Claimant of any of its obligations under this Agreement) within
fifteen (15) Business Days after the date of this Agreement, then, at the
election of the Required Holders (as defined in the Notes) (determined as if all
Notes were issued pursuant to this Agreement and were then outstanding in the
20
original principal amounts set forth in column (4) of the Schedule of Claimants
attached hereto) delivered in writing to the Company within five (5) Business
Days after the occurrence of the latest of the foregoing, this Agreement shall
be terminated and be null and void ab initio (provided that in the case of the
occurrence of only clause (i) above, if such election is not so delivered in
writing to the Company in accordance with the foregoing and the Closing occurs
notwithstanding the occurrence of clause (i), then each Claimant shall deliver
to the Company at the Closing a written waiver that waives any breaches by the
Company under this Agreement and the other Transaction Documents that arose
solely as a result of the occurrence of clause (i)), (b) if (I) any Claimant has
not complied with its obligations under Section 1(d) within three (3) Business
Days after the Listing Approval is received from the Principal Market, (II) any
Claimant breaches any of its material obligations under this Agreement prior to
the Closing or (III) the Closing shall not have occurred (other than as a result
of a breach by the Company of any of its obligations under this Agreement)
within fifteen (15) Business Days after the date of this Agreement, then, at the
election of the Company delivered in writing to the Claimants within five (5)
Business Days after the occurrence of the latest of the foregoing, (x) in the
case of an occurrence of clauses (I) or (II) above, this Agreement shall be
terminated and be null and void ab initio with respect to the applicable
Claimant or with respect to all Claimants (as indicated in such election) and
(y) in the case of an occurrence of clause (III) above, this Agreement shall be
terminated and be null and void ab initio and (c) this Agreement is subject to
the obtaining of the Court Order and entry of the Court Order on the docket of
the Court, and if the Court Order is not obtained, or entered on the docket of
the Court, within five (5) Business Days after the date hereof, then this
Agreement shall automatically be terminated and be null and void ab initio. The
provisions of Section 17 and Section 28 of this Agreement shall terminate on the
first anniversary after the earlier of: (a) the indefeasible payment in full of
all obligations under all the Notes and the Certificate of Designations and (b)
the conversion of all of the Notes and shares of the Preferred Stock.
[signature page follows]
21
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first above written.
CEL-SCI CORPORATION
By:__________________________
Its:__________________________
22
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first above written.
[CLAIMANT]
By:__________________________
Its:__________________________
23
SCHEDULE OF CLAIMANTS
(1) (2) (3) (4)
Number of
Address and Preferred Shares of Original
Claimant Facsimile Number Stock Amount of Note
-------- ---------------- ---------------- --------------
Iroquois Master Fund Ltd. 641 Lexington Ave.,
26th FL.New York,
New York
80022
Attn: Mitchell R.
Kulick
Facsimile: (212) 1,142 $1,395,917.18
207-3452
Smithfield Fiduciary LLC c/o Highbridge
Capital Management,
LLC
40 West 57th Street 372 $454,542.68
New York, NY 10019
Facsimile: (212)
287-4915
American Capital
Management, LLC as 112 West 18th Street
successor-in-interest to -- Suite 3A
Castlerigg Master New York, NY 10011 411 $502,583.99
Investments, Ltd. Attn: Philip Mirabelli
Facsimile: (212)
207-8277
Portside Growth and c/o Ramius LLC
Opportunity Fund 599 Lexington Avenue
19th Floor
New York, NY 10022
Attn: Greg Sandukas, 336 $410,900.24
Esq.
Facsimile: (212)
201-4890
Bristol Investment Fund, c/o Bristol Capital
Ltd. Advisors, LLC
6353 W. Sunset Blvd.,
Suite 4006
Hollywood, CA 90028 284 $347,116.37
Attn: Amy Wang, Esq.
Paul Kessler
Facsimile: (323)
960-3805
Cranshire Capital, L.P. 3100 Dundee Road,
Suite 703
Northbrook, Illinois
60062
Attn: Mitchell P. 293 $358,247.35
Kopin
Facsimile: (847)
562-9031
Rockmore Investment Master c/o Rockmore Capital,
Fund, Ltd. LLC
150 East 58th Street
- 28th Floor
New York, NY 10155 303 $369,788.89
Attn: Michael
DiLernia, Esq.
Facsimile: (212)
258-2815
24
Longview Fund, LP c/o Viking Asset
Management, LLC
66 Bovet Road
San Mateo, CA 94402
Attn: S. Michael 182 $222,098.82
Rudolph
Facsimile: (650)
638-0551
American Capital 112 West 18th Street
Management, LLC as -- Suite 3A
successor-in-interest to New York, NY 10011
Crescent International, Ltd.Attn: Philip Mirabelli 191 $233,573.14
Facsimile: (212)
207-8277
Option Opportunities Corp. 716 Oak Street
Winnetka, IL 60093
Attn: Daniel Warsh 310 $378,866.71
Facsimile: (847)
559-5807
Hudson Bay Overseas Fund, 120 Broadway, 40th
Ltd. Floor
New York, New York
10271 53 $65,022.58
Attention: Yoav Roth
Facsimile: (646)
214-7946
Hudson Bay Fund, LP 120 Broadway, 40th
Floor
New York, New York
10271 30 $36,575.32
Attention: Yoav Roth
Facsimile: (646)
214-7946
Otago Partners, LLC c/o Roth Capital
Partners
730 5th Avenue - 25th
Floor
New York, NY 10019 83 $101,597.82
Attn: Michael Chill
Facsimile: (212)
315-0160
Paragon Capital, LP 110 East 59th Street
- 22nd Floor
New York, NY 10022
Attn: Alan P. 60 $73,168.91
Donenfeld
Facsimile: (212)
202-5022
Totals: 4,050 $4,950,000
25
Schedule I
Wire Instructions
26
Exhibit Index
Exhibit A - Form of Note
Exhibit B - Form of Certificate of Designations
Exhibit C - Form of Security Agreement
Exhibit D - Form of Guaranty
Exhibit E - Form of Subordination Agreement
Exhibit F - Form of Stipulation
Exhibit G - Form of Escrow Agreement
Exhibit H - Forms of Confessions of Judgment
27
EXHIBIT A
[FORM OF SENIOR SECURED CONVERTIBLE NOTE]
CEL-SCI CORPORATION
SENIOR SECURED CONVERTIBLE NOTE
Issuance Date: May [__], 2011 Original Principal Amount: U.S.
$[_________]
FOR VALUE RECEIVED, CEL-SCI Corporation, a Colorado corporation (the
"Company"), hereby promises to pay to the order of [_________________] or its
registered assigns ("Holder") the amount set out above as the Original Principal
Amount (as reduced pursuant to the terms hereof pursuant to redemption,
conversion or otherwise, the "Principal") when due, whether upon the Maturity
Date, on any Installment Date with respect to the Installment Amount due on such
Installment Date (each as defined below), acceleration, redemption or otherwise
(in each case in accordance with the terms hereof) and to pay interest
("Interest") on any outstanding Principal at the applicable Interest Rate (as
defined below) from the date set out above as the Issuance Date (the "Issuance
Date") until the same becomes due and payable, whether upon any Installment
Date, the Maturity Date or acceleration, conversion, redemption or otherwise (in
each case in accordance with the terms hereof). This Senior Secured Convertible
Note (including all Senior Secured Convertible Notes issued in exchange,
transfer or replacement hereof, this "Note") is one of an issue of Senior
Secured Convertible Notes issued pursuant to the Exchange Agreement (as defined
below) (collectively, the "Notes" and such other Senior Secured Convertible
Notes, the "Other Notes"). Certain capitalized terms used herein are defined in
Section 26.
1. PAYMENTS OF PRINCIPAL. On each Installment Date (which includes the
Maturity Date), the Company shall pay to the Holder an amount in cash equal to
the Installment Amount due on such Installment Date by wire transfer of
immediately available funds to the account designated by the Holder in writing
to the Company at any time after the Issuance Date but at least five (5)
Business Days prior to the first Installment Date (and the Holder may designate
a different account in writing, from time to time, after such initial
designation with respect to any Installment Date by delivering a written notice
to the Company at least five (5) Business Days prior to the applicable
Installment Date). Other than as specifically permitted by this Note, the
Company may not prepay any portion of the outstanding Principal, accrued and
unpaid Interest.
2. INTEREST; INTEREST RATE. Interest on this Note shall commence accruing
on the Issuance Date, shall accrue daily at the Interest Rate on the outstanding
Principal amount from time to time, shall be computed on the basis of a 360-day
year comprised of twelve (12) thirty (30) day months and shall be payable in
arrears on each Installment Date (each, an "Interest Date") to the record holder
of this Note in accordance with Section 1 as part of the applicable Installment
Amount due on the applicable Interest Date. From and after the occurrence and
during the continuance of any Event of Default, the Interest Rate shall
automatically be increased to eighteen percent (18%). In the event that such
1
Event of Default is subsequently cured, the adjustment referred to in the
preceding sentence shall cease to be effective as of the date of such cure,
provided that the Interest as calculated and unpaid at such increased rate
during the continuance of such Event of Default shall continue to apply to the
extent relating to the days after the occurrence of such Event of Default
through and including the date of such cure of such Event of Default.
3. CONVERSION OF NOTES. This Note shall be convertible into validly issued,
fully paid and non-assessable shares of Common Stock (as defined below), on the
terms and conditions set forth in this Section 3.
(a) Conversion Right. Subject to the provisions of Section 3(d), at
any time or times on or after the Issuance Date, the Holder shall be
entitled to convert any portion of the outstanding and unpaid Conversion
Amount (as defined below) into validly issued, fully paid and
non-assessable shares of Common Stock in accordance with Section 3(c), at
the Conversion Rate (as defined below). The Company shall not issue any
fraction of a share of Common Stock upon any conversion. If the issuance
would result in the issuance of a fraction of a share of Common Stock, the
Company shall round such fraction of a share of Common Stock up to the
nearest whole share. The Company shall pay any and all transfer, stamp,
issuance and similar taxes that may be payable with respect to the issuance
and delivery of Common Stock upon conversion of any Conversion Amount.
(b) Conversion Rate. The number of shares of Common Stock issuable
upon conversion of any Conversion Amount pursuant to Section 3(a) shall be
determined by dividing (x) such Conversion Amount by (y) the Conversion
Price (the "Conversion Rate").
(i) "Conversion Amount" means the portion of the Principal to be
converted, redeemed or otherwise with respect to which this
determination is being made, plus all accrued and unpaid Interest with
respect to such portion of the Principal amount and accrued and unpaid
Late Charges with respect to such portion of such Principal and such
Interest.
(ii) "Conversion Price" means, as of any Conversion Date or other
date of determination, $0.67, subject to adjustment as provided
herein.
(c) Mechanics of Conversion.
(i) Conversion Prior to Maturity Date. To convert any Conversion
Amount into shares of Common Stock on any Trading Day (a "Conversion
Date"), the Holder shall deliver in accordance with Section 22(a), for
receipt on or prior to 5:00 p.m., New York time, on such date, a copy
of a fully-completed notice of conversion, in the form attached hereto
as Exhibit I (the "Conversion Notice"), to the Company that ---------
is executed by the Holder. If required by Section 3(c)(iii), within
three (3) Trading Days following a conversion of this Note as
aforesaid, the Holder shall surrender this Note to a nationally
recognized overnight delivery service for delivery to the Company (or
an indemnification undertaking with respect to this Note in the case
of its loss, theft or destruction as contemplated by Section 16(b)).
On or before the second (2nd) Trading Day following the date of
receipt of a Conversion Notice, the Company shall transmit by
2
facsimile, e-mail or other electronic means an acknowledgment of
confirmation, in the form attached hereto as Exhibit II, of receipt
of such Conversion Notice to the Company's transfer agent
(the "Transfer Agent"). On or before the third (3rd) Trading Day
following the date of receipt of a Conversion Notice, the Company
shall (1) provided that the Transfer Agent is participating in The
Depository Trust Company's ("DTC") Fast Automated Securities Transfer
Program (the "FAST Program") and provided further that the Holder's
broker is participating the FAST Program and has initiated a request
for the shares of Common Stock in the Deposit/Withdrawal at Custodian
system ("DWAC System"), credit such aggregate number of shares of
Common Stock to which the Holder shall be entitled to the Holder's or
its designee's balance account with DTC through its DWAC System or (2)
if the Transfer Agent is not participating in the FAST Program, on or
before the third (3rd) Trading Day following the date of receipt of a
Conversion Notice, the Company shall issue and deliver (via reputable
overnight courier) to the address as specified in the Conversion
Notice, a certificate, 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. If this Note is physically surrendered for
conversion pursuant to Section 3(c)(iii) and the outstanding Principal
of this Note is greater than the Principal portion of the Conversion
Amount being converted, then the Company shall as soon as practicable
and in no event later than five (5) Business Days after receipt of
this Note and at its own expense, issue and deliver to the Holder (or
its designee) a new Note (in accordance with Section 16(c))
representing the outstanding Principal not converted. The Person or
Persons entitled to receive the shares of Common Stock issuable upon a
conversion of this Note shall be treated for all Colorado corporate
law purposes as the holder or holders of such shares of Common Stock
for record dates on the earlier to occur of (i) the date such shares
are so credited or issued or (ii) the third (3rd) Trading Day after
the Conversion Date. In the event of a partial conversion of this Note
pursuant hereto, the Principal amount converted shall be deducted from
the Installment Amount(s) relating to the Installment Date(s) as set
forth in the applicable Conversion Notice.
(ii) Company's Failure to Timely Convert. If the Company shall
fail, for any reason or for no reason (other than a dispute subject to
the last sentence of Section 3(c)(iv)), to issue to the Holder within
three (3) Trading Days after the Company's receipt of a Conversion
Notice, a certificate for the number of shares of Common Stock to
which the Holder is entitled and register such shares of Common Stock
on the Company's share register or to credit the Holder's or its
designee's balance account with DTC for such number of shares of
Common Stock to which the Holder is entitled upon the Holder's
conversion of any Conversion Amount (as the case may be) (a
"Conversion Failure"), then, in addition to all other remedies
available to the Holder, the Holder, upon written notice to the
Company, may void its Conversion Notice with respect to, and retain or
have returned (as the case may be) any portion of this Note that has
not been converted pursuant to such Conversion Notice, provided that
3
the voiding of a Conversion Notice shall not affect the Company's
obligations to make any payments which have accrued prior to the date
of such notice pursuant to this Note. In addition to the foregoing, if
within three (3) Trading Days after the Company's receipt of a
Conversion Notice, the Company shall fail to issue and deliver a
certificate to the Holder and register such shares of Common Stock on
the Company's share register or credit the Holder's or its designee's
balance account with DTC for the number of shares of Common Stock to
which the Holder is entitled upon the Holder's conversion hereunder
(as the case may be), and if on or after such third (3rd) Trading Day
and on or before the tenth (10th) Trading Day after the Company's
receipt of such Conversion Notice the Holder (or any other Person in
respect, or on behalf, of 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 all or any portion of the
number of shares of Common Stock equal to all or any portion of the
number of shares of Common Stock issuable upon such conversion that
the Holder so anticipated receiving from the Company, then, in
addition to all other remedies available to the Holder, the Company
shall, within three (3) Business 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 and other out-of-pocket expenses, if any, (all as
reasonably detailed in supporting documentation provided to the
Company when such request is made), for the shares of Common Stock so
purchased (including, without limitation, by any other Person in
respect, or on behalf, of the Holder) (the "Buy-In Price"), at which
point the Company's obligation to so issue and deliver such
certificate or credit the Holder's balance account with DTC for the
number of shares of Common Stock to which the Holder is entitled upon
the Holder's conversion hereunder (as the case may be) (and to issue
such shares of Common Stock) shall terminate and the amount
outstanding under this Note shall be decreased by the Conversion
Amount specified in such Conversion Notice that was so submitted by
the Holder for conversion hereunder, or (ii) promptly honor its
obligation to so issue and deliver to the Holder a certificate or
certificates representing such shares of Common Stock or credit the
Holder's balance account with DTC for the number of shares of Common
Stock to which the Holder is entitled upon the Holder's conversion
hereunder (as the case may be) 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 multiplied by (B) the lowest
Closing Sale Price of the Common Stock on any Trading Day during the
period commencing on the date of the applicable Conversion Notice and
ending on the date of such issuance and payment under this clause
(ii).
(iii) Registration; Book-Entry. The Company shall maintain a
register (the "Register") for the recordation of the names and
addresses of the holders of each Note and the principal amount of the
Notes held by such holders (the "Registered Notes"). The entries in
the Register shall be conclusive and binding for all purposes absent
manifest error. The Company and the holders of the Notes shall treat
each Person whose name is recorded in the Register as the owner of a
Note for all purposes (including, without limitation, the right to
receive payments of Principal and Interest hereunder) notwithstanding
notice to the contrary. Subject to the transfer restrictions expressly
set forth in Section 15, a Registered Note may be assigned,
transferred or sold in whole, but not in part, only by registration of
such assignment or sale on the Register. Upon its receipt of a request
to assign, transfer or sell all or part of any Registered Note by the
holder thereof, the Company shall record the information contained
therein in the Register and issue one or more new Registered Notes in
4
the same aggregate principal amount as the principal amount of the
surrendered Registered Note to the designated assignee or transferee
pursuant to Section 16, provided that if the Company does not so
record an assignment, transfer or sale (as the case may be) of all or
part of any Registered Note within one (1) Business Day of such a
request, then the Register shall be automatically updated to reflect
such assignment, transfer or sale (as the case may be).
Notwithstanding anything to the contrary set forth in this Section 3,
following conversion of any portion of this Note in accordance with
the terms hereof, the Holder shall not be required to physically
surrender this Note to the Company unless (A) the full Conversion
Amount represented by this Note is being converted (in which event
this Note shall be delivered to the Company as contemplated by Section
3(c)(i)) or (B) the Holder has provided the Company with prior written
notice (which notice may be included in a Conversion Notice)
requesting reissuance of this Note upon physical surrender of this
Note. The Holder and the Company shall maintain records showing the
Principal, Interest and Late Charges converted and/or paid (as the
case may be) and the dates of such conversions and/or payments (as the
case may be) or shall use such other method, reasonably satisfactory
to the Holder and the Company, so as not to require physical surrender
of this Note upon conversion.
(iv) Pro Rata Conversion; Disputes. In the event that the Company
receives a Conversion Notice from more than one holder of Notes for
the same Conversion Date and the Company can convert some, but not
all, of such portions of the Notes submitted for conversion, the
Company, subject to Section 3(d), shall convert from each holder of
Notes electing to have Notes converted on such date a pro rata amount
of such holder's portion of its Notes submitted for conversion based
on the principal amount of Notes submitted for conversion on such date
by such holder relative to the aggregate principal amount of all Notes
submitted for conversion on such date. Notwithstanding any provision
of this Note to the contrary, in the event of a dispute as to the
number of shares of Common Stock issuable to the Holder in connection
with a conversion of this Note, the Company shall issue to the Holder
the number of shares of Common Stock not in dispute and resolve such
dispute in accordance with Section 21.
(d) Limitations on Conversions.
(i) Beneficial Ownership. Notwithstanding anything to the
contrary contained in this Note, this Note shall not be convertible by
the Holder hereof to the extent (but only to the extent) that the
Holder or any of its affiliates would beneficially own in excess of
4.9% (the "Maximum Percentage") of the Common Stock. To the extent the
above limitation applies, the determination of whether this Note shall
be convertible (vis-a-vis other convertible, exercisable or
exchangeable securities owned by the Holder or any of its affiliates)
and of which such securities shall be convertible, exercisable or
exchangeable (as among all such securities owned by the Holder and its
affiliates) shall, subject to such Maximum Percentage limitation, be
5
determined on the basis of the first submission to the Company for
conversion, exercise or exchange (as the case may be). No prior
inability to convert this Note, or to issue shares of Common Stock,
pursuant to this paragraph shall have any effect on the applicability
of the provisions of this paragraph with respect to any subsequent
determination of convertibility. For purposes of this paragraph,
beneficial ownership and all determinations and calculations
(including, without limitation, with respect to calculations of
percentage ownership) shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended (the "1934
Act") and the rules and regulations promulgated thereunder. The
provisions of this paragraph shall be implemented in a manner
otherwise than in strict conformity with the terms of this paragraph
to correct this paragraph (or any portion hereof) which may be
defective or inconsistent with the intended Maximum Percentage
beneficial ownership limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect to such
Maximum Percentage limitation. The limitations contained in this
paragraph shall apply to a successor Holder of this Note. The holders
of Common Stock shall be third party beneficiaries of this paragraph
and the Company may not waive this paragraph without the consent of
holders of a majority of its Common Stock. For any reason at any time,
upon the written request of the Holder, the Company shall within one
(1) Business Day confirm in writing to the Holder the number of shares
of Common Stock then outstanding, including by virtue of any prior
conversion or exercise of convertible or exercisable securities into
Common Stock. Each delivery of a Conversion Notice by the Holder will
constitute a representation by the Holder that it has evaluated the
limitation set forth in this paragraph and determined that issuance of
the full number of shares of Common Stock requested by the Holder in
such Conversion Notice is permitted under this paragraph.
(ii) Market Regulation. The Company shall not issue any shares of
Common Stock upon conversion of this Note if the issuance of such
shares of Common Stock would exceed the aggregate number of shares of
Common Stock which the Company may issue upon conversion of the Notes
and the shares of Preferred Stock (as defined in the Exchange
Agreement) without breaching the Company's obligations under the rules
or regulations of the Principal Market or such other securities market
or exchange on which the Common Stock is then listed or designated for
quotation (as applicable) (the number of shares which may be issued
without violating such rules and regulations, the "Exchange Cap"),
except that such limitation shall not apply in the event that the
Company (A) obtains the approval of its stockholders as required by
the applicable rules of the Principal Market or such other market or
exchange for issuances of shares of Common Stock in excess of the
Exchange Cap or (B) obtains a written opinion from outside counsel to
the Company that such approval is not required, which opinion shall be
6
reasonably satisfactory to the Required Holders (as defined below).
Until such approval or such written opinion is obtained, no Claimant
(as defined in the Exchange Agreement) shall be issued in the
aggregate, upon conversion of any shares of Preferred Stock or any of
the Notes, shares of Common Stock in an amount greater than the
product of (i) the Exchange Cap multiplied by (ii) the quotient of (1)
the aggregate original principal amount of all Notes initially issued
to such Claimant pursuant to the Exchange Agreement divided by (2) the
aggregate original principal amount of all Notes initially issued to
all the Claimants pursuant to the Exchange Agreement (with respect to
each Claimant, the "Exchange Cap Allocation"). Each Claimant's
Exchange Cap Allocation shall be allocated by such Claimant among the
Notes and shares of Preferred Stock held by such Claimant. Upon
conversion in full of a Claimant's shares of Preferred Stock and
Notes, the difference (if any) between such Claimant's Exchange Cap
Allocation and the number of shares of Common Stock actually issued to
such Claimant upon such Claimant's conversion in full of such shares
of Preferred Stock and such Claimant's conversion in full of such
Notes shall be allocated to the respective Exchange Cap Allocations of
the remaining holders of shares of Preferred Stock and Notes on a pro
rata basis in proportion to the shares of Common Stock underlying the
shares of Preferred Stock and Notes then held by each such Claimant.
4. RIGHTS UPON EVENT OF DEFAULT.
(a) Event of Default. Each of the following events shall constitute an
"Event of Default":
(i) any of the shares of Common Stock issuable upon conversion of this
Note have ceased to be freely tradable by the Holder under applicable
securities laws for a period of five (5) consecutive Trading Days or for
more than an aggregate of ten (10) Trading Days in any 365-day period after
the Company receives notice thereof (whether from the Holder or any other
Person);
(ii) the suspension from trading or the failure of the Common Stock to
be trading or listed (as applicable) on an Eligible Market for a period of
five (5) consecutive Trading Days or for more than an aggregate of ten (10)
Trading Days in any 365-day period;
(iii) the Company's (A) failure to cure a Conversion Failure by either
(x) delivering the required number of shares of Common Stock within seven
(7) Trading Days after the applicable Conversion Date or (y) complying with
the last sentence of Section 3(c)(ii), or (B) notice to any holder of the
Notes, including, without limitation, by way of public announcement or
through any of its agents, at any time, of its intention not to comply, as
required, with a request for conversion of any Notes into shares of Common
Stock that is requested in accordance with the provisions of the Notes,
other than pursuant to Section 3(d);
(iv) at any time following the tenth (10th) consecutive day that the
Holder's Authorized Share Allocation is less than the number of shares of
Common Stock that the Holder would be entitled to receive upon a conversion
of the full Conversion Amount of this Note (without regard to any
limitations on conversion set forth in Section 3(d) or otherwise);
7
(v) the Company places, or instructs any Person to place, any
restrictive or other legend on any shares of Common Stock issued to the
Holder upon conversion of this Note or otherwise issues any stop transfer
(or other restrictive instructions) with respect to any shares of Common
Stock issued or issuable to the Holder upon conversion of this Note;
(vi) the Company's or any Subsidiary's failure to pay to the Holder
any amount of Principal, Interest, Late Charges or other amounts when and
as due under this Note (including, without limitation, the Company's or any
Subsidiary's failure to pay any redemption payments or amounts hereunder)
or any other Transaction Document (as defined in the Exchange Agreement) or
any other agreement, document, certificate or other instrument delivered in
connection with the transactions contemplated hereby and thereby, if such
failure remains uncured for a period of at least five (5) Business Days
after written notice thereof from the Holder to the Company, except that no
such notice or cure period shall apply to a failure to pay Principal when
and as due under this Note (including, without limitation, any Installment
Amount) or to pay to the Holder any Company Redemption Price (as defined in
the Certificate of Designations (as defined in the Exchange Agreement))
when and as due pursuant to the terms of the Certificate of Designations;
(vii) the occurrence of any redemption or acceleration prior to
maturity (which has not been subsequently cancelled or cured within five
(5) Business Days thereafter) of any Indebtedness (as defined below) of the
Company or any of its Subsidiaries that is, individually or in the
aggregate, in excess of $100,000, other than with respect to any Other
Notes;
(viii) bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for the relief of debtors shall be
instituted by or against the Company or any Subsidiary and, if instituted
against the Company or any Subsidiary by a third party, shall not be
dismissed within forty-five (45) days of their initiation;
(ix) the commencement by the Company or any Subsidiary of a voluntary
case or proceeding under any applicable federal, state or foreign
bankruptcy, insolvency, reorganization or other similar law or of any other
case or proceeding to be adjudicated a bankrupt or insolvent, or the
consent by it to the entry of a decree, order, judgment or other similar
document in respect of the Company or any Subsidiary in an involuntary case
or proceeding under any applicable federal, state or foreign bankruptcy,
insolvency, reorganization or other similar law or to the commencement of
any bankruptcy or insolvency case or proceeding against it, or the filing
by it of a petition or answer or consent seeking reorganization or relief
under any applicable federal, state or foreign law, or the consent by it to
the filing of such petition or to the appointment of or taking possession
by a custodian, receiver, liquidator, assignee, trustee, sequestrator or
other similar official of the Company or any Subsidiary or of any
substantial part of its property, or the making by it of an assignment for
the benefit of creditors, or the execution of a composition of debts, or
the occurrence of any other similar federal, state or foreign proceeding,
8
the taking of corporate action by the Company or any Subsidiary in
furtherance of any such action or the commencement by any Person of a
Uniform Commercial Code foreclosure sale of a material portion of the
Company's or any Subsidiary's assets or any other similar action under
federal, state or foreign law;
(x) the entry by a court of competent jurisdiction of (i) a decree,
order, judgment or other similar document adjudging the Company or any
Subsidiary as bankrupt or insolvent, or approving as properly filed a
petition seeking liquidation, reorganization, arrangement, adjustment or
composition of or in respect of the Company or any Subsidiary under any
applicable federal, state or foreign law or (ii) a decree, order, judgment
or other similar document appointing a custodian, receiver, liquidator,
assignee, trustee, sequestrator or other similar official of the Company or
any Subsidiary or of any substantial part of its property, or ordering the
winding up or liquidation of its affairs, and the continuance of any such
decree, order, judgment or other similar document or any such other decree,
order, judgment or other similar document unstayed and in effect for a
period of forty-five (45) consecutive days;
(xi) a final judgment or judgments for the payment of money
aggregating in excess of $300,000 are rendered against the Company and/or
any of its Subsidiaries and which judgments are not, within forty-five (45)
days after the entry thereof, bonded, discharged or stayed pending appeal,
or are not discharged within forty-five (45) days after the expiration of
such stay; provided, however, any judgment which is covered by insurance or
an indemnity from a creditworthy party shall not be included in calculating
the $300,000 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 or such Subsidiary (as the case may be) will receive the proceeds
of such insurance or indemnity within forty-five (45) days of the issuance
of such judgment;
(xii) the Company and/or any Subsidiary, individually or in the
aggregate, fails to pay, when due, or within any applicable grace period,
any payment with respect to any Indebtedness in excess of $100,000 due to
any third party (other than payments contested by the Company and/or such
Subsidiary (as the case may be) in good faith by proper proceedings and
with respect to which adequate reserves have been set aside for the payment
thereof in accordance with GAAP) or is otherwise in breach or violation of
any agreement for monies owed or owing in an amount in excess of $100,000,
which breach or violation permits the other party thereto to declare a
default or otherwise accelerate amounts due thereunder;
(xiii) other than as specifically set forth in another clause of this
Section 4(a), the Company breaches in any material respect any
representation, warranty, covenant or other term or condition of the
Exchange Agreement (other than Section 17 and Section 28 thereof), and such
breach remains uncured for a period of ten (10) Business Days after written
notice thereof from the Holder to the Company;
(xiv) any material breach or failure by the Company or any Subsidiary
to comply with any provision of Section 12 of this Note if such material
9
breach or failure remains uncured for a period of ten (10) Business Days
after written notice thereof from the Holder to the Company;
(xv) any material provision of any Transaction Document (including,
without limitation, the Security Documents and Guaranties) shall at any
time for any reason (other than pursuant to the express terms thereof)
cease to be valid and binding on or enforceable against the parties thereto
(provided that at least five (5) Business Days have elapsed after the
Company receives written notice thereof from the Holder), or the validity
or enforceability thereof shall be contested by, or on behalf of, the
Company or any of its Subsidiaries, or a proceeding shall be commenced by
the Company or any Subsidiary or any governmental authority having
jurisdiction over any of them, seeking to establish the invalidity or
unenforceability thereof, or the Company or any Subsidiary shall deny in
writing that it has any liability or obligation purported to be created
under any Transaction Document (including, without limitation, the Security
Documents and Guaranties);
(xvi) the Security Documents shall for any reason fail or cease to
create a separate, valid and, except to the extent permitted by the terms
hereof or thereof, perfected first priority Lien on the Collateral (as
defined in the Security Agreement) in favor of each of the Secured Parties
(as defined in the Security Agreement), and such condition remains uncured
for a period of ten (10) Business Days after written notice thereof from
the Holder to the Company; or
(xvii) any Triggering Event (as defined in the Certificate of
Designations) occurs;
(xviii) any Event of Default (as defined in the Other Notes) occurs
with respect to any Other Notes.
(b) Notice of an Event of Default; Redemption Right. Upon the occurrence of
an Event of Default with respect to this Note or any Other Note, the Company
shall within two (2) Business Days thereafter deliver written notice thereof via
facsimile (an "Event of Default Notice") to the Holder. At any time after the
earlier of the Holder's receipt of an Event of Default Notice and the Holder
becoming aware of an Event of Default, the Holder may require the Company to
redeem (regardless of whether such Event of Default has been cured) all or any
portion of this Note by delivering written notice thereof (the "Event of Default
Redemption Notice") to the Company, which Event of Default Redemption Notice
shall indicate the portion of this Note the Holder is electing to redeem. Each
portion of this Note subject to redemption by the Company pursuant to this
Section 4(b) shall be redeemed by the Company at a price equal to the greater of
(i) the product of (A) the Conversion Amount to be redeemed multiplied by (B)
the Redemption Premium and (ii) the product of (X) the Conversion Rate with
respect to the Conversion Amount in effect at such time as the Holder delivers
an Event of Default Redemption Notice multiplied by (Y) the product of (1) the
Redemption Premium multiplied by (2) the arithmetic average of the VWAP of the
Common Stock for the Trading Days during the period commencing on the date
10
immediately preceding such Event of Default and ending on the date the Company
makes the entire payment required to be made under this Section 4(b) (the "Event
of Default Redemption Price"). Redemptions required by this Section 4(b) shall
be made in accordance with the provisions of Section 10. To the extent
redemptions required by this Section 4(b) are deemed or determined by a court of
competent jurisdiction to be prepayments of this Note by the Company, such
redemptions shall be deemed to be voluntary prepayments. Notwithstanding
anything to the contrary in this Section 4, but subject to Section 3(d), until
the Event of Default Redemption Price (together with any Late Charges thereon)
is paid in full, the Conversion Amount submitted for redemption under this
Section 4(b) (together with any Late Charges thereon) may be converted, in whole
or in part, by the Holder into Common Stock pursuant to the terms of this Note.
In the event of a partial redemption of this Note pursuant hereto, the Principal
amount redeemed shall be deducted from the Installment Amount(s) relating to the
applicable Installment Date(s) as set forth in the Event of Default Redemption
Notice. In the event of the Company's redemption of any portion of this Note
under this Section 4(b), the Holder's damages would be uncertain and difficult
to estimate because of the parties' inability to predict future interest rates
and the uncertainty of the availability of a suitable substitute investment
opportunity for the Holder. Accordingly, any redemption premium due under this
Section 4(b) is intended by the parties to be, and shall be deemed, a reasonable
estimate of the Holder's actual loss of its investment opportunity and not as a
penalty.
5. RIGHTS UPON FUNDAMENTAL TRANSACTION. The Company shall not enter into or
be party to a Fundamental Transaction unless (i) the Successor Entity assumes in
writing all of the obligations of the Company under this Note and the other
Transaction Documents (as defined in the Exchange Agreement) in accordance with
the provisions of this Section 5 pursuant to written agreements, including
agreements to deliver to each holder of Notes in exchange for such Notes a
security of the Successor Entity evidenced by a written instrument substantially
similar in form and substance to the Notes, including, without limitation,
having a principal amount and interest rate equal to the principal amounts then
outstanding and the interest rates of the Notes held by such holder, having
similar conversion rights as the Notes and having similar ranking to the Notes
and (ii) the Successor Entity is a publicly traded corporation whose common
stock is quoted on or listed for trading on an Eligible Market. Upon the
occurrence of any Fundamental Transaction, the Successor Entity shall succeed
to, and be substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Note and the other Transaction Documents
referring to the "Company" shall refer instead to the Successor Entity), and may
exercise every right and power of the Company and shall assume all of the
obligations of the Company under this Note and the other Transaction Documents
with the same effect as if such Successor Entity had been named as the Company
herein. In addition to the foregoing, upon consummation of a Fundamental
Transaction, the Successor Entity shall also deliver to the Holder confirmation
that there shall be issued upon conversion or redemption of this Note at any
time after the consummation of such Fundamental Transaction, in lieu of the
shares of Common Stock or other securities, cash, assets or other property
(except such items still issuable under Sections 6 and 13, which shall continue
to be receivable thereafter) issuable upon the conversion or redemption of the
Notes prior to such Fundamental Transaction, such shares of the publicly traded
common stock (or their equivalent) of the Successor Entity (including its Parent
Entity) which the Holder would have been entitled to receive upon the happening
11
of such Fundamental Transaction had this Note been converted immediately prior
to such Fundamental Transaction (without regard to any limitations on the
conversion of this Note), as adjusted in accordance with the provisions of this
Note. The provisions of this Section 5 shall apply similarly and equally to
successive Fundamental Transactions and shall be applied without regard to any
limitations on the conversion of this Note.
6. RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.
(a) Purchase Rights. In addition to any adjustments pursuant to Section 7
below, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to all or substantially all of the record holders of any
class of Common Stock (the "Purchase Rights"), then the Holder will be entitled
to acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which the Holder could have acquired if the Holder had held the
number of shares of Common Stock acquirable upon complete conversion of this
Note (without taking into account any limitations or restrictions on the
convertibility of this Note) immediately before the date on which a record is
taken for the grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights (provided,
however, to the extent that the Holder's right to participate in any such
Purchase Right would result in the Holder exceeding the Maximum Percentage, then
the Holder shall not be entitled to participate in such Purchase Right to such
extent (or have beneficial ownership of such shares of Common Stock as a result
of such Purchase Right to such extent) and such Purchase Right to such extent
shall be held in abeyance for the Holder until such time, if ever, as its right
thereto would not result in the Holder exceeding the Maximum Percentage).
(b) Other Corporate Events. In addition to and not in substitution for any
other rights hereunder, prior to the consummation of any Fundamental Transaction
pursuant to which holders of shares of Common Stock are entitled to receive
securities or other assets with respect to or in exchange for shares of Common
Stock (a "Corporate Event"), the Company shall make appropriate provision to
insure that the Holder will thereafter have the right to receive upon a
conversion of this Note (i) in addition to the shares of Common Stock or other
securities receivable upon such conversion, such securities or other assets to
which the Holder would have been entitled with respect to such shares of Common
Stock had such shares of Common Stock been held by the Holder upon the
consummation of such Corporate Event (without taking into account any
limitations or restrictions on the convertibility of this Note) or (ii) in lieu
of the shares of Common Stock otherwise receivable upon such conversion, such
securities or other assets received by the holders of shares of Common Stock in
connection with the consummation of such Corporate Event in such amounts as the
Holder would have been entitled to receive had this Note initially been issued
with conversion rights for the form of such consideration (as opposed to shares
of Common Stock) at a conversion rate for such consideration commensurate with
the Conversion Rate. Provision made pursuant to the preceding sentence shall be
in a form and substance reasonably satisfactory to the Holder. The provisions of
this Section 6 shall apply similarly and equally to successive Corporate Events
and shall be applied without regard to any limitations on the conversion or
redemption of this Note.
12
7. ADJUSTMENT OF CONVERSION PRICE UPON SUBDIVISION OR COMBINATION OF COMMON
STOCK. Without limiting any provision of Section 5, if the Company at any time
on or after the Subscription Date subdivides (by any stock split, stock
dividend, recapitalization or otherwise) one or more classes of its outstanding
shares of Common Stock into a greater number of shares, the Conversion Price in
effect immediately prior to such subdivision will be proportionately reduced.
Without limiting any provision of Section 5, if the Company at any time on or
after the Subscription Date combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Conversion Price in effect immediately prior to
such combination will be proportionately increased. Any adjustment pursuant to
this Section 7 shall become effective immediately after the effective date of
such subdivision or combination. If any event requiring an adjustment under this
Section 7 occurs during the period that a Conversion Price is calculated
hereunder, then the calculation of such Conversion Price shall be adjusted
appropriately to reflect such event.
8. NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its articles of incorporation, bylaws or
through any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, 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 Note, and will at all times in good faith carry out all of the
provisions of this Note. Without limiting the generality of the foregoing, the
Company (i) shall not increase the par value of any shares of Common Stock
receivable upon conversion of this Note above the Conversion Price then in
effect, (ii) shall take all such actions as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
non-assessable shares of Common Stock upon the conversion of this Note, and
(iii) shall, so long as any of the Notes are outstanding, take all action
necessary to reserve and keep available out of its authorized and unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the Notes, the maximum number of shares of Common Stock as shall from time to
time be necessary to effect the conversion of the Notes then outstanding
(without regard to any limitations on conversion).
9. RESERVATION OF AUTHORIZED SHARES.
(a) Reservation. The Company shall initially reserve out of its authorized
and unissued Common Stock a number of shares of Common Stock for each of the
Notes equal to 100% of the entire Conversion Rate with respect to the entire
Conversion Amount of each such Note as of the Issuance Date (without regard to
any limitations on conversion contained therein). So long as any of the Notes
are outstanding, the Company shall take all action necessary to reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Notes, 100% of the number of shares
of Common Stock as shall from time to time be necessary to effect the conversion
of all of the Notes then outstanding (the "Required Reserve Amount"). The
13
initial number of shares of Common Stock reserved for conversions of the Notes
and each change in the number of shares so reserved shall be allocated pro rata
among the holders of the Notes based on the original principal amount of the
Notes held by each holder on and after the Issuance Date or change in the number
of reserved shares (as the case may be) (the "Authorized Share Allocation"). In
the event that a holder shall sell or otherwise transfer any of such holder's
Notes, each transferee shall be allocated a pro rata portion of such holder's
Authorized Share Allocation. Any shares of Common Stock reserved and allocated
to any Person which ceases to hold any Notes shall be allocated to the remaining
holders of Notes, pro rata based on the principal amount of the Notes then held
by such holders.
(b) Insufficient Authorized Shares. If, notwithstanding Section 9(a), and
not in limitation thereof, at any time while any of the Notes remain outstanding
the Company does not have a sufficient number of authorized and unreserved
shares of Common Stock to satisfy its obligation to reserve for issuance upon
conversion of the Notes at least a number of shares of Common Stock equal to the
Required Reserve Amount (an "Authorized Share Failure"), then the Company shall
immediately take all action necessary to increase the Company's authorized
shares of Common Stock to an amount sufficient to allow the Company to reserve
the Required Reserve Amount for the Notes then outstanding. Without limiting the
generality of the foregoing sentence, as soon as practicable after the date of
the occurrence of an Authorized Share Failure, but in no event later than sixty
(60) days after the occurrence of such Authorized Share Failure, the Company
shall hold a meeting of its stockholders for the approval of an increase in the
number of authorized shares of Common Stock. In connection with such meeting,
the Company shall provide each stockholder with a proxy statement and shall use
its best efforts to solicit its stockholders' approval of such increase in
authorized shares of Common Stock and to cause its board of directors to
recommend to the stockholders that they approve such proposal.
10. HOLDER'S REDEMPTIONS.
(a) Mechanics. The Company shall deliver the applicable Event of Default
Redemption Price to the Holder in cash within seven (7) Business Days after the
Company's receipt of the Holder's Event of Default Redemption Notice. In the
event of a redemption of less than all of the Conversion Amount of this Note, if
requested by Holder the Company shall promptly cause to be issued and delivered
to the Holder a new Note (in accordance with Section 16(c)) representing the
outstanding Principal which has not been redeemed. In the event that the Company
does not pay the applicable Redemption Price to the Holder within the time
period required, at any time thereafter and until the Company pays such unpaid
Redemption Price in full, the Holder shall have the option, in lieu of
redemption, to require the Company to promptly return to the Holder all or any
portion of this Note representing the Conversion Amount that was submitted for
redemption and for which the applicable Redemption Price (together with any Late
Charges thereon) has not been paid. Upon the Company's receipt of such notice,
(x) the applicable Redemption Notice shall be null and void with respect to such
Conversion Amount, (y) the Company shall immediately return this Note, or issue
a new Note (in accordance with Section 16(c)), to the Holder, and in each case
14
the principal amount of this Note or such new Note (as the case may be) shall be
increased by an amount equal to the difference between (1) the applicable
Redemption Price minus (2) the Principal portion of the Conversion Amount
submitted for redemption and (z) the Conversion Price of this Note or such new
Notes (as the case may be) shall be automatically adjusted with respect to each
conversion effected thereafter by the Holder to the lowest of (A) the Conversion
Price as in effect on the date on which the applicable Redemption Notice is
voided, (B) 75% of the arithmetic average of the VWAP of the Common Stock for
the Trading Days during the period beginning on and including the date on which
the applicable Redemption Notice is delivered to the Company and ending on and
including the date on which the applicable Redemption Notice is voided and (C)
75% of the arithmetic average of the VWAP of the Common Stock for the five (5)
Trading Days immediately preceding the Conversion Date of the applicable
conversion. The Holder's delivery of a notice voiding a Redemption Notice and
exercise of its rights following such notice shall not affect the Company's
obligations to make any payments of Late Charges which have accrued prior to the
date of such notice with respect to the Conversion Amount subject to such
notice.
(b) Redemption by Other Holders. Upon the Company's receipt of notice from
any of the holders of the Other Notes for redemption or repayment as a result of
an event or occurrence described in Section 4(a) of the Other Notes (each, an
"Other Redemption Notice"), the Company shall immediately, but no later than two
(2) Business Days of its receipt thereof, forward to the Holder by facsimile a
copy of such notice. If the Company receives a Redemption Notice and one or more
Other Redemption Notices, during the eleven (11) Business Day period beginning
on and including the date which is five (5) Business Days prior to the Company's
receipt of the Holder's applicable Redemption Notice and ending on and including
the date which is five (5) Business Days after the Company's receipt of the
Holder's applicable Redemption Notice and the Company is unable to redeem all
principal, interest and other amounts designated in such Redemption Notice and
such Other Redemption Notices received during such eleven (11) Business Day
period, then the Company shall redeem a pro rata amount from each holder of the
Notes (including the Holder) based on the principal amount of the Notes
submitted for redemption pursuant to such Redemption Notice and such Other
Redemption Notices received by the Company during such eleven (11) Business Day
period.
11. VOTING RIGHTS. The Holder shall have no voting rights as the holder of
this Note, except as required by law (including, without limitation, the
Colorado Business Corporation Act) and as expressly provided in this Note.
12. COVENANTS. Until this Note has been converted, redeemed or paid in full
in accordance with its terms:
(a) Rank. All payments due under this Note shall rank pari passu with all
Other Notes and, subject to the terms of the Subordination Agreement (as defined
below), be senior to all other Indebtedness of the Company and its Subsidiaries.
(b) Incurrence of Indebtedness. The Company shall not, and the Company
shall cause each of its Subsidiaries to not, directly or indirectly, incur or
guarantee, assume or suffer to exist any Indebtedness other than Permitted
Indebtedness.
15
(c) Existence of Liens. The Company shall not, and the Company shall cause
each of its Subsidiaries to not, directly or indirectly, allow or suffer to
exist any mortgage, lien, pledge, charge, security interest or other encumbrance
upon or in any property or assets (including accounts and contract rights) owned
by the Company or any of its Subsidiaries (collectively, "Liens") other than
Permitted Liens.
(d) Restricted Payments. The Company shall not, and the Company shall cause
each of its Subsidiaries to not, directly or indirectly, redeem, defease,
repurchase, repay or make any payments in respect of, by the payment of cash or
cash equivalents (in whole or in part, whether by way of open market purchases,
tender offers, private transactions or otherwise), all or any portion of any
Indebtedness (except for Permitted Interest Payments and the Notes), whether by
way of payment in respect of principal of (or premium, if any) or interest on,
such Indebtedness if at the time such payment is due or is otherwise made or,
after giving effect to such payment, (i) an event constituting an Event of
Default has occurred and is continuing or (ii) an event that with the passage of
time and without being cured would constitute an Event of Default has occurred
and is continuing.
(e) Restriction on Redemption and Cash Dividends. The Company shall not,
and the Company shall cause each of its Subsidiaries to not, directly or
indirectly, redeem, repurchase or declare or pay any cash dividend or
distribution on any of its capital stock other than the Preferred Stock.
(f) Restriction on Transfer of Assets. The Company shall not, and the
Company shall cause each of its Subsidiaries to not, directly or indirectly,
sell, lease, license, assign, transfer, convey or otherwise dispose of any
assets or rights of the Company or any Subsidiary owned or hereafter acquired
whether in a single transaction or a series of related transactions, other than
(i) sales, leases, assignments, transfers, conveyances and other dispositions of
such assets or rights by the Company and its Subsidiaries that, in the
aggregate, do not have a fair market value in excess of $300,000 in any twelve
(12) month period, (ii) drug sales and reimbursements relating to the Company's
Multikine drug in the ordinary course of business and (iii) licenses of
intellectual property of the Company and its Subsidiaries to and drug
distribution agreements with unaffiliated third Persons, provided that no such
license or agreement shall (1) sell, assign, transfer, convey or otherwise
dispose of any ownership rights in any such intellectual property to any such
third Person or (2) result in a license of all or substantially all of the
assets of the Company or any of its Subsidiaries unless approved by the
Company's stockholders.
(g) Maturity of Indebtedness. The Company shall not, and the Company shall
cause each of its Subsidiaries to not, directly or indirectly, permit any
Indebtedness of the Company or any of its Subsidiaries to mature or accelerate
prior to the Maturity Date that is, individually or in the aggregate, in excess
of $100,000. The Company shall not, and the Company shall cause each of its
Subsidiaries to not, directly or indirectly, lend money to any Person if such
loans from the Company and its Subsidiaries, in the aggregate, exceed $100,000
in any twelve (12) month period.
16
(h) Change in Nature of Business. The Company shall not, and the Company
shall cause each of its Subsidiaries to not, directly or indirectly, engage in
any material line of business substantially different from those lines of
business conducted by or publicly contemplated to be conducted by the Company
and each of its Subsidiaries on the Issuance Date or any business substantially
related or incidental thereto. The Company shall not, and the Company shall
cause each of its Subsidiaries to not, directly or indirectly, modify its or
their corporate structure or purpose.
(i) New Subsidiaries. Simultaneously with the acquisition or formation of
each New Subsidiary, the Company shall immediately cause such New Subsidiary to
execute, and deliver to each holder of Notes, all Security Documents and
Guaranties as requested by the Holder.
13. PARTICIPATION. In addition to any adjustments pursuant to Section 7, if
the Company shall declare or make any dividend or other distribution of its
assets (or rights to acquire its assets) to holders of shares of Common Stock,
by way of return of capital or otherwise (including, without limitation, any
distribution of cash, stock or other securities, property or options by way of a
dividend, spin off, reclassification, corporate rearrangement, scheme of
arrangement or other similar transaction) (a "Distribution"), at any time after
the issuance of this Note, then, in each such case, the Holder shall be entitled
to participate in such Distribution to the same extent that the Holder would
have participated therein if the Holder had held the number of shares of Common
Stock acquirable upon complete conversion of this Note (without regard to any
limitations on conversion hereof, including without limitation, the Maximum
Percentage) immediately before the date on which a record is taken for such
Distribution, or, if no such record is taken, the date as of which the record
holders of shares of Common Stock are to be determined for the participation in
such Distribution (provided, however, to the extent that the Holder's right to
participate in any such Distributions would result in the Holder exceeding the
Maximum Percentage, then the Holder shall not be entitled to participate in such
Distribution to such extent (or the beneficial ownership of any such shares of
Common Stock as a result of such Distribution to such extent) and such
Distribution to such extent shall be held in abeyance for the benefit of the
Holder until such time, if ever, as its right thereto would not result in the
Holder exceeding the Maximum Percentage).
14. AMENDING THE TERMS OF THIS NOTE. The prior written consent of the
Required Holders and the Company shall be required for any change or amendment
to this Note. Any amendment effected in accordance with this Section 14 shall be
binding upon the Holder and the Company, provided that no such amendment shall
be effective to the extent that it (1) applies to less than all of the holders
of Notes, (2) imposes any obligation or liability on the Holder without the
Holder's prior written consent (which may be granted or withheld in the Holder's
sole discretion), (3) applies retroactively or (4) relates to Section (i). No
consideration shall be offered or paid to the Holder to amend or consent to a
waiver or modification of any provision of this Note unless the same
consideration is also offered to all of the holders of the Other Notes.
15. TRANSFER. This Note and any shares of Common Stock issued upon
conversion of this Note may be offered, sold, assigned or transferred by the
Holder without the consent of the Company, except that (i) this Note may be
offered, sold, assigned or transferred only in whole (the entire then
outstanding Principal amount), but not in part or in separate denominations,
17
(ii) no such transfer, sale or assignment (as the case may be) of this Note
shall be effective unless the transferee or assignee (as the case may be)
accepts and agrees to the terms of this Note by executing a new holder
acknowledgment, in the form attached hereto as Exhibit III, and a counterpart
thereof is delivered to the Company and such transferee or assignee (as the case
may be) shall be substituted for, and become, the Holder under this Note and
(iii) this Note may not be pledged as collateral (provided that security
interests and liens granted by the Holder to the Holder's prime broker and other
clearing brokers in this Note shall not be deemed to be a pledge hereunder).
16. REISSUANCE OF THIS NOTE.
(a) Transfer. If this Note is to be transferred, the Holder shall surrender
this Note to the Company, whereupon the Company will forthwith issue and deliver
upon the order of the Holder a new Note (in accordance with Section 16(c)),
registered as the Holder may request, representing the entire then-outstanding
Principal being transferred by the Holder. The Holder and any assignee, by
acceptance of this Note, acknowledge and agree that, by reason of the provisions
of Section 3(c)(iii) following conversion or redemption of any portion of this
Note, the outstanding Principal represented by this Note may be less than the
Principal stated on the face of this Note.
(b) Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Note (as to which a written certification and the
indemnification contemplated below shall suffice as such evidence), and, in the
case of loss, theft or destruction, of any indemnification undertaking by the
Holder to the Company in customary and reasonable form and, in the case of
mutilation, upon surrender and cancellation of this Note, the Company shall
execute and deliver to the Holder a new Note (in accordance with Section 16(c))
representing the outstanding Principal.
(c) Issuance of New Notes. Whenever the Company is required to issue a new
Note pursuant to the terms of this Note, such new Note (i) shall be of like
tenor with this Note, (ii) shall represent, as indicated on the face of such new
Note, the Principal remaining outstanding, (iii) shall have an issuance date, as
indicated on the face of such new Note, which is the same as the Issuance Date
of this Note, (iv) shall have the same rights and conditions as this Note, and
(v) shall represent accrued and unpaid Interest and Late Charges on the
Principal and Interest of this Note, from the Issuance Date.
17. REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS AND BREACHES. The
remedies provided in this Note shall be cumulative and in addition to all other
remedies available under this Note and any of the other Transaction Documents at
law or in equity, and nothing herein shall limit the Holder's right to pursue
actual and consequential damages for any failure by the Company to comply with
the terms of this Note. The Company covenants to the Holder that there shall be
no characterization concerning this instrument other than as expressly provided
herein. Amounts set forth or provided for herein with respect to payments,
conversion and the like (and the computation thereof) shall be the amounts to be
received by the Holder and shall not, except as expressly provided herein, be
subject to any other obligation of the Company (or the performance thereof).
18
Until this Note has been converted, redeemed or paid in full, the Company shall
provide all information and documentation to the Holder that is reasonably
requested by the Holder to enable the Holder to confirm the Company's compliance
with the terms and conditions of this Note, provided that if the Company
determines that such information and/or documentation so requested by the Holder
constitutes material, non-public information regarding the Company and its
Subsidiaries, then the Company shall promptly advise the Holder of such
determination and the Company shall not provide such information and/or
documentation so constituting material, non-public information unless the Holder
executes a written confidentiality agreement with respect to such information
and/or documentation (on terms acceptable to the Holder and the Company).
18. PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note is
placed in the hands of an attorney for collection or enforcement or is collected
or enforced through any legal proceeding or the Holder otherwise takes action to
collect amounts due under this Note or to enforce the provisions of this Note or
(b) there occurs any bankruptcy, reorganization, receivership of the Company or
other proceedings affecting Company creditors' rights and involving a claim
under this Note, then the Company shall pay the costs incurred by the Holder for
such collection, enforcement or action or in connection with such bankruptcy,
reorganization, receivership or other proceeding, including, without limitation,
reasonable attorneys' fees and disbursements.
19. CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly drafted
by the Company and the Holder and shall not be construed against any Person as
the drafter hereof. The headings of this Note are for convenience of reference
and shall not form part of, or affect the interpretation of, this Note. Terms
used in this Note but defined in the other Transaction Documents shall have the
meanings ascribed to such terms on the Closing Date in such other Transaction
Documents unless otherwise consented to in writing by the Holder.
20. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
the Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege. No waiver shall be effective unless it is
in writing and signed by an authorized representative of the waiving party.
21. DISPUTE RESOLUTION. In the case of a dispute as to the determination of
the Conversion Price, the Closing Bid Price, the Closing Sale Price, the VWAP or
fair market value (as the case may be), the arithmetic calculation of the
Conversion Rate or the applicable Redemption Price (as the case may be), the
Company or the Holder (as the case may be) shall submit the disputed
determinations or arithmetic calculations (as the case may be) via e-mail or
facsimile (i) within two (2) Business Days after receipt of the applicable
notice giving rise to such dispute to the Company or the Holder (as the case may
be) or (ii) if no notice gave rise to such dispute, at any time after the Holder
learned of the circumstances giving rise to such dispute. If the Holder and the
Company are unable to agree upon such determination or calculation within two
(2) Business Days of such disputed determination or arithmetic calculation (as
the case may be) being submitted to the Company or the Holder (as the case may
be), then the Company shall, within two (2) Business Days, submit via e-mail or
facsimile (a) the disputed determination of the Conversion Price, the Closing
19
Bid Price, the Closing Sale Price, the VWAP or fair market value (as the case
may be) to an independent, reputable investment bank selected by the Holder or
(b) the disputed arithmetic calculation of the Conversion Rate or any Redemption
Price (as the case may be) to the Company's independent, outside accountant. The
Company shall cause the investment bank or the accountant (as the case may be)
to perform the determinations or calculations (as the case may be) and notify
the Company and the Holder of the results no later than ten (10) Business Days
from the time it receives such disputed determinations or calculations (as the
case may be), and the non-prevailing party (as determined by such investment
bank or such accountant (as the case may be)) shall be responsible for the fees
and expenses of such investment bank or such accountant (as the case may be).
Such investment bank's or accountant's determination, calculation shall be
binding upon all parties absent demonstrable error.
22. NOTICES; PAYMENTS.
(a) Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Note must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) Business Day after deposit
with an overnight courier service with next day delivery specified provided
confirmation of delivery is kept of file by the sending party), in each case,
properly addressed to the party to receive the same, provided that all such
notices, consents, waivers or other communications required or permitted to be
given under the terms of this Note to the Company must also be sent via
electronic mail to each of the following e-mail addresses: pprichep@cel-sci.com,
gdewindt@cel-sci.com and grkersten@cel-sci.com. The addresses and facsimile
numbers for such communications shall be:
If to the Company:
CEL-SCI Corporation
8229 Boone Boulevard, Suite 802
Vienna, VA 22182
Facsimile: (703) 506-9471
Attention: Ms. Patricia B. Prichep, Senior VP of
Operations;
With mandatory e-mails to the three e-mail addresses
set forth above as contemplated above
If to the Holder:
To its address or facsimile number (as the case may
be) set forth on its signature page to this Note,
or to such other address and/or facsimile number and/or e-mail address (as
the case may be) and/or to the attention of such other Person as the
recipient party has specified by written notice given to each other party
five (5) days prior to the effectiveness of such change. Written
confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender's facsimile machine or e-mail transmission
containing the time, date and recipient facsimile number or e-mail address
20
or (C) provided by an overnight courier service shall be rebuttable
evidence of personal service, receipt by facsimile or receipt from an
overnight courier service in accordance with clause (i), (ii) or (iii)
above, respectively.
The Company shall provide the Holder with prompt written notice of all
actions taken pursuant to this Note, including in reasonable detail a
description of such action and the reason therefore. Without limiting the
generality of the foregoing, the Company will give written notice to the
Holder (i) immediately upon any adjustment of the Conversion Price,
setting forth in reasonable detail, and certifying, the calculation of
such adjustment and (ii) at least fifteen (15) days prior to the date on
which the Company closes its books or takes a record (A) with respect to
any dividend or distribution upon the Common Stock, (B) with respect to
any grant, issuances, or sales of any Options, Convertible Securities or
rights to purchase stock, warrants, securities or other property to all
holders of shares of Common Stock or (C) for determining rights to vote
with respect to any Fundamental Transaction, dissolution or liquidation,
provided in each case that such information shall be made known to the
public prior to or in conjunction with such notice being provided to the
Holder.
(b) Currency. All dollar amounts referred to in this Note are in United
States Dollars ("U.S. Dollars"), and all amounts owing under this Note shall be
paid in U.S. Dollars.
(c) Payments. Whenever any payment of cash is to be made by the Company to
any Person pursuant to this Note, unless otherwise expressly set forth herein,
such payment shall be made in lawful money of the United States of America by
wire transfer to an account designated in writing at least three (3) Business
Days in advance by such Person or by a certified check drawn on the account of
the Company and sent via overnight courier service to such Person at such
address as previously provided to the Company in writing (which address, in the
case of the Holder, shall initially be as set forth on the Schedule of Claimants
attached to the Exchange Agreement), provided that the Holder may elect to
receive a payment of cash via wire transfer of immediately available funds by
providing the Company with prior written notice setting out such request and the
Holder's wire transfer instructions. Whenever any amount expressed to be due by
the terms of this Note is due on any day which is not a Business Day, the same
shall instead be due on the next succeeding day which is a Business Day. Any
amount of Principal or other amounts (except Interest on this Note) due to the
Holder under the Transaction Documents which is not paid when due shall result
in a late charge being incurred and payable by the Company in an amount equal to
interest on such amount at the rate of eighteen percent (18%) per annum from the
date such amount was due until the same is paid in full ("Late Charge").
23. CANCELLATION. After all Principal, accrued Interest, Late Charges and
other amounts at any time owed on this Note have been paid in full, this Note
shall automatically be deemed canceled, shall be surrendered to the Company for
cancellation and shall not be reissued.
21
24. WAIVER OF NOTICE. To the extent permitted by law, and except as
otherwise provided in the Transaction Documents, the Company hereby irrevocably
waives demand, notice, presentment, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement of
this Note and the Exchange Agreement.
25. GOVERNING LAW. This Note shall be construed and enforced in accordance
with, and all questions concerning the construction, validity, interpretation
and performance of this Note shall be governed by, the internal laws of the
State of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of New York. Each of the Company and the Holder 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, 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
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper. Nothing contained herein shall be deemed to limit in any
way any right to serve process in any manner permitted by law. In the event that
any provision of this Note is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed inoperative to the
extent that it may conflict therewith and shall be deemed modified to conform
with such statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision of this Note. Nothing contained herein shall be deemed or
operate to preclude the Holder from bringing suit or taking other legal action
against the Company in any other jurisdiction to realize on any collateral or
any other security for such obligations, or to enforce a judgment or other court
ruling in favor of the Holder. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT
IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF
ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY
TRANSACTION CONTEMPLATED HEREBY.
26. CERTAIN DEFINITIONS. For purposes of this Note, the following terms
shall have the following meanings:
(a) "Bloomberg" means Bloomberg, L.P.
(b) "Business Day" means any day other than Saturday, Sunday or other day
on which commercial banks in The City of New York are authorized or required by
law to remain closed.
(c) "Closing Bid Price" and "Closing Sale Price" means, for any security as
of any date, the last closing bid price and last closing trade price,
respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price
(as the case may be) then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg,
22
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the "pink sheets" by OTC
Markets Group Inc.(formerly Pink Sheets LLC). If the Closing Bid Price or the
Closing Sale Price cannot be calculated for a security on a particular date on
any of the foregoing bases, the Closing Bid Price or the Closing Sale Price (as
the case may be) of such security on such date shall be the fair market value as
mutually determined by the Company and the Holder. If the Company and the Holder
are unable to agree upon the fair market value of such security, then such
dispute shall be resolved in accordance with the procedures in Section 21. All
such determinations shall be appropriately adjusted for any stock dividend,
stock split, stock combination or other similar transaction during such period.
(d) "Common Stock" means (i) the Company's shares of common stock, $0.01
par value per share, and (ii) any capital stock into which such common stock
shall have been changed or any share capital resulting from a reclassification
of such common stock.
(e) "Contingent Obligation" means, as to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto.
(f) "Convertible Securities" means any stock or other security (other than
Options) that is at any time and under any circumstances, directly or
indirectly, convertible into, exercisable or exchangeable for, or which
otherwise entitles the holder thereof to acquire, any shares of Common Stock.
(g) "Current Subsidiary" means any Person in which the Company on the
Subscription Date, directly or indirectly, (i) owns any of the outstanding
capital stock or holds any equity or similar interest of such Person or (ii)
controls or operates all or any part of the business, operations or
administration of such Person, and all of the foregoing, collectively, "Current
Subsidiaries."
(h) "Eligible Market" means The New York Stock Exchange, the Nasdaq Global
Select Market, the Nasdaq Global Market, the Nasdaq Capital Market, the OTC
Bulletin Board or the Principal Market.
(i) "Exchange Agreement" means that certain Exchange Agreement, dated as of
the Subscription Date, by and among the Company and the initial holders of
Notes, as may be amended from time to time in accordance with the terms thereof.
23
(j) "Fundamental Transaction" means that (i) the Company or any of its
Subsidiaries shall, directly or indirectly, in one or more related transactions,
(1) consolidate or merge with or into (whether or not the Company or any of its
Subsidiaries is the surviving corporation) any other Person, or (2) sell, lease,
license, assign, transfer, convey or otherwise dispose of all or substantially
all of its respective properties or assets to any other Person, or (3) allow any
other Person to make a purchase, tender or exchange offer that is accepted by
the holders of more than 50% of the outstanding shares of Voting Stock of the
Company (not including any shares of Voting Stock of the Company held by the
Person or Persons making or party to, or associated or affiliated with the
Persons making or party to, such purchase, tender or exchange offer), or (4)
consummate a stock or share purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with any other Person whereby such other Person acquires
more than 50% of the outstanding shares of Voting Stock of the Company (not
including any shares of Voting Stock of the Company held by the other Person or
other Persons making or party to, or associated or affiliated with the other
Persons making or party to, such stock or share purchase agreement or other
business combination), or (5) reorganize, recapitalize or reclassify the Common
Stock, or (ii) any "person" or "group" (as these terms are used for purposes of
Sections 13(d) and 14(d) of the 1934 Act and the rules and regulations
promulgated thereunder) is or shall become the "beneficial owner" (as defined in
Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate
ordinary voting power represented by issued and outstanding Voting Stock of the
Company.
(k) "GAAP" means United States generally accepted accounting principles,
consistently applied.
(l) "Holder Pro Rata Amount" means a fraction (i) the numerator of which is
the original Principal amount of this Note on the Issuance Date and (ii) the
denominator of which is the aggregate original principal amount of all Notes
issued to the initial purchasers pursuant to the Exchange Agreement on the
Issuance Date.
(m) "Indebtedness" of any Person means, without duplication (A) all
indebtedness for borrowed money, (B) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (including,
without limitation, "capital leases" in accordance with GAAP) (other than trade
payables entered into in the ordinary course of business), (C) all reimbursement
or payment obligations with respect to letters of credit, surety bonds and other
similar instruments, (D) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses, (E) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect to
any property or assets acquired with the proceeds of such indebtedness (even
24
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (F) all
monetary obligations under any leasing or similar arrangement which, in
connection with GAAP, consistently applied for the periods covered thereby, is
classified as a capital lease, (G) all indebtedness referred to in clauses (A)
through (F) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any mortgage,
lien, pledge, charge, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by any Person,
even though the Person which owns such assets or property has not assumed or
become liable for the payment of such indebtedness, and (H) all Contingent
Obligations in respect of indebtedness or obligations of others of the kinds
referred to in clauses (A) through (G) above.
(n) "Installment Amount" means (i) with respect to any Installment Date
other than the Maturity Date, the lesser of (A) the product of (I) $990,000,
multiplied by (II) the Holder Pro Rata Amount and (B) the Principal amount then
outstanding under this Note as of such Installment Date, and (ii) with respect
to the Installment Date that is the Maturity Date, the Principal amount then
outstanding under this Note as of such Installment Date, in each case, as any
such Installment Amount may be reduced pursuant to the terms of this Note,
whether upon conversion, redemption or otherwise, together with, in each case of
clauses (i) and (ii), the sum of any accrued and unpaid Interest as of such
Installment Date under this Note and accrued and unpaid Late Charges, if any,
under this Note as of such Installment Date.
(o) "Installment Date" means each of the following dates: (i) November 1,
2011; (ii) December 1, 2011; (iii) January 1, 2012; (iv) February 1, 2012; and
(v) the Maturity Date.
(p) "Interest Rate" means eight percent (8%) per annum, as it may be
adjusted from time to time in accordance with Section 2.
(q) "Maturity Date" shall mean March 1, 2012; provided, however, the
Maturity Date may be extended at the option of the Holder (i) in the event that,
and for so long as, an Event of Default shall have occurred and be continuing or
any event shall have occurred and be continuing that with the passage of time
and the failure to cure would result in an Event of Default or (ii) through the
date that is twenty (20) Business Days after the consummation of a Fundamental
Transaction in the event that a Fundamental Transaction is publicly announced or
a Fundamental Transaction Notice is delivered prior to the Maturity Date,
provided further that if a Holder elects to convert some or all of this Note
pursuant to Section 3 hereof, and the Conversion Amount would be limited
pursuant to Section 3(d) hereunder, the Maturity Date shall automatically be
extended until such time as such provision shall not limit the conversion of
this Note.
(r) "New Subsidiary" means, as of any date of determination, as applicable,
(x) prior to the time that the Company has, directly or indirectly, paid,
invested or otherwise transferred $500,000 or more, in the aggregate, after the
Subscription Date for capital stock, equity and other similar interests (or
rights thereto) in one or more Persons, any Person in which the Company after
the Subscription Date, directly or indirectly, (i) owns or acquires a majority
of the outstanding capital stock or holds a majority equity or similar interest
(or rights thereto) of such Person or (ii) controls or operates all or more than
half of the business, operations or administration of such Person, or (y) from
25
and after the time that the Company has, directly or indirectly, paid, invested
or otherwise transferred $500,000 or more, in the aggregate, after the
Subscription Date for capital stock, equity and other similar interests (or
rights thereto) in one or more Persons, any Person in which the Company after
the Subscription Date, directly or indirectly, (i) owns or acquires any of the
outstanding capital stock or holds any equity or similar interest (or rights
thereto) of such Person or (ii) controls or operates any part of the business,
operations or administration of such Person, and all of the foregoing,
collectively, "New Subsidiaries."
(s) "Options" means any rights, warrants or options to subscribe for or
purchase shares of Common Stock or Convertible Securities.
(t) "Parent Entity" of a Person means an entity that, directly or
indirectly, controls the applicable Person and whose common stock or equivalent
equity security is quoted or listed on an Eligible Market, or, if there is more
than one such Person or Parent Entity, the Person or Parent Entity with the
largest public market capitalization as of the date of consummation of the
Fundamental Transaction.
(u) "Permitted Indebtedness" means (i) total Indebtedness of the Company
and its Subsidiaries (other than as expressly specified in, and permitted by,
clause (ii) below) not to exceed $500,000 in the aggregate outstanding at any
time; provided, however, such Indebtedness shall be made expressly subordinate
in right of payment to the Indebtedness evidenced by the Notes, as reflected in
a written agreement acceptable to the Holder and approved by the Holder in
writing, and which Indebtedness does not provide at any time for the payment,
prepayment, repayment, repurchase or defeasance, directly or indirectly, of any
principal or premium, if any, thereon until ninety-one (91) days after the
Maturity Date or later; (ii) Indebtedness evidenced by this Note and the Other
Notes; and (iii) the Indebtedness owed by the Company to Maximilian de Clara
that is expressly described in that certain Intercreditor and Subordination
Agreement, dated as of the May [ ], 2011, by and among the Company, Maximilian
de Clara and each of the Secured Parties and which is subordinated to the rights
of each of the Secured Parties as set forth therein (the "Subordination
Agreement") (such Indebtedness described in this clause (iii) is referred to
herein as the "de Clara Debt").
(v) "Permitted Interest Payments" means the interest payments expressly
permitted to be made to Maximilian de Clara pursuant to the terms of the
Subordination Agreement.
(w) "Permitted Liens" means (i) any Lien for taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings for which
adequate reserves have been established in accordance with GAAP; (ii) any
statutory Lien arising in the ordinary course of business by operation of law
with respect to a liability that is not yet due or delinquent; (iii) any Lien
created by operation of law, such as materialmen's liens, mechanics' liens and
other similar liens, arising in the ordinary course of business with respect to
a liability that is not yet due or delinquent or that are being contested in
good faith by appropriate proceedings; (iv) Liens securing the Company's
obligations under the Transaction Documents; (v) Liens securing each
Subsidiary's obligations under the Transaction Documents (including, without
26
limitation, under the Guaranties); and (vi) Liens securing the de Clara Debt,
which are subordinated to the rights of the Secured Parties as set forth in the
Subordination Agreement.
(x) "Person" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity or a government or any department or agency
thereof.
(y) "Principal Market" means the NYSE Amex.
(z) "Quarter" means each of: (i) the period beginning on and including
January 1 and ending on and including March 31; (ii) the period beginning on and
including April 1 and ending on and including June 30; (iii) the period
beginning on and including July 1 and ending on and including September 30; and
(iv) the period beginning on and including October 1 and ending on and including
December 31.
(aa) "Redemption Notices" means, collectively, Event of Default Redemption
Notices, and each of the foregoing, individually, a "Redemption Notice."
(bb) "Redemption Premium" means (i) in the case of the Events of Default
described in Section 4(a) (other than Sections 4(a)(viii) through 4(a)(x)), 110%
or (ii) in the case of the Events of Default described in Sections 4(a)(viii)
through 4(a)(x), 100%.
(cc) "Redemption Prices" means, collectively, Event of Default Redemption
Prices, and each of the foregoing, individually, a "Redemption Price."
(dd) "Required Holders" means, as of the applicable date of determination,
holders of Notes who then hold in the aggregate a majority of the aggregate
principal amount of all Notes outstanding as of such date of determination.
(ee) "SEC" means the United States Securities and Exchange Commission or
the successor thereto.
(ff) "Short Sale" means a "short sale" as defined in Rule 200 promulgated
under Regulation SHO under the 1934 Act.
(gg) "Subscription Date" means May 16, 2011.
(hh) "Subsidiaries" means, as of any date of determination, collectively,
all Current Subsidiaries and all New Subsidiaries, and each of the foregoing,
individually, a "Subsidiary."
(ii) "Successor Entity" means the Person (or, if so elected by the Holder,
the Parent Entity) formed by, resulting from or surviving any Fundamental
Transaction or the Person (or, if so elected by the Holder, the Parent Entity)
with which such Fundamental Transaction shall have been entered into.
27
(jj) "Trading Day" means, as applicable, (x) with respect to all price
determinations relating to the Common Stock, any day on which the Common Stock
is traded on the Principal Market, or, if the Principal Market is not the
principal trading market for the Common Stock, then on the principal securities
exchange or securities market on which the Common Stock is then traded, provided
that "Trading Day" shall not include any day on which the Common Stock is
scheduled to trade on such exchange or market for less than 4.5 hours or any day
that the Common Stock is suspended from trading during the final hour of trading
on such exchange or market (or if such exchange or market does not designate in
advance the closing time of trading on such exchange or market, then during the
hour ending at 4:00:00 p.m., New York time) unless such day is otherwise
designated as a Trading Day in writing by the Holder or (y) with respect to all
determinations other than price determinations relating to the Common Stock, any
day on which the Principal Market or such other securities market or exchange on
which the Common Stock is listed or designated for quotation (as applicable) is
open for trading of securities.
(kk) "Voting Stock" of a Person means capital stock of such Person of the
class or classes pursuant to which the holders thereof have the general voting
power to elect, or the general power to appoint, at least a majority of the
board of directors, managers, trustees or other similar governing body of such
Person (irrespective of whether or not at the time capital stock of any other
class or classes shall have or might have voting power by reason of the
happening of any contingency).
(ll) "VWAP" means, for any security as of any date, the dollar
volume-weighted average price for such security on the Principal Market (or, if
the Principal Market is not the principal trading market for such security, then
on the principal securities exchange or securities market on which such security
is then traded) during the period beginning at 9:30:01 a.m., New York time, and
ending at 4:00:00 p.m., New York time, as reported by Bloomberg through its
"Volume at Price" function or, if the foregoing does not apply, the dollar
volume-weighted average price of such security in the over-the-counter market on
the electronic bulletin board for such security during the period beginning at
9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as
reported by Bloomberg, or, if no dollar volume-weighted average price is
reported for such security by Bloomberg for such hours, the average of the
highest closing bid price and the lowest closing ask price of any of the market
makers for such security as reported in the "pink sheets" by OTC Markets Group
Inc.(formerly Pink Sheets LLC). If the VWAP cannot be calculated for such
security on such date on any of the foregoing bases, the VWAP of such security
on such date shall be the fair market value as mutually determined by the
Company and the Holder. If the Company and the Holder are unable to agree upon
the fair market value of such security, then such dispute shall be resolved in
accordance with the procedures in Section 21. All such determinations shall be
appropriately adjusted for any stock dividend, stock split, stock combination or
other similar transaction during such period.
27. MAXIMUM PAYMENTS. Nothing contained in this Note shall, or shall be
deemed to, establish or require the payment of a rate of interest or other
charges in excess of the maximum permitted by applicable law. In the event that
the rate of interest required to be paid or other charges under this Note
28
exceeds the maximum permitted by such law, any payments in excess of such
maximum shall be credited against amounts owed by the Company to the Holder and
thus refunded to the Company.
28. SECURITY. This Note and the Other Notes are secured to the extent and
in the manner set forth in the Transaction Documents (including, without
limitation, the Security Agreement, the other Security Documents and the
Guaranties).
29. WITHDRAWAL RIGHT. Notwithstanding anything to the contrary contained in
(and without limiting any other provision of) this Note, whenever the Holder
exercises a right, election, demand or option under this Note and the Company
does not timely perform its related obligations within the periods provided
herein, then the Holder 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.
30. SHORT SALES.
(a) The Holder hereby agrees that the Holder and its Affiliates (as defined
in the Certificate of Designations) will not, from and after the date on which
the Holder acquires this Note until the earlier to occur of (i) the date on
which this Note is no longer outstanding and (ii) the date on which neither the
Holder nor any Affiliate of the Holder holds this Note (such period is referred
to herein as the "Restricted Period"), directly or indirectly (including by or
through any other Person acting on behalf of or pursuant to any understanding
with the Holder or any Affiliate of the Holder), effect a Short Sale of the
Common Stock if such contemplated Short Sale of the Common Stock would result in
the Holder and its Affiliates (taken together) having, or result in an increase
to, an Excess Short Position in the Common Stock (as determined pursuant to the
immediately following sentence) immediately following such contemplated Short
Sale. An "Excess Short Position in the Common Stock" shall occur only if the
number of shares of Common Stock as to which the Holder and its Affiliates
(taken together) have outstanding Short Sales of Common Stock that have not been
closed out or covered, as of the applicable time of determination, exceeds the
sum of (x) the number of shares of Common Stock issuable upon exercise of all
warrants of the Company held by the Holder and its Affiliates (taken together)
as of the applicable time of determination (disregarding any beneficial
ownership limitations contained therein) plus (y) the number of shares of Common
Stock held by the Holder and its Affiliates (taken together) as of the
applicable time of determination (it being expressly agreed and understood that
this clause (y) shall not include any shares of Common Stock issued or issuable
upon conversion of this Note or upon conversion of any shares of Preferred Stock
held by the Holder or any of its Affiliates).
(b) Commencing on August 1, 2011, with respect to the period from the date
the Holder acquires this Note until July 31, 2011, and every ninety (90) days
thereafter during the remainder of the Restricted Period (each such period is
referred to herein as a "Period"), the Company may request in writing, but in no
event more than three (3) times in total, that the Holder deliver to KPMG LLP,
c/o Steven Fishner in New York, New York (the "Accounting Firm") (who will be
engaged jointly by the Company and the Holder, the fees and expenses will be
borne as contemplated below in Section 30(d) and the engagement letter entered
into with the Accounting Firm shall contain the applicable provisions of this
29
Section 30 (including, without limitation, all obligations of the Accounting
Firm hereunder)) true and complete copies of the trading records of the Holder
and its Affiliates in the Common Stock ("Trading Records") for the most recently
completed Period and any Periods prior thereto for which the Accounting Firm has
not previously been requested to make a determination hereunder (such applicable
period is referred to herein as the "Review Period"), together with such other
relevant information voluntarily provided orally or in writing by the Holder
(including, without limitation, any information provided in any consultation
with the Accounting Firm) (such other information is referred to herein as
"Other Relevant Information") to enable the Accounting Firm to make the
determination set forth in clauses (i) and (ii) below of this Section 30(b). The
Holder shall deliver the applicable Trading Records to the Accounting Firm for
review within ten (10) Business Days after the date on which the Holder receives
such applicable request from the Company. If requested by the Accounting Firm to
provide Other Relevant Information and the Holder decides to provide such
information, the Holder may, within ten (10) Business Days after the date on
which the Holder receives such request, deliver such Other Relevant Information
in its sole discretion. If the Holder so decides not to provide such Other
Relevant Information, the Holder shall inform the Accounting Firm of its
election to not so deliver such Other Relevant Information to the Accounting
Firm no later than the close of that same ten (10) Business Day period after the
date on which the Holder receives such request. The Company shall request the
Accounting Firm to review such Trading Records and Other Relevant Information
and to deliver to the Company and the Holder, no later than ten (10) Business
Days after the date the Accounting Firm receives the applicable Trading Records
from the Holder, either, in the determination of the Accounting Firm, (i) a
confirmation that no Excess Shorting Event (as defined below) occurred during
the applicable Review Period (a "Confirmation") or (ii) a statement that the
Accounting Firm is unable to confirm that no Excess Shorting Event occurred
during the applicable Review Period (a "Statement") (it being understood and
agreed that no Statement shall be a determination that an Excess Shorting Event
occurred during the applicable Review Period), provided that if Other Relevant
Information is timely delivered to the Accounting Firm by the Holder, then a
Confirmation or Statement shall be delivered no later than (10) Business Days
after the date the Accounting Firm receives the last of the applicable Other
Relevant Information.
(c) The Company acknowledges and agrees that all Trading Records and all
Other Relevant Information so provided by the Holder to the Accounting Firm, and
all work product of the Accounting Firm containing information derived from such
records and information ("Work Product"), shall be confidential (all of the
foregoing, other than the Accounting Firm's Confirmation or Statement delivered
to the Company and the Holder, is referred to herein as "Confidential
Information"), and such Confidential Information may not be reviewed by, or
disclosed by the Accounting Firm or any other Person to, the Company or any
other Person without the prior written consent of the Holder (provided, however,
that the Company shall maintain its preexisting rights in discovery, if any,
that may include obtaining the Trading Records and Other Relevant Information
from the Holder in any legal action to enforce its rights under this Section
30). At the conclusion of the Accounting Firm's review for the applicable Review
Period, the Accounting Firm shall destroy all Trading Records and Other Relevant
Information provided by the Holder and all related Work Product, and the Holder
30
agrees to preserve (and not destroy) all Trading Records in the Holder's
possession and copies of all Other Relevant Information furnished in writing,
electronically or in other non-verbal form or media to the Accounting Firm.
Except for consultations with the Holder requested by the Accounting Firm solely
for the purpose of asking clarifying questions about Confidential Information
(it being understood and agreed for clarification purposes that such
consultations constitute Other Relevant Information and the Holder may decline
to participate in such consultations in its sole discretion), neither the
Company nor the Holder (or their respective counsel) may have any ex parte
communications with the Accounting Firm with respect to any review hereunder.
If, at the request of the Company, representatives of the Company and the Holder
(or their respective counsel) jointly meet or hold a joint conference call with
the Accounting Firm, the Company shall reimburse the Holder within thirty (30)
days for all of its reasonable fees and expenses of counsel incurred in
connection with such meeting or call ("Specified Expenses"). An "Excess Shorting
Event" shall occur only if an Excess Short Position in the Common Stock occurred
or was increased as a result of a Short Sale of the Common Stock that was
effected by the Holder or its Affiliates during the applicable Review Period.
(d) The Company shall pay the fees and expenses of the Accounting Firm for
each review conducted pursuant to this Section 30; provided, however, if the
Accounting Firm delivers a Statement to the Company and the Holder with respect
to the applicable Review Period, then, if a court of competent jurisdiction
determines in a final, non-appealable order or ruling that that the Holder
breached its obligations under Section 30(a) during the applicable Review
Period, the Holder shall be responsible for (i) paying all of the fees and
expenses, including reasonable fees and expenses of counsel, of (A) the
Accounting Firm relating to this Section 30 with respect to such review and (B)
the Company in connection with the enforcement of its rights hereunder in such
court proceedings and the collection of any judgment awarded and (ii)
reimbursing the Company for any related Specified Expenses paid to the Holder
and the reasonable fees and expenses of the Company's counsel as it relates to
any joint meeting or conference call with the Accounting Firm and the Holder
described in Section 30(c). Notwithstanding the foregoing provisions relating to
the Accounting Firm review process, the Holder acknowledges that the Company may
seek to enforce its rights under Section 30(a) without requesting any Accounting
Firm review with respect to an alleged breach by the Holder of this Section 30.
The Holder will not take any action or employ any hedging strategy to avoid or
seek to avoid the observance or performance of the provisions of Section 30(a)
and will at all times in good faith carry out all of the provisions of Section
30(a).
(e) The Holder and the Company agree that in the event KPMG is unable to
act as the Accounting Firm as provided in this Section 30 due to a conflict of
interest or otherwise, FTI shall be substituted as the Accounting Firm
designated in this Section 30.
31. Counterparts. This Note may be executed in two or more identical
counterparts, all of which shall be considered one and the same instrument and
shall become effective when counterparts have been signed by each party and
delivered to the other party. In the event that any signature is delivered by
31
facsimile transmission or by an e-mail which contains a portable document format
(.pdf) file of an executed signature page, such signature page shall create a
valid and binding obligation of the party executing (or on whose behalf such
signature is executed) with the same force and effect as if such signature page
were an original thereof.
[signature page follows]
<
32
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed
as of the Issuance Date set out above.
CEL-SCI CORPORATION
By:_________________________________
Name:
Title:
33
Accepted and agreed:
[HOLDER]
By:______________________
Its:______________________
Address and facsimile number for purposes of Section 22(a) of this Note:
---------------------
---------------------
Facsimile: (___) ___-____
Attention: ____________
34
EXHIBIT I
CEL-SCI CORPORATION
CONVERSION NOTICE
Reference is made to the Senior Secured Convertible Note dated May [___],
2011 (the "Note") issued to the undersigned by Cel-Sci Corporation (the
"Company"). In accordance with and pursuant to the Note, the undersigned Holder
hereby elects to convert the Conversion Amount (as defined in the Note) of the
Note indicated below into shares of common stock, $0.01 par value per share (the
"Common Stock"), of the Company, as of the date specified below.
Conversion Date:
----------------------------------------------------
Aggregate Conversion Amount to be
converted:
-------------------------------
Conversion Price:
----------------------
Number of shares of Common Stock to be issued:
----------------------
Remaining Principal amount following conversion:
----------------------
Please issue the Common Stock into which the Note is being converted in the
following name and to the following address:
Issue to:
-------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
Facsimile Number:
----------------------------------------------------
Holder:
---------------------------------------------------------
By:
-----------------------------------------------------------
Title:
-------------------------------------------------------
Dated: ______________________________
Account Number:
-----------------------------------
(if electronic book entry transfer)
Transaction Code Number:
-----------------------------------------------
(if electronic book entry transfer)
Installment Amount(s) to be reduced _________________________________ (and
corresponding Installment Date(s)) and amount of reduction:
35
EXHIBIT II
ACKNOWLEDGMENT
The Company hereby acknowledges this Conversion Notice and hereby
directs _________________ to issue the above indicated number of shares of
Common Stock in accordance with the Transfer Agent Instructions dated
_____________, 20__ from the Company and acknowledged and agreed to by
------------------------.
CEL-SCI CORPORATION
By:_________________________________
Name:
Title:
36
EXHIBIT III
NEW HOLDER ACKNOWLEDGMENT
The undersigned transferee or assignee of this Note hereby accepts and
agrees to the terms of this Note and understands that it will become the Holder
hereunder.
------ [---------------------]
______ By:_____________________
______ Its:_____________________
Address and facsimile number for purposes of Section 22(a) of this Note:
=====================
---------------------
Facsimile: (___) ___-____
Attention: ____________
37
EXHIBIT B
CERTIFICATE OF DESIGNATIONS OF THE
SERIES A CONVERTIBLE PREFERRED STOCK OF
CEL-SCI CORPORATION
I, Geert R. Kersten, hereby certify that I am the Chief Executive Officer
of CEL-SCI Corporation (the "Company"), a corporation organized and existing
under the Colorado Business Corporation Act (the "CBCA"), and further do hereby
certify:
That pursuant to the authority expressly conferred upon the Board of
Directors of the Company (the "Board") by the Company's Articles of
Incorporation, as amended (the "Articles of Incorporation"), the Board on May
[___], 2011 adopted the following resolutions creating a series of 4,050 shares
of Preferred Stock designated as Series A Convertible Preferred Stock, none of
which shares have been issued:
RESOLVED, that the Board designates the Series A Convertible Preferred
Stock and the number of shares constituting such series, and fixes the rights,
powers, preferences, privileges and restrictions relating to such series in
addition to any set forth in the Articles of Incorporation as follows:
TERMS OF SERIES A CONVERTIBLE PREFERRED STOCK
1. Designation and Number of Shares. There shall hereby be created and
established a series of preferred stock of the Company designated as "Series A
Convertible Preferred Stock" (the "Series A Preferred Stock"). The authorized
number of shares of Series A Preferred stock shall be 4,050 shares. Each share
of Series A Preferred Stock shall have a par value of $0.001.
2. Ranking. Except to the extent that the holders of at least a majority of
the outstanding shares of Series A Preferred Stock (the "Required Holders")
expressly consent to the creation of Parity Stock (as defined below) or Senior
Preferred Stock (as defined below) in accordance with Section 14, all shares of
capital stock of the Company (including, without limitation, the Common Stock)
shall be junior in rank to all shares of Series A Preferred Stock with respect
to the preferences as to dividends, distributions and payments upon the
liquidation, dissolution and winding up of the Company (such junior stock is
referred to herein collectively as "Junior Stock"). The rights of all such
shares of capital stock of the Company shall be subject to the rights, powers,
preferences and privileges of the shares of Series A Preferred Stock. Without
limiting any other provision of this Certificate of Designations, without the
prior express consent of the Required Holders, voting separate as a single
class, the Company shall not hereafter authorize or issue any additional or
other shares of capital stock that is (i) of senior rank to the shares of Series
A Preferred Stock in respect of the preferences as to dividends, distributions
and payments upon the liquidation, dissolution and winding up of the Company
(collectively, the "Senior Preferred Stock"), (ii) of pari passu rank to the
shares of Series A Preferred Stock in respect of the preferences as to
dividends, distributions and payments upon the liquidation, dissolution and
winding up of the Company (collectively, the "Parity Stock") or (iii) any Junior
Stock having a maturity date (or any other date requiring redemption or
repayment of such shares of Junior Stock) that is prior to the Maturity Date. In
1
the event of the merger or consolidation of the Company with or into another
corporation, the shares of Series A Preferred Stock shall maintain their
relative rights, powers, designations, privileges and preferences provided for
herein and no such merger or consolidation shall result inconsistent therewith.
3. Dividends. From and after the first date of issuance of any shares of
Series A Preferred Stock (the "Initial Issuance Date"), each holder of a share
of Series A Preferred Stock (each, a "Holder" and collectively, the "Holders")
shall be entitled to receive dividends ("Dividends") per share equal to eight
percent (8%) per annum (the "Dividend Rate") of the Stated Value (as defined
below) in the manner provided below in this Section 3, including accrued and
unpaid dividends, before any dividends shall be declared, set apart for or paid
upon any Junior Stock or Parity Stock. Dividends on each share of Series A
Preferred Stock shall accrue daily at the Dividend Rate, commence accruing on
the Initial Issuance Date, be computed on the basis of a 360-day year consisting
of twelve 30-day months and be payable to each Holder in cash in arrears on each
Redemption Date (as defined below) if not included in such Holder's applicable
Company Redemption Price (as defined below). Dividends on the Series A Preferred
Stock shall be cumulative and shall continue to accrue whether or not in any
fiscal year there shall be net profits or surplus available for the payment of
dividends in such fiscal year, so that if in any fiscal year or years, dividends
in whole or in part are not paid upon the Series A Preferred Stock, unpaid
dividends shall accumulate as against the holders of Junior Stock and holders of
Parity Stock. "Stated Value" shall mean $1,000 per share, subject to adjustment
for stock splits, stock dividends, recapitalizations, reorganizations,
reclassifications, combinations, subdivisions or other similar events occurring
after the Initial Issuance Date with respect to the Series A Preferred Stock.
4. Conversion. Each share of Series A Preferred Stock shall be convertible
into validly issued, fully paid and non-assessable shares of Common Stock (as
defined below) on the terms and conditions set forth in this Section 4.
(a) Holder's Conversion Right. Subject to the provisions of Section 4(e),
at any time or times on or after the Initial Issuance Date, each Holder shall be
entitled to convert any whole number of shares of Series A Preferred Stock into
validly issued, fully paid and non-assessable shares of Common Stock in
accordance with Section 4(c) at the Conversion Rate (as defined below).
(b) Conversion Rate. The number of validly issued, fully paid and
non-assessable shares of Common Stock issuable upon conversion of each share of
Series A Preferred Stock pursuant to Section 4(a) shall be determined according
to the following formula (the "Conversion Rate"):
Conversion Amount
-----------------
Conversion Price
No fractional shares of Common Stock are to be issued upon the conversion
of any shares of Series A Preferred Stock. If the issuance would result in the
issuance of a fraction of a share of Common Stock, the Company shall round such
fraction of a share of Common Stock up to the nearest whole share.
2
(c) Mechanics of Conversion. The conversion of each share of Series A
Preferred Stock shall be conducted in the following manner:
(i) Holder's Conversion. To convert a share of Series A Preferred
Stock into validly issued, fully paid and non-assessable shares of Common
Stock on any Trading Day (a "Conversion Date"), a Holder shall deliver, in
accordance with Section 19 for receipt on or prior to 5:00 p.m., New York
time, on such date, a copy of a fully-completed notice of conversion of the
share(s) of Series A Preferred Stock subject to such conversion, in the
form attached hereto as Exhibit I (the "Conversion Notice"), to the Company
that is executed by such Holder. If required by Section 4(c)(vi), within
three (3) Trading Days following a conversion of any such Series A
Preferred Stock as aforesaid, such Holder shall surrender to a nationally
recognized overnight delivery service for delivery to the Company the
original certificates representing the share(s) of Series A Preferred Stock
(the "Preferred Share Certificates") so converted as aforesaid.
(ii) Company's Response. On or before the second (2nd) Trading Day
following the date of receipt of a Conversion Notice, the Company shall
transmit by facsimile, e-mail or other electronic means an acknowledgment
of confirmation, in the form attached hereto as Exhibit II, of receipt of
such Conversion Notice to the Company's transfer agent (the "Transfer
Agent"), which confirmation shall constitute an instruction to the Transfer
Agent to process such Conversion Notice in accordance with the terms
herein. On or before the third (3rd) Trading Day following the date of
receipt by the Company of such Conversion Notice, the Company shall (1)
provided that the Transfer Agent is participating in The Depository Trust
Company's ("DTC") Fast Automated Securities Transfer Program (the "FAST
Program") and provided further that such Holder's broker is participating
the FAST Program and has initiated a request for the shares of Common Stock
in the Deposit/Withdrawal at Custodian system ("DWAC System"), credit such
aggregate number of shares of Common Stock to which such Holder shall be
entitled to such Holder's or its designee's balance account with DTC
through its DWAC System or (2) if the Transfer Agent is not participating
in the FAST Program, on or before the third (3rd) Trading Day following the
date of receipt of a Conversion Notice, the Company shall issue and deliver
(via reputable overnight courier) to the address as specified in such
Conversion Notice, a certificate, registered in the name of such Holder or
its designee, for the number of shares of Common Stock to which such Holder
shall be entitled. If the number of shares of Series A Preferred Stock
represented by the Preferred Share Certificate(s) submitted for conversion
pursuant to Section 4(c)(vi) is greater than the number of shares of Series
A Preferred Stock being converted, then the Company shall if requested by
such Holder, as soon as practicable and in no event later than five (5)
Business Days after receipt of the Preferred Share Certificate(s) and at
its own expense, issue and deliver to such Holder (or its designee) a new
Preferred Share Certificate representing the number of shares of Series A
Preferred Stock not converted. In the event of a conversion of less than
3
all of the shares of Series A Preferred Stock held by a Holder, the number
of shares of Series A Preferred Stock converted shall be deducted from such
Holder's Redemption Amount(s) relating to the Redemption Date(s) as set
forth in the applicable Conversion Notice.
(iii) Record Holder. The Person or Persons entitled to receive the
shares of Common Stock issuable upon a conversion of shares of Series A
Preferred Stock shall be treated for all Colorado corporate law purposes as
the holder or holders of such shares of Common Stock for record dates on
the earlier to occur of (i) the date such shares are so credited or issued
or (ii) the third (3rd) Trading Day after the Conversion Date.
(iv) Company's Failure to Timely Convert. If the Company shall fail,
for any reason or for no reason (other than a dispute subject to the last
sentence of Section 4(c)(v)), to issue to a Holder within three (3) Trading
Days after the Company's receipt of a Conversion Notice, a certificate for
the number of shares of Common Stock to which such Holder is entitled and
register such shares of Common Stock on the Company's share register or to
credit such Holder's or its designee's balance account with DTC for such
number of shares of Common Stock to which such Holder is entitled upon such
Holder's conversion of any shares of Series A Preferred Stock (as the case
may be) (a "Conversion Failure"), then, in addition to all other remedies
available to such Holder, such Holder, upon written notice to the Company,
may void its Conversion Notice with respect to, and retain or have returned
(as the case may be) any shares of Series A Preferred Stock that have not
been converted pursuant to such Holder's Conversion Notice, provided that
the voiding of a Conversion Notice shall not affect the Company's
obligations to make any payments which have accrued prior to the date of
such notice pursuant to the terms of this Certificate of Designations or
otherwise. In addition to the foregoing, if within three (3) Trading Days
after the Company's receipt of a Conversion Notice, the Company shall fail
to issue and deliver a certificate to such Holder and register such shares
of Common Stock on the Company's share register or credit such Holder's or
its designee's balance account with DTC for the number of shares of Common
Stock to which such Holder is entitled upon such Holder's conversion
hereunder (as the case may be), and if on or after such third (3rd) Trading
Day and on or before the tenth (10th) Trading Day after the Company's
receipt of such Conversion Notice such Holder (or any other Person in
respect, or on behalf, of such Holder) purchases (in an open market
transaction or otherwise) shares of Common Stock to deliver in satisfaction
of a sale by such Holder of all or any portion of the number of shares of
Common Stock equal to all or any portion of the number of shares of Common
Stock issuable upon such conversion that such Holder so anticipated
receiving from the Company, then, in addition to all other remedies
available to such Holder, the Company shall, within three (3) Business Days
after such Holder's request and in such Holder's discretion, either (i) pay
4
cash to such Holder in an amount equal to such Holder's total purchase
price, including brokerage commissions and other out-of-pocket expenses, if
any, (all as reasonably detailed in supporting documentation provided to
the Company when such request is made), for the shares of Common Stock so
purchased (including, without limitation, by any other Person in respect,
or on behalf, of such Holder) (the "Buy-In Price"), at which point the
Company's obligation to so issue and deliver such certificate or credit
such Holder's balance account with DTC for the number of shares of Common
Stock to which such Holder is entitled upon such Holder's conversion
hereunder (as the case may be) (and to issue such shares of Common Stock)
shall terminate and the shares of Series A Preferred Stock so submitted by
such Holder for conversion shall be cancelled, or (ii) promptly honor its
obligation to so issue and deliver to such Holder a certificate or
certificates representing such shares of Common Stock or credit such
Holder's balance account with DTC for the number of shares of Common Stock
to which such Holder is entitled upon such Holder's conversion hereunder
(as the case may be) and pay cash to such 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 multiplied by (B) the lowest Closing Sale Price of
the Common Stock on any Trading Day during the period commencing on the
date of the applicable Conversion Notice and ending on the date of such
issuance and payment under this clause (ii).
(v) Pro Rata Conversion; Disputes. In the event the Company receives a
Conversion Notice from more than one Holder for the same Conversion Date
and the Company can convert some, but not all, of such shares of Series A
Preferred Stock submitted for conversion, the Company shall convert from
each Holder electing to have shares of Series A Preferred Stock converted
on such date a pro rata amount of such Holder's shares of Series A
Preferred Stock submitted for conversion on such date based on the number
of shares of Series A Preferred Stock submitted for conversion on such date
by such Holder relative to the aggregate number of shares of Series A
Preferred Stock submitted for conversion on such date. Notwithstanding any
provision of this Certificate of Designations to the contrary, in the event
of a dispute as to the number of shares of Common Stock issuable to a
Holder in connection with a conversion of shares of Series A Preferred
Stock, the Company shall issue to such Holder the number of shares of
Common Stock not in dispute and resolve such dispute in accordance with
Section 23.
(vi) Book-Entry. Notwithstanding anything to the contrary set forth in
this Section 4, upon conversion of any shares of Series A Preferred Stock
in accordance with the terms hereof, no Holder thereof shall be required to
physically surrender the certificate representing the shares of Series A
Preferred Stock to the Company following conversion thereof unless (A) the
full or remaining number of shares of Series A Preferred Stock represented
by the certificate are being converted (in which event such certificate(s)
shall be delivered to the Company as contemplated by this Section 4(c)(vi))
or (B) such Holder has provided the Company with prior written notice
(which notice may be included in a Conversion Notice) requesting reissuance
of shares of Series A Preferred Stock upon physical surrender of any shares
of Series A Preferred Stock. Each Holder and the Company shall maintain
5
records showing the number of shares of Series A Preferred Stock so
converted by such Holder and the dates of such conversions or shall use
such other method, reasonably satisfactory to such Holder and the Company,
so as not to require physical surrender of the certificate representing the
shares of Series A Preferred Stock upon each such conversion. In the event
of any dispute or discrepancy, such records of the Company establishing the
number of shares of Series A Preferred Stock to which the record holder is
entitled shall be controlling and determinative in the absence of manifest
error. A Holder and any transferee or assignee, by acceptance of a
certificate, acknowledge and agree that, by reason of the provisions of
this paragraph, following conversion of any shares of Series A Preferred
Stock, the number of shares of Series A Preferred Stock represented by such
certificate may be less than the number of shares of Series A Preferred
Stock stated on the face thereof. Each certificate for shares of Series A
Preferred Stock shall bear the following legend:
ANY TRANSFEREE OR ASSIGNEE OF THIS CERTIFICATE SHOULD CAREFULLY
REVIEW THE TERMS OF THE CORPORATION'S CERTIFICATE OF DESIGNATIONS
RELATING TO THE SHARES OF SERIES A PREFERRED STOCK REPRESENTED BY
THIS CERTIFICATE, INCLUDING SECTION 4(c)(vi) THEREOF. THE NUMBER
OF SHARES OF SERIES A PREFERRED STOCK REPRESENTED BY THIS
CERTIFICATE MAY BE LESS THAN THE NUMBER OF SHARES OF SERIES A
PREFERRED STOCK STATED ON THE FACE HEREOF PURSUANT TO SECTION
4(c)(vi) OF THE CERTIFICATE OF DESIGNATIONS RELATING TO THE
SHARES OF SERIES A PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE.
(d) Taxes. The Company shall pay any and all documentary, stamp,
transfer (but only in respect of the registered holder thereof), issuance
and other similar taxes that may be payable with respect to the issuance
and delivery of shares of Common Stock upon the conversion of shares of
Series A Preferred Stock.
(e) Limitations on Conversions.
(i) Beneficial Ownership. Notwithstanding anything to the contrary
contained in this Certificate of Designations, the shares of Series A
Preferred Stock held by a Holder shall not be convertible by such Holder to
the extent (but only to the extent) that such Holder or any of its
affiliates would beneficially own in excess of 4.9% (the "Maximum
Percentage") of the Common Stock. To the extent the above limitation
applies, the determination of whether the shares of Series A Preferred
6
Stock held by such Holder shall be convertible (vis-a-vis other
convertible, exercisable or exchangeable securities owned by such Holder or
any of its affiliates) and of which such securities shall be convertible,
exercisable or exchangeable (as among all such securities owned by such
Holder and its affiliates) shall, subject to such Maximum Percentage
limitation, be determined on the basis of the first submission to the
Company for conversion, exercise or exchange (as the case may be). No prior
inability of a Holder to convert shares of Series A Preferred Stock
pursuant to this Section 4(e) shall have any effect on the applicability of
the provisions of this Section 4(e) with respect to any subsequent
determination of convertibility or issuance (as the case may be). For
purposes of this Section 4(e), beneficial ownership and all determinations
and calculations (including, without limitation, with respect to
calculations of percentage ownership) shall be determined in accordance
with Section 13(d) of the 1934 Act and the rules and regulations
promulgated thereunder. The provisions of this Section 4(e) shall be
implemented in a manner otherwise than in strict conformity with the terms
of this Section 4(e) to correct this Section 4(e) (or any portion hereof)
which may be defective or inconsistent with the intended Maximum Percentage
beneficial ownership limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect to such Maximum
Percentage limitation. The limitations contained in this Section 4(e) shall
apply to a successor holder of shares of Series A Preferred Stock. The
holders of Common Stock shall be third party beneficiaries of this Section
4 and the Company may not waive this Section 4(e) without the consent of
holders of a majority of its Common Stock. For any reason at any time, upon
the written request of a Holder, the Company shall within one (1) Business
Day confirm in writing to such Holder the number of shares of Common Stock
then outstanding, including by virtue of any prior conversion or exercise
of convertible or exercisable securities into Common Stock. Each delivery
of a Conversion Notice by a Holder will constitute a representation by such
Holder that such Holder has evaluated the limitation set forth in this
paragraph and determined that issuance of the full number of shares of
Common Stock requested by such Holder in such Conversion Notice is
permitted under this paragraph.
(ii) Market Regulation. The Company shall not issue any shares of
Common Stock upon conversion of any shares of Series A Preferred Stock if
the issuance of such shares of Common Stock would exceed the aggregate
number of shares of Common Stock which the Company may issue upon
conversion of the Notes (as defined below) and the shares of Series A
Preferred Stock without breaching the Company's obligations under the rules
or regulations of the Principal Market or such other securities market or
exchange on which the Common Stock is then listed or designated for
quotation (as applicable) (the number of shares which may be issued without
violating such rules and regulations, the "Exchange Cap"), except that such
limitation shall not apply in the event that the Company (A) obtains the
approval of its stockholders as required by the applicable rules of the
Principal Market or such other market or exchange for issuances of shares
of Common Stock in excess of the Exchange Cap or (B) obtains a written
opinion from outside counsel to the Company that such approval is not
required, which opinion shall be reasonably satisfactory to the Required
Holders. Until such approval or such written opinion is obtained, no
Claimant (as defined in the Exchange Agreement) shall be issued in the
aggregate, upon conversion of any shares of Series A Preferred Stock or any
7
of the Notes, shares of Common Stock in an amount greater than the product
of (i) the Exchange Cap multiplied by (ii) the quotient of (1) the
aggregate original principal amount of all Notes initially issued to such
Claimant pursuant to the Exchange Agreement divided by (2) the aggregate
original principal amount of all Notes initially issued to all the
Claimants pursuant to the Exchange Agreement (with respect to each
Claimant, the "Exchange Cap Allocation"). Each Claimant's Exchange Cap
Allocation shall be allocated by such Claimant among the Notes and shares
of Series A Preferred Stock held by such Claimant. Upon conversion in full
of a Claimant's shares of Series A Preferred Stock and Notes, the
difference (if any) between such Claimant's Exchange Cap Allocation and the
number of shares of Common Stock actually issued to such Claimant upon such
Claimant's conversion in full of such shares of Series A Preferred Stock
and such Claimant's conversion in full of such Notes shall be allocated to
the respective Exchange Cap Allocations of the remaining holders of shares
of Series A Preferred Stock and Notes on a pro rata basis in proportion to
the shares of Common Stock underlying the shares of Series A Preferred
Stock and Notes then held by each such Claimant.
5. Redemption at Option of Holders.
(a) Triggering Event. A "Triggering Event" shall be deemed to have
occurred at such time as any of the following events:
(i) any of the shares of Common Stock issuable upon conversion of any
shares of Series A Preferred Stock have ceased to be freely tradable by any
Holder under applicable securities laws for a period of five (5)
consecutive Trading Days or for more than an aggregate of ten (10) Trading
Days in any 365-day period after the Company receives notice thereof
(whether from any Holder or any other Person);
(ii) the suspension from trading or the failure of the Common Stock to
be trading or listed (as applicable) on an Eligible Market for a period of
five (5) consecutive Trading Days or for more than an aggregate of ten (10)
Trading Days in any 365-day period;
(iii) the Company's (A) failure to cure any Conversion Failure by
either (x) delivering the required number of shares of Common Stock within
seven (7) Trading Days after the applicable Conversion Date or (y)
complying with the last sentence of Section 4(c)(iv), or (B) notice to any
Holder of shares of Series A Preferred Stock, including, without
limitation, by way of public announcement or through any of its agents, at
any time, of its intention not to comply, as required, with a request for
conversion of any shares of Series A Preferred Stock into shares of Common
Stock that is requested in accordance with the provisions of this
Certificate of Designations, other than pursuant to Section 4(e);
8
(iv) at any time following the tenth (10th) consecutive day that any
Holder's Authorized Share Allocation is less than the number of shares of
Common Stock that such Holder would be entitled to receive upon a
conversion of all shares of Series A Preferred Stock held by such Holder
(without regard to any limitations on conversion set forth in Section 4(e)
or otherwise);
(v) the Company places, or instructs any Person to place, any
restrictive or other legend (other than the legend expressly required by
Section 4(c)(vi)) on any certificate representing any shares of Series A
Preferred Stock or any shares of Common Stock issued to any Holder upon
conversion of any shares of Series A Preferred Stock or otherwise issues
any stop transfer (or other restrictive instructions) with respect to any
shares of Series A Preferred Stock or any shares of Common Stock issued or
issuable to any Holder upon conversion of any shares of Series A Preferred
Stock;
(vi) the Company's failure to pay to any Holder any amount when and as
due under this Certificate of Designations (including, without limitation,
the Company's failure to pay any Dividends, redemption payments (including,
without limitation, under Section 6) or other amounts hereunder), the
Exchange Agreement or any other Transaction Document or any other
agreement, document, certificate or other instrument delivered in
connection with the transactions contemplated hereby and thereby, if such
failure remains uncured for a period of at least five (5) Business Days
after written notice thereof from any Holder to the Company, except that no
such notice or cure period shall apply to a failure to pay Principal when
and as due under any of the Notes (including, without limitation, any
Installment Amount (as defined in the Notes)) or to pay to any Holder any
Company Redemption Price when and as due pursuant to the terms of this
Certificate of Designations;
(vii) the occurrence of any redemption or acceleration prior to
maturity (which has not been subsequently cancelled or cured within five
(5) Business Days thereafter) of any Indebtedness (as defined below) of the
Company or any of its Subsidiaries that is, individually or in the
aggregate, in excess of $100,000, other than with respect to any of the
Notes;
(viii) bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for the relief of debtors shall be
instituted by or against the Company or any Subsidiary and, if instituted
against the Company or any Subsidiary by a third party, shall not be
dismissed within forty-five (45) days of their initiation;
(ix) the commencement by the Company or any Subsidiary of a voluntary
case or proceeding under any applicable federal, state or foreign
bankruptcy, insolvency, reorganization or other similar law or of any other
case or proceeding to be adjudicated a bankrupt or insolvent, or the
consent by it to the entry of a decree, order, judgment or other similar
document in respect of the Company or any Subsidiary in an involuntary case
or proceeding under any applicable federal, state or foreign bankruptcy,
9
insolvency, reorganization or other similar law or to the commencement of
any bankruptcy or insolvency case or proceeding against it, or the filing
by it of a petition or answer or consent seeking reorganization or relief
under any applicable federal, state or foreign law, or the consent by it to
the filing of such petition or to the appointment of or taking possession
by a custodian, receiver, liquidator, assignee, trustee, sequestrator or
other similar official of the Company or any Subsidiary or of any
substantial part of its property, or the making by it of an assignment for
the benefit of creditors, or the execution of a composition of debts, or
the occurrence of any other similar federal, state or foreign proceeding,
or the admission by it in writing of its inability to pay its debts
generally as they become due, the taking of corporate action by the Company
or any Subsidiary in furtherance of any such action or the taking of any
action by any Person to commence a Uniform Commercial Code foreclosure sale
or any other similar action under federal, state or foreign law;
(x) the entry by a court of competent jurisdiction of (i) a decree,
order, judgment or other similar document in respect of the Company or any
Subsidiary of a voluntary or involuntary case or proceeding under any
applicable federal, state or foreign bankruptcy, insolvency, reorganization
or other similar law or (ii) a decree, order, judgment or other similar
document adjudging the Company or any Subsidiary as bankrupt or insolvent,
or approving as properly filed a petition seeking liquidation,
reorganization, arrangement, adjustment or composition of or in respect of
the Company or any Subsidiary under any applicable federal, state or
foreign law or (iii) a decree, order, judgment or other similar document
appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Subsidiary or
of any substantial part of its property, or ordering the winding up or
liquidation of its affairs, and the continuance of any such decree, order,
judgment or other similar document or any such other decree, order,
judgment or other similar document unstayed and in effect for a period of
forty-five (45) consecutive days;
(xi) a final judgment or judgments for the payment of money
aggregating in excess of $300,000 are rendered against the Company and/or
any of its Subsidiaries and which judgments are not, within forty-five (45)
days after the entry thereof, bonded, discharged or stayed pending appeal,
or are not discharged within forty-five (45) days after the expiration of
such stay; provided, however, any judgment which is covered by insurance or
an indemnity from a creditworthy party shall not be included in calculating
the $300,000 amount set forth above so long as the Company provides each
Holder a written statement from such insurer or indemnity provider (which
written statement shall be reasonably satisfactory to the Required Holders)
to the effect that such judgment is covered by insurance or an indemnity
and the Company or such Subsidiary (as the case may be) will receive the
proceeds of such insurance or indemnity within forty-five (45) days of the
issuance of such judgment;
(xii) the Company and/or any Subsidiary, individually or in the
aggregate, fails to pay, when due, or within any applicable grace period,
any payment with respect to any Indebtedness in excess of $100,000 due to
any third party (other than payments contested by the Company and/or such
10
Subsidiary (as the case may be) in good faith by proper proceedings and
with respect to which adequate reserves have been set aside for the payment
thereof in accordance with GAAP) or is otherwise in breach or violation of
any agreement for monies owed or owing in an amount in excess of $100,000,
which breach or violation permits the other party thereto to declare a
default or otherwise accelerate amounts due thereunder;
(xiii) other than as specifically set forth in another clause of this
Section 5(a), the Company breaches in any material respect any
representation, warranty, covenant or other term or condition of the
Exchange Agreement (other than Section 17 and Section 28 thereof), and such
breach remains uncured for a period of ten (10) Business Days after written
notice thereof from any Holder to the Company; or
(xiv) any Event of Default (as defined in the Notes) occurs under any
of the Notes.
(b) Notice of Triggering Event; Redemption Option Upon Triggering Event.
Within two (2) Business Days after the occurrence of a Triggering Event, the
Company shall deliver written notice thereof via facsimile ("Notice of
Triggering Event") to each Holder. At any time after the earlier of a Holder's
receipt of a Notice of Triggering Event and such Holder becoming aware of a
Triggering Event, such Holder shall have the right, at such Holder's option, to
require the Company to redeem up to all of such Holder's shares of Series A
Preferred Stock by delivering written notice thereof ("Notice of Redemption at
Option of Holder") to the Company, which Notice of Redemption at Option of
Holder shall indicate the number of shares of Series A Preferred Stock that such
Holder is electing to redeem. In addition to all other rights of such Holder
contained herein, each share of Series A Preferred Stock subject to redemption
by the Company pursuant to this Section 5(b) shall be redeemed by the Company at
a price per share of Series A Preferred Stock equal to the greater of (i) the
product of (A) the Conversion Amount thereof multiplied by (B) the Triggering
Event Redemption Premium and (ii) the product of (X) the Conversion Rate then in
effect with respect to the Conversion Amount thereof multiplied by (Y) the
product of (1) the Triggering Event Redemption Premium multiplied by (2) the
arithmetic average of the VWAP of the Common Stock for the Trading Days during
the period commencing on the date immediately preceding such Triggering Event
and ending on the date the Company makes the entire payment required to be made
under this Section 5(b) (the "Triggering Event Redemption Price").
(c) Payment of Redemption Price. Upon the Company's receipt of the first
Notice of Redemption at Option of Holder from any Holder, the Company shall
immediately, but no later than two (2) Business Days after its receipt thereof,
notify each other Holder by facsimile of the Company's receipt of such notice.
The Company shall deliver on the seventh (7th) Business Day after the Company's
receipt of the first Notice of Redemption at Option of Holder the applicable
Triggering Event Redemption Price to all Holders that deliver a Notice of
11
Redemption at Option of Holder on or prior to the sixth (6th) Business Day after
the Company's receipt of the first Notice of Redemption at Option of Holder. The
Company shall deliver on the second (2nd) Business Day after the Company's
receipt of a Notice of Redemption at Option of Holder the applicable Triggering
Event Redemption Price to a Holder who delivers a Notice of Redemption at Option
of Holder at any time following the sixth (6th) Business Day after the Company's
receipt of the first Notice of Redemption at Option of Holder. To the extent
redemptions required by this Section 5 are deemed or determined by a court of
competent jurisdiction to be prepayments of the shares of Series A Preferred
Stock by the Company, such redemptions shall be deemed to be voluntary
prepayments. If the Company is unable to redeem all of the shares of Series A
Preferred Stock submitted for redemption, the Company shall (i) redeem a pro
rata amount from each Holder based on the number of shares of Series A Preferred
Stock submitted for redemption by such Holder relative to the total number of
shares of Series A Preferred Stock submitted for redemption by all Holders and
(ii) in addition to any remedy any Holder may have under this Certificate of
Designations and/or any of the other Transaction Documents, pay to each Holder
interest at the rate of 0.83% per month (prorated for partial months) in respect
of each unredeemed share of Series A Preferred Stock until paid in full. In the
event of the Company's redemption of any shares of Series A Preferred Stock
under this Section 5, a Holder's damages would be uncertain and difficult to
estimate because of the parties' inability to predict future interest rates and
the uncertainty of the availability of a suitable substitute investment
opportunity for such Holder. Accordingly, any redemption premium due under this
Section 5 is intended by the parties to be, and shall be deemed, a reasonable
estimate of such Holder's actual loss of its investment opportunity and not as a
penalty.
(d) Void Redemption. In the event that the Company does not pay to a Holder
the applicable Triggering Event Redemption Price within the time period set
forth in Section 5(c) for any reason (including, without limitation, as a result
of (i) a failure of the Company to have surplus under the CBCA, (ii) the capital
of the Company being impaired, (iii) such payment causing any impairment of
capital of the Company, (iv) the inability of the Company to make such payment
as a result of Section 7-106-401(3) of the CBCA or (v) a failure of the Company
to have legally available funds to make such payment), at any time thereafter
and until the Company pays such unpaid applicable Triggering Event Redemption
Price in full, such Holder shall have the option to, in lieu of redemption,
require the Company to promptly return to such Holder any or all of the shares
of Series A Preferred Stock that were submitted for redemption by such Holder
under this Section 5 and for which the applicable Triggering Event Redemption
Price (together with any interest thereon) has not been paid, by sending written
notice thereof to the Company (whether via facsimile or otherwise) (the "Void
Optional Redemption Notice"). Upon the Company's receipt of such Holder's Void
Optional Redemption Notice, (i) such Holder's Notice of Redemption at Option of
Holder shall be null and void with respect to those shares of Series A Preferred
Stock subject to such Void Optional Redemption Notice, (ii) the Company shall
immediately return to such Holder any shares of Series A Preferred Stock subject
to such Void Optional Redemption Notice and (iii) the Conversion Price with
respect to each conversion effected thereafter by each Holder shall be equal to
the lowest of (A) the Conversion Price in effect on the applicable Conversion
Date, (B) the Conversion Price in effect on the date of the first Void Optional
12
Redemption Notice, (C) 75% of the arithmetic average of the VWAP of the Common
Stock for the Trading Days during the period beginning on and including the
Initial Issuance Date and ending on and including the date of the first Void
Optional Redemption Notice and (D) 75% of the arithmetic average of the VWAP of
the Common Stock for the five (5) Trading Days immediately preceding the
Conversion Date of the applicable conversion.
(e) Disputes; Miscellaneous. In the event of a dispute as to the
determination of the arithmetic calculation of the Triggering Event Redemption
Price, such dispute shall be resolved pursuant to Section 23 with the term
"Triggering Event Redemption Price" being substituted for the term "Conversion
Price." A Holder's delivery of a Void Optional Redemption Notice and exercise of
its rights following such notice shall not effect the Company's obligations to
make any payments which have accrued prior to the date of such notice. In the
event of a redemption pursuant to this Section 5 of less than all of the shares
of Series A Preferred Stock represented by a particular Preferred Share
Certificate, the Company shall promptly cause to be issued and delivered to such
Holder of such shares of Series A Preferred Stock a Preferred Share Certificate
representing the remaining shares of Series A Preferred Stock which have not
been redeemed, if necessary.
6. Company Redemption. On each applicable Redemption Date (which includes
the Maturity Date), each Holder's Redemption Amount applicable to such
Redemption Date shall be redeemed by the Company by paying to such Holder an
amount in cash equal to the aggregate Conversion Amount of such Holder's
Redemption Amount (the "Company Redemption Price") by wire transfer of
immediately available funds to the account designated by such Holder in writing
to the Company at any time after the Initial Issuance Date but at least five (5)
Business Days prior to the first Redemption Date (and such Holder may designate
a different account in writing, from time to time, after such initial
designation with respect to any Redemption Date by delivering a written notice
to the Company at least five (5) Business Days prior to the applicable
Redemption Date). To the extent redemptions required by this Section 6 are
deemed or determined by a court of competent jurisdiction to be prepayments of
the shares of Series A Preferred Stock by the Company, such redemptions shall be
deemed to be voluntary prepayments. In the event of the Company's redemption of
any shares of Series A Preferred Stock under this Section 6, a Holder's damages
would be uncertain and difficult to estimate because of the parties' inability
to predict future interest rates and the uncertainty of the availability of a
suitable substitute investment opportunity for such Holder. In the event that
the Company does not redeem any Holder's Redemption Amount by payment of the
applicable Company Redemption Price on such date for any reason (including,
without limitation, as a result of (i) a failure of the Company to have surplus
under the CBCA, (ii) the capital of the Company being impaired, (iii) such
payment causing any impairment of capital of the Company, (iv) the inability of
the Company to make such payment as a result of Section 7-106-401(3) of the CBCA
13
or (v) a failure of the Company to have legally available funds to make such
payment), then, in addition to all other rights and remedies available to such
Holder (including, without limitation, under Section 5), until the Company pays
such unpaid Company Redemption Price in full to such Holder, such Holder shall
have the option to, in lieu of redemption, void such redemption with respect to
any or all of such Holder's Redemption Amount by sending written notice thereof
to the Company (whether via facsimile or otherwise) (the "Void Redemption
Notice"). Upon the Company's receipt of such Holder's Void Redemption Notice,
(i) the Company's redemption of the portion of such Holder's Redemption Amount
specified in such Void Redemption Notice shall be null and void and the Company
shall no longer have any right to redeem such portion of such specified
Redemption Amount pursuant to this Section 6 without the prior written consent
of such Holder, (ii) the Company shall immediately return to such Holder any
shares of Series A Preferred Stock subject to such Void Redemption Notice if any
were submitted to the Company by such Holder, (iii) the Conversion Price with
respect to each conversion effected thereafter by each Holder shall be equal to
the lowest of (A) the Conversion Price in effect on the applicable Conversion
Date, (B) the Conversion Price in effect on the date of the first Void
Redemption Notice, (C) 75% of the arithmetic average of the VWAP of the Common
Stock during the period beginning on and including the Initial Issuance Date and
ending on and including the date of the first Void Redemption Notice and (D) 75%
of the VWAP of the Common Stock for the five (5) Trading Day period immediately
preceding the Conversion Date of the applicable conversion, and (iv) the Company
shall pay to such Holder interest at the rate of 0.83% per month (prorated for
partial months) in respect of the aggregate Conversion Amount of such Holder's
Redemption Amount until converted or redeemed (as the case may be) in full.
7. Rights Upon Fundamental Transactions. The Company shall not enter into
or be party to a Fundamental Transaction unless (i) the Successor Entity assumes
in writing all of the obligations of the Company under this Certificate of
Designations and the other Transaction Documents in accordance with the
provisions of this Section 7 pursuant to written agreements, including
agreements to deliver to each holder of shares of Series A Preferred Stock in
exchange for such shares of Series A Preferred Stock a security of the Successor
Entity evidenced by a written instrument substantially similar in form and
substance to this Certificate of Designations, including, without limitation,
having a stated value and dividend rate equal to the stated value and dividend
rate of the shares of Series A Preferred Stock held by the Holders and having
similar ranking to the shares of Series A Preferred Stock and (ii) the Successor
Entity (including its Parent Entity) is a publicly traded corporation whose
shares of common stock are quoted on or listed for trading on an Eligible
Market. Upon the occurrence of any Fundamental Transaction, the Successor Entity
shall succeed to, and be substituted for (so that from and after the date of
such Fundamental Transaction, the provisions of this Certificate of Designations
and the other Transaction Documents referring to the "Company" shall refer
instead to the Successor Entity), and may exercise every right and power of the
Company and shall assume all of the obligations of the Company under this
Certificate of Designations and the other Transaction Documents with the same
effect as if such Successor Entity had been named as the Company herein and
therein. In addition to the foregoing, upon consummation of a Fundamental
Transaction, the Successor Entity shall also deliver to each Holder confirmation
that there shall be issued upon conversion or redemption of the shares of Series
A Preferred Stock at any time after the consummation of such Fundamental
Transaction, in lieu of the shares of Common Stock or other securities, cash,
assets or other property (except such items still issuable under Sections 8(a)
and 13, which shall continue to be receivable thereafter) issuable upon the
conversion or redemption of the shares of Series A Preferred Stock prior to such
Fundamental Transaction, such shares of publicly traded common stock (or their
equivalent) of the Successor Entity (including its Parent Entity) which each
Holder would have been entitled to receive upon the happening of such
Fundamental Transaction had all the shares of Series A Preferred Stock held by
each Holder been converted immediately prior to such Fundamental Transaction
(without regard to any limitations on the conversion of the Series A Preferred
14
Stock contained in this Certificate of Designations), as adjusted in accordance
with the provisions of this Certificate of Designations. The provisions of this
Section 7 shall apply similarly and equally to successive Fundamental
Transactions and shall be applied without regard to any limitations on the
conversion or redemption of the shares of Series A Preferred Stock.
8. Rights Upon Issuance of Purchase Rights and Other Corporate Events.
(a) Purchase Rights. In addition to any adjustments pursuant to Section 9
below, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to all or substantially all of the record holders of any
class of Common Stock (the "Purchase Rights"), then each Holder will be entitled
to acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such Holder could have acquired if such Holder had held
the number of shares of Common Stock acquirable upon complete conversion of all
the shares of Series A Preferred Stock (without taking into account any
limitations or restrictions on the convertibility of the shares of Series A
Preferred Stock) held by such Holder immediately before the date on which a
record is taken for the grant, issuance or sale of such Purchase Rights, or, if
no such record is taken, the date as of which the record holders of Common Stock
are to be determined for the grant, issue or sale of such Purchase Rights
(provided, however, to the extent that such Holder's right to participate in any
such Purchase Right would result in such Holder exceeding the Maximum
Percentage, then such Holder shall not be entitled to participate in such
Purchase Right to such extent (or have beneficial ownership of such shares of
Common Stock as a result of such Purchase Right to such extent) and such
Purchase Right to such extent shall be held in abeyance for such Holder until
such time, if ever, as its right thereto would not result in such Holder
exceeding the Maximum Percentage).
(b) Other Corporate Events. In addition to and not in substitution for any
other rights hereunder, prior to the consummation of any Fundamental Transaction
pursuant to which holders of shares of Common Stock are entitled to receive
securities or other assets with respect to or in exchange for shares of Common
Stock (a "Corporate Event"), the Company shall make appropriate provision to
insure that each Holder will thereafter have the right to receive upon a
conversion of all the shares of Series A Preferred Stock held by such Holder (i)
in addition to the shares of Common Stock or other securities receivable upon
such conversion, such securities or other assets to which such Holder would have
been entitled with respect to such shares of Common Stock had such shares of
Common Stock been held by such Holder upon the consummation of such Corporate
Event (without taking into account any limitations or restrictions on the
convertibility of the Series A Preferred Stock contained in this Certificate of
Designations) or (ii) in lieu of the shares of Common Stock otherwise receivable
upon such conversion, such securities or other assets received by the holders of
shares of Common Stock in connection with the consummation of such Corporate
Event in such amounts as such Holder would have been entitled to receive had the
Series A Preferred Stock held by such Holder initially been issued with
conversion rights for the form of such consideration (as opposed to shares of
Common Stock) at a conversion rate for such consideration commensurate with the
Conversion Rate. Provision made pursuant to the preceding sentence shall be in a
form and substance reasonably satisfactory to the Required Holders. The
15
provisions of this Section 8 shall apply similarly and equally to successive
Corporate Events and shall be applied without regard to any limitations on the
conversion or redemption of the shares of Series A Preferred Stock contained in
this Certificate of Designations.
9. Adjustment of Conversion Price upon Subdivision or Combination of Common
Stock. Without limiting any provision of Section 7, if the Company at any time
on or after the Execution Date subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Conversion Price in effect
immediately prior to such subdivision will be proportionately reduced. Without
limiting any provision of Section 7, if the Company at any time on or after the
Execution Date combines (by combination, reverse stock split or otherwise) one
or more classes of its outstanding shares of Common Stock into a smaller number
of shares, the Conversion Price in effect immediately prior to such combination
will be proportionately increased. Any adjustment pursuant to this Section 9
shall become effective immediately after the effective date of such subdivision
or combination. If any event requiring an adjustment under this Section 9 occurs
during the period that a Conversion Price is calculated hereunder, then the
calculation of such Conversion Price shall be adjusted appropriately to reflect
such event.
10. Authorized Shares.
(a) Reservation. The Company shall initially reserve out of its authorized
and unissued Common Stock a number of shares of Common Stock equal to 100% of
the Conversion Rate with respect to the Conversion Amount of each share of
Series A Preferred Stock as of the Initial Issuance Date (without regard to any
limitations on conversion contained in this Certificate of Designations). So
long as any of the shares of Series A Preferred Stock are outstanding, the
Company shall take all action necessary to reserve and keep available out of its
authorized and unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of Series A Preferred Stock, 100% of the
number of shares of Common Stock as shall from time to time be necessary to
effect the conversion of all of the shares of Series A Preferred Stock then
outstanding (the "Required Amount"). The initial number of shares of Common
Stock reserved for conversions of the shares of Series A Preferred Stock and
each change in the number of shares so reserved shall be allocated pro rata
among the Holders based on the number of shares of Series A Preferred Stock held
by each Holder on and after the Initial Issuance Date or change in the number of
reserved shares (as the case may be) (the "Authorized Share Allocation"). In the
event a Holder shall sell or otherwise transfer any of such Holder's shares of
Series A Preferred Stock, each transferee shall be allocated a pro rata portion
of such Holder's Authorized Share Allocation. Any shares of Common Stock
reserved and allocated to any Person which ceases to hold any shares of Series A
Preferred Stock shall be allocated to the remaining Holders of shares of Series
A Preferred Stock, pro rata based on the number of shares of Series A Preferred
Stock then held by such Holders.
(b) Insufficient Authorized Shares. If, notwithstanding Section 10 and not
in limitation thereof, at any time while any of the shares of Series A Preferred
Stock remain outstanding the Company does not have a sufficient number of
authorized and unissued shares of Common Stock to satisfy its obligation to have
16
available for issuance upon conversion of the shares of Series A Preferred Stock
at least a number of shares of Common Stock equal to the Required Amount (an
"Authorized Share Failure"), then the Company shall immediately take all action
necessary to increase the Company's authorized shares of Common Stock to an
amount sufficient to allow the Company to reserve and have available the
Required Amount for all of the shares of Series A Preferred Stock then
outstanding. Without limiting the generality of the foregoing sentence, as soon
as practicable after the date of the occurrence of an Authorized Share Failure,
but in no event later than sixty (60) days after the occurrence of such
Authorized Share Failure, the Company shall hold a meeting of its stockholders
for the approval of an increase in the number of authorized shares of Common
Stock. In connection with such meeting, the Company shall provide each
stockholder with a proxy statement and shall use its best efforts to solicit its
stockholders' approval of such increase in authorized shares of Common Stock and
to cause its Board to recommend to the stockholders that they approve such
proposal.
11. Voting Rights. Holders of shares of Series A Preferred Stock shall have
no voting rights, except as required by law (including without limitation, the
CBCA) and as expressly provided in this Certificate of Designations. To the
extent that under the CBCA the vote of the holders of the Series A Preferred
Stock, voting separately as a class or series as applicable, is required to
authorize a given action of the Company, the affirmative vote or consent of the
Required Holders, voting together in the aggregate and not in separate series
unless required under the CBCA, represented at a duly held meeting at which a
quorum is presented or by written consent of the Required Holders (except as
otherwise may be required under the CBCA), voting together in the aggregate and
not in separate series unless required under the CBCA, shall constitute the
approval of such action by both the class or the series, as applicable. Subject
to Section 4(e), to the extent that under the CBCA holders of the Series A
Preferred Stock are entitled to vote on a matter with holders of shares of
Common Stock, voting together as one class, each share of Series A Preferred
Stock shall entitle the holder thereof to cast that number of votes per share as
is equal to the number of shares of Common Stock into which it is then
convertible (subject to the ownership limitations specified in Section 4(e)
hereof) using the record date for determining the stockholders of the Company
eligible to vote on such matters as the date as of which the Conversion Price is
calculated. Holders of the Series A Preferred Stock shall be entitled to written
notice of all stockholder meetings or written consents (and copies of proxy
materials and other information sent to stockholders) with respect to which they
would be entitled by vote, which notice would be provided pursuant to the
Company's bylaws and the CBCA.
12. Liquidation, Dissolution, Winding-Up. Without limiting any other
provision of this Certificate of Designations, upon any Liquidation Event, each
of the Holders shall be entitled to receive in cash out of the assets of the
Company available for distribution to its stockholders, whether from capital or
from earnings available for distribution to its stockholders (the "Liquidation
Funds"), after and subject to the payment in full of all amounts required to be
distributed to the holders of any Senior Preferred Stock upon such Liquidation
Event, but before any payment shall be made to the holders of Junior Stock, an
amount in cash with respect to each share of Series A Preferred Stock then held
by such Holder equal to the greater of (x) the sum of (i) the Stated Value
thereof plus (ii) all accrued and unpaid Dividends thereon and (y) the amount
17
per share such Holder would receive if such Holder converted such share of
Series A Preferred Stock into Common Stock immediately prior to such Liquidation
Event. If upon any such Liquidation Event, the remaining assets of the Company
available for the distribution to its stockholders after payment in full of
amounts required to be paid or distributed to holders of Senior Preferred Stock
shall be insufficient to pay each Holders and each holder of shares of Parity
Stock the full amount to which they shall be entitled, then the Holders and the
holders of shares of Parity Stock, shall share ratably in any distribution of
the remaining assets of the Company in proportion to the respective amounts
which would otherwise be payable in respect to the shares held by them upon such
distribution if all amounts payable on or with respect to said shares were paid
in full. To the extent necessary, the Company shall cause such actions to be
taken by each of its Subsidiaries so as to enable, to the maximum extent
permitted by law, the proceeds of a Liquidation Event to be distributed to the
Holders in accordance with this Section 12. All the preferential amounts to be
paid to the Holders under this Section 12 shall be paid or set apart for payment
before the payment or setting apart for payment of any amount for, or the
distribution of any Liquidation Funds of the Company to the holders of shares of
Junior Stock in connection with a Liquidation Event as to which this Section 12
applies.
13. Participation. In addition to any adjustments pursuant to Section 9, if
the Company shall declare or make any dividend or other distribution of its
assets (or rights to acquire its assets) to holders of shares of Common Stock,
by way of return of capital or otherwise (including, without limitation, any
distribution of cash, stock or other securities, property or options by way of a
dividend, spin off, reclassification, corporate rearrangement, scheme of
arrangement or other similar transaction) (a "Distribution"), at any time after
the Initial Issuance Date, then, in each such case, each Holder shall be
entitled to participate in such Distribution to the same extent that such Holder
would have participated therein if such Holder had held the number of shares of
Common Stock acquirable upon complete conversion of all the shares of Series A
Preferred Stock then held by such Holder (without regard to any limitations on
conversion herein, including without limitation, the Maximum Percentage)
immediately before the date on which a record is taken for such Distribution,
or, if no such record is taken, the date as of which the record holders of
shares of Common Stock are to be determined for the participation in such
Distribution (provided, however, to the extent that a Holder's right to
participate in any such Distributions would result in such Holder exceeding the
Maximum Percentage, then such Holder shall not be entitled to participate in
such Distribution to such extent (or the beneficial ownership of any such shares
of Common Stock as a result of such Distribution to such extent) and such
Distribution to such extent shall be held in abeyance for the benefit of such
Holder until such time, if ever, as its right thereto would not result in such
Holder exceeding the Maximum Percentage).
14. Vote to Change the Terms of or Issue Series A Preferred Stock. In
addition to any other rights provided by law, except where the vote or written
consent of the holders of a greater number of shares is required by law or by
another provision of the Articles of Incorporation, without first obtaining the
affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting of the Required Holders, voting together as a single
class, the Company shall not: (a) amend or repeal any provision of, or add any
provision to, its Articles of Incorporation or bylaws, or file any certificate
of designations or articles of amendment of any series of shares of preferred
stock, if such action would adversely alter or change in any respect the
preferences, rights, privileges or powers, or restrictions provided for the
18
benefit, of the Series A Preferred Stock, regardless of whether any such action
shall be by means of amendment to the Articles of Incorporation or by merger,
consolidation or otherwise; (b) increase or decrease (other than by conversion)
the authorized number of shares of Series A Preferred Stock; (c) without
limiting any provision of Section 2, create or authorize (by reclassification or
otherwise) any new class or series of shares that has a preference over or is on
a parity with the Series A Preferred Stock with respect to dividends or the
distribution of assets on the liquidation, dissolution or winding up of the
Company; (d) purchase, repurchase or redeem any shares of capital stock of the
Company junior in rank to the Series A Preferred Stock (other than pursuant to
equity incentive agreements (that have been approved by the Board in good faith)
with employees giving the Company the right to repurchase shares upon the
termination of services); (e) without limiting any provision of Section 2, pay
dividends or make any other distribution on any shares of any capital stock of
the Company junior in rank to the Series A Preferred Stock; (f) issue any shares
of Series A Preferred Stock other than pursuant to the Exchange Agreement; or
(g) without limiting any provision of Section 17, whether or not prohibited by
the terms of the Series A Preferred Stock, circumvent a right of the Series A
Preferred Stock.
15. Lost or Stolen Certificates. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any certificates representing shares of Series A Preferred Stock
(as to which a written certification and the indemnification contemplated below
shall suffice as such evidence), and, in the case of loss, theft or destruction,
of an indemnification undertaking by the applicable Holder to the Company in
customary and reasonable form and, in the case of mutilation, upon surrender and
cancellation of the certificate(s), the Company shall execute and deliver new
certificate(s) of like tenor and date.
16. Remedies, Characterizations, Other Obligations and Breaches. The
remedies provided in this Certificate of Designations shall be cumulative and in
addition to all other remedies available under this Certificate of Designations
and any of the other Transaction Documents, at law or in equity, and no remedy
contained herein shall be deemed a waiver of compliance with the provisions
giving rise to such remedy. Nothing herein shall limit any Holder's right to
pursue actual and consequential damages for any failure by the Company to comply
with the terms of this Certificate of Designations. The Company covenants to
each Holder that there shall be no characterization concerning this instrument
other than as expressly provided herein. Amounts set forth or provided for
herein with respect to payments, conversion and the like (and the computation
thereof) shall be the amounts to be received by a Holder and shall not, except
as expressly provided herein, be subject to any other obligation of the Company
(or the performance thereof). Until no shares of Series A Preferred Stock are
outstanding, the Company shall provide all information and documentation to a
Holder that is reasonably requested by such Holder to enable such Holder to
confirm the Company's compliance with the terms and conditions of this
Certificate of Designations, provided that if the Company determines that such
information and/or documentation so requested by such Holder constitutes
material, non-public information regarding the Company and its Subsidiaries,
then the Company shall promptly advise such Holder of such determination and the
Company shall not provide such information and/or documentation so constituting
material, non-public information unless such Holder executes a written
confidentiality agreement with respect to such information and/or documentation
(on terms acceptable to such Holder and the Company).
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17. Noncircumvention. The Company hereby covenants and agrees that the
Company will not, by amendment of its Articles of Incorporation, bylaws or
through any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, 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 Certificate of Designations, and will at all times in good faith carry
out all the provisions of this Certificate of Designations. Without limiting the
generality of the foregoing or any other provision of this Certificate of
Designations, the Company (i) shall not increase the par value of any shares of
Common Stock receivable upon the conversion of any shares of Series A Preferred
Stock above the Conversion Price then in effect, (ii) shall take all such
actions as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and non-assessable shares of Common Stock upon the
conversion of shares of Series A Preferred Stock and (iii) shall, so long as any
shares of Series A Preferred Stock are outstanding, take all action necessary to
reserve and keep available out of its authorized and unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the shares of
Series A Preferred Stock, the maximum number of shares of Common Stock as shall
from time to time be necessary to effect the conversion of the shares of Series
A Preferred Stock then outstanding (without regard to any limitations on
conversion contained herein).
18. Failure or Indulgence Not Waiver. No failure or delay on the part of a
Holder in the exercise of any power, right or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privilege. No waiver shall be effective unless it is in writing
and signed by an authorized representative of the waiving party. This
Certificate of Designations shall be deemed to be jointly drafted by the Company
and all Holders and shall not be construed against any Person as the drafter
hereof.
19. Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Certificate of
Designations must be in writing and will be deemed to have been delivered: (i)
upon receipt, when delivered personally; (ii) upon receipt, when sent by
facsimile (provided confirmation of transmission is mechanically or
electronically generated and kept on file by the sending party); or (iii) one
(1) Business Day after deposit with an overnight courier service with next day
delivery specified provided confirmation of delivery is kept of file by the
sending party), in each case, properly addressed to the party to receive the
same, provided that all such notices, consents, waivers or other communications
required or permitted to be given under the terms of this Certificate of
Designations to the Company must also be sent via electronic mail to each of the
following e-mail addresses: pprichep@cel-sci.com, gdewindt@cel-sci.com and
grkersten@cel-sci.com. The addresses and facsimile numbers for such
communications shall be:
If to the Company:
CEL-SCI Corporation
8229 Boone Boulevard, Suite 802
Vienna, VA 22182
Facsimile: (703) 506-9471
Attention: Ms. Patricia B. Prichep, Senior VP of Operations;
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With mandatory e-mails to the three e-mail addresses set forth
above as contemplated above
If to a Holder:
To its address or facsimile number (as
the case may be) set forth on the
Schedule of Claimants attached to the
Exchange Agreement,
or to such other address and/or facsimile number and/or e-mail address (as the
case may be) and/or to the attention of such other Person as the recipient party
has specified by written notice given to each other party five (5) days prior to
the effectiveness of such change. Written confirmation of receipt (A) given by
the recipient of such notice, consent, waiver or other communication, (B)
mechanically or electronically generated by the sender's facsimile machine or
e-mail transmission containing the time, date and recipient facsimile number or
e-mail address or (C) provided by an overnight courier service shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from an
overnight courier service in accordance with clause (i), (ii) or (iii) above,
respectively.
The Company shall provide each Holder of Series A Preferred Stock with prompt
written notice of all actions taken pursuant to the terms of this Certificate of
Designations, including in reasonable detail a description of such action and
the reason therefor. Without limiting the generality of the foregoing, the
Company shall give written notice to each Holder (i) promptly following any
adjustment of the Conversion Price, setting forth in reasonable detail, and
certifying, the calculation of such adjustment and (ii) at least ten (10) days
prior to the date on which the Company closes its books or takes a record (A)
with respect to any dividend or distribution upon the Common Stock, (B) with
respect to any grant, issuances, or sales of any Options, Convertible Securities
or rights to purchase stock, warrants, securities or other property to all
holders of shares of Common Stock as a class or (C) for determining rights to
vote with respect to any Fundamental Transaction, dissolution or liquidation,
provided, in each case, that such information shall be made known to the public
prior to, or simultaneously with, such notice being provided to any Holder.
20. Transfer of Series A Preferred Stock. Shares of Series A Preferred
Stock and any shares of Common Stock issued upon conversion of shares of Series
A Preferred Stock may be offered, sold, assigned or transferred by any Holder
without the consent of the Company, except that (i) if a Holder sells, assigns
or transfers (as the case may be) shares of its Series A Preferred Stock to any
Person (other than the Company), such Holder must sell, assign or transfer (as
the case may be) all of its shares of Series A Preferred Stock to such Person
and (ii) no shares of Series A Preferred Stock may be pledged by a Holder as
collateral (provided that security interests and liens granted by a Holder to
such Holder's prime broker and other clearing brokers in such shares of Series A
Preferred Stock shall not be deemed to be a pledge hereunder).
21. Series A Preferred Stock Register. The Company shall maintain at its
principal executive offices (or such other office or agency of the Company as it
may designate by notice to the Holders), a register for the Series A Preferred
Stock, in which the Company shall record the name, address and facsimile number
of the Persons in whose name the shares of Series A Preferred Stock have been
issued, as well as the name and address of each transferee. The Company may
treat the Person in whose name any Series A Preferred Stock is registered on the
21
register as the owner and holder thereof for all purposes, notwithstanding any
notice to the contrary, but in all events recognizing any properly made
transfers.
22. Stockholder Matters; Amendment.
(a) Stockholder Matters. Any stockholder action, approval or consent
required, desired or otherwise sought by the Company pursuant to the CBCA, the
Articles of Incorporation, this Certificate of Designations or otherwise with
respect to the issuance of Series A Preferred Stock may be effected by written
consent of the Company's stockholders or at a duly called meeting of the
Company's stockholders, all in accordance with the applicable rules and
regulations of the CBCA. This provision is intended to comply with the
applicable sections of the CBCA permitting stockholder action, approval and
consent affected by written consent in lieu of a meeting.
(b) Amendment. This Certificate of Designations or any provision hereof may
be amended by obtaining the affirmative vote at a meeting duly called for such
purpose, or written consent without a meeting in accordance with the CBCA, of
the Required Holders, voting separately as a single class, and with such other
stockholder approval, if any, as may then be required pursuant to the CBCA and
the Articles of Incorporation.
23. Dispute Resolution. In the case of a dispute as to the determination of
the Conversion Price, the Closing Bid Price, the Closing Sale Price, the VWAP or
fair market value (as the case may be) or the arithmetic calculation of the
Conversion Rate, the applicable Triggering Event Redemption Price or the
applicable Company Redemption Price (as the case may be), the Company or the
applicable Holder (as the case may be) shall submit the disputed determinations
or arithmetic calculations (as the case may be) via e-mail or facsimile (i)
within five (5) Business Days after receipt of the applicable notice giving rise
to such dispute to the Company or such Holder (as the case may be) or (ii) if no
notice gave rise to such dispute, at any time after such Holder learned of the
circumstances giving rise to such dispute. If such Holder and the Company are
unable to agree upon such determination or calculation within two (2) Business
Days of such disputed determination or arithmetic calculation (as the case may
be) being submitted to the Company or such Holder (as the case may be), then the
Company shall, within two (2) Business Days, submit via e-mail or facsimile (a)
the disputed determination of the Conversion Price, the Closing Bid Price, the
Closing Sale Price, the VWAP or fair market value (as the case may be) to an
independent, reputable investment bank selected by such Holder or (b) the
disputed arithmetic calculation of the Conversion Rate, the applicable
Triggering Event Redemption Price or the applicable Company Redemption Price (as
the case may be) to the Company's independent, outside accountant. The Company
shall cause the investment bank or the accountant (as the case may be) to
perform the determinations or calculations (as the case may be) and notify the
Company and such Holder of the results no later than ten (10) Business Days from
the time it receives such disputed determinations or calculations (as the case
may be), and the non-prevailing party (as determined by such investment bank or
such accountant (as the case may be)) shall be responsible for the fees and
expenses of such investment bank or such accountant (as the case may be). Such
investment bank's or accountant's determination or calculation (as the case may
be) shall be binding upon all parties absent demonstrable error or fraud.
22
24. Redemption; Maturity. Except as otherwise expressly contemplated by
this Certificate of Designations (including, without limitation, Sections 5 and
6), the shares of Series A Preferred Stock shall not be redeemable either at the
Company's option or at the option of any of the Holders at any time.
25. Certain Defined Terms. For purposes of this Certificate of
Designations, the following terms shall have the following meanings:
(a) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(b) "Affiliate" means, as of the applicable date of determination, with
respect to a Person, (i) a Person that directly, or indirectly through one or
more intermediaries, controls or is controlled by, or is under common control
with, such Person (it being understood and agreed for clarification purposes
that no third party investor (whether a limited partner, shareholder, member or
the like) of any Person shall be deemed to be an Affiliate of such Person under
this clause (i), provided that "feeder funds" shall not be deemed third party
investors) and (ii) any investment fund or similar investment entity that (1)
held or traded shares of Common Stock or had outstanding Short Sales of Common
Stock that were not closed out or covered, in each case, as of such time of
determination and (2) had the same investment manager or investment adviser as
such Person as of such time of determination (provided that for purposes of this
clause (ii) if any such common investment manager or common investment adviser
does not have sole trading authority over all assets of such investment fund or
similar investment entity, then only the assets as to which such common
investment manager or investment adviser (as the case may be) has sole trading
authority shall be deemed to be an Affiliate hereunder and such investment fund
or similar investment entity itself shall not be deemed an Affiliate hereunder).
(c) "Additional Amount" means, as of the applicable date of determination,
with respect to each share of Series A Preferred Stock, all accrued and unpaid
Dividends on such share of Series A Preferred Stock.
(d) "Aggregate Redemption Amount" means (i) with respect to each Redemption
Date (other than the Redemption Date that is the Maturity Date), the lesser of
(I) 1,012 shares of Series A Preferred Stock (as adjusted for stock splits,
combinations and other similar transaction occurring after the Initial Issuance
Date) and (II) all shares of Series A Preferred Stock outstanding as of the
applicable Redemption Date or (ii) with respect to the Redemption Date that is
the Maturity Date, all shares of Series A Preferred Stock outstanding as of the
Maturity Date (as applicable).
(e) "Bloomberg" means Bloomberg, L.P.
(f) "Business Day" means any day other than Saturday, Sunday or other day
on which commercial banks in The City of New York are authorized or required by
law to remain closed.
(g) "Closing Bid Price" and "Closing Sale Price" means, for any security as
of any date, the last closing bid price and last closing trade price,
respectively, for such security on the Principal Market, as reported by
23
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price
(as the case may be) then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the "pink sheets" by OTC
Markets Group Inc. (formerly Pink Sheets LLC). If the Closing Bid Price or the
Closing Sale Price cannot be calculated for a security on a particular date on
any of the foregoing bases, the Closing Bid Price or the Closing Sale Price (as
the case may be) of such security on such date shall be the fair market value as
mutually determined by the Company and the applicable Holder. If the Company and
such Holder are unable to agree upon the fair market value of such security,
then such dispute shall be resolved in accordance with the procedures in Section
23. All such determinations shall be appropriately adjusted for any stock
dividend, stock split, stock combination or other similar transaction during
such period.
(h) "Common Stock" means (i) the Company's shares of common stock, $0.01
par value per share, and (ii) any capital stock into which such common stock
shall have been changed or any share capital resulting from a reclassification
of such common stock.
(i) "Contingent Obligation" means, as to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto.
(j) "control" (including the terms "controlling," "controlled by" and
"under common control with") means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract, or
otherwise.
(k) "Conversion Amount" means, with respect to each share of Series A
Preferred Stock, as of the applicable date of determination, the sum of (1) the
Stated Value thereof plus (2) the Additional Amount thereon as of such date of
determination.
(l) "Conversion Price" means, with respect to each share of Series A
Preferred Stock, as of any Conversion Date or other applicable date of
determination, $[0.67], subject to adjustment as provided herein.
24
(m) "Convertible Securities" means any stock or other security (other than
Options) that is at any time and under any circumstances, directly or
indirectly, convertible into, exercisable or exchangeable for, or which
otherwise entitles the holder thereof to acquire, any shares of Common Stock.
(n) "Current Subsidiary" means any Person in which the Company on the
Execution Date, directly or indirectly, (i) owns any of the outstanding capital
stock or holds any equity or similar interest of such Person or (ii) controls or
operates all or any part of the business, operations or administration of such
Person, and all of the foregoing, collectively, "Current Subsidiaries."
(o) "Eligible Market" means The New York Stock Exchange, the Nasdaq Global
Select Market, the Nasdaq Global Market, the Nasdaq Capital Market, the OTC
Bulletin Board or the Principal Market.
(p) "Exchange Agreement" means that certain exchange agreement by and among
the Company and the initial holders of Series A Preferred Stock, dated as of the
Execution Date, as may be amended from time in accordance with the terms
thereof.
(q) "Execution Date" means May 16, 2011.
(r) "Fundamental Transaction" means that (i) the Company or any of its
Subsidiaries shall, directly or indirectly, in one or more related transactions,
(1) consolidate or merge with or into (whether or not the Company or any of its
Subsidiaries is the surviving corporation) any other Person, or (2) sell, lease,
license, assign, transfer, convey or otherwise dispose of all or substantially
all of its respective properties or assets to any other Person, or (3) allow any
other Person to make a purchase, tender or exchange offer that is accepted by
the holders of more than 50% of the outstanding shares of Voting Stock of the
Company (not including any shares of Voting Stock of the Company held by the
Person or Persons making or party to, or associated or affiliated with the
Persons making or party to, such purchase, tender or exchange offer), or (4)
consummate a stock or share purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with any other Person whereby such other Person acquires
more than 50% of the outstanding shares of Voting Stock of the Company (not
including any shares of Voting Stock of the Company held by the other Person or
other Persons making or party to, or associated or affiliated with the other
Persons making or party to, such stock or share purchase agreement or other
business combination), or (5) reorganize, recapitalize or reclassify the Common
Stock, or (ii) any "person" or "group" (as these terms are used for purposes of
Sections 13(d) and 14(d) of the 1934 Act and the rules and regulations
promulgated thereunder) is or shall become the "beneficial owner" (as defined in
Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate
ordinary voting power represented by issued and outstanding Voting Stock of the
Company.
(s) "GAAP" means United States generally accepted accounting principles,
consistently applied.
25
(t) "Indebtedness" of any Person means, without duplication (A) all
indebtedness for borrowed money, (B) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (including,
without limitation, "capital leases" in accordance with GAAP) (other than trade
payables entered into in the ordinary course of business), (C) all reimbursement
or payment obligations with respect to letters of credit, surety bonds and other
similar instruments, (D) all obligations evidenced by notes, bonds, debentures
or similar instruments, including obligations so evidenced incurred in
connection with the acquisition of property, assets or businesses, (E) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect to
any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (F) all
monetary obligations under any leasing or similar arrangement which, in
connection with GAAP, consistently applied for the periods covered thereby, is
classified as a capital lease, (G) all indebtedness referred to in clauses (A)
through (F) above secured by (or for which the holder of such indebtedness has
an existing right, contingent or otherwise, to be secured by) any mortgage,
lien, pledge, charge, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by any Person,
even though the Person which owns such assets or property has not assumed or
become liable for the payment of such indebtedness, and (H) all Contingent
Obligations in respect of indebtedness or obligations of others of the kinds
referred to in clauses (A) through (G) above.
(u) "Liquidation Event" means, whether in a single transaction or series of
transactions, the voluntary or involuntary liquidation, dissolution or winding
up of the Company or such Subsidiaries the assets of which constitute all or
substantially all of the assets of the business of the Company and its
Subsidiaries, taken as a whole.
(v) "Maturity Date" means September 1, 2011.
(w) "New Subsidiary" means, as of any date of determination, as applicable,
(x) prior to the time that the Company has, directly or indirectly, paid,
invested or otherwise transferred $500,000 or more, in the aggregate, after the
Execution Date for capital stock, equity and other similar interests (or rights
thereto) in one or more Persons, any Person in which the Company after the
Execution Date, directly or indirectly, (i) owns or acquires a majority of the
outstanding capital stock or holds a majority equity or similar interest (or
rights thereto) of such Person or (ii) controls or operates all or more than
half of the business, operations or administration of such Person, or (y) from
and after the time that the Company has, directly or indirectly, paid, invested
or otherwise transferred $500,000 or more, in the aggregate, after the Execution
Date for capital stock, equity and other similar interests (or rights thereto)
in one or more Persons, any Person in which the Company after the Execution
Date, directly or indirectly, (i) owns or acquires any of the outstanding
capital stock or holds any equity or similar interest (or rights thereto) of
such Person or (ii) controls or operates any part of the business, operations or
administration of such Person, and all of the foregoing, collectively, "New
Subsidiaries."
26
(x) "Notes" means those certain Senior Secured Convertible Notes issued by
the Company pursuant to the Exchange Agreement to each of the initial holders of
Series A Preferred Stock.
(y) "Options" means any rights, warrants or options to subscribe for or
purchase shares of Common Stock or Convertible Securities.
(z) "Parent Entity" of a Person means an entity that, directly or
indirectly, controls the applicable Person and whose common stock or equivalent
equity security is quoted or listed on an Eligible Market, or, if there is more
than one such Person or Parent Entity, the Person or Parent Entity with the
largest public market capitalization as of the date of consummation of the
Fundamental Transaction.
(aa) "Person" means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity or a government or any department or agency
thereof.
(bb) "Principal Market" means the NYSE Amex.
(cc) "Pro Rata Amount" means, as of the applicable date of determination,
with respect to a particular Holder, a fraction (i) the numerator of which is
the aggregate number of shares of Series A Preferred Stock held by such Holder
on the Initial Issuance Date and (ii) the denominator of which is the aggregate
number of shares of Series A Preferred Stock outstanding on the Initial Issuance
Date.
(dd) "Redemption Amount" means, as of the applicable date of determination,
with respect to a particular Holder, a number of shares of Series A Preferred
Stock equal to the product of (1) the Aggregate Redemption Amount multiplied by
(2) such Holder's Pro Rata Amount.
(ee) "Redemption Date" means each of the following dates: (i) June 1, 2011,
(ii) July 1, 2011, (iii) August 1, 2011, and (iv) the Maturity Date.
(ff) "SEC" means the Securities and Exchange Commission or the successor
thereto.
(gg) "Short Sale" means a "short sale" as defined in Rule 200 promulgated
under Regulation SHO under the 1934 Act.
(hh) "Subsidiaries" means, as of the applicable date of determination,
collectively, all Current Subsidiaries and all New Subsidiaries, and each of the
foregoing, individually, a "Subsidiary."
(ii) "Successor Entity" means the Person (or, if so elected by the Required
Holders, the Parent Entity) formed by, resulting from or surviving any
Fundamental Transaction or the Person (or, if so elected by the Required
Holders, the Parent Entity) with which such Fundamental Transaction shall have
been entered into.
27
(jj) "Trading Day" means, as applicable, (x) with respect to all price
determinations relating to the Common Stock, any day on which the Common Stock
is traded on the Principal Market, or, if the Principal Market is not the
principal trading market for the Common Stock, then on the principal securities
exchange or securities market on which the Common Stock is then traded, provided
that "Trading Day" shall not include any day on which the Common Stock is
scheduled to trade on such exchange or market for less than 4.5 hours or any day
that the Common Stock is suspended from trading during the final hour of trading
on such exchange or market (or if such exchange or market does not designate in
advance the closing time of trading on such exchange or market, then during the
hour ending at 4:00:00 p.m., New York time) unless such day is otherwise
designated as a Trading Day in writing by the Required Holders or (y) with
respect to all determinations other than price determinations relating to the
Common Stock, any day on which the Principal Market or such other securities
market or exchange on which the Common Stock is listed or designated for
quotation (as applicable) is open for trading of securities.
(kk) "Transaction Documents" means the Exchange Agreement, this Certificate
of Designations, the Notes and each of the other agreements and instruments
entered into or delivered by the Company, any of its Subsidiaries or any of the
Holders in connection with the transactions contemplated by the Exchange
Agreement, all as may be amended from time to time in accordance with the terms
thereof.
(ll) "Triggering Event Redemption Premium" means (i) in the case of the
Triggering Events described in Section 5(a) (other than Sections 5(a)(viii)
through 5(a)(x)), 110% or (ii) in the case of the Triggering Events described in
Sections 5(a)(viii) through 5(a)(x), 100%.
(mm) "Voting Stock" of a Person means capital stock of such Person of the
class or classes pursuant to which the holders thereof have the general voting
power to elect, or the general power to appoint, at least a majority of the
board of directors, managers, trustees or other similar governing body of such
Person (regardless of whether or not at the time capital stock of any other
class or classes shall have or might have voting power by reason of the
happening of any contingency).
(nn) "VWAP" means, for any security as of any date, the dollar
volume-weighted average price for such security on the Principal Market (or, if
the Principal Market is not the principal trading market for such security, then
on the principal securities exchange or securities market on which such security
is then traded) during the period beginning at 9:30:01 a.m., New York time, and
ending at 4:00:00 p.m., New York time, as reported by Bloomberg through its
"Volume at Price" function or, if the foregoing does not apply, the dollar
volume-weighted average price of such security in the over-the-counter market on
the electronic bulletin board for such security during the period beginning at
9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as
reported by Bloomberg, or, if no dollar volume-weighted average price is
reported for such security by Bloomberg for such hours, the average of the
highest closing bid price and the lowest closing ask price of any of the market
makers for such security as reported in the "pink sheets" by OTC Markets Group
Inc. (formerly Pink Sheets LLC). If the VWAP cannot be calculated for such
28
security on such date on any of the foregoing bases, the VWAP of such security
on such date shall be the fair market value as mutually determined by the
Company and the applicable Holder. If the Company and such Holder are unable to
agree upon the fair market value of such security, then such dispute shall be
resolved in accordance with the procedures in Section 23. All such
determinations shall be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during such period.
26. Withdrawal Right. Notwithstanding anything to the contrary contained in
(and without limiting any other provision of) this Certificate of Designations,
whenever any Holder exercises a right, election, demand or option under this
Certificate of Designations and the Company does not timely perform its related
obligations within the periods provided herein, then such Holder 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.
27. Short Sales.
(a) No Holder or any of its Affiliates will, from and after the date on
which the such Holder acquires shares of Series A Preferred Stock until the
earlier to occur of (i) the date on which such Holder's shares of Series A
Preferred Stock are no longer outstanding and (ii) the date on which neither
such Holder nor any Affiliate of such Holder holds any shares of Series A
Preferred Stock (such period is referred to herein as the "Restricted Period"),
directly or indirectly (including by or through any other Person acting on
behalf of or pursuant to any understanding with such Holder or any Affiliate of
such Holder), effect a Short Sale of the Common Stock if such contemplated Short
Sale of the Common Stock would result in such Holder and its Affiliates (taken
together) having, or result in an increase to, an Excess Short Position in the
Common Stock (as determined pursuant to the immediately following sentence)
immediately following such contemplated Short Sale. An "Excess Short Position in
the Common Stock" shall occur only if the number of shares of Common Stock as to
which the applicable Holder and its Affiliates (taken together) have outstanding
Short Sales of Common Stock that have not been closed out or covered, as of the
applicable time of determination, exceeds the sum of (x) the number of shares of
Common Stock issuable upon exercise of all warrants of the Company held by such
Holder and its Affiliates (taken together) as of the applicable time of
determination (disregarding any beneficial ownership limitations contained
therein) plus (y) the number of shares of Common Stock held by such Holder and
its Affiliates (taken together) as of the applicable time of determination (it
being expressly understood that this clause (y) shall not include any shares of
Common Stock issued or issuable upon conversion of any Notes or upon conversion
of any shares of Series A Preferred Stock held by such Holder or any of its
Affiliates).
(b) Commencing on August 1, 2011, with respect to the period from the
Initial Issuance Date until July 31, 2011, and every ninety (90) days thereafter
during the remainder of the Restricted Period (each such period is referred to
herein as a "Period"), the Company may request in writing, but in no event more
than three (3) times in total, that the Holder deliver to KPMG LLP, c/o Steven
Fishner in New York, New York (the "Accounting Firm") (who will be engaged
29
jointly by the Company and the applicable Holder, the fees and expenses will be
borne as contemplated below in Section 27(d) and the engagement letter entered
into with the Accounting Firm shall contain the applicable provisions of this
Section 27 (including, without limitation, all obligations of the Accounting
Firm hereunder)) true and complete copies of applicable Holder's and its
Affiliates' trading records in the Common Stock ("Trading Records") for the most
recently completed Period and any Periods prior thereto for which the Accounting
Firm has not previously been requested to make a determination hereunder (such
applicable period is referred to herein as the "Review Period"), together with
such other relevant information voluntarily provided orally or in writing by
such Holder (including, without limitation, any information provided in any
consultation with the Accounting Firm) (such other information is referred to
herein as "Other Relevant Information") to enable the Accounting Firm to make
the determination set forth in clauses (i) and (ii) below of this Section 27(b).
Such Holder shall deliver the applicable Trading Records to the Accounting Firm
for review within ten (10) Business Days after the date on which such Holder
receives such applicable request from the Company. If requested by the
Accounting Firm to provide Other Relevant Information and such Holder decides to
provide such information, such Holder may, within ten (10) Business Days after
the date on which such Holder receives such request, deliver such Other Relevant
Information in its sole discretion. If such Holder so decides not to provide
such Other Relevant Information, such Holder shall inform the Accounting Firm of
its election to not so deliver such Other Relevant Information to the Accounting
Firm no later than the close of that same ten (10) Business Day period after the
date on which such Holder receives such request. The Company shall request the
Accounting Firm to review such Trading Records and Other Relevant Information
and to deliver to the Company and such Holder, no later than ten (10) Business
Days after the date the Accounting Firm receives the applicable Trading Records
from such Holder, either, in the determination of the Accounting Firm, (i) a
confirmation that no Excess Shorting Event (as defined below) occurred during
the applicable Review Period (a "Confirmation") or (ii) a statement that the
Accounting Firm is unable to confirm that no Excess Shorting Event occurred
during the applicable Review Period (a "Statement") (it being understood and
agreed that no Statement shall be a determination that an Excess Shorting Event
occurred during the applicable Review Period), provided that if Other Relevant
Information is timely delivered to the Accounting Firm by such Holder, then a
Confirmation or Statement shall be delivered no later than (10) Business Days
after the date the Accounting Firm receives the last of the applicable Other
Relevant Information.
(c) The Company acknowledges and agrees that all Trading Records and all
Other Relevant Information so provided by each Holder to the Accounting Firm,
and all work product of the Accounting Firm containing information derived from
such records and information ("Work Product"), shall be confidential (all of the
foregoing, other than the Accounting Firm's Confirmation or Statement delivered
to the Company and the Holder, is referred to herein as "Confidential
Information"), and such Confidential Information may not be reviewed by, or
disclosed by the Accounting Firm or any other Person to, the Company or any
other Person without the prior written consent of the applicable Holder
(provided, however, that the Company shall maintain its preexisting rights in
discovery, if any, that may include obtaining the Trading Records and Other
30
Relevant Information from the applicable Holder in any legal action to enforce
its rights under this Section 27). At the conclusion of the Accounting Firm's
review for the applicable Review Period, the Accounting Firm shall destroy all
Trading Records and Other Relevant Information provided by the applicable Holder
and all related Work Product, and the applicable Holder shall to preserve (and
not destroy) all Trading Records in such Holder's possession and copies of all
Other Relevant Information furnished in writing, electronically or in other
non-verbal form or media to the Accounting Firm. Except for consultations with
the applicable Holder requested by the Accounting Firm solely for the purpose of
asking clarifying questions about Confidential Information (it being understood
and agreed for clarification purposes that such consultations constitute Other
Relevant Information and such Holder may decline to participate in such
consultations in its sole discretion), neither the Company nor such Holder (or
their respective counsel) may have any ex parte communications with the
Accounting Firm with respect to any review hereunder. If, at the request of the
Company, representatives of the Company and the applicable Holder (or their
respective counsel) jointly meet or hold a joint conference call with the
Accounting Firm, the Company shall reimburse such Holder within thirty (30) days
for all of its reasonable fees and expenses of counsel incurred in connection
with such meeting or call ("Specified Expenses"). An "Excess Shorting Event"
shall occur only if an Excess Short Position in the Common Stock occurred or was
increased as a result of a Short Sale of the Common Stock that was effected by
the applicable Holder or its Affiliates during the applicable Review Period.
(d) The Company shall pay the fees and expenses of the Accounting Firm for
each review conducted pursuant to this Section 27; provided, however, if the
Accounting Firm delivers a Statement to the Company and the applicable Holder
with respect to the applicable Review Period, then, if a court of competent
jurisdiction determines in a final, non-appealable order or ruling that that
such Holder breached its obligations under Section 27(a) during the applicable
Review Period, such Holder shall be responsible for (i) paying all of the fees
and expenses, including reasonable fees and expenses of counsel, of (A) the
Accounting Firm relating to this Section 27 with respect to such review and (B)
the Company in connection with the enforcement of its rights hereunder in such
court proceedings and the collection of any judgment awarded and (ii)
reimbursing the Company for any related Specified Expenses paid to such Holder
and the reasonable fees and expenses of the Company's counsel as it relates to
any joint meeting or conference call with the Accounting Firm and such Holder
described in Section 27(c). Notwithstanding the foregoing provisions relating to
the Accounting Firm review process, the Company may seek to enforce its rights
under Section 27(a) without requesting any Accounting Firm review with respect
to an alleged breach by the applicable Holder of this Section 27. No Holder
shall take any action or employ any hedging strategy to avoid or seek to avoid
the observance or performance of the provisions of Section 27(a) and will at all
times in good faith carry out all of the provisions of Section 27(a).
(e) In the event KPMG is unable to act as the Accounting Firm as provided
in this Section 27 due to a conflict of interest or otherwise, FTI shall be
substituted as the Accounting Firm designated in this Section 27.
31
* * * * *
32
EXHIBIT I
CEL-SCI CORPORATION
CONVERSION NOTICE
Reference is made to the Certificate of Designations of the Series A
Convertible Preferred Stock of CEL-SCI Corporation (the "Certificate of
Designations"). In accordance with and pursuant to the Certificate of
Designations, the undersigned Holder hereby elects to convert the number of
shares of Series A Convertible Preferred Stock, $0.001 par value per share (the
"Series A Preferred Stock"), of CEL-SCI Corporation, a Colorado corporation (the
"Company"), indicated below into shares of common stock, $0.01 value per share
(the "Common Stock"), of the Company, as of the date specified below.
Conversion Date:
--------------------------------------------------------
Number of shares of Series A Preferred Stock to be converted:
Share certificate no(s). of Series A Preferred Stock to be converted:
Tax ID Number (If applicable):
-----------------------------------------
Conversion Price:
-------------------------------------------------------
Number of shares of Common Stock to be issued:
Please issue the shares of Common Stock into which the shares of Series A
Preferred Stock are being converted in the following name and to the following
address:
Issue to:
---------------------------------------
Address:
----------------------------------------
Telephone Number:
------------------------------
Facsimile Number:
-------------------------------
Holder:
-----------------------------------------
By:
-----------------------------
Title:
--------------------------
Dated:
--------------------------
Account Number (if electronic book entry transfer):
Transaction Code Number (if electronic book entry transfer):
Redemption Amount(s) to be
reduced (and corresponding Redemption
Date(s)) and amount of reduction:
---------------------------------------
33
EXHIBIT II
ACKNOWLEDGMENT
The Company hereby acknowledges this Conversion Notice and hereby directs
[ ] to issue the above indicated number of shares of Common Stock in accordance
with the Irrevocable Transfer Agent Instructions dated __________, 2011 from the
Company and acknowledged and agreed to by [ ].
CEL-SCI CORPORATION
By:
---------------------
Name:
-------------------
Title:
------------------------
34
The undersigned declares under penalty of perjury under the laws of the
State of Colorado that the matters set forth in this certificate are true and
correct of his own knowledge.
The undersigned has executed this certificate on May [___], 2011.
--------------------------
Name: Geert R. Kersten
Title: Chief Executive Officer
35
EXHIBIT C
SECURITY AGREEMENT
This SECURITY AGREEMENT (this "Agreement"), dated as of May [___], 2011, is
made by and among the grantors listed on the signature pages hereof
(collectively, jointly and severally, the "Grantors" and each, individually, a
"Grantor"), and the secured parties listed on the signature pages hereof
(collectively, the "Secured Parties" and each, individually, a "Secured Party").
RECITALS
WHEREAS, pursuant to that certain Exchange Agreement, dated as of May
16, 2011 (as may be amended, restated, supplemented, or otherwise modified
from time to time, including all schedules thereto, collectively, the "Exchange
Agreement"), by and among CEL-SCI Corporation, a Colorado corporation
("Parent"), and each of the Secured Parties (together with Secured Party,
"Secured Parties"), Parent has agreed to issue, and Secured Parties have each
agreed to acquire, severally and not jointly, certain Notes and shares of
Preferred Stock (as defined in the Exchange Agreement); and
WHEREAS, each Grantor other than Parent is a direct or indirect
wholly-owned Subsidiary (as defined below) of Parent and will receive direct and
substantial benefits from the Exchange Agreement and the issuance to the Secured
Parties of the Notes and shares of Preferred Stock; and
WHEREAS, in order to induce the Secured Parties to enter into the Exchange
Agreement and to acquire, severally and not jointly, the Notes and shares of
Preferred Stock as provided for in the Exchange Agreement, Grantors have agreed
to grant a continuing security interest in and to the Collateral (as defined
herein) in order to secure the prompt and complete payment, observance and
performance of the Secured Obligations (as defined herein).
AGREEMENTS
NOW, THEREFORE, for and in consideration of the recitals made above and
other good and valuable consideration, the receipt, sufficiency and adequacy of
which are hereby acknowledged, the parties hereto agree as follows:
1. Defined Terms. All capitalized terms used herein (including in the
preamble and recitals hereof) without definition shall have the meanings
ascribed thereto in the Notes. Any terms used in this Agreement that are defined
in the Code shall be construed and defined as set forth in the Code unless
otherwise defined herein or in the Notes; provided, however, if the Code is used
to define any term used herein and if such term is defined differently in
different Articles of the Code, the definition of such term contained in Article
9 of the Code shall govern. In addition to those terms defined elsewhere in this
Agreement, as used in this Agreement, the following terms shall have the
following meanings:
(a) "Account" means an account (as that term is defined in the Code).
(b) "Account Debtor" means an account debtor (as that term is defined in
the Code).
(c) "Bankruptcy Code" means Title 11 of the United States Code, as in
effect from time to time.
(d) "Books" means books and records (including, without limitation, each
Grantor's Records) indicating, summarizing, or evidencing each Grantor's assets
(including the Collateral) or liabilities, each Grantor's Records relating to
its business operations (including, without limitation, stock ledgers) or
financial condition, and each Grantor's goods or General Intangibles related to
such information.
(e) "Chattel Paper" means chattel paper (as that term is defined in the
Code) and includes tangible chattel paper and electronic chattel paper.
(f) "Code" means the Colorado Uniform Commercial Code, as in effect from
time to time; provided, however, in the event that, by reason of mandatory
provisions of law, any or all of the attachment, perfection, priority, or
remedies with respect to any Secured Party's Lien on any Collateral is governed
by the Uniform Commercial Code as enacted and in effect in a jurisdiction other
than the State of Colorado, the term "Code" shall mean the Uniform Commercial
Code as enacted and in effect in such other jurisdiction solely for purposes of
the provisions thereof relating to such attachment, perfection, priority, or
remedies.
(g) "Collateral" has the meaning specified therefor in Section 2.
(h) "Commencement Notice" means a written notice, given by any Secured
Party to the other Secured Parties in accordance with the notice provisions set
forth in the Exchange Agreement, pursuant to which such Secured Party notifies
the other Secured Parties of the existence of an Event of Default and of such
Secured Party's intent to commence the exercise of one or more of the remedies
provided for under this Agreement with respect to all or any portion of the
Collateral as a consequence thereof, which notice shall incorporate a reasonably
detailed description of the remedial action proposed to be taken.
(i) "Commercial Tort Claims" means commercial tort claims (as that term is
defined in the Code), and includes those commercial tort claims listed on
Schedule 1 attached hereto.
(j) "Control Agreement" means a control agreement, in form and substance
satisfactory to Secured Parties, executed and delivered by a Grantor, one or
more Secured Parties, and the applicable securities intermediary (with respect
to a Securities Account) or bank (with respect to a Deposit Account), as may be
amended, restated, supplemented, or otherwise modified from time to time.
(k) "Copyrights" means all copyrights and copyright registrations, and also
includes (i) the copyright registrations and recordings thereof and all
applications in connection therewith listed on Schedule 2 attached hereto and
2
made a part hereof, (ii) all reissues, continuations, extensions or renewals
thereof, (iii) all income, royalties, damages and payments now and hereafter due
or payable under and with respect thereto, including payments under all licenses
entered into in connection therewith and damages and payments for past or future
infringements or dilutions thereof, (iv) the right to sue for past, present and
future infringements and dilutions thereof, (v) the goodwill of each Grantor's
business symbolized by the foregoing or connected therewith, and (vi) all of
each Grantor's rights corresponding thereto throughout the world.
(l) "Copyright Security Agreement" means each Copyright Security Agreement
among Grantors, or any of them, and Secured Parties, in substantially the form
of Exhibit A attached hereto, pursuant to which Grantors have granted to each
Secured Party a security interest in all their respective Copyrights, as may be
amended, restated, supplemented, or otherwise modified from time to time.
(m) "Deposit Account" means a deposit account (as that term is defined in
the Code).
(n) "Deposit Account Control Agreement" means a deposit account control
agreement by and among Parent, the Secured Parties and [____________].
(o) "Equipment" means all equipment (as that term is defined in the Code)
in all of its forms of the applicable Grantor, wherever located, and including,
without limitation, all machinery, apparatus, installation facilities and other
tangible personal property, and all parts thereof and all accessions, additions,
attachments, improvements, substitutions, replacements and proceeds thereto and
therefor.
(p) "Event of Default" means, with respect to a Secured Party, the failure
of Parent to pay such Secured Party's Event of Default Redemption Price (as
defined in the Notes) in full in accordance with Section 10(a) of such Secured
Party's Note.
(q) "General Intangibles" means general intangibles (as that term is
defined in the Code) and, in any event, includes payment intangibles, contract
rights, rights to payment, rights arising under common law, statutes, or
regulations, choses or things in action, goodwill (including the goodwill
associated with any Trademark, Patent, or Copyright), Patents, Trademarks,
Copyrights, URLs and domain names, industrial designs, other industrial or
Intellectual Property or rights therein or applications therefor, whether under
license or otherwise, programs, programming materials, blueprints, drawings,
purchase orders, customer lists, monies due or recoverable from pension funds,
route lists, rights to payment and other rights under any royalty or licensing
agreements, including Intellectual Property Licenses, infringement claims,
computer programs, information contained on computer disks or tapes, software,
literature, reports, catalogs, pension plan refunds, pension plan refund claims,
insurance premium rebates, tax refunds, and tax refund claims, interests in a
partnership or limited liability company which do not constitute a security
under Article 8 of the Code, and any other personal property other than
Commercial Tort Claims, money, Accounts, Chattel Paper, Deposit Accounts, goods,
Investment Related Property, Negotiable Collateral, and oil, gas, or other
minerals before extraction.
3
(r) "Governmental Authority" means any domestic or foreign federal, state,
local, or other governmental or administrative body, instrumentality, board,
department, or agency or any court, tribunal, administrative hearing body,
arbitration panel, commission, or other similar dispute-resolving panel or body.
(s) "Guaranty" means each Guaranty, in the form attached hereto as Exhibit
D, executed by each Guarantor in favor of any or all of the Secured Parties,
together with any other guaranty or similar agreement now or hereafter executed
by a Guarantor in favor of any or all of the Secured Parties in connection with
the Notes or any of the other Transaction Documents, as may be amended,
restated, supplemented, or otherwise modified from time to time, and all of the
foregoing are collectively referred to herein as the "Guaranties."
(t) "Guarantor" means each Grantor, other than Parent, and each other
Person that now or hereafter executes a Guaranty.
(u) "Insolvency Proceeding" means any proceeding commenced by or against
any Person under any provision of the Bankruptcy Code or under any other state
or federal bankruptcy or insolvency law or any equivalent laws in any other
jurisdiction, assignments for the benefit of creditors, formal or informal
moratoria, compositions, extensions generally with creditors, or proceedings
seeking reorganization, arrangement, or other similar relief.
(v) "Intellectual Property" means Patents, Copyrights, Trademarks, the
goodwill associated with such Trademarks, trade secrets and customer lists, and
Intellectual Property Licenses.
(w) "Intellectual Property Licenses" means rights under or interests in any
patent, trademark, copyright or other intellectual property, including software
license agreements with any other party, whether the applicable Grantor is a
licensee or licensor under any such license agreement, including the license
agreements listed on Schedule 3 attached hereto and made a part hereof, as may
be amended, restated, supplemented, or otherwise modified from time to time.
(x) "Inventory" means all inventory (as that term is defined in the Code)
in all of its forms of the applicable Grantor, wherever located, including,
without limitation, (i) all goods in which the applicable Grantor has an
interest in mass or a joint or other interest or right of any kind (including
goods in which the applicable Grantor has an interest or right as consignee),
and (ii) all goods which are returned to or repossessed by the applicable
Grantor, and all accessions thereto, products thereof and documents therefor.
(y) "Investment Related Property" means (i) investment property (as that
term is defined in the Code), and (ii) all of the following (regardless of
whether classified as investment property under the Code): all Pledged
Interests, Pledged Operating Agreements, and Pledged Partnership Agreements.
(z) "Lien" has the meaning specified therefor in the Notes.
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(aa) "Negotiable Collateral" means letters of credit, letter-of-credit
rights, instruments, promissory notes, drafts, and documents.
(bb) "New Subsidiary" has the meaning specified therefor in the Notes.
(cc) "Notes" has the meaning specified therefor in the Exchange Agreement.
(dd) "Patents" means all patents and patent applications, and also includes
(i) the patents and patent applications listed on Schedule 4 attached hereto and
made a part hereof, (ii) all renewals thereof, (iii) all income, royalties,
damages and payments now and hereafter due or payable under and with respect
thereto, including payments under all licenses entered into in connection
therewith and damages and payments for past or future infringements or dilutions
thereof, (iv) the right to sue for past, present and future infringements and
dilutions thereof, and (v) all of each Grantor's rights corresponding thereto
throughout the world.
(ee) "Patent Security Agreement" means each Patent Security Agreement among
Grantors and Secured Parties in substantially the form of Exhibit B attached
hereto, pursuant to which Grantors have granted to each Secured Party a security
interest in all their respective Patents, as may be amended, restated,
supplemented, or otherwise modified from time to time.
(ff) "Permitted Liens" has the meaning specified therefor in the Notes.
(gg) "Permitted Secured Party" means, with respect to the exercise of any
remedy provided for under this Agreement, any Secured Party that has delivered a
Commencement Notice with respect to the exercise of such remedy to the other
Secured Parties and has not received a Veto Notice with respect thereto within
the Veto Period (other than a Commencement Notice to which the Veto Period does
not apply); provided, however, there shall only be a single Permitted Secured
Party that may exercise any specific remedy at any one time (it being agreed
that if a Commencement Notice is delivered by more than one Secured Party with
respect to any remedy provided for under this Agreement, then the first Secured
Party to deliver a Commencement Notice and not receive a Veto Notice within the
Veto Period shall be the only Secured Party that may exercise such remedy).
(hh) "Person" has the meaning specified therefor in the Exchange Agreement.
(ii) "Pledged Companies" means, each Person listed on Schedule 5 hereto as
a "Pledged Company," together with each other Person all or a portion of whose
Stock is acquired or otherwise owned by a Grantor after the date hereof.
(jj) "Pledged Interests" means all of each Grantor's right, title and
interest in and to all of the Stock now or hereafter owned by such Grantor,
regardless of class or designation, including all substitutions therefor and
replacements thereof, all proceeds thereof and all rights relating thereto, also
including any certificates representing the Stock, the right to receive any
certificates representing any of the Stock, all warrants, options, share
appreciation rights and other rights, contractual or otherwise, in respect
5
thereof, and the right to receive dividends, distributions of income, profits,
surplus, or other compensation by way of income or liquidating distributions, in
cash or in kind, and cash, instruments, and other property from time to time
received, receivable, or otherwise distributed in respect of or in addition to,
in substitution of, on account of, or in exchange for any or all of the
foregoing.
(kk) "Pledged Operating Agreements" means all of each Grantor's rights,
powers, and remedies under the limited liability company operating agreements of
each of the Pledged Companies that are limited liability companies, as may be
amended, restated, supplemented, or otherwise modified from time to time.
(ll) "Pledged Partnership Agreements" means all of each Grantor's rights,
powers, and remedies under the partnership agreements of each of the Pledged
Companies that are partnerships, as may be amended, restated, supplemented, or
otherwise modified from time to time.
(mm) "Proceeds" has the meaning specified therefor in Section 2.
(nn) "Real Property" means any estates or interests in real property now
owned or hereafter acquired by any Grantor and the improvements thereto.
(oo) "Records" means information that is inscribed on a tangible medium or
which is stored in an electronic or other medium and is retrievable in
perceivable form.
(pp) "Secured Obligations" mean all of the present and future payment
obligations of Grantors arising under this Agreement, the Notes, the Guaranties,
and the other Transaction Documents, including, without duplication, reasonable
attorneys' fees and expenses and any interest, fees, or expenses that accrue
after the filing of an Insolvency Proceeding, regardless of whether allowed or
allowable in whole or in part as a claim in any Insolvency Proceeding.
(qq) "Securities Account" means a securities account (as that term is
defined in the Code).
(rr) "Security Documents" means, collectively, this Agreement, each
Copyright Security Agreement, each Patent Security Agreement, each Trademark
Security Agreement, each Control Agreement, and each other security agreement,
pledge agreement, assignment, mortgage, security deed, deed of trust, and other
agreement or document executed and delivered by a Grantor as security for any of
the Secured Obligations, as may be amended, restated, supplemented, or otherwise
modified from time to time.
(ss) "Security Interest" and "Security Interests" have the meanings
specified therefor in Section 2.
(tt) "Significant Secured Party" means, on any date of determination, (as
applicable) (x) any Secured Party holding twenty-five percent (25%) or more of
the aggregate principal amount of Notes outstanding on such date or (y) if no
Secured Party holds twenty-five percent (25%) or more of the aggregate principal
6
amount of Notes outstanding on such date, the Secured Party holding the greatest
aggregate principal amount of Notes outstanding on such date.
(uu) "Stock" means all shares, options, warrants, interests (including,
without limitation, membership and partnership interests), participations, or
other equivalents (regardless of how designated) of or in a Person, whether
voting or nonvoting, including common stock, preferred stock, or any other
"equity security" (as such term is defined in Rule 3a11-1 of the General Rules
and Regulations promulgated by the United States Securities and Exchange
Commission and any successor thereto under the Securities Exchange Act of 1934,
as in effect from time to time).
(vv) "Subsidiaries" and "Subsidiary" each have the meanings specified
therefor in the Notes.
(ww) "Supporting Obligations" means supporting obligations (as such term is
defined in the Code).
(xx) "Trademarks" means all trademarks, trade names, trademark
applications, service marks, service mark applications, and also includes (i)
the trade names, trademarks, trademark applications, service marks, and service
mark applications listed on Schedule 6 attached hereto and made a part hereof,
and (ii) all renewals thereof, (iii) all income, royalties, damages and payments
now and hereafter due or payable under and with respect thereto, including
payments under all licenses entered into in connection therewith and damages and
payments for past or future infringements or dilutions thereof, (iv) the right
to sue for past, present and future infringements and dilutions thereof, (v) the
goodwill of each Grantor's business symbolized by the foregoing or connected
therewith, and (vi) all of each Grantor's rights corresponding thereto
throughout the world.
(yy) "Trademark Security Agreement" means each Trademark Security Agreement
among Grantors and Secured Parties in substantially the form of Exhibit C
attached hereto, pursuant to which Grantors have granted to each Secured Party a
security interest in all their respective Trademarks.
(zz) "Transaction Documents" has the meaning specified therefor in the
Exchange Agreement.
(aaa) "URL" means "uniform resource locator," an internet web address.
(bbb) "Veto Notice" means, with respect to any Commencement Notice, a
written notice given by any Significant Secured Party to the other Secured
Parties in accordance with the notice provisions set forth in the Exchange
Agreement pursuant to which such Significant Secured Party notifies the other
Secured Parties of its objection to the commencement of the remedial action
specified in such Commencement Notice and certifies that, to the best of its
knowledge, it is a Significant Secured Party.
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(ccc) "Veto Period" means, with respect to any Commencement Notice (other
than a Commencement Notice given by a Significant Secured Party at a time when
such Significant Secured Party is the only the Significant Secured Party), the
period of two (2) Business Days following the delivery of such Commencement
Notice to the Secured Parties.
2. Grant of Security. Each Grantor hereby unconditionally grants, assigns,
and pledges to each Secured Party a separate, continuing security interest
(each, a "Security Interest" and, collectively, the "Security Interests") in all
of the personal property of such Grantor and in all of the other assets
described below of such Grantor whether now owned or hereafter acquired or
arising and wherever located (collectively, the "Collateral), including, without
limitation, the following:
(a) all of such Grantor's Accounts;
(b) all of such Grantor's Books;
(c) all of such Grantor's Chattel Paper;
(d) all of such Grantor's Deposit Accounts;
(e) all of such Grantor's Equipment and fixtures;
(f) all of such Grantor's General Intangibles;
(g) all of such Grantor's Inventory;
(h) all of such Grantor's Investment Related Property;
(i) all of such Grantor's Negotiable Collateral;
(j) all of such Grantor's rights in respect of Supporting Obligations;
(k) all of such Grantor's Commercial Tort Claims;
(l) all of such Grantor's money, cash, cash equivalents, or other assets of
each such Grantor that now or hereafter come into the possession, custody, or
control of any Secured Party;
(m) all of the proceeds and products, whether tangible or intangible, of
any of the foregoing, including proceeds of insurance or Commercial Tort Claims
covering or relating to any or all of the foregoing, and any and all Accounts,
Books, Chattel Paper, Deposit Accounts, Equipment, General Intangibles,
Inventory, Investment Related Property, Negotiable Collateral, Supporting
Obligations, money, or other tangible or intangible property resulting from the
sale, lease, license, exchange, collection, or other disposition of any of the
foregoing, the proceeds of any award in condemnation with respect to any of the
foregoing, any rebates or refunds, whether for taxes or otherwise, and all
proceeds of any such proceeds, or any portion thereof or interest therein, and
8
the proceeds thereof, and all proceeds of any loss of, damage to, or destruction
of the above, whether insured or not insured, and, to the extent not otherwise
included, any indemnity, warranty, or guaranty payable by reason of loss or
damage to, or otherwise with respect to any of the foregoing (the "Proceeds").
Without limiting the generality of the foregoing, the term "Proceeds" includes
whatever is receivable or received when Investment Related Property or proceeds
are sold, exchanged, collected, or otherwise disposed of, whether such
disposition is voluntary or involuntary, and includes proceeds of any indemnity
or guaranty payable to any Grantor or any Secured Party from time to time with
respect to any of the Investment Related Property.
3. Security for Obligations. This Agreement and the Security Interests
created hereby secure the payment and performance of the Secured Obligations,
whether now existing or arising hereafter. Without limiting the generality of
the foregoing, this Agreement secures the payment of all amounts which
constitute part of the Secured Obligations and would be owed by Grantors, or any
of them, to Secured Parties, or any of them, but for the fact that they are
unenforceable or not allowable due to the existence of an Insolvency Proceeding
involving any Grantor.
4. Grantors Remain Liable. Anything herein to the contrary notwithstanding,
(a) each of the Grantors shall remain liable under the contracts and agreements
included in the Collateral, including the Pledged Operating Agreements and the
Pledged Partnership Agreements, to perform all of the duties and obligations
thereunder to the same extent as if this Agreement had not been executed, (b)
the exercise by Secured Parties, or any of them, of any of the rights hereunder
shall not release any Grantor from any of its duties or obligations under such
contracts and agreements included in the Collateral, and (c) no Secured Party
shall have any obligation or liability under such contracts and agreements
included in the Collateral by reason of this Agreement, nor shall any Secured
Party be obligated to perform any of the obligations or duties of any Grantor
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder. Until an Event of Default shall occur and be continuing,
except as otherwise provided in this Agreement or any other Transaction
Document, Grantors shall have the right to possession and enjoyment of the
Collateral for the purpose of conducting the ordinary course of their respective
businesses, subject to and upon the terms hereof and the other Transaction
Documents. Without limiting the generality of the foregoing, it is the intention
of the parties hereto that record and beneficial ownership of the Pledged
Interests, including all voting, consensual, and dividend rights, shall remain
in the applicable Grantor until the occurrence of an Event of Default and until
any Secured Party shall notify the applicable Grantor of such Secured Party's
exercise of voting, consensual, or dividend rights with respect to the Pledged
Interests pursuant to Section 15 hereof.
5. Representations and Warranties. Each Grantor hereby represents and
warrants as follows:
(a) The exact legal name of each of the Grantors is set forth on the
signature pages of this Agreement.
9
(b) Schedule 7 attached hereto sets forth (i) all Real Property owned or
leased by Grantors, together with all other locations of Collateral, as of the
date hereof, and (ii) the chief executive office of each Grantor as of the date
hereof.
(c) As of the date hereof, no Grantor has any interest in, or title to, any
Copyrights, Intellectual Property Licenses, Patents, or Trademarks except as set
forth on Schedules 2, 3, 4 and 6, respectively, attached hereto. This Agreement
is effective to create a valid and continuing Lien on such Copyrights,
Intellectual Property Licenses, Patents and Trademarks and, upon filing of the
Copyright Security Agreement with the United States Copyright Office and filing
of the Patent Security Agreement and the Trademark Security Agreement with the
United States Patent and Trademark Office, and the filing of appropriate
financing statements in the jurisdictions listed on Schedule 8 hereto, all
action necessary or desirable to protect and perfect the Security Interests in
and to each Grantor's Patents, Trademarks, or Copyrights has been taken and such
perfected Security Interests are enforceable as such as against any and all
creditors of and purchasers from any Grantor. No Grantor has any interest in any
Copyright that is necessary in connection with the operation of such Grantor's
business, except for those Copyrights identified on Schedule 2 attached hereto
which have been registered with the United States Copyright Office.
(d) This Agreement creates a valid security interest in all of the
Collateral of each Grantor, to the extent a security interest therein can be
created under the Code, securing the payment of the Secured Obligations. Except
to the extent a security interest in the Collateral cannot be perfected by the
filing of a financing statement under the Code, all filings and other actions
necessary or desirable to perfect and protect such security interest have been
duly taken or will have been taken upon the filing of financing statements
listing each applicable Grantor, as a debtor, and Secured Parties, as secured
parties, in the jurisdictions listed next to such Grantor's name on Schedule 8
attached hereto. Upon the making of such filings, subject to any Permitted
Liens, Secured Parties shall each have a first priority perfected security
interest in all of the Collateral of each Grantor to the extent such security
interest can be perfected by the filing of a financing statement. All action by
any Grantor necessary to protect and perfect such security interest on each item
of Collateral has been duly taken.
(e) (i) Except for the Security Interests created hereby, such Grantor is
and has at all times been the sole holder of record and the legal and beneficial
owner, free and clear of all Liens other than Permitted Liens, of the Pledged
Interests indicated on Schedule 5 as being owned by such Grantor and, when
acquired by such Grantor, any Pledged Interests acquired after the date hereof;
(ii) all of the Pledged Interests are duly authorized, validly issued, fully
paid and non-assessable and the Pledged Interests constitute or will constitute
the percentage of the issued and outstanding Stock of the Pledged Companies of
such Grantor identified on Schedule 5 hereto; (iii) such Grantor has the right
and requisite authority to pledge all Investment Related Property pledged by
such Grantor to each Secured Party as provided herein; (iv) subject to any
Permitted Liens, all actions necessary or desirable to perfect, establish the
first priority of, or otherwise protect, Secured Parties' respective Liens in
the Investment Related Property pledged hereunder, and the proceeds thereof (to
the extent perfection may be achieved by the filings, possession or control set
10
forth herein) have been duly taken, (A) upon the execution and delivery of this
Agreement; (B) upon the taking of possession by any Secured Party of any
certificates constituting the Pledged Interests, to the extent such Pledged
Interests are represented by certificates, together with undated powers endorsed
in blank by the applicable Grantor; (C) upon the filing of financing statements
in the applicable jurisdiction set forth on Schedule 8 attached hereto for such
Grantor with respect to the Pledged Interests of such Grantor that are not
represented by certificates, and (D) with respect to any Securities Accounts,
upon the delivery of Control Agreements with respect thereto; and (v) each
Grantor has delivered to and deposited with the Significant Secured Party
holding the greatest aggregate principal amount of Notes outstanding on such
date (at all times while such Significant Secured Party holds the greatest
aggregate principal amount of Notes such Significant Secured Party is referred
to herein as a "Possessory Secured Party") (or, with respect to any Pledged
Interests created or obtained after the date hereof, will deliver and deposit in
accordance with Sections 6(a) and 8 hereof) all certificates representing the
Pledged Interests now or hereafter owned by such Grantor to the extent such
Pledged Interests are represented by certificates, and undated powers endorsed
in blank with respect to such certificates. To the knowledge of the Grantor,
none of the Pledged Interests owned or held by such Grantor have been issued or
transferred in violation of any securities registration, securities disclosure,
or similar laws of any jurisdiction to which such issuance or transfer may be
subject. Within five (5) Business Days after a Possessory Secured Party ceases
to be a Possessory Secured Party in accordance with the foregoing, such former
Possessory Secured Party shall deliver all Collateral held by such former
Possessory Secured Party to the Significant Secured Party who is then the
Possessory Secured Party. Notwithstanding anything contained in this Section
5(e) or Section 6(a) to the contrary, it is expressly understood and agreed that
any Collateral which solely requires possession thereof to perfect the security
interest granted therein under this Agreement and which is possessed by a
Possessory Secured Party shall be held solely for such Possessory Secured
Party's own benefit and not the benefit of any other Secured Party.
(f) No consent, approval, authorization, or other order or other action by,
and no notice to or filing with, any Governmental Authority or any other Person
is required (i) for the grant of a Security Interest by such Grantor in and to
the Collateral pursuant to this Agreement or for the execution, delivery, or
performance of this Agreement by such Grantor, or (ii) for the exercise by any
Secured Party of the voting or other rights provided in this Agreement with
respect to Investment Related Property pledged hereunder or the remedies in
respect of the Collateral pursuant to this Agreement, except (A) as may be
required in connection with such disposition of Investment Related Property by
laws affecting the offering and sale of securities generally and (B) for any
consent that may be required for the assignment of any Intellectual Property
License that expressly provides that such Intellectual Property License is not
assignable (or is not assignable without the consent of the other party to such
Intellectual Property License).
(g) Schedule 9 contains a complete and accurate list of all of each
Grantor's Deposit Accounts and Securities Accounts, including, without
limitation, with respect to each bank or securities intermediary (a) the name
11
and address of such bank or securities intermediary and (b) the account numbers
of such accounts maintained with such bank or securities intermediary.
6. Covenants. Each Grantor, jointly and severally, covenants and agrees
with each Secured Party that from and after the date of this Agreement and until
the date of termination of this Agreement in accordance with Section 24 hereof
(but only to the extent the particular assets described in this Section 6
constitute Collateral hereunder):
(a) Possession of Collateral. In the event that any Collateral, including
proceeds, is evidenced by or consists of Negotiable Collateral, Investment
Related Property, or Chattel Paper, and if and to the extent that perfection or
priority of Secured Parties' respective Security Interests is dependent on
possession the applicable Grantor, within two (2) Business Days of a written
request of any Secured Party, shall execute such other documents and instruments
as shall be requested by such Secured Party or, if applicable, endorse and
deliver physical possession of such Negotiable Collateral, Investment Related
Property, or Chattel Paper to the Significant Secured Party who is then the
Possessory Secured Party, together with such undated powers endorsed in blank as
shall be requested by such Secured Party.
(b) Chattel Paper.
(i) Upon request by any Secured Party, each Grantor shall take all
steps reasonably necessary to grant each Secured Party control of all
Chattel Paper in accordance with the Code and all "transferable records" as
that term is defined in Section 16 of the Uniform Electronic Purchase Act
and Section 201 of the federal Electronic Signatures in Global and National
Commerce Act as in effect in any relevant jurisdiction; and
(ii) If any Grantor retains possession of any Chattel Paper or
instruments (which retention of possession shall be subject to the extent
permitted hereby), promptly upon the request of any Secured Party, such
Chattel Paper and instruments shall be marked with the following legend:
"This writing and the obligations evidenced or secured hereby are subject
to the Security Interests set forth in the Security Agreement, dated
________ 2011, by and among [ ]."
(c) Control Agreements. No Grantor shall establish or maintain any Deposit
Account or Securities Account (or any other similar account) unless (i) the
Grantors shall have provided each Secured Party with five (5) days' advance
written notice of the opening of each such account or (ii) the Secured Parties
shall have received a Control Agreement in respect of such account concurrently
with the opening thereof or on the Closing Date (as defined in the Exchange
Agreement) (as applicable). To the extent an Account Debtor of the Grantor makes
payments directly to a Deposit Account, each Grantor shall use reasonable best
efforts to ensure that all of its Account Debtors forward payment of the amounts
owed by them directly to a Deposit Account that is subject to a Control
Agreement, and deposit or cause to be deposited promptly, and in any event no
later than the fifth (5th) Business Day after the date of receipt thereof, all
of their collections (including those sent directly by their Account Debtors to
12
a Grantor) into a Deposit Account subject to a Control Agreement. Each Secured
Party will not disclose the information contained on Schedule 9 attached hereto
unless otherwise required by law or applicable legal process or in connection
with the enforcement of such Secured Party's right hereunder. Parent represents
and warrants that such information contained on Schedule 9 attached hereto is
not material information relating any Grantor.
(d) Letter-of-Credit Rights. Each Grantor that is or becomes the
beneficiary of a letter of credit shall promptly (and in any event within ten
(10) Business Days after becoming a beneficiary) notify Secured Parties thereof
and, upon the request by any Secured Party, enter into a multi-party agreement
with Secured Parties and the issuing or confirming bank with respect to
letter-of-credit rights assigning such letter-of-credit rights to Secured
Parties and directing all payments thereunder to Secured Parties, all in form
and substance satisfactory to Secured Parties.
(e) Commercial Tort Claims. Each Grantor shall promptly (and in any event
within ten (10) Business Days of receipt thereof) notify Secured Parties in
writing upon incurring or otherwise obtaining a Commercial Tort Claim after the
date hereof and, upon request of any Secured Party, promptly amend Schedule 1 to
this Agreement to describe such after-acquired Commercial Tort Claim in a manner
that reasonably identifies such Commercial Tort Claim, and hereby authorizes the
filing of additional financing statements or amendments to existing financing
statements describing such Commercial Tort Claims, and agrees to do such other
reasonable acts deemed necessary or desirable by any Secured Party to give
Secured Parties subject to any Permitted Liens, a first priority, perfected
security interest in any such Commercial Tort Claim.
(f) Government Contracts. If any Account or Chattel Paper arises out of a
contract or contracts with the United States of America or any department,
agency, or instrumentality thereof, Grantors shall promptly (and in any event
within ten (10) Business Days of the creation thereof) notify Secured Parties
thereof in writing, and take all other appropriate actions under the Assignment
of Claims Act or other applicable law to provide each Secured Party subject to
any Permitted Liens, a first-priority perfected security interest in such
contract.
(g) Intellectual Property.
(i) Upon five (5) Business Days prior written request of any Secured
Party, in order to facilitate filings with the United States Patent and
Trademark Office and the United States Copyright Office or any other
applicable Governmental Authority, each Grantor shall execute and deliver
to Secured Parties one or more Copyright Security Agreements, Trademark
Security Agreements, or Patent Security Agreements (collectively, the "IP
Agreements") to further evidence Secured Parties' respective Liens on such
Grantor's Copyrights, Trademarks or Patents.
(ii) To the extent that each Grantor has actual knowledge of any of
the following, each Grantor shall have the duty to: (A) promptly sue for
infringement, misappropriation, or dilution with respect to its rights in
Intellectual Property and to recover any and all damages for such
13
infringement, misappropriation, or dilution, (B) prosecute diligently any
trademark application or service mark application that is part of the
Trademarks pending as of the date hereof or hereafter until the termination
of this Agreement, (C) prosecute diligently any patent application that is
part of the Patents pending as of the date hereof or hereafter until the
termination of this Agreement, and (D) take all reasonable and necessary
action to preserve and maintain all of each Grantor's Trademarks, Patents,
Copyrights, Intellectual Property Licenses, and its rights therein,
including the filing of applications for renewal, affidavits of use,
affidavits of noncontestability and opposition and interference and
cancellation proceedings. Each Grantor shall promptly file an application
with the United States Copyright Office for any Copyright that has not been
registered with the United States Copyright Office. Each Grantor shall, if
commercially reasonable, promptly file an application with the United
States Patent and Trademark Office for any Patent or Trademark that has not
been registered with the United States Patent and Trademark Office. Any
expenses incurred in connection with the foregoing shall be borne by
Grantors. Each Grantor further agrees not to abandon any Trademark, Patent,
Copyright, or Intellectual Property License which is material, either
individually or in the aggregate, to any Grantor's business.
(iii) Grantors acknowledge and agree that Secured Parties shall have
no duties with respect to the Trademarks, Patents, Copyrights, or
Intellectual Property Licenses. Without limiting the generality of this
Section 6(g), Grantors acknowledge and agree that no Secured Party shall be
under any obligation to take any steps necessary to preserve rights in the
Trademarks, Patents, Copyrights, or Intellectual Property Licenses against
any other Person, but any Secured Party may do so at its option from and
after the occurrence and during the continuance of an Event of Default, and
all expenses incurred in connection therewith (including fees and expenses
of attorneys and other professionals) shall be for the sole account of the
Grantors and shall be deemed to be Secured Obligations.
(h) Investment Related Property.
(i) If any Grantor shall receive or become entitled to receive any
Pledged Interests after the date hereof, it shall promptly (and in any
event within ten (10) Business Days of receipt thereof) identify such
Pledged Interests in a written notice to Secured Parties;
(ii) Upon the occurrence and during the continuation of an Event of
Default, all sums of money and property paid or distributed in respect of
the Investment Related Property pledged hereunder which are received by any
Grantor shall be held by the Grantors in trust for the benefit of Secured
Parties segregated from such Grantor's other property, and such Grantor
shall deliver it forthwith to the Secured Parties in the exact form
received;
14
(iii) Each Grantor shall promptly deliver to Secured Parties a copy of
each material notice or other material communication received by it in
respect of any Pledged Interests;
(iv) No Grantor shall make or consent to any material amendment or
other modification or waiver with respect to any Pledged Interests, Pledged
Operating Agreement, or Pledged Partnership Agreement, or enter into any
agreement or permit to exist any restriction with respect to any Pledged
Interests without the prior written consent of the Secured Parties (which
shall not be unreasonably withheld);
(v) Each Grantor agrees that it will reasonably cooperate with the
Secured Parties in obtaining all necessary approvals and making all
necessary filings under federal, state, local, or foreign law in connection
with the Security Interests on the Investment Related Property pledged
hereunder or any sale or transfer thereof; and
(vi) As to all limited liability company or partnership interests
issued under any Pledged Operating Agreement or Pledged Partnership
Agreement, each Grantor hereby represents, warrants and covenants that to
the knowledge of each Grantor the Pledged Interests issued pursuant to such
agreement (A) are not and shall not be dealt in or traded on securities
exchanges or in securities markets, (B) do not and will not constitute
investment company securities, and (C) are not and will not be held by such
Grantor in a securities account. In addition, none of the Pledged Operating
Agreements, the Pledged Partnership Agreements, or any other agreements
governing any of the Pledged Interests issued under any Pledged Operating
Agreement or Pledged Partnership Agreement, provide or shall provide that
such Pledged Interests are securities governed by Article 8 of the Uniform
Commercial Code as in effect in any relevant jurisdiction.
(i) Transfers and Other Liens. Grantors shall not (i) sell, lease, license,
assign (by operation of law or otherwise), transfer or otherwise dispose of, or
grant any option with respect to, any of the Collateral, except as expressly
permitted by this Agreement and the other Transaction Documents (including,
without limitation, as expressly permitted by Section 12(f) of the Notes), or
(ii) create or permit to exist any Lien upon or with respect to any of the
Collateral of any of Grantors, except for Permitted Liens. The inclusion of
Proceeds in the Collateral shall not be deemed to constitute consent by any
Secured Party to any sale or other disposition of any of the Collateral except
as expressly permitted in this Agreement or the other Transaction Documents.
Notwithstanding anything contained in this Agreement to the contrary, Permitted
Liens shall not be permitted with respect to any Pledged Interests.
(j) Preservation of Existence. Each Grantor shall maintain and preserve its
existence, rights and privileges, and become or remain duly qualified and in
good standing in each jurisdiction in which the character of the properties
owned or leased by it or in which the transaction of its business makes such
qualification necessary.
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(k) Maintenance of Properties. Each Grantor shall maintain and preserve all
of its properties which are necessary or useful in the proper conduct of its
business in good working order and condition, ordinary wear and tear excepted,
and comply at all times with the provisions of all leases to which it is a party
as lessee or under which it occupies property, so as to prevent any loss or
forfeiture thereof or thereunder.
(l) Maintenance of Insurance. Each Grantor shall maintain insurance with
insurance companies or associations (including, without limitation,
comprehensive general liability, property, hazard, rent and business
interruption insurance) with respect to all of its assets and properties
(including, without limitation, all real properties leased or owned by it and
any and all Inventory and Equipment) and business, in such amounts and covering
such risks as is required by any governmental authority having jurisdiction with
respect thereto or as is carried generally in accordance with sound business
practice by companies in similar businesses similarly situated, in each case,
acceptable to the Secured Parties.
(m) Other Actions as to Any and All Collateral. Each Grantor shall promptly
(and in any event within ten (10) Business Days of acquiring or obtaining such
Collateral) notify Secured Parties in writing upon (i) acquiring or otherwise
obtaining any material Collateral after the date hereof consisting of
Trademarks, Patents, registered Copyrights, Intellectual Property Licenses,
Investment Related Property, Chattel Paper (electronic, tangible or otherwise),
documents (as defined in Article 9 of the Code), promissory notes (as defined in
the Code, or instruments (as defined in the Code) or (ii) any amount payable
under or in connection with any of the Collateral being or becoming evidenced
after the date hereof by any Chattel Paper, documents, promissory notes, or
instruments and, in each such case upon the reasonable request of any Secured
Party, promptly execute such other documents, or if applicable, deliver such
Chattel Paper, other documents or certificates evidencing any Investment Related
Property and do such other acts deemed reasonably necessary or desirable by any
Secured Party to protect Secured Parties' respective Security Interests therein.
For the purposes of this Section 6(m), "material Collateral" shall mean
Collateral having a fair market value of at least $100,000, either individually
or in the aggregate.
7. Relation to Other Transaction Documents. The provisions of this
Agreement shall be read and construed with the Transaction Documents referred to
below in the manner so indicated.
(a) Exchange Agreement and Notes. In the event of any conflict between any
provision in this Agreement and any provision in the Exchange Agreement or
Notes, such provision of the Exchange Agreement or Notes shall control, except
to the extent the applicable provision in this Agreement is more restrictive
with respect to the rights of Grantors or imposes more burdensome or additional
obligations on Grantors, in which event the applicable provision in this
Agreement shall control.
(b) Patent, Trademark, Copyright Security Agreements. The provisions of the
Copyright Security Agreements, Trademark Security Agreements, and Patent
Security Agreements are supplemental to the provisions of this Agreement, and
nothing contained in the Copyright Security Agreements, Trademark Security
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Agreements or the Patent Security Agreements shall limit any of the rights or
remedies of any Secured Party hereunder.
8. Further Assurances.
(a) Each Grantor agrees that from time to time, at its own expense, such
Grantor will promptly execute and deliver all further instruments and documents,
and take all further action, that may be necessary or that any Secured Party may
reasonably request, in order to perfect and protect the Security Interests
granted or purported to be granted hereby or to enable any Secured Party to
exercise and enforce its rights and remedies hereunder with respect to any of
the Collateral.
(b) Each Grantor authorizes the filing by any Secured Party of financing or
continuation statements, or amendments thereto, and such Grantor will execute
and deliver to such Secured Party such other instruments or notices, as may be
necessary or as such Secured Party may reasonably request, in order to perfect
and preserve the Security Interests granted or purported to be granted hereby.
(c) Each Grantor authorizes any Secured Party at any time and from time to
time to file, transmit, or communicate, as applicable, financing statements and
amendments (i) describing the Collateral as "all personal property of debtor" or
"all assets of debtor" or words of similar effect, (ii) describing the
Collateral as being of equal or lesser scope or with greater detail, or (iii)
that contain any information required by part 5 of Article 9 of the Code for the
sufficiency or filing office acceptance.
(d) Each Grantor acknowledges that it is not authorized to file any
financing statement or amendment or termination statement with respect to any
financing statement filed in connection with this Agreement without the prior
written consent of each Secured Party affected thereby, subject to such
Grantor's rights under Section 9-509(d)(2) of the Code.
(e) Each Grantor shall permit each Secured Party or its employees,
accountants, attorneys or agents, to examine and inspect any Collateral or any
other property of such Grantor at any time during ordinary business hours two
(2) Business Days' prior written notice; provided that, (i) any such examination
or inspection by any one or more Secured Parties or any of its/their employees,
accountants, attorneys or agents of the manufacturing facility commonly known as
6905 San Tomas Road, Elkridge, MD 21075 (the "Facility") shall be conducted in
the presence of a designated representative of Grantors and (ii) the Classified
Space of the Facility shall not be physically accessible to non-employees of any
such Grantor. As used herein, the term "Classified Space" means any
manufacturing and or manufacturing support space within the Facility designated
by a recognized, national and or international drug regulatory body to be
"Classified" to a specific level of cleanliness (it being agreed that examples
of such designation would be: ISO (cleanliness) Classifications 5, 6, 7, 8; EU
(cleanliness) Class A, B, C, D; and US (cleanliness) Class 100, 10,000, and
100,000).
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9. Secured Parties' Right to Perform Contracts, Exercise Rights, etc. Upon
the occurrence and during the continuance of an Event of Default, any Secured
Party (a) may proceed to perform any and all of the obligations of any Grantor
contained in any contract, lease, or other agreement and exercise any and all
rights of any Grantor therein contained as fully as such Grantor itself could,
(b) shall have the right to use any Grantor's rights under Intellectual Property
Licenses in connection with the enforcement of the Secured Party's rights
hereunder, including the right to prepare for sale and sell any and all
Inventory and Equipment now or hereafter owned by any Grantor and now or
hereafter covered by such licenses, and (c) shall have the right to request that
any Stock that is pledged hereunder be registered in the name of such Secured
Party or any of its nominees.
10. Secured Parties Appointed Attorney-in-Fact. Upon the occurrence and
during the continuance of an Event of Default, each Grantor, on behalf of itself
and each New Subsidiary of such Grantor, hereby irrevocably appoints each
Secured Party as the attorney-in-fact of such Grantor and each such New
Subsidiary. In the event any Grantor or any New Subsidiary fails to execute or
deliver in a timely manner any Transaction Document or other agreement,
document, certificate or instrument which such Grantor or New Subsidiary now or
at any time hereafter is required to execute or deliver pursuant to the terms of
the Exchange Agreement or any other Transaction Document, each Secured Party
shall have full authority in the place and stead of such Grantor or New
Subsidiary, and in the name of such Grantor, such New Subsidiary or otherwise,
to execute and deliver each of the foregoing. Without limitation of the
foregoing, each Secured Party shall have full authority in the place and stead
of each Grantor and each New Subsidiary, and in the name of any such Grantor,
any such New Subsidiary or otherwise, at such time as an Event of Default has
occurred and is continuing, to take any action and to execute any instrument
which such Secured Party may reasonably deem necessary or advisable to
accomplish the purposes of this Agreement, including, without limitation:
(a) to ask, demand, collect, sue for, recover, compromise, receive and give
acquittance and receipts for moneys due and to become due under or in connection
with any Collateral of such Grantor or New Subsidiary;
(b) to receive and open all mail addressed to such Grantor or New
Subsidiary and to notify postal authorities to change the address for the
delivery of mail to such Grantor or New Subsidiary to that of such Secured
Party;
(c) to receive, indorse, and collect any drafts or other instruments,
documents, Negotiable Collateral or Chattel Paper;
(d) to file any claims or take any action or institute any proceedings
which such Secured Party may deem necessary or desirable for the collection of
any of the Collateral of such Grantor or New Subsidiary or otherwise to enforce
the rights of any Secured Party with respect to any of the Collateral;
(e) to repair, alter, or supply goods, if any, necessary to fulfill in
whole or in part the purchase order of any Person obligated to such Grantor or
New Subsidiary in respect of any Account of such Grantor or New Subsidiary;
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(f) to use any labels, Patents, Trademarks, trade names, URLs, domain
names, industrial designs, Copyrights, customer lists, advertising matter or
other industrial or intellectual property rights, in advertising for sale and
selling Inventory and other Collateral and to collect any amounts due under
Accounts, contracts or Negotiable Collateral of such Grantor or New Subsidiary;
and
(g) such Secured Party shall have the right, but shall not be obligated, to
bring suit in its own name to enforce the Trademarks, Patents, Copyrights and
Intellectual Property Licenses and, if such Secured Party shall commence any
such suit, the appropriate Grantor or New Subsidiary shall, at the request of
such Secured Party, do any and all lawful acts and execute any and all proper
documents reasonably required by such Secured Party in aid of such enforcement.
To the extent permitted by law, each Grantor hereby ratifies, for itself and
each of its New Subsidiaries, all that such attorney-in-fact shall lawfully do
or cause to be done by virtue hereof. Such power-of-attorney granted pursuant to
this Section 10 is coupled with an interest and shall be irrevocable until this
Agreement is terminated.
11. Secured Parties May Perform. Subject to any applicable Cure Period (as
defined below), if any Grantor fails to perform any agreement contained herein,
any Secured Party may itself perform, or cause performance of, such agreement,
and the reasonable expenses of such Secured Party incurred in connection
therewith shall be payable, jointly and severally, by Grantors.
12. Secured Parties' Duties; Bailee for Perfection. The powers conferred on
Secured Parties hereunder are solely to protect the Secured Parties' respective
interests in the Collateral and shall not impose any duty upon any Secured Party
in favor of any Grantor or any other Secured Party to exercise any such powers.
Except for the safe custody of any Collateral in its actual possession and the
accounting for moneys actually received by it hereunder, no Secured Party shall
have any duty to any Grantor or any other Secured Party as to any Collateral or
as to the taking of any necessary steps to preserve rights against prior parties
or any other rights pertaining to any Collateral. A Secured Party shall be
deemed to have exercised reasonable care in the custody and preservation of any
Collateral in its actual possession if such Collateral is accorded treatment
substantially equal to that which such Secured Party accords its own property.
Each Secured Party agrees that, with respect to any Collateral at any time or
times in its possession and in which any other Secured Party has a Lien, the
Secured Party in possession of any such Collateral shall be the bailee of each
other Secured Party solely for purposes of perfecting (to the extent not
otherwise perfected) each other Secured Party's Lien in such Collateral,
provided that no Secured Party shall be obligated to obtain or retain possession
of any such Collateral. Without limiting the generality of the foregoing,
Secured Parties and Grantors hereby agree that any Secured Party that is in
possession of any Collateral at such time as the Secured Obligations owing to
such Secured Party have been paid in full may re-deliver such Collateral to the
applicable Grantor or, if requested by any Secured Party prior to such
re-delivery, may deliver such Collateral (unless otherwise restricted by
applicable law or court order and subject in all events to the receipt of an
indemnification of all liabilities arising from such delivery) to the requesting
Secured Party, without recourse to or representation or warranty by the Secured
Party in such possession.
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13. Collection of Accounts, General Intangibles and Negotiable Collateral.
At any time upon the occurrence and during the continuation of an Event of
Default, any Secured Party may (a) notify Account Debtors of any Grantor that
the Accounts, General Intangibles, Chattel Paper or Negotiable Collateral have
been assigned to such Secured Party or that such Secured Party has a security
interest therein, and (b) collect the Accounts, General Intangibles and
Negotiable Collateral directly, and any collection costs and expenses shall
constitute part of the Secured Obligations.
14. Disposition of Pledged Interests by Secured Party. None of the Pledged
Interests existing as of the date of this Agreement are, and none of the Pledged
Interests hereafter acquired on the date of acquisition thereof will be,
registered or qualified under the various federal, state or other securities
laws of the United States or any other jurisdiction, and disposition thereof
after an Event of Default may be restricted to one or more private (instead of
public) sales in view of the lack of such registration. Each Grantor understands
that in connection with such disposition, any Secured Party may approach only a
restricted number of potential purchasers and further understands that a sale
under such circumstances may yield a lower price for the Pledged Interests than
if the Pledged Interests were registered and qualified pursuant to federal,
state and other securities laws and sold on the open market. Each Grantor,
therefore, agrees that: (a) if a Secured Party shall, pursuant to the terms of
this Agreement, sell or cause the Pledged Interests or any portion thereof to be
sold at a private sale, such Secured Party shall have the right to rely upon the
advice and opinion of any nationally recognized brokerage or investment firm
(but shall not be obligated to seek such advice and the failure to do so shall
not be considered in determining the commercial reasonableness of such action)
as to the best manner in which to offer the Pledged Interest or any portion
thereof for sale and as to the best price reasonably obtainable at the private
sale thereof; and (b) such reliance shall be conclusive evidence that such
Secured Party has handled the disposition in a commercially reasonable manner.
15. Voting Rights.
(a) Upon the occurrence and during the continuation of an Event of Default,
(i) any Secured Party may, at its option, and with five (5) Business Days prior
notice to any Grantor, and in addition to all rights and remedies available to
Secured Parties under any other agreement, at law, in equity, or otherwise,
exercise all voting rights, and all other ownership or consensual rights in
respect of the Pledged Interests owned by such Grantor, but under no
circumstances is any Secured Party obligated by the terms of this Agreement to
exercise such rights, and (ii) if such Secured Party duly exercises its right to
vote any of such Pledged Interests, each Grantor hereby appoints such Secured
Party as such Grantor's true and lawful attorney-in-fact and IRREVOCABLE PROXY
to vote such Pledged Interests in any manner that such Secured Party deems
advisable for or against all matters submitted or which may be submitted to a
vote of shareholders, partners or members, as the case may be. Such
power-of-attorney granted pursuant to this Section 15 is coupled with an
interest and shall be irrevocable until this Agreement is terminated.
(b) For so long as any Grantor shall have the right to vote the Pledged
Interests owned by it, such Grantor covenants and agrees that it will not,
20
without the prior written consent of Secured Parties, vote or take any
consensual action with respect to such Pledged Interests which would materially
or adversely affect the rights of Secured Parties exercising the voting rights
owned by such Grantor or the value of the Pledged Interests.
16. Remedies. Upon the occurrence and during the continuance of an Event of
Default:
(a) Any Secured Party may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein, in the other
Transaction Documents, or otherwise available to it, all the rights and remedies
of a secured party on default under the Code or any other applicable law.
Without limiting the generality of the foregoing, each Grantor expressly agrees
that, in any such event, any Secured Party without any demand, advertisement, or
notice of any kind (except a notice specified below of time and place of public
or private sale) to or upon any Grantor or any other Person (all and each of
which demands, advertisements and notices are hereby expressly waived to the
maximum extent permitted by the Code or by any other applicable law), may take
immediate possession of all or any portion of the Collateral and (i) require
Grantors to, and each Grantor hereby agrees that it will at its own expense and
upon request of such Secured Party forthwith, assemble all or part of the
Collateral as directed by such Secured Party and make it available to such
Secured Party at one or more locations where such Grantor regularly maintains
Inventory, and (ii) with at least ten (10) calendar days' prior written notice
to Grantor, sell the Collateral or any part thereof in one or more parcels at
public or private sale, at any of such Secured Party's offices or elsewhere, for
cash, on credit, and upon such other terms as such Secured Party may deem
commercially reasonable. Each Grantor agrees that, to the extent notice of sale
shall be required by law, such ten (10) days' notice of the time and place of
any public sale or the time after which any private sale is to be made shall
constitute reasonable notification and specifically such notice shall constitute
a reasonable "authenticated notification of disposition" within the meaning of
Section 9-611 of the Code. No Secured Party shall be obligated to make any sale
of Collateral regardless of notice of sale having been given. Any Secured Party
may adjourn any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned so long as the
applicable Grantor has received at least two (2) Business Days' notice of such
adjournment and such time and place to which such is so adjourned.
(b) Each Secured Party is hereby granted a license or other right to use,
without liability for royalties or any other charge, each Grantor's labels,
Patents, Copyrights, rights of use of any name, trade secrets, trade names,
Trademarks, service marks and advertising matter, URLs, domain names, industrial
designs, other industrial or intellectual property or any property of a similar
nature, whether owned by any Grantor or with respect to which any Grantor has
rights under license, sublicense, or other agreements (but only to the extent
(i) such license, sublicense or agreement does not prohibit such use by such
Secured Party and (ii) such Grantor will not be in default under such license,
sublicense, or other agreement as a result of such use by such Secured Party),
as it pertains to the Collateral, in preparing for sale, advertising for sale
and selling any Collateral, and each Grantor's rights under all licenses and all
franchise agreements shall inure to the benefit of such Secured Party.
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(c) Any cash held by any Secured Party as Collateral and all proceeds
received by any Secured Party in respect of any sale of, collection from, or
other realization upon all or any part of the Collateral shall be applied
against the Secured Obligations in the order set forth in Section 17 hereof. In
the event the proceeds of Collateral are insufficient for the Satisfaction in
Full of the Secured Obligations (as defined below), each Grantor shall remain
jointly and severally liable for any such deficiency.
(d) Each Grantor hereby acknowledges that the Secured Obligations arose out
of a commercial transaction, and agrees that if an Event of Default shall occur
and be continuing any Secured Party shall have the right to an immediate writ of
possession without notice of a hearing. Each Secured Party shall have the right
to the appointment of a receiver for the properties and assets of each Grantor,
and each Grantor hereby consents to such rights and such appointment and hereby
waives any objection such Grantor may have thereto or the right to have a bond
or other security posted by any Secured Party.
(e) Notwithstanding anything in this Agreement to the contrary, each
Secured Party agrees that it will not exercise any remedy provided for under
this Agreement with respect to all or any portion of the Collateral unless such
Secured Party is a Permitted Secured Party (provided that the foregoing shall
not prevent any Secured Party from commencing or participating in any Insolvency
Proceeding or taking any action (other than with respect to the Collateral) to
enforce the payment or performance of any Grantors' obligations under any of the
Notes, Guaranties or other Transaction Documents). As between Grantors, or any
of them, and any Secured Party, any action that such Secured Party may take
under this Agreement shall be conclusively presumed to have been authorized and
approved by the other Secured Parties. Without limiting any other provision of
this Agreement, each Secured Party that delivers a Commencement Notice to the
other Secured Parties shall deliver a written notice to Parent, on the same
Business Day on which such Secured Party delivers such Commencement Notice to
such other Secured Parties, stating that such Secured Party delivered a
Commencement Notice to such other Secured Parties.
(f) Each Secured Party may, in addition to other rights and remedies
provided for herein, in the other Transaction Documents, or otherwise available
to it under applicable law and without the requirement of notice to or upon any
Grantor or any other Person (which notice is hereby expressly waived to the
maximum extent permitted by the Code or any other applicable law), (i) with
respect to any Grantor's Deposit Accounts in which any such Secured Party's
Liens are perfected by control under Section 9-104 of the Code, instruct the
bank maintaining such Deposit Account for the applicable Grantor to pay the
lesser of (x) the balance owed to such Secured Party, and (y) balance of such
Deposit Account, in either case to or for the benefit of such Secured Party, and
(ii) with respect to any Grantor's Securities Accounts in which such Secured
Party's Liens are perfected by control under Section 9-106 of the Code, instruct
the securities intermediary maintaining such Securities Account for the
applicable Grantor to (A) transfer any cash in such Securities Account to or for
22
the benefit of such Secured Party, or (B) liquidate any financial assets in such
Securities Account that are customarily sold on a recognized market and transfer
the cash proceeds thereof to or for the benefit of such Secured Party. Without
limiting any other provision of this Agreement, each Secured Party that sends a
control notice to a bank or securities intermediary with respect to any
Grantor's Deposit Account or Securities Account shall deliver a copy of such
notice to Parent on the first (1st) Business Day immediately following the date
on which such Secured Party sent such control notice to such bank or securities
intermediary.
17. Priority of Liens; Application of Proceeds of Collateral. Each Secured
Party hereby acknowledges and agrees that, notwithstanding the time or order of
the filing of any financing statement or other registration or document with
respect to the Collateral and the Security Interests, or any provision of this
Agreement, any other Security Document, the Code or other applicable law, solely
as amongst the Secured Parties, the separate Security Interests of the Secured
Parties shall have the same rank and priority; provided, that, the foregoing
shall not apply to any Security Interest of a Secured Party that is void or
voidable as a matter of law. In furtherance thereof, all proceeds of Collateral
properly received by any Secured Party under this Agreement or applicable law
shall be applied as follows:
(a) first, ratably to pay any expenses due to any of the Secured Parties
(including, without limitation, the reasonable costs and expenses paid or
incurred by any Secured Party to correct any default under or enforce any
provision of the Transaction Documents, or after the occurrence of any Event of
Default in gaining possession of, maintaining, handling, preserving, storing,
shipping, selling, preparing for sale, or advertising to sell the Collateral, or
any portion thereof, irrespective of whether a sale is consummated) or
indemnities then due to any of the Secured Parties under the Transaction
Documents, until paid in full;
(b) second, ratably to pay any fees or premiums then due to any of the
Secured Parties under the Transaction Documents, until paid in full;
(c) third, ratably to pay interest due in respect of the Secured
Obligations then due to any of the Secured Parties, until paid in full;
(d) fourth, ratably to pay the principal amount of all Secured Obligations
then due to any of the Secured Parties, until paid in full;
(e) fifth, ratably to pay any other Secured Obligations then due to any of
the Secured Parties; and
(f) sixth, to Grantors or such other Person entitled thereto under
applicable law.
18. Remedies Cumulative. Each right, power, and remedy of any Secured Party
as provided for in this Agreement or in any other Transaction Document or now or
hereafter existing at law or in equity or by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right, power,
or remedy provided for in this Agreement or in the other Transaction Documents
or now or hereafter existing at law or in equity or by statute or otherwise, and
23
the exercise or beginning of the exercise by any Secured Party, of any one or
more of such rights, powers, or remedies shall not preclude the simultaneous or
later exercise by such Secured Party of any or all such other rights, powers, or
remedies. Each Grantor acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to each Secured Party and that the remedy
at law for any such breach may be inadequate. Each Grantor therefore agrees
that, in the event of any breach or any threatened breach, each Secured Party
shall be entitled, in addition to all other available remedies, to an injunction
restraining any such breach or any such threatened breach, without the necessity
of showing economic loss and without any bond or other security being required.
19. Marshaling. No Secured Party shall be required to marshal any present
or future collateral security (including but not limited to the Collateral) for,
or other assurances of payment of, the Secured Obligations or any of them or to
resort to such collateral security or other assurances of payment in any
particular order, and all of its rights and remedies hereunder and in respect of
such collateral security and other assurances of payment shall be cumulative and
in addition to all other rights and remedies, however existing or arising. To
the extent that it lawfully may, each Grantor hereby agrees that it will not
invoke any law relating to the marshaling of collateral which might cause delay
in or impede the enforcement of any Secured Party's rights and remedies under
this Agreement or under any other instrument creating or evidencing any of the
Secured Obligations or under which any of the Secured Obligations is outstanding
or by which any of the Secured Obligations is secured or payment thereof is
otherwise assured, and, to the extent that it lawfully may, each Grantor hereby
irrevocably waives the benefits of all such laws.
20. Acknowledgment.
(a) Each Secured Party hereby agrees and acknowledges that no other Secured
Party has agreed to act for it as an administrative or collateral agent, and
each Secured Party is and shall remain solely responsible for the attachment,
perfection and priority of all Liens created by this Agreement or any other
Security Document in favor of such Secured Party. No Secured Party shall have by
reason of this Agreement or any other Transaction Document an agency or
fiduciary relationship with any other Secured Party. No Secured Party (which
term, as used in this sentence, shall include reference to each Secured Party's
officers, directors, employees, attorneys, agents and affiliates and to the
officers, directors, employees, attorneys and agents of such Secured Party's
affiliates) shall: (i) have any duties or responsibilities except those
expressly set forth in this Agreement and the other Security Documents or (ii)
be required to take, initiate or conduct any enforcement action (including any
litigation, foreclosure or collection proceedings hereunder or under any of the
other Security Documents). Without limiting the foregoing, no Secured Party
shall have any right of action whatsoever against any other Secured Party as a
result of such Secured Party acting or refraining from acting hereunder or under
any of the Security Documents except as a result and to the extent of losses
caused by such Secured Party's actual gross negligence or willful misconduct (it
being understood and agreed by each Secured Party that the delivery by any
Significant Secured Party of one or more Veto Notices shall not be deemed to be
or construed as gross negligence or willful misconduct on the part of the
Secured Party delivering any such Veto Notice). No Secured Party assumes any
24
responsibility for any failure or delay in performance or breach by any Grantor
or any Secured Party of its obligations under this Agreement or any other
Transaction Document. No Secured Party makes to any other Secured Party any
express or implied warranty, representation or guarantee with respect to any
Secured Obligations, Collateral, Transaction Document or Grantor. No Secured
Party nor any of its officers, directors, employees, attorneys or agents shall
be responsible to any other Secured Party or any of its officers, directors,
employees, attorneys or agents for: (i) any recitals, statements, information,
representations or warranties contained in any of the Transaction Documents or
in any certificate or other document furnished pursuant to the terms hereof;
(ii) the execution, validity, genuineness, effectiveness or enforceability of
any of the Transaction Documents; (iii) the validity, genuineness,
enforceability, collectability, value, sufficiency or existence of any
Collateral, or the attachment, perfection or priority of any Lien therein; or
(iv) the assets, liabilities, financial condition, results of operations,
business, creditworthiness or legal status of any Grantor or any Account Debtor.
No Secured Party nor any of its officers, directors, employees, attorneys or
agents shall have any obligation to any other Secured Party to ascertain or
inquire into the existence of any default or Event of Default, the observance or
performance by any Grantor of any of the duties or agreements of such Grantor
under any of the Transaction Documents or the satisfaction of any conditions
precedent contained in any of the Transaction Documents.
(b) Each Secured Party hereby acknowledges and represents that it has,
independently and without reliance upon any other Secured Party, and based upon
such documents, information and analyses as it has deemed appropriate, made its
own credit analysis of each Grantor and its own decision to enter into the
Transaction Documents and to acquire the Notes, and each Secured Party has made
such inquiries concerning the Transaction Documents, the Collateral and each
Grantor as such Secured Party feels necessary and appropriate, and has taken
such care on its own behalf as would have been the case had it entered into the
Transaction Documents without any other Secured Party. Each Secured Party hereby
further acknowledges and represents that the other Secured Parties have not made
any representations or warranties to it concerning any Grantor, any of the
Collateral or the legality, validity, sufficiency or enforceability of any of
the Transaction Documents. Each Secured Party also hereby acknowledges that it
will, independently and without reliance upon the other Secured Parties, and
based upon such financial statements, documents and information as it deems
appropriate at the time, continue to make and rely upon its own credit decisions
in taking or refraining to take any other action under this Agreement or the
Transaction Documents. No Secured Party shall have any duty or responsibility to
provide any other Secured Party with any notices, reports or certificates
furnished to such Secured Party by any Grantor or any credit or other
information concerning the affairs, financial condition, business or assets of
any Grantor (or any of its affiliates) which may come into possession of such
Secured Party.
21. Indemnity and Expenses.
(a) Without limiting any obligations of Parent under the Exchange
Agreement, each Grantor agrees to indemnify all Secured Parties from and against
all claims, lawsuits and liabilities (including attorneys' fees) arising out of
or resulting from this Agreement or any other Transaction Document, except
25
claims, losses or liabilities resulting from the gross negligence or willful
misconduct of the party seeking indemnification as determined by a final
non-appealable order of a court of competent jurisdiction. This provision shall
survive the termination of this Agreement and the Transaction Documents and the
Satisfaction in Full of the Secured Obligations.
(b) Grantors, jointly and severally, shall, upon demand, pay to each
Secured Party all of the reasonable costs and expenses which such Secured Party
may incur in connection with (i) the custody, preservation, use or operation of,
or, upon an Event of Default, the sale of, collection from, or other realization
upon, any of the Collateral in accordance with this Agreement and the other
Transaction Documents, (ii) the exercise or enforcement of any of the rights of
such Secured Party hereunder or (iii) the failure by any Grantor to perform or
observe any of the provisions hereof.
22. Merger, Amendments; Etc. THIS AGREEMENT, TOGETHER WITH THE OTHER
TRANSACTION DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES SOLELY
WITH RESPECT TO THE SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES. No
provision of this Agreement may be amended other than by an instrument in
writing signed by each Grantor and each Significant Secured Party, and any
amendment to any provision of this Agreement made in conformity with the
provisions of this Section 22 shall be binding on all Secured Parties, provided
that no such amendment shall be effective to the extent that it (1) applies to
less than all of the Secured Parties or (2) imposes any obligation or liability
on any Secured Party without such Secured Party's prior written consent (which
may be granted or withheld in such Secured Party's sole discretion). No waiver
shall be effective unless it is in writing and signed by an authorized
representative of the waiving party, provided that all of the Significant
Secured Parties (in a writing signed by all of the Significant Secured Parties)
may waive any provision of this Agreement, and any waiver of any provision of
this Agreement made in conformity with the provisions of this Section 22 shall
be binding on all Secured Parties, provided that no such waiver shall be
effective to the extent that it (1) applies to less than all the Secured Parties
(unless a party gives a waiver as to itself only) or (2) imposes any obligation
or liability on any Secured Party without such Secured Party's prior written
consent (which may be granted or withheld in such Secured Party's sole
discretion).
23. Addresses for Notices. All notices and other communications provided
for hereunder (a) shall be given in the form and manner set forth in the
Exchange Agreement and (b) shall be delivered, (i) in the case of notice to any
Grantor, by delivery of such notice to Parent at Parent's address specified in
the Exchange Agreement or at such other address as shall be designated by Parent
in a written notice to each of the Secured Parties in accordance with the
provisions thereof, and (ii) in the case of notice to any Secured Party, by
delivery of such notice to such Secured Party at its address specified in the
Exchange Agreement or at such other address as shall be designated by such
Secured Party in a written notice to Parent and each other Secured Party in
accordance with the provisions thereof.
24. Separate, Continuing Security Interests; Assignments under Transaction
Documents. This Agreement shall create a separate, continuing security interest
26
in the Collateral in favor of each Secured Party and shall (a) remain in full
force and effect until Satisfaction in Full of the Secured Obligations, (b) be
binding upon each of Grantors, and their respective permitted successors and
permitted assigns, and (c) inure to the benefit of, and be enforceable by, the
Secured Parties and their respective successors, transferees and assigns.
Without limiting the generality of the foregoing clause (c), any Secured Party
may, in accordance with (and as limited by) the provisions of the Transaction
Documents, assign or transfer all or any portion of its rights and obligations
under the Transaction Documents to any other Person in connection with a
transfer of such Secured Party's Note or shares of Preferred Stock, and such
other Person shall thereupon become vested with all the benefits in respect
thereof granted to such Secured Party herein or otherwise (provided that such
Secured Party will provide Parent with a copy of such assignment or transfer (as
the case may be), together with a statement specifying which rights are assigned
to such assignee or transferee (as the case may be) and which are retained by
such Secured Party if such assignment or transfer (as the case may be) does not
so provide). Upon Satisfaction in Full of the Secured Obligations: (i) the
Security Interests granted hereby (including but not limited to the rights under
the IP Agreements), shall terminate and (ii) all rights to the Collateral shall
revert to Grantors or any other Person entitled thereto. Upon Satisfaction in
Full of the Secured Obligations, any Secured Party may authorize in writing any
Grantor to file any and all appropriate termination statements to terminate such
Security Interests upon the written request of any Grantor, and if any Secured
Party fails to do, upon written request from any Grantor, each Secured Party
will authorize Parent to file any and all appropriate termination statements to
terminate such Security Interests, and such authorization will not be
unreasonably withheld or delayed. No transfer or renewal, extension, assignment,
or termination of this Agreement or any other Transaction Document, or any other
instrument or document executed and delivered by any Grantor to any Secured
Party nor any additional loans made by any Secured Party to any Grantor, nor the
taking of further security, nor the retaking or re-delivery of the Collateral to
Grantors, or any of them, by any Secured Party, nor any other act of Secured
Parties, or any of them, shall release any of Grantors from any obligation,
except a release or discharge executed in writing by all Secured Parties. No
Secured Party shall by any act, delay, omission or otherwise, be deemed to have
waived any of its rights or remedies hereunder, unless such waiver is in writing
and signed by such Secured Party and then only to the extent therein set forth.
A waiver by any Secured Party of any right or remedy on any occasion shall not
be construed as a bar to the exercise of any such right or remedy which such
Secured Party would otherwise have had on any other occasion.
25. Default. Notwithstanding anything else contained in this Agreement,
other than at any time while an Event of Default exists, if a breach or default
by any Grantor occurs under this Agreement, then such Grantor shall have five
(5) Business Days after the date on which any Secured Party delivers a written
notice to such Grantor of such breach or default to cure such breach or default
(such five (5) Business Day period is referred to herein a "Cure Period").
26. Governing Law; Jurisdiction; Service of Process; Jury Trial. All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by the internal laws of the State of
Colorado, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Colorado or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of Colorado. 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
27
connection herewith or with any transaction contemplated hereby or discussed
herein, 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 brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper; provided, however, any suit seeking enforcement against any Collateral
or other property may be brought, at any Secured Party's option, in the courts
of any jurisdiction where such Secured Party elects to bring such action or
where such Collateral or other property may be found. 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 to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Without limitation of the foregoing, each Grantor other than Parent
hereby irrevocably appoints Parent as such Grantor's agent for purposes of
receiving and accepting any service of process hereunder or under any of the
other Security Documents. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law. EACH PARTY
HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A
JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH
OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
27. Miscellaneous.
(a) This Agreement may be executed in two or more identical counterparts,
all of which 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. In the event that any signature is delivered by facsimile
transmission or by an e-mail which contains a portable document format (.pdf)
file of an executed signature page, such signature page shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such signature page were an
original thereof. Any party delivering an executed counterpart of this Agreement
by facsimile or other electronic method of transmission also shall deliver an
original executed counterpart of this Agreement but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability, and
binding effect of this Agreement. The foregoing shall apply to each other
Security Document mutatis mutandis.
(b) Any provision of this Agreement which is prohibited or unenforceable
shall be ineffective to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof in that jurisdiction or
affecting the validity or enforceability of such provision in any other
jurisdiction.
(c) Headings used in this Agreement are for convenience only and shall not
be used in connection with the interpretation of any provision hereof.
(d) The pronouns used herein shall include, when appropriate, either gender
and both singular and plural, and the grammatical construction of sentences
shall conform thereto.
28
(e) 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. For clarification purposes, the
Recitals are part of this Agreement. No specific representation or warranty
shall limit the generality or applicability of a more general representation or
warranty.
(f) Unless the context of this Agreement or any other Transaction Document
clearly requires otherwise, references to the plural include the singular,
references to the singular include the plural, the terms "includes" and
"including" are not limiting, and the term "or" has, except where otherwise
indicated, the inclusive meaning represented by the phrase "and/or." The words
"hereof," "herein," "hereby," "hereunder," and similar terms in this Agreement
or any other Transaction Document refer to this Agreement or such other
Transaction Document, as the case may be, as a whole and not to any particular
provision of this Agreement or such other Transaction Document, as the case may
be. Section, subsection, clause, schedule, and exhibit references herein are to
this Agreement unless otherwise specified. Any reference in this Agreement or in
any other Transaction Document to any agreement, instrument, or document shall
include all alterations, amendments, changes, extensions, modifications,
renewals, replacements, substitutions, joinders, and supplements, thereto and
thereof, as applicable (subject to any restrictions on such alterations,
amendments, changes, extensions, modifications, renewals, replacements,
substitutions, joinders, and supplements set forth herein). "Satisfaction in
Full of the Secured Obligations" shall mean the indefeasible payment in full in
cash and discharge, or other satisfaction in accordance with the terms of the
Transaction Documents and discharge, of all Secured Obligations in full. Any
reference herein to any Person shall be construed to include such Person's
permitted successors and permitted assigns.
(g) All dollar amounts referred to in this Agreement and the other
Transaction Documents are in United States Dollars ("U.S. Dollars"), and all
amounts owing under this Agreement and all other Transaction Documents shall be
paid in U.S. Dollars. All amounts denominated in other currencies shall be
converted into the U.S. Dollar equivalent amount in accordance with the Exchange
Rate on the date of calculation. "Exchange Rate" means, in relation to any
amount of currency to be converted into U.S. Dollars pursuant to this Agreement,
the U.S. Dollar exchange rate as published in the Wall Street Journal on the
relevant date of calculation.
[signature pages follow]
29
IN WITNESS WHEREOF, the undersigned parties hereto have executed this
Agreement by and through their duly authorized officers, as of the day and year
first above written.
GRANTORS: CEL-SCI CORPORATION, a Colorado corporation
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
VIRAL TECHNOLOGIES, INC., a Delaware
corporation
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
SECURED PARTIES: IROQUOIS MASTER FUND LTD.
------------------------------------------
By: Joshua Silverman, Authorized Signatory
SCHEDULE 1
COMMERCIAL TORT CLAIMS
NONE
SCHEDULE 2
COPYRIGHTS
NONE
SCHEDULE 3
INTELLECTUAL PROPERTY LICENSES
NONE
SCHEDULE 4
PATENTS
SCHEDULE 5
PLEDGED COMPANIES
NONE
SCHEDULE 6
TRADEMARKS
Trademarks L.E.A.P.S. Multikine
---------- ---------- ---------
Application # 75/214,482 74/384,017
Trademark # 2,494,550 2,072,043
USA USA
Registration Date 10/2/2001 6/17/1997
SCHEDULE 7
REAL PROPERTY
Owned Real Property
-------------------
None.
Leased Real Property
--------------------
1. 8229 Boone Boulevard, Suite 802, Vienna, VA 22315
2. 4820-C Seton Drive, Baltimore, MD 21215
3. 6905 San Tomas Road, Elkridge, MD 21075
SCHEDULE 8
LIST OF UNIFORM COMMERCIAL CODE FILING JURISDICTIONS
Grantor Jurisdictions
------- -------------
Cel-Sci Corporation Colorado
SCHEDULE 9
DEPOSIT ACCOUNTS AND SECURITIES ACCOUNTS
Deposit Accounts
----------------
Securities Accounts
-------------------
SCHEDULE I
TO
COPYRIGHT SECURITY AGREEMENT
Copyright Registrations
-----------------------
SEE ATTACHED
Copyright Licenses
------------------
NONE
EXHIBIT A
COPYRIGHT SECURITY AGREEMENT
This COPYRIGHT SECURITY AGREEMENT (this "Copyright Security Agreement") is
made this [___] day of May 2011, by the Grantors listed on the signature pages
hereof (collectively, jointly and severally, "Grantors" and each individually
"Grantor"), in favor of the Secured Parties under and as defined in the
below-described Security Agreement.
RECITALS
WHEREAS, pursuant to that certain Exchange Agreement, dated as of May 16,
2011 (as may be amended, restated, supplemented, or otherwise modified from time
to time, including all schedules thereto, collectively, the "Exchange
Agreement"), by and among CEL-SCI Corporation, a Colorado corporation
("Parent"), and each of the Secured Parties, Parent has agreed to issue, and
each of the Secured Parties have each agreed to acquire, severally and not
jointly, certain Notes; and
WHEREAS, in order to induce each of the Secured Parties to enter into the
Exchange Agreement and to acquire, severally and not jointly, the Notes as
provided for in the Exchange Agreement, Grantors have executed and delivered to
each of the Secured Parties that certain Security Agreement of even date
herewith (including all annexes, exhibits or schedules thereto, as from time to
time amended, restated, supplemented or otherwise modified, the "Security
Agreement"); and
WHEREAS, pursuant to the Security Agreement, Grantors are required to
execute and deliver to each of the Secured Parties this Copyright Security
Agreement.
AGREEMENTS
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantors hereby agree as follows:
1. DEFINED TERMS. All capitalized terms used but not otherwise defined
herein have the meanings given to them in the Security Agreement.
2. GRANT OF SECURITY INTEREST IN COPYRIGHT COLLATERAL. Each Grantor hereby
grants to each Secured Party a continuing first priority security interest in
all of such Grantor's right, title and interest in, to and under the following,
whether presently existing or hereafter created or acquired (collectively, the
"Copyright Collateral"):
(a) all of each Grantor's Copyrights and Copyright Intellectual Property
Licenses to which it is a party including those referred to on Schedule I
hereto;
(b) all reissues, continuations or extensions of the foregoing; and
(c) all products and proceeds of the foregoing, including any claim by such
Grantor against third parties for past, present or future infringement or
dilution of any Copyright or any Copyright licensed under any Intellectual
Property License.
3. SECURITY FOR OBLIGATIONS. This Copyright Security Agreement and the
Security Interests created hereby secures the payment and performance of all the
Secured Obligations, whether now existing or arising hereafter. Without limiting
the generality of the foregoing, this Copyright Security Agreement secures the
payment of all amounts which constitute part of the Secured Obligations and
would be owed by Grantors, or any of them, to Secured Parties, or any of them,
whether or not they are unenforceable or not allowable due to the existence of
an Insolvency Proceeding involving any Grantor.
4. SECURITY AGREEMENT. The security interests granted pursuant to this
Copyright Security Agreement are granted in conjunction with the security
interests granted to Secured Parties pursuant to the Security Agreement. Each
Grantor hereby acknowledges and affirms that the rights and remedies of Secured
Parties with respect to their respective security interests in the Copyright
Collateral made and granted hereby are more fully set forth in the Security
Agreement, the terms and provisions of which are incorporated by reference
herein as if fully set forth herein.
5. AUTHORIZATION TO SUPPLEMENT. To the extent required under the Security
Agreement, Grantors shall give Secured Parties prompt notice in writing of any
additional copyright registrations or applications therefor after the date
hereof. Grantors hereby authorize Secured Parties unilaterally to modify this
Agreement by amending Schedule I to include any future registered copyrights or
applications therefor of Grantors. Notwithstanding the foregoing, no failure to
so modify this Copyright Security Agreement or amend Schedule I shall in any way
affect, invalidate or detract from any Secured Party's continuing security
interest in all Collateral, whether or not listed on Schedule I.
6. COUNTERPARTS. This Copyright Security Agreement may be executed in two
or more identical counterparts, all of which 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. In the event that any signature is
delivered by facsimile transmission or by an e-mail which contains a portable
document format (.pdf) file of an executed signature page, such signature page
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) with the same force and effect as if such
signature page were an original thereof. In proving this Copyright Security
Agreement or any other Transaction Document in any judicial proceedings, it
shall not be necessary to produce or account for more than one such counterpart
signed by the party against whom such enforcement is sought.
7. CONSTRUCTION. Unless the context of this Copyright Security Agreement or
any other Transaction Document clearly requires otherwise, references to the
plural include the singular, references to the singular include the plural, the
terms "includes" and "including" are not limiting, and the term "or" has, except
where otherwise indicated, the inclusive meaning represented by the phrase
"and/or." The words "hereof," "herein," "hereby," "hereunder," and similar terms
in this Copyright Security Agreement or any other Transaction Document refer to
this Copyright Security Agreement or such other Transaction Document, as the
case may be, as a whole and not to any particular provision of this Copyright
Security Agreement or such other Transaction Document, as the case may be.
Section, subsection, clause, schedule, and exhibit references herein are to this
Copyright Security Agreement unless otherwise specified. Any reference in this
Copyright Security Agreement or in any other Transaction Document to any
agreement, instrument, or document shall include all alterations, amendments,
changes, extensions, modifications, renewals, replacements, substitutions,
joinders, and supplements, thereto and thereof, as applicable (subject to any
restrictions on such alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, joinders, and supplements
set forth herein). Any reference herein to any Person shall be construed to
include such Person's permitted successors and permitted assigns. Any
requirement of a writing contained herein or in any other Transaction Document
shall be satisfied by the transmission of a Record and any Record so transmitted
shall constitute a representation and warranty as to the accuracy and
completeness of the information contained therein. The language used in this
Copyright Security 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. For clarification purposes, the Recitals are part
of this Copyright Security Agreement.
[signature pages follow]
COPYRIGHT SECURITY AGREEMENT
IN WITNESS WHEREOF, each Grantor has caused this Copyright Security
Agreement to be executed and delivered by its duly authorized officer as of the
date first set forth above.
GRANTORS: CEL-SCI CORPORATION, a Colorado
corporation
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
VIRAL TECHNOLOGIES, INC., a Delaware
corporation
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
SCHEDULE I
TO
COPYRIGHT SECURITY AGREEMENT
COPYRIGHT REGISTRATIONS
--------------------------------------------------------------------------------
Registration Registration
Grantor Country Copyright No. Date
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Copyright Licenses
------------------
2
EXHIBIT B
PATENT SECURITY AGREEMENT
This PATENT SECURITY AGREEMENT (this "Patent Security Agreement") is made
this [___] day of May 2011, by the Grantors listed on the signature pages hereof
(collectively, jointly and severally, "Grantors" and each individually
"Grantor"), in favor of the Secured Parties under and as defined in the
below-described Security Agreement.
RECITALS
WHEREAS, pursuant to that certain Exchange Agreement, dated as of May 16,
2011 (as may be amended, restated, supplemented, or otherwise modified from time
to time, including all schedules thereto, collectively, the "Exchange
Agreement"), by and among CEL-SCI Corporation, a Colorado corporation
("Parent"), and each of the Secured Parties, Parent has agreed to issue, and
each of the Secured Parties have each agreed to acquire, severally and not
jointly, certain Notes; and
WHEREAS, in order to induce each of the Secured Parties to enter into the
Exchange Agreement and to acquire, severally and not jointly, the Notes as
provided for in the Exchange Agreement, Grantors have executed and delivered to
each of the Secured Parties that certain Security Agreement of even date
herewith (including all annexes, exhibits or schedules thereto, as from time to
time amended, restated, supplemented or otherwise modified, the "Security
Agreement"); and
WHEREAS, pursuant to the Security Agreement, Grantors are required to
execute and deliver to each of the Secured Parties this Patent Security
Agreement.
AGREEMENTS
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantors hereby agree as follows:
1. DEFINED TERMS. All capitalized terms used but not otherwise defined
herein have the meanings given to them in the Security Agreement.
2. GRANT OF SECURITY INTEREST IN PATENT COLLATERAL. Each Grantor hereby
grants to each Secured Party a continuing first priority security interest in
all of such Grantor's right, title and interest in, to and under the following,
whether presently existing or hereafter created or acquired (collectively, the
"Patent Collateral"):
(a) all of its Patents and Patent Intellectual Property Licenses to which
it is a party including those referred to on Schedule I hereto;
(b) all reissues, continuations or extensions of the foregoing; and
(c) all products and proceeds of the foregoing, including any claim by such
Grantor against third parties for past, present or future infringement or
dilution of any Patent or any Patent licensed under any Intellectual Property
License.
3. SECURITY FOR OBLIGATIONS. This Patent Security Agreement and the
Security Interests created hereby secures the payment and performance of all the
Secured Obligations, whether now existing or arising hereafter. Without limiting
the generality of the foregoing, this Patent Security Agreement secures the
payment of all amounts which constitute part of the Secured Obligations and
would be owed by Grantors, or any of them, to Secured Parties, or any of them,
whether or not they are unenforceable or not allowable due to the existence of
an Insolvency Proceeding involving any Grantor.
4. SECURITY AGREEMENT. The security interests granted pursuant to this
Patent Security Agreement are granted in conjunction with the security interests
granted to Secured Parties pursuant to the Security Agreement. Each Grantor
hereby acknowledges and affirms that the rights and remedies of Secured Parties
with respect to their respective security interests in the Patent Collateral
made and granted hereby are more fully set forth in the Security Agreement, the
terms and provisions of which are incorporated by reference herein as if fully
set forth herein.
5. AUTHORIZATION TO SUPPLEMENT. If any Grantor shall obtain rights to any
new patentable inventions or become entitled to the benefit of any patent
application or patent for any reissue, division, or continuation, of any patent,
the provisions of this Patent Security Agreement shall automatically apply
thereto. To the extent required under the Security Agreement, Grantors shall
give prompt notice in writing to Secured Parties with respect to any such new
patent rights. Without limiting each Grantor's obligations under this Section 5,
Grantors hereby authorize Secured Parties unilaterally to modify this Agreement
by amending Schedule I to include any such new patent rights of Grantors.
Notwithstanding the foregoing, no failure to so modify this Patent Security
Agreement or amend Schedule I shall in any way affect, invalidate or detract
from any Secured Party's continuing security interest in all Collateral, whether
or not listed on Schedule I.
6. COUNTERPARTS. This Patent Security Agreement may be executed in two or
more identical counterparts, all of which 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. In the event that any signature is
delivered by facsimile transmission or by an e-mail which contains a portable
document format (.pdf) file of an executed signature page, such signature page
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) with the same force and effect as if such
signature page were an original thereof. In proving this Patent Security
Agreement or any other Transaction Document in any judicial proceedings, it
shall not be necessary to produce or account for more than one such counterpart
signed by the party against whom such enforcement is sought.
7. CONSTRUCTION. Unless the context of this Patent Security Agreement or
any other Transaction Document clearly requires otherwise, references to the
plural include the singular, references to the singular include the plural, the
terms "includes" and "including" are not limiting, and the term "or" has, except
where otherwise indicated, the inclusive meaning represented by the phrase
"and/or." The words "hereof," "herein," "hereby," "hereunder," and similar terms
in this Patent Security Agreement or any other Transaction Document refer to
this Patent Security Agreement or such other Transaction Document, as the case
may be, as a whole and not to any particular provision of this Patent Security
Agreement or such other Transaction Document, as the case may be. Section,
subsection, clause, schedule, and exhibit references herein are to this Patent
Security Agreement unless otherwise specified. Any reference in this Patent
Security Agreement or in any other Transaction Document to any agreement,
instrument, or document shall include all alterations, amendments, changes,
extensions, modifications, renewals, replacements, substitutions, joinders, and
supplements, thereto and thereof, as applicable (subject to any restrictions on
such alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, joinders, and supplements set forth herein). Any
reference herein to any Person shall be construed to include such Person's
permitted successors and permitted assigns. Any requirement of a writing
contained herein or in any other Transaction Document shall be satisfied by the
transmission of a Record and any Record so transmitted shall constitute a
representation and warranty as to the accuracy and completeness of the
information contained therein. The language used in this Patent Security
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. For clarification purposes, the Recitals are part of this Patent
Security Agreement.
[signature pages follow]
3
IN WITNESS WHEREOF, each Grantor has caused this Patent Security Agreement
to be executed and delivered by its duly authorized officer as of the date first
set forth above.
GRANTORS: CEL-SCI CORPORATION, a Colorado
corporation
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
VIRAL TECHNOLOGIES, INC., a Delaware
corporation
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
4
EXHIBIT C
TRADEMARK SECURITY AGREEMENT
This TRADEMARK SECURITY AGREEMENT (this "Trademark Security Agreement") is
made this [___] day of May 2011, by the Grantors listed on the signature pages
hereof (collectively, jointly and severally, "Grantors" and each individually
"Grantor"), in favor of the Secured Parties under and as defined in the
below-described Security Agreement.
RECITALS
WHEREAS, pursuant to that certain Exchange Agreement, dated as of May
16, 2011 (as may be amended, restated, supplemented, or otherwise modified
from time to time, including all schedules thereto, collectively, the "Exchange
Agreement"), by and among CEL-SCI Corporation, a Colorado corporation
("Parent"), and each of the Secured Parties, Parent has agreed to issue, and
each of the Secured Parties have each agreed to acquire, severally and not
jointly, certain Notes; and
WHEREAS, in order to induce each of the Secured Parties to enter into the
Exchange Agreement and to acquire, severally and not jointly, the Notes as
provided for in the Exchange Agreement, Grantors have executed and delivered to
each of the Secured Parties that certain Security Agreement of even date
herewith (including all annexes, exhibits or schedules thereto, as from time to
time amended, restated, supplemented or otherwise modified, the "Security
Agreement"); and
WHEREAS, pursuant to the Security Agreement, Grantors are required to
execute and deliver to each of the Secured Parties this Trademark Security
Agreement.
AGREEMENTS
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantors hereby agree as follows:
1. DEFINED TERMS. All capitalized terms used but not otherwise defined
herein have the meanings given to them in the Security Agreement.
2. GRANT OF SECURITY INTEREST IN TRADEMARK COLLATERAL. Each Grantor hereby
grants to each Secured Party a continuing first priority security interest in
all of such Grantor's right, title and interest in, to and under the following,
whether presently existing or hereafter created or acquired (collectively, the
"Trademark Collateral"):
(a) all of its Trademarks and Trademark Intellectual Property Licenses to
which it is a party including those referred to on Schedule I hereto;
(b) all goodwill, trade secrets, proprietary or confidential information,
technical information, procedures, formulae, quality control standards, designs,
operating and training manuals, customer lists, and other General Intangibles
with respect to the foregoing;
(c) all reissues, continuations or extensions of the foregoing;
(d) all goodwill of the business connected with the use of, and symbolized
by, each Trademark and each Trademark Intellectual Property License; and
(e) all products and proceeds of the foregoing, including any claim by such
Grantor against third parties for past, present or future (i) infringement or
dilution of any Trademark or any Trademark licensed under any Intellectual
Property License or (ii) injury to the goodwill associated with any Trademark or
any Trademark licensed under any Intellectual Property License.
3. SECURITY FOR OBLIGATIONS. This Trademark Security Agreement and the
Security Interests created hereby secures the payment and performance of all the
Secured Obligations, whether now existing or arising hereafter. Without limiting
the generality of the foregoing, this Trademark Security Agreement secures the
payment of all amounts which constitute part of the Secured Obligations and
would be owed by Grantors, or any of them, to Secured Parties, or any of them,
whether or not they are unenforceable or not allowable due to the existence of
an Insolvency Proceeding involving any Grantor.
4. SECURITY AGREEMENT. The security interests granted pursuant to this
Trademark Security Agreement are granted in conjunction with the security
interests granted to Secured Parties pursuant to the Security Agreement. Each
Grantor hereby acknowledges and affirms that the rights and remedies of Secured
Parties with respect to their respective security interests in the Trademark
Collateral made and granted hereby are more fully set forth in the Security
Agreement, the terms and provisions of which are incorporated by reference
herein as if fully set forth herein.
5. AUTHORIZATION TO SUPPLEMENT. If any Grantor shall obtain rights to any
new trademarks, the provisions of this Trademark Security Agreement shall
automatically apply thereto. To the extent required under the Security
Agreement, Grantors shall give prompt notice in writing to Secured Parties with
respect to any such new trademarks or renewal or extension of any trademark
registration. Without limiting each Grantor's obligations under this Section 5,
Grantors hereby authorize Secured Parties unilaterally to modify this Agreement
by amending Schedule I to include any such new trademark rights of Grantors.
Notwithstanding the foregoing, no failure to so modify this Trademark Security
Agreement or amend Schedule I shall in any way affect, invalidate or detract
from any Secured Party's continuing security interest in all Collateral, whether
or not listed on Schedule I.
6. COUNTERPARTS. This Trademark Security Agreement may be executed in two
or more identical counterparts, all of which 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. In the event that any signature is
delivered by facsimile transmission or by an e-mail which contains a portable
document format (.pdf) file of an executed signature page, such signature page
shall create a valid and binding obligation of the party executing (or on whose
2
behalf such signature is executed) with the same force and effect as if such
signature page were an original thereof. In proving this Trademark Security
Agreement or any other Transaction Document in any judicial proceedings, it
shall not be necessary to produce or account for more than one such counterpart
signed by the party against whom such enforcement is sought.
7. CONSTRUCTION. Unless the context of this Trademark Security Agreement or
any other Transaction Document clearly requires otherwise, references to the
plural include the singular, references to the singular include the plural, the
terms "includes" and "including" are not limiting, and the term "or" has, except
where otherwise indicated, the inclusive meaning represented by the phrase
"and/or." The words "hereof," "herein," "hereby," "hereunder," and similar terms
in this Trademark Security Agreement or any other Transaction Document refer to
this Trademark Security Agreement or such other Transaction Document, as the
case may be, as a whole and not to any particular provision of this Trademark
Security Agreement or such other Transaction Document, as the case may be.
Section, subsection, clause, schedule, and exhibit references herein are to this
Agreement unless otherwise specified. Any reference in this Trademark Security
Agreement or in any other Transaction Document to any agreement, instrument, or
document shall include all alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, joinders, and supplements,
thereto and thereof, as applicable (subject to any restrictions on such
alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, joinders, and supplements set forth herein). Any
reference herein to any Person shall be construed to include such Person's
permitted successors and permitted assigns. Any requirement of a writing
contained herein or in any other Transaction Document shall be satisfied by the
transmission of a Record and any Record so transmitted shall constitute a
representation and warranty as to the accuracy and completeness of the
information contained therein. The language used in this Trademark Security
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. For clarification purposes, the Recitals are part of this Trademark
Security Agreement.
[signature pages follow]
3
IN WITNESS WHEREOF, each Grantor has caused this Trademark Security
Agreement to be executed and delivered by its duly authorized officer as of the
date first set forth above.
GRANTORS: CEL-SCI CORPORATION, a Colorado
corporation
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
VIRAL TECHNOLOGIES, INC., a Delaware
corporation
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
SCHEDULE I
to
TRADEMARK SECURITY AGREEMENT
Trademark Registrations/Applications
--------------------------------------------------------------------------------
Application/
Grantor Registration
Country Mark No. App/Reg Date
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Trade Names
-----------
Common Law Trademarks
---------------------
Trademarks Not Currently In Use
-------------------------------
Trademark Licenses
------------------
EXHIBIT D
FORM OF GUARANTY
See attached.
EXHIBIT D
GUARANTY
This Guaranty (the "Guaranty") is made this [____] day of May 2011 by such
guarantors listed on the signature pages hereof (collectively, jointly and
severally, "Guarantors," and each, individually, a "Guarantor"), in favor of
[_______________] (together with its successors, assigns, endorsees and
transferees, "Secured Party").
RECITALS
WHEREAS, pursuant to that certain Exchange Agreement, dated as of May
16, 2011 (as amended, restated, supplemented, or otherwise modified from time
to time, including all schedules thereto, the "Exchange Agreement"), by and
among CEL-SCI Corporation, a Colorado corporation ("Parent"), Secured Party and
each of the other secured parties listed on the signature pages attached thereto
(together with Secured Party, "Secured Parties"), Parent has agreed to issue,
and Secured Parties have each agreed to acquire, severally and not jointly,
certain Notes and shares of Preferred Stock; and
WHEREAS, each Guarantor is a direct or indirect wholly-owned Subsidiary of
Parent and will receive direct and substantial benefits from the Exchange
Agreement and the issuance to the Secured Parties of the Notes and the shares of
Preferred Stock; and
WHEREAS, in order to induce Secured Parties to enter into the Exchange
Agreement and to acquire, severally and not jointly, the Notes and the shares of
Preferred Stock as provided for in the Exchange Agreement, Guarantors have
agreed to jointly and severally guaranty all of Parent's obligations under and
with respect to the Notes, the Exchange Agreement and the other Transaction
Documents; and
WHEREAS, in connection herewith, Guarantors, Parent and Secured Parties
have entered into that certain Security Agreement dated as of May [___], 2011
(as amended, restated, supplemented, or otherwise modified from time to time,
including all schedules thereto, the "Security Agreement"), pursuant to which
Guarantors and Parent (Guarantors and Parent, collectively, "Obligors" and each,
individually, an "Obligor") have granted each of the Secured Parties continuing
security interests in all assets of each Obligor, as more fully set forth in the
Security Agreement.
AGREEMENTS
NOW, THEREFORE, for and in consideration of the recitals made above and
other good and valuable consideration, the receipt, sufficiency and adequacy of
which are hereby acknowledged, each Guarantor hereby agrees as follows:
1. Definitions. All capitalized terms used herein that are not otherwise
defined herein shall have the meanings given them in the Security Agreement.
1
2. Guaranteed Obligations. Guarantors jointly and severally hereby
irrevocably and unconditionally guaranty to Secured Party the due and punctual
Satisfaction in Full of the Guaranteed Obligations (as defined below).
"Guaranteed Obligations" means, collectively, all of the present and future
payment obligations of each Obligor arising under the Exchange Agreement, any
and all Notes payable to Secured Party, the Security Agreement and the other
Transaction Documents, including, without limitation, attorneys' fees and
expenses and any interest, fees, or expenses that accrue after the filing of an
Insolvency Proceeding, regardless of whether allowed or allowable in whole or in
part as a claim in any Insolvency Proceeding.
3. Guarantors' Representations and Warranties. Each Guarantor represents
and warrants to Secured Party that such Guarantor expects to derive substantial
benefits from the Exchange Agreement and the acquisition by Secured Parties of
the Notes and the shares of Preferred Stock and the other transactions
contemplated hereby and by the other Transaction Documents. Secured Party may
rely conclusively on a continuing warranty, hereby made, that such Guarantor
continues to be benefited by this Guaranty and Secured Party shall have no duty
to inquire into or confirm the receipt of any such benefits, and this Guaranty
shall be effective and enforceable by Secured Party without regard to the
receipt, nature or value of any such benefits.
4. Unconditional Nature1. No act or thing need occur to establish any
Guarantor's liability hereunder, and no act or thing, except Satisfaction in
Full of the Guaranteed Obligations (as defined below), shall in any way
exonerate any Guarantor hereunder or modify, reduce, limit or release any
Guarantor's liability hereunder. This is an absolute, unconditional and
continuing guaranty of payment of the Guaranteed Obligations and shall continue
to be in force and be binding upon each Guarantor until Satisfaction in Full of
the Guaranteed Obligations. Each Guarantor agrees that this Guaranty is a
guaranty of Satisfaction in Full of the Guaranteed Obligations and not of
collection, and that its obligations under this Guaranty shall be primary,
absolute and unconditional. In addition to the terms set forth herein, it is
expressly understood and agreed that, if, at maturity and at any time during the
continuance of an Event of Default, the outstanding amount of the Guaranteed
Obligations under the Transaction Documents (including, without limitation, all
accrued interest thereon, all accrued late charges thereon and all premiums due
in respect thereof) is declared to be immediately due and payable, then
Guarantors shall, upon notice of such acceleration, without further demand, pay
to Secured Party the entire outstanding Guaranteed Obligations due and owing to
Secured Party.
5. Subrogation. No Guarantor will exercise or enforce any right of
contribution, reimbursement, recourse or subrogation available to such Guarantor
as to any of the Guaranteed Obligations, or against any Person liable therefor,
or as to any collateral security therefor, unless and until Satisfaction in Full
of the Guaranteed Obligations.
6. Enforcement Expenses. Each Guarantor shall pay or reimburse Secured
Party for all costs, expenses and reasonable attorneys' fees paid or incurred by
Secured Party in endeavoring to collect and enforce the Guaranteed Obligations
and in enforcing this Guaranty.
7. Obligations Absolute. Each Guarantor agrees that its obligations
hereunder are irrevocable, absolute, independent and unconditional and shall not
be affected by any circumstance which constitutes a legal or equitable discharge
of a guarantor or surety other than Satisfaction in Full of the Guaranteed
2
Obligations. In furtherance of the foregoing and without limiting the generality
thereof, each Guarantor agrees that none of its obligations hereunder shall be
affected or impaired by any of the following acts or things (which Secured Party
is expressly authorized to do, omit or suffer from time to time, without consent
or approval by or notice to any Guarantor): (a) any acceptance of collateral
security, guarantors, accommodation parties or sureties for any or all of the
Guaranteed Obligations; (b) one or more extensions or renewals of the Guaranteed
Obligations (whether or not for longer than the original period) or any
modification of the interest rates, maturities, if any, or other contractual
terms applicable to any of the Guaranteed Obligations or any amendment or
modification of any of the terms or provisions of any of the Transaction
Documents; (c) any waiver or indulgence granted to Parent or any other Obligor,
any delay or lack of diligence in the enforcement of the Guaranteed Obligations,
or any failure to institute proceedings, file a claim, give any required notices
or otherwise protect any of the Guaranteed Obligations; (d) any full or partial
release of, compromise or settlement with, or agreement not to sue, Parent, any
other Obligor or any other Person liable in respect of any of the Guaranteed
Obligations; (e) any release, surrender, cancellation or other discharge of any
evidence of the Guaranteed Obligations or the acceptance of any instrument in
renewal or substitution therefor; (f) any failure to obtain collateral security
(including rights of setoff) for the Guaranteed Obligations, or to see to the
proper or sufficient creation and perfection thereof, or to establish the
priority thereof, or to preserve, protect, insure, care for, exercise or enforce
any collateral security; or any modification, alteration, substitution,
exchange, surrender, cancellation, termination, release or other change,
impairment, limitation, loss or discharge of any collateral security; (g) any
collection, sale, lease or disposition of, or any other foreclosure or
enforcement of or realization on, any collateral security; (h) any assignment,
pledge or other transfer of any of the Guaranteed Obligations or any evidence
thereof; (i) any manner, order or method of application of any payments or
credits upon the Guaranteed Obligations or (j) Secured Party not being a
Permitted Secured Party. Each Guarantor waives any and all defenses and
discharges available to a surety, guarantor or accommodation co-obligor.
8. Waivers by Guarantors. Each Guarantor waives any and all defenses,
claims, setoffs and discharges of, and/or against, Parent, or any other Obligor
or Person (including, without limitation, Secured Party), pertaining to the
Guaranteed Obligations, except the defense of discharge by indefeasible
satisfaction and discharge in full. Without limiting the generality of the
foregoing, no Guarantor will assert, plead or enforce against any Secured Party
any defense of waiver, release, discharge or disallowance in any Insolvency
Proceeding, statute of limitations, res judicata, statute of frauds,
anti-deficiency statute, fraud, incapacity, minority, usury, illegality or
unenforceability which may be available to Parent or any other Obligor or Person
liable in respect of any of the Guaranteed Obligations, or any setoff available
to any Secured Party against Parent or any other such Obligor or Person, whether
or not on account of a related transaction. Each Guarantor expressly agrees that
such Guarantor shall be and remain liable for any deficiency remaining after
foreclosure of any mortgage or security interest securing the Guaranteed
Obligations, whether or not the liability of Parent or any other Obligor or
Person for such deficiency is discharged pursuant to statute or judicial
decision. The liability of each Guarantor shall not be affected or impaired by,
and each Guarantor waives and agrees it shall not at any time insist upon, plead
or in any manner claim or take the benefit of, any voluntary or involuntary
liquidation, dissolution, sale or other disposition of all or substantially all
of the assets, marshalling of assets and liabilities, any valuation, appraisal,
stay, receivership, insolvency, bankruptcy, assignment for the benefit of
3
creditors, reorganization, arrangement, composition or readjustment of, or other
similar event or proceeding affecting, Parent or any of its assets. No Guarantor
will assert, plead or enforce against any Secured Party any claim, defense or
setoff available to such Guarantor against Parent. Each Guarantor waives
presentment, demand for payment, notice of dishonor or nonpayment and protest of
any instrument evidencing the Guaranteed Obligations. Secured Party shall not be
required first to resort for payment of the Guaranteed Obligations to Parent or
any other Person, or their properties, or first to enforce, realize upon or
exhaust any collateral security for the Guaranteed Obligations, before enforcing
this Guaranty.
9. If Payments Set Aside, etc. If any payment applied by Secured Party to
the Guaranteed Obligations is thereafter set aside, recovered, rescinded or
required to be returned for any reason (including, without limitation, the
bankruptcy, insolvency or reorganization of Parent or any other Obligor or
Person), the Guaranteed Obligations to which such payment was applied shall for
the purpose of this Guaranty be deemed to have continued in existence,
notwithstanding such application, and this Guaranty shall be enforceable as to
such Guaranteed Obligations as fully as if such application had never been made.
10. Additional Obligation of Guarantors. Each Guarantor's liability under
this Guaranty is in addition to and shall be cumulative with all other
liabilities of such Guarantor to Secured Party as guarantor, surety, endorser,
accommodation co-obligor or otherwise of any of the Guaranteed Obligations,
without any limitation as to amount.
11. No Duties Owed by Secured Party. Each Guarantor acknowledges and agrees
that Secured Party (a) has not made any representations or warranties with
respect to, (b) does not assume any responsibility to such Guarantor for, and
(c) has no duty to provide information to such Guarantor regarding, the
enforceability of any of the Guaranteed Obligations or the financial condition
of Parent or any other Obligor or Person. Each Guarantor has independently
determined the creditworthiness of Parent and the enforceability of the
Guaranteed Obligations and until Satisfaction in Full of the Guaranteed
Obligations will independently and without reliance on Secured Party continue to
make such determinations.
12. Miscellaneous.
(a) This Guaranty may be executed in two or more identical counterparts,
all of which 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. In the event that any signature is delivered by facsimile
transmission or by an e-mail which contains a portable document format (.pdf)
file of an executed signature page, such signature page shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such signature page were an
original thereof. Any party delivering an executed counterpart of this Guaranty
by facsimile or other electronic method of transmission also shall deliver an
original executed counterpart of this Guaranty but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability, and
binding effect of this Guaranty.
(b) Any provision of this Guaranty which is prohibited or unenforceable
shall be ineffective to the extent of such prohibition or unenforceability
4
without invalidating the remaining provisions hereof in that jurisdiction or
affecting the validity or enforceability of such provision in any other
jurisdiction.
(c) Headings used in this Guaranty are for convenience only and shall not
be used in connection with the interpretation of any provision hereof.
(d) The pronouns used herein shall include, when appropriate, either gender
and both singular and plural, and the grammatical construction of sentences
shall conform thereto.
(e) Unless the context of this Guaranty or any other Transaction Document
clearly requires otherwise, references to the plural include the singular,
references to the singular include the plural, the terms "includes" and
"including" are not limiting, and the term "or" has, except where otherwise
indicated, the inclusive meaning represented by the phrase "and/or." The words
"hereof," "herein," "hereby," "hereunder," and similar terms in this Guaranty or
any other Transaction Document refer to this Guaranty or such other Transaction
Document, as the case may be, as a whole and not to any particular provision of
this Guaranty or such other Transaction Document, as the case may be. Section,
subsection, clause, schedule, and exhibit references herein are to this Guaranty
unless otherwise specified. Any reference in this Guaranty or in any other
Transaction Document to any agreement, instrument, or document shall include all
alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, joinders, and supplements, thereto and thereof, as
applicable (subject to any restrictions on such alterations, amendments,
changes, extensions, modifications, renewals, replacements, substitutions,
joinders, and supplements set forth herein). "Satisfaction in Full of the
Guaranteed Obligations" shall mean the indefeasible payment in full in cash and
discharge, or other satisfaction in accordance with the terms of the Transaction
Documents and discharge, of all Guaranteed Obligations in full. "Satisfaction in
Full of the Secured Obligations" shall mean the indefeasible payment in full in
cash and discharge, or other satisfaction in accordance with the terms of the
Transaction Documents and discharge, of all Secured Obligations in full. Any
reference herein to any Person shall be construed to include such Person's
permitted successors and permitted assigns.
(f) This Guaranty shall be effective upon delivery to Secured Party,
without further act, condition or acceptance by Secured Party, shall be binding
upon each Guarantor and the successors and assigns of each Guarantor, and shall
inure to the benefit of Secured Party and its participants, successors and
assigns. This Guaranty may not be waived, modified, amended, terminated,
released or otherwise changed except by a writing signed by each Guarantor and
Secured Party.
(g) The language used in this Guaranty 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. For clarification purposes, the
Recitals are part of this Guaranty.
(h) All dollar amounts referred to in this Guaranty and the other
Transaction Documents (as defined in the Securities Purchase Agreement) are in
United States Dollars ("U.S. Dollars"), and all amounts owing under this
Guaranty and all other Transaction Documents shall be paid in U.S. Dollars. All
amounts denominated in other currencies shall be converted into the U.S. Dollar
5
equivalent amount in accordance with the Exchange Rate on the date of
calculation. "Exchange Rate" means, in relation to any amount of currency to be
converted into U.S. Dollars pursuant to this Guaranty, the U.S. Dollar exchange
rate as published in the Wall Street Journal on the relevant date of
calculation.
(i) Judgment Currency.
(i) If for the purpose of obtaining or enforcing judgment against any
Guarantor in any court in any jurisdiction it becomes necessary to convert
into any other currency (such other currency being hereinafter in this
Section 12(i) referred to as the "Judgment Currency") an amount due in U.S.
Dollars under this Guaranty or any other Transaction Document, the
conversion shall be made at the Exchange Rate prevailing on the Trading Day
(as defined in the Securities Purchase Agreement) immediately preceding:
(1) the date actual payment of the amount due, in the case of any
proceeding in the courts of New York or in the courts of any other
jurisdiction that will give effect to such conversion being made on such
date or (2) the date on which the foreign court determines, in the case of
any proceeding in the courts of any other jurisdiction (the date as of
which such conversion is made pursuant to this Section 12(i)(i) being
hereinafter referred to as the "Judgment Conversion Date").
(ii) If in the case of any proceeding in the court of any jurisdiction
referred to in Section 12(i)(i) above, there is a change in the Exchange
Rate prevailing between the Judgment Conversion Date and the date of actual
payment of the amount due, the applicable party shall pay such adjusted
amount as may be necessary to ensure that the amount paid in the Judgment
Currency, when converted at the Exchange Rate prevailing on the date of
payment, will produce the amount of U.S. Dollars which could have been
purchased with the amount of Judgment Currency stipulated in the judgment
or judicial order at the Exchange Rate prevailing on the Judgment
Conversion Date.
(iii) Any amount due from any Guarantor under this provision shall be
due as a separate debt and shall not be affected by judgment being obtained
for any other amounts due under or in respect of this Guaranty or any other
Transaction Document.
13. Notices. All notices and other communications provided for hereunder
shall be given in the form and manner, and delivered to such addresses, as
specified in the Security Agreement.
14. Governing Law; Jurisdiction; Service of Process; Jury Trial. All
questions concerning the construction, validity, enforcement and interpretation
of this Guaranty shall be governed by the internal laws of the State of New
York, without giving effect to any choice of law or conflict of law provision or
rule (whether of the State of New York or any other jurisdictions) that would
cause the application of the laws of any jurisdictions other than the State of
New York. Each Guarantor hereby irrevocably submits to the exclusive
6
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, 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 brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper; provided, however, any suit seeking enforcement of this Guaranty may
be brought, at Secured Party's option, in the courts of any jurisdiction where
Secured Party elects to bring such action. Each Guarantor 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 to such party at the
address for such notices to it under this Guaranty and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Without limitation of the foregoing, each Guarantor hereby irrevocably appoints
Parent as such Guarantor's agent for purposes of receiving and accepting any
service of process hereunder. Nothing contained herein shall be deemed to limit
in any way any right to serve process in any manner permitted by law. EACH
GUARANTOR HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY.
[signature page follows]
7
IN WITNESS WHEREOF, this Guaranty has been duly executed by each
Guarantor as of the date set forth above.
VIRAL TECHNOLOGIES, INC., a Delaware
corporation
By: _____________________________
Name:____________________________
Title: __________________________
8
EXHIBIT E
SUBORDINATION AND INTERCREDITOR AGREEMENT
THIS SUBORDINATION AND INTERCREDITOR AGREEMENT (the "Agreement") is entered
into as of this May [__], 2011, by and among MAXIMILIAN DE CLARA, an individual
("Subordinated Creditor"), CEL-SCI CORPORATION, a Colorado corporation (the
"Company"), and the secured parties listed on the Schedule of Secured Parties
attached hereto (individually, a "Secured Party" and collectively, the "Secured
Parties").
RECITALS
A. The Company, Secured Parties and certain other parties have entered into
an Exchange Agreement dated May 16, 2011 (as the same may be amended,
supplemented or otherwise modified from time to time, the "Exchange Agreement")
pursuant to which, among other things, Company has agreed to issue and each
Secured Party has agreed to acquire Notes (as defined in the Exchange Agreement)
and shares of Preferred Stock (as defined in the Exchange Agreement). All of the
Company's obligations to each Secured Party under the Exchange Agreement and
certain of the other Senior Debt Documents (as hereinafter defined) are secured
by liens on and security interests in substantially all of the now existing and
hereafter acquired real and personal property of the Company (the "Collateral").
B. The Company and Subordinated Creditor have entered into that certain
Amended and Restated Promissory Note dated May 13, 2011, in the original
principal amount of $1,104,057 (as the same may be amended, supplemented or
otherwise modified from time to time as permitted hereunder, the "Subordinated
Note").
C. As an inducement to and as one of the conditions precedent to the
agreement of each Secured Party to consummate the transactions contemplated by
the Exchange Agreement, each Secured Party has required the execution and
delivery of this Agreement by Subordinated Creditor and the Company in order to
set forth the relative rights and priorities of each Secured Party and
Subordinated Creditor under the Senior Debt Documents and the Subordinated Debt
Documents (as hereinafter defined).
AGREEMENT
NOW, THEREFORE, in order to induce each Secured Party to consummate the
transactions contemplated by the Exchange Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, the parties hereto hereby agree as follows:
1. Definitions. The following terms shall have the following meanings in this
Agreement:
"Bankruptcy Code" shall mean Title 11 of the United States Code, as
amended from time to time and any successor statute and all rules and
regulations promulgated thereunder.
"Distribution" means, with respect to any indebtedness, obligation or
security, (a) any payment, distribution, delivery, issuance or exchange by
any Person of cash, securities or other property, by set-off or otherwise,
pursuant to, on account of or with respect to such indebtedness, obligation
or security (including, without limitation, whether by conversion, exchange
or the like by the holder of such indebtedness, obligation or security),
(b) any exchange, redemption, purchase or other acquisition of such
indebtedness, obligation or security by any Person or (c) the granting of
any lien or security interest to or for the benefit of the holders of such
indebtedness, obligation or security in or upon any property of any Person.
"Enforcement Action" shall mean (a) to take from or for the account of
the Company or any guarantor of the Subordinated Debt, by set-off or in any
other manner, the whole or any part of any moneys which may now or
hereafter be owing by the Company or any such guarantor with respect to the
Subordinated Debt, (b) to sue for payment of, or to initiate or participate
with others in any suit, action or proceeding against the Company or any
such guarantor to (i) enforce payment of or to collect the whole or any
part of the Subordinated Debt or (ii) commence judicial enforcement of any
of the rights and remedies under the Subordinated Debt Documents or
applicable law with respect to the Subordinated Debt, (c) to accelerate the
Subordinated Debt, (d) to exercise any put option or to cause the Company
or any such guarantor to honor any redemption or mandatory prepayment
obligation under any Subordinated Debt Document, (e) to notify account
debtors or directly collect accounts receivable or other payment rights of
the Company or any such guarantor or (f) to take any action under the
provisions of any state or federal law, including, without limitation, the
Uniform Commercial Code, or under any contract or agreement, to enforce,
foreclose upon, take possession of or sell any property or assets of the
Company or any such guarantor (including, without limitation, the
Collateral) or to exercise any other rights or remedies which Subordinated
Creditor may have by virtue of the Subordinated Debt or under or with
respect to the Subordinated Debt Documents.
"Person" means any natural person, corporation, general or limited
partnership, limited liability company, firm, trust, association,
government, governmental agency or other entity, whether acting in an
individual, fiduciary or other capacity.
"Proceeding" shall mean any voluntary or involuntary insolvency,
bankruptcy, receivership, custodianship, liquidation, dissolution,
reorganization, assignment for the benefit of creditors, appointment of a
custodian, receiver, trustee or other officer with similar powers or any
other proceeding for the liquidation, dissolution or other winding up of a
Person.
"Refinancing Senior Debt Documents" shall mean any documentation which
replaces the Senior Loan Documents and pursuant to which the Senior Debt
under the Senior Loan Documents is restructured, as such documentation may
be amended, supplemented or otherwise modified from time to time in
compliance with this Agreement.
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"Senior Debt" shall mean all obligations, liabilities and indebtedness
of every nature of the Company, its subsidiaries or any guarantor from time
to time owed to Secured Parties under the Senior Debt Documents, including,
without limitation, the principal amount of all debts, claims and
indebtedness, stated value, accrued and unpaid interest and dividends and
all fees, costs and expenses, whether primary, secondary, direct,
contingent, fixed or otherwise, heretofore, now and from time to time
hereafter owing, due or payable, whether before or after the filing of a
Proceeding under the Bankruptcy Code together with (a) any amendments,
modifications, renewals or extensions thereof and (b) any interest or
dividends (as the case may be) accruing thereon after the commencement of a
Proceeding, without regard to whether or not such interest or dividends (as
the case may be) is an allowed claim.
"Senior Debt Documents" shall mean the Senior Loan Documents and,
after any restructuring of the Senior Debt under the Senior Loan Documents,
the Refinancing Senior Debt Documents.
"Senior Loan Documents" shall mean the Exchange Agreement, the Notes,
the Certificate of Designations (as defined in the Exchange Agreement) and
all other Transaction Documents (as defined in the Exchange Agreement), all
other agreements, documents and instruments executed from time to time in
connection therewith, as the same may be amended, supplemented or otherwise
modified from time to time, and all other documents, agreements and
instruments now existing or hereinafter entered into evidencing or
pertaining to any other obligations or liabilities of the Company or any
guarantor to any one or more Secured Parties (including, without
limitation, any such obligations or liabilities arising out of or
pertaining to any equity interests (including preferred stock or similar
interests) held by any such Secured Parties in the Company or any of its
subsidiaries).
"Subordinated Debt" shall mean all of the obligations, liabilities and
indebtedness of every nature of the Company or any guarantor from time to
time owed to Subordinated Creditor evidenced by or incurred pursuant to the
Subordinated Debt Documents, including, without limitation, the principal
amount of all debts, claims and indebtedness, accrued and unpaid interest
and all fees, costs and expenses, whether primary, secondary, direct,
contingent, fixed or otherwise, heretofore, now and from time to time
hereafter owing, due or payable, whether before or after the filing of a
Proceeding under the Bankruptcy Code together with (a) any amendments,
modifications, renewals or extensions thereof and (b) any interest accruing
thereon after the commencement of a Proceeding, without regard to whether
or not such interest is an allowed claim.
"Subordinated Debt Documents" shall mean the Subordinated Note, any
other agreements, documents or instruments executed from time to time in
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connection therewith, any guaranty with respect to the Subordinated Debt
and all other documents, agreements and instruments now existing or
hereinafter entered into evidencing or pertaining to all or any portion of
the Subordinated Debt or any other obligations or liabilities of Company to
Subordinated Creditor.
2. Subordination.
2.1 Subordination of Subordinated Debt to Senior Debt. The Company
covenants and agrees, and Subordinated Creditor likewise covenants and agrees,
notwithstanding anything to the contrary contained in any of the Subordinated
Debt Documents, that the payment of any and all of the Subordinated Debt shall
be subordinate and subject in right and time of payment, to the extent and in
the manner hereinafter set forth, to the prior indefeasible payment in full in
cash of all Senior Debt; provided, however, the Company may make, and the
Subordinated Creditor may accept and retain, regularly scheduled interest
payments on the Subordinated Note in accordance with the terms of the
Subordinated Note in effect on the date of the Exchange Agreement so long as no
Event of Default (as defined in the Notes) exists immediately prior to, or as a
result of any payment of, any such interest payment. Each holder of Senior Debt,
whether now outstanding or hereafter created, incurred, assumed or guaranteed,
shall be deemed to have acquired Senior Debt in reliance upon the provisions
contained in this Agreement.
2.2 Liquidation, Dissolution, Bankruptcy. In the event of any Proceeding
involving the Company or any subsidiary of the Company:
(a) All Senior Debt shall first be indefeasibly paid in full in cash and
all commitments to lend (if any) under the Senior Debt Documents shall be
terminated before any Distribution, whether in cash, securities or other
property, shall be made to Subordinated Creditor on account of any Subordinated
Debt.
(b) Any Distribution, whether in cash, securities or other property which
would otherwise, but for the terms hereof, be payable or deliverable in respect
of the Subordinated Debt shall be paid or delivered directly to Secured Parties
(to be held and/or applied by Secured Parties in accordance with the terms of
the Senior Debt Documents) until all Senior Debt is indefeasibly paid in full in
cash and all commitments (if any) under the Senior Debt Documents shall have
been terminated. Subordinated Creditor irrevocably authorizes, empowers and
directs any debtor, debtor in possession, receiver, trustee, liquidator,
custodian, conservator or other Person having authority, to pay or otherwise
deliver all such Distributions to Secured Parties. Subordinated Creditor also
irrevocably authorizes and empowers each Secured Party, in the name of
Subordinated Creditor, to demand, sue for, collect and receive any and all such
Distributions and Subordinated Creditor hereby appoints each Secured Party as
attorney-in-fact for Subordinated Creditor to demand, sue for, collect and
receive every such payment and distribution and to take such other action in
such Secured Party's own name or in the name of the Subordinated Creditor or
otherwise and to vote, give consent and take any other steps with regard
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thereto, all as such Secured Party may deem necessary or advisable for the
enforcement of this Agreement.
(c) Subordinated Creditor agrees not to initiate, prosecute or participate
in any claim, action or other proceeding challenging the enforceability,
validity, perfection or priority of the Senior Debt or any liens or security
interests securing the Senior Debt.
(d) Subordinated Creditor agrees that each Secured Party may consent to the
use of cash collateral or provide financing to the Company and/or its
subsidiaries on such terms and conditions and in such amounts as Secured
Parties, in their sole discretion, may decide and, in connection therewith, the
Company and its subsidiaries may grant to each Secured Party liens and security
interests upon all of the property of the Company and its subsidiaries, which
liens and security interests (i) shall secure payment of all Senior Debt
(whether such Senior Debt arose prior to the commencement of any Proceeding or
at any time thereafter) and all other financing provided by each Secured Party
during such Proceeding and (ii) shall be superior in priority to the liens and
security interests, if any, in favor of Subordinated Creditor on the property of
the Company and/or its subsidiaries. Subordinated Creditor agrees that it will
not object to or oppose a sale or other disposition of any property securing all
or any part of the Senior Debt free and clear of security interests, liens or
other claims of Subordinated Creditor under Section 363 of the Bankruptcy Code
or any other provision of the Bankruptcy Code if the required Secured Parties
have consented to such sale or disposition. Subordinated Creditor agrees not to
assert any right it may have to "adequate protection" of Subordinated Creditor's
interest in any Collateral in any Proceeding and agrees that it will not seek to
have the automatic stay lifted with respect to any Collateral without the prior
written consent of Secured Parties. Subordinated Creditor waives any claim it
may now or hereafter have arising out of Secured Parties' election, in any
Proceeding instituted under the Bankruptcy Code, of the application of Section
1111(b)(2) of the Bankruptcy Code, and/or any borrowing or grant of a security
interest under Section 364 of the Bankruptcy Code by Company, as
debtor-in-possession. Subordinated Creditor further agrees that it will not seek
to participate or participate on any creditor's committee without Secured
Parties' prior written consent.
(e) Subordinated Creditor agrees to execute, verify, deliver and file any
proofs of claim in respect of the Subordinated Debt requested by any Secured
Party in connection with any such Proceeding and hereby irrevocably authorizes,
empowers and appoints each Secured Party its agent and attorney-in-fact to (i)
execute, verify, deliver and file such proofs of claim upon the failure of
Subordinated Creditor promptly to do so prior to 30 days before the expiration
of the time to file any such proof of claim and (ii) vote such claim in any such
Proceeding upon the failure of Subordinated Creditor to do so prior to 15 days
before the expiration of the time to vote any such claim, provided that no
Secured Party shall have any obligation to execute, verify, deliver, file and/or
vote any such proof of claim. In the event that any Secured Party votes any
5
claim in accordance with the authority granted hereby, Subordinated Creditor
shall not be entitled to change or withdraw such vote.
(f) The Senior Debt shall continue to be treated as Senior Debt and the
provisions of this Agreement shall continue to govern the relative rights and
priorities of Secured Creditor and Subordinated Creditor even if all or part of
the Senior Debt or any of the security interests or liens securing the Senior
Debt are subordinated, set aside, avoided, invalidated or disallowed in
connection with any such Proceeding, and this Agreement shall be reinstated if
at any time any payment of any of the Senior Debt is rescinded or must otherwise
be returned by any holder of Senior Debt or any representative of such holder.
2.3 Subordinated Debt Payment Restrictions. Notwithstanding the terms of
the Subordinated Debt Documents, the Company hereby agrees that, except as
expressly permitted by the proviso set forth in Section 2.1, it may not make,
directly or indirectly, and Subordinated Creditor hereby agrees that it will not
accept, any Distribution with respect to the Subordinated Debt until the Senior
Debt is indefeasibly paid in full in cash.
2.4 Subordinated Debt Standstill Provisions. Until the Senior Debt is
indefeasibly paid in full in cash, Subordinated Creditor shall not, without the
prior written consent of each Secured Party, take any Enforcement Action with
respect to the Subordinated Debt. Notwithstanding the foregoing, Subordinated
Creditor may file proofs of claim against the Company in any Proceeding
involving the Company. Any Distributions or other proceeds of any Enforcement
Action obtained by Subordinated Creditor shall in any event be held in trust by
it for the benefit of Secured Parties and promptly be paid or delivered to
Secured Parties in the form received until all Senior Debt is indefeasibly paid
in full in cash and all commitments to lend (if any) under the Senior Debt
Documents shall have been terminated.
2.5 Incorrect Payments. If any Distribution on account of the Subordinated
Debt not permitted to be made by the Company or accepted by Subordinated
Creditor under this Agreement is made and received by Subordinated Creditor,
such Distribution shall not be commingled with any of the assets of Subordinated
Creditor, shall be held in trust by Subordinated Creditor for the benefit of
Secured Parties and shall be promptly paid over to Secured Parties for
application (in accordance with the Senior Debt Documents) to the payment of the
Senior Debt then remaining unpaid, until all of the Senior Debt is paid in full.
2.6 Subordination of Liens and Security Interests; Agreement Not to
Contest; Agreement to Release Liens. Until the Senior Debt has been indefeasibly
paid in full in cash and all lending commitments (if any) under the Senior Debt
Documents have terminated, any and all liens and security interests of
Subordinated Creditor in the Collateral shall be and hereby are subordinated for
all purposes and in all respects to the liens and security interests of each
Secured Party in the Collateral, regardless of the time, manner or order of
perfection of any such liens and security interests. Subordinated Creditor
agrees that it will not at any time contest the validity, perfection, priority
or enforceability of the Senior Debt, the Senior Debt Documents, or the liens or
6
security interests of any Secured Party in the Collateral securing the Senior
Debt. In the event that any Secured Party releases or agrees to release any of
its liens or security interests in the Collateral, Subordinated Creditor shall
(or shall cause its agent to) promptly execute and deliver to such Secured Party
such termination statements and releases as such Secured Party shall request to
effect the release of the liens and security interests of Subordinated Creditor
in such Collateral. In furtherance of the foregoing, Subordinated Creditor
hereby irrevocably appoints each Secured Party its attorney-in-fact, with full
authority in the place and stead of Subordinated Creditor and in the name of
Subordinated Creditor or otherwise, to execute and deliver any document or
instrument which Subordinated Creditor may be required to deliver pursuant to
this subsection 2.6.
2.7 Application of Proceeds from placeCitySale or other Disposition of the
Collateral. In the event of any sale, transfer or other disposition (including a
casualty loss or taking through eminent domain) of the Collateral, the proceeds
resulting therefrom (including insurance proceeds) shall be applied in
accordance with the terms of the Senior Debt Documents or as otherwise consented
to by Secured Parties until such time as the Senior Debt is indefeasibly paid in
full in cash and all commitments to lend (if any) under the Senior Debt
Documents have been terminated.
2.8 Sale, Transfer or other Disposition of Subordinated Debt.
(a) Subordinated Creditor shall not sell, assign, pledge, dispose of or
otherwise transfer all or any portion of the Subordinated Debt or any
Subordinated Debt Document, provided that Subordinated Creditor may transfer or
assign the Subordinated Debt and the Subordinated Debt Documents (in each case
together and in whole) for no value to (i) an Affiliate (as defined in the
Exchange Agreement) (other than the Company or any of its Subsidiaries (as
defined in the Notes)), or (ii) a foundation, charitable trust or other type of
non-profit organization (including a Stiftung formed under the laws of a member
of the European Economic Area), only if such transferee or assignee (as the case
may be) executes and delivers to the Secured Parties prior to such transfer or
assignment (as the case may be) a joinder to this Agreement in which such
transferee or assignee (as the case may be) agrees to be bound by all of the
terms and conditions of this Agreement applicable to Subordinated Creditor. Any
actual or attempted assignment, pledge, disposition or other transfer of all or
any portion of the Subordinated Debt or any Subordinated Debt Document (other
than a transfer or assignment made in compliance with the immediately preceding
proviso) shall be null and void ab initio.
(b) Notwithstanding the foregoing, the subordination effected hereby shall
survive any sale, assignment, pledge, disposition or other transfer of all or
any portion of the Subordinated Debt in violation of the foregoing provision,
and the terms of this Agreement shall be binding upon the successors and assigns
of Subordinated Creditor, as provided in Section 10 hereof.
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2.9 Legends. Until the termination of this Agreement in accordance with
Section 16 hereof, Subordinated Creditor will as soon as practicable after the
date hereof cause to be clearly, conspicuously and prominently inserted on the
face of the Subordinated Note and any other Subordinated Debt Document, as well
as any renewals or replacements thereof, the following legend:
"This instrument and the rights and obligations evidenced hereby are
subordinate in the manner and to the extent set forth in that certain
Subordination and Intercreditor Agreement (the "Subordination Agreement")
dated as of May [__], 2011 among CEL-SCI Corporation, a Colorado
corporation (the "Company"), Maximilian de Clara, an individual, and the
Secured Parties (as defined in the Subordination Agreement), to the
indebtedness (including interest) owed by the Company pursuant to those
certain Senior Secured Convertible Notes and shares of Series A Convertible
Preferred Stock issued by the Company pursuant to that certain Exchange
Agreement dated as of May 16, 2011 by and among Company and the Secured
Parties, as such Senior Secured Convertible Notes, terms of such shares of
preferred stock and such Exchange Agreement have been and hereafter may be
amended, supplemented or otherwise modified from time to time and to
indebtedness refinancing the indebtedness thereunder as contemplated by the
Subordination Agreement; and each holder of this instrument, by its
acceptance hereof, irrevocably agrees to be bound by the provisions of the
Subordination Agreement."
3. Modifications.
3.1 Modifications to Senior Debt Documents. Secured Parties may at any time
and from time to time without the consent of or notice to Subordinated Creditor,
without incurring liability to Subordinated Creditor and without impairing or
releasing the obligations of Subordinated Creditor under this Agreement, change
the manner or place of payment or extend the time of payment of or renew or
alter any of the terms of the Senior Debt, or amend or modify in any manner any
of the Senior Debt Documents.
3.2 Modifications to Subordinated Debt Documents. Until the Senior Debt has
been indefeasibly paid in full in cash, and notwithstanding anything to the
contrary contained in the Subordinated Debt Documents, neither the Company nor
Subordinated Creditor shall, without the prior written consent of Secured
Parties, agree to any amendment, modification or supplement to any of the
Subordinated Debt Documents.
4. Waiver of Certain Rights by Subordinated Creditor.
4.1 Marshalling. Subordinated Creditor hereby waives any rights it may have
under applicable law to assert the doctrine of marshaling or to otherwise
require any Secured Party to marshal any property of the Company or any
guarantor of the Senior Debt for the benefit of Subordinated Creditor.
8
4.2 Rights Relating to each Secured Party's Actions with respect to the
Collateral. Subordinated Creditor hereby waives, to the extent permitted by
applicable law, any rights which it may have to enjoin or otherwise obtain a
judicial or administrative order preventing any Secured Party from taking, or
refraining from taking, any action with respect to all or any part of the
Collateral. Without limitation of the foregoing, Subordinated Creditor hereby
agrees (a) that it has no right to direct or object to the manner in which any
Secured Party applies the proceeds of the Collateral resulting from the exercise
of rights and remedies under the Senior Debt Documents to the Senior Debt and
(b) that no Secured Party has assumed any obligation to act as the agent of
Subordinated Creditor with respect to the Collateral. Each Secured Party shall
have the exclusive right to enforce rights and exercise remedies with respect to
the Collateral until the Senior Debt is paid in full in cash. In exercising
rights and remedies with respect to the Collateral, each Secured Party may
enforce the provisions of the Senior Debt Documents and exercise remedies
thereunder, all in such order and in such manner as it may determine in the
exercise of its sole business judgment. Such exercise and enforcement shall
include, without limitation, the rights to sell or otherwise dispose of the
Collateral, to incur expenses in connection with such sale or disposition and to
exercise all the rights and remedies of a secured lender under the Uniform
Commercial Code of any applicable jurisdiction. In conducting any public or
private sale under the Uniform Commercial Code, the applicable Secured Party
shall give the Subordinated Creditor such notice of such sale as may be required
by the applicable Uniform Commercial Code, provided that 10 days' notice shall
be deemed to be commercially reasonable notice.
5. Representations and Warranties. Subordinated Creditor hereby represents and
warrants to Secured Party that: (a) Subordinated Creditor has the power and
authority to enter into, execute, deliver and carry out the terms of this
Agreement, all of which have been duly authorized by all proper and necessary
action; (b) this Agreement is the legal, valid and binding obligation of
Subordinated Creditor, enforceable against Subordinated Creditor in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by equitable principles; (c)
Subordinated Creditor is the sole owner, beneficially and of record, of the
Subordinated Debt Documents and the Subordinated Debt, (d) true and correct
complete copies of the Subordinated Debt Documents in effect as of the date
immediately preceding the date of the Exchange Agreement are attached hereto as
Exhibit A and none of the Subordinated Debt Documents have been amended,
restated, waived or otherwise modified in any manner or respect since the date
immediately preceding the date of the Exchange Agreement, and (e) the aggregate
amount of the Subordinated Debt as of the date hereof is $1,104,057 and no more,
without counterclaim, defense or offset.
6. Subrogation. Subject to the indefeasible payment in full in cash of all
Senior Debt, Subordinated Creditor shall be subrogated to the rights of each
Secured Party to receive Distributions with respect to the Senior Debt until the
Subordinated Debt is paid in full. Subordinated Creditor agrees that in the
event that all or any part of a payment made with respect to the Senior Debt is
recovered from the holders of the Senior Debt in a Proceeding or otherwise, any
9
Distribution received by Subordinated Creditor with respect to the Subordinated
Debt at any time after the date of the payment that is so recovered, whether
pursuant to the right of subrogation provided for in this Agreement or
otherwise, shall be deemed to have been received by Subordinated Creditor in
trust as property of the holders of the Senior Debt and Subordinated Creditor
shall forthwith deliver the same to Secured Parties for application to the
Senior Debt until the Senior Debt is paid in full. A Distribution made pursuant
to this Agreement to Secured Parties which otherwise would have been made to
Subordinated Creditor is not, as between the Company and Subordinated Creditor,
a payment by the Company to or on account of the Senior Debt.
7. Modification. Any modification or waiver of any provision of this Agreement,
or any consent to any departure by any party from the terms hereof, shall not be
effective in any event unless the same is in writing and signed by each Secured
Party and Subordinated Creditor, and then such modification, waiver or consent
shall be effective only in the specific instance and for the specific purpose
given. Any notice to or demand on any party hereto in any event not specifically
required hereunder shall not entitle the party receiving such notice or demand
to any other or further notice or demand in the same, similar or other
circumstances unless specifically required hereunder.
8. Further Assurances. Each party to this Agreement promptly will execute and
deliver such further instruments and agreements and do such further acts and
things as may be reasonably requested in writing by any other party hereto that
may be necessary or desirable in order to effect fully the purposes of this
Agreement; and Subordinated Creditor shall execute and deliver to each Secured
Party such other and further powers of attorney, assignments and other
instruments as may be requested by any Secured Party to enable each Secured
Party or its officers as sub-agents to enforce any and all claims upon or with
respect to the Subordinated Debt and to collect and receive any and all payments
or distributions which may be payable or deliverable at any time upon or with
respect to the Subordinated Debt.
9. Notices. Unless otherwise specifically provided herein, any notice delivered
under this Agreement shall be in writing addressed to the respective party as
set forth below and may be personally served, sent by facsimile or sent by
overnight courier service or certified or registered United States mail and
shall be deemed to have been given (a) if delivered in person, when delivered;
(b) if delivered by facsimile, on the date of transmission if transmitted on a
business day before 5:00 p.m. (New York time) or, if not, on the next succeeding
business day; (c) if delivered by overnight courier, one business day after
delivery to such courier properly addressed; or (d) if by United States mail,
four business days after deposit in the United States mail, postage prepaid and
properly addressed, provided that all such notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement to the Company must also be sent via electronic mail to each of the
following email addresses: Mrs. Patricia B. Prichep at: pprichep@cel-sci.com,
Mr. Gavin de Windt at: gdewindt@cel-sci.com and Mr. Geert R. Kersten at:
grkersten@cel-sci.com.
Notices shall be addressed as follows:
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If to Subordinated Creditor:
Mr. Maximilian de Clara
c/o Mr. Geert R. Kersten CEL-SCI Corporation
8229 Boone Boulevard, Suite 802
Vienna, VA 22182
Telephone: (703) 506-9460
Facsimile: (703) 506-9471
If to the Company:
CEL-SCI Corporation
8229 Boone Boulevard, Suite 802
Vienna, VA 22182
Telephone: (703) 506-9460
Facsimile: (703) 506-9471
Attention: Ms. Patricia B. Prichep, Senior VP of Operations
If to a Secured Party:
To its address or facsimile number (as the case may be)
set forth on the Schedule of Secured Parties,
or in any case, to such other address as the party addressed shall have
previously designated by written notice to the serving party, given in
accordance with this Section 9.
10. Successors and Assigns. This Agreement shall inure to the benefit of, and
shall be binding upon, the respective successors and assigns of each Secured
Party, Subordinated Creditor (including, without limitation, any receiver,
executor, trustee or administrator of Subordinated Creditor's estate) and the
Company. This Agreement shall not terminate or be revoked upon the death of
Subordinated Creditor, notwithstanding any knowledge by any Secured Party of
Subordinated Creditor's death. Subject to the terms of the Senior Loan
Documents, each Secured Party may, from time to time, without notice to
Subordinated Creditor, assign or transfer any or all of the Senior Debt or any
interest therein to any Person and, notwithstanding any such assignment or
transfer, or any subsequent assignment or transfer, the Senior Debt shall,
subject to the terms hereof, be and remain Senior Debt for purposes of this
Agreement, and every assignee or transferee of a Secured Party with respect to
any of the Senior Debt or of any interest therein shall, to the extent of the
interest of such assignee or transferee in the Senior Debt, be entitled to rely
upon and be the third party beneficiary of the subordination provided under this
Agreement and shall be entitled to enforce the terms and provisions hereof to
the same extent as if such assignee or transferee were initially a party hereto.
11
11. Relative Rights. This Agreement shall define the relative rights between
each Secured Party and Subordinated Creditor. Nothing in this Agreement shall
(a) impair, as among the Company and any Secured Party and as between the
Company and Subordinated Creditor, the obligation of the Company with respect to
the payment of the Senior Debt and the Subordinated Debt in accordance with
their respective terms, (b) affect the relative rights of any Secured Party as
among all Secured Parties or (c) affect the relative rights of any Secured Party
or Subordinated Creditor with respect to any other creditors of the Company.
12. Conflict. In the event of any conflict between any term, covenant or
condition of this Agreement and any term, covenant or condition of any of the
Subordinated Debt Documents, the provisions of this Agreement shall control and
govern.
13. Headings. The paragraph headings used in this Agreement are for convenience
only and shall not affect the interpretation of any of the provisions hereof.
14. Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which 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. In the event that any signature is delivered by
facsimile transmission or by an e-mail which contains a portable document format
(.pdf) file of an executed signature page, such signature page shall create a
valid and binding obligation of the party executing (or on whose behalf such
signature is executed) with the same force and effect as if such signature page
were an original thereof. For clarification purposes, the Recitals are part of
this Agreement.
15. Severability. In the event that any provision of this Agreement is deemed to
be invalid, illegal or unenforceable by reason of the operation of any law or by
reason of the interpretation placed thereon by any court or governmental
authority, the validity, legality and enforceability of the remaining provisions
of this Agreement shall not in any way be affected or impaired thereby, and the
affected provision shall be modified to the minimum extent permitted by law so
as most fully to achieve the intention of this Agreement.
16. Continuation of Subordination; Termination of Agreement. This Agreement
shall remain in full force and effect until the date of the indefeasible payment
in full in cash of the Senior Debt and the termination of all commitments under
the Senior Debt Documents after which this Agreement shall terminate without
further action on the part of the parties hereto.
17. Governing Law; Jurisdiction; Service of Process; Jury Trial. All questions
concerning the construction, validity, enforcement and interpretation of this
Agreement shall be governed by the internal laws of the State of New York,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of New York or any other jurisdictions) that would cause
the application of the laws of any jurisdictions other than 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
12
any transaction contemplated hereby or discussed herein, 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 brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper; provided, however, any
suit seeking enforcement against any collateral or other property may be
brought, at any Secured Party's option, in the courts of any jurisdiction where
such Secured Party elects to bring such action or where such collateral or other
property may be found. 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 to such party at the address for such
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 HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY
HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY
DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.
(Signature page follows)
13
IN WITNESS WHEREOF, Subordinated Creditor, the Company and each Secured Party
has caused this Agreement to be executed as of the date first above written.
SUBORDINATED CREDITOR:
MAXIMILIAN DE CLARA
---------------------------
COMPANY:
CEL-SCI CORPORATION,
a Colorado corporation
By:
----------------------------
Its:
---------------------------
14
SECURED PARTIES:
IROQUOIS MASTER FUND LTD.
By:
----------------------------
Its:
---------------------------
[-------------------------]
By:
----------------------------
Its:
---------------------------
15
SCHEDULE OF SECURED PARTIES
Secured Party Address and Facsimile Number
----------------------------------- -----------------------------------------
Iroquois Master Fund Ltd. Iroquois Master Fund Ltd.
641 Lexington Avenue, 26th Floor
New York, New York 10022
Facsimile: (212) 207-3452
[OTHER SECURED PARTIES]
16
Exhibit A
Subordinated Debt Documents
17
EXHIBIT F
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-------------------------------------------
IROQUOIS MASTER FUND, LTD., individually
and as Agent for 13 Purchasers under a
Securities Purchase Agreement dated
August 4, 2006, IROQUOIS CAPITAL ECF CASE
MANAGEMENT L.L.C., individually and as
Authorized Representative of IROQUOIS Case No.: 09-CIV-8912 (HB)
MASTER FUND, LTD., BRISTOL INVESTMENT
FUND, LTD., CASTLERIGG MASTER INVESTMENTS STIPULATION OF DISMISSAL
LTD., CRANSHIRE CAPITAL, LP, HUDSON BAY
FUND LP, HUDSON BAY OVERSEAS FUND, LTD.,
LONGVIEW FUND, L.P., OPTION OPPORTUNITIES
COMPANY, OTAGO PARTNERS, LLC, PARAGON
CAPITAL LP, PORTSIDE GROWTH AND
OPPORTUNITY FUND, ROCKMORE INVESTMENT
MASTER FUND, LTD., ROCKMORE CAPITAL LLC,
individually and as Authorized
Representative of ROCKMORE INVESTMENT
MASTER FUND, LTD., and SMITHFIELD
FIDUCIARY LLC,
Plaintiffs,
- against -
CEL-SCI CORPORATION,
Defendant.
-------------------------------------------
Plaintiffs Iroquois Master Fund, Ltd., Bristol Investment Fund, Ltd.,
Castlerigg Master Investments Ltd., Cranshire Capital, LP, Hudson Bay Fund LP,
Hudson Bay Overseas Fund, Ltd., Longview Fund, L.P., Option Opportunities
Company, Otago Partners, LLC, Paragon Capital LP, Portside Growth and
Opportunity Fund, Rockmore Investment Master Fund, Ltd., and Smithfield
Fiduciary LLC (collectively, "Plaintiffs") and Defendant CEL-SCI Corporation
(hereinafter the "Parties"), through their respective undersigned counsel,
pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(ii), hereby stipulate as
follows:
WHEREAS, the Parties have reached an agreement to settle their dispute in
this Action as reflected in the Exchange Agreement and exhibits
thereto dated May 16, 2011 ("Exchange Agreement");
IT IS HEREBY STIPULATED AND AGREED, by and among the Parties hereto,
through their respective counsel, pursuant to Federal Rule of Civil Procedure
41(a)(1)(A)(ii), that this Action is hereby voluntarily dismissed with
prejudice, each party to bear its own costs; and
IT IS FURTHER STIPULATED AND AGREED, by and among the Parties hereto,
through their respective counsel, that this Court shall retain jurisdiction to
enforce the terms of the Exchange Agreement, including but not limited to, the
hearing and determination of any application seeking the issuance of a judgment
as set forth therein.
Dated: May ______, 2011
New York, New York
KOBRE & KIM LLP WILK AUSLANDER LLP
By: _____________________________ By: ___________________________
Steven G. Kobre Jay Auslander
(steven.kobre@kobrekim.com) (jauslander@wilkauslander.com)
Robert J. Grand Natalie Shkolnik
(robert.grand@kobrekim.com) (nshkolnik@wilkauslander.com)
800 Third Avenue 675 Third Avenue
New York, NY 10022 New York, NY 10017
Telephone: 212-488-1200 Telephone: 212-421-2233
Facsimile: 212-488-1220 Facsimile: 212-752-6380
Counsel for Plaintiffs Counsel for Defendant CEL-SCI
Corporation
2
SO ORDERED,
DATED:
May __, 2011
New York, New York
----------------------------
The Honorable Theodore H. Katz
United States Magistrate Judge
3
EXHIBIT G
ESCROW AGREEMENT
This Escrow Agreement ("Agreement") is made and entered into this [___] day
of May 2011, by and among CEL-SCI Corporation, a Colorado corporation (the
"Company"), Iroquois Master Fund, Ltd., Smithfield Fiduciary LLC, Portside
Growth and Opportunity Fund, Cranshire Capital LP, Rockmore Investment Master
Fund Ltd., American Capital Management, LLC, Longview Fund, LP, Option
Opportunities Corp., Hudson Bay Fund LP, Hudson Bay Overseas Fund Ltd., Otago
Partners, LLC, Paragon Capital LP, Bristol Investment Fund, Ltd. (collectively,
the "Claimants" and each individually, a "Claimant"), and Kobre & Kim LLP, as
escrow agent ("Escrow Agent").
RECITALS
WHEREAS, the Company and each of the Claimants have entered into that
certain Exchange Agreement, dated May 16, 2011 (the "Exchange Agreement"),
pursuant to which the Company and the Claimants have agreed to settle disputes
between them set forth therein in accordance with the terms of the Exchange
Agreement;
WHEREAS, the Exchange Agreement requires the Company to deliver into escrow
a total of twenty six (26) Affidavits of Confession of Judgment executed by a
duly authorized representative of the Company, half of which relate to the Notes
(the "Note Affidavits") and the other half of which relate to the shares of
Preferred Stock and the Certificate of Designations (the "Preferred Affidavits"
and together with the Note Affidavits, collectively the "Escrow Affidavits") to
be held and released by Escrow Agent in accordance with this Agreement; and
WHEREAS, the parties to this Agreement wish to set forth the terms and
conditions with respect to the Escrow Affidavits held by the Escrow Agent.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties do hereby agree as follows:
1. Definitions. Capitalized terms used herein without definition shall have
the meanings assigned to such terms in the Exchange Agreement.
2. Deposit of Escrow Affidavits. Simultaneously upon the execution of this
Agreement, the Company shall cause the Escrow Affidavits to be delivered to the
Escrow Agent. Subject to the right of the Escrow Agent to resign as hereinafter
provided, the Escrow Agent shall hold the Escrow Affidavits and Escrow Agent
shall not release the Escrow Affidavits except as herein provided.
3. Release of Escrow Affidavits. Upon receipt of a release instruction
letter, in the form of Exhibit A attached hereto (the "Release Instruction
Letter"), executed by a Claimant, the Escrow Agent shall, as promptly as
1
reasonably practicable, release and deliver, in accordance with the provisions
of this Section 3, the applicable Escrow Affidavit to such Claimant to the
address specified by such Claimant in such Claimant's Release Instruction
Letter. The parties acknowledge and agree that the Escrow Agent shall have no
responsibility whatsoever for ensuring that any Claimant who has delivered such
a Release Instruction Letter had the right to seek the release of the applicable
Escrow Affidavit or otherwise complied with the Exchange Agreement or any of the
other Transaction Documents. Promptly upon its receipt of a Release Instruction
Letter from a Claimant, the Escrow Agent shall send a copy thereof to the
Company by e-mail and facsimile to the email address and facsimile number set
forth in Section 13 below (the "Notice Obligation"). The Notice Obligation need
not be satisfied by Escrow Agent prior to release and delivery to Claimant of
the requested Escrow Affidavit. The Escrow Agent shall exercise no discretion in
carrying out its duties under this Section 3. Each Claimant and the Company
acknowledge and agree that each Claimant's right to deliver a Release
Instruction Letter is governed by the terms of Section 17 below.
4. No Liability; Indemnity.
(a) The Company and Claimants hereby waive any and all claims arising out
of the performance of the Escrow Agent's duties to the fullest extent permitted
by law.
(b) Each of the Claimants hereby agree to jointly and severally indemnify,
defend and hold harmless the Escrow Agent and all related, affiliated or
subsidiary persons, and their respective directors, officers, employees,
shareholders, partners, members, agents, representatives, attorneys, successors,
insurers, executors and assigns (collectively, the "Indemnified Parties") from
and against the full amount of any and all claims, damages, losses, judgments,
obligations, taxes, assessments, liabilities, actions, suits, charges, costs,
fees and expenses (including, without limitation, reasonable attorneys' fees and
court costs at trial and all appellate levels) made against, or suffered or
incurred by, any of the Indemnified Parties arising out of, related to, or in
connection with, the Escrow Agent's entering into this Agreement or carrying out
its duties hereunder or contemplated hereby or its holding or delivery of the
Escrow Affidavits. The Claimants further agree that they shall advance to the
Indemnified Parties all legal fees and expenses incurred in connection with any
such matter. It is expressly understood and agreed that nothing contained in
this Agreement shall limit any obligations of the Company or any Claimant under
Section 22 of the Exchange Agreement.
(c) Notwithstanding anything to the contrary contained in this Agreement,
the Escrow Agent and any successor escrow agent may at any time resign as such
by delivering the Escrow Affidavits to either (i) any successor escrow agent
jointly designated by each of the Claimants and the Company or (ii) any court
having competent jurisdiction. Upon its resignation and delivery of the Escrow
Affidavits as set forth in this paragraph, the Escrow Agent shall be discharged
of, and from, any and all further obligations arising in connection with the
escrow contemplated by this Agreement, but shall continue to enjoy all rights,
exculpations and indemnities hereunder in respect of actions and events prior to
such resignation and delivery.
2
(d) The parties hereto acknowledge and agree that the Escrow Agent has
served as legal counsel to Claimants in connection with the Action, has
participated in the drafting and negotiation of various of the Transaction
Documents and has advised Claimants regarding the settlement of the Action.
Notwithstanding the foregoing, each of the parties hereto do hereby waive, for
all purposes (i) any actual or presumptive conflicts of interest with respect to
the Escrow Agent serving in such capacity hereunder and (ii) any presumption or
negative construction against the Company, any Claimant or the Escrow Agent, as
drafter of this Agreement and the other Transaction Documents, in connection
with any dispute arising under, or in connection with, this Agreement or any of
the other Transaction Documents. The parties hereby further waive any conflict
relating to or arising from Escrow Agent's continued representation of any or
all of the Claimants in the event of any dispute or litigation -- even including
litigation in which the Escrow Agent is named as a party -- and agree that such
law firm may continue to represent any or all of the Claimants in any dispute or
litigation pursuant to this Agreement or any of the other Transaction Documents.
7. Waiver, Amendment or Modification. No waiver, amendment or modification
of this Agreement, or of any covenant, condition or limitation herein contained,
shall be valid unless evidenced by a writing duly executed by all of the parties
hereto.
8. Assignment; Third Party Beneficiary. Neither this Agreement nor any
rights or obligations hereunder may be assigned or delegated by any party hereto
without the prior written consent of all of the other parties hereto except for
the provisions hereof respecting successor escrow agents. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other Person (as defined in the Exchange Agreement),
other than the Indemnified Parties referred to in Section 4(b).
9. Governing Law and Consent to Jurisdiction. This Agreement shall be
governed, construed and controlled by and under the substantive laws of the
State of New York, without giving effect to such state's choice of law
provisions; and the parties hereby submit themselves to the exclusive
jurisdiction of the courts of the State of New York and New York County, both
state and federal, for all purposes with respect to any dispute arising out of,
in connection with, or in relation to this Agreement or any actual or alleged
breach hereof.
10. Judgments. The Escrow Agent is hereby expressly authorized to comply
with and obey any order, judgment or decree of a court of competent
jurisdiction. In case the Escrow Agent obeys or complies with any such order,
judgment or decree, the Escrow Agent shall not be liable to any of the parties
or to any other person, firm, corporation or other entity by reason of such
compliance, notwithstanding that any such order, judgment or decree may be
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered into without jurisdiction.
11. Binding Effect. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and assigns.
3
12. Captions. The paragraph headings used in this Agreement are for
convenience only, and shall not affect the construction or interpretation of
this Agreement or any of the provisions hereof.
13. Notices. The facsimile number to which notice shall be sent to the
Company to satisfy the Notice Obligation is (703) 506-9471, Attention: Ms.
Patricia B. Prichep, Senior VP of Operations. The email addresses to which
notice shall be sent to the Company to satisfy the Notice Obligation are: Mrs.
Patricia B. Prichep at: pprichep@cel-sci.com, Mr. Gavin de Windt at:
gdewindt@cel-sci.com and Mr. Geert R. Kersten at: grkersten@cel-sci.com.
14. Sole and Entire Agreement. This Agreement constitutes the entire
agreement and understanding among the parties solely with respect to the subject
matter hereof, and supersedes all prior discussions, agreement and
understandings of every kind and nature, whether written or oral, among them
solely with respect to such subject matter.
15. Survival of Certain Provisions. The provisions of this Agreement (other
than Section 3) shall survive the termination of this Agreement.
16. Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which 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 parties. In the event that any signature is delivered by
facsimile transmission or by an e-mail which contains a portable document format
(.pdf) file of an executed signature page, such signature page shall create a
valid and binding obligation of the party executing (or on whose behalf such
signature is executed) with the same force and effect as if such signature page
were an original thereof.
17. Release of Escrow Affidavits. The Company and each Claimant agree that
each Claimant shall be entitled to deliver a Release Instruction Letter to the
Escrow Agent (i) with respect to such Claimant's Note Affidavit immediately
following the occurrence of an Event of Default (as defined in the Security
Agreement) with respect to such Claimant and (ii) with respect to such
Claimant's Preferred Affidavit immediately following the Company's failure to
pay to such Claimant such Claimant's Triggering Event Redemption Price (as
defined in the Certificate of Designations) in full pursuant to Section 5(c) of
the Certificate of Designations. If a Claimant is permitted by this Section 17
to deliver a Release Instruction Letter to the Escrow Agent with respect to the
applicable Escrow Affidavit, then the Company shall not take any action or make
any claim related to the delivery of such Release Instruction Letter or the
release of such Escrow Affidavit under this Agreement.
[signature pages follow]
4
IN WITNESS WHEREOF, each of the parties hereto have duly executed and
delivered this Escrow Agreement as of the date first above written.
CEL-SCI CORPORATION
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
[CLAIMANT]
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
KOBRE & KIM LLP, as Escrow Agent
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
5
EXHIBIT A
Form of Release Instruction Letter
________, 20__
SENT VIA FACSIMILE TO: (212) 488-1220
Kobre & Kim, LLP
800 Third Avenue
New York, New York 10022
Attention: Steven G. Kobre, Esq.
Jonathan D. Cogan, Esq.
Dear Sirs:
Reference is made to that certain Escrow Agreement (the "Agreement"), dated
as of May [___], 2011, by and among CEL-SCI Corporation, Inc., a Colorado
corporation (the "Company"), Iroquois Master Fund, Ltd., Smithfield Fiduciary
LLC, Portside Growth and Opportunity Fund, Cranshire Capital LP, Rockmore
Investment Master Fund Ltd., American Capital Management, LLC, Longview Fund,
LP, Option Opportunities Corp., Hudson Bay Fund LP, Hudson Bay Overseas Fund
Ltd., Otago Partners, LLC, Paragon Capital LP, Bristol Investment Fund, Ltd.
(collectively, the "Claimants" and each individually, a "Claimant"), and Kobre &
Kim LLP, as escrow agent. All capitalized terms used herein shall have the
meanings ascribed to them in the Agreement.
You are hereby irrevocably authorized, directed and instructed by the
Claimant identified below to release and deliver the [Note Affidavit][Preferred
Affidavit](1) executed by the Company in favor of the Claimant identified below
in accordance with the provisions of Section 3 of the Agreement. The [Note
Affidavit][Preferred Affidavit](2) released pursuant to this Release Instruction
Letter should be delivered to the Claimant identified below at the delivery
address set forth below.
[signature page follows]
(1) Delete non-applicable term
(2) Delete non-applicable term
6
Very truly yours,
[CLAIMANT]
By:
---------------------------
Name:
Title:
DELIVERY ADDRESS:
7
EXHIBIT H(a)
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
---------------------------------------------------
AFFIDAVIT OF
[__________________] CONFESSION OF JUDGMENT
Plaintiff
Index No.
-against-
CEL-SCI CORPORATION
Defendant.
---------------------------------------------------
STATE OF NEW YORK )
) ss
COUNTY OF NEW YORK )
MR. GEERT R. KERSTEN, being duly sworn, deposes and says:
1. I am the Chief Executive Officer of CEL-SCI Corporation ("CEL-SCI"), a
Colorado Corporation and the defendant in the above-captioned action, whose
corporate headquarters is located at 8229 Boone Boulevard, Suite 802, Vienna,
Virginia 22182.
2. I am authorized by CEL-SCI to execute this Affidavit and confess
judgment on CEL-SCI's behalf, in favor of [___________] ("Plaintiff"), for the
sum of $[___________].
3. Pursuant to Section 3218 of the New York Civil Practice Law and Rules, I
hereby confess judgment on CEL-SCI's behalf in favor of Plaintiff for
$[_________],(1) and authorize entry of judgment, in the Supreme Court of the
State of New York, County of New York, against CEL-SCI in the amount of
$[_________].(2) The foregoing amount shall be reduced by the aggregate amount
of Company Redemption Prices (as defined in the Certificate of Designations (as
defined in the Exchange Agreement)) paid to Plaintiff.
4. This confession of judgment is for a debt due to Plaintiff arising from
the following facts:
(i) Plaintiff together with other parties (collectively, the
"Plaintiffs") commenced an action against CEL-SCI in the United States
District Court for the Southern District of New York, entitled Iroquois
Master Fund, Ltd. et al v. CEL-SCI Corporation, Case No. 09 Civ. 8912 (the
"Action"), asserting breach of contract and other claims.
(1) Insert aggregate Stated Value of shares of Preferred Stock
(2) Insert aggregate Stated Value of shares of Preferred Stock
(ii) Plaintiffs and CEL-SCI settled the Action pursuant to that
certain Exchange Agreement, dated May 16, 2011, by and among CEL-SCI,
Plaintiff and the other Plaintiffs (the "Exchange Agreement"). Pursuant to
the Exchange Agreement, CEL-SCI issued, on May [___], 2011, to Plaintiff,
among other things, [____] shares of Series A Convertible Preferred Stock
of the Company (the "Preferred Stock"). Under the terms of the Certificate
of Designations, CEL-SCI is required to redeem the shares of Preferred
Stock in four (4) equal monthly installments commencing on June 1, 2011 and
ending on September 1, 2011. If a Triggering Event (as defined in the
Certificate of Designations) occurs, Plaintiff is entitled to demand
immediate redemption of all or any shares of Preferred Stock then held by
Plaintiff under Section 5 of the Certificate of Designations by delivering
a Notice of Redemption at Option of Holder (as defined in the Certificate
of Designations) to CEL-SCI, and CEL-SCI is required to pay the Triggering
Event Redemption Price in full to Plaintiff in accordance with Section 5(c)
of the Certificate of Designations after receipt of such notice for such
redemption.
(iii) A Triggering Event has occurred under the Certificate of
Designations, Plaintiff has properly delivered a Notice of Redemption at
Option of Holder to CEL-SCI under the Certificate of Designations, and
CEL-SCI has not timely paid the Triggering Event Redemption Price as set
forth in the Certificate of Designations.
(iv) Pursuant to the terms of that certain Escrow Agreement, dated May
[___], 2011, by and among CEL-SCI, Plaintiff and the other parties thereto
(the "Escrow Agreement") that was entered into in connection with the
consummation of the transactions contemplated by the Exchange Agreement,
CEL-SCI agreed that if the Triggering Event Redemption Price was not paid
in full to the Plaintiff in accordance with Section 5(c) of the Certificate
of Designations, this Affidavit would be released to Plaintiff.
5. I also acknowledge, on behalf of CEL-SCI, that the debt owing to
Plaintiff under the Certificate of Designations is justly due to Plaintiff.
6. This confession of judgment does not violate Section 3201 of the New
York Civil Practice Law and Rules because it was "not executed prior to the time
a default in the payment of an installment occurs in connection with the
purchase of fifteen hundred dollars or less of any commodities for any use other
than a commercial or business use upon any plan of deferred payments whereby the
price or cost is payable in two or more installments."
7. This confession of judgment is not for the purpose of securing plaintiff
against a contingent liability.
By:
-----------------------------
Geert R. Kersten
Sworn to before me this ___ day
of May 2011
----------------------------
NOTARY PUBLIC
EXHIBIT H(b)
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
--------------------------------------------------
AFFIDAVIT OF
[__________________] CONFESSION OF JUDGMENT
Plaintiff
Index No.
-against-
CEL-SCI CORPORATION
Defendant.
--------------------------------------------------
STATE OF NEW YORK )
) ss
COUNTY OF NEW YORK )
MR. GEERT R. KERSTEN, being duly sworn, deposes and says:
1. I am the Chief Executive Officer of CEL-SCI Corporation ("CEL-SCI"), a
Colorado Corporation and the defendant in the above-captioned action, whose
corporate headquarters is located at 8229 Boone Boulevard, Suite 802, Vienna,
Virginia 22182.
2. I am authorized by CEL-SCI to execute this Affidavit and confess
judgment on CEL-SCI's behalf, in favor of [___________] ("Plaintiff"), for the
sum of $[___________].
3. Pursuant to Section 3218 of the New York Civil Practice Law and Rules, I
hereby confess judgment on CEL-SCI's behalf in favor of Plaintiff for
$[_________],(1) and authorize entry of judgment, in the Supreme Court of the
State of New York, County of New York, against CEL-SCI in the amount of
$[_________].(2) The foregoing amount shall be reduced by the amount of
principal paid to Plaintiff with respect to the Note (as defined below).
4. This confession of judgment is for a debt due to Plaintiff arising from
the following facts:
(i) Plaintiff together with other parties (collectively, the
"Plaintiffs") commenced an action against CEL-SCI in the United States
District Court for the Southern District of New York, entitled Iroquois
Master Fund, Ltd. et al v. CEL-SCI Corporation, Case No. 09 Civ. 8912 (the
"Action"), asserting breach of contract and other claims.
(1) Insert original principal amount of Note
(2) Insert original principal amount of Note
(ii) Plaintiffs and CEL-SCI settled the Action pursuant to that
certain Exchange Agreement, dated May 16, 2011, by and among CEL-SCI,
Plaintiff and the other Plaintiffs (the "Exchange Agreement"). Pursuant to
the Exchange Agreement, CEL-SCI issued, on May [___], 2011, to Plaintiff,
among other things, a senior secured convertible note in the original
principal amount of $[___________] (the "Note"). Under the terms of the
Note, CEL-SCI is required to repay the Note in five (5) equal monthly
installments commencing on November 1, 2011 and ending on March 1, 2012. If
an Event of Default (as defined in the Note) occurs, Plaintiff is entitled
to demand immediate payment of all or any unpaid portion of the Note then
outstanding under Section 4 thereof by delivering an Event of Default
Redemption Notice (as defined in the Note) to CEL-SCI, and CEL-SCI has
seven (7) Business Days (as defined in the Note), after receipt of such
notice to pay such amount.
(iii) An Event of Default has occurred under the Note, Plaintiff has
properly delivered an Event of Default Redemption Notice to CEL-SCI under
the Note, and CEL-SCI has not timely paid the Event of Default Redemption
Price as set forth in the Note.
(iv) Pursuant to the terms of that certain Escrow Agreement, dated May
[___], 2011, by and among CEL-SCI, Plaintiff and the other parties thereto
(the "Escrow Agreement") that was entered into in connection with the
consummation of the transactions contemplated by the Exchange Agreement,
CEL-SCI agreed that if an Event of Default (as defined in the Security
Agreement) occurred, this Affidavit would be released to Plaintiff.
5. I also acknowledge, on behalf of CEL-SCI, that the debt owing to
Plaintiff under the Note is justly due to Plaintiff.
6. This confession of judgment does not violate Section 3201 of the New
York Civil Practice Law and Rules because it was "not executed prior to the time
a default in the payment of an installment occurs in connection with the
purchase of fifteen hundred dollars or less of any commodities for any use other
than a commercial or business use upon any plan of deferred payments whereby the
price or cost is payable in two or more installments."
7. This confession of judgment is not for the purpose of securing plaintiff
against a contingent liability.
By:
------------------------------
Geert R. Kersten
Sworn to before me this _______ day
of May 2011
----------------------------
NOTARY PUBLIC