EXHIBIT 99
CEL-SCI CORPORATION
Common Stock
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This Prospectus relates to shares (the "Shares") of common stock (the
"Common Stock") of CEL-SCI Corporation which may be issued pursuant to certain
employee compensation plans adopted by CEL-SCI. The employee compensation plans
provide for the grant, to selected employees of CEL-SCI and other persons, of
either shares of CEL-SCI's common stock or options to purchase shares of
CEL-SCI's common stock. Persons who received Shares pursuant to the Plans and
who are offering such shares to the public by means of this Prospectus are
referred to as the "Selling Shareholders".
CEL-SCI has Incentive Stock Option Plans, Non-Qualified Stock Option Plans,
Stock Bonus Plans, Stock Compensation Plans and a 2014 Incentive Stock Bonus
Plan. In some cases these plans are collectively referred to as the "Plans". The
terms and conditions of any stock grants and the terms and conditions of any
options, including the price of the shares of Common Stock issuable on the
exercise of options, are governed by the provisions of the respective Plans and
any particular agreements between CEL-SCI and the Plan participants.
The Selling Shareholders may offer the shares from time to time in
negotiated transactions in the over-the-counter market, at fixed prices which
may be changed from time to time, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. The Selling Shareholders may effect such transactions by selling the
Shares to or through securities broker/dealers, and such broker/dealers may
receive compensation in the form of discounts, concessions, or commissions from
the Selling Shareholders and/or the purchasers of the Shares for whom such
broker/dealers may act as agent or to whom they sell as principal, or both
(which compensation as to a particular broker/dealer might be in excess of
customary commissions). See "Selling Shareholders" and "Plan of Distribution".
None of the proceeds from the sale of the Shares by the Selling
Shareholders will be received by CEL-SCI. CEL-SCI has agreed to bear all
expenses (other than underwriting discounts, selling commissions and fees and
expenses of counsel and other advisers to the Selling Shareholders). CEL-SCI has
agreed to indemnify the Selling Shareholders against certain liabilities,
including liabilities under the Securities Act of 1933, as amended (the
"Securities Act").
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The purchase of the securities offered by this prospectus involves a high
degree of risk. Risk factors include the lack of revenues and history of loss,
need for additional capital and need for FDA approval. See the "Risk Factors"
section of this prospectus, beginning on page 16, for additional Risk Factors.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or has passed upon
the accuracy or adequacy of this prospectus. Any representation to the contrary
is a criminal offense.
The date of this Prospectus is August __, 2015.
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AVAILABLE INFORMATION
CEL-SCI is subject to the information requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith, files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Proxy statements, reports and other information concerning
CEL-SCI can be inspected and copied at the Commission's office at 100 F Street,
NE, Washington, D.C. 20549. Certain information concerning CEL-SCI is also
available at the Internet Web Site maintained by the Securities and Exchange
Commission at www.sec.gov. This Prospectus does not contain all information set
forth in the Registration Statement of which this Prospectus forms a part and
exhibits thereto which CEL-SCI has filed with the Commission under the
Securities Act and to which reference is hereby made.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed with the Commission by CEL-SCI (Commission
File No. 001-11889) are incorporated by reference into this prospectus:
(1) Annual report on Form 10-K for the year ended September 30, 2014.
(2) Quarterly report on Form 10-Q for the quarter ended December 31, 2014.
(3) Amended annual report on Form 10-K/A for the year ended September 30,
2014.
(4) Proxy Statement relating to the annual meeting of shareholders held on
June 22, 2015.
(5) Quarterly report on Form 10-Q for the quarter ended March 31, 2015.
(6) Amended annual report on Form 10-K/A for the year ended September 30,
2014.
(7) 8-K reports filed on:
o February 18, 2015;
o March 18, 2015;
o April 2, 2015;
o May 11, 2015;
o May 13, 2015;
o May 26, 2015;
o May 29, 2015;
o June 23, 2015;
o June 30, 2015; and
o July 1, 2015
(8) Quarterly report on Form 10-Q for the quarter ended June 30, 2015.
CEL-SCI will provide, without charge, to each person to whom a copy of this
Prospectus is delivered, including any beneficial owner, upon the written or
oral request of such person, a copy of any or all of the documents incorporated
by reference herein (other than exhibits to such documents, unless such exhibits
are specifically incorporated by reference into this Prospectus). Requests
should be directed to:
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CEL-SCI Corporation
8229 Boone Blvd., Suite 802
Vienna, Virginia 223l4
(703) 506-9460
Attention: Secretary
All documents filed with the Commission by CEL-SCI pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
prospectus and prior to the termination of this offering shall be deemed to be
incorporated by reference into this prospectus and to be a part of this
prospectus from the date of the filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
shall be deemed to be modified or superseded for the purposes of this prospectus
to the extent that a statement contained in this prospectus or in any
subsequently filed document which also is or is deemed to be incorporated by
reference in this prospectus modifies or supersedes such statement. Such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this prospectus.
Investors are entitled to rely upon information in this prospectus or
incorporated by reference at the time it is used by CEL-SCI to offer and sell
securities, even though that information may be superseded or modified by
information subsequently incorporated by reference into this prospectus.
CEL-SCI has filed with the Securities and Exchange Commission a
Registration Statement under the Securities Act of l933, as amended, with
respect to the securities offered by this prospectus. This prospectus does not
contain all of the information set forth in the Registration Statement. For
further information with respect to CEL-SCI and such securities, reference is
made to the Registration Statement and to the exhibits filed with the
Registration Statement. Statements contained in this prospectus as to the
contents of any contract or other documents are summaries which are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. The
Registration Statement and related exhibits may also be examined at the
Commission's internet site.
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TABLE OF CONTENTS
PAGE
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THE COMPANY ............................................................ 6
RISK FACTORS ........................................................... 15
COMPARATIVE SHARE DATA ................................................ 24
MARKET FOR COMMON STOCK ............................................... 29
SELLING SHAREHOLDERS .................................................. 30
PLAN OF DISTRIBUTION .................................................. 35
DESCRIPTION OF SECURITIES.............................................. 36
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PROSPECTUS SUMMARY
THIS SUMMARY IS QUALIFIED BY THE OTHER INFORMATION
APPEARING ELSEWHERE IN THIS PROSPECTUS.
BUSINESS
CEL-SCI is focused on finding the best way to activate the immune system to
fight cancer and infectious diseases. Its lead investigational therapy
Multikine(R) (Leukocyte Interleukin, Injection) is currently in a pivotal Phase
III clinical trial against head and neck cancer, for which CEL-SCI has received
Orphan Drug Status from the U.S. FDA. If the primary endpoint of the FDA study
is achieved, the results will be used to support applications to regulatory
agencies around the world for worldwide commercial marketing approvals as a
first line cancer therapy. Additional clinical indications for Multikine include
cervical dysplasia in HIV/HPV co-infected women, for which a Phase I study was
successfully concluded; and the treatment of peri-anal warts in HIV/HPV
co-infected men and women, for which a Phase I trial is now underway in
conjunction with the U.S. Navy under a Cooperative Research and Development
Agreement.
CEL-SCI's immune therapy, Multikine, is being used in a different way than
immune therapy is usually used. It is administered locally to treat local tumors
or infections and it is given before any other therapy has been administered.
For example, in the ongoing Phase III clinical trial, Multikine is given locally
at the site of the tumor as a first line of treatment before surgery, radiation
and/or chemotherapy because that is when the immune system is thought to be
strongest. The goal is to help the intact immune system kill the micro
metastases that usually cause recurrence of the cancer. In short, CEL-SCI
believes that local administration and administration before weakening of the
immune system by chemotherapy and radiation will result in higher efficacy with
less or no toxicity.
CEL-SCI's focus on HPV is not the development of an antiviral against HPV
in the general population. Instead it is the development of an immunotherapy to
be used in patients who are immune suppressed by diseases such as HIV and are
therefore less able or unable to control HPV and its resultant diseases. This
group of patients has no viable treatments available to them and there are, to
CEL-SCI's knowledge, no competitors at the current time. HPV is also relevant to
the head and neck cancer Phase III study since it is now known that HPV is a
cause of head and neck cancer. Multikine was shown to kill HPV in an earlier
study of HIV infected women with cervical dysplasia.
CEL-SCI is also investigating a different peptide-based immunotherapy
(LEAPS-H1N1-DC) as a possible treatment for H1N1 hospitalized patients and as a
vaccine (CEL-2000) for Rheumatoid Arthritis (currently in preclinical testing)
using its LEAPS technology platform. The investigational immunotherapy
LEAPS-H1N1-DC treatment involves non-changing regions of H1N1 Pandemic Flu
(www.jci.org/articles/view/67550), Avian Flu (H5N1), and the Spanish Flu, as
CEL-SCI scientists are very concerned about the possible emergence of a new more
virulent hybrid virus through the combination of H1N1 and Avian Flu, or possibly
Spanish Flu.
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CEL-SCI Corporation was formed as a Colorado corporation in 1983. CEL-SCI's
principal office is located at 8229 Boone Boulevard, Suite 802, Vienna, VA
22182. CEL-SCI's telephone number is 703-506-9460 and its web site is
www.cel-sci.com. CEL-SCI does not incorporate the information on its website
into this prospectus, and you should not consider it part of this prospectus.
CEL-SCI makes its electronic filings with the Securities and Exchange
Commission (SEC), including its annual reports on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K and amendments to these reports
available on its website free of charge as soon as practicable after they are
filed or furnished to the SEC.
In this prospectus, unless otherwise specified or the context requires
otherwise, the terms "CEL-SCI," the "Company," "we," "us" and "our" to refer to
CEL-SCI Corporation. Our fiscal year ends on September 30.
CEL-SCI'S PRODUCTS
CEL-SCI is dedicated to research and development directed at improving the
treatment of cancer and other diseases by using the immune system, the body's
natural defense system. CEL-SCI is currently focused on the development of the
following product candidates and technologies:
1. Multikine (Leukocyte Interleukin, Injection), or Multikine, an
investigational immunotherapy under development for the potential
treatment of certain head and neck cancers, and anal warts or cervical
dysplasia in human immunodeficiency virus, or HIV, and human
papillomavirus, or HPV co-infected patients;
2. L.E.A.P.S. (Ligand Epitope Antigen Presentation System) technology, or
LEAPS, with two investigational therapies, LEAPS-H1N1-DC, a product
candidate under development for the potential treatment of pandemic
influenza in hospitalized patients, and CEL-2000, a vaccine product
candidate under development for the potential treatment of rheumatoid
arthritis.
MULTIKINE
Our lead investigational therapy, Multikine, is currently being developed
as a potential therapeutic agent directed at using the immune system to produce
an anti-tumor immune response. Data from Phase 1 and Phase 2 clinical trials
suggest that Multikine simulates the activities of a healthy person's immune
system, enabling it to use the body's own anti-tumor immune response. Multikine
is the trademark we have registered for this investigational therapy, and this
proprietary name is subject to review by the U.S. Food and Drug Administration,
or FDA, in connection with our future anticipated regulatory submission for
approval. Multikine has not been licensed or approved for sale, barter or
exchange by the FDA or any other regulatory agency. Neither has its safety or
efficacy been established for any use.
Multikine is an immunotherapy product candidate comprised of a patented
defined mixture of 14 human natural cytokines and is manufactured in a
proprietary manner in our manufacturing facility. We spent over 10 years and
more than $80 million developing and validating the manufacturing process. The
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pro-inflammatory cytokine mixture includes interleukins, interferons, chemokines
and colony-stimulating factors, which contain elements of the body's natural mix
of defenses against cancer.
Multikine is designed to be used in a different way than immune therapy is
usually used. It is designed to be administered locally to treat local tumors
before any other therapy has been administered. For example, in the ongoing
Phase 3 clinical trial, Multikine is injected locally at the site of the tumor
and near the adjacent draining lymph nodes as a first line of treatment before
surgery, radiation and/or chemotherapy because that is when the immune system is
thought to be strongest. The goal is to help the intact immune system recognize
and kill the micro metastases that usually cause recurrence of the cancer. In
short, we believe that local administration and administration before weakening
of the immune system by chemotherapy and radiation will result in better
anti-tumor response than if Multikine were administered as a second- or
later-line therapy. In clinical studies of Multikine, administration of the
investigational therapy to head and neck cancer patients has demonstrated the
potential for less or limited to no appreciable toxicity.
The first indication we are pursuing for our Multikine product candidate is
an indication for neoadjuvant therapy in patients with squamous cell carcinoma
of the head and neck, or SCCHN. Multikine investigational immunotherapy was
granted Orphan Drug designation for neoadjuvant therapy in patients with SCCHN
by the FDA in the United States. SCCHN is a type of head and neck cancer, and we
believe that the head and neck cancer market, in the aggregate, represents a
large, unmet medical need. The last FDA approval of a therapy for the treatment
of advanced primary head and neck cancer was over 50 years ago. In the
aggregate, head and neck cancer represents about 6% of the world's cancer cases,
with over 650,000 patients diagnosed worldwide each year, and nearly 60,000
patients diagnosed annually in the United States.
Current Status of Ongoing Phase 3 Clinical Trial
Regulatory authorities in 24 countries around the world, including the FDA
in the United States, have allowed Multikine to be studied in a global Phase 3
clinical trial as a potential neoadjuvant therapy in patients with SCCHN. This
trial is currently primarily under the management of two clinical research
organizations, or CROs, Aptiv Solutions, Inc., or Aptiv, and Ergomed Clinical
Research Limited, or Ergomed, which are adding clinical centers in an effort to
increase the speed of patient enrollment.
Pursuant to the co-development agreement we entered into with Ergomed in
April 2013, Ergomed is responsible for the majority of the new patient
enrollment. Enrollment in 2014 increased approximately 800% over 2013, and the
following chart depicts the number of patients enrolled per month since our
transfer to the new CROs.
Although we are aiming to enroll 880 patients, our Phase 3 study requires a
total of 784 evaluable patients. We are estimating that such enrollment will be
completed in March 2016. Following full enrollment of the study, we have to wait
for 298 events (deaths) in the two comparator arms combined to determine if we
have met our primary endpoint, which is a 10% increase in overall survival in
the Multikine arm over the comparator arm. We estimate that the final data
read-out of this Phase 3 clinical trial could occur by the second half of 2017
based on our enrollment projections and estimated survival curves provided in
scientific literature.
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Of the 521 patients that have been enrolled in the study as of July 31,
2015, uncertainty remains as to whether up to 117 patients enrolled during our
former CRO's tenure as the global manager of the Phase 3 clinical trial will be
considered to be evaluable subjects at the close of the study. We are currently
engaged in a contract dispute alleging that the former CRO failed to comply with
the protocol for the Phase 3 clinical trial and applicable regulatory
requirements. We do not believe that we will need to replace all 117 of these
patients, but assuming that all of these patients must be replaced, we estimate
that it could take an additional two to three months to do so based on our
current expectations of enrolling approximately 50 patients per month at the end
of the scheduled enrollment period. However, the Phase 3 study design
anticipates enrollment of a total of 880 patients, while the statistical
analysis requires a total of 784 evaluable patients. Therefore, the actual
number of patients enrolled by our former CRO that will need to be replaced and
the time needed to do so cannot be determined at this time.
We estimate that the total remaining cost of the Phase 3 trial, excluding
any costs that will be paid by our partners, will be approximately $22.1 million
after June 30, 2015. This is in addition to the approximately $22.5 million that
we have spent on the trial as of June 30, 2015. This estimate is based on
information currently available under our contracts with the CROs responsible
for managing the Phase 3 trial. This number may be affected by the rate of
patient enrollment, foreign currency exchange rates and many other factors, some
of which cannot be foreseen today. It is therefore possible that the cost of the
Phase 3 trial will be higher than currently estimated.
The current standard of care, or SOC, treatment regimen for advanced
primary head and neck cancer patients consists of surgical resection of the
tumor and involved lymph nodes, followed by either radiotherapy alone or
radiotherapy and concurrent chemotherapy. Our ongoing Phase 3 trial is testing
the hypothesis that Multikine treatment, administered prior to such SOC
treatment regimen, will extend overall survival, enhance the local/regional
control of the disease and reduce the rate of disease progression in patients
with squamous cell carcinoma of the head and neck.
The primary clinical endpoint in our ongoing Phase 3 clinical trial is the
achievement of a 10% improvement in overall survival in the Multikine plus SOC
treatment arm over that which is achieved in the SOC treatment arm alone (all
subjects in the Phase 3 study will receive SOC). Based on what is presently
known about the current survival statistics for this population, we believe that
achievement of this endpoint should enable us, subject to further consultations
with the FDA, to move forward, prepare and submit a Biologic License
Application, or BLA, to the FDA for Multikine as neoadjuvant therapy in patients
with SCCHN.
In our Phase 3 clinical trial, Multikine is administered to cancer patients
prior to their receiving any conventional treatment for cancer, including
surgery, radiation and/or chemotherapy. This could be shown to be important
because conventional therapy may weaken the immune system, and may compromise
the potential effect of immunotherapy. Because Multikine is given before
conventional cancer therapy, when the immune system may be more intact, we
believe the possibility exists for it to have a greater likelihood of activating
an anti-tumor immune response under these conditions. This likelihood is one of
the clinical aspects being evaluated in the ongoing global Phase 3 clinical
trial.
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Throughout the course of the Phase 3 study thus far, an Independent Data
Monitoring Committee, or IDMC, has met periodically to review safety data from
the Phase 3 study, and the IDMC is expected to continue doing so throughout the
remainder of the Phase 3 study. At the various points in the study thus far at
which the IDMC has completed review of the safety data it has indicated that
safety signals have not been identified thus far in the Phase 3 study that would
call into question the benefit/risk of continuing the study and has recommended
that the Phase 3 study may continue. Ultimately, the decision as to whether a
drug is safe (and whether it is effective) is made by the FDA and other
regulatory authorities based upon an assessment of all of the data from an
entire drug development program submitted in an application for marketing
approval.
Follow-Up Analysis of Overall Survival in Phase 2 Patients
The following is a summary of results from our last Phase 2 study conducted
with Multikine. This study employed the same treatment protocol as is being
followed in our Phase 3 study:
o In a follow-up analysis of the Phase 2 clinical study population,
which used the same dosage and treatment regimen as is being used in
the Phase 3 study, head and neck cancer patients with locally advanced
primary disease who received our investigational therapy Multikine as
first-line investigational therapy, followed by surgery and
radiotherapy, were reported by the clinical investigators to have had
a 63.2% overall survival, or OS, rate at a median of 3.33 years from
surgery. This percentage of OS was arrived at as follows: of the 21
subjects enrolled in the Phase 2 study, the consent for the survival
follow-up portion of the study was received from 19 subjects. OS was
calculated using the entire treatment population that consented to the
follow-up portion of the study (19 subjects), including two subjects
who, as later determined by three pathologists blinded to the study,
did not have oral squamous cell carcinoma, or OSCC. These two subjects
were thus not evaluable per the protocol and were not included in the
pathology portion of the study for purposes of calculating complete
response rate, as described below, but were included in the OS
calculation. The overall survival rate of subjects receiving the
investigational therapy in this study was compared to the overall
survival rate that was calculated based upon a review of 55 clinical
trials conducted in the same cancer population (with a total of 7,294
patients studied), and reported in the peer reviewed scientific
literature between 1987 and 2007. Review of this literature showed an
approximate survival rate of 47.5% at 3.5 years from treatment.
Therefore, the results of our final Phase 2 study were considered to
be potentially favorable in terms of overall survival, recognizing the
limitations of this early-phase study. It should be noted that an
earlier investigational therapy Multikine study appears to lend
support to the overall survival findings described above - Feinmesser
et al Arch Otolaryngol. Surg. 2003. However, no definitive conclusions
can be drawn from these data about the potential efficacy or safety
profile of this investigational therapy. Moreover, further research is
required, and these results must be confirmed in the Phase 3 clinical
trial of this investigational therapy that is currently in progress.
Subject to completion of that Phase 3 trial, and the FDA's review and
acceptance of our entire data set on this investigational therapy, we
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believe that these early-stage clinical trial results indicate the
potential for our Multikine product candidate to become a treatment
for advanced primary head and neck cancer, if approved.
o Reported average of 50% reduction in tumor cells in Phase 2 trials
(based on 19 patients evaluable by pathology, having OSCC): The
clinical investigators who administered the three-week Multikine
treatment regimen used in the Phase 2 study reported that, as was
determined in a controlled pathology study, Multikine administration
appeared to have caused, on average, the disappearance of about half
of the cancer cells present at surgery (as determined by
histopathology assessing the area of Stroma/Tumor (Mean+/- Standard
Error of the Mean of the number of cells counted per filed)) even
before the start of standard therapy, which normally includes surgery,
radiation and chemotherapy (Timar et al JCO 2005).
o Reported 10.5% complete response in the Phase 2 trial (based on 19
patients evaluable by pathology, having OSCC): The clinical
investigators who administered the three-week Multikine
investigational treatment regimen used in the Phase 2 study reported
that, as was determined in a controlled pathology study, the tumor
apparently was no longer present (as determined by histopathology) in
approximately 10.5% of evaluable patients with OSCC (Timar et al JCO
2005). In the original study, 21 subjects received Multikine, two of
which were later excluded, as subsequent analysis by three
pathologists blinded to the study revealed that these two patients did
not have OSCC. Two subjects in this study had a complete response,
leaving a reported complete response rate of two out of 19 assessable
subjects with OSCC (or 10.5%) (Timar et al, JCO 2005).
Subsequently, an analysis on the 21 subjects originally treated with
Multikine in the study to evaluate overall survival was conducted, as described
above. In connection with the follow-up portion of the study for overall
survival, we also conducted an unreported post-hoc analysis of complete response
rate in the study population, which included subjects who provided consent for
the follow-up and who also had OSCC. Two out of the 21 subjects did not
re-consent for follow-up, and two of the remaining 19 subjects were excluded
from the post-hoc complete response rate analysis as they had previously been
determined by pathology analysis to not have OSCC. The two complete responders
with OSCC both consented to the follow-up study. Therefore, the post-hoc
analysis of complete response was based on a calculation of the two complete
responders out of 17 evaluable subjects who consented to the follow-up analysis
and who also had OSCC (or 11.8%).
Furthermore, we reported an overall response rate of 42.1% based on the
number of evaluable patients who experienced a favorable response to the
treatment, including those who experienced minor, major and complete responses.
Out of the 19 evaluable patients, two experienced a complete response, two
experienced a major response, and four experienced a minor response to
treatment. Thus, we calculated the number of patients experiencing a favorable
response as eight patients out of 19 (or 42.1%) (Timar et al, JCO 2005).
Peri-Anal Warts and Cervical Dysplasia in HIV/HPV Co-Infected Patients
HPV is a very common sexually transmitted disease in the United States and
also other parts of the world. It can lead to cancer of the cervix, penis, anus,
esophagus and head and neck. Our focus in HPV, however, is not on developing an
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antiviral for the potential treatment or prevention of HPV in the general
population. Instead, our focus is on developing an immunotherapy product
candidate designed to be administered to patients who are immune-suppressed by
other diseases, such as HIV, and who are therefore less able or unable to
control HPV and its resultant or co-morbid diseases. Such patients have limited
treatment options available to them.
One condition that is commonly associated with both HIV and HPV is the
occurrence of anal intraepithelial dysplasia, or AIN, and anal and genital
warts. The incidence of AIN in HIV-infected people is estimated to be about 25%.
The incidence of anal HPV infection in HIV-infected men who have sex with men,
or MSM, is estimated to be as high as 95%. In the aggregate, the United States
and Europe have about 875,000 HIV-infected patients with AIN (assuming AIN
prevalence of approximately 25% of the aggregate HIV-infected population).
Persistent HPV infection in the anal region is thought to be responsible for up
to 80% of anal cancers, and men and women who are HIV positive have a 30-fold
increase in their risk of anal cancer. Persistent HPV infection can also be a
precursor to cervical cancer, as well as certain head and neck cancers.
On October 7, 2013, we announced a cooperative research and development
agreement, or CRADA, with the U.S. Naval Medical Center, San Diego, or the
USNMC. Pursuant to this agreement, the USNMC will conduct a Phase 1 study,
approved by the Human Subjects Institutional Review Board, of our
investigational immunotherapy, Multikine, in HIV/HPV co-infected men and women
with peri-anal warts. The purpose of this study is to evaluate the safety and
clinical impact of Multikine as a potential treatment of peri-anal warts and
assess its effect on AIN in HIV/HPV co-infected men and women.
Pursuant to the CRADA, we are contributing the investigational study drug
Multikine for use in this Phase 1 study, and we will retain all rights to any
currently-owned technology and will have the right to exclusively license any
new technology developed from the collaboration. In October 2013, we also
entered into a co-development and profit sharing agreement with Ergomed for
development of Multikine as a potential treatment of HIV/HPV co-infected men and
women with peri-anal warts. This agreement will initially be in support of the
development with the USNMC.
On September 29, 2014, we announced that the first volunteer patient had
been enrolled and administered Multikine in this Phase 1 study, which is
currently ongoing. If we are able to add an additional Key Opinion Leader, or
KOL, we believe that we will complete patient enrollment by the second half of
2015, and that the Phase 1 results will occur in the first half of 2016.
The treatment regimen for this Phase 1 study of up to 15 HIV/HPV
co-infected patient volunteers with peri-anal warts, being conducted by the
USNMC, is identical to the regimen that was used in an earlier Institutional
Review Board-approved Multikine Phase 1 study in HIV/HPV co-infected patients,
which was conducted at the University of Maryland. In that study, our Multikine
investigational therapy was administered to HIV/HPV co-infected women with
cervical dysplasia, resulting in visual and histological evidence of clearance
of lesions in three out of the eight subjects.
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Furthermore, in this earlier Phase 1 study, the number of HPV viral
sub-types in three volunteer subjects tested were reduced post-treatment with
Multikine, as opposed to pre-treatment, as determined by in situ polymerase
chain reaction performed on tissue biopsy collected before and after Multikine
treatment. As reported by the investigators in the earlier study, the study
volunteers all appeared to tolerate the treatment with no reported serious
adverse events.
In October 2013, we entered into a co-development and profit sharing
agreement with Ergomed for to continue the development of Multikine in HIV/HPV
co-infected women with cervical dysplasia.
Manufacturing Facility
Before starting the Phase 3 trial, we needed a dedicated manufacturing
facility to produce Multikine. In 2007, the build out of a facility near
Baltimore, Maryland commenced in accordance with our specifications. We took
delivery of this facility in the fall of 2008 and validated it in 2009 and 2010.
The aggregate construction cost was approximately $25 million, of which we
funded approximately $10 million. The facility has been subject to inspection by
a European Union Qualified Person on two different occasions with no major
observations, and we have produced multiple clinical lots for the Phase 3
clinical trial at this facility. In addition to using this facility to
manufacture Multikine, we may, but only if the facility is not being used to
manufacture Multikine, offer the use of the facility as a service to
pharmaceutical companies and others, particularly those that need to "fill and
finish" their drugs in a cold environment (4 degrees Celsius, or approximately
39 degrees Fahrenheit). However, we intend to give priority to Multikine as
management considers the Multikine supply to the clinical studies and
preparation for a marketing approval application to be more important than
offering fill and finish services. Fill and finish is the process of filling
injectable drugs in a sterile manner and is a key part of the manufacturing
process for many medicines. Our lease on the manufacturing facility expires on
October 31, 2028, and we may, at our election, extend the lease for two ten-year
periods or purchase the building at the end of the initial lease term.
LEAPS
Our patented T-cell Modulation Process, referred to as LEAPS (Ligand
Epitope Antigen Presentation System), is designed to use "heteroconjugates" to
direct the body to choose a specific immune response. LEAPS is designed to
stimulate the human immune system to more effectively fight bacterial, viral and
parasitic infections as well as autoimmune, allergies, transplantation rejection
and cancer, when it cannot do so on its own. Designed to be administered like a
vaccine, LEAPS combines T-cell binding ligands with small, disease-associated
peptide antigens, and has the potential to provide a new method to treat and
prevent certain diseases.
The ability to generate a specific immune response is important because
many diseases are often not combated effectively due to the body's selection of
the "inappropriate" immune response. The capability to specifically reprogram an
immune response may offer a more effective approach than existing vaccines and
drugs in attacking an underlying disease.
13
Using the LEAPS technology, we are developing LEAPS-H1N1-DC, a potential
peptide treatment for H1N1 influenza in hospitalized patients. This LEAPS
influenza product candidate is designed to focus on the conserved, non-changing
epitopes of the different strains of Type A influenza viruses in order to
minimize the chance of viral "escape by mutations" from immune recognition. Type
A influenza viruses include strains such as H1N1, H5N1 and H3N1, which are also
known as "swine influenza," "avian or bird influenza," and "Spanish influenza,"
respectively. Therefore, we think of this product candidate as targeting not
only an H1N1 indication, but also a pandemic influenza indication. Our LEAPS
influenza product candidate contains epitopes known to be associated with immune
protection against influenza in animal models.
Additional work on this product candidate for the potential treatment of
pandemic influenza is being pursued in collaboration with the National Institute
of Allergy and Infectious Diseases, or NIAID, part of the National Institutes of
Health, USA. In May 2011, NIAID scientists presented data at the Keystone
Conference on "Pathogenesis of Influenza: Virus-Host Interactions" in Hong Kong,
China, showing the positive results of studies in mice of LEAPS. Infection with
the H1N1 virus activated dendritic cells, or DCs, to treat the H1N1 virus.
Scientists at the NIAID found that H1N1-infected mice treated with LEAPS-H1N1
DCs showed a survival advantage over mice treated with control DCs. The work was
performed in collaboration with scientists led by Kanta Subbarao, M.D., Chief of
the Emerging Respiratory Diseases Section in the NIAID's Division of Intramural
Research, part of the U.S. National Institutes of Health, or NIH.
In July 2013, we announced the publication of the results of additional
influenza studies by researchers from the NIAID in the Journal of Clinical
Investigation. The studies described in the publication demonstrate that when
investigational LEAPS candidate was used "in vitro" to activate immune cells
called dendritic cells, or DCs, these activated dendritic cells, when injected
into influenza infected mice, arrested the progression of lethal influenza virus
infection in these mice. The work was performed in the laboratory of Dr.
Subbarao.
With our LEAPS technology, we have also developed a second peptide named
CEL-2000, a vaccine product candidate under development for rheumatoid
arthritis. In animal studies of rheumatoid arthritis, CEL-2000 therapy
demonstrated both a reduction in several parameters of tissue damage and
destruction upon histological examination and joint swelling (investigational
parameter in this animal study) with fewer administrations than those required
by currently-marketed anti-rheumatoid arthritis treatments, including Enbrel(R).
We believe that CEL-2000 has the potential to be a more disease type-specific
therapy, and we plan to price it so that, if successfully developed and
approved, it is significantly less expensive than currently marketed rheumatoid
arthritis treatments. Further, we believe it has the potential for use in
patients unable to tolerate or who may not be responsive to existing
anti-arthritis therapies.
In July 2014, we were awarded a Phase 1 Small Business Innovation Research,
or SBIR, grant from the National Institute of Arthritis Muscoskeletal and Skin
Disease, which is part of the NIH, in the amount of $225,000, of which we have
received approximately $176,000 as of July 31, 2015. The grant is to fund the
further development of vaccines for rheumatoid arthritis and the work is being
conducted in collaboration with scientists at Rush University Medical Center in
Chicago, Illinois.
14
FORWARD LOOKING STATEMENTS
This prospectus and the documents that are incorporated or deemed to be
incorporated by reference into this prospectus, contain or incorporate by
reference "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. You can generally identify these forward-looking statements by
forward-looking words such as "anticipates," "believes," "expects," "intends,"
"future," "could," "estimates," "plans," "would," "should," "potential,"
"continues" and similar words or expressions (as well as other words or
expressions referencing future events, conditions or circumstances). These
forward-looking statements involve risks, uncertainties and other important
factors that may cause our actual results, performance or achievements to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements, including, but not
limited to:
o the progress and timing of, and the amount of expenses associated
with, our research, development and commercialization activities for
our product candidates, including Multikine;
o the expected progress, rate, timing and success of patient enrollment
in our ongoing Phase 3 clinical trial of Multikine;
o our expectations regarding the timing, costs and outcome of any
pending or future litigation matters, lawsuits or arbitration
proceedings, including but not limited to the pending arbitration
proceeding we initiated against our former clinical research
organization, or CRO;
o the success of our clinical studies for our product candidates;
o our ability to obtain U.S. and foreign regulatory approval for our
product candidates and the ability of our product candidates to meet
existing or future regulatory standards;
o our expectations regarding federal, state and foreign regulatory
requirements;
o the therapeutic benefits and effectiveness of our product candidates;
o the safety profile and related adverse events of our product
candidates;
o our ability to manufacture sufficient amounts of Multikine or our
other product candidates for use in our clinical studies or, if
approved, for commercialization activities following such regulatory
approvals;
o our plans with respect to collaborations and licenses related to the
development, manufacture or sale of our product candidates;
o our expectations as to future financial performance, expense levels
and liquidity sources;
o our ability to compete with other companies that are or may be
developing or selling products that are competitive with our product
candidates;
o anticipated trends and challenges in our potential markets; and
o our ability to attract, retain and motivate key personnel.
All forward-looking statements contained herein are expressly qualified in
their entirety by this cautionary statement, the risk factors set forth under
the heading "Risk Factors" and elsewhere in this prospectus and in the documents
incorporated or deemed to be incorporated by reference into this prospectus. The
forward-looking statements contained in this prospectus and any document
incorporated or deemed to be incorporated by reference in this prospectus, speak
only as of their respective dates. Except to the extent required by applicable
15
laws and regulations, we undertake no obligation to update these forward-looking
statements to reflect new information, events or circumstances after the date of
this prospectus or to reflect the occurrence of unanticipated events. In light
of these risks and uncertainties, the forward-looking events and circumstances
described in this prospectus and the documents that are incorporated by
reference into this prospectus supplement and the accompanying prospectus may
not occur and actual results could differ materially from those anticipated or
implied in such forward-looking statements. Accordingly, you are cautioned not
to place undue reliance on these forward-looking statements.
RISK FACTORS
Investors should be aware that this offering involves the risks described
below, which could adversely affect the price of CEL-SCI's common stock. In
addition to the other information contained in this prospectus, the following
factors should be considered carefully in evaluating an investment in the
securities offered by this prospectus. The risks and uncertainties we described
are not the only ones facing us. Additional risks not presently known to us, or
that we currently deem immaterial, may also impair our business operations. If
any of these risks were to occur, our business, financial condition, result of
operations and liquidity would likely suffer. In that event, the trading price
of our common stock would decline, and you could lose all or part of your
investment. Some statements in this Prospectus, including statements in the
following risk factors, constitute forward-looking statements. See
"Forward-Looking Statements."
Risks Related to CEL-SCI
We have incurred significant losses since inception, and we anticipate that we
will continue to incur significant losses for the foreseeable future and may
never achieve or maintain profitability.
We have a history of net losses and expect to incur substantial losses and
have negative operating cash flow for the foreseeable future, and may never
achieve or maintain profitability. Since the date of our formation and through
March 31, 2015, we incurred net losses of approximately $260 million. We have
relied principally upon the proceeds of the public and private sales of our
securities to finance our activities to date. To date, we have not
commercialized any products or generated any revenue from the sale of products,
and we do not expect to generate any product revenue for the foreseeable future.
We do not know whether or when we will generate product revenue or become
profitable.
We are heavily dependent on the success of Multikine which is under
clinical development. We cannot be certain that Multikine will receive
regulatory approval or be successfully commercialized even if we receive
regulatory approval. Multikine is our only product candidate in late-stage
clinical development, and our business currently depends heavily on its
successful development, regulatory approval and commercialization. We have no
drug products for sale currently and may never be able to develop approved and
marketable drug products.
Even if we succeed in developing and commercializing one or more of our
product candidates, we expect to incur substantial losses for the foreseeable
16
future and may never become profitable. We also expect to continue to incur
significant operating and capital expenditures and anticipate that our expenses
will increase substantially in the foreseeable future as we:
o continue to undertake preclinical development and clinical trials for
product candidates;
o seek regulatory approvals for product candidates;
o implement additional internal systems and infrastructure; and
o hire additional personnel.
To become and remain profitable, we must succeed in developing and
commercializing our product candidates, which must generate significant revenue.
This will require us to be successful in a range of challenging activities,
including completing preclinical testing and clinical trials of our product
candidates, discovering or acquiring additional product candidates, obtaining
regulatory approval for these product candidates and manufacturing, marketing
and selling any products for which we may obtain regulatory approval. We are
only in the preliminary stages of most of these activities. We may never succeed
in these activities and, even if we do, may never generate revenue that is
significant enough to achieve profitability.
Even if we do achieve profitability, we may not be able to sustain or
increase profitability on a quarterly or annual basis. Our failure to become and
remain profitable could depress the value of our company and could impair our
ability to raise capital, expand our business, maintain our research and
development efforts, diversify our product offerings or even continue our
operations. A decline in the value of our company could cause our stockholders
to lose all or part of their investment.
We will require substantial additional capital to remain in operation. A failure
to obtain this necessary capital when needed could force us to delay, limit,
reduce or terminate our product candidates' development or commercialization
efforts.
As of June 30, 2015, we had cash and cash equivalents of $11.2 million. We
believe that we will continue to expend substantial resources for the
foreseeable future developing Multikine, LEAPS and any other product candidates
or technologies that we may develop or acquire. These expenditures will include
costs associated with research and development, potentially obtaining regulatory
approvals and having our products manufactured, as well as marketing and selling
products approved for sale, if any. In addition, other unanticipated costs may
arise. Because the outcome of our current and anticipated clinical trials is
highly uncertain, we cannot reasonably estimate the actual amounts necessary to
successfully complete the development and commercialization of our product
candidates.
Our future capital requirements depend on many factors, including:
o the rate of progress of, results of and cost of completing Phase 3
clinical development of Multikine for the treatment of certain head
and neck cancers;
17
o the results of our applications to and meetings with the FDA, the EMA
and other regulatory authorities and the consequential effect on our
operating costs;
o assuming favorable Phase 3 clinical results, the cost, timing and
outcome of our efforts to obtain marketing approval for Multikine in
the United States, Europe and in other jurisdictions, including the
preparation and filing of regulatory submissions for Multikine with
the FDA, the EMA and other regulatory authorities;
o the scope, progress, results and costs of additional preclinical,
clinical, or other studies for additional indications for Multikine,
LEAPS and other product candidates and technologies that we may
develop or acquire;
o the timing of, and the costs involved in, obtaining regulatory
approvals for LEAPS if clinical studies are successful;
o the cost and timing of future commercialization activities for our
products, if any of our product candidates are approved for marketing,
including product manufacturing, marketing, sales and distribution
costs;
o the revenue, if any, received from commercial sales of our product
candidates for which we receive marketing approval;
o the cost of having our product candidates manufactured for clinical
trials and in preparation for commercialization;
o our ability to establish and maintain strategic collaborations,
licensing or other arrangements and the financial terms of such
agreements;
o the costs involved in preparing, filing and prosecuting patent
applications and maintaining, defending and enforcing our intellectual
property rights, including litigation costs, and the outcome of such
litigation; and
o the extent to which we acquire or in-license other products or
technologies.
Based on our current operating plan, and absent any future financings or
strategic partnerships, we believe that our existing cash and cash equivalents
and investments will be sufficient to fund our projected operating expenses and
capital expenditure requirements into the fourth quarter of 2015. However, our
operating plan may change as a result of many factors currently unknown to us,
and we may need additional funds sooner than planned. Additional funds may not
be available when we need them on terms that are acceptable to us, or at all. If
adequate funds are not available to us on a timely basis, we may be required to
delay, limit, reduce or terminate preclinical studies, clinical trials or other
development activities for Multikine, LEAPS, or any other product candidates or
technologies that we develop or acquire, or delay, limit, reduce or terminate
our establishment of sales and marketing capabilities or other activities that
may be necessary to commercialize our product candidates.
18
The costs of our product candidate development and clinical trials are difficult
to estimate and will be very high for many years, preventing us from making a
profit for the foreseeable future, if ever.
Clinical and other studies necessary to obtain approval of a new drug can
be time consuming and costly, especially in the United States, but also in
foreign countries. Our estimates of the costs associated with future clinical
trials and research may be substantially lower than what we actually experience.
It is impossible to predict what we will face in the development of a product
candidate, such as Multikine. The purpose of clinical trials is to provide both
us and regulatory authorities with safety and efficacy data in humans. It is
relatively common to revise a trial or add subjects to a trial in progress.
These examples of common variances in product development and clinical
investigations demonstrate how predicted costs may exceed reasonable
expectations. The difficult and often complex steps necessary to obtain
regulatory approval, especially that of the FDA, and the European Union's
European Medicine's Agency, or EMA, involve significant costs and may require
several years to complete. We expect that we will need substantial additional
financing over an extended period of time in order to fund the costs of future
clinical trials, related research, and general and administrative expenses.
The extent of our clinical trials and research programs are primarily based
upon the amount of capital available to us and the extent to which we receives
regulatory approvals for clinical trials. We have established estimates of the
future costs of the Phase 3 clinical trial for Multikine, but, as explained
above, our estimates may not prove correct.
An adverse determination in any current or future lawsuits or arbitration
proceedings to which we are a party could have a material adverse effect on us.
We are currently involved in a pending arbitration proceeding, CEL-SCI
Corporation v. inVentiv Health Clinical, LLC (f/k/a PharmaNet LLC) and PharmaNet
GmbH (f/k/a PharmaNet AG). We initiated the proceedings against inVentiv Health
Clinical, LLC, or inVentiv, our former third-party CRO, seeking at least $50
million in damages related to inVentiv's prior involvement in our ongoing Phase
3 clinical trial of Multikine.
The arbitration claim, initiated under the Commercial Rules of the American
Arbitration Association, alleges (i) breach of contract, (ii) fraud in the
inducement, and (iii) common law fraud.
In an amended statement of claim, we asserted the claims set forth above,
as well as an additional claim for professional malpractice. The arbitrator
subsequently granted inVentiv's motion to dismiss the professional malpractice
claim based on the "economic loss doctrine" which is a legal doctrine in New
Jersey that, under certain circumstances, prohibits bringing a negligence-based
claim alongside a claim for breach of contract. The arbitrator denied the
remainder of inVentiv's motion, which had sought to dismiss certain other
aspects of our amended statement of claim. In particular, the arbitrator
rejected inVentiv's argument that several aspects of the amended statement of
claim were beyond the arbitrator's jurisdiction.
inVentiv has asserted counterclaims against us in the arbitration
proceeding for (i) breach of contract, seeking at least $2 million in damages
19
for services allegedly performed by inVentiv; (ii) breach of contract, seeking
at least $1 million in damages for our alleged use of inVentiv's name in
connection with publications and promotions in violation of the parties'
contract; (iii) opportunistic breach, restitution and unjust enrichment, seeking
at least $20 million in disgorgement of alleged unjust profits allegedly made by
us as a result of the purported breaches referenced in subsection (ii); and (iv)
defamation, seeking at least $1 million in damages for allegedly defamatory
statements made about inVentiv. We believe inVentiv's counterclaims are
meritless and intend to vigorously defend against them. However, if such defense
is unsuccessful, and inVentiv successfully asserts any of its counterclaims,
such an adverse determination could have a material adverse effect on our
business, results, financial condition and liquidity. The arbitration hearing on
the merits has been tentatively rescheduled for October 27, 2015 through
November 17, 2015.
We filed this arbitration claim, by which we are seeking at least $50
million in damages, since, among other reasons, the number of patients enrolled
and treated in the study fell below the level agreed to with inVentiv.
Additionally, we may also be the target of claims asserting violations of
securities fraud and derivative actions, or other litigation or arbitration
proceedings in the future. Any future litigation could result in substantial
costs and divert our management's attention and resources. These lawsuits or
arbitration proceedings may result in large judgments or settlements against us,
any of which could have a material adverse effect on our business, operating
results, financial condition and liquidity.
Compliance with changing regulations concerning corporate governance and public
disclosure may result in additional expenses.
Changing laws, regulations and standards relating to corporate governance
and public disclosure may create uncertainty regarding compliance matters. New
or changed laws, regulations and standards are subject to varying
interpretations in many cases. As a result, their application in practice may
evolve over time. We are committed to maintaining high standards of corporate
governance and public disclosure. Complying with evolving interpretations of new
or changing legal requirements may cause us to incur higher costs as we revises
current practices, policies and procedures, and may divert management time and
attention from potential revenue-generating activities to compliance matters. If
our efforts to comply with new or changed laws, regulations and standards differ
from the activities intended by regulatory or governing bodies due to
ambiguities related to practice, our reputation may also be harmed. Further, our
board members, chief executive officer, president and other executive officers
could face an increased risk of personal liability in connection with the
performance of their duties. As a result, we may have difficulty attracting and
retaining qualified board members and executive officers, which could harm our
business.
We have not established a definite plan for the marketing of Multikine, if
approved.
We have not established a definitive plan for marketing nor have we
established a price structure for any of our product candidates, if approved.
However, we intend, if we are in a position to do so, to sell Multikine
ourselves in certain markets where it is approved, or to enter into written
marketing agreements with various third parties with established sales forces in
such markets. The sales forces in turn would, we believe, focus on selling
Multikine to targeted cancer centers, physicians and clinics involved in the
20
treatment of head and neck cancer. We have already licensed future sales of
Multikine, if approved, to three companies: Teva Pharmaceuticals in Israel,
Turkey, Serbia and Croatia; Orient Europharma in Taiwan, Singapore, Hong Kong,
Malaysia, South Korea, the Philippines,
Australia and New Zealand; and Byron BioPharma, LLC in South Africa. We
believe that these companies will have the resources to market Multikine
appropriately in their respective territories, if approved, but there is no
guarantee that they will. There is no assurance that we will be able to find
qualified third-party partners to market our product in other areas, on terms
that are favorable to us, or at all.
We may encounter problems, delays and additional expenses in developing
marketing plans with third parties. In addition, even if Multikine, if approved,
is cost-effective and demonstrated to increase overall patient survival, we may
experience other limitations involving the proposed sale of Multikine, such as
uncertainty of third-party coverage and reimbursement. There is no assurance
that we can successfully market Multikine, if approved, or any other product
candidates we may develop.
We hope to expand our clinical development capabilities in the future, and any
difficulties hiring or retaining key personnel or managing this growth could
disrupt our operations.
We are highly dependent on the principal members of our management and
development staff. If the ongoing Phase 3 Multikine clinical trial is
successful, we expect to expand our clinical development and manufacturing
capabilities, which will involve hiring additional employees. Future growth will
require us to continue to implement and improve our managerial, operational and
financial systems and to continue to retain, recruit and train additional
qualified personnel, which may impose a strain on our administrative and
operational infrastructure. The competition for qualified personnel in the
biopharmaceutical field is intense. We are highly dependent on our ability to
attract, retain and motivate highly qualified management and specialized
personnel required for clinical development. Due to our limited resources, we
may not be able to manage effectively the expansion of our operations or recruit
and train additional qualified personnel. If we are unable to retain key
personnel or manage our future growth effectively, we may not be able to
implement our business plan.
If product liability or patient injury lawsuits are brought against us, we may
incur substantial liabilities and may be required to limit clinical testing or
future commercialization of Multikine or our other product candidates.
We face an inherent risk of product liability as a result of the ongoing
clinical testing of Multikine and other product candidates, and will face an
even greater risk if we commercialize any of our product candidates. For
example, we may be sued if our Multikine or LEAPS product candidates, or any
other future product candidates, allegedly cause injury or are found to be
otherwise unsuitable during clinical testing, manufacturing or, if approved,
marketing or sale. Any such product liability claims may include allegations of
defects in manufacturing, defects in design, a failure to warn of dangers
inherent in the product candidate, negligence, strict liability and a breach of
warranties. Claims could also be asserted under state consumer protection acts.
Furthermore, Multikine is made, in part, from components of human blood.
There are inherent risks associated with products that involve human blood such
21
as possible contamination with viruses, including hepatitis or HIV. Any possible
contamination could cause injuries to patients who receive such contaminated
Multikine, or could require us to destroy batches of Multikine, thereby
subjecting us to possible financial losses, lawsuits and harm to our business.
If we cannot successfully defend ourselves against product liability
claims, we may incur substantial liabilities or be required to limit or cease
the clinical testing or commercialization of our product candidates, if
approved. Even a successful defense would require significant financial and
management resources. Regardless of the merits or eventual outcome, liability
claims may result in:
o decreased demand for Multikine or our other product candidates, if
approved;
o injury to our reputation;
o withdrawal of existing, or failure to enroll additional, clinical
trial participants;
o costs to defend any related litigation;
o a diversion of management's time and our resources;
o substantial monetary awards to trial participants or patients;
o product candidate recalls, withdrawals or labeling, marketing or
promotional restrictions;
o loss of revenue;
o inability to commercialize Multikine or our other product candidates;
and
o a decline in the price of our common stock.
Although we have product liability insurance for Multikine in the amount of
$5.0 million, the successful prosecution of a product liability case against us
could have a materially adverse effect upon our business if the amount of any
judgment exceeds our insurance coverage. Any claim that may be brought against
us could result in a court judgment or settlement in an amount that is not
covered, in whole or in part, by our insurance or that is in excess of the
limits of our insurance coverage. Our insurance policies also have various
exclusions, and we may be subject to a claim for which we have no coverage. We
may have to pay any amounts awarded by a court or negotiated in a settlement
that exceed our coverage limitations or that are not covered by our insurance,
and we may not have, or be able to obtain, sufficient capital to pay such
amounts. We commenced the Phase 3 clinical trial for Multikine in December 2010.
Although no claims have been brought to date, participants in our clinical
trials could bring civil actions against us for any unanticipated harmful
effects allegedly arising from the use of Multikine or any other product
candidate that we may attempt to develop.
Our commercial success depends, in part, upon attaining significant market
acceptance of our product candidates, if approved, among physicians, patients,
healthcare payors and major operators of cancer clinics.
22
Even if we obtain regulatory approval for our product candidates, any
resulting product may not gain market acceptance among physicians, healthcare
payors, patients and the medical community, which are critical to commercial
success. Market acceptance of any product candidate for which we receive
approval depends on a number of factors, including:
o the efficacy and safety as demonstrated in clinical trials;
o the timing of market introduction of such product candidate as well as
competitive products;
o the clinical indications for which the drug is approved;
o the approval, availability, market acceptance and reimbursement for
the companion diagnostic;
o acceptance by physicians, major operators of cancer clinics and
patients of the drug as a safe and effective treatment;
o the potential and perceived advantages of such product candidate over
alternative treatments, especially with respect to patient subsets
that are targeted with such product candidate;
o the safety of such product candidate seen in a broader patient group,
including its use outside the approved indications;
o the cost of treatment in relation to alternative treatments;
o the availability of adequate reimbursement and pricing by third-party
payors and government authorities;
o relative convenience and ease of administration;
o the prevalence and severity of adverse side effects; and
o the effectiveness of our sales and marketing efforts.
If our product candidates are approved but fail to achieve an adequate
level of acceptance by physicians, healthcare payors and patients, we will not
be able to generate significant revenues, and we may not become or remain
profitable.
23
Risks Related to Government Approvals
Our product candidates must undergo rigorous preclinical and clinical testing
and regulatory approvals, which could be costly and time-consuming and subject
us to unanticipated delays or prevent us from marketing any products.
Our product candidates are subject to premarket approval from the FDA in
the United States, the EMA in the European Union, and by comparable agencies in
most foreign countries before they can be sold. Before obtaining marketing
approval, these product candidates must undergo costly and time consuming
preclinical and clinical testing which could subject us to unanticipated delays
and may prevent us from marketing our product candidates. There can be no
assurance that such approvals will be granted on a timely basis, if at all.
Clinical testing is expensive and can take many years to complete, and its
outcome is inherently uncertain. Failure can occur at any time during the
clinical trial process. The results of preclinical studies and early clinical
trials of our product candidates may not be predictive of the results of
later-stage clinical trials. A number of companies in the biopharmaceutical
industry have suffered significant setbacks in advanced clinical trials due to
lack of efficacy or adverse safety profiles, notwithstanding promising results
in earlier trials. Our current and future clinical trials may not be successful.
Although we have a Phase 3 clinical trial ongoing for Multikine, we may
experience delays in our ongoing clinical trials and we do not know whether
planned clinical trials will begin on time, need to be redesigned, enroll
patients on time or be completed on schedule, if at all. Clinical trials can be
delayed for a variety of reasons, including delays related to:
o the availability of financial resources needed to commence and
complete our planned trials;
o obtaining regulatory approval to commence a trial;
o reaching agreement on acceptable terms with prospective contract
research organizations, or CROs, and clinical trial sites, the terms
of which can be subject to extensive negotiation and may vary
significantly among different CROs and trial sites;
o obtaining Institutional Review Board, or IRB, approval at each
clinical trial site;
o recruiting suitable patients to participate in a trial;
o having patients complete a trial or return for post-treatment
follow-up;
o clinical trial sites deviating from trial protocol or dropping out of
a trial;
o adding new clinical trial sites; or
o manufacturing sufficient quantities of our product candidate for use
in clinical trials.
24
Patient enrollment, a significant factor in the timing of clinical trials,
is affected by many factors including the size and nature of the patient
population, the proximity of patients to clinical sites, the eligibility
criteria for the trial, the design of the clinical trial, competing clinical
trials and clinicians' and patients' perceptions as to the potential advantages
of the drug being studied in relation to other available therapies, including
any new drugs that may be approved for the indications we are investigating.
Furthermore, we rely on CROs and clinical trial sites to ensure the proper and
timely conduct of our clinical trials and while we have agreements governing
their committed activities, we have limited influence over their actual
performance.
For example, we are currently involved in a dispute with our former CRO
relating to the conduct of our Phase 3 study where we allege (i) breach of
contract, (ii) fraud in the inducement, and (iii) fraud. In connection with this
dispute, we have alleged that our CRO failed to properly select, monitor and
supervise the study sites and principal investigators, ensure proper enrollment
of subjects, and ensure strict compliance with the Phase 3 trial protocol and
Good Clinical Practices, or GCP, and other applicable regulatory requirements.
If we or regulatory authorities determine that our former CRO did not comply
with GCP or other applicable regulatory requirements, data collected by that
former CRO may be rendered unusable in support of our marketing applications,
and we may be required to enroll additional subjects in our Phase 3 study beyond
our current plans, which could cause additional delays in our clinical testing
and development program.
We could also encounter delays if physicians encounter unresolved ethical
issues associated with enrolling patients in clinical trials of our product
candidates in lieu of prescribing existing treatments that have established
safety and efficacy profiles. Further, a clinical trial may be suspended or
terminated by us, the IRBs for the institutions in which such trials are being
conducted, the Independent Data Monitoring Committee, or IDMC, for such trial,
or by the FDA or other regulatory authorities due to a number of factors,
including failure to conduct the clinical trial in accordance with regulatory
requirements or our clinical protocols, inspection of the clinical trial
operations or trial site by the FDA or other regulatory authorities resulting in
the imposition of a clinical hold, unforeseen safety issues or adverse side
effects, failure to demonstrate a benefit from using a product candidate,
changes in governmental regulations or administrative actions or lack of
adequate funding to continue the clinical trial.
If we experience termination of, or delays in the completion of, any
clinical trial of our product candidates, the commercial prospects for our
product candidates will be harmed, and our ability to generate product revenues
will be delayed. In addition, any delays in completing our clinical trials will
increase our costs, slow our product development and approval process and
jeopardize our ability to commence product sales and generate revenues.
Any of these occurrences may harm our business, prospects, financial
condition and results of operations significantly. Many of the factors that
cause, or lead to, a delay in the commencement or completion of clinical trials
may also ultimately lead to the denial of regulatory approval for our product
candidates.
We cannot be certain when or under what conditions we will undertake future
clinical trials. A variety of issues may delay our Phase 3 clinical trial for
Multikine or preclinical and early clinical trials for our other product
candidates. For example, early trials, or the plans for later trials, may not
satisfy the requirements of regulatory authorities, such as the FDA. We may fail
to find subjects willing to enroll in our trials. We manufacture Multikine in
25
our own manufacturing facility, but rely on third-party vendors to manage the
trial process and other activities, and these vendors may fail to meet
appropriate standards. Accordingly, the clinical trials relating to our product
candidates may not be completed on schedule, the FDA or foreign regulatory
agencies may order us to stop or modify our research, or these agencies may not
ultimately approve any of our product candidates for commercial sale. Varying
interpretations of the data obtained from pre-clinical and clinical testing
could delay, limit or prevent regulatory approval of our product candidates. The
data collected from our clinical trials may not be sufficient to support
regulatory approval of our various product candidates, including Multikine. Our
failure to adequately demonstrate the safety and efficacy of any of our product
candidates would delay or prevent regulatory approval of our product candidates
in the United States, which could prevent us from achieving profitability.
Although we had positive results in our Phase 2 trials for Multikine, those
results were for a very small sample set, and we will not know how Multikine
will perform in a larger set of subjects until we are well into, or complete,
our Phase 3 clinical trial.
The development and testing of product candidates and the process of
obtaining regulatory approvals and the subsequent compliance with appropriate
federal, state, local and foreign statutes and regulations require the
expenditure of substantial time and financial resources. Failure to comply with
the applicable U.S. requirements at any time during the product development
process, approval process or after approval, may subject an applicant to
administrative or judicial sanctions. FDA sanctions could include, among other
actions, refusal to approve pending applications, withdrawal of an approval, a
clinical hold, warning letters, product recalls or withdrawals from the market,
product seizures, total or partial suspension of production or distribution,
injunctions, fines, refusals of government contracts, restitution, disgorgement
or civil or criminal penalties. Any agency or judicial enforcement action could
have a material adverse effect on us.
The requirements governing the conduct of clinical trials, manufacturing
and marketing of our product candidates, including Multikine, outside the United
States vary from country to country. Foreign approvals may take longer to obtain
than FDA approvals and can require, among other things, additional testing and
different trial designs. Foreign regulatory approval processes include all of
the risks associated with the FDA approval process. Some of those agencies also
must approve prices for products approved for marketing. Approval of a product
by the FDA or the EMA does not ensure approval of the same product by the health
authorities of other countries. In addition, changes in regulatory requirements
for product approval in any country during the clinical trial process and
regulatory agency review of each submitted new application may cause delays or
rejections.
We have only limited experience in filing and pursuing applications
necessary to gain regulatory approvals. Our lack of experience may impede our
ability to obtain timely approvals from regulatory agencies, if at all. We will
not be able to commercialize Multikine and other product candidates until we
have obtained regulatory approval. In addition, regulatory authorities may also
limit the types of patients to which we or our third-party partners may market
Multikine or our other product candidates. Any failure to obtain or any delay in
obtaining required regulatory approvals may adversely affect our or our
third-party partners' ability to successfully market our product candidates.
26
Even if we obtain regulatory approval for our product candidates, we will be
subject to stringent, ongoing government regulation.
If our products receive regulatory approval, either in the United States or
internationally, those products will be subject to limitations on the approved
indicated uses for which the product may be marketed or to the conditions of
approval, and may contain requirements for potentially costly post-marketing
testing, including Phase 4 clinical trials, and surveillance of the safety and
efficacy of the product candidate. We will continue to be subject to extensive
regulatory requirements. These regulations are wide-ranging and govern, among
other things:
o product design, development and manufacture;
o product application and use;
o adverse drug experience;
o product advertising and promotion;
o product manufacturing, including good manufacturing practices;
o record keeping requirements;
o registration and listing of our establishments and products with the
FDA, EMA and other state and national agencies;
o product storage and shipping;
o drug sampling and distribution requirements;
o electronic record and signature requirements; and
o labeling changes or modifications.
We and any of our third-party manufacturers or suppliers must continually
adhere to federal regulations setting forth requirements, known as cGMPs, and
their foreign equivalents, which are enforced by the FDA, the EMA and other
national regulatory bodies through their facilities inspection programs. If our
facilities, or the facilities of our contract manufacturers or suppliers, cannot
pass a pre-approval plant inspection or fail such inspections in the future, the
FDA, EMA or other national regulators will not approve our marketing
applications for our product candidates, or may withdraw any prior approval. In
complying with cGMP and foreign regulatory requirements, we and any of our
potential third-party manufacturers or suppliers will be obligated to expend
time, money and effort in production, record-keeping and quality control to
ensure that our product candidates meet applicable specifications and other
requirements.
If we do not comply with regulatory requirements at any stage, whether
before or after marketing approval is obtained, we may be subject to, among
other things, license suspension or revocation, criminal prosecution, seizure,
injunction, fines, be forced to remove a product from the market or experience
other adverse consequences, including restrictions or delays in obtaining
regulatory marketing approval for such products or for other product candidates
for which we seek approval. This could materially harm our financial results,
reputation and stock price.
Additionally, we may not be able to obtain the labeling claims necessary or
desirable for product promotion. If we or other parties identify adverse effects
after any of our products are on the market, or if manufacturing problems occur,
regulatory approval may be suspended or withdrawn. We may be required to
reformulate our products, conduct additional clinical trials, make changes in
product labeling or indications of use, or submit additional marketing
applications to support any changes. If we encounter any of the foregoing
27
problems, our business and results of operations will be harmed and the market
price of our common stock may decline.
FDA and other governmental authorities' policies may change and additional
government regulations may be enacted that could prevent, limit or delay
regulatory approval of our product candidates. If we are slow or unable to adapt
to changes in existing requirements or the adoption of new requirements or
policies, or if we are not able to maintain regulatory compliance, we may lose
any marketing approval that we may have obtained, which would adversely affect
our business, prospects and ability to achieve or sustain profitability. We
cannot predict the extent of adverse government regulations which might arise
from future legislative or administrative action. Without government approval,
we will be unable to sell any of our product candidates.
Our product candidates may cause undesirable side effects or have other
properties that could delay or prevent their regulatory approval, limit the
commercial profile of an approved label, or result in significant negative
consequences following marketing approval, if any.
Undesirable side effects caused by our product candidates could cause us or
regulatory authorities to interrupt, delay or halt clinical trials and could
result in a more restrictive label or the delay or denial of regulatory approval
by the FDA or other comparable foreign authorities. Results of our clinical
trials could reveal a high and unacceptable severity and/or prevalence of these
or other side effects. In such an event, our trials could be suspended or
terminated and the FDA or comparable foreign regulatory authorities could order
us to cease further development of, or deny approval of, our product candidates
for any or all targeted indications. The drug-related side effects could affect
patient recruitment or the ability of enrolled patients to complete the trial or
result in potential product liability claims. Any of these occurrences may harm
our business, financial condition and prospects significantly.
Additionally if one or more of our product candidates receives marketing
approval, and we or others later identify undesirable side effects caused by
such products, a number of potentially significant negative consequences could
result, including: o regulatory authorities may withdraw approvals of such
product;
o regulatory authorities may require additional warnings on the label;
o we may be required to create a medication guide outlining the risks of
such side effects for distribution to patients;
o we could be sued and held liable for harm caused to patients; and
o our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market
acceptance of the particular product candidate, if approved, and could
significantly harm our business, results of operations and prospects.
28
We rely on third parties to conduct our preclinical and clinical trials. If
these third parties do not successfully carry out their contractual duties and
meet regulatory requirements, or meet expected deadlines, we may not be able to
obtain regulatory approval for or commercialize our product candidates and our
business could be substantially harmed.
We have relied upon and plan to continue to rely upon third-party CROs to
prepare for, conduct, monitor and manage data for our ongoing preclinical and
clinical programs. We rely on these parties for all aspects of the execution of
our preclinical and clinical trials, and although we diligently oversee and
carefully manage our CROs, we directly control only certain aspects of their
activities and rely upon them to provide timely, complete, and accurate reports
on their conduct of our studies. Although such third parties stand in our shoes
for regulatory purposes in the context of our clinical trials, ultimately we are
responsible for ensuring that each of our studies is conducted in accordance
with the applicable protocol, legal, regulatory, and scientific standards, and
our reliance on the CROs does not relieve us of our regulatory responsibilities.
We and our CROs acting on our behalf as well as principal investigators and
trial sites are required to comply with GCP and other applicable requirements,
which are implemented through regulations and guidelines enforced by the FDA,
the Competent Authorities of the Member States of the European Economic Area, or
EEA, and comparable foreign regulatory authorities for all of our products in
clinical development. Regulatory authorities enforce these GCPs through periodic
inspections of trial sponsors, principal investigators, and trial sites. If we
or any of our CROs fail to comply with applicable GCPs or other applicable
regulations, the clinical data generated in our clinical trials may be
determined to be unreliable and we may therefore need to enroll additional
subjects in our clinical trials, or the FDA, EMA or comparable foreign
regulatory authorities may require us to perform an additional clinical trial or
trials before approving our marketing applications. Moreover, if we or any of
our CROs, principal investigators, or trial sites, fail to comply with
applicable regulatory and GCP requirements, then we, our CROs, principal
investigators, or trial sites may be subject to enforcement actions, such as
fines, warning letters, untitled letters, clinical holds, civil or criminal
penalties, and injunction. We cannot assure you that upon inspection by a given
regulatory authority, such regulatory authority will determine that any of our
clinical trials comply with GCP regulations. In addition, our clinical trials
must be conducted with product produced under GMP regulations. Our failure to
comply with these regulations may require us to delay or repeat clinical trials,
which would delay the regulatory approval process.
For example, we are currently involved in a dispute with our former CRO
relating to the conduct of our Phase 3 study where we allege (i) breach of
contract, (ii) fraud in the inducement and (iii) fraud. In connection with this
dispute, we have alleged that our CRO failed to properly select, monitor and
supervise the study sites and principal investigators, ensure proper enrollment
of subjects, and ensure strict compliance with the Phase 3 trial protocol and
GCP and other applicable regulatory requirements. If we or regulatory
authorities determine that our former CRO did not comply with GCP or other
applicable regulatory requirements, the data collected by that former CRO may be
rendered unusable in support of our marketing applications, and we may be
required to enroll additional subjects in our Phase 3 study beyond our current
plans, which could cause additional delays in our clinical testing and
development program.
If any of our relationships with our third-party CROs terminate, we may not
be able to enter into arrangements with alternative CROs or to do so on
commercially reasonable terms. In addition, our CROs are not our employees, and
except for remedies available to us under our agreements with such CROs, we
29
cannot control whether or not they devote sufficient time and resources to our
on-going clinical, nonclinical and preclinical programs. If CROs do not
successfully fulfill their regulatory obligations, carry out their contractual
duties or obligations or meet expected deadlines, if they need to be replaced or
if the quality or accuracy of the clinical data they obtain is compromised due
to the failure to adhere to our clinical protocols, regulatory requirements or
for other reasons, our clinical trials may be extended, delayed or terminated,
and we may not be able to obtain regulatory approval for or successfully
commercialize our product candidates. As a result, our results of operations and
the commercial prospects for our product candidates would be harmed, our costs
could increase and our ability to generate revenues could be delayed.
Switching or adding additional CROs involves additional cost and requires
management time and focus. In addition, there is a natural transition period
when a new CRO commences work. As a result, delays occur, which can materially
impact our ability to meet our desired clinical development timelines. Though we
diligently oversee and carefully manage our relationships with our CROs, there
can be no assurance that we will not encounter similar challenges or delays in
our clinical development in the future or that these delays or challenges will
not have a material adverse impact on our business, financial condition and
prospects.
We have obtained orphan drug designation from the FDA for Multikine for
neoadjuvant, or primary, therapy in patients with squamous cell carcinoma of the
head and neck, but we may be unable to maintain the benefits associated with
orphan drug designation, including the potential for market exclusivity.
Under the Orphan Drug Act, the FDA may grant orphan drug designation to a
drug or biologic intended to treat a rare disease or condition, which is defined
as one occurring in a patient population of fewer than 200,000 in the United
States, or a patient population greater than 200,000 in the United States where
there is no reasonable expectation that the cost of developing the drug or
biologic will be recovered from sales in the United States. In the United
States, orphan drug designation entitles a party to financial incentives such as
opportunities for grant funding towards clinical trial costs, tax advantages and
user-fee waivers. In addition, if a product that has orphan drug designation
subsequently receives the first FDA approval for the disease for which it has
such designation, the product is entitled to orphan drug exclusivity, which
means that the FDA may not approve any other applications, including a full
Biologics License Application, or BLA, to market the same biologic for the same
indication for seven years, except in limited circumstances, such as a showing
of clinical superiority to the product with orphan drug exclusivity or where the
manufacturer is unable to assure sufficient product quantity.
Even though we have received orphan drug designation for Multikine for the
treatment of squamous cell carcinoma of the head and neck, we may not be the
first to obtain marketing approval of a product for the orphan-designated
indication due to the uncertainties associated with developing pharmaceutical
products. In addition, exclusive marketing rights in the United States may be
limited if we seek approval for an indication broader than the orphan-designated
indication, or may be lost if the FDA later determines that the request for
designation was materially defective or if we are unable to assure sufficient
quantities of the product to meet the needs of patients with the rare disease or
condition. Further, even if we obtain orphan drug exclusivity for a product
candidate, that exclusivity may not effectively protect the product candidate
from competition because different drugs with different active moieties can be
approved for the same condition. Even after an orphan product is approved, the
30
FDA can subsequently approve another drug with the same active moiety for the
same condition if the FDA concludes that the later drug is safer, more
effective, or makes a major contribution to patient care. Orphan drug
designation neither shortens the development time or regulatory review time of a
drug nor gives the drug any advantage in the regulatory review or approval
process.
Our current and future relationships with healthcare professionals, principal
investigators, consultants, customers (actual and potential) and third-party
payors in the United States and elsewhere may be subject, directly or
indirectly, to applicable healthcare laws and regulations.
Healthcare providers, physicians and third-party payors in the United
States and elsewhere will play a primary role in the recommendation and
prescription of any drug candidates for which we obtain marketing approval. Our
current and future arrangements with healthcare professionals, principal
investigators, consultants, customers (actual and potential) and third-party
payors may expose us to broadly applicable fraud and abuse and other healthcare
laws, including, without limitation:
o the federal Anti-Kickback Statute, which prohibits, among other
things, persons from knowingly and willfully soliciting, offering,
receiving or providing remuneration, directly or indirectly, in cash
or in kind, to induce or reward, or in return for, either the referral
of an individual for, or the purchase, lease, order or recommendation
of, any good, facility, item or service, for which payment may be
made, in whole or in part, under federal and state healthcare programs
such as Medicare and Medicaid. A person or entity does not need to
have actual knowledge of the statute or specific intent to violate it
to have committed a violation. In addition, the Affordable Care Act
provided that the government may assert that a claim including items
or services resulting from a violation of the federal Anti-Kickback
Statute constitutes a false or fraudulent claim for purposes of the
False Claims Act;
o federal civil and criminal false claims laws, including the federal
False Claims Act, which impose criminal and civil penalties, including
civil whistleblower actions, against individuals or entities for,
among other things, knowingly presenting, or causing to be presented,
to the federal government, including the Medicare and Medicaid
programs, claims for payment that are false or fraudulent or making a
false statement to avoid, decrease or conceal an obligation to pay
money to the federal government;
o the civil monetary penalties statute, which imposes penalties against
any person or entity who, among other things, is determined to have
presented or caused to be presented a claim to a federal health
program that the person knows or should know is for an item or service
that was not provided as claimed or is false or fraudulent;
o the federal Health Insurance Portability and Accountability Act of
1996, or HIPAA, which created new federal criminal statutes that
prohibit knowingly and willfully executing, or attempting to execute,
a scheme to defraud any healthcare benefit program or obtain, by means
of false or fraudulent pretenses, representations or promises, any of
the money or property owned by, or under the custody or control of,
any healthcare benefit program, regardless of the payor (e.g., public
or private), knowingly and willfully embezzling or stealing from a
health care benefit program, willfully obstructing a criminal
31
investigation of a healthcare offense and knowingly and willfully
falsifying, concealing or covering up by any trick or device a
material fact or making any materially false statements in connection
with the delivery of, or payment for, healthcare benefits, items or
services relating to healthcare matters. A person or entity does not
need to have actual knowledge of the statute or specific intent to
violate it to have committed a violation;
o HIPAA, as amended by the Health Information Technology for Economic
and Clinical Health Act of 2009, or HITECH, and their respective
implementing regulations, which impose obligations on covered
entities, including healthcare providers, health plans, and healthcare
clearinghouses, as well as their respective business associates that
create, receive, maintain or transmit individually identifiable health
information for or on behalf of a covered entity, with respect to
safeguarding the privacy, security and transmission of individually
identifiable health information;
o the federal Physician Payments Sunshine Act and its implementing
regulations, which imposed annual reporting requirements for certain
manufacturers of drugs, devices, biologicals and medical supplies for
payments and "transfers of value" provided to physicians and teaching
hospitals, as well as ownership and investment interests held by
physicians and their immediate family members; and
o analogous state and foreign laws, such as state anti-kickback and
false claims laws, which may apply to sales or marketing arrangements
and claims involving healthcare items or services reimbursed by
non-governmental third-party payors, including private insurers; state
laws that require pharmaceutical companies to comply with the
pharmaceutical industry's voluntary compliance guidelines and the
relevant compliance guidance promulgated by the federal government or
otherwise restrict payments that may be made to healthcare providers;
state and foreign laws that require drug manufacturers to report
information related to payments and other transfers of value to
physicians and other healthcare providers or marketing expenditures;
and state and foreign laws governing the privacy and security of
health information in certain circumstances, many of which differ from
each other in significant ways and often are not preempted by HIPAA,
thus complicating compliance efforts.
Efforts to ensure that our future business arrangements with third parties
will comply with applicable healthcare laws and regulations may involve
substantial costs. It is possible that governmental authorities will conclude
that our business practices may not comply with current or future statutes,
regulations or case law involving applicable fraud and abuse or other healthcare
laws. If our operations are found to be in violation of any of these laws or any
other governmental regulations that may apply to us, we may be subject to
significant civil, criminal and administrative penalties, including, without
limitation, damages, fines, imprisonment, exclusion from participation in
government healthcare programs, such as Medicare and Medicaid, and the
curtailment or restructuring of our operations, all of which could significantly
harm our business. If any of the physicians or other healthcare providers or
entities with whom we expect to do business, including our current and future
collaborators, are found not to be in compliance with applicable laws, they may
32
be subject to criminal, civil or administrative sanctions, including exclusions
from participation in government healthcare programs, which could also adversely
affect our business.
Failure to obtain or maintain adequate coverage and reimbursement for our
product candidates, if approved, could limit our ability to market those
products and decrease our ability to generate revenue.
Sales of our product candidates will depend substantially, both
domestically and abroad, on the extent to which the costs of our product
candidates will be paid by health maintenance, managed care, pharmacy benefit,
and similar healthcare management organizations, or reimbursed by government
authorities, private health insurers and other third-party payors. We anticipate
that government authorities and other third-party payors will continue efforts
to contain healthcare costs by limiting the coverage and reimbursement levels
for new drugs. If coverage and reimbursement are not available, or are available
only to limited levels, we may not be able to successfully commercialize our
product candidates. Even if coverage is provided, the approved reimbursement
amount may not be high enough to allow us to establish or maintain pricing
sufficient to realize a return on our investment. It is difficult to predict at
this time what third-party payors will decide with respect to the coverage and
reimbursement for our product candidates.
Healthcare legislative reform measures may have a material adverse effect on our
business and results of operations.
In the United States, there have been and continue to be a number of
legislative initiatives to contain healthcare costs that may result in more
limited coverage or downward pressure on the price we may otherwise receive for
our product candidates. For example, in March 2010, the Patient Protection and
Affordable Care Act, as amended by the Health Care and Education Reconciliation
Act, or collectively, the Affordable Care Act, was passed, which substantially
changes the way health care is financed by both governmental and private
insurers, and significantly impacts the U.S. pharmaceutical industry. The
Affordable Care Act, among other things, addressed a new methodology by which
rebates owed by manufacturers under the Medicaid Drug Rebate Program are
calculated for drugs that are inhaled, infused, instilled, implanted or
injected, increased the minimum Medicaid rebates owed by manufacturers under the
Medicaid Drug Rebate Program and extended the rebate program to individuals
enrolled in Medicaid managed care organizations, established annual fees and
taxes on manufacturers of certain branded prescription drugs, and established
the Center for Medicare and Medicaid Innovation with broad authority to test and
implement new payment models under Medicare and Medicaid, which are designed to
reduce expenditures while preserving and enhancing quality of care.
In addition, other legislative changes have been proposed and adopted in
the United States since the Affordable Care Act was enacted. On August 2, 2011,
the Budget Control Act of 2011 among other things, created measures for spending
reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked
with recommending a targeted deficit reduction of at least $1.2 trillion for the
years 2013 through 2021, was unable to reach required goals, thereby triggering
the legislation's automatic reduction to several government programs. This
33
includes aggregate reductions of Medicare payments to providers of 2% per fiscal
year, which went into effect in April 2013 and, due to subsequent legislative
amendments to the statute, will remain in effect through 2024 unless additional
Congressional action is taken. On January 2, 2013, President Obama signed into
law the American Taxpayer Relief Act of 2012, which, among other things, further
reduced Medicare payments to several providers, including hospitals, imaging
centers and cancer treatment centers. On April 16, 2015, President Obama signed
into law the Medicare Access and CHIP Reauthorization Act of 2015, or MACRA.
Among other things, MACRA creates incentives for physicians to participate in
alternative payment models under Medicare that emphasize quality and value in
place of the traditional, volume-based fee-for-service program. We expect that
additional state and federal healthcare reform measures will be adopted in the
future, any of which could limit the amounts that federal and state governments
will pay for healthcare products and services, which could result in reduced
demand for our product candidates or additional pricing pressures.
Foreign governments often impose strict price controls, which may adversely
affect our future profitability.
We intend to seek approval to market Multikine in both the United States
and foreign jurisdictions. If we obtain approval in one or more foreign
jurisdictions, we will be subject to rules and regulations in those
jurisdictions relating to Multikine. In some foreign countries, particularly in
the European Union, prescription drug pricing is subject to governmental
control. In these countries, pricing negotiations with governmental authorities
can take considerable time after the receipt of marketing approval for a drug
candidate. Coverage and reimbursement decisions in one foreign jurisdiction may
impact decisions in other countries. To obtain reimbursement or pricing approval
in some countries, we may be required to conduct clinical trials that
demonstrate our product candidate is more effective than current treatments and
that compare the cost-effectiveness of Multikine to other available therapies.
If reimbursement of Multikine is unavailable or limited in scope or amount, or
if pricing is set at unsatisfactory levels, we may be unable to achieve or
sustain profitability.
Risks Related to Intellectual Property
We may not be able to achieve or maintain a competitive position, and other
technological developments may result in our proprietary technologies becoming
uneconomical or obsolete.
We are involved in a biomedical field that is undergoing rapid and
significant technological change. The pace of change continues to accelerate.
The successful development of product candidates from our compounds,
compositions and processes, through research financed by us, or as a result of
possible third-party licensing arrangements with pharmaceutical or other
companies, is not assured. We may fail to apply for patents on important
technologies or product candidates in a timely fashion, or at all.
34
Many companies are working on drugs designed to cure or treat cancer or
cure and treat viruses, such as HPV or H1N1. Many of these companies have
financial, research and development, and marketing resources, which are much
greater than ours, and are capable of providing significant long-term
competition either by establishing in-house research groups or by forming
collaborative ventures with other entities. In addition, smaller companies and
non-profit institutions are active in research relating to cancer and infectious
diseases. The future market share of Multikine or our other product candidates,
if approved, will be reduced or eliminated if our competitors develop and obtain
approval for products that are safer or more effective than our product
candidates. Moreover, the patent positions of pharmaceutical companies are
highly uncertain and involve complex legal and factual questions for which
important legal principles are often evolving and remain unresolved. As a
result, the validity and enforceability of patents cannot be predicted with
certainty. In addition, we do not know whether:
o we were the first to make the inventions covered by each of our issued
patents and pending patent applications;
o we were the first to file patent applications for these inventions;
o others will independently develop similar or alternative technologies
or duplicate any of our technologies;
o any of our pending patent applications will result in issued patents;
o any of our patents will be valid or enforceable;
o any patents issued to us or our collaboration partners will provide us
with any competitive advantages, or will be challenged by third
parties;
o we will be able to develop additional proprietary technologies that
are patentable;
o the U.S. government will exercise any of its statutory rights to our
intellectual property that was developed with government funding; or
o our business may infringe the patents or other proprietary rights of
others.
Our patents might not protect our technology from competitors, in which case we
may not have any advantage over competitors in selling any products that we may
develop.
Our commercial success will depend in part on our ability to obtain
additional patents and protect our existing patent position, as well as our
ability to maintain adequate intellectual property protection for our
technologies, product candidates, and any future products in the United States
and other countries. If we do not adequately protect our technology, product
candidates and future products, competitors may be able to use or practice them
and erode or negate any competitive advantage we may have, which could harm our
business and ability to achieve profitability. The laws of some foreign
countries do not protect our proprietary rights to the same extent or in the
same manner as U.S. laws, and we may encounter significant problems in
protecting and defending our proprietary rights in these countries. We will be
able to protect our proprietary rights from unauthorized use by third parties
35
only to the extent that our proprietary technologies, product candidates and any
future products are covered by valid and enforceable patents or are effectively
maintained as trade secrets.
Certain aspects of our technologies are covered by U.S. and foreign
patents. In addition, we have a number of new patent applications pending. There
is no assurance that the applications still pending or which may be filed in the
future will result in the issuance of any patents. Furthermore, there is no
assurance as to the breadth and degree of protection any issued patents might
afford us. Disputes may arise between us and others as to the scope and validity
of these or other patents. Any defense of the patents could prove costly and
time consuming and there can be no assurance that we will be in a position, or
will deem it advisable, to carry on such a defense. A suit for patent
infringement could result in increasing costs, delaying or halting development,
or even forcing us to abandon a product candidate. Other private and public
concerns, including universities, may have filed applications for, may have been
issued, or may obtain additional patents and other proprietary rights to
technology potentially useful or necessary to us. We are not currently aware of
any such patents, but the scope and validity of such patents, if any, and the
cost and availability of such rights are impossible to predict.
Much of our intellectual property is protected as trade secrets or confidential
know-how, not as a patent.
We consider proprietary trade secrets and/or confidential know-how and
unpatented know-how to be important to our business. Much of our intellectual
property pertains to our manufacturing system, certain aspects of which may not
be suitable for patent filings and must be protected as trade secrets and/or
confidential know-how. This type of information must be protected diligently by
us to protect its disclosure to competitors, since legal protections after
disclosure may be minimal or non-existent. Accordingly, much of our value is
dependent upon our ability to keep our trade secrets and know-how confidential.
To protect this type of information against disclosure or appropriation by
competitors, our policy is to require our employees, consultants, contractors
and advisors to enter into confidentiality agreements with us. However, current
or former employees, consultants, contractors and advisers may unintentionally
or willfully disclose our confidential information to competitors, and
confidentiality agreements may not provide an adequate remedy in the event of
unauthorized disclosure of confidential information. Enforcing a claim that a
third party obtained illegally, and is using, trade secrets and/or confidential
know-how is expensive, time consuming and unpredictable. The enforceability of
confidentiality agreements may vary from jurisdiction to jurisdiction.
In addition, in some cases a regulator considering our application for
product candidate approval may require the disclosure of some or all of our
proprietary information. In such a case, we must decide whether to disclose the
information or forego approval in a particular country. If we are unable to
market our product candidates in key countries, our opportunities and value may
suffer.
Failure to obtain or maintain trade secrets and/or confidential know-how
trade protection could adversely affect our competitive position. Moreover, our
competitors may independently develop substantially equivalent proprietary
36
information and may even apply for patent protection in respect of the same. If
successful in obtaining such patent protection, our competitors could limit our
use of such trade secrets and/or confidential know-how.
We may be subject to claims challenging the inventorship or ownership of our
patents and other intellectual property.
We may also be subject to claims that former employees, collaborators or
other third parties have an ownership interest in our patents or other
intellectual property. We may be subject to ownership disputes in the future
arising, for example, from conflicting obligations of consultants or others who
are involved in developing our product candidates. Litigation may be necessary
to defend against these and other claims challenging inventorship or ownership.
If we fail in defending any such claims, in addition to paying monetary damages,
we may lose valuable intellectual property rights, such as exclusive ownership
of, or right to use, valuable intellectual property. Such an outcome could have
a material adverse effect on our business. Even if we are successful in
defending against such claims, litigation could result in substantial costs and
be a distraction to management and other employees.
Risks Related to our common stock
You may experience future dilution as a result of future equity offerings or
other equity issuances.
We expect that significant additional capital will be needed in the future
to continue our planned operations. To raise additional capital, we may in the
future offer additional shares of our common stock or other securities
convertible into or exchangeable for our common stock. We cannot assure you that
we will be able to sell shares or other securities in any other offering at a
price per share that is equal to or greater than the price per share paid by
investors in this offering. The price per share at which we sell additional
shares of our common stock or other securities convertible into or exchangeable
for our common stock in future transactions may be higher or lower than the
price per share in this offering. To the extent we raise additional capital by
issuing equity securities, our stockholders may experience substantial dilution.
If we sell common stock, convertible securities or other equity securities, your
investment in our common stock will be diluted. These sales may also result in
material dilution to our existing stockholders, and new investors could gain
rights superior to our existing stockholders.
Our outstanding options and warrants may adversely affect the trading price of
our common stock.
As of July 31, 2015, there were outstanding options which allow the holders
to purchase approximately 7,595,600 shares of our common stock, at prices
ranging between $0.55 and $20.00 per share, with a weighted average exercise
price of $2.74 per share; outstanding warrants which allow the holders to
purchase approximately 55,086,316 shares of our common stock, at prices ranging
between $0.53 and $5.00 per share, with a weighted average exercise price of
$1.38 per share; and a convertible loan, which allows the holder to acquire
approximately 1,871,282 shares of our common stock at a conversion price of
$0.59. The outstanding options and warrants could adversely affect our ability
to obtain future financing or engage in certain mergers or other transactions,
since the holders of options and warrants can be expected to exercise them at a
time when we may be able to obtain additional capital through a new offering of
securities on terms more favorable to us than the terms of the outstanding
37
options and warrants. For the life of the options, warrants and the convertible
loan, the holders have the opportunity to profit from a rise in the market price
of our common stock without assuming the risk of ownership. The issuance of
shares upon the exercise of outstanding options and warrants, or the conversion
of the loan, will also dilute the ownership interests of our existing
stockholders.
Our ability to utilize our net operating loss carryforwards and certain other
tax attributes may be limited.
Under Section 382 of the Internal Revenue Code of 1986, as amended, if a
corporation undergoes an "ownership change" (generally defined as a greater than
50% change (by value) in its equity ownership over a three-year period), the
corporation's ability to use its pre-change net operating loss carryforwards and
other pre-change tax attributes to offset its post-change income may be limited.
Taking into account our prior securities offerings and other transactions, we
may have triggered an "ownership change" limitation. In addition, we may
experience ownership changes in the future as a result of subsequent shifts in
our stock ownership, some of which are outside our control. As a result, our
ability to use our pre-change net operating loss carryforwards and other
pre-change tax attributes to offset U.S. federal taxable income may be subject
to limitations, which could result in increased tax liability.
We may have exposure for certain securities we sold in October 2013.
In September 2012, we filed a shelf Registration Statement covering the
sale of $50,000,000 of securities (the "2012 Registration Statement"), and in
January 2013 we filed another shelf Registration Statement covering the sale of
an additional $50,000,000 of securities (the "2013 Registration Statement"). In
October 2013, we filed a prospectus supplement to the 2012 Registration
Statement for the sale in an underwritten public offering of 17,826,087 shares
of our common stock, 20,475,000 Series S Warrants, as well as up to 20,475,000
shares of common stock issuable upon the exercise of the Series S warrants (the
"October Prospectus"). Collectively, we offered approximately $43.4 million of
securities pursuant to the October Prospectus. This amount includes
approximately $17.8 million for the sale of the common stock and Series S
warrants and $25.6 million upon the exercise of the Series S Warrants. We
subsequently realized that at the time of the October 2013 offering we had only
approximately $28.9 million available for issuance under the 2012 Registration
Statement. As a result, we offered securities that were not registered with the
SEC, and that may not have been eligible for an exemption from registration
under the federal or state securities laws. We had securities available under
the 2013 Registration Statement to register all of the securities not covered by
the 2012 Registration Statement. In December 2013, we filed a prospectus
supplement to the 2013 Registration Statement registering the offer and sale of
all of the shares of common stock issuable upon exercise of the Series S
Warrants included in the October 2013 offering to assure that the offering and
sale of all of the shares issuable upon exercise of the Series S Warrants were
registered (the "December Prospectus"). Prior to the filing of the December
Prospectus, no Series S Warrants issued in the October offering had been
exercised. Notwithstanding the above, the actions we have taken to mitigate our
possible non-compliance with securities laws will not prevent regulators from
asserting that we violated the law, from imposing penalties and fines against us
with respect to any potential violations of securities laws, and may subject us
to possible claims for damages from certain investors.
38
Since we do not intend to pay dividends on our common stock, any potential
return to investors will result only from any increases in the price of our
common stock.
At the present time, we intend to use available funds to finance our
operations. Accordingly, while payment of dividends rests within the discretion
of our board of directors, no common stock dividends have been declared or paid
by us and we have no intention of paying any common stock dividends in the
foreseeable future. Additionally, any future debt financing arrangement may
contain terms prohibiting or limiting the amount of dividends that may be
declared or paid on our common stock. Any return to our investors will therefore
be limited to appreciation in the price of our common stock, which may never
occur. If our stock price does not increase, our investors are unlikely to
receive any return on their investments in our common stock.
The price of our common stock has been volatile and is likely to continue to be
volatile, which could result in substantial losses for purchasers of our common
stock.
Our stock price has been, and is likely to continue to be, volatile. The
stock market in general has experienced extreme volatility that has often been
unrelated to the operating performance of particular companies.
As a result of this volatility, you may not be able to sell your shares of
our common stock at or above its current market price. The market price for our
common stock may be influenced by many factors, including:
o actual or anticipated fluctuations in our financial condition and
operating results;
o actual or anticipated changes in our growth rate relative to our
competitors;
o competition from existing products or new products or product
candidates that may emerge;
o development of new technologies that may address our markets and may
make our technology less attractive;
o changes in physician, hospital or healthcare provider practices that
may make our product candidates less useful;
o announcements by us, our partners or our competitors of significant
acquisitions, strategic partnerships, joint ventures, collaborations
or capital commitments;
o developments or disputes concerning patent applications, issued
patents or other proprietary rights;
o the recruitment or departure of key personnel;
o failure to meet or exceed financial estimates and projections of the
investment community or that we provide to the public;
39
o actual or anticipated changes in estimates as to financial results,
development timelines or recommendations by securities analysts;
o variations in our financial results or those of companies that are
perceived to be similar to us;
o changes to coverage and reimbursement levels by commercial third-party
payors and government payors, including Medicare, and any
announcements relating to reimbursement levels;
o general economic, industry and market conditions; and
o the other factors described in this "Risk Factors" section.
Under our amended bylaws, stockholders that initiate certain proceedings may be
obligated to reimburse us and our officers and directors for all fees, costs and
expenses incurred in connection with such proceedings if the claim proves
unsuccessful.
On February 18, 2015, we adopted new bylaws which include a fee-shifting
provision in Article X for stockholder claims. Article X provides that in the
event that any stockholder initiates or asserts a claim against us, or any of
our officers or directors, including any derivative claim or claim purportedly
filed on our behalf, and the stockholder does not obtain a judgment on the
merits that substantially achieves, in substance and amount, the full remedy
sought, then the stockholder will be obligated to reimburse us and any of our
officers or directors named in the action, for all fees, costs and expenses of
every kind and description that we or our officers or directors may incur in
connection with the claim. In adopting Article X, it is our intent that:
o All actions, including federal securities law claims, would be subject
to Article X;
o The phrase "a judgment on the merits" means the determination by a
court of competent jurisdiction on the matters submitted to the court;
o The phrase "substantially achieves, in both substance and amount"
means the plaintiffs in the action would be awarded at least 90% of
the relief sought;
o Only persons who were stockholders at the time an action was brought
would be subject to Article X; and
o Only the directors or officers named in the action would be allowed to
recover.
The fee-shifting provision contained in Article X of our bylaws is not
limited to specific types of actions, but is rather potentially applicable to
the fullest extent permitted by law. Fee-shifting bylaws are relatively new and
untested. The case law and potential legislative action on fee-shifting bylaws
are evolving and there exists considerable uncertainty regarding the validity
of, and potential judicial and legislative responses to, such bylaws. For
example, it is unclear whether our ability to invoke our fee-shifting bylaw in
connection with claims under the federal securities laws, including any claims
related to this offering, would be pre-empted by federal law. Similarly, it is
unclear how courts might apply the standard that a claiming stockholder must
40
obtain a judgment that substantially achieves, in substance and amount, the full
remedy sought. The application of our fee-shifting bylaw in connection with such
claims, if any, will depend in part on future developments of the law. We cannot
assure you that we will or will not invoke our fee-shifting bylaw in any
particular dispute, including any claims related to this offering. In addition,
given the unsettled state of the law related to fee-shifting bylaws, such as
ours, we may incur significant additional costs associated with resolving
disputes with respect to such bylaw, which could adversely affect our business
and financial condition.
If a stockholder that brings any such claim, suit, action or proceeding is
unable to obtain the required judgment, the attorneys' fees and other litigation
expenses that might be shifted to a claiming stockholder are potentially
significant. This fee-shifting bylaw, therefore, may dissuade or discourage
stockholders (and their attorneys) from initiating lawsuits or claims against us
or our directors and officers. In addition, it may impact the fees, contingency
or otherwise, required by potential plaintiffs' attorneys to represent our
stockholders or otherwise discourage plaintiffs' attorneys from representing our
stockholders at all. As a result, this bylaw may limit the ability of
stockholders to affect our management and direction of CEL-SCI, particularly
through litigation or the threat of litigation.
The provision of our amended bylaws requiring exclusive venue in the U.S.
District Court for Delaware for certain types of lawsuits may have the effect of
discouraging lawsuits against us and our directors and officers.
Article X of our amended bylaws provides that stockholder claims brought
against us, or our officers or directors, including any derivative claim or
claim purportedly filed on our behalf, must be brought in the U.S. District
Court for the district of Delaware and that with respect to any such claim, the
laws of Delaware will apply.
The exclusive forum provision may limit a stockholder's ability to bring a
claim in a judicial forum the stockholder finds favorable for disputes with us
or our directors or officers, and may have the effect of discouraging lawsuits
with respect to claims that may benefit us or our stockholders.
41
COMPARATIVE SHARE DATA
Number
of Shares
----------
Shares outstanding as of July 31, 2015 112,061,222
The number of shares outstanding as of July 31, 2015 excludes shares which
may be issued upon the exercise of the options or warrants, or the conversion of
the note, described below.
Number
of Shares Reference
--------- ---------
Shares issuable upon the exercise of Series N
warrants 2,844,627 A
Shares issuable upon exercise of options granted
to CEL-SCI's officers, directors, employees,
consultants, and third parties 7,587,600 B
Shares issuable upon conversion of note payable to
officer and director 1,871,282 C
Shares issuable upon exercise of Series H warrants 1,200,000 D
Shares issuable upon exercise of Series P warrants 590,001 E
Shares issuable upon exercise of Series Q warrants 1,200,000 F
Shares issuable upon exercise of Series R warrants 2,625,000 G
Shares issuable upon exercise of Series S warrants 25,928,010 H
Shares issuable upon exercise of Series U warrants 445,514 I
Shares issuable upon exercise of Series V warrants 20,253,164 J
A. In August 2008, CEL-SCI sold 138,339 shares of common stock and 207,508
Series N warrants in a private financing for $1,037,500. In June 2009, an
additional 116,667 shares and 181,570 Series N warrants were issued to the
investors. In October 2011, the outstanding 389,078 Series N warrants
issued were reset from $4.00 to $3.00. In addition, the investors were
issued 129,693 warrants exercisable at $3.00. In October 2013 and December
2013, in connection with public offerings of common stock on those dates,
the Company reset the exercise price from $3.00 to $0.53 and issued the
Series N warrant holders 2,432,649 additional warrants exercisable at $0.53
as required by the warrant agreements. In January 2014, the Company offered
the investors the option to extend the Series N warrants by one year and
allow for cashless exercise, in exchange for cancelling the reset provision
42
in the warrant agreement. One of the investors with 2,844,627 warrants
accepted this offer. On March 21, 2014, the other investor exercised
106,793 Series N Warrants and 92,715 Series N warrants in a cashless
exercise. On October 28, 2014, the remaining Series N Warrants were
transferred to the de Clara Trust, of which the Company's CEO, Geert
Kersten, is the trustee and a beneficiary. On June 29, 2015, the warrants
were extended and expire on August 18, 2017. This was done as part of the
agreement to extend the note due for repayment on July 6, 2015 and
mentioned in more detail in C below for a lesser interest rate. As of June
30July 31, 2015, the remaining 2,844,627 Series N warrants entitle the
holders to purchase one share of the Company's common stock at a price of
$0.53 per share at any time prior to August 18, 2017.
B. The options are exercisable at prices ranging from $0.55 to $20.00 per
share. CEL-SCI may also grant options to purchase additional shares under
its Incentive Stock Option and Non-Qualified Stock Option Plans.
C. Between December 2008 and June 2009, Maximilian de Clara, the Company's
President and a director, loaned the Company $1,104,057 under a note
payable. In June 2009, the Company issued 164,824 warrants, exercisable at
$4.00 per share, to Mr. de Clara. The warrants expired on December 24,
2014. In July 2009, as consideration for a further extension of the loan,
the Company issued 184,930 warrants exercisable at $5.00 per share to Mr.
de Clara. These warrants expired on January 6, 2015. On May 13, 2011, to
recognize Mr. de Clara's willingness to agree to subordinate his note to
convertible preferred shares and convertible debt, CEL-SCI extended the
maturity date of the note to July 6, 2015. The loan from Mr. de Clara bears
interest at 15% per year and is secured by a lien on substantially all of
CEL-SCI's assets. CEL-SCI does not have the right to prepay the loan
without Mr. de Clara's consent. In August 2014, the loan and warrants were
transferred to the de Clara Trust, of which the Company's CEO, Geert
Kersten, is the trustee and a beneficiary. On June 29, 2015, CEL-SCI
extended the maturity date of the note to July 6, 2017, lowered the
interest rate to 9% per year and changed the conversion price to $0.59.
D. On January 25, 2012, CEL-SCI sold 1,600,000 shares of its common stock to
institutional investors for $5,760,000 or $3.60 per share. The investors
also received Series H warrants which entitle the investors to purchase up
to 1,200,000 shares of CEL-SCI's common stock. The Series H warrants may be
exercised at any time prior to August 1, 2015 at a price of $5.00 per
share. As of June 30July 31, 2015, none of the Series H Warrants had been
exercised.
E. On February 10, 2012, CEL-SCI issued 590,001 Series P warrants to the
former holder of the Series O warrants as an inducement for the early
exercise of the Series O warrants. The Series P warrants allow the holder
to purchase up to 590,001 shares of CEL-SCI's common stock at a price of
$4.50 per share. The Series P warrants are exercisable at any time prior to
March 7, 2017. As of June 30July 31, 2015, none of the Series P Warrants
had been exercised.
F. On June 21, 2012, CEL-SCI sold 1,600,000 shares of its common stock to
institutional investors for $5,600,000 or $3.50 per share. The investors
also received Series Q warrants which allow the investors to purchase up to
1,200,000 shares of CEL-SCI's common stock. The Series Q warrants may be
exercised at any time after prior to December 22, 2015 at a price of $5.00
43
per share. As of June 30July 31, 2015, none of the Series Q Warrants had
been exercised.
G. On December 4, 2012, CEL-SCI sold 3,500,000 shares of its common stock to
institutional investors for $10,500,000 or $3.00 per share. The investors
also received Series R warrants which entitle the investors to purchase up
to 2,625,000 shares of CEL-SCI's common stock. The Series R warrants may be
exercised at any time prior to December 7, 2016 at a price of $4.00 per
share. As of June 30July 31, 2015, none of the Series R Warrants had been
exercised.
H. On October 11, 2013, CEL-SCI closed a public offering of 17,826,087 shares
of its common stock, as well as 20,475,000 Series S warrants, for net
proceeds of approximately $16,424,000, after deduction for underwriting
discounts and commissions. The Series S warrants may be exercised at any
time prior to October 11, 2018 at a price of $1.25 per share.
On December 24, 2013, CEL-SCI closed a public offering of 4,761,905 units
of common stock and warrants at a price of $0.63 per unit for net proceeds
of $2,790,000, net of underwriting discounts and commissions and offering
expenses of the Company. Each unit consisted of one share of common stock
and one Series S warrant to purchase one share of common stock. The Series
S warrants may be exercised at any time prior to October 11, 2018 at a
price of $1.25 per share. In addition, the underwriters purchased 476,190
units of common stock and warrants pursuant to the overallotment option,
for which the Company received net proceeds of approximately $279,000.
On February 7, 2014, the Series S warrants issued in connection with the
public offerings in October and December 2013 began trading on the NYSE MKT
under the ticker symbol "CVM WS".
On October 21, 2014, the Company sold 1,320,000 shares of common stock and
330,000 warrants to purchase shares of common stock in a private offering.
Additionally, on October 24, 2014, the Company closed an underwritten
public offering of 7,894,737 shares of common stock and 1,973,684 Series S
warrants to purchase shares of common stock at a combined per unit price of
$0.76 for net proceeds of approximately $6.4 million, net of underwriting
discounts and commissions and offering expenses. The Series S warrants may
be exercised at a price of $1.25 and expire on October 11, 2018.
As of July 31, 2015, 2,088,769 Series S Warrants had been exercised, and
the Company received proceeds of $2,610,961. The remaining 25,928,010
Series S warrants entitle the holders to purchase one share of CEL-SCI's
common stock at a price of $1.25 per share.
I. On April 17, 2014, CEL-SCI closed a public offering of 7,128,229 shares of
common stock and warrants to purchase an aggregate of 1,782,057 shares of
common stock. The units were sold at a price of $1.40 per unit and resulted
in net proceeds of approximately $9.23 million. The warrants were
immediately exercisable at $1.58 per share and expire on October 17, 2014.
On October 17, 2014, all the Series T Warrants expired.
44
CEL-SCI issued Dawson James Securities, Inc. and Laidlaw & Company (UK)
Ltd. 445,514 Series U warrants for being joint book-running managers and
underwriters for this offering. Each Series U warrant entitles the holder
to purchase one share of CEL-SCI's common stock. The Series U warrants were
exercisable on October 17, 2014 at a price of $1.75 per share and expire on
October 17, 2017. As of July 31, 2015, none of the Series U warrants had
been exercised.
J. On May 28, 2015, CEL-SCI closed a best efforts public offering of
20,253,164 shares of common stock and 20,253,164 Series V warrants to
purchase shares of common stock. The common stock and warrants were sold at
a combined price of $0.79 and resulted in aggregate gross proceeds of $16
million, prior to deducting placement agent commissions and offering
expenses. The warrants are immediately exercisable, expire May 28, 2020 and
have an exercise price of $0.79 per share. As of June 30July 31, 2015, none
of the Series V warrants had been exercised.
MARKET FOR CEL-SCI'S COMMON STOCK
Our common stock is publicly traded on the NYSE MKT under the symbol "CVM".
The following table sets forth, for the periods indicated, the high and low
intraday sale prices of our common stock as reported by the NYSE MKT.
HIGH LOW
---- ----
FY 2015
Fourth Quarter (through July 31, 2015) $0.74 $0.53
Third Quarter (through June 30, 2015) $1.09 $0.59
Second Quarter (through March 31, 2015) $1.23 $0.59
First Quarter (through December 31, 2014) $0.91 $0.54
FY 2014
Fourth Quarter (through September 30, 2014) $1.30 $0.75
Third Quarter (through June 30, 2014) $1.72 $0.98
Second Quarter (through March 31, 2014) $1.90 $0.59
First Quarter (through December 31, 2013) $1.80 $0.53
FY 2013(1)
Fourth Quarter (through September 30, 2013) $2.70 $1.60
Third Quarter (through June 30, 2013) $3.10 $2.00
Second Quarter (through March 31, 2013) $2.90 $2.10
First Quarter (through December 31, 2012) $3.90 $2.60
1) The numbers shown for FY 2013 are adjusted for a 1-for-10 reverse stock
split effected on September 25, 2013.
As of July 31, 2015, there were 112,061,222 outstanding shares of our
common stock outstanding held by approximately 1,300 holders of record.
Holders of common stock are entitled to receive dividends as may be
declared by the Board of Directors out of legally available funds and, in the
45
event of liquidation, to share pro rata in any distribution of CEL-SCI's assets
after payment of liabilities. The Board of Directors is not obligated to declare
a dividend. CEL-SCI has not paid any dividends on its common stock and CEL-SCI
does not have any current plans to pay any common stock dividends.
The provisions in CEL-SCI's Articles of Incorporation relating to CEL-SCI's
preferred stock would allow CEL-SCI's directors to issue preferred stock with
rights to multiple votes per share and dividend rights which would have priority
over any dividends paid with respect to CEL-SCI's common stock. The issuance of
preferred stock with such rights may make more difficult the removal of
management, even if such removal would be considered beneficial to shareholders
generally, and will have the effect of limiting shareholder participation in
certain transactions such as mergers or tender offers if such transactions are
not favored by incumbent management.
The market price of CEL-SCI's common stock, as well as the securities of
other biopharmaceutical and biotechnology companies, have historically been
highly volatile, and the market has from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance of
particular companies. Factors such as fluctuations in CEL-SCI's operating
results, announcements of technological innovations or new therapeutic products
by CEL-SCI or its competitors, governmental regulation, developments in patent
or other proprietary rights, public concern as to the safety of products
developed by CEL-SCI or other biotechnology and pharmaceutical companies, and
general market conditions may have a significant effect on the market price of
CEL-SCI's common stock.
SELLING SHAREHOLDERS
CEL-SCI has issued (or may in the future issue) shares of its common stock
to various persons pursuant to certain employee compensation plans adopted by
CEL-SCI. The employee compensation plans provide for the grant or issuance to
selected employees of CEL-SCI and other persons of shares of CEL-SCI's common
stock or options to purchase shares of CEL-SCI's common stock. Persons who
received shares pursuant to the Plans and who are offering such shares to the
public by means of this Prospectus are referred to as the "Selling
Shareholders".
CEL-SCI has adopted a number of Stock Option, Stock Bonus and Stock
Compensation Plans. A summary description of these Plans follows. In some cases
these Plans are collectively referred to as the "Plans".
Incentive Stock Option Plans. CEL-SCI has Incentive Stock Option Plans
which authorize the issuance of shares of CEL-SCI's Common Stock to persons that
exercise options granted pursuant to the Plan. Only Company employees may be
granted options pursuant to the Incentive Stock Option Plan.
Non-Qualified Stock Option Plans. CEL-SCI has Non-Qualified Stock Option
Plans which authorize the issuance of shares of CEL-SCI's Common Stock to
persons that exercise options granted pursuant to the Plans. CEL-SCI's
employees, directors, officers, consultants and advisors are eligible to be
granted options pursuant to the Plans, provided however that bona fide services
must be rendered by such consultants or advisors and such services must not be
in connection with the offer or sale of securities in a capital-raising
transaction. The option exercise price is determined by the Committee on the
date the option is granted.
46
Stock Bonus Plans. CEL-SCI has Stock Bonus Plans which allow for the
issuance of shares of Common Stock to its employees, directors, officers,
consultants and advisors. However bona fide services must be rendered by the
consultants or advisors and such services must not be in connection with the
offer or sale of securities in a capital-raising transaction.
Stock Compensation Plans. CEL-SCI's Stock Compensation Plans provides for
the issuance of shares of its common stock to officers, directors and employees
of CEL-SCI, as well as consultants to CEL-SCI, that agree to receive shares of
CEL-SCI's common stock in lieu of all or part of the compensation owed to them
by CEL-SCI. However, bona fide services must be rendered by consultants and the
services must not be in connection with the offer or sale of securities in a
capital-raising transaction.
2014 Incentive Stock Bonus Plan. CEL-SCI's 2014 Incentive Stock Bonus Plan
provides for the issuance of shares of its common stock to officers, directors
and employees of CEL-SCI as well as consultants to CEL-SCI when CEL-SCI reaches
certain performance goals which are established from time to time by CEL-SCI's
board of directors. The primary purpose of the plan is to 1) align the interests
of those Company employees whose work is essential to the Company's ability to
commercialize its patented Multikine technology with those of the Company's
shareholders through performance based compensation and 2) to tie these key
employees to the Company for the rest of the foreseeable drug development phase
of Multikine.
On August 6, 2014 CEL-SCI's board of directors granted stock awards
("Awarded Shares") pursuant to the 2014 Incentive Stock Bonus Plan to the
persons (the "Grantees") and in the amounts shown below.
Grantee Awarded Shares (1)
-------- ------------------
Geert Kersten 5,800,000
Eyal Talor 3,100,000
Patricia Prichep 3,100,000
John Cipriano 1,600,000
(1) The Awarded Shares (or a portion of the shares) will only be earned based
upon the achievement of certain significant milestones leading to the
commercialization of CEL-SCI's Multikine technology or significant
increases in the market price of CEL-SCI's common shares.
Upon the achievement of the following performance goals, a percentage of
the Awarded Shares will be earned by the Grantees and will no longer be subject
to being forfeited to CEL-SCI.
i. Upon either (a) the enrollment of 350 patients in the Phase 3 head and
neck cancer study or (b) the closing price of a share of CEL-SCI's
common stock on the primary exchange on which such common stock is
then traded exceeds $3.50 for ten consecutive trading days, each
Grantee shall earn 25% of the Awarded Shares.
ii. Upon either (a) the full enrollment of patients in the Phase 3 head
and neck cancer study or (b) the start of a pivotal clinical trial for
47
Multikine (Leukocyte Interleukin, Injection) (the "Proprietary
Technology") in a disease indication other than head and neck cancer
or (c) the closing price of a share of CEL-SCI's common stock on the
primary exchange on which the common stock is then traded exceeds
$6.00 for ten consecutive trading days, each Grantee will earn 50% of
the Awarded Shares, less any of the Awarded Shares previously earned.
iii. Upon either (a) the end of the Phase 3 head and neck cancer study or
any other pivotal study involving the Proprietary Technology, or (b)
the closing price of a share of CEL-SCI's common stock on the primary
exchange on which the common stock is then traded exceeds $9.00 for
ten consecutive trading days, each Grantee will earn 75% of the
Awarded Shares, less any of the Awarded Shares previously earned.
iv. Upon either (a) the filing of the first marketing application for any
pharmaceutical based upon the Proprietary Technology in any of the
USA, Canada, UK, Germany, France, Italy, Spain, Japan, or Australia,
or (b) the closing price of a share of CEL-SCI's common stock on the
primary exchange on which the common stock is then traded exceeds
$12.00 for ten consecutive trading days, each Grantee will earn 100%
of the Awarded Shares, less any of the Awarded Shares previously
earned.
The stock price per share will be proportionately adjusted in the event of
any stock splits, stock dividends; recapitalizations or similar events.
The Grantees may not sell, convey, transfer, pledge, encumber or otherwise
dispose of the Awarded Shares until the shares are earned.
If the Grantee has not earned any part of the Awarded Shares as of August
6, 2017, all Awarded Shares will be forfeited and returned to CEL-SCI.
The Grantees will forfeit and return to CEL-SCI all Awarded Shares that
have not been earned as of August 5, 2024.
Notwithstanding the above, upon the occurrence of a Level One Change in
Control, all Awarded Shares which have not previously been earned will vest and
all restrictions pertaining to the Awarded Shares (other than as may be provided
by applicable securities laws) which have not previously been earned will lapse.
Upon the occurrence of a Level Two Change in Control, if during the period
commencing on the date that is 12 months prior to the occurrence of the Level
Two Change in Control and ending on the date that is 48 months following the
Level Two Change in Control, the Grantee's employment with the Company is
terminated, other than for Cause, or the Grantee terminates his employment on
account of Good Reason, all Awarded Shares will vest and all restrictions
pertaining to the Awarded Shares (other than as may be provided by applicable
securities laws) will lapse.
(i) A Level One Change in Control will occur upon (a) the acquisition by
any individual, entity or group of beneficial owners (within the
meaning of Rule 13d-3 of the Securities and Exchange Commission) of
50% or more of either (1) the then outstanding shares of the common
stock of the Company, or (2) the combined voting power of the then
48
outstanding voting securities of CEL-SCI entitled to vote in the
election of directors or (b) a majority of the Board consisting of
persons who were not nominated or appointed in the first instance by
the Board.
(ii) A Level Two Change in Control will occur upon acquisition by any
individual, entity or group of beneficial ownership (within the
meaning of Rule 13d-3 of the Securities and Exchange Commission) of
20% or more of either (1) the then outstanding shares of CEL-SCI's
common stock, or (2) the combined voting power of CEL-SCI's then
outstanding voting securities entitled to vote in the election of
directors.
(iii) Cause means (a) conviction of, or pleas of nolo contendere, by the
Grantee for a felony or dishonesty while performing his employment
duties, (b) a Grantee's violation of any non-competition,
non-solicitation, confidentiality or other restrictive covenant
agreement applicable to the Grantee or (c) the Grantee's continued
failure to materially carry out his duties as an employee which
failure has not been cured within 30 days after the Grantee receives
written notice of such failure.
(iv) Good Reason means (a) a reduction in compensation (including benefits)
of the Grantee or (b) the Grantee being assigned any duties which are
materially inconsistent with the duties of the Grantee immediately
prior to the occurrence of the Level Two Change in Control or (c) the
office at which the Grantee performs his duties is more than 10 miles
from the office at which the Grantee performed his duties immediately
prior to the occurrence of the Level Two Change in Control.
Summary. The following lists, as of July 31, 2015 the options and shares
granted pursuant to the Plans. Each option represents the right to purchase one
share of CEL-SCI's common stock.
Total Shares Shares
Shares Reserved for Issued as Remaining
Reserved Outstanding Stock Bonus/ Options/Shares
Name of Plan Under Plans Options Compensation Under Plans
------------ ----------- ------- ------------ -----------
Incentive Stock Option
Plans 1,960,000 1,708,331 N/A 5,969
Non-Qualified Stock Option
Plans 7,680,000 5,879,269 N/A 1,215,979
Stock Bonus Plans 3,594,000 N/A 1,504,418 2,088,755
Stock Compensation Plans 3,350,000 N/A 1,316,949 2,000,000
2014 Incentive Stock Bonus
Plan 16,000,000 N/A 15,600,000 400,000
Shares issuable upon the exercise of options granted to CEL-SCI's officers
and directors pursuant to the Incentive Stock Option and Non-Qualified Stock
Option Plans, as well as shares issued pursuant to the Stock Bonus Plans, 2014
Incentive Stock Bonus Plan and Stock Compensation Plans, are being offered by
means of this Prospectus. Certain options were granted in accordance with
CEL-SCI's Salary Reduction Plan. Pursuant to the Salary Reduction Plan, any
employee of CEL-SCI was allowed to receive options (exercisable at market price
at time of grant) in exchange for a reduction in such employee's salary. The
49
following table lists the shareholdings of CEL-SCI's officers and directors and
the shares offered by means of this Prospectus as of July 31, 2015.
Number of Shares Being Offered Number of
------------------------------ shares which
Name of Stock will be owned Percent
Selling Number of Option Bonus Compensation on completion of
Shareholder Shares Owned Shares (2) Shares Shares of the Offering Class
----------- ------------ --------- ------ ------ --------------- -----
Maximilian de Clara 25,123 995,825 -- -- 25,123 *
Geert R. Kersten 3,039,338 6,818,210 5,800,000 -- 8,839,338 7.9
Patricia B. Prichep 144,580 815,230 3,100,000 -- 3,244,580 2.9
Eyal Talor, Ph.D. 95,055 735,272 3,100,000 -- 3,195,055 2.8
Daniel H. Zimmerman, Ph.D. 88,844 508,400 -- -- 88,844 *
John Cipriano 14,618 155,600 1,600,000 -- 1,614,618 1.4
Alexander G. Esterhazy 23,316 463,733 -- -- 23,316 *
Peter R. Young, Ph.D. 29,776 524,000 -- -- 29,776 *
Bruno Baillavoine -- 125,000 -- -- -- *
* Less than 1%.
(1) Includes shares held in trusts for the benefit of Mr. Kersten's children
and shares held in the de Clara Trust, for which Mr. Kersten is a trustee
and beneficiary.
(2) Represents shares issued or issuable upon exercise of stock options,
convertible note, warrants and Series S warrants. The options held by
CEL-SCI's officers and directors are exercisable at prices of between $0.53
and $6.90 per share. Includes warrants and a convertible note held in the
de Clara Trust, for which Mr. Kersten is a trustee and beneficiary.
Mr. de Clara and Mr. Kersten are both officers and directors of CEL-SCI.
Mr. Esterhazy, Mr. Young and Mr. Baillavoine are directors of CEL-SCI. The other
persons in the foregoing table are officers of CEL-SCI.
Each Selling Shareholder has represented that the Shares were purchased for
investment and with no present intention of distributing or reselling such
Shares. However, in recognition of the fact that holders of restricted
securities may wish to be legally permitted to sell their Shares when they deem
appropriate, CEL-SCI has filed with the Commission under the Securities Act of
1933 a Form S-8 registration statement of which this Prospectus forms a part
with respect to the resale of the Shares from time to time in the
over-the-counter market or in privately negotiated transactions.
Certain of the Selling Shareholders, their associates and affiliates may
from time to time be employees of, customers of, engage in transactions with,
and/or perform services for CEL-SCI or its subsidiaries in the ordinary course
of business.
50
PLAN OF DISTRIBUTION
CEL-SCI may sell shares of its common stock, preferred stock, convertible
preferred stock, promissory notes, convertible notes or warrants in and/or
outside the United States: (i) through underwriters or dealers; (ii) directly to
a limited number of purchasers or to a single purchaser; or (iii) through
agents. The applicable prospectus supplement with respect to the offered
securities will set forth the name or names of any underwriters or agents, if
any, the purchase price of the offered securities and the proceeds to CEL-SCI
from such sale, any delayed delivery arrangements, any underwriting discounts
and other items constituting underwriters' compensation, any initial public
offering price and any discounts or concessions allowed or reallowed or paid to
dealers and any compensation paid to a placement agent. Any initial public
offering price and any discounts or concessions allowed or reallowed or paid to
dealers may be changed from time to time.
Notwithstanding the above, the maximum commission or discount to be
received by any NASD member or independent broker-dealer will not be greater
than 10% in connection with the sale of any securities offered by means of this
prospectus or any related prospectus supplement, exclusive of any
non-accountable expense allowance. Any securities issued by CEL-SCI to any FINRA
member or independent broker-dealer in connection with an offering of CEL-SCI's
securities will be considered underwriting compensation and may be restricted
from sale, transfer, assignment, or hypothecation for a number of months
following the effective date of the offering, except to officers or partners
(not directors) of any underwriter or member of a selling group and/or their
officers or partners.
CEL-SCI's securities may be sold:
o At a fixed price.
o As the result of the exercise of warrants or the conversion of
preferred shares, and at fixed or varying prices, as determined by the
terms of the warrants, or convertible securities.
o At varying prices in at the market offerings.
o In privately negotiated transactions, at fixed prices which may be
changed, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices.
If underwriters are used in the sale, the offered securities will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of sale.
The securities may be offered to the public either through underwriting
syndicates represented by one or more managing underwriters or directly by one
or more firms acting as underwriters. The underwriter or underwriters with
respect to a particular underwritten offering of securities to be named in the
prospectus supplement relating to such offering and, if an underwriting
syndicate is used, the managing underwriter or underwriters will be set forth on
the cover of such prospectus supplement. Unless otherwise set forth in the
prospectus supplement, the obligations of the underwriters to purchase the
51
offered securities will be subject to conditions precedent and the underwriters
will be obligated to purchase all the offered securities if any are purchased.
If dealers are utilized in the sale of offered securities in respect of
which this prospectus is delivered, CEL-SCI will sell the offered securities to
the dealers as principals. The dealers may then resell the offered securities to
the public at varying prices to be determined by the dealers at the time of
resale. The names of the dealers and the terms of the transaction will be set
forth in the prospectus supplement relating to the securities sold to the
dealers.
If an agent is used in an offering of offered securities, the agent will be
named, and the terms of the agency will be set forth, in the prospectus
supplement. Unless otherwise indicated in the prospectus supplement, an agent
will act on a best efforts basis for the period of its appointment.
The securities may be sold directly by CEL-SCI to institutional investors
or others, who may be deemed to be underwriters within the meaning of the
Securities Act with respect to any resale of the securities purchased by the
institutional investors. The terms of any of the sales, including the terms of
any bidding or auction process, will be described in the applicable prospectus
supplement.
CEL-SCI may permit agents or underwriters to solicit offers to purchase its
securities at the public offering price set forth in a prospectus supplement
pursuant to a delayed delivery arrangement providing for payment and delivery on
the date stated in the prospectus supplement. Any delayed delivery contract,
when issued, will contain definite fixed price and quantity terms. The
obligations of any purchaser pursuant to a delayed delivery contract will not be
subject to any market outs or other conditions other than the condition that the
delayed delivery contract will not violate applicable law. In the event the
securities underlying the delayed delivery contract are sold to underwriters at
the time of performance of the delayed delivery contract, those securities will
be sold to those underwriters. Each delayed delivery contract shall be subject
to CEL-SCI's approval. CEL-SCI will pay the commission indicated in the
prospectus supplement to underwriters or agents soliciting purchases of
securities pursuant to delayed delivery arrangements accepted by CEL-SCI.
Notwithstanding the above, while prospectus supplements may provide
specific offering terms, or add to or update information contained in this
prospectus, any fundamental changes to the offering terms will be made by means
of a post-effective amendment.
Agents, dealers and underwriters may be entitled under agreements entered
into with CEL-SCI to indemnification from CEL-SCI against certain civil
liabilities, including liabilities under the Securities Act, or to contribution
with respect to payments made by such agents, dealers or underwriters.
DESCRIPTION OF SECURITIES
Common Stock
CEL-SCI is authorized to issue 600,000,000 shares of common stock, (the
"common stock"). Holders of common stock are each entitled to cast one vote for
52
each share held of record on all matters presented to shareholders. Cumulative
voting is not allowed; hence, the holders of a majority of the outstanding
common stock can elect all directors.
Holders of common stock are entitled to receive such dividends as may be
declared by the Board of Directors out of funds legally available therefor and,
in the event of liquidation, to share pro rata in any distribution of CEL-SCI's
assets after payment of liabilities. The board is not obligated to declare a
dividend. It is not anticipated that dividends will be paid in the foreseeable
future.
Holders of common stock do not have preemptive rights to subscribe to
additional shares if issued by CEL-SCI. There are no conversion, redemption,
sinking fund or similar provisions regarding the common stock. All of the
outstanding shares of common stock are fully paid and non-assessable and all of
the shares of common stock offered as a component of the Units will be, upon
issuance, fully paid and non-assessable.
Preferred Stock
CEL-SCI is authorized to issue up to 200,000 shares of preferred stock.
CEL-SCI's Articles of Incorporation provide that the Board of Directors has the
authority to divide the preferred stock into series and, within the limitations
provided by Colorado statute, to fix by resolution the voting power,
designations, preferences, and relative participation, special rights, and the
qualifications, limitations or restrictions of the shares of any series so
established. As the Board of Directors has authority to establish the terms of,
and to issue, the preferred stock without shareholder approval, the preferred
stock could be issued to defend against any attempted takeover of CEL-SCI. As of
July 31, 2015 no shares of preferred stock were outstanding.
Rights Agreement
----------------
In November 2007, CEL-SCI declared a dividend of one Series A Right and one
Series B Right, or collectively the Rights, for each share of CEL-SCI's common
stock which was outstanding on November 9, 2007. When the Rights become
exercisable, each Series A Right will entitle the registered holder, subject to
the terms of a Rights Agreement, to purchase from CEL-SCI one share of CEL-SCI's
common stock at a price equal to 20% of the market price of CEL-SCI's common
stock on the exercise date, although the price may be adjusted pursuant to the
terms of the Rights Agreement. If after a person or group of affiliated persons
has acquired 15% or more of CEL-SCI's common stock or following the commencement
of a tender offer for 15% or more of CEL-SCI's outstanding common stock (i)
CEL-SCI is acquired in a merger or other business combination and CEL-SCI is not
the surviving corporation, (ii) any person consolidates or merges with CEL-SCI
and all or part of CEL-SCI's common shares are converted or exchanged for
securities, cash or property of any other person, or (iii) 50% or more of
CEL-SCI's consolidated assets or earning power are sold, proper provision will
be made so that each holder of a Series B Right will thereafter have the right
to receive, upon payment of the exercise price of $100 (subject to adjustment),
that number of shares of common stock of the acquiring company which at the time
of such transaction has a market value that is twice the exercise price of the
Series B Right.
53
The description and terms of the Rights are set forth in a Rights Agreement
between the Company and Computershare Trust Company, N.A., as Rights Agent.
Distribution of Rights
----------------------
Initially, stockholders will not receive separate certificates for the
Rights as the Rights will be represented by outstanding common stock
certificates. Until the exercise date, the Rights cannot be bought, sold or
otherwise traded separately from the common stock. Certificates for common stock
will carry a notation that indicates that Rights are attached to the common
stock and incorporate the terms of the Rights Agreement.
Separate certificates representing the Rights will be distributed as soon
as practicable after the earliest to occur of:
o 15 business days following a public announcement that a person or
group of affiliated or associated persons has acquired beneficial
ownership of 15% or more of CEL-SCI's outstanding common stock, or
o 15 business days (or such later date as may be determined by action of
CEL-SCI's board of directors prior to such time as any person or group
of affiliated persons has acquired 15% or more of CEL-SCI's common
stock) following the commencement of, or announcement of an intention
to make, a tender offer or exchange offer the consummation of which
would result in the beneficial ownership by a person or group of 15%
or more of such outstanding common stock.
The earlier of such dates described above is called the "distribution
date."
Until the distribution date (or earlier redemption or expiration of the
Rights), the surrender for transfer of any certificates for common stock
outstanding as of the record date, even without such notation, will also
constitute the transfer of the Rights associated with the common stock
represented by such certificate. As soon as practicable following the
distribution date, separate certificates evidencing the Rights will be mailed to
holders of record of the common stock as of the close of business on the
distribution date and such separate right certificates alone will evidence the
Rights.
Exercise and Expiration
-----------------------
The holders of the Rights are not required to take any action until the
Rights become exercisable. The Rights are not exercisable until the distribution
date. Holders of the Rights will be notified by CEL-SCI that the Rights have
become exercisable. The Rights will expire on October 30, 2015, unless the
expiration date is extended or unless the Rights are earlier redeemed by CEL-SCI
as described below.
Redemption
----------
At any time prior to the distribution date, CEL-SCI's board of directors
may redeem the Rights in whole, but not in part, at a price of $0.0001 per
54
Right. Subject to the foregoing, the redemption of the Rights may be made
effective at such time, on such basis and with such conditions as CEL-SCI's
board of directors in its sole discretion may establish. Immediately upon any
redemption of the Rights, the right to exercise the Rights will terminate and
the only entitlement of the holders of Rights will be to receive the redemption
price.
Exchange Option
---------------
At any time after a person or group of affiliated persons has acquired 15%
or more of CEL-SCI's common stock or following the commencement of a tender
offer for 15% or more of CEL-SCI's outstanding common stock, and prior to the
acquisition by such person of 50% or more of the outstanding common stock,
CEL-SCI's board of directors may exchange the Rights (other than Rights owned by
such person or group which have become void), in whole or in part, at an
exchange ratio of one share of common stock per Right (subject to adjustment).
Warrants Held by Private Investors
See "Comparative Share Data" for information concerning CEL-SCI's
outstanding options, warrants and convertible securities.
Transfer Agent
Computershare Trust Company, Inc., of Denver, Colorado, is the transfer
agent for CEL-SCI's common stock.
55
PLAN PROSPECTUS
CEL-SCI Corporation
8229 Boone Blvd., Suite 802
Vienna, Virginia 22314
(703) 506-9460
COMMON STOCK
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus relates to shares of the Common Stock of CEL-SCI
Corporation ("the Company") issuable pursuant to certain employee compensation
plans adopted by the Company. The employee compensation plans provide for the
issuance, to selected employees of the Company and other persons, of either
shares of the Company's common stock or options to purchase shares of the
Company's Common Stock. The employee compensation plans benefit the Company by
giving selected employees and other persons having a business relationship with
the Company a greater personal interest in the success of the Company.
Shares of Common Stock reserved under the Company's Incentive Stock Option
Plans are offered to those employees of the Company who hold options (or may in
the future hold options) to purchase such shares granted by the Company pursuant
to the Incentive Stock Option Plans.
Shares of Common Stock reserved under the Company's Non-Qualified Stock
Option Plans are offered to those persons who hold options (or may in the future
hold options) to purchase such shares granted by the Company pursuant to the
Non-Qualified Stock Option Plans.
Shares of Common Stock reserved under the Stock Bonus Plans, or the 2014
Incentive Stock Bonus Plan, are offered to those persons granted, or may in the
future be granted, shares of Common Stock pursuant to the Stock Bonus Plans.
This prospectus also relates to shares of the Company's common stock
issuable pursuant to the Company's Stock Compensation Plans. The Stock
Compensation Plans provide for the issuance of shares of the Company's common
stock to its officers, directors and employees, as well as consultants, that
agree to receive shares of the Company's common stock in lieu of all or part of
the compensation owed to them by the Company.
This document constitutes part of a Prospectus covering securities that
have been registered under the Securities Act of 1933.
The date of this Prospectus is ___________, 2015
1
The Company's Stock Option Plans, Non-Qualified Stock Option Plans, Stock
Bonus Plans, Stock Compensation Plan and 2014 Incentive Stock Bonus Plan are
sometimes collectively referred to in this Prospectus as "the Plans". The terms
and conditions of any stock grant and the terms and conditions of any options,
including the price of the shares of Common Stock issuable on the exercise of
options, are governed by the provisions of the respective Plans and any
particular agreements between the Company and the Plan participants.
Offers or resales of shares of Common Stock acquired under the Plan by
"affiliates" of the Company are subject to certain restrictions under the
Securities Act of l933. See "RESALE OF SHARES BY AFFILIATES".
No person has been authorized to give any information, or to make any
representations, other than those contained in this Prospectus, in connection
with the shares offered by this Prospectus, and if given or made, such
information or representations must not be relied upon. This Prospectus does not
constitute an offering in any state or jurisdiction to any person to whom it is
unlawful to make such offer in such state or jurisdiction.
The Company's Common Stock is traded on the NYSE MKT under the symbol CVM.
With respect to the Company's Plans, the shares to which this prospectus
relates will be sold from time to time by the Company when and if options
granted pursuant to the Plans are exercised. In the case of shares issued by the
Company pursuant to the Stock Bonus Plans and 2014 Incentive Stock Bonus Plan,
the shares will be deemed to be sold when the shares have been granted by the
Company.
2
TABLE OF CONTENTS
Page
----
AVAILABLE INFORMATION............................................... 4
DOCUMENTS INCORPORATED BY REFERENCE................................. 4
GENERAL INFORMATION................................................. 5
INCENTIVE STOCK OPTION PLANS........................................ 8
NON-QUALIFIED STOCK OPTION PLANS.................................... 10
STOCK BONUS PLANS................................................... 11
STOCK COMPENSATION PLANS ........................................... 12
2014 INCENTIVE STOCK BONUS PLAN .................................... 13
OTHER INFORMATION REGARDING THE PLANS............................... 14
ADMINISTRATION OF THE PLANS......................................... 14
RESALE OF SHARES BY AFFILIATES...................................... 15
AMENDMENT, SUSPENSION OR TERMINATION OF THE PLANS................... 15
DESCRIPTION OF COMMON STOCK......................................... 15
EXHIBITS:
Each Plan referred to in this Prospectus.
3
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of l934 and in accordance therewith files reports, proxy
statements, and other information with the Securities and Exchange Commission.
Such reports, proxy statements, and other information concerning the Company can
be inspected at the Commission's office at 100 F Street, NE, Washington, D.C.
20549. Copies of such material can be obtained from the Public Reference Section
of the Commission, Washington, D.C. 20549 at prescribed rates. Certain
information concerning the Company is also available at the Internet Web Site
maintained by the Securities and Exchange Commission at www.sec.gov.
All documents incorporated by reference, as well as other information
concerning the Plans, other than exhibits to such reports and documents, are
available, free of charge to holders of shares or options granted pursuant to
the Plans, upon written or oral request directed to: the (Attention: Employee
Plan Administrator), 8229 Boone Blvd., Suite 802, Vienna, Virginia 22182, (703)
506-9460.
This Prospectus does not contain all information set forth in the
Registration Statement, of which this Prospectus is a part, which the Company
has filed with the Commission under the Securities Act of l933 and to which
reference is hereby made. Each statement contained in this Prospectus is
qualified in its entirety by such reference.
DOCUMENTS INCORPORATED BY REFERENCE
The following document filed with the Commission by CEL-SCI (Commission
File No. 001-11889 is incorporated by reference into this prospectus:
(1) Annual report on Form 10-K for the year ended September 30, 2014.
(2) Quarterly report on Form 10-Q for the quarter ended December 31, 2014.
(3) Amended annual report on Form 10-K/A for the year ended September 30,
2014.
(4) Proxy Statement relating to the annual meeting of shareholders held on
June 22, 2015.
(5) Quarterly report on Form 10-Q for the quarter ended March 31, 2015.
(6) Amended annual report on Form 10-K/A for the year ended September 30,
2014.
(7) 8-K reports filed on:
o February 18, 2015;
o March 18, 2015;
o April 2, 2015;
o May 11, 2015;
o May 13, 2015;
o May 26, 2015;
o May 29, 2015;
o June 23, 2015;
o June 30, 2015; and
o July 1, 2015
4
(8) Quarterly report on Form 10-Q for the quarter ended June 30, 2015.
All documents filed with the Commission by CEL-SCI pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
prospectus and prior to the termination of this offering shall be deemed to be
incorporated by reference into this prospectus and to be a part of this
prospectus from the date of the filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
shall be deemed to be modified or superseded for the purposes of this prospectus
to the extent that a statement contained in this prospectus or in any
subsequently filed document which also is or is deemed to be incorporated by
reference in this prospectus modifies or supersedes such statement. Such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this prospectus.
Investors are entitled to rely upon information in this prospectus or
incorporated by reference at the time it is used by CEL-SCI to offer and sell
securities, even though that information may be superseded or modified by
information subsequently incorporated by reference into this prospectus.
CEL-SCI has filed with the Securities and Exchange Commission a
Registration Statement under the Securities Act of l933, as amended, with
respect to the securities offered by this prospectus. This prospectus does not
contain all of the information set forth in the Registration Statement. For
further information with respect to CEL-SCI and such securities, reference is
made to the Registration Statement and to the exhibits filed with the
Registration Statement. Statements contained in this prospectus as to the
contents of any contract or other documents are summaries which are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. The
Registration Statement and related exhibits may also be examined at the
Commission's internet site.
The Company does not intend to update this Prospectus in the future unless
and until there is a material change in the information contained herein.
GENERAL INFORMATION
In some cases the plans described below are collectively referred to as the
"Plans". The terms and conditions of any stock issuance and the terms and
conditions of any options, including the price of the shares of Common Stock
issuable on the exercise of options, are governed by the provisions of the
respective Plans and the agreements between the Company and the Plan
participants. A summary of the Company's Plans follows.
Incentive Stock Option Plans. The Company has Incentive Stock Option Plans
which authorize the issuance of shares of its Common Stock to persons that
exercise options granted pursuant to the Plans. Only Company employees may be
granted options pursuant to the Incentive Stock Option Plan.
Non-Qualified Stock Option Plans. The Company has Non-Qualified Stock
Option Plans which authorize the issuance of shares of its Common Stock to
persons that exercise options granted pursuant to the Plans. The Company's
employees, directors, officers, consultants and advisors are eligible to be
granted options pursuant to the Plans, provided however that bona fide services
must be rendered by such consultants or advisors and such services must not be
5
in connection with the offer or sale of securities in a capital-raising
transaction. The option exercise price is determined by the Committee on the
date the option is granted.
Stock Bonus Plans. The Company has Stock Bonus Plans which allow for the
issuance of shares of Common Stock to its employees, directors, officers,
consultants and advisors. However bona fide services must be rendered by the
consultants or advisors and such services must not be in connection with the
offer or sale of securities in a capital-raising transaction.
Stock Compensation Plans. The Company's Stock Compensation Plans provide
for the issuance of shares of its common stock to its officers, directors and
employees, as well as consultants, that agree to receive shares of common stock
in lieu of all or part of the compensation owed to them by the Company.
2014 Incentive Stock Bonus Plan. The Company's 2014 Incentive Stock Bonus
Plan provides for the issuance of shares of its common stock to officers,
directors and employees of the Company, as well as consultants to the Company
when the Company reaches certain performance goals. The primary purpose of the
plan is to 1) align the interests of those Company employees whose work is
essential to the Company's ability to commercialize its patented Multikine
technology with those of the Company's shareholders through performance based
compensation; and 2) to tie these key employees to the Company for the rest of
the foreseeable drug development phase of Multikine.
Summary. The following lists, as of July 31, 2015 the options and shares
granted pursuant to the Plans. Each option represents the right to purchase one
share of CEL-SCI's common stock.
Total Shares Shares
Shares Reserved for Issued as Remaining
Reserved Outstanding Stock Bonus/ Options/Shares
Name of Plan Under Plans Options Compensation Under Plans
------------ ----------- ------- ------------ -----------
Incentive Stock Option
Plans 1,960,000 1,708,331 N/A 5,969
Non-Qualified Stock Option
Plans 7,680,000 5,879,269 N/A 1,215,979
Stock Bonus Plans 3,594,000 N/A 1,504,418 2,088,755
Stock Compensation Plans 3,350,000 N/A 1,316,949 2,000,000
2014 Incentive Stock Bonus
Plan 16,000,000 N/A 15,600,000 400,000
Shares issuable upon the exercise of options granted to CEL-SCI's officers
and directors pursuant to the Incentive Stock Option and Non-Qualified Stock
Option Plans, as well as shares issued pursuant to the Stock Bonus Plans, 2014
Incentive Stock Bonus Plan and Stock Compensation Plan, are being offered by
means of this Prospectus. Certain options were granted in accordance with
CEL-SCI's Salary Reduction Plan. Pursuant to the Salary Reduction Plan, any
employee of CEL-SCI was allowed to receive options (exercisable at market price
at time of grant) in exchange for a reduction in such employee's salary.
6
INCENTIVE STOCK OPTION PLANS
Securities to be Offered and Persons Who May Participate in the Plans
All employees of the Company are eligible to be granted options pursuant to
the Plans as may be determined by the Company's Board of Directors which
administers the Plans.
Options granted pursuant to the Plans terminate at such time as may be
specified when the option is granted.
The total fair market value of the shares of Common Stock (determined at
the time of the grant of the option) for which any employee may be granted
options which are first exercisable in any calendar year may not exceed
$100,000.
In the discretion of the Board of Directors, options granted pursuant to
the Plans may include installment exercise terms for any option such that the
option becomes fully exercisable in a series of cumulating portions. The Board
of Directors may also accelerate the date upon which any option (or any part of
any option) is first exercisable. However, no option, or any portion thereof may
be exercisable until one year following the date of grant. In no event shall an
option granted to an employee then owning more than l0% of the Common Stock of
the Company be exercisable by its terms after the expiration of five years from
the date of grant, nor shall any other option granted pursuant to the Plans be
exercisable by its terms after the expiration of ten years from the date of
grant.
Purchase of Securities Pursuant to the Plans
The purchase price per share of common stock purchasable under an option is
determined by the Board of Directors but cannot be less than the fair market
value of the Common Stock on the date of the grant of the option (or 110% of the
fair market value in the case of a person owning more than 10% of the Company's
outstanding shares). An option may be exercised, in whole or in part, at any
time, or in part, from time to time, during the option period, by giving written
notice of exercise to the Board of Directors at the Company's offices specifying
the number of shares to be purchased, such notice to be accompanied by payment
in full of the purchase price either by a payment of cash, bank draft or money
order payable to the Company. At the discretion of the Board of Directors
payment of the purchase price for shares of Common Stock underlying options may
be paid through the delivery of shares of the Company's Common Stock having an
aggregate fair market value equal to the option price, provided such shares have
been owned by the option holder for at least one year prior to such exercise. A
combination of cash and shares of Common Stock may also be permitted at the
discretion of the Board of Directors. No shares shall be issued until full
payment has been made. An optionee shall have the rights of a stockholder only
with respect to shares of stock for which certificates have been issued. Under
no circumstances may an option be exercised after the expiration of the option.
Tax Aspects of Incentive Stock Options Granted Under the Plans
Options granted under the Plans will be incentive stock options within the
meaning of Section 422 of the Internal Revenue Code (the "Code") and will be
subject to the provisions of the Code. Generally, if Common Stock of the Company
is issued to an employee pursuant to an option granted as described below, and
if no disqualifying disposition of such shares is made by such employee within
one year after the transfer of such shares to him or within two years after the
date of grant: (a) no income will be realized by the employee at the time of the
grant of the option; (b) no income will be realized by the employee at the date
7
of exercise; (c) when the employee sells such shares, any amount realized in
excess of the option price will be taxed as a long-term capital gain and any
loss sustained will be a long-term capital loss; and (d) no deduction will be
allowed to the Company for federal income tax purposes. Generally, if any
disqualifying disposition of such shares is made by an employee within one year
after the transfer of such shares to him, or within two years after the date of
grant, the difference between the amount paid for the shares upon exercise of
the option and the fair market value of the shares on the date the option was
exercised will be taxed as ordinary income in the year the disqualifying
disposition occurs and the Company will be allowed a deduction for such amount.
However, if such disqualifying disposition is a sale or exchange for which a
loss would have been recognized (if sustained), the amount taxed to the employee
as ordinary income (and deductible by the Company) will be limited to the excess
of the amount realized upon such sale or exchange over the amount paid for the
shares where such excess is less than the amount referred to in the preceding
sentence. This limitation does not apply to a disposition of the type as to
which losses (if sustained) are not recognized as deductible losses for income
tax purposes, e.g., a gift, a sale to certain related persons or a so-called
"wash" sale (a sale within 30 days before or after the acquisition of the
Company's shares or the receipt of an option or the entering into a contract to
buy the Company's shares). If the shares are sold in a disqualifying disposition
during such one-year period and the amount realized is in excess of the fair
market value of the shares at the time of exercise, such excess will be taxed as
a long-term or short-term capital gain depending upon the holding period.
An employee who exercises an incentive stock option may be subject to the
alternative minimum tax since the difference between the option price and the
fair market value of the stock on the date of exercise is an item of tax
preference. However, no item of preference will result if a disqualifying
disposition is made of the optioned stock.
NON-QUALIFIED STOCK OPTION PLANS
Securities to be Offered and Persons Who May Participate in the Plans
The Company's employees, directors and officers, and consultants or
advisors to the Company are eligible to be granted options pursuant to the Plans
as may be determined by the Company's Board of Directors which administers the
Plans, provided however that bona fide services must be rendered by such
consultants or advisors and such services must not be in connection with the
offer or sale of securities in a capital-raising transaction.
Options granted pursuant to the Plans terminate at such time as may be
specified when the option is granted.
In the discretion of the Board of Directors options granted pursuant to the
Plans may include installment exercise terms for any option such that the option
becomes fully exercisable in a series of cumulating portions. The Board of
Directors may also accelerate the date upon which any option (or any part of any
option) is first exercisable. In no event shall an option be exercisable by its
terms after the expiration of ten years from the date of grant.
8
Purchase of Securities Pursuant to the Plans
The purchase price per share of common stock purchasable under an option is
determined by the Board of Directors but cannot be less than the market price of
the Company's Common Stock on the date the option is granted. An option may be
exercised, in whole or in part, at any time, or in part, from time to time,
during the option period, by giving written notice of exercise to the Board of
Directors at the Company's offices specifying the number of shares to be
purchased, such notice to be accompanied by payment in full of the purchase
price either by a payment of cash, bank draft or money order payable to the
Company. At the discretion of the Board of Directors payment of the purchase
price for shares of Common Stock underlying options may be paid through the
delivery of shares of the Company's Common Stock having an aggregate fair market
value equal to the option price, provided such shares have been owned by the
option holder for at least one year prior to such exercise. A combination of
cash and shares of Common Stock may also be used at the discretion of the Board
of Directors. No shares shall be issued until full payment has been made. An
optionee shall have the rights of a stockholder only with respect to shares of
stock for which certificates have been issued. Under no circumstances may an
option be exercised after the expiration of the option.
Tax Aspects of Options Granted Under the Plans
The difference between the option price and the market value of the shares
on the date the option is exercised is taxable as ordinary income to an Optionee
at the time of exercise and to the extent such difference does not constitute
unreasonable compensation is deductible by the Company at that time. Gain or
loss on any subsequent sale of shares received through the exercise of an option
will be treated as capital gain or loss.
Since the amount of income realized by an Optionee on the exercise of an
option under the Plans represents compensation for services provided to the
Company, the Company may be required to withhold income taxes from the
Optionee's income even though the compensation is not paid in cash. To withhold
the appropriate tax on the transfer of the shares, the Company will (i) reduce
the number of shares issued or distributed to reflect the necessary withholding,
(ii) withhold the appropriate tax from other compensation due to the Optionee,
or (iii) condition the transfer of any shares to the Optionee on the payment to
the Company of an amount equal to the taxes required to be withheld.
STOCK BONUS PLANS
Securities to be Offered and Persons Who May Participate in the Plans
Under the Stock Bonus Plans, the Company's employees, directors and
officers, and consultants or advisors to the Company will be eligible to receive
a grant of the Company's shares, provided however that bona fide services must
be rendered by such consultants or advisors and such services must not be in
connection with the offer or sale of securities in a capital-raising
transaction. The aggregate number of shares which may be granted may not exceed
the amount available in the Bonus Share Reserve. The grant of the Company's
shares rests entirely with the Company's Board of Directors which administer the
Plan. It is also left to the Board of Directors to decide the type of vesting
and transfer restrictions which will be placed on the shares.
9
Shares of Common Stock which may be granted under the Stock Bonus Plans
(the "Bonus Share Reserve") may consist, in whole or in part, of authorized but
unissued shares or treasury shares.
Tax Aspects of Shares Granted Pursuant to the Plan
Any shares of stock transferred to any person pursuant to the Stock Bonus
Plan will be subject to the provisions of Section 83 of the Internal Revenue
Code. Consequently, if (and so long as) the shares received remain substantially
nonvested, the recipient of the shares will not have to include the value of
these shares in gross income. The shares will remain substantially nonvested so
long as they are subject to a substantial risk of forfeiture and are
nontransferable. A substantial risk of forfeiture exists if a person's rights in
the shares are conditioned upon the future performance of substantial services.
Nontransferability will exist if a person is restricted from selling, assigning
or pledging these shares, and, if transfer is permitted, a transferee is
required to take the shares subject to the substantial risk of forfeiture.
However, in the year such shares become either transferable or not subject to a
substantial risk of forfeiture, the recipient of the shares will be required to
include in gross income for that taxable year the excess of the share's fair
market value at the time they became vested over the amount (if any) paid for
such shares. This amount will be taxable as ordinary compensation income.
There is available an election through which a person can choose to
recognize as ordinary income in the year of transfer the excess of the share's
fair market value at the time of transfer over the amount (if any) the person
paid for such shares. By making this election any future appreciation
(depreciation) in value will be treated as appreciation (depreciation)
attributable to a capital asset rather than as compensation income. An election
to be valid must be made within thirty (30) days of the date on which the shares
are issued by the Company.
The Company does not recognize income when granting or transferring shares
to the recipient of the shares pursuant to the Plan. Furthermore, Section 83
permits the Company to take an ordinary business deduction equal to the amount
includible by the recipient of the shares in the year the recipient recognizes
the value of the shares as income.
STOCK COMPENSATION PLANS
Securities to be Offered and Persons Who May Participate in the Plans
Pursuant to the Plans, up to 3,350,000 shares of common stock are reserved
for issuance to officers, directors and employees of the Company, as well as
consultants to the Company (collectively the "Participants") that agree to
receive shares of the Company's common stock in lieu of all or part of the
compensation owed to them by the Company.
Acquisition of Securities Pursuant to the Plan
If the Company is willing to offer shares of its common stock to any
Participant in accordance with the Plan, the Company will provide the
Participant with an Acceptance Form. A Participant wanting to accept the terms
outlined in the Acceptance Form will be required to sign the form and return it
to the Company by the date indicated on the form.
10
The number of shares to be offered to each Participant will be equal to the
number determined by dividing the compensation to be satisfied through the
issuance of shares by the Price per Share. The Price per Share will be equal to
the closing price of the Company's common stock on the date prior to the date
the Acceptance Form is delivered to the Participant except that a higher or a
lower price may be set by the Company's Compensation Committee. However in no
case may the Price per Share be less than 80% of the closing price of the
Company's common stock on the date prior to the date the Acceptance Form is
delivered to the Participant.
The Company, in its sole discretion, may determine that any eligible
Participant will not, on any or on one or more occasions, be offered the
opportunity to receive shares of common stock pursuant to this Plan.
The agreement of any Participant to accept shares of common stock in lieu
of compensation is subject to approval by the Company's board of directors,
which approval may be refused for any reason.
At the option of the Company, the shares of stock issuable pursuant to the
Plan will be restricted securities as that term is defined in Rule 144 of the
Securities and Exchange Commission.
Tax Aspects of Shares Received Pursuant to the Plan
At the time the shares are issued, the Participant will incur taxable
income equal to the market price of the Company's common stock on the date the
Company's board of directors approves the issuance of shares to the Participant.
If the Participant is employed by the Company on the date the shares are issued,
the Company may require the Participant to pay the Company all applicable
federal and state withholding taxes with respect to such income or, may withhold
such amounts from the Participant. If the Participant is not employed by the
Company on the date the shares are issued, the delivery of the shares may be
conditioned, at the Company's option, upon the Participant tendering to the
Company an amount equal to all applicable federal and state withholding taxes.
Federal withholding taxes will be based upon the then current provisions of the
Internal Revenue Code for withholding taxes plus the Participant's share of
Social Security and Medicaid taxes.
2014 INCENTIVE STOCK BONUS PLAN
Securities to be Offered and Persons Who May Participate in the Plan
The Plan enables executive officers and other employees (the "Grantees"),
who contribute significantly to the success of the Company, to participate in
its future prosperity and growth and aligns their interests with those of the
shareholders. The purpose of the Plan is to provide long term incentive for
outstanding service to the Company and its shareholders and to assist in
recruiting and retaining people of outstanding ability and initiative in
executive and management positions. Pursuant to the Plan the Company's board of
directors can award Grantees shares of the Company's common stock (the "Awarded
Shares") which can be earned or forfeited according to those conditions
specified at the time the Awarded Shares are granted.
11
Tax Aspects of Shares Received Pursuant to the Plan
Any shares of stock transferred to any person pursuant to the 2014
Incentive Stock Bonus Plan will be subject to the provisions of Section 83 of
the Internal Revenue Code. Consequently, if (and so long as) the shares received
remain substantially nonvested, the recipient of the shares will not have to
include the value of these shares in gross income. The shares will remain
substantially nonvested so long as they are subject to a substantial risk of
forfeiture and are nontransferable. A substantial risk of forfeiture exists if a
person's rights in the shares are conditioned upon the future performance of
substantial services. Nontransferability will exist if a person is restricted
from selling, assigning or pledging these shares, and, if transfer is permitted,
a transferee is required to take the shares subject to the substantial risk of
forfeiture. However, in the year such shares become either transferable or not
subject to a substantial risk of forfeiture, the recipient of the shares will be
required to include in gross income for that taxable year the excess of the
share's fair market value at the time they became vested over the amount (if
any) paid for such shares. This amount will be taxable as ordinary compensation
income.
There is available an election through which a person can choose to
recognize as ordinary income in the year of transfer the excess of the share's
fair market value at the time of transfer over the amount (if any) the person
paid for such shares. By making this election any future appreciation
(depreciation) in value will be treated as appreciation (depreciation)
attributable to a capital asset rather than as compensation income. An election
to be valid must be made within thirty (30) days of the date on which the shares
are issued by the Company.
The Company does not recognize income when granting or transferring shares
to the recipient of the shares pursuant to the Plan. Furthermore, Section 83
permits the Company to take an ordinary business deduction equal to the amount
includible by the recipient of the shares in the year the recipient recognizes
the value of the shares as income.
OTHER INFORMATION REGARDING THE PLANS
All shares to be issued pursuant to the Plans will, prior to the time of
issuance, constitute authorized but unissued shares or treasury shares.
The terms and conditions upon which a person will be permitted to assign or
hypothecate options or shares received pursuant to any of the Plans will be
determined by the Company's Compensation Committee which administers the Plans.
In general, however, options are non-transferable except upon death of the
option holder. Shares issued pursuant to the Stock Bonus Plan will generally not
be transferable until the person receiving the shares satisfies any vesting
requirements imposed by the Committee when the shares were issued.
Any shares issued pursuant to the Stock Bonus Plan, or the 2014 Incentive
Stock Bonus Plan, and any options granted pursuant to the stock option Plans,
will be forfeited if the "vesting" schedule established by the Committee
administering the Plan at the time of the grant is not met. For this purpose,
vesting means the period during which the employee must remain an employee of
the Company or the period of time a non-employee must provide services to the
Company. At the time an employee ceases working for the Company (or at the time
a non-employee ceases to perform services for the Company), any shares or
options not fully vested will be forfeited and cancelled.
12
Employment by the Company does not include a right to receive bonus shares
or options pursuant to the Plans. Only the Board of Directors has the authority
to determine which persons shall be issued bonus shares or granted options and,
subject to the limitations described elsewhere in this Prospectus and in the
Plans, the number of shares of Common Stock issuable as bonus shares or upon the
exercise of any options.
The Plans are not qualified under Section 401(a) of the Internal Revenue
Code, nor are they subject to any provisions of the Employee Retirement Income
Security Act of 1974.
The description of the federal income tax consequences as set forth in this
Prospectus is intended merely as an aid for such persons eligible to participate
in the Plans, and the Company assumes no responsibility in connection with the
income tax liability of any person receiving shares or options pursuant to the
Plans. Persons receiving shares or options pursuant to the Plans are urged to
obtain competent professional advice regarding the applicability of federal,
state and local tax laws.
As of the date of this Prospectus, and except with respect to shares or
options which have not yet vested, no terms of any Plan or any contract in
connection therewith creates in any person a lien on any of the securities
issuable by the Company pursuant to the Plans.
ADMINISTRATION OF THE PLANS
The Plans are administered by the Company's Compensation Committee, which
is appointed by the Company's Board of Directors. All directors serve for a
one-year term or until their successors are elected. Any director may be removed
at any time by a majority vote of the Company's shareholders present at any
meeting called for the purpose of removing a director. Any vacancies which may
occur on the Board of Directors will be filled by the remaining Directors. The
Board of Directors is vested with the authority to interpret the provisions of
the Plans and supervise the administration of the Plans. In addition, the Board
of Directors is empowered, to select eligible employees of the Company to whom
shares or options are to be granted, to determine the number of shares subject
to each grant of a stock bonus or an option and to determine when, and upon what
conditions, shares or options granted under the Plans will vest or otherwise be
subject to forfeiture and cancellation.
The Company's directors are elected each year at the annual shareholder's
meeting.
RESALE OF SHARES BY AFFILIATES
Shares of Common Stock acquired pursuant to the Plans may be resold freely,
except as may be limited by agreement between the Company and the Plan
participant and except that any person deemed to be an "affiliate" of the
Company, within the meaning of the Securities Act of l933 (the "Act") and the
rules and regulations promulgated thereunder, may not sell shares acquired by
virtue of the Plans unless such shares are sold by means of a special
Prospectus, are otherwise registered by the Company under the Securities Act for
resale by such person or an exemption from registration under the Act is
available. In any event, the sale of shares by affiliates will be limited in
amount to the number of shares which can be sold by Rule 144. An employee who is
not an officer or director of the Company generally would not be deemed an
"affiliate" of the Company.
13
In addition, the of shares or options by officers and directors will
generally be considered a "sale" for purposes of Section l6(b) of the Securities
Exchange Act of l934.
AMENDMENT, SUSPENSION OR TERMINATION OF PLANS
The Board of Directors of the Company may at any time, and from time to
time, amend, terminate, or suspend one or more of the Plans in any manner they
deem appropriate, provided that such amendment, termination or suspension shall
not adversely affect rights or obligations with respect to shares or options
previously granted.
DESCRIPTION OF COMMON STOCK
The Common Stock issued as a stock bonus and the Common Stock issuable upon
the exercise of any options granted pursuant to the Plans entitles holders to
receive such dividends, if any, as the Board of Directors declares from time to
time; to cast one vote per share on all matters to be voted upon by
stockholders; and to share ratably in all assets remaining after the payment of
liabilities in the event of liquidation, dissolution or winding up of the
Company. The shares carry no preemptive rights. All shares offered under the
Plans will, upon issuance by the Company (and against receipt of the purchase
price in the case of options), be fully paid and non-assessable.