CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES D CONVERTIBLE PREFERRED STOCK
OF CEL-SCI CORPORATION
Cel-Sci Corporation (the "Company"), a corporation organized and existing
under the Colorado Corporation Code, does hereby certify that, pursuant to
authority conferred upon the Board of Directors of the Company by the
Certificate of Incorporation, as amended, of the Company, and pursuant to
Section 7-106-102 of the Colorado Corporation Code, the Board of Directors of
the Company at a meeting duly held, adopted resolutions (i) authorizing a series
of the Company's previously authorized preferred stock, par value $.01 per
share, and (ii) providing for the designations, preferences and relative,
participating, optional or other rights, and the qualifications, limitations or
restrictions thereof, of Ten Thousand (10,000) shares of Series D Preferred
Stock of the Company, as follows:
RESOLVED, that the Company is authorized to issue Ten Thousand (10,000)
shares of Series D Preferred Stock (the "Preferred Shares"), par value $.01 per
share, which shall have the following powers, designations, preferences and
other special rights:
1. Dividends. The Preferred Shares shall pay a dividend equal to two
percent (2%) per month, payable on the first day of each month with appropriate
proration for partial months. Such dividend shall only be payable if, and during
such time as, (i) the Registration Statement has not been declared effective by
the SEC prior to the date that is 120 days after the Closing Date; (ii) the
Registration Statement does not cover the resale of all of the Conversion Shares
or the Company gives notice that Common Stock issued or issuable upon conversion
of the Preferred Shares cannot be sold under the Registration Statement for any
period of thirty (30) consecutive days after the date the Registration Statement
has been declared effective by the SEC; (iii) the Common Stock is not listed on
the Nasdaq National Market, the Nasdaq Small Cap Market, The New York Stock
Exchange, Inc. or The American Stock Exchange, Inc. for a period of twenty (20)
consecutive trading days.
2. Holder's Conversion of Preferred Shares. A holder of Preferred Shares
shall have the right, at such holder's option, to convert the Preferred Shares
into shares of the Company's common stock, $.01 par value per share (the "Common
Stock"), on the following terms and conditions:
(a) Conversion Right. At any time or times after the Closing Date
until 3 years after Closing, any holder of Preferred Shares shall be entitled to
convert any whole number of Preferred Shares into fully paid and nonassessable
shares (rounded to the nearest whole share in accordance with Section 2(i)
below) of Common Stock, at the Conversion Rate (as defined below); provided,
however, that in no event shall any holder be entitled to convert Preferred
Shares in excess of that number of Preferred Shares which, upon giving effect to
such conversion, would cause the aggregate number of shares of Common Stock
beneficially owned by the holder and its affiliates to exceed 4.9% of the
outstanding shares of the Common Stock following such conversion and, provided
further, a holder may elect, upon sixty one (61) days prior written notice to
the Company, not to be bound by such provision. For purposes of the foregoing
proviso, the aggregate number of shares of Common Stock beneficially owned by
the holder and its affiliates shall include the number of shares of Common Stock
issuable upon conversion of the Preferred Shares with respect to which the
determination of such proviso is being made, but shall exclude the
number of shares of Common Stock which would be issuable upon (i) conversion of
the remaining, nonconverted Preferred Shares beneficially owned by the holder
and its affiliates and (ii) exercise or conversion of the unexercised or
unconverted portion of any other securities of the Company (including, without
limitation, any warrants) subject to a limitation on conversion or exercise
analogous to the limitation contained herein beneficially owned by the holder
and its affiliates. Except as set forth in the preceding sentence, for purposes
of this paragraph, beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended. Any Preferred
Shares outstanding on 3 year anniversary of Closing will be converted into
shares of Common Stock at the applicable Conversion Price (as defined below).
(b) Conversion Price. The number of shares of Common Stock issuable
upon conversion of each of the Preferred Shares shall be determined according to
the following formula (the "Conversion Rate"):
1000
Conversion Price
(i) At any time or times on and prior to the Anniversary Date,
the "Conversion Price" means the Fixed Conversion
Price.
(ii) At any time or times on and following the trading day
following the Anniversary Date or upon occurrence of a Triggering Event, the
"Conversion Price" means the lesser of (a) the Market Price or (b) the Fixed
Conversion Price.
For purposes of this Certificate of Designations, the following terms shall have
the following meanings:
(1) "Anniversary Date" means the earlier of
(A) 270 days after the Closing Date, or the first trading day thereafter or (B)
the trading day immediately following a period of 5 consecutive trading days
during which the Closing Bid Price (as defined below) of the Common Stock is
equal to or less than 50% of the Closing Price.
(2) "Fixed Conversion Price" means 120% of
the Closing Price, subject to adjustment as provided herein;
(3) "Market Price" means the average of the
weighted average prices on AMEX (as currently shown by the ticker symbol HIV.A
as reported by Bloomberg Financial Markets ("Bloomberg")) of the Company's
Common Stock for any two consecutive trading days, chosen by the holder, in the
ten trading day period ending on the day prior to a holder's submission of a
Conversion Notice less one half of the difference between the average Closing
Ask Price and average Closing Bid Price of the Company's Common Stock during
such two trading days;
(4) "Average Market Price" means, with
respect to any security for any period, that price which shall be computed as
the arithmetic average of the Closing Bid Prices (as defined below) for such
security for each trading day in such period;
(5) "Closing Bid Price" or "Closing Asked
Price" means, for any security as of any date, the last closing bid price or
asked price, respectively, for such security on the American Stock Exchange
("AMEX") as reported by Bloomberg, as currently shown by the ticker symbol
HIV.A, or, if the AMEX is not the principal trading market for such security,
the last closing bid price or asked price, respectively, of such security on the
principal securities exchange or trading market where such security is listed or
traded as reported by Bloomberg, or if the foregoing do not apply, the last
closing bid price or asked price, respectively, of such security in the
over-the-counter
market on the electronic bulletin board for such security as reported by
Bloomberg, or, if no closing bid price or asked price, respectively, is reported
for such security by Bloomberg, the last closing trade price of such security as
reported by Bloomberg, or, if no last closing trade price is reported for such
security by Bloomberg, the average of the bid prices or asked prices,
respectively, of any market makers for such security as reported in the "pink
sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price or the
Closing Asked Price cannot be calculated for such security on such date on any
of the foregoing bases, the Closing Bid Price or the Closing Asked Price,
respectively, of such security on such date shall be the fair market value as
mutually determined by the Company and the holders of Preferred Shares. If the
Company and the holders of Preferred Shares are unable to agree upon the fair
market value of the Common Stock, then such dispute shall be resolved pursuant
to Section 2(e)(iii) below with the term "Closing Bid Price" or "Closing Asked
Price," respectively, being substituted for the term "Average Market Price."
(All such determinations to be appropriately adjusted for any stock dividend,
stock, split or other similar transaction during such period).
(6) "Closing Price" means the average of the
Closing Bid Price of the Common Stock for five consecutive trading days
immediately proceeding the Closing Date; and
(7) "Closing Date" means the initial date of
issuance of the Preferred Shares.
(c) Adjustment to Conversion Price -- Dilution and Other
Events. In order to prevent dilution of the rights granted under this
Certificate of Designations, the Conversion Price will be subject to adjustment
from time to time as provided in this Section 2(c).
(i) Adjustment of Fixed Conversion Price upon Issuance of
Common Stock. If and whenever on or after the date of issuance of the Preferred
Shares, the Company issues or sells, or is deemed to have issued or sold, any
shares of Common Stock (other than shares of Common Stock deemed to have been
issued by the Company in connection with an Approved Stock Plan (as defined
below)) for a consideration per share less than the lesser of the Average Market
Price of the Common Stock for the previous five (5) consecutive trading days or
the twenty (20) consecutive trading days immediately preceding the date of such
issuance or sale (the "Applicable Price"), then immediately after such issue or
sale, the Fixed Conversion Price shall be reduced to an amount equal to the
product of (x) the Fixed Conversion Price in effect immediately prior to such
issue or sale and (y) the quotient determined by dividing (1) the sum of (I) the
product derived by multiplying the Applicable Price by the number of shares of
Common Stock Deemed Outstanding (as defined below) immediately prior to such
issue or sale, and (II) the consideration, if any, received by the Company upon
such issue or sale, by (2) the product derived by multiplying (I) the Applicable
Price by (II) the number of shares of Common Stock Deemed Outstanding
immediately after such issue or sale. For purposes of determining the adjusted
Fixed Conversion Price under this Section 2(c)(i), the following shall be
applicable:
(A) Issuance of Rights or Options. If
the Company in any manner grants or sells any Option and the lowest price per
share for which any one share of Common Stock is issuable upon the exercise of
any such Option, or upon conversion or exchange of any Convertible Security
issuable upon exercise of any such Option, is less than the Applicable Price (as
defined above) in effect on the day immediately prior to the time of the
granting or sale of such Option, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company at the time of
the granting or sale of such Option for such price per share. For purposes of
this paragraph, the "lowest price per share for which any one share of Common
Stock is issuable" shall be equal to the sum of the lowest
amount of consideration (if any) received or receivable by the Company with
respect to any one share of Common Stock upon the granting or sale of the
Option, upon exercise of the Option and upon conversion or exchange of any
Convertible Security issuable upon exercise of such Option. No further
adjustment of the Fixed Conversion Price shall be made upon the actual issue of
such Common Stock or such Convertible Security upon the exercise of such Options
or upon the actual issue of such Common Stock upon conversion or exchange of
such Convertible Security.
(B) Issuance of Convertible Securities. If
the Company in any manner issues or sells any Convertible Security and the
lowest price per share for which any one share of Common Stock is issuable upon
conversion or exchange thereof, calculated on the date of such issue or sale of
such convertible security, is less than the Applicable Price (as defined above)
in effect on the day immediately prior to the time of such issue or sale of such
convertible security, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the time of the
issuance or sale of such Convertible Securities for such price per share. For
the purposes of this paragraph, the "lowest price per share for which any one
share of Common Stock is issuable" shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable by the Company with
respect to any one share of Common Stock upon the issuance or sale of the
Convertible Security and upon the conversion or exchange of such Convertible
Security. No further adjustment of the Fixed Conversion Price shall be made upon
the actual issue of such Common Stock upon conversion or exchange of any
Convertible Security, and if any such issue or sale of such Convertible Security
is made upon exercise of any Options for which adjustments of the Conversion
Price had been or are to be made pursuant to other provisions of this Section
2(c)(i), no further adjustment of the Conversion Price shall be made by reason
of such issue or sale.
(C) Change in Option Price or Conversion Rate.
If the purchase price provided for in any Option, the additional consideration
(if any) payable upon the issue, conversion or exchange of any Convertible
Security or the rate at which any Convertible Security is convertible into or
exchangeable for Common Stock changes at any time, the Fixed Conversion Price in
effect at the time of such change shall be adjusted immediately to the Fixed
Conversion Price which would have been in effect at such time had such Option or
Convertible Security originally provided for such changed purchase price,
additional consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold. If the terms of any Option or Convertible
Security which was outstanding as of the Closing Date are changed in the manner
described in the immediately preceding sentence, then such Option or Convertible
Security and the Common Stock deemed issuable upon exercise, conversion or
exchange thereof shall be deemed to have been issued as of the date of such
change; provided that no such change shall at any time cause the Fixed
Conversion Price hereunder to be increased, except that, in the event any such
Options or Convertible Securities expire, the Fixed Conversion Price shall be
readjusted to remove the effect of such Options or Convertible Securities.
(D) Certain Definitions. For purposes of
determining the adjusted Fixed Conversion Price under this Section 2(c)(i), the
following terms have meanings set forth below:
(I) "Options" means any rights,
warrants or options to subscribe for or purchase Common Stock or
Convertible Securities.
(II) "Convertible Securities" means any
stock or securities (other than Options) directly or indirectly convertible into
or exchangeable for Common Stock.
(III) "Approved Stock Plan" shall mean
any contract, plan or agreement which has been approved by the Board of
Directors of the Company, pursuant to which the Company's securities may be
issued to any employee, officer, director, consultant or other service provider.
(IV) "Common Stock Deemed Outstanding"
means, at any given time, the number of shares of Common Stock actually
outstanding at such time, plus the number of shares of Common Stock deemed to be
outstanding pursuant to Section 2(c)(i) hereof regardless of whether the Options
or Convertible Securities are actually exercisable at such time, but excluding
any shares of Common Stock issuable upon conversion of the Preferred Shares.
(E) Effect on Fixed Conversion Price of
Certain Events. For purposes of determining the adjusted Fixed
Conversion Price under this Section 2(c)(i), the following shall be
applicable:
(I) Calculation of Consideration
Received. If any Common Stock, Options or Convertible Securities are issued or
sold or deemed to have been issued or sold for cash, the consideration received
therefor will be deemed to be the amount received by the Company therefor
calculated on the date of issuance or sale without giving effect to sales
commission or offering expenses, if any, upon the sale, conversion or exercise
of such securities. In case any Common Stock, Options or Convertible Securities
are issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Company will be the fair value of
such consideration, except where such consideration consists of securities, in
which case the amount of consideration received by the Company will be the
Average Market Price of such securities for the twenty (20) consecutive trading
days immediately preceding the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued to the owners of the non-surviving
entity in connection with any merger in which the Company is the surviving
entity the amount of consideration therefor will be deemed to be the fair value
of such portion of the net assets and business of the non-surviving entity as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash or securities
will be determined jointly by the Company and the holders of a majority of the
Preferred Shares then outstanding. If such parties are unable to reach agreement
within ten (10) days after the occurrence of an event requiring valuation (the
"Valuation Event"), the fair value of such consideration will be determined
within forty-eight (48) hours of the tenth (10th) day following the Valuation
Event by an independent, reputable appraiser selected by the Company. The
determination of such appraiser shall be deemed binding upon all parties absent
manifest error.
(II) Integrated Transactions. In case
any Option is issued in connection with the issue or sale of other securities of
the Company, together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, consideration
given upon the grant of such Option will be deemed to be $.01.
(III) Treasury Shares. The number of
shares of Common Stock outstanding at any given time does not include shares
owned or held by or for the account of the Company, and the disposition of any
shares so owned or held will be considered an issue or sale of Common Stock.
(IV) Record Date. If the Company takes
a record of the holders of Common Stock for the purpose of entitling them (1) to
receive a dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (2) to subscribe for or purchase Common Stock, Options
or Convertible Securities, then such
record date will be deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of the granting of
such right of subscription or purchase, as the case may be.
(ii) Adjustment of Fixed Conversion Price upon Subdivision or
Combination of Common Stock. If the Company at any time subdivides (by any stock
split, stock dividend, recapitalization or otherwise) one or more classes of its
outstanding shares of Common Stock into a greater number of shares, the Fixed
Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company at any time combines (by combination,
reverse stock split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, the Fixed Conversion Price in
effect immediately prior to such combination will be proportionately increased.
(iii) Adjustment of Market Price upon Issuance of Convertible
Securities. If the Company in any manner issues or sells Convertible Securities
that are convertible into more than 500,000 shares of Common Stock (subject to
adjustment for stock splits, stock dividends, consolidation or
recapitalizations) at a price which varies with the market price of the Common
Stock (the formulation for such variable price being herein referred to as, the
"Variable Price") and such Variable Price is not calculated using the same
formula used to calculate the Market Price in effect immediately prior to the
time of such issue or sale, the Company shall provide written notice thereof via
facsimile and overnight courier to each holder of the Preferred Shares
("Variable Notice") on the date of issuance of such Convertible Securities. If
the holders of Preferred Shares representing at least two-thirds (2/3) of the
Preferred Shares then outstanding provide written notice via facsimile and
overnight courier (the "Variable Price Election Notice") to the Company within
five (5) business days of receiving a Variable Notice that such holders desire
to replace the Market Price then in effect with the Variable Price described in
such Variable Notice, the Company shall prepare and deliver to each holder of
the Preferred Shares via facsimile and overnight courier a copy of an amendment
to this Certificate of Designations (the "Variable Price Amendment") that
substitutes the Variable Price for the Market Price (together with such
modifications to this Certificate of Designations as may be required to give
full effect to the substitution of the Variable Price for the Market Price)
within five (5) business days after receipt of the requisite number of Variable
Price Election Notices set forth above. The Company shall file such Variable
Price Amendment with the Secretary of State of the State of Colorado within five
(5) business days after delivery of the Variable Price Amendment to the holders
of the Preferred Shares; provided that in the event that the Company receives a
notice prior to the filing of the Variable Price Amendment from any holder who
has delivered a Variable Price Election Notice in connection with such Variable
Price Amendment that such holder objects to the form of the Variable Price
Amendment, the Company shall not file such Variable Price Amendment until such
time as the Variable Price Amendment has been revised to the reasonable
satisfaction of such holder and approved in writing by the holders of the
Preferred Shares representing at least two-thirds (2/3) of the Preferred Shares
then outstanding. Except as provided in the preceding proviso, a holder's
delivery of a Variable Price Election Notice shall serve as the consent required
to amend this Certificate of Designations pursuant to Section 12 below.
(iv) Reorganization, Reclassification, Consolidation, Merger
or Sale. Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Company's assets to another
Person (as defined below) or other transaction which is effected in such a way
that holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as "Organic Change." Prior to
the consummation of any Organic Change, the Company
will make appropriate provision (in form and substance satisfactory to the
holders of a majority of the Preferred Shares then outstanding) to insure that
each of the holders of the Preferred Shares will thereafter have the right to
acquire and receive in lieu of or addition to (as the case may be) the shares of
Common Stock immediately theretofore acquirable and receivable upon the
conversion of such holder's Preferred Shares, such shares of stock, securities
or assets as may be issued or payable with respect to or in exchange for the
number of shares of Common Stock immediately theretofore acquirable and
receivable upon the conversion of such holder's Preferred Shares had such
Organic Change not taken place. In any such case, the Company will make
appropriate provision (in form and substance satisfactory to the holders of a
majority of the Preferred Shares then outstanding) with respect to such holders'
rights and interests to insure that the provisions of this Section 2(c) and
Section 2(d) below will thereafter be applicable to the Preferred Shares
(including, in the case of any such consolidation, merger or sale in which the
successor entity or purchasing entity is other than the Company, an immediate
adjustment of the Fixed Conversion Price to the value for the Common Stock
reflected by the terms of such consolidation, merger or sale, if the value so
reflected is less than the Fixed Conversion Price in effect immediately prior to
such consolidation, merger or sale). The Company will not effect any such
consolidation, merger or sale, unless prior to the consummation thereof, the
successor entity (if other than the Company) resulting from consolidation or
merger or the entity purchasing such assets assumes, by written instrument (in
form and substance satisfactory to the holders of a majority of the Preferred
Shares then outstanding), the obligation to deliver to each holder of Preferred
Shares such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to acquire. "Person" shall
mean an individual, a limited liability company, a partnership, a joint venture,
a corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.
(v) Certain Events. If any event occurs of the type
contemplated by the provisions of this Section 2(c) but not expressly provided
for by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Company's Board of Directors will make an appropriate adjustment in the
Conversion Price so as to protect the rights of the holders of the Preferred
Shares; provided that no such adjustment will increase the Conversion Price as
otherwise determined pursuant to this Section 2(c).
(vi) Notices.
(A) Immediately upon any adjustment of the
Conversion Price, the Company will give written notice thereof to each holder of
Preferred Shares, setting forth in reasonable detail and certifying the
calculation of such adjustment.
(B) The Company will give written notice to
each holder of Preferred Shares at least twenty (20) days prior to the date on
which the Company closes its books or takes a record (I) with respect to any
dividend or distribution upon the Common Stock, (II) with respect to any pro
rata subscription offer to holders of Common Stock or (III) for determining
rights to vote with respect to any Organic Change, dissolution or liquidation;
provided that in no event shall such notice be provided to such holder prior to
such information being made known to the public.
(C) The Company will also give written notice
to each holder of Preferred Shares at least twenty (20) days prior to the date
on which any Organic Change, dissolution or liquidation will take place.
(vii) Notwithstanding the above, the provisions of this
Section 2(c) shall not apply to (i) shares of Common Stock issued in connection
with any underwritten public offering (ii) any transaction involving the
Company's issuance of securities in
connection with any partnership or joint venture, the primary purpose of which
is not to raise equity capital, (iii) issuance of securities by a subsidiary of
the Company, and (iv) any issuance of securities by the Company as consideration
for the acquisition of technology or rights to technology.
(d) Purchase Rights. In addition to any adjustments of the
Conversion Price pursuant to Section 2(c) above, if at any time the Company
grants, issues or sells any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property pro rata to the record
holders of any class of Common Stock (the "Purchase Rights"), then the holders
of Preferred Shares will be entitled to acquire, upon the terms applicable to
such Purchase Rights, the aggregate Purchase Rights which such holder could have
acquired if such holder had held the number of shares of Common Stock acquirable
upon complete conversion of the Preferred Shares immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights.
(e) Mechanics of Conversion. Subject to the Company's inability to
fully satisfy its obligations under a Conversion Notice (as defined below) as
provided for in Section 4 below:
(i) Holder's Delivery Requirements. To convert Preferred
Shares into full shares of Common Stock on any date (the "Conversion Date"), the
holder thereof shall (A) deliver or transmit by facsimile, for receipt on or
prior to 11:59 p.m., Central Time on such date, a copy of a fully executed
notice of conversion in the form attached hereto as Exhibit I (the "Conversion
Notice"), to the Company along with a printout from Bloomberg L.P. of the
weighted average prices over the relevant ten trading day period, and (B)
surrender to a common carrier for delivery to the Company as soon as practicable
following such date, the original certificates representing the Preferred Shares
being converted (or an indemnification undertaking with respect to such shares
in the case of their loss, theft or destruction) (the "Preferred Stock
Certificates") and the originally executed Conversion Notice.
(ii) Company's Response. Upon receipt by the Company of a
facsimile copy of a Conversion Notice, the Company shall use its best efforts
to, by the end of the following business day send, via facsimile, a confirmation
of receipt of such Conversion Notice to such holder. Upon receipt by the Company
of the Preferred Stock Certificates to be converted pursuant to a Conversion
Notice, together with the originally executed Conversion Notice, the Company
shall, on the third business day following the date of receipt of the faxed
Conversion Notice (or the fourth business day following the date of receipt of
the faxed Conversion Notice if received after 11:00 a.m. local time of the
Company), provided that the Company receives the original documents listed above
prior to such issue date, (I) issue and surrender to a common carrier for
overnight delivery to the address as specified in the Conversion Notice, a
certificate, registered in the name of the holder or its designee, for the
number of shares of Common Stock to which the holder shall be entitled, or (II)
credit such aggregate number of shares of Common Stock to which the holder shall
be entitled to the holder's or its designee's balance account with The
Depository Trust Company. If the number of Preferred Shares represented by the
Preferred Stock Certificate(s) submitted for conversion is greater than the
number of Preferred Shares being converted, then the Company or Transfer Agent,
as the case may be, shall, as soon as practicable and in no event later than
three (3) business days after receipt of the Preferred Stock Certificate(s) and
at its own expense, issue and send to the holder a new Preferred Stock
Certificate representing the number of Preferred Shares not converted.
(iii) Dispute Resolution. In the case of a dispute as to the
determination of the Average Market Price or the arithmetic calculation of the
Conversion Rate, the Company shall promptly issue to the holder the number of
shares of Common Stock that is not disputed
the holder the number of shares of Common Stock that is not disputed and shall
submit the disputed determinations or arithmetic calculations to the holder via
facsimile within one (1) business day of receipt of such holder's Conversion
Notice, provided that the holder has provided the Company with the Bloomberg
printout required in Section 2(e)(i). If such holder and the Company are unable
to agree upon the determination of the Average Market Price or arithmetic
calculation of the Conversion Rate within one (1) business day of such disputed
determination or arithmetic calculation being submitted to the holder, then the
Company shall within one (1) business day submit via facsimile (A) the disputed
determination of the Average Market Price to an independent, reputable
investment bank or (B) the disputed arithmetic calculation of the Conversion
Rate to its independent, outside accountant. The Company shall use its best
efforts to cause the investment bank or the accountant, as the case may be, to
perform the determinations or calculations and notify the Company and the holder
of the results no later than four (4) business days from the time it receives
the disputed determinations or calculations. Such investment bank's or
accountant's determination or calculation, as the case may be, shall be binding
upon all parties absent manifest error.
(iv) Record Holder. The person or persons entitled to receive
the shares of Common Stock issuable upon a conversion of Preferred Shares shall
be treated for all purposes as the record holder or holders of such shares of
Common Stock on the Conversion Date, provided the Company receives the Preferred
Stock Certificates within two (2) business days of the Conversion Notice.
(v) Company's Failure to Timely Convert. If the Company shall
fail to issue and deliver to a courier for delivery to a holder on a timely
basis as described in this Section 2(e)(ii), a certificate for the number of
shares of Common Stock to which such holder is entitled upon such holder's
conversion of Preferred Shares or a new Preferred Stock Certificate representing
the number of shares of Common Stock to which such holder is entitled pursuant
to Section 2(e)(ii) except as provided in Section 4(a)(y), in addition to all
other available remedies which such holder may pursue hereunder and under the
Securities Purchase Agreement between the Company and the initial holders of the
Preferred Shares (the "Securities Purchase Agreement") (including
indemnification pursuant to Section 8 thereof), the Company shall pay additional
damages to such holder on each date such conversion is not timely effected in an
amount equal to 1.0% of the product of (A) the number of shares of Common Stock
not issued to the holder on a timely basis and to which such holder is entitled
and, in the event the Company has failed to deliver the Preferred Stock
Certificate to the holder on a timely basis pursuant to Section 2(e)(ii), the
number of shares of Common Stock issuable upon conversion of the Preferred
Shares represented by such Preferred Stock Certificate, and (B) the Closing Bid
Price of the Common Stock on the last possible date which the Company could have
issued such Common Stock and the Preferred Stock Certificate, as the case may
be, to such holder without violating this Section 2(e).
(f) Taxes. The Company shall pay any and all taxes which may be
imposed upon it with respect to the issuance and delivery of Common Stock upon
the conversion of the Preferred Shares.
(3) Redemption at Option of Holders.
(a) Redemption Option Upon Major Transaction. In addition to
all other rights of the holders of Preferred Shares contained herein, after a
Major Transaction (as defined below), each holder of Preferred Shares shall have
the right, at such holder's option, to require the Company to redeem all or a
portion of such holder's Preferred Shares at a price per Preferred Share equal
to
greater of (i) $1,250 and (ii) the product of (A) the Conversion Rate at such
time and (B) the Closing Bid Price on the date of the public announcement of
such Major Transaction or the next date on which the exchange or market on which
the Common Stock is traded is open if such public announcement is made (X) after
12:00 p.m., Central Time, time on such date or (Y) on a date on which the
exchange or market on which the Common Stock is traded is closed ("Major
Transaction Redemption Price").
(b) Redemption Option Upon Triggering Event. In addition to all
other rights of the holders of Preferred Shares contained herein, after a
Triggering Event (as defined below), each holder of Preferred Shares shall have
the right, at such holder's option, to require the Company to redeem all or a
portion of such holder's Preferred Shares at a price per Preferred Share equal
to the greater of (i) $1,250 and (ii) the product of (A) the Conversion Rate at
such time and (B) the Closing Bid Price calculated as of the date immediately
preceding such Triggering Event on which the exchange or market on which the
Common Stock is traded is open ("Triggering Event Redemption Price" and,
collectively with "Major Transaction Redemption Price," the "Redemption Price").
(c) "Major Transaction". A "Major Transaction" shall be deemed to
have occurred at such time as any of the following events occur with the
recommendation and approval of the Company's Board of Directors:
(i) the consolidation, merger, reorganization, restructuring
or similar transaction of the Company with or into another Person (other than
pursuant to a migratory merger effected solely for the purpose of changing the
jurisdiction of incorporation of the Company or any such transaction where the
Company is the survivor); or
(ii) the sale or transfer of substantially all of the assets
of the Company or all of its material subsidiaries or any similar transaction or
related transactions which effectively results in a sale of all or substantially
all of the assets of the Company and/or its subsidiaries (other than a public or
private offering of Viral Technologies, Inc. ("VTI") if the Company owns at
least 50% of the voting control and 50% of the economic interest in VTI after
such offering).
(d) "Triggering Event". A "Triggering Event" shall be deemed to have
occurred at such time as any of the following events:
(i) the Company's notice to any holder of Preferred Shares,
including by way of public announcement, at any time, of its intention not to
comply with proper requests for conversion of any Preferred Shares into shares
of Common Stock, including due to any of the reasons set forth in Section 4(a)
below;
(ii) the Company, with the approval of its Board of Directors,
fails to continue to own, directly or indirectly, all of the capital stock of
all of its material subsidiaries (other than due to a merger or consolidation of
any subsidiary into the Company or a wholly-owned subsidiary of the Company or
in the case of a public or private offering of VTI where the Company owns at
least 50% of the voting control and 50% of the economic interest in VTI
following such Offering);
(iii) if for any reason, the Company fails to perform or
observe any, agreement or other provision contained herein or in the Securities
Purchase Agreement or the Registration Rights Agreement, and such failure is not
cured within ten (10) business days after the Company has been notified of the
occurrence thereof, and such failure
has had, or could reasonably be expected to have, a material adverse effect on
(A) the financial condition, operating results, business, properties or
operation of the Company and its subsidiaries taken as a whole or (B) the
Preferred Shares; or
(iv) any representation or warranty contained in the
Securities Purchase Agreement or the Registration Rights Agreement is false or
misleading on or as of the date made and which either reflects or has had a
material adverse effect on (A) the financial condition, operating results,
business, properties or operations of the Company and its subsidiaries taken as
a whole or (B) the Preferred Shares.
(e) Mechanics of Redemption at Option of Buyer Upon Major
Transaction. No sooner than 15 days nor later than 10 days prior to the
consummation of a Major Transaction, but not prior to the public announcement of
such Major Transaction, the Company shall deliver written notice thereof via
facsimile and overnight courier ("Notice of Major Transaction") to each holder
of Preferred Shares. At any time after receipt of a Notice of Major Transaction,
the holders of at least two-thirds (2/3) of the Preferred Shares then
outstanding may require the Company to redeem all of the holder's Preferred
Shares then outstanding by delivering written notice thereof via facsimile and
overnight courier ("Notice of Redemption at Option of Buyer Upon Major
Transaction") to the Company, which Notice of Redemption at Option of Buyer Upon
Major Transaction shall indicate (i) the number of Preferred Shares that such
holders are voting in favor of redemption and (ii) the applicable Major
Transaction Redemption Price, as calculated pursuant to Section 3(a) above.
(f) Mechanics of Redemption at Option of Buyer Upon Triggering
Event. Within three (3) business days after the occurrence of a Triggering
Event, the Company shall deliver written notice thereof via facsimile and
overnight courier ("Notice of Triggering Event") to each holder of Preferred
Shares. At any time after receipt of a Notice of Triggering Event, the holders
of at least two-thirds (2/3) of the Preferred Shares then outstanding may
require the Company to redeem all of the Preferred Shares by delivering written
notice thereof via facsimile and overnight courier ("Notice of Redemption at
Option of Buyer Upon Triggering Event") to the Company, which Notice of
Redemption at Option of Buyer Upon Triggering Event shall indicate (i) the
number of Preferred Shares that such holders are voting in favor of redemption
and (ii) the applicable Triggering Event Redemption Price, as calculated
pursuant to Section 3(b) above.
(g) Payment of Redemption Price. Upon the Company's receipt of a
Notice(s) of Redemption at Option of Buyer Upon Major Transaction or a Notice(s)
of Redemption at Option of Buyer Upon Triggering Event, as the case may be, from
the holders of at least two-thirds (2/3) of the Preferred Shares then
outstanding, the Company shall immediately notify each holder by facsimile of
the Company's receipt of such requisite notices necessary to affect a redemption
and each holder of Preferred Shares shall thereafter promptly send such holder's
Preferred Stock Certificates to be redeemed to the Company or its Transfer
Agent. The Company shall deliver the applicable Redemption Price to such holder
within 30 days after the Company's receipt of the requisite notices required to
affect a redemption; provided that a holder's Preferred Stock Certificates shall
have been so delivered to the Company or its Transfer Agent; provided further
that if the Company is unable to redeem all of the Preferred Shares, the Company
shall redeem an amount from each holder of Preferred Shares equal to such
holder's pro-rata amount (based on the number of Preferred Shares held by such
holder relative to the number of Preferred Shares outstanding) of all Preferred
Shares being redeemed.
If the Company shall fail to redeem all of the Preferred Shares submitted for
redemption (other than pursuant to a dispute as to the arithmetic calculation of
the Redemption Price), in addition to any remedy such holder of Preferred Shares
may have under this Certificate of Designations and the Securities Purchase
Agreement, the applicable Redemption Price payable in respect of such unredeemed
Preferred Shares shall bear interest at the rate of 1.75% per month (prorated
for partial months) until paid in full or until voided as provided herein. Until
the Company pays such unpaid applicable Redemption Price in full to each holder,
holders of at least two-thirds (2/3) of the Preferred Shares then outstanding,
including shares of Preferred Shares submitted for redemption pursuant to this
Section 3 and for which the applicable Redemption Price has not been paid, shall
have the option (the "Void Optional Redemption Option") to, in lieu of
redemption, require the Company to promptly return to each holder all of the
Preferred Shares that were submitted for redemption by such holder under this
Section 3 and for which the applicable Redemption Price has not been paid, by
sending written notice thereof to the Company via facsimile (the "Void Optional
Redemption Notice"). Upon the Company's receipt of such Void Optional Redemption
Notice(s) and prior to payment of the full applicable Redemption Price to each
holder, (i) the Notice(s) of Redemption at Option of Buyer Upon Triggering Event
or the Notice(s) of Redemption at Option of Buyer Upon Major Transaction, as the
case may be, shall be null and void with respect to those Preferred Shares
submitted for redemption and for which the applicable Redemption Price has not
been paid, (ii) the Company shall immediately return any Preferred Shares
submitted to the Company by each holder for redemption under this Section 3(i)
and for which the applicable Redemption Price has not been paid, and (iii) the
Fixed Conversion Price of such returned Preferred Shares shall be adjusted to
the lesser of (A) the Fixed Conversion Price as in effect on the date on which
the Void Optional Redemption Notice(s is delivered to the Company and (B) the
lowest Closing Bid Price during the period beginning on the date on which the
Notice(s) of Redemption of Option of Buyer Upon Major Transaction or the
Notice(s) of Redemption at Option of Buyer Upon Triggering event, as the case
may be, is delivered to the Company and ending on the date on which the Void
Optional Redemption Notice(s) is delivered to the Company; provided that no
adjustment shall be made if such adjustment would result in an increase of the
Fixed Conversion Price then in effect. Notwithstanding the foregoing, in the
event of a dispute as to the determination of the Closing Bid Price or the
arithmetic calculation of the Redemption Price, such dispute shall be resolved
pursuant to Section 2(c)(iii) above with the term "Closing Bid Price" being
substituted for the term "Average Market Price" and the term "Redemption Price"
being substituted for the term "Conversion Rate." Payments provided for in this
Section 3 shall have priority to payments to other stockholders in connection
with a Major Transaction.
(4) Inability to Fully Convert.
(a) Holder's Option if Company Cannot Fully Convert. If, upon
the Company's receipt of a Conversion Notice, the Company can not issue shares
of Common Stock registered for resale under the Registration Statement for any
reason, including, without limitation, because the Company (x) does not have a
sufficient number of shares of Common Stock authorized and available, (y) is
otherwise prohibited by applicable law or by the rules or regulations of any
stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Company or its Securities, including
without limitation the Common Share Limit, from issuing all of the Common Stock
which is to be issued to a holder of Preferred Shares pursuant to a Conversion
Notice or (z) fails to have a sufficient number of shares of Common Stock
registered for resale under the Registration Statement, then the Company shall
issue as many shares of Common Stock as it is able to issue in accordance with
such holder's Conversion Notice and pursuant to Section 2(e) above and, with
respect to the unconverted Preferred Shares, the holder, solely at such holder's
option, can elect to:
(i) require the Company to redeem from such
holder those Preferred Shares for which the Company is unable to issue Common
Stock in accordance with such holder's Conversion Notice ("Mandatory
Redemption") at a price per Preferred Share (the "Mandatory Redemption Price")
equal to the Redemption Price as of such Conversion Date;
(ii) if the Company's inability to fully
convert Preferred Shares is pursuant to Section 4(a)(z) above, require the
Company to issue restricted shares of Common Stock in accordance with such
holder's Conversion Notice and pursuant to Section 2(e) above;
(iii) void its Conversion Notice and retain or
have returned, as the case may be, the nonconverted Preferred Shares that were
to be converted pursuant to such holder's Conversion Notice.
(b) Mechanics of Fulfilling Holder's Election. The Company
shall immediately send via facsimile to a holder of Preferred Shares, upon
receipt of a facsimile copy of a Conversion Notice from such holder which cannot
be fully satisfied as described in Section 4(a) above, a notice of the Company's
inability to fully satisfy such holder's Conversion Notice (the "Inability to
Fully Convert Notice"). Such Inability to Fully Convert Notice shall indicate
(i) the reason why the Company is unable to fully satisfy such holder's
Conversion Notice, (ii) the number of Preferred Shares which cannot be converted
and (iii) the applicable Mandatory Redemption Price. Such holder must within
five (5) business days of receipt of such Inability to Fully Convert Notice
deliver written notice via facsimile to the Company ("Notice in Response to
Inability to Convert") of its election pursuant to Section 4(a) above.
(c) Payment of Redemption Price. If such holder shall elect to
have its shares redeemed pursuant to Section 4(a)(i) above, the Company shall
pay the Mandatory Redemption Price in cash to such holder within thirty (30)
days of the Company's receipt of the holder's Notice in Response to Inability to
Convert. If the Company shall fail to pay the applicable Mandatory Redemption
Price to such holder on a timely basis as described in this Section 4(c) (other
than pursuant to a dispute as to the determination of the arithmetic calculation
of the Redemption Price), in addition to any remedy such holder of Preferred
Shares may have under this Certificate of Designations and the Securities
Purchase Agreement, such unpaid amount shall bear interest at the rate of 1.75%
per month (prorated for partial months) until paid in full. Until the full
Mandatory Redemption Price is paid in full to such holder, such holder may void
the Mandatory Redemption with respect to those Preferred Shares for which the
full Mandatory Redemption Price has not been paid and receive back such
Preferred Shares. Notwithstanding the foregoing, if the Company fails to pay the
applicable Mandatory Redemption Price within such thirty (30) days time period
due to a dispute as to the determination of the arithmetic calculation of the
Redemption Price, such dispute shall be resolved pursuant to Section 2(e)(iii)
above with the term "Redemption Price" being substituted for the term
"Conversion Rate".
(d) Pro-rata Conversion and Redemption. In the event the
Company receives a Conversion Notice from more than one holder of Preferred
Shares on the same day and the Company can convert and redeem some, but not all,
of the Preferred Shares pursuant to this Section 4, the Company shall convert
and redeem from each holder of Preferred Shares electing to have Preferred
Shares converted and redeemed at such time an amount equal to such holder's
pro-rata amount (based on the number of Preferred Shares held by such holder
relative to the number of Preferred Shares outstanding) of all Preferred Shares
being converted and redeemed at such time.
(5) Reissuance of Certificates. In the event of a conversion or
redemption pursuant to this Certificate of Designations of less than all of the
Preferred Shares represented by a particular Preferred Stock Certificate, the
Company shall promptly cause to be issued and delivered to the holder of such
Preferred Shares a preferred stock certificate representing the remaining
Preferred Shares which have not been so converted or redeemed.
(6) Reservation of Shares. The Company shall, so long as any of the
Preferred Shares are outstanding, reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Preferred Shares, such number of shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all of the
Preferred Shares then outstanding; provided that the number of shares of Common
Stock so reserved shall at no time be less than 200% of the number of shares of
Common Stock for which the Preferred Shares are at any time convertible;
provided further that such shares of Common Stock so reserved shall be allocated
for issuance upon conversion of Preferred Shares pro rata among the holders of
Preferred Shares based on the number of Preferred Shares held by such holder
relative to the total number of then outstanding Preferred Shares.
(7) Voting Rights. Holders of Preferred Shares shall have no voting
rights, except as required by law, including but not limited to the General
Corporation Law of the State of Colorado, and as expressly provided in this
Certificate of Designations.
(8) Liquidation, Dissolution, Winding-Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company,
the holders of the Preferred Shares shall be entitled to receive in cash out of
the assets of the Company, whether from capital or from earnings available for
distribution to its stockholders (the "Preferred Funds"), before any amount
shall be paid to the holders of any of the capital stock of the Company of any
class junior in rank to the Preferred Shares in respect of the preferences as to
the distributions and payments on the liquidation, dissolution and winding up of
the Company, an amount per Preferred Share equal to the sum of $1,000 (such sum
being referred to as the "Liquidation Value"); provided that, if the Preferred
Funds are insufficient to pay the full amount due to the holders of Preferred
Shares and holders of shares of other classes or series of preferred stock of
the Company that are of equal rank with the Preferred Shares as to payments of
Preferred Funds (the "Pari Passu Shares"), then each holder of Preferred Shares
and Pari Passu Shares shall receive a percentage of the Preferred Funds equal to
the full amount of Preferred Funds payable to such holder as a liquidation
preference, in accordance with their respective Certificate of Designations,
Preferences and Rights, as a percentage of the full amount of Preferred Funds
payable to all holders of Preferred Shares and Pari Passu Shares. The purchase
or redemption by the Company of stock of any class, in any manner permitted by
law, shall not, for the purposes hereof, be regarded as a liquidation,
dissolution or winding up of the Company. Neither the consolidation or merger of
the Company with or into any other Person, nor the sale or transfer by the
Company of less than substantially all of its assets, shall, for the purposes
hereof, be deemed to be a liquidation, dissolution or winding up of the Company.
No holder of Preferred Shares shall be entitled to receive any amounts with
respect thereto upon any liquidation, dissolution or winding up of the Company
other than the amounts provided for herein.
(9) Preferred Rank. All shares of Common Stock shall be of junior
rank to all Preferred Shares in respect to the preferences as to distributions
and payments upon the liquidation, dissolution and winding up of the Company.
The rights of the shares of Common Stock shall be subject to the preferences and
relative rights of the Preferred Shares. Without the prior express written
consent of the holders of not less than two-thirds (2/3) of the then outstanding
Preferred Shares, the Company shall not hereafter authorize or issue additional
or other capital stock that is of senior or equal rank to the Preferred Shares
in respect of the preferences as to distributions and payments upon the
liquidation, dissolution and winding up of the Company. Without the prior
express written consent of the holders of not less than two-thirds (2/3) of the
then outstanding Preferred Shares, the Company shall not hereafter authorize or
make any amendment to the Company's Certificate of Incorporation or bylaws, or
file any resolution of the board of directors of the Company with the Delaware
Secretary of State containing any provisions, which would adversely affect or
otherwise impair the rights or relative priority of the holders of the Preferred
Shares relative to the holders of the Common Stock or the holders of any other
class of capital stock. In the event of the merger or consolidation of the
Company with or into another corporation, the Preferred Shares shall maintain
their relative powers, designations and preferences provided for herein and no
merger shall result inconsistent therewith.
(10) Restriction on Redemption and Cash Dividends with respect to
Other Capital Stock. Until all of the Preferred Shares have been converted or
redeemed as provided herein, the Company shall not, directly or indirectly,
redeem, or declare or pay any cash dividend or distribution on, its Common Stock
without the prior express written consent of the holders of not less than
two-thirds (2/3) of the then outstanding Preferred Shares.
(11) Limitation on Number of Conversion Shares. The Company shall
not be obligated to issue, in the aggregate, more than 2,243,782 shares of
Common Stock (such amount to be proportionately and equitably adjusted from time
to time in the event of stock splits, stock dividends, combinations, reverse
stock splits, reclassification, capital reorganizations and similar events
relating to the Common Stock) (the "Common Share Limit") upon conversion of the
Preferred Shares, if issuance of a larger number of shares of Common Stock would
constitute a breach of the Company's obligations under the rules or regulations
of The American Stock Exchange or any other principal securities exchange or
market upon which the Common Stock becomes traded. The Common Share Limit shall
be allocated among the holders of Preferred Shares pro rata based on the total
number of Preferred Shares issued on the Closing Date. The remaining portion of
the Common Share Limit attributable to any holder of Preferred Shares, all of
whose Preferred Shares has been converted or redeemed, shall be allocated among
the remaining holders of Preferred Shares pro rata based on the number of
Preferred Shares then outstanding.
(12) Vote to Change the Terms of Preferred Shares. The affirmative
vote at a meeting duly called for such purpose or the written consent without a
meeting, of the holders of not less than two-thirds (2/3) of the then
outstanding Preferred Shares, shall be required for any change to this
Certificate of Designations or the Company's Certificate of Incorporation which
would amend, alter, change or repeal any of the powers, designations,
preferences and rights of the Preferred Shares.
(13) Lost or Stolen Certificates. Upon receipt by the Company of
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of any Preferred Stock Certificates representing the Preferred
Shares, and, in the case of loss, theft or destruction, of any indemnification
undertaking by the holder to the Company and, in the case of mutilation, upon
surrender and cancellation of the Preferred Stock Certificate(s), the Company
shall execute and deliver new preferred stock certificate(s) of like tenor and
date; provided, however, the Company shall not be obligated to re-issue
preferred stock certificates if the holder contemporaneously requests the
Company to convert such Preferred Shares into Common Stock.
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations to be signed by Geert Kersten, its Chief Executive Officer, as of
the 22nd day of December 1997.
ISSUER
By:
Name: Geert Kersten
Its: Chief Executive Officer
EXHIBIT I
ISSUER
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and Rights of
Cel-Sci Corporation (the "Certificate of Designations"). In accordance with and
pursuant to the Certificate of Designations, the undersigned hereby elects to
convert the number of shares of Series D Preferred Stock, par value $1,000 per
share (the "Preferred Shares"), of Cel-Sci Corporation, a Colorado corporation
(the "Company"), indicated below into shares of Common Stock, par value $0.01
per share (the "Common Stock"), of the Company, by tendering the stock
certificate(s) representing the share(s) of Preferred Shares specified below as
of the date specified below.
Date of Conversion:
Number of Preferred Shares to be converted:
Stock certificate no(s). of Preferred Shares to be converted:
Please confirm the following information:
Conversion Price:
Number of shares of Common Stock to be issued:
Please issue the Common Stock and, if applicable, any check drawn on an account
of the Company into which the Preferred Shares are being converted in the
following name and to the following address:
Issue to:
Facsimile Number:
Authorization:
By:
Title:
Dated:
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