SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported): December 30, 2008
CEL-SCI CORPORATION
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(Exact name of Registrant as specified in its charter)
Colorado 0-11503 84-0916344
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(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
8229 Boone Blvd. #802
Vienna, VA 22182
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(Address of principal executive offices, including Zip Code)
Registrant's telephone number, including area code: (703) 506-9460
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N/A
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(Former name or former address if changed since last report)
Item 1.01 Entry Into a Material Definitive Agreement
Equity Line of Credit
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On December 30, 2008, CEL-SCI entered into an equity line of credit
agreement with Ascendiant Capital Group, LLC in order to establish a possible
source of funding for CEL-SCI. The equity line of credit agreement establishes
what is sometimes also referred to as an equity drawdown facility.
Under the equity line of credit agreement, Ascendiant has agreed to provide
CEL-SCI with up to $5,000,000 of funding prior to January 6, 2011. During this
period, CEL-SCI may request a drawdown under the equity line of credit by
selling shares of its common stock to Ascendiant and Ascendiant will be
obligated to purchase the shares. CEL-SCI may request a drawdown once every ten
trading days, although CEL-SCI is under no obligation to request any drawdowns
under the equity line of credit. There must be a minimum of two trading days
between each drawdown request.
During the ten trading days following a drawdown request, CEL-SCI will
calculate the amount of shares it will sell to Ascendiant and the purchase price
per share. The purchase price per share of common stock will be based on the
daily volume weighted average price of CEL-SCI's common stock during each of the
ten trading days immediately following the drawdown date, less a discount of 9%.
CEL-SCI may request a drawdown by faxing a drawdown notice to Ascendiant,
stating the amount of the drawdown and the lowest price, if any, at which
CEL-SCI is willing to sell the shares. The lowest price will be set by CEL-SCI's
Chief Executive Officer in his sole and absolute discretion.
Calculation of Drawdown Amount, Purchase Price and Number of Shares Sold
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There is no minimum amount CEL-SCI can draw down at any one time. The
maximum amount CEL-SCI can draw down at any one time is an amount equal to:
o 10% of the total trading volume of CEL-SCI's common stock for the ten
trading days prior to the date of the drawdown request, multiplied by
o the weighted average price of CEL-SCI's common stock for the same ten
trading days,
or any other amount mutually agreed upon by CEL-SCI and Ascendiant.
On the day following the delivery of the drawdown notice, a valuation
period of ten trading days will start:
o On each of the ten trading days during the valuation period, the
number of shares to be sold to Ascendiant will be determined by
dividing 1/10 of the drawdown amount by the purchase price on each
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trading day. The purchase price will be 91% of the volume weighted
average price of CEL-SCI's common stock on that day.
o If the purchase price on any trading day during the ten trading day
calculation period is below the minimum price specified by CEL-SCI,
then Ascendiant will not purchase any shares on that day, and the
drawdown amount will be reduced by 1/10.
Using the formula described above, if CEL-SCI had requested a drawdown on
December 12, 2008, the maximum amount CEL-SCI could draw down during the
subsequent ten trading days would have been approximately $72,125. Based upon
the volume weighted average of CEL-SCI's common stock during the ten trading
days subsequent to December 12, 2008, CEL-SCI would have sold 258,000 shares of
its common stock to Ascendiant and would have received proceeds from the sale of
these shares of approximately $72,125.
If CEL-SCI sets a minimum price which is too high and CEL-SCI's stock price
does not consistently meet that level during the ten trading days after its
drawdown request, the amount CEL-SCI can draw and the number of shares CEL-SCI
will sell to Ascendiant will be reduced. On the other hand, if CEL-SCI sets a
minimum price which is too low and its stock price falls significantly but stays
above the minimum price, CEL-SCI will have to issue a greater number of shares
to Ascendiant based on the reduced market price.
Payment for Shares
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The shares purchased on the ten trading days following a drawdown request
will be issued and paid for on the 13th trading day following the drawdown
request.
Termination of the Equity Line of Credit Agreement
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The equity line of credit agreement will be terminated if:
o CEL-SCI's common stock is de-listed from the American Stock Exchange
unless the de-listing is in connection with CEL-SCI's subsequent
listing of its common stock on the NASDAQ National Market, the NASDAQ
SmallCap Market, the New York Stock Exchange, the OTC Bulletin Board,
o CEL-SCI files for protection from its creditors under the Federal
Bankruptcy laws,
o The shares which are to be sold to Ascendiant are not covered by an
effective registration statement,
o Ascendiant fails to honor a drawdown notice, or
o the equity line of credit agreement violates any other agreement to
which CEL-SCI is a party.
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General
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On the trading day immediately prior to the date CEL-SCI sends its first
drawdown notice to Ascendiant, and in consideration for providing the equity
drawdown facility, CEL-SCI will deliver to Ascendiant shares of its common stock
equal in number to the amount determined by:
o dividing $250,000 by
o the greater of the weighted average price of CEL-SCI's common stock or
the closing bid price of CEL-SCI's common stock on the second trading
day immediately preceding the drawdown notice.
CEL-SCI paid $20,000 to Feldman Weinstein Smith LLP, legal counsel to
Ascendiant, for Ascendiant's legal expenses relating to the equity line of
credit.
Ascendiant is entitled to customary indemnification from CEL-SCI for any
losses or liabilities it suffers as a result of any breach by CEL-SCI of any
provisions of the equity line of credit agreement, or as a result of any lawsuit
brought by any shareholder of CEL-SCI, provided the shareholder instituting the
lawsuit is not an officer, director or principal shareholder of CEL-SCI.
Item 9.01 Financial Statements and Exhibits
Exhibit Number Description
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10(j) Equity Line of Credit Agreement
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: January 2, 2009
CEL-SCI CORPORATION
By: /s/ Patricia B. Prichep
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Patricia B. Prichep, Senior Vice President
of Operations
CEL-SCI CORPORATION
FORM 8-K
EXHIBITS
EXHIBIT 10(j)
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement") is dated as of
December 30, 2008 by and between Cel-Sci Corporation, a Colorado corporation
(the "Company") and Ascendiant Capital Group, LLC (the "Purchaser"). Capitalized
terms used in this Agreement and not otherwise defined shall have the meanings
ascribed to them in Article 1.
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall have the right to issue and sell
to Purchaser from time to time as provided herein, and Purchaser shall be
obligated to purchase from the Company up to $5,000,000 worth of shares of
Common Stock pursuant to the Company's effective registration statement under
the Securities Act, file no. 333-151667.
NOW, THEREFORE, in consideration of the foregoing premises, and the
promises and covenants herein contained, the receipt and sufficiency of which
are hereby acknowledged by the parties hereto, the parties, intending to be
legally bound, hereby agree as follows:
ARTICLE I.
DEFINITIONS
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms have the
meanings indicated in this Section 1.1:
"Action" shall have the meaning ascribed to such term in Section
3.1(j).
"Affiliate" means any Person that, directly or indirectly through
one or more intermediaries, controls or is controlled by or is under
common control with a Person as such terms are used in and construed under
Rule 144 under the Securities Act. With respect to the Purchaser, any
investment fund or managed account that is managed on a discretionary
basis by the same investment manager as the Purchaser will be deemed to be
an Affiliate of the Purchaser.
"Aggregate Purchase Price" shall have the meaning ascribed to such
term in Section 6.1(e).
"Business Day" means any day except Saturday, Sunday, any day which
shall be a federal legal holiday in the United States or any day on which
banking institutions in the State of New York are authorized or required
by law or other governmental action to close.
"Commission" means the Securities and Exchange Commission.
"Commencement Date" shall mean the Trading Day immediately following
the date.
"Commitment Amount" shall have the meaning assigned to such term in
Section 2.1 hereof.
"Commitment Period" shall mean the period of 24 consecutive months
commencing immediately after the date that the Company files a prospectus
supplement disclosing the terms hereunder.
"Common Stock" means the common stock of the Company, and any other
class of securities into which such securities may hereafter be
reclassified or changed into.
"Common Stock Equivalents" means any securities of the Company or
the Subsidiaries which would entitle the holder thereof to acquire at any
time Common Stock, including, without limitation, any debt, preferred
stock, rights, options, warrants or other instrument that is at any time
convertible into or exercisable or exchangeable for, or otherwise entitles
the holder thereof to receive, Common Stock.
"Company Counsel" means Hart & Trinen, 1624 Washington Street,
Denver, Colorado 80206.
"Consolidation Event" shall mean a sale of all or substantially all
of the Company's assets or a merger pursuant to which the holders of the
voting securities of the Company prior to the merger do not own a majority
of the voting securities of the surviving entity.
"Disclosure Schedules" means the Disclosure Schedules of the Company
delivered concurrently herewith.
"Draw Down" shall have the meaning assigned to such term in Section
6.1(a) hereof.
"Draw Down Notice" shall have the meaning assigned to such term in
Section 6.1(e) hereof.
"Draw Down Pricing Period" shall mean a period of 10 consecutive
Trading Days, beginning on the date specified in the Draw Down Notice and,
absent a subsequent suspension notice delivered to the Purchaser on or
before the end of the prior Draw Down Pricing Period, beginning on the
third Trading Day following the prior Draw down Pricing Period; provided,
however, the Draw Down Pricing Period shall not begin before the day on
which receipt of such notice is delivered to Purchaser pursuant to Section
8.3 herein.
"Draw Down Shares" or "Shares" shall mean the shares of Common Stock
issuable pursuant to a Draw Down.
"DTC" shall have the meaning assigned to such term in Section
6.1(f).
"DWAC" shall have the meaning assigned to such term in Section
6.1(f).
"Equity Conditions" shall mean, during the period in question, (i)
there is an effective and available Registration Statement pursuant to
which the Company is permitted to utilize the prospectus thereunder to
sell all of the Draw Down Shares (issued and to be issued pursuant to the
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applicable Draw Down), (ii) the Common Stock is trading on the Trading
Market and all of the shares issuable pursuant to the Transaction
Documents are listed or quoted (if applicable) for trading on a Trading
Market (and the Company believes, in good faith, that trading of the
Common Stock on a Trading Market will continue uninterrupted for the
foreseeable future), (iii) there is a sufficient number of authorized but
unissued and otherwise unreserved shares of Common Stock for the issuance
of all of the Draw Down Shares (issued and to be issued pursuant to the
applicable Draw Down), (iv) the Company, directly or indirectly, has not
provided the Purchaser with any material, non-public information that has
not been made publicly available in a widely disseminated release; and (v)
the issuance in question shall not exceed 4.9% of the then outstanding
shares of Common Stock on the date that such Draw Down Shares are issued.
"Evaluation Date" shall have the meaning ascribed to such term in
Section 3.1(r).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"FWS" means Feldman Weinstein & Smith LLP with offices located at
420 Lexington Avenue, Suite 2620, New York, New York 10170-0002.
"GAAP" shall have the meaning ascribed to such term in Section
3.1(h).
"Initial Closing" shall have the meaning assigned to such term in
Section 2.2 hereof.
"Initial Closing Date" shall have the meaning assigned to such term
in Section 2.2 hereof.
"Intellectual Property Rights" shall have the meaning ascribed to
such term in Section 3.1(o).
"Investment Amount" shall have the meaning assigned to such term in
Section 6.1(e) hereof.
"Liens" means a lien, charge, security interest, encumbrance, right
of first refusal, preemptive right or other restriction.
"Material Adverse Effect" shall have the meaning assigned to such
term in Section 3.1(b).
"Material Permits" shall have the meaning ascribed to such term in
Section 3.1(m).
"Person" means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or
subdivision thereof) or other entity of any kind.
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"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Purchase Price" shall mean, with respect to Draw Down Shares
purchased during each applicable Settlement Period, 91% of the VWAP on the
date in question.
"Purchaser Party" shall have the meaning ascribed to such term in
Section 4.7.
"Registration Statement" means the registration statement file no.
333-151667, covering the sale by the Company to the Purchaser of the Draw
Down Shares and the shares issuable pursuant to Section 5.2(g) below.
"Required Approvals" shall have the meaning ascribed to such term in
Section 3.1(e).
"Rule 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 424" means Rule 424 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"SEC Reports" shall have the meaning ascribed to such term in
Section 3.1(h).
"Securities" means the Draw Down Shares, and the shares of Common
Stock issuable to the Purchaser pursuant to Section 5.2(g) below.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"Settlement" shall mean the delivery of the Draw Down Shares into
the Purchaser's DTC account via DTC's DWAC system and the Purchaser's
delivery of payment therefor.
"Settlement Date" shall have the meaning assigned to such term in
Section 6.1(b).
"Settlement Period" shall have the meaning assigned to such term in
Section 6.1(b).
"Subsidiary" means any subsidiary of the Company as set forth on
Schedule 3.1(a).
"Threshold Price" shall mean a price specified by the Company in
each Draw Down Notice.
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"Trading Cushion" shall mean the mandatory 2 Trading Days between
Draw Down Pricing Periods.
"Trading Day" means a day on which the Common Stock is traded on a
Trading Market.
"Trading Market" means the following markets or exchanges on which
the Common Stock is listed or quoted for trading on the date in question:
the Nasdaq Capital Market, the American Stock Exchange, the New York Stock
Exchange or the Nasdaq Global Market.
"Transaction Documents" means this Agreement and any other documents
or agreements executed in connection with the transactions contemplated
hereunder.
"VWAP" means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then listed or
quoted on a Trading Market, the daily volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the Trading
Market on which the Common Stock is then listed or quoted for trading as
reported by Bloomberg Financial L.P. (based on a Trading Day from 9:30
a.m. (New York City time) to 4:02 p.m. (New York City time); (b) if the
Common Stock is not listed or traded on a Trading Market but is quoted on
the OTC Bulletin Board, the volume weighted average price of the Common
Stock for such date (or the nearest preceding date) on the OTC Bulletin
Board; (c) if the Common Stock is not then quoted for trading on a Trading
Market or the OTC Bulletin Board and if prices for the Common Stock are
then reported in the "Pink Sheets" published by Pink Sheets, LLC (or a
similar organization or agency succeeding to its functions of reporting
prices), the most recent bid price per share of the Common Stock so
reported; or (d) in all other cases, the fair market value of a share of
Common Stock as determined by an independent appraiser selected in good
faith by the Holder and reasonably acceptable to the Company.
ARTICLE II.
PURCHASE AND SALE
2.1 Purchase and Sale of Draw Down Shares. Upon the terms and subject to
the conditions of this Agreement, at its discretion, the Company may sell and
issue to the Purchaser and the Purchaser shall be obligated to purchase from the
Company, up to an aggregate of $5,000,000 worth of shares of Common Stock (the
"Commitment Amount"), provided that in no event shall the Commitment Amount
exceed 24,615,000 shares of Common Stock without first obtaining stockholder
approval of such excess issuance.
2.2 Initial Closing. The execution and delivery of this Agreement and the
other agreements referred to herein (the "Initial Closing") shall take place at
the offices of FWS, 420 Lexington Avenue, Suite 2620, New York, New York 10170
(i) at 10:00 a.m. local time within 5 Trading Days of the date hereof, or (ii)
at such other time and place or on such date as the Purchaser and the Company
may agree upon (the "Initial Closing Date"). Each party shall deliver the
following documents, instruments and writings at or prior to the Initial
Closing:
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(a) the Company shall deliver or cause to be delivered to the
Purchaser the following:
(i) this Agreement duly executed by the Company;
(ii) the legal opinion from Company Counsel, in the form attached
hereto as Exhibit B; and
(iii) the base prospectus in the Registration Statement shall be
accepted by FINRA under Rule 2710.
(b) the Purchaser shall deliver or cause to be delivered to the
Company this Agreement duly executed by the Purchaser.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company. Except as set forth
under the corresponding section of the Disclosure Schedules which Disclosure
Schedules shall be deemed a part hereof and to qualify any representation or
warranty otherwise made herein to the extent of such disclosure, the Company
hereby makes the representations and warranties set forth below to the
Purchaser:
(a) Subsidiaries. All of the direct and indirect subsidiaries of the
Company are set forth on Schedule 3.1(a). The Company owns, directly or
indirectly, all of the capital stock or other equity interests of each
Subsidiary free and clear of any Liens, and all the issued and outstanding
shares of capital stock of each Subsidiary are validly issued and are fully
paid, non-assessable and free of preemptive and similar rights to subscribe
for or purchase securities. If the Company has no subsidiaries, then all
other references in the Transaction Documents to the Subsidiaries or any of
them will be disregarded.
(b) Organization and Qualification. The Company and each of the
Subsidiaries is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite power and
authority to own and use its properties and assets and to carry on its
business as currently conducted. Neither the Company nor any Subsidiary is
in violation or default of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or
charter documents. Each of the Company and the Subsidiaries is duly
qualified to conduct business and is in good standing as a foreign
corporation or other entity in each jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing,
as the case may be, could not have or reasonably be expected to result in
(i) a material adverse effect on the legality, validity or enforceability
of any Transaction Document, (ii) a material adverse effect on the results
of operations, assets, business, prospects or condition (financial or
otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii)
a material adverse effect on the Company's ability to perform in any
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material respect on a timely basis its obligations under any Transaction
Document (any of (i), (ii) or (iii), a "Material Adverse Effect") and no
Proceeding has been instituted in any such jurisdiction revoking, limiting
or curtailing or seeking to revoke, limit or curtail such power and
authority or qualification.
(c) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The
execution and delivery of each of the Transaction Documents by the Company
and the consummation by it of the transactions contemplated hereby and
thereby have been duly authorized by all necessary action on the part of
the Company and no further action is required by the Company, its board of
directors or its stockholders in connection therewith other than in
connection with the Required Approvals. Each Transaction Document has been
(or upon delivery will have been) duly executed by the Company and, when
delivered in accordance with the terms hereof and thereof, will constitute
the valid and binding obligation of the Company enforceable against the
Company in accordance with its terms except (i) as limited by general
equitable principles and applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions
may be limited by applicable law.
(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company, the issuance and sale of the Shares
and the consummation by the Company of the other transactions contemplated
hereby and thereby do not and will not (i) conflict with or violate any
provision of the Company's or any Subsidiary's certificate or articles of
incorporation, bylaws or other organizational or charter documents, or (ii)
conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, result in the creation
of any Lien upon any of the properties or assets of the Company or any
Subsidiary, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or
both) of, any agreement, credit facility, debt or other instrument
(evidencing a Company or Subsidiary debt or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by which
any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) subject to the Required Approvals, conflict with or
result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including
federal and state securities laws and regulations), or by which any
property or asset of the Company or a Subsidiary is bound or affected;
except in the case of each of clauses (ii) and (iii), such as could not
have or reasonably be expected to result in a Material Adverse Effect.
(e) Filings, Consents and Approvals. The Company is not required to
obtain any consent, waiver, authorization or order of, give any notice to,
or make any filing or registration with, any court or other federal, state,
local or other governmental authority or other Person in connection with
the execution, delivery and performance by the Company of the Transaction
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Documents, other than (i) filings required pursuant to Section 4.4 of this
Agreement, (ii) the filing with the Commission of a prospectus supplement
to the Registration Statement describing the transactions contemplated
hereby, (iii) application(s) to each applicable Trading Market for the
listing of the Securities for trading thereon in the time and manner
required thereby, and (iv) such filings as are required to be made under
applicable state securities laws (collectively, the "Required Approvals").
(f) Issuance of the Securities. The Securities are duly authorized
and, when issued and paid for in accordance with the applicable Transaction
Documents, will be duly and validly issued, fully paid and nonassessable,
free and clear of all Liens imposed by the Company other than restrictions
on transfer provided for in the Transaction Documents. The Company has
reserved from its duly authorized capital stock the maximum number of
shares of Common Stock issuable pursuant to this Agreement. The Draw Down
Shares and the other shares of Common Stock issuable hereunder will be,
upon issuance, duly registered under the Securities Act and will be freely
tradable by the Purchaser, subject to any prospectus delivery requirements
under Rule 172 under the Securities Act.
(g) Capitalization. The capitalization of the Company is as set forth
on Schedule 3.1(g). Except as shown on Schedule 3.1(g)(i), the Company has
not issued any capital stock since its most recently filed periodic report
under the Exchange Act, other than pursuant to the exercise of employee
stock options under the Company's stock option plans, the issuance of
shares of Common Stock to employees pursuant to the Company's employee
stock purchase plan and pursuant to the conversion or exercise of Common
Stock Equivalents outstanding as of the date of the most recently filed
periodic report under the Exchange Act, (ii) no Person has any right of
first refusal, preemptive right, right of participation, or any similar
right to participate in the transactions contemplated by the Transaction
Documents, (iii) except as a result of the purchase and sale of the
Securities, there are no outstanding options, warrants, script rights to
subscribe to, calls or commitments of any character whatsoever relating to,
or securities, rights or obligations convertible into or exercisable or
exchangeable for, or giving any Person any right to subscribe for or
acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary is or
may become bound to issue additional shares of Common Stock or Common Stock
Equivalents,and (iv) the issuance and sale of the Securities will not
obligate the Company to issue shares of Common Stock or other securities to
any Person (other than the Purchaser) and will not result in a right of any
holder of Company securities to adjust the exercise, conversion, exchange
or reset price under any of such securities. All of the outstanding shares
of capital stock of the Company are validly issued, fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws, and none of such outstanding shares was issued in
violation of any preemptive rights or similar rights to subscribe for or
purchase securities. No further approval or authorization of any
stockholder, the Board of Directors of the Company or others is required
for the issuance and sale of the Securities. There are no stockholders
agreements, voting agreements or other similar agreements with respect to
8
the Company's capital stock to which the Company is a party or, to the
knowledge of the Company, between or among any of the Company's
stockholders.
(h) SEC Reports; Financial Statements. The Company has filed all
reports, schedules, forms, statements, registration statements and other
documents required to be filed by it under the Securities Act and the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the
two years preceding the date hereof (or such shorter period as the Company
was required by law or regulation to file such material) (the foregoing
materials, including the exhibits thereto and documents incorporated by
reference therein, being collectively referred to herein as the "SEC
Reports") on a timely basis or has received a valid extension of such time
of filing and has filed any such SEC Reports prior to the expiration of any
such extension. As of their respective dates, the SEC Reports complied in
all material respects with the requirements of the Securities Act and the
Exchange Act, as applicable, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading. The financial statements of the Company included
in the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the Commission
with respect thereto as in effect at the time of filing. Such financial
statements have been prepared in accordance with United States generally
accepted accounting principles applied on a consistent basis during the
periods involved ("GAAP"), except as may be otherwise specified in such
financial statements or the notes thereto and except that unaudited
financial statements may not contain all footnotes required by GAAP, and
fairly present in all material respects the financial position of the
Company and its consolidated subsidiaries as of and for the dates thereof
and the results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments.
(i) Material Changes; Undisclosed Events, Liabilities or Developments.
Since the date of the latest audited financial statements included within
the SEC Reports, except as specifically disclosed in a subsequent SEC
Report or on Schedule 3.1(i), (i) there has been no event, occurrence or
development that has had or that could reasonably be expected to result in
a Material Adverse Effect, (ii) the Company has not incurred any
liabilities (contingent or otherwise) other than (A) trade payables and
accrued expenses incurred in the ordinary course of business consistent
with past practice and (B) liabilities not required to be reflected in the
Company's financial statements pursuant to GAAP or disclosed in filings
made with the Commission, (iii) the Company has not altered its method of
accounting, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its
capital stock and (v) the Company has not issued any equity securities to
any officer, director or Affiliate, except pursuant to existing Company
stock option plans. The Company does not have pending before the Commission
any request for confidential treatment of information. Except for the
issuance of the Securities contemplated by this Agreement or as set forth
on Schedule 3.1(i), no event, liability or development has occurred or
exists with respect to the Company or its Subsidiaries or their respective
business, properties, operations or financial condition, that would be
9
required to be disclosed by the Company under applicable securities laws at
the time this representation is made that has not been publicly disclosed
at least 1 Trading Day prior to the date that this representation is made.
(j) Litigation. There is no action, suit, inquiry, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company, any Subsidiary or any
of their respective properties before or by any court, arbitrator,
governmental or administrative agency or regulatory authority (federal,
state, county, local or foreign) (collectively, an "Action") which (i)
adversely affects or challenges the legality, validity or enforceability of
any of the Transaction Documents or the Securities or (ii) could, if there
were an unfavorable decision, have or reasonably be expected to result in a
Material Adverse Effect. Neither the Company nor any Subsidiary, nor any
director or officer thereof, is or has been the subject of any Action
involving a claim of violation of or liability under federal or state
securities laws or a claim of breach of fiduciary duty. There has not been,
and to the knowledge of the Company, there is not pending or contemplated,
any investigation by the Commission involving the Company or any current or
former director or officer of the Company. The Commission has not issued
any stop order or other order suspending the effectiveness of any
registration statement filed by the Company or any Subsidiary under the
Exchange Act or the Securities Act.
(k) Labor Relations. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees
of the Company, which could reasonably be expected to result in a Material
Adverse Effect. None of the Company's or its Subsidiaries' employees is a
member of a union that relates to such employee's relationship with the
Company, and neither the Company or any of its Subsidiaries is a party to a
collective bargaining agreement, and the Company and its Subsidiaries
believe that their relationships with their employees are good. No
executive officer, to the knowledge of the Company, is, or is now expected
to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement or
non-competition agreement, or any other contract or agreement or any
restrictive covenant, and the continued employment of each such executive
officer does not subject the Company or any of its Subsidiaries to any
liability with respect to any of the foregoing matters. The Company and its
Subsidiaries are in compliance with all U.S. federal, state, local and
foreign laws and regulations relating to employment and employment
practices, terms and conditions of employment and wages and hours, except
where the failure to be in compliance could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
(l) Compliance. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not
been waived that, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or any
Subsidiary received notice of a claim that it is in default under or that
it is in violation of, any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its
properties is bound (whether or not such default or violation has been
waived), (ii) is in violation of any order of any court, arbitrator or
governmental body, or (iii) is or has been in violation of any statute,
10
rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws applicable to its
business and all such laws that affect the environment, except in each case
as could not have or reasonably be expected to result in a Material Adverse
Effect.
(m) Regulatory Permits. The Company and the Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the
failure to possess such permits could not have or reasonably be expected to
result in a Material Adverse Effect ("Material Permits"), and neither the
Company nor any Subsidiary has received any notice of proceedings relating
to the revocation or modification of any Material Permit.
(n) Title to Assets. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them that is
material to the business of the Company and the Subsidiaries and good and
marketable title in all personal property owned by them that is material to
the business of the Company and the Subsidiaries, in each case free and
clear of all Liens, except for Liens as do not materially affect the value
of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company and the Subsidiaries
and Liens for the payment of federal, state or other taxes, the payment of
which is neither delinquent nor subject to penalties. Any real property and
facilities held under lease by the Company and the Subsidiaries are held by
them under valid, subsisting and enforceable leases with which the Company
and the Subsidiaries are in compliance.
(o) Patents and Trademarks. The Company and the Subsidiaries have, or
have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, trade secrets, inventions,
copyrights, licenses and other intellectual property rights and similar
rights necessary or material for use in connection with their respective
businesses as described in the SEC Reports and which the failure to so have
could have a Material Adverse Effect (collectively, the "Intellectual
Property Rights"). Neither the Company nor any Subsidiary has received a
notice (written or otherwise) that the Intellectual Property Rights used by
the Company or any Subsidiary violates or infringes upon the rights of any
Person. To the knowledge of the Company, all such Intellectual Property
Rights are enforceable and there is no existing infringement by another
Person of any of the Intellectual Property Rights. The Company and its
Subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of all of their intellectual properties,
except where failure to do so could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
(p) Insurance. The Company and the Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses in
which the Company and the Subsidiaries are engaged, including, but not
limited to, directors and officers insurance coverage at least equal to the
aggregate Commitment Amount. Neither the Company nor any Subsidiary has any
reason to believe that it will not be able to renew its existing insurance
11
coverage as and when such coverage expires or to obtain similar coverage
from similar insurers as may be necessary to continue its business without
a significant increase in cost.
(q) Transactions With Affiliates and Employees. Except as set forth in
the SEC Reports, and in Schedule 3.1(q), none of the officers or directors
of the Company and, to the knowledge of the Company, none of the employees
of the Company, is presently a party to any transaction with the Company or
any Subsidiary (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of
real or personal property to or from, or otherwise requiring payments to or
from any officer, director or such employee or, to the knowledge of the
Company, any entity in which any officer, director, or any such employee
has a substantial interest or is an officer, director, trustee or partner,
in each case in excess of $60,000 other than (i) for payment of salary or
consulting fees for services rendered, (ii) reimbursement for expenses
incurred on behalf of the Company and (iii) for other employee benefits,
including stock option agreements under any stock option plan of the
Company.
(r) Sarbanes-Oxley; Internal Accounting Controls. The Company is in
material compliance with all provisions of the Sarbanes-Oxley Act of 2002
which are applicable to it as of the Closing Date. The Company and the
Subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's
general or specific authorization, and (iv) the recorded accountability for
assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences. The Company
has established disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such
disclosure controls and procedures to ensure that information required to
be disclosed by the Company in the reports it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the Commission's rules and forms. The Company's
certifying officers have evaluated the effectiveness of the Company's
disclosure controls and procedures as of the end of the period covered by
the Company's most recently filed periodic report under the Exchange Act
(such date, the "Evaluation Date"). The Company presented in its most
recently filed periodic report under the Exchange Act the conclusions of
the certifying officers about the effectiveness of the disclosure controls
and procedures based on their evaluations as of the Evaluation Date. Since
the Evaluation Date, there have been no changes in the Company's internal
control over financial reporting (as such term is defined in the Exchange
Act) that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
(s) Certain Fees. Except as set forth on Schedule 3.1(s), no brokerage
or finder's fees or commissions are or will be payable by the Company to
any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
12
contemplated by the Transaction Documents. The Purchaser shall have no
obligation with respect to any fees or with respect to any claims made by
or on behalf of other Persons for fees of a type contemplated in this
Section that may be due in connection with the transactions contemplated by
the Transaction Documents.
(t) Investment Company. The Company is not, and is not an Affiliate
of, and immediately after receipt of payment for the Securities, will not
be or be an Affiliate of, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended. The Company shall conduct its
business in a manner so that it will not become subject to the Investment
Company Act.
(u) Listing and Maintenance Requirements. The Company's Common Stock
is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and
the Company has taken no action designed to, or which to its knowledge is
likely to have the effect of, terminating the registration of the Common
Stock under the Exchange Act nor has the Company received any notification
that the Commission is contemplating terminating such registration. The
Company has not, in the 12 months preceding the date hereof, received
notice from any Trading Market on which the Common Stock is or has been
listed or quoted to the effect that the Company is not in compliance with
the listing or maintenance requirements of such Trading Market. The Company
is, and has no reason to believe that it will not in the foreseeable future
continue to be, in compliance with all such listing and maintenance
requirements.
(v) Application of Takeover Protections. The Company and its Board of
Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison
pill (including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company's Certificate of Incorporation
(or similar charter documents) or the laws of its state of incorporation
that is or could become applicable to the Purchaser as a result of the
Purchaser and the Company fulfilling their obligations or exercising their
rights under the Transaction Documents, including without limitation as a
result of the Company's issuance of the Securities and the Purchaser's
ownership of the Securities.
(w) Disclosure. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents,
the Company confirms that, neither it nor any other Person acting on its
behalf has provided any of the Purchaser or their agents or counsel with
any information that it believes constitutes or might constitute material,
non-public information. The Company understands and confirms that the
Purchaser will rely on the foregoing representation in effecting
transactions in securities of the Company. All disclosure furnished by or
on behalf of the Company to the Purchaser regarding the Company, its
business and the transactions contemplated hereby, including the Disclosure
Schedules to this Agreement, with respect to the representations and
warranties made herein are true and correct with respect to such
representations and warranties and do not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make
the statements made therein, in light of the circumstances under which they
were made, not misleading. The press releases disseminated by the Company
13
during the twelve months preceding the date of this Agreement taken as a
whole do not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order
to make the statements, in light of the circumstances under which they were
made and when made, not misleading. The Company acknowledges and agrees
that no Purchaser makes or has made any representations or warranties with
respect to the transactions contemplated hereby other than those
specifically set forth in Section 3.2 hereof.
(x) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any
offers to buy any security, under circumstances that would cause this
offering of the Securities to be integrated with prior offerings by the
Company for purposes of any applicable shareholder approval provisions of
any Trading Market on which any of the securities of the Company are listed
or designated. -
(y) Solvency. Based on the financial condition of the Company as of
the Closing Date, (i) the fair saleable value of the Company's assets
exceeds the amount that will be required to be paid on or in respect of the
Company's existing debts and other liabilities (including known contingent
liabilities) as they mature; (ii) the Company's assets do not constitute
unreasonably small capital to carry on its business as now conducted and as
proposed to be conducted including its capital needs taking into account
the particular capital requirements of the business conducted by the
Company, and projected capital requirements and capital availability
thereof; and (iii) the current cash flow of the Company, together with the
proceeds the Company would receive, were it to liquidate all of its assets,
after taking into account all anticipated uses of the cash, would be
sufficient to pay all amounts on or in respect of its liabilities when such
amounts are required to be paid. The Company does not intend to incur debts
beyond its ability to pay such debts as they mature (taking into account
the timing and amounts of cash to be payable on or in respect of its debt).
The Company has no knowledge of any facts or circumstances which lead it to
believe that it will file for reorganization or liquidation under the
bankruptcy or reorganization laws of any jurisdiction within one year from
the Closing Date. The SEC Reports set forth as of the dates thereof all
outstanding secured and unsecured Indebtedness of the Company or any
Subsidiary, or for which the Company or any Subsidiary has commitments. For
the purposes of this Agreement, "Indebtedness" shall mean (a) any
liabilities for borrowed money or amounts owed in excess of $50,000 (other
than trade accounts payable incurred in the ordinary course of business),
(b) all guaranties, endorsements and other contingent obligations in
respect of Indebtedness of others, whether or not the same are or should be
reflected in the Company's balance sheet (or the notes thereto), except
guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business; and
(c) the present value of any lease payments in excess of $50,000 due under
leases required to be capitalized in accordance with GAAP. Neither the
Company nor any Subsidiary is in default with respect to any Indebtedness.
(z) Tax Status. Except for matters that would not, individually or in
the aggregate, have or reasonably be expected to result in a Material
Adverse Effect, the Company and each Subsidiary has filed all necessary
federal, state and foreign income and franchise tax returns and has paid or
14
accrued all taxes shown as due thereon, and the Company has no knowledge of
a tax deficiency which has been asserted or threatened against the Company
or any Subsidiary.
(aa) Foreign Corrupt Practices. Neither the Company, nor to the
knowledge of the Company, any agent or other person acting on behalf of the
Company, has (i) directly or indirectly, used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses related to
foreign or domestic political activity, (ii) made any unlawful payment to
foreign or domestic government officials or employees or to any foreign or
domestic political parties or campaigns from corporate funds, (iii) failed
to disclose fully any contribution made by the Company (or made by any
person acting on its behalf of which the Company is aware) which is in
violation of law, or (iv) violated in any material respect any provision of
the Foreign Corrupt Practices Act of 1977, as amended.
(bb) Accountants. The Company's accountants are set forth in the
Registration Statement. To the knowledge of the Company, such accountants,
who the Company expects will express their opinion with respect to the
financial statements to be included in the Company's Annual Report on Form
10-K for the year ended September 30, 2008, are a registered public
accounting firm as required by the Exchange Act.
(cc) Acknowledgment Regarding Purchaser's Purchase of Securities. The
Company acknowledges and agrees that each of the Purchaser is acting solely
in the capacity of an arm's length purchaser with respect to the
Transaction Documents and the transactions contemplated thereby. The
Company further acknowledges that no Purchaser is acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with
respect to the Transaction Documents and the transactions contemplated
thereby and any advice given by any Purchaser or any of their respective
representatives or agents in connection with the Transaction Documents and
the transactions contemplated thereby is merely incidental to the
Purchaser's purchase of the Securities. The Company further represents to
the Purchaser that the Company's decision to enter into this Agreement and
the other Transaction Documents has been based solely on the independent
evaluation of the transactions contemplated hereby by the Company and its
representatives.
(dd) Acknowledgement Regarding Purchaser's Trading Activity. Anything
in this Agreement or elsewhere herein to the contrary notwithstanding, it
is understood and acknowledged by the Company (i) that the Purchaser has
not been asked to agree, nor has Purchaser agreed, to desist from
purchasing or selling securities of the Company; and (ii) that past or
future open market or other transactions by Purchaser before or after the
closing of this Agreement or future private placement transactions, may
negatively impact the market price of the Company's publicly-traded
securities. The Company further understands and acknowledges that (a) the
Purchaser may engage in selling activities at various times during the
period that the Securities are outstanding, including, without limitation,
during the periods that the value of the Draw Down Shares are being
determined and (b) such selling activities could reduce the value of the
existing stockholders' equity interests in the Company at and after the
time that the selling activities are being conducted. The Company
15
acknowledges that such aforementioned selling activities do not constitute
a breach of any of the Transaction Documents.
(ee) Regulation M Compliance. The Company has not, and will not during
the term of this Agreement, and to its knowledge no one acting on its
behalf has, or will during the term of this Agreement, (i) taken, directly
or indirectly, any action designed to cause or to result in the
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of any of the Securities, (ii) sold, bid
for, purchased, or, paid any compensation for soliciting purchases of, any
of the Securities, or (iii) paid or agreed to pay to any person any
compensation for soliciting another to purchase any other securities of the
Company, other than, in the case of clauses (ii) and (iii), compensation
paid to the Company's placement agent in connection with the placement of
the Securities.
(ff) FDA. As to each product subject to the jurisdiction of the U.S.
Food and Drug Administration ("FDA") under the Federal Food, Drug and
Cosmetic Act, as amended, and the regulations thereunder ("FDCA") that is
manufactured, packaged, labeled, tested, distributed, sold, and/or marketed
by the Company or any of its Subsidiaries (each such product, a
"Pharmaceutical Product"), such Pharmaceutical Product is being
manufactured, packaged, labeled, tested, distributed, sold and/or marketed
by the Company in compliance with all applicable requirements under FDCA
and similar laws, rules and regulations relating to registration,
investigational use, premarket clearance, licensure, or application
approval, good manufacturing practices, good laboratory practices, good
clinical practices, product listing, quotas, labeling, advertising, record
keeping and filing of reports, except where the failure to be in compliance
would not have a Material Adverse Effect. There is no pending, completed
or, to the Company's knowledge, threatened, action (including any lawsuit,
arbitration, or legal or administrative or regulatory proceeding, charge,
complaint, or investigation) against the Company or any of its
Subsidiaries, and none of the Company or any of its Subsidiaries has
received any notice, warning letter or other communication from the FDA or
any other governmental entity, which (i) contests the premarket clearance,
licensure, registration, or approval of, the uses of, the distribution of,
the manufacturing or packaging of, the testing of, the sale of, or the
labeling and promotion of any Pharmaceutical Product, (ii) withdraws its
approval of, requests the recall, suspension, or seizure of, or withdraws
or orders the withdrawal of advertising or sales promotional materials
relating to, any Pharmaceutical Product, (iii) imposes a clinical hold on
any clinical investigation by the Company or any of its Subsidiaries, (iv)
enjoins production at any facility of the Company or any of its
Subsidiaries, (v) enters or proposes to enter into a consent decree of
permanent injunction with the Company or any of its Subsidiaries, or (vi)
otherwise alleges any violation of any laws, rules or regulations by the
Company or any of its Subsidiaries, and which, either individually or in
the aggregate, would have a Material Adverse Effect. The properties,
business and operations of the Company have been and are being conducted in
all material respects in accordance with all applicable laws, rules and
regulations of the FDA. The Company has not been informed by the FDA that
the FDA will prohibit the marketing, sale, license or use in the United
States of any product proposed to be developed, produced or marketed by the
16
Company nor has the FDA expressed any concern as to approving or clearing
for marketing any product being developed or proposed to be developed by
the Company.
3.2 Representations and Warranties of the Purchaser. Purchaser hereby
represents and warrants as of the date hereof and as of each Closing Date to the
Company as follows:
(a) Organization; Authority. Purchaser is an entity duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its organization with full right, corporate or partnership power and
authority to enter into and to consummate the transactions contemplated by
the Transaction Documents and otherwise to carry out its obligations
hereunder and thereunder. The execution, delivery and performance by the
Purchaser of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate or similar action on the part of the
Purchaser. Each Transaction Document to which it is a party has been duly
executed by the Purchaser, and when delivered by the Purchaser in
accordance with the terms hereof, will constitute the valid and legally
binding obligation of the Purchaser, enforceable against it in accordance
with its terms, except (i) as limited by general equitable principles and
applicable bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and (iii)
insofar as indemnification and contribution provisions may be limited by
applicable law.
(b) Ordinary Course of Business. Purchaser is acquiring the Securities
hereunder in the ordinary course of its business.
(c) Purchaser Status. At the time the Purchaser was offered the
Securities, it was, and at the date hereof it is, either: (i) an
"accredited investor" as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7)
or (a)(8) under the Securities Act or (ii) a "qualified institutional
buyer" as defined in Rule 144A(a) under the Securities Act.
(d) Experience of Purchaser. Purchaser, either alone or together with
its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits
and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment. Purchaser is able to
bear the economic risk of an investment in the Securities and, at the
present time, is able to afford a complete loss of such investment.
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
4.1 No Transfer Restrictions; DWAC Delivery. Securities issued hereunder
shall not contain any legend. The Company may not make any notation on its
records or give instructions to any transfer agent of the Company that place
restrictions on the Securities. All Securities shall be transmitted by the
transfer agent of the Company to the Purchaser by crediting the account of the
Purchaser's prime broker with the Depository Trust Company System.
17
4.2 Furnishing of Information. As long as Purchaser owns any Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to the Exchange Act. As long as the
Purchaser owns any Securities, if the Company is not required to file reports
pursuant to the Exchange Act, it will prepare and furnish to the Purchaser and
make publicly available in accordance with Rule 144(c) such information as is
required for the Purchaser to sell the Securities under Rule 144. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, to the extent required from time to time to
enable such Person to sell such Securities without registration under the
Securities Act within the requirements of the exemption provided by Rule 144.
4.3 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would be integrated with the offer or sale of
the Securities for purposes of the rules and regulations of any Trading Market
such that it would require shareholder approval prior to the closing of such
other transaction unless shareholder approval is obtained before the closing of
such subsequent transaction.
4.4 Securities Laws Disclosure; Publicity. The Company shall, by 8:30 a.m.
Eastern time on the second Trading Day immediately following the date hereof,
issue a Current Report on Form 8-K, disclosing the material terms of the
transactions contemplated hereby, and shall attach the Transaction Documents
thereto, and, within the time periods required by Rule 424, file a prospectus
supplement containing all information required to be contained therein. Other
than as required by this Agreement, the Company and the Purchaser shall consult
with each other in issuing any other press releases with respect to the
transactions contemplated hereby, and neither the Company nor the Purchaser
shall issue any such press release or otherwise make any such public statement
without the prior consent of the Company, with respect to any press release of
the Purchaser, or without the prior consent of the Purchaser, with respect to
any press release of the Company, which consent shall not unreasonably be
withheld or delayed, except if such disclosure is required by law, in which case
the disclosing party shall promptly provide the other party with prior notice of
such public statement or communication.
4.5 Shareholder Rights Plan. No claim will be made or enforced by the
Company or, with the consent of the Company, any other Person, that the
Purchaser is an "Acquiring Person" under any control share acquisition, business
combination, poison pill (including any distribution under a rights agreement)
or similar anti-takeover plan or arrangement in effect or hereafter adopted by
the Company, or that the Purchaser could be deemed to trigger the provisions of
any such plan or arrangement, by virtue of receiving Securities under the
Transaction Documents or under any other agreement between the Company and the
Purchaser.
4.6 Non-Public Information. Except with respect to the material terms and
conditions of the transactions contemplated by the Transaction Documents, the
Company covenants and agrees that neither it nor any other Person acting on its
behalf will provide the Purchaser or its agents or counsel with any information
that the Company believes constitutes material non-public information, unless
prior thereto the Purchaser shall have executed a written agreement regarding
18
the confidentiality and use of such information. The Company understands and
confirms that the Purchaser shall be relying on the foregoing representations in
effecting transactions in securities of the Company.
4.7 Indemnification of Purchaser. Subject to the provisions of this Section
4.7, the Company will indemnify and hold the Purchaser and its directors,
officers, shareholders, members, partners, employees and agents (and any other
Persons with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who
controls the Purchaser (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling persons (each, a
"Purchaser Party") harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys' fees and
costs of investigation that any the Purchaser Party may suffer or incur as a
result of or relating to (a) any breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
the other Transaction Documents or (b) any action instituted against the
Purchaser, or any of its Affiliates, by any stockholder of the Company who is
not an Affiliate of the Purchaser, with respect to any of the transactions
contemplated by the Transaction Documents (unless such action is based upon a
breach of the Purchaser's representations, warranties or covenants under the
Transaction Documents or any agreements or understandings the Purchaser may have
with any such stockholder or any violations by the Purchaser of state or federal
securities laws or any conduct by the Purchaser which constitutes fraud, gross
negligence, willful misconduct or malfeasance). If any action shall be brought
against any Purchaser Party in respect of which indemnity may be sought pursuant
to this Agreement, the Purchaser Party shall promptly notify the Company in
writing, and the Company shall have the right to assume the defense thereof with
counsel of its own choosing reasonably acceptable to the Purchaser Party. Any
Purchaser Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of the Purchaser Party except to the extent that
(i) the employment thereof has been specifically authorized by the Company in
writing, (ii) the Company has failed after a reasonable period of time to assume
such defense and to employ counsel or (iii) in such action there is, in the
reasonable opinion of such separate counsel, a material conflict on any material
issue between the position of the Company and the position of the Purchaser
Party, in which case the Company shall be responsible for the reasonable fees
and expenses of no more than one such separate counsel for all Purchaser
Parties. The Company will not be liable to any Purchaser Party under this
Agreement (i) for any settlement by the Purchaser Party effected without the
Company's prior written consent, which shall not be unreasonably withheld or
delayed; or (ii) to the extent, but only to the extent that a loss, claim,
damage or liability is attributable to any Purchaser Party's breach of any of
the representations, warranties, covenants or agreements made by the Purchaser
Party in this Agreement or in the other Transaction Documents.
4.8 Reservation of Common Stock. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, a sufficient number of shares of Common Stock
for the purpose of enabling the Company to issue Draw Down Shares pursuant to
this Agreement.
19
4.9 Listing of Common Stock. The Company hereby agrees to use best efforts
to maintain the listing of the Common Stock on a Trading Market, and as soon as
reasonably practicable following the Initial Closing to list all of the Shares
on such Trading Market. The Company further agrees, if the Company applies to
have the Common Stock traded on any other Trading Market, it will include in
such application all of the Shares, and will take such other action as is
necessary to cause all of the Shares to be listed on such other Trading Market
as promptly as possible. The Company will take all action reasonably necessary
to continue the listing and trading of its Common Stock on a Trading Market and
will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Trading Market.
4.10 Blue Sky Filings. The Company shall take such action as the Company
shall reasonably determine is necessary in order to obtain an exemption for, or
to qualify the Securities for, sale to the Purchaser at the Closing under
applicable securities or "Blue Sky" laws of the states of the United States, and
shall provide evidence of such actions promptly upon request of Purchaser.
4.11 Accuracy of Registration Statement. On each Settlement Date, the
Registration Statement and the prospectus therein (including any prospectus
supplement) shall not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein not misleading in light of the circumstances under
which they were made; and on such Settlement Date the Registration Statement and
the prospectus included therein will not include any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, the Company makes no representations or
warranties as to the information contained in or omitted from the Registration
Statement and the prospectus included therein in reliance upon and in conformity
with the information furnished in writing to the Company by the Purchaser
specifically for inclusion in the Registration Statement and the prospectus
therein.
4.12 Notice of Certain Events Affecting Registration; Suspension of Right
to Request a Draw Down. The Company will promptly notify the Purchaser in
writing upon the occurrence of any of the following events: (a) when any
Prospectus supplement or post-effective amendment to the Registration Statement
is proposed to be filed; (b) of any request by the Commission or any other
Federal or state governmental authority for amendments or supplements to the
Registration Statement or prospectus or for additional information; (c) of the
issuance by the Commission or any other federal or state governmental authority
of any stop order suspending the effectiveness of a Registration Statement
covering any or all of the Securities or the initiation of any Proceedings for
that purpose; (d) of the receipt by the Company of any notification with respect
to the suspension of the qualification or exemption from qualification of any of
the Securities for sale in any jurisdiction, or the initiation or threatening of
any Proceeding for such purpose; (e) of the occurrence of any event or passage
of time that makes the financial statements included in a Registration Statement
ineligible for inclusion therein or any statement made in the Registration
Statement or prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, prospectus or other
documents so that, in the case of the Registration Statement or the prospectus,
as the case may be, it will not contain any untrue statement of a material fact
20
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading; and (f) the occurrence or existence of any pending
corporate development with respect to the Company that the Company believes may
be material and that, in the determination of the Company, makes it not in the
best interest of the Company to allow continued availability of the Registration
Statement or prospectus; provided that the Company shall not disclose the
substance of such corporate development to the Purchaser. The Company shall not
deliver to the Purchaser any Draw Down Notice during the continuation of any of
the foregoing events. The Company shall promptly make available to the Purchaser
any such supplements or amendments to the prospectus, at which time, provided
that the registration statement and any supplements and amendments thereto are
then effective, the Company may recommence the delivery of Draw Down Notices.
ARTICLE V.
CONDITIONS TO INITIAL CLOSING AND DRAW DOWNS
5.1 Conditions Precedent to the Obligation of the Company to Sell the
Shares. The obligation hereunder of the Company to proceed to close this
Agreement and to issue and sell the Shares to the Purchaser is subject to the
satisfaction or waiver, at or before the Initial Closing, and as of each
Settlement Date of each of the conditions set forth below. These conditions are
for the Company's sole benefit and may be waived by the Company in writing at
any time in its sole discretion.
(a) Accuracy of the Purchaser's Representations and Warranties. The
representations and warranties of the Purchaser shall be true and correct
in all material respects as of the date when made and as of the Initial
Closing and as of each Settlement Date as though made at that time (except
for representations and warranties that speak as of a particular date,
which shall be true and correct in all material respects as of such dates).
(b) Performance by the Purchaser. The Purchaser shall have performed,
satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Purchaser at or prior to the Initial
Closing and as of each Settlement Date.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated
or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(d) No Proceedings or Litigation. No material Action shall have been
commenced against the Purchaser or the Company or any subsidiary, or any of
the officers, directors or affiliates of the Company or any subsidiary,
seeking to restrain, prevent or change the transactions contemplated by
this Agreement, or seeking damages in connection with such transactions.
21
5.2 Conditions Precedent to the Obligation of the Purchaser to Close. The
obligation hereunder of the Purchaser to perform its obligations under this
Agreement and to purchase the Shares is subject to the satisfaction or waiver,
at or before the Initial Closing, of each of the conditions set forth below.
These conditions are for the Purchaser's sole benefit and may be waived by the
Purchaser in writing at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. Each of
the representations and warranties of the Company shall be true and correct
in all material respects as of the date when made and as of the Initial
Closing as though made at that time (except for representations and
warranties that speak as of a particular date, which shall be true and
correct in all material respects as of such date).
(b) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all material
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the
Initial Closing.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated
or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(d) No Proceedings or Litigation. No material Action shall have been
commenced, against the Purchaser or the Company or any subsidiary, or any
of the officers, directors or affiliates of the Company or any subsidiary
seeking to restrain, prevent or change the transactions contemplated by
this Agreement, or seeking damages in connection with such transactions.
(e) Initial Closing Deliveries. The delivery by the Company of the
items set forth in Section 2.2(a) of this Agreement.
(f) AMEX Approval. The American Stock Exchange shall have approved an
Additional Shares Listing Application in respect of all shares of Common
Stock issuable hereunder, and the Company shall have delivered the
Purchaser evidence thereof.
(g) Commitment Shares. On the Trading Day immediately prior to the
commencement of the first Draw Down Pricing Period, in consideration for
agreeing to the terms of this Agreement and no additional consideration at
such time, the Company shall have delivered to the Purchaser a number of
shares of Common Stockequal to $250,000 divided by the greater of the VWAP
or the closing bid price of the Common Stock on the second Trading Day
immediately preceding the Draw Down Pricing Period. Such shares shall be
delivered to the DTC account specified by the Purchaser in writing to the
Company.
5.3 Conditions Precedent to the Obligation of the Purchaser to Accept a
Draw Down and Purchase the Shares. The obligation hereunder of the Purchaser to
accept a Draw Down request and to acquire and pay for the Shares is subject to
the satisfaction at or before each Settlement Date, of each of the conditions
set forth below.
22
(a) Satisfaction of Conditions to Initial Closing. The Company shall
have satisfied at the Initial Closing, or the Purchaser shall have waived
at the Initial Closing, the conditions set forth in Section 5.2 hereof.
(b) No Suspension. Trading in the Common Stock shall not have been
suspended by the Commission or the Trading Market (except for any
suspension of trading of limited duration agreed to by the Company, which
suspension shall be terminated prior to the delivery of each Draw Down
Notice), and, at any time prior to such Draw Down Notice, trading in
securities generally as reported on the Trading Market shall not have been
suspended or limited, or minimum prices shall not have been established on
securities whose trades are reported on the Trading Market unless the
general suspension or limitation shall have been terminated prior to the
delivery of such Draw Down Notice.
(c) Material Adverse Effect. No Material Adverse Effect and no
Consolidation Event where the successor entity has not agreed to deliver to
the Purchaser such shares of stock and/or securities as the Purchaser is
entitled to receive pursuant to this Agreement.
(d) Opinion of Counsel. The Purchaser shall have received an opinion
of Company Counsel, substantially in the form of Exhibit B hereto.
(e) Equity Conditions. During the Draw Down Pricing Period through the
Settlement Date, all of the Equity Conditions shall have been met.
ARTICLE VI.
DRAW DOWN TERMS
6.1 Draw Down Terms. Subject to the satisfaction of the conditions set
forth in this Agreement, the parties agree as follows:
(a) The Company may, in its sole discretion, issue and exercise draw
downs against the Commitment Amount (each a "Draw Down") during the
Commitment Period, which Draw Downs the Purchaser shall be obligated to
accept, subject to the terms and conditions of this Agreement. Before the
Company shall exercise a Draw Down, the Company shall have caused a
sufficient number of shares of Common Stock to be registered to cover the
Draw Down Shares to be issued in connection with such Draw Down.
(b) Only one Draw Down shall be allowed in each Draw Down Pricing
Period and any subsequent Draw Down Pricing Period shall not commence until
the Trading Cushion has elapsed since the end of the previous Draw Down
Pricing Period. The number of shares of Common Stock purchased by the
Purchaser with respect to each Draw Down shall be determined as set forth
in Section 6.1(d) herein and settled on the second Trading Day immediately
following the end of the applicable Draw Down Pricing period (each such
settlement period and each such settlement date referred to as a
"Settlement Period" and a "Settlement Date", respectively).
23
(c) The maximum Investment Amount as to each Draw Down shall be equal
to A multiplied by B, where A equals a number of shares of Common Stock
equal to 10% of the total trading volume during the 10 Trading Days
immediately prior to the applicable Draw Down Pricing Period and B equals
the average of each of the VWAPs during such 10 Trading Day period, or an
amount mutually agreed upon in writing by the Company and the Purchaser.
(d) The number of Shares of Common Stock to be issued on each
Settlement Date shall be a number of shares equal to the sum of the
quotients (for each Trading Day within the Settlement Period) of (x) 10% of
the Investment Amount divided by (y) the Purchase Price on each Trading Day
within the Settlement Period, subject to the following adjustments:
(i) if the Purchase Price on a given Trading Day is less than the
applicable Threshold Price, then such Trading Day shall be withdrawn
from the Draw Down Pricing Period; and
(ii) if during any Trading Day during the Draw Down Pricing
Period trading of the Common Stock on the Trading Market is suspended
for more than 3 hours, in the aggregate, or if any Trading Day during
the Draw Down Pricing Period is shortened because of a public holiday,
then such Trading Day shall be withdrawn from the Draw Down Pricing
Period; and
(iii) if during any Trading Day during the Draw Down Pricing
Period sales of Draw Down Shares pursuant to the Registration
Statement are suspended by the Company for more than three (3) hours,
in the aggregate, then such Trading Day shall be withdrawn from the
Draw Down Pricing Period.
(e) The Company must inform the Purchaser by delivering a draw down
notice, in the form of Exhibit D hereto (the "Draw Down Notice"), via
facsimile transmission in accordance with Section 8.3, as to the amount of
the Draw Down (the "Investment Amount") the Company wishes to exercise. The
Draw Down Notice shall also inform the Purchaser of the first day of the
Draw Down Pricing Period, which, unless otherwise agreed to in writing by
the parties, shall be the first Trading Day following the date such Draw
Down Notice is received (the "Commencement Date"). At no time shall the
Purchaser be required to purchase more than the maximum Investment Amount
for a given Draw Down Pricing Period. The Company shall have the right to
notify the Purchaser that Draw Downs shall be continuous pursuant to a Draw
Down Notice until such time that the Company elects to suspend such Draw
Down Notice. In the event of a continuous Draw Down Notice, the Company
must give at least 2 Trading Days' written notice of suspension to the
Purchaser and in no event shall a suspension of a Draw Down occur prior to
the end of any pending Draw Down Pricing Periods. On or before any Trading
Day that a Draw Down Notice is delivered or notice of suspension of Draw
Downs is delivered, the Company shall have filed with the Commission a
prospectus supplement pursuant to Rule 424 under the Securities Act setting
forth the terms of the Draw Down Notice or suspension notice.
24
(f) On the Trading Day immediately following the last day of the
Settlement Period, the Company shall deliver and the Purchaser shall
acknowledge a settlement statement (the "Settlement Statement") setting
forth the number of Draw Down Shares issuable and the aggregate Purchase
Price as to such Settlement Period. On the Settlement Date as to such Draw
Down, the Draw Down Shares purchased pursuant to such Settlement Statement
shall be delivered to the Depository Trust Company ("DTC") account of the
Purchaser, or its designees, as designated by the Purchaser in the
Settlement Statement, via DTC's Deposit Withdrawal Agent Commission system
("DWAC"). Upon the Company electronically delivering such Draw Down Shares
to the DTC account of the Purchaser, or its designees, via DWAC by 1:00
p.m. ET, the Purchaser shall, on the same day (or the next Business Day if
such day is not a Business Day) wire transfer immediately available funds
to the Company's bank account, as designated by the Company in the
Settlement Statement, for the amount of the aggregate Purchase Price of
such Draw Down Shares. Upon the Company electronically delivering the Draw
Down Shares to the Purchaser or its designee's DTC account via DWAC after
1:00 p.m. ET, the Purchaser shall wire transfer next day available funds to
the Company's designated account on such day. At the sole election of the
Purchaser, the Purchaser may elect to pay any broker fees disclosed in the
schedules attached to this Agreement directly to the brokers pursuant to
written instructions from any such broker broker.
(g) The Company understands that a delay in the delivery of the Shares
to the Purchaser beyond the Settlement Date could result in economic loss
to the Purchaser. In addition to the Purchaser's other available remedies,
the Company shall pay to the Purchaser, in cash, as partial liquidated
damages and not as a penalty, for each $1,000 of Shares (based on the
Closing Price of the Common Stock on the applicable Settlement Date)
required to be delivered on the Settlement Date, $10 per Trading Day
(increasing to $20 per Trading Day five (5) Trading Days after such damages
have begun to accrue) for each Trading Day after the Settlement Date until
such Shares are delivered pursuant to this Article VI. Nothing herein shall
limit the Purchaser's right to pursue actual damages for the Company's
failure to deliver certificates representing any Securities as required by
the Transaction Documents, and the Purchaser shall have the right to pursue
all remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief.
ARTICLE VII.
TERMINATION
7.1 Term. The term of this Agreement shall begin on the date hereof and
shall end 24 months from the date hereof or as otherwise set forth in Section
7.2.
7.2 Other Termination.
(a) This Agreement shall terminate if (i) the Common Stock is
de-listed from the Trading Market unless such de-listing is in connection
with a subsequent listing on another Trading Market, (ii) the Company files
for protection from creditors under any applicable law or (iii) the Company
withdraws the Registration Statement.
25
(b) The Company may terminate this Agreement upon 5 Trading Day's
notice if the Purchaser shall fail to fund a properly noticed Draw Down
within 5 Trading Days of the end of the applicable Settlement Period.
(c) The Company may terminate this Agreement upon one Trading Day's
written notice to the Purchaser if this Agreement violates or may result in
a breach of any other agreement to which the Company is party; provided,
however, that no such termination shall be effective until after the full
completion and settlement of any pending Draw Down Pricing Periods pursuant
to the terms of this Agreement.
7.3 Effect of Termination. In the event of termination of this Agreement
pursuant to Section 7.2 herein, written notice thereof shall forthwith be given
to the other party and the transactions contemplated by this Agreement shall be
terminated without further action by either party. If this Agreement is
terminated as provided in Section 7.1 or 7.2 herein, this Agreement shall become
void and of no further force and effect, except for Section 4.7 and Article 8
herein, which shall survive the termination of this Agreement. Nothing in this
Section 7.3 shall be deemed to release the Company or the Purchaser from any
liability for any breach under this Agreement, or to impair the rights of the
Company or the Purchaser to compel specific performance by the other party of
its obligations under this Agreement.
ARTICLE VIII.
MISCELLANEOUS
8.1 Fees and Expenses. At the Initial Closing, the Company has agreed to
reimburse the Purchaser the non-accountable sum of $20,000, for its legal fees
and expenses, $10,000 which has been paid prior to the Closing. Except as
expressly set forth in the Transaction Documents to the contrary, each party
shall pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement.
The Company shall pay all transfer agent fees, stamp taxes and other taxes and
duties levied in connection with the delivery of any Securities to the
Purchaser.
8.2 Entire Agreement. The Transaction Documents, together with the exhibits
and schedules thereto, contain the entire understanding of the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.
8.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 5:30 p.m. (New York
City time) on a Trading Day, (b) the next Trading Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading
Day, (c) the 2nd Trading Day following the date of mailing, if sent by U.S.
26
nationally recognized overnight courier service, or (d) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.
8.4 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
the Company and the Purchaser or, in the case of a waiver, by the party against
whom enforcement of any such waived provision is sought. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any subsequent default or a waiver of any other provision, condition or
requirement hereof, nor shall any delay or omission of any party to exercise any
right hereunder in any manner impair the exercise of any such right.
8.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
8.6 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors. Neither party may assign
this Agreement or any rights or obligations hereunder (other than by merger).
8.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.7.
8.8 Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
New York, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is improper
or is an inconvenient venue for such proceeding. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof via registered or
certified mail or overnight delivery (with evidence of delivery) to such party
at the address in effect for notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any other manner permitted by law. The parties hereby waive
all rights to a trial by jury. If either party shall commence an action or
proceeding to enforce any provisions of the Transaction Documents, then the
27
prevailing party in such action or proceeding shall be reimbursed by the other
party for its reasonable attorneys' fees and other costs and expenses incurred
with the investigation, preparation and prosecution of such action or
proceeding.
8.9 Survival. The representations and warranties contained herein shall
survive the Closing and the delivery of the Securities.
8.10 Execution. This Agreement may be executed in two or more counterparts,
all of which when taken together shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission or by e-mail delivery of a ".pdf" format data file, such
signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) with the same force and effect as if
such facsimile or ".pdf" signature page were an original thereof.
8.11 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
8.12 Replacement of Securities. If any certificate or instrument evidencing
any Securities is mutilated, lost, stolen or destroyed, the Company shall issue
or cause to be issued in exchange and substitution for and upon cancellation
thereof (in the case of mutilation), or in lieu of and substitution therefor, a
new certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction. The applicant
for a new certificate or instrument under such circumstances shall also pay any
reasonable third-party costs (including customary indemnity) associated with the
issuance of such replacement Securities.
8.13 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchaser and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations contained in the Transaction Documents and hereby agrees to waive
and not to assert in any action for specific performance of any such obligation
the defense that a remedy at law would be adequate.
8.14 Liquidated Damages. The Company's obligations to pay any partial
liquidated damages or other amounts owing under the Transaction Documents is a
continuing obligation of the Company and shall not terminate until all unpaid
partial liquidated damages and other amounts have been paid notwithstanding the
fact that the instrument or security pursuant to which such partial liquidated
28
damages or other amounts are due and payable shall have been canceled.
8.15 Construction. The parties agree that each of them and/or their
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto. In
addition, each and every reference to share prices and shares of Common Stock in
any Transaction Document shall be subject to adjustment for reverse and forward
stock splits, stock dividends, stock combinations and other similar transactions
of the Common Stock that occur after the date of this Agreement.
(Signature Pages Follow)
29
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
CEL-SCI CORP. Address for Notice:
------------------
By: /s/ Patricia B. Prichep 8229 Boone Blvd. #802
Name: Patricia B. Prichep Vienna, VA 22182
Title: Senior Vice President of Operations
With a copy to (which shall not constitute notice):
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]
30
[PURCHASER SIGNATURE PAGES TO CVM SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
Name of Purchaser: Ascendiant Capital Group, LLC
---------------------------------------------------------
Signature of Authorized Signatory of Purchaser: /s/ Mark Bergendahl
----------------------------
Name of Authorized Signatory: Mark Bergendahl
---------------------------------------------
Title of Authorized Signatory: Managing Director
---------------------------------------------
Email Address of Purchaser:
------------------------------------------------
Fax Number of Purchaser:
------------------------------------------------
Address for Notice of Purchaser:
18881 Von Karman
Suite 1600
Irvine, CA 92612
Address for Delivery of Securities for Purchaser (if not same as above):
Commitment Amount:
Shares:
EIN Number: [PROVIDE THIS UNDER SEPARATE COVER]
[SIGNATURE PAGES CONTINUE]
31
CEL-SCI CORPORATION
Schedule 3.1(a): Viral Technologies Inc. - wholly owned subsidiary of
CEL-SCI Corporation
Schedule 3.1(g):
Common Stock
------------
Between July 1, 2008 and December 30, 2008 CEL-SCI issued 5,745,595 shares
of its common stock to various persons for $500,000 in cash, payment of rent,
payment of principal and interest on outstanding convertible notes, and for
services provided to CEL-SCI.
Number of
Shares
---------
Shares of common stock outstanding as of
December 30, 2008 123,578,969
The following lists additional shares of CEL-SCI's common stock which may
be issued:
Number of Note
Shares Reference
Shares issuable upon exercise of Series L
and M warrants 20,043,335 A
Shares issuable as payment of interest on
the Series K notes between now and due date 519,102 B
Shares issuable as payment of principal on
the Series K notes 2,500,955 B
Shares issuable upon the exercise of the
Series K warrants 6,601,394 B
Shares issuable upon the exercise of the Series N
warrants 2,075,084 C
Shares issuable upon the exercise of warrants
held by private investors 8,764,272 D
Shares issuable upon exercise of options granted
to CEL-SCI's officers, directors, employees,
consultants, and third parties 13,149,831 E
32
A. In April 2007, CEL-SCI sold 20,000,000 Units to Korral Partners, an
institutional investor, for $15,000,000. Each Unit was priced at $0.75 and
consisted of one share of CEL-SCI's common stock, one-half of a Series L warrant
and one-half of a Series M warrant. Immediately after this sale Korral Partners
sold the 20,000,000 shares of CEL-SCI's common stock and the 10,000,000 Series M
warrants to 19 foreign investors. Korral Partners retained the 10,000,000 Series
L warrants.
Pursuant to a previously granted right of participation two investors in
CEL-SCI's August 2006 financing purchased 43,333 Units, which were identical to
the Units sold to Korral Partners, at a price of $0.75 per Unit.
Each Series L warrant allows the holder to purchase one share of CEL-SCI's
common stock for $0.75. Each Series M warrant allows the holder to purchase one
share of CEL-SCI's common stock for $2.00. The Series L and M warrants expire on
April 17, 2012.
In September 2008, 2,250,000 of the Series L warrants were repriced to
$0.56 and their expiration date was extended one year to April 17, 2013.
B. In August 2006, CEL-SCI sold Series K convertible notes, plus Series K
warrants, to independent private investors for $8,300,000. The notes bear
interest annually at the greater of 8% or 6 month LIBOR plus 3% per year. The
Notes are due and payable on August 4, 2011 and are secured by substantially all
of CEL-SCI's assets.
At the holder's option, the Series K notes are convertible into shares of
CEL-SCI's common stock at a Conversion Price of $0.75. The Series K warrants
allow the holders to purchase up to 6,601,394 shares of CEL-SCI's common stock
at a price of $0.75 per share at any time prior to February 4, 2012.
If CEL-SCI sells any additional shares of common stock, or any securities
convertible into common stock at a price below the then applicable Conversion
Price, the Conversion Price will be lowered to the price at which the shares
were sold or the lowest price at which the securities are convertible, as the
case may be. If CEL-SCI sells any additional shares of common stock, or any
securities convertible into common stock at a price above the Conversion Price,
but below the average closing price of CEL-SCI's common stock over the five
trading days prior to the sale of the shares, the Conversion Price will be
lowered to a price determined by a formula contained in the Notes. The
Conversion Price will also be proportionately adjusted in the event of any stock
splits.
If CEL-SCI sells any additional shares of common stock, or any securities
convertible into common stock at a price below the then applicable exercise
price of the Series K warrants, the warrant exercise price will be lowered to
the price at which the shares were sold or the lowest price at which the
securities are convertible, as the case may be.
At CEL-SCI's election, and under certain conditions, CEL-SCI may use
shares of its common stock to make interest or principal payments on the Series
33
K notes. The actual number of shares which may be issued as payment of interest
or principal may increase if the price of CEL-SCI's common stock is below the
then applicable conversion price of the Series K notes.
To the extent CEL-SCI uses its shares to make principal payments on the
notes, the number of shares which may be issued upon the conversion of the notes
may be less due to reduction in the outstanding principal balance of the notes.
The actual number of shares which will ultimately be issued upon the
payment or conversion of the Series K notes (if any) will vary depending upon a
number of factors, including CEL-SCI's election to use shares of its common
stock to pay principal or interest on the Series K notes.
Since August 2006 the principal balance of the notes have been reduced as
a result of conversions and payments by CEL-SCI. As of December 30, 2008 notes
in the principal amount of $1,875,716 were outstanding.
So long as the Series K notes are outstanding, the holders of the Series K
notes have the right to participate in any subsequent financings involving
CEL-SCI.
C. On August 18, 2008, CEL-SCI sold 1,383,389 shares of common stock and
2,075,084 Series N warrants in a private financing for $1,037,500. The shares
were sold at a price of $0.75 per share. Each Series N warrant entitles the
holder to purchase one share of CEL-SCI's common stock at a price of $0.75 per
share at any time prior to August 18, 2014. The securities sold in August 2008
are restricted securities and do not have any registration rights.
If CEL-SCI sells any additional shares of common stock, or any securities
convertible into common stock at a price below the then applicable exercise
price of the Series N warrants, the warrant exercise price will be lowered to
the price at which the shares were sold or the lowest price at which the
securities are convertible, as the case may be.
D. Between May 30, 2003 and August 18, 2008 CEL-SCI sold shares of its common
stock in private transactions. In some cases warrants were issued as part of
financings. As of December 30, 2008 warrants to purchase 8,764,272 shares of
CEL-SCI's common stock were outstanding. The warrants are exercisable at prices
ranging between $0.47 and $2.00 per share and expire at various dates between
April 2009 and February 2015.
E. The options are exercisable at prices ranging from $0.16 to $4.50 per share.
CEL-SCI may also grant options to purchase additional shares under its Incentive
Stock Option and Non-Qualified Stock Option Plans.
Schedule 3.1(i): Between July 1, 2008 and December 30, 2008 CEL-SCI issued
5,745,595 shares of its common stock to various persons for $500,000 in cash,
payment of rent, payment of principal and interest on outstanding convertible
notes, and for services provided to CEL-SCI. Of the shares issued since July 1,
2008, 334,448 shares were issued to Maximilian de Clara, the President and a
director of CEL-SCI, in payment of salary.
34
In December 2008 CEL-SCI borrowed $100,000 from Maximilian de Clara,
CEL-SCI's President and a director. The loan bears interest at 15% per year and
is payable on March 27, 2009.
Schedule 3.1(q): In December 2008 CEL-SCI borrowed $100,000 from Maximilian de
Clara, CEL-SCI's president and a director. The loan bears interest at 15% per
year and is payable on March 27, 2009.
Schedule 3.1(s): None
35
HART & TRINEN, LLP EXHIBIT B
ATTORNEYS AT LAW
1624 Washington Street
Denver, CO 80203
William T. Hart, P.C. ________ Email: harttrinen@aol.com
Donald T. Trinen Facsimile: (303) 839-5414
(303) 839-0061
December 30, 2008
Ascendiant Capital Group, LLC
18881 Von Karman
16th Floor
Irvine, CA 92612
We have acted as counsel to CEL-SCI Corp., a Colorado corporation (the
"Company"), in connection with the execution and delivery by the Company of the
Securities Purchase Agreement dated as of December 30, 2008 (the "Agreement"),
by and among the Company and the purchasers identified on the signature pages
thereto (the "Purchasers"). This opinion is given to you pursuant to Article V
of the Agreement. (Capitalized terms not otherwise defined herein are defined as
set forth in the Agreement.)
We have participated in the preparation and negotiation of the Agreement
and the Exhibits and Schedules thereto, and the other documents referred to
therein. We also have examined such certificates of public officials, corporate
documents and records and other certificates, opinions, agreements and
instruments and have made such other investigations as we have deemed necessary
in connection with the opinions hereinafter set forth.
Based on the foregoing and upon such investigation as we have deemed
necessary, we give you our opinion as follows:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of Colorado. The Company has all requisite power
and authority, and all material governmental licenses, authorizations, consents
and approvals, required to own and operate its properties and assets and to
carry on its business as now conducted and as proposed to be conducted (all as
described in the Company's SEC Reports filed in the last 12 months). The Company
is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure to qualify could have a Material Adverse
Effect on the Company.
2. Each of the following subsidiaries of the Company (the "Subsidiaries")
is a corporation, duly organized and in good standing under the laws of the
state of organization, as noted: Viral Technologies Inc. - Delaware.
3. The Company has all requisite power and authority to execute, deliver
and perform the Transaction Documents, to issue, sell and deliver the Securities
pursuant to the Transaction Documents and to carry out and perform its
obligations under, and to consummate the transactions contemplated by, the
Transaction Documents.
4. All action on the part of the Company, its directors and its
stockholders necessary for the authorization, execution and delivery by the
Company of the Transaction Documents, the authorization, issuance, sale and
delivery of the Securities pursuant to the Agreement, and the consummation by
the Company of the transactions contemplated by the Transaction Documents has
been duly taken. The Transaction Documents have been duly and validly executed
and delivered by the Company and constitute the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
their terms, except (a) that such enforceability may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
in general and (b) that the remedies of specific performance and injunctive and
other forms of injunctive relief may be subject to equitable defenses.
5. After giving effect to the transactions contemplated by the Agreement,
and immediately after the Closing, the authorized capital stock of the Company
will consist of: an aggregate of 300,000,000 shares of Common Stock, of which
123,578,969 shares will be issued and outstanding and 38,984,058 shares will be
reserved for issuance upon conversion of issued and outstanding options,
warrants and other derivative securities, 12,594,831 shares will be reserved for
issuance to employees, officers and directors under the Company's [Stock Option
Plans], of which 4,745,266 shares are subject to currently outstanding incentive
stock option grants and 7,849,565 shares are subject to currently outstanding
non-qualified stock option grants. All presently issued and outstanding shares
of Common Stock have been duly authorized and validly issued and are fully paid
and nonassessable and free of any preemptive or similar rights, and have been
issued in compliance with applicable securities laws and regulations. The shares
of Common Stock which are being issued on the date hereof pursuant to the
Agreement have been duly authorized and validly issued and are fully paid and
nonassessable and free of preemptive or similar rights, and have been issued in
compliance with applicable securities laws, rules and regulations. To our
knowledge, except for rights described in Schedule 3.1(g) of the Agreement,
there are no other options, warrants, conversion privileges or other rights
presently outstanding to purchase or otherwise acquire from the Company any
capital stock or other securities of the Company, or any other agreements to
issue any such securities or rights. The rights, privileges and preferences of
the Common Stock are as stated in the Company's Articles of Incorporation.
6. To our knowledge, the Company has filed all reports (the "SEC Reports")
required to be filed by it under Sections 13(a) and 15(d) of the Exchange Act of
1934, as amended (the "Exchange Act"). As of their respective filing dates, the
SEC Reports complied in all material respects as to form with the requirements
of the Exchange Act and the rules and regulations of the SEC promulgated
thereunder.
7. The execution, delivery and performance by the Company of, and the
compliance by the Company with the terms of, the Transaction Documents and the
issuance, sale and delivery of the Securities pursuant to the Agreement do not
(a) conflict with or result in a violation of any provision of law, rule or
regulation having applicability to the Company or its Subsidiaries or of the
certificate of incorporation or by-laws or other similar organizational
documents of the Company or its Subsidiaries, (b) conflict with, result in a
breach of or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or result in or permit the
termination or modification of, any agreement, instrument, order, writ, judgment
or decree known to us to which the Company of its Subsidiaries is a party or is
subject or (c) result in the creation or imposition of any lien, claim or
encumbrance on any of the Company's or its Subsidiaries' assets or properties.
8. To our knowledge, there is no claim, action, suit, proceeding,
arbitration, investigation or inquiry, pending or threatened, before any court
or governmental or administrative body or agency, or any private arbitration
tribunal, against the Company or its Subsidiaries, or any of its officers,
directors or employees (in connection with the discharge of their duties as
officers, directors and employees), or affecting any of its properties or
assets.
9. No consent, license, permit, waiver, approval or authorization of, or
designation, declaration, registration or filing with, any court, governmental
or regulatory authority, or self-regulatory organization, is required in
connection with the valid execution, delivery and performance by the Company of
the Transaction Documents, or the offer, sale, issuance or delivery of the
Securities or the consummation of the transactions contemplated thereby.
10. The Company is not an Investment Company within the meaning of the
Investment Company Act of 1940, as amended.
11. The Registration Statement has been declared effective by the
Commission and no stop order is in effect with respect to the Registration
Statement. Assuming compliance by the Purchaser with the "Plan of Distribution"
caption of the Registration Statement and timely compliance by the Purchaser
with all prospectus delivery requirements, the shares shall be freely
transferable by Purchaser.
12. Nothing has come to our attention that has caused us to believe that
the Registration Statement and the Prospectus at the time the Registration
Statement became effective and as of the date of this opinion contained or
contains an untrue statement of a material fact or omitted or omits to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; however, we express no opinion with respect to the financial
statements and the notes thereto and the schedules and other financial and
statistical data derived therefrom included in the Registration Statement or the
Prospectus.]
Very truly yours,
HART & TRINEN, LLP
By /s/ William T. Hart
-------------------------
William T. Hart
EXHIBIT D
DRAW DOWN NOTICE/COMPLIANCE CERTIFICATE
CEL-SCI CORP.
The undersigned hereby certifies, with respect to shares of Common Stock
of Cel-Sci Corp (the "Company") issuable in connection with this Draw Down
Notice and Compliance Certificate dated _____________ (the "Notice"), delivered
pursuant to the Securities Purchase Agreement dated as of ______, 2008 (the
"Agreement"), as follows:
1. The undersigned is the duly appointed Chief Executive Officer or
Chief Financial Officer of the Company.
2. Except as set forth on the schedules attached hereto or in the
SEC Documents (as defined in the Agreement), the representations and
warranties of the Company set forth in the Agreement are true and correct
in all material respects as though made on and as of the date hereof,
except for representations and warranties are expressly made as of a
particular date.
3. The Company has performed in all material respects all covenants
and agreements and conditions required under the Agreement to be performed
by the Company on or prior to the date of this Draw Down Notice.
4. The Investment Amount is $___________.
5. Draw Downs shall commence on ____________ and end after [check
one]:
a. ______ the completion of ___ Draw Down Pricing Periods.
b. ______ until written notice to you that Draw Downs have
been suspended provided that no pending Draw Down may be
suspended.
.6. The Threshold Price for purposes of this Draw Down is
$-------.
The undersigned has executed this Certificate this ____ day of
__________, _____.
CEL-SCI CORP.
By:
-------------------------------
Name:
Title: