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<ACCEPTANCE-DATETIME>20101210191801
ACCESSION NUMBER: 0001004878-10-000213
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 11
CONFORMED PERIOD OF REPORT: 20100930
FILED AS OF DATE: 20101213
DATE AS OF CHANGE: 20101210
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: CEL SCI CORP
CENTRAL INDEX KEY: 0000725363
STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836]
IRS NUMBER: 840916344
STATE OF INCORPORATION: CO
FISCAL YEAR END: 0930
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-11889
FILM NUMBER: 101246242
BUSINESS ADDRESS:
STREET 1: 8229 BOONE BLVD .
STREET 2: SUITE 802
CITY: VIENNA
STATE: VA
ZIP: 22182
BUSINESS PHONE: 7035069460
MAIL ADDRESS:
STREET 1: 8229 BOONE BLVD.
STREET 2: SUITE 802
CITY: VIENNA
STATE: VA
ZIP: 22182
FORMER COMPANY:
FORMER CONFORMED NAME: INTERLEUKIN 2 INC
DATE OF NAME CHANGE: 19880317
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<DESCRIPTION>SEPT 2010 10-K
<TEXT>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2010.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to __________.
Commission file number 1-11889
CEL-SCI CORPORATION
-------------------------
(Exact name of registrant as specified in its charter)
COLORADO 84-0916344
----------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
8229 Boone Blvd., Suite 802
Vienna, Virginia 22182
-------------------------------- -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 506-9460 Securities
registered pursuant to Section 12(b) of the Act: None Securities registered
pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. [ ]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. [ ]
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [ ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [X]
Non-accelerated filer [ ] Smaller reporting company [ ]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act): [ ] Yes [X] No
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the common stock on March 31,
2010, as quoted on the NYSE Amex, was $128,872,039.
As of November 30, 2010, the Registrant had 205,098,121 issued and outstanding
shares of common stock.
Documents Incorporated by Reference: None
<PAGE>
PART I
ITEM 1. BUSINESS
CEL-SCI Corporation (CEL-SCI) was formed as a Colorado corporation in
1983. CEL-SCI's principal office is located at 8229 Boone Boulevard, Suite 802,
Vienna, VA 22182. CEL-SCI's telephone number is 703-506-9460 and its web site is
www.cel-sci.com. CEL-SCI makes its electronic filings with the Securities and
Exchange Commission (SEC), including its annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and amendments to these
reports available on its website free of charge as soon as practicable after
they are filed or furnished to the SEC.
OVERVIEW
CEL-SCI's business consists of the following:
1) Multikine(R) cancer therapy;
2) New "cold fill" manufacturing service to the pharmaceutical industry;
and
3) LEAPS technology, with two products, H1N1 swine flu treatment for
H1N1 hospitalized patients and CEL-2000, a rheumatoid arthritis
treatment vaccine.
MULTIKINE
CEL-SCI's lead product, Multikine, is being developed for the treatment of
cancer. It is the first of a new class of cancer immunotherapy drugs called
Combination Immunotherapy because it combines active and passive immunity in one
product. It simulates the activities of a healthy person's immune system, which
battles cancer every day. Multikine is multi-targeted; it is the only cancer
immunotherapy that both kills cancer cells in a targeted fashion and activates
the general immune system to destroy the cancer. CEL-SCI believes Multikine is
the first immunotherapeutic agent being developed as a first-line standard of
care treatment for cancer and it is cleared for a global Phase III clinical
trial in advanced primary (previously untreated) head and neck cancer patients.
Multikine is a new type of immunotherapy in that it is a combination
immunotherapy, incorporating both active and passive immune activity. A
combination immunotherapy most closely resembles the workings of the natural
immune system in the sense that it works on multiple fronts in the battle
against cancer. A combination immunotherapy causes a direct and targeted killing
of the tumor cells and activates the immune system to produce a more robust and
sustainable anti-tumor response.
Multikine is designed to target the tumor micro-metastases that are mostly
responsible for treatment failure. The basic concept is to add Multikine to the
current cancer treatments with the goal of making the overall cancer treatment
more successful. Phase II data indicated that Multikine treatment resulted in a
substantial increase in the survival of patients. The lead indication is
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advanced primary (previously untreated) head & neck cancer (about 600,000 new
cases per annum). Since Multikine is not tumor specific, it may also be
applicable in many other solid tumors.
The following results were seen in CEL-SCI's last Phase II study
conducted with Multikine. This study used the same treatment protocol as will be
used in CEL-SCI's Phase III study:
o 33% improvement in median overall survival: In the last Phase II study
a 33% improvement in median overall survival, at a median of 3.5 years
post surgery, was seen in patients with locally advanced disease
treated with Multikine as first-line therapy (absolute survival rate
63%) as compared to the 3.5 year median overall survival rates of the
same cancer patient population determined from a review of 55 clinical
trials reported in the scientific literature that were conducted
between 1987 and 2007. CEL-SCI's Phase III clinical trial will need to
demonstrate a 10% improvement in overall survival for Multikine to be
successful.
o Average of 50% reduction in tumor cells: The three week Multikine
treatment regimen used in the last Phase II study killed, on average,
approximately half of the cancer cells before the start of standard
therapy such as surgery, radiation and chemotherapy (as determined by
histopathology).
o 12% complete response: In 12% of patients the tumor was completely
eliminated after only a three week treatment with Multikine (as
determined by histopathology).
In January 2007, the US Food and Drug Administration (FDA) concurred with
the initiation of a global Phase III clinical trial in head and neck cancer
patients using Multikine. The Canadian regulatory agency, the Biologics and
Genetic Therapies Directorate, had previously concurred with the initiation of a
global Phase III clinical trial in head and neck cancer patients using
Multikine.
The protocol is designed to develop conclusive evidence of the efficacy of
Multikine in the treatment of advanced primary (previously untreated) squamous
cell carcinoma of the oral cavity (head and neck cancer). A successful outcome
from this trial should enable CEL-SCI to apply for a Biologics License to market
Multikine for the treatment of this patient population.
The trial will test the hypothesis that Multikine treatment administered
prior to the current standard therapy for head and neck cancer patients
(surgical resection of the tumor and involved lymph nodes followed by
radiotherapy or radiotherapy and concurrent chemotherapy) will extend the
overall survival, enhance the local/regional control of the disease and reduce
the rate of disease progression in patients with advanced oral squamous cell
carcinoma.
However, before starting the Phase III trial, CEL-SCI needed to build a
dedicated manufacturing facility to produce Multikine. CEL-SCI estimates the
cost of the Phase III trial, with the exception of the parts that will be paid
by its licensees, Teva Pharmaceuticals and Orient Europharma, to be
approximately $25 - $26 million. Since CEL-SCI has obtained substantial
financing, CEL-SCI is moving forward rapidly to launch its global Phase III
clinical trial.
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CEL-SCI, together with its development partners Teva Pharmaceutical
Industries and Orient Europharma, has plans to run the study in about 48 medical
centers in 9 countries.
Multikine is the first immunotherapeutic agent being developed as a
first-line treatment for cancer. It is administered prior to any other cancer
therapy because that is the period when the anti-tumor immune response can still
be fully activated. Once the patient has had surgery or has received radiation
and/or chemotherapy, the immune system is severely weakened and is less able to
mount an effective anti-tumor immune response. To date, other immunotherapies
have been administered later in cancer therapy (i.e., after radiation,
chemotherapy, surgery).
Clinical trials in over 200 patients have been completed with Multikine with the
following results:
1. It has been demonstrated to be safe and non-toxic.
2. It has been shown to render cancer cells much more susceptible to
radiation therapy (The Laryngoscope, December 2003, Vol.113 Issue
12).
3. A publication in the Journal of Clinical Oncology (Timar et al, JCO,
23(15): May 2005), revealed the following:
(i) Multikine induced anti-tumor immune responses through the
combined activity of the different cytokines present in
Multikine following local administration of Multikine for only
three weeks.
(ii) The combination of the different cytokines caused the induction,
recruitment into the tumor bed, and proliferation of anti-tumor
T-cells and other anti-tumor inflammatory cells, leading to a
massive anti-tumor immune response.
(iii) Multikine induced a reversal of the CD4/CD8 ratio in the tumor
infiltrating cells, leading to a marked increase of CD4 T-cells
in the tumor, which resulted in the prolongation of the
anti-tumor immune response and tumor cell destruction.
(iv) The anti-tumor immune-mediated processes continued long after
the cessation of Multikine administration.
(v) A three-week Multikine treatment of patients with advanced
primary oral squamous cell carcinoma resulted in an overall
response rate of 42% prior to standard therapy, with 12% of the
patients having a complete response.
(vi) A histopathology study showed that the tumor load in Multikine
treated patients was reduced by nearly 50% as compared to tumors
from control patients in the same pathology study.
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(vii) The tumors of all of the patients in this Phase II trial who
responded to Multikine treatment were devoid of the cell surface
marker for HLA Class II. This finding, if confirmed in this
global Phase III clinical trial, may lead to the establishment
of a marker for selecting the patient population best suited for
treatment with Multikine.
(viii) In a Phase II study, using the same drug regimen as will be
used in the Phase III study, the addition of Multikine as
first-line treatment prior to the standard of care treatment
resulted in a 33% improvement in the median overall survival at
3 1/2 years post-surgery, when compared to the results of 55
OSCC clinical trials published in the scientific literature
between 1987 and 2007.
Multikine works in a comprehensive way to marshal an effective killing of
the tumor:
1. Multikine attacks multiple antigens on the cancer cells.
2. Multikine directly kills cancer cells:
o The various cytokines present in Multikine, such as TNF, IL-1, along
with other cytokines, are responsible for this activity.
3. Multikine signals the immune system to mount an effective and
sustainable anti-tumor immune response:
o Multikine changes the type of cells that infiltrate and attack the
tumor from the `usual' CD-8 cells to CD-4 cells. These CD-4 cells
bring about a more robust anti-tumor response.
- This is extremely important because the tumor is able to shut
down the infiltrating CD-8 cells, but is unable to shut down the
CD-4 cell attack. In addition, CD-4 cells help break "tumor
tolerance," thereby allowing the immune system to recognize,
attack, and destroy the tumor. The normal immune system is
`blind' to tumor cells because the tumor cells are derived from
the body's own cells, and thus the body `thinks' of the tumor as
`self', a phenomenon also known as `tumor tolerance'.
4. Multikine renders the remaining cancer cells potentially much more
susceptible to radiation and chemotherapy treatment, thereby
making these treatments much more effective.
Multikine is currently being developed as an adjunct (additive) therapy to
the existing treatment of previously untreated head and neck cancer patients
with the goal of killing cancer cells and activating the general immune system
to destroy the cancer. CEL-SCI scientists believe that patients with previously
untreated disease would most likely benefit more from Multikine treatment as
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their immune systems are still capable of proper immune response. Head and neck
cancer represents a clear unmet medical need. The recurrence rate is high and
about one out of every two patients die within three years. Currently used
therapies (surgery followed by radiation, chemotherapy or radio-chemotherapy)
fail to completely arrest the disease because they are unable to completely
remove or kill all of the cancer cells. The persistence of these residual cells
is responsible for the cancer's recurrence or metastasis. Multikine is injected
five times a week for three weeks around the tumor (peri-tumorally) as well as
in the vicinity of the local lymph nodes (peri-lymphatically) prior to the
patient's tumor being removed surgically and the patient receiving any other
therapy because these are the areas in which most of the cancer will recur and
from which metastases will develop. Multikine unleashes and then harnesses and
enhances the immune system's ability to target and kill those tumor cells before
they can cause recurrence or metastasize. Since Multikine may be potentially
useful in treating many tumor types, it is expected that multiple indications
will be pursued over time since it is the same principle for different cancers.
Proof of efficacy for anti-cancer drugs is a lengthy and complex process.
At this stage of clinical investigation, it remains to be proven that Multikine
will be effective against any form of cancer. Even if some form of Multikine is
found to be effective in the treatment of cancer, commercial use of Multikine
may be several years away due to extensive safety and effectiveness tests that
would be necessary before required government approvals are obtained. It should
be noted that other companies and research teams are actively involved in
developing treatments and/or cures for cancer, and accordingly, there can be no
assurance that CEL-SCI's research efforts, even if successful from a medical
standpoint, can be completed before those of its competitors.
Development, Supply and Distribution Agreements
CEL-SCI has a development, supply and distribution agreement with Orient
Europharma of Taiwan. The agreement gave Orient Europharma the exclusive
marketing rights to Multikine for all cancer indications in Taiwan, Singapore,
Hong Kong and Malaysia. On November 3, 2008, CEL-SCI expanded its exclusive
licensing agreement for Multikine with Orient Europharma. The new agreement
extends the Multikine collaboration to also cover South Korea, the Philippines,
Australia and New Zealand. As part of this new agreement, Orient Europharma
invested an additional $500,000 in CEL-SCI. The agreement provides for Orient
Europharma to fund the clinical trials needed to obtain marketing approvals in
these countries for head and neck cancer, naso-pharyngeal cancer and potentially
cervical cancer, which are very prevalent in Far East Asia. CEL-SCI may use the
clinical data generated in these trials to support applications for marketing
approvals for Multikine in other parts of the world. Orient Europharma will
participate in and pay for part of CEL-SCI's head and neck Phase III clinical
trial.
Under the agreement, CEL-SCI will manufacture and supply Multikine to
Orient Europharma for distribution in the territory. Both parties will share in
the revenue from the sale of Multikine. Orient Europharma will participate in
the upcoming Phase III clinical trial by enrolling and paying for a substantial
number of patients in its territory. Orient Europharma will also purchase
Multikine for the Phase III trial from CEL-SCI for these patients at a rate
established in the November 2000 agreement.
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Pursuant to an agreement dated May 2003, Eastern Biotech is due a royalty
equal to 2% of CEL-SCI's net sales worldwide of Multikine and CEL-1000 prior to
May 30, 2033.
On August 19, 2008, CEL-SCI entered into an agreement with Teva
Pharmaceutical Industries Ltd. (Teva), a leading global pharmaceutical company,
under which CEL-SCI granted Teva an exclusive license to market and distribute
CEL-SCI's cancer drug Multikine in Israel and Turkey (the "Territory"). Although
the licensing agreement is initially restricted to the areas of head and neck
cancer, Teva has the right, subject to certain conditions, to include other
cancers during the term of the agreement.
Pursuant to the agreement, Teva will participate in CEL-SCI's upcoming
global Phase III clinical trial. Teva will fund a portion of the Phase III
clinical study and Teva's clinical group will conduct part of the clinical study
in Israel under the auspices of CEL-SCI and its Clinical Research Organization.
Teva will also be responsible for registering Multikine in the Territory. If
Multikine is approved, CEL-SCI will be responsible for manufacturing the
product, while Teva will be responsible for sales in the Territory. Revenues
will be divided equally between CEL-SCI and Teva.
Effective March 6, 2009, CEL-SCI entered into a licensing agreement with
Byron Biopharma LLC ("Byron") under which CEL-SCI granted Byron an exclusive
license to market and distribute Multikine in the Republic of South Africa.
Pursuant to the agreement, Byron will be responsible for registering the
product in South Africa. Once Multikine has been approved for sale, CEL-SCI will
be responsible for manufacturing the product, while Byron will be responsible
for sales in South Africa. Revenues will be divided equally between CEL-SCI and
Byron. To maintain the license Byron, among other requirements, made a payment
to CEL-SCI in the amount of $125,000 on March 8, 2010.
As of November 30, 2010, neither Orient Europharma nor Teva had started
any clinical trials.
New Manufacturing Facility
CEL-SCI's new, state-of-the-art manufacturing facility will be used to
manufacture Multikine for CEL-SCI's Phase III clinical trial. Located near
Baltimore, MD, it was designed over several years, and was built out to
CEL-SCI's specifications. CEL-SCI leased this specially designed and built out
facility, rather than having Multikine produced by a third party on a contract
basis, since regulatory agencies prefer that the same facility be used to
manufacture Multikine for both the Phase III trials and commercial sales,
assuming the Phase III trial is successful. As is customary with large, complex
construction projects, the manufacturing facility required a number of
construction, utility and equipment adjustments as well as "punch list" items
that required additional time to complete. This resulted in a gap between the
time when CEL-SCI took over the facility and the time when validations and other
CEL-SCI specific activities could commence. In addition to using this facility
to manufacture Multikine, CEL-SCI will offer the use of the facility as a
service to pharmaceutical companies and others, particularly those that need to
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"fill and finish" their drugs in a cold environment (4 degrees Celsius, or
approximately 39 degrees Fahrenheit). Fill and finish is the process of filling
injectable drugs in a sterile manner and is a key part of the manufacturing
process for many medicines. However, this service will only be offered when
CEL-SCI has the time and resources available, with priority always given to
Multikine.
The fastest area of growth in the biopharmaceutical and pharmaceutical
markets is biologics, and most recently stem cell products. These compounds and
therapies are derived from or mimic human cells or proteins and other molecules
(e.g., hormones, etc.). Nearly all of the major drugs developed for unmet
medical needs (e.g., Avastin(R), Erbitux(R), Rituxan(R), Herceptin(R),
Copaxon(R), etc.) are biologics. Biologics are usually very sensitive to heat
and quickly lose their biological activity if exposed to room or elevated
temperature. Room or elevated temperatures may also affect the shelf-life of a
biologic with the result that the product cannot be stored for as long as
desired. However, these products do not generally lose activity when kept at 4
degrees Celsius.
The FDA and other regulatory agencies require a drug developer to
demonstrate the safety, purity and potency of a drug being produced for use in
humans. When filling a product at 4 degrees Celsius, minimal to no biological
losses occur and therefore the potency of the drug is maintained throughout the
final critical step of the drug's manufacturing process. If the same temperature
sensitive drug is instead aseptically filled at room temperature, expensive and
time-consuming validation studies must be conducted, first, to be able to obtain
a complete understanding of the product's potency loss during the room
temperature fill process, and second, to create solutions to the drug's potency
losses, which require further testing and validation.
CEL-SCI's unique, cold aseptic filling suite can be operated at
temperatures between 2 degrees Celsius and room temperatures, and at various
humidity levels. CEL-SCI's aseptic filling suites are maintained at FDA and EU
ISO classifications of 5/6. CEL-SCI also has the capability to formulate,
inspect, label and package biologic products at cold temperatures.
See Item 2 of this report for information concerning the terms of the
lease on the manufacturing facility.
LEAPS
CEL-SCI's patented T-cell Modulation Process uses "heteroconjugates" to
direct the body to choose a specific immune response. The heteroconjugate
technology, referred to as LEAPS (Ligand Epitope Antigen Presentation System),
is intended to selectively stimulate the human immune system to more effectively
fight bacterial, viral and parasitic infections as well as autoimmune,
allergies, transplantation rejection and cancer, when it cannot do so on its
own. Administered like vaccines, LEAPS combines T-cell binding ligands with
small, disease associated, peptide antigens and may provide a new method to
treat and prevent certain diseases.
The ability to generate a specific immune response is important because
many diseases are often not combated effectively due to the body's selection of
the "inappropriate" immune response. The capability to specifically reprogram an
immune response may offer a more effective approach than existing vaccines and
drugs in attacking an underlying disease.
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Using the LEAPS technology, CEL-SCI has created a potential peptide
treatment for H1N1 (swine flu) hospitalized patients. This LEAPS flu treatment
is designed to focus on the conserved, non-changing epitopes of the different
strains of Type A Influenza viruses (H1N1, H5N1, H3N1, etc.), including "swine",
"avian or bird", and "Spanish Influenza", in order to minimize the chance of
viral "escape by mutations" from immune recognition. CEL-SCI's LEAPS flu
treatment contains epitopes known to be associated with immune protection
against influenza in animal models.
On September 16, 2009, the U.S. Food and Drug Administration advised
CEL-SCI that it could proceed with its first clinical trial to evaluate the
effect of LEAPS-H1N1 treatment on the white blood cells of hospitalized H1N1
patients. This followed an expedited initial review of CEL-SCI's regulatory
submission for this study proposal.
On November 6, 2009, CEL-SCI announced that The Johns Hopkins University
School of Medicine had given clearance for CEL-SCI's first clinical study to
proceed using LEAPS-H1N1. This study started one week later. Since the disease
disappeared about one month later, the study has been unable to enroll many
patients.
To fully consider a next-stage clinical trial to evaluate LEAPS-H1N1
treatment of hospitalized patients with laboratory-confirmed H1N1 Pandemic Flu
under an Exploratory IND, the FDA has asked CEL-SCI to submit a detailed
follow-up regulatory filing with extensive additional data. Thus, in parallel
with preparing for this first study, CEL-SCI is proceeding on an expedited basis
to complete this next submission. Recognizing that it cannot proceed with its
next-stage clinical trial without the FDA's concurrence, CEL-SCI anticipates
engaging in a detailed dialogue with the FDA regarding the proposed LEAPS-H1N1
clinical-development program following this future filing.
With its LEAPS technology, CEL-SCI also discovered a second peptide named
CEL-2000, a potential rheumatoid arthritis vaccine. The data from animal studies
of rheumatoid arthritis using the CEL-2000 treatment vaccine demonstrated that
CEL-2000 is an effective treatment against arthritis with fewer administrations
than those required by other anti-rheumatoid arthritis treatments, including
Enbrel(R). CEL-2000 is also potentially a more disease type-specific therapy, is
calculated to be significantly less expensive and may be useful in patients
unable to tolerate or who may not be responsive to existing anti-arthritis
therapies.
In February 2010 CEL-SCI announced that its CEL-2000 vaccine demonstrated
that it was able to block the progression of rheumatoid arthritis in a mouse
model. The results were published in the scientific peer-reviewed Journal of
International Immunopharmacology (online edition) in an article titled
"CEL-2000: A Therapeutic Vaccine for Rheumatoid Arthritis Arrests Disease
Development and Alters Serum Cytokine/Chemokine Patterns in the Bovine Collagen
Type II Induced Arthritis in the DBA Mouse Model" with lead author Dr. Daniel
Zimmerman. The study was co-authored by scientists from CEL-SCI, Washington
Biotech, Northeastern Ohio Universities Colleges of Medicine and Pharmacy and
Boulder BioPath.
None of the products or vaccines which are in development using the LEAPS
technology have been approved by the FDA or any other government agency. Before
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obtaining marketing approval from the FDA in the United States, and by
comparable agencies in most foreign countries, these product candidates must
undergo rigorous preclinical and clinical testing which is costly and time
consuming and subject to unanticipated delays. There can be no assurance that
these approvals will be granted.
PATENTS
CEL-SCI currently has six patents issued in the United States and
twenty-two patent applications pending in Europe, Japan, China, India, Hong
Kong, Canada and the United States. One patent covers certain aspects of
Multikine and will expire in 2023. The remaining five patents cover CEL-SCI's
LEAPS technology and will expire between December 2014 and April 2022. CEL-SCI
believes that the greatest level of protection for Multikine is not based on
patents but from the confidential and proprietary process relating to the
manufacture of Multikine.
RESEARCH AND DEVELOPMENT
Since 1983, and through September 30, 2010, approximately $77,243,000 has
been spent on CEL-SCI-sponsored research and development, including $11,911,600,
$6,011,800, and $4,101,600 respectively during the years ended September 30,
2010, 2009 and 2008.
The costs associated with the clinical trials relating to CEL-SCI's
technologies, research expenditures and CEL-SCI's administrative expenses have
been funded with the public and private sales of CEL-SCI's securities and
borrowings from third parties, including affiliates of CEL-SCI. The extent of
CEL-SCI's clinical trials and research programs is primarily based upon the
amount of capital available to CEL-SCI and the extent to which CEL-SCI has
received regulatory approvals for clinical trials.
GOVERNMENT REGULATION
New drug development and approval process
Regulation by governmental authorities in the United States and other
countries is a significant factor in the manufacture and marketing of biological
and other drug products and in ongoing research and product development
activities. CEL-SCI's products will require regulatory approval by governmental
agencies prior to commercialization. In particular, these products are subject
to rigorous preclinical and clinical testing and other premarket approval
requirements by the FDA and regulatory authorities in other countries. In the
United States, various statutes and regulations also govern or influence the
manufacturing, safety, labeling, storage, record keeping and marketing of
pharmaceutical and biological drug products. The lengthy process of seeking
these approvals, and the subsequent compliance with applicable statutes and
regulations, require the expenditure of substantial resources. CEL-SCI believes
that it is currently in compliance with applicable statutes and regulations that
are relevant to its operations. CEL-SCI has no control, however, over the
compliance of its partners.
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The FDA's statutes, regulations, or policies may change and additional
statutes or government regulations may be enacted which could prevent or delay
regulatory approvals of biological or other drug products. CEL-SCI cannot
predict the likelihood, nature or extent of adverse governmental regulation that
might arise from future legislative or administrative action, either in the U.S.
or abroad.
Regulatory approval, when and if obtained, may be limited in scope. In
particular, regulatory approvals will restrict the marketing of a product to
specific uses. Further, approved biological and other drugs, as well as their
manufacturers, are subject to ongoing review. Discovery of previously unknown
problems with these products may result in restrictions on their manufacture,
sale or use or in their withdrawal from the market. Failure to comply with
regulatory requirements may result in criminal prosecution, civil penalties,
recall or seizure of products, total or partial suspension of production or
injunction, as well as other actions affecting CEL-SCI. Any failure by CEL-SCI
or its partners to obtain and maintain, or any delay in obtaining, regulatory
approvals could materially adversely affect CEL-SCI's business.
The process for new drug approval has many steps, including:
Preclinical testing
Once a biological or other drug candidate is identified for development,
the drug candidate enters the preclinical testing stage. During preclinical
studies, laboratory and animal studies are conducted to show biological activity
of the drug candidate in animals, both healthy and with the targeted disease.
Also, preclinical tests evaluate the safety of drug candidates. These tests
typically take approximately two years to complete. Preclinical tests must be
conducted in compliance with good laboratory practice regulations. In some
cases, long-term preclinical studies are conducted while clinical studies are
ongoing.
Investigational new drug application
When the preclinical testing is considered adequate by the sponsor to
demonstrate the safety and the scientific rationale for initial human studies,
an investigational new drug application (IND) is filed with the FDA to seek
authorization to begin human testing of the biological or other drug candidate.
The IND becomes effective if not rejected by the FDA within 30 days after
filing. The IND must provide data on previous experiments, how, where and by
whom the new studies will be conducted, the chemical structure of the compound,
the method by which it is believed to work in the human body, any toxic effects
of the compound found in the animal studies and how the compound is
manufactured. All clinical trials must be conducted under the supervision of a
qualified investigator in accordance with good clinical practice regulations.
These regulations include the requirement that all subjects provide informed
consent. In addition, an institutional review board (IRB), comprised primarily
of physicians and other qualified experts at the hospital or clinic where the
proposed studies will be conducted, must review and approve each human study.
The IRB also continues to monitor the study and must be kept aware of the
study's progress, particularly as to adverse events and changes in the research.
Progress reports detailing the results of the clinical trials must be submitted
at least annually to the FDA and more frequently if adverse events occur. In
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addition, the FDA may, at any time during the 30-day period after filing an IND
or at any future time, impose a clinical hold on proposed or ongoing clinical
trials. If the FDA imposes a clinical hold, clinical trials cannot commence or
recommence without FDA authorization, and then only under terms authorized by
the FDA. In some instances, the IND process can result in substantial delay and
expense.
Some limited human clinical testing may also be done under a physician's
IND that allows a single individual to receive the drug, particularly where the
individual has not responded to other available therapies. A physician's IND
does not replace the more formal IND process, but can provide a preliminary
indication as to whether further clinical trials are warranted, and can, on
occasion, facilitate the more formal IND process.
Clinical trials are typically conducted in three sequential phases, but
the phases may overlap.
Phase I clinical trials
Phase I human clinical trials usually involve between 20 and 80 healthy
volunteers or patients and typically take one to two years to complete. The
tests study a biological or other drug's safety profile, and may seek to
establish the safe dosage range. The Phase I clinical trials also determine how
a drug candidate is absorbed, distributed, metabolized and excreted by the body,
and the duration of its action.
Phase II clinical trials
In Phase II clinical trials, controlled studies are conducted on an
expanded population of patients with the targeted disease. The primary purpose
of these tests is to evaluate the effectiveness of the drug candidate on the
volunteer patients as well as to determine if there are any side effects or
other risks associated with the drug. These studies generally take several years
and may be conducted concurrently with Phase I clinical trials. In addition,
Phase I/II clinical trials may be conducted to evaluate not only the efficacy of
the drug candidate on the patient population, but also its safety.
Phase III clinical trials
This phase typically lasts several years and involves an even larger
patient population, often with several hundred or even several thousand patients
depending on the use for which the drug is being studied. Phase III trials are
intended to establish the overall risk-benefit ratio of the drug and provide, if
appropriate, an adequate basis for product labeling. During the Phase III
clinical trials, physicians monitor the patients to determine efficacy and to
observe and report any reactions or other safety risks that may result from use
of the drug candidate.
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Chemical and formulation development
Concurrent with clinical trials and preclinical studies, companies also
must develop information about the chemistry and physical characteristics of the
drug and finalize a process for manufacturing the product in accordance with
current good manufacturing practice requirements (cGMPs). The manufacturing
process must be capable of consistently producing quality batches of the product
and the manufacturer must develop methods for testing the quality, purity, and
potency of the final drugs. Additionally, appropriate packaging must be selected
and tested and chemistry stability studies must be conducted to demonstrate that
the product does not undergo unacceptable deterioration over its shelf-life.
New drug application or biological license application
After the completion of the clinical trial phases of development, if the
sponsor concludes that there is substantial evidence that the biological or
other drug candidate is effective and that the drug is safe for its intended
use, a new drug application (NDA) or biologics license application (BLA) may be
submitted to the FDA. The application must contain all of the information on the
biological or other drug candidate gathered to that date, including data from
the clinical trials.
The FDA reviews all NDAs and BLAs submitted before it accepts them for
filing. It may request additional information rather than accepting an
application for filing. In this event, the application must be resubmitted with
the additional information. The resubmitted application is also subject to
review before the FDA accepts it for filing. Once the submission is accepted for
filing, the FDA begins an in-depth review of the application. The FDA may refer
the application to an appropriate advisory committee, typically a panel of
clinicians, for review, evaluation and a recommendation. The FDA is not bound by
the recommendation of an advisory committee. If FDA evaluations of the NDA or
BLA and the manufacturing facilities are favorable, the FDA may issue an
approval letter authorizing commercial marketing of the drug or biological
candidate for specified indications. The FDA could also issue an approvable
letter, which usually contains a number of conditions that must be met in order
to secure final approval of the NDA or BLA. When and if those conditions have
been met to the FDA's satisfaction, the FDA will issue an approval letter. On
the other hand, if the FDA's evaluation of the NDA or BLA or manufacturing
facilities is not favorable, the FDA may refuse to approve the application or
issue a non-approvable letter.
Among the conditions for NDA or BLA approval is the requirement that each
prospective manufacturer's quality control and manufacturing procedures conform
to current good manufacturing practice standards and requirements (cGMPs).
Manufacturing establishments are subject to periodic inspections by the FDA and
by other federal, state or local agencies.
Some of the clinical trials funded to date by CEL-SCI have not been
approved by the FDA, but rather have been conducted pursuant to approvals
obtained from certain states and foreign countries. Conducting clinical studies
in foreign countries is normal industry practice since these studies can often
be completed in less time and are less expensive than studies conducted in the
U.S. Conducting clinical studies in foreign countries is also beneficial since
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CEL-SCI will need the approval from a foreign country prior to the time CEL-SCI
can market any of its drugs in the foreign country. However, since the results
of these clinical trials may not be accepted by the FDA, competitors conducting
clinical trials approved by the FDA may have an advantage in that the products
of such competitors are further advanced in the regulatory process than those of
CEL-SCI. CEL-SCI is conducting its trials in compliance with internationally
recognized standards. By following these standards, CEL-SCI anticipates
obtaining acceptance from world regulatory bodies, including the FDA.
CEL-SCI has selected a Clinical Research Organization (CRO) for the Phase III
trial with Multikine. The expected start date for the clinical trial is at the
end of 2010 or early in 2011. The expected net cost of the clinical trial is
approximately $25 - $26 million (excluding the costs that will be paid by
CEL-SCI's partners).
COMPETITION AND MARKETING
Many companies, nonprofit organizations and governmental institutions are
conducting research on cytokines. Competition in the development of therapeutic
agents incorporating cytokines is intense. Large, well-established
pharmaceutical companies are engaged in cytokine research and development and
have considerably greater resources than CEL-SCI has to develop products.
Licensing and other collaborative arrangements between governmental and other
nonprofit institutions and commercial enterprises, as well as the seeking of
patent protection of inventions by nonprofit institutions and researchers, could
result in strong competition for CEL-SCI. Any new developments made by such
organizations may render CEL-SCI's licensed technology and know-how obsolete.
Several biotechnology companies are producing compounds that utilize
cytokines. However, CEL-SCI believes that its main advantage lies in two areas
and that those two areas will allow it to be successful: 1) Multikine is given
prior to surgery, radiation and/or chemotherapy, a time when the immune system
can still be activated effectively. Other companies give their immunotherapy
drugs after these cancer treatments. At that time the immune system is already
so weakened that it can no longer mount a complete immune response. 2) Multikine
simulates the activities of a healthy person's immune system, which battles
cancer every day. Multikine is multi-targeted; it is a cancer immunotherapy that
both kills cancer cells in a targeted fashion and activates the general immune
system to destroy the cancer. In addition, since Multikine is a complex
biologic, CEL-SCI believes that it will be extremely difficult for someone to
copy Multikine and its manufacturing.
EMPLOYEES
As of November 30, 2010, CEL-SCI had 42 employees. Eight employees are
involved in administration, 31 employees are involved in manufacturing and 3
employees are involved in general research and development with respect to
CEL-SCI's products.
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ITEM 1A. RISK FACTORS
Investors should be aware that the risks described below could adversely
affect the price of CEL-SCI's common stock.
Risks Related to CEL-SCI
Since CEL-SCI has earned only limited revenues and has a history of losses,
CEL-SCI will require additional capital to remain in operation.
CEL-SCI has had only limited revenues since it was formed in 1983. Since
the date of its formation and through September 30, 2010 CEL-SCI incurred net
losses of approximately $161,800,000. CEL-SCI has relied principally upon the
proceeds of public and private sales of its securities to finance its activities
to date. All of CEL-SCI's potential products, with the exception of Multikine,
are in the early stages of development, and any commercial sale of these
products will be many years away. Even potential product sales from Multikine
are many years away as cancer trials can be lengthy. Accordingly, CEL-SCI
expects to incur substantial losses for the foreseeable future.
Since CEL-SCI does not intend to pay dividends on its common stock, any return
to investors will come only from potential increases in the price of CEL-SCI's
common stock.
At the present time, CEL-SCI intends to use available funds to finance
CEL-SCI's operations. Accordingly, while payment of dividends rests within the
discretion of the Board of Directors, no common stock dividends have been
declared or paid by CEL-SCI and CEL-SCI has no intention of paying any common
stock dividends.
If CEL-SCI cannot obtain additional capital, CEL-SCI may have to postpone
development and research expenditures which will delay CEL-SCI's ability to
produce a competitive product. Delays of this nature may depress the price of
CEL-SCI's common stock.
Clinical and other studies necessary to obtain approval of a new drug can
be time consuming and costly, especially in the United States, but also in
foreign countries. CEL-SCI's estimates of the costs associated with future
clinical trials and research may be substantially lower than the actual costs of
these activities. The different steps necessary to obtain regulatory approval,
especially that of the Food and Drug Administration, involve significant costs
and may require several years to complete. CEL-SCI expects that it will need
substantial additional financing over an extended period of time in order to
fund the costs of future clinical trials, related research, and general and
administrative expenses. This additional funding may come from the exercise of
warrants and options currently outstanding, equity or debt financings or a
partnering arrangement with a larger company.
The extent of CEL-SCI's clinical trials and research programs are
primarily based upon the amount of capital available to CEL-SCI and the extent
to which CEL-SCI has received regulatory approvals for clinical trials.
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In accordance with the terms of the manufacturing facility's lease,
CEL-SCI must maintain a certain amount of cash. Should CEL-SCI's cash position
fall below the amount stipulated in the lease CEL-SCI will be required to
deposit with the landlord the equivalent of one year's base rent. CEL-SCI paid
this additional amount of $1,575,000 in 2008 and, upon meeting the required cash
level, received a refund of $1,575,000 from the landlord in February 2010.
The inability of CEL-SCI to conduct clinical trials or research, whether
due to a lack of capital or regulatory approval, will prevent CEL-SCI from
completing the studies and research required to obtain regulatory approval for
any products which CEL-SCI is developing.
No definite plan for marketing of Multikine has been established.
CEL-SCI has not established a definitive plan for marketing nor has it
established a price structure for CEL-SCI's saleable products. However, CEL-SCI
intends, if CEL-SCI is in a position to begin commercialization of its products,
to sell Multikine itself in certain markets and to enter into written marketing
agreements with various major pharmaceutical firms with established sales
forces. The sales forces in turn would probably target CEL-SCI's products to
cancer centers, physicians and clinics involved in head and neck cancer.
CEL-SCI may encounter problems, delays and additional expenses in
developing marketing plans with outside firms. In addition, even though
Multikine should be very cost effective to use if proven to increase overall
survival, CEL-SCI may experience other limitations involving the proposed sale
of its products, such as uncertainty of third-party reimbursement. There is no
assurance that CEL-SCI can successfully market any products which they may
develop or market them at competitive prices.
Potential Future Dilution
To raise additional capital CEL-SCI may have to sell shares of its common
stock or securities convertible into common stock at prices that may be below
the prevailing market price of CEL-SCI's common stock at the time of sale. The
issuance of additional shares will have a dilutive impact on other stockholders
and could have a negative effect on the market price of CEL-SCI's common stock.
Multikine is made from components of human blood which involves inherent risks
that may lead to product destruction or patient injury which could materially
harm CEL-SCI's financial results, reputation and stock price.
Multikine is made, in part, from components of human blood. There are
inherent risks associated with products that involve human blood such as
possible contamination with viruses, including Hepatitis or HIV. Any possible
contamination could require CEL-SCI to destroy batches of Multikine or cause
injuries to patients who receive the product thereby subjecting CEL-SCI to
possible financial losses and harm to its business.
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Although CEL-SCI has product liability insurance for Multikine, the successful
prosecution of a product liability case against CEL-SCI could have a materially
adverse effect upon its business if the amount of any judgment exceeds CEL-SCI's
insurance coverage.
Although no claims have been brought to date, participants in CEL-SCI's
clinical trials could bring civil actions against CEL-SCI for any unanticipated
harmful effects arising from the use of Multikine or any drug or product that
CEL-SCI may try to develop.
CEL-SCI's directors are allowed to issue shares of preferred stock with
provisions that could be detrimental to the interests of the holders of
CEL-SCI's common stock.
The provisions in CEL-SCI's Articles of Incorporation relating to
CEL-SCI's preferred stock would allow CEL-SCI's directors to issue preferred
stock with rights to multiple votes per share and dividend rights which would
have priority over any dividends paid with respect to CEL-SCI's common stock.
The issuance of preferred stock with such rights may make more difficult the
removal of management even if such removal would be considered beneficial to
shareholders generally, and will have the effect of limiting shareholder
participation in certain transactions such as mergers or tender offers if such
transactions are not favored by incumbent management.
Risks Related to Government Approvals
CEL-SCI's product candidates must undergo rigorous preclinical and clinical
testing and regulatory approvals, which could be costly and time-consuming and
subject CEL-SCI to unanticipated delays or prevent CEL-SCI from marketing any
products.
Therapeutic agents, drugs and diagnostic products are subject to approval,
prior to general marketing, from the FDA in the United States and by comparable
agencies in most foreign countries. Before obtaining marketing approval, these
product candidates must undergo rigorous preclinical and clinical testing which
is costly and time consuming and subject to unanticipated delays. There can be
no assurance that such approvals will be granted.
CEL-SCI cannot be certain when or under what conditions it will undertake
further clinical trials, including the Phase III clinical trial for Multikine.
The clinical trials of CEL-SCI's product candidates may not be completed on
schedule, the FDA or foreign regulatory agencies may order CEL-SCI to stop or
modify its research or these agencies may not ultimately approve any of
CEL-SCI's product candidates for commercial sale. Varying interpretations of the
data obtained from pre-clinical and clinical testing could delay, limit or
prevent regulatory approval of CEL-SCI's product candidates. The data collected
from CEL-SCI's clinical trials may not be sufficient to support regulatory
approval of its various product candidates, including Multikine. CEL-SCI's
failure to adequately demonstrate the safety and efficacy of any of its product
candidates would delay or prevent regulatory approval of its product candidates
in the United States, which could prevent CEL-SCI from achieving profitability.
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The requirements governing the conduct of clinical trials, manufacturing,
and marketing of CEL-SCI's product candidates, including Multikine, outside the
United States can vary from country to country. Foreign approvals may take
longer to obtain than FDA approvals and can require, among other things,
additional testing and different trial designs. Foreign regulatory approval
processes include all of the risks associated with the FDA approval processes.
Some of those agencies also must approve prices for products approved for
marketing. Approval of a product by the FDA does not ensure approval of the same
product by the health authorities of other countries. In addition, changes in
regulatory policy in the US or in foreign countries for product approval during
the period of product development and regulatory agency review of each submitted
new application may cause delays or rejections.
CEL-SCI has only limited experience in filing and pursuing applications
necessary to gain regulatory approvals, which may impede its ability to obtain
timely approvals from the FDA or foreign regulatory agencies, if at all. CEL-SCI
will not be able to commercialize Multikine and other product candidates until
it has obtained regulatory approval, and any delay in obtaining, or inability to
obtain, regulatory approval could harm its business. In addition, regulatory
authorities may also limit the types of patients to which CEL-SCI or others may
market Multikine or CEL-SCI's other products.
Any failure to obtain or any delay in obtaining required regulatory
approvals may adversely affect the ability of CEL-SCI or potential licensees to
successfully market any products they may develop.
Even if CEL-SCI obtains regulatory approval for its product candidates, CEL-SCI
will be subject to stringent, ongoing government regulation.
If CEL-SCI's products receive regulatory approval, either in the United
States or internationally, CEL-SCI will be subject to extensive regulatory
requirements. These regulations are wide-ranging and govern, among other things:
o product design, development and manufacture;
o adverse drug experience;
o product advertising and promotion;
o product manufacturing, including good manufacturing practice
requirements;
o record keeping requirements;
o registration and listing of CEL-SCI's establishments and products
with the FDA and certain state agencies;
o product storage and shipping;
o drug sampling and distribution requirements;
o electronic record and signature requirements; and
o labeling changes or modifications.
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CEL-SCI and any suppliers must continually adhere to federal regulations
setting forth requirements, known as current Good Manufacturing Practices, or
cGMPs, and their foreign equivalents, which are enforced by the FDA and other
national regulatory bodies through their facilities inspection programs. If
CEL-SCI's facilities, or the facilities of its suppliers, cannot pass a
pre-approval plant inspection, the FDA will not approve the marketing
applications for CEL-SCI's product candidates. In complying with cGMP and
foreign regulatory requirements, CEL-SCI and any of its suppliers will be
obligated to expend time, money and effort in production, record-keeping and
quality control to ensure that its products meet applicable specifications and
other requirements. State regulatory agencies and the regulatory agencies of
other countries have similar requirements.
If CEL-SCI does not comply with regulatory requirements at any stage,
whether before or after marketing approval is obtained, it may be subject to
license suspension or revocation, criminal prosecution, seizure, injunction,
fines, or be forced to remove a product from the market or experience other
adverse consequences, including restrictions or delays in obtaining regulatory
marketing approval, which could materially harm CEL-SCI's financial results,
reputation and stock price. Additionally, CEL-SCI may not be able to obtain the
labeling claims necessary or desirable for product promotion. CEL-SCI may also
be required to undertake post-marketing trials. In addition, if CEL-SCI or other
parties identify adverse effects after any of CEL-SCI's products are on the
market, or if manufacturing problems occur, regulatory approval may be
withdrawn. CEL-SCI may be required to reformulate its products, conduct
additional clinical trials, make changes in its product's labeling or
indications of use, or submit additional marketing applications to support these
changes. If CEL-SCI encounters any of the foregoing problems, its business and
results of operations will be harmed and the market price of its common stock
may decline.
Also, the extent of adverse government regulations which might arise from
future legislative or administrative action cannot be predicted. Without
government approval, CEL-SCI will be unable to sell any of its products.
Risks Related to Intellectual Property
CEL-SCI may not be able to achieve or maintain a competitive position and other
technological developments may result in CEL-SCI's proprietary technologies
becoming uneconomical or obsolete.
The biomedical field in which CEL-SCI is involved is undergoing rapid and
significant technological change. The successful development of therapeutic
agents from CEL-SCI's compounds, compositions and processes through
CEL-SCI-financed research, or as a result of possible licensing arrangements
with pharmaceutical or other companies, will depend on its ability to be in the
technological forefront of this field.
Many companies are working on drugs designed to treat cancer and have
substantial financial, research and development, and marketing resources and are
capable of providing significant long-term competition either by establishing
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in-house research groups or by forming collaborative ventures with other
entities. In addition, smaller companies and non-profit institutions are active
in research relating to cancer and infectious diseases.
CEL-SCI's patents might not protect CEL-SCI's technology from competitors, in
which case CEL-SCI may not have any advantage over competitors in selling any
products which it may develop.
Certain aspects of CEL-SCI's technologies are covered by U.S. and foreign
patents. In addition, CEL-SCI has a number of new patent applications pending.
There is no assurance that the applications still pending or which may be filed
in the future will result in the issuance of any patents. Furthermore, there is
no assurance as to the breadth and degree of protection any issued patents might
afford CEL-SCI. Disputes may arise between CEL-SCI and others as to the scope
and validity of these or other patents. Any defense of the patents could prove
costly and time consuming and there can be no assurance that CEL-SCI will be in
a position, or will deem it advisable, to carry on such a defense. Other private
and public concerns, including universities, may have filed applications for, or
may have been issued, patents and are expected to obtain additional patents and
other proprietary rights to technology potentially useful or necessary to
CEL-SCI. The scope and validity of such patents, if any, the extent to which
CEL-SCI may wish or need to acquire the rights to such patents, and the cost and
availability of such rights are presently unknown. Also, as far as CEL-SCI
relies upon unpatented proprietary technology, there is no assurance that others
may not acquire or independently develop the same or similar technology.
Risks Related to CEL-SCI's Common Stock
Since the market price for CEL-SCI's common stock is volatile, investors may not
be able to sell any of CEL-SCI's shares at a profit.
The market price of CEL-SCI's common stock, as well as the securities of
other biopharmaceutical and biotechnology companies, have historically been
highly volatile, and the market has from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance of
particular companies. During the twelve months ended September 30, 2010,
CEL-SCI's stock price has ranged from a low of $0.43 per share to a high of
$1.79 per share. Factors such as fluctuations in CEL-SCI's operating results,
announcements of technological innovations or new therapeutic products by
CEL-SCI or its competitors, governmental regulation, developments in patent or
other proprietary rights, public concern as to the safety of products developed
by CEL-SCI or other biotechnology and pharmaceutical companies, and general
market conditions may have a significant effect on the future market price of
CEL-SCI's common stock.
Shares issuable upon the exercise of outstanding warrants and options may
substantially increase the number of shares available for sale in the public
market and may depress the price of CEL-SCI's common stock.
CEL-SCI had outstanding convertible notes, options and warrants which as of
November 30, 2010 could potentially allow the holders to acquire approximately
83,340,300 additional shares of its common stock. Until the options and warrants
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expire, and the convertible note is repaid, the holders will have an opportunity
to profit from any increase in the market price of CEL-SCI's common stock
without assuming the risks of ownership. Holders of options and warrants
exercise these securities at a time when CEL-SCI could obtain additional capital
on terms more favorable than those provided by the options or warrants. The
conversion of the notes or the exercise of the options and warrants will dilute
the voting interest of the owners of presently outstanding shares by adding a
substantial number of additional shares of CEL-SCI's common stock.
CEL-SCI has filed, or plans to file, registration statements with the
Securities and Exchange Commission so that substantially all of the shares of
common stock which are issuable upon the exercise of outstanding options and
warrants may be sold in the public market. The sale of common stock issued or
issuable upon the exercise of these options or warrants, or the perception that
such sales could occur, may adversely affect the market price of CEL-SCI's
common stock.
Claims by the former holders of CEL-SCI's Series K notes may potentially result
in the issuance of additional shares of CEL-SCI's common stock and the payment
of damages.
In August 2006, CEL-SCI sold Series K notes, plus Series K warrants, to a
group of private investors. The notes were convertible into shares of CEL-SCI's
common stock. One of the Series K note holders, Iroquois Master Fund Ltd., has
indicated that it believes the conversion price of the Series K notes, as well
as the exercise price of the Series K warrants, should be $0.20 as opposed to
$0.40. It is CEL-SCI's position that the correct conversion price was $0.40 and
the correct exercise price of the warrants is $0.40.
On October 21, 2009, Iroquois filed suit against CEL-SCI. In its
complaint, alleging breach of contract, breach of fiduciary duty, conversion,
and negligence, Iroquois seeks actual and punitive damages, the issuance by
CEL-SCI of additional shares and warrants, and a ruling by the court that the
conversion price of the notes and the exercise price of the warrants are both
$0.20. See Item 3 of this report for more information.
ITEM 1B. UNRESOLVED SEC COMMENTS
None
ITEM 2. PROPERTIES
CEL-SCI leases office space at 8229 Boone Blvd., Suite 802, Vienna,
Virginia at a monthly rental of approximately $9,100. The lease on the office
space expires in June 2012. CEL-SCI believes this arrangement is adequate for
the conduct of its present business.
CEL-SCI has a 17,900 square foot laboratory located at 4820 A-E Seton
Drive, Baltimore, Maryland. The laboratory is leased by CEL-SCI at a cost of
approximately $10,800 per month. The laboratory lease expires in February 2014.
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In August 2007, CEL-SCI leased a building near Baltimore, Maryland. The
building, which consists of approximately 73,000 square feet, has been remodeled
in accordance with CEL-SCI's specifications so that it can be used by CEL-SCI to
manufacture Multikine for CEL-SCI's Phase III clinical trial and sales of the
drug if approved by the FDA. The lease expires on October 31, 2028 and requires
annual base rent payments of approximately $1,667,000 during the twelve months
ending October 31, 2011, in accordance with the lease agreement. The annual base
rent escalates each year thereafter at 3%. CEL-SCI is also required to pay all
real and personal property taxes, insurance premiums, maintenance expenses,
repair costs and utilities. The lease allows CEL-SCI, at its election, to extend
the lease for two ten-year periods or to purchase the building at the end of the
20-year lease. The lease required CEL-SCI to pay $3,150,000 towards the
remodeling costs, which will be recouped by reductions in the annual base rent
of $303,228 beginning in 2014. In July 2008, CEL-SCI was required to deposit
$1,575,000 since the amount of CEL-SCI's cash fell below the amount stipulated
in the lease. This amount was refunded by the landlord in February 2010. The
landlord has the right to declare CEL-SCI in default if CEL-SCI fails to pay any
installment of the Base Annual Rent when such failure continues for five
business days after CEL-SCI's receipt of written notice from the Landlord,
provided that if CEL-SCI fails to pay any installment of the Base Annual Rent
within five business days more than twice in any twelve month period, the
Landlord will not be required to provide CEL-SCI with any further notice and
CEL-SCI will be deemed to be in default. As of the date of this filing, CEL-SCI
was not in default on the lease.
ITEM 3. LEGAL PROCEEDINGS
Pursuant to a Securities Purchase Agreement dated August 4, 2006, CEL-SCI
sold Series K convertible notes, plus Series K warrants, to a group of private
investors for $8,300,000. The notes were convertible into shares of CEL-SCI's
common stock. On August 31, 2009, all of the Series K notes had either been
repaid or had been converted into shares of CEL-SCI's common stock. At the
holder's option, the Series K notes were convertible into shares of CEL-SCI's
common stock equal in number to the amount determined by dividing each $1,000 of
note principal to be converted by the conversion price. Initially, the
conversion price was $0.86.
The Series K warrants allow the note holders to purchase shares of
CEL-SCI's common stock, initially at a price of $0.95 per share, at any time on
or prior to February 4, 2012.
If CEL-SCI sold any additional shares of common stock, or any securities
convertible into common stock, at a price below the then applicable conversion
price of the notes or the exercise price of the warrants, the conversion price
of the notes and the exercise price of the warrants would be reduced to the
price at which the shares were sold or the lowest price at which the securities
were convertible, as the case may have been.
If the warrant exercise price was decreased, the number of shares of
common stock issuable upon the exercise of the warrant would be increased
proportionately.
However, the conversion price of the Series K notes, the exercise price of
the Series K warrants, and the shares issuable upon the exercise of the warrants
would not be adjusted as the result of shares issued in connection with a
22
<PAGE>
Permitted Financing, as that term was defined in the Securities Purchase
Agreement. A Permitted Financing included shares of common stock issued or sold
in connection with a bona fide licensing agreement, the primary purpose of which
was not to raise cash.
In April 2007, the conversion price of the Series K notes and the exercise
price of the Series K warrants were reduced to $0.75 per share as a result of
shares sold by CEL-SCI below the original conversion price of the notes and the
exercise price of the warrants.
On March 6, 2009, CEL-SCI entered into a licensing agreement with an
unrelated third party. In connection with the licensing agreement, CEL-SCI sold
shares of its common stock to the third party for $0.20 per share, a premium to
CEL-SCI's share price at the time.
In June 2009, the conversion price of the Series K notes and the exercise
price of the Series K warrants were reduced to $0.40 per share as a result of
shares sold by CEL-SCI below the conversion price of the notes and the exercise
price of the warrants.
As previously disclosed by CEL-SCI in its public filings, one of the
Series K note holders, Iroquois Master Fund, Ltd. ("Iroquois") advised CEL-SCI
that the conversion price of the Series K notes, as well as the exercise price
of the Series K warrants, should be $0.20 since it did not believe that the sale
of CEL-SCI's shares of its common stock on March 6, 2009 was a Permitted
Financing.
It is CEL-SCI's position that the shares sold on March 6, 2009 were sold
in connection with a Permitted Financing and did not cause a reduction in the
conversion price of the Series K notes or the exercise price of the Series K
warrants.
On October 21, 2009, Iroquois filed suit against CEL-SCI in the United
States District Court for the Southern District of New York. In its complaint
Iroquois alleges that CEL-SCI is liable for breach of contract, breach of
fiduciary duty, conversion, and negligence.
Through its lawsuit Iroquois is seeking $30 million in actual damages, $90
million in punitive damages, the issuance of an additional 4,264,681 shares of
CEL-SCI's common stock, the issuance of warrants to purchase an additional
6,460,757 shares of CEL-SCI's common stock, and a ruling by the court that the
conversion price of the notes and the exercise price of the warrants are both
$0.20.
CEL-SCI believes that Iroquois's claims are without merit and has filed a
motion with the District Court seeking the dismissal of Iroquois's lawsuit.
If Iroquois prevails in its suit, CEL-SCI may be required to issue
approximately 1,166,000 additional shares of common stock and issue
approximately 9,616,000 warrants exercisable at $0.20 per share to the other
holders of the Series K notes and warrants, assuming all of the warrants are
exercised.
ITEM 4. (REMOVED AND RESERVED)
23
<PAGE>
ITEM 5. MARKET FOR CEL-SCI'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
As of November 30, 2010, there were approximately 1,100 record holders of
CEL-SCI's common stock. CEL-SCI's common stock is traded on the NYSE Amex
(formerly the American Stock Exchange) under the symbol "CVM". Set forth below
are the range of high and low quotations for CEL-SCI's common stock for the
periods indicated as reported on the NYSE Amex. The market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commissions and may
not necessarily represent actual transactions.
Quarter Ended High Low
12/31/08 $0.50 $0.18
3/31/09 $0.40 $0.14
6/30/09 $0.80 $0.20
9/30/09 $2.10 $0.38
12/31/09 $1.79 $0.85
3/31/10 $1.12 $0.50
6/30/10 $0.76 $0.45
9/30/10 $0.84 $0.43
Holders of common stock are entitled to receive dividends as may be
declared by the Board of Directors out of legally available funds and, in the
event of liquidation, to share pro rata in any distribution of CEL-SCI's assets
after payment of liabilities. The Board of Directors is not obligated to declare
a dividend. CEL-SCI has not paid any dividends on its common stock and CEL-SCI
does not have any current plans to pay any common stock dividends.
The provisions in CEL-SCI's Articles of Incorporation relating to
CEL-SCI's preferred stock would allow CEL-SCI's directors to issue preferred
stock with rights to multiple votes per share and dividend rights which would
have priority over any dividends paid with respect to CEL-SCI's common stock.
The issuance of preferred stock with such rights may make more difficult the
removal of management even if such removal would be considered beneficial to
shareholders generally, and will have the effect of limiting shareholder
participation in certain transactions such as mergers or tender offers if such
transactions are not favored by incumbent management.
The market price of CEL-SCI's common stock, as well as the securities of
other biopharmaceutical and biotechnology companies, have historically been
highly volatile, and the market has from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance of
particular companies. Factors such as fluctuations in CEL-SCI's operating
results, announcements of technological innovations or new therapeutic products
by CEL-SCI or its competitors, governmental regulation, developments in patent
or other proprietary rights, public concern as to the safety of products
developed by CEL-SCI or other biotechnology and pharmaceutical companies, and
general market conditions may have a significant effect on the market price of
CEL-SCI's common stock.
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<PAGE>
The graph below matches the cumulative 5-year total return of holders of
CEL-SCI Corporation's common stock with the cumulative total returns of the NYSE
Amex Composite index and the RDG MicroCap Biotechnology index. The graph assumes
that the value of the investment in the CEL-SCI's common stock and in each of
the indexes (including reinvestment of dividends) was $100 on 9/30/2005 and
tracks it through 9/30/2010. [GRAPHIC OMITTED]
- -------------------------------------------------------------------------------
9/05 9/06 9/07 9/08 9/09 9/10
- -------------------------------------------------------------------------------
CEL-SCI Corporation 100.00 131.91 133.02 85.11 365.96 137.02
NYSE Amex Composite 100.00 110.90 139.96 108.28 113.40 134.71
RDG MicroCap Biotechnology 100.00 70.80 60.46 32.97 32.69 21.73
The stock price performance included in this graph is not necessarily
indicative of future stock price performance.
25
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected historical consolidated financial data are
qualified by reference to, and should be read in conjunction with the
consolidated financial statements and the related notes thereto, appearing
elsewhere in this report, as well as Item 7 of this report.
<TABLE>
<S> <C> <C> <C> <C> <C>
Statements of Operations 2010 2009 2008 2007 2006
- ------------------------ ---- ---- ---- ---- ----
Rent and grant revenue
and other $ 153,300 80,093 $ 5,065 $ 57,043 $125,457
Operating expenses:
Research and development 11,911,626 6,011,750 4,101,563 2,528,528 1,896,976
Depreciation and
amortization 516,117 417,205 215,060 176,186 170,903
General and
administrative 6,285,810 5,671,595 5,200,735 6,704,538 3,406,774
Gain (loss) on
derivative instruments 28,843,772 (28,491,650) 1,799,393 868,182 2,325,784
Other costs of financing - - - - (4,791,548)
Interest income 362,236 - 483,252 562,973 92,487
Interest expense (162,326) (397,923) (473,767) (1,708,603) (216,737)
----------- ----------- ---------- ---------- ----------
Net income (loss) 10,483,429 (40,910,030) (7,703,415) (9,629,657) (7,939,210)
----------- ----------- ---------- ---------- ----------
Modification of warrants (1,532,456) (490,728) (424,815) - -
----------- ----------- ---------- ---------- ----------
Net income (loss)
available to common
shareholders $ 8,950,973 (41,400,758) (8,128,230) (9,629,657) (7,939,210)
----------- ----------- ---------- ---------- ----------
Statements of Operations
Net income (loss) per
common share
Basic $ 0.04 $ (0.31) $ $0.07) $ $0.10) $ ($0.10)
Diluted $ 0.05 $ (0.31) $ $0.07) $ $0.10) $ ($0.11)
Weighted average common
shares outstanding
Basic 202,102,859 133,535,050 117,060,866 97,310,488 78,971,290
Diluted (1) 226,277,913 133,535,050 117,060,866 97,310,488 93,834,078
Balance Sheets ----------- ----------- ---------- ---------- ----------
Statements of Operations 2010 2009 2008 2007 2006
- ------------------------ ---- ---- ---- ---- ----
Working capital 25,799,304 $34,339,772 $(2,492,555) 10,257,568 $7,109,879
Total assets 37,804,985 46,027,598 14,683,672 20,730,802 9,653,277
Derivative instruments -
current (2) 424,286 - 3,018,697 782,732 1,670,234
Derivative instruments -
noncurrent (2) 6,521,765 35,113,970 - 4,831,252 8,645,796
Total liabilities 9,950,220 37,186,954 3,847,637 6,060,703 10,583,878
Stockholders' equity
(deficit) 27,854,765 8,840,644 10,836,035 14,670,099 (930,601)
</TABLE>
26
<PAGE>
(1) The calculation of diluted earnings per share for the years ended September
30, 2009, 2008 and 2007 excluded the potentially dilutive shares because
their effect would have been anti-dilutive.
(2) Included in total liabilities.
No dividends have been declared on CEL-SCI's common stock. However, in
December 2007, warrants held by third parties were extended, resulting in a
$424,815 charge, which was treated as a deemed dividend and is shown as such in
the consolidated financial statements. In the third and fourth quarters of the
fiscal year ended September 30, 2009, additional shares were issued and others
extended in accordance with previous financings, resulting in a $490,728 charge,
which was treated as a deemed dividend and is shown as such in the consolidated
financial statements. In March 2010, CEL-SCI temporarily reduced the exercise
price of the Series M Warrants, increasing the value of the warrants by
$1,432,456. In August 2010, CEL-SCI amended the Series M warrants held by an
investor, increasing the value of those warrants by $100,000. For further
discussion, see Note 10. No actual dividends were paid to shareholders.
CEL-SCI's net income (losses) available to common shareholders for each
fiscal quarter during the two years ended September 30, 2010 were:
Net income (loss) per share
Net income ----------------------------
Quarter (loss) Basic Diluted
- ------- ------------ ----- -------
12/31/2008 $ (2,173,513) $(0.02) $(0.02)
3/31/2009 $ (2,117,280) $(0.02) $(0.02)
6/30/2009 $ (6,705,731) $(0.05) $(0.05)
9/30/2009 $(30,404,234) $(0.19) $(0.19)
12/31/2009 $ 19,159,517 $ 0.10 $ 0.02
3/31/2010 $ (2,176,975) $(0.01) $(0.03)
6/30/2010 $ (601,124) $(0.00) $(0.01)
9/30/2010 $ (7,330,445) $(0.04) $(0.04)
First three quarters of fiscal year 2009 as adjusted.
CEL-SCI has experienced large swings in its quarterly gains and losses in 2010
and 2009. These swings are caused by the changes in the fair value of the
convertible debt and warrants each quarter. These changes in the fair value of
the convertible debt and warrants are recorded on the consolidated statements of
operations. In addition, the cost of options granted to consultants, as
discussed in the results of operations in this report, has affected the
quarterly losses recorded by CEL-SCI.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and the related notes thereto appearing
elsewhere in this report.
CEL-SCI's most advanced product, Multikine, which is cleared for a Phase
III clinical trial in the U.S. and in Canada, is being developed for the
treatment of cancer.
27
<PAGE>
CEL-SCI also owns a pre-clinical technology called L.E.A.P.S. (Ligand
Epitope Antigen Presentation System).
All of CEL-SCI's projects are under development. As a result, CEL-SCI
cannot predict when it will be able to generate any revenue from the sale of any
of its products.
Since inception, CEL-SCI has financed its operations through the issuance
of equity securities, convertible notes, loans and certain research grants.
CEL-SCI's expenses will likely exceed its revenues as it continues the
development of Multikine and brings other drug candidates into clinical trials.
Until such time as CEL-SCI becomes profitable, any or all of these financing
vehicles or others may be utilized to assist CEL-SCI's capital requirements.
Results of Operations
Fiscal 2010
During the year ended September 30, 2010, research and development
expenses increased by $5,899,876 compared to the year ended September 30, 2009.
This increase was due to continuing expenses relating to the preparation for the
Phase III clinical trial on Multikine.
During the year ended September 30, 2010, general and administrative
expenses increased by $614,215 compared to the year ended September 30, 2009,
primarily due to legal fees caused by the Iroquois lawsuit.
Interest income during the year ended September 30, 2010 increased by
$362,236 compared to the year ended September 30, 2009. The increase was due to
the greater amount of capital CEL-SCI had for investment in money market funds.
The gain on derivative instruments of $28,843,772 for the year ended
September 30, 2010, was the result of the change in the fair value of the
derivative liabilities on the balance sheet. The Series A-E warrants issued in
conjunction with several financings during the fiscal year ended September 30,
2009, as well as others are considered derivative liabilities and must be valued
at the end of each period. The fluctuation of the price of CEL-SCI's common
stock is a major cause of derivative gains or losses.
The interest expense of $162,326 for the year ended September 30, 2010 was
interest on the related party loan. Previous years included amortization of the
Series K discount and the premium on the related party loan.
Fiscal 2009
During the year ended September 30, 2009, research and development
expenses increased by $1,910,187 compared to the year ended September 30, 2008.
This increase was due to continuing expenses relating to the preparation for the
Phase III clinical trial on Multikine.
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<PAGE>
During the year ended September 30, 2009, general and administrative
expenses increased by $470,860 compared to the year ended September 30, 2008,
primarily because of an increase in the Codification 718-10-30-3 "Share Based
Payment" costs of approximately $1,138,062. The Codification 718-10-30-3 "Share
Based Payment" cost is a non-cash charge. This increase was primarily offset by
a reduction in travel costs ($51,349), shareholder costs ($82,983) and
presentation costs ($242,497).
Interest income during the year ended September 30, 2009 decreased by
$483,252 compared to the year ended September 30, 2008. The decrease was due to
lower interest rates and a decline in the funds available to invest, until the
later part of the year.
The loss on derivative instruments of $28,491,650 for the year ended
September 30, 2009, was the result of the change in fair value of the Series A-E
Warrants as well as the Series K Notes and Series K Warrants during the period.
The Series A-E warrants issued in conjunction with several financings are
considered derivative liabilities and must be valued at the end of each period.
The fair value of these warrants was calculated to be $29,741,372 at September
30, 2009. In addition, the remaining Series K warrants were valued at $5,372,598
at September 30, 2009. This loss was due to three factors: 1) an increase in the
Company's share price, and 2) the repricing of the Series K notes to $0.40 as a
result of the June 2009 financing, and 3) the resulting increase in the number
of shares and warrants owned by the Series K investors.
The interest expense of $397,923 for the year ended September 30, 2009 was
composed of five elements: 1) amortization of the Series K discount and short
term loan discount ($438,980), 2) interest paid and accrued on the Series K debt
($115,559), 3) other interest ($81,602), 4) interest on the short term loan
($279,158), and net of 5) amortization of loan premium $517,376. This represents
a decrease of $75,844 from the year ended September 30, 2008 due to the cost of
the warrants issued to the short term note holder, a noncash cost. The
corresponding amounts for the year ended September 30, 2008 are: 1) $249,106, 2)
$217,140, 3) $7,521, 4) $0, and 5) $0.
Research and Development Expenses
During the five years ended September 30, 2010 CEL-SCI's research and
development efforts involved Multikine and LEAPS. The table below shows the
research and development expenses associated with each project during this
five-year period.
2010 2009 2008 2007 2006
---- ---- ---- ---- ----
MULTIKINE $10,868,046 $5,281,999 $3,765,258 $2,217,108 $1,656,362
LEAPS 1,043,580 729,751 336,305 311,420 240,614
----------- ---------- ---------- ---------- ----------
TOTAL $11,911,626 $6,011,750 $4,101,563 $2,528,528 $1,896,976
=========== ========== ========== ========== ==========
29
<PAGE>
In January 2007, FDA gave the go-ahead for the Phase III clinical trial
which had earlier been cleared by the Canadian regulatory agency, the Biologics
and Genetic Therapies Directorate.
As explained in Item 1 of this report, as of September 30, 2010, CEL-SCI
was involved in a number of pre-clinical studies with respect to its LEAPS
technology. As with Multikine, CEL-SCI does not know what obstacles it will
encounter in future pre-clinical and clinical studies involving its LEAPS
technology. Consequently, CEL-SCI cannot predict with any certainty the funds
required for future research and clinical trials and the timing of future
research and development projects.
Clinical and other studies necessary to obtain regulatory approval of a
new drug involve significant costs and require several years to complete. The
extent of CEL-SCI's clinical trials and research programs are primarily based
upon the amount of capital available to CEL-SCI and the extent to which CEL-SCI
has received regulatory approvals for clinical trials. The inability of CEL-SCI
to conduct clinical trials or research, whether due to a lack of capital or
regulatory approval, will prevent CEL-SCI from completing the studies and
research required to obtain regulatory approval for any products which CEL-SCI
is developing. Without regulatory approval, CEL-SCI will be unable to sell any
of its products.
Liquidity and Capital Resources
CEL-SCI has had only limited revenues from operations since its inception
in March l983. CEL-SCI has relied primarily upon proceeds realized from the
public and private sale of its common and preferred stock and convertible notes
to meet its funding requirements. Funds raised by CEL-SCI have been expended
primarily in connection with the acquisition of an exclusive worldwide license
to, and later purchase of, certain patented and unpatented proprietary
technology and know-how relating to the human immunological defense system,
patent applications, the repayment of debt, the continuation of research and
development sponsored by CEL-SCI, administrative costs and construction of
laboratory facilities. Inasmuch as CEL-SCI does not anticipate realizing
revenues until such time as it enters into licensing arrangements regarding the
technology and know-how licensed to it (which could take a number of years),
CEL-SCI is mostly dependent upon the proceeds from the sale of its securities to
meet all of its liquidity and capital resource requirements.
In August 2007, CEL-SCI leased a building near Baltimore, Maryland. The
building, which consists of approximately 73,000 square feet, has been remodeled
in accordance with CEL-SCI's specifications so that it can be used by CEL-SCI to
manufacture Multikine for CEL-SCI's Phase III clinical trials and sales of the
drug if approved by the FDA. The lease expires on October 31, 2028, and requires
annual base rent payments of approximately $1,667,000 during the twelve months
ending October 31, 2011. See Item 2 of this report for more information
concerning the terms of this lease.
In August 2006, CEL-SCI sold Series K convertible notes, plus Series K
warrants, to independent private investors for $8,300,000. The notes were
30
<PAGE>
convertible into shares of CEL-SCI's common stock. On August 31, 2009, all of
the Series K notes had either been repaid or had been converted into shares of
CEL-SCI's common stock.
As of November 30, 2010, 9,208,642 Series K warrants had been exercised.
The remaining Series K warrants allow the holders to purchase up to 2,638,163
shares of CEL-SCI's common stock at a price of $0.40 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 $0.40, 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.
One of the Series K note holders, Iroquois Master Fund Ltd., has indicated
that it believes the conversion price of the Series K notes, as well as the
exercise price of the Series K warrants, should be $0.20 as opposed to $0.40. It
is CEL-SCI's position that the correct conversion price was $0.40 and the
correct exercise price of the warrants is $0.40.
On October 21, 2009, Iroquois filed suit against CEL-SCI. In its
complaint, alleging breach of contract, breach of fiduciary duty, conversion,
and negligence, Iroquois seeks actual and punitive damages, the issuance by
CEL-SCI of additional shares and warrants, and a ruling by the court that the
conversion price of the notes and the exercise price of the warrants are both
$0.20. See Item 3 of this report for further information.
On August 18, 2008, CEL-SCI sold 1,383,389 shares of common stock and
2,075,084 warrants in a private financing for $1,037,500. The shares were sold
at $0.75, a significant premium over the closing price of CEL-SCI's common
stock. In June 2009, an additional 1,166,667 shares and 1,815,698 warrants were
issued to the investors. Each warrant entitles the holder to purchase one share
of CEL-SCI's common stock at a price of $0.40 per share at any time prior to
August 18, 2014.
On March 6, 2009, CEL-SCI sold 3,750,000 Units as further consideration
under a licensing agreement to Byron Biopharma at a price of $0.20 per Unit
totaling $750,000. Each Unit consisted of one share of CEL-SCI's common stock
and two warrants. Each warrant entitles the holder to purchase one share of
CEL-SCI's common stock at a price of $0.25 per share. The warrants are
exercisable at any time prior to March 6, 2016.
Between June 23 and July 8, 2009, CEL-SCI sold 15,349,346 shares of its
common stock at a price of $0.40 per share totaling $6,139,739. The investors in
this offering also received 10,284,060 Series A warrants. Each Series A warrant
entitles the holder to purchase one share of CEL-SCI's common stock. The Series
A warrants may be exercised at any time on or after December 24, 2009 and on or
prior to December 24, 2014 at a price of $0.50 per share. As of November 30,
2010, 8,813,088 Series A warrants had been exercised. The remaining Series A
warrants allow the holders to purchase up to 1,470,972 shares of CEL-SCI's
common stock. As of September 30, 2010, the fair value of the warrants was
determined to be $676,647.
On July 31, 2009, CEL-SCI borrowed $2,000,000 from two institutional
investors. The loans were repaid on September 29, 2009. The Series B note
holders also received Series B warrants which allow the holders to purchase up
31
<PAGE>
to 500,000 shares of CEL-SCI's common stock at a price of $0.68 per share. The
Series B warrants may be exercised at any time on or after March 3, 2010 and on
or prior to March 3, 2015. The fair value of these warrants was determined to be
$245,000 at the time of issuance. This cost was expensed at the time the loan
was repaid. As of September 30, 2010, the fair value of the warrants was
determined to be $220,000.
On August 20, 2009, CEL-SCI sold 10,784,435 shares of its common stock to
a group of private investors for $4,852,995 or $0.45 per share. The investors
also received Series C warrants which entitle the investors to purchase
5,392,217 shares of CEL-SCI's common stock. The Series C warrants may be
exercised at any time on or after February 20, 2010 and on or prior to February
20, 2015 at a price of $0.55 per share. As of September 30, 2010, the fair value
of the warrants was determined to be $2,480,420.
On September 21, 2009, CEL-SCI Corporation sold 14,285,715 shares of its
common stock to a group of private investors for $20,000,000 or $1.40 per share.
The investors also received Series D warrants which entitle the investors to
purchase up to 4,714,284 shares of CEL-SCI's common stock. The Series D warrants
may be exercised at any time prior to September 21, 2011, at a price of $1.50
per share. As of September 30, 2010, the fair value of the Series D warrants was
determined to be $424,286. In addition, the broker for the placement agent
received 714,286 Series E warrants. The Series E warrants may be exercised at
any time prior to August 12, 2014, at a price of $1.75. As of September 30,
2010, the fair value of the Series E warrants was determined to be $235,714.
On December 10, 2010 CEL-SCI entered into a sales agreement with McNicoll
Lewis & Vlak LLC relating to the sale of shares of its common stock which have
been registered by means of a shelf registration statement CEL-SCI filed with
the Securities and Exchange Commission in July 2009. In accordance with the
terms of the sales agreement, CEL-SCI may offer and sell shares of its common
stock through McNicoll Lewis & Vlak acting as CEL-SCI's agent.
Under the terms of the sales agreement, CEL-SCI may also sell its common
stock to McNicoll Lewis & Vlak, as principal for its own account, at a price
negotiated at the time of sale.
Sales of CEL-SCI's common stock, if any, may be made in sales deemed to be
"at-the-market" equity offerings as defined in Rule 415 of the Securities and
Exchange Commission, including sales made directly on or through the NYSE Amex,
the existing trading market for CEL-SCI's common stock, sales made to or through
a market maker other than on an exchange or otherwise, in negotiated
transactions at market prices prevailing at the time of sale or at prices
related to such prevailing market prices, and/or any other method permitted by
law. CEL-SCI is not required to sell any shares to McNicoll Lewis & Vlak and
McNicoll Lewis & Vlak is not required to sell any shares on CEL-SCI's behalf or
purchase any of CEL-SCI's shares for its own account.
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<PAGE>
McNicoll Lewis & Vlak will be entitled to a commission in an amount equal
to the greater of 3% of the gross proceeds from each sale of the shares, or
$0.025 for each share sold, provided, that, in no event will McNicoll Lewis &
Vlak receive a commission greater than 8.0% of the gross proceeds from the sale
of the shares. In connection with the sale of the common stock on CEL-SCI's
behalf, McNicoll Lewis & Vlak may be deemed to be an "underwriter" within the
meaning of the Securities Act of 1933, as amended, and the compensation of
McNicoll Lewis & Vlak may be deemed to be underwriting commissions or discounts.
Between December 2008 and June 2009, Maximilian de Clara, CEL-SCI's
President and a director, loaned CEL-SCI $1,104,057. The loan was initially
payable at the end of March 2009, but was extended to the end of June 2009. At
the time the loan was due, and in accordance with the loan agreement, CEL-SCI
issued Mr. de Clara a warrant which entitles Mr. de Clara to purchase 1,648,244
shares of CEL-SCI's common stock at a price of $0.40 per share. The warrant is
exercisable at any time prior to December 24, 2014. Although the loan was to be
repaid from the proceeds of CEL-SCI's recent financing, CEL-SCI's Directors
deemed it beneficial not to repay the loan and negotiated a second extension of
the loan with Mr. de Clara on terms similar to the June 2009 financing. Pursuant
to the terms of the second extension the note is now due on July 6, 2014, but,
at Mr. de Clara's option, the loan can be converted into shares of CEL-SCI's
common stock. The number of shares which will be issued upon any conversion will
be determined by dividing the amount to be converted by $0.40. As further
consideration for the second extension, Mr. de Clara received warrants which
allow Mr. de Clara to purchase 1,849,295 shares of CEL-SCI's common stock at a
price of $0.50 per share at any time prior to January 6, 2015. The loan from Mr.
de Clara bears interest at 15% per year and is secured by a lien on
substantially all of CEL-SCI's assets. CEL-SCI does not have the right to prepay
the loan without Mr. de Clara's consent.
Between July 29, 2009 and March 18, 2010, CEL-SCI received approximately
$14,900,000 from the exercise of stock options and other warrants (including a
number of CEL-SCI's Series A, J, K and L warrants) previously issued to private
investors.
Inventory has increased significantly in the fiscal year ended September
30, 2010. CEL-SCI has been purchasing supplies for the manufacturing of
Multikine in order to begin the Phase III trial. In addition, prepaids have
increased with the purchase of insurance for the Phase III trials.
Future Capital Requirements
Other than funding operating losses, funding its research and development
program, and paying its liabilities, CEL-SCI does not have any material capital
commitments. Material future liabilities as of September 30, 2010 are as
follows:
Contractual Obligations:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Years Ending September 30,
---------------------------------------------------------------------------
Total 2011 2012 2013 2014 2015 2015 & thereafter
----- ---- ---- ---- ---- ---- -----------------
Operating Leases $35,250,284 $1,903,471 $1,896,205 $1,855,889 $1,579,931 1,572,839 $26,441,949
Employment Contracts $2,730,152 1,202,250 797,166 730,736 -- -- --
</TABLE>
33
<PAGE>
For additional information on employment contracts, see Item 11 of this
report.
In addition, CEL-SCI has an additional contract with a consultant for a
nine-month period ending in fiscal year 2011. This contract totals approximately
$45,000.
Further, CEL-SCI has contingent obligations with vendors for work that
will be completed in relation to the Phase III trial. The timing of these
obligations cannot be determined at this time. The amount of these obligations
for the Phase III trial is approximately $27 million with the net cost to
CEL-SCI being between $25 - $26 million.
CEL-SCI believes that its capital will allow it to enroll the patients in
the Phase III clinical trial. CEL-SCI will need to raise additional funds,
either through its existing warrants/options, through a debt or equity financing
or a partnering arrangement, to complete the Phase III trial and bring Multikine
to market. CEL-SCI management believes that all of the above will be much easier
than it used to be in the past since CEL-SCI will be involved in a very large
Phase III clinical trial for an unmet medical need and should therefore be more
attractive as an investment.
Clinical and other studies necessary to obtain regulatory approval of a
new drug involve significant costs and require several years to complete. The
extent of CEL-SCI's clinical trials and research programs are primarily based
upon the amount of capital available to CEL-SCI and the extent to which CEL-SCI
has received regulatory approvals for clinical trials. The inability of CEL-SCI
to conduct clinical trials or research, whether due to a lack of capital or
regulatory approval, will prevent CEL-SCI from completing the studies and
research required to obtain regulatory approval for any products which CEL-SCI
is developing. Without regulatory approval, CEL-SCI will be unable to sell any
of its products.
In the absence of revenues, CEL-SCI will be required to raise additional
funds through the sale of securities, debt financing or other arrangements in
order to continue with its research efforts. However, there can be no assurance
that such financing will be available or be available on favorable terms.
Ultimately, CEL-SCI must complete the development of its products, obtain
appropriate regulatory approvals and obtain sufficient revenues to support its
cost structure.
Since all of CEL-SCI's projects are under development CEL-SCI cannot
predict with any certainty the funds required for future research and clinical
trials, the timing of future research and development projects, or when it will
be able to generate any revenue from the sale of any of its products.
CEL-SCI's cash flow and earnings are subject to fluctuations due to
changes in interest rates on its certificates of deposit, and, to an immaterial
extent, foreign currency exchange rates.
Critical Accounting Policies
CEL-SCI's significant accounting policies are more fully described in Note
1 to the consolidated financial statements included as part of this report.
However, certain accounting policies are particularly important to the portrayal
of financial position and results of operations and require the application of
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significant judgments by management. As a result, the consolidated financial
statements are subject to an inherent degree of uncertainty. In applying those
policies, management uses its judgment to determine the appropriate assumptions
to be used in the determination of certain estimates. These estimates are based
on CEL-SCI's historical experience, terms of existing contracts, observance of
trends in the industry and information available from outside sources, as
appropriate. CEL-SCI's significant accounting policies include:
Patents - Patent expenditures are capitalized and amortized using the
straight-line method over 17 years. In the event changes in technology or other
circumstances impair the value or life of the patent, appropriate adjustment in
the asset value and period of amortization is made. An impairment loss is
recognized when estimated future undiscounted cash flows expected to result from
the use of the asset, and from disposition, is less than the carrying value of
the asset. The amount of the impairment loss is the difference between the
estimated fair value of the asset and its carrying value.
Stock Options and Warrants - Codification 718-10-30-3 requires companies
to recognize expense associated with share based compensation arrangements,
including employee stock options, using a fair value-based option pricing model.
Codification 718-10-30-3 applies to all transactions involving issuance of
equity by a company in exchange for goods and services, including employees.
Using the modified prospective transition method of adoption, CEL-SCI reflected
compensation expense in its financial statements beginning October 1, 2005. The
modified prospective transition method does not require restatement of prior
periods to reflect the impact of Codification 718-10-30-3. As such, compensation
expense is recognized for awards that were granted, modified, repurchased or
cancelled on or after October 1, 2005.
Options to non-employees are accounted for in accordance with Codification
505-50-S99-1 Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services.
Accordingly, compensation is recognized when goods or services are received and
is measured using the Black-Scholes valuation model. The Black-Scholes model
requires CEL-SCI's management to make assumptions regarding the fair value of
the options at the date of grant and the expected life of the options.
Asset Valuations and Review for Potential Impairments - CEL-SCI reviews its
fixed assets, intangibles and deferred rent every fiscal quarter. This review
requires that CEL-SCI make assumptions regarding the value of these assets and
the changes in circumstances that would affect the carrying value of these
assets. If such analysis indicates that a possible impairment may exist, CEL-SCI
is then required to estimate the fair value of the asset and, as deemed
appropriate, expense all or a portion of the asset. The determination of fair
value includes numerous uncertainties, such as the impact of competition on
future value. CEL-SCI believes that it has made reasonable estimates and
judgments in determining whether its long-lived assets have been impaired;
however, if there is a material change in the assumptions used in its
determination of fair values or if there is a material change in economic
35
<PAGE>
conditions or circumstances influencing fair value, CEL-SCI could be required to
recognize certain impairment charges in the future. As a result of the reviews,
no changes in asset values were required.
Prepaid Expenses and Inventory--Inventory consists of bulk purchases of
laboratory supplies used on a daily basis in the lab and items that will be used
for future production. The items in inventory are expensed when used in
production or daily activity as Research and Development expenses. These items
are disposables and consumables and can be used for both the manufacturing of
Multikine for clinical studies and in the laboratory for quality control and
bioassay use. They can be used in training, testing and daily laboratory
activities. Prepaid expenses are payments for services over a long period and
are expensed over the time period for which the service is rendered.
Derivative Instruments--CEL-SCI enters into financing arrangements that
consist of freestanding derivative instruments or hybrid instruments that
contain embedded derivative features. CEL-SCI accounts for these arrangement in
accordance with Codification 815-10-50, "Accounting for Derivative Instruments
and Hedging Activities", "Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company's Own Stock", as well as
related interpretations of these standards. In accordance with accounting
principles generally accepted in the United States ("GAAP"), derivative
instruments and hybrid instruments are recognized as either assets or
liabilities in the statement of financial position and are measured at fair
value with gains or losses recognized in earnings or other comprehensive income
depending on the nature of the derivative or hybrid instruments. Embedded
derivatives that are not clearly and closely related to the host contract are
bifurcated and recognized at fair value with changes in fair value recognized as
either a gain or loss in earnings if they can be reliably measured. When the
fair value of embedded derivative features cannot be reliably measured, CEL-SCI
measures and reports the entire hybrid instrument at fair value with changes in
fair value recognized as either a gain or loss in earnings. CEL-SCI determines
the fair value of derivative instruments and hybrid instruments based on
available market data using appropriate valuation models, giving consideration
to all of the rights and obligations of each instrument and precluding the use
of "blockage" discounts or premiums in determining the fair value of a large
block of financial instruments. Fair value under these conditions does not
necessarily represent fair value determined using valuation standards that give
consideration to blockage discounts and other factors that may be considered by
market participants in establishing fair value.
Accounting Pronouncements
In March 2008, the FASB issued Codification 815-20-50-1, "Disclosures
about Derivative Instruments and Hedging Activities - an amendment of FASB
Statement No. 133", which changes disclosure requirements for derivative
instruments and hedging activities. The statement is effective for periods
ending on or after November 15, 2008, with early application encouraged. CEL-SCI
has adopted this statement with no effect on its consolidated financial
statements.
In June 2008, the FASB finalized Codification 815-40-15-7, "Determining
Whether an Instrument (or Embedded Feature) is Indexed to an Entity's Own
Stock". The EITF lays out a procedure to determine if the debt instrument is
indexed to its own common stock. The EITF is effective for fiscal years
36
<PAGE>
beginning after December 15, 2008. CEL-SCI has adopted this codification and
reviewed all outstanding options and warrants as of October 1, 2009. See Note 11
in the financial statements included as part of this report for a discussion.
In September 2008, the FASB staff issued Codification 815-10-50-1A,
"Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of
FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the
Effective Date of FASB Statement No. 161". The codification applies to credit
derivatives within the scope of Statement 133 and hybrid instruments that have
embedded credit derivatives. It deals with disclosures related to these
derivatives and is effective for reporting periods ending after November 15,
2008. It also clarifies the effective date of Codification 815-20-50-1 as any
reporting period beginning after November 15, 2008. CEL-SCI has adopted this
codification and it had no impact on its consolidated financial statements.
In April 2009, the FASB issued Codification 825-10-65-1, "Interim
Disclosures about Fair Value of Financial Instruments". The codification amends
FASB Statement No. 107, "Disclosures about Fair Values of Financial
Instruments", to require disclosures about fair values of financial instruments
for interim reporting periods of publicly traded companies as well as in annual
financial statements. The codification also amends APB Opinion No. 28, "Interim
Financial Reporting", to require those disclosures in summarized financial
information at interim reporting periods. This Codification topic became
effective for interim and annual reporting periods ending after June 15, 2009.
CEL-SCI adopted this codification in the quarter ended June 30, 2009. There was
no significant impact from this adoption on CEL-SCI's consolidated financial
statements.
In May 2009, the FASB issued Codification 855-10-50, "Subsequent Events",
which establishes general standards of accounting for and disclosure of events
that occur after the balance sheet date but before the financial statements are
issued or are available to be issued. It requires the disclosure of the date
through which an entity has evaluated subsequent events and the basis for that
date. The codification establishes the period after the balance sheet date
during which management of a reporting entity should evaluate events or
transactions that may occur for potential recognition or disclosure in the
financial statements, the circumstances under which an entity should recognize
events or transactions occurring after the balance sheet date in its financial
statements and the disclosures that an entity should make about events or
transactions that occurred after the balance sheet date. The codification became
effective for CEL-SCI for the period ended June 30, 2009 and is to be applied
prospectively. The impact of the adoption was not significant.
In January 2010, the FASB amended Codification 820-10, "Improving
Disclosures about Fair Value Measurement", effective for interim periods
beginning after December 15, 2009. This amendment changes disclosures required
for interim and annual periods with respect to fair value measurements. CEL-SCI
has adopted the change in the disclosure requirements and the effect was
immaterial.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
Market risk is the potential change in an instrument's value caused by,
for example, fluctuations in interest and currency exchange rates. CEL-SCI
enters into financing arrangements that are or include freestanding derivative
instruments or that are, or include, hybrid instruments that contain embedded
derivative features. CEL-SCI does not enter into derivative instruments for
trading purposes. Additional information is presented in the notes to
consolidated financial statements. The fair value of these instruments is
affected primarily by volatility of the trading prices of the CEL-SCI's common
stock. For three years ended September 30, 2010, CEL-SCI recognized a gain or
(loss) of $28,843,772, $(28,491,650) and $1,799,393, respectively, resulting
from changes in fair value of derivative instruments. CEL-SCI has no exposure to
risks associated with foreign exchange rate changes because none of the
operations of CEL-SCI are transacted in a foreign currency. The interest risk on
investments on September 30, 2010 was considered immaterial due to the fact that
the interest rates at that time were nominal at best and CEL-SCI keeps its cash
and cash equivalents in short term maturities.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the consolidated financial statements included with this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
ITEM 9A. CONTROLS AND PROCEDURES
Under the direction and with the participation of CEL-SCI's management,
including CEL-SCI's Chief Executive Officer and Chief Financial Officer, CEL-SCI
carried out an evaluation of the effectiveness of the design and operation of
its disclosure controls and procedures as of September 30, 2010. CEL-SCI
maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in its periodic reports with the Securities
and Exchange Commission is recorded, processed, summarized and reported within
the time periods specified in the SEC's rules and regulations, and that such
information is accumulated and communicated to CEL-SCI's management, including
its principal executive officer and principal financial officer, as appropriate,
to allow timely decisions regarding required disclosure. CEL-SCI's disclosure
controls and procedures are designed to provide a reasonable level of assurance
of reaching its desired disclosure control objectives. Based on the evaluation,
the Chief Executive and Principal Financial Officer has concluded that CEL-SCI's
disclosure controls were effective as of September 30, 2010.
Management's Report on Internal Control Over Financial Reporting
CEL-SCI's management is responsible for establishing and maintaining
adequate internal control over financial reporting and for the assessment of the
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effectiveness of internal control over financial reporting. As defined by the
Securities and Exchange Commission, internal control over financial reporting is
a process designed by, or under the supervision of CEL-SCI's principal executive
officer and principal financial officer and implemented by CEL-SCI's Board of
Directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
CEL-SCI's financial statements in accordance with U.S. generally accepted
accounting principles.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
Geert Kersten, CEL-SCI's Chief Executive and Principal Financial Officer,
evaluated the effectiveness of CEL-SCI's internal control over financial
reporting as of September 30, 2010 based on criteria established in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission, or the COSO Framework. Management's
assessment included an evaluation of the design of CEL-SCI's internal control
over financial reporting and testing of the operational effectiveness of those
controls.
Based on this evaluation, Mr. Kersten concluded that CEL-SCI's internal
control over financial reporting was effective as of September 30, 2010.
There was no change in CEL-SCI's internal control over financial reporting
that occurred during the quarter ended September 30, 2010 that has materially
affected, or is reasonably likely to materially affect, CEL-SCI's internal
control over financial reporting.
CEL-SCI's independent registered public accounting firm BDO USA, LLP has
issued an attestation report on CEL-SCI's internal control over financial
reporting.
ITEM 9B. SUBMISSION OF MATTTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of CEL-SCI's shareholders was held on July 16, 2010.
At the meeting the following persons were elected as directors for the upcoming
year:
Name Votes For Votes Withheld
Maximilian de Clara 32,097,084 11,280,445
Geert Kersten 34,808,573 8,568,956
Alexander Esterhazy 34,664,725 8,712,804
C. Richard Kinsolving 35,236,897 8,140,632
Peter R. Young 35,223,756 8,153,773
At the meeting the following proposals were ratified by the shareholders.
(1) to approve the adoption of CEL-SCI's 2010 Incentive Stock Option
Plan which provides that up to 2,000,000 shares of common stock may be issued
upon the exercise of options granted pursuant to the Incentive Stock Option
Plan;
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<PAGE>
(2) to approve the adoption of CEL-SCI's 2010 Non-Qualified Stock
Option Plan which provides that up to 5,000,000 shares of common stock may be
issued upon the exercise of options granted pursuant to the Non-Qualified Stock
Option Plan;
(3) to approve the adoption of CEL-SCI's 2010 Stock Bonus Plan which
provides that up to 2,000,000 shares of common stock may be issued to persons
granted stock bonuses pursuant to the Stock Bonus Plan;
(4) to approve an amendment to CEL-SCI's Stock Compensation Plan to
provide for the issuance of up to 2,000,000 additional restricted shares of
common stock to CEL-SCI's directors, officers, employees and consultants for
services provided to the Company;
(5) to ratify the appointment of BDO USA, LLP as CEL-SCI's
independent registered public accounting firm for the fiscal year ending
September 30, 2010.
The following is a tabulation of votes cast with respect to these
proposals:
Votes
----------------------------------- Broker
Proposal For Against Abstain Non-Votes
- --------- --- ------ ------- ---------
1. 29,741,736 13,177,965 457,828 113,983,024
2. 27,610,822 14,884,483 882,224 113,983,024
3. 28,725,699 13,840,290 811,540 113,983,024
4. 27,898,687 14,166,249 1,312,593 113,983,024
5. 150,860,671 4,347,654 2,152,228 0
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Officers and Directors
Name Age Position
- ----- --- ---------
Maximilian de Clara 80 Director and President
Geert R. Kersten, Esq. 51 Director, Chief Executive Officer
and Treasurer
Patricia B. Prichep 59 Senior Vice President of Operations and
Secretary
Dr. Eyal Talor 54 Chief Scientific Officer
Dr. Daniel H. Zimmerman 69 Senior Vice President of Research,
Cellular Immunology
John Cipriano 68 Senior Vice President of Regulatory Affairs
Alexander G. Esterhazy 68 Director
Dr. C. Richard Kinsolving 73 Director
Dr. Peter R. Young 65 Director
The directors of CEL-SCI serve in such capacity until the next annual
meeting of CEL-SCI's shareholders and until their successors have been duly
elected and qualified. The officers of CEL-SCI serve at the discretion of
CEL-SCI's directors.
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Mr. Maximilian de Clara, by virtue of his position as an officer and
director of CEL-SCI, may be deemed to be the "parent" and "founder" of CEL-SCI
as those terms are defined under applicable rules and regulations of the SEC.
All of CEL-SCI's directors have served as directors for a significant
period of time. Consequently, their long-standing experience with CEL-SCI
benefits both CEL-SCI and its shareholders.
The principal occupations of CEL-SCI's officers and directors, during the
past several years, are as follows:
Maximilian de Clara has been a Director of CEL-SCI since its inception in
March l983, and has been President of CEL-SCI since July l983. Prior to his
affiliation with CEL-SCI, and since at least l978, Mr. de Clara was involved in
the management of his personal investments and personally funding research in
the fields of biotechnology and biomedicine. Mr. de Clara attended the medical
school of the University of Munich from l949 to l955, but left before he
received a medical degree. During the summers of l954 and l955, he worked as a
research assistant at the University of Istanbul in the field of cancer
research. For his efforts and dedication to research and development in the
fight against cancer and AIDS, Mr. de Clara was awarded the "Pour le Merit"
honorary medal of the Austrian Military Order "Merito Navale" as well as the
honor cross of the Austrian Albert Schweitzer Society.
Geert Kersten has served in his current leadership role at CEL-SCI since
1995. Mr. Kersten has been with CEL-SCI since 1987. He has been involved in the
pioneering field of cancer immunotherapy for almost two decades and has
successfully steered CEL-SCI through many challenging cycles in the
biotechnology industry. Mr. Kersten also provides CEL-SCI with significant
expertise in the fields of finance and law and has a unique vision of how
Multikine will change the way cancer is treated. Prior to his association with
CEL-SCI, Mr. Kersten worked at the law firm of Finley & Kumble and worked at
Source Capital, an investment banking firm located in McLean, VA. He is a native
of Germany, and completed his studies in the U.S.
Mr. Kersten completed his Undergraduate Degree in Accounting, received an
M.B.A. from George Washington University, and a law degree (J.D.) from American
University in Washington, DC.
Patricia B. Prichep joined CEL-SCI in 1992 and has been CEL-SCI's Senior
Vice President of Operations since March 1994. Between December 1992 and March
1994, Ms. Prichep was CEL-SCI's Director of Operations. Ms. Prichep became
CEL-SCI's Corporate Secretary in May 2000. She is responsible for all day-to-day
operations of CEL-SCI, including human resources and is the liaison with the
auditing firm for financial reporting. Between June 1990 and December 1992, Ms.
Prichep was the Manager of Quality and Productivity for the NASD's Management,
Systems and Support Department where she was responsible for the internal
auditing and work flow analysis of operations. Between 1982 and 1990, Ms.
Prichep was Vice President and Operations Manager for Source Capital, Ltd. where
she was responsible for all operations and compliance for the company and was
licensed as a securities broker. Ms. Prichep received her B.A. from the
University of Bridgeport in Connecticut.
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Eyal Talor, Ph.D. joined CEL-SCI in October 1993. In October 2009, Dr.
Talor was promoted to Chief Scientific Officer. Prior to this promotion he was
the Senior Vice president of Research and Manufacturing since March of 1994. He
is a clinical immunologist with over 19 years of hands-on management of clinical
research and drug development for immunotherapy application; pre-clinical to
Phase III, in the biopharmaceutical industry. His expertise includes;
biopharmaceutical R&D and Biologics product development, GMP (Good Manufacturing
Practices), Quality Control testing, and the design and building of GMP
manufacturing and testing facilities. He served as Director of Clinical
Laboratories (certified by the State of Maryland) and has experience in the
design of clinical trials (Phase I - III) and GCP (Good Clinical Practices)
requirements. He also has broad experience in the different aspects of
biological assay development, analytical methods validation, raw material
specifications, and QC (Quality Control) tests development under FDA/GMP, USP,
and ICH guidelines. He has extensive experience in the preparation of
documentation for IND and other regulatory submissions. His scientific area of
expertise encompasses immune response assessment. He is the author of over 25
publications and has published a number of reviews on immune regulations in
relation to clinical immunology. Before coming to CEL-SCI, he was Director of
R&D and Clinical Development at CBL, Inc., Principal Scientist - Project
Director, and Clinical Laboratory Director at SRA Technologies, Inc. Prior to
that he was a full time faculty member at The Johns Hopkins University, Medical
Intuitions; School of Public Health. He holds two US patents; one on Multikine's
composition of matter and method of use in cancer, and one on a platform Peptide
technology (`Adapt') for the treatment of autoimmune diseases, asthma, allergy,
and transplantation rejection. He also has numerous product and process
inventions as well as a number of pending US and PCT patent applications. He
received his Ph.D. in Microbiology and Immunology from the University of Ottawa,
Ottawa, Ontario, Canada, and had post-doctoral training in clinical and cellular
immunology at The John Hopkins University, Baltimore, Maryland, USA. He holds an
Adjunct Associate teaching position at the Johns Hopkins University Medical
Institutions.
Daniel H. Zimmerman, Ph.D., was CEL-SCI's Senior Vice President of
Cellular Immunology between 1996 and December 2008 and again since November
2009. He joined CEL-SCI in January 1996 as the Vice President of Research,
Cellular Immunology. Dr. Zimmerman founded CELL-MED, Inc. and was its president
from 1987-1995. From 1973-1987, Dr. Zimmerman served in various positions at
Electronucleonics, Inc. His positions included: Scientist, Senior Scientist,
Technical Director and Program Manager. Dr Zimmerman held various teaching
positions at Montgomery College between 1987 and 1995. Dr. Zimmerman holds over
a dozen US patents as well as many foreign equivalent patents. He is the author
of over 40 scientific publications in the area of immunology and infectious
diseases. He has been awarded numerous grants from NIH and DOD. From 1969-1973,
Dr. Zimmerman was a Senior Staff Fellow at NIH. For the following 25 years, he
continued on at NIH as a guest worker. Dr Zimmerman received a Ph.D. in
Biochemistry in 1969, a Masters in Zoology in 1966 from the University of
Florida and a B.S. in Biology from Emory and Henry College in 1963.
John Cipriano, was CEL-SCI's Senior Vice President of Regulatory Affairs
between March 2004 and December 2008 and again since October 2009. Mr. Cipriano
brings to CEL-SCI over 30 years of experience in both biotech and pharmaceutical
42
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companies. In addition, he held positions at the United States Food and Drug
Administration (FDA) as Deputy Director, Division of Biologics Investigational
New Drugs, Office of Biologics Research and Review and was the Deputy Director,
IND Branch, Division of Biologics Evaluation, Office of Biologics. Mr. Cipriano
completed his B.S. in Pharmacy from the Massachusetts College of Pharmacy in
Boston, Massachusetts and his M.S. in Pharmaceutical Chemistry from Purdue
University in West Lafayette, Indiana.
Alexander G. Esterhazy has been a Director of CEL-SCI since December 1999
and has been an independent financial advisor since November 1997. Between July
1991 and October 1997, Mr. Esterhazy was a senior partner of Corpofina S.A.
Geneva, a firm engaged in mergers, acquisitions and portfolio management.
Between January 1988 and July 1991, Mr. Esterhazy was a managing director of DG
Bank in Switzerland. During this period Mr. Esterhazy was in charge of the
Geneva, Switzerland branch of the DG Bank, founded and served as vice president
of DG Finance (Paris) and was the President and Chief Executive officer of
DG-Bourse, a securities brokerage firm.
C. Richard Kinsolving, Ph.D. has been a Director of CEL-SCI since April
2001. Since February 1999, Dr. Kinsolving has been the Chief Executive Officer
of BioPharmacon, a pharmaceutical development company. Between December 1992 and
February 1999, Dr. Kinsolving was the President of Immuno-Rx, Inc., a company
engaged in immuno-pharmaceutical development. Between December 1991 and
September 1995, Dr. Kinsolving was President of Bestechnology, Inc. a nonmedical
research and development company producing bacterial preparations for industrial
use. Dr. Kinsolving received his Ph.D. in Pharmacology from Emory University
(1970), his Masters degree in Physiology/Chemistry from Vanderbilt University
(1962), and his Bachelor's degree in Chemistry from Tennessee Tech. University
(1957).
Peter R. Young, Ph.D. has been a Director of CEL-SCI since August 2002.
Dr. Young has been a senior executive within the pharmaceutical industry in the
United States and Canada for most of his career. Over the last 20 years he has
primarily held positions of Chief Executive Officer or Chief Financial Officer
and has extensive experience with acquisitions and equity financings. Since
November 2001, Dr. Young has been the President of Agnus Dei, LLC, which acts as
a partner in an organization managing immune system clinics which treat patients
with diseases such as cancer, multiple sclerosis and hepatitis. Since January
2003, Dr. Young has been the President and Chief Executive Officer of SRL
Technology, Inc., a company involved in the development of pharmaceutical (drug)
delivery systems. Between 1998 and 2001, Dr. Young was the Chief Financial
Officer of Adams Laboratories, Inc. Dr. Young received his Ph.D. in Organic
Chemistry from the University of Bristol, England (1969), and his Bachelor's
degree in Honors Chemistry, Mathematics and Economics also from the University
of Bristol, England (1966).
All of CEL-SCI's officers devote substantially all of their time to
CEL-SCI's business.
Alexander G. Esterhazy, Dr. C. Richard Kinsolving and Dr. Peter R.
Young are independent directors as that term is defined in section 803 of the
listing standards of the NYSE Amex.
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CEL-SCI has an audit committee and compensation committee. The members
of the audit committee are Alexander G. Esterhazy, Dr. C. Richard Kinsolving
and Dr. Peter Young. Dr. Peter Young serves as the audit committee's
financial expert. The members of the compensation committee are Alexander
Esterhazy, Dr. C. Richard Kinsolving and Dr. Peter Young.
CEL-SCI's Board of Directors does not have a "leadership structure", as
such, since each director is entitled to introduce resolutions to be considered
by the Board and each director is entitled to one vote on any resolution
considered by the Board. CEL-SCI's Chief Executive Officer is not the Chairman
of CEL-SCI's Board of Directors.
CEL-SCI's Board of Directors has the ultimate responsibility to evaluate
and respond to risks facing CEL-SCI. CEL-SCI's Board of Directors fulfills its
obligations in this regard by meeting on a regular basis and communicating, when
necessary, with CEL-SCI's officers.
CEL-SCI has adopted a Code of Ethics which is applicable to CEL-SCI'S
principal executive, financial, and accounting officers and persons performing
similar functions. The Code of Ethics is available on CEL-SCI's website, located
at www.cel-sci.com.
If a violation of this code of ethics act is discovered or suspected, the
Senior Officer must (anonymously, if desired) send a detailed note, with
relevant documents, to CEL-SCI's Audit Committee, c/o Dr. Peter Young, 5458
Beacon Hill Drive, Frisco, TX 75034.
For purposes of electing directors at its annual meeting CEL-SCI does not
have a nominating committee or a committee performing similar functions.
CEL-SCI's Board of Directors does not believe a nominating committee is
necessary since CEL-SCI's Board of Directors is small and the Board of Directors
as a whole performs this function. CEL-SCI's Directors have adopted a policy
which provides that nominees to the Board of Directors are selected by a
majority vote of CEL-SCI's independent directors.
CEL-SCI does not have any policy regarding the consideration of director
candidates recommended by shareholders since a shareholder has never recommended
a nominee to the Board of Directors. However, CEL-SCI's Board of Directors will
consider candidates recommended by shareholders. To submit a candidate for the
Board of Directors the shareholder should send the name, address and telephone
number of the candidate, together with any relevant background or biographical
information, to CEL-SCI's Chief Executive Officer, at the address shown on the
cover page of this report. The Board has not established any specific
qualifications or skills a nominee must meet to serve as a director. Although
the Board does not have any process for identifying and evaluating director
nominees, the Board does not believe there would be any differences in the
manner in which the Board evaluates nominees submitted by shareholders as
opposed to nominees submitted by any other person.
CEL-SCI does not have a policy with regard to Board member's attendance at
annual meetings. All Board members, with the exception of Mr. de Clara and Mr.
Esterhazy, attended the last annual shareholder's meeting held on July 16, 2010.
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<PAGE>
Holders of CEL-SCI's common stock can send written communications to
CEL-SCI's entire Board of Directors, or to one or more Board members, by
addressing the communication to "the Board of Directors" or to one or more
directors, specifying the director or directors by name, and sending the
communication to CEL-SCI's offices in Vienna, Virginia. Communications addressed
to the Board of Directors as whole will be delivered to each Board member.
Communications addressed to a specific director (or directors) will be delivered
to the director (or directors) specified.
Security holder communications not sent to the Board of Directors as a
whole or to specified Board members are not relayed to Board members.
ITEM 11. EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
This Compensation Discussion and Analysis (CD&A) outlines CEL-SCI's
compensation philosophy, objectives and process for its executive officers. This
CD&A includes information on how compensation decisions are made, the overall
objectives of CEL-SCI's compensation program, a description of the various
components of compensation that are provided, and additional information
pertinent to understanding CEL-SCI's executive officer compensation program.
The Compensation Committee determines the compensation of CEL-SCI's Chief
Executive Officer and President and delegates to the Chief Executive Officer the
responsibility to determine the base salaries of all officers other than himself
under the constraints of an overall limitation on the total amount of
compensation to be paid to them.
Compensation Philosophy
CEL-SCI's compensation philosophy extends to all employees, including
executive officers, and is designed to align employee and shareholder interests.
The philosophy's objective is to pay fairly based upon the employee's position,
experience and individual performance. Employees may be rewarded through
additional compensation when CEL-SCI meets or exceeds targeted business
objectives. Generally, under CEL-SCI's compensation philosophy, as an employee's
level of responsibility increases, a greater portion of his or her total
potential compensation becomes contingent upon annual performance.
A substantial portion of an executive's compensation incorporates
performance criteria that support and reward achievement of CEL-SCI's long term
business goals.
The fundamental principles of CEL-SCI's compensation philosophy are
described below:
o Market-driven. Compensation programs are structured to be competitive
both in their design and in the total compensation that they offer.
o Performance-based. Certain officers have some portion of their
incentive compensation linked to CEL-SCI's performance. The
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<PAGE>
application of performance measures as well as the form of the reward
may vary depending on the employee's position and responsibilities.
Based on a review of its compensation programs, CEL-SCI does not believe
that such programs encourage any of its employees to take risks that would be
likely to have a material adverse effect on CEL-SCI. CEL-SCI reached this
conclusion based on the following:
o The salaries paid to employees are consistent with the employees'
duties and responsibilities.
o Employees who have high impact relative to the expectations of their
job duties and functions are rewarded.
o CEL-SCI retains employees who have skills critical to its long term
success.
Review of Executive Officer Compensation
CEL-SCI's current policy is that the various elements of the compensation
package are not interrelated in that gains or losses from past equity incentives
are not factored into the determination of other compensation. For instance, if
options that are granted in a previous year become underwater the next year, the
Committee does not take that into consideration in determining the amount of the
options or restricted stock to be granted the next year. Similarly, if the
options or restricted shares granted in a previous year become extremely
valuable, the Committee does not take that into consideration in determining the
options or restricted stock to be awarded for the next year.
CEL-SCI does not have a policy with regard to the adjustment or recovery
of awards or payments if our relevant performance measures upon which they are
based are restated or otherwise adjusted in a manner that would reduce the size
of an award or payment.
Components of Compensation--Executive Officers
CEL-SCI's executive officers are compensated through the following three
components:
o Base Salary
o Long-Term Incentives (stock options and/or grants of stock)
o Benefits
These components provide a balanced mix of base compensation and
compensation that is contingent upon each executive officer's individual
performance. A goal of the compensation program is to provide executive officers
with a reasonable level of security through base salary and benefits. CEL-SCI
wants to ensure that the compensation programs are appropriately designed to
encourage executive officer retention and motivation to create shareholder
value. The Compensation Committee believes that CEL-SCI's stockholders are best
served when CEL-SCI can attract and retain talented executives by providing
compensation packages that are competitive but fair.
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<PAGE>
In past years, base salaries, benefits and incentive compensation
opportunities were generally targeted near the median of general survey
market data derived from indices covering similar biotech/pharmaceutical
companies. The companies included Achillion Pharmaceuticals, Inc., Acura
Pharmaceutical, Inc., Alimera Sciences, Inc., Amorfix Life Sciences Ltd.,
Antigenics, Inc., ARCA biopharma (ARCA Discovery), ARYx Therapeutics, Inc.,
Avanir Pharmaceuticals, Bellus Health, Inc., Cadence Pharmaceuticals, Inc.
,Capstone Therapeutics, Chelsea Therapeutics, Inc., Cortex Pharmaceuticals,
Inc., EpiCept Corp., EXACT Sciences Corp., Helix BioPharma, IGI Laboratories
Inc., Inhibitex, Inc., Isotechnika Pharma Inc., Medicis Technologies Corp.,
NeurogesX, Inc., Novavax, Inc., Orbus Pharma Inc., Orexigen Therapeutics
Inc., OXiGENE, Inc., Pharmacyclics, Inc., Quest PharmaTech Inc., Reata
Pharmaceuticals, Inc., Resverlogix Corp., SCOLR Pharma, Inc., StemCells, Inc.
and Threshold Pharmaceuticals, Inc. CEL-SCI has not used third party
consultants to provide it with recommendations or reports.
Base Salaries
Base salaries generally have been targeted to be competitive when compared
to the salary levels of persons holding similar positions in other
pharmaceutical companies and other publicly traded companies of comparable size.
Each executive officer's respective responsibilities, experience, expertise and
individual performance are considered.
A further consideration in establishing compensation for the senior
employees is their long term history with CEL-SCI. Taken into consideration are
factors that have helped CEL-SCI survive in times when it was financially
extremely weak, such as: willingness to accept salary cuts, willingness not to
be paid at all for extended time periods, and in general an attitude that helped
CEL-SCI survive during financially difficult times. For example, Geert Kersten,
Maximilian de Clara and Patricia Prichep were without any salary between
September 2008 and June 2009. Other senior members took substantial salary cuts,
all geared towards helping CEL-SCI survive. In all of these cases the officers
continued to work without any guarantee of payment.
Long-Term Incentives
Stock grants and option grants help to align the interests of CEL-SCI's
employees with those of its shareholders. Options and stock grants are made
under CEL-SCI's Stock Option, Stock Bonus and Stock Compensation Plans. Options
are granted with exercise prices equal to the closing price of CEL-SCI's common
stock on the day immediately preceding the date of grant, with pro rata vesting
at the end of each of the following three years.
CEL-SCI believes that grants of equity-based compensation:
o Enhance the link between the creation of shareholder value and
long-term executive incentive compensation;
o Provide focus, motivation and retention incentive; and
o Provide competitive levels of total compensation.
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<PAGE>
CEL-SCI's management believes that the pricing for biotechnology stocks is
highly inefficient until the time of product sales. As such any long term
compensation tied to progress as measured by share price is not as efficient as
it should be. However, CEL-SCI's Compensation Committee has not been able to
substitute a better measurement and therefore continues to believe that stock
grants and option grants best align the needs of the corporation and the
employee with those of the shareholders.
Benefits
In addition to cash and equity compensation programs, executive officers
participate in the health and welfare benefit programs available to other
employees. In a few limited circumstances, CEL-SCI provides other benefits to
certain executive officers, such as car allowances.
All executive officers are eligible to participate in CEL-SCI's 401(k)
plan on the same basis as its other employees. CEL-SCI matches 100% of each
employee's contribution up to the first 6% of his or her salary.
The following table sets forth in summary form the compensation received
by (i) the Chief Executive Officer of CEL-SCI and (ii) by each other executive
officer of CEL-SCI who received in excess of $100,000 during the three fiscal
years ended September 30, 2010.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
All
Other
Restric- Annual
ted Stock Option Compen-
Name and Princi- Fiscal Salary Bonus Awards Awards sation
pal Position Year (1) (2) (3) (4) (5) Total
- -------------------- ------ ------ ------ -------- ------- -------- ------
Maximilian de Clara, 2010 $363,000 -- $26,499 136,197 $102,219 $ 627,882
President 2009 334,720 -- 267,000 380,121 83,274 1,065,114
2008 363,000 -- 543,174 103,320 89,268 1,098,762
Geert R. Kersten, 2010 454,009 220,995 37,524 359,089 55,309 1,126,510
Chief Executive 2009 408,691 -- 81,700 526,366 34,892 1,051,649
Officer and 2008 404,900 -- 156,674 103,320 39,901 704,795
Treasurer
Patricia B. Prichep 2010 199,898 -- 25,039 237,090 6,027 468,054
Senior Vice President 2009 174,913 -- 41,603 235,467 4,225 456,208
of Operations and 2008 185,780 -- 82,558 51,660 4,225 324,223
Secretary
Eyal Talor, Ph.D. 2010 239,868 -- 28,872 237,090 6,027 511,857
Chief Scientific 2009 212,265 -- 36,627 137,878 4,225 390,994
Officer 2008 229,353 -- 81,187 51,660 4,225 366,425
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<PAGE>
Daniel Zimmerman, Ph.D. 2010 165,800 -- 15,857 64,455 5,027 251,139
Senior Vice President 2009 47,124 -- 16,892 -- 875 64,890
of Research. Cellular 2008 175,988 -- 46,186 38,745 4,225 265,144
Immunology (6)
John Cipriano 2010 175,952 -- 6,625 240,711 27 423,315
Senior Vice President 2009 48,594 -- 15,840 -- 25 64,458
of Regulatory Affairs(7) 2008 171,028 -- 45,893 38,745 25 55,691
</TABLE>
(1) The dollar value of base salary (cash and non-cash) earned. During three
years ended September 30, 2010, $0.00, $0.00 and $18,730, respectively, of
the total salaries paid to the persons shown in the table were paid in
restricted shares of CEL-SCI's common stock.
Information concerning the issuance of these restricted shares is shown in
the following table:
Date Shares Number of Price
Issued Shares Issued Per Share
01/15/2008 36,020 $0.52
On January 15, 2008 the amount of compensation satisfied through the
issuance of shares was determined by multiplying the number of shares issued by
the price per share. The price per share was equal to the closing price of
CEL-SCI's common stock on the date prior to the date the shares were issued.
(2) The dollar value of bonus (cash and non-cash) earned.
(3) During the periods covered by the table, the value of the shares of
restricted stock issued as compensation for services to the persons listed
in the table. In the case of Mr. de Clara, during the three years ended
September 30, 2010, $0.00, $200,000 and $400,000, respectively, were paid in
restricted shares of CEL-SCI's common stock which cannot be sold in the
public market for a period of three years after the date of issuance. In the
case of all other persons listed in the table, the shares were issued as
CEL-SCI's contribution on behalf of the named officer to CEL-SCI's 401(k)
retirement plan and restricted shares issued at the market price from the
Stock Compensation Plan. The value of all stock awarded during the periods
covered by the table are calculated in accordance with Codification
718-10-30-3 requirements.
(4) The greatest part of the value in FY 2009 was derived from options awarded
to employees who did not collect a salary, or reduced or deferred their
salary between September 15, 2008 and June 30, 2009. For example, Mr. de
Clara, Mr. Kersten and Ms. Prichep did not collect any salary between
September 30, 2008 and June 30, 2009. The fair value of all stock options
granted during the periods covered by the table are calculated on the grant
date in accordance with Codification 718-10-30-3 requirements.
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<PAGE>
(5) All other compensation received that CEL-SCI could not properly report in
any other column of the table including annual contributions or other
allocations to vested and unvested defined contribution plans, and the
dollar value of any insurance premiums paid by, or on behalf of, CEL-SCI
with respect to term life insurance for the benefit of the named executive
officer, and the full dollar value of the remainder of the premiums paid by,
or on behalf of, CEL-SCI. Includes board of directors fees for Mr. de Clara
and Mr. Kersten.
(6) Dr. Zimmerman was CEL-SCI's Senior Vice President of Research, Cellular
Immunology between January 1996 and December 2008 and since November 2009.
(7) Mr. Cipriano was CEL-SCI's Senior Vice President of Regulatory Affairs
between March 2004 and December 2008 and since October 2009.
Long Term Incentive Plans - Awards in Last Fiscal Year
See footnote 6 to the financial statements included as part of this
report.
Employee Pension, Profit Sharing or Other Retirement Plans
CEL-SCI has a defined contribution retirement plan, qualifying under
Section 401(k) of the Internal Revenue Code and covering substantially all
CEL-SCI's employees. CEL-SCI's contribution to the plan is made in shares of
CEL-SCI's common stock. Each participant's contribution is matched by CEL-SCI
with shares of common stock which have a value equal to 100% of the
participant's contribution, not to exceed the lesser of $1,000 or 6% of the
participant's total compensation. CEL-SCI's contribution of common stock is
valued each quarter based upon the closing price of its common stock. The fiscal
2010 expenses for this plan were $123,500. Other than the 401(k) Plan, CEL-SCI
does not have a defined benefit, pension plan, profit sharing or other
retirement plan.
Compensation of Directors During Year Ended September 30, 2010
Stock Option
Name Paid in Cash Awards (1) Awards (2) Total
- ---- ------------ ---------- ---------- ----------
Maximilian de Clara $ 40,000 - $ 136,197 $ 176,197
Geert Kersten $ 40,000 - $ 359,089 $ 399,089
Alexander Esterhazy $ 41,000 - $ 64,455 $ 105,455
C. Richard Kinsolving $ 41,000 - $ 64,455 $ 105,455
Peter R. Young $ 41,000 - $ 64,455 $ 105,455
(1) The fair value of stock issued for services.
(2) The fair value of options granted computed in accordance with Codification
718-10-30-3 on the date of grant. Also includes the fair value of the
milestone options expensed during fiscal year 2010 that were issued to Mr.
de Clara and Mr. Kersten in 2009.
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<PAGE>
Directors' fees paid to Maximilian de Clara and Geert Kersten are included
in the Executive Compensation table.
Employment Contracts.
Maximilian de Clara
In April 2005, CEL-SCI entered into a three-year employment agreement with
Maximilian de Clara, CEL-SCI's President. The employment agreement provided that
CEL-SCI would pay Mr. de Clara an annual salary of $363,000 during the term of
the agreement. On September 8, 2006 Mr. de Clara's Employment Agreement was
amended and extended to April 30, 2010. The terms of the amendment to Mr. de
Clara's employment agreement are referenced in a report on Form 8-K filed with
the Securities and Exchange Commission on September 8, 2006. On August 30, 2010,
Mr. de Clara's employment agreement, as amended on September 8, 2006, was
extended to August 30, 2013.
In the event that there is a material reduction in Mr. de Clara's
authority, duties or activities, or in the event there is a change in the
control of CEL-SCI, the agreement allows Mr. de Clara to resign from his
position at CEL-SCI and receive a lump-sum payment from CEL-SCI equal to 18
months salary ($544,500) and the unvested portion of any stock options would
vest immediately ($284,794). For purposes of the employment agreement, a change
in the control of CEL-SCI means the sale of more than 50% of the outstanding
shares of CEL-SCI's common stock, or a change in a majority of CEL-SCI's
directors.
The employment agreement will also terminate upon the death of Mr. de
Clara, Mr. de Clara's physical or mental disability, the conviction of Mr. de
Clara for any crime involving fraud, moral turpitude, or CEL-SCI's property, or
a breach of the employment agreement by Mr. de Clara. If the employment
agreement is terminated for any of these reasons, Mr. de Clara, or his legal
representatives, as the case may be, will be paid the salary provided by the
employment agreement through the date of termination.
Geert Kersten
Effective September 1, 2003, CEL-SCI entered into a three-year employment
agreement with Mr. Kersten. The employment agreement provides that during the
term of the employment agreement CEL-SCI will pay Mr. Kersten an annual salary
of $370,585 plus any increases approved by the Board of Directors during the
period of the employment agreement. In the event there is a change in the
control of CEL-SCI, the agreement allows Mr. Kersten to resign from his position
at CEL-SCI and receive a lump-sum payment from CEL-SCI equal to 24 months salary
($883,818) and the unvested portion of any stock options would vest immediately
($1,172,265). For purposes of the employment agreement a change in the control
of CEL-SCI means: (1) the merger of CEL-SCI with another entity if after such
merger the shareholders of CEL-SCI do not own at least 50% of voting capital
stock of the surviving corporation; (2) the sale of substantially all of the
assets of CEL-SCI; (3) the acquisition by any person of more than 50% of
CEL-SCI's common stock; or (4) a change in a majority of CEL-SCI's directors
which has not been approved by the incumbent directors. Effective September 1,
2006, Mr. Kersten's employment agreement was extended to September 1, 2011.
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<PAGE>
The Employment Agreement will also terminate upon the death of Mr.
Kersten, Mr. Kersten's physical or mental disability, willful misconduct, an act
of fraud against CEL-SCI, or a breach of the Employment Agreement by Mr.
Kersten. If the Employment Agreement is terminated for any of these reasons Mr.
Kersten, or his legal representatives, as the case may be, will be paid the
salary provided by the Employment Agreement through the date of termination.
Patricia B. Prichep / Eyal Talor, Ph.D.
On August 30, 2010, CEL-SCI entered into a three-year employment agreement
with Patricia B. Prichep, CEL-SCI's Senior Vice President of Operations. The
employment agreement with Ms. Prichep provides that during the term of the
agreement CEL-SCI will pay Ms. Prichep an annual salary of $194,298 plus any
increases approved by the Board of Directors during the period of the employment
agreement.
On August 30, 2010, CEL-SCI also entered into a three-year employment
agreement with Eyal Talor, Ph.D., CEL-SCI's Chief Scientific Officer. The
employment agreement with Dr. Talor provides that during the term of the
agreement CEL-SCI will pay Dr. Talor an annual salary of $239,868 plus any
increases approved by the Board of Directors during the period of the employment
agreement.
If Ms. Prichep or Dr. Talor resigns within ninety (90) days of the
occurrence of any of the following events: (i) a relocation (or demand for
relocation) of employee's place of employment to a location more than
thirty-five (35) miles from the employee's current place of employment, (ii) a
significant and material reduction in the employee's authority, job duties or
level of responsibility or (iii) the imposition of significant and material
limitations on the employee's autonomy in her or his position, the employment
agreement will be terminated and the employee will be paid the salary provided
by the employment agreement through the date of termination and the unvested
portion of any stock options held by the employee will vest immediately.
In the event there is a change in the control of CEL-SCI, the employment
agreements with Ms. Prichep and Dr. Talor allow Ms. Prichep and/or Dr. Talor (as
the case may be) to resign from her or his position at CEL-SCI and receive a
lump-sum payment from CEL-SCI equal to 18 months salary ($291,447 and $359,802
respectively). In addition, the unvested portion of any stock options held by
the employee will vest immediately ($830,817 and $830,062 respectively). For
purposes of the employment agreements, a change in the control of CEL-SCI means:
(1) the merger of CEL-SCI with another entity if after such merger the
shareholders of CEL-SCI do not own at least 50% of voting capital stock of the
surviving corporation; (2) the sale of substantially all of the assets of
CEL-SCI; (3) the acquisition by any person of more than 50% of CEL-SCI's common
stock; or (4) a change in a majority of CEL-SCI's directors which has not been
approved by the incumbent directors.
The employment agreements with Ms. Prichep and Dr. Talor will also
terminate upon the death of the employee, the employee's physical or mental
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<PAGE>
disability, willful misconduct, an act of fraud against CEL-SCI, or a breach of
the employment agreement by the employee. If the employment agreement is
terminated for any of these reasons the employee, or her or his legal
representatives, as the case may be, will be paid the salary provided by the
employment agreement through the date of termination.
Compensation Committee Interlocks and Insider Participation
CEL-SCI has a compensation committee comprised of Alexander Esterhazy,
Dr. C. Richard Kinsolving and Dr. Peter Young, all of whom are outside
directors.
During the year ended September 30, 2010, no director of CEL-SCI was also
an executive officer of another entity, which had an executive officer of
CEL-SCI serving as a director of such entity or as a member of the compensation
committee of such entity.
Stock Options
The following tables show information concerning the options granted
during the fiscal year ended September 30, 2010, to the persons named below.
Options Granted
Exercise
Grant Options Price Per Expiration
Name Date Granted (#) Share Date
Maximilian de Clara 7/21/10 250,000 $ 0.48 7/20/20
Geert Kersten 7/21/10 300,000 $ 0.48 7/20/20
Patricia B. Prichep 7/21/10 150,000 $ 0.48 7/20/20
Eyal Talor, Ph.D. 7/21/10 150,000 $ 0.48 7/20/20
Daniel Zimmerman, Ph.D. 7/21/10 150,000 $ 0.48 7/20/20
John Cipriano 7/21/10 150,000 $ 0.48 7/20/20
Options Exercised
Shares
Date of Acquired On Value
Exercise Exercise Realized
- - -
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<PAGE>
The following lists the outstanding options held by the persons named
below:
Shares Underlying Unexercised
Options Which are:
----------------------------- Exercise Expiration
Name Exercisable Unexercisable Price Date
Maximilian de Clara 23,333 2.87 07/31/13
95,000 (1) 1.94 08/31/13
70,000 1.05 09/25/12
56,666 1.05 05/01/13
50,000 1.05 05/01/13
50,000 1.05 04/12/12
60,000 1.05 04/19/13
60,000 1.38 03/22/11
75,000 0.54 03/14/12
50,000 0.61 09/02/14
50,000 0.48 09/21/15
100,000 0.58 09/12/16
200,000 0.63 09/13/17
133,334 0.62 03/04/18
1,436,250 (2) 0.25 04/23/19
83,334 0.38 07/20/19
---------
2,592,917
66,666 0.62 03/04/18
500,000 (3) 0.38 07/06/19
166,666 0.38 07/20/19
250,000 0.48 07/20/20
-------
983,332
- -------------------------------------------------------------------------------
Geert R. Kersten 50,000 1.05 11/01/13
14,000 1.05 10/31/13
50,000 1.05 07/31/13
224,000 (1) 1.05 06/10/13
50,000 1.05 09/25/12
150,000 1.05 05/01/13
50,000 1.05 05/01/13
50,000 1.05 04/12/12
95,000 (1) 1.94 08/31/13
60,000 1.05 04/19/13
60,000 1.38 03/22/11
560,000 (1) 1.05 10/16/13
105,000 0.54 03/14/12
1,890,000 0.22 04/01/13
50,000 0.61 09/02/14
50,000 0.48 09/21/15
200,000 0.58 09/12/16
200,000 0.63 09/13/17
133,334 0.62 03/04/18
1,838,609 (2) 0.25 04/23/19
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<PAGE>
Shares Underlying Unexercised
Options Which are:
----------------------------- Exercise Expiration
Name Exercisable Unexercisable Price Date
Geert R. Kersten (cont'd) 100,000 0.38 07/20/19
-------
5,979,943
66,666 0.62 03/04/18
4,000,000 (3) 0.38 07/06/19
200,000 0.38 07/20/19
300,000 0.48 07/20/20
-------
4,566,666
- -------------------------------------------------------------------------------
Patricia B. Prichep 6,000 1.05 12/01/13
10,000 1.05 11/30/13
9,500 1.05 07/31/13
3,000 1.05 12/31/12
35,000 1.05 03/01/13
17,000 1.05 12/01/13
15,000 1.05 04/12/12
47,500 (1) 1.94 08/31/13
23,000 1.05 02/02/13
25,000 1.18 12/08/13
30,000 1.00 12/03/11
200,000 (1) 1.05 10/16/13
10,500 0.54 03/14/12
50,000 0.33 04/26/12
243,000 0.22 04/01/13
337,000 0.22 04/01/13
50,000 0.61 09/02/14
30,000 0.48 09/21/15
90,000 0.58 09/12/16
100,000 0.63 09/13/17
66,667 0.62 03/04/18
717,096 (2) 0.25 04/23/19
50,000 0.38 07/20/19
------
2,165,263
33,333 0.62 03/04/18
3,000,000 (3) 0.38 07/06/19
100,000 0.38 07/20/19
150,000 0.48 07/20/20
-------
3,283,333
- -------------------------------------------------------------------------------
Eyal Talor, Ph.D. 15,500 1.05 07/31/13
16,666 1.05 03/16/13
15,000 1.05 08/03/13
10,000 (1) 1.94 08/31/13
20,000 1.05 08/02/12
55
<PAGE>
Shares Underlying Unexercised
Options Which are:
----------------------------- Exercise Expiration
Name Exercisable Unexercisable Price Date
Eyal Talor, Ph.D.(cont'd) 25,000 1.76 11/10/13
35,000 1.00 12/03/11
160,000 (1) 1.05 10/16/13
50,000 0.33 04/26/12
374,166 0.22 04/01/13
50,000 0.61 09/02/14
30,000 0.48 09/21/15
80,000 0.58 09/12/16
100,000 0.63 09/13/17
66,667 0.62 03/04/18
240,820 (2) 0.25 04/23/19
50,000 0.38 07/20/19
-------
1,338,819
33,333 0.62 03/04/18
3,000,000 (3) 0.38 07/06/19
100,000 0.38 07/20/19
150,000 0.48 07/20/20
---------
3,283,333
- -------------------------------------------------------------------------------
Daniel Zimmerman, Ph.D. 12,000 1.05 12/31/13
7,000 1.05 06/19/13
15,000 1.05 02/19/13
30,000 (1) 1.94 08/31/13
20,000 1.05 02/02/13
20,000 1.85 01/26/11
120,000 (1) 1.05 10/16/13
41,000 0.54 03/14/12
50,000 0.33 04/16/12
392,000 0.22 04/01/13
50,000 0.61 09/02/14
30,000 0.48 09/21/15
60,000 0.58 09/12/16
75,000 0.63 09/13/17
75,000 0.62 03/04/18
200,000 (4) 0.38 07/15/14
---------
1,197,000
150,000 0.48 07/20/20
-------
150,000
- -------------------------------------------------------------------------------
John Cipriano
20,000 0.61 09/02/14
30,000 0.48 09/21/15
60,000 0.58 09/12/16
56
<PAGE>
Shares Underlying Unexercised
Options Which are:
----------------------------- Exercise Expiration
Name Exercisable Unexercisable Price Date
John Cipriano (cont'd) 75,000 0.63 09/13/17
75,000 0.62 03/04/18
33,334 1.93 09/30/19
------
293,334
66,666 1.93 09/30/19
150,000 0.48 07/20/20
-------
216,666
(1) Options purchased by Employee through the Salary Reduction Plan.
(2) Options awarded to employees who did not collect a salary, or reduced or
deferred their salary between September 15, 2008 and June 30, 2009. For
example, Mr. de Clara, Mr. Kersten and Ms. Prichep did not collect any
salary between September 30, 2008 and June 30, 2009.
(3) Long-term performance options: The Board of Directors has identified the
successful Phase III clinical trial for Multikine to be the most important
corporate event to create shareholder value. Therefore, one third of the
options can be exercised when the first 400 patients are enrolled in
CEL-SCI's Phase III head and neck cancer clinical trial. One third of the
options can be exercised when all of the patients have been enrolled in
the Phase III clinical trial. One third of the options can be exercised
when the Phase III trial is completed.
(4) Options awarded to employee during the period that he was a consultant to
CEL-SCI.
Stock Option, Bonus and Compensation Plans
CEL-SCI has Incentive Stock Option Plans, Non-Qualified Stock Option
Plans, Stock Bonus Plans and a Stock Compensation Plan, all of which have been
approved by CEL-SCI's stockholders. A summary description of these Plans
follows. In some cases these Plans are collectively referred to as the "Plans".
Incentive Stock Option Plans. The Incentive Stock Option Plans authorize
the issuance of shares of CEL-SCI's common stock to persons who exercise options
granted pursuant to the Plans. Only CEL-SCI's employees may be granted options
pursuant to the Incentive Stock Option Plans.
Options may not be exercised until one year following the date of grant.
Options granted to an employee then owning more than 10% of the common stock of
CEL-SCI may not be exercisable by its terms after five years from the date of
grant. Any other option granted pursuant to the Plan may not be exercisable by
its terms after ten years from the date of grant.
The purchase price per share of common stock purchasable under an option
is determined by the Committee but cannot be less than the fair market value of
57
<PAGE>
the common stock on the date of the grant of the option (or 110% of the fair
market value in the case of a person owning more than 10% of CEL-SCI's
outstanding shares).
Non-Qualified Stock Option Plans. The Non-Qualified Stock Option Plans
authorize the issuance of shares of CEL-SCI's common stock to persons that
exercise options granted pursuant to the Plans. CEL-SCI's employees, directors,
officers, consultants and advisors are eligible to be granted options pursuant
to the Plans, provided however that bona fide services must be rendered by such
consultants or advisors and such services must not be in connection with the
offer or sale of securities in a capital-raising transaction. The option
exercise price is determined by CEL-SCI's Board of Directors.
Stock Bonus Plans. Under the Stock Bonus Plans shares of CEL-SCI's common
stock may be issued to CEL-SCI's employees, directors, officers, consultants and
advisors, provided however that bona fide services must be rendered by
consultants or advisors and such services must not be in connection with the
offer or sale of securities in a capital-raising transaction.
Stock Compensation Plan. Under the Stock Compensation Plan, shares of
CEL-SCI's common stock may be issued to CEL-SCI's employees, directors,
officers, consultants and advisors in payment of salaries, fees and other
compensation owed to these persons. However, bona fide services must be rendered
by consultants or advisors and such services must not be in connection with the
offer or sale of securities in a capital-raising transaction.
Other Information Regarding the Plans. The Plans are administered by
CEL-SCI's Compensation Committee ("the Committee"), each member of which is a
director of CEL-SCI. The members of the Committee were selected by CEL-SCI's
Board of Directors and serve for a one-year tenure and until their successors
are elected. A member of the Committee may be removed at any time by action of
the Board of Directors. Any vacancies which may occur on the Committee will be
filled by the Board of Directors. The Committee is vested with the authority to
interpret the provisions of the Plans and supervise the administration of the
Plans. In addition, the Committee is empowered to select those persons to whom
shares or options are to be granted, to determine the number of shares subject
to each grant of a stock bonus or an option and to determine when, and upon what
conditions, shares or options granted under the Plans will vest or otherwise be
subject to forfeiture and cancellation.
In the discretion of the Committee, any option granted pursuant to the
Plans may include installment exercise terms such that the option becomes fully
exercisable in a series of cumulating portions. The Committee may also
accelerate the date upon which any option (or any part of any options) is first
exercisable. Any shares issued pursuant to the Stock Bonus Plans and any options
granted pursuant to the Incentive Stock Option Plans or the Non-Qualified Stock
Option Plans will be forfeited if the "vesting" schedule established by the
Committee administering the Plans at the time of the grant is not met. For this
purpose, vesting means the period during which the employee must remain an
employee of CEL-SCI or the period of time a non-employee must provide services
to CEL-SCI. At the time an employee ceases working for CEL-SCI (or at the time a
non-employee ceases to perform services for CEL-SCI), any shares or options not
fully vested will be forfeited and cancelled. At the discretion of the Committee
58
<PAGE>
payment for the shares of common stock underlying options may be paid through
the delivery of shares of CEL-SCI's common stock having an aggregate fair market
value equal to the option price, provided such shares have been owned by the
option holder for at least one year prior to such exercise. A combination of
cash and shares of common stock may also be permitted at the discretion of the
Committee.
Options are generally non-transferable except upon death of the option
holder. Shares issued pursuant to the Stock Bonus Plans will generally not be
transferable until the person receiving the shares satisfies the vesting
requirements imposed by the Committee when the shares were issued.
The Board of Directors of CEL-SCI may at any time, and from time to time,
amend, terminate, or suspend one or more of the Plans in any manner they deem
appropriate, provided that such amendment, termination or suspension will not
adversely affect rights or obligations with respect to shares or options
previously granted. The Board of Directors may not, without shareholder
approval: make any amendment which would materially modify the eligibility
requirements for the Plans; increase or decrease the total number of shares of
common stock which may be issued pursuant to the Plans except in the case of a
reclassification of CEL-SCI's capital stock or a consolidation or merger of
CEL-SCI; reduce the minimum option price per share; extend the period for
granting options; or materially increase in any other way the benefits accruing
to employees who are eligible to participate in the Plans.
Summary. The following shows certain information as of November 30, 2010
concerning the stock options and stock bonuses granted by CEL-SCI. Each option
represents the right to purchase one share of CEL-SCI's common stock.
Total Shares
Shares Reserved for Shares Remaining
Reserved Outstanding Issued as Options/Shares
Name of Plan Under Plans Options Stock Bonus Under Plans
- ------------ ----------- ----------- ---------- -------------
Incentive Stock Option Plans 17,100,000 10,593,041 N/A 5,920,225
Non-Qualified Stock
Option Plans 33,760,000 21,691,146 N/A 8,468,436
Stock Bonus Plans 11,940,000 N/A 7,400,920 4,537,321
Stock Compensation Plan 9,500,000 N/A 5,386,531 2,113469
Of the shares issued pursuant to CEL-SCI's Stock Bonus Plans 1,454,543
shares were issued as part of CEL-SCI's contribution to its 401(k) plan.
The following table shows the weighted average exercise price of the
outstanding options granted pursuant to CEL-SCI's Incentive and Non-Qualified
Stock Option Plans as of September 30, 2010, CEL-SCI's most recent fiscal year
end. CEL-SCI's Incentive and Non-Qualified Stock Option Plans have been approved
by CEL-SCI's shareholders.
59
<PAGE>
Number of
Securities
Remaining
Available
For Future
Issuance
Under Equity
Number Compensation
of Securities Plans,
to be Issued Weighted-Average Excluding
Upon Exercise Exercise Price of Securities
of Outstanding of Outstanding Reflected in
Plan category Options (a) Options Column (a)
- ------------- ------------- ----------------- --------------
Incentive Stock Option Plans 10,593,041 $ 0.40 5,920,225
Non-Qualified Stock
Option Plans 21,720,414 $ 0.50 8,468,436
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table shows, as of November 30, 2010, information with
respect to the only persons owning beneficially 5% or more of CEL-SCI's
outstanding common stock and the number and percentage of outstanding shares
owned by each director and officer of CEL-SCI and by the officers and directors
as a group. Unless otherwise indicated, each owner has sole voting and
investment powers over his shares of common stock.
Percent of
Name and Address Number of Shares (1) Class (3)
- ---------------- ---------------- -----------
Maximilian de Clara 6,441,690 3.1%
Bergstrasse 79
6078 Lungern,
Obwalden, Switzerland
Geert R. Kersten 9,355,855 (2) 4.4%
8229 Boone Blvd., Suite 802
Vienna, VA 22182
Patricia B. Prichep 2, 992,116 1.4%
8229 Boone Blvd., Suite 802
Vienna, VA 22182
Eyal Talor, Ph.D. 1,787,122 0.9%
8229 Boone Blvd., Suite 802
Vienna, VA 22182
Daniel H. Zimmerman, Ph.D. 1,531,522 0.7%
8229 Boone Blvd., Suite 802
Vienna, VA 22182
60
<PAGE>
John Cipriano 480,027 0.2%
8229 Boone Blvd., Suite 802
Vienna, VA 22182
Alexander G. Esterhazy 808,156 0.4%
20 Chemin du Pre-Poiset
CH- 1253 Vandoeuvres
Geneve, Switzerland
C. Richard Kinsolving, Ph.D. 983,914 0.5%
P.O. Box 20193
Bradenton, FL 34204-0193
Peter R. Young, Ph.D. 809,424 0.4%
5458 Beacon Hill Drive
Frisco, TX 75034
All Officers and Directors 25,189,826 11.2%
as a Group (9 persons)
(1) Includes shares issuable prior to February 28, 2011 upon the exercise of
options or warrants granted to the following persons:
Options or Warrants Exercisable
Name Prior to February 28, 2011
----- --------------------------------
Maximilian de Clara 6,090,456
Geert R. Kersten 5,979,943
Patricia B. Prichep 2,165,263
Eyal Talor, Ph.D. 1,338,819
Daniel Zimmerman 1,197,000
John Cipriano 293,334
Alexander G. Esterhazy 574,999
C. Richard Kinsolving, Ph.D. 681,667
Peter R. Young, Ph.D. 561,666
(2) Amount includes shares held in trust for the benefit of Mr. Kersten's minor
children. Geert R. Kersten is the stepson of Maximilian de Clara.
(3) Amount includes shares referred to in (1) above but excludes shares which
may be issued upon the exercise or conversion of other options, warrants
and other convertible securities previously issued by CEL-SCI.
61
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
BDO USA, LLP served as CEL-SCI's independent registered public accountant
for the two years ended September 30, 2010. The following table shows the
aggregate fees billed to CEL-SCI for these years by BDO USA, LLP:
Year Ended September 30,
2010 2009
---- ----
Audit Fees $232,725 $219,675
Audit-Related Fees -- --
Tax Fees -- --
All Other Fees $ 44,126 --
Audit fees represent amounts billed for professional services rendered for
the audit of the CEL-SCI's annual financial statements and the reviews of the
financial statements included in CEL-SCI's 10-Q reports for the fiscal year and
all regulatory filings. All other fees were for services in connection with the
preparation of the application for the PPACA grant. See Note 15 to the financial
statements included with this report for more information.
Before BDO USA, LLP was engaged by CEL-SCI to render audit or non-audit
services, the engagement was approved by CEL-SCI's audit committee. CEL-SCI's
Board of Directors is of the opinion that the Audit Related Fees charged by BDO
USA, LLP are consistent with BDO USA, LLP maintaining its independence from
CEL-SCI.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) See the Financial Statements attached to this Report.
Exhibits
3(a)Articles of Incorporation Incorporated by reference to Exhibit 3(a)
of CEL-SCI's combined Registration
Statement on Form S-1 and Post-Effective
Amendment ("Registration Statement"),
Registration Nos. 2-85547-D and 33-7531.
3(b) Amended Articles Incorporated by reference to Exhibit 3(a)
of CEL-SCI's Registration Statement on
Form S-1, Registration Nos. 2-85547-D and
33-7531.
62
<PAGE>
3(c) Amended Articles Filed as Exhibit 3(c) to CEL-SCI's
(Name change only) Registration Statement on Form S-1
Registration Statement (No. 33-34878).
3(d)Bylaws Incorporated by reference to Exhibit 3(b)
of CEL-SCI's Registration Statement on
Form S-1, Registration Nos.2-85547-D and
33-7531.
4 Shareholders Rights Agreement Incorporated by reference to Exhibit 4
of CEL-SCI'S report on Form 8-K dated
November 7, 2007.
5 Opinion of Counsel
10(d) Employment Agreement with Incorporated by reference to Exhibit
Maximilian de Clara 10(d) of CEL-SCI's report on Form 8-K
(dated April 21, 2005) and Exhibit 10(d)
to CEL-SCI's report on Form 8-K dated
September 8, 2006.
10(e) Employment Agreement with Incorporated by reference to Exhibit
Geert Kersten 10(e) of CEL-SCI's Registration Statement
on Form S-3 (Commission File #106879)
and Exhibit 10(c) to CEL-SCI's report on
Form 8-K dated September 8, 2006.
10(f) Distribution and Royalty Incorporated by reference to Exhibit
Agreement with Eastern Biotech 10(x) to Amendment No. 2 to CEL-SCI's
Registration statement on Form S-3
(Commission File No. 333-106879).
10(g) Securities Purchase Agreement Incorporated by reference to Exhibit 10
(together with schedule required to CEL-SCI's report on Form 8-K dated
by Instruction 2 to Item 601 of August 4, 2006.
Regulation S-K) pertaining to
Series K notes and warrants,
together with The exhibits to the
Securities Purchase Agreement.
10(h) Subscription Agreement (together Incorporated by reference to Exhibit 10
with Schedule required by CEL-SCI's report on Form 8-K dated April
Instruction 2 to Item 601 of 18, 2007.
Regulation S-K) pertaining to
April 2007 sale of 20,000,000
shares of CEL-SCI's common stock,
10,000,000 Series L warrants
and 10,000,000 Series M Warrants.
10(i)Warrant Adjustment Agreement with Incorporated by reference to Exhibit
Laksya Ventures 10(i) of CEL-SCI's report on Form 8-K
dated August 3, 2010.
63
<PAGE>
10(j) Employment Agreement with Incorporated by reference to Exhibit
Patricia Prichep 10(j) of CEL-SCI's report on Form 8-K
dated August 30, 2010.
10(k)Employment Agreement with Eyal Incorporated by reference to Exhibit
Taylor 10(k) of CEL-SCI's report on Form 8-K
dated August 30, 2010.
10(l) Amendment to Employment Agreement Incorporated by reference to Exhibit
with Maximilian de Clara 10(l) of CEL-SCI's report on Form 8-K
dated August 30, 2010.
10(m) Amendment to Development Supply
and Distribution Agreement with
Orient Europharma. (part of Exhibit
10(m) has been omitted pursuant to
a request for confidential treatment).
10(n) Licensing Agreement with Teva
Pharmaceutical Industries Ltd. (parts
of Exhibit 10(n) have been omitted
pursuant to a request for confidential
treatment.)
10(o) Lease Agreement (parts of Exhibit
10(o) have been omitted pursuant to
a request for confidential treatment).
10(p) Loan Agreements with Maximilian de
Clara
10(q) Licensing Agreement with Byron Incorporated by reference to
Biopharma Exhibit 10(i) of CEL-SCI's report on
Form 8-K dated March 27, 2009.
10(r) At Market Issuance Sales Agreement
with McNicoll, Lewis & Vlak LLC
10(z) Development, Supply and Incorporated by reference to Exhibit
Distribution Agreement with Exhibit 10(z) filed with the
Orient Europharma Company's report on Form 10-K for the
year ended September 30, 2003.
23.1 Consent of BDO USA, LLP
23.2 Consent of Hart & Trinen, LLP
31 Rule 13a-14(a) Certifications
32 Section 1350 Certifications
64
<PAGE>
CEL-SCI CORPORATION
Consolidated Financial Statements for the Years
Ended September 30, 2010, 2009, and 2008, and
Report of Independent Registered Public Accounting Firm
<PAGE>
CEL-SCI CORPORATION
TABLE OF CONTENTS
Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-2
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
SEPTEMBER 30, 2010, 2009, AND 2008:
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-5
Consolidated Statements of Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-8
Notes to Consolidated Financial Statements F-12
<PAGE>
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
CEL-SCI Corporation
Reston, VA
We have audited the accompanying consolidated balance sheets of CEL-SCI
Corporation as of September 30, 2010 and 2009 and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended September 30, 2010. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CEL-SCI Corporation
at September 30, 2010 and 2009, and the results of its operations and its cash
flows for each of the three years in the period ended September 30, 2010, in
conformity with accounting principles generally accepted in the United States of
America.
As described in Note 10, effective October 1, 2009, the Company adopted ASC
815-40, "Determining Whether an Instrument (or Embedded Feature) Is Indexed to a
Company's Own Stock".
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), CEL-SCI Corporation's internal
control over financial reporting as of September 30, 2010, based on criteria
established in Internal Control - Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO) and our report
dated December 10, 2010 expressed an unqualified opinion thereon.
/s/ BDO USA, LLP
----------------
Bethesda, Maryland
December 10, 2010
<PAGE>
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
CEL-SCI Corporation
Vienna, VA
We have audited CEL-SCI Corporation's internal control over financial reporting
as of September 30, 2010, based on criteria established in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). CEL-SCI Corporation's management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Item 9A, Management's Report on Internal
Control Over Financial Reporting. Our responsibility is to express an opinion on
the company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, CEL-SCI Corporation maintained, in all material respects,
effective internal control over financial reporting as of September 30, 2010,
based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
CEL-SCI Corporation as of September 30, 2010 and 2009, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended September 30, 2010 and our report
dated December 10, 2010 expressed an unqualified opinion thereon.
/s/ BDO USA, LLP
----------------
Bethesda, Maryland
December 10, 2010
<PAGE>
CEL-SCI CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2010 AND 2009
ASSETS 2010 2009
------ ------
CURRENT ASSETS:
Cash and cash equivalents $26,568,243 $33,567,516
Prepaid expenses 298,719 39,972
Inventory used for R&D and manufacturing 1,476,234 399,474
Deferred rent - current portion 751,338 806,425
Deposits - 1,585,064
----------- -----------
Total current assets 29,094,534 36,398,451
RESEARCH AND OFFICE EQUIPMENT AND
LEASEHOLD IMPROVEMENTS-- less accumulated
depreciation of $2,626,759 and $2,259,237 1,264,831 1,200,611
PATENT COSTS--less accumulated
amortization of $1,205,690 and $1,132,612 356,079 423,104
RESTRICTED CASH 21,357 68,552
DEFERRED RENT - net of current portion 7,068,184 7,936,880
----------- -----------
TOTAL ASSETS $37,804,985 $46,027,598
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,497,383 $ 793,148
Accrued expenses 223,696 98,665
Due to employees 45,808 49,527
Related party loan 1,104,057 1,107,339
Deposits held - 10,000
Derivative instruments - current portion 424,286 -
---------- -----------
Total current liabilities 3,295,230 2,058,679
Derivative instruments - net of
current portion 6,521,765 35,113,970
Deferred revenue 125,000 -
Deferred rent 8,225 14,305
----------- -----------
Total liabilities 9,950,220 37,186,954
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value--authorized
100,000 shares, issued and outstanding, -0- - -
Common stock, $.01 par value--authorized
450,000,000 shares; issued and outstanding,
204,868,853 and 191,972,021 shares at
September 30, 2010 and 2009, respectively 2,048,689 1,919,720
Additional paid-in capital 187,606,044 173,017,978
Accumulated deficit (161,799,968) (166,097,054)
----------- -----------
Total stockholders' equity 27,854,765 8,840,644
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 37,804,985 $46,027,598
============ ===========
See notes to consolidated financial statements
F-3
<PAGE>
CEL-SCI CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 2010, 2009 AND 2008
2010 2009 2008
----------- ---------- ---------
RENT INCOME AND OTHER $ 153,300 $ 80,093 $ 5,065
OPERATING EXPENSES:
Research and development (excluding
R&D depreciation of $434,030, $329,866
and $91,292 respectively, included
below) 11,911,626 6,011,750 4,101,563
Depreciation and amortization 516,117 417,205 215,060
General & administrative 6,285,810 5,671,595 5,200,735
----------- ----------- ----------
Total operating expenses 18,713,553 12,100,550 9,517,358
----------- ----------- ----------
OPERATING LOSS (18,560,253) (12,020,457) (9,512,293)
GAIN (LOSS) ON DERIVATIVE INSTRUMENTS 28,843,772 (28,491,650) 1,799,393
INTEREST INCOME 362,236 - 483,252
INTEREST EXPENSE (162,326) (397,923) (473,767)
----------- ----------- ----------
NET INCOME (LOSS) 10,483,429 (40,910,030) (7,703,415)
MODIFICATIONS OF WARRANTS (1,532,456) (490,728) (424,815)
----------- ----------- ----------
NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS $ 8,950,973 $(41,400,758 $(8,128,230)
=========== ============ ===========
NET INCOME (LOSS) PER COMMON SHARE
BASIC $ 0.04 $ (0.31) $ (0.07)
DILUTED $ (0.05) $ (0.31) $ (0.07)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
BASIC 202,102,859 133,535,050 117,060,866
DILUTED 226,277,913 133,535,050 117,060,866
See notes to consolidated financial statements.
F-4
<PAGE>
CEL-SCI CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 2010, 2009 AND 2008
<TABLE>
<S> <C> <C> <C> <C> <C>
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital Deficit Total
---------- --------- ------------ ------------ ---------
BALANCE, SEPTEMBER 30, 2007 115,678,662 $1,156,787 $130,081,378 $(116,568,066) $14,670,099
Sale of common stock 1,383,389 13,834 1,023,708 1,037,542
401(k) contributions paid
in common stock 205,125 2,051 106,539 108,590
Issuance of common stock
to employees 1,789,451 17,894 1,306,580 1,324,474
Exercise of stock options 50,467 505 13,898 14,403
Correction of stock
overpayment pricing 1,471 1,471
Stock issued to
nonemployees for service 1,689,000 16,890 251,858 268,748
Issuance of stock options
to nonemployees 12,342 12,342
Employee option cost 561,387 561,387
Modification of stock options 564,189 564,189
Financing costs (23,795) (23,795)
Dividends 424,815 (424,815) -
Net loss (7,703,415) (7,703,415)
---------- --------- ----------- ----------- ---------
BALANCE, SEPTEMBER 30,
2008 120,796,094 $1,207,961 $134,324,370 $(124,696,296) $10,836,035
</TABLE>
(continued)
F-5
<PAGE>
CEL-SCI CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (cont'd)
YEARS ENDED SEPTEMBER 30, 2010, 2009 AND 2008
Additional
<TABLE>
<S> <C> <C> <C> <C> <C>
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital Deficit Total
---------- --------- ------------ ------------ ---------
Sale of common stock 45,451,547 $ 454,515 $31,788,201 $32,242,716
401(k) contributions paid
in common stock 91,766 917 56,912 57,829
Exercise of stock options 15,659,116 156,591 8,524,663 8,681,254
Stock issued to
nonemployees for service 3,316,438 33,164 1,528,179 1,561,343
Stock issued to employees 1,324,385 13,244 672,614 685,858
Stock issued for
principal payments on
Series K notes 972,753 9,728 275,272 285,000
Stock issued for interest
on Series K Notes 177,403 1,774 41,111 42,885
Issuance of stock options
and warrants to
nonemployees 449,641 449,641
Loss on conversion of
convertible debt 2,145,754 2,145,754
Issuance of warrants for
short term loan 65,796 65,796
Modification of options 6,142 6,142
Employee option cost 1,699,448 1,699,448
Premium on loan from
shareholder 489,776 489,776
Conversion of convertible debt -
into common stock 3,015,852 30,159 1,176,182 1,206,341
Cost of derivative
liabilities (8,632,217) (8,632,217)
Financing costs (2,072,927) (2,072,927)
Dividends 1,166,667 11,667 479,061 (490,728) -
Net loss (40,910,030) (40,910,030)
---------- --------- ----------- ----------- -----------
BALANCE, SEPTEMBER 30,
2009 191,972,021 1,919,720 173,017,978 (166,097,054) 8,840,644
401(k) contributions paid
in common stock 182,233 1,822 110,503 112,325
Exercise of warrants and
stock options 12,249,441 122,495 6,186,379 6,308,874
Stock issued to employees and
nonemployees for service 465,158 4,652 1,236,374 1,241,026
Exercise of derivative
liabilities 5,510,490 5,510,490
Modification of stock
options and warrants 227,921 227,921
Employee option cost 1,316,399 1,316,399
Adoption of ASC 815-40 (6,186,343) (6,186,343)
Net income 10,483,429 10,483,429
---------- --------- ----------- ----------- ---------
BALANCE, SEPTEMBER 30,
2010 204,868,853 $2,048,689 $187,606,044 $(161,799,968) $27,854,765
=========== ========== ============ ============= ===========
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
CEL-SCI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2010, 2009 AND 2008
2010 2009 2008
---------- ---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $10,483,429 $(40,910,030) $(7,703,415)
Adjustments to reconcile net
income (loss) to net cash
used for operating activities:
Depreciation and amortization 516,117 417,205 215,060
Issuance of stock options and
warrants to nonemployees for
services - 449,641 12,342
Issuance of common stock for
services 1,241,026 1,561,343 268,748
Correction of stock overpayment
pricing - - 1,471
Premium on loan - 341,454 -
Loan premium adjustment - 489,776 -
Amortization of loan premium (3,282) (338,172) -
Modification of stock options
and warrants 227,921 6,142 564,189
Issuance of stock to employees - 685,858 1,324,474
Loss on conversion of
convertible notes - 2,145,754 -
Employee option cost 1,316,399 1,699,448 561,387
Common stock contributed to
401(k) plan 112,325 57,829 108,590
Warrants issued in
consideration for loan - 65,796 -
Impairment loss on abandonment
of patents 13,877 138,525 8,114
Loss on retired equipment 2,323 270 595
Deferred rent (6,080) 7,688 5,151
Amortization of discount on
convertible note - 193,980 249,106
(Gain)/loss on derivative
instruments (28,843,772) 25,514,667 (1,799,393)
Change in assets and
liabilities:
Decrease/(increase) in deposits 1,585,064 4,764 (1,575,000)
Decrease/(increase) in deferred
rent 955,842 622,350 (142,117)
(Increase)/decrease in prepaid
expenses (258,747) (12,763) 7,369
Increase in inventory used in
R&D and manufacturing (1,076,760) (4,304) (9,520)
Increase/(decrease) in
accounts payable 693,799 343,208 (36,622)
Increase/(decrease) in
accrued expenses 125,031 (14,514) 14,576
Decrease in accrued interest on
convertible debt - (2,674) (23,237)
Increase in deferred revenue 125,000 - -
(Decrease)/increase in due to
employees (3,719) 13,450 9,342
(Decrease)/increase in
deposits held (10,000) 10,000 (3,000)
------------ ------------ -----------
Net cash used in operating
activities (12,804,207) (6,513,309) (7,941,790)
------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additional investment in
manufacturing facility (32,059) (505,225) (2,359,473)
Decrease in restricted cash 47,195 919,100 1,180,977
Investment in available-for-sale
securities - - (6,000,000)
Sale of investments in
available-for-sale securities - 200,000 5,800,000
Purchases of equipment (493,736) (191,868) (1,023,011)
Expenditures for patent costs (25,340) (53,290) (121,616)
------------ ------------ -----------
Net cash (used in) provided by
investing activities (503,940) 368,717 (2,523,123)
------------ ------------ -----------
(continued)
See notes to consolidated financial statements.
F-7
<PAGE>
CEL-SCI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (cont'd)
YEARS ENDED SEPTEMBER 30, 2010, 2009 AND 2008
2010 2009 2008
---------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common
stock $ - $ 32,242,716 $ 1,037,542
Proceeds from exercise of warrants
and stock options 6,308,874 8,681,254 14,403
Proceeds from short-term loan - 3,104,057 1,956,803
Repayment of short-term loan - (2,200,000) (1,756,803)
Principal payments on convertible
debt - (754,250) (1,045,000)
Costs for equity related transactions - (2,072,927) (23,795)
------------ ------------ -----------
Net cash provided by financing
activities 6,308,874 39,000,850 183,150
------------ ------------ -----------
NET (DECREASE) INCREASE
IN CASH AND CASH EQUIVALENTS (6,999,273) 32,856,258 (10,281,763)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 33,567,516 711,258 10,993,021
------------ ------------ -----------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 26,568,243 $ 33,567,516 $ 711,258
============ ============ ==========
CONVERSION OF CONVERTIBLE DEBT
INTO COMMON STOCK:
Decrease in convertible debt $ - $ 1,206,341 $ -
Increase in common stock - (30,159) -
Increase in additional paid-in
capital - (1,176,182) -
------------ ------------ -----------
$ - $ - $ -
============ ============ ===========
CONVERSION OF INTEREST ON
CONVERTIBLE DEBT INTO COMMON STOCK:
Decrease in accrued liabilities $ - $ 42,885 $ -
Increase in common stock - (1,774) -
Increase in additional paid-in
capital - (41,111) -
------------ ------------ -----------
$ - $ - $ -
============ ============ ===========
PAYMENT OF CONVERTIBLE DEBT PRINCIPAL
WITH
COMMON STOCK:
Decrease in convertible debt $ - $ 285,000 $ -
Increase in common stock - (9,728) -
Increase in additional paid-in
capital - (275,272) -
------------ ------------ -----------
$ - $ - $ -
============ ============ ===========
ISSUANCE OF WARRANTS:
Increase in derivative
liabilities $ - $ (8,877,217) $ (891,336)
Increase in discount on notes
payable - 245,000 -
Decrease in additional paid-in
capital - 8,632,217 891,336
------------ ------------ -----------
$ - $ - $ -
============ ============ ===========
EXERCISE OF DERIVATIVE LIABILITIES:
Decrease in derivative liabilities $ 5,510,490 $ - $ -
Increase in additional paid-in
capital (5,510,490) - -
------------ ------------ -----------
$ - $ - $ -
============ ============ ===========
MODIFICATION OF WARRANTS:
Increase in additional paid-in
capital $ (1,532,456) $ (24,061) $ (173,187)
Decrease in additional paid-in
capital 1,532,456 24,061 173,187
------------ ------------ -----------
$ - $ - $ -
============ ============ ===========
See notes to consolidated financial statements.
(continued)
F-8
<PAGE>
CEL-SCI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (cont'd)
YEARS ENDED SEPTEMBER 30, 2010, 2009 AND 2008
2010 2009 2008
---------- ---------- -----------
ACCOUNTS PAYABLE:
Increase in patent costs $ - $ 7,285 $ 14,013
Increase in accounts payable - (7,285) (14,013)
------------ ------------ -----------
$ - $ - $ -
============ ============ ===========
EQUIPMENT COSTS INCLUDED IN
ACCOUNTS PAYABLE:
Increase in research and office
equipment $ 10,436 $ 15,147 $ 201,998
Increase in accounts payable (10,436) (15,147) (201,998)
------------ ------------ -----------
$ - $ - $ -
============ ============ ===========
WARRANTS ISSUED FOR LOAN:
Increase in debt discount $ - $ 65,796 $ -
Increase in additional paid-in
capital - (65,796) -
------------ ------------ -----------
$ - $ - $ -
============ ============ ===========
STOCK MODIFICATION RECORDED AS
DIVIDEND
Increase in common stock $ - $ (11,667) $ -
Increase additional paid-in
capital - (479,061) (424,815)
Increase accumulated deficit - 490,728 424,815
------------ ------------ -----------
$ - $ - $ -
============ ============ ===========
ADOPTION OF ASC 815-40
Increase in derivative
liabilities $ (6,186,343) $ - $ -
Increase in accumulated deficit 6,186,343 - -
------------ ------------ -----------
$ - $ - $ -
============ ============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
INFORMATION:
Cash expenditure for interest
expense $ 162,326 $ 115,559 $ 224,662
See notes to consolidated financial statements.
F-9
<PAGE>
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CEL-SCI Corporation (the "Company") was incorporated on March 22, 1983, in
the state of Colorado, to finance research and development in biomedical
science and ultimately to engage in marketing and selling products.
The Company's lead product, Multikine(R), is being developed for the
treatment of cancer. Multikine is a patented immunotherapeutic agent
consisting of a mixture of naturally occurring cytokines, including
interleukins, interferons, chemokines and colony-stimulating factors,
currently being developed for the treatment of cancer. Multikine is designed
to target the tumor micro-metastases that are mostly responsible for
treatment failure. The basic concept is to add Multikine to the current
cancer treatments with the goal of making the overall cancer treatment more
successful. Phase II data indicated that Multikine treatment resulted in a
substantial increase in the survival of patients. The lead indication is
advanced primary head & neck cancer. Since Multikine is not tumor specific,
it may also be applicable in many other solid tumors.
Significant accounting policies are as follows:
a. Principles of Consolidation--The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiary, Viral
Technologies, Inc. (VTI). All significant intercompany transactions have been
eliminated upon consolidation. Certain amounts from 2009 consolidated
financial statements have been reclassified to conform to 2010 consolidated
financial statement presentation. One such reclassification is the
reclassification of derivative instruments of $35,113,970 from current
liabilities to long-term liabilities on the September 30, 2009 consolidated
balance sheet.
b. Cash and Cash Equivalents--For purposes of the statements of cash flows, cash
and cash equivalents consists principally of unrestricted cash on deposit and
short-term money market funds. The Company considers all highly liquid
investments with a maturity when purchased of less than three months, as cash
and cash equivalents.
c. Restricted Cash--The restricted cash is money held in escrow pursuant to the
lease agreement for the manufacturing facility.
d. Prepaid Expenses and Inventory--Prepaid expenses consist of expenses which
benefit a substantial period of time. Inventory consists of manufacturing
production advances and bulk purchases of laboratory supplies to be consumed
in the manufacturing of the Company's product for clinical studies.
e. Deposits--The deposit on September 30, 2009 was for the manufacturing
facility ($1,575,000) required by the lease agreement, but was refunded in
February 2010, after the Company met the cash requirements of the lease.
F-10
<PAGE>
f. Research and Office Equipment and Leasehold Improvements--Research and office
equipment is recorded at cost and depreciated using the straight-line method
over estimated useful lives of five to seven years. Leasehold improvements
are depreciated over the shorter of the estimated useful life of the asset or
the terms of the lease. Repairs and maintenance which do not extend the life
of the asset are expensed when incurred. The fixed assets are reviewed on a
quarterly basis to determine if any of the assets are impaired. Depreciation
expense for the years ended September 30, 2010, 2009 and 2008 totaled
$437,629, $330,820, and $133,604, respectively. During the years ended
September 30, 2010, 2009 and 2008, equipment with a net book value of $2,323,
$270 and $595 was retired.
g. Patents--Patent expenditures are capitalized and amortized using the
straight-line method over the shorter of the expected useful life or the
legal life of the patent (17 years). In the event changes in technology or
other circumstances impair the value or life of the patent, appropriate
adjustment in the asset value and period of amortization is made. An
impairment loss is recognized when estimated future undiscounted cash flows
expected to result from the use of the asset, and from disposition, is less
than the carrying value of the asset. The amount of the impairment loss is
the difference between the estimated fair value of the asset and its carrying
value. During the years ended September 30, 2010, 2009 and 2008, the Company
recorded patent impairment charges of $13,877, $138,525, and $8,114,
respectively, for the net book value of patents abandoned during the year.
These amounts are included in general and administrative expenses.
Amortization expense for the years ended September 30, 2010, 2009 and 2008
totaled $78,488, $86,385, and $81,456, respectively. The Company estimates
that amortization expense will be approximately $71,200 for each of the next
five years, totalling $356,000.
h. Deferred Rent-- Interest on the deferred rent is calculated at 3% on the
funds deposited on the manufacturing facility and for September 30, 2010, is
included in the deferred rent. This interest income will be used to offset
future rent. On September 30, 2010, the Company has included in deferred rent
the following: 1) deposit on the manufacturing facility ($3,150,000); 2) the
fair value of the warrants issued to lessor ($1,481,040); 3) additional
investment ($2,889,409); 4) deposit on the cost of the leasehold improvements
for the manufacturing facility ($1,786,591), 5) amortization of deferred rent
($(1,682,053)); and 6) accrued interest on deposit ($194,535).
On September 30, 2009, the Company has included in deferred rent the
following: 1) deposit on the manufacturing facility ($3,150,000); 2) the fair
value of the warrants issued to lessor ($1,731,667); 3) additional investment
($2,864,698); 4) deposit on the cost of the leasehold improvements for the
manufacturing facility ($1,786,591); 5) amortization of deferred rent
($(882,338)); and 6) accrued interest on deposit ($92,687).
i. Deferred Rent (liability)--The deferred rent (liability) is amortized on a
straight-line basis over the term of the lease with the offset going against
rent expense.
j. Derivative Instruments--The Company entered into financing arrangements that
consisted of freestanding derivative instruments or were hybrid instruments
that contained embedded derivative features. The Company accounted for these
F-11
<PAGE>
arrangement in accordance with Codification 815-10-50, "Accounting for
Derivative Instruments and Hedging Activities", "Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company's Own
Stock". In accordance with accounting principles generally accepted in the
United States ("GAAP"), derivative instruments and hybrid instruments are
recognized as either assets or liabilities in the statement of financial
position and are measured at fair value with gains or losses recognized in
earnings or other comprehensive income depending on the nature of the
derivative or hybrid instruments. Embedded derivatives that are not clearly
and closely related to the host contract are bifurcated and recognized at
fair value with changes in fair value recognized as either a gain or loss in
earnings if they can be reliably measured. When the fair value of embedded
derivative features cannot be reliably measured, the Company measures and
reports the entire hybrid instrument at fair value with changes in fair value
recognized as either a gain or loss in earnings. The Company determined the
fair value of derivative instruments and hybrid instruments based on
available market data using appropriate valuation models, giving
consideration to all of the rights and obligations of each instrument and
precluding the use of "blockage" discounts or premiums in determining the
fair value of a large block of financial instruments. Fair value under these
conditions does not necessarily represent fair value determined using
valuation standards that give consideration to blockage discounts and other
factors that may be considered by market participants in establishing fair
value. The convertible debt associated with the Series K convertible notes
was all either repaid or converted into the Company's common stock before
September 30, 2009. The remaining warrants associated with Series K are
valued at $5,372,598 on September 30, 2009 and are shown in the balance sheet
in long term liabilities. Warrants exercised during the year ended September
30, 2010 totaled $534,088 in funds received by the Company. In addition, the
Company recognized a gain of $280,223 on the exercise of the Series K
warrants. Outstanding warrants associated with Series K are valued at
$1,002,502 at September 30, 2010. The Company recorded a gain of $2,856,355
on the remaining Series K for the year ending September 30, 2010.
The Company issued other warrants during the year ended September 30, 2009
that are accounted for as derivative liabilities. See Note 6. At September
30, 2009, the fair value of these derivative instruments totaled $29,741,372
and is shown on the balance sheet in long term liabilities. At September 30,
2010, the fair value of these derivative instruments totaled $4,037,067.
There were 8,813,088 Series A warrants exercised during the year ended
September 30, 2010, that brought in $4,406,544 in funds to the Company. In
addition, the Company recognized a gain of $8,433,451 on the exercise of the
Series A warrants. The fair value of these derivative liabilities will be
adjusted at the end of each interim accounting period as well as at the end
of each fiscal year as long as they are outstanding. The Company recorded a
gain of $12,993,883 on the remaining Series A through E warrants for the year
ending September 30, 2010.
Also included in derivative liabilities are warrants issued to investors in
August 2008. These warrants were valued at $1,906,482 on September 30, 2010,
which resulted in a gain of $4,279,860 for the year ended September 30, 2010.
F-12
<PAGE>
k. Research and Development Grant Revenues--The Company's grant arrangements are
handled on a reimbursement basis. Grant revenues under the arrangements are
recognized as grant revenue when costs are incurred. The Company is currently
not receiving funds from any grants.
l. Research and Development Costs--Research and development expenditures are
expensed as incurred. Total research and development costs, excluding
depreciation, were $11,911,626, $6,011,750, and $4,101,563 for the years
ended September 30, 2010, 2009 and 2008.
m. Net Income (Loss) Per Common Share--Net income (loss) per common share is
computed by dividing the net income (loss) by the weighted average number of
common shares outstanding during the period. Potentially dilutive common
stock equivalents, including convertible preferred stock, convertible debt
and options to purchase common stock, are included in the calculation unless
the result is antidilutive.
n. Concentration of Credit Risk--Financial instruments, which potentially
subject the Company to concentrations of credit risk, consist of cash and
cash equivalents. The Company maintains its cash and cash equivalents with
high quality financial institutions. At times, these accounts may exceed
federally insured limits. The Company has not experienced any losses in such
bank accounts. The Company believes it is not exposed to significant credit
risk related to cash and cash equivalents.
o. Income Taxes-- The Company has net operating loss carryforwards at
September 30, 2010 of approximately $115 million. The Company uses the asset
and liability method of accounting for income taxes. Under the asset and
liability method, deferred tax assets and liabilities are recognized for
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating and tax loss carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. The Company records a valuation allowance
to reduce the deferred tax assets to the amount that is more likely than not
to be recognized.
p. Use of Estimates--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Accounting for derivatives is
based upon valuations of derivative instruments determined using various
valuation techniques including the Black-Scholes and binomial pricing
methodologies. The Company considers such valuations to be significant
estimates.
F-13
<PAGE>
q. Recent Accounting Pronouncements--In March 2008, the FASB issued Codification
815-20-50-1, "Disclosures about Derivative Instruments and Hedging Activities
- an amendment of FASB Statement No. 133", which changes disclosure
requirements for derivative instruments and hedging activities. The statement
is effective for periods ending on or after November 15, 2008, with early
application encouraged. The Company has adopted this topic with no impact on
its consolidated financial statements.
In June 2008, the FASB issued EITF 07-5, "Determining Whether an Instrument
(or Embedded Feature) Is Indexed to a Company's Own Stock". EITF 07-5 is now
known as Codification 815-40-15-7 and it supersedes EITF 01-6 and provides
revised guidance for, "...the determination of whether an instrument (or an
embedded feature) is indexed to an entity's own stock, which is the first
part of the scope exception in paragraph 11(a) of Statement 133, now known as
Codification 815-10-50. If an instrument (or an embedded feature) that has
the characteristics of a derivative instrument under Codification 815-10-50
is indexed to an entity's own stock, it is still necessary to evaluate
whether it is classified in stockholders' equity (or would be classified in
stockholders' equity if it were a freestanding instrument)." Specifically,
Codification 815-40-15-7 provides a two-step process:
Step 1: Evaluate the instrument's contingent exercise provisions, if any.
Step 2: Evaluate the instrument's settlement provisions.
Codification 815-40-15-7 was effective for the Company as of January 1, 2009
and was applied to outstanding instruments as of October 1, 2009.
Based on this analysis, the Company has determined that some of its warrants
are subject to Codification 815-10-50 and must be revalued at the end of
every reporting period, with changes to the fair value of the warrants to be
accounted for as derivative gains or losses in the income statement. For
further discussion, see Note 10.
In September 2008, the FASB issued Codification 815-10-50-1A, "Disclosures
about Credit Derivatives and Certain Guarantees: An Amendment of FASB
Statement No. 133 and FASB Interpretation No. 45; and Clarification of the
Effective Date of FASB Statement No. 161". This codification applies to
credit derivatives within the scope of ASC 815 and hybrid instruments that
have embedded credit derivatives. It deals with disclosures related to these
derivatives and is effective for reporting periods ending after November 15,
2008. It also clarifies the effective date of Codification 815-20-50-1 as any
reporting period beginning after November 15, 2008. The impact of the
adoption of this codification did not have a material effect on the Company's
consolidated financial statements.
In April 2009, the FASB issued Codification 825-10-65-1, "Interim
Disclosures about Fair Value of Financial Instruments". This topic amends
FASB Statement No. 107, "Disclosures about Fair Values of Financial
Instruments", to require disclosures about fair values of financial
instruments for interim reporting periods of publicly traded companies as
well as in annual financial statements. This topic became effective for
interim and annual reporting periods ending after June 15, 2009. The Company
F-14
<PAGE>
adopted this codification for the period ended June 30, 2009. There was no
significant impact from this adoption on the Company's consolidated financial
statement.
In May 2009, the FASB issued Codification 855-10-50, "Subsequent Events"
which establishes general standards of accounting for and disclosure of
events that occur after the balance sheet date but before the financial
statements are issued or are available to be issued. The Statement sets forth
the period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements and the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. This topic became effective for the
Company for the period ended June 30, 2009. The impact of the adoption was
not significant.
In January 2010, the FASB amended Codification 820-10, "Improving
Disclosures about Fair Value Measurement", effective for interim periods
beginning after December 15, 2009. This amendment changes disclosures
required for interim and annual periods with respect to fair value
measurements. The Company has adopted the change in the disclosure
requirements and the effect was immaterial.
r. Stock-Based Compensation-- The Company recognized expense of $1,316,399 for
options issued or vested during the fiscal year ended September 30, 2010,
expense of $1,699,448 for options issued or vested during the fiscal year
ended September 30, 2009 and expense of $561,387 for options issued or vested
during the fiscal year ending September 30, 2008. This expense was recorded
as general and administrative expense. The Company received a total of
$36,330 and $282,841 from the exercise of options during the year ended
September 30, 2010 and 2009, respectively. The following table summarizes
stock option activity for the year ended September 30, 2010.
<TABLE>
Non-Qualified Stock Option Plan
- -------------------------------
<S> <C> <C>
Outstanding Exercisable
---------------------------------------------- -----------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted
Weighted Average
Weighted Average Weighted Remaining
Number Average Remaining Aggregate Number Average Contractual Aggregate
of Exercise Contractual Intrinsic of Exercise Term Intrinsic
Shares Price Term (Years) Value Shares Price (Years) Value
--------- ---------- ----------- --------- -------- ----------- ----------- -----------
Outstanding at 19,578,091 $ 0.48 7.70 23,979,937 7,400,431 $ 0.61 4.18 7,676,815
October 1, 2009
Vested 812,669 $ 0.53
Granted 1,453,450 $ 0.57 9.74 106,592 9.74 106,592
Exercised (18,625) $ 0.31 8.31 6,224 (18,625) $ 0.31 8.31 6,224
Forfeited (4,500) $ 0.77
Expired (30,502) $ 1.05 (30,502) $ 1.05
Outstanding at
September 30, 2010 20,977,914 $ 0.49 7.18 4,209,476 8,163,973 $ 0.62 4.47 1,135,673
</TABLE>
F-15
<PAGE>
<TABLE>
Incentive Stock Option Plan
- ---------------------------
<S> <C> <C>
Outstanding Exercisable
---------------------------------------------- -----------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted
Weighted Average
Weighted Average Weighted Remaining
Number Average Remaining Aggregate Number Average Contractual Aggregate
of Exercise Contractual Intrinsic of Exercise Term Intrinsic
Shares Price Term (Years) Value Shares Price (Years) Value
--------- ---------- ----------- --------- -------- ----------- ----------- -----------
Outstanding at 9,598,874 $ 0.39 7.03 12,859,317 8,548,876 $ 0.38 6.99 11,525,319
October 1, 2009
Vested 449,999 $ 0.49
Granted 1,100,000 $ 0.61 9.76 31,000 $ 0.61 9.76 31,000
Exercised (71,333) $ 0.43 1.74 22,400 (71,333) $ 0.43 1.74 22,400
Expired (34,500) $ 2.25 (34,500) $ 2.25
Outstanding at
September 30, 2010 10,593,041 $ 0.40 6.65 3,101,582 8,893,042 $ 0.38 6.02 2,794,276
</TABLE>
The total intrinsic value of options exercised during the fiscal years
2010, 2009 and 2008 was $32,999, $242,634 and $5,784, respectively.
The weighted average fair value at the date of grant for options granted
during fiscal years 2010, 2009 and 2008 was $0.52, $0.28 and $0.51,
respectively.
A summary of the status of the Company's non-vested options as of
September 30, 2010 is presented below:
Non-qualified Stock Option Plan:
Weighted
Number of Average
Shares Price
---------- ---------
Nonvested at October 1, 2007 1,439,986 $0.51
Vested (616,328)
Granted 1,039,000
Forfeited (9,332)
-----------
Nonvested at September 30, 2008 1,853,326 $0.61
Vested (1,566,280)
Granted 11,895,614 $0.31
Forfeited (5,000)
-----------
F-16
<PAGE>
Nonvested at September 30, 2009 12,177,660 $0.40
Vested (812,669)
Granted 1,453,450 $0.50
Forfeited (4,500)
-----------
Nonvested at September 30, 2010 12,813,941 $0.40
==========
Incentive Stock Option Plan:
Weighted
Number of Average
Shares Price
---------- ---------
Nonvested at October 1, 2007 603,332 $0.49
Vested (280,001)
Granted 300,000
Forfeited -
-----------
Nonvested at September 30, 2008 623,331 $ 0.62
Vested (4,556,108)
Granted 4,982,775 $0.22
Forfeited -
-----------
Nonvested at September 30, 2009 1,049,998 $0.45
Vested (449,999)
Granted 1,100,000 $0.55
Forfeited -
-----------
Nonvested at September 30, 2010 1,699,999 $0.54
=========
In fiscal year 2010, the Company issued 2,553,450 stock options to employees
and directors at a fair value of $1,333,831, ($0.52 fair value per option),
at a weighted average exercise price of $0.59 per share. In fiscal year 2009,
the Company issued 16,878,389 stock options to employees and directors at a
fair value of $4,725,949, ($0.28 fair value per option), at a weighted
average exercise price of $0.343 per share. In fiscal year 2008, the Company
issued 1,339,000 stock options to employees and directors at a fair value of
$677,661, at a weighted average exercise price of $0.51 per share. On
September 30, 2010, the Company had 14,513,940 options that were unvested at
a fair value of $5,333,797, which is a weighted average fair value of $0.37
per share with a weighted average remaining vesting life of 1.87 years. The
fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
2010 2009 2008
---- ---- ----
Expected stock price volatility 98.6-104.5% 79.5-80.2% 79-81%
Risk-free interest rate 2.54-4.01% 2.82-3.72% 3.68-4.53%
Expected life of options 9.63-10 Years 10 Years 10 Years
Expected dividend yield - - -
F-17
<PAGE>
The Company's stock options are not transferable, and the actual value of the
stock options that an employee may realize, if any, will depend on the excess
of the market price on the date of exercise over the exercise price. The
Company has based its assumption for stock price volatility on the variance
of daily closing prices of the Company's stock. The risk-free rate of return
used for fiscal years 2010, 2009 and 2008 equals the yield on ten-year
zero-coupon U.S. Treasury issues on the grant date. Historical data was used
to estimate option exercise and employee termination within the valuation
model. The expected term of options represents the period of time that
options granted are expected to be outstanding and has been determined based
on an analysis of historical exercise behavior. No discount was applied to
the value of the grants for non-transferability or risk of forfeiture.
2. SERIES K CONVERTIBLE DEBT
In August 2006, the Company issued $8,300,000 million in aggregate
principal amount of convertible notes (the "Series K Notes") together with
warrants to purchase 4,825,581 shares of the Company's common stock (the
"Series K Warrants"). Additionally, in connection with issuance of the
Series K Notes and Series K Warrants, the placement agent received a fee of
$498,000 and 386,047 fully vested warrants (the "Placement Agent Warrants")
to purchase shares of the Company's common stock. Net proceeds were
$7,731,290, net of $568,710 in direct transaction costs, including the
placement agent fee. The Series K convertible debt has all either been
repaid or converted into shares of the Company's common stock as of
September 2009.
Features of the Convertible Debt Instrument and Warrants
The Series K Notes were convertible into 9,651,163 shares of the Company's
common stock at the option of the holder at any time prior to maturity at a
conversion price of $0.86 per share, subject to adjustment for certain
events described below. The Series K Warrants were exercisable over a
five-year period from February 4, 2007 through February 4, 2012 at $0.95
per share.
The Series K Notes bore interest at the greater of 8% or LIBOR plus 300
basis points, and were required to be repaid in thirty equal monthly
installments of $95,000 beginning on March 4, 2007 and continuing through
September 4, 2010. The remaining principal balance of $950,000 was required
to be repaid on August 4, 2011; however, holders of the Series K Notes were
allowed to require the repayment of the entire remaining principal balance
at any time after August 4, 2009. Interest had been payable quarterly
beginning in September 30, 2006. Each payment of principal and accrued
interest could be settled in cash or in shares of common stock at the
option of the Company. The number of shares deliverable under the
share-settlement option was determined based on the lower of (a) $0.86 per
share, as adjusted pursuant to the terms of the Series K Notes or (b) 90%
applied to the arithmetic average of the volume-weighted-average trading
prices for the twenty day period immediately preceding each share
settlement.
F-18
<PAGE>
The conversion price of the Series K Notes and exercise price of the Series
K Warrants were each subject to certain anti-dilution protections,
including for stock splits, stock dividends, change in control events and
dilutive issuances of common stock or common stock equivalents, such as
stock options, at an effective price per share that is lower than the then
conversion price. In the event of a dilutive issuance of common stock or
common stock equivalents, the conversion price and exercise price would be
reduced to equal the lower per share price of the subsequent transaction.
Accounting for the Convertible Debt Instrument and Warrants
The Company accounted for the Series K Warrants as derivative liabilities
in accordance with Codification 815-10. The Company determined that the
Series K Notes constituted a hybrid instrument that had the characteristics
of a debt host contract containing several embedded derivative features
that would require bifurcation and separate accounting as a derivative
instrument pursuant to the provisions of the topic. The Company determined
that certain of these features cannot be reliably measured and, in
accordance with the requirements of the topic, measured the entire hybrid
instrument at fair value with changes in fair value recognized as either a
gain or loss.
Upon issuance of the Series K Notes and Series K Warrants, the Company
allocated proceeds received to the Series K Notes and the Series K Warrants
on a relative fair value basis. As a result of such allocation, the Company
determined the initial carrying value of the Series K Notes to be
$6,565,528. The Series K Notes were immediately marked to fair value
resulting in a derivative liability in the amount of $9,728,793 and the
Company recognized a charge of $3,163,265, which was recorded as costs
associated with convertible debt. As of September 30, 2008, the fair value
of the Series K Notes was $1,943,240, and the Company recognized a total
gain of $1,799,393 on the convertible debt and associated warrants during
the year ended September 30, 2008. A debt discount in the amount of
$1,734,472 was amortized to interest expense using the effective interest
method over the expected term of the Series K Notes. During the year ended
September 30, 2009, the Company recorded interest expense of $193,980 in
related amortization of the debt discount. During the year ended September
30, 2008, the Company recorded interest expense of $249,106 in related
amortization of the debt discount over the term of the Series K Notes.
Upon issuance, the Series K Warrants and Placement Agent Warrants did not
meet the requirements for equity classification set forth in Codification
815-10-50, "Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company's Own Stock," because such warrants (a)
must be settled in registered shares and (b) are subject to substantial
liquidated damages if the Company is unable to maintain the effectiveness
of the resale registration of the shares. Therefore such warrants were
accounted for as freestanding derivative instruments pursuant to the
provisions of Codification 815-10. Accordingly, the Company allocated
$2,570,138 of the initial proceeds to the Series K Warrants and immediately
marked them to fair value resulting in a derivative liability of $2,570,138
and recognized a charge of $835,666, which was recorded as costs associated
with convertible debt. As of September 30, 2008, the fair value of the
Series K Warrants was $995,793. The Company paid $568,710 in cash
transaction costs and incurred another $223,907 in costs based upon the
fair value of the Placement Agent Warrants, which was recorded as costs
associated with convertible debt. Such costs were expensed immediately as
F-19
<PAGE>
part of fair value adjustments required in connection with the convertible
debt instrument and the Company's irrevocable election to initially and
subsequently measure the Series K Notes at fair value. As of September 30,
2008, the fair value of the Placement Agent Warrants was $79,664. In
connection with the June 2009 financing, the Series K notes and warrants
were repriced to $0.40. As of September 30, 2009, the fair value of the
remaining investor and broker warrants was $5,372,598. During the fiscal
year ended September 30, 2010, 1,335,221 Series K warrants were exercised,
on which the Company recognized a gain on conversion of $280,223. When the
warrants were exercised, $1,233,518 of the Series K warrants was converted
from derivative liabilities to equity. At September 30, 2010, the fair
value of the remaining investor and broker warrants was $1,002,502.
During the year ended September 30, 2009, all remaining convertible debt
was converted into common stock or was repaid in accordance with the terms
of the agreement. $24,375 was repaid at 120% and $1,206,341 in convertible
debt was converted into 3,015,852 shares of common stock during the year
ended September 30, 2009.
3. OPERATIONS AND FINANCING
The Company has incurred significant costs since its inception in connection
with the acquisition of certain patented and unpatented proprietary
technology and know-how relating to the human immunological defense system,
patent applications, research and development, administrative costs,
construction of laboratory facilities, and clinical trials. The Company has
funded such costs with proceeds from the public and private sale of its
common and preferred stock. The Company will be required to raise additional
capital or find additional long-term financing in order to continue with its
research efforts. To date, the Company has not generated any revenue from
product sales. The ability of the Company to complete the necessary clinical
trials and obtain Federal Drug Administration (FDA) approval for the sale of
products to be developed on a commercial basis is uncertain. Ultimately, the
Company must complete the development of its products, obtain the appropriate
regulatory approvals and obtain sufficient revenues to support its cost
structure.
The Company has two partners who have agreed to participate in and pay for
part of the Phase III clinical trial for Multikine. Since the Company was
able to raise substantial capital during 2009, the Company is currently
preparing the Phase III trial for Multikine. The net cost of the clinical
trial is currently being negotiated, but is assumed to be about $25 - $26
million. The Company believes that its capital will allow it to enroll the
patients in the Phase III clinical trial. The Company will need to raise
additional funds, either through its existing warrants/options, through a
debt or equity financing or a partnering arrangement, to complete the Phase
III trial and bring Multikine to market. There can be no assurances the
Company will be successful in raising additional funds.
F-20
<PAGE>
4. RESEARCH AND OFFICE EQUIPMENT
Research and office equipment at September 30, 2010 and 2009, consists of the
following:
2010 2009
---- ----
Research equipment $3,647,684 $3,292,472
Furniture and equipment 116,996 122,957
Leasehold improvements 126,910 44,419
------------ -------
3,891,590 3,459,848
Less: Accumulated depreciation
and amortization (2,626,759) (2,259,237)
----------- ----------
Net research and office equipment $1,264,831 $1,200,611
========== ==========
5. INCOME TAXES
At September 30, 2010, the Company had a federal net operating loss
carryforward of approximately $115 million expiring from 2011 through 2030.
In addition, the Company has a general business credit as a result of the
credit for increasing research activities of approximately $2,341,000 at
September 30, 2010 and 2009. These tax credits begin expiring after twenty
years from the year in which the credit was generated. The components of the
deferred taxes at September 30, 2010 and 2009 are comprised of the following:
2010 2009
---- ----
Net operating loss $45,940,445 $39,491,048
R&D credit 2,340,614 2,340,614
Amortization of debt discount -- 658,406
Codification 718-10-30-3 1,243,647 683,245
Derivative loss -- 8,919,951
Vacation and other 83,593 9,127
Deferred rent 970,224 -
----------- ----------
Total deferred tax assets 50,578,523 52,102,392
Derivative gain (2,133,259) -
Depreciation (80,026) -
----------- ----------
Total deferred tax liability (2,213,285) -
Valuation allowance (48,365,238) (52,102,392)
----------- ----------
Net deferred tax asset $ - $ -
=========== ===========
In assessing the realization of the deferred tax assets, management
considered whether it was more likely than not that some portion or all of
the deferred tax asset will be realized. The ultimate realization of the
deferred tax assets is dependent upon the generation of future taxable
F-21
<PAGE>
income. Management has considered the history of the Company's operating
losses and believes that the realization of the benefit of the deferred tax
assets cannot be determined. In addition, under the Internal Revenue Code
Section 382, the Company's ability to utilize these net operating loss
carryforwards may be limited or eliminated in the event of a change in
ownership in the future. Internal Revenue Code Section 382 generally defines
a change in ownership as the situation where there has been a more than 50
percent change in ownership of the value of the Company within the last three
years.
The Company's effective tax rate is different from the applicable federal
statutory tax rate. The reconciliation of these rates for the years ended
September 30 is as follows:
2010 2009 2008
---- ---- ----
Federal Rate 34.0% 34.0% 34.0%
State tax rate, net of federal benefit 5.91% 3.96% 3.96%
R&D credit 0% 2.01% 5.06%
RT&D credit true-up 0% (0.40%) 0%
Nondeductible expenses 0.02% (0%) (0.04%)
Valuation allowance (39.93%) (39.57%) (42.98%)
------- ------- -------
Effective tax rate 0.0% 0.0% 0.0%
======= ======= =======
The Company adopted the provisions of Codification 740-10, "Accounting for
Uncertainty in Income Taxes" on October 1, 2007 which requires financial
statement benefits be recognized for positions taken for tax return purposes,
when it is more likely than not that the position will be sustained. The
Company has concluded that it has properly filed its tax returns and does not
believe that any of the positions it has taken would result in a disallowance
of any of these tax positions. Therefore, the Company has concluded that
adoption of ASC 740-10 had no impact on its financial positions. No interest
or penalties have been accrued as a result of adoption of this requirement.
In the United States, the Company is still open to examination from 2006
forward.
6. STOCK OPTIONS, BONUS PLAN AND WARRANTS
Non-Qualified Stock Option Plans --At September 30, 2010, the Company has
collectively authorized the issuance of 33,760,000 shares of common stock
under its Non-Qualified Stock Option Plans. Options typically vest over a
three-year period and expire no later than ten years after the grant date.
Terms of the options are to be determined by the Company's Compensation
Committee, which administers the plans. The Company's employees, directors,
officers, and consultants or advisors are eligible to be granted options
under the Non-Qualified Stock Option Plans.
Information regarding the Company's Non-Qualified Stock Option Plans is
summarized as follows:
F-22
<PAGE>
Outstanding Exercisable
------------------ ----------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ -------- ------ --------
Options outstanding,
October 1, 2007 7,462,698 $0.69 5,972,712 $0.67
Options granted 1,039,000 $0.60
Options exercised (50,467) $0.29
Options forfeited (43,966) $0.96
---------
Options outstanding,
September 30, 2008 8,407,265 $0.68 6,553,939 $ 0.64
Options granted 12,538,114 $0.38
Options exercised (162,253) $0.38
Options forfeited (462,535) $0.82
---------
Options outstanding,
September 30,2009 20,320,591 $0.49 8,142,931 $0.64
---------
Options granted 1,453,450 $0.56
Options exercised (18,625) $0.31
Options forfeited (35,002) $0.97
---------
Options outstanding,
September 30,2010 21,720,414 $0.50 8,906,473 $0.65
=========
In December 2007, the Company extended the expiration date on 1,680,533
options from the Nonqualified Stock Option Plans with exercise prices ranging
from $1.05 to $1.94. The options originally would have expired between
February 2008 and October 2008 and were extended for five years to expiration
dates ranging from February 2013 to October 2013. This extension was
considered a new measurement date with respect to the modified options. At
the date of modification, the additional cost of the options was $410,471. As
of September 30, 2010, all of these options remain outstanding.
In April 2009, the Company extended the expiration date on 147,000 options
from the Nonqualified Stock Option Plans with the exercise prices ranging
from $1.05 to $1.87. The options originally would have expired between May
2009 and September 2009 and were extended for three years to expiration dates
ranging from May 2012 to September 2012. This extension was considered a new
measurement date with respect to the modified options. At the date of
modification, the additional cost of the options was $2,904. As of September
30, 2010, all of these options remain outstanding.
In January 2010, the Company extended the expiration date on 181,666 options
from the Nonqualified Stock Option Plans with the exercise prices ranging
from $1.05 to $1.76. The options originally would have expired between
February 2010 and November 2010 and were extended for three years to
expiration dates ranging from February 2013 to November 2013. This extension
was considered a new measurement date with respect to the modified options.
At the date of modification, the additional cost of the options was $72,632.
As of September 30, 2010, all of these options remain outstanding.
F-23
<PAGE>
Incentive Stock Option Plan--At September 30, 2010, the Company has
collectively authorized the issuance of 17,100,000 shares of common stock
under its Incentive Stock Option Plans. Options vest over a one-year to
three-year period and expire no later than ten years after the grant date.
Terms of the options are to be determined by the Company's Compensation
Committee, which administers the plans. Only the Company's employees and
directors are eligible to be granted options under the Incentive Stock Option
Plans.
Information regarding the Company's Incentive Stock Option Plans is
summarized as follows:
Outstanding Exercisable
------------------ ----------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ -------- ------ --------
Options outstanding,
October 1, 2007 4,601,933 $0.64 3,998,601 $0.63
Options granted 300,000 $0.62
Options exercised -
Options forfeited (156,667) $3.83
---------
Options outstanding,
September 30, 2008 4,745,266 $0.53 4,121,935 $0.52
Options granted 4,982,775 $0.27
Options exercised (100,000) $1.13
Options forfeited (29,167) $1.70
---------
Options outstanding,
September 30, 2009 9,598,874 $0.39 8,548,876 $0.38
=========
Options granted 1,100,000 $0.61
Options exercised (71,333) $0.43
Options forfeited (34,500) $2.25
-------
Options outstanding,
September 30,2010 10,593,041 $0.50 8,893,042 $0.65
=========
In December 2007, the Company extended the expiration date on 225,100 options
from the Incentive Stock Option Plans with exercise prices ranging from $1.05
to $1.94. The options originally would have expired between February 2008 and
December 2008 and were extended for five years to expiration dates ranging
from February 2013 to December 2013. This extension was considered a new
measurement date with respect to the modified options. At the date of
modification, the additional cost of the options was $54,537. As of September
30, 2010, all of these options remain outstanding.
In April 2009, the Company extended the expiration date on 153,000 options
from the Incentive Stock Option Plans with the exercise price of $1.05. The
options originally would have expired between April 2009 and December 2009
and were extended for three years to expiration dates ranging from April 2012
F-24
<PAGE>
to December 2012. This extension was considered a new measurement date with
respect to the modified options. At the date of modification, the additional
cost of the options was $3,238. As of September 30, 2010, all of these
options remain outstanding.
In January 2010, the Company extended the expiration date on 337,166 options
from the Incentive Stock Option Plans with the exercise prices ranging from
$1.05 to $1.18. The options originally would have expired between February
2010 and December 2010 and were extended for three years to expiration dates
ranging from February 2013 to December 2013. This extension was considered a
new measurement date with respect to the modified options. At the date of
modification, the additional cost of the options was $139,812. As of
September 30, 2010, all of these options remain outstanding
Other Options and Warrants
The Company accounts for options to non-employees in accordance with
Codification 505-50-05-5, "Equity Based Payments to Non-Employees". The
warrants are valued using the Black-Scholes methodology and are either
expensed as the warrants are vested or as a debit and a credit to additional
paid-in capital if an equity transaction. If the warrants are expensed, they
are revalued each quarter before they are fully vested and the difference in
the value of the warrants is recorded in the consolidated statement of
operations. Warrants issued in connection with some financings are
classified as derivative liabilities due to their terms. See Note 10 for
further discussion of the derivative liabilities. Details of the other
transactions follow.
In November and December 2007, the Company extended the expiration date of
2,016,176 investor and consultant warrants. The options and warrants were due
to expire from December 1, 2007 through December 31, 2008. All options and
warrants were extended for an additional five years from the original
expiration date. The cost of the extension of investor warrants of $424,815
was recorded as a debit to accumulated deficit (dividend) and a credit to
additional paid-in capital. The cost of the extension of the consultant
warrants of $99,181 was recorded as a debit to general and administrative
expense and a credit to additional paid-in capital. The additional cost of
the extension of investor and consultant warrants was determined using the
Black Scholes method.
Expected stock risk volatility 72%
Risk-free interest rate 3.67%
Expected life of warrant 5.17-5.5 Years
In January 2009, as part of an amended lease agreement on the manufacturing
facility, the Company repriced 3,000,000 warrants issued to the lessor in
July 2007 at $1.25 per share and which were to expire on July 12, 2013. These
warrants were repriced at $0.75 per share and expire on January 26, 2014. The
cost of this repricing and extension of the warrants was $70,515 and was
accounted for as a debit to the deferred rent asset and a credit to
additional paid-in capital. In addition, 787,500 additional warrants were
given to the lessor of the manufacturing facility on the same date,
exercisable at a price of $0.75 per share, and will expire on January 26,
2014. The cost of these warrants was $45,207 and was accounted for as a debit
to the deferred rent asset and a credit to additional paid-in capital. The
cost of the warrant extension and the new warrants was determined using the
Black Scholes method using the following assumptions.
F-25
<PAGE>
Expected stock risk volatility 61.63%
Risk-free interest rate 1.52%
Expected life of warrant 5 Years
In March 2009, as further consideration for its rights under the licensing
agreement, Byron Biopharma purchased 3,750,000 Units from the Company at a
price of $0.20 per Unit. Each Unit consisted of one share of the Company's
common stock and two warrants. Each warrant entitles the holder to purchase
one share of the Company's common stock at a price of $0.25 per share. The
warrants are exercisable at any time prior to March 6, 2016. The fair value
of the warrants was calculated to be $1,015,771 using the Black Scholes
method with the following assumptions and was recorded as both a debit and a
credit to additional paid-in capital.
Expected stock risk volatility 83.12%
Risk-free interest rate 2.30%
Expected life of warrant 7 Years
Between March 31 and June 30, 2009, 2,296,875 new warrants were issued to the
leaseholder on the manufacturing facility in consideration for the deferment
of rent payments. The cost of these new warrants of $251,172 was recorded as
a debit to research and development and a credit to additional paid in
capital. The cost the new warrants was determined using the Black Scholes
method using the following assumptions.
Expected stock risk volatility 63.03 - 64.46%
Risk-free interest rate 1.82 - 2.13%
Expected life of warrant 5 Years
In June 2009, 2,075,084 warrants issued to two investors in connection with a
financing in August 2008 were reset from $0.75 to $0.40. The additional cost
of the warrants of $123,013 was recorded as a debit and a credit to
additional paid in capital. In addition, the investors were issued 1,815,698
warrants exercisable at $0.40 per share at a cost of $404,460. The additional
cost of the warrants was recorded as a debit and a credit to paid in capital.
The costs were determined using the Black Scholes method using the following
assumptions.
Expected stock risk volatility 63.75%
Risk-free interest rate 2.13%
Expected life of warrant 5.17 Years
In June 2009, the Company issued 10,284,060 warrants exercisable at $0.50 per
share in connection with the June financing. The cost of the warrants of
$2,775,021 was recorded as a debit and a credit to additional paid in
capital. See Note 11.
F-26
<PAGE>
Expected stock risk volatility 62.59%
Risk-free interest rate 2.13-2.71%
Expected life of warrant 5 Years
In connection with the reset of the conversion price of the Series K notes
and the exercise price of the warrants from $0.75 to $0.40 after the June
2009 financing, the Series K note holders received 5,348,357 additional
warrants. The cost of these additional warrants is included in the fair value
of the remaining warrants at September 30, 2010. See Note 2.
In June 2009, the Company issued 1,648,244 warrants exercisable at $0.40 per
share to the holder of a note from the Company. These warrants were valued at
$65,796 using the Black Scholes method. In July 2009, the Company issued
1,849,295 warrants exercisable at $0.50 per share to the holder of the note
that was amended for the second time. These warrants were valued at $341,454
using the Black Scholes method. The first warrants were recorded as a
discount to the loan and a credit to additional paid-in capital. The second
warrants were recorded as a debit to derivative loss of $831,230, a premium
of $341,454 on the loan and a credit to additional paid in capital of
$489,776. The first warrants were amortized as interest expense at the time
of the second amendment. On the second amendment, $338,172 of the premium was
amortized as a reduction to interest expense as of September 30, 2009. The
balance of the premium of $3,282 was amortized as a reduction to interest
expense in October 2009. The following assumptions were used to value these
warrants:
June 2009 July 2009
Expected stock risk volatility 90% 90%
Risk-free interest rate 2.4% 2.4%
Expected life of warrant 5 Years 5 Years
In July 2009, 375,000 warrants held by an investor were extended for two
years. The additional value of the warrants of $24,061 was calculated using
the Black Scholes method using the following assumptions. This cost was
accounted for as a debit and a credit to additional paid in capital.
Original Extended
Warrants Warrants
Expected stock risk volatility 57.14% 57.14%
Risk-free interest rate 1.76% 1.76%
Expected life of warrant 0.08 Year 2.08 Years
In July 2009, 192,500 options were issued with exercise prices between $0.40
and $0.60 per share to three consultants, for past services, at a cost of
$35,911 using the Black Scholes method. The options were accounted for as a
debit to general and administrative expense and a credit to additional paid
F-27
<PAGE>
in capital. Also in July 2009, the Company issued 200,000 options to a
consultant with an exercise price of $0.38 per share. The cost of these
options, $43,702, was calculated using the Black Scholes method using the
following assumptions and accounted for as a debit to research and
development and a credit to additional paid in capital.
Expected stock risk volatility 66.74%
Risk-free interest rate 2.71%
Expected life of warrant 5 Years
In July 2009, the Company issued warrants to a private investor. The 167,500
warrants were issued with an exercise price of $0.50 per share and valued at
$43,550 using the Black Scholes method using the following assumptions. The
cost of the warrants was accounted for as a debit to additional paid in
capital and a credit to derivative liabilities.
Expected stock risk volatility 90%
Risk-free interest rate 2.90%
Expected life of warrant 5.5 Years
In July 2009, 100,000 warrants were extended for one year. The cost of the
extension of $3,134 was calculated using the Black Scholes method using the
following assumptions. The cost was accounted for as a debit to general and
administrative expenses and a credit to additional paid in capital.
Original Extended
Warrants Warrants
Expected stock risk volatility 57.14% 57.14%
Risk-free interest rate 1.76% 1.76%
Expected life of warrant 0.17 Year 1.17 Years
In August 2009, the Company received additional financing. In connection with
the financing, the Company issued 4,850,501 warrants exercisable at $0.55 per
share. The cost of the warrants of $1,455,150 was calculated using the Black
Scholes method using the following assumptions and was recorded as a debit to
additional paid in capital and a credit to derivative liabilities. See Note
11.
Expected stock risk volatility 90%
Risk-free interest rate 2.59%
Expected life of warrant 5.51 Years
Also in August 2009, the Company completed an offering to the original Series
K investors. Issued with an exercise price of $0.55 per share, the 541,717
warrants were valued at $249,190 using the Black Scholes method using the
following assumptions. The warrants were accounted for as a debit to
additional paid in capital and a credit to derivative liabilities.
Expected stock risk volatility 90 %
Risk-free interest rate 2.61%
Expected life of warrant 5.5 Years
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<PAGE>
In September 2009, the Company received a $2,000,000 loan. In connection with
the loan, the Company issued 500,000 warrants with an exercise price of $0.68
per share. The cost of the warrants of $245,000 was recorded as a debit to
discount on note payable and a credit to additional paid in capital. This
cost was amortized to interest expense when the loan was repaid. See Note 11.
Expected stock risk volatility 90%
Risk-free interest rate 2.54%
Expected life of warrant 5.5 Years
In September 2009, the Company issued 4,714,284 warrants with an exercise
price of $1.50 per share in connection with a financing. The cost of the
warrants of $3,488,570 was calculated using the Black Scholes method using
the following assumptions and was recorded as a debit and a credit to
additional paid in capital. See Note 11. In addition, 714,286 warrants were
issued with an exercise price of $1.75 per share to the placement agent on
the transaction. The cost of $664,286 was calculated using the Black Scholes
method using the following assumptions and was accounted for as a debit to
additional paid in capital and a credit to derivative liabilities.
Financing Placement Agent
Warrants Warrants
Expected stock risk volatility 110% 110%
Risk-free interest rate 1.01% 2.42%
Expected life of warrant 2 Years 4.91 Years
In accordance with Codification 815-40-15-7, derivative liabilities must be
revalued at the end of each interim period and at the end of the fiscal year,
as long as they remain outstanding. As of September 30, 2009, the fair value
of these new derivative liabilities totaled $29,741,372. As of September 30,
2010, the value of the remaining derivative liabilities totaled $5,943,549.
In August 2010, 70,000 options owned by an investor were extended for two
years at a cost of $15,477. This cost was calculated using the Black Scholes
method and was accounted for as a credit to additional paid in capital and a
debit to general and administrative expense. The calculation used the
following assumptions.
Prior to After
Extension Extension
Expected stock risk volatility 102% 102%
Risk-free interest rate 0.15% 0.49%
Expected life of warrant 0 Years 2 Years
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<PAGE>
Stock Bonus Plans -- At September 30, 2010, the Company had been authorized
to issue up to 11,940,000 shares of common stock under its Stock Bonus Plans.
All employees, directors, officers, consultants, and advisors are eligible to
be granted shares. During the year ended September 30, 2008, 205,125 shares
were issued to the Company's 401(k) plan for a cost of $108,590. During the
year ended September 30, 2009, 91,766 shares were issued to the Company's
401(k) plan for a cost of $57,829. During the year ended September 30, 2010,
182,233 shares were issued to the Company's 401(k) plan for a cost of
$112,325.
Stock Compensation Plan-- At September 30, 2010, 9,500,000 shares were
authorized for use in the Company's stock compensation plan. During the year
ended September 30, 2008, 1,789,451 shares were issued at the weighted
average $0.62 per share for a total cost of $1,324,474. During the year ended
September 30, 2009, 1,324,385 shares were issued at the weighted average of
$0.24 per share for a total cost of $312,016. During the year ended September
30, 2010, no shares were issued from the Stock Compensation Plan.
7. EMPLOYEE BENEFIT PLAN
The Company maintains a defined contribution retirement plan, qualifying
under Section 401(k) of the Internal Revenue Code, subject to the Employee
Retirement Income Security Act of 1974, as amended, and covering
substantially all Company employees. Each participant's contribution is
matched by the Company with shares of common stock that have a value equal to
100% of the participant's contribution, not to exceed the lesser of $10,000
or 6% of the participant's total compensation. The Company's contribution of
common stock is valued each quarter based upon the closing bid price of the
Company's common stock. The expense for the years ended September 30, 2010,
2009, and 2008, in connection with this Plan was $123,500, $61,517, and
$110,670, respectively.
8. COMMITMENTS AND CONTINGENCIES
Operating Leases-The future minimum annual rental payments due under
noncancelable operating leases for office and laboratory space are as
follows:
Year Ending September 30,
2011 1,903,471
2012 1,896,205
2013 1,855,889
2014 1,579,931
2015 1,572,839
2016 and thereafter 26,441,949
-----------
Total minimum lease payments: $35,250,284
============
Rent expense for the years ended September 30, 2010, 2009, and 2008, was
$3,308,102, $2,759,332, and $253,526, respectively. Rent increased
substantially during the fiscal year ended September 30, 2009 because the
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<PAGE>
Company took delivery of the new building in October of 2008; see discussion
below. These leases expire between June 2012 and August 2028.
In August 2007 the Company leased a building near Baltimore, Maryland. The
building was be remodeled in accordance with the Company's specifications so
that it can be used by the Company to manufacture Multikine for the Company's
Phase III clinical trial and sales of the drug if approved by the FDA. The
Company took possession of the building in October 2008.
The lease is for a term of twenty years and required annual base rent
payments of $1,575,000 during the first year of the lease. The annual base
rent escalates each year at 3%. The Company is also required to pay all real
and personal property taxes, insurance premiums, maintenance expenses, repair
costs and utilities. The lease allows the Company, at its election, to extend
the lease for two ten-year periods or to purchase the building at the end of
the 20-year lease. The lease required the Company to pay $3,150,000 towards
the remodeling costs, which will be recouped by reductions in the annual base
rent of $303,228 in years six through twenty of the lease, subject to the
Company maintaining compliance with the lease covenants. Included on the
consolidated balance sheet is an asset of $7,819,522 shown as deferred rent.
$7,068,184 of this asset is long term and the balance of $751,338 is in
current assets. Included in deferred rent are the following: 1) deposit on
the manufacturing facility ($3,150,000); 2) warrants issued to lessor
($1,481,040); 3) additional investment ($2,889,409); 4) deposit on the cost
of the leasehold improvements for the manufacturing facility ($1,786,591); 5)
amortization of deferred rent ($(1,682,053)); and 6) accrued interest on
deposit ($194,535). Also included on the consolidated balance sheet is
restricted cash of $21,357. In July 2008, the Company was required to deposit
the equivalent of one year of base rent in accordance with the contract. The
$1,575,000 included in current assets on September 30, 2009 was required to
be deposited when the amount of cash the Company had dropped below the amount
stipulated in the lease. The Company received a refund of the deposit in
February 2010, when the Company was again in compliance with the contract.
Employment Contracts--In April 2005, the Company entered into a three-year
employment agreement with Maximilian de Clara, the Company's President. The
employment agreement provided that the Company would pay Mr. de Clara an
annual salary of $363,000 during the term of the agreement. On September 8,
2006 Mr. de Clara's Employment Agreement was amended and extended to April
30, 2010. On August 30, 2010, Mr. de Clara's employment agreement, as amended
on September 8, 2006, was extended to August 30, 2013.
F-31
<PAGE>
The employment agreement, as amended, also provided that on September 8,
2006, March 8, 2007, September 8, 2007, March 8, 2008, September 8, 2008 and
March 8, 2009, each date being a "Payment Date", the Company issued Mr. de
Clara shares of its common stock equal in number to the amount determined by
dividing $200,000 by the average closing price of the Company's common stock
for the twenty trading days preceding the Payment Date. A total of 2,610,649
shares were issued to Mr. de Clara under this agreement.
The employment agreement provides that the Company will pay Mr. de Clara an
annual salary of $363,000 during the term of the agreement. In the event
that there is a material reduction in his authority, duties or activities,
or in the event there is a change in the control of the Company, then the
agreement allows him to resign from his position at the Company and receive
a lump-sum payment from the Company equal to 18 months salary. For purposes
of the employment agreement, a change in the control of the Company means
the sale of more than 50% of the outstanding shares of the Company's Common
Stock, or a change in a majority of the Company's directors.
In September 2006, the Company agreed to extend its employment agreement with
Geert R. Kersten, the Company's Chief Executive Officer, to September 2011.
The employment agreement, which is essentially the same as Mr. Kersten's
prior employment agreement, provides that during the term of the agreement
the Company will pay Mr. Kersten an annual salary of $370,585 plus any
increases approved by the Board of Directors during the period of the
employment agreement. In the event there is a change in the control of the
Company, the agreement allows him to resign from his position at the Company
and receive a lump-sum payment from the Company equal to 24 months of salary.
For purposes of the employment agreement a change in the control of the
Company means: (1) the merger of the Company with another entity if after
such merger the shareholders of the Company do not own at least 50% of voting
capital stock of the surviving corporation; (2) the sale of substantially all
of the assets of the Company; (3) the acquisition by any person of more than
50% of the Company's common stock; or (4) a change in a majority of the
Company's directors which has not been approved by the incumbent directors.
On August 30, 2010, the Company entered into a three-year employment
agreement with Patricia B. Prichep, the Company's Senior Vice President of
Operations. The employment agreement with Ms. Prichep provides that during
the term of the agreement the Company will pay Ms. Prichep an annual salary
of $194,298 plus any increases approved by the Board of Directors during the
period of the employment agreement.
On August 30, 2010, the Company also entered into a three-year employment
agreement with Eyal Talor, Ph.D., the Company's Chief Scientific Officer. The
employment agreement with Dr. Talor provides that during the term of the
agreement the Company will pay Dr. Talor an annual salary of $239,868 plus
any increases approved by the Board of Directors during the period of the
employment agreement.
In the event there is a change in the control of the Company, the employment
agreements with Ms. Prichep and Dr. Talor allow Ms. Prichep and/or Dr. Talor
(as the case may be) to resign from her or his position at the Company and
receive a lump-sum payment from the Company equal to 18 months salary. For
purposes of the employment agreements, a change in the control of the Company
means: (1) the merger of the Company with another entity if after such merger
the shareholders of the Company do not own at least 50% of voting capital
stock of the surviving corporation; (2) the sale of substantially all of the
assets of the Company; (3) the acquisition by any person of more than 50% of
the Company's common stock; or (4) a change in a majority of the Company's
directors which has not been approved by the incumbent directors.
The employment agreements with Ms. Prichep and Dr. Talor will also terminate
upon the death of the employee, the employee's physical or mental disability,
willful misconduct, an act of fraud against the Company, or a breach of the
employment agreement by the employee. If the employment agreement is
terminated for any of these reasons the employee, or her or his legal
representatives, as the case may be, will be paid the salary provided by the
employment agreement through the date of termination.
F-32
<PAGE>
The Company has an additional contract with a consultant for a nine month
period ending in fiscal year 2011. This contract totals approximately
$45,000. Further, the Company has contingent obligations with other vendors
for work that will be completed in relation to the Phase III trial. The
timing of these obligations cannot be determined at this time. The amount of
these obligations for the Phase III trial are approximately $27 million with
the net cost to the Company being between $25 - $26 million.
Iroquois Lawsuit - On October 21, 2009, Iroquois filed suit against the
Company in the United States District Court for the Southern District of New
York. In its lawsuit, Iroquois is seeking $30 million in actual damages, $90
million in punitive damages, the issuance of an additional 4,264,681 shares
of the Company's common stock, the issuance of warrants to purchase an
additional 6,460,757 shares of the Company's stock and a ruling by the court
that the conversion price of the notes and the exercise price of the warrants
are both $0.20.
The Company believes that Iroquois's claims are without merit and has filed a
motion with the District Court seeking the dismissal of Iroquois's lawsuit.
9. LOANS FROM OFFICER AND INVESTOR
Between December 2008 and June 2009, Maximilian de Clara, the Company's
President and a director, loaned the Company $1,104,057. The loan was
initially payable at the end of March, 2009, but was extended to the end of
June 2009. At the time the loan was due, and in accordance with the loan
agreement, the Company issued Mr. de Clara warrants which entitle Mr. de
Clara to purchase 1,648,244 shares of the Company's common stock at a price
of $0.40 per share. The warrant is exercisable at any time prior to December
24, 2014. Pursuant to Codification paragraph 470-50-40-17, the fair value of
the warrants issuable under the first amendment was recorded as a discount
on the note payable with a credit recorded to additional paid-in capital.
The discount was amortized from April 30, 2009 through June 27, 2009.
Although the loan was to be repaid from the proceeds of the Company's then
recent financing, the Company's Directors deemed it beneficial not to repay
the loan and negotiated a second extension of the loan with Mr. de Clara on
terms similar to the June 2009 financing. Pursuant to the terms of the
second extension the note is now due on July 6, 2014, but, at Mr. de Clara's
option, the loan can be converted into shares of the Company's common stock.
The number of shares which will be issued upon any conversion will be
determined by dividing the amount to be converted by $0.40. As further
consideration for the second extension, Mr. de Clara received warrants which
allow Mr. de Clara to purchase 1,849,295 shares of the Company's common
stock at a price of $0.50 per share at any time prior to January 6, 2015.
F-33
<PAGE>
The loan from Mr. de Clara bears interest at 15% per year and is secured by
a second lien on substantially all of the Company's assets. The Company does
not have the right to prepay the loan without Mr. de Clara's consent.
In accordance with Codification Subtopic 470-50, the second amendment to the
loan was accounted for as an extinguishment of the first amendment debt. The
extinguishment of the loan requires that the new loan be recorded at fair
value and a gain or loss must be recognized. This resulted in a premium of
$341,454, which was amortized over the period from July 6, 2009, the date of
the second amendment, to October 1, 2009. The loan holder may request
repayment in full or in part at any time after October 1, 2009 on ten days
notice. In October 2009, the balance of the remaining premium of $3,282, was
amortized to interest expense. Amortization of the premium was $338,172 for
the year ended September 30, 2009.
In early September 2009, the Company received a short term loan of
$2,000,000, with associated costs of $73,880, from two investors. The
Company repaid the loan at the end of September 2009, along with $200,000 in
interest. In addition, the Company issued 500,000 warrants at $0.68 at a
cost of $245,000 in connection with the loan. This cost was recorded as a
debit to discount on note payable and a credit to derivative liabilities.
When the loan was repaid, this discount was written off as interest expense.
On September 30, 2009, the fair value of the warrants was $735,000. On
September 30, 2010, the fair value of the warrants was $220,000, and all of
the warrants remain outstanding.
10. STOCKHOLDERS' EQUITY
On April 18, 2007, the Company completed a $15 million private financing.
Shares were sold at $0.75, a premium over the closing price of the previous
two weeks. The financing was accompanied by 10 million warrants with an
exercise price of $0.75 and 10 million warrants with an exercise price of
$2.00. The warrants are known as Series L and Series M warrants,
respectively. The shares were registered in May 2007.
The financing resulted in the issuance of 19,999,998 shares of common stock
to the investors. The warrants issued with the financing qualified for equity
treatment. The Series L warrants were recorded as a debit and a credit to
additional paid-in capital at a value of $5,164,355 and the Series M warrants
were recorded as a debit and a credit to additional paid-in capital at a fair
value of $434,300.
In September 2008, 2,250,000 of the original Series L warrants were repriced
at $0.56 and extended for one year to April 17, 2013. The increase in the
value of the warrants of $173,187 was recorded as a debit and a credit to
additional paid-in capital in accordance with the original accounting for the
Series L warrants.
As a result of the financing, and in accordance with the original Series K
agreement, the Series K conversion price of the notes was repriced to $0.75
from the original $0.86 and the exercise price of the warrants were adjusted
to $0.75 from the original $0.95. The Series K convertible debt and warrants
were revalued with the new conversion price and were adjusted to their new
fair value.
F-34
<PAGE>
On August 18, 2008, the Company sold 1,383,389 shares of common stock and
2,075,084 warrants in a private financing for $1,037,542. The shares were
sold at $0.75, a significant premium over the closing price of the Company's
common stock. The warrants were valued at $891,336 and recorded as a debit
and a credit to additional paid-in capital. Each warrant entitles the holder
to purchase one share of the Company's common stock at a price of $0.75 per
share at any time prior to August 18, 2014. The shares have no registration
rights.
On February 26, 2008, the Company issued a total of 258,000 shares of
restricted common stock to two consultants at $0.53 per share for a total
cost of $136,740 of which $70,312 had been expensed at September 30, 2008.
This stock was expensed over the period of the contracts with the
consultants. In April 2008, an additional 258,000 shares of restricted common
stock to two consultants were issued at $0.69 for a total cost of $178,020,
of which $86,984 had been expensed at September 30, 2008. The value of the
stock was expensed over the remaining period of the contracts with the
consultants.
During the fourth quarter of fiscal year 2008, an additional 1,173,000 shares
were issued to consultants at prices ranging from $0.55 to $0.578. The total
cost of $649,994 was expensed to general and administrative expense. At
September 30, 2008, $111,452 had been expensed to general and administrative
expense.
During the year ended September 30, 2009, the Company issued 3,316,438 shares
of common stock in payment of invoices totaling $1,561,343. Common stock was
also issued to pay interest and principal on the convertible debt. See Note
2. In addition, the balance of the shares issued to the Company's president
in September 2008 were expensed at a cost of $200,000. An additional
1,030,928 shares were issued to the president in March 2009 at a cost of
$200,000. An additional 12,672 shares were issued to an employee for
expenses. The shares were expensed at a cost of $3,168.
In November 2008, the Company extended its licensing agreement for Multikine
with Orient Europharma. The new agreement extends the Multikine collaboration
to also cover South Korea, the Philippines, Australia and New Zealand. The
licensing agreement initially focuses on the areas of head and neck cancer,
nasopharyngeal cancer and potentially cervical cancer. The agreement expires
15 years after the commencement date which is defined as the date of the
first commercial sale of Multikine in any country within the territory. In
connection with the agreement, Orient Europharma purchased 1,282,051 shares
of common stock at a cost of $0.39 per share, for a total to the Company,
after expenses, of $499,982.
On December 30, 2008, the Company entered into an Equity Line of Credit
agreement as a source of funding for the Company. For a two-year period, the
agreement allows the Company, at its discretion, to sell up to $5 million of
the Company's common stock at the volume weighted average price of the day
minus 9%. The Company may request a drawdown once every ten trading days,
although the Company is under no obligation to request any draw-downs under
the equity line of credit. The equity line of credit expires on January 6,
2011. There were no draw-downs during the years ended September 30, 2010 or
2009.
F-35
<PAGE>
On March 6, 2009, the Company entered into a licensing agreement with Byron
Biopharma LLC ("Byron") under which the Company granted Byron an exclusive
license to market and distribute the Company's cancer drug Multikine in the
Republic of South Africa. The Company has existing licensing agreements for
Multikine with Teva Pharmaceuticals and Orient Europharma. Pursuant to the
agreement, Byron will be responsible for registering the product in South
Africa. Once Multikine has been approved for sale, the Company will be
responsible for manufacturing the product, while Byron will be responsible
for sales in South Africa. Revenues will be divided equally between the
Company and Byron. To maintain the license Byron, among other requirements,
must make milestone payments to the Company totaling $125,000 on or before
March 15, 2010. This payment was received in March 2010. On March 30, 2009,
and as further consideration for its rights under the licensing agreement,
Byron purchased 3,750,000 Units from the Company at a price of $0.20 per
Unit. Each Unit consisted of one share of the Company's common stock and two
warrants. Each warrant entitles the holder to purchase one share of the
Company's common stock at a price of $0.25 per share. The warrants are
exercisable at any time prior to March 6, 2016. The shares of common stock
included as a component of the Units were registered by the Company under the
Securities Act of 1933. The Units were accounted for as an equity transaction
using the Black Scholes method to value the warrants. The fair value of the
warrants was calculated to be $1,015,771 and was recorded as both a debit and
a credit to additional paid-in capital.
In late June and early July of 2009, the Company raised $6,139,739, less
associated costs of $296,576. The Company issued 15,349,346 shares at $0.40
per share to the investors. The Company also issued 10,284,060 warrants,
exercisable at $0.50 per share to the investors at a fair value of $2,775,021
and this cost is shown on the balance sheet as a derivative liability. As of
September 30, 2009, the fair value of the warrants was $15,223,759. During
the year ended September 30, 2010, 8,813,088 warrants were exercised. As of
September 30, 2010, the fair value of the 1,470,972 remaining warrants was
$676,647.
As a result of the June 2009 financing, the conversion price of the Series K
notes and the exercise price of the Series K warrants were reduced to $0.40
per share because the shares sold by the Company were below the conversion
price of the notes and the exercise price of the warrants. Also in
conjunction with the June 2009 financing, the exercise price of warrants
issued in a prior financing was reset to $0.40 per share, resulting in the
issuance of an additional 1,166,667 shares of common stock. The issuance of
these shares was accounted for as a dividend of $466,667 for the year ended
September 30, 2009.
On July 27, 2009, 215,000 shares were issued to employees at $0.39. These
shares will vest at specified milestones; 20% of them had vested by September
30, 2009. During the year ended September 30, 2009, $16,770 of the cost was
expensed. There was no additional vesting for these shares for the year ended
September 30, 2010. In addition, on August 5, 2009, 65,785 shares were issued
at $0.38 to the Board of Directors. The cost of $24,998 was expensed during
the year ended September 30, 2009.
In late August of 2009, the Company raised an additional $4,852,995, less
associated costs of $248,037. The Company issued 10,784,435 shares at $0.45
per share to the investors. The Company also issued 5,392,217 warrants at
$0.55 per share to the investors at a fair value of $1,704,340 and this cost
F-36
<PAGE>
is shown on the balance sheet as a derivative liability on September 30,
2009. As of September 30, 2009, the fair value of these warrants was
$8,088,328. On September 30, 2010, these warrants are shown as a derivative
liability of $2,480,420. No warrants were exercised during the year ended
September 30, 2010.
In September of 2009, the Company raised an additional $20,000,000, less
associated costs of $1,423,743. The Company issued 14,285,715 shares at $1.40
per share to the investors. The Company also issued 4,714,284 warrants,
exercisable at $1.50 per share to the investors at a fair value of
$3,488,570. The Company also issued 714,286 warrants, exercisable at $1.75
per share to the placement agent at a fair value of $642,857. The cost of the
warrants is shown on the balance sheet as a derivative liability. As of
September 30, 2009, the fair value of these warrants was $5,694,285. As of
September 30, 2010, the fair value of these warrants is shown as a derivative
liability of $660,000. No warrants were exercised during the year ended
September 30, 2010.
During the year ended September 30, 2010, there were an additional 2,011,174
warrants and options exercised for 2,011,174 shares of common stock at prices
ranging from $0.56 to $0.75. The Company received a total of $1,413,307 from
the exercise of warrants and options during the year ended September 30,
2010.
During the year ended September 30, 2009, 3,316,438 shares of common stock
were issued in payment of invoices totaling $1,561,343. During the year ended
September 30, 2010, 465,158 shares of common stock were issued in payment of
invoices totaling $1,241,026.
In accordance with Codification 815-40-15-7, derivative liabilities must be
revalued at the end of each interim period and at the end of the fiscal year,
as long as they remain outstanding. Series A through E warrants that do not
qualify for equity accounting must be accounted for as a derivative liability
since the warrant agreements provide the holders with the right, at their
option, to require the Company to a cash settlement of the warrant at
Black-Scholes value in the event of a Fundamental Transaction, as defined in
the warrant agreements. Since the occurrence of a Fundamental Transaction is
not entirely within the Company's control, there exist circumstances that
would require net-cash settlement of the warrants while holders of shares
would not receive a cash settlement. As of September 30, 2009, the fair value
of these derivative liabilities was $29,741,372. As of September 30, 2010,
and after the exercise of warrants discussed above, the fair value of these
derivative liabilities was $4,037,067.
During the fiscal year ended September 30, 2010, 8,813,088 of Series A
warrants were exercised, resulting on a gain on derivative instruments of
$8,433,451. When the warrants were exercised, the value of these warrants was
converted from derivative liabilities to equity, and the Series A warrants
transferred to equity totaled $4,276,972.
On October 1, 2009, the Company reviewed all outstanding warrants in
accordance with the requirements of Codification 815-40, "Determining Whether
an Instrument (or Embedded Feature) is Indexed to an Entity's Own Stock".
This topic provides that an entity should use a two-step approach to evaluate
F-37
<PAGE>
whether an equity-linked financial instrument (or embedded feature) is
indexed to its own stock, including evaluating the instrument's contingent
exercise and settlement provisions. Two warrant agreements provide for
adjustments to the purchase price for certain dilutive events, which includes
an adjustment to the warrant exercise price in the event that the Company
makes certain equity offerings in the future at a price lower than the
exercise price of the warrants. Under the provisions of Codification 815-40,
the warrants are not considered indexed to the Company's stock because future
equity offerings or sales of the Company's stock are not an input to the fair
value of a "fixed-for-fixed" option on equity shares, and equity
classification is therefore precluded. Accordingly, effective October 1,
2009, 3,890,782 warrants issued in August 2008 were determined to be subject
to the requirements of this topic and were valued using the Black-Scholes
formula as of October 1, 2009 at $6,186,343. Effective October 1, 2009, the
warrants are recognized as a liability in the Company's condensed
consolidated balance sheet at fair value with a corresponding adjustment to
accumulated deficit and will be marked-to-market each reporting period during
which they are exercisable. The warrants were revalued on September 30, 2010,
at $1,906,482. The assumptions used in the fair value calculation for the
warrants as of October 1, 2009 and September 30, 2010 are as follows:
October 1, 2009 September 30, 2010
---------------- ------------------
Expected stock price volatility 95% 100%
Risk-free interest rate 2.151% 0.919%
Expected life of warrant 4.88 years 3.88 years
On March 12, 2010, the Company temporarily reduced the exercise price of
the Series M warrants, originally issued on April 18, 2007. The exercise
price was reduced from $2.00 to $0.75. At any time prior to June 16, 2010,
investors could have exercised the Series M warrants at a price of $0.75
per share. For every two Series M warrants exercised prior to June 16,
2010, the investor would have received one Series F warrant. Each Series F
warrant would have allowed the holder to purchase one share of the
Company's common stock at a price of $2.50 per share at any time on or
before June 15, 2014. After June 15, 2010 the exercise price of the Series
M warrants reverted back to the $2.00 per share. Any person exercising a
Series M warrant after June 15, 2010 would not receive any Series F
warrants. The Series M warrants expire on April 17, 2012. An analysis of
the modification to the warrants determined that the modification increased
the value of the warrants by $1,432,456. The adjustment was recorded as a
debit and a credit to additional paid-in capital. There were no exercises
of the Series M warrants at the reduced price and the exercise price of the
Series M warrants reverted back to $2.00 on June 16, 2010.
On August 3, 2010, the Company's Board of Directors approved an amendment to
the terms of the Series M warrants held by an investor. The investor is the
owner of 8,800,000 warrants priced at $2.00 per share. The investor may now
purchase 6,000,000 shares of the Company's common stock (reduced from
8,800,000) at a price of $0.60 per share. In approving the amendment, the
Company's Directors determined that reducing the number of outstanding
warrants would be beneficial. An analysis of the modification to the warrants
determined that the modification increased the value of the warrants by
$100,000. The adjustment was recorded as a debit and a credit to additional
paid-in capital. As of September 30, 2010, all of these warrants remained
outstanding.
F-38
<PAGE>
11. FAIR VALUE MEASUREMENTS
Effective October 1, 2008, the Company adopted the provisions of Codification
820-10, "Fair Value Measurements", which defines fair value, establishes a
framework for measuring fair value and expands disclosures about such
measurements that are permitted or required under other accounting
pronouncements. While topic 820-10 may change the method of calculating fair
value, it does not require any new fair value measurements. The adoption of
Codification 820-10 did not have a material impact on the Company's results
of operations, financial position or cash flows.
In accordance with the topic, the Company determines fair value as the price
that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. The
Company generally applies the income approach to determine fair value. This
method uses valuation techniques to convert future amounts to a single
present amount. The measurement is based on the value indicated by current
market expectations about those future amounts.
Codification 820-10 establishes a fair value hierarchy that prioritizes the
inputs used to measure fair value. The hierarchy gives the highest priority
to active markets for identical assets and liabilities (Level 1 measurement)
and the lowest priority to unobservable inputs (Level 3 measurement). The
Company classifies fair value balances based on the observability of those
inputs. The three levels of the fair value hierarchy are as follows:
o Level 1 - Observable inputs such as quoted prices in active markets
for identical assets or liabilities.
o Level 2 - Inputs other than quoted prices that are observable for the
asset or liability, either directly or indirectly. These include
quoted prices for similar assets or liabilities in active markets,
quoted prices for identical or similar assets or liabilities in
markets that are not active and amounts derived from valuation models
where all significant inputs are observable in active markets.
o Level 3 - Unobservable inputs that reflect management's assumptions.
For disclosure purposes, assets and liabilities are classified in their
entirety in the fair value hierarchy level based on the lowest level of input
that is significant to the overall fair value measurement. The Company's
assessment of the significance of a particular input to the fair value
measurement requires judgment and may affect the placement within the fair
value hierarchy levels.
The table below sets forth the assets and liabilities measured at fair value
on a recurring basis, by input level, in the condensed consolidated balance
sheet at September 30, 2010:
F-39
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Quoted Prices in Significant
Active Markets for Other Significant
Identical Assets or Observable Unobservable
Liabilities (Level 1) Inputs (Level 2) Inputs (Level 3) Total
--------------------- ----------------- ---------------- ----------
Derivative Instruments $ - $ - $ 6,946,051 $6,946,051
=========== =========== =========== ==========
</TABLE>
The table below sets forth the assets and liabilities measured at fair value
on a recurring basis, by input level, in the condensed consolidated balance
sheet at September 30, 2009:
<TABLE>
<S> <C> <C> <C> <C>
Quoted Prices in Significant
Active Markets for Other Significant
Identical Assets or Observable Unobservable
Liabilities (Level 1) Inputs (Level 2) Inputs (Level 3) Total
--------------------- ----------------- ---------------- ----------
Derivative Instruments $ - $ - $35,113,970 $35,113,970
=========== =========== =========== ===========
</TABLE>
The following sets forth the reconciliation of beginning and ending
balances related to fair value measurements using significant unobservable
inputs (Level 3), as of September 30, 2010 and 2009:
2010 2009
---- ----
Beginning balance $35,113,970 $3,018,697
Transfers in 6,186,343 8,877,217
Transfers out (5,510,490) (5,273,594)
Realized and unrealized gains/losses
recorded in Earnings (28,843,772) 28,491,650
Ending balance $ 6,946,051 $35,113,970
=========== ===========
The fair values of the Company's derivative instruments disclosed above are
primarily derived from valuation models where significant inputs such as
historical price and volatility of the Company's stock as well as U.S.
Treasury Bill rates are observable in active markets.
12. NET INCOME (LOSS) PER COMMON SHARE
Basic earnings per share (EPS) excludes dilution and is computed by dividing
net income by the weighted average of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other common stock equivalents (convertible preferred stock,
convertible debt, warrants to purchase common stock and common stock options)
were exercised or converted into common stock. The following table provides a
reconciliation of the numerators and denominators of the basic and diluted
per-share computations:
F-40
<PAGE>
2010 2009 2008
---- ---- ----
Net income (loss) - available to
common shareholders-basic $ 8,950,973 $(41,400,758) $(8,128,230)
Add: Conversion of note payable 162,326 - -
Less: Conversion of derivative
instruments (20,130,098) - -
----------- ------------ -----------
Net income (loss) - diluted $(11,016,799) $(31,830,304) $(8,128,230)
Weighted average number of
shares - basic 202,102,859 133,535,050 117,060,866
Incremental shares from:
Potentially dilutive shares 21,414,912 - -
Conversion of note payable 2,760,142 - -
----------- ------------ -----------
Weighted average number of
shares - diluted 226,277,913 133,535,050 117,060,866
============ ============ ===========
Earnings per share - basic $ 0.04 $ (0.31) $ (0.07)
============ ============ ===========
Earnings per share - diluted $ (0.05) $ (0.31) $ (0.07)
============ ============ ===========
Included in the above computations of weighted-average shares for diluted net
loss per share were options and warrants to purchase 21,414,912 shares of
common stock as of September 30, 2010. Excluded from the above computations
of weighted-average shares for diluted net loss per share were options and
warrants to purchase 23,384,797, and 14,488,124 shares of common stock as of
September 30, 2009 and 2008, respectively. These securities were excluded
because their inclusion would have an anti-dilutive effect on net loss per
share.
13. SEGMENT REPORTING
Codification 280-10, "Disclosure about Segments of an Enterprise and Related
Information" establishes standards for reporting information regarding
operating segments in annual financial statements and requires selected
information for those segments to be presented in interim financial reports
issued to stockholders. This topic also establishes standards for related
disclosures about products and services and geographic areas. Operating
segments are identified as components of an enterprise about which separate
discrete financial information is available for evaluation by the chief
operating decision maker, or decision-making group, in making decisions how
to allocate resources and assess performance. The Company's chief decision
maker, as defined under this topic, is the Chief Executive Officer. To date,
the Company has viewed its operations as principally one segment, the
research and development of certain drugs and vaccines. As a result, the
financial information disclosed herein materially represents all of the
financial information related to the Company's principal operating segment.
F-41
<PAGE>
14. QUARTERLY INFORMATION (UNAUDITED)
The following quarterly data are derived from the Company's consolidated
statements of operations.
Financial Data
Fiscal 2010
<TABLE>
<S> <C> <C> <C> <C> <C>
Three Three Three Three
months months months months
ended ended ended ended Year Ended
December 31, March 31, June 30, September 30, September 30
2009 2010 2010 2010 2010
----------- --------- ----------- ------------- --------------
Revenue $ 30,000 $ 30,600 $ 30,900 $ 61,800 $ 153,300
Operating expenses 4,282,849 5,350,958 3,424,959 5,654,787 18,713,553
Non operating expenses
(income) (72,099) (56,167) (38,423) (33,221) (199,910)
Gain/loss on derivative
instruments 23,340,267 4,519,672 2,754,512 (1,770,679) 28,843,772
Modification of warrants - (1,432,456) - (100,000) (1,532,456)
---------- ---------- ------------ ----------- -----------
Net loss available to
common shareholders $19,159,517 $(2,176,975) $ (601,124) $(7,430,445) $ 8,950,973
=========== =========== ============ =========== ===========
Net loss per
share-basic $ 0.10 $ (0.01) $ 0.00 $ (0.04) $ 0.04
=========== =========== ============ =========== ===========
Weighted average
shares-basic 194,959,814 204,173,750 204,592,051 204,757,898 202,102,859
Net loss per
share-diluted $ 0.02 $ (0.03) $ (0.01) $ (0.04) $ (0.05)
=========== =========== ============ =========== ===========
Weighted average
shares-diluted 256,198,162 258,251,010 231,827,525 228,932,952 226,277,913
</TABLE>
Fiscal 2009
<TABLE>
<S> <C> <C> <C> <C> <C>
Three Three Three Three
months months months months
ended ended ended ended Year Ended
December 31, March 31, June 30, September 30, September 30
2008 2009 2009 2009 2009
----------- --------- ----------- ------------- --------------
Revenue $ - $ 19,643 $ 30,450 $ 30,000 $ 80,093
Operating expenses 2,551,823 2,384,760 3,243,576 3,920,391 12,100,550
Non operating expenses
(income) (13,379) 16,717 376,445 18,140 397,923
Gain/loss on derivative
instruments 391,689 264,554 (2,649,493) (26,498,400) (28,491,650)
---------- ---------- ------------ ------------ ------------
Net loss (2,173,513) (2,117,280) (6,239,064) (30,380,173) (40,910,030)
Modification of
warrants - - (466,667) (24,061) (490,728)
---------- ---------- ------------ ----------- -----------
Net loss available to
common shareholders (2,173,513) (2,117,280) $ (6,705,731) $(30,404,234) $(41,400,758)
=========== =========== ============ =========== ===========
Net loss per
share-basic $ (0.02) $ (0.02) $ (0.05) $ (0.19) $ (0.31)
=========== =========== ============ =========== ===========
Net loss per
share-diluted $ (0.02) $ (0.02) $ (0.05) $ (0.19) $ (0.31)
=========== =========== ============ =========== ===========
Weighted average
shares-basic and
diluted 122,215,334 124,701,667 130,076,656 156,916,920 133,535,050
</TABLE>
F-42
<PAGE>
The Company has experienced large swings in its quarterly gains and losses
in 2010 and 2009. These swings are caused by the changes in the fair value
of the convertible debt each quarter. These changes in the fair value of
the debt are recorded on the consolidated statements of operations. In
addition, the cost of options granted to consultants has affected the
quarterly losses recorded by the Company.
15. SUBSEQUENT EVENTS
In accordance with Codification 855-50, "Subsequent Events", the Company has
reviewed subsequent events through the date of the filing. The Company
received a $733,437 grant under The Patient Protection and Affordable Care
Act of 2010 (PPACA). The grant was related to three of the Company's
projects, including the Phase III trial of Multikine. The PPACA provides
small and mid-sized biotech, pharmaceutical and medical device companies with
up to a 50% tax credit for investments in qualified therapeutic discoveries
for tax years 2009 and 2010, or a grant for the same amount tax-free. The tax
credit/grant program covers research and development costs from 2009 and 2010
for all qualified "therapeutic discovery projects."
On December 10, 2010, the Company entered into a sales agreement with
McNicoll Lewis & Vlak LLC (MLV) relating to shares of common stock which have
been registered by means of a shelf registration statement filed in July
2009. The Company may offer and sell shares of its common stock, having an
aggregate offering price of up to $30 million, from time to time through MLV
acting as agent and/or principal.
Sales of the Company's common stock, if any, may be made in sales deemed to
be "at-the-market" equity offerings as defined in Rule 415 promulgated under
the Securities Act of 1933, as amended, including sales made directly on or
through the NYSE Amex, the existing trading market for the Company's common
stock, sales made to or through a market maker other than on an exchange or
otherwise, in negotiated transactions at market prices prevailing at the time
of sale or at prices related to such prevailing market prices, and/or any
other method permitted by law. MLV will act as sales agent on a best efforts
basis. The Company is not required to sell any shares to McNicoll Lewis &
Vlak and McNicoll Lewis & Vlak is not required to sell any shares on the
Company's behalf or purchase any of its shares for its own account.
McNicoll Lewis & Vlak will be entitled to a commission in an amount equal to
the greater of 3% of the gross proceeds from each sale of the shares, or
$0.025 for each share sold, provided, that, in no event will McNicoll Lewis &
Vlak receive a commission greater than 8.0% of the gross proceeds from the
sale of the shares. In connection with the sale of the common stock on behalf
of the Company, McNicoll Lewis & Vlak may be deemed to be an "underwriter"
within the meaning of the Securities Act of 1933, as amended, and the
compensation of McNicoll Lewis & Vlak may be deemed to be underwriting
commissions or discounts.
F-43
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(a) of the Exchange Act, the Registrant
has caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized on the 10th day of December 2010.
CEL-SCI CORPORATION
By: /s/ Maximilian de Clara
------------------------------
Maximilian de Clara, President
Pursuant to the requirements of the Securities Act of l934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
/s/ Maximilian de Clara Director December 10, 2010
- ----------------------
Maximilian de Clara
/s/ Geert R. Kersten Chief Executive, Principal
- ---------------------- Accounting, Principal Financial
Geert R. Kersten Officer and a Director December 10, 2010
/s/ Alexander G. Esterhazy Director December 10, 2010
- -------------------------
Alexander G. Esterhazy
/s/ C, Richard Kinsolving Director December 10, 2010
- -------------------------
Dr. C. Richard Kinsolving
/s/ Peter R. Young Director December 10, 2010
- -------------------------
Dr. Peter R. Young
<PAGE>
CEL-SCI CORPORATION
FORM 10-K
EXHIBITS
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-5
<SEQUENCE>2
<FILENAME>sept10kexh512-10.txt
<DESCRIPTION>EXHIBIT 5
<TEXT>
EXHIBIT 5
<PAGE>
HART & TRINEN, LLP
ATTORNEYS AT LAW
1624 Washington Street
Denver, CO 80203
William T. Hart, P.C. ________ Email: harttrinen@aol.com
Donald T. Trinen Facsimile: (303) 839-5414
(303) 839-0061
- --
Will Hart
December 10, 2010
CEL-SCI Corporation
8229 Boone Boulevard, Suite 802
Vienna, Virginia 22182
This letter will constitute an opinion upon the legality of the sale by CEL-SCI
Corporation, a Colorado corporation ("CEL-SCI"), of shares of its common stock
at initial offering prices not to exceed $34,000,000, all as referred to in a
prospectus supplement filed as part of a Registration Statement on Form S-3
(File No. 333-160794) filed by CEL-SCI with the Securities and Exchange
Commission.
We have examined the Articles of Incorporation, the Bylaws, the minutes of the
Board of Directors of CEL-SCI, the applicable laws of the State of Colorado and
a copy of the Registration Statement. In our opinion, CEL-SCI is authorized to
issue the shares of common stock mentioned above and such shares, when issued,
will be lawfully issued and will represent fully paid and non-assessable shares
of CEL-SCI's common stock.
Very truly yours,
HART & TRINEN
/s/ William T. Hart
William T. Hart
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>3
<FILENAME>exh10m11-10.txt
<DESCRIPTION>EXHIBIT 10(M)
<TEXT>
EXHIBIT 10(m)
<PAGE>
FIRST AMENDMENT TO DEVELOPMENT,
SUPPLY AND DISTRIBUTION AGREEMENT
THIS FIRST AMENDMENT TO DEVELOPMENT, SUPPLY AND DISTRIBUTION AGREEMENT
("First Amendment"), is made and dated as of October 31, 2008 (the Effective
Date), between CEL-SCI Corporation, a Colorado, USA, company ("CEL-SCI"), and
Orient Europharma Co. Ltd., a corporation organized and existing under the laws
of Taiwan, R.O.C., ("Orient Europharma"), with reference to the following facts:
A. CEL-SCI and Orient Europharma entered into that certain Development, Supply
and Distribution Agreement, dated November 10, 2000 ("DEVELOPMENT, SUPPLY AND
DISTRIBUTION AGREEMENT"). Except as otherwise modified in this First Amendment,
defined terms used herein shall have the same meanings given to them in the
Development, Supply and Distribution Agreement.
B. CEL-SCI and Orient Europharma now desire to amend the Development, Supply and
Distribution Agreement as set forth in this First Amendment.
THEREFORE, for valuable consideration, the receipt and adequacy of which
are hereby acknowledged, CEL-SCI and Orient Europharma hereby agree to amend the
Development, Supply and Distribution Agreement as follows:
1. Modifications to Development, Supply and Distribution Agreement.
(a) Definitions. Section 1. m. relating to the definition of the
territories covered in the Development, Supply and Distribution
Agreement is deleted and the following language is substituted
therefore:
1. m. "Territory shall mean Taiwan, Singapore, Malaysia, Hong
Kong, The Philippines, South Korea, Australia and New Zealand.
CEL-SCI grants to Orient Europharma the first right of
negotiation with respect to country-regionThailand and
placecountry-regionChina."
2. As valuable consideration for this amendment Orient Europharma
agrees to purchase $500,000 worth of CEL-SCI common stock
directly from CEL-SCI within one week of signing this First
Amendment. The price of the stock to be paid by Orient Europharma
will be the average of the CEL-SCI common stock closing prices
listed on Yahoo Finance of the 30 trading days preceding the
Effective Date of this First Amendment.
3. CEL-SCI and Orient Europharma confirm that Orient Europharma will
be responsible for * of the costs of CEL-SCI's advanced primary
head and neck cancer Phase III trial with Multikine approved by
the FDA.
* Confidential treatment requested. Confidential portion has been omitted and
filed separately with the Securities and Exchange Commission.
<PAGE>
4. Neither party shall publish financial details related to revenue
sharing and Orient Europharma's participation in the Phase III
clinical trial covered in the First Amendment to the Development,
Supply and Distribution Agreement and, as far as possible, the
November 10, 2000 Agreement. Notwithstanding the foregoing, each
party may disclose the existence and terms of this Agreement as
necessary for filings with the U.S. Securities Exchange
Commission or a nationally recognized securities exchange;
provided, that such party informs the other party prior to
publication.
5. Conflicts. If any conflict between this First Amendment and the
Development, Supply and Distribution Agreement should arise, the
terms of this First Amendment shall control.
6. Successor and Assigns. This First Amendment shall be binding upon
and inure to the benefit of the successors and assigns of the
respective parties hereto.
7. Counterparts. This First Amendment may be executed in multiple
counterparts, each of which shall be deemed an original, but all
of which shall together constitute a single instrument.
The parties have executed this First Amendment as of the date first written
above.
CEL-SCI: ORIENT EUROPHARMA:
CEL-SCI Corporation, Orient Europharma Co. Ltd.,
a Colorado, USA, company a Taiwanese corporation
By: /s/ Geert R. Kersten By: /s/ H.T. Stiftl
------------------------------ -------------------------------
Name: Geert R. Kersten Name: H.T. Stiftl
------------------------------ -------------------------------
Title: Chief Executive Officer Title: Managing Director
--------------------------- -------------------------------
3
<PAGE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>4
<FILENAME>exh10n11-10.txt
<DESCRIPTION>EXHIBIT 10(N)
<TEXT>
EXHIBIT 10(n)
<PAGE>
EXCLUSIVE LICENSE AND DISTRIBUTION AGREEMENT
between
CEL-SCI CORPORATION
a corporation incorporated under the laws of the State of
Colorado, of 8229 Boone Boulevard, Suite 802,
Vienna, VA 22182, USA
("Supplier")
and
TEVA PHARMACEUTICAL INDUSTRIES LTD
a limited liability company incorporated under the laws of
Israel, of 5 Basel Street, Petah Tiqva
49131, Israel
("Teva")
WHEREAS Supplier is developing the Product defined below for approval in the
placecountry-regionU.S. and other countries in the world; and
WHEREAS Teva has the facilities, personnel and technical expertise and
capability to assist in the clinical trials done with the Product, obtain
regulatory approval for the Product, and market and distribute the Product in
the Territory and desires to undertake such activities in accordance with the
terms and conditions of this Agreement; and
WHEREAS Supplier has the know-how and facilities to manufacture or procure the
manufacture the Product and is prepared to supply the Product and to grant to
Teva the right and license to exclusively distribute the Product in the
Territory subject to the terms and conditions set out below.
NOW THEREFORE THE PARTIES AGREE AS FOLLOWS:
1. INTERPRETATION AND DEFINITIONS
1.1. The preamble to this Agreement forms an integral part hereof.
1.2. Clause headings in this Agreement are intended solely for convenience of
reference and shall be given no effect in the interpretation of this
Agreement.
1.3. All appendices to this Agreement, whether attached at the time of signature
hereof or signed by the parties at any time thereafter, shall be construed
as an integral part of this Agreement.
1.4. In this Agreement, the following expressions shall bear the meanings
assigned to them below and cognate expressions shall bear corresponding
meanings.
1.4.1. "Affiliate" - with respect to either party, means any person,
corporation, company, partnership or other entity controlling,
controlled by or under common control with such party. For such
* Confidential treatment requested. Confidential portion has been omitted and
filed separately with the Securities and Exchange Commission.
1
<PAGE>
purpose the term "control" means the holding of 50% or more of the
common voting stock or ordinary shares in, or the right to
appoint 50% or more of the directors of, the said corporation,
company, partnership or entity.
1.4.2. "the Territory" - collectively placecountry-regionIsrael (including
the adjacent territories under its administration and/or the
administration of the Palestinian Authority) and
placecountry-regionTurkey.
1.4.3. "a Country" - individually, any one of the countries forming part of
the Territory.
1.4.4. "the Effective Date" - the date of signature of this Agreement.
1.4.5. "the Regulatory Approval" - the approval by the respective
regulatory authorities, in the Territory, of the marketing,
distribution and sale of the Product, in the Territory.
1.4.6. "the Approval Dates" - with regard to a particular Country, the date
on which the regulatory authorities and all other relevant authorities
in such Country, grant the Regulatory Approvals and all other relevant
authorizations necessary for the importation, promotion, marketing,
distribution and sale of the Product in such Country.
1.4.7. "the Launch Date" - with regard to a particular Country, the date on
which a Product is first commercially sold in such Country.
1.4.8. "the Product" - the finished form pharmaceutical compositions
manufactured in accordance with the Specifications (as defined below)
and described in Appendix A, including any dosage forms and strengths,
drug delivery forms, modifications and/or improvements of such
compositions. Supplier will update Appendix A from time to time during
the term of this Agreement to reflect the addition of any dosage forms
and strengths, drug delivery forms, modifications and/or improvements
of the composition described on Exhibit A as of the date hereof.
1.4.9. "the Substance" - the bulk active ingredient used in the manufacture
of the Product.
1.4.10. "the Field" - the treatment of head and neck cancer in humans.
1.4.11. "Formulation" - the manufacture of the Product utilising, inter
alia, the Substance, on the basis of the Formulation Technology.
1.4.12. "the Formulation Technology" - all of the technological know-how
and expertise required for the Formulation of the Product including
without limitation analytical methodology and controls, the precise
composition of the Formulation of the Product, the working procedure
for the Formulation and all documentation with regard to the
foregoing, as specified in the relevant dossier.
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1.4.13. "the Specifications" - the specifications identified in Appendix B
with regard to the Product, as may be amended from time to time by
Supplier (with written notice to Teva), prior to regulatory approval
in a Country in Supplier's discretion, and following regulatory
approval in a Country, with the agreement of Teva and Supplier which
shall not be unreasonably withheld or delayed. For clarity, any
changes to the Specifications under this Agreement shall not modify
Teva's obligations under the Clinical Trial Agreement.
1.4.14. "Quarter" means a complete period consisting of the months of
January to March, April to June, July to September, and October to
December, all inclusive.
1.4.15. "Information" - any and all information acquired in the course of
the negotiation and performance of this Agreement disclosed by either
party herein, or which either party acquires relating to the business,
finance or trade secrets of the other party.
1.4.16. "GMP" - standards of current Good Manufacturing Practice as laid
down and as accepted from time to time by the United States Food and
Drug Administration and the International Conference on Harmonisation
of Technical Requirements for Registration of Pharmaceuticals for
Human Use (ICH).
1.4.17. "Material Events" events (not within the reasonable control of
either party) which have a significant direct adverse or significant
beneficial impact on the position and/or marketability and/or sales of
the Product in the Territory during a given period or on the parties'
economic interests under this Agreement, such as, for example - but
without limitation:
1.4.17.1. the entry into the market of significant new competing
products or significant therapeutic concepts including
significant generic competition, and/or the cessation of
significant competing products in the market in any Country;
1.4.17.2. the loss of or increase in a significant reimbursive
allowance by a medical insurance fund;
1.4.17.3. significant changes in the social security system in any
Country which affect the upper limit on medical practitioners'
budgets for patient's medication;
1.4.17.4. a change in the specifications of any Substance and/or
Product, resulting in an adverse impact on Supplier's cost of
Formulation of the Product;
1.4.17.5. a significant increase in Supplier's cost of Formulation of
the Product.
1.4.18. "the Material Event Procedure" - the procedure outlined, to be
followed on the occurrence of a Material Event.
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1.4.19. "Net Sales" - the total amount actually received by Teva or its
Affiliates from the arms length sale of the Product, provided that as
to sales other than at arms length, the term "Net Sales" shall mean
the total amount that would have been due in an arms length sale,
according to the then current conditions for such sale or - in the
absence of such current conditions - according to reasonable
conditions for such sale, in all cases after deduction of:
1.4.19.1. sales taxes (including value added taxes) to the extent
applicable to sales of the Product and not collected separately
from the counter-party to such sales; and
1.4.19.2. credits or allowances, if any, actually granted, and
approved by Supplier, on account of price adjustments, recalls,
rejections or return of the Product previously sold; and
1.4.19.3. all shipment, storage, transportation and other direct
administrative expenses required for the distribution of the
Product.
and provided further that as to sales by Teva to its Affiliates, or
between Affiliates of Teva, the terms "Net Sales" shall mean the
higher of (i) "Net Sales" as defined above, with respect to sales
other than at arms length; and (ii) the total amount actually
received by Teva or the Affiliate, on resale to an independent third
party purchaser after the deductions specified in Clauses 1.4.19.1,
1.4.19.2 and 1.4.19.3 above, to the extent applicable.
1.4.20. "Manufacturing Cost" means the actual costs of manufacturing and
supplying Product to Teva under this Agreement, which shall be the sum
of the following costs, all of which shall be calculated on a per-unit
basis and in accordance with placecountry-regionU.S. generally
accepted accounting principles consistently applied:
1.4.20.1. The amounts paid by Supplier to a third party for (i)
providing raw materials and packaging materials for producing the
Product, (ii) storing, transporting, and insuring the Product
(but excluding any transportation or insurance costs for which
Teva is responsible), (iii) release testing of the Product, and
(iv) taxes (other than income taxes) and customs duty charges
imposed by governmental authorities with respect to the
manufacture or supply of the Product, in each case to the extent
paid by Supplier and not reimbursed or refunded or credited to
Supplier, and net of any discounts or other benefits received by
Supplier from third party manufacturers that provide goods or
services to Supplier with respect to Product; and
1.4.20.2. The direct costs and charges incurred by Supplier in
connection with the manufacture, filling, finishing, testing,
labeling, packaging, storage, release, shipping and
transportation of the Product (but excluding any shipping,
transportation or insurance costs for which Teva is responsible).
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Notwithstanding the foregoing, no cost, charge, or expense will be
included in more than one of Clauses 1.4.20.1 and 1.4.20.2.
1.4.21. "Supplier House Mark" means any trademark, trade name, domain name,
or other name or mark used or registered by Supplier or its Affiliate
to identify itself at any time during the term of this Agreement.
1.4.22. "Product Trademark" means any trademark, trade dress (including
packaging design), logo, slogan, domain name and design, whether or
not registered in a country or territory, selected in writing and
owned by Supplier and used to identify or promote the Product.
2. APPOINTMENT OF DISTRIBUTOR, DURATION
2.1. Subject to the terms of this Agreement, Supplier hereby grants Teva the
sole and exclusive right and license to market, distribute and sell the
Product for the Field in the Territory and in accordance with the terms of
this Agreement, and Teva accepts such right and licence. Teva may not
sublicense or delegate such right except in accordance with the terms of
Clause 24 below.
2.2. This Agreement shall commence on the date hereof and unless terminated
earlier in accordance with Clause 11 below, shall continue in each Country
comprising the Territory, on a Product-by-Product basis, for an initial
fixed term of ten (10) years from the Launch Date of each Product in the
Country respectively. Without derogating from Clause 11, such initial term
shall be renewed automatically, for additional successive terms of two (2)
years each, unless either party provides the other with written notice, by
not later than six (6) months before the scheduled commencement of any
such renewal term, not to renew this Agreement in the relevant Country,
either as a whole or with regard to any particular form or composition of
the Products.
2.3. Following the Launch Date of a Product, Teva shall be entitled at any time
in its reasonable discretion to cease selling such Product in the
Territory or in any one or more Countries comprising the Territory, for
reasons of (i) medical safety, (ii) on legal or regulatory grounds or
(iii) in the event that the Product, in any dosage form thereof, cannot be
sold at a price which will facilitate Teva being able to show a profit
(section 2.3(iii) shall be referred to as "Commercial Reasons"); provided
that, Teva has notified Supplier in writing six (6) months in advance of
its intention to cease sales of the Product in any specific Country for
Commercial Reasons or has notified Supplier in writing as soon as
practical for all other reasons. Promptly following such cessation, the
parties shall meet and in good faith discuss the reasons for such
cessation and the modifications, if any, to this Agreement to address the
cause of such cessation. If such cessation due to Commercial Reasons
continues for at least six (6) months in a Country, then Supplier shall
have the right to terminate this Agreement solely with respect to the
affected Country upon sixty (60) days' prior written notice to Teva.
3. REGISTRATION
3.1. Teva shall file applications for, obtain, and maintain the Regulatory
Approvals with regard to each Product by the regulatory authorities in the
Territory; provided, that to the extent permitted by applicable laws in
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the Territory, Supplier will provide any chemistry, manufacturing and
control information and clinical results necessary to obtain such
Regulatory Approvals directly to the relevant authorities. Such
applications shall be filed by Teva as soon as possible after the US/EU
Launch Date (as defined below), and by not later than six (6) months after
compliance by Supplier with Clauses 3.2 and 3.3 below; provided, that if
Teva can show that the preparation of registration dossiers of an
acceptable standard, on the basis of the documentation and information to
be received by it pursuant to this Agreement will require more than six
(6) months of preparation, then such period will be extended for such time
as reasonably necessary to prepare such dossiers. All Regulatory Approvals
shall be held by Teva in its name or the name of its nominee, and Teva
shall be the owner thereof, subject to the terms and conditions of this
Agreement. Teva shall fund the cost of procurement of the Regulatory
Approvals. Teva agrees to comply in all respects with all applicable laws,
legislation and/or regulations in the Territory in force from time to
time. "US/EU Launch Date" means, with respect to a Product, the earlier
of: (i) the date on which Supplier has first sold such Product in the
placecountry-regionU.S.A. following the receipt of marketing approval of
the regulatory authorities in the U.S.A and, (ii) the date on which
Supplier has first sold such Product in the European Union following the
receipt of marketing approval of the regulatory authorities in the
European Union (either through the centralized EMEA approval procedure or
through the national approval procedures of any of the following
countries: placecountry-regionFrance, placecountry-regionGermany,
placecountry-regionItaly, placecountry-regionSpain, or the
placecountry-regionUnited Kingdom).
3.2. Within thirty (30) days of the US/EU Launch Date for a Product, Supplier
will provide Teva with such documentation as may be required by Teva for
the purposes described in Clause 3.1 above, including without limitation
the product registration dossier/s with regard to such Product.
3.3. Within thirty (30) days of the US/EU Launch Date for a Product, Supplier
shall make available to Teva, and Teva shall have the right to utilise for
the purposes described in Clause 3.1 above, within the Territory only, all
clinical data in Supplier's possession or control with regard to such
Product, and any regulatory submissions for the Product; provided, that
Supplier shall not be obligated to provide such data or submissions to
Teva if such action would violate any obligations of confidentiality and
non-use that may be imposed on Supplier by its third party collaborators
with respect to data or submissions generated by such third parties.
Supplier shall use its reasonable efforts to cause such third party
collaborators to agree to the open exchange of such data and submissions
among Supplier and its various collaborators throughout the world for the
purposes of obtaining Regulatory Approval of the Product. For clarity,
clinical data and regulatory submissions generated by Supplier itself
shall be made available to Teva pursuant to this Clause 3.3 in any event.
4. TEVA'S UNDERTAKINGS
Teva undertakes and agrees with effect from the Effective Date and at all
subsequent times during the term of this Agreement:
4.1. to use all reasonable endeavours to seek regulatory approval for, market
and sell the Product in the Territory at its own cost and expense and
subject to the terms and conditions of this Agreement, subject to the
conditions set out in Clause 10, except where expressly agreed otherwise in
writing;
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4.2. to maintain adequate facilities at all times, including competent and
experienced personnel and officers, and where required, storage and
distribution facilities, to enable Teva to perform its obligations under
this Agreement, including the management of all customer relationships,
complaints, and returns;
4.3. to purchase (and cause its Affiliates to purchase) the Product only from
Supplier for the Territory;
4.4. to inform Supplier from time to time of any matter in the Territory likely
to affect, significantly, the Formulation and/or promotion, marketing and
sale of the Product, including any alleged infringement of third party
intellectual property rights;
4.5. to use reasonable endeavors to prevent any sale, supply and/or export of
the Product to customers outside the Territory by Teva or its customers;
4.6. to inform Supplier of any complaints or information relating to the use or
quality of the Substance or the Product or of any matter that may give
rise to a product recall (as described in greater detail in the
Pharmacovigilance Agreement referenced in Clause 13), but subject to the
requirements of law or the regulatory authorities in the Territory, not to
take any action with regard thereto without obtaining Supplier's prior
written consent, such consent to be provided promptly and not unreasonably
withheld by Supplier; and
4.7. not to make any promise or guarantee or representation whatsoever with
reference to the Product beyond those contained in the material supplied
by, or approved in writing by, Supplier without Supplier's prior written
consent.
5. SUPPLIER'S UNDERTAKINGS
Supplier undertakes and agrees with Teva with effect from the Effective Date and
at all subsequent times during the term of this Agreement:
5.1. to maintain the timely supply of the Product (as may be decided by the
parties during the terms of this Agreement) for sale by Teva according to
the forecasts provided by Teva and agreed by Supplier;
5.2. to supply Teva with the Product in finished form, labeled and packed in
accordance with the Specifications, GMP, the requirements of the
regulatory authorities of the placecountry-regionU.S.A. and European
Union, as applicable, and the terms and conditions of this Agreement. In
addition, the Product's labeling for the Territory shall be prepared in
accordance with Teva's written requirements for compliance with Teva's
requirements (subject to Supplier's consent which shall not be
unreasonably withheld or delayed) and the regulatory requirements in the
Territory;
5.3. to use reasonable endeavors to manufacture Product in accordance with any
special regulatory requirements for the Territory as may be identified by
Teva in writing from time to time;
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5.4. to use reasonable endeavors to prevent parallel import and to prevent any
sale, supply and/or import of the Product to the Territory by third
parties;
5.5. to provide Teva with any and all reasonable assistance required for the
marketing and distribution of the Product (in each case, to the extent
available to the Supplier), including without limitation, information,
publications, marketing materials (as described in greater detail in
Clause 17.2 below) and new developments regarding the Product, commercial
activities and any other information which might be relevant for the
marketing and distribution of the Product; and
5.6. to bear all costs associated with product recalls, other than recalls
initiated as a result of actions directly attributable to Teva's gross
negligence or willful misconduct; and
5.7. to inform Teva as soon as is practical of any changes in Supplier's
organization or method of doing business which might affect the carrying
out by Supplier of its duties hereunder.
6. FORECASTS AND ORDERS; AUDITS
6.1. As soon as practicable after execution of this Agreement and in any event
by not later than the date one hundred and twenty (120) days prior to the
anticipated Approval Date for either Country in the Territory, Teva shall
submit to Supplier a forecast of its requirements of the Product for the
first four Quarters immediately following the then anticipated Launch
Date. At least one hundred and twenty (120) days before the commencement
of each subsequent Quarter, Teva shall submit to Supplier an updated
forecast of its requirements of the Product for the next four Quarters.
Such forecasts shall be Teva's best estimate but shall not be binding,
save as set out in Clause 6.2. Supplier may review and accept or modify
any such forecasts submitted by Teva within ten (10) days of such
submission and will inform Teva if the forecasted amounts of Product are
likely to exceed Supplier's available capacity and inventory for the
forecasted period. After the initial forecast, for each subsequent
forecast the second quarter in such forecast (i.e., the quarter which is
now binding but was in the most recent prior forecast considered to be
non-binding) may not vary (either up or down) by more than fifty percent
(50%) from the amounts forecasted to be ordered for such period in the
most recent prior forecast submitted by Teva, except with the consent of
Supplier.
6.2. The forecast for the first Quarter referred to in Clause 6.1 and the first
Quarter of each updated estimate submitted pursuant to Clause 6.1 above
shall constitute a binding order by Teva. Teva may order amounts of
Product in excess of the amounts forecast for such Quarter, and Supplier
shall use commercially reasonable efforts to supply any such additional
amounts ordered; provided, that Supplier shall be under no obligation to
accept purchase orders for amounts exceeding one hundred twenty percent
(120%) of the amount forecast for such Quarter. The quantities indicated
for the remaining months of each rolling forecast will be treated as a
forecast only and will not create any obligations for either Party.
6.3. All Product ordered under this Agreement shall be pursuant to written
purchase orders, each of which shall specify the quantity of clinical
and/or commercial Product ordered and the requested delivery date. Teva
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shall submit each such purchase order to Supplier no later than one
hundred and twenty (120) days prior to the delivery date indicated in such
purchase order. Any purchase orders for Product submitted by Teva shall
reference this Agreement and shall be governed exclusively by the terms
contained herein, and shall be consistent with the terms of this
Agreement, including this Article 6. Any term or condition in any order,
confirmation or other document furnished by Teva or Supplier that is in
any way inconsistent with the terms and conditions of this Agreement is
hereby expressly rejected. Orders placed by Teva shall be subject to
acceptance by Supplier. Supplier will provide Teva with written notice of
acceptance of all orders, within ten (10) business days of the placement
thereof (for those binding forecasts accepted as described in Clause 6.1
above), save in the case of any excess orders (as described in Clause 6.2
above) or Supplier being unable, for objective good cause which is not due
to the Supplier's act and/or omission (and not due to a lack of capacity),
to fulfill any order in whole or in part.
6.4. Risk and title to the Product shall pass to Teva when such Product is
tendered to the carrier at the designated point for shipment by air
transport from the placecountry-regionUnited States of America (FCA,
Incoterms 2000). In addition, Supplier shall be in charge of arranging for
the shipment and insurance (and paying for such amounts) of the Products
to Teva's designated customs point in Israel. Teva shall reimburse
Supplier for such amounts promptly upon submission of an invoice for such
payments and shall be entitled to deduct such amounts paid from the Net
Sales.
6.5. In the event that Supplier is unable to supply all orders on time,
Supplier agrees to provide Teva with order status reports at least once a
week in a format to be agreed. Such reports shall document the
manufacturing capacity of Supplier at the date of each respective report,
the stages which Supplier is taking to return to timely deliveries, and
the anticipated date of delivery of all outstanding orders, as well as any
other information which Teva may reasonably require at such time.
6.6. Upon written request to Supplier, Teva shall have the right no more than
once per calendar year to have representatives visit the manufacturing
facilities of Supplier during normal business hours to review
manufacturing operations, to assess its compliance with GMP and quality
control procedures, and to discuss any related issues with Supplier's
manufacturing and management personnel. During the term of this Agreement,
Supplier shall permit any regulatory authority from the
placecountry-regionU.S.A., European Union or Territory which wishes to
audit such facilities to do so, in order to ensure compliance by Supplier
with the quality standards referred to above.
6.7. If Supplier's output of Product is reduced or if Supplier is otherwise
unable to satisfy its outstanding orders of Product (e.g., due to
unanticipated demand), Supplier shall satisfy any of Teva's outstanding
binding purchase orders by allocating its available supply among Teva,
Supplier's other customers, and Supplier's own requirements for sale in
territories retained by Supplier in a fair and equitable manner as
reasonably determined by Supplier, and in accordance with each such
recipient's pro rata share of Product sales during the previous four (4)
Quarters. The allocation mechanism described in this Clause 6.7 will not
derogate from Teva's rights or remedies under this Agreement with respect
to ordered quantities of Product that are not delivered by Supplier in
accordance with the terms of this Agreement.
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7. PRICE AND TERMS OF PAYMENT
7.1. Participation in clinical trials: Teva shall take upon itself, at its
cost, the performance of certain activities related to the conduct of a
clinical trial in placecountry-regionIsrael, as part of a global Phase 3
trial for the Product, as described in further detail in the clinical
trial agreement attached to this Agreement as Appendix D (the "Clinical
Trial Agreement"). For the avoidance of doubt, any obligation of a party
under the Clinical Trial Agreement shall be treated as an obligation under
this Agreement.
7.2. Price: The amounts to be paid by Teva to Supplier in connection with the
supply of Product shall be as follows:
(a) for supplies of Product to be used for the conduct of activities
under the Clinical Trial Agreement, a service charge for providing the
Product equal to **** ******* *** ***** ***** US Dollars per vial of
Product (as described in the Specifications); and
(b) for all other supplies of Product, the greater of: (i) * percent
of the Net Sales of such Product, and (ii) * percent (*%) of Supplier's
Manufacturing Cost for such quantity of Product.
7.3. With every delivery of the Product to Teva, Supplier shall send Teva an
invoice. For commercial supplies of Product, the initial transfer price
for each unit of Product shall be based upon the average Net Sales per
unit as described in the latest Sales Certificate (defined below). All
payments shall be made within thirty (30) days from the last day of the
month in which the invoice was issued, in a manner of a bank transfer to a
bank account number, provided by Supplier to Teva sufficient time in
advance of such bank transfer.
7.4. Within thirty (30) days of the end of each Quarter, Teva shall prepare and
deliver to Supplier a certificate ("the Sales Certificate") setting out
details of the Net Sales of the Product by Teva during the relevant
Quarter, including the gross sales price and any deductions described in
the definition of Net Sales. Notwithstanding the foregoing, Teva shall
prepare and deliver the first placeCitySales Certificate together with its
first order of Products for non-clinical use. All Sales Certificates for
periods prior to the Launch Date will include Teva's reasonable non
binding estimate of the anticipated sales price and relevant deductions.
7.5. At the end of each calendar year, Teva will prepare a summary of the
previous year's Net Sales and will calculate the payments already paid by
Teva and a true-up payment will be made by the applicable party in order
to reconcile the amounts paid with the purchase prices described in Clause
7.2.
7.6. To the extent that sales are effected by Teva, other than in United States
Dollars, Teva shall convert the sum of such sales into US Dollars in
accordance with the selling rate for such currency quoted in the Wall
Street Journal last published on the business day on which Teva remits
payment to Supplier.
7.7. Teva shall keep full and true books of account and other records in
accordance with generally accepted accounting practice in
Israel so that details of sales of the Product, and
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Teva's payment obligations in respect thereof, may be properly
ascertained. Teva shall preserve such books and records for three (3)
years after the calendar year to which they pertain. Such books and
records shall be open to inspection by an independent certified public
accountant selected by Supplier, and subject to confidentiality
obligations as strict as in this Agreement, at Supplier's expense, during
normal business hours upon ten (10) business days' prior written notice,
for the purpose of verifying the accuracy of the reports and computations
rendered by Teva. In the event Teva underpaid the amounts due to Supplier
with respect to the audited period by more than five percent (5%), Teva
shall pay the reasonable cost of such examination, together with the
deficiency not previously paid, within thirty (30) days of the last day of
the month of the date of receipt of notice from Supplier.
7.8. Other than V.A.T. and comparable taxes, all payments by Teva are inclusive
of all taxes and/or duties, of whatsoever nature, which are now or may
hereafter be imposed with regard to any such payments, including without
limitation withholding taxes.
8. WARRANTY AND INSPECTION
8.1. Supplier warrants that at the time of delivery, the Product shall meet the
Specifications.
8.2. At the time of delivery of each consignment of the Product, Supplier shall
deliver a Certificate of Analysis showing that the relevant Product
conforms to the Specifications.
8.3. Teva may elect to inspect each consignment of the Product within forty
five (45) days of receipt of the Certificate of Analysis from Supplier.
8.4. In the event that the Product is shown by Teva to be not in accordance
with Specifications on receipt, or if there is a shortfall in the number
of the Product contained in the delivered consignment, then Teva shall
notify Supplier to this effect no later than sixty (60) days after receipt
of the Product in question. If no such notice of rejection is received by
Supplier within such sixty (60) day period, Teva shall be deemed to have
accepted such shipment of Product, except with respect to any Latent
Defect, as defined below. Once Teva accepts, or is deemed to have
accepted, a shipment of Product, Teva shall have no recourse against
Supplier under this Clause 8 if the Product is subsequently deemed
unsuitable for use for any reason, except with respect to any Latent
Defect. If Supplier disagrees with Teva's determination that certain
Product does not meet the Specifications, such Product shall be submitted
to a mutually acceptable third party laboratory. Such laboratory shall
determine whether such Product meets the Specifications, and the Parties
agree that such laboratory's determination shall be final and
determinative. The Party against whom the third party laboratory rules
shall bear all costs of the testing. If such laboratory determines or the
Parties agree that such shipment meets the Specifications, then such
shipment shall automatically be deemed to have been accepted by Teva, and
Teva shall pay the purchase price for the quantities of Product initially
rejected by Teva. As used in this Clause 8.4, "Latent Defect" means any
Product defect, including without limitations, non-conformity with the
Specifications that could not have been revealed by Teva's visual
inspection of Product or upon inspection of the corresponding Certificate
of Analysis.
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8.5. In the event that Supplier agrees, or the third party laboratory
determines, that a shipment of Product contains non-conforming goods or a
shortfall, then Supplier shall replace, at its own cost and expense, the
defective quantity, or make up the shortfall as the case may be or, at its
option, allow Teva credit for the defective quantity or shortfall,
whichever is appropriate.
8.6. Supplier hereby represents and warrants that, to its actual knowledge as
of the Effective Date the manufacture, use or sale of the Product in the
Territory as contemplated in this Agreement and Teva's activities in
connection with this Agreement will not constitute an infringement of the
intellectual property rights of any third party. In the event that either
party is made aware of any infringement, as mentioned above, it will
notify the other party of such fact immediately.
8.7. THE EXPRESS WARRANTIES IN THIS CLAUSE 8 ARE IN LIEU OF ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
NON-INFRINGEMENT, OR NON-MISAPPROPRIATION OF THIRD PARTY INTELLECTUAL
PROPERTY RIGHTS, AND EACH PARTY HEREBY EXPRESSLY DISCLAIMS ALL OTHER
WARRANTIES WITH RESPECT TO THE PRODUCT.
9. NO REPRESENTATIONS BY TEVA REGARDING THE PRODUCT
Teva shall make no statement, representation or warranty, oral or written,
concerning the Product beyond, inconsistent with or contrary to the Product
labelling, promotional materials or other information or representation made by
Supplier to Teva or any other third party. From time to time, Teva shall provide
Supplier with copies of such promotional materials to enable Supplier to verify
Teva's compliance with the terms of this Clause 9.
10. MATERIAL EVENTS
10.1. In the event that either of the parties is of the opinion that a
Material Event has occurred such party shall be entitled to provide
the other party with written notice ("Material Event Notice") setting
out: 10.1.1. that such Material Event has occurred;
10.1.2. a reasonable description of the nature of such Material Event and
the potential consequences thereof;
10.1.3. proposals as to how to react and possible need for modifications to
the contractual obligations of the parties as a result of such
Material Event.
10.2. As soon as reasonably possible after receipt of a Material Event Notice,
but within not more than thirty (30) days of receipt thereof, the
recipient of the Material Event Notice shall provide the sender of such
notice with its written reaction to the Material Event Notice in which the
said recipient shall set out any counter-proposals it may have to the
proposals of the sender of the Material Event Notice.
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10.3. Within not more than sixty (60) days of delivery of the Material Event
Notice, the parties shall meet in order to review, jointly, in good faith,
the Material Event and the respective proposals of the parties, as well as
in order to negotiate, in good faith, the possible modification, if any,
of the parties' contractual obligations required by such Material Event.
10.4. Notwithstanding anything to the contrary in this Agreement, if the
Material Event relates to a requirement by a regulatory authority for
additional clinical trials or activities other than those included in
Supplier's regulatory submissions for the Product in the U.S.A. and
European Union, then Teva shall have the option to (i) have the parties
meet in order to review, jointly, in good faith, the Material Event and
the respective proposals of the parties, as well as in order to negotiate,
in good faith, its possible solutions, or (ii) terminate this Agreement
upon sixty (60) days' written notice with respect to the Countries
affected by such Material Event. If the good faith negotiations described
in clause (i) above do not result in a mutually agreeable solution to the
Material Event within one hundred and twenty (120) days after the start of
such negotiations, or such longer term as agreed upon by the parties in
writing, then either party may terminate this Agreement upon thirty (30)
days' written notice with respect to the countries affected by such
Material Event. For clarity, until the parties reach mutual understanding,
neither party will be obligated to perform the additional activities
required by a regulatory authority for approval in the Territory.
11. TERMINATION
11.1. Without prejudice to any other rights to which it may be entitled, either
party may give notice in writing to the other terminating this Agreement
if:
11.1.1. the other party is in breach of any of the material terms hereof
and (if such breach is remediable) fails to remedy such breach within
sixty (60) days of that party being notified of such breach; or
11.1.2. the other party admits or is declared insolvent or voluntary or
involuntary proceedings is instituted by or against it in bankruptcy,
or receivership, or for a winding-up or for the dissolution or
re-organisation of its assets; provided, in each case, that such
proceedings are not dismissed within ninety (90) days.
11.2. Supplier may terminate this Agreement with respect to a particular Country
as described in Clause 2.3 following Teva's cessation of Product sales in
such Country.
11.3. Teva may terminate this Agreement as described in Clause 24 in the event
of certain assignments of this Agreement by Supplier.
12. EFFECTS OF TERMINATION
12.1. Termination or expiration of this Agreement howsoever caused shall be
without prejudice to any other rights or liabilities accrued at the date
of termination or expiration (including without limitation Teva's
obligation to pay to Supplier sums due in respect of firm orders of
Product submitted prior to termination or expiration of this Agreement).
13
<PAGE>
12.2. Upon termination or expiration of this Agreement, Teva shall promptly
notify Supplier of the quantities of the Product held by it in its
inventory. Teva shall be permitted to sell and distribute the Product in
its inventory for a period of six (6) months following such termination or
expiration, on the basis that the rights and obligations of the parties
under this Agreement shall continue to apply to such sales of Product.
12.3. Upon termination or expiration of this Agreement, subject to Teva's rights
under Clause 12.2 above, Teva shall transfer to Supplier or its designee,
at Supplier's expense, all materials, documentation, regulatory filings,
marketing approvals, and other items as are reasonably necessary for
Supplier to continue the development and sale of each Product in the
Territory. The assignment to Supplier of any intellectual property
generated during the course of Teva's performance of clinical activities
pursuant to the clinical trial agreement shall be made pursuant to such
agreement.
12.4. The provisions of Clauses 12, 13, 14, 16, 19, and 28 shall survive the
termination or expiration of this Agreement. The Clinical Trial Agreement
shall survive the expiration or termination of this Agreement in
accordance with the terms thereof. For clarity, any termination of the
Clinical Trial Agreement under Section 8.3 of the Clinical Trial Agreement
shall not terminate this Agreement.
13. ADVERSE EFFECTS AND RECALLS
13.1. Each party shall execute the Pharmacovigilance Agreement attached hereto
as Appendix C, which agreement shall take effect upon the recipient of
first regulatory approval of the Product in a Country of the Territory.
14. LIABILITY AND CROSS-INDEMNIFICATIONS
14.1. Supplier shall indemnify and hold Teva, its Affiliates, and the officers,
directors and employees of each of them, harmless from any and all
liability, including liability for death or personal injury and reasonable
attorney's fees, to the extent resulting from a third party claim of
negligence or willful misconduct of Supplier with regard to the Substance
and/or Product and/or Product Trademarks, including without limitation,
the manufacture, packaging, delivery and/or supply of the Product.
14.2. Teva shall indemnify and hold Supplier, its Affiliates, and the officers,
directors and employees of each of them, harmless from any and all
liability, including liability for death or personal injury and reasonable
attorneys fees, to the extent resulting from a third party claim of
negligence or willful misconduct of Teva with regard to the promotion and
marketing of the Product and the sale and distribution of the Product.
14.3. In the event that the negligence of Teva, on the one hand, and Supplier,
on the other hand, contributes to any loss, cost, damages, claim or
14
<PAGE>
expense relating to the Substance and/or Product supplied and/or
distributed or sold hereunder, then Teva, on the one hand, and Supplier,
on the other hand, shall be responsible for that portion of the loss,
cost, damages, claim or expense to which its negligence contributed.
14.4. Each party seeking indemnification hereunder (the "Indemnified Party")
will inform the other party (the "Indemnifying Party") in writing
immediately or as soon as possible of any claim which may be brought
against the indemnified party as set out above; provided, the failure to
provide such notice within a reasonable period of time shall not relieve
the Indemnifying Party of any of its obligations hereunder except to the
extent the Indemnifying Party is prejudiced by such failure. The
Indemnified Party shall cooperate with the Indemnifying Party and its
legal representatives, at the Indemnifying Party's expense, in the
investigation, negotiation, compromise, settlement and defense of any
action, claim or other matter covered by this indemnification. The
Indemnifying Party shall be in charge of and control any such
investigation, negotiation, compromise, settlement and defense and shall
have the right to select counsel with respect thereto, provided that the
Indemnifying Party shall promptly notify the Indemnified Party of all
developments in the matter. In no event shall the Indemnifying Party or
Indemnified Party compromise or settle any such matter without the prior
written consent of the other Party, which shall not be bound by any such
compromise or settlement absent its prior consent, which shall not be
unreasonably withheld or delayed. The Indemnified Party shall have the
right, but not the obligation, to be represented by counsel of its own
selection and at its own expense.
14.5. Nothing herein contained shall require an Indemnifying Party to carry out
any unlawful act or omission or which may lead to a judgment by default
being entered or executed against the Indemnifying Party.
14.6. Following the earliest Approval Date, Supplier agrees to maintain at its
expense sufficient product liability insurance in an amount not less than
* US dollars. Each party agrees to maintain all other insurances
reasonably necessary to provide sufficient cover for its legal and
statutory liabilities and any liabilities arising from this Agreement and
all insurable risks following use of the Substance and/or the Product and
to provide the other party with proof of such insurance upon written
request.
14.7. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY UNDER THIS
AGREEMENT FOR INCIDENTAL, SPECIAL, CONSEQUENTIAL, INDIRECT, OR PUNITIVE
DAMAGES, INCLUDING, BUT NOT LIMITED TO, ANY CLAIM FOR DAMAGES BASED UPON
LOST PROFITS; PROVIDED, HOWEVER, THAT THIS LIMITATION WILL NOT LIMIT OR
RESTRICT THE INDEMNIFICATION RIGHTS OR OBLIGATIONS OF EITHER PARTY FOR
THIRD PARTY CLAIMS UNDER THIS CLAUSE 14 OR DAMAGES AVAILABLE FOR WILLFUL
OR INTENTIONAL BREACH BY EITHER PARTY OF THE CONFIDENTIALITY OBLIGATIONS
IN CLAUSE 16.
15. OTHER ACTIVITIES
15.1. Clinical Trial: As described in Clause 7.1 above, the parties agree and
undertake to enter into a clinical trial agreement with regard to a global
clinical trial of the Product, part of which will be conducted in
placecountry-regionIsrael. The Clinical Trial Agreement shall be attached
to this Agreement and, except as expressly described herein, shall be
considered an irrevocable part of this Agreement.
15
<PAGE>
15.2. New Developments: Supplier shall inform Teva in writing if Supplier
initiates the clinical development of the Product for oncology indications
outside the Field (the "Development"). Teva shall have sixty (60) days
following receipt of such notice to inform Supplier of Teva's desire to
enter into an agreement to participate in the clinical trial and
distribution of the Product in such indications. If Teva provides such
notice, then the parties will begin discussions in good faith on the terms
and conditions of such participation and distribution, based on this
Agreement (including, without limitation, a section requiring Teva to fund
certain clinical trial activities, similar in spirit to the Clinical Trial
Agreement). The parties will agree to a number of patients as reasonable,
as required by the trial design and in accordance with the expected market
size and sales of the new Development.
16. CONFIDENTIALITY
16.1. Both parties agree and undertake that during the term of this Agreement
and thereafter, they shall keep confidential any and all Information
acquired in the course of the negotiation and performance and disclosed by
the other party hereunder, or which they acquire relating to the business,
finances or trade secrets of the other party and shall not disclose the
same or any part thereof to any third party.
16.2. Teva shall only use the Information for the purpose of the registration,
promotion, marketing and sale of the Product under this Agreement
(including any related trademarks or trade names). Supplier shall only use
Teva's Information for the purpose of performing its obligations under
this Agreement.
16.3. Both parties shall ensure that the Information is made available only to
the minimum number of its employees as reasonably necessary to perform its
obligations under this Agreement, and those consultants who have
undertaken in writing to preserve its confidentiality. The parties shall
make the employees and consultants aware of its obligations of
confidentiality under this Agreement and shall at all times procure
compliance by such employees and consultants thereunder.
16.4. The restrictions on use and disclosure of the Information hereunder shall
not apply to that part of the Information which either party is able to
demonstrate to the other:
16.4.1. is lawfully in the possession of the party receiving such
Information prior to the time of disclosure;
16.4.2. is, at the date of disclosure, public knowledge or becomes public
knowledge other than by the action of the party receiving such
information;
16.4.3. becomes available to the party receiving such Information from a
third party source and, to the best of the receiving party's
knowledge, was other than by reason of a breach by a party of its
obligations hereunder or a breach by any third party of an obligation
of confidentiality;
16
<PAGE>
16.4.4. the disclosure of which is necessary or desirable to enable either
party to implement the provisions of this Agreement effectively,
provided that either party must specify details of the Information it
wishes to disclose and subject to third party's obligation to sign a
confidentiality agreement with terms at least as restrictive as in
this Agreement and obtain the other parties written consent to any
such disclosure, such consent shall not be unreasonably withheld;
16.4.5. that the information disclosed or used was independently developed
by the receiving party without reliance on the Information.
16.5. Notwithstanding the terms of Clauses 16.1 and 16.3, a party may disclose
Information of the other party to the extent such disclosure is required
under any law or regulation (including the regulation of any nationally
recognized securities exchange in accordance with the terms of Section
16.7); provided, that the minimum amount of information required to be
disclosed for the purposes of compliance with the said law or regulation,
shall be disclosed; and provided, further, that the party subject to such
requirement has, if legally permitted, informed the other party of such
requirement and, to the extent reasonably possible, permitted such other
party to seek confidential treatment or similar protection for such
Information.
16.6. On or after the Effective Date of this Agreement, at a mutually agreed
time, Supplier will issue a mutually agreed press release announcing the
existence of this Agreement, in the form, substance and schedule to be
mutually agreed upon by both parties in advance, and attached hereto as
Appendix E.
16.7. Neither party shall (i) publish, in whole or in part, information
regarding the existence or terms of this Agreement or (ii) use the other
party's name in any publication, except as otherwise approved in writing
by the other party. Notwithstanding the foregoing, each party may disclose
the existence and terms of this Agreement as necessary for filings with
the U.S. Securities Exchange Commission or a nationally recognized
securities exchange; provided, that such party informs the other party
prior to publication and receive the other parties approval (which shall
not be unreasonably withheld or delayed) and such party uses its
reasonable efforts to obtain confidential treatment for portions of this
Agreement as available, consults with the other party in connection with
such confidential treatment request, and permits the other party to
participate, to the greatest extent practicable, in seeking a protective
order or other confidential treatment. Teva shall use best efforts to
approve any such submission by Supplier within one (1) business day. The
publication of clinical data shall be subject to separate terms set forth
in the Clinical Trial Agreement
16.8. The provisions of this Clause 16 shall survive the expiration or
termination of this Agreement for any reason, for a period of ten (10)
years after such expiration or termination for any other Information.
17. TRADEMARKS
17.1. Supplier will select all Product Trademarks for use on or in connection
with Products, will be the sole owner of the Supplier House Marks and
Product Trademarks, will be responsible for the filing, prosecution,
maintenance and defense of all registrations of such trademarks, and will
17
<PAGE>
be responsible for the payment of any costs relating to filing,
prosecution, maintenance and defense of such trademarks. Supplier shall
grant Teva a license to use such Product Trademarks and Supplier House
Marks solely for the marketing and distribution of the Products in the
Territory under this Agreement.
17.2. In the performance of this Agreement, Teva shall display such of
Supplier's trademarks and copyrighted material as approved by Supplier for
the Product. Any such use shall be in conformity with Supplier's written
instructions for the appearance and use of same. Teva shall provide
Supplier with exemplars and/or representative samples of any promotional
materials containing any Product Trademark or Supplier House Mark, prior
to using or disseminating such materials. Supplier shall have the right to
make reasonable objections to any such materials within ten (10) days of
its receipt of such copies on the grounds that Supplier believes in good
faith that the use of such materials will damage the reputation for
quality associated with the marks. Teva shall modify such promotional
materials in accordance with any such objections of Supplier. If no such
objections are received within the ten (10) days timeframe, the material
will be deemed accepted by Supplier. Teva's use of any Supplier House
Marks or Product Trademarks shall not give Teva any right to such
trademarks. Teva acknowledges and agrees that all use of such trademarks
and the goodwill generated thereby will inure solely to the benefit of
Supplier. Teva agrees not to use or file any application to register any
trademark or trade name in the Territory that is confusingly similar to
any Product Trademarks or Supplier House Mark, as interpreted by
applicable law in the Territory.
18. FORCE MAJEURE
18.1. The obligations of each party under this Agreement shall be suspended
during the period of this Agreement and to the extent that such party is
prevented or hindered from complying herewith by any cause beyond its
reasonable control including (insofar as they are beyond such control but
without prejudice to the generality of the foregoing expression) strikes,
lock-outs, labour disputes, act of god, war, riot, civil commotion,
malicious damage, compliance with any law or governmental order, rule,
regulation or direction, accident, breakdown of plant or machinery, fire,
flood, storm, difficulty or increased expense in obtaining workmen,
materials or transport or other circumstances affecting the supply of
goods or of raw materials therefore.
18.2. In the event of either party being so hindered or prevented, such party
shall give notice of suspension as soon as reasonably possible to the
other party stating the date and extent of such suspension and the cause
thereof. The failure to give such notice shall forfeit the rights of such
party to relief under this Clause.
18.3. Any party whose obligations have been suspended as aforesaid shall resume
the performance of such obligations as soon as reasonably possible after
the removal of the cause and shall so notify the other party. In the event
that such cause continues for more than six (6) consecutive months either
party may terminate this Agreement on thirty (30) days notice to the other
party.
18
<PAGE>
19. GOVERNING LAW AND ARBITRATION
This Agreement shall be governed solely and exclusively by the substantive law
of the State of New York, U.S.A. Any dispute between the parties shall be
referred to arbitration to be conducted in accordance with the rules of the
International Chamber of Commerce, as amended from time to time. Such
arbitration shall be held in placeCityNew York, country-regionU.S.A. unless
otherwise agreed between the parties in writing. The parties agree that the
arbitration as aforesaid shall be conducted before a single arbitrator to be
agreed between the parties or failing agreement to be appointed in accordance
with the provisions of the arbitration rules referred to above The parties
further agree to exclude any right of application or appeal to any court arising
on the course of such arbitration and/or with respect to any award made in such
arbitration, which award shall be final and binding on the parties.
20. ENTIRE AGREEMENT; COUNTERPARTS
This Agreement constitutes the entire understanding between the parties hereto
with respect to the subject matter hereof and supersedes all prior agreements,
negotiations and discussions between the parties hereto relating thereto. This
Agreement may be executed by facsimile and in two or more counterparts, each of
which shall be deemed an original and all of which shall together constitute one
and the same instrument.
21. EXECUTION AND DELIVERY OF THIS AGREEMENT
21.1. Supplier hereby represents and warrants that the execution and delivery by
Supplier of this Agreement and the performance by Supplier of its
obligations hereunder have been duly authorized by all necessary corporate
action on the part of Supplier, and do not conflict with the terms of any
other contract, agreement, arrangement or understanding to which Supplier
is a party.
21.2. Teva hereby represents and warrants the execution and delivery by Teva of
this Agreement and the performance by Teva of its obligations hereunder
have been duly authorized by all necessary corporate action on the part of
Teva, and do not conflict with the terms of any other contract, agreement,
arrangement or understanding to which Teva is a party.
22. INDEPENDENT CONTRACTORS
The relationship of the parties is that of independent contractors. Except as
set out in this Agreement nothing shall constitute the parties as joint ventures
or co-owners or constitute either party as the agent, employee or representative
of the other or empower either party to act for, bind or otherwise create or
assume any obligation on behalf of the other.
23. AMENDMENTS
No amendment or variation of this Agreement shall be effective unless in writing
and signed by duly authorised representatives of the parties.
19
<PAGE>
24. ASSIGNMENT
Neither party shall without the prior written consent of the other party,
assign, sub-licence, sub-contract, delegate, charge or part with or otherwise
dispose of this Agreement or the benefit thereof or any right or obligation
hereunder or grant any sub-licence or sub-contract, save that (a) Teva shall be
entitled to designate one or more of its Affiliates in the various countries
comprising the Territory, to implement and carry out Teva's obligations in the
countries, and (b) either party may assign or transfer this Agreement or any of
its rights or obligations hereunder without such consent to (i) any Affiliate of
such party, or (ii) to any third party with which it merges or consolidates, or
to which it transfers all or substantially all of its assets to which this
Agreement relates. The assigning party (except if it is not the surviving
entity) will remain jointly and severally liable with the relevant Affiliate or
third party assignee under this Agreement, and the relevant assignee or
surviving entity will assume in writing all of the assigning party's obligations
under this Agreement. Any party that desires to make an assignment described in
clause (b) above will provide the other party with advance written notice of
such assignment and will consider in good faith any comments provided by such
other party. In the event of an assignment by Supplier, if Teva is barred by
applicable laws from doing business with the assignee or if Teva otherwise
demonstrates that such assignment presents a strategic or ethical conflict of
interest that would materially affect Teva's ability to conduct its obligations
under this Agreement, then within thirty (30) days following such assignment,
Teva may terminate this Agreement upon written notice to Supplier.
25. SEVERABILITY
The invalidity or unenforceability of any term of or any right arising pursuant
to this Agreement shall not in any way affect the remaining terms or rights and
Supplier and Teva hereby each undertakes to use all reasonable endeavours to
replace any legally unenforceable provision with (as far as practicable)
provisions which will effect for the parties the same commercial results as were
intended by the original provisions.
26. WAIVER
The failure of a party hereto to exercise or enforce any right under this
Agreement shall not be deemed to be a waiver thereof nor operate so as to bar
the exercise or enforcement thereof at any time or times thereafter.
27. CONVENTION ON CONTRACTS FOR THE INTERNATIONAL placeCitySALE OF GOODS
To the extent that it may otherwise be applicable, the parties hereby expressly
agree to exclude from the operation of this Agreement, the United Nations
Convention on Contracts for the International Sale of Goods, concluded at
placeCityVienna, on dateYear1980Day11Month4April 11th 1980, as amended and as
may be amended further from time to time.
28. NOTICES
All notices shall be in writing and shall be given by delivery by hand, air
courier or transmission by fax to the address or fax number of the relevant
party set out at the beginning of this Agreement or such other address or fax
number as either party may notify to the other from time to time and shall be
addressed to the representatives of the parties set out below;
20
<PAGE>
If to Supplier:
CEL-SCI Corporation
8229 Boone Boulevard, Suite 802
Vienna, VA 22182, USA
Attention: Geert Kersten
Telephone: (703) 506-9460
===============
Facsimile: (703) 506-9471
================
If to Teva:
Teva Pharmaceutical Industries Limited
Hatrufa St. 12, Kiryat Nordau
Sapir Industrial Zone, Natanya, PoB 8077
Israel
Attention: Efrat Klachevsky
Telephone: *
Facsimile: *
The parties shall inform the other within 7 days of any change in address or fax
number. Any such notice given as aforesaid shall be deemed to have been given at
the time of delivery (if delivered by hand or air courier) or completion of
transmission (if sent by fax).
[Signature page follows.]
21
<PAGE>
IN WITNESS WHEREOF, the parties have by duly authorized persons, executed
this Agreement, as of the date first above written.
TEVA PHARMACEUTICAL CEL -SCI CORPORATION
INDUSTRIES LTD.
Name: Judith Vardi Name: Geert R. Kersten
------------------------------ ----------------------------
Title: Vice President, Israel, Title: Chief Executive Officer
Mediterranean, Africa and Turkey
Signature: /s/ Judith Vardi Signature: /s/ Geert R. Kersten
------------------------- ------------------------
Name: Efrat Klachevsky Name:
------------------------------ ----------------------------
Title: Director, Business Development, Title:
Israel, Mediterranean, Africa and
Turkey
Signature: /s/ Efrat Klachevsky Signature:
------------------------- ------------------------
Date: 07/08/08 Date:
------------------------------ ----------------------------
List of Appendices:
Appendix A - Product Description
Appendix B - Specifications
Appendix C - Pharmacovigilance Agreement
Appendix D - Clinical Trial Agreement
Appendix E - Press Release Announcement
22
<PAGE>
CONFIDENTIAL
CONFIDENTIAL
EXCLUSIVE LICENSE AND DISTRIBUTION AGREEMENT
APPENDIX A
Description of: "the Product"
<PAGE>
Product description:
*
The remainder of this page has been left blank intentionally
<PAGE>
EXCLUSIVE LICENSE AND DISTRIBUTION AGREEMENT
APPENDIX B
"the Specifications" (of the Product)
<PAGE>
CEL-SCI CORPORATION
STANDARD SPECIFICATION NUMBER
*
*
*
STANDARD SPECIFICATION
LEUKOCYTE INTERLEUKIN, INJECTION
*
*
*
*
<PAGE>
INTERIM
STANDARD SPECIFICATION
LEUKOCYTE INTERLEUKIN, INJECTION
ACCEPTANCE CRITERIA:
* * *
* * *
* * *
* *
* *
* *
* *
* * *
* * *
* * *
* *
*
INTERIM
STANDARD SPECIFICATION
LEUKOCYTE INTERLEUKIN, INJECTION
ACCEPTANCE CRITERIA (continued):
* * *
* * *
* * *
* * *
* * *
* * *
* * *
* * *
- -------------------------------------------------------------------------------
<PAGE>
APPENDIX C
A Phase III, Open-label, Randomized, Multi-center Study of the Effects of
Leukocyte Interleukin, Injection [Multikine(R)] Plus
Standard of Care (Surgery +Radiotherapy or Surgery + Concurrent
Chemoradiotherapy)in Subjects with Advanced Primary Squamous Cell Carcinoma
of the Oral Cavity Versus Standard of Care Only
<PAGE>
A Phase III, Open-label, Randomized, Multi-center Study of the Effects of
Leukocyte Interleukin, Injection [Multikine(R)] Plus Standard of Care
(Surgery + Radiotherapy or Surgery + Concurrent Chemoradiotherapy)
in Subjects with Advanced Primary Squamous Cell Carcinoma of
the Oral Cavity Versus Standard of Care Only
Regulatory Sponsor: CEL-SCI Corporation
8229 Boone Boulevard
Suite 802
Vienna, Virginia 22182 U.S.A.
Phone: 703-506-9460 Fax: 703-506-9471
CEL-SCI Corporation
Funding Sponsor: 8229 Boone Boulevard
Suite 802
Vienna, Virginia 22182 U.S.A.
Phone: 703-506-9460 Fax: 703-506-9471
Study Product: Leukocyte Interleukin, Injection [Multikine(R)]
* *
* *
*
*
* *
* *
*
<PAGE>
*
<PAGE>
Table 1 *
*
<PAGE>
*
Figure 1
Figure 2. Cell cycle marker (Ki67) in Multikine(R) treated Oral Squamous Cell
Carcinoma (OSCC)
<PAGE>
A. Morphometry of Ki-67+ cells in OSCC. B. Visualization of
Data are means +/-SEM, *p<0.05 in OSCC by Ki-67+(Histopathology)
0= Control Untreated Group
<PAGE>
Figure 3. Histological appearance of necrosis in oral squamous cell carcinoma
(H&E staining)
Panel A Panel B
Panel A: Control - Lack of necrosis in the epithelial nests of Oral Squamous
Cell Carcinoma.
Panel B: Multikine(R) treatment - Entire cancer nest is necrotic
and filed with debris and leukocytes.
*
<PAGE>
*
<PAGE>
*
<PAGE>
(1) Saunders, M.I., Rojas, A..M, Management of Cancer of the Head and Neck-A
Cocktail with your PORT? N Engl J Med. 2004; 350: 1997-1999. (2) .Vokes, E. E.,
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Around Tumor-Draining Lymph Nodes in Head & Neck Cancer, Head & Neck 1991;
13:125-131. (11) Rivoltini, L., Gambacorti-Passerini, C., Squadrelli-Saraceno,
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Administration of rlL-2 in Head & Neck Cancer, Nippon Jibiinokoka Gakkai Kaiho
1989; 92:1265-1270. (13) Saito, T., Kawaguti, T., Yoda, J., et al.
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(14) Pulley, M.S., Nagendran, V., Edwards, J.M., and Dumonde, D.C., Intravenous,
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(15) Mattijssen, V., DeMulder, P.H., Shornagel, J.H., et al., CIinical and
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Appendix D- Clinical Trial Agreement
[See attched]
1
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CLINICAL TRIAL MANAGEMENT SERVICES AGREEMENT
Between
TEVA PHARMACEUTICAL INDUSTRIES LIMITED
A limited liability company incorporated
under the laws of Israel, of 5 Basel
Street, Petah Tiqva 49131, Israel
("Teva")
And
CEL-SCI CORPORATION
a company incorporated under the laws of the
USA, of 8229 Boone Boulevard, Suite 802,
Vienna, VA 22182, USA
("the Company")
WHEREAS the Company has developed an Immunotherapy for cancer - Multikine
(Leukocyte Interleukin) injection (the "Drug"), and is interested in evaluating
the safety, tolerability and efficacy of the Drug in a Phase III Trial in
patients with Squamous Cell carcinoma of the oral cavity; and
WHEREAS Teva and the Company have entered into an Exclusive License and
Distribution Agreement dated of even date herewith (the "Distribution
Agreement") in which Teva receives the right to market and distribute the Drug
in certain territories; and
WHEREAS the Company wishes to engage Teva to manage and monitor one or more
clinical trials involving the Drug in Israel as set forth and described in
Appendix A hereto (the "Trial"), all in accordance with the terms and conditions
set out herein and the relevant laws and regulations; and
WHEREAS Teva is experienced in managing and monitoring clinical trials and is
willing to assist the Company by managing and monitoring the Trial, all in
accordance with the terms and conditions set out herein.
THEREFORE THE PARTIES AGREE AS FOLLOWS:
1. INTERPRETATION
1.1. The preamble to this Agreement forms an integral part hereof.
1.2. Section headings in this Agreement are intended solely for convenience
of reference and shall be given no effect in the interpretation of
this Agreement. All signed appendices to this Agreement, whether
attached at the time of signature hereof or at any time thereafter,
shall be construed as an integral part of this Agreement.
1.3. In this Agreement, the following expressions shall bear the meanings
assigned to them below and cognate expression shall bear corresponding
meanings.
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1.3.1. "Commencement Date" shall mean the date on which both parties
have signed this Agreement.
1.3.2. "Global CRO" shall mean the entity to be selected and retained
by the Company following the date hereof to oversee the
performance of the worldwide Phase III clinical trial of which
the Trial to be conducted hereunder is a part. Upon signing the
agreement between Company and Global CRO, a notice will be sent
to Teva informing Teva of the Global CRO's name and contact
details.
1.3.3. "Protocol" shall mean the protocol, as written and provided to
Teva by the Company, attached as Appendix A to this Agreement.
1.3.4. "Trial Activities" shall mean the list of items agreed upon
between the parties and to be paid by Teva, for the performance
of the Trial Management Services, as defined below, set out in
Appendix B to this Agreement.
1.3.5. "Study Team" shall mean the team that will supervise and
monitor the performance of the Trial.
1.4. In this Agreement, "including" and "includes" means including, without
limiting the generality of any description preceding such terms.
2. APPOINTMENT OF TEVA
For the portion of the Trial to take place in Israel, the Company hereby
appoints Teva to provide the clinical management and supervision services of
the Trial as set out in this Agreement and in Appendix C (the "Trial
Management Services") subject to the Company fulfilling its obligations as
set out in this Agreement and in Appendix C, whether to be performed by Teva
directly or through a third party, in accordance with the terms and
conditions of this Agreement, and the relevant laws and regulations, and
Teva hereby accepts such appointment.
3. OBLIGATIONS OF TEVA
3.1. Teva shall ensure that the Trial Management Services shall be carried
out in accordance with:
3.1.1. The provisions of the Protocol and the other terms of this
Agreement; and
3.1.2. The reasonable written guidelines and instructions provided by
the Company and the Global CRO (including any Global CRO standard
operating procedures) for the conduct of the Trial (provided that
Teva shall use its best efforts to comply with the Global CRO's
guidelines and shall notify the Company immediately in the event
2
<PAGE>
that it believes that any such written guideline or instruction
is unreasonable and the parties shall promptly meet and discuss
any such concern); and
3.1.3. The relevant laws, regulations, guidelines and ethical
requirements prevailing in the country in which the Trial is
carried out.
3.2. Teva undertakes to perform the Trial Management Services in a
professional and workmanlike manner, and devote the necessary
personnel and all other resources necessary to perform the Trial
Management Services.
3.3. Teva shall make the Study Team aware of relevant provisions of this
Agreement and shall ensure compliance therewith by the Study Team.
3.4. Teva shall keep appropriate records relating to the Trial in
connection with the performance of the Trial Management Services in
accordance with the Protocol and applicable laws, regulations and
guidelines.
3.5. Teva shall keep the Global CRO informed of the progress of the Trial.
Teva will provide the Company with written monthly progress reports
that will include the status of and issues raised by any Trial site
and a summary of any reported adverse events. Teva will provide to the
Company reports of Teva's monitoring visits to any site or
investigator on a timely basis as specified in Appendix C.
3.6. Teva shall permit representatives of the Company or, alternatively,
the Global CRO, as applicable to examine relevant data, documents, and
records of Teva pertaining to the Trial Management Services, in order
to verify compliance by Teva with its obligations under this
Agreement. Such audit activities shall be coordinated with Teva in
advance and conducted during regular business hours. The Company will
use reasonable efforts to coordinate with the Global CRO to minimize
duplication of any such examinations and in no event should there be
more than one (1) examination a month by the Company and the Global
CRO, and the Company will cooperate with Teva to address any
reasonable objections to the timing and frequency of inspections
requested by both the Company and the Global CRO.
3.7. Teva shall perform its obligations in accordance with the list of
responsibilities attached hereto as Appendix C.
3.8. In the event that the Israeli laws and regulations applicable to the
manufacture, labeling or supply of Drug for use in the Trial differ
substantially from the applicable laws and regulations of the United
States of America or the European Union, and in the event that Teva is
aware of such, then Teva shall inform the Company in writing of such
differences.
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3.9. At its sole discretion, the Company may amend the Protocol, and, upon
the Company's request, Teva will assist the Company in making such
modifications. An amended Protocol will supersede the previous
versions. The Company will notify Teva of any modification of a
Protocol or the Trial. Within ten (10) business days from Teva's
receipt of notice of such modification, Teva will provide the Company
with its opinion as to the alterations consequences and an estimate of
the reasonable alterations to the Trial timeline and Trial Activities
(whether an increase or decrease) directly resulting from such
modification. The Company will have ten (10) business days to approve
such estimates. If the Company does not approve a modification
estimate and has not terminated the Trial, but wants the Trial to be
modified to include such modification, each party will use its good
faith efforts to agree on modification estimates that are commercially
reasonable and mutually acceptable. At the Company's request, Teva
shall continue performing Trial Management Services for the Trial
without implementing the proposed modifications unless and until the
parties have reached agreement regarding a revised estimate of the
timeline and budget based upon the proposed modifications. For the
avoidance of doubt it is hereby clarified that the Company shall be
responsible for any and all increased costs associated with any
amendments to the Protocol or the Trial in existence on the date
hereof, provided that any increased costs shall be offset, if
applicable, by any cost savings or reductions for eliminated or
reduced activities (with no refund right for costs already paid).
4. OBLIGATIONS OF THE COMPANY
4.1. The Company shall supply the Drug for the Trial, at Teva's expense, as
agreed upon in section 7 of the Distribution Agreement and further
detailed in section 5 below, and according to the timetables,
quantities, and specifications as indicated in the Protocol.
4.2. The Company, either directly or through the Global CRO, shall provide
Teva with all the relevant articles or information required for the
performance of the Trial Management Services.
4.3. The Company shall perform its obligations in accordance with the list
of responsibilities, attached hereto as Appendix C.
4.4. In addition to all other obligations set forth in this Agreement, the
Company warrants that it shall act as a sponsor of the Trial, in the
meaning ascribed to it in the Israeli Ministry of Health guidelines.
4.5. The Company shall hold and maintain, throughout the term of this
Agreement, and for a sufficient time thereafter, sufficient insurance
to cover all the requirements of the local laws and regulations,
including without limitation, insurance to cover all patients taking
part in the Trial, as per the requirements of the Ministry of Health
in Israel.
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5. PAYMENT
Teva shall fund, at its cost, the performance of certain activities
related to the Trial to be conducted in Israel, * provided that Teva shall
be obligated to use best efforts to enroll * patients in accordance with
the list of activities comprising the Trial Activities for such patients.
6. STUDY TEAM
Teva shall establish the Study Team in consultation with the Company. The
function of the Study Team shall be to manage and monitor the Trial in
accordance with Appendix A and the terms of this Agreement.
7. WARRANTIES AND REPRESENTATIONS
7.1. Teva warrants and represents that it has the experience, capability,
qualified personnel and resources to perform the Trial Management
Services under this Agreement.
7.2. The Company warrants and represents that it is the sole and exclusive
owner of the Drug and that Teva is not and will not, in any event, be
liable for any claims, actions and suits arising as a result of the
use, safety and quality of the Drug, subject to the indemnity
obligations set forth in Section 11.
7.3. The Company warrants that, to the Company's knowledge as of the
Commencement Date, applicable national and local laws do not prohibit
the conduct of the Trial carried out in accordance with the Protocol.
7.4. In addition, each party warrants and represents, that it shall perform
all of its obligations under this Agreement (including, in the case of
the Company, the manufacture, labeling and supply of Drug for use in
the Trial), in accordance with the applicable rules, regulations and
guidelines in Israel. The Company, as sponsor of the Trial, warrants
and represents that it shall perform all of its obligations under this
Agreement according to the rules, regulations and guidelines set forth
with respect to the sponsor of a clinical trial by the Ministry of
Health in Israel.
7.5. Each party hereby warrants and represents that it has the power and
authority and the legal right to enter into this Agreement to perform
its obligations hereunder, and has taken all necessary action on its
part to authorize the performance of such obligations.
7.6. Teva warrants that it has not, and shall not, employ, contract with,
or retain any person directly to perform services under this Agreement
if such a person is, to the best of Teva's Knowledge (with the use of
reasonable efforts to investigate), debarred or disqualified by any
applicable regulatory or governmental authority from performing the
obligations requested by Teva.
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7.7. For the avoidance of doubt it is hereby clarified and acknowledged by
the Company that Teva does not make any warranty as to the results,
conclusions or reports, including without limitation, the Results, as
defined below, of the Trial Management Services and/or the Trial to
be: (i) useful to the Company, (ii) in compliance with the Company's
expectations, and/or (iii) of any commercial value whatsoever.
7.8. The Company hereby represents and warrants that, to the best of its
knowledge as of the date hereof, the conduct of the Trial in
accordance with the Protocol and/or the Trial Management Services will
not constitute an infringement of the intellectual property rights
(that relate to the Product) of any third party.
7.9. Except as otherwise expressly set forth in this Agreement, neither the
Company nor Teva makes any representations or extends any warranties
of any kind, either express or implied, including any express or
implied warranties of merchantability or fitness for a particular
purpose.
8. TERM AND TERMINATION
8.1. All of the provisions of this Section 8, or any other right of the
parties to terminate, shall be subject to the overriding consideration
that this Agreement pertains to the carrying out of a clinical trial,
and the interests and safety of the participants in the Trial shall
take precedence over all of the rights of the parties to terminate.
8.2. This Agreement shall commence on the Commencement Date and, subject to
prior termination in accordance with the other terms of this
Agreement, shall terminate upon the completion of the Trial Management
Services.
8.3. The Company shall be entitled to terminate this Agreement by providing
Teva with sixty (60) days prior written notice, without penalty or
liability therefore or the payment of any compensation.
8.4. Teva shall be entitled to terminate this Agreement by written notice
to the Company, effective immediately, if in the reasonable opinion of
Teva the continuation of the Trial represents an unacceptable risk to
the participants or is contrary to accepted medical practice.
8.5. Either party shall be entitled to terminate this Agreement by giving
thirty (30) days written notice to the other, effective immediately,
upon any of the following events:
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8.5.1. The other party commits a material breach of this Agreement
which, in the case of a breach which is capable of remedy, shall
not have been remedied within thirty (30) days of the receipt by
the party in default of a notice identifying the breach requiring
its remedy.
8.5.2. The other party is unable to pay its debts or enters into
compulsory or voluntary liquidation (other than for the purpose
of affecting a meeting of its creditors) or has an administrator
appointed over all or any part of its assets; provided, in each
case, that such proceedings are not dismissed within ninety (90)
days.
8.6. Termination of this Agreement for any reason shall not affect any of
the rights and obligations of the parties which shall have accrued
prior to the effective date of termination.
8.7. This Agreement shall survive the termination of the Distribution
Agreement, for any reason whatsoever, unless otherwise terminated in
accordance with this Section 8.
8.8. Sections 4.4, 7.7, 7.8, 8.6, 8.7, 8.8, 9, 10, 11, 12, 18 and 20 shall
survive termination or expiration of this Agreement for any reason.
9. CONFIDENTIALITY
9.1. Teva shall keep secret and confidential, during the term and for a
duration of ten (10) years from the expiration or termination of this
Agreement, all confidential and/or proprietary information supplied by
the Company, whether in written, oral, electronic or any other form,
including without limitation, all information relating to the Drug,
the Trial, the Results (as defined in Section 10.1 below) and the
Trial Management Services ("Information") and shall not disclose or
use the Information other than for the purposes of exercising its
rights or fulfilling its obligations pursuant to this Agreement or the
Distribution Agreement, including the performance of Trial Management
Services, which shall include: (i) disclosure to the relevant hospital
authorities or ethical review committee, if such disclosure is
necessary in order to obtain the required approvals for the conduct of
the Trial and/or the performance of the Trial Management Services;
(ii) disclosure to those of Teva's directors, officers, employees,
agents, and consultants who have a "need to know" such information for
the performance of the Trial Management Services and/or in the
fulfillment of its obligations hereunder, provided that the
aforementioned are bound by obligations of confidentiality and non-use
similar to those set out herein. Teva agrees that it shall take
commercially reasonable steps to prevent the disclosure or use of the
Company's Information by its directors, officers, employees, agents
and consultants except as expressly provided in this Agreement.
7
<PAGE>
9.2. The provisions of Section 9.1 shall not apply to:
9.2.1. Information which is known to the receiving party prior to
disclosure by the disclosing party, as shown by written records;
9.2.2. Information which is or becomes public knowledge through no
fault of the receiving party, or its employees, who have been
exposed to the Information;
9.2.3. Information which is disclosed to the receiving party by a
third party;
9.2.4. Information which is required by law, court or any competent
authority to be disclosed, provided that, if legally permitted,
the receiving party shall notify the disclosing party thereof, in
order to enable the disclosing party to seek an appropriate
protective order or other reliable assurance that confidential
treatment shall be accorded to such Information (with the
receiving party's assistance, if necessary), and such disclosure
shall be made to the minimum extent required;
9.2.5. Information which is independently developed by the receiving
party, or any of its employees, agents, consultants or other
representatives, without the use of or reliance upon the
Information.
9.3. The parties undertake to maintain the confidentiality of all details
relating to the participants in the Trial in accordance with all
applicable laws, regulations and guidelines governing the
confidentiality and privacy of individually identifiable health
information.
9.4. Upon termination of the Trial and/or the Trial Management Services, or
upon the written demand of the other party, each of the parties shall
return the other party's Information, and all copies or other
manifestations thereof, keeping only one copy of such Information in a
safe location as a record of its obligations hereunder.
9.5. Neither party shall use the other's name in any marketing,
advertising, press release or other promotional literature or any
other publicity without the other's prior written consent, with regard
to the wording and timing of the release, all except for any mention
in any applications to official authorities for regulatory approvals,
or in the fulfillment of any duty owed to any competent authority
(including a duty to make regulatory filings and/or reports).
Notwithstanding anything to the contrary, Company may refer to Teva as
its contract research organization in the Territory as required under
applicable laws, regulations and Ministry of Health guidelines.
8
<PAGE>
10. COPYRIGHT AND OWNERSHIP OF RESULTS
10.1. All inventions (patentable or not), discoveries, improvements,
reports, data and other results developed or generated by or on behalf
of Teva during and/or arising from the performance of the Trial
Management Services (collectively "Results"), and all intellectual
property directly related thereto, shall be the sole and exclusive
property of the Company and the Company shall be free to use the
Results as it sees fit. Teva agrees to assign, and does hereby assign
to the Company, all of Teva's right, title and interest in and to the
Results. For the removal of doubt the publication of any of the
Results in any scientific or other publication or presentation shall
be within the Company's sole discretion, provided that the Company
shall not, in any such publication and/or in any event, mention Teva's
name and/or the existence and/or the terms and conditions of this
Agreement, without complying with the terms of Section 9.5.
10.2. If further documents or actions are necessary for the purpose of
confirming or to vest in the Company's rights, title or interest in
and to the Results pursuant to Section 10.1 above, Teva agrees to
execute such documents and to take such reasonable actions as are
necessary to confirm or to vest such rights, title or interest, at the
Company's sole expense.
10.3. Notwithstanding the foregoing, both parties acknowledge that all
computer programs, applications, databases, techniques, methods,
models, processes and the like used by the Study Team in performance
of the Trial Management Services under this Agreement remain the
exclusive property of the party supplying the foregoing property.
10.4. Teva acknowledges that any and all quantities of the Drug shall
remain the sole and exclusive property of the Company. Upon
termination of this Agreement for any reason, all remaining quantities
of the Drug in Teva's possession or control shall be returned to the
Company at the Company's sole expense and the Company shall refund
Teva for Teva's pro rata landed costs of the Drug not used in the
Trial and/or Trial Management Services, except in the event that the
remaining Drug is required according to any laws and/or regulations,
including without limitation, of the Israeli Ministry of Health
guidelines.
10.5. Nothing contained herein shall be deemed to grant Teva a licence to
use the Drug or the Results for any purposes whatsoever, except for
the performance of the Trial Management Services hereunder.
11. LIABILITY AND INDEMNITY
11.1. Teva shall indemnify and hold harmless the Company, and the Company's
affiliates, officers, directors and employees (each a "The Company
9
<PAGE>
Indemnified Party"), from any and all damages, losses, liabilities,
claims including without limitation, claims for bodily injury or
death, and reasonable attorney fees (collectively, "Liabilities") to
the extent that such Liabilities arise from a third party claim based
upon: (i) the gross negligence or willful misconduct of Teva or of any
officers, directors or employees of Teva; (ii) any material breach of
this Agreement by Teva or any other person for whose actions Teva is
liable under applicable law; and/or (iii) the violation by Teva, or
any of its directors, officers or employees, of the applicable law or
other governmental requirement, which shall directly arise as a result
of the Trial Management Services performed by Teva, according to this
Agreement, provided; however, that the above indemnification
obligations shall not apply to the extent that any Liabilities arise
out of: (i) any breach of this Agreement, relating to the cause of the
Liabilities, by the Company or any other person for whose actions the
Company is liable under applicable law; (ii) any violation by any the
Company Indemnified Party of applicable law or other governmental
requirement, relating to the cause of the Liabilities; or (iii) the
gross negligence or willful misconduct of any the Company Indemnified
Party, relating to the cause of the Liabilities.
11.2. The Company shall indemnify and hold harmless Teva, and Teva's
affiliates, officers, directors and employees (each a "Teva
Indemnified Party"), from any and all Liabilities, to the extent that
such Liabilities arise from a third party claim based upon: (a) the
performance by Teva of the Trial Management Services in accordance
with this Agreement and/or as a result of any instructions received by
the Company; (b) any material breach of this Agreement by the Company
or any other person for whose actions the Company is liable under
applicable law; (c) the negligence or willful misconduct of the
Company or of any directors, officers or employees of the Company; and
(d) the use of the Drug by Teva and/or the Study Team, during the
performance of the Trial and/or the Trial Management Services and/or
(e) the use of the Drug by the hospitals and/or centers and/or the
investigator, during the performance of the Trial; (f) the violation
by the Company, its directors, officers or employees of the applicable
law or other governmental requirement, provided; however, that the
above indemnification obligations shall not apply to the extent that
any Liabilities arise out of: (i) any breach of this Agreement,
relating to the cause of the Liabilities, by Teva or any other person
for whose actions Teva is liable under applicable law; (ii) any
violation by a Teva Indemnified Party of applicable law or other
governmental requirement, relating to the cause of the Liabilities; or
(iii) the gross negligence or willful misconduct of a Teva Indemnified
Party, relating to the cause of the Liabilities.
11.3. If any the Company Indemnified Party or Teva Indemnified Party (such
party an "Indemnified Party") receives notice of any claim or action
for which indemnity may be sought from the relevant indemnifying party
pursuant to this Section 11 above, such indemnifying party shall be,
as soon as reasonably possible, notified thereof in writing. The
indemnifying party shall have sole control over the defence and
10
<PAGE>
settlement of such claim and the Indemnified Party shall not be
entitled to settle or compromise such claim or action without the
prior written consent of the indemnifying party and shall reasonably
cooperate with the indemnifying party in the investigation and defence
of such claim or action, provided that in any event the indemnifying
party shall use its best efforts to ensure that the good name and
reputation of the Indemnified Party remains intact . The Indemnified
Party may employ its own counsel if it wishes to do so, at its sole
expense.
11.4. IN NO CASE SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT, SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF, OR IN CONNECTION
WITH, THIS AGREEMENT; PROVIDED HOWEVER THAT THIS LIMITATION WILL NOT
LIMIT OR RESTRICT THE INDEMNIFICATION RIGHTS OR OBLIGATIONS OF EITHER
PARTY FOR THIRD PARTY CLAIMS OR DAMAGES AVAILABLE FOR WILLFUL OR
INTENTIONAL BREACH BY EITHER PARTY OF THE CONFIDENTIALITY OBLIGATIONS
IN ARTICLE 9.
12. INSURANCE
12.1. The parties shall hold and maintain, throughout the term of this
Agreement, and for a sufficient time thereafter, sufficient insurance
to cover any and all of their liabilities pursuant to this Agreement,
including without limitation, insurance as mentioned in Section 4.5.
12.2. The parties shall provide to one another certificates evidencing the
holding and maintenance of such insurances upon the request of the
other party. 13. APPROVALS
Teva shall obtain and maintain all authorizations and approvals (if any)
required from the appropriate regulatory authorities and the relevant ethics
committees and other scientific bodies for the performance of the Trial and
the Trial Management Services.
14. ASSIGNMENT
Neither party shall without the prior written consent of the other party,
assign, sub-license, sub-contract, charge or part with or otherwise dispose
of this Agreement or the benefit thereof or any right or obligation
hereunder or grant any sub-license or sub-contract, save that (a) Teva shall
be entitled to designate one or more of its Affiliates in Israel, to
implement and carry out Teva's obligations under this Agreement, and (b)
either party may assign or transfer this Agreement or any of its rights or
obligations hereunder without such consent to (i) any Affiliate of such
party, or (ii) to any third party with which it merges or consolidates, or
to which it transfers all or substantially all of its assets to which this
Agreement relates. The assigning party (except if it is not the surviving
11
<PAGE>
entity) will remain jointly and severally liable with the relevant Affiliate
or third party assignee under this Agreement, and the relevant assignee or
surviving entity will assume in writing all of the assigning party's
obligations under this Agreement. Any party that desires to make an
assignment described in clause (b) above will provide the other party with
advance written notice of such assignment and will consider in good faith
any comments provided by such other party. In the event of an assignment by
the Company, if Teva is barred by applicable laws from doing business with
the assignee or if Teva otherwise demonstrates that such assignment presents
a strategic or ethical conflict of interest that would materially affect
Teva's ability to conduct its obligations under this Agreement, then within
thirty (30) days following such assignment, Teva may terminate this
Agreement upon written notice to the Company.
15. SEVERABILITY
Should any part or provision of this Agreement be held unenforceable or in
conflict with the applicable laws or regulations of any jurisdiction, the
invalid or unenforceable part or provision shall, provided that it does not
go to the root of this Agreement, be replaced with a revision which
accomplishes, to the extent possible, the original business purpose of such
part or provision in a valid and enforceable manner, and the balance of this
Agreement shall remain in full force and effect and binding upon the parties
hereto.
16. ENTIRE AGREEMENT/AMENDMENT/WAIVER
16.1. This Agreement embodies and sets forth the entire agreement and
understanding between the parties hereto and supersedes all prior oral
and written agreements relating to the subject matter of this
Agreement. Neither party shall be entitled to rely on any agreement,
understanding or arrangement not expressly set forth in this
Agreement.
16.2. This Agreement (including, for the removal of doubt, the Appendices
hereto) shall not be amended, modified, varied or supplemented except
in writing signed by duly authorized representatives of the parties
hereto.
16.3. No failure or delay on the part of either party hereto to exercise
any right or remedy under this Agreement shall be construed or
operated as a waiver thereof nor shall any single or partial exercise
of any right or remedy as the case may be. The rights and remedies
provided in this Agreement are cumulative and are not exclusive of any
rights or remedies provided by law.
17. RELATIONSHIP OF THE PARTIES
The relationship of the parties is that of independent contractors. Except
as set out in this Agreement, nothing shall constitute the parties as joint
ventures or co-owners or constitute either party as the agent, employee or
representative of the other or empower either party to act for, bind or
otherwise create or assume any obligation on behalf of the other.
12
<PAGE>
18. GOVERNING LAW
The agreement shall be governed by, and construed in accordance with, the
laws of the State of New York, USA, without giving effect to its principles
of conflicts of law. Each of the parties hereto hereby irrevocably submits
to the jurisdiction of the courts of competent jurisdiction located in the
State of New York, USA for the settlement of any dispute under or in
connection with this agreement.
19. FORCE MAJEURE
Each of the parties hereto shall be excused from the performance of its
obligations hereunder, in the event that such performance is prevented by
Force Majeure (as defined below) provided that the party claiming Force
Majeure shall: (i) give notice in writing to the other party without undue
delay after such circumstance has occurred; and (ii) use its best efforts to
avoid or remove such cause of non-performance and shall fulfill and continue
performance hereunder with the utmost dispatch whenever and to the extent
that such cause or causes are removed or cease to exist. For the purpose of
this Agreement, "Force Majeure" is defined as follows: causes beyond the
control of either of the parties, including but not limited to, acts of God,
acts, regulations or laws of any government, war, civil commotion,
destruction of production facilities or materials by fire, earthquake or
storm, labour disturbances, epidemic and failure of public utilities or
common carriers.
20. NOTICES
Any payment, notice and other written communications required or permitted
to be made or given may be made or given by either party by facsimile with
confirmed transmission; by first-class mail, postage prepaid; or by courier
to the mailing address or facsimile numbers set as below:
If to Teva:
Teva Pharmaceutical Industries Limited
Hatrufa St. 12, Kiryat Nordau
Sapir Industrial Zone, Natanya, PoB 8077
Israel
Attention: Dr. Coby Mazliah
Telephone: *
Facsimile: *
13
<PAGE>
If to the Company:
CEL-SCI Corporation
8229 Boone Boulevard, Suite 802
Vienna, VA 22182, USA
Attention: John Cipriano
Telephone: (703) 506-9460
Facsimile: (703) 506-9471
Or to such other addresses or facsimile numbers as either Party shall
designate by notice, similarly given, to the other Party. Notices or written
communications shall be deemed to have been sufficiently made or given: (i)
if mailed, seven (7) days after being dispatched by mail, postage prepaid;
(ii) if by courier, when actually delivered by the courier company; or (iii)
if by facsimile with confirmed transmission, three (3) days after
transmission.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized officers:
TEVA PHARMACEUTICAL INDUSTRIES LTD CEL-SCI CORPORATION
Signature: /s/ Roni Shiloh Signature: /s/ Geert R. Kersten
----------------------------- ---------------------
Name: Roni Shiloh, M.D. Name: Geert R. Kersten
----------------------------- ---------------------
Title: Medical Director Title: Chief Executive Officer
Signature: /s/ Coby Mazliah Signature:
----------------------------- ---------------------
Name: Coby Mazliah, Ph.D. Name:
----------------------------- ---------------------
Title: Director Clinical Trials Unit/
Teva/ Israel
Date: 2008 Date: 2008
---------- -----------
14
<PAGE>
APPENDIX A
THE PROTOCOL
[See Attached]
TEVA PHARMACEUTICAL INDUSTRIES LTD CEL-SCI CORPORATION
Signature: /s/ Roni Shiloh Signature:
----------------------------- ---------------------
Name: Roni Shiloh, M.D. Name:
----------------------------- ---------------------
Title: Medical Director Title:
Signature: /s/ Coby Mazliah Signature:
----------------------------- ---------------------
Name: Coby Mazliah, Ph.D. Name:
----------------------------- ---------------------
Title: Director Clinical Trials Unit/
Teva/ Israel
Date: 2008 Date: 2008
---------- -----------
15
<PAGE>
APPENDIX B
TRIAL ACTIVITIES
The following activities and costs:
>> Monitoring services, as needed in accordance with the Protocol on the
Commencement Date and for * patients
>> Payment to the physicians, the hospitals and testing laboratories
involved in the Trial and associated follow up, as long as such
payments are: (i) in the Territory (ii) in accordance with the
Protocol on the Commencement Date and (iii) for * patients
>> Clinical supply of the Drug, in an amount not exceeding the sum agreed
upon in the Distribution Agreement, for * patients, and for all other
study drugs in accordance with the requirements of the Protocol on the
Commencement Date
TEVA PHARMACEUTICAL INDUSTRIES LTD CEL-SCI CORPORATION
Signature: /s/ Roni Shiloh Signature:
----------------------------- ---------------------
Name: Roni Shiloh, M.D. Name:
----------------------------- ---------------------
Title: Medical Director Title:
Signature: /s/ Coby Mazliah Signature:
----------------------------- ---------------------
Name: Coby Mazliah, Ph.D. Name:
----------------------------- ---------------------
Title: Director Clinical Trials Unit/
Teva/ Israel
Date: 2008 Date: 2008
---------- -----------
16
<PAGE>
APPENDIX C
THE PARTIES OBLIGATIONS
Roles and Responsibilities
TEVA and SPONSOR/Global CRO
-----------------------------------
Time Schedule
Study Code
SPONSOR
Global CRO
Contractor
Date
-----------------------------------
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Part 1
Time Schedule
----------------------------------------------------------------------------
Planning Phase
Final protocol
Clinical Phase
Patient recruitment time XXXXX
FPI XXXXX
LPI XXXXX
LPO XXXXX
Data Base Lock XXXXX
Complete Stat XXXXX
Clinical Study Report XXXXX
17
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-----------------------------------
Roles & Responsibilities
Study Code
SPONSOR
Global CRO
Contractor
Date
-----------------------------------
------------------------------------------------------------------------------
Part 2
Roles and Responsibilities
------------------------------------------------------------------------------
If required, add and/or delete according to study specific requirements.
Tick relevant box SPONSOR and/or TEVA Site
*
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*
*
*
*
*
*
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*
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*
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* *
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19
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-----------------------------------
*
*
*
*
*
*
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*
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*
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TEVA PHARMACEUTICAL INDUSTRIES LTD CEL-SCI CORPORATION
Signature: /s/ Roni Shiloh Signature:
----------------------------- ---------------------
Name: Roni Shiloh, M.D. Name:
----------------------------- ---------------------
Title: Medical Director Title:
Signature: /s/ Coby Mazliah Signature:
----------------------------- ---------------------
Name: Coby Mazliah, Ph.D. Name:
----------------------------- ---------------------
Title: Director Clinical Trials Unit/
Teva/ Israel
Date: 2008 Date: 2008
---------- -----------
20
<PAGE>
Appendix E
<PAGE>
PHARMACOVIGILANCE AND RECALL AGREEMENT
This Pharmacovigilance and Recall Agreement (the "Agreement") is made as of
____________, 2008 by and between CEL-SCI CORPORATION, a corporation
incorporated under the laws of the State of Colorado, of 8229 Boone Boulevard,
Suite 802, Vienna, VA 22182, USA ("Supplier") and TEVA PHARMACEUTICAL INDUSTRIES
LTD, a limited liability company incorporated under the laws of Israel, of 5
Basel Street, Petah Tiqva 49131, Israel ("Teva").
1. Scope
This Agreement describes the procedures and defines the responsibilities of
Supplier and Teva to ensure adequate Adverse Event (AE) data exchange such that
regulatory reporting requirements can be met in a timely manner. This Agreement
replaces any previous safety information agreements between the companies on the
Product.
2. Definitions
Definitions used will conform to the current Volume 9A of the Notice to
Applicants: Volume 9A - Guidelines on Pharmacovigilance for Medicinal Products
for Human Use. Capitalized terms used in this Agreement and not defined herein
will have the meaning set forth in the Exclusive Distribution Agreement between
Supplier and Teva, dated ____________, 2008.
3. Global Safety Database
Supplier will maintain the global safety database for Post Marketing Spontaneous
Adverse Event (AE) reports related to the Product.
4. Case Exchange
Both parties are responsible for distribution of the safety information in their
own company safety network. The language of all exchanges will be English.
Abbreviations must be spelled out.
4.1. Spontaneous reports
Teva agrees to provide Supplier with all Adverse Event reports related to
Product. The format is not necessarily that of CIOMS I but should contain all
data elements to be able to generate a CIOMS I report. Source documents should
remain locally for inspection purposes and should be provided on request. Case
exchange is preferably done by email
Each party agrees to provide the other party with copies of all Adverse Events
reports within 3 business days of submission.
Both parties agree to answer in a reasonably exhaustive manner all questions
that the other party might raise that affect case evaluation or regulatory
reporting with regard to exchanged cases.
The date of receipt by the original recipient of any Adverse Event report must
be recorded on each report exchanged.
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<PAGE>
4.2. Follow up information
The party notified first on an adverse reaction is responsible for obtaining
follow-up information required for proper assessment of the case. Questions
regarding a specific case must be communicated to the initial party to request
the information from the reporter. Follow-up data will be exchanged in the same
manner as initial data, within the same timeframes. If site visits are
requested, representatives from both parties will be allowed to participate.
4.3. Reports from literature
Supplier will have the primary responsibility for reviewing the literature
outside the Territory. Reports of serious published ADRs will be provided as
described above. Teva will be primarily responsible for checking the literature
published in the Territory and sending cases to Supplier.
4.4. Reports on overdose, abuse and misuse, lack of efficacy, transmission of
infectious agents, medication errors.
Reports on overdose, abuse and misuse as well as lack of efficacy should be
reported to Supplier according to the timelines as mentioned in Clause 4.1
above. Any suspected transmission of a infectious agent via a medicinal product
is also considered an adverse event as referred to in Clause 4.1. Cases of
medication errors which are associated with adverse events should also be
reported as referred to in Clause 4.1.
4.5. Reports from outcomes of use in pregnancy and lactation
All reports from health care professionals relating to pregnancies where the
foetus may have been exposed should be followed up and reported to Supplier
according to Clause 4.1. For reports from consumers reasonable attempts should
be made to follow up with the physician.
5. Causality assessment
Generally the reporter's causality assessment will be accepted. Supplier and
Teva may however express another opinion. The most conservative opinion will
determine further reporting.
6. Expedited Reporting
Supplier is responsible for determining seriousness, expectedness per the
package insert and the company's opinion of relatedness. Supplier is responsible
for preparing any regulatory forms for submission in the Territory.
Teva will make the determination as to whether a report meets criteria for
expedited reporting to regulatory authorities in the Territory.
Teva will be responsible for submission of expedited reports to the regulatory
authorities in the Territory.
Both parties will submit the appropriate reports of individual case reports to
the regulatory authorities of the countries in their territories within the time
frames required by the current legislation in each ountry.
3
<PAGE>
7. Periodic Reporting
Supplier will be responsible for preparing and reporting of Periodic Safety
Update Reports (PSUR) according to the current guidelines. The PSUR will be
forwarded to Teva for submission to local authorities in the Territory.
8. Regulatory requests for additional information
8.1. Additional information on a specific case
The party who received the regulatory authority request for follow-up
information will submit the response to the requesting regulatory authority. If
necessary, the party who first received the case report will obtain the
requested information from the reporter.
8.2. Additional information of a more general nature
Regulatory authority requests for safety information of a more general nature
will be answered by the party who received the initial request. Teva will
provide to the supplier a copy of the regulatory agency's request for general
information and their proposed response to the request prior to its submission
for review and comment.
9. Compliance
Teva is responsible for ensuring that local Pharmacovigilance and drug safety
regulatory requirements are met in the Territory. Without limiting the
foregoing, Teva will comply with local regulation's with all regulations and
laws applicable to the Territory.
10. Signals/Actions
Each company will notify the other company as soon as possible of any regulatory
actions or pending actions that might result in: (i) a change in labeling or
market restriction, (ii) market authorization withdrawal or suspension, or (iii)
change of local labeling which is thought to be important from a safety view
point; in each case, to the extent such action is suggested by signals detected
by the pharmacovigilance program, issue evaluation, liaison with regulatory
authorities, or new requirements defined by the regulatory authorities.
11. Teva's response time to reports on Adverse Events:
Adverse Event (AE): within 5 days from awareness of the event to Teva or any
of its subsidiaries or other license partners involved in marketing of the
Product.
Serious Adverse Events (SAE): within 24 hours from awareness of the event for
SAE resulting in death or life threatening events, and within 48 hours for
all other SAE.
12. Contacts
It is the responsibility of each company to notify the other company in writing
of any changes to the contact information as soon as possible.
4
<PAGE>
For CEL-SCI, all correspondence about this agreement should be sent to:
Name: John Cipriano
Address: CEL-SCI Corporation,
8229 Boone Boulevard, Suite 802
Vienna, VA, 22182 USA
Tel: (703) 506-9460
Fax: (703) 506-9471
Email: *
For CEL-SCI, all Adverse Event reports should be sent to:
Name: John Cipriano
Address: CEL-SCI Corporation
8229 Boone Boulevard, Suite 802
Vienna, VA, 22182 USA
Tel: (703)-606-9460
Fax: (703) 506-9471
Email: *
For Teva, all correspondence about this agreement should be sent to:
Name: Shelly Lavy
Address: Teva Israel, P.O.Box 8077 Netanya 42504, Israel
Tel: *
Fax: *
Email: *
For Teva, all Adverse Event reports should be sent to:
Name: Shelly Lavy
Address: Teva Israel, P.O.Box 8077 Netanya 42504, Israel
Tel: *
Fax: *
Email: *
13. Recalls
Teva and the Supplier shall comply with local regulations in the Territory
regarding any case necessitating a recall of the Product from the market. In the
event that a recall of the Product in the Territory is being contemplated for
any reason, each party shall promptly consult with the other with the view to
deciding the appropriate action to take with respect thereto.
5
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In any event, the final decision on a recall will comply with any resolution
issued by the regulatory authorities for each affected Country in the Territory
concerning the specific case in which a recall of the Product is being
contemplated.
In the event a recall is due to the negligence or improper action of Teva, Teva
shall bear the costs related to the recall. In any other event, Supplier shall
bear the cost related to the recall.
14. Term
The term of this Agreement will commence upon signature hereof by both parties
and will continue until expiration or termination of the Exclusive Distribution
Agreement between Supplier and Teva, dated ____________, 2008 (including the
expiration of any wind-down period related to the sale of Products, as described
therein).
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CEL-SCI CORPORATION TEVA PHARMACEUTICAL INDUSTRIES LTD
Signature: /s/ Geert R. Kersten Signature: /s/ Judith Vardi
----------------------------- ---------------------
Name: Geert R. Kersten Name: Judith Vardi
----------------------------- ---------------------
Title: Chief Executive Officer Title: V.P.IMAT
----------------------------- ---------------------
Date: August 18, 2008 Date: August 18, 2008
----------------------------- ---------------------
Signature: /s/ Efrat Klachevsky
---------------------
Name: Efrat Klachevsky
-----------------------------
Title: Direct, Business Developement
Date: 07/08/08
------------------------
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6
<PAGE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>5
<FILENAME>exh10o11-10.txt
<DESCRIPTION>EXHIBIT 10(O)
<TEXT>
EXHIBIT (o)
<PAGE>
LEASE AGREEMENT
(*, Maryland)
This Lease Agreement (the "Lease") is made as of the 6th day of June, 2007
by and between VIF II CEL-SCI Partners, LLC, a Delaware limited liability
company (the "Landlord") and CEL-SCI Corporation, a Colorado corporation (the
"Tenant").
ARTICLE 1. DESCRIPTION OF PROPERTY
1.1 Property. Subject to Article 36, below, Landlord hereby leases to
Tenant and Tenant leases from Landlord, pursuant to the terms, conditions and
uses herein set forth, the Property. As used herein, the "Property" means the
entire building commonly known as * (the "Building") and consisting of
approximately 73,025 rentable square feet (the "Premises"), together with the
Land upon which the Building is located as more particularly described in
Exhibit A attached hereto (the "Land").
ARTICLE 2. TERM
2.1 Lease Term. The term of this Lease (the "Lease Term") will be for a
period of two hundred forty (240) full calendar months (plus the applicable
fraction of a calendar month in the event he Commencement Date falls on a date
other than the first day of a calendar month), commencing on the earlier of the
following dates (the "Commencement Date"): (i) the date on which the Tenant
Improvements have been Mechanically/Electrically Complete or (ii) the date that
is fourteen (14) months following the date on which settlement occurs and
Landlord obtains fee title to the Property. The Lease Term shall end on the last
day of the two hundred fortieth (240th) full calendar month following the
Commencement Date. Tenant shall have two (2) options to extend the Lease Term
for ten (10) years each pursuant to the terms and conditions of Section 34,
below.
ARTICLE 3. RENT
3.1 Base Annual Rental. Beginning on the Commencement Date and payable in
advance on the first day of each calendar month of the Lease Term thereafter,
Tenant shall pay to Landlord, and Landlord shall accept, the Base Annual Rental
as set forth in the Base Annual Rent Schedule attached as Exhibit "E" to this
Lease, which Base Annual Rental shall be paid in equal monthly installments. The
Base Annual Rental shall be paid by Tenant in lawful money of the United States
at the address set forth in Section 34.10, or such other address as Landlord may
advise Tenant in writing, without deduction, offset or prior notice or demand.
Tenant has delivered to Landlord the first monthly installment of Base Annual
Rental for the first month of the Lease Term hereof upon execution and delivery
of this Lease. Notwithstanding the foregoing, if the actual Project Cost after
completion of all Improvements (as those terms are defined in the Work Letter
Agreement) is less than Fifteen Million and 00/100 Dollars ($15,000,000.00),
Base Annual Rental shall be adjusted to equal the product of (i) actual Project
Costs and (ii) ten and 50/100 percent (10.50%). The adjusted Base Annual Rental
described in the immediately preceding sentence will be increased annually
commencing on the first day of
* Confidential treatment requested. Confidential portion has been omitted and
filed separately with the Securities and Exchange Commission.
<PAGE>
the calendar month immediately following the first (1st) anniversary of the
Commencement Date, and on each anniversary thereafter, by an amount equal to 3%
of the Base Annual Rental for the preceding year. For purposes of this Lease,
"Rent" will mean the Base Annual Rental plus the Additional Rent plus any other
charges due Landlord by Tenant under this Lease.
3.2 Proration of Rent. Prior to the first day of the first full calendar
month of occupancy, in lieu of the first monthly installment of Base Annual
Rental, Tenant will pay Landlord an amount equal to the first monthly
installment of Base Annual Rental multiplied by a factor having as its numerator
the number of days remaining in the month from, after and including the
Commencement Date and as its denominator the number thirty. Thereafter, Rent
shall be payable in accordance with the terms of Section 3.1. The total
consideration for the term of this Lease shall be increased by the amount of the
installment required by this Section 3.2.
3.3 Additional Rent, Expenses and Costs. Commencing upon the Commencement
Date, Tenant shall pay to Landlord (unless otherwise expressly required
hereunder to pay directly to a third party), as additional rent ("Additional
Rent"), all sums of money of any and every sort required to be paid by Tenant
under this Lease, whether or not the same are designated as Additional Rent. If
such amounts or charges are not paid at the time provided in this Lease, they
shall nevertheless be collectible as Additional Rent with the next installment
of the Base Annual Rental thereafter falling due, but nothing herein contained
shall be deemed to suspend or delay the payment of any amount of money or charge
at the time the same becomes due and payable hereunder, or limit any other
remedy of Landlord. Tenant acknowledges that this is an absolute net lease to
Landlord. As such, Tenant shall pay, as Additional Rent, all costs and expenses
relating to the Property.
3.4 Late Fees. Tenant acknowledges that late payment by Tenant to Landlord
of the Base Annual Rental or other charges incurred under this Lease will cause
Landlord to incur costs not contemplated by this Lease, the exact amount of such
costs being extremely difficult and impracticable to fix. Such costs include,
without limitation, processing, administrative and accounting charges. If any
payment of Base Annual Rental, Additional Rent, or other charges due from Tenant
is not received by Landlord within 5 days of when due, such unpaid amounts shall
bear interest at a rate equal to the Prime Rate plus 200 basis points ("Default
Rate") from the date due to the date of payment. As used herein, "Prime Rate"
means the prime rate of interest defined by The Wall Street Journal as the base
rate on corporate loans posted by at least 75% of the nation's 30 largest banks,
as reported in the Wall Street Journal on the first day of the calendar month in
which such late payment accrued. In addition to interest, Tenant shall pay a sum
of the greater of (i) 5% of the overdue Rent or (ii) $15.00 as a late charge.
Late charges shall constitute Additional Rent. The parties agree that the late
charge represents a fair and reasonable estimate of the costs that Landlord will
incur by reason of late payment by Tenant. Acceptance of any late charge shall
not constitute a waiver of Tenant's default with respect to the overdue amount,
or prevent Landlord from exercising any of the other rights and remedies
available to Landlord hereunder.
3.5 Tenant's TI Contribution. As additional consideration for this Lease,
within two (2) business days after Tenant receives notice of financial partner
investment committee approval of this Lease and the Property purchase, Tenant
shall deliver to Landlord Three Million One Hundred Fifty Thousand and 00/100\
2
<PAGE>
Dollars ($3,150,000.00) ("Tenant's TI Contribution"), which sum represents
Tenant's initial contribution towards the cost of the Improvements to be
constructed on Tenant's behalf pursuant to the Work Letter Agreement. Provided
Tenant is not then in default under this Lease and provided further that Tenant
has not assigned this Lease, Tenant shall be reimbursed monthly for Tenant's TI
Contribution, which monthly reimbursement shall be amortized over a 180-month
period, together with interest rate at the rate of three percent (3%) per annum,
and which monthly reimbursement shall be applied as follows: beginning on the
first day of the sixty-first (61st) calendar month of the initial Term and
continuing on the first day of each calendar month thereafter until the
expiration of the initial Term (i.e., 240th calendar month), Base Monthly Rent
shall be partially abated to reflect the monthly reimbursement for Tenant's TI
Contribution as set forth in the Base Monthly Rent Schedule described in Section
3.1, above.
3.6 Springing Security Deposit. Within 15 days after the end of each
calendar quarter, Tenant shall provide to Landlord an Officer's Certificate in
the form of Exhibit C attached hereto to the effect that either (a) the value of
Tenant's unrestricted cash and Cash Equivalents at the end of such calendar
quarter are equal to or greater than the Cash Threshold (defined below), or (b)
the value of the Tenant's unrestricted cash and Cash Equivalents at the end of
such calendar quarter are less than the Cash Threshold. As used herein, "Cash
Threshold" means the greater of the following: (1) $6,000,000.00 or (2) an
amount equal to Tenant's current annual cash burn rate, which shall be evidenced
by either (i) a cash flow analysis prepared by Tenant ("Tenant's Cash Flow
Analysis") and delivered to Landlord within fifteen (15) days following the end
of each calendar quarter showing Tenant's net cash in-flow and out-flow for the
immediately preceding twelve (12) month period, or (ii) the Net Cash Used in
Operating Activities for the immediately preceding twelve (12) month period as
shown on Tenant's Consolidated Statements of Cash Flow. For purposes of
calculating the Cash Threshold, Tenant's Cash Flow Analysis and/or Tenant's
Consolidated Statements shall exclude one-time cash contributions made by Tenant
relating to the acquisition of the Property and the initial build-out of the
Improvements per the Work Letter Agreement (i.e., Tenant's TI Contribution,
Excess Costs and Development Management Fees (as each of those terms are defined
in the Work Letter Agreement)) and one-time cash payments made by Tenant
associated with the pay-off or pay-down of its convertible debt. As used herein,
"Tenant's Consolidated Statements of Cash Flow" means those consolidated
statements of Tenant's cash flow as prepared by Tenant in accordance with GAAP
and which are publicly filed with the SEC on a quarterly basis. If the value of
Tenant's unrestricted cash and Cash Equivalents drops below the Cash Threshold,
or if Tenant fails to deliver to Landlord the required Officer's Certificate
within the above 15-day period, Tenant shall, within five (5) days after
delivery of such Officer's Certificate (or failure to deliver such Officer's
Certificate), deposit with Landlord an additional security deposit in an amount
equal to One Million Five Hundred Seventy-Five Thousand and 00/100 Dollars
($1,575,000.00) (i.e., an amount equal to the aggregate sum of Base Annual
Rental payable during the first twelve (12) months of the initial Lease Term, as
the same may be adjusted pursuant to Section 3.1) (payable in cash or in the
form of a letter of credit reasonably acceptable to Landlord in accordance with
the provisions of Section 3.6.1) (the "Springing Security Deposit"); provided,
however, in the event Tenant's unrestricted cash and Cash Equivalents once again
exceeds the Cash Threshold for two consecutive calendar quarters, Landlord shall
promptly return the Springing Security Deposit to Tenant. Failure to timely
provide such Officer's Certificate or such Springing
3
<PAGE>
Security Deposit, if required, shall be a default under this Lease.
Landlord shall invest the Springing Security Deposit in a Highly Diversified
Money Market Fund or similar yielding investment. As used herein, a "Highly
Diversified Money Market Fund" means a money market fund that is principally
invested in corporate bonds and commercial paper, such as the Evergreen
Institutional Money Market Fund.
For purposes of this Section 3.6.3, "Cash Equivalents" shall mean (a)
marketable securities issued or directly and unconditionally guaranteed by the
United States Government or issued by any agency thereof and backed by the full
faith and credit of the United States, in each case maturing within one year
from the date of acquisition thereof; (b) marketable direct obligations issues
by any state of the United States of America or any political subdivision of any
such state or any public instrumentality thereof maturing within one year from
the date of acquisition thereof and, at the time of acquisition, having the
highest rating obtainable from either S&P or Moody's; (c) commercial paper
maturing no later than one year from the date of creation thereof and, at the
time of acquisition, having a rating of at least A-1 from S&P or at least P-1
from Moody's; (d) certificates of deposit or banker's acceptances maturing
within one year from the date of acquisition thereof and, at the time of
acquisition, having a rating of at least A-1 from S&P or at least P-1 from
Moody's, issued by any commerical bank orgnanized under the laws of the United
States of America or any state thereof; or (e) investment funds with a rating of
a least AAA from S&P investing 95% of their assets in securities of the type
described in clauses (a), (c) and (d) above.
3.6.1 In lieu of depositing cash as the Springing Security Deposit,
Tenant shall have the right to deliver to Landlord an unconditional,
irrevocable, standby letter of credit in the amount of the cash Springing
Security Deposit otherwise required under Section 3.6, above, which letter of
credit shall (i) be in a form reasonably acceptable to Landlord, (ii) be issued
by a financial institution selected by Tenant and reasonably acceptable to
Landlord, (iii) be for the benefit of Landlord, but shall be transferable at
Tenant's sole cost and expense by Landlord to any subsequent purchaser or
encumbrancer of the Building, (iv) be automatically renewable from year to year
throughout the Lease Term, (v) be payable by draft sight in a location
reasonably acceptable to Landlord upon presentation of a certification signed by
an officer of Landlord which states that Tenant has failed to perform any of its
monetary or non-monetary obligations, (v) allow for partial and multiple draws,
up to the face value of the letter of credit and (vi) be payable in the event
such letter of credit is not renewed on or before the date which is thirty (30)
days prior to its expiration. Any amounts of cash drawn on a letter of credit
will thereafter be treated as a cash security deposit hereunder.
3.6.2 If Tenant fails to pay Rent when required or fails to perform
any other covenant contained herein, Landlord may use or retain all or any part
of the Springing Security Deposit, if applicable, for the payment of any sum not
so paid, or for the payment of any amount which Landlord may spend or become
obligated to spend by reason of Tenant's default. If any portion of the
Springing Security Deposit is so applied or used, then Tenant shall, within 5
business days after written notice thereof, deposit an additional amount with
Landlord sufficient to restore each said Springing Security Deposit to the
amount set forth above and Tenant's failure to do so shall constitute a breach
of this Lease.
4
<PAGE>
3.6.3 If Tenant has performed all of its monetary and other
obligations hereunder at the termination of this Lease, Landlord shall return
the Springing Security Deposit, if applicable, to Tenant within 30 days after
termination of this Lease and the vacation by Tenant of the Premises as required
under this Lease, less any amounts required to restore the Premises to the
condition required in Section 7.1, below, including repairing any damage
resulting from the removal by Tenant of its trade fixtures or equipment.
3.6.4 Landlord's obligation with respect to the Springing Security
Deposit are that of a debtor and not as a trustee. Notwithstanding anything to
the contrary contained herein, Tenant expressly waives the benefits of any
statute now or hereafter in effect which would prevent Landlord from applying
all or any portion of the Springing Security Deposit to offset any future Rent
owing to Landlord at the termination of this Lease prior to the expiration date
of the Lease Term.
3.6.5 In the event of the sale of the Property, or the sale of the
entity owning such Property, Landlord's successor in interest shall assume
Landlord's obligations with respect to the sums held as security or advance rent
and notify Tenant in writing setting forth the particularity of such transfer,
including the successor's name and address. Upon such assumption and written
notification, Tenant shall have no further claim against Landlord with respect
to any such Springing Security Deposit and hereby waives all rights against
Landlord in such regard. Notwithstanding the foregoing, Landlord will remain
personally liable to the extent Landlord's successor in interest fails to assume
the Landlord's obligations with respect to the Springing Security Deposit as
specified above.
ARTICLE 4. POSSESSION
4.1 Possession. Landlord shall not be liable for damages to Tenant for
failure to deliver possession of the Premises to Tenant, except that the
commencement of the Lease Term shall be delayed until Landlord delivers
possession of the Premises to Tenant (so long as Tenant is not responsible for
such failure or delay). Landlord will use commercially reasonable efforts to
deliver possession of the Premises to Tenant by the target date for
Mechanical/Electrical Completion as set forth in the Project Schedule (defined
in the Work Letter Agreement). However, to the extent Landlord's inability to
tender possession of the Premises to Tenant in accordance with (or earlier than
provided for in) the Project Schedule is caused by Tenant's negligence or breach
of this Lease or of the Work Letter Agreement, or by other delays caused by
Tenant or its agents or contractors (collectively, "Tenant Delays"), the
commencement of the Term for all purposes under this Lease shall be accelerated
by the number of days of those Tenant Delays.
4.2 NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, IT IS EXPRESSLY
UNDERSTOOD AND AGREED THAT LANDLORD IS LEASING THE PROPERTY TO TENANT "AS IS"
AND "WHERE IS," AND WITH ALL FAULTS AND THAT LANDLORD IS MAKING NO
REPRESENTATIONS AND WARRANTIES WHETHER EXPRESS OR IMPLIED, BY OPERATION OF LAW
OR OTHERWISE, WITH RESPECT TO THE QUALITY OR PHYSICAL CONDITION OF THE PROPERTY,
THE INCOME OR EXPENSES FROM OR OF THE PROPERTY, OR THE COMPLIANCE WITH THE
5
<PAGE>
PROPERTY WITH APPLICABLE BUILDING OR FIRE CODES, ENVIRONMENTAL LAWS OR OTHER
LAWS, RULES, ORDERS OR REGULATIONS. WITHOUT LIMITING THE FOREGOING, IT IS
UNDERSTOOD AND AGREED THAT LANDLORD MAKES NO WARRANTY OF THE HABITABILITY,
SUITABILITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. TENANT AGREES
THAT IT ASSUMES FULL RESPONSIBILITY FOR, AND THAT IT HAS PERFORMED EXAMINATIONS
AND INVESTIGATIONS OF THE PROPERTY, INCLUDING SPECIFICALLY, WITHOUT LIMITATION,
EXAMINATIONS AND INVESTIGATIONS FOR THE PRESENCE OF ASBESTOS, PCBS AND OTHER
HAZARDOUS SUBSTANCES, MATERIALS AND WASTES (AS THOSE TERMS MAY BE DEFINED HEREIN
OR BY APPLICABLE FEDERAL OR STATE LAWS, RULES OR REGULATIONS) ON OR IN THE
PROPERTY. WITHOUT LIMITING THE FOREGOING, TENANT IRREVOCABLY WAIVES ALL CLAIMS
AGAINST LANDLORD WITH RESPECT TO ANY ENVIRONMENTAL CONDITION, INCLUDING
CONTRIBUTION AND INDEMNITY CLAIMS, WHETHER STATUTORY OR OTHERWISE. TENANT
ASSUMES FULL RESPONSIBILITY FOR ALL COSTS AND EXPENSES REQUIRED TO CAUSE THE
PROPERTY TO COMPLY WITH ALL APPLICABLE BUILDING AND FIRE CODES, MUNICIPAL
ORDINANCES, ENVIRONMENTAL LAWS AND OTHER LAWS, RULES, ORDERS, AND REGULATIONS.
FOR INFORMATIONAL PURPOSES ONLY, PRIOR TO THE SETTLEMENT DATE IN CONNECTION WITH
LANDLORD'S PURCHASE OF THE PROPERTY, LANDLORD SHALL PROVIDE TENANT WITH COPIES
OF ANY RELEVANT THIRD PARTY REPORTS RELATING TO THE EXPECTED CONDITION OF THE
PROPERTY AT THE TIME OF SETTLEMENT.
4.3 Retail Delivery Sublease. Notwithstanding anything to the contrary
contained in this Lease, Tenant confirms that a portion of the Premises
consisting of approximately 23,600 square feet of space is currently leased and
occupied by Home Delivery Enterprises, Inc., d/b/a Retail Delivery Service, Inc.
("Retail Delivery") pursuant to the terms of that certain Lease, dated September
22, 2006, between Landlord, as successor in interest to San Tomas Properties,
LLC, and Retail Delivery (the "Retail Delivery Lease"). While Tenant will be
leasing the entire Building (i.e., 73,025 rentable square feet) and will be
responsible for paying Rent for the entire Building pursuant to the terms of
this Lease, Tenant will initially only occupy approximately 49,425 rentable
square feet of space. Accordingly, effective as of the Commencement Date, the
Retail Delivery Lease shall be terminated and concurrently with such
termination, Tenant shall enter into a sublease with Retail Delivery in a form
reasonably acceptable to Landlord, Tenant and Retail Delivery pursuant to which
Tenant shall sublease the Retail Delivery Space to Retail Delivery (the "Retail
Delivery Sublease").
4.4 Future Subleasing. Landlord acknowledges that Tenant intends to
sublease an additional portion of the Premises consisting of approximately
15,000 to 20,000 square feet of space. The foregoing is merely an
acknowledgement by Landlord of Tenant's intent to sublease and the foregoing
shall not be construed as Landlord's consent to any such subleasing of space
within the Premises, it being understood by Tenant that any such future
subleasing of space within the Premises shall be subject to the terms and
conditions set forth in Article 15.
6
<PAGE>
ARTICLE 5. USE
5.1 Permitted Use of Premises. The Premises shall be used and occupied by
Tenant solely for laboratory, administration, pharmaceutical, warehouse and
related health care uses. Landlord acknowledges that in connection with the
foregoing, Tenant will also be operating from the Premises under a radiological
materials license to be obtained by Tenant. The Premises are to be used for no
other purposes without first obtaining the consent of Landlord, which consent
may be withheld in Landlord's sole, subjective discretion.
5.2 Compliance with Laws. Tenant, at Tenant's sole expense, shall promptly
comply, or cause compliance, with all laws, ordinances, zoning restrictions,
rules, regulations, orders and requirements of any duly constituted public
authorities now or hereafter affecting the Premises, including the use, safety,
cleanliness and occupation of the Premises.
5.3 Prohibited Uses. Tenant shall not do, bring or keep anything in or
about the Property that will cause a cancellation of any insurance covering the
Property that is carried by Landlord and in effect as of the date Landlord
acquires fee title to the Property, provided that Tenant will not be deemed to
be in violation of this Section 5.3 if Landlord subsequently modifies or
otherwise obtains new insurance coverage for the Property and as a result of
such modified or new insurance policies (as opposed to any change in use by
Tenant), Tenant's use of the Property causes or will cause a cancellation of
Landlord's modified or new insurance policies. Tenant shall not use the Property
in any manner that will constitute waste, nuisance or unreasonable annoyance to
owners or occupants of nearby properties. Tenant shall not do anything on the
Property that will cause material damage to the Building. Tenant shall place no
loads upon the floors, walls or ceiling of the Building in excess of the maximum
designed load specified by Landlord or which may materially damage the Building.
No machinery, apparatus, or other appliance shall be used or operated in or on
the Property that will vibrate or shake the Property.
5.4 Rules and Regulations. Tenant shall comply with all reasonable
nondiscriminatory rules and regulations (the "Rules and Regulations") from time
to time adopted by Landlord with respect to the Property. Notwithstanding
anything to the contrary contained in this Lease, if any rule or regulation is
in conflict with any term, covenant or condition of this Lease, this Lease shall
prevail. In addition, no such rule or regulation, or any subsequent amendment
thereto adopted by Landlord, shall in any way materially alter, reduce or
adversely affect any of Tenant's rights or enlarge Tenant's obligations under
this Lease.
ARTICLE 6. ALTERATIONS AND ADDITIONS
6.1 Prohibited Alterations. Except for the Improvements specifically
contemplated to be constructed pursuant to the Work Letter Agreement attached
hereto as Exhibit D, Tenant shall not make any alterations, improvements or
additions to the Property, without obtaining Landlord's prior written consent,
except Tenant may make non-structural alterations to the interior of the
Premises (excluding the roof) without such consent but upon notice to Landlord,
as long as they are not visible from the outside, do not involve puncturing,
relocating or removing the roof or any existing walls, will not affect the
electrical, plumbing, HVAC, and/or life safety systems, and the cost thereof
does not exceed $50,000 per occurance or an aggregate amount of $250,000 in any
7
<PAGE>
12-month period. Landlord shall not unreasonably withhold such consent;
provided, however, in the event such alterations affect the structure of the
Premises or the electrical, plumbing, HVAC and/or life safety systems of the
Premises (collectively, the "Building Systems"), or may be otherwise visible
from the outside of the Premises, Landlord's consent may be granted or withheld
in Landlord's sole and absolute discretion. Notwithstanding the foregoing,
Landlord's consent shall not be unreasonably withheld with regard to any
proposed alterations affecting the Building Systems within Tenant's cGMP suite
to the extent such alterations are required to operate such cGMP suite for
Tenant's proposed use. Any such improvements, excepting movable furniture and
trade fixtures (as that term is limited in Section 6.3, below) but including,
without limitation, any non-trade fixtures and Tenant Funded Improvements
(defined below), shall become part of the realty and belong to Landlord upon the
expiration of the Term unless Landlord notifies Tenant at least thirty (30) days
prior to the expiration of the Term that Tenant must remove such improvements.
If Landlord notifies Tenant of such requirement, Tenant shall cause all such
improvements to be removed prior to the expiration of the Term and shall repair
any and all damage caused to the Premises resulting from such removal and
otherwise surrender the Premises in the condition required under Section 7.1 at
Tenant's sole cost and expense. If Tenant fails to repair any such damage prior
to the expiration of the Term, Landlord may, but shall not be obligated to,
perform such repairs on Tenant's behalf, in which case, Tenant shall reimburse
Landlord for all costs incurred by Landlord within five (5) days after receipt
of written demand from Landlord. All alterations and improvements shall be
properly permitted and installed at Tenant's sole cost, by a licensed
contractor, in a good and workmanlike manner, and in conformity with the laws of
all applicable duly constituted public authorities. Each such licensed
contractor and any subcontractor that performs work with a cost greater than
$50,000 or that will affect the electrical, plumbing, HVAC and/or life safety
systems of the Premises, shall be acceptable to Landlord in its reasonable
discretion. All contractors or subcontractors performing work at the Premises
shall maintain the insurance required under Lease Rider No. 1 and shall provide
Landlord with copies of insurance certificates or other evidence reasonably
acceptable to Landlord evidencing the existence of such insurance coverage. Any
alterations that Tenant shall desire to make and which require the consent of
Landlord shall be presented to Landlord in written form with detailed plans,
which plans shall be subject to Landlord's reasonable approval. Tenant shall:
(i) acquire all applicable governmental permits; (ii) furnish Landlord with
copies of both the permits and the plans and specifications before the
commencement of the work, and (iii) comply with all conditions of said permits
in a prompt and expeditious manner. Any alterations shall be performed in a
workmanlike manner with good and sufficient materials. Tenant shall promptly
upon completion furnish Landlord with as-built plans and specifications,
provided that Landlord shall treat such as-built plans and specifications as
confidential and shall inform all parties to whom Landlord may provide copies
thereof of the confidential nature of such documents.
6.2 Notice of Commencement. At least 20 days prior to commencing any
work relating to any alterations, improvements or additions approved by
Landlord, Tenant shall notify Landlord in writing of the expected date of
commencement. Landlord shall have the right at any time thereafter to post and
maintain on the Premises such notices as Landlord reasonably deems necessary to
protect Landlord and the Premises from mechanics' liens, materialmen's liens or
any other liens. Tenant shall pay, when due, all claims for labor or materials
furnished to or for Tenant for use in improving the Premises. Tenant shall not
permit any mechanics' or materialmen's liens to be levied against the Premises
8
<PAGE>
arising out of work performed, materials furnished, or obligations to have been
performed on the Premises by or at the request of Tenant. Tenant hereby
indemnifies and holds Landlord harmless against loss, damage, attorneys' fees
and all other expenses on account of claims of lien of laborers or materialmen
or others for work performed or materials or supplies furnished for Tenant or
its contractors, agents or employees. If Tenant fails to remove or bond any
lien(s) filed against the Premises in connection with any work performed or any
work claimed to have been performed by or at the direction of Tenant within 10
days from the date of the lien(s) filing, Landlord may remove such lien(s) at
Tenant's expense and Tenant shall reimburse Landlord for all costs incurred by
Landlord in connection with the removal of the lien(s), which amount shall be
deemed Additional Rent, and shall include, without limitation, all sums
disbursed, incurred or deposited by Landlord, including Landlord's costs,
expenses and actual attorneys' fees, with interest thereon, at the Default Rate
from the date of expenditure. If Tenant shall contest the validity of any such
lien, claim or demand, then Tenant shall, at its sole expense defend and protect
itself, Landlord and the Premises against the same and shall pay and satisfy any
such judgment that may be rendered thereon before the enforcement thereof. If
Landlord shall require, Tenant shall furnish a surety bond in an amount equal to
150% of the amount of such contested lien, claim or demand, indemnifying
Landlord against liability for the same. If Landlord elects to participate in
any such action, Tenant shall pay Landlord's attorneys' fees and costs.
6.3 Trade Fixtures. Tenant may install trade fixtures, machinery or other
trade equipment in conformance with the ordinances of all applicable duly
constituted public authorities. Subject to the terms of this Section 6.3, Tenant
may remove any of such trade fixtures or machinery upon the termination of this
Lease. In the event that Tenant installs improvements, machinery or trade
fixtures, or makes any alterations, Tenant shall, at Landlord's option, return
the Premises on termination of this Lease to the condition required under
Section 7.1, below, including the removal of improvements or alterations
approved by Landlord in Section 6.1 and not otherwise elected to be retained by
Landlord. Tenant shall, in any event, repair any damage resulting from the
removal of machinery or trade fixtures of Tenant. If Tenant fails to repair any
such damage prior to the expiration of the Term, Landlord may, but shall not be
obligated to, perform such repairs on Tenant's behalf, in which case, Tenant
shall reimburse Landlord for all costs incurred by Landlord within five (5) days
after receipt of written demand from Landlord. Notwithstanding anything to the
contrary contained in this Lease, the terms "trade fixtures", "machinery" or
"trade equipment" as used both in Article 6 and otherwise in this Lease shall
mean Tenant's specific trade fixtures, business equipment and personal property
which can be removed without substantial damage to the Premises (including,
without limitation, the "Movable Equipment" listed on page 1 of Schedule 1
(Project Budget) attached to the Work Letter Agreement, which "Movable
Equipment" shall remain the sole property of Tenant), and shall not include,
without limitation and without regard to whether the following can be removed
without substantial damage to the Premises, any fill-finish suites, autoclaves
and other similar items, which items shall become part of the realty and belong
to Landlord upon the expiration of the Term unless Landlord otherwise elects
pursuant to Section 6.1, above.
6.4 Tenant Funded Improvements. Notwithstanding the foregoing, if Tenant
funds 100% of the "phase 2" or "phase 3" improvements (i.e., improvements to the
Premises to be constructed after the thirty-sixth (36th) full calendar month of
the initial Lease Term) (collectively, "Tenant Funded Improvements"), Tenant
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confirms that such Tenant Funded Improvements shall not be included when
calculating the fair market value of the Property in connection with the
Purchase Option set forth in Articles 35 and 37, it being understood that such
calculation shall be conducted as if the Tenant Funded Improvements had not been
made to the Premises.
ARTICLE 7. SURRENDER OF PREMISES
7.1 Conditions upon Surrender. Upon the expiration or earlier termination
of this Lease, Tenant shall surrender the Premises to Landlord in its condition
existing as of the Commencement Date, normal wear and tear, casualty,
condemnation and acts of God excepted, with all interior walls in good repair
and repainted if marked, all carpets shampooed and cleaned, the HVAC equipment,
plumbing, electrical and other mechanical installations in good operating order,
and all floors cleaned and waxed, all to the reasonable satisfaction of
Landlord. Tenant shall remove from Premises all of Tenant's alterations which
Landlord requires Tenant to remove pursuant to Section 6.1 and all Tenant's
personal property, and shall repair any damage and perform any restoration work
caused by such removal. In addition, , Tenant shall, at Landlord's sole option
and at Tenant's sole cost and expense, either (i) remove all cabling and wiring
existing within the Premises and within the common ducts and shafts of the
Building ("Building Cable"), using all necessary care in removing the Building
Cable in order to avoid any damage to the Building, or (ii) not remove all or
any portion of the Building Cable, provided that Tenant shall leave any Building
Cable clearly labeled and in good working order with all connections intact.
Tenant shall be solely liable for any damage or disruption of service caused by
the removal or labeling of any Building Cable by Tenant. Landlord and Tenant
shall each initial and attach a conceptual floor plan of the Premises to this
Lease, to be incorporated herein as Exhibit B. Said floor plan shall describe,
among other things, those interior improvements which are to remain in the
Premises upon expiration, or earlier termination, of this Lease. It is the
intent of the parties that the condition of the Premises, after Tenant's
removal, shall be in the same condition as existed as of the Commencement Date,
together with any alterations that Landlord has approved pursuant to Section 6.1
and which Landlord has elected to retain at the Premises. If Tenant fails to
remove any alterations that Landlord requires Tenant to remove and Tenant's
personal property which Tenant is authorized and obligated to remove pursuant to
the above, and such failure continues after the termination of the Lease,
Landlord may retain such property and all rights of Tenant with respect to it
shall cease, or Landlord may place all or any portion of such property in public
storage for Tenant's account. Tenant shall pay to Landlord upon demand costs of
removal of such alterations and Tenant's personal property and storage and
transportation costs of same, and the cost of repairing and restoring the
Premises, together with attorneys' fees and interest at the Default Rate on said
amounts, from the date of expenditure by Landlord. If the Premises are not so
surrendered at the termination of this Lease, Landlord may, in its sole
discretion, either (a) upon written notice to Tenant, treat Tenant as a
month-to-month tenant at will, subject to all the terms, covenants and
conditions of this Lease, or (b) proceed with an unlawful detainer action and
pursue all other rights and remedies available to Landlord.
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ARTICLE 8. UTILITIES AND SERVICES
8.1 Utilities. Tenant shall make all arrangements for and pay for all
water, sewer, gas, heat, light, power, telephone service and any other service
or utility Tenant requires at the Premises. Landlord shall not be liable for any
failure or interruption of any utility service being furnished to the Premises,
and no such failure or interruption shall entitle Tenant to terminate this
Lease.
8.2 Landlord Service. Tenant confirms that Landlord will not provide any
of the utilities described in Section 8.1, above and that Tenant shall be solely
responsible for such utilities. If, however, Tenant fails to arrange for the
provisions of such utilities and Landlord, at its sole option, elects to furnish
those utilities, Tenant shall pay to Landlord the cost thereof in the manner set
forth in Section 12.9. Tenant's cost shall be the total cost shown on utility
meters servicing the Premises and any extraordinary use which may be made by
Tenant.
ARTICLE 9. INDEMNIFICATION
9.1 Indemnity of Landlord. Tenant hereby agrees to indemnify, defend (with
attorneys approved by Landlord), protect, and hold Landlord and Landlord's
agents, employees, directors, officers, managers, members, partners, affiliates,
independent contracts and property managers ("Landlord's Agents"), harmless from
any and all liabilities, costs, expenses and losses by reason of injury to
person or property ("Losses"), caused by, arising out of, or related to, the
condition of the Property or the use or occupancy of the Property by Tenant, its
agents, directors, officers, managers, members, partners, affiliates,
independent contracts and property managers, or invitees ("Tenant's Agents"),
including without limitation, any liability for injury to the person or property
of Tenant or Tenant's Agents, but excepting any Loss resulting from the willful
breach of the Lease by Landlord or the gross negligence or willful misconduct of
Landlord or Landlord's Agents. Tenant's obligation hereunder shall survive the
termination of this Lease with respect to any claims or liability arising in
connection with any event occurring prior to such termination.
9.2 Waiver of Claims. Tenant, as a material part of the consideration
rendered to Landlord in entering into this Lease, hereby waives all claims
against Landlord for damages to goods, wares, machinery, trade fixtures, or
other property of Tenant, Tenant's Agents or any other person in or about the
Property, whether such damage or injury is caused by or results from Landlord's
negligence, fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, HVAC or lighting fixtures, or from any other cause,
whether the said injury or damage results from conditions arising upon the
Property, or from other sources or places, but excepting any claims resulting
from the gross negligence or willful misconduct of Landlord or Landlord's
Agents. Notwithstanding Landlord's negligence or breach of this Lease, Landlord
shall under no circumstances be liable for loss of profits or special,
incidental or consequential damages arising therefrom.
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9.3 Landlord Indemnification. Landlord agrees to indemnify Tenant and hold
it harmless from any and all loss, cost, damage, expense and liability
(including without limitation court costs and reasonable attorneys' fees)
incurred in connection with or arising from any Losses, caused by the gross
negligence or willful misconduct of Landlord and/or any of Landlord's Agents.
The obligations of Landlord under this Section 9.3 shall survive the termination
of this Lease with respect to any claims or liability arising in connection with
any event occurring prior to such termination.
9.4 Claims for Indemnification. If any indemnitee under Sections 9.2 or
9.3 above (an "Indemnitee") shall believe that such Indemnitee is entitled to
indemnification pursuant to this Article 9 in respect of any Losses, such
Indemnitee shall give the appropriate indemnifying party (each, as applicable,
an "Indemnifying Party") prompt written notice thereof. Any such notice shall
set forth in reasonable detail and to the extent then known the basis for such
claim for indemnification. The failure of such Indemnitee to give notice of any
claim for indemnification promptly shall not adversely affect such Indemnitee's
right to indemnity hereunder except to the extent that such failure adversely
affects the right of the Indemnifying Party to assert any reasonable defense to
such claim.
9.5 Defense of Claims. In connection with any claim which may give rise to
indemnity under this Article 9 resulting from or arising out of any claim or
proceeding against an Indemnitee by a person that is not a party hereto, the
Indemnifying Party shall (unless such Indemnitee elects not to seek indemnity
hereunder for such claim), upon written notice to the relevant Indemnitee,
assume the defense of any such claim or proceeding. The Indemnifying Party shall
select counsel reasonably acceptable to such Indemnitee to conduct the defense
of such claim or proceeding, shall take all steps necessary in the defense or
settlement thereof and shall at all times diligently and promptly perform
resolution thereof. Without the prior written consent of the Indemnitee, which
consent shall not be unreasonably withheld, the Indemnifying Party will not
enter into any settlement of, or any claim or proceeding which would lead to
liability or create any financial or other obligation on the part of the
Indemnitee for which the Indemnitee is not entitled to indemnification
hereunder. Without the prior written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld, the Indemnitee will not enter into
any settlement or any claim or proceeding which would lead to liability or
create any financial or other obligation on the part of the Indemnifying Party
unless the Indemnifying Party has failed or refused to acknowledge
responsibility for or defend such claim or proceeding within a reasonable period
of time after notice is provided pursuant to Section 9.4.
ARTICLE 10. INSURANCE
10.1 Landlord's Insurance. Landlord shall maintain, at Tenant's sole
expense, which Tenant shall pay to Landlord as Additional Rent in the manner set
forth in Section 12.9, a policy or policies of insurance protecting Landlord
against the following:
10.1.1 Fire and other perils normally included within the
classification of fire and extended coverage, together with insurance against
vandalism and malicious mischief, to the extent of the full replacement cost of
the Premises, including earthquake and flood coverage, exclusive of trade
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fixtures, equipment and improvements insured by Tenant, with agreed value, full
replacement and other endorsements which Landlord may reasonably elect to
maintain.
10.1.2 Eighteen (18) months of rental loss insurance and to the
extent of 100% of the gross rentals from the Building of which the Premises
constitute a part.
10.1.3 Public liability and property damage insurance with respect
to common areas in amounts (i) not less than $1,000,000 for injury or death to
any one person in any one accident or occurrence, (ii) not less than $2,000,000
for injury or death to more than one person in any one accident or occurrence,
(iii) not less than $4,000,000 of excess umbrella liability insurance, and, (iv)
not less than $200,000 per occurrence for damage to Premises.
10.1.4 At Landlord's sole option, environmental liability or
environmental clean-up/remediation insurance in such amounts and with such
deductibles and other provisions as Landlord may determine in its reasonable
discretion.
10.2 Payment. Tenant shall pay to Landlord in the manner set forth in
Section 12.9, the cost of insurance required in Section 10.1. To the extent that
any such insurance is maintained pursuant to a blanket or similar policy of
insurance, then the cost thereof shall be equitably allocated to the Property by
Landlord.
10.3 Tenant's Insurance. Tenant shall maintain at its sole cost and
expense, in force the policy or policies of insurance described in Lease Rider
No. 1 attached hereto and incorporated herein by this reference.
10.4 Release of Subrogation Rights. Landlord and Tenant each hereby waive
any and every claim for recovery from the other for any and all loss of or
damage to the Building or Premises or to the contents thereof, which loss or
damage is covered by valid and collectible property insurance policies. Landlord
waives any and every claim against Tenant for any and all loss of or damage to
the Building or the Premises or contents thereof, which would have been covered
had the insurance policies required to be maintained by Landlord by this Lease
been in force, to the extent that such loss or damage would have been
recoverable under such insurance policies. Tenant waives any and every claim
against Landlord for any and all loss of, or damage to, the Building or Premises
or the contents thereof which would have been covered had tenant maintained the
insurance policies required to be maintained by tenant under this Lease been in
force, to the extent that such loss or damage would have been recoverable under
such insurance policies. Inasmuch as this mutual waiver will preclude the
assignment of any such claim by subrogation (or otherwise) to an insurance
company (or any other person), Landlord and Tenant each agree to give to each
insurance company which has issued, or in the future may issue, to it policies
of property insurance, written notice of the terms of this mutual waiver, and to
have said insurance policies properly endorsed, if necessary, to prevent the
invalidation of said insurance coverage by reason of said waiver.
10.5 Failure to Provide Insurance. Tenant acknowledges that any failure on
its part to obtain or maintain the insurance required herein will expose
Landlord to risk and potentially cause Landlord to incur costs not contemplated
by this Lease, the extent of which will be extremely difficult to ascertain.
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Accordingly, for any month or portion thereof the Tenant does not maintain the
required insurance and/or does not provide Landlord with the required binders or
certificates evidencing the existence of the required insurance, the Base Annual
Rental shall be automatically increased, without any requirement for notice to
Tenant, by an amount equal to ten percent (10%) of the then existing Base Annual
Rental; provided, however, that if Tenant thereafter provides Landlord with
evidence of the insurance required by this Lease and such evidence is reasonably
acceptable to Landlord, the Base Annual Rental shall be adjusted to the then
required Base Annual Rental set forth in Section 3.1 of this Lease. The parties
agree that such increase in the Base Annual Rental represents fair and
reasonable compensation for the additional risk costs that Landlord will incur
by reason of Tenant's failure to maintain the required insurance. Such increase
in Base Annual Rental shall in no event constitute a waiver of Tenant's default
or breach with respect of the failure to maintain such insurance, prevent the
exercise of any of the other rights and remedies granted hereunder, nor relieve
Tenant of it's obligations to maintain the insurance specified in this Lease.
ARTICLE 11. TAXES
11.1 Personal Property Taxes. Tenant shall pay prior to delinquency all
taxes, assessments, license fees, and other public charges levied, assessed or
imposed or which become payable during the term of this Lease upon any trade
fixtures, furnishings, equipment and all other personal property of Tenant
installed or located in the Premises. Whenever possible, Tenant shall cause said
trade fixtures, furnishings, equipment and personal property to be separately
assessed. If, however, any or all of said items shall be assessed and taxed with
the real property, Tenant shall pay to Landlord such taxes as are attributable
to Tenant's trade fixtures, furnishings, equipment and personal property within
15 days after receipt of an invoice from Landlord advising Tenant of the taxes
applicable to Tenant's property.
11.2 Real Property Taxes. Tenant shall also pay at least 20 days before
due any and all real estate taxes, as defined in Section 11.3, assessed or
imposed, or which become a lien upon or become chargeable against or payable in
connection with the Property. Within three business days of such payment, Tenant
shall provide Landlord evidence of such payment in a form reasonably acceptable
to Landlord. Notwithstanding the foregoing, Tenant shall have the right to
contest the amount of any real estate taxes assessed against the Property at
Tenant's sole cost and expense, provided that Tenant shall nevertheless timely
pay the disputed amount as required in this Lease and shall otherwise indemnify,
defend and hold Landlord harmless from any claims, losses and liabilities
arising out of such contest. In the event that the Property is not separately
assessed, Tenant shall pay an equitable proportion of the real estate taxes and
assessments for all the land and improvements included within the tax parcel(s)
assessed, such proportion shall be determined by Landlord from the respective
valuations assigned in the assessor's worksheets and such other information as
is reasonably available to Landlord, including the Building and any special
improvements constructed for the benefit of Tenant. Real estate taxes for the
last year of the term of this Lease shall be prorated between Landlord and
Tenant as of the expiration date of the term. With respect to any assessments
which may be levied against or upon the Property, or which under the laws then
in force may be evidenced by improvement or other bonds and may be paid in
annual installments, only the amount of such annual installment, with
appropriate proration for any partial year, and interest thereon, shall be
included within a computation of taxes and assessments levied against the
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Property. In the event that Tenant incurs a late charge on the payment of the
Base Annual Rental or fails to pay the real property taxes within 20 days before
due, in addition to Landlord's remedies set forth in Section 18.1, Landlord may
estimate the current real property taxes, and require that such taxes be paid in
advance to Landlord by Tenant monthly in advance with the payment of the Base
Annual Rental. Such monthly payment shall be equal to the amount of the
estimated installment of taxes divided by the number of months remaining before
the month in which such installment becomes delinquent. When the actual amount
of the applicable tax bill is known, the amount of such equal monthly advance
payments shall be adjusted as required to provide the funds needed to pay the
applicable taxes. If the amount collected by Landlord is insufficient to pay
such real estate taxes when due, Tenant shall pay Landlord, upon demand, such
additional sum as is necessary. Advance payments may be intermingled with other
moneys of Landlord and shall not bear interest. In the event of a breach by
Tenant in the performance of its obligations under this Lease, then any such
advance payments may be treated by Landlord as an additional security deposit.
11.3 Definition of Taxes. For purposes of this Lease, "taxes" shall also
include each of the following:
11.3.1 Any form of assessment, license fee, license tax, bond or
improvement bond, business license tax, commercial rental tax, levy, charge,
penalty, or tax, imposed by any authority having the direct power to tax,
including any city, county, state or federal government, or any school,
agricultural, lighting, drainage or other improvement or special district
thereof, as against any legal or equitable interest of Landlord in the Property;
11.3.2 Any tax on Landlord's right to Rent or other income from the
Property or as against Landlord's business of leasing the Property;
11.3.3 Any assessment, tax, fee, levy or charge in substitution,
partially or totally, of any assessment, tax, fee, levy or charge previously
included with the definition of real property tax. It is the intention of Tenant
and Landlord that all such new and increased assessments, taxes, fees, levies
and charges and all similar assessments, taxes, fees, levies and charges be
included within the definition of real property tax for purposes of this Lease;
11.3.4 Any tax allocable to or measured by the area of the Property
or the rental payable hereunder, including without limitation, any gross income
tax or excise tax levied by the State, any political subdivision thereof, city,
or federal government, with respect to the receipt of such rental, or upon or
with respect to the possession, leasing, operating, management, maintenance,
alteration, repair, use of occupancy by Tenant of the Property, or any portion
thereof,
11.3.5 Any tax upon this transaction or any document to which Tenant
is a party, creating or transferring an interest or an estate in the Property;
and
11.3.6 Any tax, fee, levy, assessment or charge, or any increase
therein: (i) imposed by reason of events occurring during the term of this
Lease, including but not limited to, a change in the ownership of the Property,
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and (ii) levied or assessed on machinery or equipment, if any, provided by
Landlord to Tenant pursuant to this Lease.
11.3.7 "Real estate taxes" shall not include Landlord's federal or
state income, franchise, inheritance or estate taxes.
ARTICLE 12. COMMON AREAS
12.1 Common Area. Common areas shall include all areas within the Property
outside the exterior boundaries of the buildings situated thereon, including,
but not limited to, streets, driveways, parking areas, truckways, delivery
passages, loading doors, sidewalks, ramps, open and closed courts, landscaped
and planted areas, exterior stairways, retaining and decorative walls and
planters, and other areas provided for the for the common use of Landlord and
Tenant, their employees and invitees.
12.2 Maintenance. Tenant shall maintain said common areas in a neat, clean
and orderly condition, properly lighted and landscaped as Landlord shall
determine, including, but not limited to, general maintenance, repairs, pest
control, resurfacing, painting, restriping, cleaning, sweeping and trash
removal; maintenance and repair of sidewalks and curbs; sprinkler systems,
planting and landscaping; lighting, water, music and other utilities;
directional signs and other markers and bumpers; maintenance and repair of any
fire protection systems, automatic sprinkler systems, lighting systems, storm
drainage systems and any other utility systems; personnel to implement such
service and to police the common areas; and police and fire protection services.
12.3 Care of Premises. Tenant shall, at its sole cost and expense keep the
Premises and exterior and interior portions of windows, doors, and all other
glass or plate glass fixtures in a working neat, clean, sanitary, safe and good
condition and repair, and shall keep the Premises free from trash, rubbish and
dirt. Tenant shall make all repairs or replacements thereon or thereto, whether
ordinary or extraordinary.
12.4 Maintenance of Equipment. Tenant shall, at its sole cost and expense,
keep and maintain all utilities, fixtures and mechanical equipment used, or
available for use, by Tenant (wherever located) in good working order, condition
and repair. Said items shall include, but are not limited to, all plumbing or
sewage facilities in the Premises, doors, locks and closing devices, windows,
including glass, lights, electric systems and equipment, heating and air
conditioning systems and equipment, and all other appliances and equipment of
every kind.
12.5 Roof, Walls, Foundation and Structural. At its cost and expense,
Tenant will keep in good condition and repair the roof, foundation, load bearing
walls and structural elements of the Premises to keep the Premises in the same
condition and repair existing as of the Commencement Date, normal wear and tear,
casualty and condemnation excepted.
12.6 Compliance with Governmental Regulations. Tenant shall, at its sole
cost and expense, promptly and properly observe and comply with, including the
making by Tenant of any alterations to the Premises, all present and future
orders, regulations, directions, rules, laws ordinances, and requirements of all
governmental authorities (including, without limitation, state, municipal,
county and federal governments and their departments, bureaus, boards and
officials) arising from the use or occupy of, applicable to, the Property.
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12.7 Service Contracts. Tenant shall, at Tenant's sole cost and expense,
maintain in good condition and repair, the following equipment and improvements,
if any, if and when installed on the Premises: (i) HVAC equipment, (ii) boiler,
and pressure vessels, (iii) fire extinguishing systems, including fire alarm
and/or smoke detection, (iv) landscaping and irrigation system, (v) roof
covering and drains, (vi) clarifiers, (vii) basic utility feed to the perimeter
of the Building, and (viii) any other equipment, if reasonably required by
Landlord. To the extent Tenant elects to maintain the foregoing items through
specific service contracts, Tenant shall engage only those contractors
specializing and experienced in the maintenance of the foregoing equipment and
improvements and shall provide Landlord with copies of any and all such service
contracts. If Landlord reasonably determines that the foregoing equipment and
improvements are not being properly maintained, Landlord may, but shall not be
obligated, upon ten (10) days prior written notice to Tenant, to maintain and if
necessary, procure any and all service contracts to maintain the foregoing
equipment and improvements, and if Landlord so elects, Tenant shall reimburse
Landlord, upon demand, for the cost thereof.
12.8 Action by Landlord if Tenant Fails to Maintain. If Tenant refuses or
neglects to repair or maintain the Premises as required by Sections 12.2, 12.3,
12.4, 12.5, 12.6 and 12.7 to the reasonable satisfaction of Landlord, Landlord,
at any time following 10 days from the date on which Landlord shall make written
demand on Tenant to affect such repair or maintenance (or immediately without
notice in the event of an emergency), may, but shall not have the obligation to,
make such repair and/or maintenance (without liability to Tenant for any loss or
damage which may occur to Tenant's merchandise, fixtures or other personal
property, or to Tenant's business by reason thereof) and upon completion
thereof, Tenant shall pay to Landlord as Additional Rent Landlord's costs for
making such repairs, plus interest at the Default Rate upon demand herefore.
Moreover, Tenant's failure to pay any of the charges in connection with the
performance of its maintenance and repair obligations under this Lease will
constitute a material default under the Lease.
12.9 Tenant's Costs. Within 60 days after the Commencement Date (or as
soon as reasonably practicable thereafter), and within 60 days after the
beginning of each calendar year (or as soon as reasonably practicable
thereafter), Landlord shall give Tenant a written estimate, for such calendar
year, of Tenant's share of the cost of utilities, if not separately metered and
paid by Tenant, insurance provided by Landlord and expenses in connection with
maintenance of common areas and any other maintenance Landlord elects to perform
pursuant to the terms of this Lease. Tenant shall pay such estimated amount to
Landlord in equal monthly installments, in advance. Within 90 days after the end
of each calendar year (or as soon as reasonably practicable thereafter),
Landlord shall furnish to Tenant a statement showing in reasonable detail the
costs incurred by Landlord for the operation and maintenance of the Premises
during such year (the "Annual Statement"), and Tenant shall pay to Landlord
Tenant's proportionate share of the cost incurred in excess of the payments made
by Tenant within 10 days of receipt of such statement. In the event that the
payments made by Tenant for the operation and maintenance of the Premises exceed
Tenant's share of the cost of same, such amount shall be credited by Landlord to
the Rent or other charges next due and owing, provided that, if the Lease term
has expired, Landlord shall accompany said statement with the amount due Tenant.
Notwithstanding the foregoing, Landlord's failure to deliver any statement under
this Section 12.9, including any Annual Statement, shall not constitute a waiver
of Landlord's right to collect any sums owed by Tenant pursuant to the terms of
this Section 12.9.
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ARTICLE 13. SIGNS AND ADVERTISING
13.1 Signs. To the extent Tenant elects to place signage at the Premises,
Landlord shall designate the location on the Premises for one or more exterior
Tenant identification sign(s) and Tenant shall not display or erect any other
signs, displays, or other advertising materials that are visible from the
exterior of the building. The size, design, and other physical aspects of the
permitted sign(s) shall be subject to the Landlord's written approval prior to
installation, which approval will not unreasonably be withheld, any covenants,
conditions, or restrictions encumbering the Premises, any applicable municipal
or other governmental permits and approvals. The cost of the sign(s), including
but not limited to the permitting, installation, maintenance and removal thereof
shall be at Tenant's sole cost and expense. If Tenant fails to maintain its
sign(s), or if Tenant fails to remove such sign(s) upon termination of the
Lease, or fails to repair any damage caused by such removal (including without
limitation, painting the building, if required by Landlord), Landlord may do so
at Tenant's expense. Tenant shall on demand reimburse Landlord for all costs
incurred by Landlord to effect such removal, which amounts shall be deemed
Additional Rent and shall include without limitation, all sums disbursed,
incurred or deposited by Landlord, including Landlord's costs, expenses and
actual attorneys' fees with interest thereon. By executing this Lease, Landlord
hereby approves the signage currently existing on the Premises. Tenant's signage
rights set forth in this Section 13.1 are personal to the originally named
Tenant under this Lease and shall not be transferred in the event Tenant assigns
this Lease or subleases the Premises unless Landlord otherwise consents to the
transfer of Tenant signage rights under this Section 13.1, which consent may be
withheld in Landlord's sole, subjective discretion.
ARTICLE 14. ENTRY BY LANDLORD
14.1 Entry by Landlord. Tenant shall permit Landlord and Landlord's
Agents, prospective purchasers, lenders, investors, contractors, and within
eighteen (18) months prior to the expiration of this Lease, prospective tenants,
to enter the Premises at all reasonable times, upon giving Tenant a 24 hour
prior notice, except in the event of an emergency in which case the 24 hour
prior notice is not required: (i) for the purpose of inspecting the same, (ii)
for the purpose of maintenance, repairs, alterations, or additions to any
portion of the Building, including the erection and maintenance of such
scaffolding, canopies, fences, and props as may be required, (iii) for the
purposes of performing any of Tenant's obligations under this Lease, or (iv) for
the purpose of posting notices of non-responsibility for alterations, additions,
or repairs. In connection with the foregoing, Landlord acknowledges that due to
the proprietary and confidential nature of certain portions of the Premises,
Landlord's access pursuant to this Section 14.1 to the cGMP classified space and
other designated areas of the Premises (which Tenant shall designate in writing
delivered to Landlord prior to the Commencement Date) (collectively, the
"Classified Space") may be limited such that Landlord may only access the
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Classified Space when accompanied by certain specified representatives of Tenant
and in accordance with Tenant's standard entry procedures for the Premises,
provided that so long as Landlord complies with the foregoing with regard to the
Classified Space, Tenant shall not otherwise unreasonably deny Landlord access
to the Classified Space. Provided Landlord gives Tenant the above 24-hour prior
notice, Tenant shall make available all necessary Tenant representatives so that
Landlord may access the Classified Space as provided above.
14.2 No Liability. Subject to the provisions of Section 14.1, Landlord
shall be permitted to enter the Premises for any of the purposes stated in and
in accordance with Section 14.1 above without any liability to Tenant for any
loss of occupation of quiet enjoyment of the Premises resulting therefrom.
ARTICLE 15. ASSIGNMENT AND SUBLETTING
15.1 Assignment and Subletting. Tenant shall neither voluntarily nor by
operation of law, assign, sell, encumber, pledge or otherwise transfer all or
any part of Tenant's leasehold estate hereunder, or permit the Premises to be
occupied by anyone other than Tenant or Tenant's employees, or sublet the
Premises or any portion thereof, without Landlord's prior written consent in
each instance, which consent shall not be unreasonably withheld. Any purported
assignment or subletting contrary to these provisions shall be void. It shall
not be unreasonable for Landlord to base its determination as to whether consent
will be granted in any specific instance on, without limitation, the following
factors: (a) whether the assignee's or subtenant's use of the Premises will be
compatible with the provisions of this Lease; (b) the financial capacity of the
assignee or subtenant; (c) the business reputation of the assignee or subtenant;
(d) the quality and type of the business operations of the assignee or
subtenant; (e) the business experience of the proposed assignee or subtenant;
and (f) that each and every applicable covenant, condition or obligation imposed
upon Tenant by this Lease is assumed by such assignee or subtenant and each and
every right, remedy or benefit afforded Landlord by this Lease is not thereby
impaired or diminished. This list of factors is not intended to be exclusive,
and Landlord may rely on such other reasonable basis for judgment as may apply
from time to time. Consent by Landlord to one or more assignments of this Lease
or to one or more sublettings of the Premises shall not operate to exhaust
Landlord's rights under this Section.
15.2 Notice to Landlord. If Tenant desires at any time to assign this
Lease or to sublet the Premises or any portion thereof, it shall first notify
Landlord of its desire to do so and shall submit in writing to Landlord (the
"Transfer Notice"); (i) the size and location of the space Tenant proposes to
assign or sublet; (ii) the name of the proposed assignee; (iii) the date on
which the Tenant proposes that the transfer be effective, which shall not be
earlier than the date which is forty-five (45) days after the Transfer Notice
(iv) the nature of the proposed assignee's business to be carried on in the
Premises; (v) the terms and provisions of the proposed sublease or assignment;
(vi) such reasonable financial information as Landlord may request concerning
the proposed assignee, and (vii) such other information as Landlord may
reasonably require. Tenant agrees to reimburse Landlord for Landlord's actual
costs and attorneys' fees incurred in conjunction with the processing and
documentation of any such requested assignment, subletting, transfer, change or
ownership or hypothecation of this Lease.
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15.3 Notwithstanding Section 15.1 and 15.2, Landlord agrees that Tenant
may assign its interest in this Lease, without Landlord's prior written consent
but with reasonable prior notice to Landlord, (i) to any successor by merger or
sale of substantially all of Tenant's assets to which this Lease relates in a
manner such that the assignee will become liable and responsible for the
performance and observance of all Tenant's duties and obligations hereunder, or
(ii) in connection with any joint venture entered into by Tenant with an
investment grade rated company (each such assignment, a "Specially Permitted
Assignment"). As used herein, the term "investment grade rated" means a senior
unsecured credit rating of "BBB" or higher (or the equivalent) as determined by
Standard & Poor's (or an equivalent national credit rating service). In
addition, Tenant may assign its interest in this Lease, without Landlord's prior
written consent but with reasonable prior written notice to Landlord, to any
corporation or other entity which controls, is controlled by, or is under common
control with Tenant, a corporation or other entity will be regarded as in
control of another corporation or entity if its owns or controls in excess of
50% of the voting stock or other ownership interest of the other corporation or
entity), subject to the prerequisite condition that the corporation or other
entity to which Tenant's interest in this Lease would be assigned must
demonstrate to the satisfaction of Landlord that: (i) it has financial soundness
and capability which is equal to or greater than that of Tenant, (ii) it's net
worth is equal to or greater than that of Tenant's immediately preceding such
assignment, (iii) the assignee's use of the Premises will be compatible with the
provisions of the Lease, and (iv) each and every covenant, condition or
obligation imposed upon Tenant by this Lease is assumed by such assignee and
each and every right, remedy or benefit afforded Landlord by this Lease is not
thereby impaired or diminished.
15.4 No Release of Liability. No subletting or assignment, even with the
consent of Landlord, shall relieve Tenant of its obligation to pay the Rent and
perform all the other obligations to be performed by Tenant hereunder. The
acceptance of Rent by Landlord from any other person shall not be deemed to be a
waiver by Landlord of any provision of this Lease or to be a consent to any
assignment or subletting.
15.5 Transfer Premiums. If Tenant assigns or sublets its rights under this
Lease, Tenant shall pay to Landlord as Additional Rent, after Tenant has
recovered any relevant leasing commissions, costs of tenant improvements and
other expenses of the assignment or sublease, 50% of such excess consideration
due and payable to Tenant from said assignment or sublease to the extent said
consideration exceeds the Base Annual Rental or a pro rata portion of the Base
Annual Rental, in the event only a portion of the Premises is sublet or assigned
("Profits"); provided, however, Landlord will not be entitled to any Profits
derived in connection with a Specially Permitted Assignment.
15.6 Landlord's Option. If Tenant desires at any time to assign or sublet
all or substantially all of the Premises, Landlord, within 15 days after
Landlord's receipt of all of the information required in the Transfer Notice,
may by written notice to Tenant elect to terminate this Lease as to the entire
Premises. In the event the Landlord elects to terminate the Lease, the Lease
shall terminate on the proposed date the transfer would be effective as
specified in the Transfer Notice and Tenant shall have no furhter obligations
with respect to the Premises other than to surrender and vacate the Premises on
or before the effective date of termination. After any such election by
Landlord, Landlord shall be entitled to re-lease the Premises in Landlord's sole
and absolute discretion.
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ARTICLE 16. DISPOSSESSION
16.1 No Dispossession. If Tenant shall surrender the Premises, or be
disposed by process of law, or otherwise, Landlord may terminate this Lease,
retake possession of the Premises, pursue its remedies provided herein, and any
personal property or trade fixtures belonging to Tenant and left on the Premises
shall, at the option of Landlord, be deemed abandoned. In such case, Landlord
may dispose of said personal property at Tenant's sole expense in any manner and
is hereby relieved of all liability for doing so.
ARTICLE 17. BREACH BY TENANT
17.1 Events of Default. The occurrence of any of the following shall
constitute a breach and material default of this Lease by Tenant:
17.1.1 The failure of Tenant to pay or cause to be paid when due any
installment of Base Annual Rental, or any Additional Rent, Rent, taxes, monies,
or charges required by this Lease to be paid by Tenant when such failure
continues for a period of 5 business days after Tenant's receipt of written
notice thereof from Landlord, provided that if Tenant fails to pay any of the
foregoing within the above 5-business day period more than two (2) times in any
twelve (12) month period during the Term, Landlord shall not be required to
provide Tenant with any further notice and Tenant shall be deemed to be in
default of this Section 17.1 if Tenant fails to pay any installment of Base
Annual Rental, or any Additional Rent, Rent, taxes, monies or other charges
required by this Lease to be paid by Tenant as and when due ;
17.1.2 The failure of Tenant to perform any term, covenant or
condition, other than payment of Rent, taxes, monies or charges, required by
this Lease and Tenant shall have failed to cure such failure within 30 days
after written notice from Landlord; provided, however, that where such failure
cannot reasonably be cured within the 30 day period, the Tenant shall not be in
default if it has commenced such cure within the same 30 day period and
diligently thereafter prosecutes the same to completion within thirty (30) days
thereafter;
17.1.3 Subject to the notice and cure provisions of Section 17.1.2
above, Tenant causing, permitting, or suffering, without the prior written
consent of Landlord, any act when this Lease requires Landlord's prior written
consent or prohibits such act; or
17.1.4 To the extent permitted by applicable law, any act of
bankruptcy cause, suffered or permitted by Tenant. For purposes of this Lease,
"act of bankruptcy" shall include any of the following:
17.1.4.1. Any general assignment or general arrangement for
the benefit of creditors;
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17.1.4.2. The filing of any petition by or against Tenant to
have Tenant adjudged a bankrupt or a petition for reorganization or arrangement
under any law relating to bankruptcy, unless such petition is filed against
Tenant and same is dismissed within 60 days;
17.1.4.3. The appointment of a trustee or receiver to take
possession of substantially all of Tenant's assets located in the Premises or of
Tenant's interest in this Lease; or,
17.1.4.4. The attachment, execution or other judicial seizure
of substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease.
17.2 Three-Day Notice. In the event that Landlord issues a three-day
notice, notice of abandonment or comparable document by reason of Tenant's
breach, and Tenant cures such default, Tenant agrees to pay to Landlord, the
reasonable cost of preparation and delivery of same.
17.3 No Waiver. The acceptance by Landlord of Rent due hereunder after
breach by Tenant or the waiver by Landlord of any other breach or default by
Tenant hereunder will not constitute a waiver of such breach, unless a written
notice to that effect has been delivered to Tenant.
17.4 Replacement of Statutory Notice Requirements. When this Lease
requires service of a notice, that notice shall replace rather than supplement
any equivalent or similar statutory notice, including any notices required by
applicable law. When a statute requires service of a notice in a particular
manner, service of that notice (or a similar notice required by this Lease) in
the manner required by Section 38.10 shall replace and satisfy the statutory
service-of-notice procedures.
ARTICLE 18. REMEDIES UPON BREACH
18.1 Landlord's Remedies. If Tenant fails to perform any of its
affirmative duties or obligations as and when required after expiration of any
cure periods expressly provided in Article 17, above (or in the case of any
facts or circumstances that create an imminent risk of damage to the Property or
injury to, or death of, persons, without written notice), Landlord may, at its
option, perform such duty or obligation on Tenant's behalf, including but not
limited to the payment of property taxes, obtaining of reasonable required
bonds, insurance policies, or governmental licenses, permits or approvals.
Tenant shall pay to Landlord an amount equal to the costs and expenses incurred
by Landlord in such performance upon receipt of an invoice, with interest
thereon, at the Default Rate from the date of expenditure. In the event of any
breach or material default by Tenant under Section 17.1, in addition to other
rights or remedies of Landlord at law or in equity, Landlord shall have the
following remedies:
18.1.1 Landlord shall have the remedy which provides that, when a
tenant has the right to sublet or assign (subject only to reasonable
limitations), the landlord may continue the lease in effect after the tenant's
breach and abandonment and recover Rent as it become due. Accordingly, if
Landlord does not elect to terminate this Lease on account of any default by
Tenant, Landlord may enforce all of Landlord's rights and remedies under this
Lease, including the right to recover all Rent as it becomes due; and
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18.1.2 Landlord, either as an alternative or subsequent to
exercising the remedies set forth in Section 18.1.1, may terminate Tenant's
right to possession of the Property without the delivery to Tenant of any
additional written notice of termination. Landlord may then immediately reenter
the Premises and take possession thereof pursuant to legal proceedings and
remove all persons and property from the Premises; such property may be removed
and stored in a public warehouse or elsewhere at the cost of and for the account
of Tenant. No notice of termination shall be necessary in the event that Tenant
has abandoned the Premises. In the event that Landlord elects to terminate
Tenant's right of possession, Landlord may recover the following:
18.1.2.1. The worth at the time of the award of the unpaid
Rent which had been earned at the time of termination. "Worth at the time of
award" shall be computed by allowing interest at the Default Rate from the first
day the breach occurs;
18.1.2.2. The worth at the time of award of the amount by
which the unpaid Rent which would have been earned after termination until the
time of award exceeds the fair market rental value of the Premises, as
determined by Landlord. "Worth at the time of award" shall be determined by
allowing interest at the Default Rate from the first day a breach occurs;
18.1.2.3. The worth at the time of award of the amount by
which the unpaid Rent for the balance of the term after the time of award
exceeds the fair market rental value of the Premises, as determined by Landlord.
"Worth at the time of award" shall be computed by discounting such amount at the
discount rate at the Federal Reserve Bank of San Francisco at the time of award
plus 1%; and
18.1.2.4. Any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform its
obligations under the Lease or which in the ordinary course of things would be
likely to result therefrom including, but not limited to, commissions and
expenses of reletting, attorneys' fees, costs of alterations and repairs,
recording fees, filing fees and any other expenses customarily resulting from
obtaining possession of leased premises and re-leasing.
18.2 Landlord Default. Tenant shall have no right to terminate
this Lease for any default by Landlord.
ARTICLE 19. DAMAGE OR DESTRUCTION
19.1 Landlord's Obligation to Rebuild. If the Property is damaged or
destroyed, Tenant shall promptly notify Landlord in writing of the damage or
destruction to the Property. Provided Landlord has been given notice of such
damage or destruction, Landlord shall provide Tenant a good faith estimate of
the time it will take to repair the Property and Landlord shall promptly and
diligently repair the Property unless it has the right to terminate this Lease
as provided in Section 19.2 below and it elects to so terminate.
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19.2 Landlord's Right to Terminate. Landlord shall have the right to
terminate this Lease following damage to or destruction of the Property if any
of the following occurs: (i) insurance proceeds together with additional amounts
Tenant agrees to contribute are not confirmed to be available to Landlord,
within 90 days following the date of damage, to pay 100% of the cost to fully
repair the damaged Property, excluding the deductible for which Tenant shall
also be responsible; (ii) the Property cannot, with reasonable diligence, be
fully repaired by Landlord within 12 months after the date of the damage or
destruction; (iii) the Property cannot be safely repaired because of the
presence of hazardous factors, including, but not limited to, earthquake faults,
radiation, chemical waste and other similar dangers; (iv) the Property are
destroyed or damaged during the last 12 months of the Term; or (v) Tenant is in
uncured material default under the terms of this Lease at the time of such
damage or destruction.
19.3 Tenant's Right to Terminate. Tenant shall have the right to terminate
this Lease following damage to or destruction of the Property if any of the
following occurs: (i) the Property cannot, with reasonable diligence, be fully
repaired by Landlord within twelve (12) months after the date of the damage or
destruction; or (ii) the Property is destroyed or damaged during the last 12
months of the Term.
If a party elects to terminate this Lease and has the right to so
terminate, such party will give the other party written notice of its election
to terminate within 30 days after it has knowledge of such damage or
destruction, and this Lease will terminate 15 days after receipt of such notice.
If this Lease is terminated pursuant to Section 19.2, Landlord shall, subject to
the rights of its lender(s), be entitled to receive and retain all the insurance
proceeds resulting from such damage, except for those proceeds payable under
policies obtained by Tenant which specifically insure Tenant's personal
property, trade fixtures and machinery. If neither party elects to terminate the
Lease, Landlord shall, promptly following the date of such damage or destruction
and receipt of amounts required of Tenant pursuant to Section 19.2(i) above,
commence the process of obtaining necessary permits and approvals, and shall
diligently commence repair of the Property as soon as practicable and thereafter
prosecute the same diligently to completion, in which event this Lease will
continue in full force and effect.
19.4 Limited Obligation to Repair. Landlord's obligation, should it elect
or be obligated to repair or rebuild, shall be limited to the Property, and
Tenant shall, at its expense, replace or fully repair all Tenant's personal
property and any alterations installed by Tenant existing at the time of such
damage or destruction. If the Property is to be repaired in accordance with the
foregoing, Landlord shall make available to Tenant any portion of insurance
proceeds it receives which are allocable to the alterations constructed by
Tenant pursuant to this Lease provided Tenant is not then in default.
19.5 Abatement of Rent. Rent shall be temporarily abated in proportion to
the degree to which Tenant's use of the Property is impaired and only to the
extent of any proceeds received by Landlord from the rental abatement insurance
described in Section 10.1 hereof, during any period when, by reason of such
damage or destruction, Landlord and Tenant reasonably determines that there is
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substantial interference with Tenant's use of the Property and Tenant actually
ceases to use such portion of the Property impacted by such damage or
destruction. Such abatement shall commence upon such damage or destruction and
end upon the earlier of (i) substantial completion by Landlord of the repair or
reconstruction which Landlord is obligated or undertakes to do or (ii) the date
on which Tenant commences to use the damaged portion of the Property. Tenant
shall not be entitled to any compensation or damages from Landlord for loss of
the use of the Property, damage to Tenant's personal property or any
inconvenience occasioned by such damage, repair or restoration.
19.6 Replacement Cost. The determination in good faith by Landlord of the
estimated cost of repair of any damage, of the replacement cost, or of the time
period required for repair shall be conclusive for purposes of this Section.
ARTICLE 20. CONDEMNATION
20.1 Total Taking - Termination. If title to all of the Property or so
much thereof is taken for any public or quasi-public use under any statute or by
right of eminent domain so that reconstruction of the Building will not result
in the Property being reasonably suitable (as reasonably determined by Landlord
and Tenant) for Tenant's continued occupancy for the uses and purposes permitted
by this Lease, this Lease shall terminate as of the date possession of the
Property or part thereof be taken.
20.2 Partial Taking. If any part of the Property is taken and Landlord and
Tenant reasonably determine that the remaining portion of the Property will be
reasonably suitable for Tenant's continued occupancy for the purposes and uses
permitted by this Lease after Landlord makes repairs and alterations, this Lease
shall, as to the part so taken terminate as of the date that possession of such
part of the Property is taken and the Base Annual Rental shall be reduced in the
same proportion that the floor area of the portion of the Premises so taken
(less any addition thereto by reason of any reconstruction) bears to the
original floor area of the Premises. Landlord shall, at its sole cost and
expense, make all necessary repairs or alterations to the Property so as to make
the portion of the Property not taken a complete architectural unit. Such work
shall not, however, exceed the scope of the work done by Landlord in originally
constructing the Property. Base Annual Rental due and payable hereunder shall be
temporarily abated based on the percentage of the Property that Tenant is unable
to use and actually does not use. Notwithstanding the foregoing, if more than
twenty-five percent (25%) of the square footage of the Premises is taken or sold
under such threat, Landlord may terminate this Lease as of the date that the
condemning authority takes possession by delivery of written notice of such
election within twenty (20) days after Landlord has been notified of the taking
or, in the absence thereof, within twenty (20) days after the condemning
authority shall have taken possession.
20.3 No Apportionment of Award. No award for any partial or entire taking
shall be apportioned, it being agreed and understood that Landlord shall be
entitled to the entire award for any partial or entire taking. Tenant assigns to
Landlord its interest in any award which may be made in such taking or
condemnation, together with any and all rights of Tenant arising in or to the
same or any part thereof. Nothing contained herein shall be deemed to give
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Landlord any interest in or require Tenant to assign to Landlord any separate
award made to Tenant for the taking of Tenant's personal property, trade
fixtures or machinery for the interruption of Tenant's business, or its moving
costs, or for the loss of its goodwill. In addition, Tenant will have the right
to make a separate claim in the condemnation proceeding for (a) the taking of
the unamortized or undepreciated value of any leasehold improvements that Tenant
has the right to remove at the end of the Lease Term and that Tenant elects not
to remove, (b) loss of goodwill, and (c) any other amount in addition to the
foregoing, so long as any such claim does not reduce the amount of the award
payable to Landlord.
20.4 Temporary Taking. No temporary taking of the Property shall terminate
this Lease or give Tenant any right to any abatement of Rent, except to the
extent covered by insurance proceeds payable to Landlord. Any award made to
Tenant by reason of such temporary taking shall belong entirely to Tenant and
Landlord shall not be entitled to share therein. Each party agrees to execute
and deliver to the other all instruments that may be required to effectuate the
provisions of this Section.
20.5 Sale Under Threat of Condemnation. A sale made in good faith by
Landlord to any authority having the power of eminent domain, either under
threat of condemnation or while condemnation proceedings are pending, shall be
deemed a taking under the power of eminent domain for all purposes of this
Section.
ARTICLE 21. SURRENDER OF LEASE
21.1 Surrender of Lease. The voluntary or other surrender of its interest
in this Lease by Tenant or a mutual cancellation of this Lease shall not work a
merger, and shall, at the election of Landlord, either terminate all or any
existing subleases or subtenancies or operate as an assignment to Landlord of
any or all of such subleases or subtenancies. Landlord shall exercise its
election within 30 days of any such surrender or cancellation.
ARTICLE 22. ATTORNEYS' FEES
22.1 Attorneys' Fees. If either party institutes or is made a party to any
action or proceeding to enforce or interpret this Lease, the prevailing party in
such action or proceeding shall be entitled to recover all costs and attorneys'
fees incurred in connection with such action or proceeding, or any appeal or
enforcement of such action or proceeding. If Tenant is in default under this
Lease, in addition to all other remedies available to Landlord as a result
thereof, Landlord shall also be entitled to recover all costs and attorneys'
fees incurred by Landlord in connection with such default, including, without
limitation, any court costs and costs relating to the preparation of any default
notices.
ARTICLE 23. SALE OF THE PROPERTY BY LANDLORD.
23.1 Sale of Property. Subject to Tenant's rights under Articles 35 and
37, notwithstanding any provisions of this Lease to the contrary, Landlord may
assign, in whole or in part, Landlord's interest in this Lease and may sell all
or part of either the Property or the entity owning the Property. Should
Landlord elect to sell the entity owning the Property, or the Property, Landlord
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agrees to notify Tenant of its intent to do so. Landlord's willingness to notify
Tenant is to be considered a courtesy notice only and not an offer to sell, or
an obligation of any form on the part of Landlord to sell the Property to
Tenant. This courtesy notice is not to be construed as an option, an offer to
negotiate, a right of first refusal, or any other form of agreement that would
obligate Landlord to pursue a sale of the Property to Tenant or in any manner
prohibit Landlord from its rights to sell all or part of the Property as it
chooses.
ARTICLE 24. QUIET ENJOYMENT
24.1. Quiet Enjoyment. If Tenant is not in breach under the covenants made
in this Lease, Landlord covenants that Tenant shall have peaceful and quiet
enjoyment of the Property without hindrance on the part of Landlord. Landlord
will defend Tenant in the peaceful and quiet enjoyment of the Property against
claims of all persons claiming through or under Landlord.
ARTICLE 25. ESTOPPEL CERTIFICATES AND FINANCIAL STATEMENTS
25.1 Tenant Estoppel Certificate. Tenant shall at any time during the term
of this Lease, within 5 business days of written notice from Landlord, execute
and deliver to Landlord a statement in writing certifying that this Lease is
unmodified and in full force and effect or, if modified, stating the nature of
such modification. Tenant's statement shall include other details requested by
Landlord, such as the date to which Rent and other charges are paid, Tenant's
knowledge concerning any uncured defaults with respect to Landlord's obligations
under this Lease and the nature of such defaults if they are claimed, and such
other matters as Landlord may reasonably request. Any such statement may be
relied upon conclusively by any purchaser or lender having an interest in the
Property. Tenant's failure to deliver such statements within such time shall be
conclusive upon the Tenant that this Lease is in full force and effect, except
as and to the extent any modification has been represented by Landlord, and that
there are no uncured defaults in Landlord's performance, and that not more than
1 month's Rent has been paid in advance.
25.2 Tenant Financial Statements. Within 120 days after the end of each
fiscal year, Tenant shall provide Landlord a copy of the audited financial
statements that have been provided to the SEC or, in the event Tenant is no
longer required to deliver such financial statements to the SEC, year-end
financial statements, including balance sheets and income statements, reflecting
Tenant's current financial condition for such fiscal year that have been audited
by a nationally recognized firm of certified public accountants. Tenant
represents and warrants that all financial statements, records and information
furnished by Tenant to Landlord in connection with this Lease are true, correct
and complete in all respects.
ARTICLE 26. SUBORDINATION AND ATTORNMENT
26.1 Subordination of Lease. This Lease and Tenant's rights under this
Lease are subject and subordinate to any Mortgage, ground lease, and to all
renewals, modifications, consolidations, replacements, or extensions thereof,
now or hereafter affecting the Property. The provisions of this Section shall be
self-operative, and no further instrument of subordination shall be required. In
confirmation of such subordination, however, Tenant shall within five business
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days execute and deliver any instruments that Landlord, the holder of any
Mortgage, or the Landlord of any ground lease may request to evidence such
subordination. If Tenant fails to execute and deliver any such instruments,
Tenant irrevocably constitutes and appoints Landlord as Tenant's special
attorney-in-fact to execute and deliver such instruments. Landlord shall use
commercially reasonable efforts to obtain a subordination, non-disturbance and
attornment agreement ("SNDA") from Landlord's current lender ("Lender") with
regard to any current mortgage or deed of trust recorded against the Property as
of the date of this Lease, which SNDA shall be based on Lender's form of SNDA.
The SNDA shall provide, among things, that in the event of any foreclosure, sale
under a power of sale, ground or master lease termination, or transfer in lieu
of any of the foregoing, or the exercise of any other remedy under any such
encumbrance, but subject to such holder's form exceptions, or other reasonable
exceptions: (i) Tenant's use, possession, and enjoyment of the Property will not
be disturbed and this Lease will continue in full force and effect so long as
Tenant is not in default; and (ii) this Lease will automatically become a lease
directly between any successor to Landlord's interest, as landlord, and Tenant,
as if that successor were the landlord originally named in the lease. The
subordination of this Lease to the lien of any future mortgage or deed of trust
(i.e., any mortgage or deed of trust that is recorded after the Commencement
Date of this Lease) shall be contingent upon Tenant's receipt of an SNDA from
the holder of any such mortgage or deed of trust recorded against the Property
in substantially the same form as provided above.
26.2 Attornment to Lender. If the holder of any Mortgage, or the Landlord
of any ground lease affecting the Property, shall hereafter succeed, by
foreclosure or otherwise, to the rights of Landlord under this Lease, Tenant
shall attorn to and recognize such successor as Tenant's Landlord under this
Lease, and shall promptly execute and deliver any instruments that may be
necessary to evidence such attornment, and Tenant hereby irrevocably appoints
Landlord as Tenant's special attorney in fact to execute and deliver such
instruments on behalf of Tenant should Tenant refuse or fail to do so. Upon such
attornment, this Lease shall continue in effect as a direct lease between such
successor Landlord and Tenant upon and subject to all of the provisions of this
Lease.
ARTICLE 27. HOLDING OVER
27.1 Holding Over. If Tenant should remain in possession of the Property
after the expiration of the term of this Lease without executing a new lease or
after Landlord has declared a forfeiture by reason of a default by Tenant, the
such holding over shall be construed as a tenancy from month to month, subject
to all the conditions, provisions and obligations of this Lease insofar as they
are applicable to a month to month tenancy, including the provisions of Article
3, except that the Base Annual Rental shall be increased to the greater of (i)
one hundred fifty percent (150%) of the Base Annual Rental last due and (ii) the
fair market rental rate for the Property as of the commencement of such holdover
period, payable monthly in advance. Notwithstanding the foregoing, nothing
contained in this Article 27 shall be construed as consent by Landlord to the
holding over by Tenant, and Landlord expressly reserves the right to require
Tenant to surrender possession of the Property to Landlord as provided in this
Lease upon expiration or other termination of this Lease. Notwithstanding the
foregoing, if Tenant fails to vacate the Property or Tenant fulfills less than
all of its obligations hereunder at the end of the Lease Term, Tenant also shall
be liable for all damages incurred by Landlord (including, without limitation,
consequential damages) by reason of the latter's inability to deliver possession
of the Property or any portion thereof to any other person.
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ARTICLE 28. MORTGAGEE PROTECTION
28.1 Mortgagee Protection. In the event of any default on the part of
Landlord, Tenant agrees to give notice by registered or certified mail to any
beneficiary of a deed of trust or mortgage covering the Property whose address
shall have been furnished to the Tenant and shall offer such beneficiary or
mortgagee a reasonable opportunity to cure such default (such cure period not to
exceed 90 days after receipt of such notice) before Tenant shall attempt to
exercise any other remedy.
ARTICLE 29. LIABILITY OF SUCCESSORS
29.1 Successor's Liability. The covenants and conditions herein contained
shall, subject to the provisions as to assignment, apply to and bind the heir,
successors, executors, administrators, and permitted assigns of all the parties
hereto and all of the parties hereto shall be jointly and severally liable for
the covenants contained herein.
ARTICLE 30. EASEMENTS
30.1. Easements. Landlord reserves the right, from time to time, to grant
such easements, rights and dedications that Landlord deems necessary or
desirable, and to cause the recordation of parcel maps and restrictions, so long
as such easements, rights, dedications, maps and restrictions do not
unreasonably interfere with the use of the Property by Tenant. Tenant shall sign
any documents or instruments to accomplish the foregoing upon request of
Landlord, and failure to do so shall constitute a material breach of this Lease.
Tenant irrevocably appoints Landlord as Tenant's special attorney in fact to
execute and deliver such documents or instructions on behalf of Tenant should
Tenant refuse or fail to do so.
ARTICLE 31. RESTRICTIONS
31.1 Compliance with Covenants, Conditions and Restrictions. In addition
to requirements imposed by law, the care of the Property and conduct of business
thereupon, among other things, may be restricted or subject to heightened
requirements pursuant to one or more recorded Covenant, Conditions and
Restrictions ("CC&R's"). The terms of all applicable CC&R's, if any, in their
entirety, are incorporated herein by this reference. Tenant has received a copy
of that certain Declaration of Covenants, Conditions and Restrictions for Route
One Hundred Business Park, dated November 6, 1972 and recorded as Liber 613,
Page 635 in the Official Records of Howard County, Maryland (the "Route One
Hundred CC&Rs"). To the actual knowledge of Landlord, the Route One Hundred
CC&Rs no longer encumber the Property.
31.2 Associations. Tenant shall faithfully observe and comply with the
provisions of all applicable CC&R's, if any, and all modifications and additions
which may from time to time be enacted pursuant to their terms. Tenant shall
similarly observe and comply with all requests, demand and orders otherwise made
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by any governing associations created under the authority of the CC&R's (the
"Associations"). Any violation by Tenant of the CC&R's or rightful orders of the
Associations created thereby after written notice to Tenant shall be a default
under this Lease, subject to the cure provisions of Section 17.1.2. However,
Landlord will not be responsible to Tenant for the nonperformance of any
provisions of such CC&R's by its tenants occupying neighboring properties, if
any.
31.3 Association Fees. All payments, charge, dues, and assessments imposed
under the authority of the CC&R's and the Associations ("Association Fees"), if
any, shall be the sole responsibility of Tenant, who shall timely pay such
Association Fees to Landlord as Additional Rent. Each payment shall be made
promptly on demand throughout the term of this Lease and shall be paid without
deduction or offset. To the actual knowledge of Landlord, there are no current
Association Fees payable in connection with the Property.
ARTICLE 32. INTENTIONALLY OMITTED
ARTICLE 33. HAZARDOUS MATERIALS
33.1 Definitions:
33.1.1 Hazardous Materials Laws. "Hazardous Materials Laws" means
any and all federal, state or local laws, ordinances, rules, decrees, orders,
regulations or court decisions relating to hazardous substances, hazardous
materials, hazardous waste, toxic substances, environmental conditions on, under
or about the Property, or soil and ground water conditions, including,
amendments to and any regulations promulgated pursuant to the foregoing, and any
similar federal, state or local laws, ordinances, rules, decrees, orders or
regulations.
33.1.2 Hazardous Materials. "Hazardous Materials" means any
chemical, compound, substance or other material, including, without limitation,
gasoline, diesel, aviation fuels, lubricating oils, solvents and chemicals,
that: (i) is defined as a hazardous substance, hazardous material, hazardous
waste or toxic substance under any Hazardous Material Law; (ii) is controlled or
governed by any Hazardous Materials Law, or gives rise to any reporting, notice
or publication requirements thereunder, or gives rise to any liability,
responsibility or duty on the part of Tenant or County with respect to any third
person thereunder; or (iii) is a flammable or explosive material, asbestos,
radioactive material, nuclear medicine material, drug, vaccine, bacterial,
virus, hazardous waste, toxic substance, or related injurious or potentially
injurious material (by itself or in combination with other materials).
33.2 Tenant's Obligations
33.2.1 Compliance with Laws. Tenant shall strictly comply with, and
shall maintain the Property in compliance with, all Hazardous Materials Laws.
Tenant shall obtain and maintain in full force and effect all permits, licenses
and other governmental approvals required for Tenant's operations on the
Property under any Hazardous Materials Laws, including, without limitation, any
radiological materials licenses and shall comply with all terms and conditions
thereof. At Landlord's request, Tenant shall deliver copies of, or allow
Landlord to inspect, all such permits, licenses and approvals. Tenant shall
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perform any monitoring, investigation, clean-up, removal, detoxification,
preparation of closure or other required plans and any other remedial work
(collectively, "Remedial Work") required as a result of any release or discharge
of Hazardous Materials from the Property or any violation of Hazardous Materials
Laws caused by Tenant or any subtenant of Tenant or their respective agents,
contractors, employees, licensees or invitees (but not by Landlord or Landlord's
Agents). Landlord shall have the right to intervene in any governmental action
or proceeding involving any Remedial Work, and to approve performance of the
work, in order to protect Landlord interests. Tenant shall be solely responsible
for paying all fines, damages and penalties imposed by any governmental agency
resulting from Tenant's violation of any Hazardous Materials Laws.
33.2.2 Compliance with Insurance Requirements. Tenant shall comply
with the requirements of Tenant's and Landlord's insurers regarding Hazardous
Materials and with such insurers' recommendations based upon prudent industry
practices regarding management of Hazardous Materials.
33.2.3 Notice; Reporting. Tenant shall notify Landlord in writing
immediately after any of the following: (a) Tenant has knowledge, or has
reasonable cause to believe, that any Hazardous Material has been released or
discharged under or about the Property, whether or not the Hazardous Material is
in quantities that would require reporting to a public agency; (b) Tenant
receives any order of a governmental agency requiring any Remedial Work pursuant
to any Hazardous Materials Laws; (c) Tenant receives any warning, notice of
inspection, notice of violation or alleged violation, or Tenant receives notice
or knowledge of any proceeding, investigation of enforcement action, pursuant to
any Hazardous Materials Laws; or (d) Tenant receives written notice of any
claims made by any third party against Tenant or the Property relating to any
loss or injury resulting from Hazardous Materials. Tenant shall deliver to
Landlord copies of all test results, reports and business management plans
required to be filed with any government agency pursuant to any Hazardous
Materials Laws.
33.2.4 Entry and Inspection; Cure. Landlord and its agents,
employees and contractors, shall have the right to enter the Property at all
reasonable times to inspect the Property and Tenant's compliance with the terms
and conditions of this Section 33, or to conduct investigations and tests. No
prior notice to Tenant shall be required in the event of any emergency, or if
Landlord has reasonable cause to believe that violations by Tenant of this
Section 33 have occurred, or if Tenant consents at the time of entry. In all
other cases, Landlord shall give at least 24 hours' prior notice to Tenant.
Notwithstanding the foregoing, Landlord may only access any Classified Space
when accompanied by certain specified representatives of Tenant and in
accordance with Tenant's standard entry procedures for the Premises, provided
that so long as Landlord complies with the foregoing with regard to the
Classified Space, Tenant shall not otherwise unreasonably deny Landlord access
to the Classified Space. Provided Landlord gives Tenant the above 24-hour prior
notice, Tenant shall make available all necessary Tenant representatives so that
Landlord may access the Classified Space as provided above. Landlord shall have
the right, but not the obligation, to remedy any violation by Tenant of the
provisions of this Section 33, or to perform any Remedial Work necessitated as a
result of any discharge by Tenant of Hazardous Materials on the Property. Tenant
shall pay, upon demand, all costs incurred by Landlord in remedying such
violations or performing all Remedial Work necessitated by the acts or omissions
of Tenant and/or its agents or employees, plus interest thereon at the Default
Rate from the date of demand until the date paid by the Tenant.
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33.2.5 Termination/Expiration. Upon termination or expiration of
this Lease, Tenant shall, at Tenant's cost, remove any equipment, improvements
or storage facilities utilized in connection with any Hazardous Materials and
shall clean up, detoxify, repair and otherwise restore the Property to a
condition in compliance with applicable laws governing Hazardous Materials, to
the extent such condition is caused by Tenant or any subtenant of Tenant or
their respective agents, contractors, employees, licensees or invitees. Upon
termination or expiration of this Lease, Tenant shall, at Tenant's cost, permit
Landlord and Landlord's Agents to enter the Property upon giving Tenant a 24
hour written notice for the purposes of inspecting the environmental condition
of the Property, including an audit of any Hazardous Materials that are located
on the Property, provided that Landlord may only access any Classified Space
when accompanied by certain specified representatives of Tenant and in
accordance with Tenant's standard entry procedures for the Premises, provided
that so long as Landlord complies with the foregoing with regard to the
Classified Space, Tenant shall not otherwise unreasonably deny Landlord access
to the Classified Space.
33.2.6 Indemnification. Tenant shall indemnify, protect, defend and
hold Landlord (and its employees and agents) harmless from and against any and
all claims, costs, expenses, suits, judgments, actions, investigations,
proceedings and liabilities arising out of or in connection with any breach of
any provision of this Lease to the extent arising out of the use, generation,
storage, release, disposal or transportation of Hazardous Materials by Tenant or
any subtenant, or their respective agents, contractors or employees upon the
Property (but not by Landlord or Landlord's Agents), on, under or about the
Property during the Term, including, but not limited to, all foreseeable and
unforeseeable consequential damages and the cost of any Remedial Work, but
excepting any loss or injury resulting from the breach of the Lease by Landlord
or the gross negligence or willful misconduct of Landlord or Landlord's Agents.
Neither the consent by Landlord to the use, generation, storage, release,
disposal or transportation of Hazardous Materials, nor strict compliance with
all Hazardous Materials Laws, shall excuse Tenant from Tenant's indemnification
obligations pursuant to this Section 33.2.6. The foregoing indemnity shall be in
addition to and not a limitation of the indemnification provisions of Section 9
of this Lease. Tenant's obligations pursuant to this Section 33.2.6 shall
survive the termination or expiration of the Lease. The procedures set forth in
Section 9.2 also will apply to this Section.
33.2.7 Default. The release or discharge of any Hazardous Material
or violation of any Hazardous Materials Law by Tenant or any subtenant of Tenant
shall be a material default by Tenant under the Lease, subject to the cure
provisions set forth in 18.1.3. In addition to or in lieu of the remedies
available under the Lease as a result of such default, Landlord shall have the
right, without terminating the Lease, to require Tenant to suspend its
operations and activities on the Property until Landlord is satisfied that
appropriate Remedial Work has been or is being adequately performed; Landlord's
election of this remedy shall not constitute a waiver of Landlord's right
thereafter to declare a default and pursue other remedies set forth in the
Lease.
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ARTICLE 34 Options.
34.1 Options To Extend. Tenant shall have the option to extend the term
of this Lease for two (2) , ten (10) year periods, subject to the following
provisions:
34.1.1 Exercise of Option. Tenant shall have no right to exercise an
option: (i) during the period commencing with the giving of any notice of
default and continuing until said default is cured, (ii) during the period of
time any Rent is due and unpaid, (iii) in the event that Landlord has given
three or more notices of separate monetary or material non-monetary defaults,
whether or not the defaults are cured, during the 12 months immediately
preceding the exercise of the option, or (iv) if Tenant has assigned this Lease
or has subleased more than sixty percent (60%) of the Premises. The period of
time within which an option may be exercised shall not be extended or enlarged
by reason of Tenant's inability to exercise an option because of paragraph
34.1.1. Tenant shall exercise the option by delivery of written notice to
Landlord not less than 12 months nor more than 15 months prior to the expiration
of the initial term and, if exercised, the first option period, of this Lease.
If said notice is not delivered within said time period(s), the options shall
terminate. Notwithstanding anything to the contrary contained in this Lease, if
Landlord assigns, in whole or in part, Landlord's interest in this Lease or
sells, in whole or in part, either the Property or the entity owning the
Property, Tenant's right to exercise the option(s) under this Section 34 shall
not be terminated and shall remain in effect so long as Tenant complies with the
terms and conditions set forth in this Section 34.
34.2 Rent -Option.
34.2.1 Rent--First Option . The Base Annual Rental payable by Tenant
during the first option period shall be 100% of the fair market rent for the
Premises at the commencement date of such option period. The Base Annual Rental
payable by Tenant would continue to be increased as of the expiration of every
year of the option period commencing on the anniversary of the commencement of
such option period by an amount equal to 3.00% of the Base Annual Rental for the
preceding year. Provided Tenant has exercised the first option to extend
pursuant to this Article 34, Landlord and Tenant shall promptly enter into an
amendment to this Lease, amending, among things, the expiration date of this
Lease and the amount of Base Annual Rental to be paid during the option period.
34.2.2 Rent--Second Option . The Base Annual Rental payable by Tenant
during the first year of the second option period shall be 100% of the fair
market rent for the Premises at the commencement date of such option period. The
Base Annual Rental payable by Tenant would continue to be increased as of the
expiration of every year of the option period commencing on the anniversary of
the commencement of such option period by an amount equal to 3.00% of the Base
Annual Rental for the preceding year. Provided Tenant has exercised the second
option to extend pursuant to this Article 34, Landlord and Tenant shall promptly
enter into an amendment to this Lease, amending, among things, the expiration
date of this Lease and the amount of Base Annual Rental to be paid during the
option period.
34.2.3 Fair Market Rent . If Landlord and Tenant cannot agree on the
fair market rent of the Premises for the extension period within 30 days after
the Tenant has notified Landlord of Tenant's exercise of the option, Landlord
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and Tenant shall each select, within 15 days of such notification, an appraiser
who must be a qualified MAI appraiser with at least 5 years experience
appraising commercial properties in the Elkridge, Maryland area to determine
said fair market rental value. If one party fails to so designate an appraiser
within the time required, the determination of fair market rental value of the
one appraiser who has been designated by the other party within the time
required shall be binding on both parties. The appraisers shall submit their
determinations of fair market rental value to both parties within 30 days after
their selection. If the difference between the two determinations is 10% or less
of the higher appraisal, then the average between the determinations shall be
the fair market rental value of the Premises. If said difference is greater than
10%, then the two appraisers shall within 15 days of the date the second
determination is submitted to the parties designate a third appraiser who must
also be a qualified MAI appraiser. The sole responsibility of the third
appraiser will be to determine which of the determinations made by the first two
appraisers is most accurate. The third appraiser shall have no right to propose
a middle ground or any modification of either of the determinations made by the
first two appraisers. The third appraiser's choice shall be submitted to the
parties within 20 days after his or her selection. Such determination shall bind
both of the parties and shall establish the fair market rental value of the
Premises. Each party shall pay the fees and expenses of its appraiser and shall
pay equal shares of the fees and expenses of the third appraiser. Fair market
rent for the purposes of this Lease shall mean the then prevailing rent for
property comparable in size, quality and location to the demised Premises,
leased on terms comparable to the terms contained in this Lease.
ARTICLE 35. Right to Purchase
35.1 Purchase Option. Landlord hereby grants to Tenant the exclusive option
to purchase the Property for 110% of the fair market value of the Property (the
"Purchase Option "), subject to the following provisions:
35.1.1 No Default. Tenant shall have no right to exercise the Purchase
Option unless the following shall be true or otherwise satisfied as of the date
Tenant exercises the Purchase Option: (i) Tenant has not assigned this Lease or
subleased more than sixty percent (60%) of the Premises, (ii) there has been no
prior Tenant default under this Lease and Tenant is not currently in default
under this Lease, and (iii) Tenant provides Landlord with documentary evidence
demonstrating that Tenant has sufficient financial resources available to be
able to pay the Purchase Price and to close the purchase within the time frame
described below.
35.1.2 Exercise Notice. Such Purchase Option must be exercised, if at
all, by Tenant delivering to Landlord notice thereof (the "Exercise Notice ") no
earlier than 12 months prior to the expiration or termination of the initial
Lease Term, it being understood that Tenant shall not have the right to exercise
the Purchase Option until the last year of the initial Term. If Tenant does not
timely deliver the Exercise Notice, the option herein granted shall terminate;
time being of the essence with respect to the delivering thereof. If Tenant
timely delivers an Exercise Notice, then Landlord shall sell to Tenant, and
Tenant shall purchase from Landlord, the Property for 110% of the fair market
value of the Property (which fair market value shall be determined without the
inclusion of any Tenant Funded Improvements, it being understood that any
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determination of the fair market value of the Property shall be made as if the
Tenant Funded Improvements had not been constructed at the Property). Landlord
shall provide Tenant with Landlord's form of purchase and sale agreement for the
sale of the Property within five (5) business days after Landlord's receipt of
the Exercise Notice (the "Option PSA"). The Option PSA may provide for the
following: (i) sale of the Property on an "as is" basis, with all faults and
defects and without any representations or warranties of any kind, whether
express or implied; (ii) a fifteen (15)-day due diligence period (the
"Inspection Period") following the date the Purchase and Sale Agreement is
executed by both parties; (iii) a cash deposit equal to ten percent (10%) of the
Purchase Price to be paid by Tenant to Landlord upon execution of the Purchase
and Sale Agreement, which funds shall be held in escrow in an interest bearing
account, shall be non-refundable to Tenant after the Inspection Period for any
reason other than a material default by Landlord, and shall be applicable to the
Purchase Price at the Close of Escrow; (iv) all cash consideration; (v) that the
closing of the sale transaction shall occur upon the expiration of the initial
Lease Term; (vi) that Tenant shall be responsible for all closing costs in
connection with the purchase of the Property, including, without limitation, all
deed stamps and other recording costs, escrow and title fees and transfer taxes;
and (vii) such other terms and conditions as Landlord desires to include.
35.1.3 Termination of Purchase Option. Upon the termination of the
Purchase Option herein granted, (a) Tenant shall execute and deliver such
documents as Landlord may request to evidence the termination thereof,
including, without limitation, a quitclaim deed in recordable form memorializing
the termination of the Purchase Option and (b) Landlord may execute, file and
record an instrument evidencing the termination of the Purchase Option herein
granted. If Tenant fails to execute and deliver such documents, then Landlord
may do so. Tenant hereby appoints Landlord its attorney in fact for such
purpose, which appointment is coupled with an interest and is irrevocable.
35.1.4 Fair Market Value . If Landlord and Tenant cannot agree on the
fair market value of the Property within 30 days after the Tenant has delivered
the Exercise Notice to Landlord, Landlord and Tenant shall each select, within
15 days of such notification, an appraiser who must be a qualified MAI appraiser
with at least 5 years experience appraising commercial properties in the
Elkridge, Maryland area to determine said fair market value. If one party fails
to so designate an appraiser within the time required, the determination of fair
market value of the one appraiser who has been designated by the other party
within the time required shall be binding on both parties. The appraisers shall
submit their determinations of fair market value to both parties within 30 days
after their selection. If the difference between the two determinations is 10%
or less of the higher appraisal, then the average between the determinations
shall be the fair market value of the Property. If said difference is greater
than 10%, then the two appraisers shall within 15 days of the date the second
determination is submitted to the parties designate a third appraiser who must
also be a qualified MAI appraiser. The sole responsibility of the third
appraiser will be to determine which of the determinations made by the first two
appraisers is most accurate. The third appraiser shall have no right to propose
a middle ground or any modification of either of the determinations made by the
first two appraisers. The third appraiser's choice shall be submitted to the
parties within 20 days after his or her selection. Such determination shall bind
both of the parties and shall establish the fair market value of the Property.
Each party shall pay equal shares of the fees and expenses of the third
appraiser. Fair market value for the purposes of this Article 35 shall mean the
then prevailing fair market value for Property comparable in size, quality and
location to the demised Property, and shall be based on the assumption that
Tenant has exercised both of its options to renew the Lease Term in accordance
with Article 34 at the then fair market rental rate.
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35.1.5 No Recording. Tenant agrees it shall not record any memorandum
referencing its rights with respect to the Purchase Option without the prior
written consent of Landlord, which consent Landlord may withhold in its sole and
absolute discretion.
ARTICLE 36. Property Purchase Condition; Alternate Property Option
Tenant confirms that the effectiveness of this Lease with regard to
Tenant's leasing of the Property is conditioned upon Landlord acquiring fee
title to the Property. If Landlord is unable to acquire fee title to the
Property, then in addition to Tenant's obligations under Section 4.4(a) of the
Work Letter, Landlord shall have the right, at Landlord's sole option (the
"Alternate Property Option"), to be exercised by Landlord on or before November
15, 2007 (the "Alternate Property Period"), to identify and purchase an
alternative property located within the same general geographic location as the
Property for Tenant to lease in lieu of the Property (the "Alternate Property")
by giving Tenant notice of Landlord's election to do so. Notwithstanding the
foregoing, if Landlord enters into a purchase agreement to purchase an Alternate
Property before the expiration of the Alternate Property Period pursuant to the
terms of this Article 36 but Landlord elects not to purchase such Alternate
Property due to the discovery of a particular condition with respect to the
Alternate Property which makes the purchase of the Alternate Property not
feasible, the Alternate Property Period may be extended by Landlord for up to an
additional six (6) months by delivery of written notice to Tenant. Any Alternate
Property shall contain approximately the same rentable square footage as the
Building and shall have a layout sufficient to allow Landlord to build-out the
Alternate Property in accordance with the terms and conditions of the Work
Letter. If Landlord exercises the Alternate Property Option, this Lease and the
obligations of Landlord and Tenant under this Lease shall continue in full
effect during the Alternate Property Period, provided that the Commencement Date
shall not occur until the date of Mechanical/Electrical Completion with respect
to the Alternate Property. Notwithstanding the foregoing, if either (a) the
total cost set forth in the estimated project budget for the Alternate Property
exceeds the total cost set forth in the Project Budget attached to the Work
Letter Agreement, or (b) the Alternate Property requires material deferred
maintenance or other material rehabilitation or remediation work, Landlord shall
give notice thereof to Tenant (the "Alternate Property Notice") and Tenant shall
have the right to approve such Alternate Property within fifteen (15) business
days after receipt of the Alternate Property Notice, which approval shall not be
unreasonably withheld or delayed. If Tenant reasonably disapproves the Alternate
Property within the above 15 business-day period, Landlord shall not purchase
the Alternate Property disapproved by Tenant and Landlord shall either (i) seek
a new Alternate Property to purchase or (ii) terminate this Lease. If Tenant
fails to disapprove the Alternate Property within the above 15 business-day
period, Tenant shall be deemed to have approved the Alternate Property. If
Landlord has elected to not exercise the Alternate Property Option (or otherwise
fails to exercise the Alternate Property Option on or before the expiration of
the Alternate Property Period), or if Landlord exercises the Alternate Property
Option but is unable to acquire fee title to an Alternate Property during the
Alternate Property Period, or if Tenant disapproves of a particular Alternate
Property described in an Alternate Property Notice as provided above, then
Landlord shall have the right to terminate this Lease, in which case, the
Tenant's TI Contribution shall be returned to Tenant (less any Pre-Development
Costs Tenant has not otherwise paid to Landlord) and Landlord and Tenant shall
have no further obligations or liabilities under this Lease except for those
expressly intended to survive, including, without limitation, Tenant's
obligations under Section 4.4(a) of the Work Letter. If Landlord exercises the
Alternate Property Option and acquires fee title to an Alternate Property during
the Alternate Property Period, Tenant shall be obligated to lease the Alternate
Property and Landlord and Tenant shall enter into an amendment to this Lease (i)
modifying the definition of Property, the Base Annual Rental and such other
terms as are necessary to reflect that the Property have been replaced with the
Alternate Property and (ii) otherwise reaffirming the terms and conditions of
this Lease (including all exhibits attached thereto) and Landlord's and Tenant's
obligations hereunder.
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ARTICLE 37. Right of First Offer to Purchase
37.1 Grant of Right of First Offer to Purchase. Subject to the terms and
conditions of this Article 37, commencing on the first day of the one hundred
twenty-first (121st) month of the initial Term and continuing until expiration
of the initial Term (the "ROFO Period"), Tenant shall have the one-time right of
first offer to purchase the Property if at the time Tenant accepts Landlord's
Offer (i) Tenant has not assigned this Lease or subleased more than sixty
percent (60%) of the Premises, (ii) there has been no prior Tenant default under
this Lease and Tenant is not currently in default under this Lease, and (iii)
Tenant provides Landlord with documentary evidence demonstrating that Tenant has
sufficient financial resources available to be able to pay the Purchase Price
and to close the purchase within the time frame described below.
37.2 Landlord's Offer. If Landlord desires to sell the Property during the
ROFO Period, Landlord shall submit to Tenant a written offer ("Landlord's
Offer") identifying the price (the "Purchase Price") and all other terms and
conditions at which Landlord is willing to sell the Building Site. Within *(
business days after receipt of Landlord's Offer, Tenant shall give Landlord
written notice of Tenant's rejection or unqualified and unconditional acceptance
of Landlord's Offer and all of the terms and conditions contained therein,
accompanied by the documentary evidence described in Section 37.1 above. If
Landlord's Offer consists of proposed Purchase and Sale Agreement, Tenant shall
give such written notice by delivering an original of such Purchase and Sale
Agreement executed by Tenant. If Tenant fails to deliver such written notice
within such * business day period, Tenant shall be deemed to have rejected
Landlord's Offer.
37.3 Acceptance by Tenant. At Landlord's sole, subjective discretion,
Landlord's Offer (and any Purchase and Sale Agreement provided in connection
therewith) may provide for the following: (i) sale of the Property on an "as is"
basis without representations or warranties of any kind; (ii) a fifteen (15)-day
inspection and due diligence period (the "Inspection Period") following the date
the Purchase and Sale Agreement is executed by both parties; (iii) a cash
deposit equal to ten percent (10%) of the Purchase Price to be paid by Tenant to
Landlord upon execution of the Purchase and Sale Agreement, which funds shall be
held in escrow in an interest bearing account, shall be non-refundable to Tenant
after the Inspection Period for any reason other than a material default by
Landlord, and shall be applicable to the Purchase Price at the Close of Escrow;
(iv) all cash consideration; (v) closing within forty (40) days after full
execution of the Purchase and Sale Agreement; (vi) allocation of closing costs
(including title and escrow fees) in accordance with Elkridge County custom,
provided that all transfer taxes in connection with the sale of the Property
shall be paid by Tenant; and (vii) such other terms and conditions as Landlord
desires to include.
37.4 Rejection by Tenant. If Tenant rejects (or is deemed to have
rejected) Landlord's Offer, then Landlord shall be free to sell the Property
without regard to Tenant's right of first offer to purchase; provided, however,
that before entering into any agreement to sell the Property after Tenant
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rejects (or is deemed to have rejected) Landlord's Offer for a price that is
lower than 90% of the Purchase Price, Landlord shall offer to sell the Property
to Tenant at the reduced price Landlord is willing to accept. In such event,
Landlord's written offer to Tenant to sell at the reduced price shall be treated
as a new Landlord's Offer subject to all of the provisions of this Exhibit,
except that if Tenant again rejects (or is deemed to have rejected) Landlord's
Offer (i.e., at the reduced price), then Landlord will have no further
obligation for the remainder of the ROFO Period or otherwise to present a
Landlord's Offer to Tenant with respect to the Property and Landlord shall
thereafter have the right to sell the Property to any party on any terms and
conditions that Landlord may thereafter negotiate without any obligation to
Tenant. Once the Property is sold to a third party after compliance by Landlord
with the terms of this Article 37, each of Tenant's Purchase Option (as
described in Article 35) and Tenant's right of first offer to purchase the
Property (as described in this Article 37) shall be null and void and of no
further force or effect, and Tenant shall execute, acknowledge and deliver to
Landlord a quitclaim deed in recordable form whereby Tenant quitclaims to
Landlord all of its right, title and interest in and to such Purchase Option,
such right of first offer or otherwise to purchase the Property or any portion
thereof (a "Quitclaim Deed"). The failure of Tenant to deliver a Quitclaim Deed
within ten (10) days of Landlord's request therefor shall constitute a material
default under this Lease.
37.5 Effect on Lease. If Tenant purchases the Property, this Lease shall
automatically terminate and be of no further force or effect and neither party
shall have any further rights or obligations under this Lease.
37.6 Termination of Tenant's Right of First Offer. If Tenant rejects (or
is deemed to have rejected) Landlord's Offer as provided above, or if Tenant
accepts Landlord's Offer and a default occurs under this Lease and/or Tenant
fails to close any transaction after accepting Landlord's Offer, then (in any of
those events) the provisions of this Article 37 shall be null and void and
Landlord shall then and at all times thereafter be free to sell the Building
Site to any person or entity upon whatever terms Landlord may find acceptable;
provided, however, that this Lease shall not be terminated as a result of any
default by Tenant or by the termination of the right of first offer unless
Landlord expressly elects to exercise any termination rights available to
Landlord under this Lease as a result of such default.
37.7 Excluded Transactions. Tenant's right of first offer to purchase
shall not apply with respect to any of the following transactions: (i) a sale at
foreclosure (or a deed in lieu of foreclosure) or any sale by a Landlord's
mortgagee following foreclosure (or a deed in lieu of foreclosure); (ii) an
exchange transaction or a tax deferred exchange transaction where the property
Landlord desires to receive in exchange for the property being relinquished by
Landlord cannot for any reason be acquired by Tenant for the purpose of the
exchange; (iii) a sale by one co-owner to another co-owner; (iv) a conveyance to
a corporation, partnership, limited liability company, trust or other form of
entity wholly or partially in exchange for stock, a partnership or membership
interest or other form of beneficial equity interest in such entity; (v) a
conveyance as part of a portfolio sale; or (vi) a conveyance to an affiliate of
Landlord, provided that the right of first offer to purchase shall survive any
transaction of the kind described in this clause (vi).
37.8 No Recording. Tenant agrees it shall not record any memorandum
referencing its rights with respect to the right of first offer without the
prior written consent of Landlord, which consent Landlord may withhold in its
sole and absolute discretion.
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37.9 Right of First Offer Personal. The right of first offer herein
granted to Tenant is personal to the original named Tenant and may not be
exercised or assigned voluntarily or involuntarily by or to any person or entity
other than the original named Tenant.
ARTICLE 38. Miscellaneous
38.1 Gender. Whenever the singular number is used in this Lease, the same
shall include the plural, and the masculine gender shall include the feminine
and neuter genders, and the word "person" shall include corporation, firm, or
association, when required by the context.
38.2 Headings. The headings or title to the paragraphs of this Lease are
for convenience only and do not in any way define, limit or construe the
contents of such paragraphs.
38.3 Integration. This instrument contains all of the agreements and
conditions made between the parties with respect to the hiring of the Property
and may not be modified orally or in any other manner other than by a written
instrument signed by all the parties to this Lease.
38.4 Choice of Laws. The laws of the State of Maryland as applied to
contracts entered into between citizens of the State of Maryland and to be
performed within the State of Maryland shall govern the validity, performance
and enforcement of this Lease.
38.5 Severability. If any provision of this Lease is determined to be void
by any court of competent jurisdiction, such determination shall not affect any
other provisions of this Lease and such other provisions shall remain in full
force and effect. If any provision of this Lease is capable of two
constructions, one which would render the provision void and one which would
render the provision valid, the provision shall be interpreted in the manner
which would render it valid.
38.6 Amendment for Financing. Upon written request of Landlord, Tenant
agrees to execute any lease amendments not materially altering the terms of this
Lease, if required by the first mortgagee or beneficiary of a deed of trust
encumbering real property of which the Property constitute a part ("Mortgagee")
incident to the financing of the real property of which the Property constitute
a part. Any change affecting the amount or timing of the consideration to be
paid by Tenant or modifying the term of this Lease shall be deemed as materially
alter the terms hereof.
38.7 Payments. Except as may otherwise be expressly stated, each payment
required to be made by Tenant shall be in addition to and not in substitution
for other payments to be made by Tenant.
38.8 Time of Essence. Time is of the essence in this Lease.
----------------
38.9 Force Majeure. Any prevention, delay or stoppage due to strikes,
lockouts, labor disputes, acts of God, inability to obtain labor or materials or
reasonable substitutes thereof, governmental restrictions, regulations, or
controls, enemy or hostile governmental action, civil commotion, fire or other
casualty, and other causes beyond the reasonable control of the party obligated
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to perform, shall excuse the performance by such party for a period equal to
that resulting from such prevention, delay or stoppage, except those obligations
of Tenant to make payment for rental and other charges pursuant to the terms of
this Lease and those obligations of tenant set forth in the Work Letter
Agreement.
38.10. Notices. All notices to be given by one party to the other under
this Lease shall be in writing, mailed or delivered to the other party at the
following addresses:
To Landlord: VIF II CEL-SCI Partners, LLC
Attn: Stan Wendzel
9811 Irvine Center Drive
Irvine, California 92618
Phone: (949) 498-2391; Fax: (949) 498-2397
with a copy to: VIF II CEL-SCI Partners, LLC
c/o AEW Capital Management
Attn: Asset Manager
World Trade Center East
Two Seaport Lane
Boston, Massachusetts 02210-2021
Phone (617) 261-9000; Fax: (617) 261-9555
To Tenant: Cel-Sci Corporation
Attn: Geert Kersten
8229 Boone Boulevard, Suite 802
Vienna, Virginia 22182
Phone: (703) 506-9460; Fax: (703) 506-9471
Mailed notices shall be sent by United States Postal Service, certified or
registered mail, postage prepaid, or via reputable overnight courier (e.g.,
Federal Express) and shall be deemed to have been given on the date of proof of
delivery.
Either party may, with proper notice, at any time designate a different
address to which notices shall be sent.
38.11. Brokers. Landlord and Tenant each represents to the other that it
has had no dealings with any real estate broker or agent in connection with the
negotiation and/or execution of this Lease and agree to indemnify and defend the
other against all liability, costs, expenses and charges arising from any claims
that may be made against them by any real estate broker, agent, finder, or other
person, alleging to have acted on behalf of Landlord or Tenant.
38.12. Confidentiality. During the course of this Lease the parties may
exchange certain financial statements, accounting records and other documents
that are clearly stamped "confidential" ("Confidential Information"). Landlord
and Tenant hereby acknowledge and agree that the Confidential Information of
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each party is to be kept strictly confidential. Accordingly, except as may be
required by law or court order, neither Landlord nor Tenant will, without the
prior written consent of the other party, release, publish or otherwise
distribute (and shall not authorize or permit any other person or entity to
release, publish or otherwise distribute) any of the other party's Confidential
Information to any person or entity other than such party's prospective lenders
and purchasers of the Real Property and legal and financial advisors, each of
whom shall agree to hold such information strictly confidential as if such
persons were bound by the provisions of this Section 38.12. The obligations of
this Section 38.12 will not apply to information that the receiving party can
establish by written records (a) was known by it prior to the receipt of the
Confidential Information from the disclosing party; (b) was disclosed to the
receiving party by a third party having the right to do so; (c) was, or
subsequently became, in the public domain through no fault of the receiving
party, its officers, directors, employees or agents; or (d) was disclosed by the
receiving party pursuant to any judicial, governmental or stock exchange
request, requirement or order, so long as the receiving party provides the
disclosing party with sufficient prior notice in order to allow the disclosing
party to contest such request, requirement or order.
38.13 Memorandum of Lease. Tenant shall neither execute nor record a
memorandum of this Lease. Tenant shall execute, acknowledge and deliver at any
time after the date of this Lease, at the request of Landlord, a "memorandum of
lease" suitable for recording. Landlord may record such a memorandum of lease.
38.14 Absolute Net Lease. This Lease shall be deemed and construed to be
an "absolute net lease" and, except as herein expressly provided, the Landlord
shall receive all payments required to be made by Tenant, free from all charges,
assessments, impositions, expenses, deductions of any and every kind or nature
whatsoever. Landlord shall not be required to furnish any services or facilities
or to make any repairs, replacements, or alterations of any kind in or on the
Property. Tenant shall receive all invoices and bills relative to the Property
and, except as otherwise provided herein, shall pay for all expenses directly to
the person or company submitting a bill without first having to forward payment
for the expenses to Landlord. Tenant shall at Tenant's sole cost and expense be
responsible for the management of the Property, shall maintain the landscaping,
parking lot and shall make all additional repairs and alterations as required to
maintain the Property in the condition required under this Lease.
38.15 Waiver of Jury Trial. The parties hereby waive their respective
rights to trial by jury in any action or proceeding involving the Property or
arising out of this Lease.
38.16 Americans with Disabilities Act. Since compliance with the Americans
with Disabilities Act (ADA) is dependent on Tenant's specific use of the
Property, Landlord makes no warranty or representation as to whether or not the
Property comply with the ADA or any similar legislation. In the event that
Tenant's use of the Property requires modifications or additions to the Property
in order to be in ADA compliance, Tenant agrees to make any such necessary
modifications and/or additions at Tenant's expense.
38.17 Execution in Counterparts. This Lease may be executed in any number
of counterparts, each of which shall be deemed to be an original, and all of
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such counterparts shall constitute one agreement. To facilitate execution of
this Lease, the parties may execute and exchange by telephone facsimile
counterparts of the signature pages.
[Signature Page Follows]
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the
day and year set forth at the beginning hereof.
LANDLORD: TENANT:
VIF II CEL-SCI Partners, LLC, CEL-SCI CORPORATION,
a Delaware limited liability company a Colorado corporation
By: /s/ Stan Wendzel By: /s/ Geert R. Kersten
Name: Stan Wendzel Name: Geert R. Kersten
Title: Managing Member Title: Chief Executive Officer
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EXHIBIT A
DESCRIPTION OF PROPERTY
*
<PAGE>
EXHIBIT B
CONCEPTUAL FLOOR PLAN
(See Schedule 7 to Work Letter Agreement)
<PAGE>
EXHIBIT C
FORM OF OFFICER'S CERTIFICATE
[Date]
[___] LLC
Attn: Stan Wendzel
9811 Irvine Center Drive
Irvine, CA 92618
Re: Lease Agreement: Officer's Certificate
Ladies and Gentlemen:
This certificate is delivered pursuant to Section 3.6.3 of that certain
Lease Agreement dated as of [ ] (the "Lease"), by and between [_____________]
LLC, a [______] limited liability company ("Landlord") and [_____________],
Inc., a [______] corporation ("Tenant"). Tenant hereby represents, warrants and
certifies that:
(a) [Choose one:][(1): The value of Tenant's cash and Cash Equivalents
during the calendar quarter ending [ ] is equal to or greater than the Cash
Threshold as defined in Section 3.6 of the Lease: The value of Tenant's cash and
Cash Equivalents during the calendar quarter ending [ ] is less than the Cash
Threshold as defined in Section 3.6 of the Lease.]
(b) [If Applicable:][The value of Tenant's cash and Cash Equivalents has
been equal to or greater than the Cash Threshold as defined in Section 3.6 of
the Lease for the following two consecutive calendar quarters: [ ] and [ ].]
The Landlord is entitled to rely on each of these representations,
warranties and certifications. Capitalized terms used in this certificate that
are otherwise not defined shall have the meaning assigned in the Lease.
CEL-SCI CORPORATION,(1)
a Colorado corporation.
By:
----------------------------------------
Name:
Title:
<PAGE>
EXHIBIT D
WORK LETTER
(See Following Pages)
<PAGE>
WORK LETTER AGREEMENT
(Cel-Sci Manufacturing Facility/* Maryland)
THIS WORK LETTER AGREEMENT (this "Work Letter"), made between VIF II
CEL-SCI PARTNERS, LLC, a Delaware limited liability company ("Landlord"), and
CEL-SCI CORPORATION, a Colorado corporation ("Tenant"), as of June 6, 2007,
forms part of the Lease of even date herewith between Landlord and Tenant (the
"Lease"). The terms, conditions and covenants set forth herein shall have the
same force and effect as if set forth verbatim in the body of the Lease. If
there is any conflict between the Lease and this Work Letter with respect to the
construction of the Improvements, this Work Letter shall control.
ARTICLE I
DEFINED TERMS
As used herein, all capitalized terms used in this Work Letter and not
defined herein have the meanings assigned them in the Lease, and:
1.1 "Alternate Property" has the meaning specified in the Lease.
1.2 "Alternate Property Purchase Agreement" means the purchase agreement for the
purchase of the Alternate Property in the event escrow fails to close under the
Purchase Agreement and Landlord elects to purchase the Alternate Property.
1.3 "Architect" means Gaudreau Inc., or such other architectural firm
reasonably acceptable to Landlord and Tenant.
1.4 "Aseptic Fill Suite" means the cGMP compliant fill/finish suite designed and
manufactured by *.
1.5 "Baseline Documents" has the meaning specified in Paragraph 2.1(a) below.
1.6 "Budgeted Project Cost" means the total of Project Cost specified on the
Project Cost Budget to be attached hereto as Schedule 1, adjusted hereafter only
as follows: (A) increased by the aggregate net additions to Project Cost
resulting from Value Engineering Changes, changes required to comply with
applicable Requirements, Tenant Changes, Tenant Delays, Force Majeure or
additional costs due to the Improvements being constructed at the Alternate
Property, if applicable, and (B) decreased by the aggregate net reductions in
Project Cost resulting from Value Engineering Changes, Tenant Changes and
reductions in the "contingency" amount in the Project Budget.
1.7 "Building" means the approximately 73,025 square foot building located on
the Property.
1.8 "Building Permits" means the non-discretionary governmental permits or
approvals legally required to perform actual construction of the Improvements,
expressly excluding (i) any permits or approvals Tenant is required to obtain
pursuant to the Purchase Agreement, (ii) any other permits or approvals
regarding environmental matters and (iii) any FDA validation of the
manufacturing area within the Building.
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1.9 "Built-Out/Improved Space" means any space that has HVAC, drop ceilings,
demising walls, lighting and flooring and which can be utilized as either
office, lab, manufacturing (biologics), cafeteria or tech space. The total
amount of Built-Out/Improved Space within the Premises shall in no event be less
than 28,000 total square feet, of which, a maximum of (i) 15,000 square feet may
consist of manufacturing (biologics) space and (ii) 4,000 square feet may
consist of [utility/clean room] space.
1.10 "Business Days" means all Days, excepting Saturdays, Sundays and bank
holidays.
1.11 "Commencement Date" means the date on which the Improvements have been
Mechanically/Electrically Completed, as set forth in Section 2.1 of the Lease.
1.12 "Conditional Occupancy Permit" means a conditional occupancy permit, a
temporary certificate of occupancy, or a substantial equivalent, issued by the
applicable Governmental Authority within the jurisdiction in which the Property
is located, legally permitting Tenant's occupancy of the Premises.
1.13 "Construction Contract" means a GMAX contract for construction of the
Improvements between Landlord and the General Contractor or an Other Contractor
as described in Section 3.1.
1.14 "Contractor" means any of the General Contractor, Other Contractors or
Subcontractors.
1.15 "Cost Savings Incentive Fee" means the fee payable to Landlord if the final
Project Cost is less than the amount set forth in the Project Budget (defined
below), whether resulting from scope changes, Value Engineering Changes,
negotiated decreases or otherwise (provided that no Cost Savings Incentive Fee
shall be paid with regard to the "G.C. Contingency (within GMP)" line item set
forth on page 1 of Schedule 1 (Project Budget) attached hereto), which fee shall
be an amount equal to fifty percent (50%) of the difference between such Project
Budget and the final Project Cost.
1.16 "Days" means calendar days.
1.17 "Design Development Plans" means the stage at which the Plans are
approximately sixty percent (60%) complete.
1.18 "Development Management Fees" means an aggregate amount equal to 3.00% of
the total Project Cost payable to Landlord as provided herein, provided that for
purposes of determining the Development Management Fees, total Project Costs
shall not include any Development Management Fees.
1.19 "Direct Costs" means the costs of constructing the Improvements, including,
without limitation, any and all (i) costs of all on-site and off-site
preparation work, (ii) costs of labor and materials, (iii) contractors' and
subcontractors' fees and general conditions, (iv) contractor insurance and bond
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premiums, (v) sales, use and other taxes on any of the foregoing and (vi) until
allocated or eliminated from the Project Budget, contingency allowances.
1.20 "Engineer" means *.
1.21 "Excess Cost" means the amount, if any, by which the Budgeted Project Cost
(including any revised Budgeted Project Cost) exceeds the sum of Landlord's
Share of Project Cost plus Tenant's TI Contribution (as defined in the Lease).
1.22 "Final Plans" means the construction plans and specifications for the
Improvements (or any part thereof) as certified by the Engineer and stamped by
the relevant Governmental Authority in conjunction with the issuance of the
Building Permits for the Improvements. For confidentiality purposes, any
information provided in the Final Plans for purposes of obtaining the Building
Permits shall be limited to only such information as is necessary to obtain the
Building Permits and shall not require the disclosure of specific room names,
equipment placement or other Tenant business-specific items.
1.23 "Financing Costs" means the following amounts to cover Landlord's cost of
funds: (A) any fees, points, commissions or other compensation payable by
Landlord in connection with any financing secured by Landlord for the Project
Cost, and (B) the 3 month LIBOR rate plus 2.75% per year on each monthly advance
of Landlord's Share of Project Cost, computed and accrued each month on the
basis of a 360-day year comprised of 12 months of 30 days each, from the date
such advance is made until the Commencement Date.
1.24 "Force Majeure" means any cause beyond Landlord's reasonable ability to
avoid or control, including, without limitation: (A) fire, explosion and other
sudden force where due to natural or unknown causes or the fault of others; (B)
earthquake and other earth movement; (C) flood, storm, and other natural
disasters; (D) unusually inclement weather (when compared with the 30 year
normal precipitation figures for Elkridge, Maryland, as compiled by the National
Oceanographic and Atmospheric Administration); (E) hurricanes, tornadoes and
other unusually violent storms; (F) war and civil disturbance; (G) vandalism,
theft and other criminal acts of third parties; and (H) to the extent not
preventable by commercially reasonable measures on the part of Landlord or
Tenant, as applicable, (i) labor unrest or disputes including strikes and
slow-downs, (ii) unavailability of needed equipment, materials, supplies or
services, (iii) interruption of transportation or utilities, (iv) undisclosed
field conditions, and (v) acts or failure to act on the part of Governmental
Authorities (including, without limitation, moratoria on or other delays not due
to the fault of Landlord or its agents in the processing or issuance of any
required license, permit or approval). Without limiting the generality of the
foregoing, for purposes of this Work Letter, "Force Majeure" shall also include
undisclosed field conditions and previously unannounced changes by Governmental
Authorities (such as inspectors) in the interpretation or application of
Requirements, whether formal or informal, written or oral.
1.25 "General Contractor" means BE&K Building Group, Inc., 8000 Towers Crescent
Drive, Vienna, Virgina, or such other firm as Landlord in accordance with
Paragraph 3.1 may engage as the general contractor for Landlord's Work with the
prior reasonable approval of Tenant; provided, however, that Landlord shall not
be required to obtain Tenant's approval of any general contractor or
subcontractor performing exterior improvements to the Property, it being
understood that Landlord may select such general contractor or subcontractor in
Landlord's sole, subjective discretion.
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1.26 "General Contractor's Estimated Budget" means the estimated budget attached
hereto as Schedule 3 which sets forth the estimated Project Cost based on major
facility components.
1.27 "Governmental Authority" means any governmental or quasi-governmental
agency having jurisdiction over the Land or any portion of the Improvements
and/or exercising approval rights with respect to the issuance of a Building
Permit.
1.28 "Improvements" means the work required to complete construction of a
clinical bio-manufacturing facility in accordance with the Final Plans.
1.29 "Indirect Costs" means the (i) fees and expenses of any engineers and other
design professionals or consultants, (ii) permitting and inspection fees, (iii)
Landlord insurance costs during the period of design and construction of the
Improvements, (iv) legal fees and expenses incurred in connection with the legal
documentation and financing of the Project, and (v) other items identified as
Indirect Costs in the Project Budget to be attached as Schedule 1.
1.30 "Landlord's Representative" means the individual from time to time
designated to act as such by Landlord, in a written notice to Tenant. Initially,
Landlord's Representative shall be Stan Wendzel.
1.31 "Landlord's Share of Project Cost" means the amount contributed by Landlord
to fund the Project Cost, which amount shall not exceed [$11,850,000.00] plus
the amount of fees, points, commissions or other compensation payable by
Landlord in connection with any financing secured by Landlord for the Project
Cost.
1.32 "Landlord's Work" means the construction of the Improvements.
1.33 "Mechanical/Electrical Completion" and variants (such as "Mechanically/
Electrically Complete") means completion of Landlord's Work to the point where
(i) construction is sufficiently complete, in accordance with the Final Plans,
so that Tenant can occupy the Premises and use the Premises for the permitted
use set forth in the Lease, (ii) commissioning (as defined in Tenant's
commissioning plan) and acceptance testing has been completed in order to
satisfy the Installation Qualification (IQ) requirements contained in the
Validation Master Plan and the manufacturers' specifications, and (ii) Landlord
has obtained a Conditional Occupancy Permit for the Improvements and the General
Contractor has certified that the Improvements are ready for start-up, with all
of the foregoing subject only to (A) Punchlist Items and (B) Tenant's completing
its own fitting out and equipping of such space (with improvements, equipment
and installations that are not specifically covered by the Final Plans and thus
are not part of the Improvements).
1.34 "Other Contractor" means any contractor, other than the General Contractor,
engaged directly by Landlord to perform any exterior work to the Building, which
Other Contractors may be selected by Landlord in Landlord's sole, subjective
discretion.
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1.35 "Outside Date" means the date which is designated as the Outside Date in
the Project Schedule, as extended by Force Majeure but without extension for
Tenant Delays.
1.36 "Plans" means, as of any given time, the current stage of the plans,
drawings, specifications and/or construction documents prepared by the Engineer
and its consultants, or other design specialists engaged by Landlord, for the
Improvements.
1.37 "Pre-Development Costs" means costs incurred by Landlord with respect to
the Improvements prior to acquisition of the Property (or Alternate Property) by
Landlord, including, without limitation, costs for zoning and other entitlement
work, preliminary design and engineering work and related legal work.
1.38 "Preliminary Plans" means the stage at which the Plans are approximately
fifty percent (50%) complete.
1.39 "Project Budget" means the Project Budget to be attached to this Work
Letter as Schedule 1, as adjusted in accordance with this Work Letter.
1.40 "Project Cost" means all of the Property Acquisition Costs, and all costs
of preparing the Premises, Building and Property for the Improvements and
designing, constructing and fixturing the Improvements, as described in the
Project Budget, including, but not limited to, Pre-Development Costs, Direct
Costs, Indirect Costs and Financing Costs.
1.41 "Project Schedule" means the Project Schedule to be attached to this Work
Letter as Schedule 2, as adjusted in accordance with this Work Letter.
1.42 "Property" means the property on which the Premises and Building are
located and which is to be purchased by Landlord under the Purchase Agreement.
1.43 "Property Acquisition Costs" means the actual cost to Landlord of acquiring
the Property, including, without limitation, (i) the Purchase Price, (ii) legal
fees and other expenses of negotiating, documenting and closing under the
Purchase Agreement, (iii) costs of pre-acquisition due diligence with respect to
the Property, (iv) title insurance premiums, survey costs, transfer taxes,
recording fees, escrow charges and other customary closing costs, to the extent
paid by Landlord, (v) to the extent the Property is part of a larger parcel of
land, costs of legally severing the Property from the larger tract of land of
which it is part, including fees and expenses incurred in preparing, filing, and
prosecuting any applications for a lot split, parcel or subdivision map and the
costs of complying with the terms and conditions of any governmental approval
therefor and (vi) the costs of testing for, monitoring and remediating any
existing contamination of the Property by Hazardous Substances.
1.44 "Punch List Items" has the meaning specified in Paragraph 3.6 below.
1.45 "Purchase Agreement" means that certain Purchase and Sale Agreement, dated
March 21, 2007, between San Tomas Properties, LLC and BioProperties, Inc.].
1.46 "Purchase Price" means the purchase price to be paid by Landlord for the
Property under the Purchase Agreement, or if Landlord elects to purchase the
Alternate Property, then the purchase price to be paid by Landlord for the
Alternate Property under the Alternate Property Purchase Agreement.
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1.47 "Site Plan" means the preliminary site plan attached to this Work Letter as
Schedule 5 for the Building to be located on the Land.
1.48 "Stage of the Plans" means each stage of development of the Plans; namely,
the Preliminary Plans, Design Development Plans and Final Plans.
1.49 "Start of Construction" means the date on which Landlord has obtained the
Building Permits and has actually commenced construction of the Improvements
pursuant to such Building Permits.
1.50 "Subcontract" means a contract between the General Contractor, an Other
Contractor, or a higher-tier Subcontractor, on the one hand, and a
Subcontractor, on the other hand, for the provision of labor, materials and/or
equipment for some portion of the Improvements.
1.51 "Subcontractor" means any firm engaged (but not by Landlord) to provide
labor, materials and/or equipment for some portion of Landlord's Work.
1.52 "Target Completion Date" means the date which is designated as the targeted
date for Mechanical/Electrical Completion in the Project Schedule, as extended
by Force Majeure and Tenant Delays.
1.53 "Tenant Change" means any change in the Plans initiated by Tenant (to the
extent permitted under this Work Letter) and shall include, without limitation,
any (A) change in scope of work, (B) addition or deletion of specified elements
of the Improvements, and/or (C) change in the specified grade or quality,
manufacturer or supplier of materials, fixtures or equipment; but shall not
include (i) Value Engineering Changes, (ii) changes required to comply with
applicable Requirements (unless resulting from a change in Tenant's proposed use
of the Improvements) or (iii) changes required to correct or clarify design,
engineering or construction errors.
1.54 "Tenant Delay" means any delay in the acquisition of the Property or the
design and construction of the Improvements caused by an act or wrongful failure
or delay in acting on the part of Tenant or any of Tenant's employees, agents or
contractors, including, but not limited to, (A) any failure of Tenant to provide
notice of approval or objection within specified time periods, even if such
failure is deemed to be approval, (B) any delays resulting from Tenant's failure
properly to coordinate the work of Tenant's contractors and consultants with
Landlord's Work, (C) Tenant Changes, (D) any interference by Tenant or any of
Tenant's employees, agents or contractors with the construction of the
Improvements, including, without limitation, any interference during the
exercise of any inspection rights pursuant to Paragraphs 3.4, 6.1, 6.2 and/or
6.3, below, and/or (D) any act or failure identified as an occasion of Tenant
Delay in this Work Letter or any provision of the Lease, but excluding the
exercise of Tenant's rights of review, approval and objection with respect to
the Baseline Documents so long as timely and properly exercised hereunder. In
the event of any Tenant Delay(s), the Commencement Date under the Lease shall be
accelerated by the number of days of those Tenant Delays.
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1.55 "Tenant's Representative" means the individual from time to time designated
to act as such by Tenant, in a written notice to Landlord. Initially, Tenant's
Representative shall be William Brooke Jones.
1.56 "Validation Master Plan" means that certain specific plan prepared by a
third party designated by Tenant and reasonably approved by Landlord setting
forth the minimum Installation Qualification (IQ) and Operational Qualification
(OQ) requirements required to achieve Mechanical/Electrical Completion, which
plan, once finalized and approved, shall be attached to this Work Letter by way
of amendment.
1.57 "Value Engineering Changes" shall mean cost-savings changes proposed by
Landlord or Project Manager (or any of the consultants or contractors engaged by
Landlord or Tenant), excluding material reductions in the size of any of the
Buildings or other material reductions in the scope of Landlord's Work as set
forth in the approved Baseline Documents, except as may be required by Landlord
pursuant to Paragraph 4.2(a) below. In particular, in no event shall any changes
be made to any Tenant specified equipment, utilities or aseptic core design
(e.g., autoclaves, fill machines). Tenant shall approve any proposed Value
Engineering Changes within three (3) days after receipt of such proposed changes
from Landlord, provided that if Tenant reasonably determines that the proposed
Value Engineering Change will require review by an additional engineer or other
consultant, Tenant shall give Landlord written notice of the need for such
additional review within the above 3-day period, in which case, Tenant shall
have an additional ten (10) days from delivery of such notice to Landlord to
approve the proposed Value Engineering Change. If Tenant fails to disapprove the
proposed Value Engineering Changes within the above 3-day period (or additional
10-day period, if applicable), Tenant shall be conclusively deemed to have
approved the proposed Value Engineering Changes. If Tenant disapproves the
proposed Value Engineering Change within the above 3-day period (or additional
10-day period, if applicable), Landlord shall not implement the Value
Engineering Change.
ARTICLE II
DESIGN DEVELOPMENT AND APPROVAL
Landlord and Tenant hereby acknowledge their mutual intent that Landlord
cause the Improvements to be constructed within the Premises and
Mechanically/Electrically Completed by the Target Completion Date, substantially
as contemplated in the Preliminary Plans and more or less in the locations
indicated on the Site Plan attached hereto as Schedule 5, subject to the
Requirements of Governmental Authorities (including, but not limited to, all
applicable local code requirements) and by unanticipated field conditions
(including, but not limited, to conditions requiring remediation or other
corrective or prophylactic measures) or otherwise made in accordance with this
Work Letter. Subject to Force Majeure and Tenant Delay, Landlord shall use all
commercially reasonable efforts to complete Landlord's Work in accordance with
the Final Plans and within the limits of the Project Budget and the Project
Schedule. The Parties shall develop the design of the Improvements in accordance
with the following procedures:
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2.1 Baseline Documents; Preliminary Plans.
(a) Landlord and Tenant hereby approve the Project Budget, Project Schedule, and
General Contractor's Estimated Budget attached hereto as Schedules 1, 2 and 3,
respectively. As soon as reasonably practicable and, in any event, within
[**sixty (60) days**--subject to verification with consultants and engineers]
after the Landlord has obtained financial partner investment committee approval
of the Lease and the Property purchase ("Committee Approval"), Landlord shall
have the Preliminary Plans prepared and submitted to Tenant for approval
pursuant to the procedure set forth below in this Section 2.1, which together
with the Project Budget, Project Schedule and General Contractor's Estimated
Budget, collectively constitute the "Baseline Documents". Notwithstanding the
foregoing, if Landlord exercises the Alternate Property Option (as defined in
the Lease), the Baseline Documents (i.e., Project Budget, Project Schedule,
General Contractor's Estimated Budget and Preliminary Plans) shall be revised to
reflect the build-out for the Alternate Property (the "Alternate Baseline
Documents") and shall be submitted to Tenant for approval pursuant to the
following procedure:
(b) Within fifteen (15) Business Days after the Preliminary Plans (or Alternate
Baseline Documents, as applicable) are initially submitted to Tenant for
approval, Tenant shall give Landlord's Representative and the Engineer written
notice (in reasonable detail) of each change that Tenant reasonably requires in
such proposed Preliminary Plans (or Alternate Baseline Documents, as applicable)
(an "Objection Notice"). All changes so required by Tenant shall constitute
Tenant Changes.
(c) Upon receiving a timely and proper Objection Notice from Tenant with respect
to the proposed Preliminary Plans (or Alternate Baseline Documents) and subject
to Paragraph 2.1(c), below, Landlord shall cause the Engineer, as promptly as
practicable but in all events within ten (10) business days after receipt of a
timely and proper Objection Notice from Tenant, to have such proposed
Preliminary Plans (or Alternate Baseline Documents) revised to incorporate each
of the changes reasonably required by Tenant and resubmitted to Tenant for
approval. Tenant shall have five (5) Business Days after receiving such revised
Preliminary Plans (or Alternate Baseline Documents) to give Landlord's
Representative and the Engineer any Objection Notice, and Tenant's right to
object to such revised Preliminary Plans (or Alternate Baseline Documents) shall
be limited to changes required to correct any failure of the revised Preliminary
Plans (or Alternate Baseline Documents) properly to reflect the changes in
Tenant's initial Objection Notice to such proposed Preliminary Plans (or
Alternate Baseline Documents). If necessary, this process shall be repeated
(subject to the same five (5) Business Day period in which Tenant may give an
Objection Notice) until the Preliminary Plans (or Alternate Baseline Documents)
have been approved by Tenant.
(d) Notwithstanding the foregoing, if Landlord and/or Engineer reasonably
determine that the changes set forth in any Objection Notice are not consistent
with the overall design of the Improvements or would otherwise impair or
interfere with the functionality of the Improvements or Building or Landlord's
ability to develop the remainder of the Building and Property, Landlord and/or
engineer may notify Tenant in writing thereof, describing in reasonable detail
the basis for Landlord's and/or Engineer's determination (the "Response
Notice"). Tenant shall have five (5) Business Days after receiving such Response
Notice to give Landlord's Representative and the Engineer either (i) a revised
Objection Notice reflecting the comments set forth in the Response Notice, or
(ii) written notice confirming Tenant's withdrawal of the Objection Notice and
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that Tenant has approved the Preliminary Plans (or Alternate Baseline
Documents). Landlord and Tenant agree to work reasonably with each other to
reach agreement on any Objection Notices delivered by Tenant.
(e) Unless and except to the extent that Tenant gives a timely and proper
Objection Notice to the proposed Preliminary Plans (or Alternate Baseline
Documents) submitted to Tenant for approval (or a revised Objection Notice to
the extent a Response Notice has been given), Tenant shall be deemed to have
approved the same (and all of the elements and details therein).
(f) Once the Preliminary Plans (or Alternate Baseline Documents) have been
approved (or deemed approved) by Tenant in accordance with this Paragraph 2.1,
Landlord and Tenant shall promptly prepare and execute an amendment to this Work
Letter in order to incorporate the components of the approved Baseline Documents
(or Alternate Baseline Documents) herein as follows: (i) the Preliminary Plans
shall be attached and incorporated as a new Schedule 6 to this Work Letter, or
(ii) if the Alternate Property Option has been exercised, the revised Project
Budget, Project Schedule and General Contractor's Estimated Budget comprising
the Alternate Baseline Documents shall be attached and replace the existing
Schedule 1, Schedule 2 and Schedule 3 attached to this Work Letter.
2.2 Subsequent Development of Plans.
(a) Following approval of the Baseline Documents (or Alternate Baseline
Documents), Landlord shall cause the Plans to be further developed consistent
with the Baseline Documents (or Alternate Baseline Documents) (subject to such
changes as any Governmental Authority may require as a condition to the timely
issuance of a Building Permit) until production of the Final Plans, and Tenant
shall have no further approval rights with respect thereto except for any
changes required by any Governmental Authority (which approval for Governmental
Authority required changes shall not be unreasonably withheld or delayed);
however, upon completion of the Design Development Plans, Landlord shall provide
Tenant with a copy of the Design Development Plans and Landlord and Tenant (and
their respective representatives and consultants, as applicable) shall, no
sooner than three (3) business days after Tenant receives a copy of the Design
Development Plans, meet to review and discuss the Design Development Plans for
the limited purposes of confirming that they conform to the approved Baseline
Documents and of keeping Tenant informed with respect to the further development
of the Plans.
(b) Tenant acknowledges that Landlord shall have no obligation to make any
changes to the Baseline Documents or Alternate Baseline Documents (or any
subsequent Stage of the Plans) requested by Tenant following approval of the
Baseline Documents (or Alternate Baseline Documents) other than those changes
correcting any mistakes or omissions of design elements previously agreed to by
Landlord and Tenant; provided, however, that if Landlord agrees to make any such
changes, such changes shall constitute Tenant Changes and all additional costs
related thereto shall constitute increases in the Project Cost, including,
without limitation, costs for re-design work or the incremental cost of the
changed elements, costs for possible delay, and costs for labor and any
materials already ordered on the basis of the approved Baseline Documents.
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2.3 Revisions to Project Budget and Project Schedule.
(a) After completion of each of the Design Development Plans and the Final
Plans, Landlord shall, as promptly as practicable, prepare and deliver to Tenant
for Tenant's information only a revised Project Budget and revised Project
Schedule, reflecting Landlord's reasonable estimation of the total Project Cost
and the critical path timeline for Mechanical/Electrical Completion of
Landlord's Work, based on each such Stage of the Plans. With such revised
Project Budget and Project Schedule, Landlord shall provide a schedule
detailing, with respect to any Tenant Changes incorporated in such Stage of the
Plans, the increase in cost and/or time (if any) estimated to result from such
change, provided that Tenant shall have no approval rights with respect thereto.
(b) Also, at any other time that Landlord reasonably determines that the Project
Budget or the Project Schedule has been adversely impacted by any Force Majeure
events, Landlord shall, as promptly as practicable, prepare and deliver to
Tenant for Tenant's information a revised Project Budget and revised Project
Schedule, reflecting Landlord's reasonable estimation of the total Project Cost
and the critical path timeline for Mechanical/Electrical Completion of
Landlord's Work as affected by such event(s).
(c) If a revised Project Budget shows an increase in Project Cost (A) over and
above the amount of the Project Cost set forth in the Project Budget initially
approved as part of the Baseline Documents, including any further increase in
the excess of Project Cost over said amount, or (B ) resulting in (or
increasing) Excess Costs, or if a revised Project Schedule shows a delay
(including any further delay) in the scheduled date of Mechanical/Electrical
Completion beyond the Target Completion Date, then Landlord shall, at Tenant's
written request, use reasonable efforts to propose additional Value Engineering
Changes or time-saving changes to eliminate or reduce such increase.
(d) Landlord shall notify Tenant (for Tenant's information only, without any
approval rights) from time to time promptly after Landlord determines that any
Tenant Change or any other unforeseen change not resulting from the negligence
or willful misconduct of Landlord will cause an increase in the Budgeted Project
Cost of more than one hundred thousand dollars ($100,000.00).
2.4 Record Drawings. As soon as practicable following Mechanical/Electrical
Completion, Landlord shall deliver to Tenant two (2) paper copies and one (1)
electronic copy of the record drawings for the electrical and control systems of
the Improvements (and of any other record drawings Landlord may obtain for the
Improvements from the Engineer and/or the General Contractor) for the purpose of
facilitating safe and efficient operation and maintenance of such systems by
Tenant and its contractors or consultants.
ARTICLE III
CONSTRUCTION OF LANDLORD'S WORK
3.1 Selection of Contractors. At such time as Landlord deems appropriate
(estimated to be approximately upon completion of the Design Development
Documents), Landlord shall engage the General Contractor under the Construction
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Contract (which shall be a guaranteed maximum price ("GMAX") contract consistent
with the Project Budget and Project Schedule as then approved), shall deliver to
Tenant written notification of the amount of the GMAX, and shall cause the
General Contractor, in consultation with Landlord, to select the primary
Subcontractors, for performance of Landlord's Work. Before entering into the
Construction Contract, Landlord shall provide Tenant with a copy of the proposed
final Construction Contract for Tenant's approval, which approval shall not be
unreasonably withheld or delayed. If Tenant fails to disapprove the proposed
Construction Contract within three (3) business days after receipt, Tenant shall
be conclusively deemed to have approved the Construction Contract. If Tenant
timely disapproves the Construction Contract within the above 3-business day
period, Landlord shall attempt to negotiate the changes requested by Tenant with
the General Contractor and shall deliver any revised Construction Contract to
Tenant for review. The above-process shall continue until the Construction
Contract has been approved by Landlord, Tenant and General Contractor. Also, at
such time as Landlord deems appropriate, Landlord shall select and engage any
Other Contractor(s) required for completion of any exterior portion of
Landlord's Work. In selecting the Contractors for Landlord's Work, Landlord
shall be free to employ such methods (and to direct the General Contractor, in
the selection of Subcontractors, to employ such methods), including (but not
limited to) competitive bidding and negotiation of contract price, competitive
bidding and negotiation of fees and general conditions or negotiated contract,
as Landlord deems appropriate in its reasonable judgment.
3.2 Permits. Landlord shall be responsible for obtaining, on a timely basis, any
Building Permits required in connection with Landlord's Work. Fees and other
charges for any such Building Permits (and other costs incurred in obtaining any
such Building Permits) shall be part of Project Cost. Tenant shall be
responsible, at Tenant's sole cost and expense and not as part of Project Cost,
for obtaining any other permits and approvals required in connection with the
Land, the project and/or Tenant's intended use and operation thereof, including,
without limitation, any radiological permits and/or licenses, any permits or
approvals Tenant is required to obtain pursuant to the Purchase Agreement and
any other permits or approvals regarding environmental matters and/or air
clearance.
3.3 Completion of Landlord's Work. Subject to Force Majeure and Tenant Delays,
Landlord shall (A) cause Landlord's Work to be completed in accordance with the
Final Plans subject to all applicable Requirements, and (B) use its commercially
reasonable efforts to cause Landlord's Work to be Mechanically/Electrically
Completed by the Target Completion Date, provided, however, that if Landlord's
Work is not Mechanically/Electrically Completed by the Target Completion Date,
or by the Outside Date, the Lease shall not be void or voidable and Landlord
shall have no liability to Tenant with respect thereto. Landlord shall give
Tenant prompt written notice of Mechanical/Electrical Completion and shall also
give Tenant written notice of the anticipated date of Mechanical/Electrical
Completion at least thirty (30) days in advance of such anticipated date.
3.4 Inspection Rights. Subject to coordination with Landlord's Representative
and Tenant's access rights under Section 6.2, below, upon a minimum twenty-four
(24) hours prior notice, Tenant's Representative shall be permitted access to
the Premises during the construction of Landlord's Work to inspect the progress
of such work and Tenant's Representative may be accompanied by a reasonable
number of Tenant's employees and consultants, not to exceed five (5) without the
express consent of Landlord. Tenant shall cause Tenant's Representative and any
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other individuals accompanying Tenant's Representative to comply with all
applicable terms and conditions of the Lease and all reasonable rules of the
General Contractor or Landlord regarding access to and activities on the
Premises during construction of Landlord's Work, including, without limitation,
the maintenance by Tenant and its contractors and subcontractors of workers'
compensation and public liability and property damage insurance in amounts and
with companies and on forms satisfactory to Landlord, with certificates of such
insurance being furnished to Landlord prior to their entry onto the Premises and
all other applicable terms and conditions of the Lease.
3.5 Project Meetings; Reports. During construction of Landlord's Work, Landlord
shall conduct meetings every week (or as frequently as Landlord and Tenant may
otherwise elect) with the Tenant Representative (and such other representatives
as Tenant may designate) to discuss the performance and progress of such work.
Further, Tenant's Representative shall be given reasonable advance notice of,
and have the right to attend, weekly (or other regularly scheduled) construction
site meetings between Landlord, the General Contractor and other members of the
design/construction team for the project, and Tenant's Representative shall
timely receive copies of all of the minutes of such meetings. Landlord shall
prepare and submit to Tenant's Representative monthly reports showing the
progress of Landlord's Work to date as compared to the Project Budget and the
Project Schedule. From time to time, Landlord shall also make such formal
presentations to Tenant regarding the project as Tenant may reasonably request.
3.6 Punch List Items. Within fifteen (15) business days following Mechanical/
Electrical Completion, Tenant shall be entitled to inspect the Improvements and
provide Landlord with a written "punch list" setting forth all items not
constructed in substantial accordance with the Final Plans (the "Punch List
Items"). Any items other than the Punch List Items specifically set forth on
such written punch list shall be deemed to be waived by Tenant and not a part of
the Punch List Items. Landlord shall repair (or cause its Contractors to repair)
all Punch List Items, as part of Landlord's Work, within thirty (30) days after
receipt of the punch list, or if repair would take longer than thirty (30) days,
Landlord shall start the repair within this thirty (30) day period and
diligently prosecute the repair to completion. Landlord shall, however, be under
no obligation to repair any items other than the Punch List Items. Landlord
shall also be under no obligation to repair any damage caused by, through or
under Tenant or any of its employees, agents or contractors (excluding Landlord
or its Contractors), and all such damage shall be promptly repaired by Tenant at
Tenant's sole cost and expense. Without limiting the generality of the
foregoing, except for such Punch List Items (a) Landlord shall have no
responsibility for any design, material or construction defects (patent, latent
or otherwise) in the Improvements, and Tenant shall look solely to the
applicable Warranties with respect to such defects, and (b) Landlord shall have
no responsibility with respect to the performance and/or production capacity of
the Improvements, subject, however to the completion of the commissioning and
acceptance testing described in Section 1.33(ii), above.
3.7 Construction and Material Supplier Warranties. Landlord shall require that
each Construction Contract, as well as each material Subcontract, contain
customary warranties wherein the applicable Contractor warrants to Landlord and
Tenant, for a period of at least one (1) year following Mechanical/Electrical
Completion, that (i) all materials and equipment furnished under such
Construction Contract will be of good quality and new, (ii) the Work covered by
such Construction Contract will be free from defects, and (iii) such Work will
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be consistent with the Final Plans (collectively, the "Warranties"). Duties and
obligations imposed by the Warranties and rights and remedies available
thereunder shall be in addition to and not in limitation of duties, obligations,
rights and remedies otherwise imposed or available by law or in equity or any
other agreement.
ARTICLE IV
PAYMENT OF PROJECT COSTS
4.1 Landlord's Share of Project Cost. So long as Tenant is not in default of any
of its obligations under this Work Letter or the Lease, Landlord shall pay all
Project Costs, as such costs are incurred and become due and payable; provided
that in no event shall Landlord have any obligation to pay any amounts other
than Landlord's Share of Project Costs, including, without limitation, all or
any portion of any Excess Costs.
4.2 Excess Costs. Tenant shall be solely responsible for all Excess Costs.
Initially, the amount of Excess Costs shall be estimated using the Budgeted
Project Cost established as of Committee Approval and Tenant shall deliver one
hundred percent (100%) of such estimated Excess Costs to Landlord within fifteen
(15) days after settlement under the Purchase Agreement (or under any Alternate
Property Purchase Agreement to the extent applicable) has occurred and Landlord
has obtained fee title to the Property (or an Alternate Property to the extent
applicable). At any time thereafter that Landlord reasonably determines that the
Excess Costs will exceed the previously estimated amount of Excess Costs,
Landlord may, in its sole discretion, condition the commencement or continuation
of Landlord's Work on Tenant's either (1) depositing with Landlord some or all
of the additional estimated amount of Excess Costs, or (2) posting a bond or
giving Landlord other assurances or security satisfactory to Landlord for
Tenant's payment of Excess Costs (including, without limitation, an irrevocable
standby letter of credit in form and substance reasonably satisfactory to
Landlord and issued by a bank that is reasonably satisfactory to Landlord), and
(3) paying Tenant's proportionate share (based on the ratio of the estimated
Excess Costs to total Project Cost) of each monthly or other disbursement of
Project Cost, concurrently with Landlord's payment of Landlord's Share of
Project Cost of such disbursement. If Tenant fails to satisfy any of the
conditions set forth in clauses (1), (2) or (3) above within thirty (30) Days of
Landlord's written demand, without limiting any other rights or remedies
available to Landlord at law or in equity, Landlord shall have the following
rights and remedies:
(a) To introduce any Value Engineering Changes which Landlord determines, in
Landlord's sole and absolute discretion, are necessary to eliminate or reduce
such Excess Costs;
(b) To increase the annual Fixed Rent under the Lease based on a rent factor of
eighteen percent (18%) of the amount of such Excess Costs; and/or
(c) To treat such failure as a default under the Lease and proceed under
Paragraph 18 thereof.
4.3 Payments to Landlord. The following fees shall be paid to Landlord as part
of Project Cost:
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(a) Development Management Fees: Development Management Fees shall be payable
monthly, on the same date as the regular monthly disbursement of Project Cost,
(A) at the rate of $20,000 per month prior to the first full month after Start
of Construction and (B) thereafter, in an amount equal to 3.00% of the prior
month's Project Cost disbursements, until paid in full. The Development
Management Fees shall not exceed in the aggregate 3.00% of total Project Cost
(excluding the Development Management Fees) at final completion.
(b) Cost Savings Incentive Fee: The Cost Savings Incentive Fee, if applicable,
shall be paid to Landlord on or before the first day of the twelfth (12th) month
of the Term of the Lease.
4.4 Reimbursement of Pre-Development Costs; Alternate Property.
(a) Pre-Development Costs. Tenant acknowledges that the Lease and Landlord's
obligations hereunder are conditioned upon Landlord acquiring fee title to the
Property pursuant to the Purchase Agreement. Tenant further acknowledges that in
order to expedite the build-out of the Premises and the construction of the
Improvements, Landlord has incurred, and may incur additional, Pre-Development
Costs. Accordingly and notwithstanding anything to the contrary contained in
this Work Letter, if for any reason other than due to a default by Landlord
under the Purchase Agreement, Landlord is unable to acquire fee title to the
Property, Landlord shall have the right, in Landlord's sole, subjective
discretion to terminate the Lease, subject, however, to the provisions in
Paragraph 4.4(b), below. In such case (and regardless if Landlord elects to
exercise the Alternate Property Option, Tenant shall reimburse Landlord for all
Pre-Development Costs incurred by Landlord within ten (10) Business Days after
receipt of written notice from Landlord together with documentation reasonably
evidencing such Pre-Development Costs. Tenant's obligations under this Paragraph
4.4 shall survive the termination of the Lease and this Work Letter.
(b) Alternate Property. If Landlord is unable to acquire fee title to the
Property, Landlord shall have the right to exercise the Alternate Property
Option (as defined in the Lease) and purchase the Alternate Property pursuant to
the terms set forth in Article 36 of the Lease. If Landlord exercises the
Alternate Property Option, Landlord and Tenant shall enter into an amendment
modifying the definition of the Premises and such other terms as necessary to
reflect the purchase of the Alternate Property and otherwise reaffirming the
terms and conditions of the Lease and this Work Letter, as amended by such
amendment.
4.5 Contingency and Movable Equipment Escrow. Each of the amounts set forth in
the line items of the Project Budget attached hereto as Schedule 1 and titled
"G.C. Contingency (within GMP)" and "Movable Equipment" shall be placed into
separate escrow accounts held with an escrow company reasonably acceptable to
Landlord and Tenant. All amounts held in the escrow accounts for the G.C.
Contingency line item (the "Contingency Escrow") and the Movable Equipment line
item (the "Movable Equipment Escrow") shall be invested in a Highly Diversified
Money Market Fund or similar yielding investment and all interest accrued
thereon shall be payable to Tenant. As used herein, a "Highly Diversified Money
Market Fund" means a money market fund that is principally invested in corporate
bonds and commercial paper, such as the Evergreen Institutional Money Market
Fund. After completion of all Improvements as contemplated under this Work
Letter and the reasonable determination by Landlord that no further amounts from
either the Contingency Escrow or the Movable Equipment Escrow are necessary to
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complete the Improvements, all unused amounts remaining in the Contingency
Escrow and/or the Movable Equipment Escrow, together with all interest accrued
thereon, shall be returned to Tenant.
ARTICLE V___
INSURANCE
5.1 Construction Insurance. Throughout the prosecution of Landlord's
Work and of any Deferred Tenant Improvement Work, Landlord, at its expense
and as part of Project Cost, shall carry:
(a) Workers, Compensation Insurance with coverage applicable in the State of
Maryland with limits in accordance with the statutory requirements of the State
of Maryland.
(b) Broad Form Comprehensive General Liability Insurance (including Contractor's
Protective Liability) with a minimum combined aggregate total limit of liability
of Five Million Dollars ($5,000,000.00). The Comprehensive General Liability
Insurance shall provide for explosion, collapse and underground coverage.
(c) Complete Value Builder's Risk Material Damage Insurance Coverage. Landlord
shall provide an "All Physical Loss" Builder's Risk Insurance policy with regard
to construction of the Improvements. The policy shall include as named insureds
Landlord, Tenant, Landlord's Contractors, and Landlord's lender (if any),
agents, engineers, representatives, management agents and contractors, as their
interests may appear. The amount of insurance to be provided shall be 100% of
the replacement cost of the Improvements.
(d) Such other liability and hazard insurance as Landlord shall deem advisable
(including, without limitation, errors and omission insurance, which Landlord
may obtain in the form of so-called "project coverage" insuring any or all of
the design and construction team for Landlord's Work).
All such liability and hazard insurance shall name Tenant as an additional
insured and shall insure against any and all claims for bodily injury, including
death resulting therefrom, and damage to or destruction of property of any kind
whatsoever and to whomsoever belonging, and arising from its operations under
this Work Letter whether such operations are performed by Landlord, a Contractor
or anyone directly or indirectly employed or engaged by any of them. Landlord
shall require the Project Manager, the General Contractor, and any or all of the
Other Contractors and Subcontractors, to carry the coverage described in
Paragraph 5.1(a) and, subject to Landlord's right to waive or reduce the
required amount of coverage if in Landlord's reasonable judgment such waiver or
reduction does not materially increase Tenant's exposure to liability, the
coverage described in Paragraph 5.1(b).
ARTICLE VI
TENANT ACCESS FOR FITTING OUT IMPROVEMENTS
6.1 Access Rights. Landlord shall permit Tenant and its contractors access to
each major facility component at the Premises upon completion thereof and, in
any event, at least forty-five (45) days prior to the anticipated date for
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Mechanical/Electrical Completion of the Improvements, to perform installation
and other fitting out work not specifically included in the Improvements
pursuant to the Final Plans (such as installation of furniture, fixtures,
equipment, computers and network systems), subject to Landlord's reasonable
prior written approval, subject to all of the terms and conditions of the Lease
(excepting payment of Base Annual Rental), subject to any rules and regulations
promulgated by General Contractor, and otherwise in a manner and upon such
additional terms and conditions and at times reasonably satisfactory to
Landlord. Subject to Landlord's approval, which it shall not unreasonably
withhold, condition or delay, upon Tenant's request Landlord will also permit
Tenant's employees and contractors access to the Premises prior to such
forty-five (45)-day period as may be necessary to coordinate and implement such
installation by Tenant; provided, however, that Landlord may withhold or
condition such approval as Landlord determines, in good faith, is required to
avoid delay, material expense or any material risk to safety of Persons on-site
or damage to property. The foregoing license to enter the Premises prior to the
Commencement Date is conditioned upon Tenant's contractors and their
subcontractors and employees working in harmony and not interfering with
Landlord's Work and compliance by Tenant's contractors with all rules and
requirements imposed by Landlord on third party contractors, including, without
limitation, the maintenance by Tenant and its contractors and subcontractors of
workers' compensation and public liability and property damage insurance in
amounts and with companies and on forms satisfactory to Landlord, with
certificates of such insurance being furnished to Landlord prior to their entry
onto the Premises and all other applicable terms and conditions of the Lease.
Landlord shall have the right to revoke the access rights granted under this
Paragraph 6.1 as to any of Tenant's contractors whose presence causes disharmony
or otherwise interferes with Landlord's Work unless, within 24 hours after
Landlord notifies Tenant's Representative of such problem, it is corrected to
the satisfaction of Landlord.
6.2 Specific Access Rights. Notwithstanding the provisions of Paragraph 6.1,
above (other than the last two sentences of Paragraph 6.1), the following
individuals only shall have the right to access the Premises throughout the
build-out process: Geert R. Kersten, Dr. Eyal Talor, Patty Prichep, Todd
Burkhart, and William Brooke Jones (the "Permitted Parties"). Any access by the
Permitted Parties shall be subject to the provisions of the last two sentences
of Paragraph 6.1 and all of the provisions of Paragraph 6.4, below, and any
interference by the Permitted Parties with the construction of the Improvements
shall constitute a Tenant Delay.
6.3 Early Occupancy of Office. William Brooke Jones, the current Tenant
Representative ("Jones") and Todd Burkhart ("Burkhart") (Jones and Burkhart are
collectively referred to herein as the "Early Occupants"), shall have the sole
right to occupy the existing office space in the Premises (the "Office Space"),
which Office Space is depicted on Schedule 7 attached hereto, provided that such
early occupancy shall be subject to the last two sentences of Paragraph 6.1 and
all of the provisions of Paragraph 6.4. In particular and as a condition to any
entry onto the Premises, the Early Occupants (i.e., Jones or Tenant on behalf of
Jones, and Burkhart separately) shall provide Landlord with evidence of
insurance reasonably acceptable to Landlord. Any interference by the Early
Occupants with the construction of the Improvements shall constitute a Tenant
Delay.
6.4 Tenant's Risk. The access rights granted under Paragraphs 3.4, 6.1 and 6.2
shall be exercised solely at Tenant's risk and expense, and neither Landlord nor
any Contractor shall be liable for any injury, loss or damage which may occur to
work being performed by Tenant's contractors or damage to any equipment,
16
<PAGE>
materials or other property of Tenant or such contractors brought onto the
Premises except to the extent such injury, loss or damage is caused by such
Person's own gross negligence or willful misconduct. Tenant shall be responsible
for coordinating the access or activities of Tenant's contractors with Landlord
and any interruption, interference or delay in Landlord's Work resulting from
such access and activities shall be a Tenant Delay. Tenant shall indemnify,
defend and hold Landlord harmless from and against any and all claims, losses,
liabilities or damages arising out of the exercise of Tenant's access rights
under Paragraphs 3.4, 6.1 and 6.2, or early occupancy right under Paragraph 6.3,
including, without limitation, any damages arising out of any Tenant Delays.
ARTICLE VII
MISCELLANEOUS
7.1 Landlord and Tenant Representatives. Each of Landlord's Representative and
Tenant's Representative shall have full authority to act on behalf of their
respective Party with respect to the performance of such Party's obligations and
the exercise of such Party's rights under this Work Letter and each Party shall
be entitled to rely upon any approval, consent or other written communication
given by the other's representative with respect to such performance or
exercise. Either Party may, at any time and from time to time, change its
representative or name one or more alternate representatives (each of whom shall
have such full authority, as if the sole representative of such Party) by giving
the other Party at least five (5) Business Days' prior written notice of such
change (except that such a change may be made effective immediately upon written
notice where required by the death, disability or sudden termination of
employment of the prior representative).
7.2 Notices. All notices, demands, consents, approvals and other written
communications from one Party to the other, with respect to this Work Letter
shall be delivered (and deemed received) as provided in Section 34.10 of the
Lease, except that, where pertaining only to the administration of the design
and construction of Landlord's Work, such communications may be delivered only
by fax (with a telephone call to confirm receipt) to Landlord's Representative
or Tenant's Representative, as applicable, to the following address:
If to Landlord's Representative: Attention: Stan Wendzel
- -------------------------------
VIF II CEL-SCI Partners, LLC
9811 Irvine Center Drive
Irvine, California 92618
Fax: 949-498-2397
Tel: 949-498-2391
email: *
<PAGE>
If to Tenant's Representative: Attention: William Brooke Jones
- -----------------------------
c/o Cel-Sci Corporation
4820-C Seton Drive
Baltimore, Maryland 21215
Fax: (410) 358-1647
Tel: (410) 358-6866
email: *
17
<PAGE>
or to such other address as the recipient Party representative may have last
designated by written notice to the other Party representative.
7.3 Schedule. The following Schedules are attached to and incorporated into this
Work Letter:
Schedule 1 Project Budget
Schedule 2 Project Schedule
Schedule 3 General Contractor's Estimated Budget
Schedule 4 Conceptual Floor Plan
Schedule 5 Site and Parking Plan
Schedule 6 [Reserved]
Schedule 7 Depiction of 2-Story Office Space
7.4 Counterparts; Execution and Delivery by Fax. This Work Letter may be
executed by each Party on a separate counterpart or counterparts (each of which
shall constitute an original, but all of which taken together shall constitute a
single instrument) and may be delivered by electronic facsimile transmission
(but each Party shall also, subsequent to such facsimile transmission, deliver a
true original executed counterpart to the other).
7.5 Other Miscellaneous Provisions. The provisions of Section 34 of the Lease,
to the extent applicable, are hereby incorporated in this Work Letter.
[SIGNATURES ON FOLLOWING PAGE]
18
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have caused this Work Letter to be
duly executed under seal as of the day and year first above written.
LANDLORD VIF II CEL-SCI PARTNERS, LLC,
a Delaware limited liability
company
By: /s/ Stan Wendzel
--------------------------
Name: Stan Wendzel
Title: Managing Member
TENANT: CEL-SCI CORPORATION,
a Colorado corporation
By:/s/ Geert R. Kersten
---------------------------
Name: Geert R. Kersten
Title: Chief Executive Officer
19
<PAGE>
SCHEDULE 1
Project Budget
*
20
<PAGE>
SCHEDULE 2
Project Schedule
*
21
<PAGE>
SCHEDULE 3
General Contractor's Estimated Budge
*
22
<PAGE>
SCHEDULE 4
Conceptual Floor Plan
*
23
<PAGE>
SCHEDULE 5
Site and Parking Plan
*
24
<PAGE>
SCHEDULE 6
[Reserved]
*
25
<PAGE>
SCHEDULE 7
Depiction of 2-Story Office Space
*
26
<PAGE>
FIRST AMENDMENT TO LEASE AGREEMENT
AND WORK LETTER AGREEMENT
THIS FIRST AMENDMENT TO LEASE AGREEMENT AND WORK LETTER AGREEMENT ("First
Amendment"), is made and dated for reference purposes only as of August 7, 2007,
between VIF II CEL-SCI PARTNERS, LLC, a Delaware limited liability company
("Landlord"), and CEL-SCI CORPORATION, a Colorado corporation ("Tenant"), with
reference to the following facts:
A. Landlord and Tenant entered into that certain Lease Agreement, dated June 6,
2007 ("Lease"), together with that certain Work Letter Agreement dated June 6,
2007 (the "Work Letter"), for premises located at * ("Premises"). Except as
otherwise modified in this First Amendment, defined terms used herein shall have
the same meanings given to them in the Lease.
B. Landlord and Tenant now desire to amend the Lease and Work Letter as set
forth in this First Amendment.
THEREFORE, for valuable consideration, the receipt and adequacy of which
are hereby acknowledged, Landlord and Tenant hereby agree to amend the Lease as
follows:
1. Modifications to Lease.
a. Notices. The following part of Section 38.10 to the Lease is deleted:
" with a copy to: VIF II CEL-SCI Partners, LLC
c/o AEW Capital Management
Attn: Asset Manager
World Trade Center East
Two Seaport Lane
Boston, Massachusetts 02210-2021
Phone (617) 261-9000; Fax: (617) 261-9555"
b. Landlord's Insurance. In addition to the insurance to be carried by Landlord
under Section 10.1 of the Lease, Landlord shall also maintain, as a requirement
of Landlord's lender and at Tenant's sole expense, the insurance described in
Schedule 2 attached hereto. In the event of any conflict between the provisions
set forth in Section 10.1 of the Lease and Schedule 2 attached hereto, the
provisions and requirements of Schedule 2 shall control.
c. Tenant's Insurance. The following provisions of Lease Rider No. 1 attached to
the Lease are hereby modified as follows:
(i) Rating. Notwithstanding the provisions of Section I(a) of
Lease Rider No. 1, Tenant shall maintain the insurance required
under the Lease and Lease Rider No. 1 with insurers having a minimum
A.M. Best rating of A-X.
1
<PAGE>
(ii) Employer Liability. Section I(a)(iii) of Lease Rider No.1
is hereby deleted and replaced in its entirety with the following:
"(iii) Workers' Compensation Insurance with statutory
benefits and Employers' Liability Insurance with the following
amounts: Each Accident: $1,000,000; Disease-Policy Limit:
$1,000,000; Disease - Each Employee: $1,000,000."
(iii) Automobile Liability. The following paragraph is hereby
added as Section I(a)(iv) of Lease Rider No. 1:
"(iv) Commercial Automobile Liability Insurance,
including the ownership, maintenance and operation of any
automotive equipment owned, hired and non-owned in the
following minimum amounts: Bodily Injury and Property Damage,
each occurrence, combined single limit of One Million Dollars
($1,000,000)."
(iv) Contractor's and Subcontractor's Insurance - Employer's
Liability. Section III(a) of Lease Rider No. 1 is hereby deleted and
replaced in its entirety with the following:
"(b) Employer's Liability Insurance with the following
amounts: Each Accident: $1,000,000; Disease-Policy Limit:
$1,000,000; Disease - Each Employee: $1,000,000"
(v) Contractor's and Subcontractor's Insurance - Rating.
Notwithstanding the provisions of Section III of Lease Rider No. 1,
all contractors and subcontractors performing work on behalf of
Tenant shall maintain the insurance required under the Lease and
Lease Rider No. 1 with insurers having a minimum A.M. Best rating of
A-X.
2. Modifications to Work Letter.
a. Preliminary Plans. The second sentence of Section 2.1(a) of the Work Letter
is hereby deleted and replaced in its entirety with the following:
"As soon as reasonably practicable and, in any event, no later
than thirty (30) days after signing the design build contract with
Contractor, Landlord shall have the Preliminary Plans prepared and
submitted to Tenant for approval pursuant to the procedure set forth
below in this Section 2.1, which together with the Project Budget,
Project Schedule and General Contractor's Estimated Budget,
collectively constitute the "Baseline Documents".
2
<PAGE>
b. Project Budget. Schedule 1 of the Work Letter is hereby deleted
and replaced in its entirety with Schedule 1 attached hereto and
incorporated herein by reference.
c. Roof Work. As part of the Improvements to be constructed at the
Premises pursuant to the Work Letter, Landlord and Tenant confirm that a
new roof or roof overlay shall be installed on the Building (the "New
Roof"). The New Roof shall be installed based on the following
specifications:
(i) a minimum 15-year, written, non-prorated warranty will be
obtained from a major roof membrane manufacturer (e.g., Firestone,
Carlisle), which warranty shall be transferable to subsequent owners of
the Building;
(ii) the New Roof will include one (1) layer of 1/4 inch thick
densdeck mechanically fastened through the existing, built up roof system
and into the metal deck; and
(iii) the New Roof will include 0.060 inch thick EPDM, TPO or
PVC single-ply membrane specified at minimum 10 foot widths installed in
accordance with manufacturer's and FM Global specifications.
Contractor (as defined in the Work Letter) has obtained one or more
bids relating to the New Roof and such amount has been included in the
revised Schedule 1 attached hereto.
3. Environmental Indemnity. Tenant confirms that Landlord is currently in the
process of obtaining financing for the purchase and redevelopment of the
Premises from Nett Funding, LLC, a Delaware limited liability company
("Lender"). In connection with such financing, Lender has required that * and *
enter into an Environmental Indemnity Agreement, a copy of which is attached
hereto as Schedule 3 (the "Environmental Indemnity"). Notwithstanding anything
to the contrary contained in the Lease or Work Letter and except to the extent
caused by the gross negligence or willful misconduct of Landlord, *, Tenant
hereby agrees to be solely responsible for, and shall otherwise indemnify,
defend and hold * harmless from and against, any and all claims, liabilities,
Losses (as that term is defined in the Environmental Indemnity) and the costs of
any Remediation (as that term is defined in the Environmental Indemnity) that
may arise under the Environmental Indemnity for which * may be liable. In
connection therewith, Tenant further agrees to be responsible for all costs
relating to any inspections, testing, or appraisals that Lender may require or
otherwise undertake at the Premises pursuant to its rights under the
Environmental Indemnity. Tenant shall pay such costs within twenty (20) days
after receipt of written demand and copies of invoices evidencing such costs.
4. Broker Representation. Landlord and Tenant represent to one another that
neither party has dealt with any broker nor is any other fee or commission
payable in connection with this First Amendment. Landlord and Tenant shall
indemnify, defend and hold one another harmless from and against any and all
claims, losses and liabilities arising out of, or relating to, a breach by the
indemnifying party of such representation.
3
<PAGE>
5. No Other Amendments. The Lease referred to hereinabove and this First
Amendment constitute the entire agreement by and between Landlord and Tenant and
supercede any other agreement or representation, written or oral, that either
party may hereinafter assert or allege exist, and the Lease, as hereby modified,
remains in full force, except as amended by this First Amendment, and is hereby
ratified and reaffirmed as amended by this First Amendment. From and after the
date hereof, all references to the "Lease" shall refer to the Lease as amended
by this First Amendment.
6. Conflicts. If any conflict between this First Amendment and the Lease should
arise, the terms of this First Amendment shall control.
7. Successor and Assigns. This First Amendment shall be binding upon and inure
to the benefit of the successors and assigns of the respective parties hereto.
8. Counterparts. This First Amendment may be executed in multiple counterparts,
each of which shall be deemed an original, but all of which shall together
constitute a single instrument.
[SIGNATURES ON FOLLOWING PAGE]
4
<PAGE>
The parties have executed this First Amendment as of the date first
written above.
LANDLORD: TENANT:
VIF II CEL-SCI Partners, LLC, CEL-SCI CORPORATION,
a Delaware limited liability company a Colorado corporation
By: /s/ Stan Wendzel By: /s/ Geert R. Kersten
--------------------------------- -------------------------------
Name: Stan Wendzel Name: Geert R. Kersten
--------------------------------- -------------------------------
Title: Manager Title: Chief Executive Officer
--------------------------------- -------------------------------
5
<PAGE>
SCHEDULE 1
Project Budget
[SEE ATTACHED]
*
6
<PAGE>
SCHEDULE 2
Additional Landlord Insurance Requirements
I. General Requirements (all policies)
A. Company Rating/Qualification. The insurance company or companies issuing the
policies described below each must be a U.S. domestic insurance standard stock
company or non-participating mutual company which is a primary insurer and has
(i) an investment grade rating or claims paying ability assigned by one or more
credit rating agencies approved by Nett Funding, LLC, a Delaware limited
liability company ("Lender"), and (ii) a general policy rating of A or better
and a financial class of X or better by A.M. Best Company, Inc. (or if a rating
of A.M. Best Company Inc. is no longer available, a similar rating from a
similar or successor service). Foreign insurance companies with a U.S. branch
are not acceptable unless approved in writing by Lender's insurance department.
All insurers must be licensed, registered and in good standing in the state or
states where the property or properties are located.
B. Additional Insured, Mortgagee Endorsements, etc. Each of the insurance
policies must name Lender as an additional named insured. Each of the insurance
policies must also contain: (i) with respect to those policies referred to in
paragraph II below, a primary standard "non-contributory mortgagee" endorsement
or its equivalent relating, inter alia, to recovery by Lender notwithstanding
the negligent or willful acts or omission of Lender; (ii) with respect to those
policies referred to in paragraphs II and III below, a waiver of subrogation
endorsement as to Lender; (iii) with respect to those policies referred to in
paragraphs II and III below, an endorsement providing for a deductible per loss
of an amount not more than that which is customarily maintained by prudent
owners of similar properties in the general vicinity of the subject property,
but in no event in excess of $10,000, and (iv) with respect to those policies
referred to in paragraph II below, coverage shall be provided on an agreed
amount basis with no coinsurance clause. The insurance policy referred to in
paragraph II.A. below must provide coverage for contingent liability from
Operation of Building Laws, Demolition Costs and Increased Cost of Construction.
C. Borrower's/Property Owner's Failure to Maintain Insurance. If VIF II CEL-SCI
Partners, LLC, a Delaware limited liability company ("Borrower/Property Owner")
fails to maintain such insurance or fails to deliver to Lender the certificates
of insurance required by Lender as set forth herein, upon twenty-four (24)
hours' prior notice to Borrowers/Property Owner, Lender may procure such
insurance at Borrowers'/Property Owner's sole cost and expense.
D. Certificates of Renewals, etc. Except in the case of Workmen's Compensation
or Flood insurance, certificates of insurance issued by state or federal
agencies for the required coverage shall not be acceptable for purposes hereof.
Certificates evidencing renewal and replacement insurance policies shall be
delivered to Lender not less than five (5) days after the expiration date of the
applicable insurance policy or policies required to be maintained hereunder.
7
<PAGE>
E. Notice of Cancellation. All insurance policies shall contain (i) a provision
that such policies shall not be cancelled (whether for non-payment or otherwise)
or terminated, nor shall they expire, without at least thirty (30) days' prior
written notice to Lender in each instance.
II. Property Insurance Requirements
A. All Risk Property Coverage. Borrower/Property Owner shall maintain property
insurance with respect to the improvements and building equipment insuring
against any peril now or hereafter included within the classification "All Risks
of Physical Loss", including, without limitation, losses from fire, lightning,
debris removal, windstorm, hail, explosion, smoke; aircraft and vehicle damage,
terrorism, riot, vandalism and malicious mischief, falling objects, weight of
snow, ice or sleet; collapse, water damage and sprinkler leakage. In any event
such insurance shall be maintained in an amount which, after application of
deductible, shall be equal to the full insurable value of the improvements and
building equipment, but in no event less than the coverage required pursuant to
the terms of any lease affecting the subject property. The term "full insurable
value" shall mean the actual replacement cost of the improvements and building
equipment (without taking into account any depreciation, and exclusive of
excavations, footings and foundations, landscaping and paving) determined
annually and approved by Lender.
B. Boiler Coverage. Borrower/Property Owner shall maintain broad form boiler and
machinery insurance (without exclusion for explosion) covering all boilers or
other pressure vessels, machinery, equipment and air conditioning or heating
units located in, on or about the subject property and insurance against loss of
occupancy or use arising from any breakdown in such amounts as are generally
required by institutional lenders for properties comparable to the subject
property.
C. Rent Loss/Business Interruption. Borrower/Property Owner shall maintain
business interruption and/or loss of "rental income" insurance in an amount
sufficient to provide proceeds which will cover a period of not less than twelve
(12) months from the date of casualty or loss, the term "rental income" to mean
the sum of (A) the total ascertainable rents then payable under the leases
affecting the subject property and (B) the total ascertainable amount of all
other amounts to be received by Borrower/Property Owner from third parties which
are the legal obligation of the tenants, reduced to the extent such amounts
would not be received because of operating expenses not incurred during a period
of non-occupancy of that portion of the subject property then not being
occupied.
D. Special Coverages. Borrower/Property Owner shall maintain special coverages
such as Flood, Earthquake, Earth Movement, etc., if the subject property is
located in an area prone to these perils.
8
<PAGE>
1. Flood Insurance. Flood coverage is required; Borrower/Property Owner to
approve level of coverage and deductible.
2. Earthquake Insurance. Earthquake coverage shall be in broad form and
acceptable to Lender; provided, however, that such coverage shall at minimum
cover the probable maximum loss based on a five hundred year period. California
Quake shall have a deductible of not over five percent (5%) and follow the form
of the property policy including Lender enhancements, and in all other states,
the quake deductible will be 2% or less or as approved by Lender.
3. Windstorm Insurance. With respect to property located in a Tier I zone,
Borrower/Property Owner shall maintain windstorm coverage with a deductible not
to exceed 5% and at full replacement cost.
E. Intentionally Omitted.
III. Liability Insurance Requirements
A. General Liability Insurance. Borrower/Property Owner shall maintain
comprehensive general liability insurance, including bodily injury, death and
property damage liability, insurance against any and all claims, including all
legal liability to the extent insurable and imposed upon Lender and all court
costs and attorneys' fees and expenses, arising out of or connected with the
possession, use, leasing, operation, maintenance or condition of the subject
property in such amounts as are generally available at commercially reasonable
premiums and are generally required by institutional lenders for properties
comparable to the subject property but in any event for a combined single limit
of at least $10,000,000. At least $1,000,000 of such liability coverage shall be
primary, and the balance may be maintained as excess or umbrella coverage. Such
liability insurance must be occurrence based coverage, rather than claims made
coverage. This insurance must stand on its own with no participation or
proration. In the event that the Lender's loan agreement requires a higher
limit, the higher limit shall prevail.
B. Intentionally Omitted.
C. Liquor Liability/Dram Shop. If liquor is sold or served at the Property,
Borrower/Property Owner shall maintain dram shop, host liquor liability or
liquor liability coverage of at least $10,000,000 single and aggregate.
C. Motor Vehicles. Borrower/Property Owner shall maintain auto liability
insurance. The combination of the primary auto liability and excess liability or
umbrella must equal $10,000,000.
D. Worker's Compensation Insurance. Borrower/Property Owner shall maintain
workers' compensation insurance with respect to any work on or about the subject
property.
9
<PAGE>
IV. Additional Coverages
Borrower/Property Owner shall maintain such other insurance with respect
to Borrower/Property Owner and the subject property against loss or damage of
the kinds from time to time required by Lender to the extent such additional
insurance is for perils and in amounts customarily required by institutional
lenders for properties comparable to the subject property and to the extent such
other insurance is available at commercially reasonable rates.
10
<PAGE>
1
{10124806.1}
SCHEDULE 3
Environmental Indemnity Agreement
[See Attached]
<PAGE>
ENVIRONMENTAL INDEMNITY AGREEMENT
THIS ENVIRONMENTAL INDEMNITY AGREEMENT (the "Agreement") is made as of
August __, 2007 by VIF II CEL-SCI PARTNERS, LLC, a Delaware limited liability
company ("Property Owner"), STANLEY WENDZEL, an individual ("Guarantor";
together with Property Owner, "Indemnitor" or "Indemnitors", as applicable), in
favor of NETT FUNDING, LLC, a Delaware limited liability company ("Lender"), and
the other Indemnified Parties (defined below).
RECITALS
A. SAN TOMAS PARTNERS, LLC, a Delaware limited liability company (the
"Borrower") owns, or will own on the Closing Date, the fee interest in certain
real property located in the County of *, State of Maryland, and more
particularly described in Exhibit A attached hereto (said real property being
referred to as the "Land"; the Land, together with all structures, buildings and
improvements now or hereafter located on the Land, being collectively referred
to as the "Property").
B. Lender is making a loan (the "Loan") to Borrower in connection with the
financing of the Property by Property Owner, pursuant to that certain Mezzanine
Loan Agreement ("Loan Agreement"), dated of even date herewith, and which is
evidenced by, among other things, one or more promissory notes of even date
herewith (collectively, the "Note"). Borrower's obligations under the Loan will
be guaranteed by Property Owner pursuant to an indemnity guaranty, dated of even
date herewith (the "Indemnity Guaranty"). The Loan and the Indemnity Guaranty
will be secured by, among other things (i) the Pledge Agreement (as defined in
the Loan Agreement) and (ii) the Indemnity Deed of Trust (as defined in the Loan
Agreement). The Loan Agreement, the Note, the Pledge Agreement, the Indemnity
Guaranty, the Indemnity Deed of Trust, this Agreement and the other documents
evidencing, or securing the Loan, or entered into in connection therewith and
any modifications, renewals and extensions thereof are sometimes referred to
herein collectively as the "Loan Documents".
C. Guarantor has an indirect ownership interest in Borrower, and as a result
will receive benefits from Lender's making the Loan to Borrower.
D. Lender is unwilling to make the Loan unless Indemnitor agrees to provide the
indemnification, representations, warranties, and covenants and other matters
described in this Agreement for the benefit of Indemnified Parties.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Indemnitors jointly and severally hereby agrees and covenants
as follows:
<PAGE>
Article 1
Definitions
1.1 Unassigned Definitions: Capitalized terms used herein and not
specifically defined herein shall have the respective meanings ascribed to
such terms in the Loan Agreement.
1.2 Definitions: As used in this Agreement, the following terms shall have
the following meanings:
1.2.1 The term "Environmental Law" means any present and future federal,
state and local laws, statutes, ordinances, rules, regulations, standards, and
other governmental directives or requirements, as well as common law, relating
to protection of human health or the environment, relating to Hazardous
Materials that apply to Borrower, Property Owner, or the Property and relate to
Hazardous Materials.
1.2.2 The term "Hazardous Materials" shall mean petroleum and petroleum
products and compounds containing them, including gasoline, diesel fuel and oil;
explosives, flammable materials; radioactive materials; polychlorinated
biphenyls ("PCBs") and compounds containing them; lead and Lead Based Paint (as
defined below); asbestos or asbestos-containing materials in any form that is or
could become friable; underground or above-ground storage tanks, whether empty
or containing any substance; any pathogen and airborne pathogen (naturally
occurring or otherwise), toxin or other biological agent or condition,
including, but not limited to, any fungus, mold, mycotoxins and microbial matter
("Pathogens"); any substance the presence of which on the Property is prohibited
by any federal, state or local authority (excepting, however, materials used in
the ordinary course of construction, use or management of a life science R&D
manufacturing facility in accordance with all applicable Environmental Law); and
any other material or substance now or in the future defined as a "hazardous
substance," "hazardous material", hazardous waste", toxic substance", "toxic
pollutant", "contaminant", or pollutant" within the meaning of any Environmental
Law. In addition, Lender acknowledges that the Tenant under the Cel-Sci Lease
may use certain radioactive materials and/or biohazardous materials in
connection with the operation of its business from the Property. Lender consents
to the use of such radioactive materials and/or biohazardous materials so long
as Cel-Sci uses such materials in accordance with all required licenses and
otherwise in accordance with applicable Environmental Law and confirms that the
use of such materials by Cel-Sci shall not constitute a breach under this
Agreement so long as such materials are used in accordance with applicable
Environmental Law.
1.2.3 The term "Indemnified Parties" means Lender, any person or entity who
is or will have been involved in the origination of the Loan, any person or
entity who is or will have been involved in the servicing of the Loan, persons
and entities who may hold or acquire or will have held a full or partial
interest in the Loan, as well as custodians, trustees and other fiduciaries who
hold or have held a full or partial interest in the Loan for the benefit of
third parties) as well as the respective directors, officers, shareholders,
partners, members, employees, agents, servants, representatives, contractors,
subcontractors, affiliates, subsidiaries, participants, successors and assigns
of any and all of the foregoing (including but not limited to any other person
or entity who holds or acquires or will have held a participation or other full
or partial interest in the Loan, the collateral for the Loan or the Property,
2
<PAGE>
whether during the term of the Loan or as a part of or following a foreclosure
of the Loan and including, but not limited to, any successors by merger,
consolidation or acquisition of all or a substantial portion of Lender's assets
and business).
1.2.4 The term "Legal Action" means any claim, suit or proceeding, whether
administrative or judicial in nature.
1.2.5 The term "Losses" includes any and all losses, damages (excluding,
however, consequential damages), costs, fees, expenses, claims, suits,
judgments, awards, liabilities (including, without limitation, strict
liabilities), obligations, debts, fines, penalties, charges, costs of
Remediation (whether or not performed voluntarily), amounts paid in settlement,
litigation costs, attorneys' fees, engineers' fees, reasonable environmental
consultants' fees, and investigation costs (including, without limitation, costs
for sampling, testing and analysis of soil, water, air, building materials, and
other materials and substances whether solid, liquid or gas), of whatever kind
or nature, and whether or not incurred in connection with any judicial or
administrative proceedings, actions, claim, suits, judgments or awards.
1.2.6 The term "Release" with respect to any Hazardous Materials means any
release, deposit, discharge, emission, leaking, leaching, spilling, seeping,
migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing
or other movement of Hazardous Materials.
1.2.7 The term "Remediation" includes, but is not limited to, any response,
remedial removal, or corrective action, any activity to cleanup, abate,
detoxify, decontaminate, contain or otherwise remediate any Hazardous Material
which in its then-present state and concentration would be required to be
remediated pursuant to any applicable Environmental Law.
1.2.8 The term "Threatened" or "Threat" means that there is a substantial
likelihood of a Release which requires action to prevent or otherwise mitigate
damage to the environment that may result from such Release.
Article 2
Indemnification
2.1 Indemnification. Borrower and Guarantor covenant and agree at their sole
cost and expense, to protect, defend, indemnify, release and hold Indemnified
Parties harmless from and against any and all Losses and costs of Remediation
(whether or not performed voluntarily) imposed upon or incurred by or asserted
against any Indemnified Parties and directly or indirectly arising out of or in
any way relating to any one or more of the following:
(a) any presence of any Hazardous Materials in, on, above, or under the
Property;
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(b) any past, present or threatened Release of Hazardous Materials in, on,
above, under or from the Property;
(c) any activity by Property Owner, Borrower, any person or entity affiliated
with Borrower, and any tenant or other user of the Property in connection
with any actual, proposed or threatened use, treatment, storage, holding,
existence, disposition or other Release, generation, production,
manufacturing, processing, refining, control, management, abatement,
removal, handling, transfer or transportation to or from the Property of
any Hazardous Materials at any time located in, under, on or above the
Property or any actual or proposed remediation of any Hazardous Materials
at any time located in, under, on or above the Property, whether or not
such remediation is voluntary or pursuant to court or administrative order,
including but not limited to any removal, remedial or corrective action;
(d) any past or present non-compliance or violations of any Environmental Laws
(or permits issued pursuant to any Environmental Law) in connection with
the Property or operations thereon, including but not limited to any
failure by Property Owner, Borrower or any person or entity affiliated with
Borrower and any tenant or other user of the Property to comply with any
order of any governmental authority in connection with any Environmental
Laws;
(e) the imposition, recording or filing of any environmental lien encumbering
the Property;
(f) any acts of Property Owner, Borrower, any person or entity affiliated with
Borrower, and any tenant or other user of the Property in (i) arranging for
disposal or treatment, or arranging with a transporter for transport for
disposal or treatment, of Hazardous Materials from the Property at any
facility or incineration vessel containing such or similar Hazardous
Materials or (ii) accepting any Hazardous Materials from the Property for
transport to disposal or treatment facilities, incineration vessels or
sites from which there is a Release, or a threatened Release of any
Hazardous Material which causes the incurrence of costs for remediation;
(g) any misrepresentation or inaccuracy in any representation or warranty or
material breach or failure to perform any covenants or other obligations
pursuant to this Agreement or the Loan Agreement relating to environmental
matters;
(h) the failure by any Indemnitor to comply fully with the terms and conditions
of this Agreement;
(i) the enforcement of this Agreement;
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(j) any environmental investigation, assessment, audit or review conducted in
connection with the Property or the operations conducted at any time
thereon pursuant to Lender's rights under this Agreement or any of the Loan
Documents, including, without limitation, the cost of assessment,
investigation, containment, removal and/or Remediation of any and all
Hazardous Materials from all or any portion of the Property, the cost of
any actions taken in response to the presence, release or threat of release
of any Hazardous Materials on, in under or affecting any portion of the
Property to prevent or minimize such release or threat of release so that
it does not migrate or otherwise cause or threaten danger to present or
future public health, safety, welfare or the environment, and cost incurred
to comply with Environmental Laws in connection with all or any portion of
the Property;
(k) any administrative processes or proceedings or judicial proceedings in any
way connected with any matter addressed in this Agreement;
(l) any past, present or threatened injury to, destruction of or loss of
natural resources in any way connected with the Property, including,
without limitation, costs to investigate and assess such injury,
destruction or loss; or
(m) any personal injury, wrongful death, or property or other damage arising
under any statutory or common law or tort law theory, including, without
limitation, damages assessed for a private or public nuisance or for the
conducting of an abnormally dangerous activity on, at or under the Property
in connection with Hazardous Materials.
Except if attributable to the acts or omissions of Property Owner or Borrower,
the foregoing indemnity shall not apply to, and Indemnitors shall have no
responsibility hereunder in connection with, any Hazardous Materials (including
any costs relating thereto, including, without limitation, any Losses or costs f
Remediation) which are initially placed on, in or under the Property after a UCC
sale, foreclosure (or transfer-in-lieu of foreclosure), judicial or non-judicial
sale or other taking of title to the shares in Property Owner or to the Property
by Lender or its successor or assigns, or with respect to any acts of gross
negligence or misconduct by the Lender or its successors or assigns resulting in
the release or placement of Hazardous Materials on or under the Property.
2.2 Subrogation. Each Indemnitor shall, or shall cause Property Owner to, take
any and all reasonable actions, including institution of legal action against
third-parties, necessary or appropriate to obtain reimbursement, payment or
compensation from such persons responsible for the presence of any Hazardous
Materials at, in, on, under or near the Property or otherwise obligated by law
to bear the cost. Indemnified Parties shall be and hereby are subrogated to all
of each Indemnitor's rights now or hereafter in such claims.
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Article 3
Representations and Warranties and Covenants
3.1 General Representations and Warranties. Each Indemnitor represents and
warrants as follows:
3.1.1 Each Indemnitor that is a corporation, partnership or limited
liability company represents and warrants that (i) it has the full power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder; the execution, delivery and performance of this Agreement by such
Indemnitor has been duly and validly authorized by all requisite organizational
action and (ii) this Agreement is in the ordinary course of business of each
Indemnitor and will not result in the breach of any term or provision of the
charter, by-laws, partnership or trust agreement, articles of organization,
operating agreement or other governing instrument of such Indemnitor;
3.1.2 Compliance with this Agreement will not result in the breach of any
term or provision of, or conflict with or constitute a default under or result
in the acceleration of any obligation under any agreement, indenture or loan or
credit agreement or other instrument to which each Indemnitor or the Property is
subject, or, to the best of such Indemnitor's knowledge, result in the violation
of any law, rule, regulation, order, judgment or decree to which such Indemnitor
or the Property is subject; other than, in each case such conflicts, defaults or
violations that would not result in a material adverse change in the business,
operations, financial condition, properties or assets of such Indemnitor, or in
any material impairment of the right or ability of such Indemnitor to carry on
its business substantially as now conducted, or in any material liability on the
part of such Indemnitor, or draw into question the validity of this Agreement or
of any action taken or to be taken in connection with the obligations of such
Indemnitor contemplated herein, or be likely to impair materially the ability of
such Indemnitor to perform under the terms of this Agreement;
3.1.3 There is no action, suit, proceeding or investigation pending or, to
the best of such Indemnitor's knowledge, threatened against it which, either in
any one instance or in the aggregate, may result in any material adverse change
in the business, operations, financial condition, properties or assets of
Property Owner or any Indemnitor, or in any material impairment of the right or
ability of Property Owner or any Indemnitor to carry on its business
substantially as now conducted, or in any material liability on the part of
Property Owner or any Indemnitor, or which would draw into question the validity
of this Agreement or of any action taken or to be taken in connection with the
obligations of each Indemnitor contemplated herein, or which would be likely to
impair materially the ability of any Indemnitor to perform under the terms of
this Agreement;
3.1.4 No approval, authorization, order, license or consent of, or
registration or filing with, any governmental authority or other person, and no
approval, authorization or consent of any other party is required in connection
with this Agreement; and
3.1.5 This Agreement constitutes a valid, legal and binding obligation of
each Indemnitor, enforceable against it in accordance with the terms hereof
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subject, as to enforcement, to bankruptcy, insolvency, reorganization and other
laws of general applicability relating or affecting creditors' rights and to
general equity principals.
3.2 Environmental Representations and Warranties. Each Indemnitor represents and
warrants, based upon their review of the written report(s) resulting from the
environmental assessment (s) of the Property previously delivered to Lender
(collectively, the "Environmental Reports") and information that any Indemnitor
has actual knowledge of, that:
3.2.1 There are no Hazardous Materials or underground storage tanks in, on,
or under the Property, except those that are both (i) in compliance with
Environmental Laws and, if required, with permits issued pursuant thereto and
(ii) either fully disclosed to Lender in the Environmental Reports or are used
by Borrower or tenants of the Property in the ordinary course of their business,
provided that as disclosed in the Environmental Reports, Lender acknowledges
that (i) underground storage tanks have been previously removed from the
Property and (ii) an above-ground storage tank exists on the Property (which is
scheduled to be removed prior to the occupancy of the Tenant under the Cel-Sci
Lease;
3.2.2 There are no past, present or threatened Releases of Hazardous
Materials in, on, under or from the Property except as described in the
Environmental Reports;
3.2.3 There is no threat of any Release of Hazardous Materials migrating to
the Property except as described in the Environmental Reports;
3.2.4 There are no past or present non-compliance with Environmental Laws,
or with permits issued pursuant thereto, in connection with the Property except
as described in the Environmental Reports;
3.2.5 No Indemnitor knows of, or has received, any written notice from any
Person (including, without limitation, a governmental entity) in connection with
the Property relating to Hazardous Materials or Remediation thereof, or any
actual or threatened administrative or judicial proceedings in connection with
any of the foregoing; and
3.2.6 Each Indemnitor has truthfully and fully provided to Lender, in
writing, any and all information relating to conditions in, on, under or from
the Property that is known to any Indemnitor and that is contained in the files
and records of any Indemnitor, including, without limitation, any reports
relating to Hazardous Materials in, on, under or from the Property and/or to the
environmental condition of the Property.
3.3 Environmental Covenants. Each Indemnitor covenants and agrees as follows:
3.3.1 All uses and operations on or of the Property, whether by Borrower or
any other Person, shall be in compliance in all material respects with all
Environmental Laws and permits issued pursuant thereto;
3.3.2 There shall be no Releases of Hazardous Materials in, on, under or
from the Property, other than in compliance with applicable Environmental Laws;
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3.3.3 There shall be no Hazardous Materials in, on, or under the Property
except those that are both (i) in compliance with all Environmental Laws and, if
required, with permits issued pursuant thereto, and (ii) fully disclosed to
Lender in writing or are used by Borrower or tenants of the Property in the
ordinary course of their business;
3.3.4 Each Indemnitor shall keep, or cause to be kept, the Property free
and clear of all liens and other encumbrances imposed pursuant to any
Environmental Law, whether due to any act or omission of any Indemnitor or any
other Person (the "Environmental Liens");
3.3.5 Subject to Section 4, each Indemnitor shall, at their sole cost and
expense, perform an environmental site assessment or other investigation of
environmental conditions in connection with the Property as reasonably
determined by Indemnitor, pursuant to any reasonable written request of Lender
if Lender has reason to suspect that (i) a Release of a Hazardous Material has
occurred in violation of Environmental Laws (including, without limitation,
sampling, testing and analysis of soil, water, air, building materials and other
materials and substances whether solid, liquid or gas) or (ii) such
investigation or assessment is required by any applicable law or governmental
authority in connection with any demolition and or construction activity at the
Property. Indemnitors agree to share with Lender the reports and other results
thereof, and Lender and other Indemnified Parties shall be entitled to rely on
such reports and other results thereof;
3.3.6 Each Indemnitor shall, at their sole cost and expense, comply or
cause Borrower to comply with all reasonable written requests of Lender to (i)
reasonably effectuate Remediation of any condition (including, without
limitation, a Release of a Hazardous Material) in, on, under or from the
Property; (ii) comply with any Environmental Law with respect to the Property;
(iii) comply with any directive from any governmental authority with respect to
the Property; and (iv) take any other reasonable action with respect to the
Property necessary or appropriate for protection of human health or the
environment;
3.3.7 Each Indemnitor, promptly upon becoming aware of the same shall
notify Lender in writing of (i) any presence or Release or threatened Release of
Hazardous Materials in, on, under, from or migrating towards the Property, in
violation of applicable Environmental Laws; (ii) any non-compliance in any
material respect with any applicable Environmental Laws related in any way to
the Property; (iii) any actual or potential Environmental Lien; (iv) any
required or proposed Remediation of environmental conditions relating to the
Property; (v) any Legal Action brought against such party or related to the
Property, with respect to which Indemnitors may have liability under this
Agreement; and (vi) any written notice of which any Indemnitor receives relating
to any violation of any applicable Environmental Law with respect to the
Property, other environmental conditions in connection with the Property that
are in violation of applicable Environmental Law, or any actual or threatened
administrative or judicial proceedings relating to any environmental condition
of the Property.
3.3.8 If, at any time hereafter, Lender reasonably suspects any lead-based
paint in its present state and concentration on the Property is in an amount
and/or state in excess of the concentration permitted under applicable
Environmental Laws ("Lead Based Paint"), Indemnitors agree, at their sole cost
and expense and within thirty (30) days thereafter, to cause to be prepared an
assessment report describing the location and condition of the Lead Based Paint
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(a "Lead Based Paint Report"), prepared by an expert, and in form and scope
acceptable to Lender. If at any time hereafter, Lender reasonably (i) suspects
that the Property contains any asbestos or asbestos containing materials
("Asbestos") in its present state and concentration as would be in violation of
any applicable Environmental Laws or (ii) determines, that pursuant to any
proposed demolition or construction of any improvements at the Property, that
any governmental entity would require an assessment report describing the
location and condition of the Asbestos (the "Asbestos Report"), Indemnitors
agree, at their sole cost and expense and within thirty (30) days thereafter, to
cause to be prepared the Asbestos Report, prepared by an expert, and in form and
scope acceptable to Lender. If at any time hereafter, Lender has reason to
believe that Pathogens in their present state and concentration would be in
violation of applicable Environmental Laws are present on the Property,
Indemnitors agree, at their sole cost and expense, and within thirty (30) days
thereafter, to cause to be prepared an assessment report describing the location
and condition of the Pathogens ("Pathogens Report"), prepared by an expert, and
in form and scope acceptable to Lender.
3.3.9 Each Indemnitor agrees that if it has been, or if at any time
hereafter it is, determined that the Property contains Lead Based
Paint/Asbestos/Pathogens, in their present state and concentration, would be in
violation of any applicable Environmental Laws as noted in 3.3.8, on or before
thirty (30) days following (i) the date hereof, if such determination was made
prior to the date hereof or (ii) such determination, if such determination is
hereafter made, as applicable, Indemnitors shall, at their sole cost and
expense, develop and implement, and thereafter diligently and continuously carry
out (or cause to be developed, implemented and thereafter diligently carried
out), an operations, abatement and maintenance plan for the Lead Based
Paint/Asbestos/Pathogens on the Property, which plan shall be prepared by an
expert, and be in form, scope and substance reasonably acceptable to Lender (the
"O&M Plan"). Indemnitors agree to diligently and continuously carry out (or
cause to be carried out) the provisions thereof. Compliance with the O&M Plan
shall require or be deemed to require, without limitation, the proper
preparation and maintenance all records, papers, and forms required under the
Environmental Laws.
Article 4
Inspection and Testing
Lender may require Borrower (or Borrower shall cause Property Owner to do so, as
appropriate), at its sole cost and expense, from time to time to perform or
cause to be performed, such studies or assessments of the Property, as Lender
may reasonably deem necessary, appropriate or desirable, to determine the status
of environmental conditions on, under and about the Property, which studies and
assessments shall be for the benefit of Lender and shall be prepared in
accordance with the specifications established by Lender. Borrower hereby
confirms the right of Lender (or a receiver appointed by Lender) to enter upon
and inspect all or any portion of the Property for the purpose of determining
the existence, location, nature and magnitude of any past or present release or
threatened release of any hazardous substance into, onto, beneath, or from the
Property in accordance with applicable law. All reasonable costs and expenses
incurred by Lender pursuant to this provision or applicable law, including,
without limitation, costs of consultants and contractors, costs of repair of any
physical injury to the Property normal and customary to the tests and studies,
court costs and attorneys' fees, costs and expenses, whether incurred in
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litigation or not and whether before or after judgment, shall be payable by
Borrower and, to the extent advanced or incurred by Lender, shall be reimbursed
to Lender by Borrower upon demand. This provision is separate and several, and
shall survive merger into any judgment. Notwithstanding the foregoing, Borrower
shall not be responsible for the cost and expense of any environmental study or
assessment unless one of the following has occurred: (1) an Event of Default,
(2) if required by a federal, state or local regulatory agency, or (3) if Lender
has a reasonable belief that a violation of Environmental Law exists with
respect to the Property.
Article 5
General
5.1 Unimpaired Liability. The liability of Indemnitor under this Agreement shall
in no way be limited or impaired by (i) any extensions of time for performance
required by any of the Loan Documents, (ii) any sale or transfer of all or part
of the Property, (iii) except as provided herein, any exculpatory provision in
any of Loan Documents limiting Lender's recourse to the Property or to any other
security for the Loan, or limiting Lender's rights to a deficiency judgment
against Borrower, (iv) the accuracy or inaccuracy of the representations and
warranties made by or each Indemnitor herein or under any of the Loan Documents,
(v) the release of Borrower or any other Person from performance or observance
of any of the agreements, covenants, terms or condition contained in any of the
other Loan Documents by operation of law, Lender's voluntary act, or otherwise,
(vi) the release or substitution in whole or in part of any security for the
Loan, or (vii) Lender's failure to file any UCC financing statements (or
Lender's improper recording or filing of any thereof) or to otherwise perfect,
protect, secure or insure any security interest or lien given as security for
the Loan; and, in any such case, whether with or without notice to Borrower and
with or without consideration.
5.2 Indemnification Procedures. If any action shall be brought against Lender
based upon any of the matters for which Lender is indemnified hereunder, Lender
shall promptly notify Borrower in writing thereof and Borrower shall promptly
assume the defense thereof, including, without limitation, the employment of
counsel reasonably acceptable to Lender and the negotiation of any settlement;
provided, however, that any failure of Lender to notify Borrower of such matter
shall not impair or reduce the obligations of Borrower hereunder. Lender shall
have the right, at its own expense, to participate in the defense of any such
action using counsel selected by Lender and reasonably approved by Borrower;
provided, however, that Borrower shall pay the expenses of such counsel if the
named parties to any such action include both Borrower and Lender and
representation of both Borrower and Lender by the same counsel would be
inappropriate under applicable standards of professional conduct due to
conflicting interests between them (in which case, such expenses shall be
included in Losses). In the event Borrower shall fail to discharge or undertake
to defend Lender against any claim, Losses or liability for which Lender is
indemnified hereunder and for which Borrower has received written notice from
Lender, Lender may, at its sole option and election, defend or settle such
claim, Losses or liability. The liability of Borrower to Lender hereunder shall
be conclusively established by such settlement, provided such settlement is made
in good faith, the amount of such liability to include both the settlement
consideration and the costs and expenses, including, without limitation
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reasonable attorney's fees and disbursements, incurred by Lender in effecting
such settlement. In such event, such settlement consideration, costs and
expenses shall be included in Losses and Borrower shall pay the same as
hereinafter provided. Lender's good faith in any such settlement shall be
conclusively established if the settlement is made on the advice of independent
legal counsel for Lender.
5.2.1 Borrower shall not, without the prior written consent of Lender: (i)
settle or compromise or cause to settled or compromised any action, suit,
proceeding or claim or consent to the entry of any judgment that does not
include as an unconditional term thereof the delivery by the claimant or
plaintiff to Lender of a full and complete written release of Lender (in form,
scope and substance satisfactory to Lender in its sole discretion) from all
liability in respect of such action, suit, proceeding or claim and a dismissal
with prejudice of such action, suit, proceeding or claim; or (ii) settle or
compromise any action, suit, proceeding or claim in any manner that may
adversely affect Lender or obligate Lender to pay any sum or perform any
obligation as determined by Lender in its sole discretion.
5.2.2 All Losses shall be immediately reimbursable to Lender when and as
incurred and, in the event of any litigation, claim or other proceeding, without
any requirement of waiting for the ultimate outcome of such litigation, claim or
other proceeding, and Borrower shall pay to Lender any and all Losses within
thirty (30) days after written notice from Lender itemizing the amounts thereof
incurred to the date of such notice. In addition to any other remedy available
for the failure of Borrower to periodically pay such Losses, such Losses, if not
paid within said thirty (30) day period, shall bear interest at the Default Rate
(as defined in the Loan Agreement).
5.2.3 If Borrower or Property Owner obtains any environmental risk
insurance policy or policies in connection with the Property, Lender agrees to
give its reasonable cooperation to the insurance company in connection with its
defense of any third party claims against Property Owner, Borrower or Lender
with respect to Hazardous Materials and to not unreasonably withhold its
approval of the counsel selected to defend Property Owner, Borrower and Lender
against such claims by such insurance company.
5.3 Enforcement. Indemnified Parties may enforce the obligations of Indemnitor
without first resorting to or exhausting any security or collateral or without
first having recourse to the any of the Collateral or the Property, through
foreclosure proceedings, UCC sale or otherwise, provided, however, that nothing
herein shall inhibit or prevent Lender from suing on the Loan Documents,
foreclosing, or exercising any power of sale or UCC sale rights under, the Loan
Documents, or exercising any other rights and remedies thereunder, to the extent
permitted thereunder. This Agreement is not collateral or security for the debt
of Borrower pursuant to the Loan, unless Lender expressly elects in writing to
make this Agreement additional collateral or security for the debt of Borrower
pursuant to the Loan, which Lender is entitled to do in its sole discretion.
Except as otherwise expressly provided under this Agreement, it is not necessary
for an event of default to have occurred pursuant to any Loan Document for
Indemnified Parties to exercise their rights pursuant to this Agreement.
Notwithstanding any provision of the Loan Documents to the contrary, the
obligations pursuant to this Agreement are exceptions to any non-recourse or
exculpation provision of the Loan Documents; Borrower and Guarantor are fully
and personally liable for such obligations, and Borrower's liability is not
limited to the original or amortized principal balance of the Loan or the value
of the Property.
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5.4 Reinstatement of Obligations. If at any time all or any part of any payment
made by any Indemnitor or received by Lender from such Indemnitor under or with
respect to this Agreement is or must be rescinded or returned for any reason
whatsoever (including, but not limited to, the insolvency, bankruptcy or
reorganization of such Indemnitor), then the obligations of Indemnitors
hereunder shall, to the extent of the payment rescinded or returned, be deemed
to have continued in existence, notwithstanding such previous payment made by
any such Indemnitor, or receipt of payment by Lender, and the obligations of
Indemnitors hereunder shall continue to be effective or be reinstated, as the
case may be, as to such payment, all as though such previous payment by such
Indemnitor had never been made.
Article 6
Waivers
6.1 Waivers by Guarantor. To the extent permitted by law, Guarantor hereby
waives and agrees not to assert or take advantage of the following: (a) any
right to require an Indemnified Party (i) to proceed against Borrower or any
other Person, (ii) to proceed against or exhaust any security held by any
Indemnified Party at any time or (iii) to pursue any other remedy in such
Indemnified Party's power or under any other agreement, in any case, before
proceeding against Guarantor hereunder; (b) any defense that may arise by reason
of the incapacity, lack of authority, death or disability of any other Person of
the failure of an Indemnified Party to file or enforce a claim against the
estate (in administration, bankruptcy or any other proceeding) of any other
Person; (c) any demand, presentment for payment, protest and notice of protest,
demand, dishonor and nonpayment and all other notices, except as expressly
required by the Loan Documents, including, without limitation, notice of new or
additional indebtedness or obligations or of any action or non-action on the
part of Borrower, Lender, any endorser or creditor of Borrower or of Guarantor
or of any other Person whomsoever under this Agreement or any other Loan
Document; (d) any defense based upon an election of remedies, splitting a cause
of action or merger of judgments by any Indemnified Party; (e) any right or
claim of right to cause a marshalling of the assets of Guarantor; (f)
{reserved]; (g) any duty on the part of any Indemnified Party to disclose to
Guarantor any facts such Indemnified Party may now or hereafter know about
Borrower or the Property, regardless of whether such Indemnified Party (i) has
reason to believe that any such facts materially increase the risk beyond that
which Guarantor intends to assume, (ii) has reason to believe that such facts
are unknown to Guarantor or (iii) has a reasonable opportunity to communicate
such facts to Guarantor, it being understood and agreed that Guarantor is fully
responsible for being informed of the financial condition of Borrower, the
condition of the Property and of all other circumstances bearing on the risk
that liability may be incurred by Guarantor hereunder; (h) any invalidity,
irregularity or unenforceability, in whole or in part, of any one or more of the
Loan Documents; (i) any lack of commercial reasonableness in dealing with the
Collateral for the Loan; (j) any deficiencies in the Collateral for the Loan or
any deficiency in the ability of Lender to collect or to obtain performance from
any Persons now or hereafter liable for the payment and performance of any
obligation hereby guaranteed; (k) an assertion or claim that the automatic stay
provided by 11 U.S.C. ss.362 (arising upon the voluntary or involuntary
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bankruptcy proceeding of Borrower or Guarantor) or any other stay provided under
any other debtor relief law (whether statutory, common law, case law or
otherwise) of any jurisdiction whatsoever, now or hereafter in effect, which may
be or become applicable, shall operate or be interpreted to stay, interdict,
condition, reduce or inhibit the ability of Lender to enforce any of its rights,
whether now existing or hereafter acquired, which Lender may have against
Guarantor, Borrower or the Collateral for the Loan; and (l) any modifications of
any of the Loan Documents or any obligation of Borrower or Guarantor relating to
the Loan by operation of law or by action of any court, whether pursuant to the
Bankruptcy Reform Act of 1978, as amended, or any other debtor relief law
(whether statutory, common law, case law or otherwise) of any jurisdiction
whatsoever, now or hereafter in effect, or otherwise.
Borrower and Guarantor covenant and agree that upon the commencement of a
voluntary or involuntary bankruptcy proceeding by or against Borrower or
Guarantor, neither Borrower nor Guarantor shall seek a supplemental stay or
otherwise pursuant to 11 U.S.C. ss.105 or any other provision of the Bankruptcy
Reform Act of 1978, as amended, or any other debtor relief law (whether
statutory, common law, case law, or otherwise) of any jurisdiction whatsoever,
now or hereafter in effect, which may be or become applicable, to stay,
interdict, condition, reduce or inhibit the ability of Lender to enforce any
rights of Lender against Borrower or Guarantor by virtue of this Agreement or
otherwise.
6.2 Waivers by Each Indemnitor. Each Indemnitor hereby waives and agrees to not
assert or take advantage of the following: (a) any right or claim of right to
cause a marshaling of Borrower's assets or to cause Lender or other Indemnified
Parties to proceed against any of the security for the Loan before proceeding
under this Agreement against each Indemnitor; (b) all rights and remedies
accorded by applicable law to each Indemnitor that might constitute a legal
discharge of such Indemnitor as a surety or guarantor, except any rights of
subrogation which such Indemnitor may have, provided that the indemnity provided
for hereunder shall neither be contingent upon the existence of any such rights
of subrogation nor subject to any claims or defenses whatsoever which may be
asserted in connection with the enforcement or attempted enforcement of such
subrogation rights including, without limitation, any claim that such
subrogation rights were abrogated by any acts of Lender or other Indemnified
Parties; (c) the right to assert a counterclaim, other than a mandatory or
compulsory counterclaim, in any action or proceeding brought against or by
Lender or other Indemnified Party; (d) notice of acceptance hereof and of any
action taken or omitted in reliance hereon; (e) presentment for payment, demand
of payment, protest or notice of nonpayment or failure to perform or observe, or
other proof, or notice or demand unless specifically required to be made upon or
delivered to any Indemnitor by this Agreement or the other Loan Documents; and
(f) the benefits of any statutes of limitations.
Notwithstanding anything to the contrary contained herein, each Indemnitor
agrees to postpone the exercise of any rights of subrogation with respect to any
Collateral securing the Loan until the Loan shall have been indefeasibly paid in
full. No delay by any Indemnified Party in exercising any right, power or
privilege under this Agreement shall operate as a waiver of such right, power or
privilege.
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Article 7
Miscellaneous
7.1 Notices. All notices and other written communication which are required or
called for under any provision of this Agreement shall be effective only if they
are in writing, addressed to the proper party at the applicable address for
notice indicated on the signature page of this Agreement and sent in one of the
following ways: (i) by U.S. Mail; (ii) by a recognized overnight carrier, such
as Federal Express, marked for next day delivery; or (iii) by facsimile
transmission; in each case with delivery charges (if any) prepaid and addressed
to each party at its address for notices. Any party may change its address for
notice by giving notice to the other parties in the manner provided herein. Such
a notice or other communication shall be deemed delivered at the following
times: if sent by U.S. Mail, then upon receipt or refusal to accept delivery; if
sent by a recognized overnight carrier, then one (1) Business Day after the
acceptance by the carrier for next day delivery; and if by facsimile, on the
Business Day it is sent if the sender verifies that the notice was received at
the recipient's facsimile machine during regular business hours on the day sent
- - otherwise, on the next Business Day; provided that any notice or other
communication sent by facsimile must be reasonably legible when received by a
properly operating facsimile receiver.
7.2 Duplicate Originals; Counterparts. This Agreement may be executed in any
number of duplicate originals and each duplicate original shall be deemed to be
an original. This Agreement may be executed in several counterparts, each of
which counterparts shall be deemed an original instrument and all of which
together shall constitute a single Agreement. The failure of any party hereto to
execute this Agreement, or any counterpart hereof, shall not relieve the other
signatories from their obligations hereunder.
7.3 No Oral Change. This Agreement, and any provisions hereof, may not be
modified, amended, waived, extended, changed, discharged or terminated orally or
by any act or failure to act on the part of Indemnitor or any Indemnified Party,
but only by an agreement in writing signed by the party against whom enforcement
of any modification, amendment, waiver, extension, change, discharge or
termination is sought.
7.4 Headings, etc. The headings and captions of various paragraphs of this
Agreement are for convenience of reference only and are not to be construed as
defining or limiting, in any way, the scope or intent of the provisions hereof.
7.5 Number and Gender/Successors and Assigns. All pronouns and any variations
thereof shall be deemed to refer to the masculine, feminine, neuter, singular or
plural as the identity of the person or persons referred to may require. Without
limiting the effect of specific references in any provision of this Agreement,
the term "Borrower" shall be deemed to refer to each and every person or entity
comprising Borrower from time to time, as the sense of a particular provision
may require, and to include the successors and assigns of Borrower, all of whom
shall be bound by the provisions of this Agreement, provided that no obligation
of Borrower may be assigned except with the written consent of Lender. Without
limiting the effect of specific references in any provision of this Agreement,
the term "Guarantor" shall be deemed to refer to each and every person or entity
14
<PAGE>
comprising each such Guarantor from time to time, as the sense of a particular
provision may require, and to include the successors and assigns of such
Guarantor, all of whom shall be bound by the provisions of this Agreement,
provided that no obligation of such Guarantor may be assigned except with the
written consent of Lender. Each reference herein to Lender shall be deemed to
include its successors and assigns. This Agreement shall inure to the benefit of
Indemnified Parties and their respective successors and assigns.
7.6 Joint and Several Liability. The obligations and liabilities of each
Indemnitor hereunder are joint and several.
7.7 Release of Liability. Any one or more parties liable upon or in respect of
this Agreement may be released without affecting the liability of any party not
so released.
7.8 Rights Cumulative. The rights and remedies herein provided are cumulative
and not exclusive of any rights or remedies which Lender has under the other
Loan Documents or would otherwise have at law or in equity.
7.9 Inapplicable Provisions. If any term, condition or covenant of this
Agreement shall be held to be invalid, illegal or unenforceable in any respect,
this Agreement shall be construed without such provision.
7.10 Governing Law. This Agreement and the obligations arising hereunder shall
be governed by, and construed in accordance with, the laws of the State of
Maryland applicable to contracts made and intended to be performed in such
state, without giving effect to principles of conflicts of laws, and any
applicable law of the United States of America.
7.11 WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY LAW, BORROWER AND
LENDER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENT (WHETHER VERBAL OR WRITTEN) OR ACTION OF EITHER PARTY OR ANY
EXERCISE BY ANY PARTY OF THEIR RESPECTIVE RIGHTS HEREUNDER OR IN ANY WAY
RELATING TO THE LOAN OR THE PROPERTY (INCLUDING ANY ACTION TO RESCIND OR CANCEL
THIS AGREEMENT, AND ANY CLAIM OR DEFENSE ASSERTING THAT THIS AGREEMENT WAS
FRAUDULENTLY INDUCED OR IS OTHERWISE VOID OR VOIDABLE). THIS WAIVER IS A
MATERIAL INDUCEMENT FOR LENDER TO MAKE THE LOAN.
7.12 Approvals. Wherever pursuant to this Agreement (i) Indemnified Parties
exercise any right given to it to approve or disapprove, (ii) any arrangement or
term is to be satisfactory to Indemnified Parties, or (iii) any other decision
or determination is to be made by Indemnified Parties, the decision of
Indemnified Parties to approve or disapprove, all decisions that arrangements or
terms are satisfactory or not satisfactory and all other decisions and
determinations made by Indemnified Parties, shall be in the reasonable
discretion of Indemnified Parties, except as may be otherwise expressly and
specifically provided herein.
15
<PAGE>
7.13 Legal Fees. Wherever pursuant to this Agreement it is provided that
Indemnitor pay any costs and expenses, such costs and expenses shall include,
but not be limited to, legal fees and disbursements of Indemnified Parties.
Indemnitor shall reimburse Lender for all reasonable attorneys' fees, costs and
expenses incurred by Lender in connection with the enforcement of Lender's
rights under this Agreement, including, without limitation reasonable attorneys'
fees, costs and expenses for trial, appellate proceedings, out-of-court
negotiations, workouts and settlements, or for enforcement of rights under any
state or federal statute, including without limitation reasonable attorneys'
fees, costs and expenses incurred in bankruptcy and insolvency proceedings, such
as (but not limited to) seeking relief from stay in a bankruptcy proceeding. The
term "expenses" means any expenses incurred by Lender in connection with any of
the out-of-court, or state, federal or bankruptcy proceedings referred to above,
including without limitation the fees and expenses of any appraisers,
consultants and expert witnesses retained or consulted by Lender in connection
with any such proceeding. Lender shall also be entitled to its reasonable
attorneys' fees, costs and expenses incurred in any post-judgment proceedings to
collect and enforce the judgment. This provision is separate and several, shall
survive the termination of this Agreement, and shall survive the merger of this
Agreement into any judgment on this Agreement.
7.14 Loan Amount No Limitation. The amount of Indemnitor's liability under this
Agreement is unrelated to and independent of, the amount of any Losses that
Lender may suffer by reason of the failure of the Loan to be repaid in full, and
shall not be determined by reference to the amount of any Loan loss. The
enforcement of this Agreement by any Indemnified Party shall not be construed as
an indirect attempt to recover any such Loan loss. Indemnitor acknowledges that
they may have liability under this Agreement even if the Loan is repaid in full
by reason of a full credit bid at any foreclosure sale UCC sale, judicial sale
or non-judicial sale under or release of the Pledge Agreement, and that the
amount of Indemnitor's liability hereunder could exceed the entire amount paid
by Property Owner for the Property.
7.15 Survival. The obligations and liabilities of Indemnitor under this
Agreement shall fully survive indefinitely notwithstanding any termination,
satisfaction, assignment, entry of a judgment of foreclosure, exercise of any
power of sale, UCC sale or delivery of an assignment of ownership interests in
Borrower or Property Owner in lieu of foreclosure, UCC sale, judicial sale or
non-judicial sale under the Pledge Agreement or the Deed of Trust, as
applicable, subject to the final sentence of Section 2.1.
7.16 Time. Time is of the essence in this Agreement and all its provisions.
(Signature page follows)
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This Agreement has been executed by Indemnitor and is effective as of the
day and year first above written.
GUARANTOR:
/s/ Stanley Wendzel
------------------------------
STANLEY WENDZEL
Address for Notices:
c/o BioRealty, Inc.
9811 Irvine Center Drive
Irvine, California 92618
Attention: Stan Wendzel
Fax: *
[signatures continue on next page]
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PROPERTY OWNER:
VIF II CEL-SCI PARTNERS, LLC,
a Delaware limited liability company
By: /s/ Stan Wendzel
Name: Stan Wendzel
Title: Manager
Address for Notices:
c/o BioRealty, Inc.
9811 Irvine Center Drive
Irvine, California 92618
Attention: Stan Wendzel
Fax: *
Lender's Address for Notices:
c/o American Realty Advisors
801 N. Brand Blvd., Suite 800
Glendale, CA 91203
Attention: Stan Wendzel
Telephone: *
Facsimile: *
18
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EXHIBIT A
LEGAL DESCRIPTION
*
19
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SECOND AMENDMENT TO LEASE AGREEMENT
AND WORK LETTER AGREEMENT
THIS SECOND AMENDMENT TO LEASE AGREEMENT AND WORK LETTER AGREEMENT
("Second Amendment"), is made and dated for reference purposes only as of
January 9, 2008, between VIF II CEL-SCI PARTNERS, LLC, a Delaware limited
liability company ("Landlord"), and CEL-SCI CORPORATION, a Colorado corporation
("Tenant"), with reference to the following facts:
A. Landlord and Tenant entered into that certain Lease Agreement, dated
June 6, 2007 ("Original Lease"), together with that certain Work Letter
Agreement dated June 6, 2007 (the "Work Letter"), as amended by that certain
First Amendment to Lease Agreement and Work Letter Agreement dated August 7,
2007 (the "First Amendment"), for premises located at * ("Premises"). The
Original Lease, Work Letter and First Amendment are sometimes collectively
referred to herein as the "Lease". Except as otherwise modified in this Second
Amendment, defined terms used herein shall have the same meanings given to them
in the Lease.
B. Pursuant to Section 3.5 of the Lease, Tenant has delivered to Landlord
Tenant's TI Contribution in the amount of $3,150,000.
C. Pursuant to Section 4.2 of the Work Letter, Tenant has delivered to
Landlord the initial estimated Excess Costs in the amount of $3,954,860.
Tenant's TI Contribution and the initial estimated Excess Costs are collectively
referred to herein as the "Initial Contribution" and equal, in the aggregate,
$7,104,860.
D. In order to facilitate the build-out of the Premises, Landlord has
agreed to move forward with certain tenant improvement work at the Premises
while the building permit for Landlord's Work is being processed (the "Permit"),
subject, however, to the terms and conditions of this Second Amendment.
E. Landlord and Tenant now desire to amend the Lease and Work Letter as
set forth in this Second Amendment.
THEREFORE, for valuable consideration, the receipt and adequacy of which
are hereby acknowledged, Landlord and Tenant hereby agree to amend the Lease and
Work Letter as follows:
1. Pre-Permit Work; Tenant Indemnity. As soon as reasonably
practicable after the full execution of this Second Amendment, Landlord
hereby agrees to perform certain portions of Landlord's Work (the
"Pre-Permit Work") that do not require the issuance of the Permit from
Howard County, Maryland (the "County"), subject to the following:
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a. Subject to the provisions of Section 4.2 of the Work Letter,
Landlord shall have the right to use funds from the Initial Contribution
to pay for all costs incurred by Landlord in performing the Pre-Permit
Work.
b. If the County or any other governmental agency with jurisdiction
over the Property requires Landlord to cease the Pre-Permit Work for any
reason, including, without limitation, the failure to obtain the Permit,
Landlord shall have the right to immediately cease such Pre-Permit Work
until such time as the Permit is issued and Landlord shall not be deemed
to be in default under the terms of the Lease or this Second Amendment or
otherwise be subject to any liability as a result thereof. Tenant shall be
responsible for, and shall otherwise indemnify, defend and hold Landlord
harmless from and against any and all claims, losses or liabilities
arising out of the performance of the Pre-Permit Work by Landlord,
including, without limitation, the payment of any fines, penalties or
other fees that may be charged by the County in connection with Landlord's
performance of the Pre-Permit Work. Notwithstanding anything to the
contrary contained in this Second Amendment, Tenant's obligations under
Section 4.2 of the Work Letter shall continue to be applicable and
enforceable in the event Landlord is required to cease the Pre-Permit
Work.
c. If despite good-faith efforts, Landlord is unable to obtain the
Permit by June 30, 2009 for any reason, Landlord may elect, in Landlord's
sole and absolute discretion, to restore all or any portion of the
Premises to the condition existing prior to the Pre-Permit Work. All costs
relating to such restoration (which costs may include, without limitation,
architects', attorneys' and other consultants' fees and construction and
materials fees) (collectively, the "Restoration Costs") shall be paid by
Tenant. In connection with the foregoing, Landlord may apply any remaining
balance of the Initial Contribution towards the Restoration Costs. To the
extent the amount of the Restoration Costs exceed the remaining balance of
the Initial Contribution as reasonably determined by Landlord, Tenant
shall, within twenty (20) days after receipt of written demand from
Landlord (which demand shall include a breakdown of the remaining costs to
restore the Premises or any portion thereof), deliver to Landlord the
total amount of the Restoration Costs. For the purposes hereof, all
invoices, receipts or statements furnished by Landlord's architects,
engineers, contractors, sub-contractors, and agents shall suffice as
documentation establishing any such Restoration Costs. If Tenant fails to
deliver the Restoration Costs to Landlord within such 20-day period, the
Restoration Costs shall accrue interest at the rate of ten percent (10%)
per annum until the Restoration Costs, plus all accrued interest, are paid
in full.
2. Landlord's Work; Improvements. Tenant acknowledges that
notwithstanding the terms and conditions set forth in the Work Letter, Tenant
has been actively involved in the pre-construction phase of the Improvements
(i.e., the design) and that Landlord has implemented such design elements as
Tenant has directed or requested (the "Pre-Construction Elements"), and will
continue to implement, in Landlord's reasonable discretion, such
Pre-Construction Elements as Tenant may request in the future from time to time.
Accordingly, Tenant hereby assumes all risk in connection with any Tenant-based
design elements that have been incorporated into the Pre-Construction Elements
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and agrees to waive any and all claims that Tenant may have against Landlord in
connection with the implementation of the same. In connection with the
foregoing, Tenant shall indemnify, defend and hold Landlord harmless from and
against any and all claims, losses or liabilities (collectively, "Claims") that
may arise out of the Pre-Construction Elements, including, without limitation,
any Claims relating to design defects arising out of the implementation of any
Pre-Construction Elements. Notwithstanding the foregoing provisions of this
Section 2, Landlord's obligations under Section 3.3 of the Work Letter
(Completion of Landlord's Work) will remain unchanged.
3. Environmental Indemnity. Tenant confirms that Landlord is
currently in the process of negotiating a construction contract with BE&K
Building Group, Inc. ("BE&K"), for the construction of Landlord's Work (the
"Construction Contract"). In connection with such Construction Contract, BE&K is
requiring that Landlord indemnify BE&K from certain claims, losses and
liabilities arising out of the existence of any hazardous materials (including,
without limitation, the existence of any asbestos containing materials ("ACMs")
and polychlorinated biphenyls ("PCBs")) at the Property. Notwithstanding
anything to the contrary contained in the Lease or Work Letter and except to the
extent caused by the gross negligence or willful misconduct of Landlord, Wendzel
or Kornich, Tenant hereby agrees to be solely responsible for, and shall
otherwise indemnify, defend and hold Wendzel or Kornich harmless from and
against, any and all claims, liabilities, losses and the costs of any
remediation required that may arise under the environmental indemnity set forth
in the Construction Contract for which Landlord, Wendzel/Kornich may be liable.
In connection therewith, Tenant further agrees to be responsible for all costs
relating to any inspections, testing, or appraisals that may be required as a
result of the presence of any such hazardous materials, ACMs or PCBs. Tenant
shall pay any costs required to be paid by Tenant under this Section 2 within
twenty (20) days after receipt of written demand and copies of invoices
evidencing such costs.
4. Meetings with BE&K. Provided Tenant is not in default under the
Lease or Work Letter beyond any applicable notice and cure periods, Landlord
shall use reasonable efforts to provide Jones and Burkhart (as defined in the
Work Letter) with reasonable prior notice of any relevant meetings regarding the
Property between Landlord and BE&K Building Group, Inc. ("BE&K") so that Jones
and/or Burkhart may attend and participate in such meetings.
5. Termination of Construction Contract for Convenience. Tenant
acknowledges that the Construction Contract by and between Landlord and BE&K
contains a termination for convenience clause giving Landlord the right to
terminate the Construction Contract. Landlord hereby agrees not to exercise such
termination for convenience unless (i) Tenant is in default under the Lease or
Work Letter beyond any applicable notice and cure periods, or (ii) Tenant has
delivered a written request to Landlord to terminate the Construction Contract
for convenience and Landlord otherwise determines in its sole, subjective
discretion that it is appropriate to terminate the Construction Contract.
6. Construction Contract Line Item Reallocation. Tenant acknowledges
that the Construction Contract by and between Landlord and BE&K requires
Landlord's approval (not to be unreasonably withheld) prior to BE&K reallocating
General Conditions, Corporate Services and Movable Equipment budget line items.
Landlord hereby agrees to authorize any such line item reallocations requested
by Tenant in writing, so long as (i) Tenant is not in default under the Lease or
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Work Letter beyond any applicable notice and cure periods, (ii) there exists no
unfunded Excess Costs and (iii) the requested reallocation is necessary to
account for an agreed upon line item deficit.
7. Quality Control Supervisor. Without altering Tenant's access
rights contained in Article VI of the Work Letter, Landlord agrees to grant
Jones a temporary, revocable license to enter the Premises and serve as an
on-site quality control inspector (the "QC Inspector") to inspect the delivery
of equipment and materials and inform Landlord of any issues with regard to the
quality of Landlord's Work so long as the QC Inspector's efforts do not
interfere with or otherwise impede the performance of Landlord's Work. The QC
Inspector will communicate any related quality concerns to Landlord by
electronic mail to the attention of Pete McCawley with a copy to Landlord's
Representative (i.e., Stan Wendzel) and Doug Kornich. In the event of any
interference by QC Inspector with the performance of Landlord's Work (e.g.,
disturbance of GC Means and Methods, directing subcontractor(s) to perform work,
causing Project delays), Landlord may immediately terminate QC Inspector's
rights under this Section 7 and such interference may constitute a Tenant Delay
under the Lease and Work Letter.
8. Cost Segregation. Notwithstanding anything to the contrary
contained in the Lease or the Work Letter, with the exception of the Movable
Equipment identified in Schedule 1 of the Lease (as amended by the First
Amendment), Landlord's Share of Project Cost is deemed to have, or will
otherwise be used to pay for the components of the Improvements at the Property
that qualify as Internal Revenue Code Section 1245 Property (the "1245
Property"), which 1245 Property has been previously outlined in the cost
segregation study prepared for the Property.
9. Cost-Savings Incentive Fee. The definition of "Cost Savings
Incentive Fee" as defined in Section 1.15 of the Work Letter is hereby deleted
and replaced in its entirety with the following:
"1.15 "Cost Savings Incentive Fee" means the fee payable to Landlord
and shall be an amount equal to fifty percent (50%) of the
difference between $14,500,000 and the actual Project Cost (but only
if the actual Project Cost is less than $14,500,000) paid to the
General Contractor, excluding additive Change Orders. In no event
will the Cost Savings Incentive Fee be less than zero.
10. Excess Costs. To the extent Tenant is required to pay any
additional Excess Costs based on the revised Project Budget attached
hereto or otherwise during the course of construction of the Improvements,
Tenant shall deliver such Excess Costs to Landlord within ten (10) days
after receipt of written notice from Landlord that such Excess Costs are
due and payable. Excess Costs paid by Tenant will be based on the amended
Project Budget attached hereto as Schedule 1, which amended Project Budget
is based on the interim GMAX Construction Contract dated as of December
21, 2007 (the "Interim GMAX"). On or before February 15, 2008, the Project
Budget will be amended based on a final GMAX Construction Contract (the
"Final GMAX") and Landlord shall promptly refund to Tenant any overage in
Excess Costs funded by Tenant (including any excess Contingency currently
held in Escrow), which overage shall be the difference between the amount
of Excess Costs to be funded by Tenant based on the Interim GMAX and the
amount of Excess Costs to be funded by Tenant based on the Final GMAX.
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11. Baseline Documents; Design Development Plans.
a. Landlord and Tenant hereby approve those certain Design
Development Plans, delivered to Tenant on December 21, 2007, prepared by
BE&K Engineering, Inc., and dated November 27, 2007 and December 6, 2007,
as amended on December 14, 2007 by Tenant and its representative Todd
Burkhart (the "DD Plans"). Landlord acknowledges that the proposed changes
to the Drawings and Specifications delivered by Todd Burkhart (on behalf
of Tenant) to BE&K Engineering, Inc. on December 14, 2007 (the "December
14 Changes") have not yet been incorporated into the DD Plans. Landlord
agrees that the December 14 Changes will be incorporated into the next set
of DD Plans to be issued by BE&K Engineering, Inc., provided that Tenant
reserves the right to inspect the next set of DD Plans to ensure that the
December 14 Changes have been properly incorporated into the DD Plans.
Landlord and Tenant confirm that the DD Plans and the Preliminary Plans
(as defined in the Work Letter) are the same set of plans and accordingly,
all references to Preliminary Plans in the Work Letter shall mean and
refer to the DD Plans.
b. In connection with the foregoing, Tenant hereby acknowledges that
its approval of the DD Plans constitutes approval of the Preliminary Plans
and that Tenant further confirms that it has approved the revised Project
Budget, Project Schedule and General Contractor's Estimated Budget (as
each of those terms are defined in the Work Letter). Accordingly, Schedule
1 (Project Budget), Schedule 2 (Project Schedule) and Schedule 3 (General
Contractor's Estimated Budget) of the Work Letter are hereby deleted and
replaced in their entirety with the revised Schedules attached to this
Second Amendment as Exhibits "A", "B", and "C". Notwithstanding the
provisions of Section 2.1(f) of the Work Letter, Schedule 6 (Reserved) of
the Work Letter is hereby deleted in its entirety. Notwithstanding the
foregoing, Landlord and Tenant agree that the final Project Budget and the
final Project Schedule will be prepared on or about February 15, 2008, and
once finalized, the Work Letter will be amended to incorporate the final,
approved Project Budget and Project Schedule as revised Schedules 1 and 2,
respectively, and to otherwise reflect the Final GMAX.
13. Broker Representation. Landlord and Tenant represent to one
another that neither party has dealt with any broker nor is any other fee
or commission payable in connection with this Second Amendment. Landlord
and Tenant shall indemnify, defend and hold one another harmless from and
against any and all claims, losses and liabilities arising out of, or
relating to, a breach by the indemnifying party of such representation.
14. No Other Amendments. The Lease referred to hereinabove and this
Second Amendment constitute the entire agreement by and between Landlord
and Tenant and supercede any other agreement or representation, written or
oral, that either party may hereinafter assert or allege exist, and the
Lease, as hereby modified, remains in full force, except as amended by
this Second Amendment, and is hereby ratified and reaffirmed as amended by
this Second Amendment. From and after the date hereof, all references to
the "Lease" shall refer to the Lease as amended by t his Second Amendment.
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15. Conflicts. If any conflict between this Second Amendment and the
Lease should arise, the terms of this Second Amendment shall control.
16. Successor and Assigns. This Second Amendment shall be binding
upon and inure to the benefit of the successors and assigns of the
respective parties hereto.
17. Counterparts. This Second Amendment may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
shall together constitute a single instrument.
18. Time of the Essence. Time shall be the essence with respect to
all matters under this Second Amendment.
[SIGNATURES ON FOLLOWING PAGE]
6
<PAGE>
The parties have executed this Second Amendment as of the date first
written above.
LANDLORD: TENANT:
VIF II CEL-SCI Partners, LLC, CEL-SCI CORPORATION,
a Delaware limited liability company a Colorado corporation
By: /s/ Stan Wendzel By: /s/ Geert R. Kersten
-------------------------- ---------------------------
Name: Stan Wendzel Name: Geert R. Kersten
-------------------------- ---------------------------
Title: Manager Title: Chief Executive Officer
-------------------------- ---------------------------
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EXHIBIT "A"
Schedule 1
[Project Budget]
[See Attached]
***
<PAGE>
EXHIBIT "B"
Schedule 2
[Project Schedule]
[See Attached]
***
<PAGE>
EXHIBIT "C"
Schedule 3
[General Contractor's Estimated Budget]
[See Attached]
***
<PAGE>
THIRD AMENDMENT TO LEASE AGREEMENT
AND WORK LETTER AGREEMENT
THIS THIRD AMENDMENT TO LEASE AGREEMENT AND WORK LETTER AGREEMENT ("Third
Amendment"), is made and dated for reference purposes only as of April __, 2008,
between VIF II CEL-SCI PARTNERS, LLC, a Delaware limited liability company
("Landlord"), and CEL-SCI CORPORATION, a Colorado corporation ("Tenant"), with
reference to the following facts:
A. Landlord and Tenant entered into that certain Lease Agreement, dated
June 6, 2007 ("Original Lease"), together with that certain Work Letter
Agreement dated June 6, 2007 (the "Work Letter"), as amended by (i) that certain
First Amendment to Lease Agreement and Work Letter Agreement dated August 7,
2007 (the "First Amendment") and (ii) that certain Second Amendment to Lease
Agreement and Work Letter Agreement dated January 24, 2008 (the "Second
Amendment"), for premises located at * ("Premises"). The Original Lease, Work
Letter, First Amendment and Second Amendment are sometimes collectively referred
to herein as the "Lease". Except as otherwise modified in this Third Amendment,
defined terms used herein shall have the same meanings given to them in the
Lease.
B. Landlord and Tenant now desire to amend the Lease and Work Letter as
set forth in this Third Amendment.
THEREFORE, for valuable consideration, the receipt and adequacy of which
are hereby acknowledged, Landlord and Tenant hereby agree to amend the Lease and
Work Letter as follows:
1. Final Project Budget; Project Schedule; General Contractor's Estimated
Budget.
a. Final Project Budget. Landlord and Tenant hereby confirm that the
final Project Budget, which is based on the Final GMAX, has been approved by
Landlord and Tenant and accordingly, Schedule 1 (Project Budget) of the Work
Letter, as amended by the Second Amendment, is hereby deleted and replaced in
its entirety with Exhibit "A" attached hereto and incorporated herein by this
reference.
b. Project Schedule and General Contractor's Estimated Budget. Schedule
"2" (Project Schedule) and Schedule "3" (General Contractor's Estimated Budget)
of the Work Letter, as amended by the Second Amendment, are hereby deleted and
replaced in their entirety with Exhibits "B" and "C" attached hereto and
incorporated herein by this reference.
2. Excess Costs. Tenant hereby confirms that pursuant to Section 10 of the
Second Amendment, Tenant shall pay any additional Excess Costs based on the
Project Budget (as amended by this Amendment), or otherwise during the course of
construction of the Improvements, within ten (10) days after receipt of written
notice from Landlord that such Excess Costs are due and payable.
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3. Broker Representation. Landlord and Tenant represent to one another
that neither party has dealt with any broker nor is any other fee or commission
payable in connection with this Third Amendment. Landlord and Tenant shall
indemnify, defend and hold one another harmless from and against any and all
claims, losses and liabilities arising out of, or relating to, a breach by the
indemnifying party of such representation.
4. No Other Amendments. The Lease referred to hereinabove and this Third
Amendment constitute the entire agreement by and between Landlord and Tenant and
supercede any other agreement or representation, written or oral, that either
party may hereinafter assert or allege exist, and the Lease, as hereby modified,
remains in full force, except as amended by this Third Amendment, and is hereby
ratified and reaffirmed as amended by this Third Amendment. From and after the
date hereof, all references to the "Lease" shall refer to the Lease as amended
by this Third Amendment.
5. Conflicts. If any conflict between this Third Amendment and the Lease
should arise, the terms of this Third Amendment shall control.
6. Successor and Assigns. This Third Amendment shall be binding upon and
inure to the benefit of the successors and assigns of the respective parties
hereto.
7. Counterparts. This Third Amendment may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which shall
together constitute a single instrument.
8. Time of the Essence. Time shall be the essence with respect to all
matters under this Third Amendment.
[SIGNATURES ON FOLLOWING PAGE]
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The parties have executed this Third Amendment as of the date first written
above.
LANDLORD: TENANT:
VIF II CEL-SCI Partners, LLC, CEL-SCI CORPORATION,
a Delaware limited liability company a Colorado corporation
By: /s/ Stan Wendzel By: /s/ Geert R. Kersten
--------------------------- ----------------------------
Name: Stan Wendzel Name: Geert R. Kersten
--------------------------- ----------------------------
Title: Manager Title: Chief Executive Officer
--------------------------- ----------------------------
3
<PAGE>
EXHIBIT "A"
Schedule 1
[Project Budget]
[See Attached]
***
<PAGE>
EXHIBIT "B"
Schedule 2
[Project Schedule]
[See Attached]
***
<PAGE>
EXHIBIT "C"
Schedule 3
[General Contractor's Estimated Budget]
[See Attached]
***
<PAGE>
FOURTH AMENDMENT TO LEASE AGREEMENT
THIS FOURTH AMENDMENT TO LEASE AGREEMENT ("Fourth Amendment"), is made and
dated for reference purposes only as of January 27, 2009, between VIF II CEL-SCI
PARTNERS, LLC, a Delaware limited liability company ("Landlord"), and CEL-SCI
CORPORATION, a Colorado corporation ("Tenant"), with reference to the following
facts:
A. Landlord and Tenant entered into that certain Lease Agreement, dated
June 6, 2007 ("Original Lease"), together with that certain Work Letter
Agreement dated June 6, 2007 (the "Work Letter"), as amended by (i) that certain
First Amendment to Lease Agreement and Work Letter Agreement dated August 7,
2007 (the "First Amendment"), (ii) that certain Second Amendment to Lease
Agreement and Work Letter Agreement dated January 24, 2008 (the "Second
Amendment"), and (iii) that certain Third Amendment to Lease Agreement and Work
Letter Agreement dated December 5, 2008 (the "Third Amendment"), for premises
located at * ("Premises"). The Original Lease, Work Letter, First Amendment,
Second Amendment and Third Amendment are sometimes collectively referred to
herein as the "Lease". Except as otherwise modified in this Fourth Amendment,
defined terms used herein shall have the same meanings given to them in the
Lease.
B. Landlord and Tenant now desire to amend the Lease as set forth in this
Fourth Amendment.
THEREFORE, for valuable consideration, the receipt and adequacy of which
are hereby acknowledged, Landlord and Tenant hereby agree to amend the Lease as
follows:
1. Base Annual Rent.
a. Deferred Base Annual Rent. Subject to the provisions of Sections
1.b, 1.c and 1.d, below, (i) Tenant's obligation to pay Base Annual Rent for
December 2008 shall be temporarily deferred ("December Deferred Rent"), (ii) the
monthly installments of Base Annual Rent payable by Tenant for January 2009 and
February 2009 shall be temporarily reduced to Thirty-Five Thousand and 00/100
Dollars ($35,000.00) per month (collectively, "January/February Reduced Rent"),
and (iii) the difference between Tenant's obligation to pay Base Annual Rent for
January and February 2009 and the amount actually paid by Tenant under Section
1.a. (ii), above, shall be temporarily deferred (collectively, "January/February
Deferred Rent"). December Deferred Rent and January/February Deferred Rent
(which collectively equal $393,750.00 less the amount of Base Annual Rent
actually paid by Tenant for January and February 2009) shall collectively be
referred to herein as the "Deferred Rent". As partial consideration for
Landlord's agreement to the temporary reduction in monthly Base Annual Rent for
January 2009 and February 2009, Tenant shall deliver to Landlord, via wire
transfer, a sum equal to January/February Reduced Rent (i.e., a total of
$70,000.00) within one (1) business day after Tenant has received the funding
from its next round of financing (which closing is estimated to occur by
February 28, 2009), which sum shall be applied to Deferred Rent or any other sum
due under the Lease, as amended hereby. As used in this Amendment, the term
"financing" means any capital or monies raised or otherwise obtained through (i)
equity financing (including, without limitation, the sale of common or preferred
stock), (ii) convertible debt, (iii) cash payments or distributions made to
1
<PAGE>
Tenant in connection with licensing, partnership or other similar agreements,
(iv) the sale of all or any portion of Tenant and/or any affiliated company of
Tenant, (v) a merger or like-kind transaction, (vi) equipment financing, (vii)
state or federal income tax refunds, or (viii) any other equity or convertible
debt financing instrument that provides capital to Tenant.
b. Resumption of Base Annual Rent. Beginning with the monthly
installment of Base Annual Rent for March 2009 and continuing for the remainder
of the Lease Term, Tenant shall pay the full monthly installment of Base Annual
Rent as required under Section 3.1 of the Lease. Tenant's failure to pay the
entire monthly installment of Basic Annual Rent for March 2009 and each
subsequent month during the Lease Term thereafter as and when required under the
Lease shall constitute a material default under this Lease and shall entitle
Landlord to pursue any and all remedies available to Landlord under the Lease,
at law or in equity.
c. Deferred Rent Payback. Within one (1) business day after Tenant has
received the funding from its next round of Qualified Financing (defined below)
and within one (1) business day after Tenant has received the funding from each
subsequent round of Qualified Financing, Tenant shall deliver to Landlord an
amount equal to ten percent (10%) of the Qualified Financing Margin (defined
below) to be applied to Deferred Rent until such time as the Deferred Rent has
been repaid to Landlord in full. As used herein, the term "Qualified Financing"
means any financing (as such term is defined in Section 1.a., above), which
occurs subsequent to the date of this Fourth Amendment. As used herein, the term
"Qualified Financing Margin" means the difference between (i) the total amount
of capital raised under a Qualified Financing or multiple Qualified Financings
less the actual, out-of-pocket expenses incurred by Tenant in connection with
such financing(s) and (ii) $2,000,000.00. By way of example only, if Tenant's
next round of financing results in a Qualified Financing equal to $2,300,000.00
(net of actual, out-of-pocket expenses), the Qualified Financing Margin would be
$300,000.00 and Tenant would deliver to Landlord an amount equal to ten percent
(10%) of the Qualified Financing Margin (i.e., $30,000.00) within one (1)
business day after the Tenant has received the funding from each Qualified
Financing.
d. No Waiver. Provided Tenant pays the entire March 2009 installment of
Base Annual Rent and each subsequent monthly installment of Base Annual Rent as
and when required under the Lease thereafter, and no other default by Tenant
occurs under the Lease, as amended hereby, Landlord shall not declare Tenant to
be in default with regard to the Deferred Rent, provided that such Deferred Rent
(including all applicable interest and late charges) shall immediately become
due and payable upon the occurrence of a default by Tenant under the Lease, as
amended hereby. Notwithstanding anything to the contrary contained in this
Fourth Amendment, Landlord's agreement to temporarily defer portions of Base
Annual Rent payable by Tenant under the Lease shall not constitute Landlord's
waiver of any rights Landlord may have under the Lease, at law or in equity,
including, without limitation, Landlord's right to charge interest and late
charges on the December Deferred Rent and/or the January/February Deferred Rent
pursuant to Section 3.4 of the Lease, and Landlord hereby reserves the right to
enforce any such rights at any time in the event Tenant fails to perform its
obligations under the Lease or this Fourth Amendment.
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<PAGE>
2. Financial Condition Certification. Together with Tenant's delivery of
its signed counterpart of this Fourth Amendment and continuing on the sixteenth
(16th) day of each subsequent calendar month during the Lease Term, Tenant shall
deliver to Landlord a current cash position setting forth the current value of
Tenant's unrestricted cash and cash equivalents, together with a certificate
signed by Geert Kersten, the chief executive officer of Tenant ("Kersten"), in
substantially the same form as the Officer's Certificate attached as Exhibit "C"
to the Lease, certifying that the information and calculations set forth in the
cash flow analysis are true and accurate in all respects. Tenant's failure to
deliver the required cash flow analysis and related certificate pursuant to this
Section 2 shall constitute a material default under the Lease and shall entitle
Landlord to pursue any and all remedies available to Landlord under the Lease,
at law or in equity.
3. Salary Certification. Together with Tenant's delivery of its signed
counterpart of this Fourth Amendment, Tenant shall deliver to Landlord a
certificate signed by Kersten, setting forth the salaries of those employees and
officers of Tenant that have been either reduced or eliminated by Tenant as of
the date of this Fourth Amendment. In addition, until such time as the entire
balance of Deferred Rent has been repaid in full to Landlord, Tenant shall not
increase the salaries, compensation, and/or distributions (does not include
reimbursements to personnel of reasonable business expenses) made to its current
employees and officers without first obtaining the written consent of Landlord,
which consent may be withheld in Landlord's sole and absolute discretion;
provided, however, that Landlord shall not unreasonably withhold its consent to
any requests reasonably made by Tenant to adjust salaries, compensation and/or
distributions of key personnel of Tenant for purposes of maintaining the core of
Tenant's operating team. In addition and notwithstanding the foregoing, in no
event shall Tenant be required to obtain Landlord's consent to any increases in
salary, compensation and/or distributions to Patti Prichep ("Prichep") so long
as the total monthly salary, compensation and/or distributions do not exceed
$8,000/month in the aggregate. Tenant's failure to abide by the terms of this
Section 3 shall constitute a material default under the Lease and shall entitle
Landlord to pursue any and all remedies available to Landlord under the Lease,
at law or in equity.
4. Construction Rent. Section 1.23(B) of the Work Letter is hereby amended
as follows: the term "(`Construction Rent')" shall be added to the end of the
final sentence to Section 1.23(B) of the Work Letter.
5. Exterior Improvements (Allowance). Landlord and Tenant hereby agree
that Landlord shall not be required to commence any improvements relating to the
Exterior Improvement (Allowance) line item set forth in the final Project Budget
attached as Schedule 1 to the Work Letter (as amended by the Third Amendment),
until the later of (i) January 1, 2010, or (ii) the date on which the Deferred
Rent and all other past due Rent payments, if any, due and payable under the
Lease, have been repaid to Landlord in full.
6. Landlord's Property. Tenant hereby confirms that consistent with the
terms, conditions and intent of the Lease and excepting only the property
associated with the Movable Equipment line item set forth in the Project Budget
attached as Schedule 1 to the Work Letter (as amended by the Third
Amendment)(the "Moveable Equipment"), all of the equipment and property listed
on such Project Budget is, and shall continue to be, the sole and exclusive
property of Landlord (collectively, "Landlord's Property"), and Tenant shall
have no right to assign, hypothecate or otherwise transfer any interests in
Landlord's Property or otherwise encumber or cause any liens to be attached to
Landlord's Property.
3
<PAGE>
7. Sublease Rental. Notwithstanding anything to the contrary contained in
the Lease, as amended hereby, including, without limitation, Section 15.5 of the
Original Lease, until such time as all Deferred Rent has been repaid in full to
Landlord, one hundred percent (100%) of all rents and other sums paid to Tenant
under any approved sublease (less any leasing commissions, tenant improvements
and other expenses actually incurred by Tenant and that are directly related to
a subtenant's occupancy of all or any portion of the Premises) shall be
immediately delivered to Landlord and applied to Deferred Rent. It is understood
that 1/3 of the utilities are related to occupancy by the sub tenant. Upon the
repayment to Landlord of all Deferred Rent and provided Tenant is not otherwise
in default under the Lease, as amended hereby, Tenant shall be entitled to
retain fifty percent (50%) of any Profits (as defined in Section 15.5 of the
Original Lease) in connection with any approved sublease pursuant to the terms
and conditions of Section 15.5 of the Original Lease.
8. Lease Authorization. Tenant hereby represents and warrants that (i)
each individual that executed the Lease on behalf of Tenant, and (ii) each
individual executing this Fourth Amendment on behalf of Tenant, was and is duly
authorized to execute and deliver the Lease and this Fourth Amendment on behalf
of Tenant in accordance with a duly adopted resolution of the board of directors
of Tenant. Upon Landlord's written request, Tenant will provide to Landlord a
copy of such resolution authorizing the execution of the Lease and this Fourth
Amendment on behalf of Tenant, which copy of resolution will be duly certified
by the secretary or an assistant secretary of Tenant to be a true copy of a
resolution duly adopted by the board of directors of Tenant, and will otherwise
be in a form reasonably acceptable to Landlord.
9. Broker Representation. Landlord and Tenant represent to one another
that neither party has dealt with any broker nor is any other fee or commission
payable in connection with this Fourth Amendment. Landlord and Tenant shall
indemnify, defend and hold one another harmless from and against any and all
claims, losses and liabilities arising out of, or relating to, a breach by the
indemnifying party of such representation.
10. No Other Amendments. The Lease referred to hereinabove and this Fourth
Amendment constitute the entire agreement by and between Landlord and Tenant and
supercede any other agreement or representation, written or oral, that either
party may hereinafter assert or allege exist, and the Lease, as hereby modified,
remains in full force, except as amended by this Fourth Amendment, and is hereby
ratified and reaffirmed as amended by this Fourth Amendment. From and after the
date hereof, all references to the "Lease" shall refer to the Lease as amended
by this Fourth Amendment.
11. Conflicts. If any conflict between this Fourth Amendment and the Lease
should arise, the terms of this Fourth Amendment shall control.
12. Successor and Assigns. This Fourth Amendment shall be binding upon and
inure to the benefit of the successors and assigns of the respective parties
hereto.
4
<PAGE>
13. Counterparts. This Fourth Amendment may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which shall
together constitute a single instrument.
14. Time of the Essence. Time shall be the essence with respect to all
matters under this Fourth Amendment.
[SIGNATURES ON FOLLOWING PAGE]
5
<PAGE>
The parties have executed this Fourth Amendment as of the date first written
above.
LANDLORD: TENANT:
VIF II CEL-SCI Partners, LLC, CEL-SCI CORPORATION,
a Delaware limited liability company a Colorado corporation
By: /s/ Stan Wendzel By: /s/ Geert R. Kersten
--------------------------- ---------------------------------
Name: Stan Wendzel Name: Geert R. Kersten
--------------------------- -------------------------------
Title: Manager Title: Chief Executive Officer
--------------------------- ---------------------------------
6
<PAGE>
EXHIBIT E
SCHEDULE OF BASE ANNUAL RENTAL
Reimbursement
Base of Tenant Net Base %
Rent Contribution Rent Increase
---- -------------- -------- --------
1. 1,575,000 1,575,000 3.0%
2. 1,622,250 1,622,250 3.0%
3. 1,670,918 1,670,918 3.0%
4. 1,721,045 1,721,045 3.0%
5. 1,772,676 1,772,676 3.0%
6. 1,825,857 (303,228) 1,522,628 (14.1%)
7. 1,880,621 (303,228) 1,577,404 3.6%
8. 1,937,051 (303,228) 1,622,823 3.6%
9. 1,995,163 (303,228) 1,691,935 3.6%
10. 2,055,018 (303,228) 1,751,789 3.5%
11. 2,116,668 (303,228) 1,813,440 3.5%
12. 2,180,168 (303,228) 1,876,940 3.5%
13. 2,245,573 (303,228) 1,942,345 3.5%
14. 2,312,941 (303,228) 2,009,712 3.5%
15. 2,382,329 (303,228) 2,079,101 3.5%
16. 2,453,799 (303,228) 2,150,570 3.4%
17. 2,527,413 (303,228) 2,224,184 3.4%
18. 2,603,235 (303,228) 2,300,007 3.4%
19. 2,681,332 (303,228) 2,378,104 3.4%
20. 2,761,772 (303,228) 2,458,544 3.4%
Initial Rent
- ------------
Basis $15,000,000
Cap Rate 10.5%
Escalation % 3.0%
Reimbursement of Tenant Contribution
- ------------------------------------
Basis 3,150,000
Interest Rate 3.0%
FV at end of year 5 3,659,093
Monthly Reimbursement (25,269)
Check --
<PAGE>
LEASE RIDER NO. 1
TENANT INSURANCE RIDER
This Rider to Lease is made as of the 6th day of June, 2007 by and between
VIF II CEL-SCI PARTNERS, LLC, a Delaware limited liability company (hereafter
"Landlord") and CEL-SCI CORPORATION, a Colorado corporation (hereafter
"Tenant"), and forms a part of the Lease Agreement dated the 6th day of June,
2007 between the parties, as well as any and all subsequent amendments, riders
or addenda to that lease, hereafter collectively referred to as the "Lease."
The contents of this Rider to Lease are meant to be incorporated into the Lease,
and where terms of this Rider conflict with these terms within the Lease, the
terms of this Rider shall prevail and govern the Lease.
I. INSURANCE
(a)Coverage. Tenant shall purchase and maintain insurance during the entire
Term of the Lease for the benefit of the Tenant and Landlord (as their
interest may appear) with terms and coverages reasonably satisfactory to
Landlord, and with insurers having a minimum A.M. Best rating of A-/VII,
and with such increases in limits as Landlord may from time to time
reasonably request, but initially Tenant shall maintain the following
coverages in the following amounts:
(i) Commercial General Liability Insurance naming Landlord, Landlord's
management, leasing and development agents and any mortgagees
designated by landlord as additional insureds, with coverage for
Property/operations, personal and advertising injury,
products/completed operations and contractual Liability with
combined single limits of liability of not less than $5,000,000 for
bodily injury and property damage per occurrence.
(ii) Property Insurance covering property damage and business
interruption. Covered property shall include tenant improvements in
the Property, office furniture, trade fixtures, office equipment,
merchandise and all other items of Tenant's property on the
Property. Such insurance shall, with respect only to tenant
improvements, name Landlord, and any mortgagees designated by
Landlord, as additional loss payees as their interests may appear.
Such insurance shall be written on an "all risk" of physical loss or
damage basis including but not limited to the perils of fire,
extended coverage, windstorm, vandalism, malicious mischief,
sprinkler leakage, flood and earthquake, for the full replacement
cost value of the covered items and in amounts that meet any
co-insurance clause of the policies of insurance with a deductible
amount not to exceed $5,000.
(iii) Workers' Compensation Insurance with statutory benefits and
Employers Liability Insurance with the following amounts: Each
Accident - $500,000; Disease - Policy Limit - $500,000; Disease -
Each Employee - $500,000.
<PAGE>
Tenant shall, prior to the commencement of the Lease Term and on each
anniversary of the Commencement Date and/or renewal date thereof, furnish
to Landlord certificate(s) evidencing such coverage, which certificate(s)
shall state that such insurance coverage may not be changed or canceled
without at least thirty (30) days prior written notice to Landlord and
Tenant. The insurance maintained by Tenant shall be deemed to be primary
insurance and any insurance maintained by Landlord shall be deemed
secondary thereto.
(b)Avoid Action Increasing Rates. Tenant shall comply with all applicable
laws and ordinances, all orders and decrees of court and all requirements
of other governmental authorities, and shall not, directly or indirectly,
make any use of the Premise which may thereby be prohibited or be
dangerous to person or property or which may jeopardize any insurance
coverage or may increase the cost of insurance or require additional
insurance coverage. If tenant fails to comply with the provisions of this
Section Ib and: (i) any insurance coverage is jeopardized and Tenant fails
to correct such dangerous or prohibited use following notice within the
applicable cure period set forth within the Lease hereof; or (ii)
insurance premiums are increased and Tenant fails, following notice, to
cease such use within the applicable cure period set forth within the
Lease, then in each event such failure shall constitute a Default by
Tenant hereunder and Landlord shall have all of its remedies as set forth
in the Lease.
II. FIRE OR CASUALTY
(a)If the Property or the Building (including machinery or equipment used in
its operation) shall be damaged by fire or other casualty and if such
damage does not cause a termination of this Lease as described in the
following sentences, then Landlord shall repair and restore the damage
with reasonable promptness, subject to reasonable delays for insurance
adjustments and delays caused by matters beyond Landlord's reasonable
control, but Landlord shall not be obligated to expend for repairing or
restoring the damage an amount in excess of the proceeds of insurance
recovered with respect to the damage. If in Landlord's estimate the
Property cannot be restored within three hundred sixty-five (365) days
from the date of such fire or casualty, then Landlord shall give notice to
Tenant of such estimate within one hundred twenty (120) days after such
fire or casualty. Tenant may elect in writing sixty (60) days following
the date of such notice from Landlord to terminate this Lease effective as
of the date of Tenant's notice. If any such damage: (i) renders 25% of the
building untenantable; or (ii) renders general Building systems inoperable
and such systems cannot be repaired in Landlord's reasonable estimate
within three hundred sixty five (365) days from the date of such damage,
or (iii) occurs within the last two (2) Lease years, Landlord shall have
the right to terminate this Lease as of the date of such damage upon
giving written notice to the Tenant at any time within one hundred twenty
(120) days after the date of such damage. Landlord shall have no liability
to Tenant, and Tenant shall not be entitled to terminate this Lease, by
virtue of any delays in completion of such repairs and restoration. Rent,
however, shall abate on those portions of the Property as are, from time
to time, untenantable as a result of such damage.
<PAGE>
(b)Notwithstanding anything to the contrary herein set forth, Landlord shall
have no duty pursuant to this Section II to repair or restore any portion
of any alterations, additions, installation or improvements in the
Property or the decorations thereto except to the extent that the proceeds
of the insurance carried by Tenant are timely received by Landlord. If
Tenant desires any other additional repairs or restoration, and if
Landlord consents thereto, it shall be done at Tenant's sole cost and
expense subject to all of the applicable provisions of the Lease. Tenant
acknowledges that Landlord shall be entitled to the full proceeds of any
insurance coverage whether carried by Landlord or Tenant, for damage to
any alterations, addition, installation, improvements or decorations which
would become the Landlord's property upon the termination of the Lease.
III. CONTRACTOR'S AND SUBCONTRACTOR'S INSURANCE
Tenant will require that all parties performing work on or with respect to
the Property, including, without limitation, contractors, subcontractors and
service vendors, maintain insurance coverage at such parties' expense, in the
following minimum amounts:
(a) Workers' Compensation - Statutory amount.
(b) Employer's Liability - $500,000 each accident; $500,000
disease-policy limit; $500,000 disease - each employee.
(c) Automobile Liability - $1,000,000 covering losses due to the
insurer's liability for bodily injury or property damage.
Medical Expenses - $5,000 per person per accident.
Uninsured/Underinsured Motorists' Coverage - $1,000,000.
(d) Commercial General Liability: Bodily injury and property damage -
Per Schedule 1 (construction contractors) or per Schedule 2 (service
contractors).
(e) Excess Liability Coverage - Per Schedule 1 (construction
contractors) or per Schedule 2 (service contractors) or such greater
amount as is needed for the specific job.
(f) Transit Coverage - As needed for the specific job.
The minimum A.M. Best's rating of each insurer is A-/VII. Tenant must
obtain Landlord's written permission to waive any of the above
requirements. Higher amounts may be required by Landlord if the work to be
performed is deemed by Landlord to be hazardous. Tenant will obtain and
keep on file a certificate of insurance which shows that each such party
is so insured. Landlord will be named as an additional insured with
respect to Contractors' and Subcontractors' Auto Liability, Commercial
General Liability and Excess Liability policies. Landlord must obtain
indemnification and hold harmless provisions in favor of Landlord,
Property Manager and Tenant.
<PAGE>
LANDLORD: TENANT:
VIF II CEL-SCI Partners, LLC, CEL-SCI CORPORATION,
a Delaware limited liability company a Colorado corporation
By: /s/ Stan Wendzel By: /s/ Geert R. Kersten
--------------------------------- -------------------------------
Name: Stan Wendzel Name: Geert R. Kersten
--------------------------------- -------------------------------
Title: Manager Title: Chief Executive Officer
--------------------------------- -------------------------------
<PAGE>
SCHEDULE 1 TO LEASE RIDER NO. 1
CONTRACTOR AND SUBCONTRACTOR INSURANCE LIMIT REQUIREMENTS
Division Trade Description Trade Number for Limits
Required (See Attached)
1. Sitework Earthwork 3
Excavation 5
Grading 2
Paving 2
Piling/Caisson 3
Retention 4
2. Concrete Formwork 5
Precasts 5
Structural 5
3. Masonry Masonry 5
4. Metal And Metal Deck 4
Structural Misc. Metals 2
Structural Steel 5
5. Carpentry Millwork 2
Rough Carpentry 2
Wood Doors 2
6. Moisture Caulking 3
Protection Dampproofing 3
Roofing/Sheet Metal 5
Waterproofing 3
7. Doors, Windows Curtainwall 5
And Glass Glass, Glazing & 3
Aluminum
Hardware 1
Hollow Metal Work 1
8. Finishes Acoustic 2
Ceramic & Quarry 2
Covering 2
Lathe, Plaster & 2
Drywall 2
Resilient Floor 2
Paint & Vinyl Wall
<PAGE>
SCHEDULE 1 TO LEASE RIDER NO. 1 (CONT'D)
Division Trade Description Trade Number for Limits
Required (See Attached)
9. Specialties Access Flooring 1
Partitions 1
Toilet Accessories 1
10. Equipment Crane Operations 4
11. Furnishings Suppliers 1
12. Special Asbestos Abatement 5
Construction Blasting 5
13. Conveying Elevators 5
Systems Escalators 5
Conveyers 3
Dumbwaiters 3
14. Mechanical Fire Protection 4
System
Plumbing 4
15. HVAC 5
16. Electrical Electrical 5
17. Demolition More Than 3 Stories 10
3 Stories or Less 5
General Contractor Performing Following 10
Work:
New construction Under 4 Stories and Less Than
150,000 Sq. Ft.
Construction Contract Up to $15,000,000
Renovation Less Than 15% of Existing Structure
General Contractor Major Project 50
Any unusual or specialized renovation or repair work undertaken by the General
Contractor under this contract may require other limits of liability than those
listed above. Owner will make any determination of revised liability limits in
consultation with its risk management staff.
<PAGE>
SCHEDULE 1 TO LEASE RIDER NO. 1 (CONT'D)
CONTRACTOR AND SUBCONTRACTOR INSURANCE LIMIT REQUIREMENTS
The following are Limits of Liability required depending on the trade number of
the Contractor:
1. $1,000,000 Each Occurrence
$1,000,000 General Aggregate
$1,000,000 Products & Completed Operations Aggregate
2. $1,000,000 Each Occurrence
$2,000,000 General Aggregate
$2,000,000 Products & Completed Operations Aggregate
3. $2,000,000 Each Occurrence
$2,000,000 General Aggregate
$2,000,000 Products & Completed Operations Aggregate
$1,000,000 Umbrella Each Occurrence/Aggregate
OR
$1,000,000 Each Occurrence
$2,000,000 General Aggregate
$2,000,000 Products & Completed Operations Aggregate
$2,000,000 Umbrella Each Occurrence/Aggregate
4. $2,000,000 Each Occurrence
$2,000,000 General Aggregate
$2,000,000 Products & Completed Operations Aggregate
$2,000,000 Umbrella Each Occurrence/Aggregate
OR
$1,000,000 Each Occurrence
$2,000,000 General Aggregate
$2,000,000 Products & Completed Operations Aggregate
$3,000,000 Umbrella Each Occurrence/Aggregate
<PAGE>
SCHEDULE 1 TO LEASE RIDER NO. 1 (CONT'D)
5. $2,000,000 Each Occurrence
$2,000,000 General Aggregate
$2,000,000 Products & Completed Operations Aggregate
$3,000,000 Umbrella Each Occurrence/Aggregate
OR
$1,000,000 Each Occurrence
$2,000,000 General Aggregate
$2,000,000 Products & Completed Operations Aggregate
$4,000,000 Umbrella Each Occurrence/Aggregate
10. $2,000,000 Each Occurrence
$2,000,000 General Aggregate
$2,000,000 Products & Completed Operations Aggregate
$8,000,000 Umbrella Each Occurrence/Aggregate
OR
$1,000,000 Each Occurrence
$2,000,000 General Aggregate
$2,000,000 Products & Completed Operations Aggregate
$9,000,000 Umbrella Each Occurrence/Aggregate
50. $ 2,000,000 Each Occurrence
$ 2,000,000 General Aggregate
$ 2,000,000 Products & Completed Operations Aggregate
$49,000,000 Umbrella Each Occurrence/Aggregate
OR
$ 1,000,000 Each Occurrence
$ 2,000,000 General Aggregate
$ 2,000,000 Products & Completed Operations Aggregate
$50,000,000 Umbrella Each Occurrence/Aggregate
<PAGE>
SCHEDULE 2 TO LEASE RIDER NO. 1
SERVICE CONTRACTOR INSURANCE LIMITS REQUIREMENTS
TYPE OF SERVICE NUMBER FOR LIMITS REQUIRED
--------------- --------------------------
Garbage Removal and Disposal including dumpster 2
maintained on Property.
Telephone and T.V. Equipment and Master Wiring and 10 (exterior)
Antennas Service 5 (interior)
Snow Removal Service 2
Sprinkler System Service and Repair 3
Alarm Systems Service and Repair 3
Signage and Light Post Maintenance 2
Landscaping and Lawn Maintenance 1
Electrical Maintenance 1
Parking Surface Maintenance and Striping 1
Asbestos Abatement and Hazardous Material Removal 5
Overhead and Revolving Door Services 2
Interior & Exterior Cleaning and Janitorial 2
Fire Extinguishing in Restaurants 2
Elevator/Escalator Service & Maintenance 5
Window Washing and Swing Station Equipment Services 3
Security & Guard Services 2
<PAGE>
SCHEDULE 2 TO LEASE RIDER NO. 1 (CONT'D)
NUMBER FOR LIMITS
TYPE OF SERVICE REQUIRED
--------------- -----------------
Special Events and Call Risk Mgmt. Dept.
Exhibition
Heating, Ventilation and 2
Air Conditioning Service
Plumbing Service 2
Metal Cleaners and 3
Refinishers
Roofers 10
Office Equipment Service 1
<PAGE>
SCHEDULE 2 TO LEASE RIDER NO. 1 (CONT'D)
SERVICE CONTRACTOR INSURANCE LIMITS REQUIREMENTS
The following are limits of liability required depending on the trade number of
the Contractor:
1. $1,000,000 Each Occurrence
$1,000,000 General Aggregate
2. $1,000,000 Each Occurrence
$2,000,000 General Aggregate
$2,000,000 Products & Completed Operations Aggregate
3. $2,000,000 Each Occurrence
$2,000,000 General Aggregate
$2,000,000 Products & Completed Operations Aggregate
$1,000,000 Umbrella Each Occurrence/Aggregate
OR
$1,000,000 Each Occurrence
$2,000,000 General Aggregate
$2,000,000 Products & Completed Operations Aggregate
$2,000,000 Umbrella Each Occurrence/Aggregate
4. $2,000,000 Each Occurrence
$2,000,000 General Aggregate
$2,000,000 Products & Completed Operations Aggregate
$2,000,000 Umbrella Each Occurrence/Aggregate
OR
$1,000,000 Each Occurrence
$2,000,000 General Aggregate
$2,000,000 Products & Completed Operations Aggregate
$3,000,000 Umbrella Each Occurrence/Aggregate
<PAGE>
SCHEDULE 2 TO LEASE RIDER NO. 1 (CONT'D)
5. $2,000,000 Each Occurrence
$2,000,000 General Aggregate
$2,000,000 Products & Completed Operations Aggregate
$3,000,000 Umbrella Each Occurrence/Aggregate
OR
$1,000,000 Each Occurrence
$2,000,000 General Aggregate
$2,000,000 Products & Completed Operations Aggregate
$4,000,000 Umbrella Each Occurrence/Aggregate
10. $2,000,000 Each Occurrence
$2,000,000 General Aggregate
$2,000,000 Products & Completed Operations Aggregate
$8,000,000 Umbrella Each Occurrence/Aggregate
OR
$1,000,000 Each Occurrence
$2,000,000 General Aggregate
22,000,000 Products & Completed Operations Aggregate
$9,000,000 Umbrella Each Occurrence/Aggregate
<PAGE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>6
<FILENAME>exh10p11-10.txt
<DESCRIPTION>EXHIBIT 10(P)
<TEXT>
EXHIBIT 10(p)
<PAGE>
PROMISSORY NOTE
December 29, 2008
FOR VALUE RECEIVED, CEL-SCI Corporation (Borrower) promises to pay to
Maximilian de Clara or order (Note Holder) all amounts which from time to time
may be advanced by the note holder to the borrower, up to a maximum of $1
million, together with interest on the unpaid principal balance from the date of
this note until paid, at the rate of 15% per annum.
This Note, together with all accrued but unpaid interest, shall be due and
payable on the first to occur of the following:
o March 27, 2009; or
o the date the Borrower obtains funding (weather by means of
convertible debt or equity) of at least $2,000,000 net of fees,
exclusive of any funding obtained by means of this Note or any notes
which are the same series as this Note.
Principal and interest shall be payable at the following address, or such
other place as the Note Holder may designate:
Maximilian de Clara
6078 Lungern (OV)
Bergstrasse 79
Switzerland
On March 27, 2009 CEL-SCI will issue to Maximilian de Clara one warrant for each
dollar loaned to the Company by Maximilian de Clara. This warrant will allow the
investor to purchase CEL-SCI common stock at a price that is equal to the
closing market price on March 26, 2009. The warrants will have a life of 5 years
and will be registered with the next registration statement.
Payments received for application to this Note shall be applied first to
the payment of costs and expense of collection and/or suit, if any, second to
the payment of accrued interest specified above, and the balance applied in
reduction of the principal amount hereof.
If this Note is not paid when due, the Note Holder shall be entitled to
collect all reasonable costs and expense of collection and/or suit, including,
but not limited to reasonable attorneys' fees.
Borrower may prepay the principal amount outstanding under this note, in
whole or in part, at any time without penalty.
2
<PAGE>
Borrower and all other makers, sureties, guarantors, and endorsers hereby
waive presentment, notice of dishonor and protest, and they hereby agree to any
extensions of time of payment and partial payments before, at, or after
maturity.
Any notice to Borrower provided for this Note shall be in writing and shall
be given and be effective upon (1) delivery to Borrower, (2) by e-mail as long
as the e-mail receipt was acknowledged or (3) mailing such notice by mail or
couriers such as FedEx, addressed to Borrower at the Borrower's address states
below, or to such other address as Borrower may designate by notice to the Note
Holder. Any notice to the Note Holder shall be in writing and shall be given and
be effective upon (1) delivery to Borrower, (2) by e-mail as long as the e-mail
receipt was acknowledged or (3) mailing such notice by mail or couriers such as
FedEx, to the Note Holder at the address stated above, or to such other address
as Note Holder may designate by notice to Borrower.
CEL-SCI CORPORATION
By /s/ Geert Kersten
---------------------------------
Geert R. Kersten, Chief Executive Officer
ADDRESS OF BORROWER
8229 Boone Boulevard, Suite 802
Vienna, VA 22182, USA
703-506-9460
3
<PAGE>
1st Amendment to PROMISSORY NOTE
April 30, 2009
On December 29, 2008, CEL-SCI Corporation (Borrower) signed a promissory
note to Maximilian de Clara or order (the Note Holder). Pursuant to this note
CEL-SCI was to have repaid the note by March 27, 2009 and was to have issued
warrants on CEL-SCI stock to Maximilian de Clara. This note is now being
amended as follows:
All terms of the note will stay the same except for:
1) The note is now due on June 27, 2009;
2) On June 27, 2009 CEL-SCI will issue to Maximilian de Clara 1.5
warrants for each dollar loaned to the Company by Maximilian de Clara.
This warrant will allow the investor to purchase CEL-SCI common stock
at a price that is equal to the closing market price on June 26, 2009.
The warrants will have a life of 5 years and will be registered with
the next registration statement.
3) If there is an earlier financing that triggers a reset under the
convertible debentures, CEL-SCI will issue the warrants to be issued
to Mr. de Clara pursuant to No. 2 at such earlier time at the same
price as the reset price.
4) If there is no earlier financing that triggers a reset under the
convertible debentures, CEL-SCI will also offer a right of
participation to Maximilian de Clara for the whole amount due under
the promissory note.
CEL-SCI CORPORATION
By: /s/ Geert R. Kersten
------------------------------
Geert R. Kersten, Chief Executive Officer
ADDRESS OF BORROWER
8229 Boone Boulevard, Suite 802
Vienna, VA 22182, USA
703-506-9460
Countersigned by:
Maximilian de Clara
/s/ Maximilian de Clara
-------------------------------
4
<PAGE>
2nd Amendment to PROMISSORY NOTE
June 25, 2009
On December 28, 2008, CEL-SCI Corporation (Borrower) signed a promissory note
to Maximilian de Clara or order (the Note Holder). On April 30, 2009 Borrower
signed a 1st Amendment to this Promissory Note due to CEL-SCI's inability to
repay the funds. Today Borrower and Note Holder agree to a 2nd Amendment to the
Promissory Note. The note is being amended as follows:
All terms of the note will stay the same except for:
1) The amount payable under the note is now $1,099,265.07.
2) The note will continue to be secured by the Company's assets (UCC lien
filed December 2008).
3) Interest at an annual rate of 15% will be payable monthly.
4) The note will become a 5 year note. CEL-SCI will not have the
right to prepay the note at an earlier time, but the Holder may
request repayment in full or in part at any time after October 1,
2009 on 10 days notice.
5) The note, in whole or in smaller increments, will be convertible
at the holder's option into CEL-SCI common stock at a price of
$0.40 per CEL-SCI common share, subject to the customary
adjustments. CEL-SCI agrees to deliver the shares within 3
trading days of conversion notice.
6) CEL-SCI will immediately award Holder 1,648,898 warrants to
purchase CEL-SCI common stock at $0.50. These warrants have a
life of 5 years from the date of grant.
7) The shares underlying the convertible note and the warrants, as
well as the warrants issued pursuant to the 1st Amendment to the
promissory Note, will be added to the next registration statement
by CEL-SCI. CEL-SCI will make every effort to have these shares
registered within 4 months.
All other terms and conditions of said Note shall remain in full force and
effect. This amendment shall be subject to said terms and conditions.
IN WITNESS WHEREOF, the Borrower has executed and delivered said Promissory
Note Amendment as of the day and year first above written.
WITNESS: BORROWER:
CEL-SCI CORPORTION
By:/s/ Geert Kersten
-------------------------------
Geert Kersten
Chief Executive Officer
IN WITNESS WHEREOF, the Lender hereby acknowledges and accepts said Promissory
Note Amendment as of the day and year first above written.
WITNESS: LENDER:
MAXIMILIAN DE CLARA
By:/s/ Maximilian De Clara
-------------------------------
5
<PAGE>
EXHIBIT 31
<PAGE>
EXHIBIT 32
<PAGE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>7
<FILENAME>sept10kexh10r12-10.txt
<DESCRIPTION>EXHIBIT 10(R)
<TEXT>
CEL-SCI CORPORATION
Common Stock
At Market Issuance Sales Agreement
December 10, 2010
McNicoll, Lewis & Vlak LLC
The Graybar Building
420 Lexington Avenue
Suite 628
New York, NY 10170
Ladies and Gentlemen:
CEL-SCI Corporation, a Delaware corporation (the "Company"), confirms its
agreement (this "Agreement") with McNicoll, Lewis & Vlak LLC (the "MLV"), as
follows:
1. Issuance and Sale of Shares. The Company agrees that, from time to time
during the term of this Agreement, on the terms and subject to the conditions
set forth herein, it may issue and sell through MLV, shares (the "Placement
Shares") of the Company's common stock, (the "Common Stock") provided however,
that in no event shall the Company issue or sell through MLV such number of
Shares that (a) exceeds the number of shares of Common Stock registered on the
effective Registration Statement (as defined below) pursuant to which the
offering is being made, or (b) exceeds the number of authorized but unissued
shares of the Company's Common Stock (the lesser of (a) and (b), the "Maximum
Amount"). Notwithstanding anything to the contrary contained herein, the parties
hereto agree that compliance with the limitations set forth in this Section 1 on
the amount of Placement Shares issued and sold under this Agreement shall be the
sole responsibility of the Company and that MLV shall have no obligation in
connection with such compliance. The issuance and sale of Placement Shares
through MLV will be effected pursuant to the Registration Statement (as defined
below) filed by the Company and declared effective by the Securities and
Exchange Commission (the "Commission"), although nothing in this Agreement shall
be construed as requiring the Company to use the Registration Statement to issue
Common Stock.
The Company has filed, in accordance with the provisions of the Securities
Act of 1933, as amended (the "Securities Act") and the rules and regulations
thereunder (the "Securities Act Regulations"), with the Commission a
registration statement on Form S-3 (File No. 333-162792), including a base
prospectus, relating to certain securities, including the Placement Shares to be
issued from time to time by the Company, and which incorporates by reference
documents that the Company has filed or will file in accordance with the
provisions of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations thereunder (the "Exchange Act
Regulations"). The Company has prepared a prospectus supplement specifically
relating to the Placement Shares (the "Prospectus Supplement") to the base
prospectus included as part of such registration statement. The Company will
furnish to MLV, for use by MLV, copies of the prospectus included as part of
such registration statement, as supplemented by the Prospectus Supplement,
relating to the Placement Shares. Except where the context otherwise requires,
such registration statement, including all documents filed as part thereof or
incorporated by reference therein, and including any information contained in a
Prospectus (as defined below) subsequently filed with the Commission pursuant to
Rule 424(b) under the Securities Act Regulations or deemed to be a part of such
1
<PAGE>
registration statement pursuant to Rule 430B of the Securities Act Regulations,
is herein called the "Registration Statement." The base prospectus, including
all documents incorporated therein by reference, included in the Registration
Statement, as it may be supplemented by the Prospectus Supplement, in the form
in which such prospectus and/or Prospectus Supplement have most recently been
filed by the Company with the Commission pursuant to Rule 424(b) under the
Securities Act Regulations, together with the then issued Issuer Free Writing
Prospectus(es), is herein called the "Prospectus." Any reference herein to the
Registration Statement, the Prospectus or any amendment or supplement thereto
shall be deemed to refer to and include the documents incorporated by reference
therein, and any reference herein to the terms "amend," "amendment" or
"supplement" with respect to the Registration Statement or the Prospectus shall
be deemed to refer to and include the filing after the execution hereof of any
document with the Commission deemed to be incorporated by reference therein.
Any reference herein to the Registration Statement, any Prospectus
Supplement, Prospectus or any Issuer Free Writing Prospectus (defined below)
shall be deemed to refer to and include the documents, if any, incorporated by
reference therein (the "Incorporated Documents"), including, unless the context
otherwise requires, the documents, if any, filed as exhibits to such
Incorporated Documents. Any reference herein to the terms "amend," "amendment"
or "supplement" with respect to the Registration Statement, any Prospectus
Supplement, the Prospectus or any Issuer Free Writing Prospectus shall be deemed
to refer to and include the filing of any document under the Exchange Act on or
after the date hereof that is incorporated by reference into the Registration
Statement. For purposes of this Agreement, all references to the Registration
Statement, the Prospectus or to any amendment or supplement thereto shall be
deemed to include the most recent copy filed with the Commission pursuant to its
Electronic Data Gathering Analysis and Retrieval System, or if applicable, the
Interactive Data Electronic Application system when used by the Commission
(collectively, "EDGAR").
2. Placements. Each time that the Company wishes to issue and sell
Placement Shares hereunder (each, a "Placement"), it will notify MLV by email
notice (or other method mutually agreed to in writing by the Parties) of the
number of Placement Shares, the time period during which sales are requested to
be made, any limitation on the number of Placement Shares that may be sold in
any one day and any minimum price below which sales may not be made (a
"Placement Notice"), the form of which is attached hereto as Schedule 1. The
Placement Notice shall originate from any of the individuals from the Company
set forth on Schedule 3 (with a copy to each of the other individuals from the
Company listed on such schedule), and shall be addressed to each of the
individuals from MLV set forth on Schedule 3, as such Schedule 3 may be amended
from time to time. The Placement Notice shall be effective unless and until (i)
MLV declines to accept the terms contained therein for any reason, in its sole
discretion, (ii) the entire amount of the Placement Shares thereunder have been
sold, (iii) the Company suspends or terminates the Placement Notice or (iv) the
Agreement has been terminated under the provisions of Section 12. The amount of
any discount, commission or other compensation to be paid by the Company to MLV
in connection with the sale of the Placement Shares shall be calculated in
accordance with the terms set forth in Schedule 2. It is expressly acknowledged
2
<PAGE>
and agreed that neither the Company nor MLV will have any obligation whatsoever
with respect to a Placement or any Placement Shares unless and until the Company
delivers a Placement Notice to MLV and MLV does not decline such Placement
Notice pursuant to the terms set forth above, and then only upon the terms
specified therein and herein. In the event of a conflict between the terms of
this Agreement and the terms of a Placement Notice, the terms of the Placement
Notice will control.
3. Sale of Placement Shares by MLV. Subject to the provisions of Section
5(a), MLV, for the period specified in the Placement Notice, will use its
commercially reasonable efforts consistent with its normal trading and sales
practices and applicable state and federal laws, rules and regulations and the
rules of the NYSE Amex (the "Exchange"), to sell the Placement Shares up to the
amount specified, and otherwise in accordance with the terms of such Placement
Notice. MLV will provide written confirmation to the Company no later than the
opening of the Trading Day (as defined below) immediately following the Trading
Day on which it has made sales of Placement Shares hereunder setting forth the
number of Placement Shares sold on such day, the compensation payable by the
Company to MLV pursuant to Section 2 with respect to such sales, and the Net
Proceeds (as defined below) payable to the Company, with an itemization of the
deductions made by MLV (as set forth in Section 5(b)) from the gross proceeds
that it receives from such sales. Subject to the terms of the Placement Notice,
MLV may sell Placement Shares by any method permitted by law deemed to be an "at
the market" offering as defined in Rule 415 of the Securities Act Regulations,
including without limitation sales made directly on the Exchange, on any other
existing trading market for the Common Stock or to or through a market maker.
Subject to the terms of a Placement Notice, MLV may also sell Placement Shares
by any other method permitted by law, including but not limited to in privately
negotiated transactions. "Trading Day" means any day on which Common Stock are
purchased and sold on the Exchange.
4. Suspension of Sales. The Company or MLV may, upon notice to the other
party in writing (including by email correspondence to each of the individuals
of the other Party set forth on Schedule 3, if receipt of such correspondence is
actually acknowledged by any of the individuals to whom the notice is sent,
other than via auto-reply) or by telephone (confirmed immediately by verifiable
facsimile transmission or email correspondence to each of the individuals of the
other Party set forth on Schedule 3), suspend any sale of Placement Shares;
provided, however, that such suspension shall not affect or impair any party's
obligations with respect to any Placement Shares sold hereunder prior to the
receipt of such notice. Each of the parties agrees that no such notice under
this Section 4 shall be effective against any other party unless it is made to
one of the individuals named on Schedule 3 hereto, as such Schedule may be
amended from time to time.
5. Sale and Delivery to MLV; Settlement.
(a) Sale of Placement Shares. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, upon MLV's acceptance of the terms of a Placement Notice, and unless the
sale of the Placement Shares described therein has been declined, suspended, or
otherwise terminated in accordance with the terms of this Agreement, MLV, for
the period specified in the Placement Notice, will use its commercially
reasonable efforts consistent with its normal trading and sales practices to
3
<PAGE>
sell such Placement Shares up to the amount specified, and otherwise in
accordance with the terms of such Placement Notice. The Company acknowledges and
agrees that (i) there can be no assurance that MLV will be successful in selling
Placement Shares, (ii) MLV will incur no liability or obligation to the Company
or any other person or entity if it does not sell Placement Shares for any
reason other than a failure by MLV to use its commercially reasonable efforts
consistent with its normal trading and sales practices and applicable law and
regulations to sell such Placement Shares as required under this Agreement and
(iii) MLV shall be under no obligation to purchase Placement Shares on a
principal basis pursuant to this Agreement, except as otherwise agreed by MLV
and the Company.
(b) Settlement of Placement Shares. Unless otherwise specified in the
applicable Placement Notice, settlement for sales of Placement Shares will occur
on the third (3rd) Trading Day (or such earlier day as is industry practice for
regular-way trading) following the date on which such sales are made (each, a
"Settlement Date"). The amount of proceeds to be delivered to the Company on a
Settlement Date against receipt of the Placement Shares sold (the "Net
Proceeds") will be equal to the aggregate sales price received by MLV, after
deduction for (i) MLV's commission, discount or other compensation for such
sales payable by the Company pursuant to Section 2 hereof, and (ii) any
transaction fees imposed by any governmental or self-regulatory organization in
respect of such sales.
(c) Delivery of Placement Shares. On or before each Settlement Date, the
Company will, or will cause its transfer agent to, electronically transfer the
Placement Shares being sold by crediting MLV's or its designee's account
(provided MLV shall have given the Company written notice of such designee prior
to the Settlement Date) at The Depository Trust Company through its Deposit and
Withdrawal at Custodian System or by such other means of delivery as may be
mutually agreed upon by the parties hereto which in all cases shall be freely
tradable, transferable, registered shares in good deliverable form. On each
Settlement Date, MLV will deliver the related Net Proceeds in same day funds to
an account designated by the Company on, or prior to, the Settlement Date. The
Company agrees that if the Company, or its transfer agent (if applicable),
defaults in its obligation to deliver Placement Shares on a Settlement Date, the
Company agrees that in addition to and in no way limiting the rights and
obligations set forth in Section 10(a) hereto, it will (i) hold MLV harmless
against any loss, claim, damage, or expense (including reasonable legal fees and
expenses), as incurred, arising out of or in connection with such default by the
Company or its transfer agent (if applicable) and (ii) pay to MLV any
commission, discount, or other compensation to which it would otherwise have
been entitled absent such default.
(d) Denominations; Registration. Certificates for the Placement Shares, if
any, shall be in such denominations and registered in such names as MLV may
request in writing at least one Business Day (as defined below) before the
Settlement Date. The certificates for the Placement Shares, if any, will be made
available by the Company for examination and packaging by MLV in The City of New
York not later than noon (New York time) on the Business Day prior to the
Settlement Date.
(e) Limitations on Offering Size. Under no circumstances shall the Company
cause or request the offer or sale of any Placement Shares if, after giving
effect to the sale of such Placement Shares, the aggregate gross sales proceeds
of Placement Shares sold pursuant to this Agreement would exceed the lesser of
4
<PAGE>
(A) together with all sales of Placement Shares under this Agreement, the
Maximum Amount, (B) the amount available for offer and sale under the currently
effective Registration Statement and (C) the amount authorized from time to time
to be issued and sold under this Agreement by the Company's board of directors,
a duly authorized committee thereof or a duly authorized executive committee,
and notified to MLV in writing. Under no circumstances shall the Company cause
or request the offer or sale of any Placement Shares pursuant to this Agreement
at a price lower than the minimum price authorized from time to time by the
Company's board of directors, a duly authorized committee thereof or a duly
authorized executive committee, and notified to MLV in writing. Further, under
no circumstances shall the Company cause or permit the aggregate offering amount
of Placement Shares sold pursuant to this Agreement to exceed the Maximum
Amount.
6. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with MLV that as of the date of this Agreement and
as of each Applicable Time (as defined below), unless such representation,
warranty or agreement specifies a different time or time:
(a) Registration Statement and Prospectus. The Company and, assuming no act
or omission on the part of MLV that would make such statement untrue, the
transactions contemplated by this Agreement meet the requirements for and comply
with the conditions for the use of Form S-3 under the Securities Act. The
Registration Statement has been filed with the Commission and has been declared
effective under the Securities Act. The Prospectus Supplement will name MLV as
the agent in the section entitled "Plan of Distribution." The Company has not
received, and has no notice of, any order of the Commission preventing or
suspending the use of the Registration Statement, or threatening or instituting
proceedings for that purpose. The Registration Statement and the offer and sale
of Placement Shares as contemplated hereby meet the requirements of Rule 415
under the Act and comply in all material respects with said Rule. Any statutes,
regulations, contracts or other documents that are required to be described in
the Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement have been so described or filed. Copies of the
Registration Statement, the Prospectus, and any such amendments or supplements
and all documents incorporated by reference therein that were filed with the
Commission on or prior to the date of this Agreement have been delivered, or are
available through EDGAR, to MLV and its counsel. The Company has not distributed
and, prior to the later to occur of each Settlement Date and completion of the
distribution of the Placement Shares, will not distribute any offering material
in connection with the offering or sale of the Placement Shares other than the
Registration Statement and the Prospectus and any Issuer Free Writing Prospectus
(as defined below) to which MLV has consented. The Common Stock is currently
quoted on the Exchange under the trading symbol "CVM". Except as disclosed in
the Registration Statement, including the Incorporated Documents, the Company
has not, in the 12 months preceding the date hereof, received notice from the
Exchange to the effect that the Company is not in compliance with the listing or
maintenance requirements. Except as disclosed in the Registration Statement,
including the Incorporated Documents, or the Prospectus, the Company 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.
5
<PAGE>
(b) No Misstatement or Omission. The Registration Statement, when it became
effective, and the Prospectus, and any amendment or supplement thereto, on the
date of such Prospectus or amendment or supplement, conformed and will conform
in all material respects with the requirements of the Securities Act. At each
Settlement Date, the Registration Statement and the Prospectus, as of such date,
will conform in all material respects with the requirements of the Securities
Act. The Registration Statement, when it became or becomes effective, did not,
and will not, contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading. The Prospectus and any amendment and supplement thereto,
on the date thereof and at each Applicable Time (defined below), did not or will
not include an untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. The documents incorporated by
reference in the Prospectus or any Prospectus Supplement did not, and any
further documents filed and incorporated by reference therein will not, when
filed with the Commission, contain an untrue statement of a material fact or
omit to state a material fact required to be stated in such document or
necessary to make the statements in such document, in light of the circumstances
under which they were made, not misleading. The foregoing shall not apply to
statements in, or omissions from, any such document made in reliance upon, and
in conformity with, information furnished to the Company by MLV specifically for
use in the preparation thereof.
(c) Conformity with Securities Act and Exchange Act. The Registration
Statement, the Prospectus, any Issuer Free Writing Prospectus or any amendment
or supplement thereto, and the documents incorporated by reference in the
Registration Statement, the Prospectus or any amendment or supplement thereto,
when such documents were or are filed with the Commission under the Securities
Act or the Exchange Act or became or become effective under the Securities Act,
as the case may be, conformed or will conform in all material respects with the
requirements of the Securities Act and the Exchange Act, as applicable.
(d) Financial Information. The consolidated financial statements of the
Company included or incorporated by reference in the Registration Statement, the
Prospectus and the Issuer Free Writing Prospectuses, if any, together with the
related notes and schedules, present fairly, in all material respects, the
consolidated financial position of the Company and the Subsidiaries as of the
dates indicated and the consolidated results of operations, cash flows and
changes in stockholders' equity of the Company for the periods specified and
have been prepared in compliance with the requirements of the Securities Act and
Exchange Act, as applicable, and in conformity with GAAP (as defined below)
applied on a consistent basis (except for such adjustments to accounting
standards and practices as are noted therein) during the periods involved; the
other financial and statistical data with respect to the Company and the
Subsidiaries contained or incorporated by reference in the Registration
Statement, the Prospectus and the Issuer Free Writing Prospectuses, if any, are
accurately and fairly presented and prepared on a basis consistent with the
financial statements and books and records of the Company; there are no
financial statements (historical or pro forma) that are required to be included
or incorporated by reference in the Registration Statement, or the Prospectus
that are not included or incorporated by reference as required; the Company and
the Subsidiaries (as defined below) do not have any material liabilities or
obligations, direct or contingent (including any off-balance sheet obligations),
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not described in the Registration Statement (excluding the exhibits thereto and
Incorporated Documents), and the Prospectus which are required to be described
in the Registration Statement or the Prospectus (including Exhibits thereto and
Incorporated Documents); and all disclosures contained or incorporated by
reference in the Registration Statement, the Prospectus and the Issuer Free
Writing Prospectuses, if any, regarding "non-GAAP financial measures" (as such
term is defined by the rules and regulations of the Commission) comply with
Regulation G of the Exchange Act and Item 10 of Regulation S-K under the
Securities Act, to the extent applicable;
(e) Conformity with EDGAR Filing. The Prospectus delivered to MLV for use
in connection with the sale of the Placement Shares pursuant to this Agreement
will be identical to the versions of the Prospectus transmitted to the
Commission for filing via EDGAR, except to the extent permitted by Regulation
S-T.
(f) Organization. The Company and each of its Subsidiaries are, and will
be, duly organized, validly existing as a corporation and in good standing under
the laws of their respective jurisdictions of organization. The Company and each
of its Subsidiaries are, and will be, duly licensed or qualified as a foreign
corporation for transaction of business and in good standing under the laws of
each other jurisdiction in which their respective ownership or lease of property
or the conduct of their respective businesses requires such license or
qualification, and have all corporate power and authority necessary to own or
hold their respective properties and to conduct their respective businesses as
described in the Registration Statement and the Prospectus, except where the
failure to be so qualified or in good standing or have such power or authority
would not, individually or in the aggregate, have a material adverse effect or
would reasonably be expected to have a material adverse effect on the assets,
business, operations, earnings, properties, condition (financial or otherwise),
prospects, stockholders' equity or results of operations of the Company and the
Subsidiaries (as defined below) taken as a whole, or prevent or materially
interfere with consummation of the transactions contemplated hereby (a "Material
Adverse Effect").
(g) Subsidiaries. The subsidiaries set forth on Schedule 4 (collectively,
the "Subsidiaries"), are the Company's only significant subsidiaries (as such
term is defined in Rule 1-02 of Regulation S-X promulgated by the Commission).
Except as set forth in the Registration Statement and in the Prospectus, the
Company owns, directly or indirectly, all of the equity interests of the
Subsidiaries free and clear of any lien, charge, security interest, encumbrance,
right of first refusal or other restriction, and all the equity interests of the
Subsidiaries are validly issued and are fully paid, nonassessable and free of
preemptive and similar rights.
(h) No Violation or Default. Neither the Company nor any of its
Subsidiaries is (i) in violation of its charter or by-laws or similar
organizational documents; (ii) in default, and no event has occurred that, with
notice or lapse of time or both, would constitute such a default, in the due
performance or observance of any term, covenant or condition contained in any
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound or to which any of the
property or assets of the Company or any of its Subsidiaries are subject; or
(iii) in violation of any law or statute or any judgment, order, rule or
regulation of any court or arbitrator or governmental or regulatory authority,
except, in the case of each of clauses (ii) and (iii) above, for any such
violation or default that would not, individually or in the aggregate,
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reasonably be expected to have a Material Adverse Effect. Except as described in
the Prospectus, the Prospectus Supplement or the Incorporated Documents, to the
Company's knowledge, no other party under any material contract or other
agreement to which it or any of its Subsidiaries is a party is in default in any
respect thereunder where such default would reasonably be expected to have a
Material Adverse Effect.
(i) No Material Adverse Change. Subsequent to the respective dates as of
which information is given in the Registration Statement, the Prospectus and the
Free Writing Prospectuses, if any (including any document deemed incorporated by
reference therein), there has not been (i) any Material Adverse Effect, or any
development involving a prospective Material Adverse Effect, in or affecting the
business, properties, management, financial, condition (financial or otherwise),
results of operations, or prospects of the Company and the Subsidiaries taken as
a whole, (ii) any transaction which is material to the Company and the
Subsidiaries taken as a whole, (iii) any obligation or liability, direct or
contingent (including any off-balance sheet obligations), incurred by the
Company or any Subsidiary, which is material to the Company and the Subsidiaries
taken as a whole, (iv) any material change in the capital stock (other than as a
result of the sale of Placement Shares or other than as described in a proxy
statement filed on Schedule 14A or a Registration Statement on Form S-4 and
otherwise publicly announced) or outstanding long-term indebtedness of the
Company or any of its Subsidiaries or (v) any dividend or distribution of any
kind declared, paid or made on the capital stock of the Company or any
Subsidiary, other than in each case above in the ordinary course of business or
as otherwise disclosed in the Registration Statement or Prospectus (including
any document deemed incorporated by reference therein);
(j) Capitalization. The issued and outstanding shares of capital stock of
the Company have been validly issued, are fully paid and nonassessable and,
other than as disclosed in the Registration Statement or the Prospectus, are not
subject to any preemptive rights, rights of first refusal or similar rights. The
Company has an authorized, issued and outstanding capitalization as set forth in
the Registration Statement and the Prospectus as of the dates referred to
therein (other than the grant of additional options under the Company's existing
stock option plans, or changes in the number of outstanding Common Stock of the
Company due to the issuance of shares upon the exercise or conversion of
securities exercisable for, or convertible into, Common Stock outstanding on the
date hereof or as a result of the issuance of Placement Shares) and such
authorized capital stock conforms to the description thereof set forth in the
Registration Statement and the Prospectus. The description of the Common Stock
in the Registration Statement and the Prospectus is complete and accurate in all
material respects. Except as disclosed in or contemplated by the Registration
Statement or the Prospectus, as of the date referred to therein, the Company did
not have outstanding any options to purchase, or any rights or warrants to
subscribe for, or any securities or obligations convertible into, or
exchangeable for, or any contracts or commitments to issue or sell, any shares
of capital stock or other securities.
(k) Authorization; Enforceability. The Company has full legal right, power
and authority to enter into this Agreement and perform the transactions
contemplated hereby. This Agreement has been duly authorized, executed and
delivered by the Company and is a legal, valid and binding agreement of the
Company enforceable in accordance with its terms, except to the extent that (i)
enforceability may be limited by bankruptcy, insolvency, reorganization,
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moratorium or similar laws affecting creditors' rights generally and by general
equitable principles and (ii) the indemnification and contribution provisions of
Section 10 hereof may be limited by federal or state securities laws and public
policy considerations in respect thereof.
(l) Authorization of Placement Shares. The Placement Shares, when issued
and delivered pursuant to the terms approved by the board of directors of the
Company or a duly authorized committee thereof, or a duly authorized executive
committee, against payment therefor as provided herein, will be duly and validly
authorized and issued and fully paid and nonassessable, free and clear of any
pledge, lien, encumbrance, security interest or other claim (other than any
pledge, lien, encumbrance, security interest or other claim arising from an act
or omission of MLV or a purchaser), including any statutory or contractual
preemptive rights, resale rights, rights of first refusal or other similar
rights, and will be registered pursuant to Section 12 of the Exchange Act. The
Placement Shares, when issued, will conform in all material respects to the
description thereof set forth in or incorporated into the Prospectus.
(m) No Consents Required. No consent, approval, authorization, order,
registration or qualification of or with any court or arbitrator or any
governmental or regulatory authority is required for the execution, delivery and
performance by the Company of this Agreement, and the issuance and sale by the
Company of the Placement Shares as contemplated hereby, except for such
consents, approvals, authorizations, orders and registrations or qualifications
as may be required under applicable state securities laws or by the by-laws and
rules of the Financial Industry Regulatory Authority ("FINRA") or the Exchange
in connection with the sale of the Placement Shares by MLV.
(n) No Preferential Rights. Except as set forth in the Registration
Statement and the Prospectus, (i) no person, as such term is defined in Rule
1-02 of Regulation S-X promulgated under the Securities Act (each, a "Person"),
has the right, contractual or otherwise, to cause the Company to issue or sell
to such Person any Common Stock or shares of any other capital stock or other
securities of the Company (other than upon the exercise of options or warrants
to purchase Common Stock or upon the exercise of options that may be granted
from time to time under the Company's stock option plans), (ii) no Person has
any preemptive rights, rights of first refusal, or any other rights (whether
pursuant to a "poison pill" provision or otherwise) to purchase any Common Stock
or shares of any other capital stock or other securities of the Company from the
Company which have not been duly waived with respect to the offering
contemplated hereby, (iii) no Person has the right to act as an underwriter or
as a financial advisor to the Company in connection with the offer and sale of
the Common Stock, and (iv) except as disclosed in the Company's filings with the
Securities and Exchange Commission, no Person has the right, contractual or
otherwise, to require the Company to register under the Securities Act any
Common Stock or shares of any other capital stock or other securities of the
Company, or to include any such shares or other securities in the Registration
Statement or the offering contemplated thereby, whether as a result of the
filing or effectiveness of the Registration Statement or the sale of the
Placement Shares as contemplated thereby or otherwise.
(o) Independent Public Accountant. BDO USA, LLP (the "Accountants"), whose
report on the consolidated financial statements of the Company is filed with the
Commission as part of the Company's most recent Annual Report on Form 10-K filed
with the Commission and incorporated into the Registration Statement,
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are and, during the periods covered by their report, were independent public
accountants within the meaning of the Securities Act and the Public Company
Accounting Oversight Board (United States). To the Company's knowledge, after
due inquiry, the Accountants are not in violation of the auditor independence
requirements of the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") with
respect to the Company.
(p) Enforceability of Agreements. All agreements between the Company and
third parties expressly referenced in the Prospectus, other than such agreements
that have expired by their terms or whose termination is disclosed in documents
filed by the Company on EDGAR, are legal, valid and binding obligations of the
Company enforceable in accordance with their respective terms, except to the
extent that (i) enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
and by general equitable principles and (ii) the indemnification provisions of
certain agreements may be limited be federal or state securities laws or public
policy considerations in respect thereof, except for any unenforceability that,
individually or in the aggregate, would not unreasonably be expected to have a
Material Adverse Effect.
(q) No Litigation. Except as set forth in the Registration Statement or the
Prospectus, there are no legal, governmental or regulatory actions, suits or
proceedings pending, nor, to the Company's knowledge, any legal, governmental or
regulatory investigations, to which the Company or a Subsidiary is a party or to
which any property of the Company or any of its Subsidiaries is the subject
that, individually or in the aggregate, if determined adversely to the Company
or any of its Subsidiaries, would reasonably be expected to have a Material
Adverse Effect or materially and adversely affect the ability of the Company to
perform its obligations under this Agreement; to the Company's knowledge, no
such actions, suits or proceedings are threatened or contemplated by any
governmental or regulatory authority or threatened by others that, individually
or in the aggregate, if determined adversely to the Company or any of its
Subsidiaries, would reasonably be expected to have a Material Adverse Effect; or
and (i) there are no current or pending legal, governmental or regulatory
investigations, actions, suits or proceedings that are required under the Act to
be described in the Prospectus that are not described in the Prospectus
including any Incorporated Document; and (ii) there are no contracts or other
documents that are required under the Securities Act to be filed as exhibits to
the Registration Statement that are not so filed.
(r) Licenses and Permits. Except as set forth in the Registration Statement
or the Prospectus, the Company and each of its Subsidiaries possess or have
obtained, all licenses, certificates, consents, orders, approvals, permits and
other authorizations issued by, and have made all declarations and filings with,
the appropriate federal, state, local or foreign governmental or regulatory
authorities that are necessary for the ownership or lease of their respective
properties or the conduct of their respective businesses as described in the
Registration Statement and the Prospectus (the "Permits"), except where the
failure to possess, obtain or make the same would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. Except as
disclosed in the Registration Statement or the Prospectus, neither the Company
nor any of its Subsidiaries have received written notice of any proceeding
relating to revocation or modification of any such Permit or has any reason to
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believe that such Permit will not be renewed in the ordinary course, except
where the failure to obtain any such renewal would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
(s) No Material Defaults. Neither the Company nor any of the Subsidiaries
has defaulted on any installment on indebtedness for borrowed money or on any
rental on one or more long-term leases, which defaults, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect. The
Company has not filed a report pursuant to Section 13(a) or 15(d) of the
Exchange Act since the filing of its last Annual Report on Form 10-K, indicating
that it (i) has failed to pay any dividend or sinking fund installment on
preferred stock or (ii) has defaulted on any installment on indebtedness for
borrowed money or on any rental on one or more long-term leases, which defaults,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
(t) Certain Market Activities. Neither the Company, nor any of the
Subsidiaries, nor any of their respective directors, officers or controlling
persons has taken, directly or indirectly, any action designed, or that has
constituted or might reasonably be expected to cause or result in, under the
Exchange Act or otherwise, the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Placement
Shares.
(u) Broker/Dealer Relationships. Neither the Company nor any of the
Subsidiaries or any related entities (i) is required to register as a "broker"
or "dealer" in accordance with the provisions of the Exchange Act or (ii)
directly or indirectly through one or more intermediaries, controls or is a
"person associated with a member" or "associated person of a member" (within the
meaning set forth in the FINRA Manual). No officer, director or holder of 5% or
more of the Company's Common Stock is an associated person of a FINRA registered
broker-dealer firm.
(v) No Reliance. The Company has not relied upon MLV or legal counsel for
MLV for any legal, tax or accounting advice in connection with the offering and
sale of the Placement Shares.
(w) Taxes. The Company and each of its Subsidiaries have filed all federal,
state, local and foreign tax returns which have been required to be filed and
paid all taxes shown thereon through the date hereof, to the extent that such
taxes have become due and are not being contested in good faith, except where
the failure to do so would not reasonably be expected to have a Material Adverse
Effect. Except as otherwise disclosed in or contemplated by the Registration
Statement or the Prospectus, no tax deficiency has been determined adversely to
the Company or any of its Subsidiaries which has had, or would reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
The Company has no knowledge of any federal, state or other governmental tax
deficiency, penalty or assessment which has been or might be asserted or
threatened against it which could have a Material Adverse Effect.
(x) Title to Real and Personal Property. Except as set forth in the
Registration Statement or the Prospectus, the Company and its Subsidiaries have
good and valid title in fee simple to all items of real property and good and
valid title to all personal property described in the Registration Statement or
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Prospectus as being owned by them that are material to the businesses of the
Company or such Subsidiary, in each case free and clear of all liens,
encumbrances and claims, except those that (i) do not materially interfere with
the use made and proposed to be made of such property by the Company and any of
its Subsidiaries or (ii) would not reasonably be expected, individually or in
the aggregate, to have a Material Adverse Effect. Any real property described in
the Registration Statement or Prospectus as being leased by the Company and any
of its Subsidiaries is held by them under valid, existing and enforceable
leases, except those that (A) do not materially interfere with the use made or
proposed to be made of such property by the Company or any of its Subsidiaries
or (B) would not be reasonably expected, individually or in the aggregate, to
have a Material Adverse Effect.
(y) Intellectual Property. Except as set forth in the Registration
Statement or the Prospectus, the Company and its Subsidiaries own or possess
adequate enforceable rights to use all patents, patent applications, trademarks
(both registered and unregistered), service marks, trade names, trademark
registrations, service mark registrations, copyrights, licenses and know-how
(including trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) (collectively, the
"Intellectual Property"), necessary for the conduct of their respective
businesses as conducted as of the date hereof, except to the extent that the
failure to own or possess adequate rights to use such Intellectual Property
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect; except as disclosed in writing to MLV, the Company and
any of its Subsidiaries have not received any written notice of any claim of
infringement or conflict which asserted Intellectual Property rights of others,
which infringement or conflict, if the subject of an unfavorable decision, would
result in a Material Adverse Effect; there are no pending, or to the Company's
knowledge, threatened judicial proceedings or interference proceedings
challenging the Company's or its Subsidiaries' rights in or to or the validity
of the scope of any of the Company's or its Subsidiaries' patents, patent
applications or proprietary information; no other entity or individual has any
right or claim in any of the Company's or its Subsidiaries' patents, patent
applications or any patent to be issued therefrom by virtue of any contract,
license or other agreement entered into between such entity or individual and
the Company or a Subsidiary or by any non-contractual obligation, other than by
written licenses granted by the Company or a Subsidiary; the Company and its
Subsidiaries have not received any written notice of any claim challenging the
rights of the Company or a Subsidiary in or to any Intellectual Property owned,
licensed or optioned by the Company or such Subsidiary which claim, if the
subject of an unfavorable decision would result in a Material Adverse Effect.
(z) Environmental Laws. Except as set forth in the Registration Statement
or the Prospectus, the Company and its Subsidiaries (i) are in compliance with
any and all applicable federal, state, local and foreign laws, rules,
regulations, decisions and orders relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes, pollutants
or contaminants (collectively, "Environmental Laws"); (ii) have received and are
in compliance with all permits, licenses or other approvals required of them
under applicable Environmental Laws to conduct their respective businesses as
described in the Registration Statement and the Prospectus; and (iii) have not
received notice of any actual or potential liability for the investigation or
remediation of any disposal or release of hazardous or toxic substances or
wastes, pollutants or contaminants, except, in the case of any of clauses (i),
(ii) or (iii) above, for any such failure to comply or failure to receive
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required permits, licenses, other approvals or liability as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(aa) Disclosure Controls. The Company and each of its Subsidiaries maintain
systems of internal accounting controls designed 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 generally accepted
accounting principles 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 is not aware of any material weaknesses
in its internal control over financial reporting (other than as set forth in the
Prospectus). Since the date of the latest audited financial statements of the
Company included in the Prospectus, there has been no change in the Company's
internal control over financial reporting that has materially affected, or is
reasonably likely to materially affect, the Company's internal control over
financial reporting (other than as set forth in the Prospectus). The Company has
established disclosure controls and procedures (as defined in Exchange Act Rules
13a-15 and 15d-15) for the Company and designed such disclosure controls and
procedures to ensure that material information relating to the Company and each
of its Subsidiaries is made known to the certifying officers by others within
those entities, particularly during the period in which the Company's Annual
Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may be, is
being prepared. The Company's certifying officers have evaluated the
effectiveness of the Company's controls and procedures as of a date within 90
days prior to the filing date of the Form 10-K for the fiscal year most recently
ended (such date, the "Evaluation Date"). The Company presented in its Form 10-K
for the fiscal year most recently ended 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 significant changes in the Company's internal controls (as such
term is defined in Item 307(b) of Regulation S-K under the Act) or, to the
Company's knowledge, in other factors that could significantly affect the
Company's internal controls. To the knowledge of the Company, the Company's
"internal controls over financial reporting" and "disclosure controls and
procedures" are effective.
(bb) Sarbanes-Oxley. There is and has been no failure on the part of the
Company or, to the knowledge of the Company, any of the Company's directors or
officers, in their capacities as such, to comply with any applicable provisions
of the Sarbanes-Oxley Act and the rules and regulations promulgated thereunder.
Each of the principal executive officer and the principal financial officer of
the Company (or each former principal executive officer of the Company and each
former principal financial officer of the Company as applicable) has made all
certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act with
respect to all reports, schedules, forms, statements and other documents
required to be filed by it or furnished by it to the Commission. For purposes of
the preceding sentence, "principal executive officer" and "principal financial
officer" shall have the meanings given to such terms in the Sarbanes-Oxley Act.
(cc) Finder's Fees. Neither the Company nor any of the Subsidiaries has
incurred any liability for any finder's fees, brokerage commissions or similar
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payments in connection with the transactions herein contemplated, except as may
otherwise exist with respect to MLV pursuant to this Agreement.
(dd) Labor Disputes. No labor disturbance by or dispute with employees of
the Company or any of its Subsidiaries exists or, to the knowledge of the
Company, is threatened which would reasonably be expected to result in a
Material Adverse Effect
(ee) Investment Company Act. Neither the Company nor any of the
Subsidiaries is or, after giving effect to the offering and sale of the
Placement Shares, will be an "investment company" or an entity "controlled" by
an "investment company," as such terms are defined in the Investment Company Act
of 1940, as amended (the "Investment Company Act").
(ff) Operations. The operations of the Company and its Subsidiaries are and
have been conducted at all times in compliance with applicable financial record
keeping and reporting requirements of the Currency and Foreign Transactions
Reporting Act of 1970, as amended, the money laundering statutes of all
jurisdictions to which the Company or its Subsidiaries are subject, the rules
and regulations thereunder and any related or similar rules, regulations or
guidelines, issued, administered or enforced by any governmental agency
(collectively, the "Money Laundering Laws"), except as would not reasonably be
expected to result in a Material Adverse Effect; and no action, suit or
proceeding by or before any court or governmental agency, authority or body or
any arbitrator involving the Company or any of its Subsidiaries with respect to
the Money Laundering Laws is pending or, to the knowledge of the Company,
threatened.
(gg) Off-Balance Sheet Arrangements. There are no transactions,
arrangements and other relationships between and/or among the Company, and/or,
to the knowledge of the Company, any of its affiliates and any unconsolidated
entity, including, but not limited to, any structural finance, special purpose
or limited purpose entity (each, an "Off Balance Sheet Transaction") that could
reasonably be expected to affect materially the Company's liquidity or the
availability of or requirements for its capital resources, including those Off
Balance Sheet Transactions described in the Commission's Statement about
Management's Discussion and Analysis of Financial Conditions and Results of
Operations (Release Nos. 33-8056; 34-45321; FR-61), required to be described in
the Prospectus which have not been described as required.
(hh) Underwriter Agreements. Except as disclosed in the Company's filings
with the Securities and Exchange Commission the Company is not a party to any
agreement with an agent or underwriter for any other "at-the-market" or
continuous equity transaction.
(ii) ERISA. To the knowledge of the Company, each material employee benefit
plan, within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), that is maintained, administered or
contributed to by the Company or any of its affiliates for employees or former
employees of the Company and any of its Subsidiaries has been maintained in
material compliance with its terms and the requirements of any applicable
statutes, orders, rules and regulations, including but not limited to ERISA and
the Internal Revenue Code of 1986, as amended (the "Code"); no prohibited
transaction, within the meaning of Section 406 of ERISA or Section 4975 of the
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Code, has occurred which would result in a material liability to the Company
with respect to any such plan excluding transactions effected pursuant to a
statutory or administrative exemption; and for each such plan that is subject to
the funding rules of Section 412 of the Code or Section 302 of ERISA, no
"accumulated funding deficiency" as defined in Section 412 of the Code has been
incurred, whether or not waived, and the fair market value of the assets of each
such plan (excluding for these purposes accrued but unpaid contributions)
exceeds the present value of all benefits accrued under such plan determined
using reasonable actuarial assumptions.
(jj) Forward Looking Statements. No forward-looking statement (within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act) (a "Forward Looking Statement") contained in the Registration Statement and
the Prospectus has been made or reaffirmed without a reasonable basis or has
been disclosed other than in good faith. The Forward Looking Statements
incorporated by reference in the Registration Statement and the Prospectus from
the Company's Annual Report on Form 10-K for the fiscal year most recently ended
(i) except for any Forward Looking Statement included in any financial
statements and notes thereto, are within the coverage of the safe harbor for
forward looking statements set forth in Section 27A of the Securities Act, Rule
175(b) under the Securities Act or Rule 3b-6 under the Exchange Act, as
applicable, (ii) were made by the Company with a reasonable basis and in good
faith and reflect the Company's good faith commercially reasonable best estimate
of the matters described therein, and (iii) have been prepared in accordance
with Item 10 of Regulation S-K under the Act.
(kk) Margin Rules. Neither the issuance, sale and delivery of the Placement
Shares nor the application of the proceeds thereof by the Company as described
in the Registration Statement and the Prospectus will violate Regulation T, U or
X of the Board of Governors of the Federal Reserve System or any other
regulation of such Board of Governors.
(ll) Insurance. The Company and each of its Subsidiaries carry, or are
covered by, insurance in such amounts and covering such risks as the Company and
each of its Subsidiaries reasonably believe are adequate for the conduct of
their properties and as is customary for companies of similar size engaged in
similar businesses in similar industries.
(mm) No Improper Practices. (i) Neither the Company nor, to the Company's
knowledge, the Subsidiaries, nor to the Company's knowledge, any of their
respective executive officers has, in the past five years, made any unlawful
contributions to any candidate for any political office (or failed fully to
disclose any contribution in violation of law) or made any contribution or other
payment to any official of, or candidate for, any federal, state, municipal, or
foreign office or other person charged with similar public or quasi-public duty
in violation of any law or of the character required to be disclosed in the
Prospectus; (ii) no relationship, direct or indirect, exists between or among
the Company or, to the Company's knowledge, any Subsidiary or any affiliate of
any of them, on the one hand, and the directors, officers and stockholders of
the Company or, to the Company's knowledge, any Subsidiary, on the other hand,
that is required by the Securities Act to be described in the Registration
Statement and the Prospectus that is not so described; (iii) no relationship,
direct or indirect, exists between or among the Company or any Subsidiary or any
affiliate of them, on the one hand, and the directors, officers, stockholders or
directors of the Company or, to the Company's knowledge, any Subsidiary, on the
other hand, that is required by the rules of FINRA to be described in the
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Registration Statement and the Prospectus that is not so described; (iv) except
as described in the Prospectus, there are no material outstanding loans or
advances or material guarantees of indebtedness by the Company or, to the
Company's knowledge, any Subsidiary to or for the benefit of any of their
respective officers or directors or any of the members of the families of any of
them; and (v) the Company has not offered, or caused any placement agent to
offer, Common Stock to any person with the intent to influence unlawfully (A) a
customer or supplier of the Company or any Subsidiary to alter the customer's or
supplier's level or type of business with the Company or any Subsidiary or (B) a
trade journalist or publication to write or publish favorable information about
the Company or any Subsidiary or any of their respective products or services,
and, (vi) neither the Company nor any Subsidiary nor, to the Company's
knowledge, any employee or agent of the Company or any Subsidiary has made any
payment of funds of the Company or any Subsidiary or received or retained any
funds in violation of any law, rule or regulation (including, without
limitation, the Foreign Corrupt Practices Act of 1977), which payment, receipt
or retention of funds is of a character required to be disclosed in the
Registration Statement or the Prospectus.
(nn) Status Under the Securities Act. The Company was not and is not an
ineligible issuer as defined in Rule 405 under the Securities Act at the times
specified in Rules 164 and 433 under the Act in connection with the offering of
the Placement Shares.
(oo) No Misstatement or Omission in an Issuer Free Writing Prospectus. Each
Issuer Free Writing Prospectus, as of its issue date and as of each Applicable
Time (as defined in Section 24 below), did not, does not and will not include
any information that conflicted, conflicts or will conflict with the information
contained in the Registration Statement or the Prospectus, including any
incorporated document deemed to be a part thereof that has not been superseded
or modified. The foregoing sentence does not apply to statements in or omissions
from any Issuer Free Writing Prospectus based upon and in conformity with
written information furnished to the Company by MLV specifically for use
therein.
(pp) No Conflicts. Neither the execution of this Agreement, nor the
issuance, offering or sale of the Placement Shares, nor the consummation of any
of the transactions contemplated herein and therein, nor the compliance by the
Company with the terms and provisions hereof and thereof will conflict with, or
will result in a breach of, any of the terms and provisions of, or has
constituted or will constitute a default under, or has resulted in or will
result in the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company pursuant to the terms of any contract or other
agreement to which the Company may be bound or to which any of the property or
assets of the Company is subject, except (i) such conflicts, breaches or
defaults as may have been waived and (ii) such conflicts, breaches and defaults
that would not reasonably be expected to have a Material Adverse Effect; nor
will such action result (x) in any violation of the provisions of the
organizational or governing documents of the Company, or (y) in any material
violation of the provisions of any statute or any order, rule or regulation
applicable to the Company or of any court or of any federal, state or other
regulatory authority or other government body having jurisdiction over the
Company, except where such violation would not reasonably be expected to have a
Material Adverse Effect.
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(qq) Clinical Studies. The clinical, pre-clinical and other studies and
tests conducted by or, to the knowledge of the Company, on behalf of the Company
were, and, if still pending, are being, conducted in accordance in all material
respects with all statutes, laws, rules and regulations, as applicable
(including, without limitation, those administered by the FDA or by any foreign,
federal, state or local governmental or regulatory authority performing
functions similar to those performed by the FDA). Except as set forth in the
Registration Statement and Prospectus, the Company has not received any written
notices or other written correspondence from the FDA or any other foreign,
federal, state or local governmental or regulatory authority performing
functions similar to those performed by the FDA requiring the Company to
terminate or suspend any ongoing clinical or pre-clinical studies or tests.
(rr) Compliance Program. Except as disclosed in the Registration Statement
and the Prospectus, the Company has established and administers a compliance
program applicable to the Company, to assist the Company and the directors,
officers and employees of the Company in complying with applicable regulatory
guidelines (including, without limitation, those administered by the FDA and any
other foreign, federal, state or local governmental or regulatory authority
performing functions similar to those performed by the FDA); except where such
noncompliance would not reasonably be expected to have a Material Adverse
Effect.
(ss) OFAC. (i) The Company represents that, neither the Company nor any of
its Subsidiaries (collectively, the "Entity") or any director, officer,
employee, agent, affiliate or representative of the Entity, is a government,
individual, or entity (in this paragraph (tt), "Person") that is, or is owned or
controlled by a Person that is:
(A) the subject of any sanctions administered or enforced by the
U.S. Department of Treasury's Office of Foreign Assets Control
("OFAC"), the United Nations Security Council ("UNSC"), the European
Union ("EU"), Her Majesty's Treasury ("HMT"), or other relevant
sanctions authority (collectively, "Sanctions"), nor
(B) located, organized or resident in a country or territory that
is the subject of Sanctions (including, without limitation,
Burma/Myanmar, Cuba, Iran, North Korea, Sudan and Syria).
(ii) The Entity represents and covenants that it will not, directly
or indirectly, use the proceeds of the offering, or lend, contribute or
otherwise make available such proceeds to any subsidiary, joint venture
partner or other Person:
(A) to fund or facilitate any activities or business of or
with any Person or in any country or territory that, at the time of
such funding or facilitation, is the subject of Sanctions; or
(B) in any other manner that will result in a violation of
Sanctions by any Person (including any Person participating in the
offering, whether as underwriter, advisor, investor or otherwise).
(iii) The Entity represents and covenants that, except as detailed
in the Prospectus, for the past 5 years, it has not knowingly engaged in, is
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not now knowingly engaged in, and will not engage in, any dealings or
transactions with any Person, or in any country or territory, that at the time
of the dealing or transaction is or was the subject of Sanctions.
(tt) Stock Transfer Taxes. On each Settlement Date, all stock transfer or
other taxes (other than income taxes) which are required to be paid in
connection with the sale and transfer of the Placement Shares to be sold
hereunder will be, or will have been, fully paid or provided for by the Company
and all laws imposing such taxes will be or will have been fully complied with.
Any certificate signed by an officer of the Company and delivered to MLV
or to counsel for MLV pursuant to or in connection with this Agreement shall be
deemed to be a representation and warranty by the Company, as applicable, to MLV
as to the matters set forth therein.
7. Covenants of the Company. The Company covenants and agrees with MLV
that:
(a) Registration Statement Amendments. After the date of this Agreement and
during any period in which a Prospectus relating to any Placement Shares is
required to be delivered by MLV under the Securities Act (including in
circumstances where such requirement may be satisfied pursuant to Rule 172 under
the Securities Act), (i) the Company will notify MLV promptly of the time when
any subsequent amendment to the Registration Statement, other than documents
incorporated by reference, has been filed with the Commission and/or has become
effective or any subsequent supplement to the Prospectus has been filed and of
any request by the Commission for any amendment or supplement to the
Registration Statement or Prospectus or for additional information, (ii) the
Company will prepare and file with the Commission, promptly upon MLV's request,
any amendments or supplements to the Registration Statement or Prospectus that,
in MLV's reasonable opinion, may be necessary or advisable in connection with
the distribution of the Placement Shares by MLV (provided, however, that the
failure of MLV to make such request shall not relieve the Company of any
obligation or liability hereunder, or affect MLV's right to rely on the
representations and warranties made by the Company in this Agreement and
provided, further, that the only remedy MLV shall have with respect to the
failure to make such filing shall be to cease making sales under this Agreement
until such amendment or supplement is filed); (iii) the Company will not file
any amendment or supplement to the Registration Statement or Prospectus relating
to the Placement Shares or a security convertible into the Placement Shares
unless a copy thereof has been submitted to MLV within a reasonable period of
time before the filing and MLV has not objected thereto (provided, however, that
the failure of MLV to make such objection shall not relieve the Company of any
obligation or liability hereunder, or affect MLV's right to rely on the
representations and warranties made by the Company in this Agreement and
provided, further, that the only remedy MLV shall have with respect to the
failure by the Company to obtain such consent shall be to cease making sales
under this Agreement) and the Company will furnish to MLV at the time of filing
thereof a copy of any document that upon filing is deemed to be incorporated by
reference into the Registration Statement or Prospectus, except for those
documents available via EDGAR; and (iv) the Company will cause each amendment or
supplement to the Prospectus to be filed with the Commission as required
pursuant to the applicable paragraph of Rule 424(b) of the Securities Act or, in
the case of any document to be incorporated therein by reference, to be filed
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with the Commission as required pursuant to the Exchange Act, within the time
period prescribed (the determination to file or not file any amendment or
supplement with the Commission under this Section 7(a), based on the Company's
reasonable opinion or reasonable objections, shall be made exclusively by the
Company).
(b) Notice of Commission Stop Orders. The Company will advise MLV, promptly
after it receives notice or obtains knowledge thereof, of the issuance or
threatened issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement, of the suspension of the
qualification of the Placement Shares for offering or sale in any jurisdiction,
or of the initiation or threatening of any proceeding for any such purpose; and
it will promptly use its commercially reasonable efforts to prevent the issuance
of any stop order or to obtain its withdrawal if such a stop order should be
issued. The Company will advise MLV promptly after it receives any request by
the Commission for any amendments to the Registration Statement or any amendment
or supplements to the Prospectus or any Issuer Free Writing Prospectus or for
additional information related to the offering of the Placement Shares or for
additional information related to the Registration Statement, the Prospectus or
any Issuer Free Writing Prospectus.
(c) Delivery of Prospectus; Subsequent Changes. During any period in which
a Prospectus relating to the Placement Shares is required to be delivered by MLV
under the Securities Act with respect to the offer and sale of the Placement
Shares, (including in circumstances where such requirement may be satisfied
pursuant to Rule 172 under the Securities Act), the Company will comply with all
requirements imposed upon it by the Securities Act, as from time to time in
force, and to file on or before their respective due dates all reports and any
definitive proxy or information statements required to be filed by the Company
with the Commission pursuant to Sections 13(a), 13(c), 14, 15(d) or any other
provision of or under the Exchange Act. If the Company has omitted any
information from the Registration Statement pursuant to Rule 430A under the Act,
it will use its best efforts to comply with the provisions of and make all
requisite filings with the Commission pursuant to said Rule 430A and to notify
MLV promptly of all such filings. If during such period any event occurs as a
result of which the Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances then existing,
not misleading, or if during such period it is necessary to amend or supplement
the Registration Statement or Prospectus to comply with the Securities Act, the
Company will promptly notify MLV to suspend the offering of Placement Shares
during such period and the Company will promptly amend or supplement the
Registration Statement or Prospectus (at the expense of the Company) so as to
correct such statement or omission or effect such compliance.
(d) Listing of Placement Shares. During any period in which the Prospectus
relating to the Placement Shares is required to be delivered by MLV under the
Securities Act with respect to the offer and sale of the Placement Shares, the
Company will use its reasonable best efforts to cause the Placement Shares to be
listed on the Exchange and to qualify the Placement Shares for sale under the
securities laws of such jurisdictions as MLV reasonably designates and to
continue such qualifications in effect so long as required for the distribution
of the Placement Shares; provided, however, that the Company shall not be
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required in connection therewith to qualify as a foreign corporation or dealer
in securities or file a general consent to service of process in any
jurisdiction.
(e) Delivery of Registration Statement and Prospectus. The Company will
furnish to MLV and its counsel (at the expense of the Company) copies of the
Registration Statement, the Prospectus (including all documents incorporated by
reference therein) and all amendments and supplements to the Registration
Statement or Prospectus that are filed with the Commission during any period in
which a Prospectus relating to the Placement Shares is required to be delivered
under the Securities Act (including all documents filed with the Commission
during such period that are deemed to be incorporated by reference therein), in
each case as soon as reasonably practicable and in such quantities as MLV may
from time to time reasonably request and, at MLV's request, will also furnish
copies of the Prospectus to each exchange or market on which sales of the
Placement Shares may be made; provided, however, that the Company shall not be
required to furnish any document (other than the Prospectus) to MLV to the
extent such document is available on EDGAR.
(f) Earnings Statement. The Company will make generally available to its
security holders as soon as practicable, but in any event not later than 15
months after the end of the Company's current fiscal quarter, an earnings
statement covering a 12-month period that satisfies the provisions of Section
11(a) and Rule 158 of the Securities Act.
(g) Use of Proceeds. The Company will use the Net Proceeds as described in
the Prospectus in the section entitled "Use of Proceeds."
(h) Notice of Other Sales. Without the prior written consent of MLV, the
Company will not, directly or indirectly, offer to sell, sell, contract to sell,
grant any option to sell or otherwise dispose of any Common Stock (other than
the Placement Shares offered pursuant to this Agreement) or securities
convertible into or exchangeable for Common Stock, warrants or any rights to
purchase or acquire, Common Stock during the period beginning on the fifth (5th)
Trading Day immediately prior to the date on which any Placement Notice is
delivered to MLV hereunder and ending on the fifth (5th) Trading Day immediately
following the final Settlement Date with respect to Placement Shares sold
pursuant to such Placement Notice (or, if the Placement Notice has been
terminated or suspended prior to the sale of all Placement Shares covered by a
Placement Notice, the date of such suspension or termination); provided,
however, that such restrictions will not be required in connection with the
Company's issuance or sale of (i) Common Stock, options to purchase Common Stock
or Common Stock issuable upon the exercise of options, pursuant to any employee
or director stock option or benefits plan, stock ownership plan or dividend
reinvestment plan (but not Common Stock subject to a waiver to exceed plan
limits in its dividend reinvestment plan) of the Company whether now in effect
or hereafter implemented; (ii) Common Stock issuable upon conversion of
securities or the exercise of warrants, options or other rights in effect or
outstanding, and disclosed in filings by the Company available on EDGAR or
otherwise in writing to MLV and (iii) Common Stock, or securities convertible
into or exercisable for Common Stock, offered and sold in a privately negotiated
transaction to vendors, customers, strategic partners or potential strategic
partners who are qualified institutional buyers and not more than three persons
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that are "accredited investors" within the meaning of such term under paragraph
(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) of Rule 501 under the Securities Act
and otherwise conducted in a manner so as not to be integrated with the offering
of Common Stock hereby.
(i) Change of Circumstances. The Company will, at any time during the
pendency of a Placement Notice advise MLV promptly after it shall have received
notice or obtained knowledge thereof, of any information or fact that would
alter or affect in any material respect any opinion, certificate, letter or
other document required to be provided to MLV pursuant to this Agreement.
(j) Due Diligence Cooperation. The Company will cooperate with any
reasonable due diligence review conducted by MLV or its representatives in
connection with the transactions contemplated hereby, including, without
limitation, providing information and making available documents and senior
corporate officers, during regular business hours and at the Company's principal
offices, as MLV may reasonably request.
(k) Required Filings Relating to Placement of Placement Shares. The Company
agrees that on such dates as the Securities Act shall require, the Company will
(i) file a prospectus supplement with the Commission under the applicable
paragraph of Rule 424(b) under the Securities Act (each and every filing under
Rule 424(b), a "Filing Date"), which prospectus supplement will set forth,
within the relevant period, the amount of Placement Shares sold through MLV, the
Net Proceeds to the Company and the compensation payable by the Company to MLV
with respect to such Placement Shares, and (ii) deliver such number of copies of
each such prospectus supplement to each exchange or market on which such sales
were effected as may be required by the rules or regulations of such exchange or
market.
(l) Representation Dates; Certificate. On the date of this Agreement and
each time the Company:
(i) files the Prospectus relating to the Placement Shares or amends or
supplements (other than a prospectus supplement relating solely to an
offering of securities other than the Placement Shares) the Registration
Statement or the Prospectus relating to the Placement Shares by means of a
post-effective amendment, sticker, or supplement but not by means of
incorporation of documents by reference into the Registration Statement or
the Prospectus relating to the Placement Shares;
(ii) files an annual report on Form 10-K under the Exchange Act (including
any Form 10-K/A containing amended financial information or a material
amendment to the previously filed Form 10-K);
(iii) files its quarterly reports on Form 10-Q under the Exchange Act; or
(iv) files a current report on Form 8-K containing amended financial
information (other than information "furnished" pursuant to Items 2.02 or
7.01 of Form 8-K or to provide disclosure pursuant to Item 8.01 of Form
8-K relating to the reclassification of certain properties as discontinued
operations in accordance with Statement of Financial Accounting Standards
No. 144) under the Exchange Act;
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(Each date of filing of one or more of the documents referred to in
clauses (i) through (iv) shall be a "Representation Date.")
the Company shall furnish MLV (but in the case of clause (iv) above only if MLV
reasonably determines that the information contained in such Form 8-K is
material) with a certificate, in the form attached hereto as Exhibit 7(l). The
requirement to provide a certificate under this Section 7(l) shall be waived for
any Representation Date occurring at a time at which no Placement Notice is
pending, which waiver shall continue until the earlier to occur of the date the
Company delivers a Placement Notice hereunder (which for such calendar quarter
shall be considered a Representation Date) and the next occurring Representation
Date; provided, however, that such waiver shall not apply for any Representation
Date on which the Company files its annual report on Form 10-K. Notwithstanding
the foregoing, if the Company subsequently decides to sell Placement Shares
following a Representation Date when the Company relied on such waiver and did
not provide MLV with a certificate under this Section 7(l), then before the
Company delivers the Placement Notice or MLV sells any Placement Shares, the
Company shall provide MLV with a certificate, in the form attached hereto as
Exhibit 7(l), dated the date of the Placement Notice.
(m) Legal Opinion. No later than (1) ten (10) Trading Days after the date
of this Agreement and (2) five (5) Trading Days after each Representation Date
following the date of this Agreement with respect to which the Company is
obligated to deliver a certificate in the form attached hereto as Exhibit 7(l)
for which no waiver is applicable, the Company shall cause to be furnished to
MLV written opinions of Hart & Trinen LLP ("Company Counsel"), or other counsel
satisfactory to MLV, in form and substance satisfactory to MLV and its counsel,
which collectively address the legal opinions and negative assurance requests
set forth in Exhibit 7(m), modified, as necessary, to relate to the Registration
Statement and the Prospectus as then amended or supplemented, and with customary
assumptions and exceptions; provided, however, the Company shall be required to
furnish to MLV no more than one opinion hereunder per calendar quarter;
provided, further, that in lieu of such opinions for subsequent periodic filings
under the Exchange Act, counsel may furnish MLV with a letter (a "Reliance
Letter") to the effect that MLV may rely on a prior opinion delivered under this
Section 7(m) to the same extent as if it were dated the date of such letter
(except that statements in such prior opinion shall be deemed to relate to the
Registration Statement and the Prospectus as amended or supplemented as of the
date of the Reliance Letter).
(n) Comfort Letter. No later than (1) ten (10) Trading Days after the date
of this Agreement and (2) five (5) Trading Days after each Representation Date
following the date of this Agreement, other than pursuant to Section 7(l)(iii),
with respect to which the Company is obligated to deliver a certificate in the
form attached hereto as Exhibit 7(l) for which no waiver is applicable, the
Company shall cause its independent accountants to furnish MLV letters (the
"Comfort Letters"), dated the date the Comfort Letter is delivered, which shall
meet the requirements set forth in this Section 7(n); provided, that if
requested by MLV, the Company shall cause a Comfort Letter to be furnished to
MLV within ten (10) Trading Days of the date of occurrence of any material
transaction or event, including the restatement of the Company's financial
statements. The Comfort Letter from the Company's independent accountants shall
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be in a form and substance satisfactory to MLV, (i) confirming that they are an
independent public accounting firm within the meaning of the Securities Act and
the PCAOB, (ii) stating, as of such date, the conclusions and findings of such
firm with respect to the financial information and other matters ordinarily
covered by accountants' "comfort letters" to underwriters in connection with
registered public offerings (the first such letter, the "Initial Comfort
Letter") and (iii) updating the Initial Comfort Letter with any information that
would have been included in the Initial Comfort Letter had it been given on such
date and modified as necessary to relate to the Registration Statement and the
Prospectus, as amended and supplemented to the date of such letter.
(o) Market Activities. The Company will not, directly or indirectly, (i)
take any action designed to cause or result in, or that constitutes or might
reasonably be expected to constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of Common
Stock or (ii) sell, bid for, or purchase Common Stock in violation of Regulation
M, or pay anyone any compensation for soliciting purchases of the Placement
Shares other than MLV. Further, the Company shall not request or accept any
drawdown under its equity line of credit.
(p) Investment Company Act. The Company will conduct its affairs in such a
manner so as to reasonably ensure that neither it nor any of its Subsidiaries
will be or become, at any time prior to the termination of this Agreement, an
"investment company," as such term is defined in the Investment Company Act.
(q) No Offer to Sell. Other than any Prospectus approved in advance by the
Company and MLV in its capacity as agent hereunder, neither MLV nor the Company
(including its agents and representatives, other than MLV in their capacity as
such) will make, use, prepare, authorize, approve or refer to any written
communication (as defined in Rule 405 under the Act), required to be filed with
the Commission, that constitutes an offer to sell or solicitation of an offer to
buy Placement Shares hereunder.
(r) Sarbanes-Oxley Act. The Company and the Subsidiaries will maintain and
keep accurate books and records reflecting their assets and maintain internal
accounting controls in a manner designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles and including those policies and procedures that (i)
pertain to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of the Company,
(ii) provide reasonable assurance that transactions are recorded as necessary to
permit the preparation of the Company's consolidated financial statements in
accordance with generally accepted accounting principals, (iii) that receipts
and expenditures of the Company are being made only in accordance with
management's and the Company's directors' authorization, and (iv) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company's assets that could have a
material effect on its financial statements. The Company and the Subsidiaries
will maintain such controls and other procedures, including, without limitation,
those required by Sections 302 and 906 of the Sarbanes-Oxley Act, and the
applicable regulations thereunder that are designed to ensure that information
required to be disclosed by the Company in the reports that 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, including,
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without limitation, controls and procedures designed to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the Company's
management, including its principal executive officer and principal financial
officer, or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure and to ensure that material information
relating to the Company or the Subsidiaries is made known to them by others
within those entities, particularly during the period in which such periodic
reports are being prepared.
8. Representations and Covenants of MLV. MLV represents, warrants, and
covenants that:
(a) It is duly registered as a broker-dealer under FINRA, the Exchange Act
and the applicable statutes and regulations of each state in which the Placement
Shares will be offered and sold, except such states in which MLV is exempt from
registration or such registration is not otherwise required. MLV shall continue,
for the term of this Agreement, to be duly registered as a broker-dealer under
FINRA, the Exchange Act and the applicable statutes and regulations of each
state in which the Placement Shares will be offered and sold, except such states
in which MLV is exempt from registration or such registration is not otherwise
required, during the term of this Agreement.
(b) Neither it, nor any of its affiliates or subsidiaries, shall engage in
(i) any short sale of any security of the Company or (ii) any sale of any
security of the Company that MLV does not own or any sale which is consummated
by the delivery of a security of the Company borrowed by, or for the account of,
MLV.
(c) Neither it, nor any of its affiliates or subsidiaries, engages in any
proprietary trading or trading for MLV's (or its affiliates' or subsidiaries')
own account.
9. Payment of Expenses.
(a) The Company will pay all expenses incident to the performance of its
obligations under this Agreement, including (i) the preparation, filing,
including any fees required by the Commission, and printing of the Registration
Statement (including financial statements and exhibits) as originally filed and
of each amendment and supplement thereto and each Free Writing Prospectus, in
such number as MLV shall deem necessary, (ii) the printing and delivery to MLV
of this Agreement and such other documents as may be required in connection with
the offering, purchase, sale, issuance or delivery of the Placement Shares,
(iii) the preparation, issuance and delivery of the certificates, if any, for
the Placement Shares to MLV, including any stock or other transfer taxes and any
capital duties, stamp duties or other duties or taxes payable upon the sale,
issuance or delivery of the Placement Shares to MLV, (iv) the fees and
disbursements of the counsel, accountants and other advisors to the Company, (v)
the fees and expenses of the transfer agent and registrar for the Common Stock,
(vi) the filing fees incident to any review by FINRA of the terms of the sale of
the Placement Shares, and (vii) the fees and expenses incurred in connection
with the listing of the Placement Shares on the Exchange.
(b) If Placement Shares having aggregate proceeds of 1/2 of the Maximum
Amount or more have not been offered and sold under this Agreement by January 1,
2012 (or such earlier date at which the Company terminates this Agreement), and
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provided this Agreement has not been terminated pursuant to Section 13(c), the
Company shall reimburse MLV for its reasonable out-of-pocket expenses, including
the reasonable fees and disbursements of a counsel for MLV incurred by it in
connection with the transactions contemplated by this Agreement. The amount of
expenses reimbursable shall be calculated by multiplying a fraction, whereby the
numerator is one-half of the Maximum Amount less the number of Placement Shares
sold by January 1, 2012, and the denominator is one-half of the Maximum Amount,
times the total amount of out-of-pocket expenses.
(c) If this Agreement is terminated by MLV in accordance with the
provisions of Section 13(a)(1) hereof, the Company shall reimburse MLV for all
of its out-of-pocket expenses, including the reasonable fees and disbursements
of counsel for MLV (less any amounts paid under clause (b) above).
10. Conditions to MLV's Obligations. The obligations of MLV hereunder with
respect to a Placement will be subject to the continuing accuracy and
completeness of the representations and warranties made by the Company herein,
to the due performance by the Company of its obligations hereunder, to the
completion by MLV of a due diligence review satisfactory to it in its reasonable
judgment, and to the continuing satisfaction (or waiver by MLV in its sole
discretion) of the following additional conditions:
(a) Registration Statement Effective. The Registration Statement shall have
become effective and shall be available for the (i) resale of all Placement
Shares issued to MLV and not yet sold by MLV and (ii) sale of all Placement
Shares contemplated to be issued by any Placement Notice.
(b) No Material Notices. None of the following events shall have occurred
and be continuing: (i) receipt by the Company of any request for additional
information from the Commission or any other federal or state governmental
authority during the period of effectiveness of the Registration Statement, the
response to which would require any post-effective amendments or supplements to
the Registration Statement or the Prospectus; (ii) the issuance by the
Commission or any other federal or state governmental authority of any stop
order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose; (iii) receipt by the Company of
any notification with respect to the suspension of the qualification or
exemption from qualification of any of the Placement Shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; or (iv) the occurrence of any event that makes any material statement
made in the Registration Statement or the Prospectus or any material document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires the making of any changes in the Registration
Statement, the Prospectus or documents so that, in the case of the Registration
Statement, it will not contain any materially untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading and, that in the case of
the Prospectus, it will not contain any materially untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
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(c) No Misstatement or Material Omission. MLV shall not have advised the
Company that the Registration Statement or Prospectus, or any amendment or
supplement thereto, contains an untrue statement of fact that in MLV's
reasonable opinion is material, or omits to state a fact that in MLV's opinion
is material and is required to be stated therein or is necessary to make the
statements therein not misleading.
(d) Material Changes. Except as contemplated in the Prospectus, or
disclosed in the Company's reports filed with the Commission, there shall not
have been any material adverse change, on a consolidated basis, in the
authorized capital stock of the Company or any Material Adverse Effect, or any
development that could reasonably be expected to cause a Material Adverse
Effect, or a downgrading in or withdrawal of the rating assigned to any of the
Company's securities (other than asset backed securities) by any rating
organization or a public announcement by any rating organization that it has
under surveillance or review its rating of any of the Company's securities
(other than asset backed securities), the effect of which, in the case of any
such action by a rating organization described above, in the reasonable judgment
of MLV (without relieving the Company of any obligation or liability it may
otherwise have), is so material as to make it impracticable or inadvisable to
proceed with the offering of the Placement Shares on the terms and in the manner
contemplated in the Prospectus.
(e) Legal Opinion. MLV shall have received the opinions of Company Counsel
required to be delivered pursuant Section 7(m) on or before the date on which
such delivery of such opinions are required pursuant to Section 7(m).
(f) Comfort Letter. MLV shall have received the Comfort Letter required to
be delivered pursuant Section 7(n) on or before the date on which such delivery
of such letter is required pursuant to Section 7(n).
(g) Representation Certificate. MLV shall have received the certificate
required to be delivered pursuant to Section 7(l) on or before the date on which
delivery of such certificate is required pursuant to Section 7(l).
(h) No Suspension. Trading in the Common Stock shall not have been
suspended on the Exchange and the Common Stock shall not have been delisted from
the Exchange.
(i) Other Materials. On each date on which the Company is required to
deliver a certificate pursuant to Section 7(l), the Company shall have furnished
to MLV such appropriate further information, certificates and documents as MLV
may reasonably request. All such opinions, certificates, letters and other
documents will be in compliance with the provisions hereof. The Company will
furnish MLV with such conformed copies of such opinions, certificates, letters
and other documents as MLV shall reasonably request.
(j) Securities Act Filings Made. All filings with the Commission required
by Rule 424 under the Securities Act to have been filed prior to the issuance of
any Placement Notice hereunder shall have been made within the applicable time
period prescribed for such filing by Rule 424.
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(k) Approval for Listing. The Placement Shares shall either have been
approved for listing on the Exchange, subject only to notice of issuance, or the
Company shall have filed an application for listing of the Placement Shares on
the Exchange at, or prior to, the issuance of any Placement Notice.
(l) No Termination Event. There shall not have occurred any event that
would permit MLV to terminate this Agreement pursuant to Section 13(a).
11. Indemnification and Contribution.
(a) Company Indemnification. The Company agrees to indemnify and hold
harmless MLV, its partners, members, directors, officers, employees and agents
and each person, if any, who controls MLV within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, joint or several, arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement (or any amendment thereto), or the omission
or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading, or
arising out of any untrue statement or alleged untrue statement of a
material fact included in any related Issuer Free Writing Prospectus or the
Prospectus (or any amendment or supplement thereto), or the omission or
alleged omission therefrom of a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, joint or several, to the extent of the aggregate
amount paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened (or
of any claim whatsoever) based upon any such untrue statement or omission,
or any such alleged untrue statement or omission; provided that (subject to
Section 11(d) below) any such settlement is effected with the written
consent of the Company, which consent shall not unreasonably be delayed or
withheld; and
(iii) against any and all expense whatsoever, as incurred (including
the fees and disbursements of counsel), reasonably incurred in
investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced
or threatened, (or any claim whatsoever) based upon any such untrue
statement or omission, or any such alleged untrue statement or omission, to
the extent that any such expense is not paid under (i) or (ii) above,
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made solely in
reliance upon and in conformity with written information furnished to the
Company by MLV expressly for use in the Registration Statement (or any amendment
thereto), or in any related Issuer Free Writing Prospectus or the Prospectus (or
any amendment or supplement thereto).
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(b) MLV Indemnification. MLV agrees to indemnify and hold harmless the
Company and its directors and each officer of the Company who signed the
Registration Statement, and each person, if any, who (i) controls the Company
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act or (ii) is controlled by or is under common control with the
Company against any and all loss, liability, claim, damage and expense described
in the indemnity contained in Section 11(c), as incurred, but only with respect
to untrue statements or omissions, or alleged untrue statements or omissions,
made in the Registration Statement (or any amendments thereto) or the Prospectus
(or any amendment or supplement thereto) in reliance upon and in conformity with
information relating to MLV and furnished to the Company in writing by MLV
expressly for use therein.
(c) Procedure. Any party that proposes to assert the right to be
indemnified under this Section 11 will, promptly after receipt of notice of
commencement of any action against such party in respect of which a claim is to
be made against an indemnifying party or parties under this Section 11, notify
each such indemnifying party of the commencement of such action, enclosing a
copy of all papers served, but the omission so to notify such indemnifying party
will not relieve the indemnifying party from (i) any liability that it might
have to any indemnified party otherwise than under this Section 11 and (ii) any
liability that it may have to any indemnified party under the foregoing
provision of this Section 11 unless, and only to the extent that, such omission
results in the forfeiture of substantive rights or defenses by the indemnifying
party. If any such action is brought against any indemnified party and it
notifies the indemnifying party of its commencement, the indemnifying party will
be entitled to participate in and, to the extent that it elects by delivering
written notice to the indemnified party promptly after receiving notice of the
commencement of the action from the indemnified party, jointly with any other
indemnifying party similarly notified, to assume the defense of the action, with
counsel reasonably satisfactory to the indemnified party, and after notice from
the indemnifying party to the indemnified party of its election to assume the
defense, the indemnifying party will not be liable to the indemnified party for
any legal or other expenses except as provided below and except for the
reasonable costs of investigation incurred by the indemnified party in
connection with the defense. The indemnified party will have the right to employ
its own counsel in any such action, but the fees, expenses and other charges of
such counsel will be at the expense of such indemnified party unless (1) the
employment of counsel by the indemnified party has been authorized in writing by
the indemnifying party, (2) the indemnified party has reasonably concluded
(based on advice of counsel) that there may be legal defenses available to it or
other indemnified parties that are different from or in addition to those
available to the indemnifying party, (3) a conflict or potential conflict exists
(based on advice of counsel to the indemnified party) between the indemnified
party and the indemnifying party (in which case the indemnifying party will not
have the right to direct the defense of such action on behalf of the indemnified
party) or (4) the indemnifying party has not in fact employed counsel to assume
the defense of such action within a reasonable time after receiving notice of
the commencement of the action, in each of which cases the reasonable fees,
disbursements and other charges of counsel will be at the expense of the
indemnifying party or parties. It is understood that the indemnifying party or
parties shall not, in connection with any proceeding or related proceedings in
the same jurisdiction, be liable for the reasonable fees, disbursements and
other charges of more than one separate firm admitted to practice in such
jurisdiction at any one time for all such indemnified party or parties. All such
fees, disbursements and other charges will be reimbursed by the indemnifying
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party promptly after the indemnifying party receives a written invoice relating
to fees, disbursements and other charges in reasonable detail. An indemnifying
party will not, in any event, be liable for any settlement of any action or
claim effected without its written consent. No indemnifying party shall, without
the prior written consent of each indemnified party, settle or compromise or
consent to the entry of any judgment in any pending or threatened claim, action
or proceeding relating to the matters contemplated by this Section 11 (whether
or not any indemnified party is a party thereto), unless such settlement,
compromise or consent (1) includes an unconditional release of each indemnified
party from all liability arising out of such litigation, investigation,
proceeding or claim and (2) does not include a statement as to or an admission
of fault, culpability or a failure to act by or on behalf of any indemnified
party.
(d) Settlement Without Consent if Failure to Reimburse. If an indemnified
party shall have requested an indemnifying party to reimburse the indemnified
party for reasonable fees and expenses of counsel for which it is entitled to be
reimbursed under this Section 11, such indemnifying party agrees that it shall
be liable for any settlement of the nature contemplated by Section 11(a)(ii)
effected without its written consent if (1) such settlement is entered into more
than 45 days after receipt by such indemnifying party of the aforesaid request,
(2) such indemnifying party shall have received notice of the terms of such
settlement at least 30 days prior to such settlement being entered into and (3)
such indemnifying party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such settlement.
(e) Contribution. In order to provide for just and equitable contribution
in circumstances in which the indemnification provided for in the foregoing
paragraphs of this Section 11 is applicable in accordance with its terms but for
any reason is held to be unavailable from the Company or MLV, the Company and
MLV will contribute to the total losses, claims, liabilities, expenses and
damages (including any investigative, legal and other expenses reasonably
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claim asserted, but after deducting any contribution
received by the Company from persons other than MLV, such as persons who control
the Company within the meaning of the Securities Act, officers of the Company
who signed the Registration Statement and directors of the Company, who also may
be liable for contribution) to which the Company and MLV may be subject in such
proportion as shall be appropriate to reflect the relative benefits received by
the Company on the one hand and MLV on the other hand. The relative benefits
received by the Company on the one hand and MLV on the other hand shall be
deemed to be in the same proportion as the total net proceeds from the sale of
the Placement Shares (before deducting expenses) received by the Company bear to
the total compensation received by MLV (before deducting expenses) from the sale
of Placement Shares on behalf of the Company. If, but only if, the allocation
provided by the foregoing sentence is not permitted by applicable law, the
allocation of contribution shall be made in such proportion as is appropriate to
reflect not only the relative benefits referred to in the foregoing sentence but
also the relative fault of the Company, on the one hand, and MLV, on the other
hand, with respect to the statements or omission that resulted in such loss,
claim, liability, expense or damage, or action in respect thereof, as well as
any other relevant equitable considerations with respect to such offering. Such
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by the Company
or MLV, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and MLV agree that it would not be just and equitable if
contributions pursuant to this Section 11(e) were to be determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the loss, claim, liability, expense, or
damage, or action in respect thereof, referred to above in this Section 11(e)
shall be deemed to include, for the purpose of this Section 11(e), any legal or
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<PAGE>
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim to the extent consistent
with Section 11(c) hereof. Notwithstanding the foregoing provisions of this
Section 11(e), MLV shall not be required to contribute any amount in excess of
the commissions received by it under this Agreement and no person found guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) will be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 11(e),
any person who controls a party to this Agreement within the meaning of the
Securities Act, and any officers, directors, partners, employees or agents of
MLV, will have the same rights to contribution as that party, and each officer
and director of the Company who signed the Registration Statement will have the
same rights to contribution as the Company, subject in each case to the
provisions hereof. Any party entitled to contribution, promptly after receipt of
notice of commencement of any action against such party in respect of which a
claim for contribution may be made under this Section 11(e), will notify any
such party or parties from whom contribution may be sought, but the omission to
so notify will not relieve that party or parties from whom contribution may be
sought from any other obligation it or they may have under this Section 11(e)
except to the extent that the failure to so notify such other party materially
prejudiced the substantive rights or defenses of the party from whom
contribution is sought. Except for a settlement entered into pursuant to the
last sentence of Section 11(c) hereof, no party will be liable for contribution
with respect to any action or claim settled without its written consent if such
consent is required pursuant to Section 11(c) hereof.
12. Representations and Agreements to Survive Delivery. The indemnity and
contribution agreements contained in Section 11 of this Agreement and all
representations and warranties of the Company or MLV herein or in certificates
delivered pursuant hereto shall survive, as of their respective dates,
regardless of (i) any investigation made by or on behalf of MLV, any controlling
persons, or the Company (or any of their respective officers, directors or
controlling persons), (ii) delivery and acceptance of the Placement Shares and
payment therefor or (iii) any termination of this Agreement.
13. Termination.
(a) MLV may terminate this Agreement, by notice to the Company, as
hereinafter specified at any time (1) if there has been, since the time of
execution of this Agreement or since the date as of which information is given
in the Prospectus, any change, or any development or event involving a
prospective change, in the condition, financial or otherwise, or in the
business, properties, earnings, results of operations or prospects of the
Company and its Subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, which individually or in the
aggregate, in the sole judgment of MLV is material and adverse and makes it
impractical or inadvisable to market the Placement Shares or to enforce
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<PAGE>
contracts for the sale of the Placement Shares, (2) if there has occurred any
material adverse change in the financial markets in the United States or the
international financial markets, any outbreak of hostilities or escalation
thereof or other calamity or crisis or any change or development involving a
prospective change in national or international political, financial or economic
conditions, in each case the effect of which is such as to make it, in the
judgment of MLV, impracticable or inadvisable to market the Placement Shares or
to enforce contracts for the sale of the Placement Shares, (3) if trading in the
Common Stock has been suspended or limited by the Commission or the Exchange, or
if trading generally on the Exchange has been suspended or limited, or minimum
prices for trading have been fixed on the Exchange, (4) if any suspension of
trading of any securities of the Company on any exchange or in the
over-the-counter market shall have occurred and be continuing, (5) if a major
disruption of securities settlements or clearance services in the United States
shall have occurred and be continuing, or (6) if a banking moratorium has been
declared by either U.S. Federal or New York authorities. Any such termination
shall be without liability of any party to any other party except that the
provisions of Section 9 (Expenses), Section 11 (Indemnification), Section 12
(Survival of Representations), Section 18 (Applicable Law; Waiver of Jury Trial)
and Section 19 (Consent to Jurisdiction) hereof shall remain in full force and
effect notwithstanding such termination. If MLV elects to terminate this
Agreement as provided in this Section 13(a), MLV shall provide the required
notice as specified in Section 14 (Notices).
(b) The Company shall have the right, by giving ten (10) days notice as
hereinafter specified to terminate this Agreement in its sole discretion at any
time after the date of this Agreement. Any such termination shall be without
liability of any party to any other party except (i) with respect to any pending
sale through MLV for the Company, the obligations of the Company, including in
respect of compensation of MLV, shall remain in full force and effect
notwithstanding such termination and (ii) that the provisions of Section 9,
Section 11, Section 12, Section 18 and Section 19 hereof shall remain in full
force and effect notwithstanding such termination.
(c) MLV shall have the right, by giving ten (10) days notice as hereinafter
specified, to terminate this Agreement in its sole discretion at any time after
the date of this Agreement. Any such termination shall be without liability of
any party to any other party except, (i) with respect to any pending sale
through MLV for the Company, the obligations of MLV, including the remittance of
any sale proceeds received by MLV to the Company, shall remain in full force and
effect notwithstanding such termination, and (ii) that the provisions of Section
9, Section 11, Section 12, Section 18 and Section 19 hereof shall remain in full
force and effect notwithstanding such termination.
(d) Unless earlier terminated pursuant to this Section 13, this Agreement
shall automatically terminate upon the issuance and sale of all of the Placement
Shares through MLV on the terms and subject to the conditions set forth herein
except that the provisions of Section 9(a), Section 11, Section 11, Section 12,
Section 18 and Section 19 hereof shall remain in full force and effect
notwithstanding such termination.
(e) This Agreement shall remain in full force and effect unless terminated
pursuant to Sections 13(a), (b), (c), or (d) above or otherwise by mutual
agreement of the parties; provided, however, that any such termination by mutual
agreement shall in all cases be deemed to provide that Section 9(a), Section 11,
Section 12, Section 18 and Section 19 shall remain in full force and effect.
Upon termination of this Agreement, the Company shall not have any liability to
MLVs for any discount, commission or other compensation with respect to any
Shares not otherwise sold by MLVs under this Agreement.
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(f) Any termination of this Agreement shall be effective on the date
specified in such notice of termination; provided, however, that such
termination shall not be effective until the close of business on the date of
receipt of such notice by MLV or the Company, as the case may be. If such
termination shall occur prior to the Settlement Date for any sale of Placement
Shares, such Placement Shares shall settle in accordance with the provisions of
this Agreement.
14. Notices. All notices or other communications required or permitted to
be given by any party to any other party pursuant to the terms of this Agreement
shall be in writing, unless otherwise specified, and if sent to MLV, shall be
delivered to:
McNicoll, Lewis & Vlak LLC
420 Lexington Avenue
New York, NY 10017
Attention: General Counsel
Telephone: (212) 542-5870
Facsimile: (212) 317-1515
with a copy to:
LeClairRyan LLP
830 Third Avenue
New York, New York 10022
Attention: James T. Seery
Telephone: (973) 491-3315
Facsimile: (973) 491-3415
and if to the Company, shall be delivered to:
CEL-SCI Corporation
8229 Boone Blvd. #802
Vienna, Virginia 22182
Attention: Geert Kersten
Telephone: (703) 506-9460
Facsimile: (703) 506-9471
with a copy to:
Hart & Trinen, LLP
1624 Washington St.
Denver, CO 80203
Attention: William T. Hart
Telephone: (303)839-0061
Facsimile: (303) 839-5414
Each party to this Agreement may change such address for notices by sending
to the parties to this Agreement written notice of a new address for such
purpose. Each such notice or other communication shall be deemed given (i) when
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delivered personally or by verifiable facsimile transmission (with an original
to follow) on or before 4:30 p.m., New York City time, on a Business Day or, if
such day is not a Business Day, on the next succeeding Business Day, (ii) on the
next Business Day after timely delivery to a nationally-recognized overnight
courier and (iii) on the Business Day actually received if deposited in the U.S.
mail (certified or registered mail, return receipt requested, postage prepaid).
For purposes of this Agreement, "Business Day" shall mean any day on which the
Exchange and commercial banks in the City of New York are open for business.
An electronic communication ("Electronic Notice") shall be deemed written
notice for purposes of this Section 14 if sent to the electronic mail address
specified by the receiving party under separate cover. Electronic Notice shall
be deemed received at the time the party sending Electronic Notice receives
confirmation of receipt by the receiving party. Any party receiving Electronic
Notice may request and shall be entitled to receive the notice on paper, in a
nonelectronic form ("Nonelectronic Notice") which shall be sent to the
requesting party within ten (10) days of receipt of the written request for
Nonelectronic Notice.
15. Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the Company and MLV and their respective successors and the
affiliates, controlling persons, officers and directors referred to in Section
11 hereof. References to any of the parties contained in this Agreement shall be
deemed to include the successors and permitted assigns of such party. Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and permitted assigns any
rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement. Neither party may
assign its rights or obligations under this Agreement without the prior written
consent of the other party.
16. Adjustments for Stock Splits. The parties acknowledge and agree that
all share-related numbers contained in this Agreement shall be adjusted to take
into account any share consolidation, stock split, stock dividend, corporate
domestication or similar event effected with respect to the Placement Shares.
17. Entire Agreement; Amendment; Severability. This Agreement (including
all schedules and exhibits attached hereto and Placement Notices issued pursuant
hereto) constitutes the entire agreement and supersedes all other prior and
contemporaneous agreements and undertakings, both written and oral, among the
parties hereto with regard to the subject matter hereof. Neither this Agreement
nor any term hereof may be amended except pursuant to a written instrument
executed by the Company and MLV. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable as written by a court of competent
jurisdiction, then such provision shall be given full force and effect to the
fullest possible extent that it is valid, legal and enforceable, and the
remainder of the terms and provisions herein shall be construed as if such
invalid, illegal or unenforceable term or provision was not contained herein,
but only to the extent that giving effect to such provision and the remainder of
the terms and provisions hereof shall be in accordance with the intent of the
parties as reflected in this Agreement.
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18. GOVERNING LAW AND TIME; WAIVER OF JURY TRIAL. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS. SPECIFIED TIMES OF DAY
REFER TO NEW YORK CITY TIME. THE COMPANY HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY
IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
19. CONSENT TO JURISDICTION. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE
NON-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 WITH ANY TRANSACTION CONTEMPLATED HEREBY, AND HEREBY
IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING,
ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH
COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM
OR THAT THE VENUE OF SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH PARTY
HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS
BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF
(CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED) TO SUCH PARTY AT THE
ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH
SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE
THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT
TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.
20. Use of Information. MLV may not use any information gained in
connection with this Agreement and the transactions contemplated by this
Agreement, including due diligence, to advise any party with respect to
transactions not expressly approved by the Company.
21. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Delivery of an executed
Agreement by one party to the other may be made by facsimile transmission.
22. Effect of Headings.
The section and Exhibit headings herein are for convenience only and shall
not affect the construction hereof.
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23. Permitted Free Writing Prospectuses.
The Company represents, warrants and agrees that, unless it obtains the
prior consent of MLV, and MLV represents, warrants and agrees that, unless it
obtains the prior consent of the Company, it has not made and will not make any
offer relating to the Placement Shares that would constitute an Issuer Free
Writing Prospectus, or that would otherwise constitute a "free writing
prospectus," as defined in Rule 405, required to be filed with the Commission.
Any such free writing prospectus consented to by MLV or by the Company, as the
case may be, is hereinafter referred to as a "Permitted Free Writing
Prospectus." The Company represents and warrants that it has treated and agrees
that it will treat each Permitted Free Writing Prospectus as an "issuer free
writing prospectus," as defined in Rule 433, and has complied and will comply
with the requirements of Rule 433 applicable to any Permitted Free Writing
Prospectus, including timely filing with the Commission where required,
legending and record keeping.
24. Absence of Fiduciary Relationship.
The Company acknowledges and agrees that:
(a) MLV is acting solely as agent in connection with the public offering of
the Placement Shares and in connection with each transaction contemplated by
this Agreement and the process leading to such transactions, and no fiduciary or
advisory relationship between the Company or any of its respective affiliates,
stockholders (or other equity holders), creditors or employees or any other
party, on the one hand, and MLV, on the other hand, has been or will be created
in respect of any of the transactions contemplated by this Agreement,
irrespective of whether or not MLV has advised or is advising the Company on
other matters, and MLV has no obligation to the Company with respect to the
transactions contemplated by this Agreement except the obligations expressly set
forth in this Agreement;
(b) it is capable of evaluating and understanding, and understands and
accepts, the terms, risks and conditions of the transactions contemplated by
this Agreement;
(c) MLV has not provided any legal, accounting, regulatory or tax advice
with respect to the transactions contemplated by this Agreement and it has
consulted its own legal, accounting, regulatory and tax advisors to the extent
it has deemed appropriate;
(d) it is aware that MLV and its affiliates are engaged in a broad range of
transactions which may involve interests that differ from those of the Company
and MLV has no obligation to disclose such interests and transactions to the
Company by virtue of any fiduciary, advisory or agency relationship or
otherwise; and
(e) it waives, to the fullest extent permitted by law, any claims it may
have against MLV for breach of fiduciary duty or alleged breach of fiduciary
duty in connection with the sale of Placement Shares under this Agreement and
agrees that MLV shall not have any liability (whether direct or indirect, in
contract, tort or otherwise) to it in respect of such a fiduciary duty claim or
to any person asserting a fiduciary duty claim on its behalf or in right of it
or the Company, employees or creditors of Company, other than in respect of
MLV's obligations under this Agreement and to keep information provided by the
Company to MLV and MLV's counsel confidential to the extent not otherwise
publicly-available.
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25. Definitions.
As used in this Agreement, the following terms have the respective
meanings set forth below:
"Applicable Time" means (i) each Representation Date and (ii) the time of
each sale of any Placement Shares pursuant to this Agreement.
"Issuer Free Writing Prospectus" means any "issuer free writing
prospectus," as defined in Rule 433, relating to the Placement Shares that (1)
is required to be filed with the Commission by the Company, (2) is a "road show"
that is a "written communication" within the meaning of Rule 433(d)(8)(i)
whether or not required to be filed with the Commission, or (3) is exempt from
filing pursuant to Rule 433(d)(5)(i) because it contains a description of the
Placement Shares or of the offering that does not reflect the final terms, in
each case in the form filed or required to be filed with the Commission or, if
not required to be filed, in the form retained in the Company's records pursuant
to Rule 433(g) under the Securities Act Regulations.
"Rule 163," "Rule 164," "Rule 172," "Rule 405," "Rule 415," "Rule 424,"
"Rule 424(b)," "Rule 430B," and "Rule 433" refer to such rules under the
Securities Act Regulations.
All references in this Agreement to financial statements and schedules and
other information that is "contained," "included" or "stated" in the
Registration Statement or the Prospectus (and all other references of like
import) shall be deemed to mean and include all such financial statements and
schedules and other information that is incorporated by reference in the
Registration Statement or the Prospectus, as the case may be.
All references in this Agreement to the Registration Statement, the
Prospectus or any amendment or supplement to any of the foregoing shall be
deemed to include the copy filed with the Commission pursuant to EDGAR; all
references in this Agreement to any Issuer Free Writing Prospectus (other than
any Issuer Free Writing Prospectuses that, pursuant to Rule 433, are not
required to be filed with the Commission) shall be deemed to include the copy
thereof filed with the Commission pursuant to EDGAR; and all references in this
Agreement to "supplements" to the Prospectus shall include, without limitation,
any supplements, "wrappers" or similar materials prepared in connection with any
offering, sale or private placement of any Placement Shares by MLV outside of
the United States.
36
<PAGE>
If the foregoing correctly sets forth the understanding between the
Company and MLV, please so indicate in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement between the
Company and MLV.
Very truly yours,
CEL-SCI CORPORATION
By: /s/ Geert Kersten
--------------------------------------
Name: Geert Kersten
Title: Chief Executive Officer
ACCEPTED as of the date first-above
written:
MCNICOLL, LEWIS & VLAK LLC
By: /s/ Patrice McNicoll
---------------------------------------
Name: Patrice McNicoll
Title: Chief Executive Officer
37
<PAGE>
SCHEDULE 1
---------------------------------
FORM OF PLACEMENT NOTICE
---------------------------------
From: CEL-SCI Corporation
To: McNicoll, Lewis & Vlak LLC
Attention: Patrice McNicoll
Subject: At Market Issuance--Placement Notice
Gentlemen:
Pursuant to the terms and subject to the conditions contained in the At
Market Issuance Sales Agreement between CEL-SCI Corporation, a Delaware
corporation (the "Company") and McNicoll, Lewis & Vlak LLC ("MLV"), dated
December 10, 2010, the Company hereby requests that MLV sell up to ____________
of the Company's Common Stock, no par value per share, at a minimum market price
of $_______ per share, during the time period beginning [month, day, time] and
ending [month, day, time].
<PAGE>
SCHEDULE 2
--------------------------
Compensation
--------------------------
The Company shall pay to MLV in cash, upon each sale of Placement Shares
pursuant to this Agreement, an amount equal to the greater of (a) 3.0% of the
gross proceeds from each sale of Placement Shares or (b) $0.025 per Placement
Share sold hereunder; provided, that, in no event shall MLV receive greater than
8.0% of gross proceeds.
<PAGE>
SCHEDULE 3
--------------------------
Notice Parties
--------------------------
The Company
Geert Kersten
Patricia Prichep
MLV
Randy Billhardt
Ryan Loforte
Patrice McNicoll
<PAGE>
SCHEDULE 4
--------------------------
Subsidiaries
--------------------------
Viral Technologies, Inc.
<PAGE>
EXHIBIT 7(l)
Form of Representation Date Certificate
This Officers Certificate (this "Certificate") is executed and delivered in
connection with Section 7(l) of the At Market Issuance Sales Agreement (the
"Agreement"), dated December 10, 2010, and entered into between CEL-SCI
Corporation (the "Company") and McNicoll, Lewis & Vlak LLC. All capitalized
terms used but not defined herein shall have the meanings given to such terms in
the Agreement.
The undersigned, a duly appointed and authorized officer of the Company,
having made reasonable inquiries to establish the accuracy of the statements
below and having been authorized by the Company to execute this certificate on
behalf of the Company, hereby certifies as follows:
1. As of the date of this Certificate, (i) the Registration Statement does
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
therein not misleading and (ii) neither the Registration Statement nor the
Prospectus contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading and (iii) no event has occurred as a result of which it is
necessary to amend or supplement the Prospectus in order to make the statements
therein not untrue or misleading for (i) and (ii) to be true.
2. Each of the representations and warranties of the Company contained in
the Agreement were, when originally made, and are, as of the date of this
Certificate, true and correct in all material respects.
3. Except as waived by MLV in writing, each of the covenants required to
be performed by the Company in the Agreement on or prior to the date of the
Agreement, this Representation Date, and each such other date prior to the date
hereof as set forth in the Agreement, has been duly, timely and fully performed
in all material respects and each condition required to be complied with by the
Company on or prior to the date of the Agreement, this Representation Date, and
each such other date prior to the date hereof as set forth in the Agreement has
been duly, timely and fully complied with in all material respects.
4. Subsequent to the date of the most recent financial statements in the
Prospectus, and except as described in the Prospectus, including Incorporated
Documents, there has been no material adverse change.
5. No stop order suspending the effectiveness of the Registration
Statement or of any part thereof has been issued, and no proceedings for that
purpose have been instituted or are pending or threatened by any securities or
other governmental authority (including, without limitation, the Commission).
38
<PAGE>
6. No order suspending the effectiveness of the Registration Statement or
the qualification or registration of the Placement Shares under the securities
or Blue Sky laws of any jurisdiction are in effect and no proceeding for such
purpose is pending before, or threatened, to the Company's knowledge or in
writing by, any securities or other governmental authority (including, without
limitation, the Commission).
The undersigned has executed this Officer's Certificate as of the date
first written above.
CEL-SCI CORPORATION
By:
Name: _______________________________
Title: _______________________________
<PAGE>
EXHIBIT 7(m)
1. The Company is a corporation duly formed and validly existing in good
standing under the laws of the State of Colorado.
2. The Company has the corporate power to own its properties and engage in its
business as described in the Registration Statement and the Prospectus
Supplement.
3. The issuance and sale by the Company of the Placement Shares will not violate
the Company's articles of incorporation or by-laws.
4. The execution and delivery by the Company of, and the performance by the
Company of its obligations under the Sales Agreement has been duly authorized by
all necessary corporate action on the part of the Company.
5. No authorization or consent of or notice to any governmental authority is
required in connection with the issue and sale of the Placement Shares.
6. There are no pre-emptive or other rights to subscribe for or purchase, or any
restriction on the voting or transfer of, the common shares of the Company
pursuant to the Company's certificate and articles of incorporation or by-laws,
except for the provision in the Company's by-laws that provides that the Company
may refuse to register a transfer of all or part of the shares held by a
shareholder where that shareholder has defaulted in the payment of any interest
and/or principal due in respect of any indebtedness owing by such shareholder to
the Company when same becomes due and payable and continues in such default for
a period of 30 days after notice in writing thereof has been given by the
Company to such shareholder.
7. The Placement Shares have been validly created and allotted and, when issued
to the Purchasers in accordance with the terms of the Sales Agreement, will be
validly issued and outstanding as fully paid and non-assessable common shares of
the Company.
8. The Company is duly qualified to do business as a foreign corporation in each
jurisdiction in which the Company owns any material property or conducts any
material business or in which the failure to be qualified as a foreign
corporation would have a Material Adverse Effect.
39
<PAGE>
9. The issuance and sale by the Company of the Placement Shares will not (i)
breach or result in a default by the Company under any agreement included as an
exhibit to the Registration Statement or as an exhibit to any report filed by
the Company with the Commission pursuant to the Securities and Exchange Act 1934
(the "Exchange Act") and expressly incorporated by reference into the
Registration Statement; or (ii) violate any applicable U.S. statute, law, rule
or regulation, or any decree, judgment or order specifically naming the Company
(other than state and foreign securities or blue sky laws of the various
jurisdictions in which the Placement Shares may be offered) except in the case
of clause (ii) for such violations that individually or in the aggregate could
not be reasonably expected to have a Material Adverse Effect.
10. To our knowledge, there is no indenture, contract, lease, mortgage, deed of
trust, note agreement, loan or other agreement or instrument of a character
required to be filed as an exhibit to the Registration Statement, which is not
filed as required by the Securities Act and the rules and regulations
thereunder.
11. No approval, authorization or other action by or filing with any
governmental authority is required on the part of the Company to permit the
Company to issue and sell the Placement Shares, except for such as have been
duly obtained or made or as may be required under the Securities Act, the
Exchange Act, blue sky laws of any state, the NYSE Amex rules, or the rules and
regulations of the Financial Industry Regulatory Authority ("FINRA").
12. To our knowledge, except as described in the Registration Statement, the
Prospectus Supplement or the Incorporated Documents, including the exhibits
filed in connection therewith, there are no persons with registration rights or
other similar rights to have any securities of the Company registered pursuant
to the Registration Statement.
13. The Registration Statement, Base Prospectus and the Prospectus Supplement
(other than the financial statements and schedules and other financial data
included or incorporated by reference therein, as to which we express no
opinion), as of their respective effective and issue dates, complied as to form
in all material respects with the requirements of the Securities Act of 1933, as
amended, and the rules and regulations of the Commission thereunder.
14. Each Transaction Document executed by the Company constitutes the valid and
binding agreement of the Company, enforceable against the Company in accordance
with its terms.
15. The Company is not subject to regulation as an "investment company" under
the Investment Company Act of 1940, as amended.
16. [Intellectual Property/FDA opinions - subject to due diligence review]
The opinion of counsel will be accompanied by a negative assurances
letter.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>8
<FILENAME>sept10kexh23112-10.txt
<DESCRIPTION>EXHIBIT 21.1
<TEXT>
EXHIBIT 23.1
<PAGE>
Consent of Independent Registered Public Accounting Firm
CEL-SCI Corporation
Vienna, Virginia
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-03750, 333-27579, 333-57649, 333-90775,
333-31652, 333-69678, 333-84756, 333-117088, 333-140792 and 333-162265) and the
Registration Statements on Form S-3 (Nos. 333-111357, 333-111332, 333-144522,
333-151667, 333-160181, 333-160794, 333-161504, 333-162039 and 333-162792) of
CEL-SCI Corporation of our reports dated December 10, 2010, relating to the
consolidated financial statements, and the effectiveness of CEL-SCI
Corporation's internal control over financial reporting, which appear in this
Form 10-K.
/s/ BDO USA, LLP
-----------------
Bethesda, Maryland
December 10, 2010
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>9
<FILENAME>sept10kexh23212-10.txt
<DESCRIPTION>EXHIBIT 21.2
<TEXT>
EXHIBIT 23.2
<PAGE>
CONSENT OF ATTORNEYS
Reference is made to the Registration Statement of CEL-SCI Corporation, File
#333-160794, whereby the Company proposes to sell shares of its common stock
from time-to-time at prevailing market prices. Reference is also made to Exhibit
5 included as part of this report, and included by reference as an exhibit to
the Registration Statement, relating to the validity of the securities proposed
to be issued and sold.
We hereby consent to the use of our opinion concerning the validity of the
securities proposed to be issued and sold.
HART & TRINEN
/s/ William T. Hart
September 10, 2010
Cel-Sci Exh 23 Atty consent 12-8-10
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>10
<FILENAME>sept10kexh3112-10.txt
<DESCRIPTION>EXHIBIT 31
<TEXT>
EXHIBIT 31
<PAGE>
CERTIFICATIONS
I, Geert Kersten, of CEL-SCI Corporation, certify that:
1. I have reviewed this annual report on Form 10-K of CEL-SCI Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15 and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or cause such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of the internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have significant role in the registrant's internal control over
financial reporting.
December 10, 2010 By: /s/ Geert Kersten
----------------------------------
Geert R. Kersten
Chief Executive Officer
<PAGE>
CERTIFICATIONS
I, Geert Kersten, of CEL-SCI Corporation, certify that:
1. I have reviewed this annual report on Form 10-K of CEL-SCI Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15 and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or cause such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of the internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have significant role in the registrant's internal control over
financial reporting.
December 10, 2010 By: /s/ Geert Kersten
----------------------------------
Geert R. Kersten
Principal Accounting and Financial
Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>11
<FILENAME>sept10kexh3212-10.txt
<DESCRIPTION>EXHIBIT 32
<TEXT>
EXHIBIT 32
<PAGE>
In connection with the Annual Report of CEL-SCI Corporation (the
"Company") on Form 10-K for the period ending September 30, 2010 as filed with
the Securities and Exchange Commission (the "Report"), Geert Kersten, the Chief
Executive and Principal Financial Officer of the Company, certifies, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects the financial condition and results of the Company.
December 10, 2010 By: /s/ Geert Kersten
----------------------------------
Geert Kersten, Chief Executive and
Principal Financial Officer
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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