-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GpnLA27Z3TNRB5ChkP53M61dg4JLRizwu/JuLFDdcuFsry83KAFoVcRnSz0c9oST met/qtrCht3stvpQDIw8ew== 0001004878-01-500009.txt : 20010501 0001004878-01-500009.hdr.sgml : 20010501 ACCESSION NUMBER: 0001004878-01-500009 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20010430 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: S-1 SEC ACT: SEC FILE NUMBER: 333-59798 FILM NUMBER: 1615836 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 EX-5 1 exh5.txt July 17, 2000 CEL-SCI Corporation 8229 Boone Blvd., #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 having a maximum value of $10,000,000 all as referred to in the Registration Statement on Form S-3 filed by CEL-SCI with the Securities and Exchange Commission. We have examined the Articles of Incorporation, the Bylaws and the minutes of the Board of Directors of CEL-SCI and 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 stock which are the subject of this registration statement and such shares, when issued, will represent fully paid and non-assessable shares of CEL-SCI's common stock. Very truly yours, HART & TRINEN William T. Hart EX-10 2 ex10q.txt COMMON STOCK PURCHASE AGREEMENT COMMON STOCK PURCHASE AGREEMENT This COMMON STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of April 11, 2001 by and between CEL-SCI Corporation, a Colorado corporation (the "Company"), and Paul Revere Capital Partners, Ltd. (the "Purchaser"), a British Virgin Islands corporation. WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Company shall issue and sell to Purchaser from time to time as provided herein, and Purchaser shall purchase, up to $10,000,000 of Common Stock and the Warrant; and WHEREAS, such investments will be made by the Purchaser as statutory underwriter of a registered indirect primary offering of such Common Stock by the Company. NOW, THEREFORE, in consideration of the foregoing premises, and the promises and covenants herein contained, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties, intending to be legally bound, hereby agree as follows: Article 1 PURCHASE AND SALE OF COMMON STOCK Section 1.1. Purchase and Sale of Stock. Subject to the terms and conditions of this Agreement, the Company may sell and issue to the Purchaser and the Purchaser shall be obligated to purchase from the Company, up to an aggregate of, $10,000,000 of the Common Stock and the Warrant, based on up to 24 Draw Downs of up to $2,000,000 each, subject to the terms herein. Section 1.2. Purchase Price and Initial Closing. The Company agrees to issue and sell to the Purchaser and, in consideration of and in express reliance upon the representations, warranties, covenants, terms and conditions of this Agreement, the Purchaser agrees to purchase that number of the Shares to be issued in connection with each Draw Down. The delivery of executed documents under this Agreement and the other agreements referred to herein and the payment of the fees set forth in Article I of the Escrow Agreement, attached as Exhibit B hereto, (the "Initial Closing") shall take place at the offices of Epstein Becker & Green, P.C., 250 Park Avenue, New York, New York 10177 (i) within fifteen (15) days from the date hereof, or (ii) such other time and place or on such date as the Purchaser and the Company may agree upon (the "Initial Closing Date"). Each party shall deliver all documents, instruments and writings required to be delivered by such party pursuant to this Agreement at or prior to the Initial Closing. Article 2 REPRESENTATIONS AND WARRANTIES Section 2.1. Representation and Warranties of the Company. The Company hereby makes the following representations and warranties to the Purchaser: (a) Organization, Good Standing and Power. The Company is a corporation duly incorporated validly existing and in good standing under the laws of the State of Colorado and has all requisite corporate authority to own, lease and operate its properties and assets and to carry on its business as now being conducted. The Company does not have any subsidiaries and does not own more than fifty percent (50%) of or control any other business entity except as set forth in the SEC Documents. The Company is duly qualified to do business and is in good standing as a foreign corporation in every jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, other than those in which the failure so to qualify would not have a Material Adverse Effect. (b) Authorization, Enforcement. (i) The Company has the requisite corporate power and corporate authority to enter into and perform its obligations under the Transaction Documents and to issue the Draw Down Shares pursuant to their respective terms, (ii) the execution and delivery of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action and no further consent or authorization of the Company or its Board of Directors or stockholders is required, and (iii) the Transaction Documents have been duly executed and delivered by the Company and at the Initial Closing shall constitute valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, conservatorship, receivership or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application. The Company has duly and validly authorized and reserved for issuance shares of Common Stock sufficient in number for the issuance of the Draw Down Shares. (c) Capitalization. The authorized capital stock of the Company consists of 100,000,000 shares of Common Stock of which 21,116,543 shares are issued and outstanding and no shares of preferred stock of which none are issued and outstanding. All of the outstanding shares of the Company's Common Stock have been duly and validly authorized and are fully paid and non-assessable, except as set forth in the SEC Documents. Except as set forth in this Agreement and the Registration Rights Agreement and as set forth in the SEC Documents, or on Schedule 2.1(c) hereto, no shares of Common Stock are entitled to preemptive rights or registration rights and there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company. Furthermore, except as set forth in this Agreement and as set forth in the SEC Documents or on Schedule 2.1(c), there are no contracts, commitments, understandings, or arrangements by which the Company is or may become bound to issue additional shares of the capital stock of the Company or options, securities or rights convertible into shares of capital stock of the Company. Except as set forth on Schedule 2.1(c), the Company is not a party to any agreement granting registration rights to any person with respect to any of its equity or debt securities. Except as set forth on Schedule 2.1(c), the Company is not a party to, and it has no knowledge of, any agreement restricting the voting or transfer of any shares of the capital stock of the Company. Except as set forth in the SEC Documents or on Schedule 2.1(c) hereto, the offer and sale of all capital stock, convertible securities, rights, warrants, or options of the Company issued prior to the Initial Closing complied with all applicable federal and state securities laws, and no stockholder has a right of rescission or damages with respect thereto which would have a Material Adverse Effect. The Company has made available to the Purchaser true and correct copies of the Company's articles or certificate of incorporation as in effect on the date hereof (the "Charter"), and the Company's bylaws as in effect on the date hereof (the "Bylaws"). The Company has not received any notice from the Principal Market questioning or threatening the continued inclusion of the Common Stock on such market. (d) Issuance of Shares. The Warrant Shares to be issued under this Agreement have been duly authorized by all necessary corporate action and, when paid for and issued in accordance with the terms hereof and the Warrant, the Warrant Shares shall be validly issued and outstanding, fully paid and non-assessable, and the Purchaser shall be entitled to all rights accorded to a holder of Common Stock. (e) No Conflicts. Except as set forth on Schedule 2.1(e), the execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated herein do not and will not (i) violate any provision of the Company's Charter or Bylaws, (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, mortgage, deed of trust, indenture, note, bond, license, lease agreement, instrument or obligation to which the Company is a party, (iii) create or impose a lien, charge or encumbrance on any property of the Company under any agreement or any commitment to which the Company is a party or by which the Company is bound or by which any of its respective properties or assets are bound, or (iv) result in a violation of any federal, state, local or other foreign statute, rule, regulation, order, judgment or decree (including any federal or state securities laws and regulations) applicable to the Company or any of its subsidiaries or by which any property or asset of the Company or any of its subsidiaries are bound or affected, except, in all cases, for such conflicts, defaults, termination, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect. The business of the Company and its subsidiaries is not being conducted in violation of any laws, ordinances or regulations of any governmental entity, except for possible violations which singularly or in the aggregate do not and will not have a Material Adverse Effect. The Company is not required under any federal, state or local law, rule or regulation to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under this Agreement, or issue and sell the Shares in accordance with the terms hereof (other than any filings which may be required to be made by the Company with the SEC or state securities administrators subsequent to the Initial Closing and any registration statement which may be filed pursuant hereto); provided, however, that for purpose of the representation made in this sentence, the Company is assuming and relying upon the accuracy of the relevant representations and agreements of the Purchaser herein. (f) SEC Documents, Financial Statements. The Common Stock of the Company is registered pursuant to Section 12(g) of the Exchange Act, and, except as disclosed in the SEC Documents or on Schedule 2.1(f) hereto, the Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Exchange Act, including material filed pursuant to Section 13(a) or 15(d) of the Exchange Act (all of the foregoing including filings incorporated by reference therein being referred to herein as the "SEC Documents"). The Company has delivered or made available to the Purchaser, through the EDGAR system or otherwise, true and complete copies of the SEC Documents filed with the SEC since December 31, 1998. The Company has not provided to the Purchaser any information which, according to applicable law, rule or regulation, should have been disclosed publicly by the Company but which has not been so disclosed, other than with respect to the transactions contemplated by this Agreement. As of their respective filing dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act or the Securities Act, as applicable, and the rules and regulations of the SEC promulgated thereunder applicable to such documents, and, as of their respective filing dates, none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Documents comply as to form in all material respects with applicable accounting requirements under GAAP and the published rules and regulations of the SEC or other applicable rules and regulations with respect thereto. Such financial statements have been prepared in accordance with GAAP applied on a consistent basis during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto or (ii) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements), and fairly present in all material respects the financial position of the Company and its subsidiaries as of the dates thereof and the results of operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). (g) Subsidiaries. The SEC Documents or Schedule 2.1(g) hereto sets forth each subsidiary of the Company, showing the jurisdiction of its incorporation or organization and showing the percentage of the Company's ownership of the outstanding stock or other interests of such subsidiary. For the purposes of this Agreement, "subsidiary" shall mean any corporation or other entity of which at least a majority of the securities or other ownership interests having ordinary voting power (absolutely or contingently) for the election of directors or other persons performing similar functions are at the time owned directly or indirectly by the Company and/or any of its other subsidiaries. All of the issued and outstanding shares of capital stock of each subsidiary have been duly authorized and validly issued, and are fully paid and non-assessable. There are no outstanding preemptive, conversion or other rights, options, warrants or agreements granted or issued by or binding upon any subsidiary for the purchase or acquisition of any shares of capital stock of any subsidiary or any other securities convertible into, exchangeable for or evidencing the rights to subscribe for any shares of such capital stock. Neither the Company nor any subsidiary is subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of the capital stock of any subsidiary or any convertible securities, rights, warrants or options of the type described in the preceding sentence. Neither the Company nor any subsidiary is a party to, nor has any knowledge of, any agreement restricting the voting or transfer of any shares of the capital stock of any subsidiary. (h) No Material Adverse Effect. Since the date of the financial statement contained in the most recently filed Form 10-Q (or 10-QSB) or Form 10-K (or 10-KSB), whichever is most current, no Material Adverse Effect has occurred or exists with respect to the Company, except as disclosed in the SEC Documents or on Schedule 2.1(h) hereto. (i) No Undisclosed Liabilities. Except as disclosed in the SEC Documents or on Schedule 2.1(i) hereto, neither the Company nor any of its subsidiaries has any liabilities, obligations, claims or losses (whether liquidated or unliquidated, secured or unsecured, absolute, accrued, contingent or otherwise) that would be required to be disclosed on a balance sheet of the Company or any subsidiary (including the notes thereto) in conformity with GAAP which are not disclosed in the SEC Documents, other than those incurred in the ordinary course of the Company's or its subsidiaries' respective businesses since such date and which, individually or in the aggregate, do not or would not have a Material Adverse Effect on the Company or its subsidiaries. (j) No Undisclosed Events or Circumstances. Since the date of the financial statement contained in the most recently filed Form 10- Q (or 10-QSB) or Form 10-K (or 10-KSB), whichever is most current, no event or circumstance has occurred or exists with respect to the Company or its businesses, properties, prospects, operations or financial condition, that, under applicable law, rule or regulation, requires public disclosure or announcement prior to the date hereof by the Company but which has not been so publicly announced or disclosed in the SEC Documents. (k) Indebtedness. The SEC Documents or Schedule 2.1(k) hereto sets forth as of the date hereof all outstanding secured and unsecured Indebtedness of the Company or any subsidiary, or for which the Company or any subsidiary has commitments. For the purposes of this Agreement, "Indebtedness" shall mean (A) any liabilities for borrowed money or amounts owed in excess of $250,000 (other than trade accounts payable incurred in the ordinary course of business), (B) all guaranties, endorsements and contingent obligations in respect of Indebtedness of others, whether or not the same are or should be reflected in the Company's balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (C) the present value of any lease payments in excess of $250,000 due under leases required to be capitalized in accordance with GAAP. Neither the Company nor any subsidiary is in default with respect to any Indebtedness. (l) Title to Assets. Each of the Company and the subsidiaries has good and marketable title to all of its real and personal property reflected in the SEC Documents, free of any mortgages, pledges, charges, liens, security interests or other encumbrances, except for those indicated in the SEC Documents or on Schedule 2.1(1) hereto or such that do not cause a Material Adverse Effect. All said leases of the Company and each of its subsidiaries are valid and subsisting and in full force and effect. (m) Actions Pending. There is no action, suit, claim, investigation or proceeding pending or, to the knowledge of the Company, threatened against the Company or any subsidiary which questions the validity of this Agreement or the transactions contemplated hereby or any action taken or to be taken pursuant hereto or thereto. Except as set forth in the SEC Documents or on Schedule 2.1(m) hereto, there is no action, suit, claim, investigation or proceeding pending or, to the knowledge of the Company, threatened, against or involving the Company, any subsidiary or any of their respective properties or assets. There are no outstanding orders, judgments, injunctions, awards or decrees of any court, arbitrator or governmental or regulatory body against the Company or any subsidiary. (n) Compliance with Law. The Company and each of its subsidiaries have all franchises, permits, licenses, consents and other governmental or regulatory authorizations and approvals necessary for the conduct of their respective businesses as now being conducted by them unless the failure to possess such franchises, permits, licenses, consents and other governmental or regulatory authorizations and approvals, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. (o) Taxes. The Company and each subsidiary has filed all Tax Returns which it is required to file under applicable laws; all such Tax Returns are true and accurate and have been prepared in compliance with all applicable laws; the Company has paid all Taxes due and owing by it or any subsidiary (whether or not such Taxes are required to be shown on a Tax Return) and has withheld and paid over to the appropriate taxing authorities all Taxes which it is required to withhold from amounts paid or owing to any employee, stockholder, creditor or other third parties; and since December 31, 1999, the charges, accruals and reserves for Taxes with respect to the Company (including any provisions for deferred income taxes) reflected on the books of the Company are adequate to cover any Tax liabilities of the Company if its current tax year were treated as ending on the date hereof. No claim has been made by a taxing authority in a jurisdiction where the Company does not file tax returns that the Company or any subsidiary is or may be subject to taxation by that jurisdiction. There are no foreign, federal, state or local tax audits or administrative or judicial proceedings pending or being conducted with respect to the Company or any subsidiary; no information related to Tax matters has been requested by any foreign, federal, state or local taxing authority; and, except as disclosed above, no written notice indicating an intent to open an audit or other review has been received by the Company or any subsidiary from any foreign, federal, state or local taxing authority. There are no material unresolved questions or claims concerning the Company's Tax liability. The Company (A) has not executed or entered into a closing agreement pursuant to ss. 7121 of the Internal Revenue Code or any predecessor provision thereof or any similar provision of state, local or foreign law; and (B) has not agreed to or is required to make any adjustments pursuant to ss. 481 (a) of the Internal Revenue Code or any similar provision of state, local or foreign law by reason of a change in accounting method initiated by the Company or any of its subsidiaries or has any knowledge that the IRS has proposed any such adjustment or change in accounting method, or has any application pending with any taxing authority requesting permission for any changes in accounting methods that relate to the business or operations of the Company. The Company has not been a United States real property holding corporation within the meaning of ss. 897(c)(2) of the Internal Revenue Code during the applicable period specified in ss. 897(c)(1)(A)(ii) of the Internal Revenue Code. The Company has not made an election under ss. 341(f) of the Internal Revenue Code. The Company is not liable for the Taxes of another person that is not a subsidiary of the Company under (A) Treas. Reg. ss. 1.1502-6 (or comparable provisions of state, local or foreign law), (B) as a transferee or successor, (C) by contract or indemnity or (D) otherwise. The Company is not a party to any tax sharing agreement. The Company has not made any payments, is not obligated to make payments nor is it a party to an agreement that could obligate it to make any payments that would not be deductible under ss. 280G of the Internal Revenue Code. For purposes of this Section 2.1(o): "IRS" means the United States Internal Revenue Service. --- "Tax" or "Taxes" means federal, state, county, local, foreign, or other income, gross receipts, ad valorem, franchise, profits, sales or use, transfer, registration, excise, utility, environmental, communications, real or personal property, capital stock, license, payroll, wage or other withholding, employment, social security, severance, stamp, occupation, alternative or add-on minimum, estimated and other taxes of any kind whatsoever (including, without limitation, deficiencies, penalties, additions to tax, and interest attributable thereto) whether disputed or not. "Tax Return" means any return, information report or filing with respect to Taxes, including any schedules attached thereto and including any amendment thereof. (p) Certain Fees. Except as set forth on Schedule 2.1(p) hereto, no brokers, finders or financial advisory fees or commissions will be payable by the Company or any subsidiary with respect to the transactions contemplated by this Agreement. (q) Disclosure. To the best of the Company's knowledge, neither this Agreement or the Schedules hereto nor any other documents, certificates or instruments furnished to the Purchaser by or on behalf of the Company or any subsidiary in connection with the transactions contemplated by this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made herein or therein, in the light of the circumstances under which they were made herein or therein, not misleading. (r) Operation of Business. The Company and each of the subsidiaries owns or possesses all patents, trademarks, service marks, trade names, copyrights, licenses and authorizations as set forth in the SEC Documents or on Schedule 2.1(r) hereto, and all rights with respect to the foregoing, which are necessary for the conduct of its business as now conducted without any conflict with the rights of others. (s) Insurance. Except as disclosed in the SEC Documents or on Schedule 2.1(s) hereto, the Company carries or will have the benefit of insurance in such amounts and covering such risks as is adequate for the conduct of its business and the value of its properties and as is customary for companies engaging in similar businesses and similar industries. (t) Books and Records. The records and documents of the Company and its subsidiaries accurately reflect in all material respects the information relating to the business of the Company and the subsidiaries, the location and collection of their assets, and the nature of all transactions giving rise to the obligations or accounts receivable of the Company or any subsidiary. (u) Material Agreements. Except as set forth in the SEC Documents, or on Schedule 2.1(u) hereto, neither the Company nor any subsidiary is a party to any written or oral contract, instrument, agreement, commitment, obligation, plan or arrangement, a copy of which would be required to be filed with the SEC as an exhibit to a registration statement on Form S-1 or other applicable form (collectively, "Material Agreements") if the Company or any subsidiary were registering securities under the Securities Act. Except as set forth on Schedule 2.1(u), the Company and each of its subsidiaries has in all material respects performed all the obligations required to be performed by them to date under the foregoing agreements, have received no notice of default and, to the best of the Company's knowledge are not in default under any Material Agreement now in effect, the result of which could cause a Material Adverse Effect. Except as set forth in the SEC Documents, no written or oral contract, instrument, agreement, commitment, obligation, plan or arrangement of the Company or of any subsidiary limits or shall limit the payment of dividends on the Company's Common Stock. (v) Transactions with Affiliates. Except as set forth in the SEC Documents or on Schedule 2.1(v) hereto, there are no loans, leases, agreements, contracts, royalty agreements, management contracts or arrangements or other continuing transactions exceeding $100,000 between (A) the Company, any subsidiary or any of their respective customers or suppliers on the one hand, and (B) on the other hand, any officer, employee, consultant or director of the Company, or any of its subsidiaries, or any person owning 5% or more of the capital stock of the Company or any subsidiary or any member of the immediate family of such officer, employee, consultant, director or stockholder or any corporation or other entity controlled by such officer, employee, consultant, director or stockholder, or a member of the immediate family of such officer, employee, consultant, director or stockholder. (w) Securities Laws. The Company has complied and will comply with all applicable federal and state securities laws in connection with the offer, issuance and sale of the Shares hereunder. Neither the Company nor anyone acting on its behalf, directly or indirectly, has or will sell, offer to sell or solicit offers to buy the Shares or similar securities to, or solicit offers with respect thereto from, or enter into any preliminary conversations or negotiations relating thereto with, any person (other than the Purchaser), so as to bring the issuance and sale of the Shares under the registration provisions of the Securities Act and applicable state securities laws. Neither the Company nor any of its affiliates, nor any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with the offer or sale of the Shares. (x) Employees. Neither the Company nor any subsidiary has any collective bargaining arrangements or agreements covering any of its employees. Except as set forth in the SEC Documents or on Schedule 2.1(x) hereto, neither the Company nor any subsidiary is in breach of any employment contract, agreement regarding proprietary information, noncompetition agreement, nonsolicitation agreement, confidentiality agreement, or any other similar contract or restrictive covenant, relating to the right of any officer, employee or consultant to be employed or engaged by the Company or such subsidiary. Since the date of the December 31, 1999 Form 10-K (or 10-KSB), no officer, consultant or key employee of the Company or any subsidiary whose termination, either individually or in the aggregate, could have a Material Adverse Effect, has terminated or, to the knowledge of the Company, has any present intention of terminating his or her employment or engagement with the Company or any subsidiary. (y) Absence of Certain Developments. Except as disclosed in SEC Documents or on Schedule 2.1(y) hereto, since the date of the financial statement contained in the most recently filed Form 10-Q (or 10-QSB) or Form 10-K (or 10KSB), whichever is most current, neither the Company nor any subsidiary has: (i) issued any stock, bonds or other corporate securities or any rights, options or warrants with respect thereto; (ii) borrowed any amount or incurred or become subject to any liabilities (absolute or contingent) except current liabilities incurred in the ordinary course of business which are comparable in nature and amount to the current liabilities incurred in the ordinary course of business during the comparable portion of its prior fiscal year, as adjusted to reflect the current nature and volume of the Company's or such subsidiary's business; (iii) discharged or satisfied any lien or encumbrance or paid any obligation or liability (absolute or contingent), other than current liabilities paid in the ordinary course of business; (iv) declared or made any payment or distribution of cash or other property to stockholders with respect to its stock, or purchased or redeemed, or made any agreements so to purchase or redeem, any shares of its capital stock; (v) sold, assigned or transferred any other tangible assets, or canceled any debts or claims, except in the ordinary course of business; (vi) sold, assigned or transferred any patent rights, trademarks, trade names, copyrights, trade secrets or other intangible assets or intellectual property rights, or disclosed any proprietary confidential information to any person except to customers in the ordinary course of business or to the Purchaser or its representatives; (vii) suffered any material losses (except for anticipated losses consistent with prior quarters) or waived any rights of material value, whether or not in the ordinary course of business, or suffered the loss of any material amount of prospective business; (viii) made any changes in employee compensation except in the ordinary course of business and consistent with past practices; (ix) made capital expenditures or commitments therefor that aggregate in excess of $500,000; (x) entered into any other material transaction, whether or not in the ordinary course of business; (xi) suffered any material damage, destruction or casualty loss, whether or not covered by insurance; (xii)experienced any material problems with labor or management in connection with the terms and conditions of their employment; or (xiii) effected any two or more events of the foregoing kind which in the aggregate would be material to the Company or its subsidiaries. (z) Governmental Approvals. Except as set forth in the SEC Documents or on Schedule 2.1(z) hereto, and except for the filing of any notice prior or subsequent to any Settlement Date that may be required under applicable federal or state securities laws (which if required, shall be filed on a timely basis), including the filing of a registration statement or post-effective amendment pursuant to this Agreement, no authorization, consent, approval, license, exemption of, filing or registration with any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, is or will be necessary for, or in connection with, the delivery of the Shares, or for the performance by the Company of its obligations under this Agreement. (aa) Acknowledgment Regarding Purchaser's Purchase of Shares. Company acknowledges and agrees that Purchaser is acting solely in the capacity of arm's length purchaser with respect to this Agreement and the transactions contemplated hereunder. The Company further acknowledges that the Purchaser is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereunder. The Company further represents to the Purchaser that the Company's decision to enter into this Agreement has been based solely on (a) the Purchaser's representations and warranties in Section 3.2, and (b) the independent evaluation by the Company and its own representatives and counsel. Section 2.2. Representations and Warranties of the Purchaser. The Purchaser hereby makes the following representations and warranties to the Company: (a) Organization and Standing of the Purchaser. The Purchaser is a corporation duly incorporated, validly existing and in good standing under the laws of the British Virgin Islands. (b) Authorization and Power. The Purchaser has the requisite power and authority to enter into and perform the Transaction Documents and to purchase the Shares being sold to it hereunder. The execution, delivery and performance of the Transaction Documents by Purchaser and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary corporate action and at the Initial Closing shall constitute valid and binding obligations of the Purchaser enforceable against the Purchaser in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, conservatorship, receivership or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application (c) No Conflicts. The execution, delivery and performance of this Agreement and the consummation by the Purchaser of the transactions contemplated hereby or relating hereto do not and will not (i) result in a violation of the Purchaser's charter documents or bylaws or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of any agreement, indenture or instrument to which the Purchaser is a party, or result in a violation of any law, rule, or regulation, or any order, judgment or decree of any court or governmental agency applicable to the Purchaser or its properties (except for such conflicts, defaults and violations as would not, individually or in the aggregate, have a Material Adverse Effect on Purchaser). The Purchaser is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under this Agreement or to purchase the Shares in accordance with the terms hereof. (d) Financial Risks. The Purchaser acknowledges that it is able to bear the financial risks associated with an investment in the Shares and that it has been given full access to such records of the Company and the subsidiaries and to the officers of the Company and the subsidiaries as it has deemed necessary or appropriate to conduct its due diligence investigation. The Purchaser is capable of evaluating the risks and merits of an investment in the Shares by virtue of its experience as an investor and its knowledge, experience, and sophistication in financial and business matters and the Purchaser is capable of bearing the entire loss of its investment in the Shares. (e) Accredited Investor. The Purchaser is an "accredited investor" as defined in Regulation D promulgated under the Securities Act. (f) General. The Purchaser understands that the Company is relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments and understandings of the Purchaser set forth herein in order to determine the suitability of the Purchaser to acquire the Shares. Article 3 COVENANTS The Company covenants with the Purchaser as follows: Section 3.1. The Shares. As of the date of each applicable Draw Down, the Company will have authorized and reserved, free of preemptive rights and other similar contractual rights of stockholders, a sufficient number of its authorized but unissued shares of its Common Stock to cover the Draw Down Shares to be issued in connection with such Draw Down requested under this Agreement. The Draw Down Shares to be issued under this Agreement, when paid for and issued in accordance with the terms hereof, shall be duly and validly issued and outstanding, fully paid and non-assessable, and the Purchaser shall be entitled to all rights accorded to a holder of Common Stock. Anything in this Agreement to the contrary notwithstanding, (i) at no time will the Company request a Draw Down which would result in the issuance of an aggregate number of shares of Common Stock pursuant to this Agreement which exceeds 19.9% of the number of shares of Common Stock issued and outstanding on the Initial Closing Date without obtaining stockholder approval of such excess issuance, or such other amount as would require stockholder approval under rules of the Principal Market or otherwise without obtaining stockholder approval of such excess issuance, and (ii) the Company may not make a Draw Down to the extent that, after such purchase by the Purchaser, the sum of the number of shares of Common Stock beneficially owned by the Purchaser and its affiliates would result in beneficial ownership by the Purchaser and its affiliates of more than 9.9% of the then outstanding shares of Common Stock. For purposes of the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act. Section 3.2. Securities Compliance. If applicable, the Company shall notify the Principal Market, in accordance with its rules and regulations, of the transactions contemplated by this Agreement, and shall take all other necessary action and proceedings as may be required and permitted by applicable law, rule and regulation, for the legal and valid issuance of the Shares to the Purchaser or subsequent holders. Section 3.3. Registration and Listing. The Company will cause its Common Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange Act, will comply in all respects with its reporting and filing obligations under the Exchange Act, will comply with all requirements related to any registration statement filed pursuant to this Agreement, and will not take any action or file any document (whether or not permitted by the Securities Act or the Exchange Act or the rules promulgated thereunder) to terminate or suspend such registration or to terminate or suspend its reporting and filing obligations under the Exchange Act or Securities Act, except as permitted herein. The Company will take all action necessary to continue the listing or trading of its Common Stock on the Principal Market and will comply in all respects with the Company's reporting, filing and other obligations under the bylaws or rules of the Principal Market and shall provide the Purchaser with copies of any correspondence to or from such Principal Market which questions or threatens delisting of the Common Stock, within three (3) Trading Days of the Company's receipt thereof, until the Purchaser has disposed of all of the Shares. Section 3.4. Escrow Arrangement. The Company and the Purchaser shall enter into an escrow arrangement with Epstein Becker & Green, P.C. (the "Escrow Agent") in the form of Exhibit B hereto respecting payment against delivery of the Shares. Section 3.5. Registration Rights Agreement. The Company and the Purchaser shall enter into the Registration Rights Agreement in the Form of Exhibit A hereto. Before the Purchaser shall be obligated to accept a Draw Down request from the Company, the Company shall have caused a sufficient number of shares of Common Stock to be registered to cover the Shares to be issued in connection with such Draw Down. Section 3.6. Accuracy of Registration Statement. On each Settlement Date, the Registration Statement and the prospectus therein shall not contain any untrue statement of a material fact or omit to state any material fact to be required to be stated therein or necessary in order to make the statements therein not misleading in light of the circumstances under which they were made; and on such Settlement Date or date of filing of the Registration Statement and the prospectus therein will not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, the Company makes no representations or warranties as to the information contained in or omitted from the Registration Statement and the prospectus therein in reliance upon and in conformity with the information furnished in writing to the Company by the Purchaser specifically for inclusion in the Registration Statement and the prospectus therein. Section 3.7. Compliance with Laws. The Company shall comply, and cause each subsidiary to comply, with all applicable laws, rules, regulations and orders, noncompliance with which could have a Material Adverse Effect. Section 3.8. Keeping of Records and Books of Account. The Company shall keep and cause each subsidiary to keep adequate records and books of account, in which complete entries will be made in accordance with GAAP consistently applied, reflecting all financial transactions of the Company and its subsidiaries, and in which, for each fiscal year, all proper reserves for depreciation, depletion, obsolescence, amortization, taxes, bad debts and other purposes in connection with its business shall be made. Section 3.9. Other Agreements. The Company shall not enter into any agreement the terms of which such agreement would restrict or impair the ability of the Company to perform its obligations under this Agreement. Section 3.10. Notice of Certain Events Affecting Registration; Suspension of Right to Request a Draw Down. The Company will promptly notify the Purchaser in writing and obtain an acknowledgment from Purchaser upon the occurrence of any of the following events in respect of the Registration Statement or related prospectus in respect of the Shares: (i) receipt of any request for additional information from the SEC or any other federal or state governmental authority during the period of effectiveness of the Registration Statement the response to which would require any amendments or supplements to the Registration Statement or related prospectus; (ii) the issuance by the SEC 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 of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; (iv) the happening of any event that makes any statement made in the Registration Statement or related prospectus or any 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, related prospectus or documents so that, in the case of the Registration Statement, it will not contain any 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 related prospectus, it will not contain any 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; and (v) the Company's reasonable determination that a post-effective amendment to the Registration Statement would be appropriate. The Company shall not deliver to the Purchaser any Draw Down Notice during the continuation of any of the foregoing events. The Company shall promptly make available to the Purchaser any such supplements or amendments to the related prospectus, at which time, provided that the registration statement and any supplements and amendments thereto are then effective, the Company may recommence the delivery of Draw Down Notices. Section 3.11. Consolidation; Merger. The Company shall not, at any time after the date hereof, effect any merger or consolidation of the Company with or into, or a transfer of all or substantially all of the assets of the Company to, another entity (a "Consolidation Event") unless the resulting successor or acquiring entity (if not the Company) assumes by written instrument or by operation of law the obligation to deliver to the Purchaser such shares of stock and/or securities as the Purchaser is entitled to receive pursuant to this Agreement. Section 3.12. Limitation on Future Financing. The Company agrees that it will not enter into any other equity line of credit arrangement until the earlier of (i) 24 months from the Effective Date, or (ii) sixty (60) days after the entire Commitment Amount has been purchased by the Purchaser. Section 3.13. Use of Proceeds. The proceeds from the sale of the Shares will be used by the Company and its subsidiaries for general corporate purposes. The Purchaser covenants with the Company as follows: Section 3.14. Compliance with Law. The Purchaser agrees that its trading activities with respect to shares of the Company's Common Stock will be in compliance with all applicable state and federal securities laws, rules and regulations and rules and regulations of the Principal Market on which the Company's Common Stock is listed. Without limiting the generality of the foregoing, the Purchaser agrees that it will, whenever required by federal securities laws, deliver the prospectus included in the Registration Statement to any purchaser of Shares from the Purchaser. Section 3.15. No Short Sales. The Purchaser and its affiliates shall not engage in short sales of the Company's Common Stock (as defined in applicable SEC and NASD rules) during the term of this Agreement. Article 4 CONDITIONS TO INITIAL CLOSING AND DRAW DOWNS Section 4.1. Conditions Precedent to the Obligation of the Company to Sell the Shares. The obligation hereunder of the Company to proceed to close this Agreement and to issue and sell the Shares to the Purchaser is subject to the satisfaction or waiver, at or before the Initial Closing, and as of each Settlement Date of each of the conditions set forth below. These conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion. (a) Accuracy of the Purchaser's Representations and Warranties. The representations and warranties of the Purchaser shall be true and correct in all material respects as of the date when made and as of the Initial Closing and as of each Settlement Date as though made at that time, except for representations and warranties that speak as of a particular date. (b) Performance by the Purchaser. The Purchaser shall have performed, satisfied and complied in all material respects with all material covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Purchaser at or prior to the Initial Closing and as of each Settlement Date. (c) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement. Section 4.2. Conditions Precedent to the Obligation of the Purchaser to Close. The obligation hereunder of the Purchaser to perform its obligations under this Agreement and to purchase the Shares is subject to the satisfaction or waiver, at or before the Initial Closing, of each of the conditions set forth below. These conditions are for the Purchaser's sole benefit and may be waived by the Purchaser at any time in its sole discretion. (a) Accuracy of the Company's Representations and Warranties. Each of the representations and warranties of the Company shall be true and correct in all material respects as of the date when made and as of the Initial Closing as though made at that time (except for representations and warranties that speak as of a particular date). (b) Performance by the Company. The Company shall have performed, satisfied and complied in all respects with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Initial Closing. (c) No Injunction. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of any of the transactions contemplated by this Agreement. (d) No Proceedings or Litigation. No action, suit or proceeding before any arbitrator or any governmental authority shall have been commenced, and no investigation by any governmental authority shall have been threatened, against the Purchaser or the Company or any subsidiary, or any of the officers, directors or affiliates of the Company or any subsidiary seeking to restrain, prevent or change the transactions contemplated by this Agreement, or seeking damages in connection with such transactions. (e) Opinion of Counsel, Etc. At the Initial Closing, the Purchaser shall have received an opinion of counsel to the Company, dated as of the Initial Closing Date, in the form of Exhibit C hereto. (f) Warrant. On the Initial Closing Date, the Company shall issue to the Purchaser a warrant certificate to purchase up to a number of shares of Common Stock equal to $300,000 divided by the average of the VWAPs during the five (5) Trading Days immediately prior to the Initial Closing Date (the "Warrant Base Price"). The Warrant shall have a term from its initial date of exercise of 3 years. The exercise price of the Warrant shall be 110% of the Warrant Base Price. The Common Stock underlying the Warrant will be registered in the Registration Statement referred to in Section 4.3 hereof. The Warrant shall be in the form of Exhibit E hereto. Section 4.3. Conditions Precedent to the Obligation of the Purchaser to Accept a Draw Down and Purchase the Shares. The obligation hereunder of the Purchaser to accept a Draw Down request and to acquire and pay for the Shares is subject to the satisfaction at or before each Settlement Date, of each of the conditions set forth below. (a) Satisfaction of Conditions to Initial Closing. The Company shall have satisfied, or the Purchaser shall have waived at the Initial Closing, the conditions set forth in Section 5.2 hereof (b) Effective Registration Statement. The Registration Statement registering the Shares shall have been declared effective by the SEC and shall remain effective on each Settlement Date. (c) No Suspension. Trading in the Company's Common Stock shall not have been suspended by the SEC or the Principal Market (except for any suspension of trading of limited duration agreed to by the Company, which suspension shall be terminated prior to the delivery of each Draw Down Notice), and, at any time prior to such Draw Down Notice, trading in securities generally as reported on the Principal Market shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported on the Principal Market unless the general suspension or limitation shall have been terminated prior to the delivery of such Draw Down Notice. (d) Material Adverse Effect. No Material Adverse Effect and no Consolidation Event where the successor entity has not agreed to perform the Company's obligations shall have occurred. (e) Opinion of Counsel. The Purchaser shall have received (i) a "down-to-date" letter from the Company's counsel, confirming that there is no change from the counsel's previously delivered opinion, or else specifying with particularity the reason for any change and an opinion as to the additional items specified in Exhibit C hereto, and (ii) any other items set forth in the Escrow Agreement. Article 5 DRAW DOWN TERMS Section 5.1. Draw Down Terms. Subject to the satisfaction of the conditions set forth in this Agreement, the parties agree as follows: (a) The Company, may, in its sole discretion, issue and exercise up to 24 draw downs (each a "Draw Down") during the Commitment Period, which Draw Downs the Purchaser shall be obligated to accept, subject to the terms and conditions herein. (b) Only one Draw Down shall be allowed in each Draw Down Pricing Period. The number of shares of Common Stock purchased by the Purchaser with respect to each Draw Down shall be determined as set forth in Section 5.1(e) herein and settled on: (i) as to the 1st through the 11th Trading Days after a Draw Down Pricing Period commences on the13th Trading Day after such Draw Down Pricing Period commences; and (ii) as to the 12th through the 22nd Trading Days after a Draw Down Pricing Period commences, the 24th Trading Day after such Draw Down Pricing Period commences. (such settlement periods and such settlement dates in subsection (i) and this subsection (ii) each referred to as a "Settlement Period" and a "Settlement Date", respectively). (c) In connection with each Draw Down Pricing Period, the Company may set the Threshold Price in the Draw Down Notice. (d) The minimum Investment Amount for any Draw Down shall be $100,000 and the maximum Investment Amount as to each Draw Down shall be the lesser of (i) $2,000,000, and (ii) 4.5% of the average of the EQY weighted average price field (as reported on Bloomberg Financial L.P. using the BLPH function) for the Common Stock for the ninety (90) calendar days immediately prior to the applicable Commencement Date (defined below) multiplied by the total trading volume in respect of the Common Stock for such period. Notwithstanding anything herein to the contrary, in the event the minimum Investment Amount is greater than the maximum Investment Amount, as to such Draw Down only, the minimum Investment Amount shall equal the maximum Investment Amount, but in no event shall the minimum Investment Amount be less than $50,000, such that if the maximum Investment Amount is less than $50,000, the Company shall be precluded from making a Draw Down at such time. (e) The number of Shares of Common Stock to be issued on each Settlement Date shall be a number of shares equal to the sum of the quotients (for each trading day within the Settlement Period) of (x) 1/22nd of the Investment Amount, and (y) the Purchase Price on each Trading Day within the Settlement Period, subject to the following adjustments: (i) if the VWAP on a given Trading Day is less than the Threshold Price, then the Investment Amount will be reduced by 1/22nd and that day shall be withdrawn from the Settlement Period; (ii) if trading of the Common Stock on the Principal Market is suspended for more than three (3) hours, in the aggregate, on any Trading Day during the Settlement Period, the Investment Amount shall be reduced by 1/22nd and that day shall be withdrawn from the applicable Settlement Period; and (iii) if sales made under the Registration Statement is suspended in accordance with Sections 3(j) and 5(e) of the Registration Rights Agreement for more than three (3) hours, in the aggregate, on any Trading Day or any Trading Day is shortened because of an official holiday, during the applicable Settlement Period, the Investment Amount shall be reduced by 1/22nd and that day shall be withdrawn from such Settlement Period. (f) The Company must inform the Purchaser by delivering a draw down notice, in the form of Exhibit D hereto (the "Draw Down Notice"), via facsimile transmission in accordance with Section 9.4 as to the amount of the Draw Down (the "Investment Amount") the Company wishes to exercise, before the first day of the Draw Down Pricing Period (the "Commencement Date"). If the Commencement Date is to be the date of the Draw Down Notice, the Draw Down Notice must be delivered to and receipt confirmed by the Purchaser at least one hour before trading commences on such date. At no time shall the Purchaser be required to purchase more than the maximum Investment Amount for a given Draw Down Pricing Period so that if the Company chooses not to exercise the maximum Investment Amount in a given Draw Down Pricing Period the Purchaser is not obligated to and shall not purchase more than the scheduled maximum Investment Amount in a subsequent Draw Down Pricing Period. (g) On each Settlement Date, the Shares purchased by the Purchaser shall be delivered to The Depository Trust Company ("DTC") on the Purchaser's behalf. Upon the Company electronically delivering whole shares of Common Stock to the Purchaser or its designees via DTC through its Deposit Withdrawal Agent Commission ("DWAC") system by 1:00 p.m. EST, the Purchaser shall wire transfer immediately available funds to the Company's designated account on such day, less any fees as set forth in the Escrow Agreement, which fees shall be wired as directed in the Escrow Agreement. Upon the Company electronically delivering whole shares of Common Stock to the Purchaser or its designees DTC account via DWAC after 1:00 p.m. EST, the Purchaser shall wire transfer next day available funds to the Company's designated account on such day, less any fees as set forth in the Escrow Agreement, which fees shall be wired as directed in the Escrow Agreement. In the event that either party elects to use the Escrow Agent, the Shares shall be credited by the Company to the DTC account designated by the Purchaser via DWAC upon receipt by the Escrow Agent of payment for the Draw Down Shares into the Escrow Agent's master escrow account and notice thereof to the Company, all as further set forth in the Escrow Agreement. The Escrow Agent shall be directed to pay the purchase price to the Company, net of one thousand dollars ($1,000) per Settlement as escrow expenses to the Escrow Agent and any additional fees as set forth in the Escrow Agreement. Article 6 TERMINATION Section 6.1. Term. The term of this Agreement shall begin on the date hereof and shall end 24 months from the Effective Date or as otherwise set forth in Section 6.2. Notwithstanding anything to the contrary herein, in the event that a Draw Down Notice is exercised such that the Draw Down Pricing Period extends beyond the second anniversary of the Effective Date, such Draw Down Period shall end at least five (5) Trading Days prior to the second anniversary of the Effective Date and all Draw Down Shares purchased shall be settled within two (2) Trading Days of such date, otherwise in accordance with Section 5.1(g) herein. Section 6.2. Other Termination. (a) This Agreement shall terminate upon one (1) Trading Day's notice if (i) an event resulting in a Material Adverse Effect has occurred and has not been cured for a period of thirty (30) days after giving notice thereof, (ii) the Common Stock is de-listed from the Principal Market unless such de-listing is in connection with the Company's subsequent listing of the Common Stock on the Nasdaq National Market, Nasdaq SmallCap Market, the American Stock Exchange or the New York Stock Exchange, or (iii) the Company files for protection from creditors under any applicable law. (b) The Company may terminate this Agreement upon one (1) Trading Day's notice if the Purchaser shall fail to fund more than one properly noticed Draw Down within five (5) Trading Days of the end of the applicable Settlement Period. Section 6.3. Effect of Termination. In the event of termination by the Company or the Purchaser, written notice thereof shall forthwith be given to the other party and the transactions contemplated by this Agreement shall be terminated without further action by either party. If this Agreement is terminated as provided in Section 6.1 or 6.2 herein, this Agreement shall become void and of no further force and effect, except for Sections 8.1, 8.2 and 8.9, and Article 7 herein. Nothing in this Section 6.3 shall be deemed to release the Company or the Purchaser from any liability for any breach under this Agreement, or to impair the rights of the Company or the Purchaser to compel specific performance by the other party of its obligations under this Agreement. Article 7 INDEMNIFICATION Section 7.1. General Indemnity. (a) The Company agrees to indemnify and hold harmless the Purchaser (and its directors, officers, affiliates, agents, successors and assigns) from and against any and all losses, liabilities, deficiencies, costs, damages and expenses (including, without limitation, reasonable attorneys' fees, charges and disbursements) incurred by the Purchaser as a result of any inaccuracy in or breach of the representations, warranties or covenants made by the Company herein. (b) The Purchaser agrees to indemnify and hold harmless the Company and its directors, officers, affiliates, agents, successors and assigns from and against any and all losses, liabilities, deficiencies, costs, damages and expenses (including, without limitation, reasonable attorneys' fees, charges and disbursements) incurred by the Company as result of any material inaccuracy in or breach of the representations, warranties or covenants made by the Purchaser herein. Notwithstanding anything to the contrary herein, the Purchaser shall be liable under this Section 7.1(b) for only that amount as does not exceed the net proceeds to the Purchaser as a result of the sale of the Shares. Section 7.2. Indemnification Procedure. Any party entitled to indemnification under this Article 7 (an "Indemnified Party") will give written notice to the indemnifying party of any matters giving rise to a claim for indemnification; provided, that the failure of any party entitled to indemnification hereunder to give notice as provided herein shall not relieve the indemnifying party of its obligations under this Article 7 except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any action, proceeding or claim is brought against an Indemnified Party in respect of which indemnification is sought hereunder, the indemnifying party shall be entitled to participate in and, unless in the reasonable judgment of counsel to the Indemnified Party a conflict of interest between it and the indemnifying party may exist with respect of such action, proceeding or claim, to assume the defense thereof with counsel reasonably satisfactory to the Indemnified Party. In the event that the indemnifying party advises an Indemnified Party that it will contest such a claim for indemnification hereunder, or fails, within thirty (30) days of receipt of any indemnification notice to notify, in writing, such person of its election to defend, settle or compromise, at its sole cost and expense, any action, proceeding or claim (or discontinues its defense at any time after it commences such defense), then the Indemnified Party may, at its option, defend, settle or otherwise compromise or pay such action or claim. In any event, unless and until the indemnifying party elects in writing to assume and does so assume the defense of any such claim, proceeding or action, the Indemnified Party's costs (including reasonable attorneys' fees, charges and disbursements) and expenses arising out of the defense, settlement or compromise of any such action, claim or proceeding shall be losses subject to indemnification hereunder. The Indemnified Party shall cooperate fully with the indemnifying party in connection with any settlement negotiations or defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnified Party, which relates to such action or claim. The indemnifying party shall keep the Indemnified Party fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. If the indemnifying party elects to defend any such action or claim, then the Indemnified Party shall be entitled to participate in such defense with counsel of its choice at its sole cost and expense. The indemnifying party shall not be liable for any settlement of any action, claim or proceeding effected without its prior written consent. Notwithstanding anything in this Article 7 to the contrary, the indemnifying party shall not, without the Indemnified Party's prior written consent, settle or compromise any claim or consent to entry of any judgment in respect thereof which imposes any future obligation on the Indemnified Party or which does not include, as an unconditional term thereof, the giving by the claimant or the plaintiff to the Indemnified Party of a release from all liability in respect of such claim. The indemnification required by this Article 7 shall be made by periodic payments of the amount thereof during the course of investigation or defense, as and when bills are received or expense, loss, damage or liability is incurred, within ten (10) Trading Days of written notice thereof to the indemnifying party so long as the Indemnified Party irrevocably agrees to refund such moneys, with interest, if it is ultimately determined by a court of competent jurisdiction that such party was not entitled to indemnification. The indemnity agreements contained herein shall be in addition to (a) any cause of action or similar rights of the Indemnified Party against the indemnifying party or others, and (b) any liabilities to which the indemnifying party may be subject. Article 8 MISCELLANEOUS Section 8.1. Fees and Expenses. Each of the parties to this Agreement shall pay its own fees and expenses related to the transactions contemplated by this Agreement; except that, the Company shall pay, at the Initial Closing, a non-accountable expense allowance of $35,000 for the Purchaser's legal, administrative and due diligence costs and expenses and any other additional fees as set forth in the Escrow Agreement. In addition, the Company shall pay all reasonable fees and expenses incurred by the Purchaser in connection with any subsequent amendments, modifications or waivers of this Agreement, the Escrow Agreement or the Registration Rights Agreement or incurred in connection with the enforcement of this Agreement, the Escrow Agreement and the Registration Rights Agreement, including, without limitation, all reasonable attorneys' fees and expenses if such subsequent amendment, modification or waiver is at the request of the Company. The Company shall pay all stamp or other similar taxes and duties levied in connection with issuance of the Shares pursuant hereto. Section 8.2. Specific Enforcement. The Company and the Purchaser acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof or thereof, this being in addition to any other remedy to which any of them may be entitled by law or equity. Section 8.3. Entire Agreement; Amendment. The Transaction Documents contain the entire understanding of the parties with respect to the matters covered in the Transaction Documents. No provision of this Agreement may be waived or amended other than by a written instrument signed by the party against whom enforcement of any such amendment or waiver is sought and no condition to closing any Draw Down in favor of the Purchaser may be waived by the Purchaser. Section 8.4. Notices. Any notice, demand, request, waiver or other communication required or permitted to be given hereunder shall be in writing and shall be effective (a) upon hand delivery or facsimile at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be: If to the Company: 8229 Boone Boulevard Suite 802 Vienna, Virginia 22182 Attn: Geert Kersten Tel: (703) 506-9460 Fax: (703) 506-9471 With copies to: Hart and Trinen L.L.P. (which shall not constitute 1624 Washington Street notice) Denver, CO 80203 Attn: William Hart, Esq. Tel: (303) 839-0061 Fax: (303) 839-5414 If to Purchaser: c/o Beacon Corporate Services, Ltd. P.O. Box 972 Road Town, Tortola British Virgin Islands Attn: David Sims Fax: (284) 494-4090 with copies to: Epstein Becker & Green P.C. (which shall not constitute 250 Park Avenue notice) New York, NY 10177-1211 Tel: (212) 351-3771 Fax: (212) 661-0989 Attn: Robert F. Charron Any party hereto may from time to time change its address for notices by giving written notice of such changed address to the other party hereto in accordance herewith. Section 8.5. Waivers. No waiver by either party of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any other provisions, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right accruing to it thereafter. Section 8.6. Headings. The article, section and subsection headings in this Agreement are for convenience only and shall not constitute a part of this Agreement for any other purpose and shall not be deemed to limit or affect any of the provisions hereof. Section 8.7. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. The parties hereto may not amend this Agreement or any rights or obligations hereunder without the prior written consent of the Company and each Purchaser to be affected by the amendment. After Initial Closing, the assignment by a party to this Agreement of any rights hereunder shall not affect the obligations of such party under this Agreement. Section 8.8. No Third Party Beneficiaries.This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other person. Section 8.9. Governing Law/Arbitration. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York, without giving effect to the choice of law provisions. The Company and the Purchaser agree to submit themselves to the in personam jurisdiction of the state and federal courts situated within the Southern District of the State of New York with regard to any controversy arising out of or relating to this Agreement. Any dispute under this Agreement or any Exhibit attached hereto shall be submitted to arbitration under the American Arbitration Association (the "AAA") in New York City, New York, and shall be finally and conclusively determined by the decision of a board of arbitration consisting of three (3) members (hereinafter referred to as the "Board of Arbitration") selected as according to the rules governing the AAA. The Board of Arbitration shall meet on consecutive business days in New York City, New York, and shall reach and render a decision in writing (concurred in by a majority of the members of the Board of Arbitration) with respect to the amount, if any, which the losing party is required to pay to the other party in respect of a claim filed. In connection with rendering its decisions, the Board of Arbitration shall adopt and follow the laws of the State of New York. To the extent practical, decisions of the Board of Arbitration shall be rendered no more than thirty (30) calendar days following commencement of proceedings with respect thereto. The Board of Arbitration shall cause its written decision to be delivered to all parties involved in the dispute. The Board of Arbitration shall be authorized and is directed to enter a default judgment against any party refusing to participate in the arbitration proceeding within thirty days of any deadline for such participation. Any decision made by the Board of Arbitration (either prior to or after the expiration of such thirty (30) calendar day period) shall be final, binding and conclusive on the parties to the dispute, and entitled to be enforced to the fullest extent permitted by law and entered in any court of competent jurisdiction. The prevailing party shall be awarded its costs, including attorneys' fees, from the non-prevailing party as part of the arbitration award. Any party shall have the right to seek injunctive relief from any court of competent jurisdiction in any case where such relief is available. The prevailing party in such injunctive action shall be awarded its costs, including reasonable attorneys' fees, from the non-prevailing party. Section 8.10. Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and shall become effective when counterparts have been signed by each party and delivered to the other parties hereto, it being understood that all parties need not sign the same counterpart. Execution may be made by delivery by facsimile. Section 8.11. Publicity. Neither the Company nor the Purchaser shall issue any press release or otherwise make any public statement or announcement with respect to this Agreement or the transactions contemplated hereby or the existence of this Agreement, without the prior written consent of the other party. After the Initial Closing, the Company may issue a press release or otherwise make a public statement or announcement with respect to this Agreement or the transactions contemplated hereby or the existence of this Agreement; provided, however, that prior to issuing any such press release, making any such public statement or announcement, the Company obtains the prior consent of the Purchaser, which consent shall not be unreasonably withheld or delayed. Section 8.12. Severability. The provisions of this Agreement are severable and, in the event that The Board of Arbitration or any court or officials of any regulatory agency of competent jurisdiction shall determine that any one or more of the provisions or part of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision or part of a provision of this Agreement and this Agreement shall be reformed and construed as if such invalid or illegal or unenforceable provision, or part of such provision, had never been contained herein, so that such provisions would be valid, legal and enforceable to the maximum extent possible, so long as such construction does not materially adversely effect the economic rights of either party hereto. Section 8.13. Further Assurances. From and after the date of this Agreement, upon the request of the Purchaser or the Company, each of the Company and the Purchaser shall execute and deliver such instruments, documents and other writings as may be reasonably necessary or desirable to confirm and carry out and to effectuate fully the intent and purposes of this Agreement. Section 8.14. Effectiveness of Agreement. This Agreement shall become effective only upon satisfaction of the conditions precedent to the Initial Closing set forth in Article I of the Escrow Agreement. Article 9 DEFINITIONS Section 9.1. Certain Definitions. (a) "Adjustment Price" shall mean the price which is determined from time-to-time by the terms of the of the Series D Warrants to calculate the number of additional shares of Common Stock to be issued to the holders of such warrants, which term is more fully described in the Company's registration statement on Form S-3 (SEC File # 333-34604). (b) "Commencement Date" shall have the meaning assigned to such term in Section 5.1(f) hereof. (c) "Commitment Amount" shall have the meaning assigned to such term in Section 1.1 hereof. (d) "Commitment Period" shall mean the period of 24 consecutive months commencing immediately after the Effective Date. (e) "Common Stock" shall mean the Company's common stock, $0.01 par value per share. (f) "Draw Down" shall have the meaning assigned to such term in Section 5.1(a) hereof. (g) "Draw Down Notice" shall have the meaning assigned to such term in Section 5.1(f) hereof. (h) "Draw Down Pricing Period" shall mean a period of twenty-two (22) consecutive Trading Days beginning on the date specified in the Draw Down Notice (as defined in Section 5.1(f) herein); provided, however, the Draw Down Pricing Period shall not begin before the day on which receipt of such notice is confirmed by the Purchaser. (i) "Effective Date" shall mean the date the Registration Statement of the Company covering the Shares being subscribed for hereby is declared effective by the Securities and Exchange Commission (the "SEC"). (j) "Exchange Act" shall mean the Securities and Exchange Act of 1934, as amended. (k) "GAAP" shall mean the United States Generally Accepted Accounting Principles as those conventions, rules and procedures are determined by the Financial Accounting Standards Board and its predecessor agencies. (l) "Initial Closing" shall have the meaning assigned to such term in Section 1.2 hereof. (m) "Initial Closing Date" shall have the meaning assigned to such term in Section 1.2 hereof. (n) "Investment Amount" shall have the meaning assigned to such term in Section 5.1(f) hereof. (o) "Material Adverse Effect" shall mean any adverse effect on the business, operations, properties, or financial condition of the Company that is material and adverse to the Company and its subsidiaries and affiliates, taken as a whole and/or any condition, circumstance, or situation that would prohibit or otherwise materially interfere with the ability of the Company to perform any of its material obligations under this Agreement or the Registration Rights Agreement or to perform its obligations under any other Material Agreement (as defined in Section 2.1(u)). (p) "Principal Market" shall mean initially the American Stock Exchange and shall include the Nasdaq National Market, the Nasdaq Small-Cap Market and the New York Stock Exchange if the Company becomes listed and trades on such market or exchange after the date hereof. (q) "Purchase Price" shall mean, with respect to Draw Down Shares purchased during each applicable Settlement Period, 89% of the VWAP on the date in question. (r) "Registration Statement" shall mean the registration statement under the Securities Act of 1933, as amended (the "Securities Act"), to be filed with the Securities and Exchange Commission for the registration of the Shares pursuant to the Registration Rights Agreement attached hereto as Exhibit A (the "Registration Rights Agreement). (s) "SEC Documents" shall mean the Company's latest Form 10-K or Form 10-KSB as of the time in question, all Forms 10-Q or 10-QSB and 8-K filed thereafter, and the Proxy Statement for its latest fiscal year as of the time in question until such time as the Company no longer has an obligation to maintain the effectiveness of a Registration Statement as set forth in the Registration Rights Agreement. (t) "Settlement" shall mean the delivery of the Draw Down Shares into the Purchaser's DTC account in exchange for payment therefor. (u) "Settlement Date" shall have the meaning assigned to such term in Section 5.1(b). (v) "Settlement Period" shall have the meaning assigned to such term in Section 5.1(b). (w) "Shares" shall mean, collectively, the shares of Common Stock of the Company being subscribed for hereunder (the "Draw Down Shares") and the shares of Common Stock issuable upon exercise of the Warrant (the "Warrant Shares"). (x) "Threshold Price" shall mean the price per Share designated by the Company as the lowest VWAP during any Draw Down Pricing Period at which the Company will sell its Common Stock in accordance with this Agreement. (y) "Trading Day" shall mean any day on which the Principal Market is open for business. (z) "Transaction Documents" shall mean this Agreement, the Registration Rights Agreement and the Escrow Agreement. (aa) "VWAP" shall mean the daily volume weighted average price of the Company's Common Stock on the Principal Market as reported by Bloomberg Financial L.P. (based on a trading day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time) using the VAP function on the date in question. (bb) "Warrant" shall mean the warrant issued to the Purchaser pursuant to Section 4.2(f) hereof. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorize officer as of this __ day of April, 2001. CEL-SCI CORPORATION By: Geert Kersten, Chief Executive Officer PAUL REVERE CAPITAL PARTNERS, LTD. By: David Sims, Authorized Signatory EXHIBIT A REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT, dated as of April 11, 2001 between Paul Revere Capital Partners, Ltd. ("Purchaser") and CEL-SCI Corporation (the "Company"). WHEREAS, simultaneously with the execution and delivery of this Agreement, the parties shall enter into the Common Stock Purchase Agreement, dated as of the date hereof, (the "Purchase Agreement") pursuant to which the Purchaser has committed to purchase up to $10,000,000 of the Company's Common Stock (terms not defined herein shall have the meanings ascribed to them in the Purchase Agreement) and the Warrant; and WHEREAS, the execution and delivery of this Agreement and granting to the Purchaser of the registration rights set forth herein with respect to the Shares is a component part of the transaction contemplated under the Purchase Agreement. NOW, THEREFORE, the parties hereto mutually agree as follows: Section 1. Registrable Securities. As used herein the term "Registrable Security" means all Shares that have not been (i) sold under the Registration Statement, (ii) sold under circumstances under which all of the applicable conditions of Rule 144 (or any similar provision then in force) under the Securities Act ("Rule 144") are met, (iii) otherwise transferred to persons who may trade such Shares without restriction under the Securities Act, and the Company has delivered a new certificate or other evidence of ownership for such Shares not bearing a restrictive legend or (iv) sold without any time, volume or manner limitations pursuant to Rule 144(k) (or any similar provision then in effect) under the Securities Act. In the event of any merger, reorganization, consolidation, recapitalization or other change in corporate structure affecting the Common Stock, such adjustment shall be deemed to be made in the definition of "Registrable Security" as is appropriate in order to prevent any dilution or enlargement of the rights granted pursuant to this Agreement. Section 2. Restrictions on Transfer. The Purchaser acknowledges and understands that in the absence of an effective Registration Statement authorizing the resale of the Shares as provided herein, the Shares are "restricted securities" as defined in Rule 144. The Purchaser understands that no disposition or transfer of the Shares may be made by Purchaser in the absence of (i) an opinion of counsel to the Purchaser, in form and substance reasonably satisfactory to the Company, that such transfer may be made without registration under the Securities Act or (ii) such registration. With a view to making available to the Purchaser the benefits of Rule 144, the Company agrees to: (a) comply with the provisions of paragraph (c)(1) of Rule 144; and (b) file with the Commission in a timely manner all reports and other documents required to be filed by the Company pursuant to Section 13 or 15(d) under the Exchange Act; and, if at any time it is not required to file such reports but in the past had been required to or did file such reports, it will, upon the request of the Purchaser, make available other information as required by, and so long as necessary to permit sales of, its Registrable Securities pursuant to Rule 144. Section 3. Registration Rights With Respect to the Shares. - ---------------------------------------------------------- (a) The Company agrees that it will prepare and file with the Securities and Exchange Commission ("Commission"), within forty-five (45) days after the date hereof, a registration statement (on Form S-3 and/or S-1, or other appropriate form of registration statement) under the Securities Act (the "Registration Statement"), at the sole expense of the Company (except as provided in Section 3(c) hereof), so as to permit a public offering and resale of the Shares under the Securities Act by Purchaser. (b) The Company shall cause the Registration Statement to become effective within the earlier of (i) ninety (90) days of the date of filing the Registration Statement, or (ii) five (5) days after receiving written notice of SEC clearance and will within said five (5) days request acceleration of effectiveness. The Company will notify Purchaser of the effectiveness of the Registration Statement within one Trading Day of such event. (c) The Company will maintain the Registration Statement or post-effective amendment filed under this Section 3 hereof effective under the Securities Act until the earliest of (i) the date that all the Shares have been disposed of pursuant to the Registration Statement, (ii) the date that all of the Shares have been sold pursuant to the Registration Statement, (iii) all Shares have been otherwise transferred to persons who may trade such shares without restriction under the Securities Act, and the Company has delivered a new certificate or other evidence of ownership for such Shares not bearing a restrictive legend, or (iv) all Shares may be sold without any time, volume or manner limitations pursuant to Rule 144(k) or any similar provision then in effect under the Securities Act in the opinion of counsel to the Company, which counsel shall be reasonably acceptable to the Purchaser (the "Effectiveness Period"). (d) All fees, disbursements and out-of-pocket expenses and costs incurred by the Company in connection with the preparation and filing of the Registration Statement under subparagraph 3(a) and in complying with applicable securities and Blue Sky laws (including, without limitation, all attorneys' fees of the Company) shall be borne by the Company. The Purchaser shall bear the cost of underwriting and/or brokerage discounts, fees and commissions, if any, applicable to the Shares being registered and the fees and expenses of its counsel. (e) The Purchaser and its counsel shall have a reasonable period, not to exceed five (5) Trading Days, to review the proposed Registration Statement or any amendment thereto, prior to filing with the Commission, and the Company shall provide the Purchaser with copies of any comment letters received from the Commission with respect thereto within two (2) Trading Days of receipt thereof. (f) The Company shall make reasonably available for inspection by Purchaser, any underwriter participating in any disposition pursuant to the Registration Statement, and any attorney, accountant or other agent retained by the Purchaser or any such underwriter all relevant financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries, and cause the Company's officers, directors and employees to supply all information reasonably requested by the Purchaser or any such underwriter, attorney, accountant or agent in connection with the Registration Statement, in each case, as is customary for due diligence examinations; provided, however, all records, information and documents that are designated in writing by the Company, in good faith, as confidential, proprietary or containing any material non-public information shall be kept confidential by the Purchaser and any such underwriter, attorney, accountant or agent, unless such disclosure is made pursuant to judicial process in a court proceeding (after first giving the Company an opportunity promptly to seek a protective order or otherwise limit the scope of the information sought to be disclosed) or is required by law, or such records, information or documents become available to the public generally or through a third party not in violation of an accompanying obligation of confidentiality. If the foregoing inspection and information gathering would otherwise disrupt the Company's conduct of its business, such inspection and information gathering shall, to the maximum extent possible, be coordinated on behalf of the Purchaser and the other parties entitled thereto by one firm of counsel designed by and on behalf of the majority in interest of Purchaser and other parties. (g) The Company shall qualify any of the Shares for sale in such states as the Purchaser reasonably designates and shall furnish indemnification in the manner provided in Section 6 hereof. However, the Company shall not be required to qualify in any state which will require an escrow or other restriction relating to the Company and/or the sellers, or which will require the Company to qualify to do business in such state or require the Company to file therein any general consent to service of process. (h) The Company at its expense will supply the Purchaser with copies of the Registration Statement and the final prospectus included therein (the "Prospectus") and other related documents in such quantities as may be reasonably requested by the Purchaser. (i) The Company shall not be required by this Section 3 to include a Purchaser's Shares in any Registration Statement which is to be filed if, in the opinion of counsel for both the Purchaser and the Company (or, should they not agree, in the opinion of another counsel experienced in securities law matters acceptable to counsel for the Purchaser and the Company) the proposed offering or other transfer as to which such registration is requested is exempt from applicable federal and state securities laws and would result in all purchasers or transferees obtaining securities which are not "restricted securities", as defined in Rule 144 under the Securities Act. (j) If at any time or from time to time after the effective date of the Registration Statement, the Company notifies the Purchaser in writing of the existence of a Potential Material Event (as defined in Section 3(k) below), the Purchaser shall not offer or sell any Shares or engage in any other transaction involving or relating to Shares, from the time of the giving of notice with respect to a Potential Material Event until the Purchaser receives written notice from the Company that such Potential Material Event either has been disclosed to the public or no longer constitutes a Potential Material Event (the "Suspension Period"). Notwithstanding anything herein to the contrary, if a Suspension Period occurs at any time during any period commencing on a Trading Day a Draw Down Notice is deemed delivered and ending ten (10) Trading Days following the end of the corresponding Draw Down Pricing Period, then the Company must compensate the Purchaser for any net decline in the market value of any Shares purchased by the Purchaser pursuant to such recent Draw Down Pricing Period through the end of such Suspension Period. Net decline shall be calculated as the difference between the highest VWAP during the applicable Suspension Period and the VWAP on the Trading Day immediately following a properly delivered notice to the Purchaser that such Suspension Period has ended. If a Potential Material Event shall occur prior to the date the Registration Statement is filed, then the Company's obligation to file the Registration Statement shall be delayed without penalty for not more than thirty (30) calendar days. The Company must give Purchaser notice in writing of the existence of a Potential Material Event promptly upon knowledge that such an event exists and, where possible, at least two (2) days prior to the first day of a Suspension Period, if lawful to do so. (k) "Potential Material Event" means any of the following: (i) the possession by the Company of material information that is not ripe for disclosure in a registration statement, as determined in good faith by the Chief Executive Officer or the Board of Directors of the Company or that disclosure of such information in the Registration Statement would be detrimental to the business and affairs of the Company; (ii) any material engagement or activity by the Company which would, in the good faith determination of the Chief Executive Officer or the Board of Directors of the Company, be adversely affected by disclosure in a registration statement at such time, which determination shall be accompanied by a good faith determination by the Chief Executive Officer or the Board of Directors of the Company that the Registration Statement would be materially misleading absent the inclusion of such information, or (iii) pursuant to applicable law, the Company is required to file a post-effective amendment to the Registration Statement because the Company experiences a fundamental change, must change the plan of distribution to the Prospectus, or must update the information included in the Prospectus pursuant to Section 10(a)(3) of the Securities Act. Section 4. Cooperation with Company. The Purchaser will cooperate with the Company in all respects in connection with this Agreement, including timely supplying all information reasonably requested by the Company (which shall include all information regarding the Purchaser and proposed manner of sale of the Registrable Securities required to be disclosed in the Registration Statement) and executing and returning all documents reasonably requested in connection with the registration and sale of the Registrable Securities and entering into and performing its obligations under any underwriting agreement, if the offering is an underwritten offering, in usual and customary form, with the managing underwriter or underwriters of such underwritten offering. The Purchaser shall consent to be named as an underwriter in the Registration Statement. Purchaser acknowledges that in accordance with current Commission policy, the Purchaser will be named as the underwriter of the Shares in the Registration Statement. Section 5. Registration Procedures. If and whenever the Company is required by any of the provisions of this Agreement to effect the registration of any of the Registrable Securities under the Securities Act, the Company shall (except as otherwise provided in this Agreement), as expeditiously as possible, subject to the Purchaser's assistance and cooperation as reasonably required: (a) prepare and file with the Commission such amendments and supplements to the Registration Statement and the Prospectus as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the sale or other disposition of all securities covered by such registration statement whenever the Purchaser of such Registrable Securities shall desire to sell or otherwise dispose of the same (including prospectus supplements with respect to the sales of securities from time to time in connection with a registration statement pursuant to Rule 415 promulgated under the Securities Act) and (ii) take all lawful action such that each of (A) the Registration Statement and any amendment thereto does not, when it becomes effective, 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 and (B) the Prospectus, and any amendment or supplement thereto, does not at any time during the Effectiveness Period include 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, in light of the circumstances under which they were made, not misleading; (b) prior to the filing with the Commission of any Registration Statement (including any amendments thereto) and the distribution or delivery of the Prospectus (including any supplements thereto), provide draft copies thereof to the Purchaser and reflect in such documents all such comments as the Purchaser (and its counsel) reasonably may propose and (ii) furnish to the Purchaser such numbers of copies of the Prospectus including a preliminary prospectus or any amendment or supplement to the Prospectus, as applicable, in conformity with the requirements of the Securities Act, and such other documents, as the Purchaser may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities; (c) comply with the New York blue sky laws with respect to the Registrable Securities (subject to the limitations set forth in Section 3(g) above), and do any and all other acts and things which may be reasonably necessary or advisable to enable the Purchaser to consummate the public sale or other disposition in such jurisdiction of the Registrable Securities; (d) list such Registrable Securities on the Principal Market, and any other exchange on which the Common Stock of the Company is then listed, if the listing of such Registrable Securities is then permitted under the rules of such exchange or the Nasdaq Stock Market; (e) notify the Purchaser at any time when the Prospectus is required to be delivered under the Securities Act, of the happening of any event of which it has knowledge as a result of which the Prospectus, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and the Company shall prepare and file a curative amendment under Section 5(a) as quickly as commercially possibleand such period during which the Purchaser is precluded from making sales under the Prospectus shall be a Suspension Period and the Company shall compensate the Purchaser as set forth in Section 3(j) herein; (f) as promptly as practicable after becoming aware of such event, notify the Purchaser (or, in the event of an underwritten offering, the managing underwriters) of the issuance by the Commission or any state authority of any stop order or other suspension of the effectiveness of the Registration Statement at the earliest possible time and take all lawful action to effect the withdrawal, rescission or removal of such stop order or other suspension; (g) cooperate with the Purchaser to facilitate the timely preparation and delivery of certificates for the Registrable Securities to be offered pursuant to the Registration Statement and enable such certificates for the Registrable Securities to be in such denominations or amounts, as the case may be, as the Purchaser reasonably may request and registered in such names as the Purchaser may request, pursuant to the Purchase Agreement. (h) take all such other lawful actions reasonably necessary to expedite and facilitate the disposition by the Purchaser of its Registrable Securities in accordance with the intended methods therefor provided in the Prospectus which are customary for issuers to perform under the circumstances; (i) in the event of an underwritten offering, promptly include or incorporate in a prospectus supplement or post-effective amendment to the Registration Statement such information as the managing underwriters reasonably agree should be included therein and to which the Company does not reasonably object and make all required filings of such prospectus supplement or post-effective amendment as soon as practicable after it is notified of the matters to be included or incorporated in such prospectus supplement or post-effective amendment; and (j) maintain a transfer agent for its Common Stock. Section 6. Indemnification. - --------------------------- (a) The Company agrees to indemnify and hold harmless the Purchaser and each person, if any, who controls the Purchaser within the meaning of the Securities Act ("Distributing Purchaser") against any losses, claims, damages or liabilities, joint or several (which shall, for all purposes of this Agreement, include, but not be limited to, all reasonable costs of defense and investigation and all reasonable attorneys' fees), to which the Distributing Purchaser may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, or any related preliminary prospectus, the Prospectus or amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, preliminary prospectus, the Prospectus or amendment or supplement thereto in reliance upon, and in conformity with, written information furnished to the Company by the Distributing Purchaser specifically for use in the preparation thereof. This Section 6(a) shall not inure to the benefit of any Distributing Purchaser with respect to any person asserting such loss, claim, damage or liability who purchased the Registrable Securities which are the subject thereof if the Distributing Purchaser failed to send or give (in violation of the Securities Act or the rules and regulations promulgated thereunder) a copy of the Prospectus to such person at or prior to the written confirmation to such person of the sale of such Registrable Securities, where the Distributing Purchaser was obligated to do so under the Securities Act or the rules and regulations promulgated thereunder. This indemnity agreement will be in addition to any liability which the Company may otherwise have. (b) Each Distributing Purchaser agrees that it will indemnify and hold harmless the Company, and each officer, director of the Company or person, if any, who controls the Company within the meaning of the Securities Act, against any losses, claims, damages or liabilities (which shall, for all purposes of this Agreement, include, but not be limited to, all reasonable costs of defense and investigation and all reasonable attorneys' fees) to which the Company or any such officer, director or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, or any related preliminary prospectus, the Prospectus or amendment or supplement thereto, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, but in each case only to the extent that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Registration Statement, preliminary prospectus, the Prospectus or amendment or supplement thereto in reliance upon, and in conformity with, written information furnished to the Company by such Distributing Purchaser specifically for use in the preparation thereof. This indemnity agreement will be in addition to any liability which the Distributing Purchaser may otherwise have. Notwithstanding anything to the contrary herein, the Distributing Purchaser shall not be liable under this Section 6(b) for any amount in excess of the net proceeds to such Distributing Purchaser as a result of the sale of Registrable Securities pursuant to the Registration Statement. (c) Promptly after receipt by an indemnified party under this Section 6 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 6, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve the indemnifying party from any liability which it may have to any indemnified party except to the extent of actual prejudice demonstrated by the indemnifying party. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate in, and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, assume the defense thereof, subject to the provisions herein stated and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section 6 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation, unless the indemnifying party shall not pursue the action to its final conclusion. The indemnified party shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall not be at the expense of the indemnifying party if the indemnifying party has assumed the defense of the action with counsel reasonably satisfactory to the indemnified party; provided that if the indemnified party is the Distributing Purchaser, the fees and expenses of such counsel shall be at the expense of the indemnifying party if (i) the employment of such counsel has been specifically authorized in writing by the indemnifying party, or (ii) the named parties to any such action (including any impleaded parties) include both the Distributing Purchaser and the indemnifying party and the Distributing Purchaser shall have been advised by such counsel that there may be one or more legal defenses available to the indemnifying party different from or in conflict with any legal defenses which may be available to the Distributing Purchaser (in which case the indemnifying party shall not have the right to assume the defense of such action on behalf of the Distributing Purchaser, it being understood, however, that the indemnifying party shall, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable only for the reasonable fees and expenses of one separate firm of attorneys for all Distributing Purchasers, which firm shall be designated in writing by the Distributing Purchaser and be approved by the indemnifying party). No settlement of any action against an indemnified party shall be made without the prior written consent of the indemnified party, which consent shall not be unreasonably withheld. All fees and expenses of the indemnified party (including reasonable costs of defense and investigation in a manner not inconsistent with this Section and all reasonable attorneys' fees and expenses) shall be paid to the indemnified party, as incurred, within ten (10) Trading Days of written notice thereof to the indemnifying party; provided, that the indemnifying party may require such indemnified party to undertake to reimburse all such fees and expenses to the extent it is finally judicially determined that such indemnified party is not entitled to indemnification hereunder. Section 7. Contribution. In order to provide for just and equitable contribution under the Securities Act in any case in which (i) the indemnified party makes a claim for indemnification pursuant to Section 6 hereof but is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that the express provisions of Section 6 hereof provide for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any indemnified party, then the Company and the applicable Distributing Purchaser shall contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (which shall, for all purposes of this Agreement, include, but not be limited to, all reasonable costs of defense and investigation and all reasonable attorneys' fees), in either such case (after contribution from others) on the basis of relative fault as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the applicable Distributing Purchaser on the other hand, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Distributing Purchaser agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 7. The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this Section 7 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Notwithstanding any other provision of this Section 7, in no event shall any (i) Purchaser be required to undertake liability to any person under this Section 7 for any amounts in excess of the dollar amount of the net proceeds to be received by the Purchaser from the sale of the Purchaser's Registrable Securities (after deducting any fees, discounts and commissions applicable thereto) pursuant to any Registration Statement under which such Registrable Securities are or were to be registered under the Securities Act and (ii) underwriter be required to undertake liability to any person hereunder for any amounts in excess of the aggregate discount, commission or other compensation payable to such underwriter with respect to the Registrable Securities underwritten by it and distributed pursuant to the Registration Statement. Section 8. Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be delivered as set forth in the Purchase Agreement. Section 9. Assignment. Neither this Agreement nor any rights of the Purchaser or the Company hereunder may be assigned by either party to any other person. Notwithstanding the foregoing, (a) the provisions of this Agreement shall inure to the benefit of, and be enforceable by, any transferee of any of the Common Stock purchased by the Purchaser pursuant to the Purchase Agreement other than through open-market sales, and (b) upon the prior written consent of the Company, which consent shall not be unreasonably withheld or delayed in the case of an assignment to an affiliate of the Purchaser, the Purchaser's interest in this Agreement may be assigned at any time, in whole or in part, to any other person or entity (including any affiliate of the Purchaser) who agrees to be bound hereby. Section 10. Counterparts/Facsimile. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when together shall constitute but one and the same instrument, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other party. In lieu of the original, a facsimile transmission or copy of the original shall be as effective and enforceable as the original. Section 11. Remedies and Severability. The remedies provided in this Agreement are cumulative and not exclusive of any remedies provided by law. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of those that may be hereafter declared invalid, illegal, void or unenforceable. Section 12. Conflicting Agreements. The Company shall not enter into any agreement with respect to its securities that is inconsistent with the rights granted to the purchasers of Registrable Securities in this Agreement or otherwise prevents the Company from complying with all of its obligations hereunder. Section 13. Headings. The headings in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Section 14. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made in New York by persons domiciled in New York City and without regard to its principles of conflicts of laws. Any action may be brought as set forth in the Purchase Agreement. The Company and the Purchaser agree to submit themselves to the in personam jurisdiction of the state and federal courts situated within the Southern District of the State of New York with regard to any controversy arising out of or relating to this Agreement. Any party shall have the right to seek injunctive relief from any court of competent jurisdiction in any case where such relief is available. Any dispute under this Agreement shall be submitted to arbitration under the American Arbitration Association (the "AAA") in New York City, New York, and shall be finally and conclusively determined by the decision of a board of arbitration consisting of three (3) members (hereinafter referred to as the "Board of Arbitration") selected as according to the rules governing the AAA. The Board of Arbitration shall meet on consecutive business days in New York City, New York, and shall reach and render a decision in writing (concurred in by a majority of the members of the Board of Arbitration) with respect to the amount, if any, which the losing party is required to pay to the other party in respect of a claim filed. In connection with rendering its decisions, the Board of Arbitration shall adopt and follow the laws of the State of New York. To the extent practical, decisions of the Board of Arbitration shall be rendered no more than thirty (30) calendar days following commencement of proceedings with respect thereto. The Board of Arbitration shall cause its written decision to be delivered to all parties involved in the dispute. The Board of Arbitration shall be authorized and is directed to enter a default judgment against any party refusing to participate in the arbitration proceeding within thirty days of any deadline for such participation. Any decision made by the Board of Arbitration (either prior to or after the expiration of such thirty (30) calendar day period) shall be final, binding and conclusive on the parties to the dispute, and entitled to be enforced to the fullest extent permitted by law and entered in any court of competent jurisdiction. The prevailing party shall be awarded its costs, including attorneys' fees, from the non-prevailing party as part of the arbitration award. Any party shall have the right to seek injunctive relief from any court of competent jurisdiction in any case where such relief is available. The prevailing party in such injunctive action shall be awarded its costs, including attorney's fees, from the non-prevailing party. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights Agreement to be duly executed, on this __ day of April, 2001 CEL-SCI CORPORATION By: ------------------------------- Geert Kersten, Chief Executive Officer PAUL REVERE CAPITAL PARTNERS, LTD. By: ------------------------------- David Sims, Authorized Signatory EXHIBIT B ESCROW AGREEMENT THIS ESCROW AGREEMENT (this "Agreement") is made as of April 11, 2001, by and among CEL-SCI Corporation, a corporation incorporated under the laws of Colorado (the "Company"), Paul Revere Capital Partners, Ltd. ("Purchaser"), and Epstein Becker & Green, P.C., having an address at 250 Park Avenue, New York, NY 10177 (the "Escrow Agent"). Capitalized terms used but not defined herein shall have the meanings set forth in the Common Stock Purchase Agreement referred to in the first recital. WHEREAS, the Purchaser will from time to time as requested by the Company, purchase shares of the Company's Common Stock from the Company as set forth in that certain Common Stock Purchase Agreement (the "Purchase Agreement") dated the date hereof between the Purchaser and the Company, which shares shall be issued pursuant to the terms and conditions contained herein and in the Purchase Agreement; and WHEREAS, the Company and the Purchaser have requested that the Escrow Agent hold in escrow and then distribute the initial documents and certain funds which are conditions precedent to the effectiveness of the Purchase Agreement, and have further requested that upon each exercise of a Draw Down, the Escrow Agent hold the relevant documents and the applicable purchase price pending receipt by Purchaser of the securities issuable upon such Draw Down; NOW, THEREFORE, in consideration of the covenants and mutual promises contained herein and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged and intending to be legally bound hereby, the parties agree as follows: Article I TERMS OF THE ESCROW FOR THE INITIAL CLOSING 1.1. The parties hereby agree to establish an escrow account with the Escrow Agent whereby the Escrow Agent shall hold the funds and documents which are referenced in Section 4.2 of the Purchase Agreement. 1.2. At the Initial Closing, the Company shall deliver to the Escrow Agent: (i) the original executed Registration Rights Agreement in the form of Exhibit A to the Purchase Agreement; (ii) the original executed opinion of Hart & Trinen in the form of Exhibit C to the Purchase Agreement; (iii)the sum of $35,000, for the Purchaser's legal and administrative costs and expenses; (iv) the original executed Company counterpart of this Escrow Agreement; (v) the original executed Company counterpart of the Purchase Agreement; and (vi) the original executed Warrant. 1.3. Upon receipt of the foregoing, and receipt of executed counterparts from Purchaser of the Purchase Agreement, the Registration Rights Agreement and this Escrow Agreement, the Escrow Agent shall calculate and enter the exercise price, issuance date and termination date on the face of the Warrant and immediately transfer the sum of $35,000 to Epstein Becker & Green, P.C., as a non-accountable expense allowance for the Purchaser's legal, administrative and due diligence costs and expenses and shall then arrange to have the Purchase Agreement, this Escrow Agreement, the Registration Rights Agreement, the Warrant and the opinion of counsel delivered to the appropriate parties. 1.4 Wire transfers to the Escrow Agent (not address for notice or delivery of documents) shall be made as follows: Epstein Becker & Green, P.C. Master Escrow Account Chase Manhattan Bank 1411 Broadway - Fifth Floor New York, New York 10018 ABA No. 021000021 Account No. 035 1 346036 Attention: L. Borneo Article II TERMS OF THE ESCROW FOR EACH DRAW DOWN 2.1. Each time the Company shall send a Draw Down Notice to the Purchaser as provided in the Purchase Agreement, it shall send a copy, by facsimile, to the Escrow Agent. 2.2. Each time the Purchaser shall purchase Shares pursuant to a Draw Down, the Purchaser shall send the applicable Purchase Price of the Draw Down Shares to the Escrow Agent. Upon receipt of such funds, the Escrow Agent shall advise the Company that it has received the funds for such Draw Down Shares. The Company shall promptly, but no later than one (1) Trading Day after receipt of such funding notice from the Escrow Agent: (i) cause its transfer agent to issue the Draw Down Shares to the Purchaser via DTC's DWAC system to the account specified by the Purchaser from time to time; (ii) deliver the original executed attorney's opinion in the form of Exhibit C to the Purchase Agreement to the Purchaser; and (iii) deliver a Form 424(b) supplemental prospectus to the Purchaser. 2.3. Upon receipt of written confirmation from the transfer agent or from the Purchaser that such Draw Down Shares have been so deposited and the opinion and the supplemental prospectus have been so delivered, the Escrow Agent shall, within one (1) Trading Day, wire the Purchase Price of such Draw Down Shares per the written instructions of the Company, net of $1,000 as escrow expenses to the Escrow Agent. 2.4. In the event that such Draw Down Shares are not in the Purchaser's DTC account and the opinion and supplemental prospectus are not delivered to the Purchaser within two (2) Trading Days of the date of the Escrow Agent's notice, then Purchaser shall have the right to demand, by notice, the return of the Purchase Price, and the applicable Draw Down Notice shall be deemed cancelled. Article III MISCELLANEOUS 3.1. No waiver or any breach of any covenant or provision herein contained shall be deemed a waiver of any preceding or succeeding breach thereof, or of any other covenant or provision herein contained. No extension of time for performance of any obligation or act shall be deemed an extension of the time for performance of any other obligation or act. 3.2. All notices or other communications required or permitted hereunder shall be in writing, and shall be sent by fax, overnight courier, registered or certified mail, postage prepaid, return receipt requested, and shall be deemed received upon receipt thereof, as set forth in the Purchase Agreement. 3.3. This Escrow Agreement shall be binding upon and shall inure to the benefit of the permitted successors and permitted assigns of the parties hereto. 3.4. This Escrow Agreement is the final expression of, and contains the entire agreement between, the parties with respect to the subject matter hereof and supersedes all prior understandings with respect thereto. This Escrow Agreement may not be modified, changed, supplemented or terminated, nor may any obligations hereunder be waived, except by written instrument signed by the parties to be charged or by their respective agents duly authorized in writing or as otherwise expressly permitted herein. 3.5. Whenever required by the context of this Escrow Agreement, the singular shall include the plural and masculine shall include the feminine. This Escrow Agreement shall not be construed as if it had been prepared by one of the parties, but rather as if both parties had prepared the same. Unless otherwise indicated, all references to Articles are to this Escrow Agreement. 3.6. The parties hereto expressly agree that this Escrow Agreement shall be governed by, interpreted under and construed and enforced in accordance with the laws of the State of New York. Except as expressly set forth herein, any action to enforce, arising out of, or relating in any way to, any provisions of this Escrow Agreement shall be brought in the Federal or state courts of New York, New York as is more fully set forth in the Purchase Agreement. 3.7. The Escrow Agent's duties hereunder may be altered, amended, modified or revoked only by a writing signed by the Company, Purchaser and the Escrow Agent. 3.8. The Escrow Agent shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by the Escrow Agent to be genuine and to have been signed or presented by the proper party or parties. The Escrow Agent shall not be personally liable for any act the Escrow Agent may do or omit to do hereunder as the Escrow Agent while acting in good faith, excepting only its own gross negligence or willful misconduct, and any act done or omitted by the Escrow Agent pursuant to the advice of the Escrow Agent's attorneys-at-law (other than Escrow Agent itself) shall be conclusive evidence of such good faith. 3.9. The Escrow Agent is hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law and is hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case the Escrow Agent obeys or complies with any such order, judgment or decree, the Escrow Agent shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. 3.10. The Escrow Agent shall not be liable in any respect on account of the identity, authorization or rights of the parties executing or delivering or purporting to execute or deliver the Purchase Agreement or any documents or papers deposited or called for thereunder or hereunder. 3.11. The Escrow Agent shall be entitled to employ such legal counsel and other experts as the Escrow Agent may deem necessary properly to advise the Escrow Agent in connection with the Escrow Agent's duties hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor. The Escrow Agent has acted as legal counsel for the Purchaser, and may continue to act as legal counsel for the Purchaser, from time to time, notwithstanding its duties as the Escrow Agent hereunder. The Company consents to the Escrow Agent in such capacity as legal counsel for the Purchaser and waives any claim that such representation represents a conflict of interest on the part of the Escrow Agent. The Company understands that the Purchaser and the Escrow Agent are relying explicitly on the foregoing provision in entering into this Escrow Agreement. 3.12. The Escrow Agent's responsibilities as escrow agent hereunder shall terminate if the Escrow Agent shall resign by written notice to the Company and the Purchaser. In the event of any such resignation, the Purchaser and the Company shall appoint a successor Escrow Agent. 3.13. If the Escrow Agent reasonably requires other or further instruments in connection with this Escrow Agreement or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments. 3.14. It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the documents or the escrow funds held by the Escrow Agent hereunder, the Escrow Agent is authorized and directed in the Escrow Agent's sole discretion (1) to retain in the Escrow Agent's possession without liability to anyone all or any part of said documents or the escrow funds until such disputes shall have been settled either by mutual written agreement of the parties concerned by a final order, decree or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but the Escrow Agent shall be under no duty whatsoever to institute or defend any such proceedings or (2) to deliver the escrow funds and any other property and documents held by the Escrow Agent hereunder to a state or Federal court having competent subject matter jurisdiction and located in the State and City of New York in accordance with the applicable procedure therefor. 3.15. The Company and the Purchaser agree jointly and severally to indemnify and hold harmless the Escrow Agent and its partners, employees, agents and representatives from any and all claims, liabilities, costs or expenses in any way arising from or relating to the duties or performance of the Escrow Agent hereunder or the transactions contemplated hereby or by the Purchase Agreement other than any such claim, liability, cost or expense to the extent the same shall have been determined by final, unappealable judgment of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the Escrow Agent. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement as of this __ day of April, 2001. CEL-SCI CORPORATION By:---------------------------- Geert Kersten, Chief Executive Officer PAUL REVERE CAPITAL PARTNERS, INC. By: --------------------------- David Sims, Authorized Signatory ESCROW AGENT: EPSTEIN BECKER & GREEN, P.C. By: ------------------------------ Robert F. Charron, Authorized Signatory EXHIBIT C FORM OF OPINION OF THE COMPANY'S INDEPENDENT COUNSEL Shall include the opinion of Hart & Trinen, L.L.P., attached hereto, delivered at the Initial Closing and as to the opinion to be delivered at each Draw Down pursuant to Section 4.3(e) of the Purchase Agreement: 1. The Registration Statement has been declared effective by the SEC and no stop order is in effect with respect to the Registration Statement. Assuming compliance by the Purchaser with the "Plan of Distribution" caption of the Registration Statement and timely compliance by the Purchaser with all prospectus delivery requirements, the Shares shall be freely transferable by Purchaser. 2. Nothing has come to our attention that has caused us to believe that the Registration Statement and the Prospectus at the time the Registration Statement became effective and as of the date of this opinion contained or contains an untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; however, we express no opinion with respect to the financial statements and the notes thereto and the schedules and other financial and statistical data derived therefrom included in the Registration Statement or the Prospectus. EXHIBIT D DRAW DOWN NOTICE/COMPLIANCE CERTIFICATE CEL-SCI Corporation The undersigned hereby certifies, with respect to shares of Common Stock of CEL-SCI Corporation (the "Company") issuable in connection with this Draw Down Notice and Compliance Certificate dated _____________ (the "Notice"), delivered pursuant to the Common Stock Purchase Agreement dated as of April 11, 2001 (the "Agreement"), as follows: 1. The undersigned is the duly appointed Chief Executive Officer or Chief Financial Officer of the Company. 2. Except as set forth on the schedules attached hereto, the representations and warranties of the Company set forth in the Agreement are true and correct in all material respects as though made on and as of the date hereof and all SEC Documents are as represented in Section 2.1(f) of the Agreement. 3. The Company has performed in all material respects all covenants and agreements to be performed by the Company under the Agreement on or prior to the date of this Draw Down Notice and has complied in all material respects with all of the Company's obligations and conditions contained in the Agreement. 4. The Investment Amount is $___________. 5. The Threshold Price, if any, is $__________. 6. The Draw Down Pricing Period shall commence on ____________. The undersigned has executed this Certificate this ____ day of ________, _____. CEL-SCI CORPORATION By: ------------------------------- Name: Title: EX-10 3 ex10r.txt STOCK PURCHASE WARRANT NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY OTHER APPLICABLE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS. NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE HEREOF MAY BE SOLD, PLEDGED, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT AND ANY APPLICABLE STATE LAWS. STOCK PURCHASE WARRANT To Purchase 200,800 Shares of Common Stock of CEL-SCI CORPORATION THIS CERTIFIES that, for value received, Paul Revere Capital Partners, Ltd. (the "Holder"), is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after April 11, 2001 (the "Initial Exercise Date") and on or prior to the close of business on April 11, 2004 (the "Termination Date") but not thereafter, to subscribe for and purchase from CEL-SCI Corporation, a corporation incorporated in the State of Colorado (the "Company"), up to 200,800 shares (the "Warrant Shares") of Common Stock, $0.01 par value per share, of the Company (the "Common Stock"). The purchase price of one share of Common Stock (the "Exercise Price") under this Warrant shall be $1.64. The Exercise Price and the number of Warrant Shares for which the Warrant is exercisable shall be subject to adjustment as provided herein. In the event of any conflict between the terms of this Warrant and the Common Stock Purchase Agreement dated as of April 11, 2001 pursuant to which this Warrant has been issued (the "Purchase Agreement"), the Purchase Agreement shall control. Capitalized terms used and not otherwise defined herein shall have the meanings set forth for such terms in the Purchase Agreement. 1. Title to Warrant. Prior to the Termination Date and subject to compliance with applicable laws, this Warrant and all rights hereunder are transferable, in whole or in part, at the office or agency of the Company by the Holder in person or by duly authorized attorney, upon surrender of this Warrant together with the Assignment Form annexed hereto properly endorsed. 2. Authorization of Shares. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue). 3. Exercise of Warrant. - ------------------------- (a) Except as provided in Section 4 herein, exercise of the purchase rights represented by this Warrant may be made at any time or times on or after the Initial Exercise Date and on or before the Termination Date by the surrender of this Warrant and the Notice of Exercise Form annexed hereto duly executed, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of such Holder appearing on the books of the Company) and upon payment of the Exercise Price of the shares thereby purchased by wire transfer or cashier's check drawn on a United States bank or by means of a cashless exercise, the Holder shall be entitled to receive a certificate for the number of Warrant Shares so purchased. Certificates for shares purchased hereunder shall be delivered to the Holder within three (3) Trading Days after the date on which this Warrant shall have been exercised as aforesaid. This Warrant shall be deemed to have been exercised and such certificate or certificates shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price and all taxes required to be paid by the Holder, if any, pursuant to Section 5 prior to the issuance of such shares, have been paid. Notwithstanding anything to the contrary herein, in the event the Purchase Agreement is terminated pursuant to Section 6.2(b) therein, a pro-rata portion of half of the unexercised Warrant Shares herein, based upon the portion of the Commitment Amount that has not been previously honored, shall be null and void. (b) If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant. (c) If no registration statement is effective permitting the resale of the Warrant Shares at any time commencing one year after the issuance date hereof, this Warrant shall also be exercisable by means of a "cashless exercise" in which the Holder shall be entitled to receive a certificate for the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where: (A) = the average of the high and low trading prices per share of Common Stock on the Trading Day preceding the date of such election on the Nasdaq Stock Market, or if the Common Stock is not traded on the Nasdaq Stock Market, then the Principal Market in terms of volume; (B) = the Exercise Price of this Warrant; and (X) = the number of Warrant Shares issuable upon exercise of this Warrant in accordance with the terms of this Warrant and the Notice of Exercise. (d) Notwithstanding anything herein to the contrary, in no event shall the Holder be permitted to exercise this Warrant for Warrant Shares to the extent that (i) the number of shares of Common Stock owned by such Holder (other than Warrant Shares issuable upon exercise of this Warrant) plus (ii) the number of Warrant Shares issuable upon exercise of this Warrant, would be equal to or exceed 9.9% of the number of shares of Common Stock then issued and outstanding, including shares issuable upon exercise of this Warrant held by such Holder after application of this Section 3(d). As used herein, beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act. To the extent that the limitation contained in this Section 3(d) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder) and of which a portion of this Warrant is exercisable shall be in the sole discretion of such Holder, and the submission of a Notice of Exercise shall be deemed to be such Holder's determination of whether this Warrant is exercisable (in relation to other securities owned by such Holder) and of which portion of this Warrant is exercisable, in each case subject to such aggregate percentage limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. Nothing contained herein shall be deemed to restrict the right of a Holder to exercise this Warrant into Warrant Shares at such time as such exercise will not violate the provisions of this Section 3(d). The provisions of this Section 3(d) may be waived by the Holder upon, at the election of the Holder, with not less than 61 days' prior notice to the Company, and the provisions of this Section 3(d) shall continue to apply until such 61st day (or such later date as may be specified in such notice of waiver). No exercise of this Warrant in violation of this Section 3(d) but otherwise in accordance with this Warrant shall affect the status of the Warrant Shares as validly issued, fully-paid and nonassessable. 4. No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price. 5. Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder; and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. 6. Closing of Books. Unless required by law, the Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant. 7. Transfer, Division and Combination. - ---------------------------------------- (a) Subject to compliance with any applicable securities laws, transfer of this Warrant and all rights hereunder, in whole or in part, shall be registered on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the principal office of the Company, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. In the event that the Holder wishes to transfer a portion of this Warrant, the Holder shall transfer at least 100,000 shares underlying this Warrant to any such transferee. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued. (b) This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 7(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. (c) The Company shall prepare, issue and deliver at its own expense (other than transfer taxes) the new Warrant or Warrants under this Section 7. (d) The Company agrees to maintain, at its aforesaid office, books for the registration and the registration of transfer of the Warrants. 8. No Rights as Shareholder until Exercise. This Warrant does not entitle the Holder to any voting rights or other rights as a shareholder of the Company prior to the exercise hereof. Upon the surrender of this Warrant and the payment of the aggregate Exercise Price or by means of a cashless exercise, the Warrant Shares so purchased shall be and be deemed to be issued to such Holder as the record owner of such shares as of the close of business on the later of the date of such surrender or payment. 9. Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate. 10. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a Saturday, Sunday or legal holiday. 11. Adjustments of Exercise Price and Number of Warrant Shares. (a) Stock Splits, etc. The number and kind of securities purchasable upon the exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time upon the happening of any of the following. In case the Company shall (i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock to holders of its outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, or (iv) issue any shares of its capital stock in a reclassification of the Common Stock, then the number of Warrant Shares purchasable upon exercise of this Warrant immediately prior thereto shall be adjusted so that the Holder shall be entitled to receive the kind and number of Warrant Shares or other securities of the Company which it would have owned or have been entitled to receive had such Warrant been exercised in advance thereof. Upon each such adjustment of the kind and number of Warrant Shares or other securities of the Company which are purchasable hereunder, the Holder shall thereafter be entitled to purchase the number of Warrant Shares or other securities resulting from such adjustment at an Exercise Price per Warrant Share or other security obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares purchasable pursuant hereto immediately prior to such adjustment and dividing by the number of Warrant Shares or other securities of the Company resulting from such adjustment. An adjustment made pursuant to this paragraph shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event. 12. Reorganization, Reclassification, Merger, Consolidation or Disposition of Assets. In case the Company shall reorganize its capital, reclassify its capital stock, consolidate or merge with or into another corporation (where the Company is not the surviving corporation or where there is a change in or distribution with respect to the Common Stock of the Company), or sell, transfer or otherwise dispose of all or substantially all its property, assets or business to another corporation and, pursuant to the terms of such reorganization, reclassification, merger, consolidation or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation ("Other Property"), are to be received by or distributed to the holders of Common Stock of the Company, then the Holder shall have the right thereafter to receive, upon exercise of this Warrant, the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Other Property receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a Holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event. In case of any such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation (if other than the Company) shall expressly assume the due and punctual observance and performance of each and every covenant and condition of this Warrant to be performed and observed by the Company and all the obligations and liabilities hereunder, subject to such modifications as may be deemed appropriate (as determined in good faith by resolution of the Board of Directors of the Company) in order to provide for adjustments of Warrant Shares for which this Warrant is exercisable which shall be as nearly equivalent as practicable to the adjustments provided for in this Section 12. For purposes of this Section 12, "common stock of the successor or acquiring corporation" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 12 shall similarly apply to successive reorganizations, reclassifications, mergers, consolidations or disposition of assets. 13. Voluntary Adjustment by the Company. The Company may at any time during the term of this Warrant reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company. 14. Notice of Adjustment. Whenever the number of Warrant Shares or number or kind of securities or other property purchasable upon the exercise of this Warrant or the Exercise Price is adjusted, as herein provided, the Company shall promptly mail by registered or certified mail, return receipt requested, to the Holder notice of such adjustment or adjustments setting forth the number of Warrant Shares (and other securities or property) purchasable upon the exercise of this Warrant and the Exercise Price of such Warrant Shares (and other securities or property) after such adjustment, setting forth a brief statement of the facts requiring such adjustment and setting forth the computation by which such adjustment was made. Such notice, in the absence of manifest error, shall be conclusive evidence of the correctness of such adjustment. 15. Notice of Corporate Action. If at any time: - -------------------------------- (a) the Company shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or other distribution, or any right to subscribe for or purchase any evidences of its indebtedness, any shares of stock of any class or any other securities or property, or to receive any other right, or (b) there shall be any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger of the Company with, or any sale, transfer or other disposition of all or substantially all the property, assets or business of the Company to, another corporation or, (c) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company; then, in any one or more of such cases, the Company shall give to Holder (i) at least 20 days' prior written notice of the date on which a record date shall be selected for such dividend, distribution or right or for determining rights to vote in respect of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, liquidation or winding up, and (ii) in the case of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, at least 20 days' prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause also shall specify (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, the date on which the holders of Common Stock shall be entitled to any such dividend, distribution or right, and the amount and character thereof, and (ii) the date on which any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up is to take place and the time, if any such time is to be fixed, as of which the holders of Common Stock shall be entitled to exchange their Warrant Shares for securities or other property deliverable upon such disposition, dissolution, liquidation or winding up. Each such written notice shall be sufficiently given if addressed to Holder at the last address of Holder appearing on the books of the Company and delivered in accordance with Section 17(d). 16. Authorized Shares. The Company covenants that during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Principal Market upon which the Common Stock may be listed. The Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant, and (c) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant. Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof. 17. Miscellaneous. - ------------------- (a) Jurisdiction. This Warrant shall constitute a contract under the laws of New York, without regard to its conflict of law, principles or rules, and be subject to arbitration pursuant to the terms set forth in the Purchase Agreement. (b) Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws. (c) Nonwaiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder's rights, powers or remedies, notwithstanding all rights hereunder terminate on the Termination Date. If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys' fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder. (d) Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement. (e) Limitation of Liability. No provision hereof, in the absence of affirmative action by Holder to purchase Warrant Shares, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. (f) Remedies. Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. (g) Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by any such Holder or holder of Warrant Shares. (h) Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder. (i) Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant. (j) Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized. Dated: April __, 2001 CEL-SCI CORPORATION By:_____________________________________________ Geert Kersten, Chief Executive Officer NOTICE OF EXERCISE To: Cel-SCI Corporation (1) The undersigned hereby elects to purchase ________ Warrant Shares (the "Common Stock"), of Cel-SCI Corporation pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any. (2) Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below: ------------------------------------- The Warrant Shares shall be delivered to the following: ------------------------------------- ------------------------------------- ------------------------------------- [PURCHASER] By: ______________________________ Name: Title: Dated: ________________________ NOTICE OF EXERCISE OF COMMON STOCK WARRANT PURSUANT TO CASHLESS EXERCISE PROVISIONS To: Cel-SCI Corporation Aggregate Price of Warrant Before Exercise: $ __ -------- Aggregate Price Being Exercised: $ __ ------ Exercise Price: $ __ per share ------ Number of Shares of Common Stock to be Issued Under this Notice: __ -------- Remaining Aggregate Price (if any) After Issuance: $ __ ------- Gentlemen: The undersigned, registered Holder of the Warrant delivered herewith, hereby irrevocably exercises such Warrant for, and purchases thereunder, shares of the Common Stock of Cel-SCI Corporation, a Colorado corporation, as provided below. Capitalized terms used herein, unless otherwise defined herein, shall have the meanings given in the Warrant. The portion of the Exercise Price (as defined in the Warrant) to be applied toward the purchase of Common Stock pursuant to this Notice of Exercise is $_______, thereby leaving a remaining Exercise Price (if any) equal to $________. Such exercise shall be pursuant to the cashless exercise provisions of Section 3 of the Warrant; therefore, Holder makes no payment with this Notice of Exercise. The number of shares to be issued pursuant to this exercise shall be determined by reference to the formula in Section 3 of the Warrant which, by reference to Section 3, requires the use of the high and low trading price of the Company's Common Stock on the Trading Day preceding the date of such election. The high and low trading price of the Company's Common Stock has been determined by Holder to be $______ and $_________, respectively, which figure is acceptable to Holder for calculations of the number of shares of Common Stock issuable pursuant to this Notice of Exercise. Holder requests that the certificates for the purchased shares of Common Stock be issued in the name of _________________________ and delivered to ______________________________________________. To the extent the foregoing exercise is for less than the full Aggregate Price of the Warrant, a replacement Warrant representing the remainder of the Aggregate Price (and otherwise of like form, tenor and effect) shall be delivered to Holder along with the share certificate evidencing the Common Stock issued in response to this Notice of Exercise. [Purchaser] By: -------------------------------- Name: Title: Date: NOTE The execution to the foregoing Notice of Exercise must exactly correspond to the name of the Holder on the Warrant NY:142154.1 ASSIGNMENT FORM (To assign the foregoing warrant, execute this form and supply required information. Do not use this form to exercise the warrant.) FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to _______________________________________________ whose address is - ---------------------------------------------------------------. - --------------------------------------------------------------- Dated: ______________, _______ Holder's Signature: _____________________________ Holder's Address: _____________________________ ----------------------------- Signature Guaranteed: ___________________________________________ NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in an fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant. EX-23 4 ex23a.txt CONSENT OF ATTORNEYS CONSENT OF ATTORNEYS Reference is made to the Registration Statement of CEL-SCI, whereby certain selling shareholders propose to sell up to 3,000,800 shares of CEL-SCI's common stock. Reference is also made to Exhibit 5 included in the Registration Statement relating to the validity of the securities proposed to be sold. We hereby consent to the use of our opinion concerning the validity of the securities proposed to be issued and sold. Very truly yours, HART & TRINEN William T. Hart Denver, Colorado April 27, 2000 EX-23 5 ex23b.txt AUDITORS CONSENT INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of Cel-Sci Corporation on Form S-1 of our report dated November 17, 2000, appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. McLean, VA April 23, 2001 S-1 6 s14-01.txt As filed with the Securities and Exchange Commission on April __, 2001 Registration No. 333-______ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM S-1 Registration Statement Under THE SECURITIES ACT OF 1933 CEL-SCI CORPORATION ---- -------------------- (Exact name of registrant as specified in charter Delaware 2831 52-2278236 -------- --------------- ---------- (State or other jurisdiction (Primary Standard Classi- (IRS Employer of incorporation) fication Code Number) I.D. Number) 8229 Boone Blvd. #802 Vienna, Virginia 22182 (703) 506-9460 ------------ --------------- (Address and telephone number of principal executive offices) Geert Kersten 8229 Boone Blvd. #802 Vienna, Virginia 22182 (703) 506-9460 ----- --------------- (Name, address and telephone number of agent for service) Copies of all communications, including all communications sent to the agent for service, should be sent to: William T. Hart, Esq. Hart & Trinen, LLP 1624 Washington Street Denver, Colorado 80203 303-839-0061 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box [X]. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] CALCULATION OF REGISTRATION FEE ============================================================================== Title of each Proposed Proposed Class of Maximum Maximum Securities Securities Offering Aggregate Amount of to be to be Price Per Offering Registration Registered Registered Share (3) Price Fee - ---------- ---------- ----------- --------- ------------ Common stock (1) 2,800,000 $1.37 $3,836,000 $1,013 Common stock (2) 200,800 $1.37 $275,096 73 Total $1,086 - -------------------------------------------------------------------------------- (1) Represents shares issuable to Paul Revere Capital Partners, Ltd. under equity line of credit. (2) Represents shares issuable upon the exercise of warrants held by Paul Revere Capital Partners. (3) Offering price computed in accordance with Rule 457(c). Pursuant to Rule 416, this Registration Statement includes such indeterminate number of additional securities as may be required for issuance upon the exercise of the options or warrants as a result of any adjustment in the number of securities issuable by reason of the options or warrants. The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of l933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. PROSPECTUS CEL-SCI CORPORATION Common Stock This prospectus may be used only in connection with sales of the common stock of CEL-SCI Corporation by Paul Revere Capital Partners, Ltd. Paul Revere Capital Partners will sell shares of common stock purchased from CEL-SCI under an equity line of credit agreement and up to _____ shares of common stock which may be issued upon the exercise of warrants. The warrants were issued to Paul Revere Capital Partners upon the signing of the equity line of credit agreement. CEL-SCI will not receive any proceeds from the sale of the common stock by the selling stockholders. CEL-SCI will pay for the expenses of this offering. CEL-SCI's common stock is quoted on the American Stock Exchange under the symbol "CVM." On April 26, 2001 the closing price for one share of the CEL-SCI's common stock was $1.37. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense. These securities are speculative and involve a high degree of risk. For a description of certain important factors that should be considered by prospective investors, see "Risk Factors" beginning on page ____ of this Prospectus The date of this prospectus is _________, 2001 PROSPECTUS SUMMARY THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS. CEL-SCI CEL-SCI Corporation was formed as a Colorado corporation in 1983. CEL-SCI is involved in the research and development of certain drugs and vaccines. CEL-SCI manufactures MULTIKINE, its first, and main product, using CEL-SCI's proprietary cell culture technologies, which involve a combination, or "cocktail", of natural human interleukin-2 and certain lymphokines and cytokines. CEL-SCI is testing MULTIKINE to determine if it is effective in improving the immune response of cancer patients. Another technology CEL-SCI is developing, Ligand Epitope Antigen Presentation System (LEAPS), is a T-cell modulation technology which CEL-SCI is testing to determine if it is effective in developing potential treatments and/or vaccines against various diseases. Present target diseases are AIDS, herpes simplex, malaria, tuberculosis, prostate cancer and breast cancer. Before human testing can begin with respect to a drug or biological product, preclinical studies are conducted in laboratory animals to evaluate the potential efficacy and the safety of a product. Human clinical studies generally involve a three-phase process. The initial clinical evaluation, Phase I, consists of administering the product and testing for safe and tolerable dosage levels. Phase II trials continue the evaluation of safety and determine the appropriate dosage for the product, identify possible side effects and risks in a larger group of subjects, and provide preliminary indications of efficacy. Phase III trials consist of testing for actual clinical efficacy within an expanded group of patients at geographically dispersed test sites. CEL-SCI has funded the costs associated with the clinical trials relating to CEL-SCI's technologies, research expenditures and CEL-SCI's administrative expenses with the public and private sales of shares of CEL-SCI's common stock and borrowings from third parties, including affiliates of CEL-SCI. CEL-SCI does not expect to develop commercial products for several years, if at all. CEL-SCI has had operating losses since its inception, had an accumulated deficit of approximately $(63,650,000) at December 31, 2000, and expects to incur substantial losses for the foreseeable future. CEL-SCI's executive offices are located at 8229 Boone Blvd., #802, Vienna, Virginia 22182, and its telephone number is (703) 506-9460. The Offering In order to provide a possible source of funding for CEL-SCI's current activities and for the development of its current and planned products, CEL-SCI has entered into an equity line of credit agreement with Paul Revere Capital Partners. Under the equity line of credit agreement, Paul Revere Capital Partners has agreed to provide CEL-SCI with up to $10,000,000 of funding during the twenty four-month period following the effective date of the registration statement to which this prospectus relates. During this twenty four-month period, CEL-SCI may request a drawdown under the equity line of credit by selling shares of its common stock to Paul Revere Capital Partners, and Paul Revere Capital Partners will be obligated to purchase the shares. The minimum amount CEL-SCI can draw down at any one time is $100,000, and the maximum amount CEL-SCI can draw down at any one time will be determined at the time of the drawdown request using a formula contained in the equity line of credit agreement. CEL-SCI may request a drawdown once every 24 trading days, although CEL-SCI is under no obligation to request any drawdowns under the equity line of credit. During the 22 trading days following a drawdown request, CEL-SCI will calculate the amount of shares it will sell to Paul Revere Capital Partners and the purchase price per share. The purchase price per share of common stock will be based on the daily volume weighted average price of CEL-SCI's common stock during each of the 22 trading days immediately following the drawdown date, less a discount of 11%. Using the formula contained in the equity line of credit agreement, if CEL-SCI had requested a drawdown on April 12, 2001, the maximum amount CEL-SCI could draw down during the subsequent 22 trading days would have been $365,304. Based upon the daily volume weighted average of CEL-SCI's common stock during these 22 trading days, CEL-SCI would have sold 273,635 shares of its common stock to Paul Revere Capital Partners and would have received $365,304 from the sale of these shares. For more details on the maximum drawdown amount, the calculation of the purchase price and the number of shares CEL-SCI will sell, see "Equity Line of Credit Agreement" beginning on page 7 of this prospectus. CEL-SCI is registering the shares of common stock issuable to Paul Revere Capital Partners under the equity line of credit, as well as the 200,800 shares underlying the warrants that CEL-SCI granted to Paul Revere Capital Partners. These shares may be offered for sale from time to time by means of this prospectus by or for the account of Paul Revere Capital Partners. CEL-SCI will prepare and file amendments and supplements to this prospectus as may be necessary in order to keep this prospectus effective as long as the selling shareholders hold shares of CEL-SCI's common stock or until these shares can be sold under an appropriate exemption from registration. CEL-SCI has agreed to bear the expenses of registering the shares, including Paul Revere Capital Partners's legal fees of $35,000, but not the expenses associated with selling the shares, such as broker discounts and commissions. As of April 12, 2001, CEL-SCI had 21,116,543 shares of common stock issued and outstanding. The number of outstanding shares does not give effect to shares which may be issued pursuant to the equity-line of credit or upon the exercise and/or conversion of options, warrants or convertible notes. See "Comparative Share Data". CEL-SCI will not receive any proceeds from the sale of the shares by Paul Revere Capital Partners. However, CEL-SCI will receive proceeds from any sale of common stock to Paul Revere Capital Partners under the equity line of credit agreement and upon the exercise of warrants held by Paul Revere Capital Partners, when, and if, its pays the exercise price in cash. CEL-SCI expects to use substantially all the net proceeds for general and administrative expenses, research and clinical trials. The purchase of the securities offered by this prospectus involves a high degree of risk. Risk factors include the lack of revenues and history of loss, and the need for additional capital. See the "Risk Factors" section of this prospectus for additional Risk Factors. Summary Financial Data The financial data presented below should be read in conjunction with the more detailed financial statements and related notes which are included elsewhere in this prospectus along with the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operation." Results of Operations: Year Ended Three Months Ended September 30, 2000 December 31, 2000 ------------------ ------------------ Investment Income and Other Revenues: $442,551 $249,808 Expenses: Research and Development 4,978,714 2,017,007 Depreciation and Amortization 220,994 49,079 General and Administrative 3,721,240 727,211 --------- ------- Net Loss $(8,478,397) $(2,543,489) ============ ============ Loss per common share (basic and diluted) $(0.44) $(0.12) Weighted average common Shares outstanding 19,259,190 20,459,913 Balance Sheet Data: September 30, 2000 December 31, 2000 Working Capital $11,725,940 $9,230,208 Total Assets 13,808,882 11,263,832 Total Liabilities 847,423 789,854 Shareholders' Equity 12,961,459 10,473,978 Forward Looking Statements This prospectus contains various forward-looking statements that are based on CEL-SCI's beliefs as well as assumptions made by and information currently available to CEL-SCI. When used in this prospectus, the words "believe", "expect", "anticipate", "estimate" and similar expressions are intended to identify forward-looking statements. Such statements may include statements regarding seeking business opportunities, payment of operating expenses, and the like, and are subject to certain risks, uncertainties and assumptions which could cause actual results to differ materially from projections or estimates. Factors which could cause actual results to differ materially are discussed at length under the heading "Risk Factors". Should one or more of the enumerated risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Investors should not place undue reliance on forward-looking statements, all of which speak only as of the date made. RISK FACTORS Investors should be aware that this offering involves certain risks, including those described below, which could adversely affect the value of their holdings of common stock. CEL-SCI does not make, nor has it authorized any other person to make, any representation about the future market value of CEL-SCI's common stock. In addition to the other information contained in this prospectus, the following factors should be considered carefully in evaluating an investment in the Shares offered by this prospectus CEL-SCI Has Earned Only Limited Revenues and Has a History of Losses. - -------------------------------------------------------------------- CEL-SCI has had only limited revenues since it was formed in 1983. Since the date of its formation and through December 31, 2000 CEL-SCI incurred net losses of approximately $(63,650,000). During the years ended September 30, 1998, 1999 and 2000 CEL-SCI suffered losses of $(6,442,683), $(7,490,725) and $(8,478,397) respectively. CEL-SCI has relied principally upon the proceeds of public and private sales of securities to finance its activities to date. All of CEL-SCI's potential products are in the early stages of development, and any commercial sale of these products will be many years away. Accordingly, CEL-SCI expects to incur substantial losses for the foreseeable future. There can be no assurance CEL-SCI will be profitable. 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. CEL-SCI does not presently intend to pay dividends on its common stock and there can be no assurance that common stock dividends will ever be paid. If Cel-Sci cannot obtain additional capital, Cel-Sci may have to delay or postpone development and research expenditures which may influence Cel-Sci's ability to produce a timely and competitive product. 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. 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 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. Although the equity line of credit agreement is expected to be a source of funding, the amounts which CEL-SCI is able to draw from the equity line during each drawdown period may not satisfy CEL-SCI's capital needs. There can be no assurance that CEL-SCI will be able to obtain the funding needed for its future operations If Cost Estimates for Clinical Trials and Research Are Inaccurate, CEL-SCI Will Require Additional Funding. 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. If CEL-SCI's cost estimates are incorrect, CEL-SCI will need additional funding for its research efforts. 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. Therapeutic agents, drugs and diagnostic products are subject to approval, prior to general marketing, by the FDA in the United States and by comparable agencies in most foreign countries. The process of obtaining FDA and corresponding foreign approvals is costly and time consuming, particularly for pharmaceutical products such as those which might ultimately be developed by CEL-SCI, VTI or its licensees, and there can be no assurance that such approvals will be granted. Also, the extent of adverse government regulations which might arise from future legislative or administrative action cannot be predicted. CEL-SCI has, at the present time, only one source of multikine and if this source could not, for any reason, supply CEL-SCI with Multikine, CEL-SCI estimates that it would take approximately six to ten months to obtain supplies of Multikine under an alternative manufacturing arrangement. CEL-SCI has an agreement with an unrelated corporation for the production, until 2006, of Multikine for research and testing purposes. CEL-SCI does not know what cost it would incur to obtain an alternative source of supply. There can be no assurance that CEL-SCI will achieve or maintain a competitive position or that other technological developments will not cause CEL-SCI's proprietary technologies to become 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 pharmaceutical and biotechnology companies are developing products for the prevention or treatment of cancer and infectious diseases. Many of these companies have substantial financial, research and development, and marketing resources and are capable of providing significant long-term competition either by establishing in-house research groups or by forming collaborative ventures with other entities. In addition, both smaller companies and non-profit institutions are active in research relating to cancer and infectious diseases and are expected to become more active in the future. CEL-SCI's Patents Might Not Protect CEL-SCI's Technology from Competitors. Certain aspects of CEL-SCI's technologies are covered by U.S. and foreign patents. In addition, CEL-SCI has a number of 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. CEL-SCI's first MULTIKINE patent expired in 2000. Since CEL-SCI does not know if it will ever be able to sell MULTIKINE on a commercial basis, CEL-SCI cannot predict what effect the expiration of this patent will have on CEL-SCI. Notwithstanding the above, CEL-SCI believes that trade secrets and later issued patents will protect the technology associated with Multikine. CEL-SCI's Product Liability Insurance May Not Be Adequate to Protect CEL-SCI from Possible Losses. Although CEL-SCI has product liability insurance for Multikine and its HGP-30 vaccine, 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. The Loss of Management and Scientific Personnel Could Adversely Affect CEL-SCI. - ------------------------------------------------------------------------------- CEL-SCI is dependent for its success on the continued availability of its executive officers. The loss of the services of any of CEL-SCI's executive officers could have an adverse effect on CEL-SCI's business. CEL-SCI does not carry key man life insurance on any of its officers. CEL-SCI's future success will also depend upon its ability to attract and retain qualified scientific personnel. There can be no assurance that CEL-SCI will be able to hire and retain such necessary personnel. Shares Issuable in Connection with the Equity Line of Credit or Upon the Conversion of Options, Warrants and Convertible Securities May Depress the Price of CEL-SCI's Common stock. CEL-SCI has issued options to its officers, directors, employees and consultants which allow the holders to acquire additional shares of CEL-SCI's common stock. In some cases CEL-SCI has agreed that, at its expense, it will make appropriate filings with the Securities and Exchange Commission so that the securities issuable upon the exercise of the options will be available for public sale. Such filings could result in substantial expense to CEL-SCI and could hinder future financings by CEL-SCI. Until the options expire, 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 the options may exercise them at a time when CEL-SCI could obtain additional capital on terms more favorable than those provided by the options. The exercise of the options will dilute the voting interest of the owners of presently outstanding shares of CEL-SCI's common stock and may adversely affect the ability of CEL-SCI to obtain additional capital in the future. The sale of the shares of common stock issuable upon the exercise of the options could adversely affect the market price of CEL-SCI's stock. In December 1999 and January 2000, CEL-SCI sold 1,148,592 shares of its common stock, plus Series A and Series B warrants, to three private investors. The Series A warrants permit the holders of the warrants to purchase 402,007 shares of CEL-SCI's common stock at a price of $2.925 per share at any time prior to December 8, 2002. The Series B warrants allowed the holders to acquire additional shares of CEL-SCI's common stock at a nominal price in the event the price of CEL-SCI's common stock fell below $2.4375 per share prior to certain fixed vesting dates, the first of which in December 2000. On the first fixed vesting date the price of CEL-SCI's common stock was $1.54. Pursuant to the terms of the Series B warrants, which have since expired, the holders of the warrants, in December 2000, received 273,834 additional shares of CEL-SCI's common stock. In March 2000, CEL-SCI sold an additional 1,026,666 shares of its common stock, plus Series C and Series D warrants, to the same three private investors. The Series C warrants permit the holders of the warrants to purchase 413,344 shares of CEL-SCI's common stock at a price of $8.50 per share at any time prior to March 21, 2003. The Series D warrants originally allowed the holders, to the extent they held any shares purchased in the March 2000 offering, to acquire additional shares of CEL-SCI's common stock at a nominal price in the event the price of CEL-SCI's common stock fell below $7.50 per share prior to certain fixed vesting dates, the first of which was in March 2001. On the first fixed vesting date the price of CEL-SCI's common stock was $1.47. As a result, and in accordance with the terms of the Series D warrants, the private investors are entitled to receive 4,207,865 additional shares of CEL-SCI's common stock. The Series D warrants allow the investors, under certain circumstances, to acquire additional shares of CEL-SCI's common stock at a nominal price in the event: o The price of CEL-SCI's common stock falls below $1.47 per share or o CEL-SCI raises in excess of $1,000,000 at a price which is below either the then prevailing market price of CEL-SCI's common stock or $1.47 per share. The shares of common stock sold by CEL-SCI in the December 1999 and January 2000 private offerings have since been resold by the investors. The shares of common stock sold in the March 2000 private offering, as well as the shares of common stock issued or issuable upon the exercise of the Series A, C and D warrants are being offered for public sale by means of a separate registration statement which has been filed with the Securities and Exchange Commission. The sale of common stock issued or issuable upon the exercise of the Series A, B C and D warrants, or the perception that such sales could occur, could adversely affect the market price of CEL-SCI's common stock. An unknown number of shares of common stock, which may be sold by means of this prospectus, are issuable under the equity line of credit and upon the exercise of warrants held by Paul Revere Capital Partners. As CEL-SCI sells shares of its common stock to Paul Revere Capital Partners under the equity line of credit, and Paul Revere Capital Partners sells the common stock to third parties, the price of CEL-SCI's common stock may decrease due to the additional shares in the market. If CEL-SCI decides to draw down on the equity line of credit as the price of its common stock decreases, CEL-SCI will be required to issue more shares of its common stock for any given dollar amount invested by Paul Revere Capital Partners, subject to the minimum selling price specified by CEL-SCI. The more shares that are issued under the equity line of credit, the more CEL-SCI's then outstanding shares will be diluted and the more CEL-SCI's stock price may decrease. Any decline in the price of CEL-SCI's common stock may encourage short sales, which could place further downward pressure on the price of CEL-SCI's common stock. See "Equity Line of Credit Agreement" for more information concerning this equity line. The Market Price for CEL-SCI's Common Stock is Volatile. 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. COMPARATIVE SHARE DATA Number of Note Shares Reference Shares outstanding as of April 12, 2001 21,116,543 Shares issuable pursuant to equity line of credit: A. Shares issuable upon exercise of warrants 200,800 A. The number of shares outstanding as of April 12, 2001 excludes shares which may be issued upon the exercise and/or conversion of options, warrants and other convertible securities previously issued by CEL-SCI. See table below. Other Shares Which May Be Issued: - -------------------------------- The following table lists additional shares of CEL-SCI's common stock which may be issued as the result of the exercise of outstanding options, warrants or the conversion of other securities issued by CEL-SCI: Number of Note Shares Reference Shares issuable upon exercise of 402,007 B. Series A warrants Shares issuable upon exercise of 413,344 C. Series C warrants Shares issuable upon exercise of 4,207,865 C. Series D warrants Shares issuable upon exercise of 25,000 D. sales agent warrants Shares issuable upon exercise of 1,100,000 E. warrants sold to investors in December 1997 private offering Shares issuable upon exercise of options granted to investor relations consultants 125,000 F. Shares issuable upon exercise of options and warrants granted to CEL-SCI's officers, directors, employees, consultants, and third parties 3,493,239 G. A. An unknown number of shares of common stock, which may be sold by means of this prospectus, are issuable under the equity line of credit agreement between CEL-SCI and Paul Revere Capital Partners. As consideration for extending the equity line of credit, CEL-SCI granted Paul Revere Capital Partners warrants to purchase 200,800 shares of common stock at a price of $1.64 per share at any time prior to April 11, 2004. See "Equity Line of Credit Agreement" for more information concerning this equity line. B. In December 1999 and January 2000, CEL-SCI sold 1,148,592 shares of its common stock, plus Series A and Series B warrants, to a group of private investors for $2,800,000. The Series A warrants allow the holders to purchase up to 402,007 shares of CEL-SCI's common stock at a price of $2.925 per share at any time prior to December 8, 2002. The Series B warrants allowed the holders, to the extent they held any shares purchased in the December 1999 and January 2000 offerings, to acquire additional shares of CEL-SCI's common stock at a nominal price in the event the price of CEL-SCI's common stock fell below $2.4375 per share prior to certain fixed vesting dates, the first of which in December 2000. On the first fixed vesting date the price of CEL-SCI's common stock was less than $2.4375. As a result, and in accordance with the terms of the Series B warrants, the private investors were issued 273,834 shares of CEL-SCI's common stock. The shares of common stock sold by CEL-SCI in the December 1999 and January 2000 private offerings have since been resold by the investors and as a result no additional shares are issuable pursuant to the Series B warrants. C. In March 2000, CEL-SCI sold 1,026,666 shares of its common stock, plus Series C and Series D warrants, to the same private investors referred to in Note A for $7,700,000. The Series C warrants allow the holders to purchase up to 413,344 shares of CEL-SCI's common stock at a price of $8.50 per share at any time prior to March 21, 2003. The Series D warrants originally allowed the holders, to the extent the held any shares purchased in the March 2000 offering, to acquire additional shares of CEL-SCI's common stock at a nominal price in the event the price of CEL-SCI's common stock fell below $7.50 per share prior to certain fixed vesting dates, the first of which was in March 2001. On the first fixed vesting date the price of CEL-SCI's common stock was $1.47. As a result, and in accordance with the terms of the Series D warrants, the private investors are entitled to receive 4,207,865 additional shares of CEL-SCI's common stock. The remaining fixed vesting dates for the purposes of the Series D warrants are: September 21, 2001 March 21, 2002 September 21, 2002 March 21, 2003 Other vesting dates will occur when an extraordinary event occurs, such as a change in the control of CEL-SCI, the bankruptcy or liquidation of CEL-SCI, or the failure of CEL-SCI's common stock to be listed on the American Stock Exchange, the NASDAQ Stock Market or the NASDAQ SmallCap market. Upon the occurrence of a vesting date, the additional shares (if any) which CEL-SCI will be required to issue to the holders of the Series D warrants will be determined in accordance with the following formula: [(C x PA) / A] - C C = The number of shares purchased by the Series D warrant holder and not yet sold PA = The Adjustment Price from the immediately preceding vesting date or, with respect to the first vesting date, $1.47. A = Adjustment price, which is equal to the lesser of $1.47, or the average of the 10 lowest closing bid prices of CEL-SCI's common stock during the 30 trading days immediately preceding the vesting date. In addition to the foregoing, if CEL-SCI raises in excess of $1,000,000 through the sale of common stock, or securities convertible into common stock, at a price which is below either the then prevailing market price of CEL-SCI's common stock or the Adjustment Price from the immediately preceding vesting date, then the holders of the Series D warrants will be entitled to receive additional shares of CEL-SCI's common stock in accordance with the following formula: [(C x PA) / D] - C PA = The Adjustment Price from the immediately preceding vesting date, which was $1.47 as of March 31, 2001. C = The number of shares purchased by the Series D warrant holder and not yet sold on the date of the financing. D = An amount equal to the lesser of the average of the closing bid prices of CEL-SCI's common stock for the 10 trading days immediately preceding the date of the financing, or the price per share of the common stock, or common stock equivalent (as the case may be), sold in the financing. The actual number of additional shares issuable upon the exercise of the Series D warrants (if any) will vary depending upon a number of factors, including the price of CEL-SCI's common stock at certain dates. Accordingly, the number of shares (if any) which may be issued upon the exercise of the Series D warrants cannot be determined at this time. However, based upon the market price of CEL-SCI's common stock on April 12, 2001, CEL-SCI would not be required to issue any additional shares of its common stock if the Series D warrants were exercised as of that date. D. In connection with CEL-SCI's December 1999 sale of common stock and warrants, Reedland Capital Partners, a division of Financial West Group, acted as the sales agent for such offering and received a commission of $125,000 plus Series A warrants to purchase 25,000 shares of CEL-SCI's common stock. The sales agent warrants are exercisable at a price of $2.925 per share at any time prior to December 8, 2002. E. In December 1997, CEL-SCI sold 10,000 shares of its Series D Preferred Stock, and 1,100,000 warrants, to ten institutional investors for $10,000,000. All Series D Preferred shares were subsequently converted into 5,201,400 shares of CEL-SCI's common stock. Warrants for the purchase of 550,000 shares of common stock are exercisable at a price of $8.62 at any time prior to December 22, 2001. Warrants for the purchase of 550,000 shares of common stock are exercisable at a price of $9.31 at any time prior to December 22, 2001. As of April 12, 2001 none of the warrants had been exercised. F. CEL-SCI has granted options for the purchase of 125,000 shares of common stock to certain investor relations consultants in consideration for services provided to CEL-SCI. The options are exercisable at prices ranging between $2.50 and $5.00 per share and expire between June 2000 and February 2004. G. The options are exercisable at prices ranging from $1.18 to $11.00 per share. CEL-SCI may also grant options to purchase additional shares under its Incentive Stock Option and Non-Qualified Stock Option Plans. The shares referred to in note A are being offered for sale to the public by means of this prospectus. The other shares referred to above are being offered for sale by means of separate registration statements which have been filed with the Securities and Exchange Commission. MARKET FOR CEL-SCI'S COMMON STOCK As of April 12, 2001 there were approximately 2,800 record holders of CEL-SCI's common stock. CEL-SCI's common stock is traded on the American Stock Exchange. Set forth below are the range of high and low quotations for CEL-SCI's common stock for the periods indicated as reported the American Stock Exchange. The market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions. Quarter Ending High Low -------------- ---- --- 12/31/98 $3.50 $1.50 3/31/99 $2.75 $1.63 6/30/99 $3.38 $1.81 9/30/99 $3.81 $1.88 12/31/99 $3.06 $2.18 3/31/00 $9.87 $2.25 6/30/00 $6.37 $2.75 9/30/00 $3.56 $2.20 12/31/00 $2.54 $1.00 3/31/01 $3.30 $1.30 Holders of Common Stock are entitled to receive such dividends as may be declared by the Board of Directors out of funds legally available therefor and, in the event of liquidation, to share pro rata in any distribution of CEL-SCI's assets after payment of liabilities. The Board 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following selected financial data should be read in conjunction with the more detailed financial statements, related notes and other financial information included in this prospectus. For the Years Ended September 30, ----------------------------------------------------- 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Investment Income and Other Revenues: $442,551 $469,518 $792,994 $438,145 $322,370 Expenses: Research and Development 4,978,714 4,461,051 3,833,854 6,011,670 3,471,477 Depreciation and Amortization 220,994 268,210 295,331 313,547 290,829 General and Administrative 3,721,240 3,230,982 3,106,492 2,302,386 2,882,958 Equity in loss of joint venture -- -- -- -- 3,772 ------------------------------------------------- Net Loss $(8,478,397)$(7,490,725)$(6,442,683)$(8,189,458)$(6,326,666) ======================== =================================== Loss per common share (basic and diluted) $(0.44) $(0.52) $(0.74) $(1.00) $(1.16) Weighted average common Shares outstanding 19,259,190 14,484,352 11,379,437 9,329,419 6,425,316 Three Months Ended December 31, ------------------------- 2000 1999 ---- ---- Investment Income and Other Revenues: $249,808 $30,048 Expenses: Research and Development 2,017,007 995,024 Depreciation and Amortization 49,079 70,780 General and Administrative 727,211 668,652 ------- ------- Net Loss $(2,543,489) $(1,734,456) ============ ============ Loss per common share (basic and diluted) $(0.12) $(0.10) Weighted average common shares outstanding 20,459,913 17,270,008 Balance Sheet Data: - ------------------ September 30, ----------------------------------------------------------- 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Working Capital $11,725,940 $6,152,715 $12,926,014 $4,581,247 $10,266,104 Total Assets 13,808,882 7,559,772 14,431,813 6,334,397 11,878,370 Total Liabilities 847,423 461,586 456,529 508,617 294,048 Shareholders' Equity 12,961,459 7,098,186 13,975,284 5,825,780 11,584,322 December 31, 2000 Working Capital $9,230,208 Total Assets 11,263,832 Total Liabilities 789,854 Shareholders' Equity 10,473,978 No dividends have been declared on CEL-SCI's common stock. Results of Operations Three Months Ended December 31, 2000 Interest income during the three months ending December 31, 2000 was higher than it was during the same quarter in 1999 as a result of CEL-SCI's larger cash position. Research and development expenses were significantly higher because of the expenses incurred in the validation of the new manufacturing facilities at BSCP. While the expenses during the next fiscal quarter are expected to be high again for the same reason, CEL-SCI's cash outflow will decrease significantly in the next quarter since the majority of the expenses at BSCP are prepaid ($1,750,000 at December 31, 2000). General and administrative expenses have increased mostly because of the significantly higher bills from CEL-SCI's auditors and higher salaries. Fiscal 2000 Interest income during the year ended September 30, 2000 reflects interest received and accrued on investments. Research and development expense in 2000 is higher than in 1999 because CEL-SCI is running more and larger clinical trials. General and administrative expenses have increased due to the lawsuit brought by former directors which was settled in May of 2000. Fiscal 1999 Interest income during the year ending September 30, 1999 reflects interest received and accrued on investments. Interest income decreased as CEL-SCI used the proceeds of the sale of the Series D Preferred Stock. Research and development expense in 1999 was higher than in 1998 because CEL-SCI is running more and larger clinical trials. General and administrative expenses have increased due to the addition of more employees needed for the increased activity level. Fiscal 1998 Interest income during the year ending September 30, 1998 reflects interest accrued on investments. Interest income increased from fiscal 1997 due to the investment of the proceeds of the sale of the Series D Preferred Stock. Research and development expenses in 1998 are substantially less then the prior period since the costs of acquiring the MULTIKINE license and the L.E.A.P.S. technology were expensed in fiscal 1997. General and administrative expenses increased due to additional employees needed for CEL-SCI's increased activity level and charges ($587,377) for options granted to persons other than employees with exercise prices equal to prevailing market prices at the time of grant. Liquidity and Capital Resources CEL-SCI has had only limited revenues from operations since its inception in March l983. CEL-SCI has relied upon proceeds realized from the public and private sale of its Common Stock 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 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 Company-sponsored research and development, 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 1996, CEL-SCI sold, in a private transaction, 5,000 shares of its Series B Convertible Preferred Stock for $5,000,000 or $1,000 per share. Prior to December 20, 1996, 1,900 Series B Preferred Shares were converted into 527,774 shares of CEL-SCI's common stock. In December 1996 CEL-SCI repurchased 2,850 Series B Preferred Shares for $2,850,000 plus warrants which allowed the holders to purchase up to 99,750 shares of CEL-SCI's common stock for $4.25 per share at any time prior to December 15, 1999. CEL-SCI raised funds required for this repurchase from the sale of its Series C Preferred Stock. In May 1997 all remaining 250 shares of the Series B Preferred Stock were converted into 69,444 shares of common stock. In October 1997 17,500 warrants were exercised at $4.25 per share. On December 15, 1999 the remaining 82,250 warrants expired. In December 1997, CEL-SCI sold 10,000 shares of its Series D Convertible Preferred Stock, 550,000 Series A Warrants and 550,000 Series B Warrants, to ten institutional investors for $10,000,000. Each Series A Warrant allows the holder to purchase one share of CEL-SCI's common stock for $8.62 at any time prior to December 22, 2001. Each Series B Warrant allows the holder to purchase one share of CEL-SCI's Common Stock for $9.31 at any time prior to December 22, 2001. CEL-SCI has filed a registration statement with the Securities and Exchange Commission covering the sale of the common stock issuable upon the conversion of the Series D Preferred Stock and/or the exercise of the Series A and Series B Warrants. As of December 15, 1999 all Series D Preferred Shares had been converted into 5,201,460 shares of CEL-SCI's common stock. None of the Series A or Series B warrants have been exercised. In December 1999 and January 2000, CEL-SCI sold 1,148,592 shares of its common stock, plus Series A and Series B warrants, to a group of private investors for $2,800,000. The Series A warrants allow the holders to purchase up to 402,007 shares of CEL-SCI's common stock at a price of $2.925 per share at any time prior to December 8, 2002. The Series B warrants allowed the holders, to the extent they held any shares purchased in the December 1999 and January 2000 offerings, to acquire additional shares of CEL-SCI's common stock at a nominal price in the event the price of CEL-SCI's common stock fell below $2.4375 per share prior to certain fixed vesting dates, the first of which in December 2000. On the first fixed vesting date the price of CEL-SCI's common stock was $1.54. As a result, and in accordance with the terms of the Series B warrants, the private investors were issued 273,834 shares of CEL-SCI's common stock. The shares of common stock sold by CEL-SCI in the December 1999 and January 2000 private offerings have since been resold by the investors and as a result no additional shares are issuable pursuant to the Series B warrants. In March 2000, CEL-SCI sold 1,026,666 shares of its common stock, plus Series C and Series D warrants, to the same private investors referred to in Note A for $7,700,000. The Series C warrants allow the holders to purchase up to 413,344 shares of CEL-SCI's common stock at a price of $8.50 per share at any time prior to March 21, 2003. The Series D warrants originally allowed the holders, to the extent they held any shares purchased in the March 2000 offering, to acquire additional shares of CEL-SCI's common stock at a nominal price in the event the price of CEL-SCI's common stock fell below $7.50 per share prior to certain fixed vesting dates, the first of which was in March 2001. On the first fixed vesting date the price of CEL-SCI's common stock was $1.47. As a result, and in accordance with the terms of the Series D warrants, the private investors are entitled to receive 4,207,865 additional shares of CEL-SCI's common stock. During fiscal 2001, CEL-SCI expects that it will spend approximately $5,000,000 on research, development, and clinical trials. CEL-SCI plans to use its existing financial resources as well as the proceeds from the sale of its common stock under the equity line of credit agreement with Paul Revere Capital Partners to fund its capital requirements during this period. Other than funding its research and development program, CEL-SCI does not have any material capital commitments. It should be noted that substantial additional funds will be needed for more extensive clinical trials which will be necessary before CEL-SCI will be able to apply to the FDA for approval to sell any products which may be developed on a commercial basis throughout the United States. 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. BUSINESS CEL-SCI Corporation was formed as a Colorado corporation in 1983. CEL-SCI is involved in the research and development of the drugs and vaccines described below. MULTIKINE CEL-SCI's first, and main, product, MULTIKINE(TM), manufactured using CEL-SCI's proprietary cell culture technologies, is a combination, or "cocktail", of natural human interleukin-2 ("IL-2") and certain lymphokines and cytokines. MULTIKINE is being tested to determine if it is effective in improving the immune response of cancer patients. MULTIKINE has been tested in over 150 patients in the past few years in clinical trials conducted in the U.S., Canada, Europe and Israel. Most of these patients were head and neck cancer patients, but some studies were also conducted in prostate cancer patients and HIV-infected patients. The safety profile was found to be very good and CEL-SCI believes that the tumor response data suggest that further studies are warranted. CEL-SCI's primary focus for the development of MULTIKINE is to prove its usefulness in the treatment of head and neck cancer, which constitutes about 6% of all cancer worldwide. CEL-SCI is currently conducting three additional head and neck cancer studies to determine the best regimen for treating the patients. With a secondary focus, CEL-SCI is also conducting studies with MULTIKINE in prostate cancer patients and is planning to start a cervical cancer study by the second quarter of 2001. Although CEL-SCI has the approval to start a 20 patient breast cancer study in Israel, given the current problems in that region, CEL-SCI will not pursue this study at the present time. The function of the immunological system is to protect the body against infectious agents, including viruses, bacteria, parasites and malignant (cancer) cells. An individual's ability to respond to infectious agents and to other substances (antigens) recognized as foreign by the body's immune system is critical to health and survival. When the immune response is adequate, infection is usually combated effectively and recovery follows. Severe infection can occur when the immune response is inadequate. Such immune deficiency can be present from birth but, in adult life, it is frequently acquired as a result of intense sickness or as a result of the administration of chemotherapeutic drugs and/or radiation. It is also recognized that, as people reach middle age and thereafter, the immune system grows weaker. Two classes of white blood cells, macrophages and lymphocytes, are believed to be primarily responsible for immunity. Macrophages are large cells whose principal immune activity is to digest and destroy infectious agents. Lymphocytes are divided into two sub-classes. One sub-class of lymphocytes, B-cells, produces antibodies in response to antigens. Antibodies have unique combining sites (specificities) that recognize the shape of particular antigens and bind with them. The combination of an antibody with an antigen sets in motion a chain of events which may neutralize the effects of the foreign substance. The other sub-class of lymphocytes, T-cells, regulates immune responses. T-cells, for example, amplify or suppress antibody formation by B-cells, and can also directly destroy "foreign" cells by activating "killer cells." It is generally recognized that the interplay among T-cells, B-cells and the macrophages determines the strength and breadth of the body's response to infection. It is believed that the activities of T-cells, B-cells and macrophages are controlled, to a large extent, by a specific group of hormones called cytokines. Cytokines regulate and modify the various functions of both T-cells and B-cells. There are many cytokines, each of which is thought to have distinctive chemical and functional properties. IL-2 is but one of these cytokines and it is on IL-2 and its synergy with other cytokines that CEL-SCI has focused its attention. Scientific and medical investigation has established that IL-2 enhances immune responses by causing activated T-cells to proliferate. Without such proliferation no immune response can be mounted. Other cytokines support T-cell and B-cell proliferation. However, IL-2 is the only known cytokine which causes the proliferation of T-cells. IL-2 is also known to activate B-cells in the absence of B-cell growth factors. Although IL-2 is one of the best characterized cytokines with anticancer potential, CEL-SCI is of the opinion that to have optimum therapeutic value, IL-2 should be administered not as a single substance but rather as a mixture of IL-2 and certain cytokines, i.e. as a "cocktail". This approach, which was pioneered by CEL-SCI, makes use of the synergism between these cytokines. It should be noted, however, that neither the FDA nor any other agency has determined that CEL-SCI's MULTIKINE product will be effective against any form of cancer. It has been reported by researchers in the field of cytokine research that IL-2 can increase the number of killer T-cells produced by the body, which improves the body's capacity to selectively destroy specific tumor cells. Research and human clinical trials sponsored by CEL-SCI have indicated a correlation between administration of MULTIKINE to cancer patients and immunological responses. On the basis of these experimental results, CEL-SCI believes that MULTIKINE may have application for the treatment of solid tumors in humans. In November 1990, the Florida Department of Health and Rehabilitative Services ("DHRS") gave the physicians at a southern Florida medical institution approval to start a clinical cancer trial in Florida using CEL-SCI's MULTIKINE product. The focus of the trial was unresectable head and neck cancer. In 1991, four patients with regionally advanced squamous cell cancer of the head and neck were treated with CEL-SCI's MULTIKINE product. The patients had previously received radical surgery followed by x-ray therapy but developed recurrent tumors at multiple sites in the neck and were diagnosed with terminal cancer. The patients had low levels of lymphocytes and evidence of immune deficiency (generally a characteristic of this type of cancer). Significant tumor reduction occurred in three of the four patients as a result of the treatment with MULTIKINE. Negligible side effects were observed and the patients were treated as outpatients. Notwithstanding the above, it should be noted that these trials were only preliminary and were only conducted on a small number of patients. It remains to be seen if MULTIKINE will be effective in treating any form of cancer. These results caused CEL-SCI to embark on a major manufacturing program for MULTIKINE with the goal of being able to produce a drug that would meet the stringent regulatory requirements for advanced human studies. This program included building a pilot scale manufacturing facility. Since that time, MULTIKINE has been well tolerated in clinical studies involving more than 150 patients. Some of the more recent clinical data were presented at the 5th International Congress on Head and Neck Cancer in San Francisco in August, 2000. The study enrolled advanced primary head and neck cancer patients who were treated prior to surgery and/or radiation for 2 weeks. Dr. Dudkevitch from the Department of Otolaryngology at the Rabin Medical Center, Israel, presented data showing that, of the 12 patients treated, two patients had a complete tumor response (100% tumor reduction) following the 2-week treatment with the MULTIKINE regimen. He also noted that upon histopathological examination of the tissue removed during surgery, no tumor residues were found in those patients. Another 4 patients showed a partial (greater than 50%) tumor reduction and six patients had tumor reductions of less than 50%. Two patients refused surgery after treatment with MULTIKINE. The researcher also reported that several of the patients had increased tongue mobility and/or reduction or elimination of local pain. These are considered to be important indicators for the patient's quality of life. There were no tumor progressions or adverse local changes, nor was there evidence of toxicity from MULTIKINE. Both recovery after operation and wound healing were normal. A substantial part of the oral presentation was spent on a discussion of the pathology findings. The researchers reported that from biopsy samples of 10 patients analyzed before and after treatment, an increase in the degree of lymphocytic infiltration was noted in 5 patients. Of special interest was the new post-treatment appearance of multinucleated histiocytes in 5 patients with significant tumor reductions. The multinucleated histiocytes were detected in two specific locations, namely around the keratin debris and in the tumor-stroma interface, and they appear to be actively engulfing the tumor cells. Promising results were also seen in other clinical studies, most of which tested different dosages and routes of administration, although tumor reductions were not as significant as those noted in the Israeli study. The focus of three new studies involving an additional 60 patients is to define the best treatment regimen for Multikine. CEL-SCI also plans to start a Phase I clinical trial with Edmund Tramont, M.D., of the University of Maryland Biotechnology Institute's (UMBI) in May 2001 in HIV and HPV (Human Papilloma Virus) co-infected women with cervical cancer. The goal of the study is to obtain safety and preliminary efficacy data on Multikine as a treatment for pre-cancerous lesions of the cervix (dysplasia) and human cancer/neoplasia. Most cervical dysplasia and cancer is due to infection with HPV. The rationale for using MULTIKINE in the treatment of cervical cancer is that MULTIKINE will help correct this defect and safely boost the patients' immune systems to a point where their immune systems can fight and eliminate the virally induced cancer. Similar efforts are underway in prostate cancer. However, due to the size of CEL-SCI's clinical department, CEL-SCI has been unable to move aggressively in this area. In November 2000, CEL-SCI concluded a development, supply and distribution agreement with Orient Europharma of Taiwan. The agreement gives Orient Europharma the exclusive marketing rights to Multikine for all cancer indications in Taiwan, Singapore, Hong Kong and Malaysia. The agreement provides for Orient Europharma to fund the clinical trials needed to obtain marketing approvals in the four countries for head and neck cancer, nasal 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. Under the agreement, CEL-SCI will manufacture Multikine and Orient Europharma will purchase the product from CEL-SCI for distribution in the territory. Both parties will share in the revenue from the sale of Multikine. Head and neck cancer is the sixth most frequently occurring cancer worldwide, with an incidence of 500,000 annually. Recent statistics show no reduction in head and neck cancer mortality, but rather a dramatic increase of the disease in certain segments of the population. This cancer is most frequently found in men in their 50's or early 60's with a history of smoking and alcohol consumption. Conventional treatment calls for either surgery, which can be extremely disfiguring, or radiation and chemotherapy, both of which are associated with very unpleasant side-effects. Proof of efficacy for anti-cancer drugs is a lengthy and complex process. At this early 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. CEL-SCI uses an unrelated corporation for certain aspects of the production of MULTIKINE for research and testing purposes. The agreement with this corporation expires in 2006. T-CELL MODULATION PROCESS In January 1996, CEL-SCI acquired a new patented T-cell Modulation Process which uses "heteroconjugates" to direct the body to choose a specific immune response. The heteroconjugate technology, referred to as L.E.A.P.S. (Ligand Epitope Antigen Presentation System), is intended to selectively stimulate the human immune system to more effectively fight bacterial, viral and parasitic infections and cancer, when it cannot do so on its own. Administered like vaccines, L.E.A.P.S. 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. CEL-SCI intends to use this technology to develop potential treatments and/or vaccines against various diseases. Present target diseases are herpes simplex, AIDS, malaria, tuberculosis, prostate cancer and breast cancer. In August 1996, CEL-SCI signed a Cooperative Research and Development Agreement ("CRADA") with the Naval Medical Research Institute of the U.S. Navy to jointly develop a potential malaria vaccine using CEL-SCI's L.E.A.P.S. technology. This agreement was extended in 1998 and again in 2000. Malaria affects about 300-500 million people per year and is responsible for about 2.7 million deaths annually. It is a parasitic disease transmitted by mosquitoes. As with tuberculosis, the emergence of drug resistant strains is a major problem, as is the emergence of mosquitoes which are resistant to traditional insecticides. While at present the number of malaria cases is not a major problem in the continental U.S., there are an increasing number of cases involving Americans bringing the disease home from overseas travels. Currently, there is no approved malaria vaccine anywhere in the world. The large majority of the malaria studies were conducted in outbred CD-1 mice, which may be more representative of a human population than inbred mice. Protection against rodent malaria in those experiments was observed in 62-70% of the vaccinated animals compared to protection levels between 0-30% observed in the control groups. The L.E.A.P.S. construct used in this study was a combination of a peptide representing a mouse malaria epitope linked to another peptide, called the T-cell binding ligand, which was designed to specifically stimulate the immune system. Each of these two peptides was given individually as a control. In all experiments, the level of protection achieved after immunization with the L.E.A.P.S. construct was significantly higher than when the two peptides were given individually. The studies showed that the protective immune responses required the presence of T- cells having a marker called CD4, typically found on helper T- cells, as well as the presence of gamma Interferon, which suggests that a cellular immune response may be involved in protection. In October 1996, CEL-SCI and Northeastern Ohio University College of Medicine signed a Collaborative Research Agreement to jointly identify and evaluate Herpes Simplex Virus related peptides. This study made use of CEL-SCI's LEAPS technology which combines T-cell binding ligands with small, disease associated, peptide antigens. In the past, some vaccines have worked simply by vaccination with viral proteins (e.g. hepatitis B) to immunize patients. In the case of herpes simplex, that strategy has yet to be proven successful. The purpose of adding the T-cell binding ligand was to increase the effectiveness of the vaccine by directing the immune response to react in the way most likely to eliminate or control the disease agent. To test this hypothesis in herpes simplex, the researchers administered the vaccine with a T-cell binding ligand to one group of mice in order to direct the immune response to the cellular side, which is thought to be protective. The researchers also administered the vaccine to a separate group of mice using a different T-cell binding ligand to direct the immune response to the humoral (antibody) side, which is thought to be non-protective. For both vaccines, the herpes simplex peptide was kept the same. The results of the study indicated that the immunizations allowed the mice to resolve the infection quicker and more effectively resulting in minimal symptoms and mortality. The vaccine inducing a cellular immune response was protective while the vaccine inducing a humoral (antibody) immune response was not protective and actually accelerated disease progression. Two studies with different herpes simplex peptides also showed protection, confirming the results from the prior study. Research conducted pursuant to this study may lead to the future development of a herpes simplex vaccine. In May 1998, CEL-SCI announced the receipt of a Phase I $100,000 research grant to fund further animal studies with its herpes simplex vaccine. This grant was given pursuant to the Small Business Innovation Research Program of the National Institute of Allergy and Infectious Diseases. In October 2000, CEL-SCI received approval for funding of a Phase II grant from the National Institute of Allergy and Infectious Diseases. This grant was awarded following the successful completion of studies, funded by the Phase I grant, which showed increased protection from death in an animal challenge model of herpes simplex. The Phase II grant, worth about $764,000 over two years, will support the further development of a herpes simplex virus vaccine based on CEL-SCI's L.E.A.P.S. technology. Conservative estimates of those individuals who have genital infections are 30-40 million in the U.S. Oral herpetic infections are of a greater frequency. In newborns or in immunosuppressed patients (e.g. AIDS), herpes can lead to serious illness and death. Vaccination against herpes simplex virus may prevent or treat herpes simplex infection. Unlike most other viruses, once infected, a herpes virus remains in hiding within an individual and is reactivated often by stress-inducing factors. For some individuals, recurrences may take place on a monthly basis. Although there are antiviral drugs which are used to prevent serious disease and lessen the symptoms, there is currently no method to effectively prevent initial infection, to eliminate the virus from an infected person, or to prevent recurrences. Scientists at Northeastern Ohio University College of Medicine have been working on methods of treating and detecting the herpes virus for over fifteen years. In November 1999, CEL-SCI announced a collaborative study for the treatment, and possible prevention, of autoimmune myorcarditis with researchers at the Department of Pathology, the Johns Hopkins Medical Institutions, Baltimore, Maryland. Myocarditis, an autoimmune disease affecting the heart muscle, is thought to be caused by an attack on the patient's heart muscle by his/her own immune cells and antibodies. Myocarditis is a precursor to dilated cardiomyopathy, which is an end stage cardiac disease usually requiring a heart transplant. The incidence of dilated cardiomyopathy is about 200,000 people in the United States alone. The current treatments are not curative. The study will use L.E.A.P.S.(TM) technology, as well as a technology recently developed at CEL-SCI and called AdapT (Antigen Directed Apoptosis). The AdapT technology is designed to lead to the removal, in an antigen specific (highly targeted) manner, of only those immune system cells that cause the disease, thereby leaving the remainder of the immune response intact and subsequently able to defend against other diseases. The goal of the first phase of this animal study is to establish the animal model of autoimmune myocarditis, using the L.E.A.P.S technology. In the second phase, AdapT and L.E.A.P.S. derived peptides may be used, in the case of the L.E.AP.S., to divert immune responses away from the disease-causing immune system cells or, in the case of AdapT, to remove the disease-causing immune system cells. If the L.E.A.P.S. or AdapT technologies are shown to work in the animal model for myocarditis, additional studies may be started to test this new approach for the treatment of other autoimmune diseases as well. In November 1999, CEL-SCI also announced that it has entered into a research collaboration agreement with research scientists at the Max-Delbruck Center for Molecular Medicine in Berlin, Germany. The goal of the collaboration is to develop a therapeutic vaccine for breast and/or colon cancer. The collaboration will make use of the L.E.A.P.S. technology, in combination with the specialized cancer antigen and animal testing model knowledge of the team in Berlin. The work is being conducted under the umbrella of the Biological Therapeutic Development Group of the European Office for Research and Treatment of Cancer. The L.E.A.P.S. technology was acquired from Cell-Med, Incorporated ("CELL-MED") in consideration for CEL-SCI's payment of $56,000 plus the issuance, during 1996, of 33,378 shares of CEL-SCI's common stock. CEL-SCI must pay CELL-MED additional payments of up to $600,000, depending upon CEL-SCI's ability to obtain regulatory approval for clinical studies using the technology. In addition, should CEL-SCI receive FDA approval for the sale of any product incorporating the technology, CEL-SCI is obligated to pay CELL-MED an advance royalty of $500,000, a royalty of 5% of the sales price of any product using the technology, plus 15% of any amounts CEL-SCI receives as a result of sublicensing the technology. So long as CEL-SCI retains rights in the technology, CEL-SCI has also agreed to pay the future costs associated with pursuing and/or maintaining CELL-MED's patents and patent applications relating to the technology. The technology obtained from CELL-MED is covered by several U.S. and European patents. Additional patent applications are pending. AIDS VACCINE Prior to 2001, CEL-SCI was involved in the development of a preventive vaccine against HIV infection. During 2000 CEL-SCI completed Phase II human clinical trials with this vaccine in the Netherlands. The vaccine, which is derived from CEL-SCI's HGP-30 technology, is primarily directed against HIV subtype C, the most prevalent HIV subtype in Africa and other third world countries. HGP-30 is a thirty amino acid region of the p17 core protein of HIV. CEL-SCI holds proprietary rights to certain synthesized components of the p17 core protein. The HGP-30 vaccine differs from most other vaccine candidates in that its active component, the HGP-30 peptide, is derived from the p17 core protein particles of the virus. Since HGP-30 is a totally synthetic molecule containing no live virus, it cannot cause infection. Unlike the envelope (i.e. outside) proteins, the p17 region of the AIDS virus appears to be relatively non-changing. HGP-30 may also be effective in treating persons infected with the AIDS virus. Currently CEL-SCI is no longer pursuing further development of its AIDS vaccine and is attempting to license this technology to a third party. RESEARCH AND DEVELOPMENT Since 1983, and through September 30, 2000, approximately $32,245,000 has been expended on CEL-SCI-sponsored research and development, including approximately $4,982,000, $4,461,000 and $3,834,000, respectively during the years ended September 30, 2000, 1999 and 1998. 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 shares of CEL-SCI's common stock and borrowings from third parties, including affiliates of CEL-SCI. CEL-SCI has a Scientific Advisory Board ("SAB") comprised of scientists distinguished in biomedical research in the field of cytokines and related areas. From time to time, members of the SAB advise CEL-SCI on its research activities. Institutions with which members of the SAB are affiliated have in the past conducted and may in the future conduct Company-sponsored research. The SAB has in the past and may in the future, at its discretion, invite other scientists to opine in confidence on the merits of CEL-SCI-sponsored research. Members of the SAB receive $500 per month from CEL-SCI. The members of CEL-SCI's SAB are: Evan M. Hersh, M.D. - Professor of Medicine, Microbiology and Immunology, Assistant Director of Experimental Therapeutics and Translational Research, Arizona Cancer Center, Tucson. Michael J. Mastrangelo, M.D. - Professor of Medicine, Jefferson Medical College, Philadelphia, Pennsylvania; and Associate Clinical Director, Jefferson Cancer Center, Philadelphia, Pennsylvania. Alan B. Morris, Ph.D. - Professor, Department of Biological Sciences, University of Warwick, Coventry, U.K. Edmond C. Tramont, M.D. - Associate Director of The Institute of Human Virology, University of Maryland Biotechnology Institute. GOVERNMENT REGULATION The investigational agents and future products of CEL-SCI are regulated in the United States under the Federal Food, Drug and Cosmetic Act, the Public Health Service Act, and the laws of certain states. The Federal Food and Drug Administration (FDA) exercises significant regulatory control over the clinical investigation, manufacture and marketing of pharmaceutical and biological products. Prior to the time a pharmaceutical product can be marketed in the United States for therapeutic use, approval of the FDA must normally be obtained. Certain states, however, have passed laws which allow a state agency having functions similar to the FDA to approve the testing and use of pharmaceutical products within the state. In the case of either FDA or state regulation, preclinical testing programs on animals, followed by three phases of clinical testing on humans, are typically required in order to establish product safety and efficacy. The first stage of evaluation, preclinical testing, must be conducted in animals. After lack of toxicity has been demonstrated, the test results are submitted to the FDA (or state regulatory agency) along with a request for clearance to conduct clinical testing, which includes the protocol that will be followed in the initial human clinical evaluation. If the applicable regulatory authority does not object to the proposed study, the investigator can proceed with Phase I trials. Phase I trials consist of pharmacological studies on a relatively few number of humans under rigidly controlled conditions in order to establish lack of toxicity and a safe dosage range. After Phase I testing is completed, one or more Phase II trials are conducted in a limited number of patients to test the product's ability to treat or prevent a specific disease, and the results are analyzed for clinical efficacy and safety. If the results appear to warrant confirmatory studies, the data is submitted to the applicable regulatory authority along with the protocol for a Phase III trial. Phase III trials consist of extensive studies in large populations designed to assess the safety of the product and the most desirable dosage in the treatment or prevention of a specific disease. The results of the clinical trials for a new biological drug are submitted to the FDA as part of a product license application ("PLA"), a New Drug Application ("NDA") or Biologics License Application ("BLA"), depending on the type or derivation of the product being studied. In addition to obtaining FDA approval for a product, a biologics establishment license application ("ELA") may need to be filed in the case of biological products derived from blood, or not considered to be sufficiently well characterized, in order to obtain FDA approval of the testing and manufacturing facilities in which the product is produced. To the extent all or a portion of the manufacturing process for a product is handled by an entity other than CEL-SCI, CEL-SCI must similarly receive FDA approval for the other entity's participation in the manufacturing process. Domestic manufacturing establishments are subject to inspections by the FDA and by other Federal, state and local agencies and must comply with Good Manufacturing Practices ("GMP") as appropriate for production. In complying with GMP regulations, manufacturers must continue to expend time, money and effort in the area of production, quality control and quality assurance to ensure full technical compliance. The process of drug development and regulatory approval requires substantial resources and many years. Approval of drugs and biologicals by regulatory authorities of most foreign countries must also be obtained prior to initiation of clinical studies and marketing in those countries. The approval process varies from country to country and the time period required in each foreign country to obtain approval may be longer or shorter than that required for regulatory approval in the United States. There are no assurances that clinical trials conducted under approval from state authorities or conducted in foreign countries will be accepted by the FDA. Product licensure in a foreign country does not mean that the product will be licensed by the FDA and there are no assurances that CEL-SCI will receive any approval of the FDA or any other governmental entity for the manufacturing and/or marketing of a product. Consequently, the commencement of the marketing of any Company product is, in all likelihood, many years away. There can be no assurance that CEL-SCI will be successful in obtaining approvals from any regulatory authority to conduct further clinical trials or to manufacture and sell its products. The lack of regulatory approval for CEL-SCI's products will prevent CEL-SCI from generally marketing its products. Delays in obtaining regulatory approval or the failure to obtain regulatory approval in one or more countries may have a material adverse impact upon CEL-SCI's operations. 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. The establishment by these large companies of in-house research groups and of joint research ventures with other entities is already occurring in these areas and will probably become even more prevalent. In addition, 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 IL-2-like compounds. CEL-SCI believes, however, that it is the only producer of a patented IL-2 product using a patented cell-culture technology with normal human cells. CEL-SCI foresees that its principle competition will come from producers of genetically-engineered IL-2-like products. However, it is CEL-SCI's belief, based upon growing scientific evidence, that its natural IL-2 products have advantages over the genetically engineered, IL-2-like products. Evidence indicates that genetically engineered, IL-2-like products, which lack sugar molecules and typically are not water soluble, may be recognized by the immunological system as a foreign agent, leading to a measurable antibody build-up and thereby possibly voiding their therapeutic value. Furthermore, CEL-SCI's research has established that to have optimum therapeutic value IL-2 should be administered not as a single substance but rather as an IL-2-rich mixture of certain cytokines and other proteins, i.e. as a "cocktail". If these differences prove to be of importance, and if the therapeutic value of its MULTIKINE product is conclusively established, CEL-SCI believes it will be able to establish a strong competitive position in a future market. 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 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 immunotherapy. CEL-SCI may encounter problems, delays and additional expenses in developing marketing plans with outside firms. In addition, 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. 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 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 which are 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. PROPERTIES CEL-SCI leases office space at 8229 Boone Blvd., Suite 802, Vienna, Virginia at a monthly rental of approximately $7,600. CEL-SCI believes this arrangement is adequate for the conduct of its present business. In October 2000, CEL-SCI expanded its fully-equipped laboratory facilities by 6,200 square feet to 17,900 square feet. This space is leased by CEL-SCI for approximately $10,450 per month. The laboratory lease expires in 2004, with extensions available until 2014. MANAGEMENT Name Age Position Maximilian de Clara 71 Director and President Geert R. Kersten, Esq. 42 Director, Chief Executive Officer, Secretary and Treasurer Patricia B. Prichep 49 Senior Vice President of Operations M. Douglas Winship 51 Senior Vice President of Regulatory Affairs and Quality Assurance Dr. Eyal Talor 45 Senior Vice President of Research and Manufacturing Dr. Daniel H. Zimmerman 59 Senior Vice President of Research, Cellular Immunology Michael Luecke 58 Senior Vice President of Business Development Alexander G. Esterhazy 56 Director F. Donald Hudson 67 Director C. Richard Kinsolving 66 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. 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 Securities and Exchange Commission. The principal occupations of CEL-SCI's officers and directors, during the past several years, are as follows: Maximilian de Clara. Mr. 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 R. Kersten, Esq. Mr. Kersten was Director of Corporate and Investment Relations for CEL-SCI between February 1987 and October 1987. In October of 1987, he was appointed Vice President of Operations. In December 1988, Mr. Kersten was appointed Director of CEL-SCI. Mr. Kersten also became CEL-SCI's Secretary and Treasurer in 1989. In May 1992, Mr. Kersten was appointed Chief Operating Officer and in February 1995, Mr. Kersten became CEL-SCI's Chief Executive Officer. In previous years, Mr. Kersten worked as a financial analyst with Source Capital, Ltd., an investment advising firm in McLean, Virginia. Mr. Kersten is a stepson of Maximilian de Clara, who is the President and a Director of CEL-SCI. Mr. Kersten attended George Washington University in Washington, D.C. where he earned a B.A. in Accounting and an M.B.A. with emphasis on International Finance. He also attended law school at American University in Washington, D.C. where he received a Juris Doctor degree. Patricia B. Prichep 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. From June 1990 to December 1992, Ms. Prichep was the Manager of Quality and Productivity for the NASD's Management, Systems and Support Department. Between 1982 and 1990, Ms. Prichep was Vice President and Operations Manager for Source Capital, Ltd. M. Douglas Winship has been CEL-SCI's Senior Vice President of Regulatory Affairs and Quality Assurance since April 1994. Between 1988 and April 1994, Mr. Winship held various positions with Curative Technologies, Inc., including Vice President of Regulatory Affairs and Quality Assurance (1991-1994). Eyal Talor, Ph.D. has been CEL-SCI's Senior Vice President of Research and Manufacturing since March 1994. From October 1993 until March 1994, Dr. Talor was Director of Research, Manufacturing and Quality Control, as well as the Director of the Clinical Laboratory, for Chesapeake Biological Laboratories, Inc. From 1991 to 1993, Dr. Talor was a scientist with SRA Technologies, Inc., as well as the director of SRA's Flow Cytometry Laboratory (1991-1993) and Clinical Laboratory (1992-1993). During 1992 and 1993, Dr. Talor was also the Regulatory Affairs and Safety Officer For SRA. Since 1987, Dr. Talor has held various positions with the John Hopkins University, including course coordinator for the School of Continuing Studies (1989-Present), research associate and lecturer in the Department of Immunology and Infectious Diseases (1987-1991), and associate professor (1991-Present). Daniel H. Zimmerman, Ph.D. has been CEL-SCI's Senior Vice President of Cellular Immunology since January 1996. Dr. Zimmerman founded CELL-MED, Inc. and was its president from 1987-1995. From 1973 to 1987 Dr. Zimmerman served in various positions at Electronucleonics, Inc. including Scientist, Senior Scientist, Technical Director and Program Manager. From 1969-1973 Dr. Zimmerman was a Senior Staff Fellow at NIH. Michael Luecke joined CEL-SCI as Senior Vice President of Business Development in June 1998. Mr. Luecke has over 20 years of business experience in pharmaceutical and biotechnology companies. He has held senior-level business development/licensing positions with Bristol-Myers, SmithKline and Ciba-Geigy, as well as several small biopharmaceutical companies. Alexander G. Esterhazy 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. F. Donald Hudson has been a director of CEL-SCI since May 19, 2000. Mr. Hudson was previously a director of CEL-SCI between May 1992 and March 1999. Since October 1995 Mr. Hudson has been a consultant in the biotechnology field. From December 1994 to October 1995 Mr. Hudson was President and Chief Executive Officer of VIMRx Pharmaceuticals, Inc. (now Nexell Corp.). Mr. Hudson was reappointed as a director on May 19, 2000 in connection with the settlement of litigation brought by Mr. Hudson and a former director of CEL-SCI C. Richard Kinsolving has been a Director of the Company since April, 2001. Since February 1999 Mr. Kinsolving has been the Chief Executive Officer of BioPharmacon, a pharmaceutical development company. Between December 1992 and February 1999 Mr. Kinsolving was the President of Immuno-Rx, Inc., a company engaged in immuno-pharmaceutical development. Between December 1991 and September 1995 Mr. Kinsolving was President of Bestechnology, Inc. a nonmedical research and development company producing bacterial preparations for industrial use. Mr. 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). All of CEL-SCI's officers devote substantially all of their time to CEL-SCI's business. Messrs. Esterhazy, Hudson and Kinsolving, as directors, devote only a minimal amount of time to CEL-SCI. CEL-SCI has an audit committee and compensation committee. The members of the audit committee are Geert Kersten, Alexander G. Esterhazy and C. Richard Kinsolving. The members of the compensation committee are Maximilian de Clara, Alexander Esterhazy and C. Richard Kinsolving. Executive Compensation 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 fiscal year ended September 30, 2000. All Other Other Annual Restric- Com- Compen- ted Stock Options pensa- Name and Princi- Fiscal Salary Bonus sation Awards Granted tion pal Position Year (1) (2) (3) (4) (5) (6) - ---------------- ------ ------ ----- ------- --------- ------- ------ Maximilian de Clara, 2000 $345,583 -- $72,945 $550,000 60,000 $ 64 President 1999 $335,292 -- $72,945 $435,625 145,000 $ 63 1998 $315,021 -- $81,709 -- 164,000 $ 73 Geert R. Kersten, 2000 $303,049 -- $15,349 $10,375 60,000 $4,114 Chief Executive 1999 $268,480 -- $15,154 $10,000 145,000 $4,113 Officer, Secretary 1998 $229,533 -- $15,180 $ 7,500 164,000 $5,310 and Treasurer Patricia B. Prichep 2000 $114,430 -- $3,000 $6,998 23,000 $ 63 Senior Vice President 1999 $107,936 -- $3,000 $6,476 79,500 $ 63 of Operations M. Douglas Winship, 2000 $154,658 -- $2,400 $9,280 20,000 $ 64 Senior Vice President 1999 $146,609 -- $2,400 $8,797 27,500 $ 63 of Regulatory Affairs 1998 $136,918 -- $2,400 $6,240 -- $1,060 and Quality Assurance Eyal Talor, Ph.D. 2000 $150,334 -- $3,000 $9,020 50,000 $ 63 Senior Vice President 1999 $139,085 -- $3,000 $8,345 30,000 $ 63 of Research and 1998 $130,845 -- $3,000 $5,769 27,000 $ 958 Manufacturing Daniel Zimmerman, 2000 $124,165 -- $3,000 $7,450 20,000 $ 64 Ph.D., 1999 $114,806 -- $3,000 $6,888 45,000 $ 63 Senior Vice President 1998 $106,360 -- $3,000 $4,882 39,000 $ 822 of Cellular Immunology Michael Luecke, 2000 $150,000 -- -- $9,000 -- $ 64 Senior Vice President 1999 $150,000 -- -- $8,875 -- $ 63 of Business Development (1) The dollar value of base salary (cash and non-cash) received. (2) The dollar value of bonus (cash and non-cash) received. (3) Any other annual compensation not properly categorized as salary or bonus, including perquisites and other personal benefits, securities or property. Amounts in the table represent automobile, parking and other transportation expenses, plus, in the case of Maximilian de Clara and Geert Kersten, director's fees of $8,000. (4) 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, the shares were issued in consideration for past services rendered to CEL-SCI. 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. As of September 30, 2000, the number of shares of CEL-SCI's common stock, owned by the officers included in the table above, and the value of such shares at such date, based upon the market price of CEL-SCI's common stock were: Name Shares Value Maximilian de Clara -- -- Geert R. Kersten 137,088 $300,223 Patricia B. Prichep 12,791 $ 28,012 M. Douglas Winship 9,116 $ 19,964 Eyal Talor, Ph.D. 10,182 $ 22,299 Daniel Zimmerman, Ph.D. 27,207 $ 59,583 Michael Luecke 8,209 $ 17,978 Dividends may be paid on shares of restricted stock owned by CEL-SCI's officers and directors, although CEL-SCI has no plans to pay dividends. (5) The shares of Common Stock to be received upon the exercise of all stock options granted during the periods covered by the Table. Includes certain options issued in connection with CEL-SCI's Salary Reduction Plans as well as certain options purchased from CEL-SCI. See "Options Granted During Fiscal Year Ending September 30, 2000" below. (6) All other compensation received that CEL-SCI could not properly report in any other column of the Table including annual Company 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. Amounts in the table represent life insurance premiums. Long Term Incentive Plans - Awards in Last Fiscal Year None. Employee Pension, Profit Sharing or Other Retirement Plans During 1993 CEL-SCI implemented a defined contribution retirement plan, qualifying under Section 401(k) of the Internal Revenue Code and covering substantially all CEL-SCI's employees. Prior to January 1, 1998 CEL-SCI's contribution was equal to the lesser of 3% of each employee's salary, or 50% of the employee's contribution. Effective January 1, 1998 the plan was amended such that CEL-SCI's contribution is now made in shares of CEL-SCI's common stock as opposed to cash. 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 CEL-SCI's common stock. The fiscal 2000 expenses for this plan were $102,559. 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 Standard Arrangements. CEL-SCI currently pays its directors $2,000 per quarter, plus expenses. CEL-SCI has no standard arrangement pursuant to which directors of CEL-SCI are compensated for any services provided as a director or for committee participation or special assignments. Other Arrangements. CEL-SCI has from time to time granted options to its outside directors. See Stock Options below for additional information concerning options granted to CEL-SCI's directors. Employment Contracts Effective April 12, 1999, CEL-SCI entered into a three-year employment agreement with Mr. de Clara. The employment agreement provides that CEL-SCI 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 Mr. de Clara's authority, duties or activities, or in the event there is a change in the control of CEL-SCI, then 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. 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. Effective August 1, 2000, 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 $336,132, subject to the minimum annual increases of 5% per year. 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. 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. Compensation Committee Interlocks and Insider Participation CEL-SCI has a compensation committee comprised of all of CEL-SCI's directors, with the exception of Mr. Kersten. During the year ended September 30, 2000, Mr. de Clara was the only officer participating in deliberations of CEL-SCI's compensation committee concerning executive officer compensation. During the year ended September 30, 2000, 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 set forth information concerning the options granted during the fiscal year ended September 30, 2000, to the persons named below, and the fiscal year-end value of all unexercised options (regardless of when granted) held by these persons. Options Granted During Fiscal Year Ending September 30, 2000 ------------------------------------------------------------ Individual Grants - ------------------------------------------------- Potential Realizable % of Total Value at Assumed Options Annual Rates of Stock Granted to Exercise Price Appreciation Options Employees in Price Per Expiration for Option Term (1) Name Granted (#) Fiscal Year Share Date 5% 10% - ---- ----------- ------------ --------- ---------- ---- ---- Maximilian de Clara 60,000 15% $3.06 4/19/10 $115,200 $292,611 Geert R. Kersten 60,000 15% $3.06 4/19/10 $115,200 $292,611 Patricia B. Prichep 23,000 5.8% $4.00 2/02/10 $57,858 $146,510 Eyal Talor, Ph.D. 50,000 12.6% $2.56 11/27/09 $80,000 $204,000 M. Douglas Winship 20,000 5% $5.37 4/03/10 $67,543 $171,160 Daniel Zimmerman, Ph.D. 20,000 5% $4.00 2/02/10 $50,300 $127,400
(1) The potential realizable value of the options shown in the table assuming the market price of CEL-SCI's Common Stock appreciates in value from the date of the grant to the end of the option term at 5% or 10%. Option Exercises and Year-End Option Values Value (in $) of Unexercised Number of In-the-Money Unexercised Options at Fiscal Shares Options (3) Year-End (4) ------------ ----------------- Acquired On Value Exercisable/ Exercisable/ Name Exercise (1) Realized (2) Unexercisable Unexercisable - ---- ------------ ------------ ------------- ----------------- Maximilian de Clara 373,667 $1,436,548 295,000/109,999 25,916/4,333 Geert R. Kersten 50,750 $137,310 1,020,001/109,999 25,916/4,333 Patricia Prichep 23,000 $89,900 190,834/38,666 12,525/1,300 M. Douglas Winship 2,000 $4,510 82,500/30,000 3,775/1,300 Eyal Talor 91,334 $274,626 70,833/18,333 3,366/1,733 Daniel Zimmerman 24,000 $141,120 91,000/35,000 8,150/1,300 Michael Luecke 10,000 $44,425 40,000/50,000 --/-- (1) The number of shares received upon exercise of options during the fiscal year ended September 30, 2000. (2) With respect to options exercised during CEL-SCI's fiscal year ended September 30, 2000, the dollar value of the difference between the option exercise price and the market value of the option shares purchased on the date of the exercise of the options. (3) The total number of unexercised options held as of September 30, 2000, separated between those options that were exercisable and those options that were not exercisable. (4) For all unexercised options held as of September 30, 2000, the market value of the stock underlying those options as of September 30, 2000. Stock Option and Bonus Plans CEL-SCI has Incentive Stock Option Plans, Non-Qualified Stock Option Plans and Stock Bonus Plans. A summary description of these Plans follows. In some cases these Plans are collectively referred to as the "Plans". Incentive Stock Option Plan. The Incentive Stock Option Plans collectively authorize the issuance of up to 2,100,000 shares of CEL-SCI's Common Stock to persons that exercise options granted pursuant to the Plan. Only Company employees may be granted options pursuant to the Incentive Stock Option Plan. To be classified as incentive stock options under the Internal Revenue Code, options granted pursuant to the Plans must be exercised prior to the following dates: (a) The expiration of three months after the date on which an option holder's employment by CEL-SCI is terminated (except if such termination is due to death or permanent and total disability); (b) The expiration of 12 months after the date on which an option holder's employment by CEL-SCI is terminated, if such termination is due to the Employee's permanent and total disability; (c) In the event of an option holder's death while in the employ of CEL-SCI, his executors or administrators may exercise, within three months following the date of his death, the option as to any of the shares not previously exercised; The total fair market value of the shares of Common Stock (determined at the time of the grant of the option) for which any employee may be granted options which are first exercisable in any calendar year may not exceed $100,000. 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 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 Plan. The Non-Qualified Stock Option Plans collectively authorize the issuance of up to 3,760,000 shares of CEL-SCI's Common Stock to persons that exercise options granted pursuant to the Plans. CEL-SCI's employees, directors, officers, consultants and advisors are eligible to be granted options pursuant to the Plans, provided however that bona fide services must be rendered by such consultants or advisors and such services must not be in connection with the offer or sale of securities in a capital-raising transaction. The option exercise price is determined by the Committee but cannot be less than the market price of CEL-SCI's Common Stock on the date the option is granted. Stock Bonus Plan. Up to 1,040,000 shares of Common Stock may be granted under the Stock Bonus Plan. Such shares may consist, in whole or in part, of authorized but unissued shares, or treasury shares. Under the Stock Bonus Plan, CEL-SCI's employees, directors, officers, consultants and advisors are eligible to receive a grant of CEL-SCI's shares, 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. 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 Plan and any options granted pursuant to the Incentive Stock Option Plan or the Non-Qualified Stock Option Plan will be forfeited if the "vesting" schedule established by the Committee administering the Plan at the time of the grant is not met. For this purpose, vesting means the period during which the employee must remain an employee of 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 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 Plan 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 sets forth certain information, as of March 31, 2001, 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 2,100,000 1,170,100 N/A 843,315 Non-Qualified Stock Option Plans 3,760,000 2,323,139 N/A 359,400 Stock Bonus Plans 1,040,000 N/A 515,858 524,142 Of the shares issued pursuant to CEL-SCI's Stock Bonus Plans 112,454 shares were issued as part of CEL-SCI's contribution to its 401(k) plan. During the year ended September 30, 1999 CEL-SCI issued 200,000 shares of its common stock to Mr. de Clara for past services provided to CEL-SCI. In January 2000 CEL-SCI issued Mr. de Clara an additional 200,000 shares of common stock for past services provided to CEL-SCI. PRINCIPAL SHAREHOLDERS The following table sets forth, as of March 31, 2001, information with respect to the only persons owning beneficially 5% or more of CEL-SCI's common stock and the number and percentage of outstanding shares owned by each director and officer of CEL-SCI and by all the officers and directors as a group. Unless otherwise indicated, each owner has sole voting and investment powers over his shares of common stock. Name and Address Number of Shares (1) Percent of Class (3) - ---------------- ----------------- ---------------- Maximilian de Clara 348,333 * Bergstrasse 79 6078 Lungern, Obwalden, Switzerland Geert R. Kersten 1,213,715 5.7% 8229 Boone Blvd., Suite 802 Vienna, VA 22182 Patricia B. Prichep 218,647 * 8229 Boone Blvd., Suite 802 Vienna, VA 22182 M. Douglas Winship 106,340 * 8229 Boone Blvd., Suite 802 Vienna, VA 22182 Name and Address Number of Shares (1) Percent of Class (3) - ---------------- ----------------- ---------------- Eyal Talor, Ph.D. 84,300 * 8229 Boone Blvd., Suite 802 Vienna, VA 22182 Daniel H. Zimmerman, Ph.D. 137,405 * 8229 Boone Blvd., Suite 802 Vienna, VA 22182 Michael Luecke 86,032 * 8229 Boone Blvd., Suite 802 Vienna, VA 22182 Alexander G. Esterhazy 25,000 * 20 Chemin du Pre-Poiset CH- 1253 Vandoeuvres Geneve, Switzerland F. Donald Hudson 137,000 * 40 Moorings Road Marion, MA 02738 C. Richard Kinsolving -- -- 5414 61st Street East Bradenton, FL 34203 All Officers and Directors 2,356,77211.2%as a Group (10 persons) * Less than 1% (1) Includes shares issuable prior to June 30, 2001 upon the exercise of options or warrants granted to the following persons: Options or Warrants Exercisable Name Prior to June 30, 2001 ---- ------------------------------- Maximilian de Clara 348,333 Geert R. Kersten 1,073,334 Patricia B. Prichep 203,501 M. Douglas Winship 94,167 Eyal Talor, Ph.D. 70,833 Daniel H. Zimmerman, Ph.D. 107,667 Michael Luecke 75,000 Alexander G. Esterhazy 25,000 F. Donald Hudson 137,000 C. Richard Kinsolving -- (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. EQUITY LINE OF CREDIT AGREEMENT Overview On April 11, 2001, CEL-SCI entered into an equity line of credit agreement with Paul Revere Capital Partners, Ltd. in order to establish a possible source of funding for the development of CEL-SCI's technologies. The equity line of credit agreement establishes what is sometimes also referred to as an equity drawdown facility. Under the equity line of credit agreement, Paul Revere Capital Partners, Ltd. has agreed to provide CEL-SCI with up to $10,000,000 of funding during the twenty-four month period following the date of this prospectus. During this twenty-four month period, CEL-SCI may request a drawdown under the equity line of credit by selling shares of its common stock to Paul Revere Capital Partners and Paul Revere Capital Partners will be obligated to purchase the shares. CEL-SCI may request a drawdown once every 22 trading days, although CEL-SCI is under no obligation to request any drawdowns under the equity line of credit. During the 22 trading days following a drawdown request, CEL-SCI will calculate the amount of shares it will sell to Paul Revere Capital Partners and the purchase price per share. The purchase price per share of common stock will based on the daily volume weighted average price of CEL-SCI's common stock during each of the 22 trading days immediately following the drawdown date, less a discount of 11%. CEL-SCI may request a drawdown by faxing a drawdown notice to Paul Revere Capital Partners, Ltd., stating the amount of the drawdown and the lowest daily volume weighted average price, if any, at which CEL-SCI is willing to sell the shares. The lowest volume weighted average price will be set by CEL-SCI's Chief Executive Officer in his sole and absolute discretion. Calculation of Drawdown Amount, Purchase Price and Number of Shares Sold The minimum amount CEL-SCI can draw down at any one time is $100,000. Without the consent of Paul Revere Capital Partners, the maximum amount CEL-SCI can draw down at any one time is the lesser of $2,000,000 or the amount equal to: o 4.5% of the weighted average price of CEL-SCI's common stock for the ninety calendar day period prior to the date of the drawdown request o multiplied by the total trading volume of CEL-SCI's common stock for the ninety calendar day period prior to the date of the drawdown request. On the day following the delivery of the drawdown notice, a valuation period of 22 trading days will start: o On each trading day during the valuation period where the daily volume weighted average price of CEL-SCI's common stock on the American Stock Exchange exceeds the minimum price, if any, specified by CEL-SCI in the drawdown notice, the purchase price will equal 89% of the volume weighted average price on that day. o On each of the 22 trading days during the valuation period, the number of shares to be sold to Paul Revere Capital Partners will be determined by dividing 1/22 of the drawdown amount by the purchase price on each trading day. o If the volume weighted average price for CEL-SCI's common stock on any trading day during the 22 trading day calculation period is below the minimum price, then Paul Revere Capital Partners will not purchase any shares on that day, and the drawdown amount will be reduced by 1/22. Using the formula described above, if CEL-SCI had requested a drawdown on April 12, 2001, the maximum amount CEL-SCI could draw down during the subsequent 22 trading days would have been $365,304. Based upon the volume weighted average of CEL-SCI's common stock during these 22 trading days, CEL-SCI would have sold 273,635 shares of its common stock to Paul Revere Capital Partners and would have received proceeds from the sale of these shares equal to $365,304. If CEL-SCI sets a minimum price which is too high and CEL-SCI's stock price does not consistently meet that level during the 22 trading days after its drawdown request, the amount CEL-SCI can draw and the number of shares CEL-SCI will sell to Paul Revere Capital Partners will be reduced. On the other hand, if CEL-SCI sets a minimum price which is too low and its stock price falls significantly but stays above the minimum price, CEL-SCI will have to issue a greater number of shares to Paul Revere Capital Partners based on the reduced market price. Payment for Shares Issued The shares purchased on the first 11 trading days will be issued and paid for on the 13th trading day following the drawdown request. The shares purchased on the 12th through the 22nd trading days will be issued and paid for on the 24th trading day following the drawdown request. Upon closing of the equity line of credit Agreement, CEL-SCI paid $35,000 to Paul Revere Capital Partners legal counsel, Epstein Becker & Green P.C., to cover its legal and administrative expenses. Grant of Warrants As consideration for extending the equity line of credit, CEL-SCI granted Paul Revere Capital Partners warrants to purchase 200,800 shares of common stock at any time prior to April 11, 2004 at a price of $1.64 per share. Paul Revere Capital Partners is not obligated to exercise any warrants. CEL-SCI believes that the fair value of these warrants using customary pricing models is approximately $20,000. The fair value of these warrants will be reflected in CEL-SCI's financial statements and recorded as an expense during the quarter ended June 30, 2001. Restrictions on Future Financings During the term of the equity line of credit agreement, CEL-SCI may not raise capital through any other equity line of credit arrangement. Termination of the Equity Line of Credit Agreement The Equity Line of Credit Agreement will terminated if: o any event, which has not been corrected within 30 days, has taken place which has any material adverse effect on the business or financial condition of CEL-SCI or which prohibits or interferes with the ability of CEL-SCI to perform any of its material obligations under the equity line of credit agreement, o CEL-SCI's common stock is de-listed from the American Stock Exchange unless the de-listing is in connection with CEL-SCI's subsequent listing of its common stock on the NASDAQ National Market, the NASDAQ SmallCap Market or the New York Stock Exchange, or o CEL-SCI files for protection from its creditors under the Federal Bankruptcy laws. CEL-SCI may terminate the equity line of credit if Paul Revere Capital Partners fails to honor more than one drawdown notice. Indemnification Paul Revere Capital Partners is entitled to customary indemnification from CEL-SCI for any losses or liabilities it suffers based upon material misstatements or omissions from the registration statement and this prospectus, except as they relate to information Paul Revere Capital Partners supplied to CEL-SCI for inclusion in the registration statement and prospectus. SELLING SHAREHOLDER This prospectus relates to sales of CEL-SCI's common stock by Paul Revere Capital Partners. Paul Revere Capital Partners will receive shares of CEL-SCI's common stock under an equity line of credit agreement and up to 200,800 shares of common stock upon the exercise of warrants. Paul Revere Capital Partners is sometimes referred to in this prospectus as the selling shareholder. CEL-SCI will not receive any proceeds from the sale of the shares by Paul Revere Capital Partners. Paul Revere Capital Partners may resell the shares it acquires by means of this prospectus from time to time in the public market. The costs of registering the shares offered by Paul Revere Capital Partners is being paid by CEL-SCI. Paul Revere Capital Partners will pay all other costs of the sale of the shares offered by them. The following table shows the shares which are being offered for sale by Paul Revere Capital Partners. Shares Share Shares Issuable Upon Shares to Be Ownership Presently the Exercise Sold in this After Name Owned of Warrants Offering Offering - ---- --------- ------------- ------------ ---------- Paul Revere Capital Partners (1) 200,800 (1) -- (1) The number of shares owned by Paul Revere Capital Partners will vary from time-to-time and will depend upon the number of shares purchased from CEL-SCI pursuant to the terms of the Equity Line Agreement. Manner of Sale. The shares of common stock owned, or which may be acquired, by Paul Revere Capital Partners may be offered and sold by means of this prospectus from time to time as market conditions permit in the over-the-counter market, or otherwise, at prices and terms then prevailing or at prices related to the then-current market price, or in negotiated transactions. These shares may be sold by one or more of the following methods, without limitation: o a block trade in which a broker or dealer so engaged will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; o purchases by a broker or dealer as principal and resale by such broker or dealer for its account pursuant to this prospectus; o ordinary brokerage transactions and transactions in which the broker solicits purchasers; and o face-to-face transactions between sellers and purchasers without a broker/dealer. In effecting sales, brokers or dealers engaged by Paul Revere Capital Partners may arrange for other brokers or dealers to participate. Such brokers or dealers may receive commissions or discounts from Paul Revere Capital Partners in amounts to be negotiated. Paul Revere Capital Partners is an "underwriter" and any broker/dealers who act in connection with the sale of the shares by means of this prospectus may be deemed to be "underwriters" within the meaning of ss.2(11) of the Securities Acts of 1933, and any commissions received by them and profit on any resale of the shares as principal might be deemed to be underwriting discounts and commissions under the Securities Act. CEL-SCI has agreed to indemnify Paul Revere Capital Partners and any securities broker/dealers who may be deemed to be underwriters against certain liabilities, including liabilities under the Securities Act as underwriters or otherwise. CEL-SCI has advised Paul Revere Capital Partners that it and any securities broker/dealers or others who may be deemed to be statutory underwriters will be subject to the prospectus delivery requirements under the Securities Act of 1933. CEL-SCI has also advised Paul Revere Capital Partners, Ltd. that in the event of a "distribution" of its shares Paul Revere Capital Partners, any "affiliated purchasers", and any broker/dealer or other person who participates in such distribution may be subject to Rule 102 under the Securities Exchange Act of 1934 ("1934 Act") until their participation in that distribution is completed. Rule 102 makes it unlawful for any person who is participating in a distribution to bid for or purchase stock of the same class as is the subject of the distribution. A "distribution" is defined in Rule 102 as an offering of securities "that is distinguished from ordinary trading transactions by the magnitude of the offering and the presence of special selling efforts and selling methods". CEL-SCI has also advised Paul Revere Capital Partners, Ltd. that Rule 101 under the 1934 Act prohibits any "stabilizing bid" or "stabilizing purchase" for the purpose of pegging, fixing or stabilizing the price of the common stock in connection with this offering. Grant of Registration Rights CEL-SCI granted registration rights to Paul Revere Capital Partners, Ltd. to enable it to sell the common stock it may acquire under the equity line of credit agreement or upon the exercise of the warrants. Notwithstanding these registration rights, CEL-SCI has no obligation: o to assist or cooperate with Paul Revere Capital Partners, Ltd. in the offering or disposition of their shares; o to obtain a commitment from an underwriter relative to the sale of any the shares; or o to include the shares within any underwritten offering. The registration rights agreement with Paul Revere Capital Partners, Ltd. permits CEL-SCI to restrict the resale of the shares Paul Revere Capital Partners, Ltd. has purchased under the equity line of credit agreement for a period of time sufficient to permit CEL-SCI to amend or supplement this prospectus to include material information. If CEL-SCI restricts the ability Paul Revere Capital Partners, Ltd. to resell shares at any time during the thirty-two trading days following the delivery of a drawdown notice, and CEL-SCI's stock price declines during the restriction period, then, in order to compensate Paul Revere Capital Partners, Ltd. for its inability to sell shares during the restriction period, CEL-SCI will be required to pay Paul Revere Capital Partners, Ltd. an amount determined by multiplying: o the number of shares Paul Revere Capital Partners, Ltd. is committed to purchase following the delivery of the drawdown notice, and o the difference between the highest daily weighted average price of CEL-SCI's common stock during the restriction period and the weighted average price of CEL-SCI's common stock on the day after the restriction period ends. DESCRIPTION OF SECURITIES Common Stock CEL-SCI is authorized to issue 100,000,000 shares of common stock, (the "common stock"). Holders of common stock are each entitled to cast one vote for each share held of record on all matters presented to shareholders. Cumulative voting is not allowed; hence, the holders of a majority of the outstanding common stock can elect all directors. Holders of common stock are entitled to receive such dividends as may be declared by the Board of Directors out of funds legally available therefor and, in the event of liquidation, to share pro rata in any distribution of CEL-SCI's assets after payment of liabilities. The board is not obligated to declare a dividend. It is not anticipated that dividends will be paid in the foreseeable future. Holders of common stock do not have preemptive rights to subscribe to additional shares if issued by CEL-SCI. There are no conversion, redemption, sinking fund or similar provisions regarding the common stock . All of the outstanding shares of Common stock are fully paid and non-assessable. Preferred Stock CEL-SCI is authorized to issue up to 200,000 shares of preferred stock. CEL-SCI's Articles of Incorporation provide that the Board of Directors has the authority to divide the preferred stock into series and, within the limitations provided by Colorado statute, to fix by resolution the voting power, designations, preferences, and relative participation, special rights, and the qualifications, limitations or restrictions of the shares of any series so established. As the Board of Directors has authority to establish the terms of, and to issue, the preferred stock without shareholder approval, the preferred stock could be issued to defend against any attempted takeover of CEL-SCI. No shares of preferred stock were outstanding as of March 31, 2001. Transfer Agent American Securities Transfer, Inc., of Denver, Colorado, is the transfer agent for CEL-SCI's common stock. EXPERTS The consolidated financial statements of CEL-SCI Corporation as of September 30, 2000 and 1999, and for each of the three years in the period ended September 30, 1999 included as part of this prospectus, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report and have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. INDEMNIFICATION CEL-SCI's bylaws authorize indemnification of a director, officer, employee or agent of CEL-SCI against expenses incurred by him in connection with any action, suit, or proceeding to which he is named a party by reason of his having acted or served in such capacity, except for liabilities arising from his own misconduct or negligence in performance of his duty. In addition, even a director, officer, employee, or agent of CEL-SCI who was found liable for misconduct or negligence in the performance of his duty may obtain such indemnification if, in view of all the circumstances in the case, a court of competent jurisdiction determines such person is fairly and reasonably entitled to indemnification. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, or persons controlling CEL-SCI pursuant to the foregoing provisions, CEL-SCI has been informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is therefore unenforceable. ADDITIONAL INFORMATION CEL-SCI is subject to the requirements of the Securities Exchange Act of l934 and is required to file reports, proxy statements and other information with the Securities and Exchange Commission. Copies of any such reports, proxy statements and other information filed by CEL-SCI can be read and copied at the Commission's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C., 20549. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The Commission maintains an Internet site that contains reports, proxy and information statements, and other information regarding CEL-SCI. The address of that site is http://www.sec.gov. CEL-SCI has filed with the Securities and Exchange Commission a Registration Statement under the Securities Act of l933, as amended, with respect to the securities offered by this prospectus. This prospectus does not contain all of the information set forth in the Registration Statement. For further information with respect to CEL-SCI and such securities, reference is made to the Registration Statement and to the exhibits filed with the Registration Statement. Statements contained in this prospectus as to the contents of any contract or other documents are summaries which are not necessarily complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. The Registration Statement and related exhibits may also be examined at the Commission's internet site. CEL-SCI CORPORATION Consolidated Financial Statements for the Years Ended September 30, 2000, 1999, and 1998, and Independent Auditors' Report CEL-SCI CORPORATION TABLE OF CONTENTS - -------------------------------------------------------------------------------- Page INDEPENDENT AUDITORS' REPORT F-1 CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 2000, 1999, AND 1998: Consolidated Balance Sheets F-2 Consolidated Statements of Operations F-3 Consolidated Statements of Comprehensive Loss F-4 Consolidated Statements of Stockholders' Equity F-5 Consolidated Statements of Cash Flows F-6 - F-7 Notes to Consolidated Financial Statements F-8 - F-17 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of CEL-SCI Corporation: We have audited the accompanying consolidated balance sheets of CEL-SCI Corporation and subsidiaries (the Company) as of September 30, 2000 and 1999, and the related consolidated statements of operations, comprehensive loss, stockholders' equity, and cash flows for each of the three years in the period ended September 30, 2000. 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 auditing standards generally accepted in the United States of America. 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. An audit also includes 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 and its subsidiaries as of September 30, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2000, in conformity with generally accepted accounting principles in the United States of America. Deloitte & Touche LLP McLean, Virginia November 17, 2000 CEL-SCI CORPORATION CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2000 AND 1999 - -------------------------------------------------------------------------------- ASSETS 2000 1999 CURRENT ASSETS: Cash and cash equivalents $6,909,263 $2,747,644 Investment securities available for sale 3,760,922 3,191,491 Interest and other receivables 39,252 62,825 Prepaid expenses 1,838,376 514,572 Advances to officer/shareholder and employees 728 69,448 Total current assets 12,548,541 6,585,980 RESEARCH AND OFFICE EQUIPMENT - Less accumulated depreciation of $1,721,336 and $1,563,586 594,919 468,627 DEPOSITS 139,828 14,828 PATENT COSTS - Less accumulated amortization of $574,362 and $511,118 525,594 490,337 ---------- --------- $13,808,882 $7,559,772 =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 822,601 $ 433,265 ---------- --------- Total current liabilities 822,601 433,265 DEFERRED RENT 24,822 28,321 ---------- --------- Total liabilities 847,423 461,586 ---------- --------- STOCKHOLDERS' EQUITY: Common stock, $.01 par value - authorized, 100,000,000 shares; issued and outstanding, 20,459,700 and 17,002,341 shares 204,597 170,023 Additional paid-in capital 73,924,653 59,672,652 Accumulated other comprehensive loss (61,564) (116,659) Accumulated deficit (61,106,227) (52,627,830) ----------- ------------ Total stockholders' equity 12,961,459 7,098,186 ----------- ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 13,808,882 $ 7,559,772 ============ ============ See notes to consolidated financial statements. CEL-SCI CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED SEPTEMBER 30, 2000, 1999, AND 1998 - -------------------------------------------------------------------------------- 2000 1999 1998 INVESTMENT INCOME $ 402,011 $ 402,831 $ 728,421 OTHER INCOME 40,540 66,687 64,573 -------- -------- -------- Total income 442,551 469,518 792,994 -------- -------- -------- OPERATING EXPENSES: Research and development 4,978,714 4,461,051 3,833,854 Depreciation and amortization 220,994 268,210 295,331 General and administrative 3,721,240 3,230,982 3,106,492 --------- --------- ---------- Total operating expenses 8,920,948 7,960,243 7,235,677 --------- --------- ---------- NET LOSS 8,478,397 7,490,725 6,442,683 ACCRETION OF PREFERRED STOCK - - 1,980,000 --------- --------- ---------- NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $8,478,397 $7,490,725 $8,422,683 ========== ========== =========== LOSS PER COMMON SHARE (BASIC) $ 0.44 $ 0.52 $ 0.74 ========== ========== =========== LOSS PER COMMON SHARE (DILUTED) $ 0.44 $ 0.52 $ 0.74 ========== ========== =========== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 19,259,190 14,484,352 11,379,437 ========== ========== =========== See notes to consolidated financial statements. CEL-SCI CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS YEARS ENDED SEPTEMBER 30, 2000, 1999, AND 1998 - -------------------------------------------------------------------------------- 2000 1999 1998 NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $8,478,397 $7,490,725 $8,422,683 OTHER COMPREHENSIVE LOSS - Unrealized (gain) loss on investments (55,095) 68,368 44,792 ----------- ---------- ----------- COMPREHENSIVE LOSS 8,423,302 7,559,093 8,467,475 =========== ========== =========== See notes to consolidated financial statements. CEL-SCI CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED SEPTEMBER 30, 2000, 1999, AND 1998 - -------------------------------------------------------------------------------- Accumulated Preferred Additional Other Series D Stock Common Stock Paid-In Comprehensive Accumulated Shares Amount Shares Amount Capital (Loss) Income Deficit Total BALANCE, OCTOBER 1, 1997 - - 10,445,691 $104,457 $44,419,244 $(3,499) $(38,694,422) $5,825,780 Exercise of stock options - - 300,048 3,000 882,372 - - 885,372 Exercise of warrants - - 768,243 7,682 3,621,744 - - 3,629,426 Stock options issued to nonemployees for services - - - - 564,031 - - 564,031 Issuance - Series D preferred stock, net of offering costs 10,000 100 - - 9,499,900 - - 9,500,000 Preferred Series D conversion (998) (10) 441,333 4,413 (4,403) - - - 401(k) contributions - - 17,380 174 57,976 - - 58,150 Change in unrealized gain (loss) of marketable securities available for sale - - - - - (44,792) - (44,792) Net loss - - - - - - (6,442,683) (6,442,683) ------------------------------------------------------------------------------------------------------ BALANCE, SEPTEMBER 30, 1998 9,002 90 11,972,695 119,726 59,040,864 (48,291) (45,137,105) 13,975,284 Exercise of stock options - - 28,500 285 70,965 - - 71,250 Stock options issued to nonemployees for services - - - - 88,166 - - 88,166 Preferred Series D conversion (9,002) (90) 4,760,126 47,602 (47,512) - - - 401(k) contributions - - 41,020 410 86,544 - - 86,954 Stock bonus to officer - - 200,000 2,000 433,625 - - 435,625 Change in unrealized gain (loss) of marketable securities available for sale - - - - - (68,368) - (68,368) Net loss - - - - - - (7,490,725) (7,490,725) ------------------------------------------------------------------------------------------------------- BALANCE, SEPTEMBER 30, 1999 - - 17,002,341 170,023 59,672,652 (116,659) (52,627,830) 7,098,186 Exercise of stock options - - 1,047,612 10,476 3,646,991 - - 3,657,467 Issuance - common stock - - 2,175,258 21,753 9,958,247 - - 9,980,000 401(k) contributions - - 34,489 345 98,762 - - 99,107 Stock bonus to officer - - 200,000 2,000 548,000 - - 550,000 Change in unrealized gain (loss) of marketable securities available for sale - - - - - 55,095 - 55,095 Net loss - - - - - - (8,478,397) (8,478,397) ------------------------------------------------------------------------------------------------------- BALANCE, SEPTEMBER 30, 2000 - $- 20,459,700 $204,597 $73,924,653 $(61,564) $(61,106,227) $12,961,459 =======================================================================================================
See notes to consolidated financial statements. CEL-SCI CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 30, 2000, 1999, AND 1998 - -------------------------------------------------------------------------------- 2000 1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(8,478,396) (7,490,725)(6,442,683) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 220,994 268,210 295,331 Issuance of stock options for services - 88,166 564,031 Stock bonus granted to officer 550,000 435,625 - Stock contributed to 401(k) plan 99,107 86,954 58,150 Net realized loss on sale of securities 49,962 151,349 9 Changes in assets and liabilities: Increase in interest and other receivables 23,573 6,984 36,625 (Increase) decrease in prepaid expenses (1,323,804) 209,262 (313,046) Decrease (increase) in advances 68,720 (69,275) 4,733 (Increase) decrease in deposits (125,000) - 3,350 Decrease (increase) in accounts payable and accrued expenses 389,336 6,118 (54,440) (Increase) decrease in deferred rent (3,499) (1,061) 2,352 -------- -------- ----- Net cash used in operating activities (8,529,007) (6,308,393)(5,845,588) CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES: Purchases of investments (2,000,587) (235,698) (13,480,816) Sales and maturities of investments 1,436,289 6,499,801 4,501,828 Repayment on note receivable from shareholder - 70,809 216,066 Expenditures for property and equipment (284,043) (60,552) (70,559) Expenditures for patents (98,500) (102,798) (35,211) --------- ---------- -------- Net cash (used in) provided by investing activities (946,841) 6,171,562 (8,868,692) --------- --------- ----------- (Continued) CEL-SCI CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 30, 2000, 1999, AND 1998 - -------------------------------------------------------------------------------- 2000 1999 1998 CASH FLOWS PROVIDED BY FINANCING ACTIVITIES: Cash proceeds from issuance of preferred and common stock and warrant conversion for cash 13,637,467 71,250 14,018,899 ------------ -------- ---------- Net cash provided by financing activities 13,637,467 71,250 14,018,899 ------------ -------- ---------- NET INCREASE (DECREASE) IN CASH 4,161,619 (65,581) (695,381) CASH, BEGINNING OF YEAR 2,747,644 2,813,225 3,508,606 --------- --------- ----------- CASH, END OF YEAR $6,909,263 $2,747,644 $2,813,225 ========== ========== ========== SUPPLEMENTAL DISCLOSURES: At September 30, 2000, 1999, and 1998, the net unrealized gain (loss) on investments available-for-sale was $61,564, $(116,659), and (48,291), respectively. During the year ended September 30, 1999, 9,002 shares of Series D Preferred Stock were converted into 4,760,126 shares of common stock. (Concluded) See notes to consolidated financial statements. CEL-SCI CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998 - -------------------------------------------------------------------------------- 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 products. Significant accounting policies are as follows: Principles of Consolidation - The consolidated financial statements include the accounts of CEL-SCI Corporation and its wholly owned subsidiaries, Viral Technologies, Inc., and MaxPharma AG. All significant intercompany transactions have been eliminated upon consolidation. Investments - Investments that may be sold as part of the liquidity management of the Company or for other factors are classified as available-for-sale and are carried at fair market value. Unrealized gains and losses on such securities are reported as a separate component of stockholders' equity. Realized gains and losses on sales of securities are reported in earnings and computed using the specific identified cost basis. Research and Office Equipment - Research and office equipment is recorded at cost and depreciated using the straight-line method over estimated useful lives of five to seven years. Research and Development Costs - Research and development expenditures are expensed as incurred. The Company has an agreement with an unrelated corporation for the production of MULTIKINE, which is the Company's only product source. Research and Development Grant Revenues - The Company's grant arrangements are handled on a reimbursement basis. Costs incurred under the arrangements are expensed as incurred. Subsequent reimbursements from the granting agency are applied against such expenses. 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. Net Loss Per Share - Net loss per common share is computed by dividing the net loss, after increasing the loss for the effect of any preferred stock dividends, by the weighted average number of common shares outstanding during the period. Common stock equivalents, including options to purchase common stock, were excluded from the calculation for all periods presented as they were antidilutive. Prepaid Expenses - The majority of prepaid expenses consist of manufacturing production advances, bulk purchases of laboratory supplies to be consumed in the manufacturing of the Company's product for clinical studies and the cost of options for nonemployee services. Income Taxes - Income taxes are accounted for using the liability method under which deferred tax liabilities or assets are determined based on the difference between the financial statement and tax bases of assets and liabilities (i.e., temporary differences) and are measured at the enacted tax rates. Deferred tax expense is determined by the change in the liability or asset for deferred taxes. Statement of Cash Flows - For purposes of the statements of cash flows, cash consists principally of unrestricted cash on deposit, and short-term money market funds. The Company considers all highly liquid investments with a maturity of less than three months to be cash equivalents. 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. Reclassifications - Certain reclassifications have been made to the 1999 and 1998 financial statements to conform with the current-year presentation. 2. INVESTMENTS The carrying values and estimated market values of investments available-for-sale at September 30, 2000 and 1999, are as follows: September 30, 2000 Gross Gross Market Value Amortized Unrealized Unrealized at September 30, Cost Gains Losses 2000 Bonds $ 2,000,000 $4,720 $- $ 2,004,720 Fixed income mutual funds 1,822,486 - (66,284) 1,756,202 ---------- -- --------- --------- Total $3,822,486 $4,720 $(66,284) $3,760,922 ========== ====== ========= ========== September 30, 1999 Gross Gross Market Value Amortized Unrealized Unrealized at September 30, Cost Gains Losses 1999 Fixed income mutual funds $3,308,150 $ - $(116,659) $3,191,491 ---------- -- ---------- --------- Total $3,308,150 $ - $(116,659) $3,191,491 ============ ======== =========== ========== The gross realized gains and losses of sales of investments available-for-sale for the years ended September 30, 2000, 1999, and 1998, are as follows: 2000 1999 1998 ---- ---- ---- Realized gains $ - $ - $1,485 Realized losses 49,962 151,349 1,494 ------ -------- ------- Net realized loss $(49,962) $(151,349) $ (9) ========= ========== === 3. RESEARCH AND OFFICE EQUIPMENT Research and office equipment at September 30, 2000 and 1999, consist of the following: 2000 1999 Research equipment $ 2,052,082 $ 1,781,666 Furniture and equipment 258,780 245,154 Leasehold improvements 5,393 5,393 ----------- ---------- 2,316,255 2,032,213 Less accumulated depreciation and amortization (1,721,336) (1,563,586) ------------ ----------- Net research and office equipment $ 594,919 $ 468,627 ============ ========== 4. INCOME TAXES The approximate tax effect of each type of temporary difference and carryforward that gave rise to the Company's deferred tax assets and liabilities at September 30, 2000 and 1999, is as follows: 2000 1999 Depreciation $ (28,964) $(18,536) Prepaid expenses (697,848) (101,769) Net operating loss carryforward 22,905,872 17,082,000 Other 9,422 10,751 Less: Valuation allowance (22,188,482) (16,972,446) -------------------------- Net deferred - - ========================== The Company has available for income tax purposes net operating loss carryforwards of approximately $50,242,000, expiring from 2001 through 2020. In the event of a significant change in the ownership of the Company, the utilization of such carryforwards could be substantially limited. The difference in the Company's U.S. Federal statutory income tax rate and the Company's effective rate is primarily attributed to the recording of a valuation allowance due to the uncertainty of the amount of future tax benefits that will be realized because it is more likely than not that future taxable income will not be sufficient to realize such tax benefits. 5. STOCK OPTIONS, BONUS PLAN, AND WARRANTS Non-Qualified Stock Option Plan - At September 30, 2000, the Company has collectively authorized the issuance of 3,260,000 shares of common stock under the Non-Qualified Plan. 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 all of the plans. The Company's employees, directors, officers, and consultants or advisors are eligible to be granted options under the Non-Qualified Plan. Information regarding the Company's Non-Qualified Stock Option Plan is summarized as follows: Outstanding Exercisable ------------------- ------------------ Weighted Weighted Average Average Exercise Exercise Shares Price Shares Price Options outstanding, October 1, 1997 1,672,834 $3.44 Options granted 474,700 2.98 Options exercised (170,334) 2.92 Options forfeited (17,500) 6.23 --------- Options outstanding, September 30, 1998 1,959,700 3.32 1,315,002 $3.10 Options granted 470,959 2.02 Options forfeited (56,602) 4.78 ----------- Options outstanding, September 30, 1999 2,374,057 2.80 1,595,934 3.09 Options granted 262,500 3.09 Options exercised (789,085) 3.41 Options forfeited (46,266) 2.34 ---------- Options outstanding, September 30, 2000 1,801,206 3.18 1,547,445 3.19 ========== At September 30, 2000, options outstanding and exercisable were as follows: Weighted Average Weighted Average Weighted Average Range of Number Exercise Price- Remaining Number Exercise Price- Exercise Prices Outstanding Outstanding Contractual Life Exercisable Exerciseble $1.87-$2.50 688,327 $2.11 3.0 years 633,263 $2.15 $2.56-$3.75 793,246 3.07 3.4 years 625,015 3.06 $3.87-$4.68 174,833 4.13 5.9 years 146,667 4.07 $5.00-$7.25 144,800 5.50 4.3 years 142,500 5.49
During 1999, the Company extended the expiration date on 35,000 options at $2.87 from the Non-qualified Stock Option Plan. The options were to expire March 30, 1999, and were extended to March 30, 2000. The options had originally been granted in December 1994. As of March 30, 2000, all options had been exercised. During 1999, the Company extended the expiration date on 750 options at $2.87 from the Non-qualified Stock Option Plan. The options were to expire March 31, 1999, and were extended to March 31, 2000. The options had originally been granted in March 1988. As of March 31, 2000, all options had been exercised. During March 2000, the Company agreed to restore and vest 40,000 options at prices ranging from $5.25 to $5.62, to one former Director and one Director as part of a settlement agreement. The options will expire on September 25, 2006. As of September 30, 2000, 20,000 options had been exercised. Incentive Stock Option Plan - At September 30, 2000, the Company has collectively authorized the issuance of 1,600,000 shares of common stock under the Incentive Stock Option Plan. Options vest after 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 all of the plans. Only the Company's employees are eligible to be granted options under the Incentive Plan. Information regarding the Company's Incentive Stock Option Plan is summarized as follows: Outstanding Exercisable ----------------- ---------------- Weighted Weighted Average Average Exercise Exercise Shares Price Shares Price Options outstanding, October 1, 1997 573,716 $3.81 Options granted 205,500 4.76 Options exercised (3,166) 2.87 Options forfeited (3,666) 5.34 ---------- Options outstanding, September 30, 1998 772,384 4.06 311,622 $3.64 Options granted 206,500 2.14 Options forfeited (2,034) 3.70 ---------- Options outstanding, September 30, 1999 976,850 3.71 520,688 3.86 Options granted 140,000 3.77 Options exercised (68,418) 4.47 Options forfeited (1,666) 3.38 ---------- Options outstanding, September 30, 2000 1,046,766 3.62 722,435 3.98 ========== At September 30, 2000, options outstanding and exercisable were as follows: Weighted Weighted Weighted Average Average Average Range of Number Exercise Remaining Number Exercise Price - Price - Exercise OutstandinOutstanding Contractual ExercisabExercisable Prices Life ------------ --------------------- ----------- -------------------- $1.94 - $2.39 5.4 years $2.51 $2.87 322,500 223,168 $2.94 - 3.45 7.4 years 3.47 $4.31 406,900 290,567 $4.50 - 5.07 7.3 years 5.11 $6.00 316,766 208,100 $11.00 600 11.00 5.7 years 600 11.00 During 1999, the Company extended the expiration date on 23,000 options at $3.25 from the Incentive Stock Option Plan. The options were to expire February 21, 1999, and were extended to February 21, 2000. The options had originally been granted in February 1996. All options were exercised as of September 30, 2000. Stock Bonus Plan - At September 30, 2000, the Company has authorized the issuance of 840,000 shares of common stock under the Stock Bonus Plan. All employees, directors, officers, consultants, and advisors are eligible to be granted options. Other Options and Warrants - In connection with the 1992 public offering, 5,175,000 common stock purchase warrants were issued and outstanding at September 30, 1997. Every ten warrants entitled the holder to purchase one share of common stock at a price of $15.00 per share. Subsequently, the expiration date of the warrants was extended to February 1998. Effective June 1, 1997, the exercise price of warrants was lowered from $15 to $6 and only five warrants, rather than 10 warrants, were required to purchase one share of common stock. Subsequent to September 30, 1997, warrant-holders who tendered five warrants and $6.00 between January 9, 1998, and February 7, 1998, would receive one share of the Company's common stock and one new warrant. The new warrants would permit the holder to purchase one share of the Company's common stock at a price of $10.00 per share prior to February 7, 2000. During 1998, the expiration date of the original warrants was extended to July 31, 1998, and 582,025 original warrants were tendered for 116,405 common shares. As of September 30, 1998, the remaining 4,592,975 original warrants had expired. During 1995, the Company granted a consultant options to purchase 17,858 shares of the Company's common stock. These shares became exercisable on November 2, 1995, and were to expire November 1, 1999. In February 2000, the Company extended the expiration date on the options by one year to February 6, 2001. These options are exercisable at $5.60 per share and as of September 30, 2000, all 17,858 options remain outstanding. In June and September 1995, the Company completed private offerings whereby it sold a total of 1,150,000 units at $2.00 per unit. Each unit consisted of one share of Common Stock and one warrant. Each warrant entitled the holder to purchase one additional share of Common Stock at a price of $3.25 per share at any time prior to June 30, 1997. All warrants sold in this Offering were exercised during 1996. Additionally, the Company issued to the underwriter warrants to purchase 230,000 equity units. Each unit consisted of one share of the Company's common stock. For the June 1995 private placement, 57,500 equity units were issued at $2.00 per unit and another 57,500 equity units were issued at $3.25 per unit. All units issued in the June 1995 private placement were exercised at September 30, 1996. For the September 1995 private placement, 57,500 equity units were issued at $2.40 per unit and another 57,500 equity units were issued at $3.25 per unit. As of September 30, 1996, 21,890 equity units had been exercised at $3.25 per unit and 21,890 equity units had been exercised at $2.40 per unit. As of September 30, 1997, 35,610 equity units had been exercised at $2.40 per unit and 25,610 equity units were exercised at $3.25 per unit. All remaining 10,000 equity units will expire on February 6, 2001. During 1997, the Company granted four consultants options to purchase a total of 268,000 shares of the Company's common stock. The fair value of the options is expensed over the life of the consultants' contracts. Of the 268,000 options, 218,000 options became exercisable during 1997 at prices ranging from $2.50 to $4.50. The remaining 50,000 options became exercisable during 1998 at $5.00. During 1997, 50,000 options were exercised at $3.50. During 1998, 114,500 options were exercised at prices ranging from $3.50 to $4.50. During 1999, 18,500 options were exercised at prices ranging from $3.50 to $4.50. In December 1999, the Company extended the expiration date on 10,000 options exercisable at $3.25 per share to June 30, 2000. Subsequently, the expiration date was extended to June 30, 2001. During 2000, 25,000 options were exercised at prices ranging from $2.50 to $3.94. At September 30, 2000, 60,000 options related to the four consultants remained outstanding at prices ranging from $3.50 to $5.00. During 1998, the Company granted seven consultants options to purchase a total of 282,000 shares of the Company's common stock. The fair value of the options is expensed over the life of the consultants' contracts. All options became exercisable during 1998 that were exercisable at prices ranging from $3.50 to $7.31. During 1998, 22,000 options were exercised at prices ranging from $3.50 to $4.50. During 1999, 75,000 options expired ranging in price from $5.06 to $7.31, and 10,000 options were exercised at a price of $2.50. In December 1999, the Company extended the expiration date on 20,000 options exercisable at $3.94 per share and 10,000 options exercisable at $3.50 per share to June 30, 2000. Subsequently, the expiration date was extended to June 30, 2001. During 2000, 165,000 options were exercised at prices ranging from $2.50 to $5.62. At September 30, 2000, 5,000 options related to the consultants remained outstanding at a price of $3.50 per common share. During 1999, the Company granted one consultant options to purchase a total of 50,000 shares of the Company's common stock. The fair value of the options is expensed over the life of the consultant's contract. All 50,000 options became exercisable during 1999 at $2.50 per share. At September 30, 2000, all 50,000 options remained outstanding. In January 1999, the Company revised the terms of 23,500 and 125,000 options granted to consultants in 1997 and 1998, respectively. The terms of the agreements set the exercise price of the 148,500 options at $4.00 and set the expiration date of the options at December 31, 1999. During 1999, 28,500 options to purchase shares were exercised at $2.50 per share. The options were further revised in December 1999 to extend the expiration date to June 30, 2001. During 2000, all 120,000 options to purchase shares were exercised at $2.50 per share. In connection with the December 1997 private offering, the Company issued to the underwriters warrants to purchase 50,000 shares of common stock at $8.63 per share. The warrants are exercisable at any time prior to December 22, 2000. At September 30, 2000, all warrants remained outstanding. In connection with the December 1999 private offering, the Company issued 402,007 common stock purchase warrants. Each warrant entitled the holder to purchase one share of common stock at $2.925 per share, expiring December 2002. The investors in this private offering also received warrants that allow investors under certain circumstances to acquire additional shares of the Company's common stock at a nominal price. At September 30, 2000, all warrants remained outstanding. In connection with the March 2000 private offering, the Company issued 413,334 common stock purchase warrants. Each warrant entitled the holder to purchase one share of common stock at $8.50 per share, expiring March 2003. The investors in this private offering also received warrants that allow investors under certain circumstances to acquire additional shares of the Company's common stock at a nominal price. At September 30, 2000, all warrants remained outstanding. In October 1996, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123). This statement encourages but does not require companies to account for employee stock compensation awards based on their estimated fair value at the grant date with the resulting cost charged to operations. The Company has elected to continue to account for its employee stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. If the Company had elected to recognize compensation expense based on the fair value of the awards granted, consistent with the provisions of SFAS No. 123, the Company's net loss and net loss per common share would have been increased to the pro forma amounts indicated below: Year Ended September 30, -------------------------------------- 2000 1999 1998 ---- ---- ---- (In Thousands) Net loss: As reported $(8,478,396)$(7,490,725) $(6,442,638) Pro forma (8,908,999) (8,124,159) (7,018,634) Loss per common share: As reported $ 0.44 $ 0.52 $ 0.74 Pro forma 0.46 0.56 0.79 The weighted average fair value at the date of grant for options granted during 2000, 1999, and 1998, was $2.57, $1.21, and $2.17 per option, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: 2000 1999 1998 ---- ---- ---- Expected stock risk volatility 98 % 91 % 79 % Risk-free interest rate 6.32 % 5.48 % 5.49 % Expected life options 4.91 3.23 2 Expected dividend yield - - - The effects of applying SFAS No. 123 in this pro forma disclosure are not necessarily indicative of the effect on future amounts. 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 monthly closing prices of the Company's stock from its initial offering date to the present. The risk-free rate of return used equals the yield on one- to three-year zero-coupon U.S. Treasury issues on the grant date. No discount was applied to the value of the grants for nontransferability or risk of forfeiture. 6. 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 CEL-SCI employees. Prior to January 1, 1998, the employer contributed an amount equal to 50% of each employee's contribution not to exceed 3% of the participant's salary. Effective January 1, 1998, the plan was amended such that the Company's contribution is now made in shares of the Company's common stock as opposed to cash. 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 price of the Company's common stock. The expense for the years ended September 30, 2000, 1999, and 1998, in connection with this plan was $99,107, $86,954, and $70,519, respectively. 7. LEASE COMMITMENTS 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, 2001 $202,934 2002 209,490 2003 180,035 2004 36,565 2005 - Total minimum lease payments $629,024 ======== Rent expense for the years ended September 30, 2000, 1999, and 1998, was approximately $233,559, $214,205, and $165,067, respectively. 8. STOCKHOLDERS' EQUITY During December 1997, the Company issued 10,000 shares of Series D Preferred Stock for $10,000,000. The issuance included 550,000 Series A Warrants and 550,000 Series B Warrants. The number of common shares issuable upon conversion of the Preferred Shares is determinable by dividing $1,000 by $8.28 prior to September 19, 1998, or at any time at which the Company's common stock is $3.45 or less for five consecutive days. On or after September 19, 1998, the number of common shares to be issued upon conversion is determined by dividing $1,000 by the lesser of (1) $8.28 or (2) the average price of the stock for any two trading days during the ten trading days preceding the conversion date. The Series A Warrants are exercisable at any time for $8.62 prior to December 22, 2001, and the Series B Warrants are exercisable at any time for $9.31 prior to December 22, 2001. Each warrant entitles the holder to purchase one share of common stock. At September 30, 1998, 998 shares of Series D Preferred Stock had been converted into 441,333 shares of common stock. At September 30, 1999, 9,002 shares of Series D Preferred Stock had been converted into 4,760,127 shares of common stock. There are no remaining shares of Series D Preferred Stock. All Series A and Series B Warrants issued remain outstanding at September 30, 2000. In connection with the Company's December 1997 $10,000,000 Series D Preferred Stock offering, the Series A and Series B warrants were assigned a relative fair value of $1,980,000 in accordance with APB No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants, and have been recorded as additional paid-in capital. The $1,980,000 allocated to the warrants was accredited immediately. 9. LOSS PER SHARE Basic EPS excludes dilution and is computed by dividing net income or loss attributable to common stockholders by the weighted average of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock (convertible preferred stock, warrants to purchase common stock and common stock options using the treasury stock method) were exercised or converted into common stock. Potential common shares in the diluted EPS computation are excluded in net loss periods as their effect would be antidilutive. The loss attributable to common stockholders includes the impact of the accretion of Series D Preferred Stock warrants and preferred stock dividends. 2000 1999 1998 ---- ---- ---- Loss per common share (basic and diluted) $0.44 $0.52 $0.74 ====== ====== ===== 10. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. The Company does not believe that the adoption of SFAS No. 133 will have a material effect on its financial position or results of operation. 11. SEGMENT REPORTING The Company adopted Statement of Financial Accounting Standards No. 131, Disclosure about Segments of an Enterprise and Related Information (SFAS No. 131) in the fiscal year ended September 30, 1999. SFAS No. 131 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. SFAS No. 131 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 SFAS No. 131, 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. CEL-SCI CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS ASSETS (unaudited) December 31, September 30, CURRENT ASSETS: 2000 2000 ---- ---- Cash and cash equivalents $ 3,713,027 $ 6,909,263 Investments, net 3,789,538 3,760,922 Interest and other receivables 29,646 39,252 Prepaid expenses 2,442,089 1,838,376 Advances to officer/shareholder 20,932 728 --------------- ------------- Total Current Assets 9,995,232 12,548,541 REASEARCH AND OFFICE EQUIPMENT- Less accumulated depreciation of $1,753,975 and $1,721,336 601,093 594,919 DEPOSITS 139,828 139,828 PATENT COSTS-less accumulated amortization of $590,801 and $574,362 527,679 25,594 ---------------- ----------------- $ 11,263,832 $ 13,808,882 ============== =============== See notes to consolidated condensed financial statements CEL-SCI CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS LIABILITES AND STOCKHOLDERS' EQUITY (unaudited) December 31, September 30, 2000 2000 ---- ---- CURRENT LIABILITIES: Accounts payable $ 765,032 $ 822,601 Total current liabilities 765,032 822,601 DEFERRED RENT 24,822 24,822 ------------ ----------- Total liabilities $ 789,854 $ 847,423 STOCKHOLDERS EQUITY Preferred stock, $.01 par value; authorized 1,000,000 shares; no shares issued and outstanding Common stock, $.01 par value; authorized, 100,000,000 shares; issued and outstanding, 20,479,265 and 20,459,700 shares 204,793 204,597 Additional paid in capital 73,951,849 73,924,653 Net unrealized loss on equity securities (32,948) (61,564) Deficit (63,649,716) (61,106,227) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 10,473,978 12,961,459 ---------- ---------- $ 11,263,832 $ 13,808,882 ============= ============= See notes to consolidated condensed financial statements CEL-SCI CORPORATION ------------------- CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS --------------------------------- (unaudited) Three Months Ended December 31, 2000 1999 ---- ----- REVENUES: Interest income $183,211 $ 28,693 Other income 66,597 1,355 ------------ ---------- TOTAL INCOME 249,808 30,048 EXPENSES: Research and development 2,017,007 995,024 Depreciation and amortization 49,079 70,780 General and administrative 727,211 668,652 ----------- ---------- TOTAL OPERATING EXPENSES 2,793,297 1,734,456 --------- ---------- NET LOSS $2,543,489 $1,704,408 ========== ========== LOSS PER COMMON SHARE (BASIC) $ 0.12 $ 0.10 ============== ============== LOSS PER COMMON SHARE (DILUTED) $ 0.12 $ 0.10 ============== ============== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 20,459,913 17,270,008 ========== =========== See notes to condensed financial statements. CEL-SCI CORPORATION ------------------- CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW (unaudited) Three Months Ended December 31 -------------------------- 2000 1999 CASH FLOWS FROM OPERATING ACTIVITIES NET LOSS $(2,543,489) $(1,704,408) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 49,079 70,780 Stock issued to 401(k) 27,391 22,498 Net realized loss on sale of securities -- 51,918 Decrease (increase) in receivables 9,606 7,676 Decrease (increase) in prepaid expenses (603,713) 51,151 Decrease (increase) in advances (20,204) 56,154 Increase (decrease) in accounts payable (57,569) (169,757) -------- --------- NET CASH USED IN OPERATING ACTIVITIES (3,138,899) (1,613,988) ------------ ------------ CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITY: Sales of investments -- 1,156,907 Purchase of investments -- -- Purchase of research and office equipment (38,813) (31,430) Patent costs (18,524) (42,888) ----------- ------------- NET CASH USED IN INVESTING ACTIVITY (57,337) 1,082,589 --------- ---------- CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES: Cash proceeds from issuance of preferred and common stock and warrant conversion for cash -- 2,355,000 ---------- --------- NET CASH PROVIDED BY FINANCING ACTIVITIES -- 2,355,000 ---------- --------- NET INCREASE (DECREASE) IN CASH (3,196,236) 1,823,601 CASH AND CASH EQUIVALENTS: Beginning of period 6,909,263 2,746,531 ------------- ------------ End of period $3,713,027 $4,570,132 ============ =========== See notes to condensed financial statements. CEL-SCI CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS THREE MONTHS ENDED DECEMBER 31, 2000 AND 1999 --------------------------------------------- (unaudited) A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ Basis of Presentation The accompanying financial statements have been prepared in accordance with rules established by the Securities and Exchange Commission for Form 10-Q. Not all financial disclosures required to present the financial position and results of operations in accordance with generally accepted accounting principles are included herein. The reader is referred to the Company's financial statements included elsewhere in this prospectus for the year ended September 30, 2000. In the opinion of management, all accruals and adjustments (each of which is of a normal recurring nature) necessary for a fair presentation of the financial position as of December 31, 2000 and the results of operations for the three-month period then ended have been made. Significant accounting policies have been consistently applied in the interim financial statements and the annual financial statements. Investments Investments that may be sold as part of the liquidity management of the Company or for other factors are classified as available-for-sale and are carried at fair market value. Unrealized gains and losses on such securities are reported as a separate component of stockholders' equity. Realized gains and losses on sales of securities are reported in earnings and computed using the specific identified cost basis. Loss per Share Net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Common stock equivalents, including options to purchase common stock, were excluded from the calculation because they are antidilutive due to the net losses. Long-lived Assets Statement of Accounting Standards No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of" is effective for financial statements for fiscal years beginning after December 15, 1995. CEL-SCI CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS THREE MONTHS ENDED DECEMBER 31, 2000 AND 1999 --------------------------------------------- (unaudited) (continued) B. COMPREHENSIVE LOSS In fiscal 1999, the Company adopted Statement of Financial Accounting Standard ("SFAS") No. 130 "Reporting Comprehensive Income" which was effective for fiscal years beginning after December 15, 1997. Comprehensive income (loss) is the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The Company's source of other comprehensive loss, other than net losses, is from unrealized gain or loss on investments. The components of comprehensive income (loss) are as follows: Three months ended Three months ended December 31, 2000 December 31, 1999 ----------------- ----------------- Net Loss $2,543,489 $1,704,408 Other Comprehensive Income: Unrealized Loss (Gain) From Investments (28,617) (18,713) ------------ ------------ Comprehensive Loss $2,514,872 $1,685,695 ============ ============ No dealer salesman or other person has been authorized to give any information or to make any representations, other than those contained in this prospectus. Any information or representation not contained in this prospectus must not be relied upon as having been authorized by CEL-SCI. This prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, the securities offered hereby in any state or other jurisdiction to any person to whom it is unlawful to make such offer or solicitation. Neither the delivery of this prospectus nor any sale made hereunder shall, under any circumstances, create an implication that there has been no change in the affairs of CEL-SCI since the date of this prospectus. TABLE OF CONTENTS Page Prospectus Summary.................................. Risk Factors........................................ Comparative Share Data.............................. Market for CEL-SCI's Common Stock................... Management's Discussion and Analysis of Financial Condition and Results of Operations..... Business............................................ Management.......................................... Principal Shareholders.............................. Equity Line of Credit Agreement..................... Selling Shareholder................................. Description of Securities........................... Experts............................................. Indemnification..................................... Additional Information.............................. ----------------------------- - Common stock CEL-SCI CORPORATION PROSPECTUS PART II Information Not Required in Prospectus Item 13. Other Expenses of Issuance and Distribution SEC Filing Fee Blue Sky Fees and Expenses Printing and Engraving Expenses Legal Fees and Expenses Accounting Fees and Expenses Miscellaneous Expenses TOTAL All expenses other than the S.E.C. filing fees are estimated. Item 14. Indemnification of Officers and Directors. ----------------------------------------- It is provided by Section 7-109-102 of the Colorado Revised Statutes and CEL-SCI's Bylaws that CEL-SCI may indemnify any and all of its officers, directors, employees or agents or former officers, directors, employees or agents, against expenses actually and necessarily incurred by them, in connection with the defense of any legal proceeding or threatened legal proceeding, except as to matters in which such persons shall be determined to not have acted in good faith and in the best interest of CEL-SCI. Item 15. Recent Sales of Unregistered Securities. During the past three years CEL-SCI has sold unregistered securities to the persons, in the amounts and for the consideration set forth below: Name Shares Sold Consideration Item 16. Exhibits and Financial Statement Schedules (a) Exhibits Page Number 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. (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. (c) Amended Articles Incorporated by reference to Exhibit (Name change only) 3(c) filed with Registration Statement on Form S-1 (No. 33-34878). (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(a) Specimen copy of Stock Certificate Incorporated by reference to Exhibit 4(a) of CEL-SCI's Registration Statement on Form S-1, Registration Nos. 2-85547-D and 33-7531. 4(c) Form of Common Stock Incorporated by reference to Exhibit Purchase Warrant 4(c) filed as an exhibit to CEL-SCI's Registration Statement on Form S-1 (Registration No. 33-43281). 5 Opinion of Counsel _______________________________ 10(e) Employment Agreement with Incorporated by reference to Exhibit 10(e) Geert Kersten of the Company's report on Form 10-K for the year ended September 30, 2000. 10(i) Securities Purchase Agreement Incorporated by reference to Exhibit 10(i) (with schedule) to Cel-Sci Registration Statement on Form S-3 (Commission File Number 333-94675). 10(j) Form of Callable (Series A) Warrant Incorporated by reference to Exhibit 10(j) to Cel-Sci Registration Statement on Form S-3 (Commission File Number 333-94675). 10(k) Form of Adjustable (Series B) Incorporated by reference to Exhibit Warrant 10(k) to Cel-Sci Registration Statement on Form S-3 (Commission File Number 333-94675). 10(l) Registration Rights Agreement Incorporated by reference to Exhibit 10(l) to Cel-Sci Registration Statement on Form S-3 (Commission File Number 333-34604). 10(m) Securities Purchase Agreement, Incorporated by reference to Exhibit together with Schedule required 10(m) to Cel-Sci Registration Statement Instruction 2 to Item 601 of on by Form S-3 (Commission File Number Regulation S-K 333-34604) 10(n) Form of Callable (Series C) Incorporated by reference to Exhibit Warrant 10(n) to Cel-Sci Registration Statement on Form S-3 (Commission File Number 333-34604). 10(o) Form of Adjustable (Series D) Incorporated by reference to Exhibit Warrant 10(o) to Cel-Sci Registration Statement on Form S-3 (Commission File Number 333-34604). 10(p) Registration Rights Agreement Incorporated by reference to Exhibit 10(p) to Cel-Sci Registration Statement on Form S-3 (Commission File Number 333-34604). 10(q) Common Stock Purchase Agreement with Paul Revere Capital Partners Ltd. -------------------------------- 10(r) Stock Purchase Warrant issued to Paul Revere Capital Partners, Ltd. -------------------------------- 23(a) Consent of attorneys -------------------------------- 23(b) Consent of accountants ________________________________ (b) Financial statement schedules. None Item 17. Undertakings. ------------ The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement. (i) To include any prospectus required by Section l0(a)(3) of the Securities Act of l933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement, including (but not limited to) any addition or deletion of a managing underwriter. (2) That, for the purpose of determining any liability under the Securities Act of l933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. Insofar as indemnification for liabilities arising under the Securities Act of l933 may be permitted to directors, officers and controlling persons of the Registrant, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. POWER OF ATTORNEY The registrant and each person whose signature appears below hereby authorizes the agent for service named in this Registration Statement, with full power to act alone, to file one or more amendments (including post-effective amendments) to this Registration Statement, which amendments may make such changes in this Registration Statement as such agent for service deems appropriate, and the Registrant and each such person hereby appoints such agent for service as attorney-in-fact, with full power to act alone, to execute in the name and in behalf of the Registrant and any such person, individually and in each capacity stated below, any such amendments to this Registration Statement. SIGNATURES Pursuant to the requirements of the Securities Act of l933, the Registrant certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Vienna, State of Virginia, on the 26th day of April, 2001. CEL-SCI CORPORATION By: /s/ Maximilian de Clara --------------------------------- Maximilian de Clara, President Pursuant to the requirements of the Securities Act of l933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Maximilian de Clara Director and Principal April 26, 2001 Maximilian de Clara Executive Officer /s/ Geert R. Kersten Director, Principal April 26, 2001 - --------------------------- Financial Officer Geert R. Kersten and Chief Executive Officer /s/ Alexander G. Esterhazy Director April 26, 2001 - ------------------------------ Alexander G. Esterhazy /s/ F. Donald Hudson Director April 26, 2001 - -------------------------------- F. Donald Hudson /s/ C. Richard Kinsolving Director April 26, 2001 - ------------------------------- C. Richard Kinsolving -----END PRIVACY-ENHANCED MESSAGE-----