FORM 10-K/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2003.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________.
Commission file number 1-11889
COLORADO 84-0916344
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
8229 Boone Blvd., Suite 802
Vienna, Virginia 22182
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(Address of principal executive offices) (Zip Code)
|
Registrant's telephone number, including area code: (703) 506-9460
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
The aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing sale price of the common stock on March 31, 2003, as quoted on the American Stock Exchange, was approximately $10,730,000. Shares of common stock held by each officer, director and principal shareholder have been excluded in that such persons may be deemed to be affiliates of the Registrant.
Documents Incorporated by Reference: None
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-25 of the Act). [ ] Yes [X] No
As of December 1, 2003, the Registrant had 65,121,384 issued and outstanding shares of Common Stock.
PART I
ITEM 1. BUSINESS
CEL-SCI Corporation (the "Company") 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(R), 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 shown to induce both an anti-cancer immune response and to significantly increase the susceptibility of the tumor cells to radiation therapy.
MULTIKINE has been tested in over 220 patients 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, HIV-infected patients and HIV-infected women with Human Papilloma Virus ("HPV")-induced cervical dysplasia, the precursor stage before the development of cervical cancer. The safety profile was found to be very good and CEL-SCI believes that the clinical data suggests that further studies are warranted.
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.
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.
Between 1985 and 1988 MULTIKINE was tested at St. Thomas Hospital in London, UK in forty-eight patients with various types of cancers. MULTIKINE was shown to be safe when used by these patients.
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 radiation therapy but developed recurrent tumors at multiple sites in the neck and were diagnosed with terminal cancer.
Significant tumor reduction occurred in three of the four patients as a result of the treatment with MULTIKINE. Negligible side effects, such as injection site soreness and headaches, 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.
The objective of CEL-SCI scientists is to use MULTIKINE as an additive (adjunct) therapy to the existing treatment of previously untreated head & neck cancer patients with the goal of reducing cancer recurrence and ultimately
increasing survival. However, pursuant to FDA regulations, CEL-SCI was required to test the drug first for safety in locally recurrent, locally metastatic, head and neck cancer patients who had failed other cancer therapies. This dose escalation study was started in 1995 at several centers in Canada and the US where 16 patients were enrolled at 4 different dosage levels. The study ended in 1998 and showed MULTIKINE to be safe and well tolerated at all dose levels.
Because CEL-SCI scientists have determined that patients with early disease would most likely benefit more from MULTIKINE treatment, CEL-SCI started a safety trial in Canada in 1997 in advanced primary head & neck cancer patients who had just recently been diagnosed with head & neck cancer. This study ultimately enrolled 28 patients, also at 4 different dosage levels, and ended in late 1999. Halfway through this study, CEL-SCI launched a number of phase II studies in advanced primary head & neck cancer to determine the best dosage, best route of administration and best frequency of administration of MULTIKINE. Those studies involved 19 patients in Israel (1997 - 2000), 30 patients in Poland and the Czech Republic (1999 - 2000), and 94 patients (half treated with MULTIKINE and the other half disease matched cancer patients served as control) in Hungary (1999 - 2003). The Hungarian trial compared the control group (receiving only conventional cancer therapy, surgery plus radiation therapy) to the MULTIKINE treated patients (receiving MULTIKINE prior to conventional therapy, as above) by histopathology and immunohistochemistry. The results of these studies were published in peer-reviewed scientific journals and/or presented at scientific meetings. The studies that have not yet been published were either conducted in support of MULTIKINE's safety and clinical utility or will be published in the future.
The above studies, which are all completed, indicate that MULTIKINE was safe and well tolerated at all dose levels investigated. The studies also showed partial and complete tumor responses following MULTIKINE treatment at the best treatment regimen combinations as well as tumor necrosis (destruction) and fibrosis (as determined by histopathology). Additional findings regarding MULTIKINE treatment of head & neck cancer are expected to be presented/published in 2004.
While CEL-SCI scientists believe partial and complete tumor responses to be very important, they also believe that other findings with MULTIKINE in these studies are equally important since they may serve to enhance existing cancer therapies, thereby affecting the clinical outcome of the cancer patient's treatment.
The initial results of the Hungarian study were published in December
2003. Data from a Phase I/II clinical trial in fifty-four (54) advanced primary
head and neck cancer patients (half treated, half control), the first part of
the Hungarian study, were published in The Laryngoscope, December 2003, Vol.113
(12). The title of the article is "The Effect of Leukocyte Interleukin Injection
(MULTIKINE) on the Peritumoral and Intratumoral Subpopulation of Mononuclear
Cells and on Tumor Epithelia: A Possible New Approach to Augmenting Sensitivity
to Radiation Therapy and Chemotherapy in Oral Cancer - A Multi Center Phase I/II
Clinical Trial".
The data demonstrate that treatment with MULTIKINE rendered the overwhelming majority of the cancer cells highly susceptible to radiation therapy. This finding represents a major advance in the treatment of cancer
since, under current standard therapy, only about 10% of the cancer cells are thought to be susceptible to radiation therapy at any one point in time.
The increased sensitivity of the MULTIKINE treated tumors to radiation was derived from a dramatic increase in the number of proliferating (those that are in cell cycle) cancer cells. Following MULTIKINE treatment, the great majority of the tumor cells were in a proliferative state, as measured by the well-established cell proliferation marker Ki67. The control patients (not treated with MULTIKINE) had only low expression (near background) of the same proliferation marker (Ki67), in this study. These findings were statistically significant (p<0.05, ANOVA).
This is an important finding because the ability of radiation therapy (and chemotherapy) to kill tumor cells is dependent, in large part, on the proliferative state of the tumor cells at the time of radiation (and chemotherapy) treatment. As seen in the control group in this study, and also in many other tumor types, the great majority of tumor cells (about 90% or more) are in a "resting" state (non-proliferating). It is generally accepted that tumor cells in the "resting" state are by-and-large resistant to radiation and chemotherapy. However, MULTIKINE treatment induced a reversal of this non-proliferative state of the tumor cells and caused the great majority of the tumor cells to enter into the proliferative state, thereby rendering the tumor highly susceptible to radiation therapy (and chemotherapy).
Follow-up data on disease recurrence is currently available for 8 out of the 27 patients treated with MULTIKINE in the Hungarian study. These 8 patients, who were sequentially treated at one center, did not present with recurrence at 24 months post treatment. This contrasts with the scientific literature, which reports that up to 50% of primary head and neck cancer patients will recur within 18 to 24 months after surgery and/or radiation therapy.
The results of the Israeli trial have been published in Archives of Otolaryngology - Head & Neck Surgery, August 2003, Vol.129. This paper on the first 12 patients treated by Dr. Feinmesser shows positive safety, tumor response and clinical outcome data, but no firm conclusions can be drawn from a study of only 12 patients.
CEL-SCI scientists believe that they have compiled sufficient data and clinical information to justify a Phase III clinical trial which would be designed to prove the clinical benefit from MULTIKINE as an addition to established anti-cancer therapies. It is CEL-SCI's intention to meet with FDA in 2004 to discuss such a trial.
MULTIKINE has also been tested in a 15 HIV-infected patients (1998 - 1999) in California. This small study found MULTIKINE to be safe in the HIV-infected population and showed preliminary evidence of improved delayed type hypersensitivity response to recall antigens. The results of this study were reported in Antiviral Therapy 5 (Supplement), 2000.
Another study at the Thomas Jefferson Medical Center (1998) used very small amounts of MULTIKINE to determine the feasibility of injecting MULTIKINE into the prostate of 5 hormonal therapy refractive prostate cancer patients scheduled for prostatectomy. Although deemed safe by the investigators, MULTIKINE administration in this trial directly into the prostate (under
ultrasound guidance) resulted in occasional mild dysuria and mild increase in urinary frequency. Two out of the five treated cases had an inflammatory response in the prostate and a third case had fibrosis. The Company believes that more MULTIKINE injections will need to be given to achieve a potential outcome as seen in head & neck cancer. None of the prostate cancer patients received more than half of the amounts given to the head & neck cancer patients. Also, no testing was done at the time to determine if MULTIKINE would enhance susceptibility to radiation therapy in the prostate. The results of this trial were published in Seminars in Oncology Vol. 26 (4) (August) 1999.
In May 2001, CEL-SCI also started a Phase I clinical trial at the University of Maryland Biotechnology Institute (UMBI). The focus of this study is HIV-infected women with Human Papilloma Virus (HPV)-induced cervical dysplasia, the precursor stage before the development of 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). Most cervical dysplasia and cancer is due to infection with HPV. The rationale for using MULTIKINE in the treatment of cervical dysplasia/cancer is that MULTIKINE may safely boost the patients' immune systems to the point where their immune systems can eliminate the virally-induced cancer. Cervical cancer is the second leading cause of cancer death in women worldwide.
The HIV-infected women with HPV-induced cervical dysplasia were chosen as a study group because of the high morbidity and low success rate of current surgical therapies. Since HIV infection results in immune suppression, HPV-induced cervical dysplasia follows a more malignant and aggressive course of disease in such women. Co-infection with HPV is common in HIV-positive women (about 83%) and cervical cancer is considered an AIDS-defining illness.
HPV infection is also a leading health problem in non HIV-infected American college age women. A large concern among women who have HPV-induced cervical dysplasia is that the repeated surgical procedures will lead to a hysterectomy and the inability to bear children.
At the March 2002 33rd Annual Meeting of the Society of Gynecological Oncologists in Miami, Florida, scientists from UMBI and CEL-SCI presented data from this trial in HIV-infected women with HPV induced cervical dysplasia. The results were as follows: 8 patients had been treated with no major toxicity. The lower dosage group had 3 out of 5 patients resolved/improved with 2 out of 5 patients with no change in their cervical dysplasia status as compared the patient's own baseline disease. The higher dosage group had 2 out of 3 patients who improved and 1 out of 3 patients with no change. The changes in disease status were determined by both Colposcopy and Histology.
Subsequent HPV testing during 2001 and 2002 of the first three patients revealed the elimination of HPV virus types (using in situ PCR) following treatment with MULTIKINE and ranged from 54% to 84% (Avg = 68%) reduction in HPV virus in the cervical tissue of MULTIKINE treated HIV/HPV co-infected patients. The study was closed in due to inability to enroll patients. CEL-SCI is planning to file a report of the study with the FDA in the first quarter of 2004.
CEL-SCI's future studies in the HPV-induced cervical dysplasia area will only be conducted with grant or government funds as CEL-SCI plans to devote its resources to head and neck cancer, the area where it has the most data.
Since 1985, MULTIKINE has been well tolerated in clinical studies involving 220 patients. Forty-eight patients were treated in the United States in accordance with clinical trials authorized by the FDA. The remaining patients were treated outside of the United States in accordance with protocols authorized by comparable health regulatory authorities in the countries where the patients were treated. All the clinical trials were conducted in accordance with the Declaration of Helsinki (1985), and informed consent was obtained from each patient volunteer. This process is the standard procedure for the conduct of human clinical trials.
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, naso-pharyngeal cancer and potentially cervical cancer, which are very prevalent in Far East Asia. CEL-SCI may use the clinical data generated in these trials to support applications for marketing approvals for MULTIKINE in other parts of the world.
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. As of December 31, 2003 Orient Europharma had not started any clinical trials since CEL-SCI's plan is for Orient Europharma to begin a Phase III clinical trial when CEL-SCI begins its Phase III clinical trial.
CEL-SCI has an agreement with Eastern Biotech which provides Eastern Biotech with the following (i) the exclusive right to distribute MULTIKINE and CEL-1000 in Greece, Serbia and Croatia, (ii) a royalty equal to 1% of CEL-SCI's net sales of MULTIKINE and CEL-1000 prior to May 30, 2033, (iii) 1,100,000 shares of CEL-SCI's common stock and, (iv) warrants which allow Eastern Biotech to purchase an additional 1,100,000 shares of CEL-SCI's common stock at a price of $0.47 per share at any time prior to May 30, 2008. In consideration for the above Eastern Biotech paid CEL-SCI $500,000. Eastern Biotech will lose its exclusive right to distribute CEL-SCI's products unless Eastern Biotech has enrolled at least 20 patients in a controlled, mutually designed head and neck cancer clinical trial by June 1, 2004. As of December 31, 2003 Eastern Biotech had not enrolled any patents in this clinical trial.
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 Cambrex Biosciences, Inc. for certain aspects of the production of MULTIKINE for research and testing purposes. The agreement with Cambrex Biosciences, Inc. expires in 2006.
T-CELL MODULATION PROCESS
CEL-SCI's patented T-cell Modulation Process uses "heteroconjugates" to direct the body to choose a specific immune response. The heteroconjugate technology, referred to as 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, malaria, and myocarditis.
CEL-SCI is involved in the following publicly announced studies which are designed to determine the effectiveness of the L.E.A.P.S. technology in preclinical studies:
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 the L.E.A.P.S. technology. 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.
Development of a herpes simplex virus vaccine based on the L.E.A.P.S. technology with funding of $1,700,000 the National Institute of Allergy and Infectious Diseases.
Collaborative study for the treatment, and possible prevention, of autoimmune myocarditis with researchers at the Department of Pathology, the Johns Hopkins Medical Institutions, Baltimore, Maryland.
Using the LEAPS technology, CEL-SCI discovered a peptide, named CEL-1000, which is currently being tested in animals for the prevention/treatment of herpes simplex, malaria, viral encephalitis, smallpox, vaccinia and a number of other indications. CEL-1000 is also being tested as a bio-terrorism agent by the National Institute of Allergy and Infectious Diseases and by the U.S. Army Research Institute of Infectious Diseases.
In the Spring of 2002, CEL-SCI, in conjunction with The Naval Medical Research Center, announced that CEL-1000 provided 100% protection against malaria infection in a mouse model. The same peptide also induced protective effects in mouse models for herpes simplex virus and cancer. In the Fall of 2002 CEL-SCI announced that it had signed a Cooperative Research and Development Agreement (CRADA) with the U.S. Navy for CEL-1000 in malaria. CEL-SCI also announced an agreement with the Cincinnati Children's Hospital Medical Center
(CHMR) of the University of Cincinnati to evaluate CEL-1000 for protection against herpes in the guinea pig vaginal challenge model.
CEL-SCI received two grants in April 2003, one grant in May 2003, and one grant in September 2003. The first grant, totaling $1,100,000 and announced on April 4, 2003, was awarded by the United States government to Northeastern Ohio Universities College of Medicine and CEL-SCI. The grant is intended to support the development of CEL-SCI's new compound, CEL-1000, as a possible treatment for viral encephalitis, a potentially lethal inflammation of the brain. The grant was awarded following a peer review process and will fund pre-clinical studies leading up to toxicology studies. The grant is for a period of three years. The second grant, announced on April 23, 2003, is a Phase I Small Business Innovation Research (SBIR) grant from the National Heart, Lung and Blood Institute (NHLBI), National Institutes of Health (NIH), in the amount of $134,000 for the further development of a potential treatment for autoimmune myocarditis, a heart disease. The work will be done in conjunction with scientists at Johns Hopkins Medical Institutions in Baltimore, Maryland. The third grant was announced on May 7, 2003. This grant for $162,000 is a Phase I SBIR grant from the National Institutes of Allergy and Infectious Diseases (NIAID), NIH, for the further development of CEL-1000 against Herpes Simplex. The fourth grant, totaling $104,000, is a Phase I SBIR grant from the NIAID, NIH, for the development of CEL-1000 as a potential therapeutic and prophylactic agent against vaccinia and smallpox infections as a single agent and as an adjuvant for vaccinia vaccines. Vaccinia is the virus used in the smallpox vaccine.
As of December 31, 2003 funds of approximately $243,000 remained from the second, third and fourth grants. CEL-SCI does not know the amount remaining from the first grant since this grant is controlled by Northeastern Ohio Universities College of Medicine.
In June 2003 CEL-SCI signed a Cooperative Agreement with the NIAID and the U.S. Army Medical Research Institute of Infectious Disease (USAMRIID) to test CEL-1000 against various bio-terrorism agents as well as other hard to treat diseases.
RESEARCH AND DEVELOPMENT
Since 1983, and through September 30, 2003, approximately $46,622,000 has been expended on CEL-SCI-sponsored research and development, including approximately $1,916,000, $4,700,000 and $7,762,000, respectively during the years ended September 30, 2003, 2002 and 2001.
The extent of CEL-SCI's clinical trials and research programs are primarily based upon the amount of capital available to CEL-SCI and the extent to which CEL-SCI has received regulatory approvals for clinical trials. Over the past three years CEL-SCI's research and development expenditures have decreased, due in part to the capital available to CEL-SCI and due in part to the fact that the costs involved in manufacturing MULTIKINE for use in clinical trials and costs involved in validating the manufacturing process were primarily incurred in fiscal 2001 and prior periods. Research and development expenses declined during fiscal 2002 because CEL-SCI completed its current production of MULTIKINE during the first quarter of 2002.
The costs associated with the clinical trials relating to CEL-SCI's technologies, research expenditures and CEL-SCI's administrative expenses have been funded with the public and private sales of CEL-SCI's securities and
borrowings from third parties, including affiliates of CEL-SCI.
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. 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 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 approvals from 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 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.
Employees
As of December 31, 2003 CEL-SCI had twenty employees. Seven employees are involved in administration, eleven employees are involved in manufacturing research and two employees are involved in general research and development with respect to CEL-SCI's products.
ITEM 2. PROPERTIES
CEL-SCI leases office space at 8229 Boone Blvd., Suite 802, Vienna, Virginia at a monthly rental of approximately $7,800. The lease on the office space expires in 2004. CEL-SCI believes this arrangement is adequate for the conduct of its present business.
CEL-SCI has a 17,900 square foot laboratory located at 4820 A-E Seton Drive, Baltimore, Maryland. The laboratory is leased by CEL-SCI at a cost of approximately $11,200 per month. The laboratory lease expires in 2004, with extensions available until 2014.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of November 30, 2003 there were approximately 2,637 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 on 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 12/31/00 $2.54 $1.00 3/31/01 $3.30 $1.30 6/30/01 $1.85 $1.16 9/30/01 $1.94 $1.02 12/31/01 $1.80 $0.72 3/31/02 $1.28 $0.52 6/30/02 $0.56 $0.27 9/30/02 $0.52 $0.16 12/31/02 $0.32 $0.19 3/31/03 $0.27 $0.15 6/30/03 $1.35 $0.20 9/30/03 $1.08 $0.61 |
Holders of Common Stock are entitled to receive such dividends as may be declared by the Board of Directors out of funds legally available therefore 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.
Potential Issuance of Additional Shares
The following table lists additional shares of CEL-SCI's common stock which, as of December 31, 2003, may be issued as the result of the exercise of outstanding options or warrants issued by CEL-SCI and pursuant to an equity line of credit agreement:
Number of Note
Shares Reference
Shares issuable upon exercise of warrants 3,886,188 A
held by private investors
Shares issuable pursuant to equity line of credit Unknown B
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Shares issuable upon exercise of equity line warrants 395,726 B
Shares issuable upon exercise of options and 10,630,181 C warrants granted to CEL-SCI's officers, directors, employees, consultants, and third parties Shares issuable upon exercise of options 200,000 D granted to investor relations consultants |
A. In April 2001, CEL-SCI entered into an equity line of credit agreement with Paul Revere Capital Partners. During the term the equity line of credit, which expired in June 2003, CEL-SCI received net proceeds of $2,074,692 from the sale of 5,430,960 shares of common stock pursuant to the terms of the equity line. 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.
In August 2001, three private investors exchanged their warrants for CEL-SCI's Series E warrants. As of November 30, 2003 the Series E warrants allowed the holders to purchase up to 570,627 shares of CEL-SCI's common stock at a price of $1.19 per share at any time prior to August 16, 2004. In August 2003, in accordance with the terms of the Series E preferred stock, the Company issued warrants which permit the holders to purchase an additional 23,758 shares of CEL-SCI's common stock at a price of $0.77 per share at any time prior to August 17, 2006.
In July and September 2002, CEL-SCI sold Series G convertible notes, plus Series G warrants, to a group of private investors for $1,300,000. As of June 30, 2003 all of the Series G notes had been converted into 8,390,746 shares of CEL-SCI's common stock. As of November 30, 2003 the Series G warrants allowed the holders to purchase up to 450,000 shares of CEL-SCI's common stock at a price of $0.145 per share at any time prior to July 12, 2009. Every three months after December 9, 2002, the exercise price of the Series G warrants will be adjusted to an amount equal to 84% of the average of the 3 lowest daily trading prices of CEL-SCI's common stock on the American Stock Exchange during the 20 trading days immediately prior to the three month adjustment date, provided that the adjusted price is lower than the warrant exercise price on that date.
In January and July 2003, CEL-SCI sold Series H convertible notes, plus Series H warrants, to a group of private investors for $1,350,000. As of October 31, 2003 all of the Series H notes had been converted into 3,233,229 shares of CEL-SCI's common stock. As of November 30, 2003 the Series H warrants allowed the holders to purchase up to 550,000 shares of CEL-SCI's common stock at a price of $0.25 per share at any time prior to January 7, 2010. Every three months after September 26, 2003 the exercise price of the Series H warrants will be adjusted to an amount equal to 84% of the average of the 3 lowest daily trading prices of CEL-SCI's common stock on the American Stock Exchange during the 15 trading days immediately prior to the three month adjustment date, provided that the adjusted price is lower than the warrant exercise price on that date.
In May 2003 CEL-SCI sold shares of its common stock plus Series I warrants to a strategic partner, at prices equal to or above the then current price of CEL-SCI's common stock. The Series I warrants allow the holder to purchase 1,100,000 shares of CEL-SCI's common stock at a price of $0.47 per share at any time prior to May 30, 2008.
On December 1, 2003, CEL-SCI sold 2,999,964 shares of its common stock, to a group of private institutional investors for approximately $2,550,000, or $0.85 per share. As part of this transaction, the investors in the private offering received Series J warrants which allow the investors to purchase 991,003 shares of CEL-SCI's common stock at a price of $1.32 per share at any time prior to December 1, 2006.
If CEL-SCI sells any additional shares of common stock, or any securities convertible into common stock at a price below the then applicable exercise price of the Series G or H warrants, the warrant exercise price will be lowered to the price at which the shares were sold or the lowest price at which the securities are convertible, as the case may be. If the warrant exercise price is adjusted, the number of shares of common stock issuable upon the exercise of the warrant will be increased by the product of the number of shares of common stock issuable upon the exercise of the warrant immediately prior to the sale multiplied by the percentage by which the warrant exercise price is reduced.
If CEL-SCI sells any additional shares of common stock, or any securities convertible into common stock at a price below the market price of CEL-SCI's common stock, the exercise price of the Series G or H warrants will be lowered by a percentage equal to the price at which the shares were sold or the lowest price at which the securities are convertible, as the case may be, divided by the then prevailing market price of CEL-SCI's common stock. If the warrant exercise price is adjusted, the number of shares of common stock issuable upon the exercise of the warrant will be increased by the product of the number of
shares of common stock issuable upon the exercise of the warrant immediately prior to the sale multiplied by the percentage determined by dividing the price at which the shares were sold by the market price of CEL-SCI's common stock on the date of sale.
However, neither the exercise price of the Series G or H warrants nor the shares issuable upon the exercise of the Series G or H warrants will be adjusted as the result of shares issued in connection with a Permitted Financing. A Permitted Financing involves shares of common stock issued or sold:
o in connection with a merger or acquisition or a strategic partnership;
o upon the exercise of options or the issuance of common stock to CEL-SCI's employees, officers, directors, consultants and vendors in accordance with CEL-SCI's equity incentive policies;
o pursuant to the conversion or exercise of securities which were outstanding prior to July 12, 2002 in the case of the Series G warrants and January 7, 2003 in the case of the Series H warrants;
o to key officers of CEL-SCI in lieu of their respective salaries.
B. 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 entered into an equity line of credit agreement with Rubicon Group Ltd. in September 2003. An unknown number of shares of common stock are issuable under the equity line of credit agreement between CEL-SCI and Rubicon Group, Ltd. As consideration for extending the equity line of credit, CEL-SCI granted Rubicon Group warrants to purchase 395,726 shares of common stock at a price of $0.83 per share at any time prior to September 16, 2008.
Under the equity line of credit agreement, Rubicon Group has agreed to provide CEL-SCI with up to $10,000,000 of funding during a two year period beginning on the date that the registration statement filed by CEL-SCI to register the shares to be sold to Rubicon Group is declared effective by the Securities and Exchange Commission. During this period, CEL-SCI may request a drawdown under the equity line of credit by selling shares of its common stock to Rubicon Group and Rubicon Group 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 Rubicon Group 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%.
CEL-SCI may request a drawdown by faxing a drawdown notice to Rubicon Group, 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.
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 Rubicon Group 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 Rubicon Group based on the reduced market price.
As of December 1, 2003 CEL-SCI had not requested any drawdowns under the equity line of credit since the registration statement relating to the shares to be sold pursuant to the equity line had not been declared effective by the Securities and Exchange Commission.
The exercise price of the Series G or H warrants and the number of shares issuable upon the exercise of the Series G or H warrants will not be adjusted as the result of shares issued in connection with any drawdowns.
C. The options are exercisable at prices ranging from $0.16 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.
D. CEL-SCI has granted options for the purchase of 200,000 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 $1.63 and $2.50 per share and expire between February 2004 and June 2006.
A convertible promissory note payable to Cambrex Biosciences, Inc. was paid in full in December 2003. No part of the note was ever converted into shares of CEL-SCI's common stock.
The shares referred to in Notes A, C and D are being, or will be, offered for sale by means of registration statements which have been filed with the Securities and Exchange Commission.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the more detailed financial statements, related notes and other financial information included herein. Certain amounts reported in previous years have been reclassified to conform to the classifications being used as of and for the year ended September 30, 2003.
For the Years Ended September 30,
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Grant Revenue and Other: $318,204 $ 384,939 $293,871 $ 40,540 $66,687
-------- --------- -------- -------- -------
Operating Expenses:
Research and Development 1,915,501 4,699,909 7,762,213 5,186,065 4,662,226
Depreciation and
Amortization 199,117 226,514 209,121 220,994 268,210
General and
Administrative 2,287,019 1,754,332 3,432,437 3,513,889 3,029,807
Interest Income (52,502) ( 85,322) ( 376,221) (402,011) (402,831)
Interest Expense 2,340,667 2,131,750 -- -- --
--------- --------- --------- --------- ---------
Net Loss $(6,371,498)$(8,342,244)$(10,733,679)$(8,478,397)$(7,490,725)
Net loss attributable to
common stock holders $(6,480,319)$(9,989,988)$(11,104,251)$(8,478,397)$(7,490,725)
========== ========== =========== =========== ==========
Net loss per common share
(basic and diluted) $ (0.13)$ (0.35)$ (0.51)$ (0.44)$ (0.52)
========== ========== =========== =========== ==========
Weighted average common
shares outstanding 50,961,457 28,746,341 21,824,273 19,259,190 14,484,352
========== ========== =========== =========== ==========
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Balance Sheet Data: September 30,
------------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Working Capital $531,742 $690,804 $2,801,299 $11,725,940 $6,152,715
Total Assets 2,915,206 3,771,258 4,508,920 13,808,882 7,559,772
Convertible Debt * 32,882 639,288 -- -- --
Note Payable - Covance * 184,330 -- -- -- --
Note Payable - Cambrex * 656,076 1,135,017 -- -- --
Total Liabilities 1,690,100 2,709,087 507,727 847,423 461,586
Stockholders' Equity 1,225,106 1,062,171 4,001,193 12,961,459 7,098,186
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* Included in total liabilities
No dividends have been declared on CEL-SCI's common stock.
CEL-SCI's net losses for each fiscal quarter during the two years ended September 30, 2003 were:
Net Loss
Quarter Net Loss per Share
12-31-01 $(2,920,620) $(0.16)
03-31-02 $(1,937,912) $(0.10)
06-30-02 $(2,111,479) $(0.08)
09-30-02 $(1,372,233) $(0.05)
12-31-02 $(1,682,865) $(0.04)
03-31-03 $(1,032,181) $(0.02)
06-30-03 $(1,762,564) $(0.03)
09-30-03 $(1,893,888) $(0.03)
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Fiscal 2003
Grant revenues and other was lower during the year ended September 30, 2003 due to the winding down of a project for which CEL-SCI receives grant money. The grant for this project generated $110,000 in revenue in fiscal year 2003 compared with $380,000 in revenue in fiscal year 2002. However, CEL-SCI has received four additional grants, two grants in April 2003, one grant in May
2003, and one grant in September 2003 for other projects on which CEL-SCI is working. These grants generated approximately $170,750 in revenue in fiscal year 2003. Research and development expenses declined because CEL-SCI completed its current production of MULTIKINE(R) during fiscal year 2002. General and administrative expenses were higher during the year ended September 30, 2003 since there was a reversal in 2002 of a 2001 fiscal year charge of $593,472 resulting from a decline in the intrinsic value of the options repriced to employees. Interest income during the year ended September 30, 2003 was less than it was during the same periods in fiscal year 2002 as a result of CEL-SCI's smaller cash position and lower interest rates on interest bearing accounts. During the years ended September 30, 2003 and 2002, interest expense was $2,340,667 and $2,131,750, respectively. Interest expense for all periods presented is primarily a non-cash item incurred to account for interest and amortization of the discounts and deferred financing costs related to convertible debt, the note payable to Covance AG and the convertible debt payable to Cambrex Biosciences, Inc.
Fiscal 2002
Grant revenue and other is primarily grant money received in payment of some research and development expenses. Research and development expenses in fiscal year 2002 declined significantly because CEL-SCI completed its current production of MULTIKINE(R) during the first quarter. This supply will be used in future clinical trials. During the fiscal year, CEL-SCI instituted a cost reduction program and reduced its workforce significantly. Hence, both research and development costs and general and administrative costs declined from the previous fiscal years. General and administrative expenses also declined due to the reversal of compensation charges of $593,472 resulting from a decline in the intrinsic value of options re-priced to employees. In July 2001, CEL-SCI repriced 1,298,098 options collectively held by thirteen officers, directors and employees. All options which had an exercise price over $2.00 per share were adjusted to an exercise price of $1.05 per share. The expiration dates of the repriced options remained the same. The option exercise price of $1.05 was equal to the market price of CEL-SCI's common stock on the date of the repricing. As the options were repriced and therefore variable accounting was required, subsequent increases in the stock price resulted in a compensation charge of $593,472 in fiscal year 2001. The compensation charge of $593,472 was reversed in fiscal year 2002 since CEL-SCI's stock price was below the exercise price of the repriced options by the end of March 2002. Interest income during the year ended September 30, 2002 reflects interest accrued and received on certificates of deposit. Because CEL-SCI issued Series F and Series G convertible notes during fiscal year 2002, there is a significant charge to interest expense during the year for the expensing of the discount on the notes and the deferred financing costs incurred for the issuance of these notes. This discount relates primarily to the value of the warrants received in the offering and the value of the beneficial conversion feature of the notes.
Research and Development Expenses
During the five years ended September 30, 2003 CEL-SCI's research and development efforts involved MULTIKINE, L.E.A.P.S. and an AIDS vaccine. The table below shows the research and development expenses associated with each project during this five-year period.
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
MULTIKINE 1,653,904 4,405,678 7,365,305 4,106,752 2,861,600
L.E.A.P.S. 261,597 244,769 280,766 453,061 357,731
AIDS Vaccine -- 43,462 94,642 602,252 1,418,895
Other -- 6,000 21,500 24,000 24,000
---------- ---------- ---------- ---------- ----------
TOTAL $1,915,501 $4,699,909 $7,762,213 $5,186,065 $4,662,226
========== ========== ========== ========== ==========
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CEL-SCI believes that it has compiled sufficient data and clinical information to justify a phase III clinical trial which would be designed to prove the clinical benefit from Multikine as an addition to established anti-cancer therapies. It is CEL-SCI's intention to meet with FDA in 2004 to discuss such a trial. CEL-SCI is unable to estimate the future costs of research and clinical trials involving Multikine since CEL-SCI has not yet met with the FDA to discuss the design of future clinical trials and until the scope of these trials is known, CEL-SCI will not be able to price any future trials with clinical trial organizations.
As explained in Item 1 of this report, as of December 31, 2003 CEL-SCI was involved in a number of pre-clinical studies with respect to its L.E.A.P.S. technology. As with Multikine, CEL-SCI does not know what obstacles it will encounter in future pre-clinical and clinical studies involving its L.E.A.P.S. technology. Consequently, CEL-SCI cannot predict with any certainty the funds required for future research and clinical trials and the timing of future research and development projects.
CEL-SCI discontinued its research efforts relating to the AIDS vaccine due to a lack of government funding in 2000.
Clinical and other studies necessary to obtain regulatory approval of a new drug involve significant costs and require several years to complete. The extent of CEL-SCI's clinical trials and research programs are primarily based upon the amount of capital available to CEL-SCI and the extent to which CEL-SCI has received regulatory approvals for clinical trials. The inability of CEL-SCI to conduct clinical trials or research, whether due to a lack of capital or regulatory approval, will prevent CEL-SCI from completing the studies and research required to obtain regulatory approval for any products which CEL-SCI is developing. Without regulatory approval, CEL-SCI will be unable to sell any of its products.
Since all of CEL-SCI's projects are under development, CEL-SCI cannot predict when it will be able to generate any revenue from the sale of any of its products.
Liquidity and Capital Resources
CEL-SCI has had only limited revenues from operations since its inception in March l983. CEL-SCI has relied primarily upon proceeds realized from the public and private sale of its common and preferred stock and convertible notes to meet its funding requirements. Funds raised by CEL-SCI have been expended primarily in connection with the acquisition of an exclusive worldwide license to 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 fiscal year 2003, CEL-SCI reduced its discretionary expenditures. If necessary, CEL-SCI plans to further reduce discretionary expenditures in fiscal 2004; however such reductions would further delay the development of CEL-SCI's products.
MULTIKINE has an FDA approved shelf life of two years. Consequently, MULTIKINE can only be used for two years after it is manufactured. Since the last batch of MULTIKINE was manufactured over two years ago, CEL-SCI does not currently have any MULTIKINE available for future clinical studies. As a result, CEL-SCI will be required to manufacture additional quantities of MULTIKINE for future research and clinical studies. CEL-SCI estimates the cost of MULTIKINE for its planned Phase III clinical trial to be between $4 to $5 million.
CEL-SCI plans to use its existing financial resources, the proceeds from the sale of its common stock, proceeds from the sale of common stock under the equity line of credit agreement with Rubicon Capital, and the proceeds from the issuance of convertible debt to fund its capital requirements during the year ending September 30, 2004.
Other than funding operating losses, funding its research and development program, and paying its liabilities, CEL-SCI does not have any material capital commitments. Material future liabilities as of September 30, 2003 are as follows:
Contractual Obligations: Years Ending September 30,
-----------------------------------
Total 2004 2005 2006
----- ---- ---- ----
Notes Payable
Cambrex $686,992 $ 686,992 $ -- $ --
Covance 184,330 184,330 -- --
Convertible Debt 100,000 100,000 -- --
Leases 93,910 93,910 -- --
Interest and Dividends 55,011 55,011 -- --
Employment Contracts 1,625,373 733,585 552,083 339,703
---------- ---------- ---------- ----------
$2,745,616 $1,853,828 $ 552,083 $ 339,703
========== ========== ========== ==========
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On December 1, 2003, CEL-SCI sold 2,999,964 shares of its common stock, to a group of private institutional investors for approximately $2,550,000, or $0.85 per share. As part of this transaction, the investors and the sales agent for a number of the investors received Series J warrants which allow the investors to purchase 991,003 shares of CEL-SCI's common stock at a price of $1.32 per share at any time prior to December 1, 2006.
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. It is the opinion of management that sufficient funds will be available from external financing and additional capital and/or expenditure reduction in order to meet CEL-SCI's liabilities and commitments as they come due during fiscal year 2004. Ultimately, CEL-SCI must complete the development of its products, obtain appropriate regulatory approvals and obtain sufficient revenues to support its cost structure.
CEL-SCI's cash flow and earnings are subject to fluctuations due to changes in interest rates on its certificates of deposit, and, to an immaterial extent, foreign currency exchange rates.
Equity Line of Credit
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 entered into an equity line of credit agreement with Rubicon Group Ltd.
Under the equity line of credit agreement, Rubicon Group has agreed to provide CEL-SCI with up to $10,000,000 of funding during a two year period beginning on December 29, 2003. During this period, CEL-SCI may request a drawdown under the equity line of credit by selling shares of its common stock to Rubicon Group, and Rubicon Group 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 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 number of shares it will sell to Rubicon Group 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%.
As of December 31, 2003 CEL-SCI had not requested any drawdowns on the equity line of credit..
Covance AG
On October 8, 2002, CEL-SCI signed an agreement with Covance AG (Covance), a Swiss Corporation. Pursuant to the agreement, amounts owed to Covance totaling $199,928 as of June 30, 2003 were converted to a note payable. The note was payable on January 2, 2004. Interest was payable monthly at an annual rate of 8%. Until the entire amount was paid to Covance, Covance was entitled to receive 2% of any draw-down of CEL-SCI's equity credit line, 2% of any net funds received from outside financings of less than $1 million, 3% of any net funds received from outside financings greater than $1 million but less than $2 million and 4% of any net funds received from outside financings greater than $2 million. During the year ended September 30, 2003, CEL-SCI paid $15,598 on the Covance note. The Note was paid in full in December 2003.
Eastern Biotech
In May 2003, CEL-SCI entered into an agreement with Eastern Biotech which provided Eastern Biotech with the following (i) the exclusive right to distribute MULTIKINE and CEL-1000 in Greece, Serbia and Croatia, (ii) a royalty equal to 1% of CEL-SCI's net sales of MULTIKINE and CEL-1000 prior to May 30, 2033, (iii) 1,100,000 shares of CEL-SCI's common stock and, (iv) warrants which allow Eastern Biotech to purchase an additional 1,100,000 shares of CEL-SCI's common stock at a price of $0.47 per share at any time prior to May 30, 2008. In consideration for the above Eastern Biotech paid CEL-SCI $500,000. Since the shares issued to Eastern Biotech, as well as the shares issuable upon the exercise of the Eastern Biotech warrants, were not registered for public sale by September 30, 2003, the royalty percentage to Eastern Biotech increased to 2%. Eastern Biotech will lose its exclusive right to distribute CEL-SCI's products unless Eastern Biotech has enrolled at least 20 patients in a controlled, mutually designed head and neck cancer clinical trial by June 1, 2004.
Cambrex Bio Science Promissory Note
In November 2001 CEL-SCI gave a promissory note to Cambrex Bio Sciences, Inc., the owner of the manufacturing facility used by CEL-SCI to produce MULTIKINE for CEL-SCI's clinical trials. The promissory note was in the principal amount of $1,172,517 which represented the cost of CEL-SCI's use of the Cambrex manufacturing facility for the three months ended January 10, 2002. The amount due Cambrex bears interest at the prime interest rate, plus 3%, which is adjusted monthly. As of December 1, 2003 the prime interest rate was 4% and the interest rate on the amount due Cambrex was 7%. Pursuant to the agreement, CEL-SCI surrendered a cash deposit and transferred title to certain equipment to Cambrex, which reduced the amount due by $225,000. Until the note was paid in full, CEL-SCI agreed to pay Cambrex 10% of all amounts received by CEL-SCI, net of financing costs, from any future financings, including amounts received by CEL-SCI from its equity line of credit. Cambrex, at its option, could convert all or part of the amount due Cambrex into shares of CEL-SCI's common stock. The number of shares to be issued to Cambrex upon any conversion of the note were to be determined by dividing that portion of the note to be converted by the Conversion Price. The "Conversion Price" was an amount equal to 90% of the average closing prices of CEL-SCI's common stock for the three trading days immediately prior to the conversion date. However, the Conversion Price could not be less than $0.22.
During the quarter ended December 31, 2003, CEL-SCI paid $692,010 of principal plus accrued interest of $59,450 to Cambrex, thereby re-paying the remaining balance of the note. No part of the note was converted into shares of CEL-SCI's common stock.
Convertible Notes
In December 2001 and January 2002, CEL-SCI sold Series F convertible notes, plus Series F warrants, to a group of private investors for $1,600,000. As of December 1, 2002 these notes had been converted into 6,592,461 shares of CEL-SCI's common stock.
In July and September 2002, CEL-SCI sold Series G convertible notes, plus Series G warrants, to a group of private investors for $1,300,000. As of June 30, 2003 all of the Series G notes had been converted into 8,390,746 shares of CEL-SCI's common stock.
In January and July 2003, CEL-SCI sold Series H convertible notes, plus Series H warrants, to a group of private investors for $1,350,000. As of December 1, 2003 all of the Series H notes had been converted into 3,233,229 shares of CEL-SCI's common stock.
Critical Accounting Policies
CEL-SCI's significant accounting policies are more fully described in Note 1 to the Consolidated Financial Statements. However, certain accounting policies are particularly important to the portrayal of financial position and results of operations and require the application of significant judgments by management. As a result, the consolidated financial statements are subject to an inherent degree of uncertainty. In applying those policies, management uses its judgment to determine the appropriate assumptions to be used in the determination of certain estimates. These estimates are based on CEL-SCI's historical experience, terms of existing contracts, observance of trends in the industry and information available from outside sources, as appropriate. Our significant accounting policies include:
Patents - Patent expenditures are capitalized and amortized using the straight-line method over 17 years. In the event changes in technology or other circumstances impair the value or life of the patent, appropriate adjustment in the asset value and period of amortization is made. An impairment loss is recognized when estimated future undiscounted cash flows expected to result from the use of the asset, and from disposition, is less than the carrying value of the asset. The amount of the impairment loss would be the difference between the estimated fair value of the asset and its carrying value.
Stock Options - In October 1996, the Financial Accounting Standards Board (FASB) 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. CEL-SCI 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. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transaction and Disclosure" which amends SFAS No. 123. SFAS No. 148 provided alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation and requires more prominent and more frequent disclosures in the financial statements of the effects of stock-based compensation. The provisions of SFAS No. 148 are effective for periods beginning after December 15, 2002. The Company has elected to continue to account for its employee stock-based compensation using the intrinsic value method.
Asset Valuations and Review for Potential Impairments - CEL-SCI reviews its fixed assets every fiscal quarter. This review requires that CEL-SCI make assumptions regarding the value of these assets and the changes in circumstances that would affect the carrying value of these assets. If such analysis indicates that a possible impairment may exist, CEL-SCI is then required to estimate the fair value of the asset and, as deemed appropriate, expense all or a portion of
the asset. The determination of fair value includes numerous uncertainties, such as the impact of competition on future value. CEL-SCI believes that it has made reasonable estimates and judgments in determining whether our long-lived assets have been impaired; however, if there is a material change in the assumptions used in our determination of fair values or if there is a material change in economic conditions or circumstances influencing fair value, CEL-SCI could be required to recognize certain impairment charges in the future. As a result of the reviews, no changes in asset values are expected.
Convertible Notes - Convertible notes were issued during the year. CEL-SCI initially offset a portion of the notes with a discount representing the relative fair value of the warrants and a beneficial conversion feature discount. This discount is amortized to interest expense over the period the notes are outstanding and is accelerated pro-rata as the notes are converted. The fair value of the warrants and the beneficial conversion discount are calculated based on available market data using appropriate valuation models. These valuations require that CEL-SCI make assumptions and estimates regarding the convertible notes and warrants. Management uses its judgment, as well as outside sources, to determine these assumptions and estimates.
Quantitative and Qualitative Disclosure About Market Risks
Market risk is the potential change in an instrument's value caused by, for example, fluctuations in interest and currency exchange rates. CEL-SCI has no derivative financial instruments. Further, there is no exposure to risks associated with foreign exchange rate changes because none of the operations of CEL-SCI are transacted in a foreign currency. The interest rate risk on investments is considered immaterial due to the dollar value of investments as of September 30, 2003. CEL-SCI has a note payable with an interest rate at prime plus 3% and a note payable with an interest rate at 8%. This represents a market risk if the prime interest rate rises. However, based on the most recent Federal Reserve Board's actions, CEL-SCI believes that a large increase in the prime rate is unlikely in the near future.
Recent Accounting Pronouncements
In April 2003, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 149 "Amendment of SFAS No. 133 on Derivative Instruments and Hedging Activities". The Statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS 133. The amendments set forth in SFAS 149 improve financial reporting by requiring that contracts with comparable characteristics be accounted similarly. In particular, SFAS No. 149 clarifies under what circumstances a contract with an initial net investment meets the characteristics of a derivative as discussed in Statement 133. In addition, it clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. SFAS No. 149 amends certain other existing pronouncements. Those changes will result in more consistent reporting of contracts that are derivatives in their entirety or that contain embedded derivatives that warrant separate accounting. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of this SFAS No. 149 did not have a material effect on CEL-SCI's financing position, results of operations or cash flows.
In May 2003, the FASB adopted SFAS No. 150 "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have a material effect on CEL-SCI's financial position, results of operations or cash flows.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, " (FIN 45). FIN45 establishes new disclosure and liability recognition requirements for direct and indirect debt guarantees with specified characteristics. The initial recognition and measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements in this Interpretation are effective for financial statement of interim or annual periods ending after December 15, 2002. CEL-SCI adopted FIN 45 as of December 31, 2002. CEL-SCI's implementation of FIN 45 did not have a material effect on its financial position, results of operations or cash flows.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN 46). FIN 46 provides guidance on the consolidation of certain entities, referred to as variable interest entities, in which equity investors do not have the characteristics of a controlling financial interest. FIN 46 was effective immediately for variable interest entities created or acquired after January 31, 2003 and is effective July 1, 2003 for variable interest entities created or acquired on or before January 31, 2003. In October 2003, the FASB issued Staff Position FIN 46.6, which extended the effective date of FIN 46 for variable interest entities created or acquired before February 1, 2003 to the first interim or annual period ending after December 15, 2003. CEL-SCI anticipates that the adoption of FIN 46 will not have a material effect on its financial position, results of operations or cash flows.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Financial Statements included with this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Geert Kersten, CEL-SCI's Chief Executive and Financial Officer, has evaluated the effectiveness of CEL-SCI's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report and in his opinion CEL-SCI's disclosure controls and procedures ensure that material information relating to CEL-SCI, including CEL-SCI's consolidated subsidiaries, is made known to him by others within those entities, particularly during the period in which this report is being prepared, so as to allow timely decisions regarding required disclosure. To the knowledge of Mr. Kersten there have been no significant changes in CEL-SCI's internal controls or in other factors that could significantly affect CEL-SCI's internal controls subsequent to the date of
evaluation, and as a result, no corrective actions with regard to significant deficiencies or material weakness in CEL-SCI's internal controls were required.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Officers and Directors
Name Age Position
Maximilian de Clara 74 Director and President
Geert R. Kersten, Esq. 44 Director, Chief Executive Officer and Treasurer
Patricia B. Prichep 51 Senior Vice President of Operations and Secretary
Dr. Eyal Talor 47 Senior Vice President of Research and
Manufacturing
Dr. Daniel H. Zimmerman 61 Senior Vice President of Research, Cellular
Immunology
Alexander G. Esterhazy 58 Director
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Dr. C. Richard Kinsolving 68 Director
Dr. Peter R. Young 58 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 the Company. Mr. Kersten also became CEL-SCI's 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 the Company's Senior Vice President of Operations since March 1994. Between December 1992 and March 1994, Ms. Prichep was the Company's Director of Operations. Ms. Prichep became CEL-SCI's Secretary in May 2000. 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.
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 Johns 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.
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.
C. Richard Kinsolving, Ph.D. has been a Director of CEL-SCI since April
2001. Since February 1999 Dr. Kinsolving has been the Chief Executive Officer of
BioPharmacon, a pharmaceutical development company. Between December 1992 and
February 1999 Dr. Kinsolving was the President of Immuno-Rx, Inc., a company
engaged in immuno-pharmaceutical development. Between December 1991 and
September 1995 Dr. Kinsolving was President of Bestechnology, Inc. a nonmedical
research and development company producing bacterial preparations for industrial
use. Dr. Kinsolving received his Ph.D. in Pharmacology from Emory University
(1970), his Masters degree in Physiology/Chemistry from Vanderbilt University
(1962), and his Bachelor's degree in Chemistry from Tennessee Tech. University
(1957).
Peter R. Young, Ph.D. has been a Director of CEL-SCI since August 2002. Dr. Young has been a senior executive within the pharmaceutical industry in the
United States and Canada for most of his career. Over the last 20 years he has primarily held positions of Chief Executive Officer or Chief Financial Officer and has extensive experience with acquisitions and equity financings. Since November 2001 Dr. Young has been the President of Agnus Dei, LLC, which acts as a partner in an organization managing immune system clinics which treat patients with diseases such as cancer, multiple sclerosis and hepatitis. Since January 2003 Dr. Young has been the President and Chief Executive Officer of SRL Technology, Inc., a company involved in the development of pharmaceutical (drug) delivery systems. Between 1998 and 2001 Dr. Young was the Chief Financial Officer of Adams Laboratories, Inc. Dr. Young received his Ph.D. in Organic Chemistry from the University of Bristol, England (1969), and his Bachelor's degree in Honors Chemistry, Mathematics and Economics also from the University of Bristol, England (1966).
All of CEL-SCI's officers devote substantially all of their time to CEL-SCI's business.
CEL-SCI has an audit committee and compensation committee. The members of the audit committee are Alexander G. Esterhazy, C. Richard Kinsolving and Dr. Peter Young. Dr. Peter Young serves as the audit committee's financial expert. In this capacity, Dr. Young is independent, as that term is defined in the listing standards of the American Stock Exchange. The members of the compensation committee are Maximilian de Clara, Alexander Esterhazy and C. Richard Kinsolving.
If a violation of this code of ethics act is discovered or suspected, the Senior Officer must (anonymously, if desired) send a detailed note, with relevant documents, to CEL-SCI's Audit Committee, c/o Dr. Peter Young, 1904 Canterbury Drive, Westover Hills, TX 76107.
CEL-SCI has adopted a Code of Ethics which is applicable to CEL-SCI'S principal executive, financial, and accounting officers and persons performing similar functions. The Code of Ethics is available on CEL-SCI's website, located at www.cel-sci.com.
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, 2003.
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,2003 $363,000 -- $65,121 -- 574,999 $72,600
President 2002 $363,000 -- $46,079 $ 89,334 75,000 --
2001 $357,167 -- $52,186 $262,000 95,000 $ 64
Geert R. Kersten, 2003 $354,087 -- $12,558 $ 9,244 1,890,000 $71,068
Chief Executive 2002 $346,324 -- $15,044 $ 10,929 105,000 --
Officer and 2001 $265,175 -- $10,462 $ 8,313 655,000 $ 4,114
Treasurer
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Patricia B. Prichep 2003 $147,904 -- $ 3,000 $ 4,902 580,000 -- Senior Vice 2002 $140,464 -- $ 3,000 $ 5,597 90,500 -- President of 2001 $104,505 -- $ 3,000 $ 6,270 260,000 $ 63 Operations and Secretary Eyal Talor, Ph.D. 2003 $191,574 -- $ 3,000 $ 4,950 374,166 -- Senior Vice President2002 $187,075 -- $ 3,000 $ 5,702 85,000 -- of Research and 2001 $157,420 -- $ 3,000 $ 9,269 200,000 $ 63 Manufacturing Daniel Zimmerman, 2003 $147,000 -- $ 3,000 $ 5,005 392,000 -- Ph.D, Senior Vice 2002 $143,583 -- $ 3,000 $ 5,763 91,000 -- President of 2001 $117,145 -- $ 3,000 $ 6,962 175,000 $ 64 Cellular Immunology |
(1) The dollar value of base salary (cash and non-cash) received. During the year ended September 30, 2003, $701,397 of the total salaries paid to the persons shown in the table were paid in restricted shares of CEL-SCI's common stock.
Information concerning the issuance of these restricted shares is shown in the following table:
Date Shares Number of Price Were Issued Shares Issued Per Share November 8, 2002 660,636 $0.20 March 27, 2003 690,636 $0.20 April 30, 2003 299,139 $0.21 April 30, 2003 2,394,462 $0.15 July 21, 2003 95,578 $0.65 |
On each date the amount of compensation satisfied through the issuance of shares was determined by multiplying the number of shares issued by the Price Per Share. With the exception of the 2,394,462 shares issued on April 30, 2003 the price per share was equal to the closing price of CEL-SCI's common stock on the date prior to the date the shares were issued. The closing price of CEL-SCI's common stock on April 29, 2003, the date prior to the issuance of the 2,394,462 shares, was $0.21.
The 2,394,462 shares were issued to Mr. de Clara and Mr. Kersten in payment of their respective salaries for the six month period ended September 30, 2003. Since the shares were issued at a discount of $0.06 per share to the market price of CEL-SCI's common stock, the additional compensation received by Mr. de Clara and Mr. Kersten from the receipt of these shares is shown in the "All Other Compensation Column".
(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. During the year ended September 30, 2003,
$25,000 of the total Other Annual compensation paid to the persons shown in the table were paid in restricted shares of CEL-SCI's common stock.
(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 to the Company. 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, 2003, 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 1,782,295 $1,657,534 Geert R. Kersten 2,345,993 $2,181,773 Patricia B. Prichep 471,479 $ 438,475 Eyal Talor, Ph.D. 474,615 $ 441,392 Daniel Zimmerman, Ph.D. 438,776 $ 408,062 |
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 Ended September 30, 2003" 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 for fiscal 2001 represent life insurance premiums. Amounts in the table for fiscal 2003 represent the value of CEL-SCI's common stock issued at below market prices and discussed in (1) above.
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 the Company'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 the Company'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 the Company's common stock. The fiscal 2003 expenses for this plan were $48,437. 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.
In March 2002 the Company entered into a three-year employment agreement with Mr. de Clara which expires March 31, 2005. 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 the Company, then the agreement allows Mr. de Clara to resign from his position at the Company 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.
The Employment Agreement will also terminate upon the death of Mr. de Clara, Mr. de Clara's physical or mental disability, the conviction by Mr. de Clara of any crime involving fraud, moral turpitude, or CEL-SCI's property, or a breach of the Employment Agreement by Mr. de Clara. If the Employment Agreement is terminated for any of these reasons Mr. de Clara, or his legal representatives, as the case may be, will be paid the salary provided by the Employment Agreement through the date of termination.
Effective September 1, 2003, CEL-SCI entered into a three-year employment agreement with Mr. Kersten. The employment agreement provides that during the term of the employment agreement CEL-SCI will pay Mr. Kersten an annual salary of $370,585. 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.
The Employment Agreement will also terminate upon the death of Mr. Kersten, Mr. Kersten's physical or mental disability, willful misconduct, an act of fraud against CEL-SCI, or a breach of the Employment Agreement by Mr. Kersten. If the Employment Agreement is terminated for any of these reasons Mr. Kersten, or his legal representatives, as the case may be, will be paid the salary provided by the Employment Agreement through the date of termination.
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, 2003, 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, 2003, 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, 2003, 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 Ended September 30, 2003
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 574,999 11.20% 0.22 4/1/13 $63,302 $126,604
Geert R. Kersten 1,890,000 36.83% 0.22 4/1/13 $208,071 $416,142
Patricia B. Prichep 580,000 11.30% 0.22 4/1/13 $63,852 $127,705
Eyal Talor, Ph.D. 374,166 7.33% 0.22 4/1/13 $41,412 $82,825
Daniel Zimmerman, Ph.D. 392,000 7.64% 0.22 4/1/13 $43,155 $86,311
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(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 -- -- 504,999/644,999 $9,750/$427,749
Geert R. Kersten -- -- 1,800,000/1,980,000 $13,650/$1,369,200
Patricia Prichep -- -- 511,334/648,666 $11,365/$434,530
Eyal Talor 309,167/439,165 $10,000/$285,658
Daniel Zimmerman -- -- 324,668/459,332 $15,330/$308,980
|
(1) The number of shares received upon exercise of options during the fiscal year ended September 30, 2003.
(2) With respect to options exercised during CEL-SCI's fiscal year ended September 30, 2003, 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, 2003, separated between those options that were exercisable and those options that were not exercisable.
(4) For all unexercised options held as of September 30, 2003, the market value of the stock underlying those options as of September 30, 2003.
Stock Option and Bonus Plans
CEL-SCI has Incentive Stock Option Plans, Non-Qualified Stock Option Plans and Stock Bonus Plans. All Stock Option and Bonus Plans have been approved by the stockholders. 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 4,100,000 shares of CEL-SCI's Common Stock to persons who 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 Plans. The Non-Qualified Stock Option Plans collectively authorize the issuance of up to 7,760,000 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 1,940,000 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 the Company. 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 September 30, 2003, 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 4,100,000 3,801,100 N/A 212,315
Non-Qualified Stock
Option Plans 7,760,000 6,453,973 N/A 151,899
Stock Bonus Plans 1,940,000 N/A 1,225,036 714,964
|
Of the shares issued pursuant to CEL-SCI's Stock Bonus Plans 487,920 shares were issued as part of CEL-SCI's contribution to its 401(k) plan.
The following table shows the weighted average exercise price of the outstanding options granted pursuant to the Company's Incentive and Non-Qualified Stock Option Plans as of September 30, 2003, CEL-SCI's most recent fiscal year end. CEL-SCI's Incentive and Non-Qualified Stock Option Plans have been approved by CEL-SCI's shareholders.
Number of Securities
Remaining Available
Number For Future Issuance
of Securities Under Equity
to be Issued Weighted-Average Compensation Plans,
Upon Exercise Exercise Price of Excluding Securities
of Outstanding of Outstanding Reflected in Column
Plan category Options (a) Options (a)
--------------------------------------------------------------------------------
Incentive Stock Option
Plans 3,801,100 $0.68 212,315
Non-Qualified Stock Option
Plans 6,453,973 $0.74 151,899
--------- ----- -------
10,255,073 $0.72 364,214
========== ===== =======
|
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of November 30, 2003, information with respect to the only persons owning beneficially 5% or more of the outstanding Common Stock and the number and percentage of outstanding shares owned by each director and officer and by the officers and directors as a group. Unless otherwise indicated, each owner has sole voting and investment powers over his shares of Common Stock.
Name and Address Number of Shares (1) Percent of Class (3) ---------------- ----------------- ---------------- Maximilian de Clara 2,238,044 3.6% Bergstrasse 79 6078 Lungern, Obwalden, Switzerland Geert R. Kersten 4,192,911 (2) 6.6% 8229 Boone Blvd., Suite 802 Vienna, VA 22182 Patricia B. Prichep 1,016,549 1.6% 8229 Boone Blvd., Suite 802 Vienna, VA 22182 Eyal Talor, Ph.D. 723,601 1.2% 8229 Boone Blvd., Suite 802 Vienna, VA 22182 Daniel H. Zimmerman, Ph.D. 744,860 1.2% 8229 Boone Blvd., Suite 802 Vienna, VA 22182 Alexander G. Esterhazy 55,000 * 20 Chemin du Pre-Poiset CH- 1253 Vandoeuvres Geneve, Switzerland C. Richard Kinsolving 119,090 * P.O. Box 20193 Bradenton, FL 34204-0193 Peter R. Young, Ph.D. 47,518 * 1904 Canterbury Drive Westover Hills, TX 76107 All Officers and Directors 9,137,573 13.9% as a Group (8 persons) |
* Less than 1%
(1) Includes shares issuable prior to February 28, 2004 upon the exercise of options or warrants granted to the following persons:
Options or Warrants Exercisable
Name Prior to February 28, 2004
Maximilian de Clara 504,999
Geert R. Kersten 1,800,000
Patricia B. Prichep 529,667
Eyal Talor, Ph.D. 329,167
Daniel H. Zimmerman, Ph.D. 331,334
Alexander G. Esterhazy 55,000
C. Richard Kinsolving, Ph.D. 50,000
Peter R. Young, Ph.D. 6,667
|
(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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table sets forth the aggregate fees billed to CEL-SCI for the years ended September 30, 2003 and September 30, 2002 by Deloitte & Touche, LLP, CEL-SCI independent auditors:
Year Ended September 30,
2003 2002
---- ----
Audit Fees $131,049 $139,516
Audit-Related Fees 50,027 35,468
Financial Information Systems --
Design and Implementation Fees -- --
Tax Fees -- --
All Other Fees -- --
|
Audit fees represent amounts billed for professional services rendered for the audit of the CEL-SCI's annual financial statements and the reviews of the financials statements included in CEL-SCI's Forms 10-Q for the fiscal year. Audit Related Fees represent amounts charged for reviewing various registration statements filed with the Securities and Exchange Commission by CEL-SCI during the year. Before Deloitte & Touche, LLP was engaged by CEL-SCI to render audit or non-audit services, the engagement was approved by CEL-Sci's audit committee. CEL-SCI's Board of Directors is of the opinion that the Audit Related Fees charged by Deloitte & Touche, LLP are consistent with Deloitte & Touche, LLP maintaining its independence from CEL-SCI.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) See the Financial Statements attached to this Report.
(b) The Company did not file any reports on Form 8-K during the three months ended September 30, 2003.
(c) 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 (Name change Filed as Exhibit 3(c) to CEL-SCI's
only) Registration Statement on Form S-1
Registration Statement (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.
(a) Specimen copy of Incorporated by reference to Exhibit
Stock Certificate 4(a) of CEL-SCI's Registration Statement
on Form S-1 Registration Nos. 2-85547-D
and 33-7531.
(b) Designation of Series E Incorporated by reference to Exhibit 4
Preferred Stock to report on Form 8-K dated August 21,
2001.
10(d) Employment Agreement with Incorporated by reference to Exhibit
Maximilian de Clara 10(d) to CEL-SCI's Registration
Statement on Form S-1 (Commission File
#333-102639).
10(e) Employment Agreement with Incorporated by reference to Exhibit
Geert Kersten 10(e) of CEL-SCI's Registration
Statement on Form S-3 (Commission File
#106879).
10(q) Common Stock Purchase Agreement Incorporated by reference to Exhibit
with Rubicon Group Ltd. 10(q) to CEL-SCI's Registration
statement on Form S-1 (Commission File
No. 333-109070).
10(r) Stock Purchase Warrant issued to Incorporated by reference to Exhibit
Rubicon Group Ltd. 10(r) to CEL-SCI's Registration
statement on Form S-1 (Commission File
No. 333-109070).
10(s) Securities Exchange Agreement Incorporated by reference to Exhibit
(together with Schedule required 10.1 to report on Form 8-K dated August
by Instruction 2 to Item 601 21, 2001.
Regulation S-K)
10(t) Form of Series E Warrant Incorporated by reference to Exhibit
10.2 to report on Form 8-K dated August
21, 2001.
10(u) Form of Secondary Warrant Incorporated by reference to Exhibit
10.3 to report on Form 8-K dated August
21, 2001.
10(v) Note and Warrant Purchase Incorporated by reference to Exhibit
Agreement (together with 10(v) to CEL-SCI's Registration
Schedule required by Statement on Form S-3 (Commission File
Instruction 2 to Item 601 Number 333-76396)
Regulation S-K) pertaining
to notes sold in December 2001
and January 2002
10(vi)Note and Warrant Purchase Incorporated by reference to Exhibit
Agreement (together with (vi) to CEL-SCI's Registration
Schedule required by statement on Form S-3 (Commission File
Instruction 2 to Item 601 No. 333-97171)
Regulation S-K) pertaining to
Series G notes and warrants
|
10(vii)Note and Warrant Purchase Incorporated by reference to Exhibit
Agreement (together with 10 to CEL-SCI's report on Form 8-K
Schedule required by dated January 14, 2003
Instruction 2 to Item 601
Regulation S-K) pertaining to
Series H notes and warrants
10(w) Master Production Agreement ________________________________
between Company and Bio Science
Contract Production Corp.
10(x) Distribution and Royalty Incorporated by reference to Exhibit
Agreement with Eastern Biotech 10(x) to Amendment No. 2 to CEL-SCI's
Registration statement on Form S-3
(Commission File No. 333-106879).
10(y) Promissory Note payable to ________________________________
Cambrex Bio Science, Inc.,
together with Security Agreement
and amendments.
10(z) Development, Supply and ________________________________
Distribution Agreement
between Company and Orient
Europharma Co., Ltd.
|
CEL-SCI CORPORATION
Consolidated Financial Statements for the Years Ended September 30, 2003, 2002, and 2001, and Independent Auditors' Report
CEL-SCI CORPORATION
TABLE OF CONTENTS
Page
INDEPENDENT AUDITORS' REPORT F-3
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS
ENDED SEPTEMBER 30, 2003, 2002, AND 2001:
Consolidated Balance Sheets F-4
Consolidated Statements of Operations F-5
Consolidated Statements of Comprehensive Loss F-6
Consolidated Statements of Stockholders' Equity F-7 - F-9
Consolidated Statements of Cash Flows F-10 - F-13
Notes to Consolidated Financial Statements F-14 - F-31
|
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders of
CEL-SCI Corporation:
We have audited the accompanying consolidated balance sheets of CEL-SCI Corporation and subsidiary (the Company) as of September 30, 2003 and 2002, 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, 2003. 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 the Company as of September 30, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2003, in conformity with accounting principles generally accepted in the United States of America.
Deloitte & Touche LLP
McLean, Virginia
December 15, 2003
CEL-SCI CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2003 AND 2002
-----------------------------------------------------------------------------
ASSETS 2003 2002
CURRENT ASSETS:
Cash and cash equivalents $ 1,753,307 $ 2,079,276
Interest and other receivables 47,051 31,477
Prepaid expenses 357,531 452,123
Deposits 14,828 -
Deferred financing costs 16,243 176,995
--------- ---------
Total current assets 2,188,960 2,739,871
RESEARCH AND OFFICE EQUIPMENT--Less accumulated
depreciation of $2,002,232 and $2,027,225 278,706 473,555
DEPOSITS - 139,828
PATENT COSTS--Less accumulated amortization
of $704,522 and $641,711 447,540 418,004
--------- ---------
$ 2,915,206 $ 3,771,258
=========== ===========
|
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 481,985 $ 735,646
Accrued expenses 99,172 148,812
Due to officer/shareholder and employees 227,115 29,592
Deposits held 3,000 -
Deferred rent 5,540 -
Note payable - Cambrex, net of discount 656,076 1,135,017
Note payable - Covance 184,330 -
--------- ---------
Total current liabilities 1,657,218 2,049,067
DEFERRED RENT - 20,732
CONVERTIBLE DEBT, NET 32,882 639,288
--------- ---------
Total liabilities 1,690,100 2,709,087
--------- ---------
STOCKHOLDERS' EQUITY:
Series E cumulative convertible redeemable
preferred stock, $.01 par value, $1,000
liquidation value--authorized, 6,288 shares;
issued and outstanding, -0- and 1,192
shares at September 30, 2003 and 2002, respectively - 12
Common stock, $.01 par value--authorized,
100,000,000 shares; issued and outstanding,
61,166,345 and 37,255,142 shares
at September 30, 2003 and 2002, respectively 611,663 372,551
Additional paid-in capital 87,167,091 80,871,758
Accumulated deficit (86,553,648) (80,182,150)
----------- -----------
Total stockholders' equity 1,225,106 1,062,171
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,915,206 $ 3,771,258
=========== ===========
|
See notes to consolidated financial statements.
2003 2002 2001
GRANT REVENUE AND OTHER $ 318,304 $ 384,939 $ 293,871
OPERATING EXPENSES:
Research and development 1,915,501 4,699,909 7,762,213
Depreciation and amortization 199,117 226,514 209,121
General and administrative 2,287,019 1,754,332 3,432,437
----------- ----------- -----------
Total operating expenses 4,401,637 6,680,755 11,403,771
----------- ----------- -----------
NET OPERATING LOSS (4,083,333) (6,295,816) (11,109,900)
INTEREST INCOME 52,502 85,322 376,221
INTEREST EXPENSE (2,340,667) (2,131,750) -
----------- ----------- -----------
NET LOSS (6,371,498) (8,342,244) (10,733,679)
ACCRUED DIVIDENDS ON
PREFERRED STOCK (32,101) (202,987) (53,153)
ACCRETION OF BENEFICIAL CONVERSION
FEATURE ON PREFERRED STOCK (76,720) (1,444,757) (317,419)
----------- ----------- -----------
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS $(6,480,319) $(9,989,988) $(11,104,251)
=========== =========== ============
NET LOSS PER COMMON SHARE (BASIC) $ (0.13) $ (0.35) $ (0.51)
=========== =========== ============
NET LOSS PER COMMON SHARE (DILUTED)$ (0.13) $ (0.35) $ (0.51)
=========== =========== ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 50,961,457 28,746,341 21,824,273
=========== =========== ============
|
See notes to consolidated financial statements.
2003 2002 2001
NET LOSS $ (6,371,498) $ (8,342,244) $ (10,733,679)
OTHER COMPREHENSIVE LOSS--Unrealized
gain on investments - 210 61,354
----------- ----------- ------------
COMPREHENSIVE LOSS $ (6,371,498) $ (8,342,034) $ (10,672,325)
============ ============ =============
|
See notes to consolidated financial statements.
CEL-SCI CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY
YEARS ENDED SEPTEMBER 30, 2003, 2002,
AND 2001
Accumulated
Preferred Additional Unearned Other Compre-
Series E Stock Common Stock Paid-In Compen- hensive Accumulated
Shares Amount Shares Amount Capital sation (Loss) Income Deficit Total
--------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 2000 - $ - 20,459,700 $204,597 $73,924,653 $ - $(61,564) $(61,106,227) $12,961,459
Exercise of warrants 3,794,432 37,944 (37,593) 351
Stock issued to employees
for service 114,867 1,149 113,718 114,867
Repriced options 613,108 (19,636) 593,472
Stock options issued to
non-employees for services 167,087 167,087
Stock issued to non-employees
for service 34,546 346 34,201 34,547
Exchange of common stock for
Preferred Series E 6,288 63 (3,589,289) (35,893) 35,830 -
Conversion of Preferred
Series E to common stock (425) (4) 348,841 3,488 (3,484) -
Issuance--common stock 522,108 5,221 584,779 590,000
401(k) contributions 66,877 669 93,036 93,705
Stock bonus to officer 200,000 2,000 260,000 262,000
Costs for equity related
transactions (143,970) (143,970)
Change in unrealized gain
(loss) of investment
securities available for sale 61,354 61,354
Net loss (10,733,679) (10,733,679)
----------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 2001 5,863 59 21,952,082 219,521 75,641,365 (19,636) (210) (71,839,906) 4,001,193
Exercise of warrants 104,500 1,045 21,668 22,713
Stock issued to employees
for service 1,885,600 18,856 502,038 520,894
Repriced options (613,108) 19,636 (593,472)
Stock options issued to
non-employees for service (2,262) (2,262)
Stock issued to nonemployees
for service 45,596 456 45,140 45,596
Conversion of Preferred
Series E to common stock (4,671) (47) 4,282,150 42,822 (42,775) -
Dividends on Preferred Series
E paid in common stock 122,760 1,227 131,875 133,102
Dividends accrued on Preferred
Series E stock (202,987) (202,987)
Issuance of Series F
convertible debt with warrants -
and beneficial conversion feature 1,600,000 1,600,000
Conversion of Series F
convertible debt 5,611,344 56,113 1,403,885 1,459,998
Interest on Series F convertible
debt paid in common stock 1,269 13 752 765
|
(Continued)
CEL-SCI CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 2003, 2002,
AND 2001
---------------------------------------------------------------------------------------------------------------------------------
Accumulated
Preferred Additional Unearned Other Compre-
Series E Stock Common Stock Paid-In Compen- hensive Accumulated
Shares Amount Shares Amount Capital sation (Loss) Income Deficit Total
--------------------------------------------------------------------------------------------------
Issuance of Series G
convertible debt with warrants
and beneficial conversion
feature 690,709 690,709
Conversion of Series G
convertible debt 277,778 2,777 47,225 50,002
Issuance--common stock 150,000 1,500 148,500 150,000
401(k) contributions 193,818 1,938 69,885 71,823
Stock bonus to officer 75,071 751 88,583 89,334
Issuance of common stock for
equity line 2,553,174 25,532 1,341,265 1,366,797
Change in unrealized gain
(loss) of investment securities
available for sale 210 210
Net loss (8,342,244) (8,342,244)
---------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 2002 1,192 12 37,255,142 372,551 80,871,758 - - (80,182,150) 1,062,171
Exercise of warrants 1,435,500 14,355 255,027 269,382
Stock issued to employees for
service 4,409,932 44,099 920,117 964,216
Stock options issued to
non-employees for service 6,727 6,727
Stock issued to non-employees
for service 559,089 5,591 123,100 128,691
Conversion of Preferred Series
E to common stock (1,192) (12) 1,018,439 10,184 (10,172) -
Dividends on Preferred Series
E paid in common stock 97,389 974 98,650 99,624
Dividends accrued on Preferred
Series E stock (21,189) (21,189)
Conversion of Series F
convertible debt 979,670 9,797 130,203 140,000
Interest on Series F
convertible debt paid in 22,608 226 4,040 4,266
common stock
Conversion of Series G
convertible debt 8,076,420 80,764 1,169,236 1,250,000
Interest on Series G convertible
debt paid in common stock 109,428 1,094 20,378 21,472
(Continued)
|
CEL-SCI CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 2003, 2002,
AND 2001
--------------------------------------------------------------------------------------------------------------------------
Accumulated
Preferred Additional Unearned Other Compre-
Series E Stock Common Stock Paid-In Compen- hensive Accumulated
Shares Amount Shares Amount Capital sation (Loss) Income Deficit Total
--------------------------------------------------------------------------------------------------
Issuance of Series H
convertible debt with
warrants and beneficial
conversion feature 1,054,647 1,054,647
Conversion of Series H
convertible debt 3,003,929 30,039 1,219,961 1,250,000
Interest on Series H
convertible debt paid in
common stock 80,010 800 25,430 26,230
Issuance of Cambrex note
payable with beneficial
conversion feature 106,716 106,716
Costs for equity related
transactions (40,600) (40,600)
Sale of common stock to Eastern
Biotech 1,100,000 11,000 489,000 500,000
Exercise of options 6,667 67 2,133 2,200
401(k) contributions 134,336 1,344 45,707 47,051
Issuance of common stock for
equity line 2,877,786 28,778 696,222 725,000
Net loss (6,371,498) (6,371,498)
----------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 2003 - $ - 61,166,345 611,663 87,167,091 $ - $ - $(86,553,648) $1,225,106
======= ====== ========== ======= ========== ======= ====== ============ ===========
|
See notes to consolidated financial statements.
CEL-SCI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2003, 2002, AND
2001
-------------------------------------------------------------------------------
2003 2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(6,371,498) (8,342,244) (10,733,679)
Adjustments to reconcile net loss to
net cash used for operating
activities:
Depreciation and amortization 199,117 226,514 209,121
Issuance of stock options for
services 6,727 (2,262) 167,087
Repriced options - (593,472) 593,472
Common stock bonus granted to officer - 89,334 262,000
Issuance of common stock for services 1,092,907 566,490 149,414
Common stock contributed to 401(k)
plan 47,051 71,823 93,705
Net realized (gain) loss on sale of
securities - (2,758) 9,831
Impairment loss on abandonment of
patents 9,828 39,960 30,439
Gain on retired equipment (5,913) - -
Gain on sale of equipment (26,463) - -
R&D expenses paid with note payable - 872,517 -
Amortization of deferred financing
costs 385,170 276,785 -
Amortization of discount on note
payable 113,300 262,500 -
Amortization of discount on
convertible debt 1,738,241 1,539,994 -
Changes in assets and liabilities:
(Increase) decrease in interest and
other receivables (15,574) 8,899 (1,124)
Decrease in prepaid expenses 87,752 413,935 972,318
Decrease in advances - - 728
Increase (decrease) in accounts
payable and accrued expenses 15,216 321,297 (346,553)
Increase in due to officer/shareholder
and employees 197,523 29,131 461
Increase in deposits held 3,000 - -
(Decrease) increase in deferred rent (15,192) (10,486) 6,396
----------- ----------- -----------
Net cash used for operating
activities (2,538,808) (4,232,043) (8,586,384)
----------- ----------- -----------
CASH FLOWS PROVIDED BY (USED FOR)
INVESTING ACTIVITIES:
Sales and maturities of investments - 596,352 3,219,064
Proceeds from disposal of equipment 7,812 - -
Purchases of equipment (6,905) (15,313) (168,537)
Expenditures for patent costs (93,509) (39,439) (35,797)
--------- --------- --------
Net cash (used for) provided
by investing activities (92,602) 541,600 3,014,730
--------- -------- ---------
(Continued)
|
CEL-SCI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 2003, 2002, AND
2001
---------------------------------------------------------------------------
2003 2002 2001
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Proceeds from issuance of
common stock 500,000 150,000 590,000
Proceeds from exercise of warrants 269,382 22,713 351
Draw-downs on equity line (net) 725,000 1,366,797 -
Exercise of stock options 2,200 - -
Proceeds from short-term loan 25,000 - -
Payment on short-term loan (25,000) - -
Payments on notes payable (276,122) - -
Proceeds from convertible debt 1,350,000 2,900,000 -
Costs for convertible debt
transactions (224,419) (453,781) -
Costs for equity related transactions (40,600) - (143,970)
---------- --------- --------
Net cash provided by
financing activities 2,305,441 3,985,729 446,381
---------- --------- -------
NET (DECREASE) INCREASE IN CASH (325,969) 295,286 (5,125,273)
---------- --------- ---------
CASH, BEGINNING OF YEAR 2,079,276 1,783,990 6,909,263
----------- ----------- --------
CASH, END OF YEAR $1,753,307 $2,079,276 $1,783,990
========== ========== ==========
(Continued)
|
SUPPLEMENTAL INFORMATION ON NONCASH
TRANSACTIONS 2003 2002 2001
CONVERSION OF COMMON STOCK INTO
PREFERRED STOCK:
Increase in preferred stock $ - $ - $ 63
Decrease in common stock - - (35,893)
Increase in additional paid-in capital - - 35,830
------ ------ ---------
$ - $ - $ -
======= ====== ========
CONVERSION OF PREFERRED STOCK INTO
COMMON STOCK:
Decrease in preferred stock $ (12) $ (47) $ (4)
Increase in common stock 10,184 42,822 3,488
Decrease in additional paid-in capital (10,172) (42,775) (3,484)
------- -------- --------
$ - $ - $ -
======= ====== ========
COMMON STOCK IN LIEU OF CASH DIVIDENDS
AND INTEREST ON PREFERRED STOCK:
Decrease in accrued liabilities $($99,625) (133,102) $ -
Increase in common stock 974 1,227 -
Increase in additional paid-in capital 98,651 131,875 -
--------- --------- --------
$ - $ - $ -
========= ======== ========
ACCRUAL OF DIVIDENDS ON PREFERRED STOCK:
Increase in accrued liabilities $ 21,189 $202,987 $ 53,153
Decrease in additional paid-in capital (21,189) (202,987) (53,153)
---------- -------- --------
$ - $ - $ -
========= ======== ========
ISSUANCE OF CONVERTIBLE DEBT WITH WARRANTS
AND BENEFICIAL CONVERSION:
Decrease in convertible debt $(1,054,647) $(2,290,709) $ -
Increase in additional paid-in capital 1,054,647 2,290,709 -
---------- --------- ---------
$ - $ - $ -
========= ======== =========
CONVERSION OF CONVERTIBLE DEBT INTO
COMMON STOCK:
Decrease in convertible debt $(2,640,000) $(1,510,000) $ -
Increase in common stock 120,600 58,890 -
Increase in additional paid-in capital 2,519,400 1,451,110 -
--------- --------- ---------
$ - $ - $ -
=========== ========= ==========
CONVERSION OF INTEREST ON CONVERTIBLE DEBT
INTO COMMON STOCK:
Decrease in accrued liabilities $(51,968) $ (765) $ -
Increase in common stock 2,120 13 -
Increase in additional paid-in capital 49,848 752 -
--------- --------- ---------
$ - $ - $ -
========== ========= ==========
CHANGES IN UNEARNED COMPENSATION
FOR VARIABLE OPTIONS:
Decrease in additional paid-in
capital $ - $ (19,636) $ -
Decrease in unearned compensation $ - $ 19,636 $ -
---------- --------- ----------
$ - $ - $ -
========= ======== =========
(Continued)
|
SUPPLEMENTAL INFORMATION ON NONCASH TRANSACTIONS 2003 2002 2001
ACCRETION TO THE BENEFICIAL CONVERSION
ON PREFERRED STOCK:
Increase in additional paid-in capital $ 76,720 $ 1,444,757 $317,419
Decrease in additional paid-in capital (76,720) (1,444,757) (317,419)
---------- ----------- ---------
$ - $ - $ -
========= ========== ========
EQUIPMENT COSTS INCLUDED IN ACCOUNTS PAYABLE:
Increase in equipment costs $ (157) $ (677) $ -
Increase in accounts payable 157 677 -
--------- ---------- --------
$ - $ - $ -
========= ========== ========
PATENT COSTS INCLUDED IN ACCOUNTS PAYABLE:
Increase in patent costs $ (11,659) $ (17,321) $ -
Increase in accounts payable 11,659 17,321 -
---------- ---------- --------
$ - $ - $ -
========= ========== ========
BENEFICIAL CONVERSION FEATURE OF NOTE PAYABLE:
Increase in additional paid-in capital $ 106,716 $ - $ -
Decrease in notes payable (106,716) - -
--------- ---------- -------
$ - $ - $ -
========= ========== ========
|
SURRENDER OF DEPOSIT AND SALE OF EQUIPMENT TO
REDUCE NOTE PAYABLE:
Decrease in deposits $ 125,000 $ - $ -
Decrease in equipment, net 100,000 - -
Decrease in notes payable (225,000) - -
--------- --------- ---------
$ - $ - $ -
========= ========== ========
CONVERSION OF ACCOUNTS PAYABLE INTO NOTES PAYABLE:
Decrease in accounts payable $(199,928) $ - $ -
Increase in notes payable 199,928 - -
--------- --------- ---------
$ - $ - $ -
========= ========== ========
RECLASS OF INVENTORY TO EQUIPMENT:
Decrease in inventory $ 6,839 $ - $ -
Increase in equipment (6,839) - -
--------- --------- ---------
$ - $ - $ -
========= ========== ========
|
See notes to consolidated financial statements.
CEL-SCI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2003, 2002 AND 2001
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CEL-SCI Corporation (the "Company") was incorporated on March 22, 1983, in the State of Colorado, to finance research and development in biomedical science and ultimately to engage in marketing and selling products.
Significant accounting policies are as follows:
a. Principles of Consolidation--The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Viral Technologies, Inc. All significant intercompany transactions have been eliminated upon consolidation.
b. 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.
c. 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. Leasehold improvements are depreciated over the shorter of the estimated useful life of the asset or the terms of the lease. Repairs and maintenance are expensed when incurred.
d. 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.
e. Research and Development Grant Revenues--The Company's grant arrangements are handled on a reimbursement basis. Grant revenues under the arrangements are recognized as grant revenue when costs are incurred.
f. Patents--Patent expenditures are capitalized and amortized using the straight-line method over 17 years. In the event changes in technology or other circumstances impair the value or life of the patent, appropriate adjustment in the asset value and period of amortization is made. An impairment loss is recognized when estimated future undiscounted cash flows expected to result from the use of the asset, and from disposition, is less than the carrying value of the asset. The amount of the impairment loss would be the difference between the estimated fair value of the asset and its carrying value. During the years ended September 30, 2003, 2002 and 2001, the Company recorded patent impairment charges of $9,828, $39,960 and $30,439 for the net book value of patents abandoned during the year. These amounts are included in general and administrative expenses.
g. Net Loss Per Common Share--Net loss per common share is computed by dividing the net loss, after increasing the loss for the effect of any accrued dividends on the preferred stock and the accretion of the beneficial conversion feature related to the preferred stock, by the weighted average number of common shares outstanding during the period. Common stock equivalents, including convertible preferred stock and options to purchase common stock, were excluded from the calculation for all periods presented as they were antidilutive.
h. Prepaid Expenses--The majority of prepaid expenses consist of manufacturing production advances and bulk purchases of laboratory supplies to be consumed in the manufacturing of the Company's product for clinical studies.
i. Deferred Financing Costs--Deferred financing costs are capitalized and expensed over the shorter of the period the notes are outstanding or on a pro-rata basis as the notes are converted.
j. Income Taxes--Income taxes are accounted for using the asset and liability method under which deferred tax liabilities or assets are determined based on the difference between the financial statement and tax basis 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. 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.
k. Cash and Cash Equivalents--For purposes of the statements of cash flows, cash and cash equivalents consists principally of unrestricted cash on deposit and short-term money market funds. The Company considers all highly liquid investments with a maturity when purchased of less than three months, and those investments that are readily convertible to known amounts of cash and are so close to maturity that they bear no interest rate risk, as cash and cash equivalents.
l. Convertible Debt--Convertible debt issued by the Company is initially offset by a discount representing the relative fair value of the warrants and beneficial conversion feature. This discount is amortized to interest expense over the period the debt is outstanding and accelerated pro-rata as the notes are converted. The fair value of the warrants and beneficial conversion discount are calculated based on available market data using appropriate valuation models. Notes 6 and 12 provide additional information on the valuation of the warrants and beneficial conversion discount.
m. 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.
n. Reclassifications--Certain reclassifications have been made to the fiscal year 2001 financial statements to conform with the presentation of fiscal years 2003 and 2002.
o. New Accounting Pronouncements--In April 2003, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards (" SFAS") No. 149 "Amendment of SFAS No. 133 on Derivative Instruments and Hedging Activities". The Statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. The amendments set forth in SFAS No.149 improve financial reporting by requiring that contracts with comparable characteristics be accounted for similarly. In particular, SFAS No. 149 clarifies under what circumstances a contract with an initial net investment meets the characteristics of a derivative as discussed in SFAS No. 133. In addition, it clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. SFAS No. 149 amends certain other existing pronouncements. Those changes will result in more consistent reporting of contracts that are derivatives in their entirety or that contain embedded derivatives that warrant separate accounting. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of this SFAS No. 149 did not have a material effect on the Company's financial position, results of operations or cash flows.
In May 2003, the FASB adopted SFAS No. 150 "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have a material effect on the Company's financial position, results of operations or cash flows.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others", (FIN 45). FIN 45 establishes new disclosure and liability recognition requirements for direct and indirect debt guarantees with specified characteristics. The initial recognition and measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements in this Interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company adopted FIN 45 as of December 31, 2002 and the implementation did not have a material effect on the Company's financial position, results of operations or cash flows.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities", (FIN 46). FIN 46 provides guidance on the consolidation of certain entities in which equity investors do not have the characteristics of a controlling financial interest. Such entities are referred to as variable interest entities. FIN 46 was effective immediately for variable interest entities created or acquired after January 31, 2003 and is effective July 1, 2003 for variable interest entities created or acquired on or before January 31, 2003. In October 2003, the FASB issued Staff Position FIN 46.6, which extended the effective date of FIN 46 for variable interest entities created or acquired before February 1, 2003 to the first interim or annual period ending after December 15, 2002. The Company anticipates that the adoption of FIN 46 will not have a material effect on the Company's financial position, results of operations or cash flows.
p. Stock-Based Compensation--In October 1996, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation". 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 APB No. 25, "Accounting for Stock Issued to Employees, and related Interpretations". In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" which amends SFAS No. 123. SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation and requires more prominent and more frequent disclosures in the financial statements of the effects of stock-based compensation. The provisions of SFAS 148 are effective for fiscal years ending after December 15, 2002. The Company has elected to continue to account for its employee stock-based compensation using the intrinsic value method. 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,
---------------------------------------
2003 2002 2001
---- ---- ----
Net loss:
As reported $(6,371,498) $(8,342,244) $(10,733,679)
Add/(subtract):
Recording of and reversal of
compensation expense for
stock-based performance
awards included in reported
net loss, net of related
tax effects - (593,472) 593,472
Add: Total stock-based
employee compensation expense
determined under fair-value
based method for all awards,
net of related tax effects (971,076) (990,949) (2,167,866)
--------- ---------- ----------
Pro forma $(7,342,574) $(9,926,665) $(12,308,073)
Net loss per common share:
As reported $ (0.13) $ (0.35) $ (0.51)
Pro forma $ (0.14) $ (0.40) $ (0.58)
|
The weighted average fair value at the date of grant for options granted during fiscal years 2003, 2002 and 2001 was $0.22, $0.49, and $0.90, 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:
2003 2002 2001
---- ---- ----
Expected stock risk volatility 77% 90 to 93% 98 to 109%
Risk-free interest rate 3.12% 4.10 to 4.12% 3.12 to 4.12%
Expected life options 5 Years 5 Years 1 to 6Years
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. The risk-free rate of return used for fiscal years 2003 and 2002 equals the yield on five-year zero-coupon U.S. Treasury issues on the grant date. The risk-free rate of return used for fiscal year 2001 equals the yield on one to six year zero-coupon U.S. Treasury issues in the date of grant. No discount was applied to the value of the grants for nontransferability or risk of forfeiture.
2. OPERATIONS AND FINANCING
The Company has incurred significant costs since its inception in connection with the acquisition of certain patented and unpatented proprietary technology and know-how relating to the human immunological defense system, patent applications, research and development, administrative costs, construction of laboratory facilities, and clinical trials. The Company has funded such costs with proceeds realized from the public and private sale of its common and preferred stock. The Company will be required to raise additional capital or find additional long-term financing in order to continue with its research efforts. The Company expects to receive additional funding from private investors subsequent to September 30, 2003; however, there can be no assurances that the Company will be able to raise additional capital or obtain additional financing. To date, the Company has not generated any revenue from product sales. The ability of the Company to complete the necessary clinical trials and obtain FDA approval for the sale of products to be developed on a commercial basis is uncertain.
The Company plans to seek continued funding of the Company's development by raising additional capital. In fiscal year 2003 and fiscal year 2002, the Company reduced its discretionary expenditures. If necessary, the Company plans to further reduce discretionary expenditures in fiscal year 2004; however such reductions would further delay the development of the Company's products. It is the opinion of management that sufficient funds will be available from external financing and additional capital and/or expenditure reductions in order to meet the Company's liabilities and commitments as they come due during fiscal year 2004. Ultimately, the Company must complete the development of its products, obtain the appropriate regulatory approvals and obtain sufficient revenues to support its cost structure.
3. INVESTMENTS
There were no investments or associated unrealized gains or losses as of September 30, 2003. The gross realized gains and losses of sales of investments available-for-sale for the years ended September 30, 2003, 2002, and 2001, are as follows:
2003 2002 2001
---- ---- ----
Realized gains
$ - $ 2,758 $14,997
Realized losses - - (24,828)
------ -------- --------
Net realized gain (loss) $ - $ 2,758 $(9,831)
====== ======== ========
|
4. RESEARCH AND OFFICE EQUIPMENT
Research and office equipment at September 30, 2003 and 2002, consist of the following:
2003 2002
---- ----
Research equipment $ 1,999,475 $ 2,192,054
Furniture and equipment 238,422 265,685
Leasehold improvements 43,041 43,041
----------- ------------
2,280,938 2,500,780
Less: Accumulated depreciation and
amortization (2,002,232) (2,027,225)
------------ -----------
Net research and office equipment $ 278,706 $ 473,555
========== ===========
5. 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, 2003 and 2002, are as follows:
2003 2002
---- ----
Depreciation $ (16,367) $ (17,244)
Prepaid expenses (135,719) (171,626)
Net operating loss carryforward 32,658,426 31,578,427
Other 2,103 7,870
Less: Valuation allowance (32,508,443) (31,397,427)
----------- -----------
Net deferred $ - $ -
============ ============
|
The Company has available for income tax purposes net operating loss carryforwards of approximately $86,428,896, expiring from 2004 through 2023. In the event of a significant change in the ownership of the Company, the utilization of such carryforwards could be substantially limited.
For fiscal years 2003, 2002 and 2001, the Company's federal statutory tax rate was 35%, and the state tax rate was 6%. The effective tax rate was 0%. The difference between the rates was primarily attributable to the effect of state taxes and the non-recognition of deferred taxes due to the valuation allowance.
6. STOCK OPTIONS, BONUS PLAN AND WARRANTS
Non-Qualified Stock Option Plan--At September 30, 2003, the Company has collectively authorized the issuance of 7,760,000 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,
September 30, 2000 1,801,206 3.18 1,547,445 3.19
Options granted 1,673,500 1.20
Options exercised - -
Options forfeited (114,640) 2.82
---------
Options outstanding, September 30,
2001 3,360,066 1.29 1,640,047 1.38
Options granted 860,000 0.44
Options exercised - -
Options forfeited (146,632) 1.50
---------
Options outstanding, September 30,
2002 4,073,434 1.10 3,159,938 1.25
Options granted 2,582,165 0.22
Options exercised (6,667) 0.33
Options forfeited (194,959) 1.44
----------
Options outstanding, September 30,
2003 6,453,973 0.74 3,319,317 1.18
=========
|
At September 30, 2003, options outstanding and exercisable were as follows:
Weighted Weighted Weighted
Average Average Average
Range of Number Exercise Remaining Exercise
Exercise Out- Price Out- Contractual Number Price
Prices standing standing Life Exercisable Exercisable
$0.16 - $0.24 2,572,165 $0.22 9.49 years 6,667 $ 0.16
$0.33 - $0.50 443,333 $0.34 8.62 years 133,337 $ 0.33
$0.54 - $0.81 291,500 $0.54 8.51 years 97,167 $ 0.54
$1.05 - $1.58 2,443,266 $1.07 2.65 years 2,390,436 $ 1.06
$1.67 - $2.51 677,109 $1.79 1.96 years 665,110 $ 1.79
$3.25 - $4.88 25,800 $3.34 3.57 years 25,800 $ 3.34
$6.25 - $9.38 800 $6.25 5.00 years 800 $ 6.25
|
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, 2003, 20,000 options had been exercised. In October 2000 and April 2001, the Company extended the expiration dates on approximately 1,056,000 options from the Nonqualified Stock Option Plan with exercise prices ranging from $2.38 to $5.25. The options originally expired from October 2000 to January 2001 but were extended to expiration dates ranging from October 2001 to January 2002. Each of these two dates was considered a new measurement date with respect to all of the modified options; however, on each date the exercise price of the options exceeded the fair market value of the Company's common stock, and therefore, no compensation expense was recorded.
In July 2001, the Company repriced 1,298,098 outstanding employee and director stock options under the Nonqualified Plans that were priced over $2.00 down to $1.05. In accordance with Financial Interpretation No. 44
(FIN 44), such repriced options are considered to be variable options. During the year ended September 30, 2001, compensation charges of $364,532 were recorded in the consolidated statement of operations and unearned compensation of $11,916 was recorded on the consolidated balance sheet as of September 30, 2001. The compensation expense was originally determined based upon the difference between the fair market value of the Company's common stock at the date of modification and the exercise price of each stock option. On September 30, 2001, the incremental compensation expense was determined based on the difference between the fair market value of the stock on September 30, 2001, and the exercise price, less the previously recorded expense. During the year ended September 30, 2002, the change in the market value of the Company's common stock resulted in the reversal of $364,532 of compensation expense. Changes in the fair market value of the Company's stock may result in future changes to compensation expense. There was no expense recorded during the year ended September 30, 2003. As of September 30, 2003, all options remain outstanding.
In November 2001, the Company extended the expiration date on 242,000 options at $1.05 from the Nonqualified Plans. The options were to expire between June 2002 and October 2002 and were extended by one year to June 2003 through October 2003. The options had originally been granted between October 1989 to December 1995. These dates were considered a new measurement date with respect to all of the modified options. In addition, in February, April, and July of 2002, the Company modified options outstanding to employees who had been terminated in conjunction with their change in employee status so that all options vested on the date of termination. These dates were considered a new measurement date with respect to all of the newly vested options. At each of the dates of modification, the exercise price of the options exceeded the fair market value of the Company's common stock and no compensation expense was recorded.
In November 2002 and March 2003, the Company extended the expiration date on 897,000 options from the Nonqualified Stock Option Plan with exercise prices ranging from $1.05 to $1.94. The options originally expired from January 2003 to October 2003, but were extended to expiration dates ranging from January 2005 to October 2005. Each of these two dates was considered a new measurement date. At each of the dates of modification, the exercise price of the options exceeded the fair market value of the Company's common stock and no compensation expense was recorded. As of September 30, 2003, all options remain outstanding.
Incentive Stock Option Plan--At September 30, 2003, the Company has collectively authorized the issuance of 4,100,000 shares of common stock under the Incentive Stock Option Plan. Options vest after a one-year to three-year period and expire no later than ten years after the grant date. Terms of the options are to be determined by the Company's Compensation Committee, which administers all of the plans. Only the Company's employees and directors 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,
September 30, 2000 1,046,766 3.62 722,435 3.98
Options granted 130,000 1.24
Options exercised - -
Options forfeited (6,666) 3.36
---------
Options outstanding,
September 30, 2001 1,170,100 1.65 862,103 2.33
Options granted 81,000 1.08
Options exercised - -
Options forfeited - -
------
Options outstanding,
September 30, 2002 1,251,100 1.62 1,062,769 1.69
Options granted 2,550,000 0.22
Options exercised - -
Options forfeited - -
---------
Options outstanding,
September 30, 2003 3,801,100 0.68 1,162,768 1.65
=========
|
At September 30, 2003, options outstanding and exercisable were as follows:
Weighted Weighted Weighted
Average Average Average
Range of Number Exercise Remaining Exercise
Exercise Out- Price Out- Contractual Number Price
Prices standing standing Life Exercisable Exercisable
$0.22 - $0.33 2,550,000 $ 0.22 9.50 years - $ 0.00
$1.00 - $1.50 1,006,066 $ 1.08 4.75 years 924,400 $ 1.07
$1.85 - $2.78 81,167 $ 2.00 3.87 years 74,501 $ 2.02
$2.87 - $4.31 33,167 $ 3.35 1.07 years 33,167 $ 3.35
$4.50 - $6.75 129,600 $ 5.06 4.69 years 129,600 $ 5.06
$9.00 - $13.50 1,100 $ 10.09 2.73 years 1,100 $10.09
|
During fiscal year 2001, the Company extended the expiration date on 50,000 options at $2.87 from the Incentive Stock Option Plan. The options were to expire November 1, 2001, and were extended to November 1, 2002. The options had originally been granted in November 1991. November 1, 2001 was considered a new measurement date; however, the exercise price on all the options modified exceeded the fair market value of the Company's common stock, and therefore, no compensation expense was recorded.
In July 2001, the Company repriced 816,066 outstanding employee and director stock options under the Incentive Stock Option Plan that were priced over $2.00 down to $1.05. In accordance with FIN 44, such repriced options are considered to be variable options. During the year ended September 30, 2001, compensation charges of $228,940 were recorded in the consolidated statement of operations and unearned compensation of $7,720 was recorded on the consolidated balance sheet as of September 30, 2001. The compensation expense was originally determined based upon the difference between the fair market value of the Company's common stock at the date of modification and the exercise price of each stock option. On September 30, 2001, the incremental compensation expense was determined based on the difference between the fair market value of the stock on September 30, 2001, and the exercise price, less the previously recorded expense. During the year ended September 30, 2002, this charge was completely reversed as the stock price declined. No expense was recorded during the year ended September 30, 2003 related to these options. As of September 30, 2003, all options remain outstanding. Changes in the fair market value of the Company's common stock will result in future changes in compensation expenses.
In November 2001, the Company extended the expiration date on 56,000 options at $1.05 from the Incentive Stock Option Plan. The options were to expire between November 2002 and December 2002, and were extended by one year to November 2003 to December 2003. The options had originally been granted between November 1999 and December 1992. This date was considered a new measurement date with respect to the modified options. In addition, in February, April, and July of 2002, the Company modified options outstanding to employees who had been terminated in conjunction with their change in employee status so that all options vested on the date of termination. At each of the dates of modification, the exercise price of the options exceeded the fair market value of the Company's common stock and no compensation expense was recorded.
In March 2003, the Company extended the expiration date on 105,500 options from the Incentive Stock Option Plan with exercise prices ranging from $1.05 to $1.94. The options originally expired from August 2003 to March 2004 but were extended to expiration dates ranging from August 2005 to March 2006. This was considered a new measurement date with respect to all of the modified options. At each of the dates of modification, the exercise price of the options exceeded the fair market value of the Company's common stock and no compensation expense was recorded. As of September 30, 2003, all options remain outstanding.
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 fiscal year 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, 1999, the 4,592,975 original warrants had expired. In January 2001, the Company extended the expiration date on the remaining 116,405 warrants to August 2001 and repriced them from $10.00 to $3.00 per share. In July 2001, the Company extended the expiration date further to February 2002. The incremental value at the date of these modifications collectively of $43,842 is recorded as an addition to additional paid-in capital and also a charge to additional paid-in capital since the Company is in an accumulated deficit position. In January 2002, the Company extended the expiration date further to February 6, 2003. The additional incremental value at the date of the modification of $5,997 is recorded as an addition to additional paid-in capital and also a charge to additional paid-in capital since the Company is in an accumulated deficit position. The fair value was valued using the Black-Scholes pricing methodology. All warrants expired on February 6, 2003.
During fiscal year 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. All outstanding options expired during the year ended September 30, 2001.
During fiscal year 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 fiscal year 1997 at prices ranging from $2.50 to $4.50. The remaining 50,000 options became exercisable during fiscal year 1998 at $5.00. During fiscal year 1997, 50,000 options were exercised at $3.50. During fiscal year 1998, 114,500 options were exercised at prices ranging from $3.50 to $4.50. During fiscal year 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. On June 30, 2001, these 10,000 options expired. During fiscal year 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. In September 2002, the remaining 50,000 options at $5.00 expired. During fiscal year 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 were expensed over the life of the consultant's contracts. All remaining options expired during the year ended September 30, 2001.
In connection with the December 1997 private offering of common stock, the Company issued to the underwriters warrants to purchase 50,000 shares of common stock at $8.63 per share. The warrants were exercisable at any time prior to December 22, 2000, at which time they expired.
During fiscal year 1999, the Company granted a 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 fiscal year 1999 at $2.50 per share. The options expire February 4, 2004. At September 30, 2003, all 50,000 options remained outstanding.
During fiscal year 2001, the Company granted options to consultants to purchase a total of 180,000 shares of the Company's common stock at exercise prices ranging from $1.05 to $1.63 expiring from June to July of 2006. As of September 30, 2003, all options were outstanding. The fair value of 30,000 options was expensed immediately. The fair value of the remaining 150,000 options was expensed on a monthly basis as the options were earned and vested over a period of one year. Total compensation of $77,206 was expensed for these options. The compensation expense was determined using the Black-Scholes pricing methodology with the following assumptions:
Expected stock risk volatility 98% to 104% Risk-free interest rate 3.12% to 4.12% Expected life of option 3 Years Expected dividend yield -0- |
In connection with the April 2001 common stock purchase agreement discussed
in Note 13, the Company issued 200,800 common stock purchase warrants. Each
warrant entitles the holder to purchase one share of common stock at $1.64
per share, expiring in April 2004.
The warrants have a relative fair value of $200,000 calculated using the
Black-Scholes pricing methodology with the following assumptions:
Expected stock risk volatility 98% Risk-free interest rate 3.12% Expected life of warrant 3 Years Expected dividend yield -0- |
The fair value of the warrants has been recorded as an addition to additional paid-in capital and also a charge to additional paid-in capital since the Company is in an accumulated deficit position.
In August 2001, the Company issued 272,108 common stock purchase warrants in connection with a private offering of common stock as discussed in Note 13. Each warrant entitles the holder to purchase one share of common stock at $1.75 per share, expiring July 2004. The warrants have a relative fair value of $224,000 calculated using the Black-Scholes pricing methodology with the following assumptions:
Expected stock risk volatility 98% Risk-free interest rate 3.12% Expected life of warrant 3 Years Expected dividend yield -0- |
The fair value of the warrants has been recorded as an addition to additional paid-in capital and also a charge to additional paid-in capital since the Company is in an accumulated deficit position.
Series E warrants were issued in connection with the issuance of preferred stock in August 2001. The Series E warrants allowed the holders to purchase up to 815,351 shares of the Company's common stock at a price of $1.19 per share at any time prior to August 16, 2004. In August 2003, in accordance with the Series E agreement discussed in Note 13, the Company issued 23,758 warrants to purchase shares of common stock at a price of $0.77 per share. The warrants are exercisable at any time prior to August 17, 2006. These warrants were valued using the Black Scholes pricing methodology with the following assumptions:
Expected stock risk volatility 94% Risk-free interest rate 2.00% Expected life of warrant 3 Years Expected dividend yield -0- |
The fair value of the warrants has been recorded as an addition to additional paid-in capital and also a charge to additional paid-in capital since the Company is in an accumulated deficit position. These warrants are considered a deemed dividend and the fair value, as determined using Black-Scholes, of $10,912 is included in the accrued dividends on preferred stock in the statements of operations for the year ended September 30, 2003.
As of September 30, 2003, all Series E warrants remained outstanding. As of November 10, 2003, 244,724 warrants were exercised for proceeds of $291,222.
Warrants were issued in connection with the issuance of the convertible debt in December 2001 and January 2002. The Series F warrants allowed the holders to purchase up to 960,000 shares of the Company's common stock at a price equal to 110% of the closing price per share at any time prior to the date which is seven years after the closing of the transaction. The warrant price is adjustable if the Company sells any additional shares of its common stock or convertible securities for less than fair market value or at an amount lower than the exercise price of the Series F warrants. The warrant price is adjusted every three months to an amount equal to 110% of the conversion price on such date, provided that the adjusted price is lower than the warrant exercise price on that date. If the warrant exercise price is adjusted, the number of shares of common stock issuable upon exercise of the
warrant would also be adjusted accordingly. On the date that the registration statement was declared effective by the Securities and Exchange Commission (SEC), and every three months following the effective date, the warrant exercise price was adjusted to an amount equal to 110% of the conversion price of the convertible debt on such date, provided that the adjusted price was lower than the warrant exercise price on that date. In accordance with the terms of the warrants, the exercise price was adjusted to $0.65 per share on January 17, 2002. On April 17, 2002, the price was adjusted to $0.24, on July 17, the price was adjusted to $0.19, and on October 17, 2002 the price was adjusted to $0.153. There have been no further adjustments in accordance with the terms of the warrants since the adjusted price would have been higher. As of September 30, 2002, $1,460,000 of the notes had been converted into 5,611,344 shares of common stock. As of November 30, 2002, all convertible debt had been converted into a total of 6,592,461 shares of the Company's common stock. In addition, 104,500 warrants were exercised during the year ended September 30, 2002, for proceeds of $22,713. During the year ended September 30, 2003, 435,500 warrants were exercised for proceeds of $66,632. As of September 30, 2003, 420,000 warrants remained outstanding.
Warrants were also issued in connection with the issuance of the convertible debt in July and September 2002. The Series G warrants allowed the holders to purchase up to 900,000 shares of the Company's common stock at a price equal to $0.25 per share at any time prior to July 12, 2009. If the Company sells any additional shares of common stock, or any securities convertible into common stock at a price below the then applicable warrant exercise price, the warrant exercise price will be lowered to the price at which the shares were sold or the lowest price at which the securities were convertible, as the case may be. The warrant exercise price is adjusted every three months to an amount equal to 110% of the conversion price on such date, provided that the adjusted price is lower than the warrant exercise price on that date. If the warrant exercise price is adjusted, the number of shares of common stock issuable upon the exercise of the warrant would be increased by the product of the number of shares of common stock issuable upon the exercise of the warrant immediately prior to the sale multiplied by the percentage by which the warrant exercise price was reduced. In accordance with the terms of the warrants, the exercise price was adjusted to $0.18 on December 9, 2002. The exercise price was adjusted to $0.145 on March 9, 2003. In accordance with the terms of the warrants, there were no further adjustments since the price would have been higher. As of September 30, 2002, $50,000 of the notes had been converted into 277,778 shares of common stock. During the year ended September 30, 2003, all of the remaining convertible debt were converted into 8,076,420 shares of common stock for a total conversion of 8,354,198 shares of common stock for Series G convertible debt. In addition, interest totaling $21,472 was converted into 109,428 shares of common stock during the year ended September 30, 2003. During the year ended September 30, 2003, 450,000 warrants were exercised for proceeds of $65,250. As of September 30, 2003, 450,000 warrants remain outstanding.
Warrants were also issued in connection with the issuance of the convertible debt in January and July 2003. The Series H warrants allowed the holders to purchase up to 1,100,000 shares of the Company's common stock at a price equal to $0.25 per share at any time prior to January 7, 2010. If the Company sells any additional shares of common stock, or any securities convertible into common stock at a price below the then applicable exercise price of the Series H warrants, the exercise price of the Series H warrants will be lowered to the price at which the shares were sold or the lowest price at which the securities are convertible. If the exercise price of the Series H warrants is adjusted, the number of shares of common stock issuable upon the exercise of the Series H warrants will be increased by the product of the number of shares of common stock issuable upon the exercise of the warrant immediately prior to the sale multiplied by the percentage by which the warrant exercise price is reduced. However, neither the exercise price nor the shares issuable upon the exercise of the Series H warrants will be adjusted as the result of shares issued in connection with a permitted financing. Every three months after June 26, 2003, the exercise price of the Series H warrants will be adjusted to an amount equal to 110% of the conversion price on such date, provided that the adjusted price is lower than the warrant exercise price on that date. During the year ended September 30, 2003, $1,250,000 of the total Series H convertible debt were converted into 3,003,929 shares of common stock. Additionally, interest of $26,230 was converted into 80,010 shares of common stock. As of October 2, 2003, all of the Series H notes had been converted into a total of 3,183,358 shares of common stock and total interest of $32,914 had been converted into 83,227 shares of common stock. During the year ended September 30, 2003, 550,000 warrants were exercised at $0.25 for proceeds of $137,500. As of September 30, 2003, 550,000 warrants remain outstanding.
Warrants were issued in connection with obtaining an equity line of credit in September 2003, discussed in Note 13. There were 395,726 warrants issued at an exercise price of $0.83, which expire in September 2008. The fair value of these warrants of $244,867 was determined using the Black-Scholes pricing methodology with the following assumptions:
Expected stock risk volatility 98% Risk-free interest rate 3.12% Expected life of warrant 5 Years Expected dividend yield -0- |
The fair value of the warrants has been recorded as an addition to additional paid-in capital and also a charge to additional paid-in capital since the Company is in an accumulated deficit position.
In addition, 30,000 options were issued to a consultant in May 2003 at a price of $0.41. The options vest over a three year period and expire in May 2013. The compensation expense for these options was determined using the Black Scholes pricing methodology with the following assumptions:
Expected stock risk volatility 84% Risk-free interest rate 2.0% Expected life of warrant 3 Years Expected dividend yield -0- |
The fair value of the options was recorded as general and administrative expense. Compensation expense of $6,727 was recorded for the year ended September 30, 2003.
In connection with an agreement with a private investor in May 2003, which is discussed in Note 14, 1,100,000 warrants were issued with an exercise price of $0.47. The warrants initially expired May 30, 2006. In accordance with the terms of the agreement, the expiration was extended to May 30, 2008 on September 30, 2003. The fair value of these warrants of $710,919 was determined using the Black-Scholes pricing methodology with the following assumptions:
Expected stock risk volatility 93% Risk-free interest rate 2.00% Expected life of options 5 Years Expected dividend yield -0- |
The fair value of the warrants has been recorded as an addition to additional paid-in capital and also as a charge to additional paid-in capital since the Company is in an accumulated deficit position.
Stock Bonus Plan--At September 30, 2003, the Company had been authorized to issue up to 1,940,000 shares of common stock under the Stock Bonus Plan. All employees, directors, officers, consultants, and advisors are eligible to be granted shares. During the year ended September 30, 2002, 327,530 shares with related expenses of $186,594 were issued under the Plan and recorded in the consolidated statement of operations. During the year ended September 30, 2003, 134,336 shares with related expenses of $47,051 were issued under the Plan and recorded in the consolidated statement of operations.
7. EMPLOYEE BENEFIT PLAN
The Company maintains a defined contribution retirement plan, qualifying under Section 401(k) of the Internal Revenue Code, subject to the Employee Retirement Income Security Act of 1974, as amended, and covering substantially all Company employees. Each participant's contribution is matched by the Company with shares of common stock that have a value equal to 100% of the participant's contribution, not to exceed the lesser of $10,000 or 6% of the participant's total compensation. The Company's contribution of common stock is valued each quarter based upon the closing bid price of the Company's common stock. The expense for the years ended September 30, 2003, 2002, and 2001, in connection with this Plan was $48,437, $71,823, and $93,705, respectively.
8. OPTIONAL SALARY ADJUSTMENT PLAN
In July 2001, the Company issued an "Optional Salary Adjustment Plan" (the "Plan"). The terms of the Plan allow certain employees the option to forgo salary increments of $6,000 in exchange for stock options for the period beginning from July 16, 2001, through October 15, 2001. In accordance with the Plan, employees will receive 40,000 stock options for each salary increment of $6,000. The total amount of options to be granted under the Plan is limited to 1,200,000. For the year ended September 30, 2001, 900,000 options were issued in lieu of compensation in the amount of $135,000. Additionally, 180,000 options were issued in lieu of compensation of $27,000 related to the year ended September 30, 2002. No compensation expense was recorded for the options since such options were issued with exercise prices equal to the fair market value of the Company's common stock on the date of grant. During the year ended September 30, 2003, there were no options issued in lieu of compensation.
9. COMMITMENTS AND CONTINGENCIES
Operating Leases-The future minimum annual rental payments due under noncancelable operating leases for office and laboratory space are as follows:
Rent expense for the years ended September 30, 2003, 2002, and 2001, was $276,564, $229,428 and $220,903, respectively. Minimum payments have not been reduced by minimum sublease rental receivable under future noncancelable subleases totaling $7,500.
Employment Contracts--In March 2002 the Company entered into a three-year employment agreement with its President and Director which expires March 31, 2005. The employment agreement provides that Company will pay him an annual salary of $363,000 during the term of the agreement. In the event that there is a material reduction in his authority, duties or activities, or in the event there is a change in the control of the Company, then the agreement allows him to resign from his position at the Company and receive a lump-sum payment from the Company equal to 18 months salary. For purposes of the employment agreement, a change in the control of the Company means the sale of more than 50% of the outstanding shares of the Company's Common Stock, or a change in a majority of the Company's directors.
Effective September 1, 2003, the Company entered into a three-year employment
agreement with its Chief Executive and Financial Officer. The employment
agreement provides that during the term of the employment agreement the
Company will pay him an annual salary of $370,585. In the event there is a
change in the control of the Company, the agreement allows him to resign from
his position at the Company and receive a lump-sum payment from the Company
equal to 24 months salary. For purposes of the employment agreement a change
in the control of the Company means: (1) the merger of the Company with
another entity if after such merger the shareholders of the Company do not
own at least 50% of voting capital stock of the surviving corporation; (2)
the sale of substantially all of the assets of the Company; (3) the
acquisition by any person of more than 50% of the Company's common stock; or
(4) a change in a majority of the Company's directors which has not been
approved by the incumbent directors.
10.CAMBREX NOTE PAYABLE
On November 15, 2001, the Company signed an agreement with Cambrex Bio Science, Inc., (Cambrex) in which Cambrex provided manufacturing space and support to the Company during November and December 2001 and January 2002. In exchange, the Company signed a note with Cambrex to pay a total of $1,172,517, to Cambrex. In December 2001, the note was amended to extend the due date to January 2, 2003. Unpaid principal began accruing interest on November 16, 2002, at the Prime Rate plus 3%. The note is collateralized by certain equipment. The imputed interest on this note has been capitalized and is being expensed over the life of the loan. As shown in the consolidated balance sheet, this liability is recorded at September 30, 2002, along with an unamortized discount of $37,500 representing imputed interest. Interest expense of $262,500 has been recorded on the note for the year ended September 30, 2002. In December 2002, the Company negotiated an extension of the note with Cambrex. Per the agreement, the Company gave Cambrex certain equipment and surrendered a security deposit, which reduced the amount owed by $225,000. The remaining balance is payable pursuant to a note due January 2, 2004. In addition, the agreement required the Company to pay $150,000 on the note from the Series H convertible debt and 10% of all other future financing transactions, including draws on the equity line-of-credit. During the year ended September 30, 2003, the Company paid down the note by $485,524. The Company also recorded interest expense of $49,486 and amortized the remaining discount of $37,500 from the year ended September 30, 2002. There are also conversion features allowing Cambrex to convert either all or part of the note into shares of the Company's common stock. The principal balance of the note and any accrued interest are convertible into common
stock at 90% of the average of the closing prices of the common stock for the three trading days immediately prior to the conversion date subject to a floor of $0.22 per share. A beneficial conversion cost of $106,716 was recorded during the year for the difference between the conversion price of the stock and the market price of the stock. Of this amount, $75,800 was amortized during the year ended September 30, 2003, leaving $30,916 as a discount to the note recorded in the balance sheet at September 30, 2003. As of September 30, 2003, there is $686,992 in principal remaining unpaid.
11. COVANCE NOTE PAYABLE
On October 8, 2002, the Company signed an agreement with Covance AG (Covance), a Swiss Corporation. Pursuant to the agreement, amounts owed to Covance totaling $199,928 as of June 30, 2003 were converted to note payable. The note is payable on January 2, 2004. Interest will be payable at an annual rate of 8%. Until the entire amount has been paid to Covance, Covance is entitled to receive 2% of any draw-down of the Company's equity credit line, 2% of any net funds received from outside financings of less than $1 million, 3% of any net funds received from outside financings greater than $1 million but less than $2 million and 4% of any net funds received from outside financings greater than $2 million. During the year ended September 30, 2003, the Company paid $15,598 on the note payable to Covance in accordance with the agreement.
12. CONVERTIBLE DEBT
In December 2001, the Company agreed to sell redeemable convertible debt and Series F warrants, to a group of private investors for proceeds of $1,600,000, less transaction costs of $276,410 of which $15,116 was included in deferred financing costs in the accompanying balance sheet as of September 30, 2002. The notes bore interest at 7% per year and would have been due and payable December 31, 2003. Interest was payable quarterly beginning July 1, 2002. The notes were secured by substantially all of the Company's assets and contain certain restrictions, including limitations on such items as indebtedness, sales of common stock and payment of dividends.
The notes were convertible into shares of the Company's common stock at the holder's option determinable by dividing each $1,000 of note principal by 76% of the average of the three lowest daily trading prices of the Company's common stock on the American Stock Exchange during the twenty trading days immediately prior to the closing date. The conversion price may not be less than a floor of $0.57; however the floor could have been lowered if the Company sold any shares of common stock or securities convertible to common stock at a price below the market price of the Company's common stock. Additionally, the notes were required to be redeemed by the Company at 130% upon certain occurrences; such as failure to file a Registration Statement to register the notes with the Securities and Exchange Commission (SEC) or the effectiveness of such statement lapses, delisting of the Company's common stock, completion of certain mergers or business combinations, filing bankruptcy, and exceeding its drawdown limits under the Company's equity line of credit.
So long as the notes remained outstanding, the note-holders had a first right of refusal to participate in any subsequent financings involving the Company. If the Company had entered into any subsequent financing on terms more favorable than the terms governing the notes and warrants, then the note-holders could have exchanged notes and warrants for the securities sold in the subsequent financing.
The entire balance of the convertible debt was initially offset by a discount of $1,600,000 which represented the relative fair value of the Series F warrants of $763,000 and a beneficial conversion discount of $837,000. The discount on outstanding convertible debt was amortized to interest expense as the notes were converted. As of September 30, 2002, $1,460,000 of the notes had been converted into 5,611,344 shares of common stock. In addition, $1,512,500 of the discount had been amortized to interest expense as of September 30, 2002. As of November 30, 2002, all convertible debt had been converted into a total of 6,592,461 shares of the Company's common stock and all of the discount had been amortized to interest expense. All deferred financing costs had also been amortized to interest expense as of November 30, 2002.
In July and September 2002, the Company sold convertible debt, plus Series G warrants, to a group of private investors for $1,300,000 less transaction costs of $177,370, of which $161,879 was included in deferred financing costs in the accompanying balance sheet as of September 30, 2002. The notes bore interest at 7% per year and were due and payable September 9, 2004. Interest was payable quarterly beginning October 1, 2002. The notes were secured by substantially all of the Company's assets and contained certain restrictions, including limitations on such items as indebtedness, sales of common stock and payment of dividends. At the holder's option the notes were convertible into shares of the Company's common stock equal in number to the amount determined by dividing each $1,000 of note principal to be converted by the Conversion Price. The Conversion Price is 76% of the average of the three lowest daily trading prices of the Company's common stock on the American
Stock Exchange during the 15 trading days immediately prior to the conversion
date. The Conversion Price could not be less than $0.18. However, if the
Company's common stock traded for less than $0.24 per share for a period of
20 consecutive trading days, the $0.18 minimum price would no longer have
been applicable. The Conversion Price would have declined from 76% to 60% if
(i) on any trading day after September 9, 2002 the closing daily price of the
Company's common stock multiplied by the total number of shares of common
stock traded on that day is less than $29,977, (ii) the Company defaulted in
the performance of any material covenant, condition or agreement with the
holders of the notes or, (iii) the Company's common stock was delisted from
the American Stock Exchange.
If the Company sold any additional shares of common stock, or any securities convertible into common stock at a price below the then applicable Conversion Price, the Conversion Price would have been lowered to the price at which the shares were sold or the lowest price at which the securities were convertible, as the case may be. If the Company had sold any additional shares of common stock, or any securities convertible into common stock at a price below the market price of the Company's common stock, the Conversion Price would have been lowered by a percentage equal to the price at which the shares were sold or the lowest price at which the securities were convertible, as the case may be, divided by the then prevailing market price of the Company's common stock.
So long as the notes remained outstanding, the note holders had a first right of refusal to participate in any subsequent financings involving the Company. If the Company had entered into any subsequent financing on terms more favorable than the terms governing the notes and warrants, then the note holders could have exchanged notes and warrants for the securities sold in the subsequent financing. A portion of the proceeds was initially offset by a discount of $690,706, which represents the relative fair value of the Series G warrants of $83,340 and a beneficial conversion discount of $677,140. As of September 30, 2002, $50,000 of the notes had been converted into 277,778 shares of common stock. In addition, $27,496 of the discount on the debt had been amortized to interest expense. During the year ended September 30, 2003, the balance of the notes were converted into an additional 8,076,420 shares of common stock. In addition, interest totaling $21,472 was converted into 109,428 shares of common stock during the year ended September 30, 2003. All of the remaining discount and deferred financing costs were amortized to interest expense during the year ended September 30, 2003.
In January and July 2003, the Company sold convertible debt, plus Series H warrants to purchase up to 1,100,000 shares of common stock, to a group of private investors for $1,350,000 less transaction costs of approximately $220,419, of which $16,243 is included in deferred financing costs in the accompanying balance sheet as of September 30, 2003. The first funds, totaling $600,000, were received in January 2003 and the balance of $750,000 was received on July 2, 2003. The notes bear interest at 7% per year. The first notes will be due and payable January 7, 2005 and the second notes will be due and payable July 7, 2005. Interest is payable quarterly. The notes are secured by substantially all of the Company's assets and contain certain restrictions, including limitations on such items as indebtedness, sales of common stock and payment of dividends. At the holders' option the notes are convertible into shares of the Company's common stock equal in number to the amount determined by dividing each $1,000 of note principal to be converted by the conversion price. The conversion price defaults to 60% of the average of the three lowest daily trading prices of the Company's common stock on the American Stock Exchange during the 15 trading days immediately prior to the conversion date in the event of default. On May 8, 2003, the Company signed an amendment to the agreement that prevented the conversion price from defaulting to 60%. In the agreement, the conversion price declines to 70% of the average of the three lowest daily trading prices of the Company's common stock if the price of the stock climbs over $0.50. If the Company sells any additional shares of common stock, or any securities convertible into common stock at a price below the then applicable conversion price, the conversion price will be lowered to the price at which the shares were sold or the lowest price at which the securities are convertible. On May 30, 2003, the price of the Company's stock rose above $0.50. In accordance with the agreement, the discount percentage changed from 76% to 70%. This change increased the discount on the debt that the Company recorded for the Series H convertible debt by $67,669 and is included in the $1,054,647 total discount.
During the year ended September 30, 2003, $1,250,000 of the notes had been converted into 3,003,929 shares of common stock. Additionally, $1,023,731 of the total discount of $1,054,647 had been amortized to interest expense. Interest of $26,230 was converted into 80,010 shares of common stock during the year ended September 30, 2003. As of October 2, 2003, all of the Series H notes had been converted into a total of 3,183,358 shares of common stock and total interest of $32,914 had been converted into 83,227 shares of common stock.
13. 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 expired December 22, 2001. 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, (APB 14) and were recorded as additional paid-in capital. The $1,980,000 allocated to the warrants was accreted immediately.
In April 2001, the Company signed a common stock purchase agreement that allowed the Company at its discretion to draw up to $10 million of Common stock in increments of a minimum of $100,000 and the maximum of $2 million for general operating requirements. The Company was restricted from entering into any other equity line of credit arrangement and the agreement expired in June 2003. As discussed in Note 6, the Company issued 200,800 warrants to the issuer pursuant to this agreement. During the year ended September 30, 2002, the Company sold 2,553,174 shares of its common stock pursuant to this agreement for net proceeds of $1,366,797. During the year ended September 30, 2003, the Company sold 2,877,786 shares of its common stock pursuant to this agreement for net proceeds of $725,000.
During fiscal year 2001, the Company issued 522,108 shares of common stock in two private offerings of common stock. Pursuant to the private offerings, one of the investors also received warrants to purchase 272,108 shares of common stock as discussed in Note 6.
During August 2001, three private investors exchanged shares of the Company's common stock and remaining Series D Warrants, which they owned, for 6,288 shares of the Company's Series E Preferred Stock. These investors also exchanged their Series A and Series C Warrants for new Series E Warrants as discussed in Note 6. The Preferred shares are entitled to receive cumulative annual dividends in an amount equal to $60 per share and have liquidation preferences equal to $1,000 per share. Each Series E Preferred share is convertible into shares of the Company's common stock on the basis of one Series E Preferred share for shares of common stock equal in number to the amount determined by dividing $1,000 by the lesser of $5 or 93% of the average closing bid prices (Conversion Price) of the Company's common stock for the five days prior to the date of each conversion notice. The Series E Preferred stock has no voting rights and is redeemable at the Company's option at a price of 120% plus accrued dividends until August 2003 when the redemption price will be fixed at 100%. During the year ended September 30, 2002, the Company incurred $202,987 in dividends. Dividends paid in common stock totaled $133,103, interest expense on unpaid dividends was $9,404 and accrued dividends and interest payable was $78,436 at September 30, 2002. For the year ended September 30, 2003, the Company incurred $32,101 in dividends,. During the year ended September 30, 2003, $99,624 in accrued dividends and interest were converted into 97,389 shares of common stock. There were no dividends and interest payable on the Preferred stock at September 30, 2003.
All outstanding shares of the Company's Series E Preferred Stock, 39 shares, were automatically converted on August 17, 2003, (the Automatic Conversion Date) into 47,531 common shares (the Automatic Conversion Shares). The number of common shares for the conversion is 200% times the quotient obtained by dividing $1,000 by the Conversion Price.
In addition, the Company issued 23,758 common stock purchase warrants which was one warrant for each share of the Series E Preferred stock outstanding as of August 17, 2003 to acquire shares equal to 33% of the Automatic Conversion Shares at an exercise price of 110% of the volume weighted average price for the five trading days preceding the date of issuance. Since the terms of these warrants were contingent, no accounting has been given to such warrants in the accompanying consolidated financial statements as of September 30, 2002. As of September 30, 2003, the warrants were valued using Black Scholes methodology as discussed in Note 6 and the resulting costs of $10,912 were recorded as a deemed dividend as a debit and an offsetting credit to additional paid-in capital as the Company is in a deficit position. See Note 6 for further discussion of the warrants issued at the time the Preferred stock converted to common stock.
The common stock, preferred stock and warrants exchanged had different rights, preferences and terms. However, since the equity securities were exchanged for equity securities, the exchange had no effect on the Company's total stockholders' equity. In connection with the exchange, the total implied value of the equity securities received was $8,957,000 of which $848,000 represented the relative fair value of the warrants which was recorded to additional paid-in capital and the remaining value of $8,109,000 was allocated to preferred stock. The Series E Warrants were valued using the Black-Scholes pricing methodology with the following assumptions:
Expected stock risk volatility 105% Risk-free interest rate 3.12% Expected life of option 3 Years Expected dividend yield -0- |
Pursuant to the exchange, the holders received a beneficial conversion discount in the amount of $5,365,381, which was accreted to additional paid-in capital over a two-year period. During the years ended September 30, 2003, September 30, 2002 and September 30, 2001, $76,720, $1,444,757 and $317,419, respectively, of the beneficial conversion discount was accreted. During the year ended September 30, 2002, 4,671 shares of the Series E Preferred Stock were converted into 4,282,150 shares of common stock. During the year ended September 30, 2003, 1,192 shares of the Series E Preferred stock were converted into 1,018,439 shares of common stock. As of September 30, 2003, there are no shares of Series E Preferred stock remaining.
In October 2001, the Company issued 150,000 shares of common stock in a private offering for proceeds of $150,000. The investor also received warrants which entitled the holder to purchase 75,000 shares of common stock at $1.50 per share, expiring October 2004.
In May 2003, the Company sold 1,100,000 shares of common stock and an additional 1,100,000 warrants to purchase common stock in conjunction with a marketing agreement as discussed in Note 6. The Company received proceeds of $500,000 for the stock and warrants. The warrants are exercisable at a price of $0.47 per The warrants initially expired May 30, 2006. In accordance with the terms of the agreement, the expiration was extended to May 30, 2008
In September 2003, the Company signed a common stock purchase agreement that allowed the Company at its discretion to draw up to $10 million of common stock in increments of a minimum of $100,000 and a maximum amount that can be drawn down at any one time that will be determined at the time of the drawdown request, using a formula contained in the agreement. The Company is restricted from entering into any other equity line of credit arrangement until the earlier of the expiration of the agreement or two years from the date of registration. As discussed in Note 6, the Company issued 395,726 warrants to the issuer at a price of $0.83 and the warrants expire September 16, 2008 pursuant to the agreement. There were no drawdowns on this line of credit as of September 30, 2003 as the registration statement for the shares is not yet effective. Expenses of $40,600 were recorded to additional paid-in capital as a cost of equity related - transaction during the year ended September 30, 2003.
14. MARKETING AGREEMENT
On May 30, 2003, the Company and Eastern Biotech signed an agreement to develop both Multikine and CEL-1000, and their derivatives and improvements, in three Eastern European countries: Greece, Serbia and Croatia. Eastern Biotech also has the exclusive right to sales in these three countries. As part of the agreement, Eastern Biotech gained the right to receive a 1% royalty on the future net sales of these two products and their derivatives and improvements worldwide. Eastern Biotech also purchased 1,100,000 shares of common stock and warrants, which allow the holder to purchase up to 1,100,000 shares of the Company's common stock at a price equal to $0.47. The Company received proceeds of $500,000 for these shares and warrants. Because the Company did not register these shares prior to September 30, 2003, the royalty percentage increased to 2%. If Eastern Biotech does not meet certain clinical development milestones within one year, it will lose the right to sell both products in these three countries.
15. NET LOSS PER COMMON SHARE
Basic earnings per share (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. The Company had 4,906,527, 11,118,168 and 6,876,972 potentially dilutive securities outstanding at September 30, 2003, 2002 and 2001, respectively, that were not included in the computation of diluted loss per share because to do so would have been antidilutive for all periods presented. The loss attributable to common stockholders includes the impact of the accretion of the beneficial conversion feature of Series E Preferred Stock and the accrual of cumulative preferred stock dividends.
2003 2002 2001
Net loss per common share (basic and $(0.13) $(0.35) $(0.51)
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16. SEGMENT REPORTING
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information" establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. 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.
17. SUBSEQUENT EVENT
On December 1, 2003, CEL-SCI sold 2,994,964 shares of its common stock, to a group of private institutional investors for approximately $2,550,000, or $0.85 per share. As part of this transaction, the investors in the private offering received Series J warrants which allow the investors to purchase 899,988 shares of CEL-SCI's common stock at a price of $1.32 per share at any time prior to December 1, 2006.
******
SIGNATURES
In accordance with Section 13 or 15(a) of the Exchange Act, the Registrant has caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on the 4th day of February, 2004.
CEL-SCI CORPORATION
By: /s/ Maximilian de Clara
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Maximilian de Clara, President
By: /s/ Geert R. Kersten
-------------------------
Geert R. Kersten, Chief Executive
and Chief Financial Officer
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Pursuant to the requirements of the Securities Act of l934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Maximilian de Clara Director February 4, 2004
----------------------
Maximilian de Clara
/s/ Geert R. Kersten Director February 4, 2004
----------------------
Geert R. Kersten
/s/ Alexander G. Esterhazy Director February 6, 2004
----------------------
Alexander G. Esterhazy
Director February __, 2004
----------------------
C. Richard Kinsolving
/s/ Peter R. Young Director February 6, 2004
----------------------
Dr. Peter R. Young
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CEL-SCI CORPORATION
FORM 10-K/A
EXHIBITS
EXHIBIT 10(w)
MASTER PRODUCTION AGREEMENT
This Master Production Agreement (this "Agreement") is made as of this 19th day of June, 2000, between Bio Science Contract Production Corp., a Maryland corporation ("BSCP"), and Cel-Sci Corporation, 8229 Boone Boulevard, Suite 802, Vienna, Virginia, a Colorado corporation ("Client").
RECITALS
A. BSCP operates a multi-client production facility, operated in accordance with the U.S. Food and Drug Administration's (the "FDA") current Good Manufacturing Practices, located at 5901 East Lombard Street, Baltimore, Maryland 21224 (the "Facility").
B. From time to time, Client desires to produce, one or more Products (as
hereinafter defined) at the Facility. Each Product shall be described in a
separate Schedule A-( ) (each Product produced pursuant to this Agreement and
the Schedules hereto shall be separately sequentially numbered and identified,
beginning with "1", and the blank spaces set forth within the parenthesis to
each Schedule shall contain such number, for example, the Schedules for the
first Product shall be Schedule A-(1), Schedule B-(1), etc.). Each Product shall
be produced in accordance with the terms and subject to the conditions
hereinafter set forth and contained in the Schedules hereto.
C. Client holds the requisite proprietary rights to each Product to enable
each Production to be produced pursuant to this Agreement.
D. Client shall produce each Product pursuant to the Production Record for each Product and to the BSCP and Client Operating Documents. Based on the information provided to BSCP pursuant to Paragraph 1 below, BSCP shall prepare, and Client shall approve, the Production Record for each Product in accordance with the terms of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises and covenants hereinafter set forth, BSCP and Client, intending to be legally bound, hereby agree as follows:
Definitions
The following capitalized terms used in this Agreement shall have the following meanings:
"BSCP Parties" means BSCP, its employees, agents and affiliates.
"Commencement Date" with respect to each Product will be set forth on Schedule B-(__) attached hereto, relating to that Product.
"Termination Date" for each Product will be set forth on Schedule B-(__) attached hereto, relating to that Product.
"Materials" shall mean all raw materials to be used to produce the Product.
"Product" shall mean each bulk substance that BSCP has agreed to produce pursuant to the Production Record relating thereto.
"Production Area" shall mean that portion of the Facility designated for the production of the Product.
"Production Record" shall mean the Client-specific records required to produce each Product in the Facility including both the Master Production Record and/or the Batch Production Records as defined in 21 CFR 211.186 & 21 CFR 211.188.
"Production Term" shall mean, for each Product, that period commencing on the Commencement Date and terminating on the Termination Date.
"BSCP Operating Documents " shall mean the standard operating procedures, standard manufacturing procedures, specifications, protocols, validation documentation, and supporting documentation, such as environmental monitoring, for operation and maintenance of the Facility and BSCP equipment.
"Client Operating Documents " shall mean the standard operating procedures, standard manufacturing procedures, specifications and validation documentation specific to the Client's Product and Client equipment.
"Campaign" shall mean that period of time where the Product is actively being produced in the Production Area.
[Intentionally left blank]
1. Production Record. The Production Record shall be prepared by the Client in conformance with BSCP's policies and practices. Upon written notification to BSCP that the Production Record is satisfactory, the Production Record shall be deemed approved and accepted by Client. BSCP will authorize the Production Record and photocopy it for use in Client's production campaigns.
2. Personnel, Equipment and Utilities. In connection with the production of each Product hereunder in the Production Area, BSCP shall supply personnel, production equipment, and utilities. Client shall be responsible for providing to BSCP, in a timely manner, all personnel, production equipment, and utilities, other than those to be supplied by BSCP, required to produce each Product pursuant to its Production Record (unless BSCP otherwise agrees in writing, to provide such items). Any Client-provided items with respect to the production of a Product are as set forth in Schedule C-( ) attached hereto.
3. Production Term. The Production Term is set forth in Schedule B-( ) attached hereto relating to that Product. The term of this Agreement shall continue in full force and effect for a period ending on the later of 10 years from the date hereof or the Termination Date of the final Product to be produced hereunder.
4. Compensation. Compensation for production of each Product under this Agreement shall be payable by Client to BSCP as follows:
(a) Monthly Fee.
(i) For each Product, Client shall pay to BSCP a monthly fee (the "Monthly Fee") as set forth in Schedule B-( ) attached hereto. The Monthly Fee shall be due and payable in advance of the Commencement Date and on the same calendar date of each subsequent month during the Production Term (if the Production Term includes a period of time which is less than a full month, the Monthly Fee for the days in the partial month shall equal the number of days in that partial month multiplied by the daily rate, which is the Monthly Fee divided by 30).
(ii) Materials and consumables are not included in the Monthly Fee, but shall be paid for by Client at BSCP's cost for such materials and consumables upon receipt of the invoice sent by BSCP to Client each month.
(iii) Out-sourced services (e.g. testing or cell banking) to external laboratories is not included in the Monthly Fee but shall be paid for by Client at BSCP's cost for such services upon receipt of the invoice sent by BSCP to Client. Client shall pay BSCP costs (time and travel expenses) for BSCP audits for such external laboratories if required.
(b) Other Charges. As required to produce the Product, BSCP may provide additional personnel, consultants, materials, production equipment and utilities to Client (collectively the "Other Production Requirements"). Client shall pay BSCP for the provision of the Other Production Requirements as agreed upon in advance by BSCP and Client, as set forth in Schedule D-( ) attached hereto. Client shall pay for such Other Production Requirements upon receipt of the invoice sent by BSCP to Client, except if such charges are anticipated to exceed
$25,000, then Client shall pay such charges in advance. Client shall provide, in Schedule D-( ) attached hereto, a list of all hazardous wastes or substances, and the anticipated quantities, that will be used in the production process for each Product. BSCP shall notify Client of those hazardous wastes or substances that cannot be disposed of through BSCP's waste disposal system in the quantities that Client proposes will be produced in connection with the production of each Product. Client agrees to pay for the disposal by BSCP of such materials that cannot be disposed of by BSCP in accordance with the rates set forth on Schedule D-( ) attached hereto. To the extent that any incorrect information provided by Client on Schedule D-( ) attached hereto results in increased costs to BSCP to dispose of hazardous wastes or substances, Client shall pay those incremental costs. The waste disposal charges shall be paid upon receipt of the invoice sent by BSCP to Client.
(c) Taxes. Client agrees to pay for any sales and use taxes or other (the "Taxes") resulting from BSCP's production of each Product hereunder (except for income or personal property taxes payable by BSCP). To the extent not paid by Client, Client shall indemnify and hold harmless the BSCP Parties from and against any and all penalties, fees, expenses and costs, whatsoever, in connection with the failure by Client to pay the Taxes. BSCP shall not collect any sales and use taxes from Client in connection with the production of any Product hereunder if Client obtains an exemption therefrom. In furtherance of the foregoing, BSCP shall not collect sales and use taxes from Client in connection with the production of any Product hereunder if (i)(A) Client provides a certificate to BSCP in which it states that such Product will be used or consumed outside of the State of Maryland and (B) Product is either shipped directly outside the State of Maryland or stored in Maryland pending shipment to another State or (ii) Client provides a certificate to BSCP in which it states that such Product is for resale.
(d) Late Charge; Interest. Any fee, charge or other payment due to BSCP by Client hereunder (including, without limitation, pursuant to a Schedule attached hereto) that is not paid within 30 days after it is due shall accrue interest, from the date when the same was due and payable, at the rate of eighteen percent (18%) per annum, payable on demand. If unpaid for more than 60 days, BSCP may terminate this Agreement, in which event, Client shall immediately vacate the Production Area and simultaneously pay to BSCP the unpaid balance of the Monthly Fees for each Product that are payable during the remainder of the Production Term for each Product, and any other Obligations (as defined in subparagraph (h) below) relating to each Product, all of which shall become immediately due and payable.
(e) Payments. All payments to BSCP hereunder by Client shall be by check, wire transfer, money order, or other method of payment approved in writing by BSCP.
(f) Security Deposit. Client shall, simultaneously with the execution and delivery of the applicable Schedules attached hereto relating to the production of each Product, remit to BSCP a security deposit (each, a "Security Deposit") in an amount equal to $125,000 for each Product; provided, however, that if Client shall have already remitted to BSCP a reservation deposit with respect to a Product pursuant to the terms of a reservation deposit agreement with BSCP, then the amount of said reservation deposit (the "Reservation Deposit") shall be withdrawn by BSCP and credited toward the Security Deposit payable with respect to a Product (Client shall be responsible for remitting any deficiency between the amount of the Reservation Deposit and the Security
Deposit required hereunder). Each Security Deposit shall be returned to Client within 60 days after the termination of each Production Term relating to each Product if Client has paid all fees, charges, or other payments due in connection with the production of each Product, including charges for lost, destroyed, stolen or damaged property of BSCP (all such fees, charges, or other payments being called "Obligations"). If any Obligations with respect to a Product remain outstanding after the expiration of such 60-day period, then BSCP shall be entitled to apply the Security Deposit against the payment of such Obligations, and the amount of the Security Deposit remaining, if any, after the application of such payments shall be returned to Client. Client shall remain liable to BSCP for any deficiencies remaining after the application of the Security Deposit against the Obligations.
(g) Damage to Equipment. Client shall be responsible for the reasonable cost of repairing or replacing (to the extent that BSCP determines, in its reasonable judgment that repairs cannot be adequately effected) any BSCP equipment damaged or destroyed by Client Personnel, as defined in Paragraph 5(b) hereof (ordinary wear and tear excepted).
5. The Production Process.
(a) The Production Record. Client and BSCP shall adhere to the Production Record in producing each Product, except to the extent that such Production Record conflicts with applicable law, in which event, Client shall comply with applicable law. Client will maintain accurate records for the production of each Product. Client shall own the Production Record and shall make copies available to BSCP. BSCP will own all BSCP Operating Documents, and shall make copies thereof available to Client upon Client's request and at Client's expense. BSCP Operating Documents shall remain BSCP Confidential Information. Client Operating Documents shall remain Client Confidential Information.
(b) Client Personnel. Client's employees and agents (including its independent contractors) (collectively, "Client Personnel") may participate in the production of each Product in those capacities approved in writing in advance by BSCP. Client Personnel working at the Facility shall be and remain employees of Client, which shall be solely responsible for (i) the payment of their compensation (including applicable Federal, state and local withholding, FICA and other payroll taxes, workers' compensation insurance, health insurance, and other similar statutory and fringe benefits) and (ii) the payment of any and all expenses, costs, claims and losses (including, but not limited to attorneys' fees and related expenses) in connection with injuries suffered by Client Personnel while at the Facility or elsewhere (such expenses, costs, claims, losses, attorneys' fees and related expenses being hereinafter collectively called, "Injury Expenses"). Client covenants and agrees, with respect to Client Personnel working at the Facility, to maintain workers' compensation benefits and employers' liability insurance as required by applicable Federal and Maryland laws.
(c) BSCP Personnel. Client agrees not to actively recruit for employment (or for use as an independent contractor) BSCP employees.
(d) No Product Development; No Representations or Warranties as to Safety of Product; Products Liability Insurance. Client acknowledges that neither BSCP nor BSCP personnel will engage in any Product development (other
than the production of each Product pursuant to the Production Record). BSCP makes no representation or warranty regarding each Product's safety or effectiveness or otherwise. Client acknowledges and agrees that neither BSCP nor its personnel have participated in the invention or testing of any Product, or have evaluated its safety or suitability for use in humans or others. Other than quality control testing of each Product by BSCP as required by the Production Record, BSCP shall not be in any way responsible for Product testing. Client shall maintain, at all times during the term of this Agreement and for three years thereafter, a products liability insurance policy (the "Insurance Policy") with limits of not less than $5,000,000, and shall provide a Certificate of Insurance to BSCP that the Insurance Policy has been endorsed to designate BSCP as an additional named insured. Client shall maintain the Insurance Policy with an insurance company that is licensed to do business in the State of Maryland and that is reasonably acceptable to BSCP (BSCP agreeing that an insurance company with a policyholders' rating of at least A and a financial rating of at least XII is acceptable). The Insurance Policy shall contain a provision requiring at least 30 days prior written notice to BSCP before it can be terminated.
(e) Delivery of Each Product; Other Shipping Charges. Upon completion
of the Production Term for a Product (or sooner upon Client's instructions),
BSCP shall ship (i) the Product, and (ii) Client Supplied Equipment, samples, or
any other client owned items (together with the Product being shipped, the
"Shipped Items"). All such shipments shall be in accordance with Client's
packing and shipping instructions and procedures supplied by Client as part of
the Production Record or, with respect to the items referenced in subparagraph
(ii) above, as provided by Client to BSCP, and shall be by common carrier unless
otherwise specified by Client. Delivery shall be F.O.B. Shipping Point (the
Facility). Client shall provide its preferred carrier's account number and shall
pay for all shipping costs in connection with the delivery of each Shipped Item.
BSCP's responsibility, except as set forth herein, ceases and Client's risk of
loss arises, upon BSCP's delivery of each Shipped Item to the common carrier.
(f) BSCP Liability for Destroyed or Damaged Client Production Equipment and Materials; Dispute.
(i)(A) If during a Product production process, Production Equipment supplied by Client ("Client Production Equipment") is destroyed or damaged by BSCP Personnel and such damage or destruction resulted from BSCP's failure to execute such Product production process in conformity with the Production Record, then, except as provided in subparagraph (i)(B) below, BSCP shall be responsible for repairing or replacing the destroyed or damaged Client Production Equipment or, at BSCP's sole option, paying to Client the replacement value of the damaged or destroyed Client Production Equipment at the time of its damage or destruction. In no other event shall BSCP be liable to Client for damaged or destroyed Client Production Equipment.
(i)(B) Notwithstanding anything to the contrary set forth in subparagraph (i)(A) above, if Client Production Equipment is destroyed or damaged by BSCP Personnel while BSCP Personnel were acting at the direction of Client Personnel, then BSCP shall not be liable to Client for damage or destruction occurring to Client Production Equipment.
(ii)(A) If during a Product production process, but prior to the delivery of such Product to Client in accordance with the terms of this Agreement, Materials are destroyed or damaged by BSCP Personnel, and such damage or destruction resulted from BSCP's failure to execute a Product production process in conformity with the Production Record, or failure to follow written Client instructions as permitted by the Production Record, then, except as provided in subparagraph (ii)(B) below, BSCP shall provide Client with additional Product production time, without charging Client a Monthly Fee, equal to the actual time lost because of the destruction or damage of the Materials.
(ii)(B) Notwithstanding anything to the contrary set forth in subparagraph (ii)(A) above, if during a Product production process, but prior to the delivery of such Product to Client in accordance with the terms of this Agreement, Materials are destroyed or damaged by BSCP Personnel while BSCP Personnel were acting at the direction of Client Personnel or according to written Client instructions as permitted by the Production Record, then BSCP shall have no liability to Client as the result of such destruction or damage.
(iii)BSCP and Client expeditiously shall attempt to resolve any dispute regarding the liability of the parties under subparagraphs (i) and (ii) above, as applicable, but if such dispute cannot be settled within 30 days after the occurrence of the applicable damage or destruction, then the dispute shall be submitted to an arbitrator located in Baltimore, Maryland, with the requisite scientific background and training (the "Paragraph 5(f) Arbitrator"), selected jointly by BSCP and Client. The Paragraph 5(f) Arbitrator, employing the Commercial Arbitration Rules of the American Arbitration Association, shall determine the cause of such failure, and the Paragraph 5(f) Arbitrator's findings shall be final. The costs and expenses of the Paragraph 5(f) Arbitrator shall be borne by the party which does not prevail in the arbitration proceeding.
(iv)Client agrees that its sole remedy with respect to damaged or
destroyed Materials and Production Equipment is as set forth in this Paragraph
5(f), and in furtherance thereof, Client hereby waives all other remedies at law
or in equity regarding the foregoing.
(g) Retention of Product Samples and Standards. Upon written request from BSCP, Client will provide samples and standards of each Product.
(h) Indemnification.
(i) Client hereby holds harmless and indemnifies BSCP, its employees, officers, directors, shareholders, agents, and affiliates from and against any and all claims, losses, liabilities, lawsuits, proceedings, costs, and expenses, including, without limitation, reasonable attorneys fees, and the cost of recalls (collectively, "Claims") resulting from, arising out of, or in connection with, the Product, including without limitation, Claims based on negligence, warranty, strict liability, or any other theory of product liability or violation of any applicable laws or regulations, except to the extent that such injuries or violations were the result of BSCP's failure to discharge its obligations materially in accordance with this Agreement.
(ii) BSCP hereby holds harmless and indemnifies Client, its employees, officers, directors, shareholders, agents, and affiliates from and against any and all Claims resulting from, arising out of, or in connection
with, BSCP's failure to discharge its obligations materially in accordance with this Agreement.
(iii) Upon receipt by a party entitled to indemnification
hereunder (an "Indemnified Party") of any notice of any Claim for which the
other party hereto (an "Indemnifying Party") is liable to provide
indemnification hereunder (an "Indemnifying Party"), the Indemnified Party will
give the Indemnifying Party written notice of the same if the Indemnified Party
intends to make a Claim against the Indemnifying Party under this Agreement;
provided, however, that the failure to provide such notice will not relieve the
Indemnifying Party from any liability to the Indemnified Party, except to the
extent that the Indemnifying Party is prejudiced by the Indemnified Party's
failure to provide such notice. The Indemnifying Party will have the right, at
its option and expense, to assume the defense or pursuit of any Claim for which
the Indemnifying Party has indemnified the Indemnified Party under this
Agreement for any actual losses, liabilities, damages, charges, liens,
deficiencies or expenses of any nature (including, without limitation,
reasonable attorneys' fees)(collectively, "Losses") incurred in connection with
such Claim or defense. The Indemnified Party will have the right to approve
(which approval will not be withheld, delayed or conditioned unreasonably)
counsel selected by the Indemnifying Party in the event the Indemnifying Party
assumes the defense of such Claim. If the Indemnifying Party has assumed the
pursuit or defense of a Claim, the Indemnified Party will have the right to
participate and assist at its own expense in the pursuit or defense of such
Claim and to employ its own counsel in connection therewith. The Indemnifying
Party will not be liable to the Indemnified Party for the fees, costs or
expenses of the Indemnified Party's counsel or other expenses incurred by the
Indemnified Party in connection with participation in or the pursuit or defense
of such a Claim after the Indemnifying Party assumes such pursuit or defense.
Notwithstanding the foregoing, in the event that the Indemnified Party, at the
request of the Indemnifying Party, incurs costs associated with investigation of
a Claim or preparation of a defense of a Claim, the Indemnifying Party will be
liable for and pay to the Indemnified Party all such costs as are reasonable.
The Indemnifying Party will not have the right to assume the pursuit or defense
of any Claim if, in the reasonable judgment of the Indemnified Party, the
Indemnified Party determines that representation of both the Indemnifying Party
and the Indemnified Party by the same counsel would be inappropriate due to
actual or potential differing interests between them or the availability to the
Indemnified Party of legal defenses that are different from or in addition to or
inconsistent with the defenses available to the Indemnifying Party. In such an
event, the Indemnified Party will have the right to retain its own counsel in
connection with such Claim and will be indemnified by the Indemnifying Party for
any and all Losses incurred in connection with investigating or defending such
Claim; provided, however, that in no event will the Indemnifying Party be liable
for the fees and expenses of more than one counsel for all Indemnified Parties
in connection with any one Claim, or in connection with separate but similar or
related Claims arising out of the same general allegation, in the same
jurisdiction. The Indemnifying Party will not be liable with respect to any Loss
arising out of or resulting from a compromise or settlement of any Claim for
which it has an indemnification obligation to the Indemnified Party without its
expressed written consent, which consent will not be withheld, delayed or
conditioned unreasonably.
(i) Limitation of Liability. Subject to the provisions of Paragraph 5(b) hereof, Client hereby agrees that to the fullest extent permitted by law, BSCP's liability to Client for any and all injuries, claims, losses, expenses,
or damages, whatsoever, arising out of or in any way related to BSCP's production of each Product hereunder from any cause or causes, including, but not limited to, negligence, errors, omissions or strict liability, and including, but not limited to, the events covered by Paragraph 5(f) hereof, shall not exceed the total charges paid by Client to BSCP hereunder with respect to such Product. To the extent that this clause conflicts with any other clause in this Agreement, this clause shall take precedence over such conflicting clause. If applicable law prevents enforcement of this clause, then this clause shall be deemed modified to provide the maximum protection to BSCP as is allowable under applicable law.
(j) Storage.
(i) Prior to the Commencement Date. Client shall not deliver any Materials or other Client property to the Facility prior to 30 days before each applicable Commencement Date. Any such Materials, equipment or other property delivered to the Facility prior to such date may be accepted by BSCP for storage, in its sole discretion, and if so accepted, shall be subject to a storage charge payable by Client to BSCP from the period of acceptance until 30 days prior to the applicable Commencement Date, in accordance with BSCP's storage rates and procedures, as set forth on Schedule E-( ) attached hereto, as amended from time to time.
(ii) Storage After Completion of the Production Term. Any Product, Materials, Equipment or other Client property that remain at the Facility after completion of the applicable Production Term (the date of such completion being called, the "Completion Date") may be stored by BSCP at the Facility upon Client's request, without cost, for up to 30 days after notice of disposition has been delivered to Client. If Client has not responded prior to the expiration of such 30-day period, BSCP may, in its sole discretion, continue to store such Product, Materials and other Client property at the Facility or elsewhere, in which event Client shall pay to BSCP a storage charge, in accordance with BSCP's storage rates and procedures as set forth on Schedule E-( ) attached hereto, as amended from time to time, for the period beginning on the 11th day after the notice of disposition through the date that the storage terminates. If Product, Materials, Equipment or Client property remain at the Facility for a period of less than 30 days, no cost shall be incurred by the Client.
(iii) Storage During the Production Term. In the event that Client wishes to end a Campaign, with the intent to begin a subsequent Campaign, Client can opt to store any Product, materials, equipment or other Client property in the Production Area subject to the Monthly Fee, or opt to remove Product, materials, equipment, or other Client property from the Production Area. Client is financially responsible for storage of any Product, materials, equipment or other Client property in accordance with BSCP's storage rates and procedures as set forth on Schedule E-( ) attached hereto, as amended from time to time.
6. Confidential Information. All confidential information communicated by Client to BSCP, including the Production Record (collectively, "Client Confidential Information"), shall remain the exclusive property of Client, and shall be held in confidence by BSCP. Client shall not disclose to any third party confidential information regarding the Facility or the identity of any other BSCP client using the Facility, or information regarding such other client's product, processes or operations at the Facility (collectively, "BSCP Confidential Information"). In addition, Client Confidential Information and
BSCP Confidential Information (collectively "Confidential Information") shall not include information that:
(a) at the time of disclosure is in the public domain;
(b) after disclosure, becomes part of the public domain, by publication or otherwise, through no fault of the disclosing party;
(c) at the time of disclosure is already in the disclosing party's possession, and such prior possession can be properly demonstrated by the disclosing party;
(d) the disclosing party receives in good faith from any third party independent of the non-disclosing party, where the disclosing party has no knowledge of said third party obtaining said information by any wrongful means; or
(e) is required, in the reasonable and unqualified opinion of the disclosing party's legal counsel, to be disclosed by operation of the law or the requirement of a governmental agency, provided that:
(i) the disclosing party shall have promptly notified the other party prior to such disclosure and the disclosing party shall have been given the opportunity to oppose such disclosure by the disclosing party, by seeking a protective order or other appropriate remedy,
(ii) the disclosing party shall disclose only that portion of Confidential Information legally required to be disclosed, and
(iii)the disclosing party will exercise all reasonable efforts to maintain the confidential treatment of Confidential Information.
The terms of this Agreement, any Schedule hereto, and the transactions contemplated hereby and thereby shall not be disclosed by BSCP or Client to any third party without the prior written consent of the other party.
7. Security Procedures. Client Personnel authorized to have access to the Facility shall abide by the security procedures established by BSCP from time to time. Client shall be liable for any breaches of security by Client Personnel. In addition, Client shall reimburse BSCP for the cost of any lost security cards issued to Client Personnel, at the rate of $50 per security card. All Client Personnel shall agree, in writing, to abide by BSCP policies and standard operating procedures established by BSCP from time to time.
8. Representations and Warranties .
(a) Client represents and warrants to BSCP that, to the best of its knowledge, (i) it has the requisite intellectual property rights to each Product and the methods required to produce it in accordance with the Production Record, and (ii) the production by BSCP of each Product, employing the materials, the
production equipment and in accordance with the procedures set forth in the Production Record and the Operating Documents, will not give rise to a potential cause of action by a third party against BSCP for infringement or another violation of intellectual property rights. Such representation and warranty shall not apply to the production equipment supplied by BSCP.
(b) BSCP represents and warrants to Client that, to the best of its knowledge, (i) it has the requisite intellectual property rights in its equipment and facility to be able to perform its obligations hereunder, and (ii) that BSCP's use of its equipment and facility as contemplated in this Agreement will not give rise to a potential cause of action by a third party against Client for infringement or another violation of intellectual property rights.
9. Regulatory Inspections
(a) Client will be notified of all general regulatory GMP inspections and of all Client-specific Product regulatory GMP inspections.
(b) Client will not be permitted to participate in general regulatory GMP inspections or non-Client specific Product regulatory GMP inspections or teleconferences.
(c) Two Client representatives will be permitted to participate as part of the inspection team or participate in teleconferences (Client must be at BSCP's facility to participate in teleconferences) related to any inspections addressed to Client and Pre-Approval inspections for Client Product that is manufactured at BSCP's Facility. BSCP will be responsible for managing the inspection and determining the information that will be presented to the regulatory inspector(s) as to Facility issues and manufacturing services performed by BSCP. Client shall be responsible for managing the inspection and determining information that will be presented to the regulatory inspector(s) as to Client Product specific issues and Client Product manufacturing process specific issues.
(d) In the event that the Facility is shut-down by a governmental agency or due to a violation of a governmental agency regulation and this shut-down prohibits the Facility from being used for the production of the Product, Client is not obligated to pay the Monthly Production Fee during this period.
10. Miscellaneous.
(a) No Agency. Neither party hereto is authorized, nor shall undertake, to bind the other party in any way as agent, partner, joint venturer or otherwise, whether in the name of BSCP or Client or otherwise. Neither party hereto shall refer to, display or use the other's name, corporate style, trademarks or trade names confusingly similar thereto, alone or in conjunction with any other words or names, in any manner or connection whatsoever, including any publication, article, or any form of advertising or publicity, except with the prior written consent provided by the other party. BSCP is an independent contractor of Client, and neither BSCP nor any person or entity employed, contracted, or otherwise utilized by BSCP for any purposes shall be deemed to be an employee, representative or agent of Client.
(b) Force Majeure. In the event of a delay caused by inclement weather, fire, flood, strike or other labor dispute, acts of God, acts of governmental officials or agencies, or any other cause beyond the control of BSCP, BSCP shall be excused from performance hereunder for the period or periods of time attributable to such delay. There shall be no increase in compensation as a result of any event of delay under this Paragraph 10(b) or otherwise.
(c) Condemnation. If the Facility is condemned or taken as a result of the exercise of the power of eminent domain or shall be conveyed to a governmental agency having power of eminent domain under the threat of the exercise of such power (any of the foregoing being called a "Condemnation"), Client shall be notified immediately and this Agreement shall terminate as of the date on which title to the Facility vests in the authority so exercising or threatening to exercise such power and Client shall not have any right to the Condemnation proceeds.
(d) Failure to Comply with Governmental Regulations. In the event that the facility is shut down, by a governmental agency or due to a violation of a governmental agency regulation, and this shut-down prohibits the Facility from being used for the production of the Product, Client is not obligated to pay the Monthly Fee during this period.
(e) Notices. All notices, consents, waivers, and other communications under this Agreement must be in writing and will be deemed to have been given when (i) delivered by hand (with written confirmation of receipt), (ii) sent by fax (with written confirmation of receipt), provided that a copy is mailed by U.S. registered mail, return receipt requested, (iii) when received by the addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in each case to the appropriate address and fax numbers set forth below (or to such other addresses and fax numbers as a party may designate by notice to the other party):
If to BSCP, to:
Bio Science Contract Production Corp.
5901 East Lombard Street
Baltimore, Maryland 21224
Fax (410) 563-9206
Attention: Jacques R. Rubin, Chairman & CEO
If to Client, to:
Cel-Sci Corporation
8229 Boone Boulevard, Suite 802
Vienna, VA 22182
Fax (703) 506-9471
Attention: Geert Kersten, CEO
Any party hereto may change his or its address for notice, by giving notice thereof in the manner herein above provided.
(f) Entire Agreement. This Agreement, including the Schedules hereto, constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral and written, among the parties hereto with respect to the subject matter hereof. The "RECITALS", "DEFINITIONS", and Schedules hereto are incorporated herein by reference.
(g) Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Maryland, without giving effect to its conflicts of laws provisions. Except as provided in Paragraph 5(f) hereof, all suits, disputes, actions, and other legal proceedings (collectively, "Suits") related to or arising out of this Agreement, shall be brought in the Federal District Court of the District of Maryland, which shall have the exclusive jurisdiction over such Suits, and to the personal jurisdiction of which BSCP and Client irrevocably submit. Process in any Suit may be served on any party anywhere in the world.
(h) Counterparts. This Agreement and any Schedule hereto may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
(i) Amendments. This Agreement (including any Schedule hereto) may not be amended or modified, and no provisions hereof may be waived, without the prior written consent of the parties hereto.
(j) Severability. Each provision of this Agreement (and each Schedule hereto) shall be treated as a separate and independent clause, and the unenforceability of any one clause shall in no way impair the enforceability of any of the other clauses herein. If one or more of the provisions contained in this Agreement (or any Schedule hereto) shall for any reason be held to be excessively broad as to scope, activity, subject or otherwise so as to be unenforceable at law, such provision or provisions shall be construed by the appropriate judicial body by limiting or reducing it or them so as to be enforceable to the maximum extent compatible with the applicable law as it shall then appear.
(k) Titles and Subtitles. The titles and subtitles used in this Agreement (including any Schedule hereto) are for convenience only and are not to be considered in construing or interpreting any term or provision of this Agreement (or any Schedule hereto).
(l) Pronouns. Where the context requires, (i) all pronouns used herein shall be deemed to refer to the masculine, feminine or neuter gender as the context requires, and (ii) the singular context shall include the plural and vice versa.
(m) Assignment. Neither party hereto shall assign this Agreement (or any Schedule hereto) without the prior written consent of the other party, except that BSCP shall be permitted to assign its rights and obligations hereunder to one or more of its affiliates. Either party shall be permitted to assign this Agreement (or any Schedule hereto) in the event of a merger between one party and a party not bound by this Agreement, with the prior written consent of the other party, which consent shall not be unreasonably withheld.
(n) No Lease. BSCP and Client agree that this Agreement (including any Schedule hereto) is not a lease and the relationship between them is not that of landlord and tenant and that BSCP retains all rights of control and possession of the Facility, including each applicable Production Area.
(o) No Waiver. The failure of any party hereto at any time or times to require performance of any provision of this Agreement (including any Schedule hereto) shall in no manner affect its rights at a later time to enforce the same. No waiver by any party hereto of the breach of any term contained in this Agreement (including any Schedule hereto), whether by conduct or otherwise, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such breach or the breach of any other term of this Agreement (including any Schedule hereto).
(p) Waiver of Jury Trial. BSCP and Client hereby waive trial by jury in any suit brought by either of the parties hereto against the other or on any counterclaim in respect thereof on any matters, whatsoever, arising out of, or in any way in connection with, this Agreement (including any Schedule hereto).
(q) No Presumption Against Drafter. For purposes of this Agreement, Client hereby waives any rule of construction that requires that ambiguities in this Agreement (including any Schedule hereto) be construed against the drafter.
(r) Expenses. Except as otherwise provided in this Agreement, each party to this Agreement will bear its respective expenses incurred in connection with the preparation, execution, and performance of this Agreement (including any Schedule hereto).
{signatures appear on following page}
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.
WITNESS: CEL-SCI CORPORATION
By: /s/ Patricia Prichep By: /s/ Geert Kersten
----------------------- ---------------------------
Patricia Prichep Geert Kersten, CEO
|
WITNESS: BIO SCIENCE CONTRACT PRODUCTION
CORP.
By: /s/ Shelly Upton By: /s/ Jacques R. Rubin
----------------------- ---------------------------
Shelly Upton Jacques R. Rubin, Chairman and Chief
Executive Officer
|
SCHEDULE A-(_1_)
TO
PRODUCTION AGREEMENT
PRODUCT DESCRIPTION
**********************************************
The content of this Schedule A-( 1 ) is agreed to by the parties listed below to that certain Master Production Agreement dated as of June 19th, 2000.
CEL-SCI CORPORATION BIO SCIENCE CONTRACT
PRODUCTION CORP.
By:/s/ Geert Kersten By: /s/ Jacques Rubin
--------------------- ----------------------
Name: Geert Kersten Name: Jacques Rubin
Title: CEO Title: Chairman & CEO
Date: June 19, 2000
|
SCHEDULE B-(_1_)
TO PRODUCTION AGREEMENT
PRODUCTION TERM, SUITE AND FEES
PRODUCTION TERM
Commencement Date (the "Commencement Date"): July 1, 2000 .
Termination Date (the "Termination Date"): December31, 2000.
Production Term may be extended continuously, as needed, up to December 31,
2006. During the Production Term, if Client intends to end a Campaign, Client
must notify BSCP sixty (60) days in advance. The sixty (60) day notice
requirement is waived for the first (1st) Client Campaign. At the end of a
Campaign, Client may opt to leave all equipment in the Production Area and be
subject to the Monthly Fee or Client may opt to remove all equipment from the
Production Area and be subject to the Monthly Fee until all Client equipment is
removed from the Facility. In the event that Client decides to remove equipment
from the Production Area at the end of a Campaign, equipment may not be returned
to the Production Area to begin a subsequent Campaign for a minimum four (4)
month period. The minimum four (4) month period starts to run on the date when
Client ends a Campaign. In the event that Client wishes to return the equipment
to Production Area at the end of the four (4) month period, Client will be
subject to the Monthly Fee when the first piece of equipment is returned to the
Production Area. In the event that Client wishes to begin a subsequent Campaign,
Client must notify BSCP a minimum of one hundred twenty (120) days in advance of
the beginning of the month that Client wishes to begin a Campaign. All notice
and minimum time period requirements may be waived by mutual agreement of both
parties.
Production Area: Purification Rooms 2 & 3
FEES
Monthly Fee is subject to 7% increase on January 1st of each year beginning
January 1st 2002. Client may terminate this Agreement upon not less than four
(4) months notice to BSCP.
**********************************************
The content of this Schedule B-( 1 ) is agreed to by the parties listed below to
that certain Master Production Agreement dated as of June 19th, 2000.
CEL-SCI CORPORATION BIO SCIENCE CONTRACT PRODUCTION CORP.
By:/s/ Geert Kersten By:/s/ Jacques Rubin
-------------------------- --------------------------
Name: Geert Kersten Name: Jacques Rubin
Title: CEO Title: Chairman & CEO
Date: June 19,2000
|
SCHEDULE C-( 1 )
TO
PRODUCTION AGREEMENT
CLIENT-PROVIDED ITEMS
Other Client-Provided Items, if any, to be mutually agreed upon. See Schedule
D-(1).
**********************************************
|
The content of this Schedule C-( 1 ) is agreed to by the parties listed below to that certain Master Production Agreement dated as of June 19th, 2000.
CEL-SCI CORPORATION BIO SCIENCE CONTRACT
PRODUCTION CORP.
By:/s/ Geert Kersten By:/s/ Jacques Rubin
----------------------- ---------------------------
Name: Geert Kersten Name: Jacques Rubin
Title: CEO Title: Chairman & CEO
Date: June 19,2000
|
SCHEDULE D-( 1 )
TO
PRODUCTION AGREEMENT
OTHER PRODUCTION REQUIREMENTS
Such rates shall be subject to change from time to time in accordance with written notice provided by BSCP to Client. Labor rate is subject to 7% increase on January 1st of each year beginning January 1st 2002.
PERSONNEL:
- Labor is not provided in the Monthly Fee. BSCP will provide labor at
the rate of $75.00 per hour.
- BSCP will designate a supervisor(s), at the labor rate specified above,
to support Client in conformance to BSCP policies regarding cGMP
facility and safety issues. BSCP supervisor will also serve as a liason
between the Client's management team and BSCP. Client personnel will be
under the direct supervision of Client's management team during the
Production Term. The BSCP supervisor will prevail with respect to cGMP
facility and safety issues.
- Client will be responsible for having a senior Quality Assurance
representative on-site, during all Campaigns.
HAZARDOUS WASTES AND SUBSTANCES:
Type Amount Charge for Disposal
Medical Waste N/A* N/A*
- Hazardous waste generated during a production campaign will be handled by the Client in a manner compatible with clean room operations. Client personnel will remove this waste from the Production Area at the end of each workday. Client personnel will be responsible for complete removal of the waste from the Facility. Client personnel are responsible for handling the waste in accordance with BFI (or other accredited hazardous waste removal contractor) guidelines.
*Disposal of medical waste will be the sole financial responsibility of Client. If Client does not meet this obligation, hazardous waste will be disposed of by BSCP and expenses associated with disposal will be the responsibility of the Client.
RAW MATERIALS:
- BSCP will be responsible for purchasing raw materials, components, and supplies used in the production of the Product. The only exceptions are those raw materials which require a proprietary test panel. These exceptions will be enumerated by the Client in a memorandum of understanding, and will be considered "pre-released" by the Client. BSCP will jointly prepare with Client, a SOP to deal specifically with
"pre-released" items. That SOP will list the items covered, storage,
sampling, testing, and release requirements. Sampling, testing and
release of items that are not "pre-released" will be coordinated
through BSCP.
- Raw materials, components, and supplies will be stored at BSCP on a
Campaign basis.
- Raw materials, components, and supplies will be stored at BSCP pursuant
to BSCP
Standard Operating Procedures ("SOP's"). SOP's will define storage
location(s) and environmental conditions.
- Raw materials, components, and supplies will be labeled with both a
BSCP Part Number and a Client Part Number. BSCP will be responsible for
providing Client with a list that relates the two part numbers
associated with each raw material, component, or supply.
- BSCP will be responsible for writing raw material specifications in its
own format. These specifications will be substantively consistent with
Client's raw material specifications in all instances. Client must
authorize all exceptions to substantive consistency in writing.
- Client will be responsible for notifying BSCP immediately of changes to
raw material specifications.
- BSCP will be responsible for notifying Client immediately of any
excursions for raw material testing that is outside of the specified
range(s).
- BSCP will be responsible for auditing contract laboratories, except
where the contractor is also a raw material supplier. If the contractor
is a raw material supplier, Client will provide audit services. BSCP
and Client will provide each other with a schedule of audit activities,
and either party may join an audit of the other party at its own
discretion. Audit reports prepared by BSCP will be distributed to
Client immediately upon release, and audit reports prepared by Client
will be distributed to BSCP immediately upon release. Client will be
responsible for all costs, including but not limited to, labor hours
and travel expenses, involved in BSCP audits of contract laboratories.
In Process/Product Materials:
- BSCP will be responsible for coordinating the collection and testing of in-process samples. BSCP will be responsible for the dissemination of the resulting test reports (and all applicable paperwork) to the Client immediately upon receipt. Client will be responsible for reviewing the resulting test reports and providing BSCP with a determination of the Client review.
- BSCP will be responsible for shipping samples of raw materials and in-process samples, pursuant to agreed programs between BSCP and the Client.
FACILITY/EQUIPMENT:
- BSCP will be responsible for maintaining a schedule for preventive maintenance, and for coordinating preventive maintenance, for all equipment utilized in the manufacture of the Product.
- Client will be responsible for the purchase of all new equipment to be
utilized in the Production Area, including but not limited to, storage
racks and tables.
- Client will be responsible for providing equipment manuals to BSCP for
all equipment used in the manufacture of the Product.
- Client will be responsible for providing BSCP with a weekly production
schedule.
- BSCP will be responsible for installing a pass-through between
purification suites 2
& 3, an air-curtain in purification suite 3, and to upgrade the
electrical service, all as specifically approved by the Client.
- Client will be responsible for technology transfer bearing upon the
washing and packaging of components in preparation for steam
sterilization.
- BSCP will identify each piece of Client specific equipment and maintain
equipment history files.
- Client will be responsible for ensuring that equipment used for the
Product will be certified as decontaminated by the State of Maryland
and/or a Federally Accredited Contractor prior to transfer to BSCP.
Equipment logs for each piece of equipment transferred to BSCP must
accompany the equipment.
- BSCP will be responsible for providing access to two (2) Class 10,000
clean rooms (namely purification rooms 2 & 3).
- Production of the Product will be the sole responsibility of Client.
- BSCP will schedule Client's wash prep and autoclave needs based on the
weekly production schedule provided by the Client. BSCP will provide
trained personnel for the wash prep and autoclaving of Client's goods
using validated autoclave load configurations during a Campaign.
- BSCP will be responsible for providing a dedicated office for use by
the Client's Quality Assurance representative and the Client's Senior
Director of Manufacturing. BSCP will provide a second office to
accommodate up to eight (8) Client personnel. Both offices will have
electrical outlets and be equipped with desks, chairs, and storage
cabinets. Client personnel will have access to BSCP Lunch/Break room
and shower and washroom facilities.
- Equipment performance monitoring, as designated by Client, will be the
responsibility of BSCP. Initially, monitoring will be manually executed
by BSCP personnel once per shift, until an electronic monitoring system
can be identified and evaluated. A final decision and implementation of
an automatic monitoring system (e.g. Rees System or equivalent) will be
completed within 4 months of the commencement of this contract.
- BSCP will be responsible for installation of Client's manufacturing
equipment. In general, BSCP will perform the IQ/OQ and calibrate the
manufacturing equipment. Manufacturing Process Validation (PQ)
exercises for equipment that is utilized directly in the manufacture of
the Product, will be carried out by the Client, at its discretion. A
list of equipment installation exercises, equipment validations, and
manufacturing process validations will be prepared jointly by BSCP and
the Client. The responsible party will be designated within this list.
- BSCP will be responsible for the preparation of autoclave validation
protocols. Only client-specific validation load pattern configurations
will be subject to the approval of the Client. BSCP will be responsible
for executing the subject validations in conformance with the approved
protocol, and for reducing the resulting data and preparing a report of these exercises.
- Client may identify suitably qualified contractors to assist with equipment installation in and removal from the Production Area. BSCP has the sole discretion to determine if the identified contractors are suitably qualified. Contractors will be subject to the direction of BSCP personnel regarding scheduling and facility policies. Client will be responsible for all costs (including hourly labor rate) associated with the supply of contractors. BSCP recognizes Client's interest in temporal efficiency during equipment installation in and removal from the Production Area.
DOCUMENTATION:
- Original copies of Client documentation required by regulation (FDC
Act) to be held for a specified period by BSCP will be held as "company
confidential." BSCP will abide by the terms of the contract for
document confidentiality, subsequent to termination. All original
copies of documentation, excluding documents that relate to BSCP
equipment, will be returned to the client upon expiration of the
relevant period of mandatory hold. BSCP retains right to keep copies of
all documentation.
- BSCP will be responsible for the reproduction and distribution of the
Client Production Record, upon receipt of a written request by one of
the client's authorized representatives.
- Client's Senior Director of Manufacturing will have the sole
responsibility for assigning Product Batch Numbers and Lot Numbers.
- Client will be solely responsible for review and approval of executed
Production Records.
- Client's Quality Assurance Department will be responsible for the
release of the Product intermediates and final Product.
- Issuance of variance, deviation, indicent, and I-CAR reports specific
to production of the Product will be the responsibility of the Client;
however, reports bearing upon environmental conditions (i.e particulate
counts, personnel monitoring etc.) and other facility matters will be
issued by BSCP.
- BSCP and Client will independently archive a copy of the released
Production Record. BSCP will provide Client with a complete copy of the
released Production Record, at the request of Client's authorized
representatives.
- Client representatives authorized to request a copy of any section of
the Production Record are Manufacturing Supervisor, Senior Director of
Manufacturing, Senior Vice-President of Research & Manufacturing,
Senior Director of Quality Assurance, Consultant for Quality Assurance
& Regulatory Affairs, and the Chief Executive Officer of Client's
Corporation. No other persons are so authorized.
- Client will be able upon request to review all
facility/utility/equipment validation, that supports Client's process,
previously conducted by BSCP and as needed in the future, under the
terms of this Agreement.
- Originals of validation documents and all other protocols or documents
developed jointly by BSCP and the Client, specifically for Client
equipment, will be the sole property of the Client. BSCP retains the
right to keep a copy of the validation documents and all other
protocols or documents developed jointly by BSCP and the Client,
specifically for Client equipment. All validation documents and all
other protocols or documents developed for BSCP equipment are the sole
property of BSCP.
- The preparation of equipment validation protocols, including Sterilizer
validation protocols, will be the responsibility of BSCP.
Responsibility for execution of validation experimental protocols, for
the accumulation of resulting raw data, and for the reduction of raw
data, will be the responsibility of BSCP. The authorization of
validation reports will be the responsibility of BSCP. Only
client-specific validation load pattern configurations will be subject
to the approval of the Client.
- All BSCP documents are confidential. Only those documents that pertain
to the Client can be freely viewed by Client employees.
LABELING:
- Client will be solely responsible for the text, purchase, receipt, and approval of all Product labeling. Approved labeling will be transferred to BSCP for storage as an inventory item. Client will be responsible for requesting labels from inventory, issuance, label control and reconciliation of all labels. BSCP name will not appear on labels.
TRAINING:
- BSCP will be responsible for providing training to Client personnel
with regard to relevant BSCP corporate, safety, facility and cGMP
policies, as appropriate.
- BSCP will provide training to Client personnel in gowning and all other
BSCP procedures that pertain to Client operations within BSCP.
MISCELLANEOUS:
- BSCP will provide disposable gowning materials for Client personnel.
Client will be financially responsible for disposable gowning
materials.
- Other issues that have not been dealt within this Agreement will be
addressed by an addendum to the Agreement between Client and BSCP.
- BSCP will provide Client with additional Product production time,
without charging Client a Monthly Fee, equal to the actual time lost if
a Product production process fails or is aborted as the result of a
failure of the BSCP plant including utilities or a critical error by a
BSCP representative.
- BSCP will provide cleaning services (for the floor, walls, and exterior
of equipment) for the two clean rooms. All trash removal in clean rooms
is the responsibility of the Client. Cleaning services (for the floors
and trash removal) for the Client offices will be available at Client
request only during occupation of the Client offices by Client
personnel.
**********************************************
The content of this Schedule D-( 1 ) is agreed to by the parties listed below to that certain Master Production Agreement dated as of June 19th, 2000.
CEL-SCI CORPORATION BIO SCIENCE CONTRACT
PRODUCTION CORP.
By:/s/ Geert Kersten By:/s/ Jacques Rubin
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Name: Geert Kersten Name: Jacques Rubin
Title: CEO Title: Chairman & CEO
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Date: June 19, 2000
SCHEDULE E-( 1 )
TO
PRODUCTION AGREEMENT
MONTHLY STORAGE RATES AND PROCEDURES
Monthly Storage Charge:
$7.50 per square foot for Room Temperature Storage
$12.00 per cubic foot for Refrigerated Storage
$15.00 per cubic foot for Freezer Storage
Minimum Storage Charge:
$750 for Room Temperature Storage
$1,200 for Refrigerated Storage
$1,500 for Freezer Storage
Procedure:
Client will not ship any materials, equipment or supplies to BSCP without the prior written approval of BSCP.
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The content of this Schedule E-( 1 ) is agreed to by the parties listed below to that certain Master Production Agreement dated as of June 19th, 2000.
CEL-SCI CORPORATION BIO SCIENCE CONTRACT
PRODUCTION CORP.
By: /s/ Geert Kersten By: /s/ Jacques Rubin
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Name: Geert Kersten Name: Jacques Rubin
Title: CEO Title: Chairman & CEO
Date: June 19, 2000
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EXHIBIT 10(y)
PROMISSORY NOTE
$1,159,000.00 Baltimore, Maryland November 15, 2001
FOR VALUE RECEIVED, CEL-SCI CORPORATION, a Colorado corporation (the "Borrower"), promises to pay to the order of CAMBREX BIO SCIENCE, INC., a Maryland corporation, (the "Lender"), the principal sum of One Million, One Hundred Fifty Nine Thousand Dollars ($1,159,000.00) (the "Principal Loan Amount") or such other amount as may be advanced from time to time to Borrower, together with interest thereon at the rate or rates hereinafter specified, from the date of this Note until the date the entire principal sum hereof has been paid in full.
Said principal shall be payable in full on November 15, 2002.
Beginning on November 16, 2002, in the event the Principal Loan amount is not paid in full on or before such date, interest shall accrue on the actual amount of the Principal Loan Amount outstanding from time to time at a fluctuating interest rate per annum equal to the Index Rate (as hereinafter defined), plus Three Percent (3%).
"Index Rate" shall mean the rate quoted as the "Prime Rate" in the column entitled "Money Rates" published in The Wall Street Journal (in the event no such rate is published in The Wall Street Journal on such date, the Index Rate shall be the "Prime Rate" shown in such column for the most recent business day preceding the last business day of such month on which such rate was published) or, in the event The Wall Street Journal does not quote a "Prime Rate", the rate quoted as the "Prime Rate" in a publication as Lender may, from time to time, hereafter designate in writing. The Index Rate shall initially be determined by Lender as of the Business Day preceding the date of the Security Agreement and shall remain in effect for the remainder of such calendar month in which such date occurs; thereafter, the Index Rate shall be determined by Lender on the last Business Day of each month and the Interest Rate based on such Index Rate shall be in effect for the following month. Interest shall be calculated on the basis of a 360-day year for actual days elapse.
Five Hundred Thousand Dollars ($500,000.00) of the Principal Loan Amount is intended to represent the cost to Borrower of the Monthly Production Fee as that term is defined in a Master Production Agreement of June 19, 2000 between the Borrower and Lender, for the period from November 1, 2001 to November 30, 2001.
Five Hundred Thousand Dollars ($500,000.00) of the Principal Loan Amount is intended to represent the cost to Borrower of the Monthly Production Fee as that term is defined in a Master Production Agreement of June 19, 2000 between the Borrower and Lender, for the period from December 1,2001 to December 31, 2001.
Fifty Nine Thousand Dollars ($59,000.00) of the Principal Loan Amount is intended to
represent the cost to Borrower of the Monthly Production Fee as that term is defined in a Master Production Agreement of June 19, 2000 between the Borrower and Lender, for the period from January 1, 2001 to January 10, 2001.
One Hundred Thousand Dollars ($100,000.00) of the Principal Loan Amount is intended to represent the cost to Borrower of Other Production Requirements as that term is defined in a Master Production Agreement of June 19, 2000 between the Borrower and Lender, for the period from August 1, 2001 to January 10, 2002. If such charges are actually less than $100,000, the difference will be credited to this Note. If such charges actually exceed $100,000, such difference will be added to the Principal Loan Amount.
1. All amounts paid by the Borrower to the Lender shall be applied first to outstanding interest, then to unpaid expenses and charges payable hereunder, and then to principal, or otherwise as determined solely by the Lender.
2. Borrower may pay all or any portion of the principal balance of this Note prior to the Maturity Date without payment of a prepayment fee to the Lender. Prepayments shall not postpone or reduce regular payments of principal or interest, but shall be, at the option of the Lender, credited to installments of principal, if any, in their inverse order of maturity.
3. This Note is secured by any property described as collateral in any security agreement, mortgage, deed of trust, pledge agreement, guaranty or other document previously, simultaneously, or hereafter entered into by Borrower or any of them or any guarantor of Borrower in connection with any obligation or liability of Borrower to the Lender or any corporate affiliate of the Lender, such other security document(s) including but not limited to: any other instruments now or hereafter executed by Borrower or by any guarantor of Borrower, in favor of Lender, which in any manner constitute additional security for this Note, (all of the foregoing documents, and this Note, being hereinafter collectively referred to as the "Loan Documents"). This Note specifically incorporates by reference, as if fully set forth herein, all of the language and provisions of the Loan Documents described generally or specifically above.
4. An event of default under this Note (an "Event of Default") shall be
deemed to exist upon the occurrence of any of the following: (1) failure to pay
any principal, expenses, late charge or interest within fifteen (15) days when
due, or failure to perform any other obligations hereunder; (2) a default in any
of the requirements of Borrower, or any other person guaranteeing or providing
security for this loan, under any Loan Document referred to above; (3) a default
in any other agreement between Borrower and the Lender or any affiliate of the
Lender, whether previously, simultaneously, or hereafter entered into; (4) a
default under any other agreement between Borrower or any guarantor for Borrower
and the Lender, whether personally, simultaneously, or hereinafter entered into;
(5) bankruptcy, insolvency, or receivership proceedings being instituted by or
against Borrower in any state or federal court; (6) the occurrence of any event
which is, or would be with the passage of time or the giving of notice or both,
a default under any indebtedness of Borrower to any person other than the
Lender; (7) any material loss, theft or substantial damage, not fully insured
for the benefit of the Lender, to any of the property as is described in the
Deed of Trust, or the transfer or encumbrance of any
material part of any Borrower's assets other than for fair consideration; and
(8) default under any obligation or indebtedness owed by the Borrower to the
Lender under any other loan, regardless of when created or whether secured or
unsecured.
The contrary notwithstanding, no Event of Default shall be deemed to have occurred with respect to the following events until after the expiration of the applicable grace or curative period set forth in this Section, time being of the essence:
a. Fifteen (15) calendar days after notice from Lender to the Borrower of a failure to comply with a monetary covenant and thirty (30) calendar days after notice from the Lender to the Borrower, as to a failure to perform an affirmative nonmonetary covenant, a violation of a negative covenant, a breach of warranty or representation, or any other event not previously addressed in this Paragraph, unless such Event of Default cannot be cured within thirty (30) calendar days, in which case the Borrower shall have a greater period of time if diligently pursuing such cure.
b. Except as provided above, in no event shall this Note be deemed to
provide a grace period applicable to an Event of Default based upon (i) the
sale, transfer or conveyance of any collateral security in violation of the
terms of the Loan Documents, (ii) a lapse in any required insurance coverage,
(iii) the filing of a voluntary or involuntary bankruptcy petition, except as
stated in this Note with respect to an Event of Default based upon the filing of
an involuntary bankruptcy petition, for which a period of sixty (60) calendar
days shall be permitted for the Borrower to obtain an conditional dismissal of
any petition filed in connection with any involuntary case, (iv) any Event of
Default for which a specific period for the cure thereof is specified in this
Paragraph, describing such Event of Default, other than as specified in this
Subparagraph, or (v) a failure to pay any payment due under this Note by
scheduled maturity or acceleration due to an Event of Default.
5. At its option, and without waiving any of its other remedies, if the Borrower does not pay principal, interest, or any other amount when due, the Lender may, if permitted by applicable law, collect a late charge equal to 5% of the amount of any payment which is not paid in full within fifteen (15) days after the date such payment is due. The late charge may be collected only once for each late payment.
6. Upon the occurrence of an Event of Default, and the expiration of any applicable cure period, the Borrower shall pay the Lender all expenses incurred by the Lender in collecting the amounts due under this Note, protecting any collateral securing this Note, and realizing on such security. Those expenses include actual reasonable attorney's (and paralegal) fees and court costs. If an Event of Default occurs, the Lender has the right to declare the entire unpaid balance of principal of this Note, and all accrued but unpaid interest, immediately due and payable without notice or demand. The Borrower agrees that an Event of Default shall be a default under all other liabilities and obligations of Borrower to the Lender, and that the Lender has the right to declare immediately due and payable all such other liabilities and obligations. If not then paid, the principal balance, accrued but unpaid interest, late charges, and any expenses, shall thereafter bear interest at a rate of 2% per annum over that provided for or referred to above (but not more than the maximum rate allowed by applicable laws). If a judgment is entered against the
Borrower for any sum due under this Note, the Borrower shall pay the Lender upon demand from time to time interest at the statutory interest rate on the judgment, plus an additional amount equal to interest calculated at the rate provided in the next preceding sentence in effect as of the date of judgment, minus any interest actually paid at the statutory rate on the judgment. Also, if an Event of Default occurs, the Lender may take any other action, to foreclose on collateral or otherwise, provided in any of the Loan Documents referred to above.
7. If an Event of Default occurs, the Borrower authorizes any attorney admitted to practice before any court of record, or any clerk of any court, to appear on behalf of the Borrower in any court in one or more proceedings or before any clerk thereof, without giving prior notice to or serving process on such person or persons, and confess judgment against Borrower in favor of the Lender for such amount as may appear to be unpaid on this Note, including interest, late charges, expenses, court costs and attorney's (and paralegal) fees of not less than fifteen percent (15%) of the amounts unpaid hereunder. Notwithstanding the immediately preceding sentence, the Lender agrees that it shall not recover in excess of its actual attorney's (and paralegal) fees. In addition to all other courts where jurisdiction and venue would be proper, the Borrower consents to the jurisdiction and venue of the courts of any county of the State of Maryland or Howard County, Maryland or the United States District Court for the District of Maryland for the entry of said judgment. Borrower hereby waives and releases, to the extent not prohibited by law, all errors and rights of appeal, exemptions and stays of execution upon any real or personal property to which such person or persons might otherwise by entitled, under any present or future law. The Borrower waives the benefit of any and every statute, ordinance or rule of court which may be lawfully waived conferring upon the Borrower any right or privilege of exemption or other relief from the enforcement or immediate enforcement of a judgment or related proceeding on a judgment. The authority and power to appear for and enter judgment against Borrower shall not be exhausted by one or more exercises hereof or by any imperfect exercises hereof, and shall not be extinguished by any judgment entered pursuant thereto; this authority and power may be exercised on one or more occasions, from time to time, in the same or different jurisdictions, as often as Lender shall deem necessary or desirable, for all of which this Note shall be sufficient authority.
8. In the event that any holder of this Note transfers this Note for value, the Borrower agrees that no subsequent holder of this Note shall be subject to any claims or defenses which the Borrower may have against a prior holder, all of which are waived as to the subsequent holder, and that all subsequent holders shall have all of the rights of a holder in due course with respect to the Borrower even though the subsequent holder may not qualify, under applicable law, absent this paragraph, as a holder in due course.
9. The Borrower, all endorsers and guarantors hereof, and all others who may become liable for all or any part of the obligation evidenced hereby, agree to be jointly and severally bound hereby, all covenants, obligations and liabilities hereunder shall be joint and several, and they do jointly and severally waive presentment, demand, protest, notice of nonpayment, and any and all lack of diligence or delays in collection or enforcement hereof. The Borrower and all endorsers and guarantors hereof further jointly and severally agree with the Lender that the Lender may, without notice, in such manner, on such terms and for such time as
the Lender may see fit, (a) agree with the Borrower to alter, extend, or renew this Note, and/or (b) release any maker, endorser, or guarantor hereof, and/or substitute or add guarantors, and/or substitute or release collateral or any part thereof, all without in any way affecting, releasing, or foregoing the joint and several liability of the Borrower and all endorsers and guarantors hereof.
10. Any action brought by the Borrower against the Lender which is based, directly or indirectly, or in whole or in part on this Note or any matter in or related to this Note or any other Loan Document, including but not limited to the making of the loan or the administration or collection thereof shall be brought only in the courts of the State of Maryland. The Borrower may not file a counterclaim against the Lender in a suit brought by the Lender against the Borrower in a state other than the State of Maryland unless under the rules of procedure of the court in which the Lender brought the action the counterclaim is mandatory and will be considered waived unless filed as a counterclaim in the action instituted by the Lender.
11. This Note shall inure to the benefit of and be enforceable by the Lender and the Lender's successors and assigns and any other person to whom the Lender may grant an interest in the Borrower's obligations to the Lender, and shall be binding and enforceable against the Borrower and the Borrower's personal representatives and assigns.
12. Borrower hereby represents and warrants to Lender that the loan evidenced by this Note was made and transacted solely for the purpose of carrying on or acquiring a business or commercial enterprise within the meaning of Title 12, Commercial Law Article, Section 12-101(c)(l), Annotated Code of Maryland (1983 Repl. Vol.), and that the funds evidenced by this Note will be used for commercial purposes only and solely in connection with such an enterprise.
13. All notices required to be given hereunder shall be in writing and shall be deemed duly given if and when such notice is either personally delivered or mailed by certified or registered U.S. mail, return receipt requested, postage prepaid, first class, to the respective addresses as set forth in the Deed of Trust.
14. This Note shall be construed and enforced according to and be governed by the laws of the State of Maryland without regard to principles of conflict of laws. As part of the consideration for the Lender's advance of funds to the Borrower, Borrower agrees that any and all actions or proceedings arising directly or indirectly from this Note shall, at the Lender's option, be litigated in courts having a situs within the State of Maryland; consents to the jurisdiction of any State or Federal Court located within the State of Maryland; agrees that they are subject to service of process under Section 6-103 of the Courts and Judicial Proceedings Article of the Maryland Code; and agrees to accept such service as is authorized by the statute and prescribed in the Maryland Rules of Procedure.
15. Each right, power and remedy under this Note, under any Loan Document, and under applicable law, shall be cumulative and concurrent and the exercise of any one or more of them shall not preclude the simultaneous or later exercise by the Lender of any or all such other rights, powers or remedies. No waiver by the Lender of any default shall be effective unless made in writing nor operate as a waiver of any other or future default.
16. If any part of this Note shall be adjudged invalid or not enforceable then such partial invalidity or unenforceability shall not cause the remainder of the Note to be or to become invalid or unenforceable, and if a provision hereof is held invalid or unenforceable in one or more of its applications, the parties hereto agree that said provisions shall remain in effect in all valid or enforceable applications that are severable from the invalid or unenforceable application or applications.
17. The use of the singular herein may also refer to the plural, and vice versa, and the use of the neuter or any gender shall be applicable to any other gender or the neuter.
18. This Note may be assigned by the Lender or any holder at any time or from time to time. The word "Lender" as used herein shall include all future holders of the Note, by assignment and otherwise.
19. The Borrower agrees that any suit, action, or proceeding, whether claim or counterclaim, brought or instituted by the Borrower or any successor or assign of the Borrower on or with respect to this Note or any other Loan Document or which in anyway relates, directly or indirectly, to the obligations of the Borrower to the Lender under this Note or any other Loan Document, or the dealings of the parties with respect thereto, shall be tried only by a court and not by a jury. The Borrower hereby expressly waives any right to a trial by jury in any such suit, action, or proceeding. The Borrower acknowledges and agrees that this provision is a specific and material aspect of the agreement between the parties and that the Lender would not enter into the transaction with the Borrower if this provision were not part of their agreement.
IN WITNESS WHEREOF, the Borrower has executed and delivered under seal this note as of the day and year first above written.
WITNESS: THE BORROWER:
CEL-SCI CORPORATION
/s/Gavin de Windt By: /s/Geert Kersten (SEAL)
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SECURITY AGREEMENT
($1,159,000 Loan)
THIS SECURITY AGREEMENT made as of the 15th day of November, 2001 between CEL-SCI CORPORATION, a Colorado corporation, whose principal place of business is located at 8229 Boone Boulevard, Suite 802, Vienna, Virginia 22182 (the "Debtor"), and CAMBREX BIO SCIENCE, INC., having an office at 5901 East Lombard Street, Baltimore, Maryland 21224 ("Secured Party").
In consideration of the mutual covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Debtor and Secured Party, intending to be bound legally, agree as follows:
1. Security Interest. (a) To secure payment and performance of the Obligations (as defined below), Debtor hereby pledges, assigns, transfers and grants to Secured Party a continuing security interest in the following property of the Debtor, whether now owned or hereafter acquired by Debtor:
A first priority interest in all Equipment as more particularly described in Exhibit A.
Together, in each instance, with the renewals, substitutions, replacements, additions, products and Proceeds thereof (hereinafter, collectively called the "Collateral")1
(a) Debtor expressly acknowledges that the security interest granted hereunder shall remain as security for payment and performance of the Obligations, whether now existing or which may hereafter be incurred by future advances, or otherwise. The notice of the continuing grant of this security interest therefore shall not be required to be stated on the face of any document representing any such Obligations, nor otherwise identify it as being secured hereby.
2. Cross-Collateralization. All Collateral which Secured Party may at any time acquire from Debtor or from any other source in connection with any of the Obligations shall constitute collateral for each and every Obligation, without apportionment or designation as to particular Obligations, and all Obligations, however and whenever incurred, shall be secured by all Collateral, however and whenever acquired, and Secured Party shall have the right, in its sole discretion, to determine the order in which Secured Party's rights in, or remedies against, any Collateral are to be exercised, and which type or which portions of Collateral are to be proceeded against and the order of application of Proceeds of Collateral as against particular Obligations.
3. Definitions. The following terms shall have the following meanings:
(a) "Accounts" means all accounts, as that term is defined in Article 9 of the Uniform Commercial Code as in effect from time-to-time in the State of Maryland (the "UCC"), and, in any event, shall include any right to payment held by Debtor, whether in the form of
accounts receivable, notes, drafts, acceptances, letters of credit (including proceeds of letters of credit) or other forms of obligations and receivables, now owned or hereafter received or acquired by or belonging or owing to the Debtor (including, without limitation, under any trade name, style or division thereof) for Inventory sold or leased or services rendered by it whether or not earned by performance, together with all guarantees and security therefor and all Proceeds thereof, whether cash Proceeds or otherwise, including, without limitation, all right, title and interest of Debtor in the Inventory which gave rise to any such Accounts, including, without limitation, unpaid seller's rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed rejected or repossessed Inventory or other goods;
(b) "Equipment" means all equipment, as that term is defined in Article 9 of the UCC and, in any event, shall include, without limitation, all machinery, tools, dyes, equipment, furnishings, vehicles and computers and other electronic data processing and other office equipment, any and all additions, substitutions and replacements of any of the foregoing, wherever located, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto, and all Contracts, contract rights and Chattel Paper arising out of any lease of any of the foregoing;
(c) "Financing Agreements" means this Agreement, the Loan Agreement, and any and all agreements, notes, guaranties, instruments, security agreements and documents evidencing, governing, securing or relating in any way to, that certain promissory note (the "Note") dated November 15, 2001 in the original principal amount of $1,100,000 of Debtor in favor of Secured Party;
(d) "Inventory" means all inventory, as that term is defined in Article 9 of the UCC, wherever located, and, in any event, shall include all inventory, merchandise, goods and other personal property which are held by or on behalf of the Debtor for sale or lease or are furnished or are to be furnished under a contract of service or which constitute raw materials, work in process or materials used or consumed or to be used or consumed in the Debtor's business, or the processing, packaging, promotion, delivery or shipping of the same, and all finished goods, whether or not the same is in transit or in the constructive, actual or exclusive occupancy or possession of the Debtor or is held by the Debtor or by others for the Debtor's account, including, without limitation, all goods covered by purchase orders and contracts with suppliers and all goods billed and held by suppliers and all inventory which may be located on premises of the Debtor or of any carriers, forwarding agents, truckers, warehousemen, vendors, selling agents or other persons;
(e) "Obligations" means any and all obligations, indebtedness, liabilities, guaranties, covenants and duties owing by Debtor to Secured Party, including without limitation, any obligations under any of the Financing Agreements, whether due or to become due, absolute or contingent, now existing or hereafter incurred or arising, whether or not otherwise guaranteed or secured and whether evidenced by any note or draft or documented on the books and records of Secured Party or otherwise on open account, including without limitation, all reasonable costs, expenses, fees, charges and reasonable attorneys' and other professional fees incurred by Secured Party in connection with, involving or related to the administration, protection, modification,
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collection, enforcement, preservation or defense of any of the Secured Party's rights with respect to any of the Obligations, the Collateral or any agreement, instrument or document evidencing, governing, securing or relating to any of the foregoing, including without limitation, all reasonable costs and expenses incurred in connection with any "workout" or default resolution negotiations involving legal counsel or other professionals and any re-negotiation or restructuring of any of the Obligations; and
(f) "Proceeds" means all proceeds, as that term is defined in Article 9 of the UCC, and, in any event, shall include (a) any and all Accounts, Chattel Paper, Instruments, cash and other proceeds payable to the Debtor from time-to-time in respect of any of the foregoing collateral security, (b) any and all proceeds of any letter of credit, insurance, indemnity, warranty or guaranty payable to the Debtor from time-to-time with respect to any of the collateral security, (c) any and all payments (in any form whatsoever) made or due and payable to the Debtor from time-to-time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the collateral security by any governmental body, authority, bureau or agency (or any person acting under color of governmental authority), and (d) any and all other amounts from time-to-time paid or payable under or in connection with any of the collateral security.
4. Debtor's Representations and Warranties. Debtor represents and warrants to Secured Party as follows:
(a) Good Standing and Qualification/Legal Capacity. Debtor is a corporation duly organized, validly existing and in good standing under the laws of the State of Colorado and each entity has all requisite corporate power and authority to own and operate its properties and to carry on its business as now being conducted.
(b) Authority. The Debtor has full power and authority to enter into and perform the obligations under this Agreement, to execute and deliver the Financing Agreements and to incur the obligations provided for herein and therein, all of which have been duly authorized by all necessary and proper corporate or partnership action, if and as the case may be. No other consent or approval or the taking of any other action is required as a condition to the validity or enforceability of this Agreement or any of the other Financing Agreements;
(c) Binding Agreements. This Agreement and the other Financing Agreements constitute the valid and legally binding obligations of the Debtor, enforceable in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally.
(d) Litigation. There are no actions, suits, proceedings or investigations pending or threatened against the Debtor before any court or administrative agency, which either in any case or in the aggregate, if adversely determined, would materially and adversely affect the financial condition, assets or operations of the Debtor, or which question the validity of this Agreement or any of the other Financing Agreements, or any action to be taken In connection with the transactions contemplated hereby or thereby.
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(e) No Conflicting Law or Agreements. The execution, delivery and
performance by the Debtor of this Agreement and the other Financing Agreements:
(i) do not violate any provision of the Articles of Incorporation and By-laws of
the Debtor, (ii) do not violate any order, decree or judgment, or any provision
of any statute, rule or regulation, (iii) do not violate or conflict with,
result in a breach of or constitute (with notice or lapse of time, or both) a
default under any shareholder agreement, partnership agreement, stock preference
agreement, mortgage, indenture, contract or other agreement to which the Debtor
is a party, or by which any of Debtor's properties are bound, or (iv) except for
the liens and mortgages granted to Secured Party hereunder, do not result in the
creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any property or assets of the Debtor.
(f) Financial Statements. The financial information of the Debtor, including, but not limited to, tax returns, balance sheets, statements of earnings, retained earnings, contributed capital and cash flow statements, heretofore submitted to Secured Party, is complete and correct and fairly presents the financial condition of the Debtor as of the dates of said information and the results of its operations and its cash flows for the periods referred to therein in accordance with generally accepted accounting principles, consistently applied. Since the submission of said information to Secured Party, there has been no material adverse change in the financial condition or business of the Debtor.
(g) Taxes. With respect to all taxable periods of the Debtor, the Debtor has filed all tax returns which are required to be filed and all federal, state, municipal, franchise and other taxes shown on such filed returns have been paid as due or have been reserved against, if not yet due, as required by generally accepted accounting principles, consistently applied, and the Debtor knows of no unpaid assessments against Debtor.
(h) Compliance. The Debtor is not in default with respect to or in violation of any order, writ, injunction or decree of any court or of any federal, state, municipal or other governmental department, commission, board, bureau, agency, authority or official, or in violation of any law, statute, rule or regulation to which Debtor or Debtor's properties is or are subject, where such default or violation would materially and adversely affect the financial condition of the Debtor. The Debtor represents that Debtor has not received notice of any such default or violation from any party. The Debtor is not in default in the payment or performance of any of Debtor's obligations to any third parties or in the performance of any mortgage, indenture, lease, contract or other agreement to which Debtor is a party or by which any of Debtor's assets or properties are bound, where such default would materially and adversely affect the financial condition of the Debtor.
(i) Office. The chief executive office and principal place of business of the Debtor, and the office where Debtor's books and records concerning Collateral are kept, is set forth in the first paragraph of this Agreement.
(j) Contingent Liabilities. The Debtor is not a party to any suretyship, guarantyship, or other similar type agreement; nor has Debtor offered its endorsement to any individual, concern, corporation or other entity or acted or failed to act in any manner which
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would in any way create a contingent liability (except for endorsement of negotiable instruments in the ordinary course of business).
(k) Licenses. The Debtor has all licenses, permits and other permissions required by any government, agency or subdivision thereof, or from any licensing entity necessary for the conduct of Debtor's business, all of which the Debtor represents to be in good standing and in full force and effect.
(1) Collateral. The Debtor is and shall continue to be the sole owner of the Collateral free and clear of all liens, encumbrances, security interests and claims except the liens granted to Secured Party or except as permitted by the Secured Party; the Debtor is fully authorized to sell, transfer, pledge and/or grant a security interest in each and every item of the Collateral to Secured Party; all documents and agreements related to the Collateral shall be true and correct and in all respects what they purport to be; all signatures and endorsements that appear thereon shall be genuine and all signatories and endorsers shall have full capacity to contract; none of the transactions underlying or giving rise to the Collateral shall violate any applicable state or federal laws or regulations; all documents relating to the Collateral shall be legally sufficient under such laws or regulations and shall be legally enforceable in accordance with their terms; and the Debtor agrees to defend the Collateral against the claims of all persons other than Secured Party.
(m) Environmental, Health, Safety Laws. Debtor has not received any notice, order, petition or similar document in connection with or arising out of any violation of any environmental, health or safety law, regulation, rule or order, and Debtor knows of no basis for any claim of such violation or of any threat thereof.
5. Affirmative Covenants of the Debtor. The Debtor covenants and agrees that from the date hereof until full and final payment and performance of all Obligations, the Debtor shall:
(a) Financial Information. Deliver to Secured Party: (i) promptly upon Secured Party's request, such documentation and information about the Debtor's financial condition, business and/or operations as Secured Party may, at any time and from time to time, reasonably request, including without limitation, business financial statements, copies of federal and state income tax returns and all schedules thereto, aging reports of Debtor's Accounts and accounts payable and a listing of Debtor's Inventory and Equipment, all of which shall be in form, scope and content satisfactory to Secured Party, in its sole discretion; and (ii) promptly upon becoming aware of any Event of Default (as defined below), or any occurrence which but for the giving of notice or the passage of time would constitute an Event of Default, notice thereof in writing.
(b) Insurance and Endorsement. (i) Keep the Collateral and Debtor's other properties insured against loss or damage by flood (if applicable) and by fire and other hazards (so-called "All Risk" coverage) in amounts and with companies reasonably satisfactory to Secured Party to the same extent and covering such risks as is customary in the same or a similar business; maintain public liability coverage, including without limitation, products liability
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coverage, against claims for personal injuries or death; and maintain all worker's compensation, employment or similar insurance as may be required by applicable law; (ii) All insurance shall contain such terms, be in such form, and be for such periods reasonably satisfactory to Secured Party, and be written by such carriers duly licensed by the State of Maryland and satisfactory to Secured Party. Without limiting the generality of the foregoing, such insurance must provide that it may not be canceled without ten (10) days prior written notice to Secured Party. The Debtor shall cause Secured Party to be endorsed as a loss payee with a long form Lender's Loss Payable Clause, in form and substance reasonably acceptable to Secured Party on all such insurance. In the event of a failure to provide and maintain insurance as herein provided, Secured Party may, at its option, provide such insurance and charge the amount thereof to the Debtor. The Debtor shall furnish to Secured Party certificates or other satisfactory evidence of compliance with the foregoing insurance provisions. The Debtor hereby irrevocably appoints Secured Party as its attorney-in-fact, coupled with an interest, to make proofs of loss and claims for insurance, and to receive payments of the insurance and execute all documents, checks and drafts in connection with payment of the insurance. Any Proceeds received by Secured Party shall be applied to the Obligations in such order and manner as Secured Party shall determine in its sole discretion, or shall be remitted to the Debtor, in either event at Secured Party's sole discretion.
(c) Tax and Other Liens. Comply with all statutes and government regulations and pay all taxes (including withholdings), assessments, governmental charges or levies, or claims for labor, supplies, rent and other obligations made against it or its property which, if unpaid, might become a lien or charge against the Debtor or its properties.
(d) Place of Business. Maintain its place of business and chief executive offices at the address set forth in the first paragraph of this Agreement.
(e) Inspections. Upon reasonable notice and during normal business hours, allow Secured Party by or through any of their officers, and/or accountants designated by Secured Party, to enter the offices and plants of the Debtor to examine or inspect any of the properties, books and records or extracts therefrom relating to Debtor's financial or business conditions, to make copies of such books and records or extracts therefrom, and to discuss, the affairs, finances and accounts thereof with the Debtor all at such reasonable times and as often as Secured Party or any such representative of Secured Party may reasonably request.
(f) Litigation. Promptly advise Secured Party of the commencement or threat of litigation, including arbitration proceedings and any proceedings before any governmental agency (collectively, "Litigation"), which is instituted against the Debtor.
(g) Maintenance of Existence. Maintain its corporate or partnership existence, as the case may be, and comply with all valid and applicable statutes, rules and regulations, and maintain its properties in good repair, working order and operating condition. The Debtor shall immediately notify Secured Party of any event causing material loss in the value of its assets.
(h) Collateral Duties. Do whatever Secured Party may reasonably request from time to time by way of obtaining, executing, delivering and filing financing statements,
Page 6 of l3
assignments, landlord's or mortgagee's waivers, and other notices and amendments and renewals thereof, and the Debtor will take any and all steps and observe such formalities as Secured Party may request in order to create and maintain a valid and enforceable first lien upon, pledge of, and first priority security interest in any and all Collateral. Secured Party is authorized to file financing statements without the signature of the Debtor and to execute and file such financing statements on behalf of the Debtor as specified by the UCC to perfect or maintain Secured Party's security interest in all of the Collateral. All charges, expenses and fees Secured Party may incur in filing any of the foregoing, together with reasonable costs and expenses of any lien search required by Secured Party, and any taxes relating thereto, shall be charged to the Debtor and added to the Obligations.
(i) Notice of Default. Provide to Secured Party, within four business days after becoming aware of the occurrence or existence of an Event of Default or a condition which would constitute an Event of Default but for the giving of notice or passage of time on both, notice in writing of such Event of Default or condition.
6. Negative Covenants of the Debtor. The Debtor covenants and agrees that from the date hereof until full and final payment and performance of all Obligations, the Debtor shall not without the prior written consent of Secured Party:
(a) Encumbrances. Incur or permit to exist any lien, mortgage, charge or other encumbrance against any of the Collateral, whether now owned or hereafter acquired, except: (i) liens required or expressly permitted by this Agreement or with the consent of the Secured Party; (ii) pledges or deposits in connection with or to secure worker's compensation, unemployment or liability insurance; and (iii) tax liens which are being contested in good faith with the prior written consent of Secured Party and against which, if requested by Secured Party as a condition to its consent, the Debtor shall set up a cash reserve or post a surety bond in an amount equal to the total amount of the lien being contested.
(b) Consolidation or Merger. Subject to Section 10(d) herein, merge into or consolidate with or into any corporation.
(c) Sale and Lease of Assets. Sell, lease or otherwise dispose of any of its assets, except for sales of inventory in the ordinary course of business.
(d) Name Changes. Change its corporate name or conduct its business under any trade name or style other than as set forth in this Agreement.
(e) Maintenance of Collateral. Permit to incur or suffer any loss, theft, substantial damage or destruction of any of the Collateral which is not immediately replaced with Collateral of equal or greater value, or which is not fully covered by insurance, the proceeds of which shall have been endorsed over to Secured Party in accordance with Section 5(b) hereof
7. Rights of Secured Party. Upon the occurrence of any Event of Default, Secured Party shall have the right to declare all of the Obligations to be immediately due and payable and
Page 7 of l3
shall then have the rights and remedies of a secured party under the Uniform Commercial Code or under any other applicable law, including, without limitation, the right to take possession of the Collateral, and in addition thereto, the right to enter upon any premises on which the Collateral or any part thereof may be situated and remove the same therefrom and the right to occupy the Debtor's premises for the purposes of liquidating Collateral, including without limitation, conducting an auction thereon. Secured Party may require the Debtor to make the Collateral (to the extent the same is moveable) available to Secured Party at a place to be designated by Secured Party. Unless the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, Secured Party will give the Debtor at least ten (10) days' prior written notice at the address of the Debtor set forth above (or at such other address or addresses as the Debtor shall specify in writing to Secured Party) of the time and place of any public sale thereof or of the time after which any private sale or any other intended disposition thereof is to be made. Any such notice shall be deemed to meet any requirement hereunder or under any applicable law (including the Uniform Commercial Code) that reasonable notification be given of the time and place of such sale or other disposition. After deducting all costs and expenses of collection, storage, custody, sale or other disposition and delivery (including reasonable attorneys' fees) and all other reasonable charges against the Collateral, the residue of the Proceeds of any such sale or disposition shall be applied to the payment of the Obligations in such order of priority as Secured Party shall determine and any surplus shall be returned to the Debtor or to any person or party lawfully entitled thereto. In the event the Proceeds of any sale, lease or other disposition of the Collateral hereunder, including without limitation, the Proceeds from the collection of Accounts, are insufficient to pay all of the Obligations in full, the Debtor will be liable for the deficiency, together with interest thereon, at the maximum rate allowable by law, and the costs and expenses of collection of such deficiency, including (to the extent permitted by law) without limitation, reasonable attorneys' fees, expenses and disbursements.
8. Right of Secured Party to Use and Operate Collateral, Etc. Upon the occurrence of any Event of Default, Secured Party shall have the right and power to take possession of all or any part of the Collateral, and to exclude the Debtor and all persons claiming under the Debtor wholly or partly therefrom, and thereafter to hold, store, and/or use, operate, manage and control the same. Upon any such taking of possession, Secured Party may, from time to time, at the expense of the Debtor, make all such repairs, replacements, alterations, additions and improvements to the Collateral as Secured Party may deem proper. In any such case Secured Party shall have the right to manage and control the Collateral and to carry on the business and to exercise all rights and powers of the Debtor in respect thereto as Secured Party shall reasonably deem best, including the right to enter into any and all such agreements with respect to the operation of the Collateral or any part thereof as Secured Party may see fit; and Secured Party shall be entitled to collect and receive all issues, profits, fees, revenues and other income of the same and every part thereof Such issues, profits, fees, revenues and other income shall be applied to pay the expenses of holding and operating the Collateral and of conducting the business thereof, and of all maintenance, repairs, replacements, alterations, additions and improvements, and to make all payments which Secured Party may be required or may elect to make, if any, for taxes, assessments, insurance and other charges upon the Collateral or any part thereof, and all other payments which Secured Party may be required or authorized to make
Page 8 of l3
under any provision of this Agreement (including legal costs and reasonable attorneys' fees). The remainder of such issues, profits, fees, revenues and other income shall be applied to the payment of the Obligations in such order of priority as Secured Party shall determine. Without limiting the generality of the foregoing, Secured Party shall have the right to apply for and have a receiver appointed by a court of competent jurisdiction in any action taken by Secured Party to enforce its rights and remedies hereunder in order to manage, protect and preserve the Collateral and continue the operation of the business of the Debtor and to collect all revenues and profits thereof and apply the same to the payment of all expenses and other charges of such receivership including the compensation of the receiver and to the payment of the Obligations as aforesaid until a sale or other disposition of such Collateral shall be finally made and consummated.
9. Events of Default. The Debtor shall be in default under this Agreement upon the happening of any of the following events or conditions (herein individually called an "Event of Default" and collectively called "Events of Default");
(a) Failure to pay any part of the Obligations when due or failure to pay any amounts due under those certain loans from Secured Party to Debtor of an even date hereof
(b) Nonperformance by the undersigned of any agreement with, or any condition imposed by, Secured Party, with respect to the indebtedness;
(c) Secured Party's discovery of the undersigned's failure in any application of the undersigned to Secured Party to disclose any fact deemed by Secured Party to be material or of the making therein or in any of the said agreements, or in any affidavit or other documents submitted in connection with said application or the indebtedness, of any misrepresentation by, on behalf of, or for the benefit of the Debtor;
(d) The reorganization (other than a reorganization pursuant to any of the provisions of the Bankruptcy Reform Act of 1978, as amended), or merger or consolidation of the Debtor (or the making of any agreement therefor) without the prior written consent of Secured Party;
(e) The Debtor's failure duly to account, to Secured Party's satisfaction, at such time or times as Secured Party may require, for any of the Collateral, or proceeds thereof, coming into the control of the Debtor; or
(f) The institution of any suit affecting the Debtor deemed by Secured Party to affect adversely its interest hereunder in the Collateral or otherwise.
10. Termination; Assignment, Etc. This Agreement and the security interest in the Collateral created hereby shall terminate when all of the Obligations have been paid and finally discharged in full. No waiver by Secured Party or by any other holder of the Obligations of any default shall be effective unless in writing signed by Secured Party nor shall any waiver granted on any one occasion operate as a waiver of any other default or of the same default on a future occasion. In the event of a sale or assignment by Secured Party of all or any of the Obligations
Page 9 of l3
held by Secured Party, Secured Party may assign or transfer its respective rights and interests under this Agreement in whole or in part to the purchaser or purchasers of such Obligations, whereupon such purchaser or purchasers shall become vested with all of the powers and rights hereunder, and Secured Party shall thereafter be forever released and fully discharged from any liability or responsibility hereunder with respect to the rights and interests so assigned except that Secured Party shall be liable for damages suffered by the Debtor as a result of actions taken by Secured Party in bad faith or with willful misconduct.
11. Notices. Except as otherwise provided herein, notice to the Debtor or to Secured Party shall be deemed to have been sufficiently given or served for all purposes hereof if mailed by certified or registered mail, return receipt requested, as follows:
(a) if to Debtor:
Cel-Sci Corporation
8229 Boone Boulevard
Vienna, Virginia 22182
Attention: Geert Kersten, CEO
(b) if to Secured Party:
Cambrex Bio Science, Inc.
5901 East Lombard Street
Baltimore, Maryland 21224
Attention: Jacques R. Rubin, President
12. Miscellaneous. This Agreement shall inure to the benefit of and be binding upon Secured Party and the Debtor and their respective successors and assigns. In case any provision in this Agreement shall be invalid, illegal or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which shall be an original, but all of which together shall constitute one instrument.
13. Governing Law. This Agreement shall be governed by the laws of the State of Maryland (but not its conflicts of law provisions) and may not be amended except in writing.
14. Waivers, Etc. The Debtor hereby waives presentment, demand, notice, protest and all other demands and notices in connection with this Agreement or the enforcement of Secured Party's rights hereunder or in connection with any Obligations or any Collateral; consents to and waives notice of: (a) the granting of renewals, extensions of time for payment or other indulgences to the Debtor or to any account debtor in respect of any account receivable of the Debtor; (b) substitution, release or surrender of any Collateral; (c) the addition or release of persons primarily or secondarily liable on any of the Obligations or on any account receivable or other Collateral; and (d) the acceptance of partial payments on any Obligations or on any account
receivable or other Collateral and/or the settlement or compromise thereof. No delay or omission on the part of Secured Party in exercising any right hereunder shall operate as a waiver of such right or of any other right hereunder. Any waiver of any such right on any one occasion shall not be construed as a bar to or waiver of any such right on any such future occasion.
15. Jury Waiver. THE DEBTOR AND SECURED PARTY EACH HEREBY WAIVE TRIAL BY JURY IN ANY COURT IN ANY SUIT, ACTION OR PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR IN ANY WAY RELATED TO THE FINANCING TRANSACTIONS OF WHICH THIS AGREEMENT IS A PART. THE DEBTOR FURTHER WAIVES THE ENFORCEMENT OF ANY OF SECURED PARTY'S RIGHTS AND REMEDIES, INCLUDING WITHOUT LIMITATION, TORT CLAIMS. THE DEBTOR ACKNOWLEDGES THAT DEBTOR MAKES THIS WAIVER VOLUNTARILY, INTELLIGENTLY, KNOWINGLY, WITHOUT DURESS AND ONLY AFTER EXTENSIVE CONSIDERATION OF THE RAMIFICATIONS THEREOF.
16. Concerning Revised Article 9 of the Uniform Commercial Code. The parties acknowledge and agree to the following provisions of this Agreement in anticipation of the possible application, in one or more jurisdictions to the transactions contemplated hereby, of the revised Article 9 of the Uniform Commercial Code in the form or substantially in the form approved in 1998 by the American Law Institute and the National Conference of Commissioners on Uniform State Law ("Revised Article 9").
(a) Attachment. In applying the law of any jurisdiction in which Revised Article 9 is in effect, the Collateral shall be all assets of the Debtor listed in Exhibit A, whether or not within the scope of Revised Article 9. If the Debtor shall at any time, whether or not Revised Article 9 is in effect in any particular jurisdiction, acquire a commercial tort claim, as defined in Revised Article 9, the Debtor shall immediately notify the Secured Party in a writing signed by the Debtor of the brief details thereof and grant to the Secured Party in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to the Secured Party.
(b) Perfection by Filing. The Secured Party may at any time and from time to time, file financing statements, continuation statements and amendments thereto that describe the Collateral as all assets of the Debtor or words of similar effect and which contain any other information required by Part 5 of Revised Article 9 for the sufficiency or filing office acceptance of any financing statement, continuation statement or amendment, including whether the Debtor is an organization, the type of organization and any organization identification number issued to the Debtor. The Debtor agrees to furnish any such information to the Secured Party promptly upon request. Any such financing statements, continuation statements or amendments may be signed .by the Secured Party on behalf of the Debtor, and may be filed at any time in any jurisdiction whether or not Revised Article 9 is then in effect in that jurisdiction. The Debtor hereby irrevocably appoints the Secured Party as Debtor's Attorney-In-Fact, coupled with an interest, for the purposes hereof
(c) Other Perfection, etc. The Debtor shall at any time and from time to time, whether or not Revised Article 9 is in effect in any particular jurisdiction, take such steps as the Secured Party may reasonably request for the Secured Party (a) to obtain an acknowledgement, in form and substance satisfactory to the Secured Party, of any bailee having possession of any of the Collateral that the bailee holds such Collateral for the Secured Party, and (b) otherwise to insure the continued perfection and priority of the Secured Party's security interest in any of the Collateral and of the preservation of its rights therein, whether in anticipation and following the effectiveness of Revised Article 9 in any jurisdiction.
(d) Savings Clause. Nothing contained in this section shall be construed to narrow the scope of the Secured Party's security interest in any of the Collateral or the perfection or priority thereof or to impair or otherwise limit any of the rights, powers, privileges or remedies of the Secured Party hereunder except to the extent (and then only to the extent) mandated by Revised Article 9 to the extent then applicable.
[SIGNATURE PAGES FOLLOW]
IN WITNESS WHEREOF, the parties have executed this Agreement as a sealed instrument as of the date first above written.
WITNESS/ATTEST: CEL-SCI CORPORATION /s/ Gavin de Windt By: /s/ Geert Kersten (SEAL) -------------------------- ---------------------- |
Address:8229 Boone Boulevard, Suite 802 Vienna, VA 22182
Address(es) where Collateral is Address(es) of other places(s) or is to be located: of business of the Pledgor:
(1) 5901 East Lombard Street (1) 4820-C Seton Drive
--------- -------------- ------------ -----
Baltimore, Maryland 21224 Baltimore, MD 21215
-------------------------
(2) 4820-C Seton Drive (2)-__________________________
------------ -----
Baltimore, MD 21215 _____________________________
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|
Previous legal and/or trade name(s) of the Pledgor:
/s/ Shelly Upton By: /s/ Jacques Rubin (SEAL) ------------------------------- ----------------------------------- |
Page 13 of l3
PROMISSORY NOTE AMENDMENT
Effective December 6, 2001, the Promissory Note (the "Note"), dated November 15, 2001, by and between CEL-SCI CORPORATION, a Colorado corporation (the "Borrower") and CAMBREX BlO SCIENCE, INC., a Maryland corporation (the "Lender") shall be amended as follows:
Said principal shall be payable in full on January 2, 2003.
All other terms and conditions of said Note shall remain in full force and effect. This amendment shall be subject to said terms and conditions.
IN WITNESS WHEREOF, the Borrower has executed and delivered under seal said Promissory Note Amendment as of the day and year first above written.
WITNESS: BORROWER:
CEL-SCI CORPORATION
/s/ Gavin de Windt By: /s/ Geert Kersten (SEAL)
------------------- ----------------------
|
IN WITNESS WHEREOF, the Lender hereby acknowledges and accepts said Promissory Note Amendment as of the day and year first above written.
WITNESS: LENDER:
CAMBREX BIO SCIENCE, INC.
/s/ Shelly Upton By: /s/ Jacques Rubin (SEAL)
----------------- --------------------
|
AGREEMENT AND AMENDMENT
OF PROMISSORY NOTE
This Agreement and Amendment of Promissory Note (this "Agreement") made this 23rd day of December 2002 by and between CEL-SCI Corporation ("CEL-SCI") and Cambrex Bio Science Baltimore, Inc., fka Cambrex Bio Science, Inc. ("CBB") is made for the purpose of setting forth the terms and conditions by which the Promissory Note dated November 15, 2001, as amended, (the "Note") given by CEL-SCI to CBB will be amended. Capitalized terms used herein and not otherwise defined are defined in the Note.
For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
1. The maturity date of the Note is extended to January 2, 2004.
2. The deposit currently held by CBB in the amount of $125,000 will be applied by CBB to the principal amount of the Note. In addition, that certain equipment described in Exhibit A of that certain Security Agreement dated as of November 15, 2001 given by CEL-SCI in favor of CBB is hereby sold, transferred, assigned and conveyed to CBB in consideration for a reduction of $100,000 in the principal amount of the Note. Such equipment will be delivered to CBB no later than thirty (30) days from the date of this Agreement, with CEL-SCI bearing the costs of such delivery. CEL-SCI acknowledges that as of the date hereof, after giving effect to the application of the foregoing amounts to the principal amount of the Note, it is indebted under the Note in the principal amount of $947,517.00, plus accrued interest. CEL-SCI represents and warrants that it has no counterclaim, defenses or offset to any obligations under the Note or any Loan Document and waives any counterclaims, defenses or offset which it may currently have
3. CEL-SCI is currently in negotiations with SDS Merchant Fund, L.P. and Bristol Investment Fund, Ltd. regarding a future financing ("SDS Financing"). CEL-SCI agrees to pay CBB $150,000 within three (3) business days of the closing of the SDS Financing, provided however that if this financing is provided in two segments, no amounts will be due CBB from funds received from the second segment; provided that the entire $150,000 is paid from the first segment. Of this amount, $145,000 will be applied to the remaining principle amount of the Note and $5,000 will be applied to the trade receivable owed by CEL-SCI to Cambrex Bio Science Walkersville, Inc., an affiliate of CBS. In the event CEL-SCI does not complete the current SDS Financing, but completes a subsequent financing with substantially the same terms as the SDS Financing, then CEL-SCI shall pay CBB $150,000 from this subsequent financing.
4. Separate and apart from the payment to be made in accordance with
Section 3 of this Agreement CEL-SCI agrees to pay CBB 10% of any net funds
(finds minus expenses related to the financing as determined by Deloitte and
Trouche for accounting purposes) received by CEL-SCI from future financings, but
not the SDS Financing mentioned in number 3 above. Such payment obligations
shall continue for all periods in which any amount remains due on the Note,
Future financings shall include without limitation, financing from third party
sources as well as financing from CEL-SCI's existing line of credit and any
future lines of credit; however, grants for specific projects (e.g. SBIR grants)
shall not be considered future financings. CELSCI agrees to provide CBS with copies of the documentation relating to any such future financings and to make any payments required by this section 4 to CBB within three (3) business days of the receipt by CEL-SCI of funds from any future financing.
5. CBB at its option may convert all or part of the amount due CBB
pursuant to the Note into such number of fully paid and non-assessable shares of
CEL-SCI's common stock as is determined by dividing (x) that portion of the
outstanding balance of the Note (including principal, interest and any fees) as
of such date that CBB elects to convert by (y) the Conversion Price then in
effect on the date on which CBS faxes a notice of conversion (the "Conversion
Notice"), duly executed, to CEL-SCI (facsimile number (703) 506-9471, Attn:
Chief Financial Officer) (the "Conversion Date"). The "Conversion Price" means
an amount equal to 90% of the average of the closing prices of CEL-SCI's Common
Stock for the three (3) daily trading days immediately prior to the Conversion
Date. In no event however may the Conversion Price be less than $0.22. Any
shares issuable to CBS as a result of any conversion of the Note will be sent to
CBS by CEL-SCI's transfer agent within five (5) business days of the receipt by
CELSCI of a Conversion Notice.
6. The parties agree that the shares of common stock which CBB may receive upon the conversion of the Note may be resold pursuant to the provisions of Rule 144 of the Securities and Exchange Commission, provided however, CBB may not sell more than 300,000 shares of CEL-SCI's common stock in any three (3) month period (as such number of shares may be adjusted to reflect any stock splits, reverse stock splits, stock dividends, or similar changes to CEL-SCI's common stock).
7. If CEL-SCI breaches any provisions of this Agreement, and fails to cure such breach within five (5) business days of receiving written notice of such default from CBB (confirmed facsimile transmission being deemed acceptable notice), the Note, together with all accrued interest, will be immediately due and payable.
8. CBB and its affiliates shall have the right of first refusal to be the sole manufacturer for CEL-SCI, in the event that any CEL-SCI current or future products require lots to be manufactured either for clinical trial or commercial production.
9. Except as modified by this Agreement, all other provisions of the Note remain in full force and effect.
10. CEL-SCI has full right and authority to enter into this Agreement and fulfill the obligations set forth herein and shall defend, indemnify and hold harmless CBS in the event of a breach of this provision. CEL-SCI does hereby ratify, reaffirm and continue its obligations; security interests, guaranties and subordinations to or in favor of CBB under the Note and the other Loan Documents, and acknowledges that none of the foregoing is subject to any offset, defense, counterclaim or deduction of any kind whatsoever.
11. CBS hereby represents and warrants that there exists no condition which at present constitutes, or with the passage of time and/or the giving of notice would constitute, an
Event of Default as defined in the Note or any other Loan Document. CBB hereby acknowledges and agrees that any misrepresentation contained in this Agreement shall constitute an Event of Default as defined in the Note.
12. Nothing in this Agreement shall be considered or construed as a waiver or relinquishment by CBB of any covenants, rights and/or remedies available to it, whether under the Note or any of the other Loan Documents, or otherwise.
13. CEL-SCI will execute such additional documents as are reasonably requested by CBS to reflect the terms and conditions of this Agreement and will cause to be delivered such other documents and instruments as are reasonably required by CBB. Except as otherwise expressly provided in this Agreement, nothing herein shall be deemed to amend or modify any provision of the Note, or any of the other Loan Documents, each of which shall remain in full force and effect.
14. This Agreement is not intended to be, nor shall it be construed to create, a novation or accord and satisfaction, and the Note, as herein modified, shall continue in full force and effect. In addition to the foregoing, the parties agree that nothing herein shall effect the priority of the Note with respect to any other creditors of CEL-SCI.
15. Delivery of an executed counterpart of the signature page hereof by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. This Agreement shall not become effective until counterparts hereof shall have been executed and delivered to CBB by CEL-SCI.
16. No rights are intended to be created hereunder for the benefit of any third party donee, creditor or incidental beneficiary of CEL-SCI. In addition, and without limitation of the generality of the foregoing, in no event shall this Agreement nor any of its provisions constitute or be deemed to constitute any basis for an assertion by any notemaker, guarantor, obligor, pledgor or mortgagor of any claim, counterclaim, right of recoupment, defense or set-off of any kind or nature whatsoever with respect to amounts due and owing under the Note and the Loan Documents.
The parties agree to the foregoing Agreement relating to Amendment of Promissory Note dated December 23, 2002 by duly authorized signature below:
CEL-SCI CORPORATION
By /s/Geert Kersten
----------------------------------
Geert Kersten, Chief Executive Officer
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CAMBREX BIO SCIENCE BALTIMORE, INC,
By /s/ Aaron Heifetz ---------------------------------- Aaron Heifetz, Vice President and General Manager |
EXHIBIT 10(z)
DEVELOPMENT, SUPPLY AND
DISTRIBUTION AGREEMENT
DEVELOPMENT, SUPPLY AND DISTRIBUTION AGREEMENT ("Agreement") dated November 10, 2000, by and between CEL-SCI Corporation, a Colorado corporation, located at 8229 Boone Boulevard, Suite 802, Vienna, Virginia 22182, USA ("CEL-SCI"), and Orient Europharma Co., Ltd., a corporation organized and existing under the laws of Taiwan, R.O.C., located at 7F., No.368, Sec. 1, Fu Hsing S. Road, Taipei, Taiwan, Republic of China ("Orient Europharma").
WHEREAS, CEL-SCI and Orient Europharma are engaged in the development and distribution, respectively, of pharmaceutical products; and
WHEREAS, Orient Europharma has broad marketing and distribution capabilities and regulatory expertise in the Territory (as defined) with respect to pharmaceutical products; and
WHEREAS, Orient Europharma wishes to obtain from CEL-SCI exclusive marketing and distribution rights in the Territory with respect to CEL-SCI's pharmaceutical Product (as defined) manufactured and developed by CEL-SCI, and wishes to have CEL-SCI supply it with such Product; and
WHEREAS, Orient Europharma wishes to fund the clinical trials necessary to obtain Product registrations in the Territory; and
WHEREAS, CEL-SCI wishes to grant Orient Europharma exclusive marketing and distribution rights for cancer indications and to supply Orient Europharma with such Product for clinical trial use and resale in the Territory;
NOW, THEREFORE, in consideration for the mutual promises contained herein, the parties agree as follows:
1. Definitions
As used in this Agreement, the following definitions shall apply:
a. "Commencement Date" shall mean, with respect to the Product, the date of the first commercial sale of such Product in Taiwan. If the Product is not approved for sale in Taiwan, then "Commencement Date" will be the date of first commercial sale in any country of the Territory, as acknowledged in writing by Orient Europharma and CEL-SCI.
b. "Contract Year" shall mean a calendar year, according to the USA calendar.
c. "FOB" shall have the meaning ascribed in the Uniform Commercial Code in effect in Maryland, USA. "FOB point of origin" shall mean FOB at the CEL-SCI manufacturing or packaging site or at its contractor's site where such activities are performed, for the Product in the USA.
d. "THA" shall mean the Taiwanese Health Authorities, or its successors.
e. "IND" shall mean an Investigational New Drug application filed with the U.S. or Canadian health authorities or any other national health authority recognized by the THA in the Territory covering manufacture of the Product dosage form(s) being evaluated in clinical trials under such IND.
f. "Labeling" shall mean all package inserts, vial labels and carton imprints and all other markings on packaging for, or other similar materials related to, the Product for commercial sale that are defined as labeling under any applicable law or regulation. "Labeling" shall also mean such labeling applicable to the use of clinical supplies (e.g., Investigational Drug Brochure).
g. "Manufacturing Cost" shall mean CEL-SCI's fully-burdened direct and indirect manufacturing costs and expenses associated in producing the Product, including, but not limited to, cost of materials, supplies, utilities, rent, labor (including taxes, benefits, overheads), third party contract expenses, administration, depreciation for plant and equipment and any other direct expenses.
h. "Gross Selling Price" is (1) the national reimbursement price approved by THA or the equivalent regulatory agency in the other countries of the Territory, or (2) in the event that THA or the equivalent regulatory agencies in the other countries do not grant the approval to reimburse the payments, Gross Selling Price is the contract price between Orient Europharma and the major hospitals in Taiwan or other countries in the Territory.
i. "Specifications" shall mean, with respect to the Product, the specifications set forth in the IND for such Product approved by the health authorities in the Territory.
j. "Product" shall mean CEL-SCI's Leukocyte Interleukin Injection (Multikine(TM)), plus any improvements thereto, which shall comply with the Specifications, approved by health authorities in the Territory.
k. "Purchase Price" is (1) the transfer price of Product for commercial
sale from CEL-SCI to Orient Europharma as specified in Section 9(b)
; or (2) the transfer price of Product for clinical use according to
Section 9(c).
l. "Term" shall have the meaning ascribed to it in Section 3(a) hereof.
m. "Territory" shall mean Taiwan, Singapore, Malaysia and Hong Kong. CEL-SCI grants to Orient Europharma the right of first negotiation with respect to Thailand, China and the Philippines.
2. Authorization and Acceptance of Distribution
a. Subject to the terms and conditions herein contained, CEL-SCI hereby appoints Orient Europharma, following regulatory approval for sale, as its exclusive distributor to market, distribute and sell the Product for human cancer indications in the Territory.
b. Orient Europharma will be entitled to appoint sub-distributors for the Territory with respect to marketing, distributing and selling the Product and to perform any of the obligations undertaken by it under this Agreement through any corporation or entity controlling or under common control with Orient Europharma. These appointments will be subject to CEL-SCI approval which approval will not be unreasonably withheld.
3. Term
a. The term of this Agreement shall commence on the date hereof and shall terminate on the fifteenth anniversary date of the Commencement Date for the Product. The 15-year term may hereinafter be referred to as the "Term."
b. After the 15-year period has expired, the exclusive Term for the Product shall automatically be extended for successive two-year periods unless at least six months before the expiration of the then current period for such Product, either party gives written notice to the other that it does not wish to extend the exclusive Term.
c. Following the expiration of the 15-year Term, with or without its 2-year extension, all rights of Orient Europharma to the Product, as well as any discoveries, inventions, or improvements to the Product will expire and revert to CEL-SCI. In addition, Orient Europharma will sign over to CEL-SCI any rights that Orient Europharma may retain in the Product (e.g. product registration in the countries of
the Territory). Orient Europharma will also return all data and/or documents that relate to the Product. Notwithstanding anything herein to the contrary, Orient Europharma shall have the right to sell Product obtained from CEL-SCI hereunder in its possession after termination of this Agreement.
4. Regulatory Approvals
a. Orient Europharma shall file substantially complete and correct applications in all countries of the Territory where clinical trials will be conducted.
b. Orient Europharma represents and warrants that it has, and will maintain during the Term, all approvals necessary to conduct clinical trials and to market, sell and distribute the Product in the Territory, and that it may lawfully purchase such Product from CEL-SCI, for human cancer indications.
c. After receiving from CEL-SCI all pertinent documentation required by various regulatory authorities, Orient Europharma, at its own expense and as promptly as possible, shall file substantially complete and correct applications for all approvals necessary to , market, sell and distribute the Product in the Territory. In support of such filings, CEL-SCI agrees to provide pertinent information and technical assistance to Orient Europharma in seeking these approvals. CEL-SCI shall provide to a third party chosen by CEL-SCI, all pertinent process technology information necessary for registration of the Product to the extent that is permitted by the applicable laws and regulations in the Territory. The third party will forward such information to the health authorities for the purpose of completing the Orient Europharma application(s).
d. In addition to the provisions of Sections 4(b) and (c), Orient Europharma shall, at its own expense and as promptly as possible, use all due diligence to obtain all additional governmental and other approvals which may subsequently become necessary for Orient Europharma to import and market, sell and distribute such Product for human cancer indications throughout the Territory.
e. Orient Europharma shall promptly provide to CEL-SCI copies, along with English translations, of all of its product registrations and other approvals for the marketing, distribution and sale of the Product in the Territory. Orient Europharma shall comply with all applicable laws in the Territory in conducting clinical studies and in marketing, distributing and selling the Product.
f. Orient Europharma shall conduct all clinical studies required for the registrations with the health departments in the Territory defined in Section 1(m) of Product required in connection with the approvals and registrations for such Product to be obtained in accordance with Section 4(c). Orient Europharma shall bear all the costs and expenses in conducting such studies in the Territory, including the cost of clinical supplies of the Product from CEL-SCI, the cost of the Clinical Research Organization (CRO), plus CEL-SCI's expenses associated with regulatory applications. In particular,
Orient Europharma will assist CEL-SCI to conduct clinical trial(s) of the Product in Taiwan and/or other sites within the Territory, and shall bear all costs and expenses relating to such trial(s). Orient Europharma will also reimburse CEL-SCI for reasonable travel and hotel expenses of two trips per year to Taiwan for a team of CEL-SCI representatives, business class airfare. Orient Europharma agrees to pay for additional trips, if deemed necessary.
g. CEL-SCI will design and direct the clinical trials in the Territory through an internationally recognized CRO, at Orient Europharma's expense.
h. All preclinical and clinical data generated in the Territory shall belong to CEL-SCI for CEL-SCI's use in Product registrations outside the Territory.
k. Orient Europharma shall be subject to meeting certain milestones in any country in the Territory:
(1) Start clinical trial(s)* 2001 (2) Start Phase III trials** 2002 (3) Start Phase III trials*** 2003 |
* of squamous cell carcinoma of the oral cavity (SCC) and adenocarcinoma of the nasal pharynx (ANP). ** of SCC *** of ANP, if supported by data.
If Orient Europharma fails to meet any milestone, through no fault of CEL-SCI, CEL-SCI will have the right to re-negotiate or terminate this Agreement.
5. Manufacturing and Packaging of Product
a. CEL-SCI will manufacture the Product and deliver as finished Product suitable for use in clinical trials and subsequently for sale or in bulk where the country allows.
b. Orient Europharma will provide label copy to be used on vials and
patient packs in all cases where English is not acceptable.
c. Orient Europharma shall be responsible for ensuring the accuracy of
the information and the form of the Labeling for the Product and
their compliance with applicable laws within the Territory.
d. Orient Europharma may market, sell and/or distribute the Product under the trademark owned or used by CEL-SCI (e.g., Multikine(TM)). Upon Orient Europharma's request, CEL-SCI shall license Orient Europharma to use its trademark in the Territory. Orient Europharma may market, sell and/or distribute the Product in the Territory under any trademark owned or used by it as it may from time to time choose. Such trademarks shall become the sole property of CEL-SCI.
6. Shipments of Product for Clinical Trials
a. CEL-SCI will ship, for use in all clinical trials in the Territory, clinical supplies (investigational drug) necessary to support clinical trials.
b. CEL-SCI will invoice Orient Europharma for all clinical supplies, at CEL-SCI cost according to Section 9(c), as well as all shipping costs including customs, storage, and insurance. Payment will be due in 30 days from date of invoice.
7. Supply of the Product for Commercial Sale
a. No later than six months prior to the first day of each Contract Year of the Term, Orient Europharma will provide to CEL-SCI a non-binding forecast of Orient Europharma's annual requirements of the Product for the succeeding Contract Year. CEL-SCI shall advise Orient Europharma within thirty (30) days of its receipt of such forecast of CEL-SCI's anticipated ability to supply the forecasted amount for the applicable period (such confirmed amount, the "Forecasted Amount").
b. If at any time during the Term, CEL-SCI is or expects that it will
be unable to satisfy the Forecasted Amount of Product for any period
of a Contract Year, in full or in part, CEL-SCI shall so notify
Orient Europharma promptly, detailing the extent to which it will
not meet such Forecasted Amount.
c. It shall be the responsibility of CEL-SCI to maintain reasonably
adequate manufacturing capabilities of the Product, using its
reasonable commercial best efforts to supply the Forecasted Amounts.
d. CEL-SCI will be the exclusive and sole supplier of Product to Orient Europharma during the Term of this Agreement.
8. Shipment of Product for Commercial Sale
a. Orient Europharma shall place all orders for Product by delivering to CEL-SCI a written purchase order specifying the Product, quantity and delivery date (which delivery date shall not be less than 180 days after the date such purchase order is delivered to CEL-SCI).
b. After accepting any written purchase order, CEL-SCI shall use reasonable commercial efforts to fill each order by the specified delivery date and shall notify Orient Europharma of anticipated delays in filling any order.
c. With each shipment of Product to Orient Europharma hereunder, CEL-SCI shall invoice Orient Europharma for the Product included in such shipment at the Purchase Price as set forth in Section 9(b). Payment shall be made in U.S. dollars, by Confirmed Irrevocable
Letter of Credit from an internationally recognized bank to CEL-SCI's US bank.
d. Product shall be shipped FOB point of origin. Orient Europharma shall arrange for the carrier or shipping agent to transport each shipment of Product from CEL-SCI's loading dock at the point of origin to desired destination. Orient Europharma will ensure that adequately monitored freezer (-20(Degree)C +/- 3(Degree)C) space is maintained for Product storage prior to its distribution. Orient Europharma shall arrange for carrier / shipment of Product to maintain frozen condition.
9. Purchase Price
a. Both parties agree that the selling price for the Product that Orient Europharma may market, distribute and sell in the Territory shall be calculated in accordance with the formula set forth in Paragraph 9(b) unless agreed by both parties to negotiate in good faith a mutually acceptable adjustment to the Purchase Price.
b. The Purchase Price of Product for commercial sale shall be set at 35% of Orient Europharma's Gross Selling Price in the Territory. However, if this price is ever less than CEL-SCI's Manufacturing Cost plus 50%, the parties will then negotiate, in good faith, a mutually acceptable Purchase Price.
c. The Purchase Price of clinical supplies (investigational drug) shall be at $400/vial, where each vial contains 2.2 mL of Product at a concentration of 400 IU IL-2 equivalent/mL. Starting January 1, 2002, this price will increase at 5% per year.
d. Orient Europharma will purchase 12-month minimum quantities of Product from CEL-SCI, unless CEL-SCI is not able to supply these quantities, starting with the Commencement Date. Minimum quantities cannot include clinical supplies.
Year 1 $ 700,000 Year 2 $ 1,400,000 Year 3 $ 2,100,000 Year 4 $ 3,000,000 Years 5-15 $ 4,000,000 |
If Orient Europharma fails to meet these minimums, this Agreement will become non-exclusive, at CEL-SCI's option.
10. CEL-SCI's Warranty and Liability
a. CEL-SCI warrants and guarantees that, prior to Orient Europharma taking possession, upon delivery FOB point of origin, the Product shall meet the Specifications and shall not be adulterated or misbranded as required by the health authorities within the Territory ("Warranty").
b. CEL-SCI will provide Orient Europharma with a Certificate of Analysis for each shipment of Product, stating test results and the Specifications for such shipment of Product.
c. Other than as in the specifications provided for in this Agreement, CEL-SCI makes no other warranties with respect to the Product. CEL-SCI does not make any implied warranties with respect to the effectiveness of this Product.
d. CEL-SCI shall indemnify, defend and hold harmless Orient Europharma from all actions, losses, claims, demands, damages, costs, and liabilities to which Orient Europharma is or may become liable insofar as they arise out of, or in connection with, any breach by CEL-SCI of any of its obligations or Warranty under this Agreement.
11. Regulatory Compliance
a. It shall be the responsibility of CEL-SCI to ensure that the Product sold by CEL-SCI to Orient Europharma pursuant hereto meets the Specifications at the time of delivery to Orient Europharma FOB point of origin.
b. Orient Europharma shall comply with all applicable laws in the Territory with respect to packaging, marketing, distributing, selling, promoting and advertising the Product in the Territory.
12. Representations, Warranties and Covenants
a. Orient Europharma and CEL-SCI represent and warrant to each other
that each party has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions
contemplated hereby.
b. CEL-SCI further represents, warrants and covenants that:
i) The Product sold to Orient Europharma hereunder does not infringe any patent or third party rights in the United States and the Territory related to the manufacture of the Product; and
ii) CEL-SCI possesses good title to the Product sold to Orient Europharma hereunder; and
iii) CEL-SCI will not market, distribute or sell, to any party other than Orient Europharma, the Product in the Territory except as provided for by this Agreement; and
iv) This Agreement shall be binding upon either party's lawful successors and assigns without changing any terms and conditions hereof.
c. Orient Europharma represents, warrants and covenants that the distribution and sale of the Product, as supplied under this Agreement, shall not violate or infringe any valid trademark, patent and/or copyrights held by third parties within the Territory.
d. Orient Europharma represents that it does not have an agreement with another company for sale or distribution of anticancer cytokine drugs.
13. Protection Rights
a. Except as otherwise provided by this Agreement, CEL-SCI shall not grant any third party the right to sell, ship and/or distribute the Product to any person or entity outside the Territory who CEL-SCI knows intends to sell, ship and/or distribute the Product (in bulk or dosage form) in or to the Territory for human cancer indications. In the event CEL-SCI becomes aware during the time that Orient Europharma has exclusive rights pursuant to this Agreement, that any third party with whom CEL-SCI contracts to distribute Product outside the Territory is selling or distributing Product in the Territory directly or indirectly, CEL-SCI shall promptly advise such third party to cease selling and distributing Product in the Territory. In the event that such third party continues to sell or distribute Product in the Territory following such notice, CEL-SCI shall commence legal action against such party to terminate such activity.
b. During the Term of this Agreement, Orient Europharma shall not directly or indirectly manufacture, develop, ship, market, sell or distribute any immunotherapeutic product that competes with Product in the Territory for the indications of head & neck cancer, adenocarcinoma of the nasal pharynx or cervical cancer. In addition, Orient Europharma shall not directly or indirectly manufacture, develop, ship, market, sell or distribute any product that is a cytokine mixture, for any indication.
c. Orient Europharma shall not directly or indirectly manufacture, develop, ship, market, sell or distribute Product outside the Territory.
d. If there are any new discoveries, inventions, patents, or other intellectual property as the result of this Agreement, CEL-SCI shall own such intellectual property.
14. Confidentiality
a. Any information pertaining to the Product and/or the respective operations of the parties that has been or will be communicated by CEL-SCI to Orient Europharma or by Orient Europharma to CEL-SCI, including, without limitation, trade secrets, business methods, and pricing, cost, supplier, manufacturing and customer information, shall be treated by CEL-SCI and Orient Europharma respectively, and their respective affiliates, employees and agents, as confidential information and shall not be used or revealed to third parties except as necessary in connection with the performance of their respective obligations hereunder; provided, however, that such confidential information shall not be subject to the restrictions and prohibitions set forth in this section to the extent that such confidential information:
i) is available in the public literature or otherwise in the public domain, or after disclosure by one party to the other becomes public knowledge through no fault of the party receiving such confidential information;
ii) was known through legitimate means to the party receiving such confidential information prior to the receipt of such confidential information by such party from the disclosing party, as evidenced by such receiving party's written records, whether received before or after the date of this Agreement;
iii) is obtained in good faith by the party receiving such confidential information from a source other than the party supplying such confidential information who was not under an obligation of confidence or secrecy to either party at the time of such disclosure; or
iv) is required to be disclosed pursuant to:
(A) any order of a court having jurisdiction and power to order such information to be released or made public (with prior notice to the disclosing party and opportunity to contest by such party to the extent legally possible); or
(B) any lawful action of a governmental or regulatory agency (with prior notice to the disclosing party and opportunity to contest by such party to the extent legally possible); or
v) is required to be disclosed to a prospective, bona fide purchaser of the shares or assets of either party hereto, provided all such prospective purchasers agree in writing to be bound by the standards of confidentiality.
b. Each party shall take all such precautions as it normally takes with its own confidential information to prevent any improper disclosure of such confidential information to any independent third party; provided, however, that such confidential information may be
disclosed within the limits required to obtain any authorization from the Taiwanese authorities or any other governmental or regulatory agency in the Territory or, with the prior written consent of the other party, which shall not be unreasonably withheld, as may otherwise be required in connection with the purposes of this Agreement.
15. Force Majeure
If either Orient Europharma or CEL-SCI shall be delayed, hindered, interrupted in or prevented from the performance of any of its obligations hereunder (other than the obligation to pay monies) by reason of force majeure ("Force Majeure"), including, without limitation, fire, earthquake, flood or other acts of God, strike, lockouts, war (declared or undeclared), civil disturbances, embargo, riots, unavailability of essential materials or transportation facilities, orders of any governmental authority (not caused by a default or other action of the party invoking such Force Majeure) or other similar events beyond the control of such party, such party shall not be liable to the other for damages, and the time for performance of such obligation shall be extended for a period of time equal to the duration of the contingency which occasioned such delay, hindrance, interruption or prevention. Orient Europharma understands that the Product is difficult to manufacture and test. Therefore, Orient Europharma understands that there may be manufacturing problems, due to reasons outside of CEL-SCI's control, where CEL-SCI may not be able to supply the Product in a timely manner. CEL-SCI will make best efforts to minimize any delay or interruption in supply.
16. Termination
a. This Agreement may be terminated in its entirety immediately upon written notice of termination given by:
i) The non-defaulting party in the event that the other party
shall:
(A) commit a material breach or default under this Agreement,
which breach or default shall not be remedied within sixty
(60) days after the receipt of written notice thereof by the
party in breach or in default; or
(B) have made a material misrepresentation of any representation or warranty contained herein;
ii) Either party in the event that any free trade agreements affecting the countries, is abrogated, amended or modified so as to materially and adversely affect the commercial benefits inuring to either party under this Agreement as in effect on the date hereof;
iii) Either party if the other party ceases to function as a going
concern or if proceedings in bankruptcy or insolvency are
taken against the other party and not remedied within thirty
(30) days or if its property or business or its shares be
confiscated or expropriated by any government or subdivision thereof;
iv) By CEL-SCI if Orient Europharma fails to meet any milestone specified in Section 4(k).
b. If this Agreement terminates prior to the expiration of the 15-year Term, through no fault of either party, then Orient Europharma shall be compensated for its documented Multikine clinical trial expenses according to the following formula:
C = clinical trial expenses x
where C is the amount to be paid to Orient Europharma, and y is the Contract Year.
17. Indemnification
a. CEL-SCI shall indemnify and hold harmless Orient Europharma and its affiliates, successors and permitted assigns and their respective officers, directors, stockholders, partners and employees from and against any claim, action, suit, proceeding, loss liability, damage or expense (other than special or consequential damages but including reasonable attorneys` fees and expenses) arising from or related to (i) any material breach of any representation, warranty or covenant made by CEL-SCI hereunder, including without limitation any failure to manufacture the Product in conformity with the Warranty and (ii) any negligent storage or handling of Product by CEL-SCI or its employees prior to Product transfer to Orient Europharma (delivery to Orient Europharma FOB point of origin).
b. Orient Europharma shall indemnify and hold harmless CEL-SCI and its
affiliates, successors and permitted assigns and their respective
officers, directors, stockholders, partners and employees from and
against any claim, action, suit, proceeding, loss liability, damage
or expense (other than special, incidental or consequential damages,
but including reasonable attorneys` fees) arising from or related to
(i) any material breach of any representation, warranty or covenant
made by Orient Europharma hereunder, (ii) the storage, handling, use
or sale of Product following delivery Orient Europharma FOB point of
origin, or (iii) packaging instructions provided by Orient
Europharma.
18. Customer Complaints; Recall
a. Pursuant to the United States Code of Federal Regulations Title 21
Section 314.80 , as the same may be amended from time to time,
regarding the reporting of adverse drug experiences, Orient
Europharma shall immediately report to CEL-SCI any information
concerning adverse drug experiences associated with the use of
Product, whether or not considered drug-related, and including but
not necessarily limited to: an adverse event occurring in the course
of the use of Product in clinical trials, or in professional practice; an adverse event occurring from overdose, whether accidental or intentional; or any significant failure of expected pharmacological action. Additionally, reports of routine adverse drug experiences shall be summarized and exchanged between the parties once per calendar year. Orient Europharma shall report potentially serious or unexpected adverse drug experiences as defined in Title 21, Section 314.80, as amended, to CEL-SCI as soon as possible, but in no event later than three (3) days after initial receipt of the information by Orient Europharma and shall maintain a record of each such experience as required under Title 21, Section 314.80(c)(iii). Orient Europharma agrees to cooperate with CEL-SCI in arriving at a mutually acceptable course of action regarding the handling of such information; however, nothing contained herein shall be construed as restricting the right or duty of either party to report the information to the appropriate regulatory bodies.
b. In the event of any recall of Product, as suggested or requested by any governmental authority, or any recall to which both parties agree in writing, Orient Europharma shall perform the recall, and the reasonable documented costs thereof, including CEL-SCI`s and Orient Europharma's respective costs of manufacturing and distributing the Product recalled, will be borne by CEL-SCI or by Orient Europharma if said recall can be attributed to Orient Europharma's fault.
19. Best Efforts
Orient Europharma shall use the same diligent efforts to develop, register, market, sell and distribute the Product in the Territory as with its own products or other licensed products.
20. Patent & Trademark Ownership
CEL-SCI will maintain ownership of its Product patents, trademarks and know how and is responsible for maintaining, prosecuting and defending these patents and trademarks in the Territory.
21. Notices
Any notice or request required or permitted to be given under or in connection with this Agreement shall be in writing in the English language and shall be deemed to have been duly given on the date of delivery if delivered personally, by confirmed facsimile or by courier on the party to whom such notice or request is to be given, or, if sent by certified or registered mail, or the equivalent, postage prepaid, on the tenth (10th) day after the date mailed, to the address set forth for such party below or such other address as directed in writing from time to time:
If to CEL-SCI:
CEL-SCI Corporation
8229 Boone Boulevard, Suite 802
Vienna, Virginia 22182
U.S.A.
FAX:(703) 506-9471
Attention: Mr. Geert Kersten, Chief Executive Officer
If to Orient Europharma:
Orient Europharma Co., Ltd.
7F, NO. 368, Sec.1
Fu-Hsing S. Road
Taipei, Taiwan, R.O.C.
FAX: 886-2-7024324
Attention: Mr. Peter Tsai, President
22. Governing Law; Arbitration
The formation, validity, construction and performance of this
Agreement shall be governed by the laws the Commonwealth of Virginia,
USA. All disputes arising in connection with this Agreement shall be
finally settled by binding arbitration under the Rules of Arbitration of
the International Chamber of Commerce by one or more arbitrators
appointed in accordance with said Rules. Any such arbitration shall be
conducted in English. The arbitration shall take place in Virginia, USA.
The judgment of the arbitration shall be final and binding to both
parties.
23. Miscellaneous
23.1 Entire Agreement
This Agreement constitutes the entire Agreement between the parties
relating to the subject matter hereof, and supercedes all prior
agreements and understandings, oral or written between the parties
with the exception of the Confidential Disclosure Agreement executed
on August 21, 2000. Any change to this Agreement must be in writing
and signed by an authorized officer of each party, and specifically
state that it is an amendment to this Agreement.
23.2 Product Improvements
During the Term of this Agreement, Orient Europharma will have
rights to improvements to the Product at no additional cost.
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23.3 Independent Contractors
Each party is an independent contractor under this Agreement.
Neither party is an agent, partner or legal representative of the
other.
23.4 Late Payments
All amounts due and owing to a party under this Agreement that are
not paid by the other party when due shall bear interest at the rate
of 1 1/2% per month, or if lower, the maximum rate allowed by law,
in either case calculated from the date the amount was first due.
23.5 Withholding Taxes
Payments to CEL-SCI shall be made without deduction other than such
amount (if any) as Orient Europharma is required by law to deduct or
withhold. Orient Europharma shall obtain a receipt from the relevant
taxing authorities for all withholding taxes paid and forward such
receipts to CEL-SCI to enable CEL-SCI to claim any tax credits for
which it may be eligible. Orient Europharma shall use reasonable
efforts to minimize such withholdings and to assist CEL-SCI to claim
exemption from withholdings under any double taxation treaty or
similar agreement.
23.6 Export Law Compliance
Orient Europharma understands that the Product and other materials
may be subject to the export regulations of the US Department of
Commerce or other US regulations related to the export of drugs.
Orient Europharma represents that it is familiar with and agrees to
comply with all such regulations. Orient Europharma agrees that it
will not export or reexport outside of the Territory, directly or
indirectly, any Product, clinical supplies or clinical data relating
to the Product without prior written consent of CEL-SCI. Orient
Europharma agrees to obtain the same agreement from each of its
subdistributors in the Territory.
23.7 Government Inquiries
Each party shall promptly advise the other of any governmental
inquiries about the Product and shall furnish to the other party,
within five days of receipt, any report or correspondence issued by
the governmental authority in connection with such inquiry, purged
only of trade secrets.
23.8 Publicity
The parties agree that news releases, public announcements (written
or oral), professional publications or any publicity relating to
this Agreement, including the initial announcement of the Agreement,
clinical results, regulatory filings and marketing approvals of the
Product in the Territory, shall be mutually agreed by the parties,
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such approval not to be unreasonably withheld. Notwithstanding this
Section 23.8, CEL-SCI may disclose, without approval from Orient
Europharma, any information, including confidential information (1)
required by law or regulation (including, without exception, in
connection with filings with the US Securities and Exchange
Commission); (2) in response to a valid order of a court or other
governmental body of the US or any country in the Territory or of
any political subdivision thereof; (3) otherwise required by
applicable laws; (4) otherwise necessary to file or prosecute patent
applications, prosecute or defend litigation or otherwise enforce
obligations under this Agreement; or (5) required by authorities,
investigators, or Institutional Review Boards in conjunction with
performing clinical development programs, provided that the
receiving party shall use reasonable efforts to restrict disclosure
and to cause such authorities, investigators or IRBs not to disclose
the information to any third party.
23.9 Records
With respect to the Gross Selling Price of Product sold in the
Territory, if Gross Selling Price falls under definition 1 h (2),
then Orient Europharma will, upon request and subject to
confidentiality, provide to CEL-SCI copies of the contracts between
the major hospitals and Orient Europharma showing price provisions.
If these copies are in Chinese, Orient Europharma will translate the
price provisions into English, if necessary. CEL-SCI shall have the
right to these records during the Term of this Agreement and this
right shall expire six months following termination or expiration of
this Agreement.
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23.10 Surviving Obligations
Termination or expiration of this Agreement shall not relieve either party of its obligations under Sections 4(h), 13(d), 14, 17, 18, 20, 22 and 23.5, 23.9.
IN WITNESS HEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
Orient Europharma Co., Ltd. CEL-SCI Corporation
By: /s/ Peter Tsai By: /s/ Geert Kersten
----------------------- ------------------
Peter Tsai Geert Kersten
President Chief Executive Officer
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Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Numbers 333-69678, 333-84756 and 333-31652 of CEL-SCI Corporation on Form S-8 and Registration Statement Numbers 333-71650 and 333-97171 of CEL-SCI Corporation on Form S-3 of our report dated December 15, 2003, appearing in this Annual Report on Form 10-K/A of CEL-SCI Corporation for the year ended September 30, 2003 and to the reference to us under the heading "Experts" in the Registration Statements.
/s/ Deloitte & Touche LLP McLean, Virginia February 6, 2004 |
Exhibit 31
CERTIFICATIONS
I, Geert R. Kersten, the Chief Executive Officer of CEL-SCI Corporation, certify that:
1. I have reviewed this annual report on Form 10-K/A of CEL-SCI Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or cause such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of the internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have significant role in the registrant's internal control over financial reporting.
February __, 2004 /s/ Geert R. Kersten
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Geert R. Kersten
Chief Executive Officer
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CERTIFICATIONS
I, Geert Kersten, the Chief Financial Officer of CEL-SCI Corporation, certify that:
1. I have reviewed this annual report on Form 10-K/A of CEL-SCI Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or cause such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of the internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have significant role in the registrant's internal control over financial reporting.
February __, 2004 /s/ Geert Kersten
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Geert Kersten
Chief Financial Officer
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Exhibit 32
In connection with the Annual Report of CEL-SCI Corporation (the "Company") on Form 10-K /A for the period ending September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Geert Kersten, the Chief Executive and Financial Officer of the Company, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects the financial condition and results of the Company.
By:/s/ Geert Kersten
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Geert Kersten, Chief Executive and Principal
February __, 2004 Financial Officer
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