SCHEDULE 14A
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. __)
Filed by the Registrant [X]
Filed by Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
CEL-SCI CORPORATION
-----------------------------------
(Name of Registrant as Specified In Its Charter)
William T. Hart - Attorney for Registrant
--------- -------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
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previously. Identify the previous filing by registration statement number, or
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2
CEL-SCI CORPORATION
8229 Boone Blvd.
Suite 802
Vienna, Virginia 22l82
(703) 506-9460
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD _______, 2006
To the Shareholders:
Notice is hereby given that the annual meeting of the shareholders of
CEL-SCI Corporation ("CEL-SCI") will be held at _________________________ on
________, 2006, at 11:00 A.M., for the following purposes:
(1) to elect the directors who shall constitute CEL-SCI's Board of Directors
for the ensuing year;
(2) to approve the adoption of CEL-SCI's 2006 Incentive Stock Option Plan
which provides that up to 2,000,000 shares of common stock may be issued upon
the exercise of options granted pursuant to the Incentive Stock Option Plan;
(3) to approve the adoption of CEL-SCI's 2006 Non-Qualified Stock Option
Plan which provides that up to 2,000,000 shares of common stock may be issued
upon the exercise of options granted pursuant to the Non-Qualified Stock Option
Plan;
(4) to approve the adoption of CEL-SCI's 2006 Stock Bonus Plan which
provides that up to 2,000,000 shares of common stock may be issued to persons
granted stock bonuses pursuant to the Stock Bonus Plan;
(5) to approve an amendment to CEL-SCI's Stock Compensation Plan to provide
for the issuance of up to 2,000,000 additional restricted shares of common stock
to CEL-SCI's directors, officers, employees and consultants for services
provided to the Company;
(6) to approve the issuance of CEL-SCI's common stock for the conversion or
payment of CEL-SCI's Series K notes and upon the exercise of CEL-SCI's Series K
warrants;
(7) to ratify the appointment of BDO Seidman, LLP as CEL-SCI's independent
registered public accounting firm for the fiscal year ending September 30, 2006.
to transact such other business as may properly come before the meeting.
_____________, 2006 is the record date for the determination of
shareholders entitled to notice of and to vote at such meeting. Shareholders are
entitled to one vote for each share held. As of ________, 2006, there were
__________ issued and outstanding shares of CEL-SCI's common stock.
CEL-SCI CORPORATION
_________, 2006 By: Geert R. Kersten
-------------------------------
Chief Executive Officer
PLEASE INDICATE YOUR VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD,
AND SIGN, DATE AND RETURN THE PROXY CARD.
TO SAVE THE COST OF FURTHER SOLICITATION,
PLEASE MAIL YOUR PROXY CARD PROMPTLY
CEL-SCI CORPORATION
8229 Boone Blvd.
Suite 802
Vienna, Virginia 22l82
(703) 506-9460
PROXY STATEMENT
The accompanying proxy is solicited by CEL-SCI's directors for voting at the
annual meeting of shareholders to be held on ________, 2006, and at any and all
adjournments of such meeting. If the proxy is executed and returned, it will be
voted at the meeting in accordance with any instructions, and if no
specification is made, the proxy will be voted for the proposals set forth in
the accompanying notice of the annual meeting of shareholders. Shareholders who
execute proxies may revoke them at any time before they are voted, either by
writing to CEL-SCI at the address set forth above or in person at the time of
the meeting. Additionally, any later dated proxy will revoke a previous proxy
from the same shareholder. This proxy statement was mailed to shareholders of
record on or about ________, 2006.
There is one class of capital stock outstanding. Provided a quorum
consisting of one-third of the shares entitled to vote is present at the
meeting, the affirmative vote of a majority of the shares of common stock voting
in person or represented by proxy is required to elect directors. Cumulative
voting in the election of directors is not permitted. The adoption of any other
proposals to come before the meeting will require the approval of a majority of
votes cast at the meeting.
Shares of CEL-SCI's common stock represented by properly executed proxies
that reflect abstentions or "broker non-votes" will be counted as present for
purposes of determining the presence of a quorum at the annual meeting. "Broker
non-votes" represent shares held by brokerage firms in "street-name" with
respect to which the broker has not received instructions from the customer or
otherwise does not have discretionary voting authority. Abstentions and broker
non-votes will not be counted as having voted against the proposals to be
considered at the meeting.
PRINCIPAL SHAREHOLDERS
The following table lists, as of August 15, 2006, the shareholdings of (i)
each person owning beneficially 5% or more of CEL-SCI's common stock (ii) each
officer who received compensation in excess of $100,000 during CEL-SCI's most
recent fiscal year and (iii) all 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 1,283,076 1.6%
Bergstrasse 79
6078 Lungern,
Obwalden, Switzerland
Geert R. Kersten 6,224,392 (2) 7.3%
8229 Boone Blvd., Suite 802
Vienna, VA 22182
Patricia B. Prichep 1,635,459 2.0%
8229 Boone Blvd., Suite 802
Vienna, VA 22182
Eyal Talor, Ph.D. 1,199,537 1.5%
8229 Boone Blvd., Suite 802
Vienna, VA 22182
Daniel H. Zimmerman, Ph.D. 1,197,635 1.5%
8229 Boone Blvd., Suite 802
Vienna, VA 22182
John Cipriano 124,671 0.1%
8229 Boone Blvd., Suite 802
Vienna, VA 22182
Alexander G. Esterhazy 198,333 0.2%
20 Chemin du Pre-Poiset
CH- 1253 Vandoeuvres
Geneve, Switzerland
C. Richard Kinsolving 427,424 0.5%
P.O. Box 20193
Bradenton, FL 34204-0193
Peter R. Young, Ph.D. 199,601 0.2%
1247 Dodgeton Drive
Frisco, TX 75034-1432
All Officers and Directors 12,490,128 13.9%
as a Group (9 persons)
(1) Includes shares issuable prior to October 31, 2006 upon the exercise of
options or warrants granted to the following persons:
2
Options or Warrants Exercisable
Name Prior to October 31, 2006
---- -------------------------------
Maximilian de Clara 1,164,999
Geert R. Kersten 3,458,001
Patricia B. Prichep 1,104,834
Eyal Talor, Ph.D. 764,666
Daniel H. Zimmerman, Ph.D. 768,334
John Cipriano 90,001
Alexander G. Esterhazy 198,333
C. Richard Kinsolving, Ph.D. 358,334
Peter R. Young, Ph.D. 185,000
(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.
ELECTION OF DIRECTORS
Unless the proxy contains contrary instructions, it is intended that the
proxies will be voted for the election of the current directors listed below to
serve as members of the board of directors until the next annual meeting of
shareholders and until their successors shall be elected and shall qualify.
All current directors have consented to stand for re-election. In case any
nominee shall be unable or shall fail to act as a director by virtue of an
unexpected occurrence, the proxies may be voted for such other person or persons
as shall be determined by the persons acting under the proxies in their
discretion.
Certain information concerning CEL-SCI's officers and directors follows:
Name Age Position
---- --- --------
Maximilian de Clara 76 Director and President
Geert R. Kersten, Esq. 47 Director, Chief Executive Officer and Treasurer
Patricia B. Prichep 54 Senior Vice President of Operations
and Secretary
Dr. Eyal Talor 49 Senior Vice President of Research and
Manufacturing
Dr. Daniel H. Zimmerman 64 Senior Vice President of Research, Cellular
Immunology
John Cipriano 63 Senior Vice President of Regulatory Affairs
Alexander G. Esterhazy 61 Director
Dr. C. Richard Kinsolving 69 Director
Dr. Peter R. Young 61 Director
3
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 the
Company 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 CEL-SCI's Senior Vice President of Operations
since March 1994. Between December 1992 and March 1994, Ms. Prichep was
CEL-SCI's Director of Operations. Ms. Prichep became CEL-SCI's Corporate
Secretary in May 2000. 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
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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.
John Cipriano, has been CEL-SCI's Senior Vice President of Regulatory
Affairs since March 2004. Mr. Cipriano brings to CEL-SCI over 30 years of
experience in both biotech and pharmaceutical companies. In addition, he held
positions at the United States Food and Drug Administration (FDA) as Deputy
Director, Division of Biologics Investigational New Drugs, Office of Biologics
Research and Review and was the Deputy Director, IND Branch, Division of
Biologics Evaluation, Office of Biologics. Mr. Cipriano completed his B.S. in
Pharmacy from the Massachusetts College of Pharmacy in Boston, Massachusetts and
his M.S. in Pharmaceutical Chemistry from Purdue University in West Lafayette,
Indiana.
Alexander G. Esterhazy has been 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
5
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).
CEL-SCI's Board of Directors met seven times during the year ended
September 30, 2005. All of the Directors attended each of these meetings either
in person or by telephone conference call.
All of CEL-SCI's officers devote substantially all of their time to
CEL-SCI's business.
CEL-SCI has an audit committee and a compensation committee. The members
of the audit committee are Alexander G. Esterhazy, Dr. C. Richard Kinsolving and
Dr. Peter Young. Dr. Peter Young serves as the audit committee's financial
expert. In this capacity, Dr. Young is independent, as that term is defined in
the listing standards of the American Stock exchange. CEL-SCI's Audit Committee
Charter was filed as an exhibit to the proxy statement pertaining to CEL-SCI's
2003 Annual Shareholders' Meeting. The members of the compensation committee are
Maximilian de Clara, Alexander Esterhazy and C. Richard Kinsolving.
For purposes of electing directors at its annual meeting CEL-SCI does not
have a nominating committee or a committee performing similar functions.
CEL-SCI's board of directors does not believe a nominating committee is
necessary since CEL-SCI's board of directors is small and the board of directors
as a whole performs this function. The current nominees to the Board of
Directors were selected by a majority vote of CEL-SCI's independent directors.
CEL-SCI does not have any policy regarding the consideration of director
candidates recommended by shareholders since a shareholder has never recommended
a nominee to the board of directors. However, CEL-SCI's board of directors will
consider candidates recommended by shareholders. To submit a candidate for the
board of directors the shareholder should send the name, address and telephone
number of the candidate, together with any relevant background or biographical
information, to CEL-SCI's Chief Executive Officer, at the address shown on the
cover page of this proxy statement. The board has not established any specific
qualifications or skills a nominee must meet to serve as a director. Although
the board does not have any process for identifying and evaluating director
nominees, the board does not believe there would be any differences in the
manner in which the board evaluates nominees submitted by shareholders as
opposed to nominees submitted by any other person.
CEL-SCI does not have a policy with regard to board member's attendance at
annual meetings. All board members attended the last annual shareholder's
meeting held on April 21, 2005.
Holders of CEL-SCI's common stock can send written communications to
CEL-SCI's entire board of directors, or to one or more board members, by
addressing the communication to "the Board of Directors" or to one or more
6
directors, specifying the director or directors by name, and sending the
communication to CEL-SCI's offices in Vienna, Virginia. Communications addressed
to the Board of Directors as whole will be delivered to each board member.
Communications addressed to a specific director (or directors) will be delivered
to the director (or directors) specified.
Security holder communications not sent to the board of directors as a
whole or to specified board members are not relayed to board members.
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, 2005.
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, 2005 $363,000 -- $72,041 -- 50,000 --
President 2004 $363,000 -- $60,165 -- 50,000 --
2003 $363,000 -- $65,121 -- 574,999 $72,600
Geert R. Kersten, 2005 $370,585 -- $18,260 $12,700 50,000 $ 30
Chief Executive 2004 $366,673 -- $18,690 $11,296 50,000 --
Officer and 2003 $354,087 -- $12,558 $ 9,244 1,890,000 $71,068
Treasurer
Patricia B. Prichep 2005 $159,864 -- $ 3,000 $ 9,404 30,000 $ 30
Senior Vice President2004 $148,942 -- $ 3,000 $ 7,110 50,000 --
of Operations and 2003 $147,904 -- $ 3,000 $ 4,902 580,000 --
Secretary
Eyal Talor, Ph.D. 2005 $201,154 -- $ 3,000 $ 8,400 30,000 $ 30
Senior Vice President2004 $192,373 -- $ 3,000 $ 4,797 50,000 --
of Research and 2003 $191,574 -- $ 3,000 $ 4,950 374,166 --
Manufacturing
7
Daniel Zimmerman, 2005 $154,350 -- $ 3,000 $ 9,059 30,000 $ 30
Ph.D, 2004 $147,613 -- $ 3,000 $ 7,176 50,000 --
Senior Vice 2003 $147,000 -- $ 3,000 $ 5,005 392,000 --
President of
Cellular Immuno-
logy
John Cipriano 2005 $150,000 -- -- $ 9,000 30,000 $ 30
Senior Vice President
of Regulatory Affairs
(1) The dollar value of base salary (cash and non-cash) received. With respect
to the total salaries paid to the persons shown in the table, during the
years ended September 30, 2005 and 2004 $11,089 and $134,398, respectively,
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
----------- ------------- ---------
10/07/03 133,390 $1.00
09/15/04 19,511 $0.62
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. The price per share was equal to the closing price of CEL-SCI's
common stock on the date prior to the date the shares were issued.
(2) The dollar value of bonus (cash and non-cash) 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 each.
(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 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, 2005, 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:
8
Name Shares Value
---- ------ -----
Maximilian de Clara 537,527 $ 252,638
Geert R. Kersten 2,663,868 $1,252,018
Patricia B. Prichep 519,485 $ 244,158
Eyal Talor, Ph.D. 423,796 $ 199,184
Daniel Zimmerman, Ph.D. 445,616 $ 209,440
John Cipriano 24,287 $ 11,415
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, 2005" 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
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
2005 expenses for this plan were $79,406. Other than the 401(k) Plan, CEL-SCI
does not have a defined benefit, pension plan, profit sharing or other
retirement plan.
9
Compensation of Directors
-------------------------
Standard Arrangements. CEL-SCI currently pays its directors $2,000 each
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 April 2005 CEL-SCI entered into a three-year employment agreement with
Mr. de Clara which expires April 30, 2008. 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 of Mr. de
Clara for any crime involving fraud, moral turpitude, or CEL-SCI's property, or
a breach of the Employment Agreement by Mr. de Clara. If the Employment
Agreement is terminated for any of these reasons, Mr. de Clara, or his legal
representatives, as the case may be, will be paid the salary provided by the
Employment Agreement through the date of termination.
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.
10
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 which is comprised of Maximilian de
Clara, Alexander Esterhazy and C. Richard Kinsolving. During the year ended
September 30, 2005, 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, 2005, 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 provides information concerning the options granted
during the fiscal year ended September 30, 2005, 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, 2005
-----------------------------------------------------------
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 50,000 11.16% $0.48 9/21/2015 $12,007 $24,014
Geert R. Kersten 50,000 11.16% $0.48 9/21/2015 $12,007 $24,014
Patricia B. Prichep 30,000 6.70% $0.48 9/21/2015 $ 7,204 $14,408
Eyal Talor, Ph.D. 30,000 6.70% $0.48 9/21/2015 $ 7,204 $14,408
Daniel Zimmerman,
Ph.D. 30,000 6.70% $0.48 9/21/2015 $ 7,204 $14,408
John Cipriano 30,000 6.70% $0.48 9/21/2015 $ 7,204 $14,408
(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%.
11
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 -- -- 939,999 / 274,999 $95,833 / 47,917
Geert R. Kersten -- -- 2,794,667 / 713,333 $315,000 / $157,500
Patricia Prichep -- -- 886,334 / 256,666 $103,667 / $48,333
Eyal Talor -- -- 613,277 / 188,055 $69,361 / 31,181
Daniel Zimmerman -- -- 611,001 / 193,999 $72,334 / 32,667
John Cipriano -- -- 40,001 / 109,999 $ -- / $ 0
(1) The number of shares received upon exercise of options during the fiscal
year ended September 30, 2005.
(2) With respect to options exercised during CEL-SCI's fiscal year ended
September 30, 2005, 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, 2005,
separated between those options that were exercisable and those options
that were not exercisable.
(4) For all unexercised options held as of September 30, 2005, the market value
of the stock underlying those options as of September 30, 2005.
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 authorize
the issuance of 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:
12
(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
authorize the issuance of shares of CEL-SCI's common stock to persons that
exercise options granted pursuant to the Plans. CEL-SCI's employees, directors,
officers, consultants and advisors are eligible to be granted options pursuant
to the Plans, provided however that bona fide services must be rendered by such
consultants or advisors and such services must not be in connection with the
offer or sale of securities in a capital-raising transaction. The option
exercise price is determined by 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 Plans. Shares of common stock may be granted under the Stock
Bonus Plans. Such shares may consist, in whole or in part, of authorized but
unissued shares, or treasury shares. Under the Stock Bonus Plans, 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
13
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 provides certain information, as of August 15, 2006
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. The shares
reserved under each Plan do not include the shares authorized by the 2006 Plans
which are being submitted to CEL-SCI's shareholders for their approval at the
2006 annual meeting.
14
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 6,100,000 3,969,433 N/A 1,989,316
Non-Qualified Stock Option
Plans 9,760,000 6,065,362 N/A 2,018,005
Stock Bonus Plans 3,940,000 N/A 1,540,864 2,399,136
Of the shares issued pursuant to CEL-SCI's Stock Bonus Plans 803,748
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, 2005, 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
Number Remaining Available
of Securities For Future Issuance
to be Issued Weighted-Average Under Equity
Upon Exercise Exercise Price of Compensation Plans,
of Outstanding of Outstanding Excluding Securities
Plan Category Options (a) Options Reflected in Column (a)
------------- -------------- ----------------- -----------------------
Incentive Stock Option Plans 3,972,633 $0.67 1,999,115
Non-Qualified Stock Option Plans 6,215,363 $0.66 2,018,005
Compensation Committee
During the year ending September 30, 2005 CEL-SCI had a Compensation
Committee which, was comprised of Maximilian de Clara, Alexander Esterhazy and
C. Richard Kinsolving. During the year ended September 30, 2005 the Compensation
Committee did not formerly meet as a separate committee, but rather held its
meetings in conjunction with CEL-SCI's Board of Director's meetings.
During the year ended September 30, 2005, 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,
2005, 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.
15
The following is the report of the Compensation Committee:
The key components of CEL-SCI's executive compensation program include
annual base salaries and long-term incentive compensation consisting of stock
options. It is CEL-SCI's policy to target compensation (i.e., base salary, stock
option grants and other benefits) at approximately the median of comparable
companies in the biotechnology field. Accordingly, data on compensation
practices followed by other companies in the biotechnology industry is
considered.
CEL-SCI's long-term incentive program consists exclusively of periodic
grants of stock options with an exercise price equal to the fair market value of
CEL-SCI's common stock on the date of grant. To encourage retention, the ability
to exercise options granted under the program is subject to vesting
restrictions. Decisions made regarding the timing and size of option grants take
into account the performance of both CEL-SCI and the employee, "competitive
market" practices, and the size of the option grants made in prior years. The
weighting of these factors varies and is subjective. Current option holdings are
not considered when granting options.
In April 2005 CEL-SCI entered into a three-year employment agreement with
Maximilian de Clara, CEL-SCI's President. The April 2005 employment agreement,
which is essentially the same as Mr. de Clara's two prior employment agreements,
provides that during the employment term CEL-SCI will pay Mr. de Clara a salary
of $363,000. Since the terms of the employment contract established the
compensation paid to Mr. de Clara, there was no relationship between CEL-SCI's
performance and Mr. de Clara's compensation for the last completed fiscal year.
Effective August 1, 2003, CEL-SCI entered into a three-year employment
agreement with Geert R. Kersten. The employment agreement, which is essentially
the same as Mr. Kersten's prior employment agreement, provides that during the
term of the agreement CEL-SCI will pay Mr. Kersten an annual salary of $370,585,
subject to the minimum annual increases of 5% per year. In renewing Mr.
Kersten's employment contract the Compensation Committee considered various
factors, including Mr. Kersten's performance in his area of responsibility, Mr.
Kersten's experience in his position, and Mr. Kersten's length of service with
CEL-SCI. During the fiscal year ending September 30, 2005 the compensation paid
to Mr. Kersten was based on his employment contract which became effective on
August 1, 2003 and Mr. Kersten's previous employment agreement.
As explained in Note (1) to the Executive Compensation table, during the
year ended September 30, 2005 Mr. de Clara and Mr. Kersten agreed to accept
restricted shares of CEL-SCI's common stock for part of the compensation payable
pursuant to their employment contracts.
During the year ending September 30, 2005, the compensation paid to
CEL-SCI's other executive officers was based on a variety of factors, including
the performance in the executive's area of responsibility, the executive's
individual performance, the executive's experience in his or her role, the
executive's length of service with CEL-SCI, the achievement of specific goals
16
established for CEL-SCI and its business, and, in certain instances, to the
achievement of individual goals.
Financial or stockholder value performance comparisons were not used to
determine the compensation of CEL-SCI' other executive officers since CEL-SCI's
financial performance and stockholder value are influenced to a substantial
degree by external factors and as a result comparing the compensation payable to
the other executive officers to CEL-SCI's financial or stock price performance
can be misleading.
During the year ended September 30, 2005 CEL-SCI granted options for the
purchase of 220,000 shares of CEL-SCI's common stock to CEL-SCI's executive
officers. In granting the options to CEL-SCI's executive officers, the Board of
Directors considered the same factors which were used to determine the cash
compensation paid to such officers.
Except as otherwise disclosed in this proxy statement, during the year
ended September 30, 2005 CEL-SCI did not issue any shares of its common stock to
CEL-SCI's officers or directors in return for services provided to CEL-SCI.
The foregoing report has been approved by the members of the Compensation
Committee:
Maximilian de Clara
Alexander Esterhazy
C. Richard Kinsolving
Comparison of Five Year Cumulative Total Return Among Cel-Sci Corporation, the
Amex Market Value ($U.S. and Foreign) Index, and a Peer Group
Shown below is a line graph comparing the yearly percentage change in the
cumulative total stockholder return on CEL-SCI's common stock with the
cumulative total return of the Amex Market Value Index and a Biotechnology peer
group for the five fiscal years ending September 30, 2005.
The members of the Peer Group used for purposes of the following
comparison, and their respective trading symbols, are: Epimmune, Inc. (EPMN),
Neoprobe Corp. (NEOP) and Immune Response Corp. (IMNR).
17
Cumulative Total Return *
----------------------------------
9/00 9/01 9/02 9/03 9/04
CEL-SCI CORPORATION $100.00 $60.91 $ 8.18 $ 42.27 $ 25.91
AMEX MARKET VALUE (U.S. & FOREIGN) 100.00 87.48 94.05 115.38 142.24
PEER GROUP 100.00 23.74 6.85 10.97 8.87
* $100 invested on 9/30/00 in stock or index- including reinvestment of
dividends. Fiscal year ending September 30.
Audit Committee
During the year ended September 30, 2005 CEL-SCI had an Audit Committee
comprised of Alexander Esterhazy, C. Richard Kinsolving and Peter Young. The
members of the Audit Committee are independent as independence is defined by
Section 121(A) of the American Stock Exchange's Listing Standards. The purpose
of the Audit Committee is to review and approve the selection of CEL-SCI's
auditors, and review CEL-SCI's financial statements with CEL-SCI's independent
registered public accounting firm. During the fiscal year ended September 30,
2005, the Audit Committee met seven times. All members of the Audit Committee
attended these meetings.
The following is the report of the Audit Committee.
(1) The Audit Committee reviewed and discussed CEL-SCI's audited financial
statements for the year ended September 30, 2005 with CEL-SCI's
management.
(2) The Audit Committee discussed with CEL-SCI's independent registered
public accounting firm the matters required to be discussed by
Statement on Accounting Standards (SAS) No. 61 "Communications with
Audit Committee" as amended by SASs 89 and 90.
(3) The Audit Committee has received the written disclosures and the
letter from CEL-SCI's independent registered public accounting firm
required by Independence Standards Board Standard No. 1 (Independence
Standards Board Standard No. 1, Independence Discussions with Audit
Committees), and had discussed with CEL-SCI's independent registered
public accounting firm the independent registered public accounting
firm's independence; and
(4) Based on the review and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited
financial statements be included in CEL-SCI's Annual Report on Form
10-K for the year ended September 30, 2004 for filing with the
Securities and Exchange Commission.
(5) During the year ended September 30, 2005 CEL-SCI paid BDO Seidman LLP,
CEL-SCI's independent registered public accounting firm, other audit
related fees of $9,773 for reviewing various registration statements
filed by CEL-SCI during the year. The Audit Committee is of the
opinion that these fees are consistent with maintaining its
independence from CEL-SCI.
18
The foregoing report has been approved by the members of the Audit
Committee:
Alexander G. Esterhazy
C. Richard Kinsolving
Peter Young
CEL-SCI's Board of Directors has adopted a written charter for the Audit
Committee, a copy of which was filed as an appendix to the proxy statement
relating to CEL-SCI's March 31, 2004 annual meeting of shareholders.
PROPOSAL TO ADOPT 2006 INCENTIVE STOCK OPTION PLAN
Shareholders are being requested to vote on the adoption of CEL-SCI's 2005
Incentive Stock Option Plan. The purpose of the 2006 Incentive Stock Option Plan
is to furnish additional compensation and incentives to CEL-SCI's officers and
employees.
The 2006 Incentive Stock Option Plan, if adopted, will authorize the
issuance of up to 2,000,000 shares of CEL-SCI's common stock to persons that
exercise options granted pursuant to the plan. As of the date of this Proxy
Statement CEL-SCI had not granted any options pursuant to this plan.
Any options under the 2006 Incentive Stock Option Plan must be granted
before May 31, 2016. If adopted, the 2006 Incentive Stock Option Plan will
function and be administered in the same manner as CEL-SCI's other Incentive
Stock Option Plans. The Board of Directors recommends that the shareholders of
CEL-SCI approve the adoption of the 2006 Incentive Stock Option Plan.
PROPOSAL TO ADOPT 2006 NON-QUALIFIED STOCK OPTION PLAN
Shareholders are being requested to vote on the adoption of CEL-SCI's 2006
Non-Qualified Stock Option Plan. CEL-SCI's employees, directors and officers,
and consultants or advisors to CEL-SCI are eligible to be granted options
pursuant to the 2006 Non-Qualified Plan as may be determined by CEL-SCI's Board
of Directors, provided however that bona fide services must be rendered by such
consultants or advisors and such services must mot be in connection with the
offer or sale of securities in a capital-raising transaction.
The 2006 Non-Qualified Plan, if adopted, will authorize the issuance of up
to 2,000,000 shares of CEL-SCI's common stock to persons that exercise options
granted pursuant to the Plan. As of the date of this Proxy Statement CEL-SCI had
not granted any options under the 2006 Non-Qualified Plan.
The 2006 Non-Qualified Plan will function and be administered in the same
manner as CEL-SCI's other Non-Qualified Plans. The Board of Directors recommends
that the shareholders of CEL-SCI approve the adoption of the 2006 Non-Qualified
Plan.
19
PROPOSAL TO ADOPT 2006 STOCK BONUS PLAN
Shareholders are being requested to vote on the adoption of CEL-SCI's 2006
Stock Bonus Plan. The purpose of the 2006 Stock Bonus Plan is to furnish
additional compensation and incentives to CEL-SCI's officers and employees and
to allow CEL-SCI to continue to make contributions to its 401(k) plan with
shares of its common stock instead of cash.
Since 1993 CEL-SCI has maintained a defined contribution retirement plan
(also known as a 401(k) Plan) covering substantially all CEL-SCI's employees.
Prior to January 1, 1998 CEL-SCI's contribution to the 401(k) Plan was made in
cash. Effective January 1, 1998 CEL-SCI's employees approved a change in the
plan such that CEL-SCI's contribution is now made in shares of CEL-SCI's common
stock as opposed to cash. CEL-SCI's contribution of common stock is made
quarterly and is valued based upon the price of CEL-SCI's common stock on the
American Stock Exchange. The Board of Directors is of the opinion that
contributions to the 401(k) plan with shares of CEL-SCI's common stock serves to
further align the shareholder's interest with that of CEL-SCI's employees.
The 2006 Stock Bonus Plan, if adopted, will authorize the issuance of up
to 2,000,000 shares of CEL-SCI's common stock to persons granted stock bonuses
pursuant to the plan. As of the date of this Proxy Statement CEL-SCI had not
granted any stock bonuses pursuant to the 2006 Stock Bonus Plan.
The 2006 Stock Bonus Plan will function and be administered in the same
manner as CEL-SCI's existing Stock Bonus Plans. The Board of Directors
recommends that the shareholders of CEL-SCI approve the adoption of the 2005
Stock Bonus Plans.
PROPOSAL TO AMEND CEL-SCI'S STOCK COMPENSATION PLAN
During the two years ended September 30, 2005 CEL-SCI issued 25,050 shares
of its common stock to its officers, directors and employees in payment of
$15,531 in salaries, fees and other compensation owed to these persons. To
conserve cash, CEL-SCI expects that it may continue to offer its officers,
directors and employees the opportunity to receive shares of CEL-SCI's common
stock in payment of amounts owed by CEL-SCI for services rendered.
CEL-SCI's common stock trades on the American Stock Exchange. AMEX-listed
corporations must obtain shareholder approval for arrangements which permit
officers, directors, employees or consultants to receive a listed corporation's
shares in payment of compensation.
To comply with the AMEX requirements in this regard CEL-SCI adopted a
Stock Compensation Plan, which was approved by CEL-SCI's shareholders at the May
6, 2004 annual meeting, and which provided that up to 1,000,000 shares of
CEL-SCI'S common stock would be available for issuance under the Plan. At the
2005 Annual Meeting, CEL-SCI's shareholders approved an amendment to the Stock
Compensation Plan such that 1,500,000 shares of common stock would be available
for issuance under the plan.
20
So that CEL-SCI may continue to offer shares of its common stock in payment
of compensation owed, CEL-SCI's Board of Directors, subject to shareholder
approval, has approved an amendment to the Stock Compensation Plan so that an
additional 2,000,000 shares of restricted common stock would be available for
issuance under the Plan. The Board of Directors recommends that the shareholders
of CEL-SCI approve the amendment to the Stock Compensation Plan.
SERIES K NOTES AND WARRANTS
On August 4, 2006, CEL-SCI sold Series K convertible notes, plus Series K
warrants, to a group of private investors for $8,300,000. The notes bear
interest annually at the greater of 8% or the LIBOR plus 3% per year. The Notes
are due and payable on August 4, 2011 and are secured by substantially all of
CEL-SCI's assets.
Interest is payable quarterly with the first interest payment due on
September 30, 2006. Beginning March 4, 2007 CEL-SCI is required to make monthly
payments of $207,500 toward the principal amount of the Notes.
At the holder's option the Series K notes are convertible into shares of
CEL-SCI's common stock equal in number to the amount determined by dividing each
$1,000 of note principal to be converted by the Conversion Price. Initially, the
Conversion Price is $0.86.
At CEL-SCI's election, interest or principal may be paid in CEL-SCI's
common stock. In the event CEL-SCI elects to pay interest or principal in shares
of its common stock, the number of shares of common stock to be issued to each
holder will be determined by dividing the amount payable by the lower of the
Conversion Price (as it may be adjusted in accordance with the terms of the
note), or the Market Price as of the applicable payment date,
CEL-SCI may not use its common stock to pay interest or principal unless
each of the following conditions is satisfied: (i) the number of authorized but
unissued and otherwise unreserved shares of common stock is sufficient for the
issuance; (ii) the shares of common stock to be issued in payment for principal
and interest may be sold by the Holder pursuant to an effective Registration
Statement covering the shares or, in the alternative, all the shares may be sold
without volume restrictions pursuant to Rule 144(k); (iii) CEL-SCI's common
stock is listed (and is not suspended from trading) on the American Stock
Exchange and the shares of common stock are approved for listing on the American
Stock Exchange upon issuance; (iv) CEL-SCI is not the subject of any bankruptcy
proceeding; (v) CEL-SCI is not in default with respect to any material
obligation in its agreements with the investors which purchased the convertible
notes; and (vi) no public announcement of a proposed change in the control of
CEL-SCI has occurred that has not been consummated.
If CEL-SCI sells any additional shares of common stock, or any securities
convertible into common stock at a price below the then applicable Conversion
Price, the Conversion Price will be lowered to the price at which the shares
were sold or the lowest price at which the securities are convertible, as the
case may be. If CEL-SCI sells any additional shares of common stock, or any
securities convertible into common stock at a price above the Conversion Price
21
but below the average closing price of CEL-SCI's common stock over the five
trading days prior to the sale of the shares, the Conversion Price will be
reduced to equal the amount determined by the following formula:
CP x (S1 + S2) = NCP
----------------
S3
Where:
CP = the Conversion Price in effect immediately prior to the
issuance of common stock or securities convertible into common
stock
S1 = the sum of the number of shares of CEL-SCI's common stock
outstanding immediately prior to the issuance;
S2 = the number of shares of CEL-SCI's common stock that the
price paid for the common stock issued (or the lowest price at
which securities are convertible into CEL-SCI's common stock)
would purchase at the average closing price of CEL-SCI's
common stock over the five trading days prior to the sale of
the shares
S3 = the number of shares of common stock outstanding, or which
would be outstanding if all convertible securities were
converted into shares of CEL-SCI's common stock, immediately
after the issuance.
NCP = New Conversion Price
However, the Conversion Price will not 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 bona fide joint venture, strategic partnership,
or strategic alliance, the primary purpose of which is not to raise
cash;
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 the Company's stock option, stock bonus or similar
plans.;
o to key officers of CEL-SCI in lieu of their respective salaries.
o pursuant to the conversion or exercise of securities which were
outstanding prior to August 4, 2006;
o pursuant to a firm commitment underwritten public offering in an
amount greater than $15,000,000;
22
The Conversion Price will also be proportionately adjusted in the event of
any stock splits.
So long as the Series K notes are outstanding CEL-SCI may not:
o declare or pay any dividends (other than a stock dividend or stock
split) or make any distributions to any holders of its common stock;
o purchase or otherwise acquire for value any of its capital stock;
o become obligated on any debt that is senior or equal in any respect to
CEL-SCI's obligations under the Series K Notes, other than
indebtedness secured by purchase money security interests (which will
be senior only as to the underlying assets purchased) or indebtedness
under capital lease obligations (which will be senior only as to the
assets leased);
o issue securities convertible into common stock with a conversion price
or a number of shares issuable upon conversion that floats or is
subject to adjustment based upon the market price of CEL-SCI's common
stock.
Upon the occurrence of any of the following events CEL-SCI is required to
collectively pay the holders of the Series K notes $124,500 in cash at the time
of the occurance and each month that the occurrence continues:
o the effectiveness of the Registration Statement, of which this
prospectus is a part, lapses for any reason or the Registration
Statement is unavailable to the note holders and the lapse or
unavailability continues for a period of three or more consecutive
trading days, or five trading days which need not be consecutive, in
any twelve month period;
o the suspension from listing or the failure of CEL-SCI's common stock
to be listed on the American Stock Exchange for a period of three
consecutive trading days or seven trading days, which need not be
consecutive, in any twelve month period;
o the Series K warrants may not be exercised for any reason;
The $124,500 referred to above will be increased to $166,000 if any event
listed above occurs on or after February 1, 2007.
CEL-SCI will not have any liability when the shares of common stock issued
or issuable upon the conversion of the Series K Notes or the exercise of the
Series K Warrants can be sold pursuant to Rule 144(k) or to any note holder
which requires CEL-SCI to purchase the notes in an event of default.
The Series K warrants allow the note holders to initially purchase up to
5,211,628 shares of CEL-SCI's common stock at a price of $0.95 per share at any
time between February 4, 2007 and February 4, 2012.
23
If CEL-SCI sells any additional shares of common stock, or any securities
convertible into common stock at a price below the then applicable exercise
price of the Series K warrants, the warrant exercise price will be lowered to
the price at which the shares were sold or the lowest price at which the
securities are convertible, as the case may be.
If CEL-SCI sells any additional shares of common stock, or any securities
convertible into common stock at a price above the exercise price but below the
market price of CEL-SCI's common stock, the exercise price of the Series K
warrants will be lowered to a price determined by the following formula:
EP x (S1 + S2) = NEP
----------------
S3
Where:
EP = the Exercise Price in effect immediately prior to the issuance
of common stock or securities convertible into common stock
S1 = the sum of the number of shares of CEL-SCI's common stock
outstanding immediately prior to the issuance;
S2 = the number of shares of CEL-SCI's common stock that the price
paid for the common stock issued (or the lowest price at which
securities are convertible into CEL-SCI's common stock) would
purchase at the average closing price of CEL-SCI's common stock
over the five trading days prior to the sale of the shares
S3 = the number of shares of common stock outstanding, or which would
be outstanding if all convertible securities were converted into
shares of CEL-SCI's common stock, immediately after the issuance.
NEP = New Exercise Price.
If the warrant exercise price is decreased, the number of shares of common
stock issuable upon the exercise of the warrant will be increased according to
the following formula:
WS x EP1 = NWS
---
EP2
Where:
WS = The number of shares issuable upon the exercise of warrants
based upon the exercise price prior to adjustment.
EP1 = The old exercise price of the warrants.
24
EP2 = The new exercise price of the warrants.
NWS = The number of shares of CEL-SCI's common stock issuable based
upon the new exercise price of the warrants.
The exercise price of the warrants, as well as the shares issuable upon
the exercise of the warrants, will also be proportionately adjusted in the event
of any stock splits.
However, neither the exercise price of the Series K warrants nor the
shares issuable upon the exercise of the warrant will be adjusted as the result
of shares issued in connection with a Permitted Financing.
Any of the following are an event of default:
o CEL-SCI fails to make any interest or principal payment when due;
o CEL-SCI fails for any reason to deliver a certificate within five
trading days after delivery of the certificate is required pursuant to
any agreement with the note holders;
o the conversion or exercise rights of the note or warrant holders is
suspended for any reason;
o CEL-SCI fails to have available a sufficient number of authorized but
unissued shares of common stock available for issuance upon the
conversion of the notes or the exercise of the warrants;
o CEL-SCI's common stock is not listed on the American Stock Exchange or
other public trading market
o the effectiveness of the Registration Statement, of which this
prospectus is a part, lapses for any reason
o the holders of the notes and warrants are not permitted to sell any
shares under the Registration Statement, in either case, for three or
more consecutive trading days or five trading days (which need not be
consecutive trading days in any twelve month period) and the common
stock issued or issuable upon the conversion of the notes cannot be
sold pursuant to Rule 144(k);
o CEL-SCI breaches any representation or warranty or covenant or
defaults in the timely performance of any other obligation in its
agreement with the note holders and the breach or default continues
uncured for a period of 20 days after the date on which notice of the
breach or default is first given to CEL-SCI.
o CEL-SCI defaults in any of its obligations under any other note or
credit agreement or long term lease in an amount exceeding $1,000,000,
and the default continues for a period of five days and results in the
25
indebtedness becoming payable prior to the date on which it would
otherwise become payable;
o a judgment or judgments for the payment of money in excess of $250,000
are rendered against CEL-SCI and are not bonded, discharged or stayed
pending appeal within sixty (60) days after the entry of the judgment,
or are not discharged within sixty (60) days after the expiration of
the stay; provided, however, that any judgment which is covered by
insurance or an indemnity from a creditworthy party shall not be
included in calculating the $250,000 amount; or
o CEL-SCI files for protection from its creditors under the federal
bankruptcy code or a third party files an involuntary bankruptcy
petition against CEL-SCI.
At any time after an event of default, any holder has the option to
require CEL-SCI to repurchase all or any portion of:
o the outstanding principal amount of the note, at a price
equal to the greater of 115% of the outstanding principal,
plus all accrued but unpaid interest, or the Event Equity
Value of the shares issuable upon conversion of the
outstanding note principal and all accrued but unpaid
interest, and
o any shares issued to the holder upon any conversion of
notes, and still owned by the holder, at a price per share
equal to the Event Equity Value for the shares.
At any time after August 4, 2009, any note holder will have the right to
require CEL-SCI to redeem all or any portion of the outstanding principal amount
of the notes, plus all accrued but unpaid interest.
So long as the Series K notes are outstanding, the note holders have a
right to participate in any subsequent financings involving CEL-SCI.
CEL-SCI has filed a registration statement, of which this prospectus is a
part, with the Securities and Exchange Commission in order that the shares of
common stock issuable upon the conversion of the Series K notes or the exercise
of the Series K warrants may be resold in the public market.
For purposes of the notes the term:
"LIBOR" means the annual rate of interest offered for deposits in U.S.
dollars which appears on page six of any relevant Telerate, Bloomberg or Reuter
page as of 11:00 a.m. London time two business days prior to the first day of
any calendar quarter.
"Event Equity Value" means 115% of the average of the VWAP for each of the
five trading days preceding the date of the notice requiring any payment by this
method.
26
"Market Price" means 90% of the arithmetic average of the VWAP for each
of the 20 trading days ending immediately prior to the applicable interest or
principal payment date, as the case may be.
"VWAP" means for any particular period the volume weighted average trading
price per share of CEL-SCI's common stock.
AMEX Requirements
CEL-SCI's common stock trades on the American Stock Exchange. The rules of
the AMEX require a corporation, the securities of which are listed on the AMEX,
to obtain shareholder approval if 20% or more of a corporation's common stock
will be sold in a private offering and below the greater of the book value or
market price of the corporation's common stock.
Under the AMEX rule, the issuance of any common stock upon the payment or
conversion of the Series K notes at a price less than $0.75 (the market price of
CEL-SCI's common stock on the date the notes were sold) would be a sale of
CEL-SCI's common stock at less than market price.
In addition, if any of the Series K warrants are exercised at a price
below $0.75 the AMEX will consider these shares to have been sold at less than
market price.
As of August 4, 2006 CEL-SCI had 81,502,038 outstanding shares of common
stock. It is possible, depending upon the future prices of CEL-SCI's common
stock, that more than 16,300,407 shares (or 20% of CEL-SCI's outstanding shares
on August 4, 2006) could be issued pursuant to the terms of the Series K notes
and warrants at a price which the AMEX would consider to be below market price.
In order to avoid any violation of the AMEX rules relating to the issuance
of shares below the market price of CEL-SCI's common stock, the Series K notes
and the Series K warrants provide that no more than 16,300,407 shares may be
issued unless CEL-SCI obtains shareholder approval for the issuance of such
additional shares.
If a majority of the shareholders voting at the annual meeting do not
approve the additional issuance of shares, and CEL-SCI is required to issue more
than 16,300,407 shares at below market price, CEL-SCI will be required to pay
the holders of the Series K notes the then outstanding principal balance of the
notes.
CEL-SCI is requesting its shareholders to approve the issuance of such
number of common shares as may be required by the terms of the Series K notes
and warrants. CEL-SCI's Board of Directors believes that approval of this
proposal is in the best interests of both CEL-SCI and its shareholders and
unanimously recommends that shareholders vote "FOR" this proposal.
27
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors has selected BDO Seidman, LLP, an independent
registered public accounting firm, to audit the books and records of CEL-SCI for
the fiscal year ending September 30, 2006. BDO Seidman served as CEL-SCI's
independent registered public accounting firm for the fiscal year ended
September 30, 2005. A representative of BDO Seidman is expected to be present at
the shareholders' meeting.
Accounting Firm Fees
Deloitte & Touche LLP served as CEL-SCI's auditors for the years ended
September 30, 2004 and 2003. The following table shows the aggregate fees billed
to CEL-SCI for these years by Deloitte & Touche LLP:
Year Ended September 30,
2005 2004
---- ----
Audit Fees $124,388 $131,000
Audit-Related Fees 24,500 91,787
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 10-Q reports for the fiscal year.
Audit Related Fees represent amounts charged for reviewing various registration
statements filed with the SEC by CEL-SCI during the year as well as the
successor auditor review work. 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.
BDO Seidman, LLP served as CEL-SCI's auditors for the year ended September
30, 2005. The following table shows the aggregate fees billed to CEL-SCI during
this year by BDO Seidman, LLP:
Year Ended September 30, 2005
-----------------------------
Audit Fees $73,205
Audit-Related Fees 9,773
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 10-Q reports for the fiscal year.
28
Audit Related Fees represent amounts charged for acceptance procedures and
services performed concerning a financing. Before BDO Seidman, LLP was engaged
by CEL-SCI to render audit or non-audit services, the engagement was approved by
CEL-SCI's audit committee. CEL-SCI's Board of Directors is of the opinion that
the Audit Related Fees charged by BDO Seidman, LLP are consistent with BDO
Seidman, LLP maintaining its independence from CEL-SCI.
AVAILABILITY OF ANNUAL REPORT ON FORM 10-K
CEL-SCI's Annual Report on Form 10-K for the year ending September 30,
2005 will be sent to any shareholder of CEL-SCI upon request. Requests for a
copy of this report should be addressed to the Secretary of CEL-SCI at the
address provided on the first page of this proxy statement.
SHAREHOLDER PROPOSALS
Any shareholder proposal which may properly be included in the proxy
solicitation material for the annual meeting of shareholders following CEL-SCI's
year ending September 30, 2005 must be received by the Secretary of CEL-SCI no
later than December 31, 2006.
GENERAL
The cost of preparing, printing and mailing the enclosed proxy,
accompanying notice and proxy statement, and all other costs in connection with
solicitation of proxies will be paid by CEL-SCI including any additional
solicitation made by letter, telephone or telegraph. Failure of a quorum to be
present at the meeting will necessitate adjournment and will subject CEL-SCI to
additional expense. CEL-SCI's annual report, including financial statements for
the 2004 fiscal year, is included in this mailing.
CEL-SCI's Board of Directors does not intend to present and does not have
reason to believe that others will present any other items of business at the
annual meeting. However, if other matters are properly presented to the meeting
for a vote, the proxies will be voted upon such matters in accordance with the
judgment of the persons acting under the proxies.
Please complete, sign and return the enclosed proxy promptly. No postage
is required if mailed in the United States.
29
PROXY
CEL-SCI CORPORATION
This Proxy is solicited by the Company's Board of Directors
The undersigned stockholder of the Company, acknowledges receipt of the Notice
of the Annual Meeting of Stockholders, to be held ________, 2006, 11:00 A.M.
local time, at 4820-C Seton Drive, Baltimore, Maryland 21215 and hereby
appoints Maximilian de Clara and Geert R. Kersten with the power of
substitution, as Attorneys and Proxies to vote all the shares of the
undersigned at said annual meeting of stockholders and at all adjournments
thereof, hereby ratifying and confirming all that said Attorneys and Proxies
may do or cause to be done by virtue hereof. The above named Attorneys and
Proxies are instructed to vote all of the undersigned's shares as follows:
(1) To elect the directors who shall constitute the Company's Board of
Directors for the ensuing year.
[ ] FOR all nominees listed below (except as marked to the contrary below)
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW)
Nominees: Maximilian de Clara Geert R. Kersten Alexander G. Esterhazy
C. Richard Kinsolving Peter R. Young
(2) To approve the adoption of the Company's 2006 Incentive Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) To approve the adoption of the Company's 2006 Non-Qualified Stock Option
Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(4) To approve the adoption of the Company's 2006 Stock Bonus Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(5) To approve an amendment to the Company's Stock Compensation Plan so that an
additional 2,000,000 restricted shares of CEL-SCI's common stock are
available for issuance under the Plan
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(6) to approve the issuance of CEL-SCI's common stock for the conversion or
payment of the Company's Series K notes and upon the exercise of the
Company's Series K warrants.
(7) To ratify the appointment of BDO Seidman, LLP as the Company's independent
registered public accounting firm for the fiscal year ending
September 30, 2006.
To transact such other business as may properly come before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED HEREIN BY THE
UNDERSIGNED STOCKHOLDER. IF NO DISCRETION IS INDICATED, THIS PROXY WILL BE VOTED
IN FAVOR OF ITEMS 1 THROUGH 5.
Dated this __ day of _______, 2005.
_________________________________
(Signature)
_________________________________
(Signature)
Please sign your name exactly as it appears on your stock certificate. If shares
are held jointly, each holder should sign. Executors, trustees, and other
fiduciaries should so indicate when signing. Please Sign, Date and Return this
Proxy so that your shares may be voted at the meeting.