As filed with the Securities and Exchange Commission on November 30, 1995
Registration No. 33-63341
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
AMENDMENT NO. 1 TO
REGISTRATION STATEMENT
ON
FORM SB-2
UNDER
THE SECURITIES ACT OF 1933
____________________
ALFACELL CORPORATION
(Exact name of Registrant as Specified in its Charter)
DELAWARE 8731 22-2369085
(State or other jurisdiction(Primary (I.R.S. Employer
of incorporation or organi-SIC Code Identification
zation) Number) Number)
225 BELLEVILLE AVENUE
BLOOMFIELD, NEW JERSEY 07003
(201) 748-8082
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
KUSLIMA SHOGEN
ALFACELL CORPORATION
225 BELLEVILLE AVENUE
BLOOMFIELD, NEW JERSEY 07003
(201) 748-8082
(Name, Address, including zip code, and telephone number,
including area code, of agent for service)
With copies to:
KEVIN T. COLLINS, ESQ.
ROSS & HARDIES
65 EAST 55TH STREET
NEW YORK, NEW YORK 10022
Approximate date of commencement of proposed sale to public: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [X]
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.
[ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
CALCULATION OF REGISTRATION FEE
Title of
each class Proposed
of maximum Amount
securities Amount offering Aggregate of
to be to be price per offering registration
REGISTERED REGISTERED UNIT PRICE FEE
Common Stock,
par value $.001
per share 1,965,616(1) $4.94 $9,706,212 $3,348
Common Stock,
par value $.001
per share 95,945(2) $4.75 $ 455,739 $157
Common Stock,
par value $.001
per share 10,000(2) $4.22 $ 42,200 $15.00
Totals 2,071,561 $10,204,151 $3,520(3)
(1) To be offered and sold by selling stockholders; registration fee
based on the average of the bid and asked price for Common Stock of
registrant on October 4, 1995 pursuant to Rule 457(c).
(2) To be offered and sold by selling stockholders upon the exercise by
such selling stockholders of outstanding warrants; exercisable as to
105,945 shares at exercise prices ranging from $4.00 to $5.50 per
share.
(3) $3,505 was previously paid in connection with the original filing of
this Registration Statement and $15.00 has been paid in connection
with the filing of this Amendment No. 1.
<PAGE>
ALFACELL CORPORATION
CROSS REFERENCE SHEET
INFORMATION REQUIRED TO LOCATION IN
BE INCLUDED IN PROSPECTUS PROSPECTUS
ITEM 1
Front of Registration Statement and
Outside Front Cover Page of Prospectus...... Cover page of
Registration Statement
and Outside Front Cover
Page of Prospectus
ITEM 2
Inside Front and Outside Back Cover Pages
of Prospectus............................... Inside front cover page
of Prospectus
ITEM 3
Summary Information and Risk Factors....... Prospectus Summary; Risk
Factors
ITEM 4
Use of Proceeds............................ Use of Proceeds
ITEM 5
Determination of Offering Price............ Not applicable
ITEM 6
Dilution................................... Not applicable
ITEM 7
Selling Security Holders................... Selling Stockholders
ITEM 8
Plan of Distribution....................... Cover Page; Plan of
Distribution
ITEM 9
Legal Proceedings.......................... Business - Legal
Proceedings
ITEM 10
Directors, Executive Officers, Promoters
and Control Persons........................ Management
ITEM 11
Security Ownership of Certain Beneficial
Owners and Management...................... Principal Stockholders
ITEM 12
Description of Securities.................. Description of Securities
ITEM 13
Interest of Named Experts and Counsel...... Not applicable
ITEM 14
Disclosure of Commission Position on
Indemnification for Securities
Act Liabilities............................ Selling Stockholders
ITEM 15
Organization Within Last Five Years........ Not applicable
ITEM 16
Description of Business.................... Business
ITEM 17
Management's Discussion and Analysis or
Plan of Operation....................... Management's Discussion and
Analysis of Financial
Condition and Results of
Operations
ITEM 18
Description of Property................... Business - Properties
ITEM 19
Certain Relationships and Related
Transactions.............................. Certain Transactions
ITEM 20
Market for Common Equity and Related
Stockholder Matters........................ Dividends; Price Range of
Common Stock; Description of
Securities; Shares Eligible
for Future Sale
ITEM 21
Executive Compensation..................... Executive Compensation
ITEM 22
Financial Statements....................... Financial Statements
ITEM 23
Changes In and Disagreements With
Accountants on Accounting
and Financial Matters...................... Not applicable
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 30, 1995.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such state.
PROSPECTUS
2,071,561 Shares
Alfacell Corporation
COMMON STOCK, PAR VALUE $.001 PER SHARE
The Registration Statement, of which this Prospectus forms a part,
registers the offer and sale of 2,071,561 shares of Common Stock, par value
$.001 per share (the "Common Stock"), of Alfacell Corporation (the
"Company" or "Alfacell") by certain stockholders (the "Selling
Stockholders"). Of these 2,071,561 shares, 1,965,616 shares are
outstanding and held by the Selling Stockholders and 105,945 shares are
issuable upon the exercise of outstanding warrants to purchase Common Stock
(the "Warrants") held by the Selling Stockholders and the reoffer and
resale of such shares of Common Stock by the Selling Stockholders is
covered hereby. The Selling Stockholders acquired the outstanding shares
of Common Stock offered hereby and the Warrants directly from the Company
(i) in a private placement transaction to a single investor completed on
October 21, 1994 (the "October 1994 Private Placement"); (ii) in a private
placement transaction completed on September 29, 1995 (the "September 1995
Private Placement"); and (iii) in connection with the amendment of a loan
agreement between the Company and its bank (the "Term Loan"). See "Selling
Stockholders" and "Certain Transactions". One of the Selling Stockholders
is a director of the Company. See "Selling Stockholders." The Company
will not receive any of the proceeds from the sale of Common Stock by the
Selling Stockholders. To the extent the Warrants are exercised the Company
will apply the proceeds thereof to its general corporate purposes. See
"Use of Proceeds."
The Company's Common Stock is traded in the over-the-counter market.
On November 10, 1995 the high bid and low asked quotations of the Common
Stock were $4 3/8 and $4 9/16, respectively, as reported by the National
Quotations Bureau.
The Selling Stockholders may sell the shares of Common Stock from time
to time in transactions in the open market, in negotiated transactions, or
by a combination of these methods, at fixed prices that may be changed, at
market prices at the time of sale, at prices related to market prices or at
negotiated prices. The Selling Stockholders may effect these transactions
by selling the Common Stock to or through broker-dealers, who may receive
compensation in the form of discounts or commissions from the Selling
Stockholders or from the purchasers of the Common Stock for whom the
broker-dealers may act as agent or to whom they may sell as principal, or
both. See "Plan of Distribution."
The Company will bear all of the expenses in connection with the
registration of the Common Stock offered hereby, which expenses are
estimated to be $24,000. The Selling Stockholders will pay any brokerage
compensation in connection with their sale of the Common Stock.
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" WHICH COMMENCES ON PAGE 4 OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is December __, 1995.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, (the "Exchange Act") and, in
accordance therewith, files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such
reports and proxy and information statements and other information filed by
the Company can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at its regional offices located at Seven World
Trade Center, Suite 1300, New York, New York 10048, and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511;
and copies of such material can be obtained from the Public Reference
Section of the Commission in Washington, D.C., at prescribed rates.
The Company has filed with the Commission a Registration Statement on
Form SB-2 (the "Registration Statement") under the Securities Act of 1933,
as amended (the "Securities Act"), with respect to the shares of Common
Stock offered hereby. This Prospectus (the "Prospectus") does not contain
all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to
the Company and the shares of Common Stock offered hereby, reference is
hereby made to the Registration Statement, exhibits and schedules.
The following trademark appears in this Prospectus: ONCONASE is a
registered trademark of Alfacell Corporation.
No dealer, salesman or any other person has been authorized to give
any information or to make any representation other than those contained in
this Prospectus in connection with the offering herein contained and, if
given or made, such information or representation must not be relied upon
as having been authorized by the Company. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that there has been no change in the facts herein
set forth since the date hereof.
<PAGE>
TABLE OF CONTENTS
PAGE
PROSPECTUS SUMMARY........................................................1
RISK FACTORS..............................................................4
USE OF PROCEEDS..........................................................13
DIVIDEND POLICY..........................................................13
CAPITALIZATION...........................................................13
PRICE RANGE OF COMMON STOCK..............................................15
SELECTED FINANCIAL DATA..................................................15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..........................16
BUSINESS ................................................................19
MANAGEMENT...............................................................27
EXECUTIVE COMPENSATION...................................................31
CERTAIN TRANSACTIONS.....................................................36
PRINCIPAL STOCKHOLDERS...................................................30
SELLING STOCKHOLDERS.....................................................41
PLAN OF DISTRIBUTION.....................................................45
DESCRIPTION OF SECURITIES................................................46
SHARES ELIGIBLE FOR FUTURE SALE..........................................49
LEGAL MATTERS............................................................52
EXPERTS..................................................................52
INDEX TO FINANCIAL STATEMENTS...........................................F-1
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information contained in the
body of this Prospectus and should be read in conjunction with the detailed
information and financial statements appearing elsewhere herein.
THE COMPANY
Alfacell Corporation ("Alfacell" or the "Company") is a
biopharmaceutical company organized in 1981 to engage in the discovery,
investigation and development of a new class of anti-cancer drugs isolated
from leopard frog eggs and early embryos. The Company's first product
under development is ONCONASE which targets solid tumors, most of which are
known to be resistant to other chemotherapeutic drugs. To date, the most
significant clinical results with ONCONASE have been observed in
pancreatic, non-small cell lung, mesothelioma and metastatic breast cancer.
In 1995, the American Cancer Society estimates that 377,000 people in the
United States will be diagnosed with lung, breast and pancreatic cancer and
approximately 231,000 will die.
ONCONASE has been used to treat over 245 cancer patients on a weekly
basis, including 115 patients with advanced stages of pancreatic, non-small
cell lung, mesothelioma and metastatic breast cancer. Encouraging results
have been observed in Phase I and II clinical trials. Side effects
associated with ONCONASE have been modest, are primarily renal and are
reversible upon reduction of dose or discontinuation of treatment.
Patients treated with ONCONASE have shown no evidence of myelosuppression
(bone marrow suppression), alopecia (hair loss) or other severe toxicities
frequently observed after treatment with most other chemotherapeutic drugs.
Alfacell began a randomized multi-center Phase III clinical trial testing
ONCONASE in advanced pancreatic cancer patients in November 1995.
The Company believes that ONCONASE may also be used as an anti-viral
agent. The National Institutes of Health ("NIH") has performed an
independent IN VITRO screen of ONCONASE against the HIV virus type 1 ("HIV
virus"). The results showed ONCONASE to inhibit replication of the HIV
virus 99.9% after a four day incubation period at concentrations not toxic
to uninfected H9 leukemic cells. The Company has expanded its
collaborative studies for cancer and anti-HIV activity with the NIH. There
can be no assurance that ONCONASE will show any level of anti-HIV activity
in humans.
Beyond the development of ONCONASE, Alfacell has also discovered a
series of biologically active proteins from the same natural source from
which ONCONASE was discovered. These proteins appear to be involved in the
regulation of early embryonic and malignant cell growth. However,
significant additional research will be required in order to develop these
proteins into therapeutics. There can be no assurance that the development
of these proteins will be accomplished.
On March 21, 1994 the Company completed a private placement (the
"March 1994 Private Placement") of 40 units consisting of an aggregate of
800,000 shares of restricted Common Stock and warrants to purchase an
aggregate of 800,000 shares of Common Stock at an exercise price of $5.00
per share. The units were sold for $50,000 per unit. The per share price
of the Common Stock was $2.50. The Company received net proceeds of
approximately $1,865,791 (including the purchase of 4.1 units by the
conversion of $182,000 of outstanding Company debt plus $23,000 of
outstanding payables by an unaffiliated creditor and after the payment of
certain offering expenses) which has been used primarily for general
corporate purposes, including the funding of research and development
activities, which include collaborations with the NIH and the National
Cancer Institute ("NCI") and Phase II/III clinical trials. On the date
hereof, 772,000 shares of such Common Stock and all 800,000 of such
warrants are covered by a registration statement filed by the Company with
the Commission.
On September 13, 1994 the Company completed a private placement (the
"September 1994 Private Placement") of an aggregate of 288,506 shares of
restricted Common Stock and 288,506 warrants to purchase an aggregate of
288,506 shares of Common Stock at an exercise price of $5.50 per share.
The shares of Common Stock and warrants to purchase Common Stock were sold
in units consisting of 20,000 shares of Common Stock and 20,000 warrants.
An aggregate of 14.4 units were sold at $50,000 per unit. The per share
price of the Common Stock was $2.50. The Company received net proceeds of
approximately $545,000 (after giving effect to the purchase of 2.4 units by
the conversion of $44,000 of outstanding Company debt plus $77,265 of
outstanding payables by certain unaffiliated creditors and the payment of
certain offering expenses). The Company utilized these net proceeds
primarily for general corporate purposes, including the funding of research
and development activities, which include collaborations with the NIH and
the NCI and Phase II/III clinical trials. On the date hereof, 230,906
shares of such Common Stock and all 288,506 of such warrants are covered by
a registration statement which has been filed with the Commission.
On October 21, 1994 the Company completed the October 1994 Private
Placement of 40,000 shares of restricted Common Stock at a per share price
of $2.50 and three-year Warrants to purchase 40,000 shares of Common Stock
at an exercise price of $5.50 per share to a single investor. On September
29, 1995 the Company completed the September 1995 Private Placement of an
aggregate of 1,925,616 shares of restricted Common Stock and three-year
Warrants to purchase 55,945 shares of Common Stock at an exercise price of
$4.00 per share. The Common Stock was sold alone at per share prices
ranging from $2.00 to $3.70, and in combination with Warrants at per share
prices ranging from $4.96 to $10.92, which related to the number of
Warrants contained in the unit. After taking into account expenses of the
offerings, the Company received net proceeds of approximately $4.2 million
from the October 1994 and September 1995 Private Placements. The Company
intends to utilize these net proceeds primarily for general corporate
purposes, including the funding of research and development activities
which are expected to include collaborations with the NIH and the NCI and
clinical trials testing ONCONASE in several tumor types. This Prospectus
relates to the offer and sale by the Selling Stockholders of such 1,965,616
shares of Common Stock and the 95,945 shares of Common Stock underlying
such Warrants sold in the October 1994 and September 1995 Private
Placements.
On November 29, 1995, the Company amended and restated a promissory
note and amended the Term Loan agreement with its bank effective as of
October 1, 1995. The amendment to the Term Loan provides for, among other
things, the issuance to the bank of a Warrant to purchase 10,000 shares of
Common Stock through August 31, 1997 at a per share exercise price of
$4.19. This Prospectus relates to the offer and sale by the bank as
Selling Stockholder of the 10,000 shares of Common Stock underlying the
Warrant issued to the bank.
Alfacell, a Delaware corporation, was incorporated in 1981. The
Company's executive offices are located at 225 Belleville Avenue,
Bloomfield, New Jersey 07003, telephone (201) 748-8082.
THE OFFERING
Securities Offered......... This Prospectus relates to an offering by the
Selling Stockholders of up to 2,071,561
shares of Common Stock of the Company. Of
these shares (i) 1,965,616 were issued in the
October 1994 and September 1995 Private
Placements, (ii) 95,945 underly Warrants
issued in the October 1994 and September 1995
Private Placements and may be issued upon
exercise of the Warrants, and (iii) 10,000
underly a Warrant issued to the Company's
bank in connection with the amendment of the
Term Loan and may be issued upon exercise of
the Warrant issued to the bank. See "Selling
Stockholders" and "Certain Transactions."
Securities Outstanding..... As of November 10, 1995 the Company had
11,580,063 shares of Common Stock
outstanding. Assuming that all of the
Warrants are exercised and no other shares of
Common Stock are issued subsequent to
November 10, 1995, the Company would have
11,686,008 shares of Common Stock
outstanding.
Use of Proceeds............ The Company will not receive any proceeds
from the sale of the shares of Common Stock
offered by the Selling Stockholders. To date
the Company has received no proceeds from the
exercise of the Warrants. If all of the
Warrants are exercised, the Company will
receive estimated additional net proceeds of
$485,680. The Company intends to utilize any
proceeds received from the exercise of the
Warrants for general corporate purposes,
including the funding of research and
development activities. There can be no
assurance that any of the Warrants will be
exercised. See "Use of Proceeds."
Risk Factors............... See "Risk Factors" for a discussion of
certain risk factors that should be
considered by prospective investors in
connection with an investment in the shares
of Common Stock offered hereby.
RISK FACTORS
The shares of Common Stock offered hereby are speculative and involve
a high degree of risk. They should not be purchased by anyone who cannot
afford the loss of his or her entire investment. In analyzing this
offering, prospective investors should consider the matters set forth
below, among others, and carefully read this Prospectus.
ACCUMULATED DEFICIT, STOCKHOLDERS' DEFICIENCY AND UNCERTAINTY OF
FUTURE PROFITABILITY. The Company was originally incorporated in 1981. To
date, a significant source of cash for the Company has been public and
private placements of its securities. Cash obtained from these sources has
not been sufficient to cover operating expenses. At July 31, 1995, the
Company had an accumulated deficit of approximately $37.4 million and a
total stockholders' deficiency of approximately $833,000. The Company
anticipates that it will continue to incur substantial losses in the
future. The Company is pursuing licensing, marketing and development
arrangements that may result in contract revenue to the Company prior to
its receiving revenues from commercial sales of ONCONASE. There can be no
assurance, however, that the Company will be able to successfully
consummate any such arrangements. The Company's profitability will depend
upon its success in developing, obtaining regulatory approvals for, and
effectively marketing ONCONASE. ONCONASE has not been approved by the
United States Food and Drug Administration (the "FDA"). Potential
investors should be aware of the difficulties a development stage
enterprise encounters, especially in view of the intense competition in the
pharmaceutical industry in which the Company competes. There can be no
assurance that the Company's plans will either materialize or prove
successful, that its product under development will be successfully
developed or that such product will generate revenues sufficient to enable
the Company to earn a profit. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
SUBSTANTIAL DOUBT CONCERNING THE COMPANY'S ABILITY TO CONTINUE AS A
GOING CONCERN. The opinion of KPMG Peat Marwick LLP, the independent
auditors of the Company's July 31, 1995 financial statements contained an
explanatory paragraph stating that the Company's recurring losses from
operations, its working capital deficiency and net capital deficiency raise
substantial doubt about the Company's ability to continue as a going
concern.
LEVERAGE. The Company is highly leveraged. At July 31, 1995, the
Company had total assets of approximately $1.6 million and total
liabilities of approximately $2.4 million. Of such liabilities,
approximately $1.6 million is owed to a bank pursuant to the Term Loan and
is secured by a lien on substantially all of the Company's assets,
including its patents. The Term Loan Agreement contains numerous
restrictive covenants which could make it more difficult to operate the
Company's business. See "Management's Discussion and Analysis of Financial
Conditions - Liquidity and Capital Resources." In the event the Company
defaults on the debt it owes to such bank, the bank may foreclose on the
assets which secure its debt and utilize such assets to satisfy such debt.
Given the current levels of the Company's assets and the debt owed to such
bank, it is highly unlikely that the Company's assets would be sufficient
to fully satisfy the bank's debt. Moreover, upon a liquidation of the
Company, the Company's assets would first be used to repay its secured
creditors and then its unsecured creditors, before any distribution would
be made to holders of the Company's equity securities. Given the current
levels of the Company's assets and its liabilities, it is highly unlikely
that the holders of the Company's Common Stock would receive any
distribution in the event the Company is liquidated. The Company's bank
debt matures in August 1997, at which time a principal payment of
approximately $1.4 million will be due.
NEED FOR, AND UNCERTAINTY OF, FUTURE FINANCING. The Company will be
required to expend significant funds on the further development of ONCONASE
and its continued operations will depend on its ability to raise additional
funds through equity or debt financings, collaborative agreements,
strategic alliances and revenues from the commercial sale of ONCONASE. To
date, the Company has had several preliminary discussions regarding
potential collaborative agreements and strategic alliances, however there
can be no assurance that any such arrangements will be consummated. There
can be no assurance that such funds will be available to the Company on
acceptable terms, if at all. Taking into account the net proceeds received
from the September 1995 Private Placement, the Company believes that its
current cash resources (assuming no exercise of any of the Warrants and
that the bank debt is refinanced on or before its maturity date of May
1996) will be sufficient to meet its anticipated cash needs through August
1996. The Company will be required to raise additional funds to meet its
cash needs thereafter. The Company continues to be primarily financed by
proceeds from private placements of Common Stock and investments in its
equity securities. If the Company is unable to secure sufficient future
financing or refinance its bank debt it may be necessary for the Company to
curtail or discontinue its research and development activities.
GOVERNMENT REGULATION. The pharmaceutical industry in the United
States is subject to stringent governmental regulation and the sale of
ONCONASE for use in humans in the United States will require the prior
approval of the FDA. The FDA has established mandatory procedures and
safety standards which apply to the clinical testing, manufacture and
marketing of pharmaceutical products. Pharmaceutical manufacturing
facilities are also regulated by state, local and other authorities.
Obtaining FDA approval for a new therapeutic drug may take several years
and involve substantial expenditures. ONCONASE has not been approved for
sale in the United States or elsewhere. There can be no assurance that the
Company will be able to obtain FDA approval for ONCONASE or any of its
future products. Failure to obtain requisite governmental approvals or
failure to obtain approvals of the scope requested will delay or preclude
the Company from marketing its products while under patent protection, or
limit the commercial use of the products, and thereby may have a material
adverse effect on the Company's liquidity and financial condition.
Further, even if governmental approval is obtained, new drugs are subject
to continual review and a later discovery of previously unknown problems
may result in restrictions on the particular product, including withdrawal
of such product from the market.
PATENTS AND PROPRIETARY TECHNOLOGY. The Company has been issued two
patents in the United States and two patents in Europe and has other patent
applications pending. The Company's U.S. Patent No. 4,882,421 contains a
disclosure that in certain respects is erroneous and is consequently
complicating the prosecution of other Company patent applications before
the U.S. Patent and Trademark Office ("USPTO"). The Company considers
these other patent applications to be more important than U.S. Patent No.
4,882,421 and has decided to disclaim this patent. The effect of the
disclaimer will be that the Company's patent protection in the United
States will be limited to that afforded under the claims of U.S. Patent No.
4,888,172 unless and until other patent protection is obtained in the U.S.
Although the Company believes that its patents and patent applications are
of substantial value to the Company, there can be no assurance that such
patents will be of substantial commercial benefit to the Company, will
afford the Company adequate protection from competing products or will not
be challenged or declared invalid. There can be no assurance that
additional United States patents or foreign patent equivalents will be
issued to the Company. The scope of protection afforded by patents to
biotechnological inventions is uncertain and the Company is subject to this
uncertainty. The Company expects that there will continue to be
significant litigation in the industry regarding patents and other
proprietary rights and, if the Company were to become involved in such
litigation, there could be no assurance that the Company would have the
resources necessary to litigate effectively the contested issues. Pursuant
to its loan agreement with the Company, the Company's bank has a security
interest in the Company's patent portfolio. The bank has agreed, however,
to subordinate its interest to licensees of the Company if certain
conditions are met. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation - Liquidity and Capital Resources" and
"Business - Patents."
INTENSE COMPETITION AND TECHNOLOGICAL OBSOLESCENCE. There are several
companies, universities, research teams and scientists, both private and
government-sponsored, which engage in developing products for the same
indications as the Company. Many of these entities and associations have
far greater financial resources, larger research staffs and more extensive
physical facilities than the Company. Several competitors are more
experienced and have substantially greater clinical, marketing and
regulatory capabilities and managerial resources than the Company. Such
competitors may succeed in their research and development of products for
the same indications as the Company prior to the Company achieving any
measure of success in its efforts.
The number of persons skilled in the research and development of
pharmaceutical products is limited and significant competition exists for
such individuals. As a result of this competition and the Company's
limited resources, the Company may find it difficult to attract skilled
individuals to research, develop and investigate anti-cancer drugs in the
future.
The business in which the Company is engaged is highly competitive and
involves rapid changes in the technologies of discovering, investigating
and developing new drugs. Rapid technological development by others may
result in the Company's products becoming obsolete before the Company
recovers a significant portion of the research, development and
commercialization expenses incurred with respect to those products.
Competitors of the Company are numerous and are expected to increase as new
technologies become available. The Company's success depends upon
developing and maintaining a competitive position in the development of new
drugs and technologies in its area of focus. There can be no assurance
that, if attained, the Company will be able to maintain a competitive
position in the pharmaceutical industry.
DEPENDENCE ON REIMBURSEMENT. Sales of the Company's products, if any,
will be dependent in part on the availability of reimbursement from third
party payors, such as governmental and private insurance plans. Third
party payors are increasingly challenging the prices charged for medical
products and services. Additionally, the containment of health care costs
has become a priority and pharmaceutical and biotechnology drug prices have
been targeted in this effort. If the Company succeeds in bringing any of
its products to market, there can be no assurance that such products will
be considered cost-effective, that reimbursement will be available or, if
available, that the level of reimbursement will be sufficient to allow the
Company to sell its products on a profitable basis.
POTENTIAL PRODUCT LIABILITY. The use of the Company's products during
testing or after regulatory approval entails an inherent risk of adverse
effects which could expose the Company to product liability claims. The
Company maintains product liability insurance coverage in the total amount
of $6 million for claims arising from the use of its products in clinical
trials prior to FDA approval. There can be no assurance that the Company
will be able to maintain its existing insurance coverage or obtain coverage
for the use of its products in the future. Management believes that the
Company maintains adequate insurance coverage for the operation of its
business at this time, however, there can be no assurance that such
insurance coverage and the resources of the Company would be sufficient to
satisfy any liability resulting from product liability claims.
DEPENDENCE UPON KEY PERSONNEL. The success of the Company's
operations during the foreseeable future will largely depend upon the
continued services of its President and Chief Executive Officer, Kuslima
Shogen. Ms. Shogen's one-year employment agreement with the Company
terminated on June 30, 1995. Ms. Shogen continues to be employed by the
Company and it is anticipated that negotiations with respect to a new
employment agreement will commence in the near future; however, there can
be no assurance that such negotiations will commence, that a new employment
agreement will be executed or that Ms. Shogen will remain in the employ of
the Company. Ms. Shogen currently devotes substantially all of her working
time to the Company's affairs. The loss of the services of Ms. Shogen
would adversely affect the Company's operations and prospects. The bank
may call due all amounts payable under its loan to the Company in the event
Ms. Shogen ceases for any reason, except death, to be a full time employee,
officer or director of the Company. The Company carries key person life
insurance on the life of Ms. Shogen with a face value of $1 million. The
Company's bank has been assigned this policy as security for the
approximately $1.6 million loan outstanding to the bank. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources." The Company's success depends upon its
ability to attract and retain other highly qualified scientific, managerial
and manufacturing personnel.
NO DIVIDENDS. The Company has not paid any dividends on its Common
Stock since its inception and does not currently foresee the payment of
cash dividends in the future. Furthermore, under the Company's loan
agreement with its bank, the Company is prohibited from paying any
dividends without the bank's consent. The Company currently intends to
retain all earnings, if any, to finance its operations.
LIMITED PUBLIC MARKET AND LIQUIDITY. The Company's Common Stock is
traded on the Bulletin Board and is not traded on any exchange nor quoted
on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ"). As a consequence, trading of the Common Stock in the
over-the-counter market is limited. A limited trading market could result
in an investor being unable to liquidate his or her investment.
PREFERRED STOCK; ANTI-TAKEOVER DEVICE. The Company is currently
authorized to issue 1,000,000 shares of preferred stock, par value $.001
per share. The Company's Board of Directors is authorized, without any
approval of the stockholders, to issue the preferred stock and determine
the terms of such preferred stock. As of November 10, 1995, there were no
shares of preferred stock outstanding. See "Description of Securities."
The authorized and unissued shares of preferred stock may be classified as
an "anti-takeover" measure and may discourage attempted takeovers of the
Company which are not approved by the Board of Directors. The authorized
shares of preferred stock will remain available for general corporate
purposes, may be privately placed and can be used to make a change in
control of the Company more difficult. Under certain circumstances, the
Board of Directors could create impediments to, or frustrate, persons
seeking to effect a takeover or transfer in control of the Company by
causing such shares to be issued to a holder or holders who might side with
the Board of Directors in opposing a takeover bid that the Board of
Directors determines is not in the best interests of the Company and its
stockholders, but in which unaffiliated stockholders may wish to
participate. Under Delaware law, the Board of Directors is permitted to
use a depositary receipt mechanism which enables the Board to issue an
unlimited number of fractional interests in each of the authorized and
unissued shares of preferred stock without stockholder approval.
Consequently, the Board of Directors, without further stockholder approval,
could issue authorized shares of preferred stock or fractional interests
therein with rights that could adversely affect the rights of the holders
of the Company's Common Stock to a holder or holders which when voted
together with other securities held by members of the Board of Directors
and the executive officers and their families could prevent the majority
stockholder vote required by the Company's certificate of incorporation or
Delaware law to effect certain matters. Furthermore, the existence of such
authorized shares of preferred stock might have the effect of discouraging
any attempt by a person, through the acquisition of a substantial number of
shares of Common Stock, to acquire control of the Company. Accordingly,
the accomplishment of a tender offer may be more difficult. This may be
beneficial to management in a hostile tender offer, but have an adverse
impact on stockholders who may want to participate in such tender offer.
CONTROL BY PRESENT MANAGEMENT. The Company's present officers and
directors, as a group, beneficially owned 29.5% of the outstanding Common
Stock of the Company as of November 10, 1995 and thus could in some
instances exercise effective control over the Company. See "Principal
Stockholders" and "Description of Securities - Common Stock."
VOLATILITY AND POSSIBLE REDUCTION IN PRICE OF COMMON STOCK. The
market price of the Common Stock, like that of the common stock of many
other development stage biotechnology companies, has been and may continue
to be, highly volatile. Factors such as announcements of technological
innovations or new commercial products by the Company or its competitors,
disclosure of results of clinical testing or regulatory proceedings,
governmental regulation and approvals, developments in patent or other
proprietary rights, public concern as to the safety of products developed
by the Company and general market conditions may have a significant effect
on the market price of the Common Stock. In addition, the stock market has
experienced and continues to experience extreme price and volume
fluctuations which have effected the market price of many biotechnology
companies. These broad market fluctuations, as well as general economic
and political conditions, may adversely effect the market price of the
Company's Common Stock.
DEPENDENCE ON THIRD PARTIES FOR MANUFACTURING. The Company currently
does not have facilities capable of manufacturing its product in commercial
quantities and, for the foreseeable future, the Company intends to rely on
third parties to manufacture its product. If the Company were to establish
a manufacturing facility, which it currently does not intend to do, the
Company would require substantial additional funds and would be required to
hire and retain significant additional personnel to comply with the
extensive current Good Manufacturing Practices ("cGMP") regulations of the
FDA applicable to such a facility. No assurance can be given that the
Company would be able to make the transition successfully to commercial
production, if it chose to do so. See "Business - Manufacturing."
DEPENDENCE ON THIRD PARTIES FOR MARKETING; NO MARKETING EXPERIENCE.
Neither the Company nor any of its officers or employees has pharmaceutical
marketing experience. The Company intends to enter into development and
marketing agreements with third parties. The Company expects that under
such arrangements it would act as a co-marketing partner or would grant
exclusive marketing rights to its corporate partners in return for up-front
fees, milestone payments and royalties on sales. Under these agreements,
the Company's marketing partner may have the responsibility for a
significant portion of development of the product and regulatory approval.
In the event that the marketing partner fails to develop a marketable
product or fails to market a product successfully, the Company's business
may be adversely affected. If the Company were to market its products
itself, significant additional expenditures and management resources would
be required to develop an internal sales force and there can be no
assurance that the Company would be successful in penetrating the markets
for any products developed or that internal marketing capabilities would be
developed at all. See "Business -Marketing."
UTILIZATION OF CARRYFORWARDS. At July 31, 1995, the Company had
federal net operating loss carryforwards of approximately $23,460,000 that
expire in the years 1997 to 2010. The Company also had investment tax
credit carryforwards of $63,076 and research and experimentation tax credit
carryforwards of $410,211 that expire in the years 1998 to 2010. Ultimate
utilization/ availability of such net operating losses and credits may be
significantly curtailed if a significant change in ownership occurs.
SALE OF SHARES PURSUANT TO RULE 144. The Company had 11,580,063
shares of Common Stock outstanding as of November 10, 1995. Of these
outstanding shares, approximately 5,300,783 shares are "restricted
securities" as defined in Rule 144 adopted under the Securities Act. Of
these restricted shares, 1,965,616 are covered by this Registration
Statement and were sold in the October 1994 and September 1995 Private
Placements, approximately 2,281,201 were eligible to be sold under Rule 144
as of November 10, 1995, approximately 21,060 will become eligible to be
sold under Rule 144 on various dates commencing on June 28, 1996 through
October 5, 1997 and an aggregate of 1,002,906 were issued and sold in the
March 1994 and September 1994 Private Placements and 30,000 were issued
pursuant to the exercise of options and are included on a registration
statement which the Company has filed with the Commission. The (i)
1,965,616 shares of restricted Common Stock included in this Registration
Statement will, if sold pursuant to this Registration Statement, and (ii)
the 105,945 shares of Common Stock included in this Registration Statement
and underlying the Warrants will, if issued upon exercise of the Warrants
and sold pursuant to this Registration Statement, be freely tradeable
without restriction under the Securities Act, except that any shares held
by an "affiliate," as that term is defined under the Securities Act, will
be subject to the resale limitations of Rule 144. In addition to the
Warrants to purchase 105,945 shares of Common Stock issued in the October
1994 Private Placement, the September 1995 Private Placement and to the
bank in connection with the amendment of the Term Loan, as of November 10,
1995 there were outstanding (i) options to purchase an aggregate of
3,585,538 shares of Common Stock, which are covered by an effective
Registration Statement on Form S-8 and generally, will be freely tradeable
upon issuance; and (ii) warrants to purchase an aggregate of 1,088,506
shares of Common Stock, which were issued and sold in the March 1994 and
September 1994 Private Placements, and options to purchase an aggregate of
1,178,149 shares, all of which are included in a registration statement
filed by the Company with the Commission. The future sale of a substantial
number of shares of Common Stock by existing holders of Common Stock and
holders of warrants and options exercisable for Common Stock pursuant to
Rule 144 under the Securities Act or through effective registration
statements may have an adverse impact on the market price of the Common
Stock. See "Shares Eligible for Future Sale."
TERMINATION OF COMPANY'S AUDITORS. The financial statements of the
Company from inception to July 31, 1992 included in this Registration
Statement, were audited by the independent accounting firm of Armus,
Harrison & Co. ("AHC"). On December 1, 1993, certain shareholders of AHC
terminated their association with AHC (the "AHC Termination"), and AHC
ceased performing accounting and auditing services, except for limited
accounting services to be performed on behalf of the Company. The report
of AHC with respect to the financial statements of the Company from
inception to July 31, 1992 is included in this Registration Statement in
reliance upon the consent and report of AHC. Although investors will not
be barred from asserting claims against the former shareholders of AHC
under Section 11 of the Securities Act on the basis of use of AHC's consent
and reports herein, it may, however, be more difficult to recover any
damages because of the AHC Termination. The discussion regarding certain
effects of the AHC Termination is not meant and should not be construed in
any way as legal advice to any party and any potential purchaser should
consult with his, her or its own counsel with respect to the effect of the
AHC Termination on a potential investment in the Common Stock of the
Company or otherwise.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the shares
of Common Stock offered herein by the Selling Stockholders. If all of the
Warrants are exercised, the Company will receive estimated net proceeds of
approximately $485,680. The Company intends to utilize any proceeds
received from the exercise of the Warrants primarily to fund research and
development activities and for general corporate purposes. There can be no
assurance that any of the Warrants will be exercised.
DIVIDEND POLICY
The Company has not paid any dividends on its Common Stock since its
inception and does not currently foresee the payment of cash dividends in
the future. Furthermore, the Company's loan agreement with its bank
prohibits the payment of any dividends without the bank's consent. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources." The Company currently
intends to retain any earnings to finance its operations.
CAPITALIZATION
The following table sets forth the capitalization of the Company at
July 31, 1995 and as adjusted solely to reflect the net proceeds received
subsequent to July 31, 1995 from the issuance and sale of the Common Stock
in the September 1995 Private Placement.
<TABLE>
<CAPTION>
JULY 31, 1995
<S> <C> <C> <C> <C>
ACTUAL AS ADJUSTED
Long-term debt 7,129 7,129
Stockholders' (deficiency) equity:
Preferred stock, $.001 par value. - -
Authorized and unissued, 1,000,000 shares at July 31,
1995
Common stock, $.001 par value. --
Authorized 25,000,000 shares; issued and outstanding 10,319 11,564
10,319,187 shares at July 31, 1995(1). --
Issued and outstanding 11,563,803 shares as adjusted(2)
Capital in excess of par value 36,262,427 38,969,164
Common stock to be issued, 139,080 shares(3) 343,808 -
Deficit accumulated during development stage (37,449,120) (37,449,120)
Total stockholders' (deficiency) equity (832,566) 1,531,608
Total capitalization $ (825,437) $ 1,538,737
</TABLE>
______________________
(1) Excludes 5,837,598 shares of Common Stock reserved as of July 31, 1995 for
issuance pursuant to outstanding options and warrants to purchase Common
Stock.
(2) Excludes 5,958,138 shares of Common Stock reserved as of November 28, 1995
for issuance pursuant to outstanding options and warrants to purchase
Common Stock.
(3) Common Stock to be issued consisting of 139,080 shares was issued
subsequent to July 31, 1995.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded under the symbol "ACEL". At the
present time the Company's Common Stock is quoted on the Bulletin Board.
On November 10, 1995, the high bid and low asked quotations for the
Company's Common Stock were $4 3/8 and $4 9/16, respectively. As of
November 10, 1995, there were approximately 1,541 stockholders of record of
the Company's Common Stock.
The following table sets forth the range of high and low closing bid
quotations obtained from the National Quotations Bureau for the Common
Stock for the two fiscal years ended July 31, 1994 and 1995. These quotes
are believed to be representative of inter-dealer quotations, without
retail mark-up, mark-down or commission, and may not necessarily represent
actual transactions.
HIGH LOW
Year Ended July 31, 1994:
First Quarter 5-3/4 2-1/4
Second Quarter 3-11/16 1-1/2
Third Quarter 3-1/4 1-1/2
Fourth Quarter 5 1-1/2
Year Ended July 31, 1995:
First Quarter 3-1/8 1-5/8
Second Quarter 4 1
Third Quarter 4 1-1/2
Fourth Quarter 2-3/4 1-3/8
<PAGE>
SELECTED FINANCIAL DATA
Set forth below is the selected financial data for the Company for
each of the fiscal years in the five year period ended July 31, 1995. The
financial statements of the Company for the fiscal years ended July 31,
1992 and 1991 from which certain of the selected financial data presented
below were derived, were audited by the independent accounting firm of
Armus, Harrison & Co. ("AHC"). AHC has not performed any audits on behalf
of the Company since completion of the audit for the fiscal year ended July
31, 1992, and KPMG Peat Marwick LLP, independent public accountants, was
engaged to audit and report on the Company's financial statements for the
fiscal years ended July 31, 1995, 1994 and 1993. The selected financial
data is qualified in its entirety by, and should be read in conjunction
with, the more detailed information and financial statements and the
accompanying notes included in this Registration Statement. See "Index to
Financial Statements."
On December 1, 1993, certain shareholders of AHC terminated their
association with AHC and AHC ceased performing accounting and auditing
services, except for limited accounting services to be performed on behalf
of the Company. The report of AHC with respect to the financial statements
of the Company for the period from August 24, 1981 (date of inception) to
July 31, 1992 is included in this Registration Statement in reliance upon
the consent and reports of AHC. Although investors will not be barred from
asserting claims against the former shareholders of AHC under Section 11 of
the Securities Act on the basis of use of AHC's consent and reports herein,
it may, however, be more difficult to recover any damages. The discussion
regarding certain effects of AHC's present status as set forth herein is
not meant and should not be construed in any way as legal advice to any
party and any potential purchaser should consult with his, her or its own
counsel with respect to the effect of the AHC Termination on a potential
investment in the Common Stock of the Company or otherwise.
<TABLE>
<CAPTION>
Year Ended July 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991
Revenue $ 20,992 $ 6,064 $ 489 $ 0 $ 1,161
Net Loss $ (1,993,123) $ (2,234,428) $ (2,357,350) $ (4,772,826) $ (5,202,302)
Net Loss per $ (.21) $ (.26) $ (.31) $ (.67) $ (.76)
share
Dividends NONE NONE NONE NONE NONE
AT END OF
PERIOD:
Total Assets $ 1,616,170 $ 779,763 $ 335,332 $ 266,962 $ 178,364
Long-Term $ 7,129 $ 1,593,976 $ 5,439,531 $ 1,427,000 $1,397,000
Obligations
</TABLE>
1) Excludes $1,577,049 of long-term debt which was initially due to mature
on May 31, 1996 and was classified as a current liability at July 31,
1995. In November 1995, the Term Loan agreement related to this debt
was amended, effective October 1, 1995, to extend the maturity date of
the Term Loan to August 31, 1997.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
FISCAL YEARS ENDED JULY 31, 1995, 1994 AND 1993
REVENUES
The Company is a development stage company as defined in the Financial
Accounting Standards Board's Statement of Financial Accounting Standards
No. 7. As such, the Company is devoting substantially all of its present
efforts to establishing a new business and developing new drug products.
The Company's planned principal operations of marketing and/or licensing of
new drugs have not commenced and, accordingly, no significant revenue has
been derived therefrom. The Company continues to marshall all its
productive and financial resources to proceed with its development of
ONCONASE and as such has not had any sales in fiscal 1995, 1994 and 1993.
RESEARCH AND DEVELOPMENT
Research and development expense for fiscal 1995 was $1,206,000
compared to $1,114,000 for fiscal 1994, an increase of $92,000 or 8%. This
increase was primarily due to an increase in consulting fees for the
preparation of chemistry, manufacturing and clinical submissions to the FDA
in preparation for Phase III clinical trials and a write-off of previously
capitalized patent costs, which were partially offset by a decrease in non-
cash compensation expense attributable to the amortization of expense
related to stock awards made in prior years to the Company's President and
Chief Executive Officer and Executive Vice President and Medical Director.
Research and development expense for fiscal 1994 was $1,114,000
compared to $1,092,000 in fiscal 1993, an increase of $22,000 or 2%. The
increase in fiscal 1994 can be attributed to an increase in expenses for
collection and analysis of the ONCONASE Phase I and II clinical trial data
which was partially offset by a decrease in fiscal 1994 as compared to
fiscal 1993 in non-cash compensation expense attributable to the
amortization of expenses related to stock awards made in prior years to the
Company's President and Chief Executive Officer and Executive Vice
President and Medical Director.
GENERAL AND ADMINISTRATIVE
General and administrative expense for fiscal 1995 was $664,000
compared to $903,000 for fiscal 1994, a decrease of $239,000 or 26%. This
decrease was primarily due to a decrease in legal and accounting fees and a
decrease in non-cash compensation expense attributable to the amortization
of expenses related to stock awards made in prior years to the Company's
President and Chief Executive Officer.
General and administrative expense remained constant at approximately
$904,000 for fiscal 1994 and fiscal 1993. An increase in legal fees was
offset by a decrease in fiscal 1994 as compared to fiscal 1993 in non-cash
compensation expense attributable to the amortization of expenses related
to stock awards made in prior years to the Company's President and Chief
Executive Officer.
INTEREST
Interest expense for fiscal 1995 was $144,000 compared to $223,000 in
fiscal 1994, a decrease of $79,000 or 35%. The decrease in fiscal 1995
was primarily due to the conversion of convertible subordinated debentures
to Common Stock which took place in fiscal 1994.
Interest expense for fiscal 1994 was $223,000 compared to $362,000 in
fiscal 1993, a decrease of $139,000 or 38%. The decrease in fiscal 1994
was primarily due to the conversion of convertible subordinated debentures
to Common Stock which took place in fiscal 1994.
NET LOSS
The Company has incurred net losses during each year since its
inception. The net loss for fiscal 1995 was $1,993,000 as compared to
$2,234,000 in fiscal 1994 and $2,357,000 in fiscal 1993. The cumulative
loss from the date of inception, August 24, 1981, to July 31, 1995 amounted
to $37,449,000. Such losses are attributable to the fact that the Company
is still in the development stage and accordingly has not derived
sufficient revenues from operations to offset the development stage
expenses.
LIQUIDITY AND CAPITAL RESOURCES
Alfacell has financed its operations since inception primarily through
equity and debt financing, research product sales and interest income.
During fiscal 1995, the Company had a net increase in cash of $445,000.
This increase resulted from net cash provided by financing activities of
$2,678,000, which resulted primarily from private placements of Common
Stock and Common Stock warrants during fiscal 1995 and proceeds from stock
options exercised during fiscal 1995, offset by net cash used in operating
activities of $1,702,000 and net cash used in investing activities of
$531,000, principally due to the purchase of marketable securities.
The Company's Term Loan agreement with its bank was amended effective
as of October 1, 1995, and requires payment of the entire unpaid balance of
the Term Loan on August 31, 1997. It is estimated that the outstanding
balance on that date will be $1,369,000. The Company intends to refinance
the loan or raise sufficient equity to pay off the unpaid balance prior to
its maturity date.
The Company's continued operations will depend on its ability to raise
additional funds through a combination of equity or debt financing,
collaborative agreements, strategic alliances and revenues from the
commercial sale of ONCONASE. To date, the Company has had several
preliminary discussions regarding potential collaborative agreements and
strategic alliances, however there can be no assurance that any such
arrangements will be consummated. In addition, the Company expects that
its cash needs in the future will increase due to the commencement of Phase
III clinical trials. Taking into account the net proceeds received in the
September 1995 Private Placement, the Company believes that its current
resources will be sufficient to meet its anticipated cash needs through
August 1996. To date, a significant portion of the Company's financing has
been provided by its President and Chief Executive Officer and through
private placements of Common Stock, the issuance of common stock for
services rendered and debt financing. The Company's long-term liquidity
will depend on its ability to raise substantial additional funds. There
can be no assurance that such funds will be available to the Company on
acceptable terms, if at all.
Pursuant to the terms of the Company's Term Loan agreement with its
bank, without the bank's consent, the Company is prohibited from incurring
any additional indebtedness except as follows: (i) additional indebtedness
to the bank, (ii) indebtedness having a priority of payment which is
expressly junior to and inferior in right of payment to the prior payment
in full to the bank, (iii) indebtedness arising as a result of obligations
of the Company over the life of its leases which in the aggregate do not
exceed $200,000, and (iv) unsecured indebtedness arising in the ordinary
course of the Company's business which at no time exceeds $1,452,000.
Pursuant to the Term Loan, the Company is required to make prepayments to
the extent its gross revenues exceed certain levels. Pursuant to a pledge
agreement, the Company's President and CEO has pledged the shares of the
Company's Common Stock owned by her to secure the repayment of the Term
Loan. The pledgor may from time to time request that the bank release a
portion of the pledged stock when market conditions are favorable in order
to permit the sale of such stock whereupon the proceeds will be used to
make payments under the Term Loan. The Term Loan agreement prohibits the
issuance of any shares, or right to purchase any shares, of the Company's
stock if the result of such issuance would be to decrease the ratio of the
market value of the pledged stock to the aggregate outstanding debt of the
Company and its President and Chief Executive Officer to the bank, below
1:1.
The Company's working capital and capital requirements may depend upon
numerous factors including the progress of the Company's research and
development programs, the timing and cost of obtaining regulatory
approvals, and the levels of resources that the Company devotes to the
development of manufacturing and marketing capabilities.
BUSINESS
OVERVIEW
The Company is a biopharmaceutical company organized in 1981 to engage
in the discovery, investigation and development of a new class of anti-
cancer drugs isolated from leopard frog eggs and early embryos. The
Company's first product under development is ONCONASE which targets solid
tumors, most of which are known to be resistant to other chemotherapeutic
drugs. To date, the most significant clinical results with ONCONASE have
been observed in pancreatic, non-small cell lung, mesothelioma and
metastatic breast cancer. In 1995, the American Cancer Society estimates
that 377,000 people in the United States will be diagnosed with lung,
breast and pancreatic cancer and approximately 231,000 will die.
ONCONASE has been used to treat over 245 cancer patients on a weekly
basis, including 115 patients with advanced stages of pancreatic, non-small
cell lung, mesothelioma and metastatic breast cancer. Encouraging results
have been observed in Phase I and II clinical trials. Side effects
associated with ONCONASE have been modest, are primarily renal and are
reversible upon reduction of dose, temporary or permanent discontinuation
of treatment. Patients treated with ONCONASE have shown no evidence of
myelosuppression (bone marrow suppression), alopecia (hair loss) or other
severe toxicities frequently observed after treatment with most other
chemotherapeutic drugs. Alfacell began a randomized multi-center Phase III
clinical trial testing ONCONASE in advanced pancreatic cancer patients in
November 1995.
The Company believes that ONCONASE may also be used as an anti-viral
agent. The NIH has performed an independent IN VITRO screen of ONCONASE
against the HIV virus type 1 ("HIV virus"). The results showed ONCONASE to
inhibit replication of the HIV virus 99.9% after a four day incubation
period at concentrations not toxic to uninfected H9 leukemic cells. The
Company has expanded its collaborative studies for cancer and anti-HIV
activity with the NIH. There can be no assurance that ONCONASE will show
any level of anti-HIV activity in humans.
Beyond the development of ONCONASE, Alfacell has also discovered a
series of biologically active proteins from the same natural source from
which ONCONASE was discovered. These proteins appear to be involved in the
regulation of early embryonic and malignant cell growth. However,
significant additional research will be required in order to develop them
into therapeutics. ONCONASE is a novel compound and represents a new class
of therapeutic compounds whose mechanism of action may be important in
treating resistant solid tumors, as well as potentially having anti-viral
applications. There can be no assurance that development of these proteins
into effective and approvable therapeutics will be accomplished.
ONCONASE
Originally, the Company developed an unpurified biological extract
from early stage leopard frog embryos and eggs. This extract was found to
possess a unique bioactive profile and to be of a unique nature. In 1987,
the Company isolated a specific protein, P-30 Protein, (herein referred to
by its registered tradename ONCONASE). Based upon the complete amino acid
sequence analysis (comparison of the amino acid sequence of ONCONASE with
that of over 10,000 protein sequences registered with the National
Biomedical Research Foundation Protein Identification Resource, Georgetown
University, Washington, DC), it has been established that ONCONASE has a
novel structure. It has also been determined that, thus far, ONCONASE is
the smallest member belonging to the superfamily of pancreatic
ribonucleases.
POSTULATED MECHANISM OF ACTION
Although all of the mechanism of ONCONASE's anti-tumor activity have
not been fully delineated, the following processes have been identified
experimentally:
Binding of ONCONASE to cell surface receptors followed by:
. Cellular internalization;
. Ribonucleolytic degradation of RNAs;
. Inhibition of protein synthesis;
. Inhibition of the cell growth; and
. Cell death
Pre-clinical and clinical data to date has shown that ONCONASE has the
capacity to enter chemotherapy resistant cells, overcomes multiple drug
resistance ("MDR") and other mechanisms of drug resistance and is
synergistic with many other chemotherapies against numerous tumor cell
lines.
CLINICAL TRIALS
Alfacell has tested ONCONASE in over 245 patients in its Phase I and
II clinical trials. ONCONASE as a single agent was tested in 194 patients
with a variety of solid tumors and 51 advanced pancreatic patients were
treated with ONCONASE in combination with tamoxifen. Alfacell expects to
begin a randomized multi-center Phase III clinical trial testing the
combination of ONCONASE and tamoxifen in advanced pancreatic cancer
patients in the second half of 1995. IN VITRO results showed ONCONASE to
be synergistic with tamoxifen in inhibiting pancreatic carcinoma tumor cell
growth.
Reported toxicities in Phase I and II clinical trials, after treating
more than 245 patients, were primarily renal, dose-related and reversible.
There has been no evidence of myelosuppression (bone marrow suppression),
alopecia (hair loss) or other severe toxicities frequently observed after
treatment with most other chemotherapeutic drugs. Results from Phase II
clinical trials indicate that expanded clinical trials should be performed
in other solid tumors such as non-small cell lung, mesothelioma, and
metastatic breast cancers.
RESEARCH AND DEVELOPMENT
Research and development expenses for the fiscal years ended July 31,
1995, 1994 and 1993 were $1,205,523, $1,114,455 and $1,091,762,
respectively. During fiscal 1995, the Company's research and development
efforts were focused in clinical and regulatory affairs, which included the
preparation of chemistry, manufacturing and clinical submissions to the FDA
in preparation for Phase III clinical trials. In January 1995, the FDA
agreed to the Company's Phase III protocol design for advanced pancreatic
cancer.
The Company has a Cooperative Research and Development Agreement
("CRADA") with the NIH. Areas of research include studies of anti-HIV
activity; the study of the mechanism of action of ONCONASE at the cellular
and subcellular levels; tests of the anti-tumor activities of ONCONASE
conjugates; ONCONASE gene therapy; and investigation of anti-tumor activity
of ONCONASE against primary brain tumors.
The Company also has a CRADA with the National Cancer Institute's
("NCI") Biological Response Modifier and Developmental Therapeutics
Programs. Areas of research include characterization of the inhibition of
tumor cell growth by ONCONASE in animal models and IN VITRO and IN VIVO
studies of chemical conjugates of ONCONASE with anti-tumor antibodies.
Management of the Company believes it has discovered a family of
proteins from the same source as ONCONASE which play a role in cell
maturation and cell proliferation and may play a role in developing other
treatments for cancer. At present, the Company is defining a number of
active proteins from the natural source material, in addition to ONCONASE,
which may exhibit cytotoxic, cytostatic and other pharmacological effects.
RAW MATERIALS
The major active ingredient in the original extract derived from early
stage leopard frog embryos and eggs is the protein, ONCONASE. Although
Alfacell currently acquires its natural source material from a single
supplier, management believes that it is abundantly available from other
sources. In addition, the Company is conducting research concerning the
alternative of manufacturing ONCONASE through recombinant technology.
However, there can be no assurance that alternative manufacturing methods
will be viable.
MANUFACTURING
The Company has signed a letter of intent with Scientific Protein
Laboratories ("SPL"), a subsidiary of a division of American Home Products
Corp., which will perform the intermediary manufacturing process which
entails purifying ONCONASE. Subsequently, the intermediate product is sent
to a contract filler for the final manufacturing step and vial filling.
Other than these arrangements, no specific arrangements have been made for
the manufacture of the Company's product. Compliance with cGMP is a
requirement for product manufactured for use in Phase III clinical trials
and for commercial sale. Both SPL, and the contract filler to whom the
intermediate product is sent for the final manufacturing step and vial
filing, manufacture in accordance with cGMP. For the foreseeable future,
the Company intends to rely on these manufacturers, or substitute
manufacturers, if necessary, to manufacture its product. If the Company
were to establish a manufacturing facility, which it currently does not
intend to do, the Company would require substantial additional funds and
would be required to hire and retain significant additional personnel to
comply with the extensive cGMP regulations of the FDA applicable to such a
facility. No assurance can be given that the Company would be able to make
the transition successfully to commercial production, if it chose to do so.
MARKETING
Neither the Company nor any of its officers or employees has
pharmaceutical marketing experience. The Company intends to enter into
development and marketing agreements with third parties. The Company
expects that under such arrangements it would act as a co-marketing partner
or would grant exclusive marketing rights to its corporate partners in
return for up-front fees, milestone payments and royalties on sales. Under
these agreements, the Company's marketing partner may have the
responsibility for a significant portion of development of the product and
regulatory approval. In the event that the marketing partner fails to
develop a marketable product or fails to market a product successfully, the
Company's business may be adversely affected. If the Company were to
market its products itself, significant additional expenditures and
management resources would be required to develop an internal sales force
and there can be no assurance that the Company would be successful in
penetrating the markets for any products developed or that internal
marketing capabilities would be developed at all.
GOVERNMENT REGULATION
The manufacturing and marketing of pharmaceutical products in the
United States requires the approval of the FDA under the Federal Food, Drug
and Cosmetic Act. Similar approvals by comparable agencies are required in
most foreign countries. The FDA has established mandatory procedures and
safety standards which apply to the clinical testing, manufacture and
marketing of pharmaceutical products. Obtaining FDA approval for a new
therapeutic may take many years and involve substantial expenditures.
Pharmaceutical manufacturing facilities are also regulated by state, local
and other authorities.
As an initial step in the FDA regulatory approval process, pre-
clinical studies are conducted in animal models to assess the drug's
efficacy and to identify potential safety problems. The results of these
studies are submitted to the FDA as a part of the Investigational New Drug
Application ("IND"), which is filed to obtain approval to begin human
clinical testing. The human clinical testing program may involve up to
three phases. Data from human trials are submitted to the FDA in a New
Drug Application ("NDA") or Product License Application ("PLA"). Preparing
an NDA or PLA involves considerable data collection, verification and
analysis.
The Company has not received FDA marketing approval for any products.
Difficulties or unanticipated costs may be encountered by the Company in
its effort to secure necessary governmental approvals, which could delay or
preclude the Company from marketing its products. There can be no
assurance that any of the Company's products will be approved by the FDA.
With respect to patented products, delays imposed by the governmental
approval process may materially reduce the period during which the Company
may have the exclusive right to exploit them. See "Patents."
PATENTS
The Company presently owns two (2) U.S. Patents: No.4,882,421 issued
November 21, 1989 and No.4,888,172 issued December 19, 1989. U.S. Patent
No. 4,882,421 contains a disclosure that in certain respects is erroneous
and is consequently complicating the prosecution of other Company patent
applications before the USPTO. The Company considers these other patent
applications to be more important than U.S. Patent No. 4,882,421 and has
decided to disclaim this patent. The effect of the disclaimer will be that
the Company's patent protection in the United States will be limited to
that afforded under the claims of U.S. Patent No. 4,888,172 unless and
until other patent protection is obtained in the U.S. The Company also
owns five other patent applications that are pending in the USPTO.
The Company presently owns two (2) European Patents: No. 0 440 633
filed March 31, 1989 and No. 0 500 589 filed October 26, 1990. Both
European patents have been validated in selected European nations. For
each of these European patents, the Company has filed a counterpart
application in Japan; both Japanese patent applications are presently
pending.
The Company owns a European patent application covering certain
combination therapies that use ONCONASE in addition to other approved
pharmaceuticals. The Company has requested examination of this European
patent application. A Japanese counterpart to this European patent
application has been filed and is presently pending.
The Company owns an interest in an application which is pending in the
USPTO and that relates to a Subject Invention (as that term is defined in a
CRADA to which the Company and the National Institutes of Health/Alcohol,
Drug Abuse and Mental Health Administration are parties).
The Company pursues a policy of filing patent applications in the
United States and in selected foreign countries for certain of its
proprietary technology. The scope of protection afforded by patents to
biotechnological inventions is uncertain and the Company is subject to this
uncertainty. There can be no assurance that any of the Company's patent
applications will be approved, that any issued patents will provide the
Company with competitive advantages or will not be challenged by others, or
that the patents of others will not have an adverse effect on the ability
of the Company to do business. Furthermore, there can be no assurance that
others will not independently develop similar products, will not duplicate
any of the Company's products or, if patents are issued to the Company,
will not design around the Company's existing patent rights or patents that
may issue in the future, if any.
The Company also relies on trade secrets, proprietary know-how and
continuing technological innovation to develop and maintain its competitive
position. There can be no assurance that others will not independently
develop such know-how or otherwise obtain access to Alfacell's technology.
While the Company's employees and consultants with access to proprietary
information are generally required to enter into confidentiality
agreements, there can be no assurance that these agreements will be honored
or can be enforced.
Pursuant to the Term Loan Agreement, the Company's bank acquired a
security interest in the Company's patent portfolio. The bank has agreed,
however, to subordinate its interest to licensees of the Company if certain
conditions are met.
COMPETITION
There are several companies, universities, research teams and
scientists, both private and government-sponsored, which engage in research
similar or potentially similar to that performed by the Company. Many of
such entities and associations have far greater financial resources, larger
research staffs and more extensive physical facilities than the Company.
These competitors may succeed in their research and development of products
which are more effective than any developed by the Company and may be more
successful than the Company in their production and marketing of such
products. The Company is not aware, however, of any product currently
being marketed which is similar to the Company's proposed anti-tumor agent,
ONCONASE. A search by the Company of scientific literature reveals no
published information which would indicate that others are currently
employing its methods or producing such an anti-tumor agent. There are
several chemotherapeutic agents currently used to treat the forms of cancer
which ONCONASE is being used to treat. There can be no assurance that
ONCONASE will prove to be as safe and as effective as currently used drugs
or that new treatments will not be developed which are more effective then
ONCONASE.
EMPLOYEES
As of November 10, 1995, Alfacell employed nine persons, of whom five
were engaged in research and development activities and four were engaged
in administration and management. The Company has three employees who hold
Ph.D. or M.D. degrees. All of the Company's employees are covered by
confidentiality agreements. Alfacell considers relations with its
employees to be very good. None of the Company's employees are covered by
a collective bargaining agreement.
ENVIRONMENTAL MATTERS
The Company's operations are subject to comprehensive regulation with
respect to environmental, safety and similar matters by the United States
Environmental Protection Agency ("EPA") and similar state and local
agencies. Failure to comply with applicable laws, regulations and permits
can result in injunctive actions, damages and civil and criminal penalties.
If the Company expands or changes its existing operations or proposes any
new operations, it may be required to obtain additional or amended permits
or authorizations. The Company spends time, effort and funds in operating
its facilities to ensure compliance with environmental and other regulatory
requirements. Such efforts and expenditures are common throughout the
biotechnology industry and generally should have no material adverse effect
on the Company. The principal regulatory requirements and matters known to
the Company requiring or potentially requiring capital expenditures by the
Company do not appear likely, individually or in the aggregate, to have a
material adverse effect on the Company's financial condition. The Company
believes that it is in compliance with all current laws and regulations.
PROPERTIES
The Company owns no real property. The Company subleases a total of
approximately 12,600 square feet in an industrial and office building
located in Bloomfield, New Jersey. The Company subleases its facility
under a five year operating sublease which was due to expire October 31,
1993, but was extended to November 11, 1996 at a reduced annual rental
obligation commencing April 1, 1993 of $66,000. In addition to the basic
rent, the Company pays its pro rata share of increases in municipal real
estate taxes and utilities over the base year 1988. The Company believes
that the facility is sufficient for its current needs.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company
is a party, or to which any of its properties or assets is subject.
MANAGEMENT
The following table sets forth certain information regarding the
directors and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY With
Company
SINCE
<S> <C> <C> <C>
Kuslima Shogen 49 President, Chief Executive Officer 1981
and Director
Gail E. Fraser 37 Vice President, Finance, Chief 1994
Financial Officer and Director
Stanislaw M. Mikulski, M.D. 51 Executive Vice President, Medical 1986
Director and Director
Allen Siegel(1) 60 Director 1982
Alan Bell(1)(2) 70 Director 1986
Robert R. Henry(1)(2) 55 Director 1994
</TABLE>
(1) Member of Compensation Committee
(2) Member of Audit Committee
BUSINESS EXPERIENCE
KUSLIMA SHOGEN has served the Company as President and Chief Executive
Officer since September 1986 and as a director since its inception. Ms.
Shogen also served as the Company's Chief Financial Officer from September
1986 through July 14, 1994. Ms. Shogen formed the Company in 1981 to
pursue research which she initiated as a biology student in the University
Honors Program at Fairleigh Dickinson University ("F.D.U."). She was
Executive Vice President of the Company from 1984 until 1986 when she
became President. Prior to organizing the Company, Ms. Shogen was founder
and president from 1976 to 1981 of a biomedical research consortium
specializing in GLP (Good Laboratory Practices) and animal toxicology.
During that time, she was also a consultant for Lever Brothers Research
Group. Ms. Shogen has received numerous awards for achievements in
biology, including Sigma Xi first prize from the Scientific Research
Society of North America in 1974 and first prize at the Eastern College
Science Conferences competition for most outstanding research paper in
biology in each of 1972, 1973, and 1974. Ms. Shogen received her B.S. in
1974 and M.S. in 1976 (both magna cum laude) from F.D.U. and was the first
teaching fellow from F.D.U.'s Rutherford campus. Among other honors, she
was a Phi Beta Kappa graduate. Ms. Shogen continued graduate studies until
1978. She devotes her full-time to the Company.
GAIL E. FRASER became the Company's Chief Financial Officer on July
15, 1994 and became a director in April 1995. From August 1993 to July
1994, Ms. Fraser served as a consultant to the Company and was the
Company's business, financial and accounting advisor. From April 1989 to
February 1993, Ms. Fraser was Vice President, Finance and Chief Financial
Officer of Enzon, Inc., a biopharmaceutical company located in Piscataway,
New Jersey. From 1982 to 1989, Ms. Fraser served as Vice President,
Finance and Controller for Sidmak Laboratories, Inc., a generic drug
manufacturer located in East Hanover, New Jersey. She received a B.S. in
accounting from Kean College of New Jersey and an M.B.A. from the Wharton
School of the University of Pennsylvania in 1993. Ms. Fraser is a
certified public accountant and devotes her full-time to the Company.
STANISLAW M. MIKULSKI, M.D. F.A.C.P., has served the Company as
Executive Vice President and Medical Director since 1987 and as a director
since 1986. Previously, Dr. Mikulski was Special Assistant to the Chief,
Investigational Drug Branch, National Cancer Institute, and Coordinator for
Immunotherapy Trials in Cancer for the Division of Cancer Treatment,
following his post-doctoral studies at the University of California, Los
Angeles in human tumor immunology. Prior to joining the Company, Dr.
Mikulski maintained a medical practice in medical oncology for over eight
years. He is a diplomate of the American Board of Internal Medicine and
Medical Oncology, as well as a fellow of the American College of Physicians
and a member of the American Society of Clinical Oncology. Dr. Mikulski is
a clinical assistant professor of medicine at the University of Medicine
and Dentistry of New Jersey. He received his M.D., cum laude, in 1967 from
the Medical School in Warsaw, Poland. Dr. Mikulski devotes his full-time
to the Company.
ALLEN SIEGEL, D.D.S., has been a director of the Company since 1982.
He was a dentist in private practice from 1961 until his retirement from
active practice in August 1989. He received a D.D.S. in 1959 from the
University of Buffalo.
ALAN BELL has been a director of the Company since 1986. He founded
the international public relations agency, Bell and Stanton, in 1956 and
served as its chairman until 1976. From 1976 to 1983 he was vice-chairman
of Manning Selvage & Lee, Inc., a major public relations firm. In 1983 he
established a new firm, Alan W. Bell Co., Inc. He specializes in financial
public relations and in economic and tourism development counselling.
ROBERT R. HENRY has been a director of the Company since March 1994.
Mr. Henry served as Partner and Managing Director of Morgan Stanley & Co.
Inc. ("Morgan Stanley") from 1977 through 1989. Since 1989 he has been
President of Robert R. Henry & Co., Inc., a financial advisory firm. Mr.
Henry continues to serve as an Advisory Director for Morgan Stanley.
No director or officer is related to any other director or officer by
blood, marriage or adoption. No arrangement or understanding exists
between an officer or director and any other person under which any officer
or director was elected; however, the Company's bank may call due all
amounts payable under its loan to the Company in the event Ms. Shogen
ceases for any reason, except death, to be a full time employee, officer or
director of the Company.
The Company's scientific advisory board is composed of scientists and
doctors whom management of the Company believes can contribute to the
proper development of its anti-tumor agent. The individuals selected are
highly respected in the national and international fields of oncology and
drug development. The advisory board is made up of the following
individuals.
JOHN J. COSTANZI, M.D., has served as a principal investigator in the
Onconase clinical trials program since its inception. He is currently in
the practice of oncology and hematology in Austin, Texas. He formerly
served as Medical Director of the Thompson Cancer Survival Center in
Knoxville, Tennessee, and as professor of medicine and director of the
cancer center for the University of Texas Medical Branch in Galveston. Dr.
Costanzi is board certified in medical oncology and internal medicine and
has participated in many professional and community organizations including
the Southwest Oncology Group, American Cancer Society, and American
Association for Cancer Research. Dr. Costanzi has authored over 140
papers, books and chapters of books in the area of clinical oncology. He
received his M.D. in 1961 from Georgetown University School of Medicine,
Washington, D.C. He completed his post-graduate training at Walter Reed
General Hospital, Washington, D.C. and Wilford Hall Medical Center, San
Antonio, Texas. Dr. Costanzi has received numerous awards in the field of
oncology. He is a frequent lecturer and visiting professor throughout the
United States and abroad. He also serves as a Brigadier General in the
United States Air Force Reserve Medical Corp.
ZBIGNIEW DARZYNKIEWICZ, M.D., PH.D., is the director of the Cancer
Research Institute at the New York Medical College and a professor of
medicine at New York Medical College. Formerly, Dr. Darzynkiewicz was a
professor of cell biology and genetics at Cornell University Medical
School, a member of Sloan-Kettering Institute for Cancer Research, the head
of the Experimental Cell Research Laboratory, and a director of the Flow
Cytometry Core Facility Network. In addition, Dr. Darzynkiewicz is an
editor of The Cell Proliferation and Cytometry Journals, past president of
The Cell Kinetics Society and past president of the International Society
for Analytical Cytology. Dr. Darzynkiewicz's research concentrates on cell
biology with particular focus on cancer cell growth and the regulatory
mechanisms associated with cell growth and progression through the cell
cycle. He has developed several techniques that have world-wide
application, to analyze metabolic parameters of the cell related to the
cell cycle kinetics, cell sensitivity to anti-tumor drugs and apoptosis.
Most recently, he received a grant from NASA to develop new technologies
for cell staining and analysis applicable to the micro-gravity conditions
of Space Station Freedom. Dr. Darzynkiewicz has authored over 300 original
publications and over 50 chapters and reviews in books devoted to the
subject of cell growth, the regulation of the cell cycle and apoptosis.
Dr. Darzynkiewicz received his M.D. in 1960 and Ph.D. in 1966 from the
Medical School of Warsaw, Warsaw, Poland. He completed his post-graduate
studies at the State University of New York at Buffalo and the Medical
Nobel Institute of Karolinska Institute, Stockholm, Sweden. Since 1974, he
has been associated with the Sloan-Kettering Institute for Cancer Research,
and since 1990, he has been with New York Medical College, Elmsford, New
York.
MICHAEL C. LOWE, PH.D., has been a principal of The Weinberg Group
Inc. since 1988 and specializes in assisting clients with applications to
the FDA for human trials of new agents and in gaining marketing approvals.
He has demonstrated expertise in the areas of pharmacology, toxicology,
morphology and pathology for chemotherapeutic agents. Prior to joining The
Weinberg Group, Dr. Lowe was a corporate vice president and director of
toxicology for ICF/Clement, a health scientist administrator at the NIH,
the acting chief of the toxicology branch at the NCI and head of the
pathopharmacology section of the intramural laboratory of chemical
pharmacology at the NCI. There, he oversaw the pre-clinical toxicology
studies of oncolytic drugs emerging from the drug development program of
the NCI, and made risk assessments of the drugs prior to Phase I trials.
Before joining the NIH he was on the faculty of the department of pathology
at the University of Washington. Dr. Lowe received a B.S. in Zoology from
Washington State University, a M.S. and a Ph.D. in Pharmacology from the
University of Washington and postdoctoral training in experimental
pathology at the University of Washington. In addition to serving on the
Scientific Advisory Board, Dr. Lowe is an advisor to the board of
directors.
DAVID N. MESCHES, M.D., is professor and chairman of the Department of
Family Medicine at New York Medical College and has held these positions
for the past 16 years. He is the Chief Executive Officer of the Mid-Hudson
Family Health Services Institute, a not-for-profit health care and
education corporation responsible for the primary care of patients and
training of medical students and family practice residents. The original
Onconase Phase I (daily schedule) clinical trials were initiated and
completed under the direction of Dr. Mesches. Dr. Mesches graduated from
the University of Buffalo School of Medicine in 1960. Following his
internship at Mount Sinai Hospital in Detroit, Michigan, he served as a
Captain in the United States Air Force.
ABRAHAM MITTELMAN, M.D., is associate professor of medicine and
director of experimental oncology at New York Medical College in Valhalla,
New York. Dr. Mittelman graduated from the Autonomous University of
Guadalajara in 1977. Following his residency at Downstate Medical Center,
he became an instructor in medicine at New York - Cornell Medical Center as
well as a fellow in Oncology at Memorial Sloan-Kettering from 1981 through
1983. Dr. Mittelman is an oncologist and hematologist who has been the
principal investigator of numerous cancer trials. Dr. Mittelman has
published over 130 papers on a variety of oncologic topics. He is a member
of the New York State Society of Hematologists and Oncologists.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides a summary of cash and non-cash
compensation for each of the last three fiscal years ended July 31, 1995,
1994 and 1993 with respect to Alfacell's Chief Executive Officer and the
only two other executive officers of the Company (the "Named Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM
COMPENSATION
<S> <C> <C> <C> <C> <C> <C>
NAME AND YEAR SALARY($) BONUS($) OTHER SECURITIES ALL OTHER
PRINCIPAL POSITION ANNUAL UNDERLYING COMPENSATION ($)
COMPENSATION ($){(1)} OPTIONS/
SARS(#)
Kuslima Shogen 1995 $150,000 - 0 - - 0 - - 0 -(3) - 0 -
President and Chief 1994 150,000 - 0 - - 0 - 1,306,529(2) - 0 -
Executive Officer(2) 1993 158,333 - 0 - - 0 - 1,100,000 - 0 -
Gail E. Fraser(4) 1995 $121,163 - 0 - - 0 - - 0 -(3) - 0 -
Vice President, 1994 8,333 - 0 - - 0 - 475,000(5) - 0 -
Finance and Chief 1993 - 0 - - 0 - - 0 - - 0 - - 0 -
Financial Officer
Stanislaw M. Mikulski(6) 1995 $130,000 - 0 - - 0 - - 0 -(3) - 0 -
Executive Vice President 1994 130,000 - 0 - - 0 - 431,409(6) - 0 -
and Medical Director 1993 135,833 - 0 - - 0 - 350,000 - 0 -
</TABLE>
(1) Excludes perquisites and other personal benefits that in the aggregate
do not exceed 10% of the Named Officers' total annual salary and
bonus.
(2) Ms. Shogen resigned from her position as the Company's Chief Financial
Officer in July 1994. No salary was paid to Ms. Shogen in fiscal
1995, 1994 or 1993 and these salary amounts were accrued on the
Company's financial statements as obligations owed to Ms. Shogen. In
consideration for her services to the Company through January 31, 1994
and Ms. Shogen's agreement to release the Company from its obligation
to pay her $1,624,151 in accrued salary on the Company's balance sheet
as of January 31, 1994, in March 1994 the Company granted Ms. Shogen
options to purchase 841,529 shares of the Company's Common Stock at an
exercise price of $3.20 per share.
(3) No options were granted to the Named Officers during the fiscal year
ended July 31, 1995.
(4) Ms. Fraser became an employee of the Company on July 15, 1994.
$96,163 of Ms. Fraser's salary in fiscal 1995 was paid to Ms. Fraser.
That portion of Ms. Fraser's salary which was not paid to her was
accrued on the Company's financial statements as obligations owed to
Ms. Fraser.
(5) Prior to Ms. Fraser joining the Company, Ms. Fraser received under a
consulting agreement an option to purchase 50,000 and 75,000 shares of
the Company's Common Stock at an exercise price of $3.22 and $5.00,
respectively. On July 15, 1994, Ms. Fraser was granted options to
purchase 350,000 shares of Common Stock under the 1993 Stock Option
Plan at an exercise price of $4.11 per share.
(6) No salary was paid to Dr. Mikulski in fiscal 1994 or 1993. $5,000 of
Dr. Mikulski's salary in fiscal 1995 was paid to Dr. Mikulski. Those
portions of Dr. Mikulski's salaries which were not paid to him were
accrued on the Company's financial statements as obligations owed to
Dr. Mikulski. In consideration for his services to the Company and
Dr. Mikulski's agreement to release the Company from its obligation to
pay him $639,619 in accrued salary on the Company's balance sheet as
of January 31, 1994, in March 1994 the Company granted Dr. Mikulski
options to purchase 331,409 shares of the Company's Common Stock at an
exercise price of $3.20 per share.
<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth the information with respect to the
Named Officers concerning the exercise of options during the fiscal year
ended July 31, 1995 and unexercised options held as of July 31, 1995.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money Options
Options at Fiscal Year-End at Fiscal Year-End($)(1)
(#)
<S> <C> <C> <C> <C> <C> <C>
Shares Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
Kuslima Shogen None None 1,005,548 1,180,659 $0$0
Gail E. Fraser None None 195,000 280,000 $0$0
Stanislaw M. Mikulski None None 402,564 278,845 $0 $0
</TABLE>
(1) The exercise price of the unexercised options is greater than the market
value of the Common Stock on July 31, 1995 and thus the unexercised
options had no value as of that date.
DIRECTORS' COMPENSATION
Members of the Company's board of directors receive no cash
compensation in consideration for their serving on the board of directors.
In November 1993 and January 1994, the board of directors and the
stockholders, respectively, approved the Company's 1993 Stock Option Plan
(the "Plan") which, among other things, provides for automatic grants of
options ("Automatic Grants") under a formula (the "Formula") to non-
employee directors ("Independent Directors") on an annual basis.
The Formula provides that (i) on each December 31st each Independent
(non-employee) Director receives automatically an option to purchase 15,000
shares of the Company's Common Stock (the "Regular Grant"); and (ii) on the
date of each Independent Director's initial election to the board of
directors, pursuant to a vote of the board, such newly elected Independent
Director automatically receives an option to purchase such Independent
Director's pro rata share of the Regular Grant which equals the product of
1,250 multiplied by the number of whole months remaining in the calendar
year (the "Pro Rata Grant"). Each option granted pursuant to a Regular
Grant and a Pro Rata Grant vests and becomes exercisable on the December
30th following the date of grant. Notwithstanding the foregoing, an option
will not become exercisable as to any shares unless such Independent
Director has served continuously on the board during the year preceding the
date on which such options are scheduled to vest and become exercisable, or
from the date such Independent Director joined the board until the date on
which such options are scheduled to vest and become exercisable; PROVIDED,
HOWEVER, that if an Independent Director does not fulfill such continuous
service requirement due to such Independent Director's death or disability
all options held by such Independent Director nonetheless vest and become
exercisable as described herein. An option granted pursuant to the Formula
remains exercisable for a period of five years after the date the option
first becomes exercisable.
During the fiscal year ended July 31, 1995, the following directors
were granted the options listed below pursuant to the Formula under the
Plan in consideration for serving on the board of directors. The exercise
prices of the options granted to directors in fiscal 1995 are equal to the
fair market value of the Common Stock on the date of grant.
<TABLE>
<CAPTION>
Number of EXPIRATION DATE
NAME OPTIONS EXERCISE PRICE
12/31/00
Allen Siegel(1) 15,000 $2.27
<S> <C> <C> <C>
Alan Bell(2) 15,000 $2.27 12/31/00
Robert R. Henry 15,000 $2.27 12/31/00
</TABLE>
_______________________
(1) On April 17, 1995 the Company extended the exercise period until July
31, 1995 of an option to purchase 100,000 shares held by Dr. Siegel
and an option to purchase 30,000 shares held by Dr. Siegel's wife.
The exercise price for these options was reduced from $5.00 to $2.65,
the then current market price. On July 31, 1995 the exercise period
for these options was extended until July 31, 1996 and the exercise
price was increased to $2.68, the then current market price. All
optionholders with options expiring on July 31, 1995 had the exercise
period of their options extended until July 31, 1996. These options
were not granted under the Plan.
(2) On April 17, 1995 the Company extended the exercise period until July
31, 1995 of an option to purchase 50,000 shares held by Mr. Bell and
an option to purchase 20,000 shares held by Mr. Bell's wife. The
exercise price for these options was reduced from $5.00 to $2.65, the
then current market price. On July 31, 1995 the exercise period for
these options was extended until July 31, 1996 and the exercise price
was increased to $2.68, the then current market price. All
optionholders with options expiring on July 31, 1995 had the exercise
period of their options extended until July 31, 1996. These options
were not granted under the Plan.
EMPLOYMENT AGREEMENTS
Ms. Shogen continues in the employ of the Company; however, her one-
year employment agreement with the Company terminated on June 30, 1995.
Under the agreement, Ms. Shogen was entitled to receive an annual salary of
approximately $150,000. The agreement also required Ms. Shogen to maintain
the confidentiality of Company information and acknowledged that Ms. Shogen
previously entered into an assignment and non-disclosure agreement with
respect to present and future proprietary methods, inventions, productions,
drugs, compounds, know-how and discoveries in processes, whether developed
by her, the Company or a Company affiliate. Upon expiration of this
agreement, the board of directors approved an annual salary of $150,000 for
Ms. Shogen for a period of one year. It is anticipated that negotiations
with respect to a new agreement will commence in the near future.
Ms. Gail E. Fraser commenced her employment with the Company as its
Vice President, Finance, and Chief Financial Officer on July 15, 1994. Ms.
Fraser's one-year employment agreement terminated on July 14, 1995. Under
the agreement, Ms. Fraser was entitled to receive an annual salary of
$100,000 and pursuant to a determination by the Compensation Committee
subsequently received an additional $25,000 for the fiscal year ended July
31, 1995. The agreement also required Ms. Fraser to maintain the
confidentiality of Company information and to assign to the Company all
tangible and intangible property, including, but not limited to,
inventions, developments or discoveries conceived, made or discovered by
Ms. Fraser solely or in collaboration with others during the term of Ms.
Fraser's employment with the Company. The agreement also provided that
during the term of the agreement and for two years thereafter, Ms. Fraser
is prohibited from directly or indirectly becoming interested in or
associated with an entity engaged to a significant degree in any technology
or area of business in which the Company was involved to a significant
degree during the term of the agreement. Upon expiration of this
agreement, the board of directors approved an annual salary of $130,000 for
Ms. Fraser for a period of one year. It is anticipated that negotiations
with respect to a new agreement will commence in the near future. On July
15, 1994, Ms. Fraser was granted options to purchase 350,000 shares of
Common Stock under the 1993 Stock Option Plan at an exercise price of $4.11
per share. These options vest as to 20% of such shares each year during
the five year period commencing July 15, 1995.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The Compensation Committee was formed in November 1993 and is
comprised of Allen Siegel, Alan Bell and Robert R. Henry. All decisions
regarding executive compensation were made by the Compensation Committee
during the fiscal year ended July 31, 1995.
CERTAIN TRANSACTIONS
Effective May 31, 1993, the Company restructured a pre-existing bank
note (the "Note") to include the principal balance of $1,300,000, accrued
interest of $349,072, and legal fees of $50,000 into a new Term Loan of
$1,699,072. Interest is to be computed at a rate of seven and one-half
percent (7.5%) per annum. The Term Loan is secured by substantially all of
the assets of the Company. Ms. Shogen has personally guaranteed the Note
and has pledged certain collateral, including a substantial portion of the
shares of Common Stock of the Company owned by her and certain options, as
additional collateral. Substantially all of the obligations owed by the
Company to Ms. Shogen are subordinated to the Note. In order to satisfy
the Company's obligations to the bank, Ms. Shogen, from time to time,
pursuant to a pledge agreement ("Pledge Agreement"), has sold portions of
the shares of Common Stock pledged to the bank. Through February 28, 1994,
the monthly payments of interest and principal under the Term Loan were
paid primarily pursuant to this procedure, and subsequent to such time,
have been paid directly by the Company. The Term Loan Agreement prohibits
the issuance of any shares, or right to purchase any shares of the
Company's stock if the result of such issuance would be to decrease the
ratio of the market value of Ms. Shogen's pledged stock to the aggregate
outstanding debt of the Company and herself to the bank, below 1:1. In
June 1994, Ms. Shogen's term loan agreement with the bank and the related
Pledge Agreement were amended to provide for, among other things, the
issuance to Ms. Shogen, and subsequent pledge to the bank, of the options
discussed below. Based upon the average of the closing bid and asked
prices on November 10, 1995, the shares of the Company's Common Stock
pledged by Ms. Shogen to secure the Term Loan were valued at $6,001,531
(excluding the value of shares of Common Stock underlying certain options
pledged to the bank) and the aggregate outstanding debt of the Company and
Ms. Shogen to the bank as of November 10, 1995 was $2,249,148. In
connection with the Term Loan, Ms. Shogen also assigned to the bank her
right to payment of up to $200,000 of outstanding debt owed to her by the
Company as a result of advances made by her to the Company. In November
1995, the Note was amended and restated and the Term Loan agreement was
amended to provide for, effective as of October 1, 1995, among other things
(i) the extension of the term of the Term Loan from May 31, 1996 to August
31, 1997, (ii) a re-amortization of the payment of principal and interest
based on a one hundred fifty (150) month amortization schedule, (iii) an
increase in the interest rate from seven and one-half percent (7.5%) per
annum to eight and three eighths percent (8.375%) per annum, and (iv) the
issuance to the bank of a Warrant to purchase 10,000 shares of Common Stock
through August 31, 1997 at an exercise price of $4.19 per share. For more
information concerning the Term Loan see "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
From time to time Kuslima Shogen has advanced sums of money to the
Company in the form of unsecured obligations payable on demand (the "demand
loans"). Ms. Shogen has at various times converted portions of the demand
loans into convertible debentures. At July 31, 1992 the Company owed Ms.
Shogen $1,300,000 for convertible debentures owned by her, and a total of
$855,000 in demand loans and accrued interest on the demand loans and on
the convertible debentures owned by Ms. Shogen. During the fiscal year
ended July 31, 1993, (i) Ms. Shogen made $113,000 of additional demand
loans to the Company, (ii) the Company repaid $234,000 of the principal
amount of the demand loans owed to Ms. Shogen and (iii) Ms. Shogen
converted $275,000 of the principal amount of the demand loans into
convertible debentures which were due in October 1996, bore 8% interest and
were convertible into shares of Common Stock at the rate of $2.75 per
share. At July 31, 1993, (i) the Company owed Ms. Shogen $14,000 for loans
which were previously demand loans, but which were subordinated to the
Company's bank debt in connection with the restructuring of such debt and
consequently, reclassified as long-term debt, and (ii) Ms. Shogen owned
convertible debentures in the aggregate principal amount of $1,575,000.
During the fiscal year ended July 31, 1993, $198,000 in interest accrued on
the loans owed to, and the convertible debentures owned by, Ms. Shogen.
None of this interest was paid to Ms. Shogen during the year. In
connection with the restructuring of the Company's bank debt, $657,000 of
interest accrued on the loans owed to, and the convertible debentures owned
by, Ms. Shogen, was subordinated to the Company's bank debt and
consequently, reclassified as long-term debt.
During the fiscal year ended July 31, 1994, Ms. Shogen converted the
outstanding debentures held by her with an aggregate face value of
$1,575,000 into 400,000 shares of the Company's Common Stock at the stated
conversion rates ranging from $2.75 to $6.00 per share. In March 1994, an
aggregate of $931,197 of advances and interest owed by the Company to Ms.
Shogen was converted by Ms. Shogen into options to purchase an aggregate of
482,485 shares of the Company's Common Stock at an exercise price of $3.20
per share. In March 1994, in consideration for her services to the Company
and Ms. Shogen's agreement to release the Company from its obligation to
pay her $1,624,151 in accrued salary on the Company's balance sheet as of
January 31, 1994 (which salary had been accruing since 1986), the Company
granted Ms. Shogen options to purchase 841,529 shares of the Company's
Common Stock at an exercise price of $3.20 per share. In June 1994, the
Company, with its bank's consent, reinstituted certain advances of $198,417
from Ms. Shogen as long term debt that was previously converted into
102,807 of options on March 30, 1994. Such options were returned to the
Company and cancelled. The Company's bank has consented to allow repayment
of such advances under certain conditions. At July 31, 1994 the Company
owed Ms. Shogen an aggregate of $203,723 in demand loans and accrued
interest on the demand loans owed to Ms. Shogen.
During the fiscal year ended July 31, 1995 the Company, with its
bank's consent, repaid $80,067 of the principal amount on the demand loans.
At July 31, 1995, the Company owed Ms. Shogen an aggregate of $138,638 in
demand loans and accrued interest on the demand loans.
In March 1994, in consideration for his services to the Company and
Dr. Mikulski's agreement to release the Company from its obligation to pay
him $639,619 in accrued salary on the Company's balance sheet as of January
31, 1994, the Company granted Dr. Mikulski options to purchase 331,409
shares of the Company's Common Stock at an exercise price of $3.20 per
share.
On July 23, 1991, the board of directors authorized the Company to pay
to Kuslima Shogen an amount equal to 15% of any gross royalties which may
be paid to the Company from any license(s) with respect to the Company's
principal product, ONCONASE, or any other products derived from amphibian
source extract, produced either as a natural, synthesized, and/or
genetically engineered drug for which the Company owns or is co-owner of
the patent, or acquires such rights in the future, for a period not to
exceed the life of the patents. If the Company manufactures and markets
the drugs by itself, then the Company will pay an amount equal to 5% of
gross sales from any products sold during the life of the patents.
On November 11, 1993, the Company entered into a consulting agreement
(the "Tartan Consulting Agreement") with The Tartan Group ("Tartan"), an
independent consulting firm of which Ms. Gail E. Fraser, the Company's Vice
President, Finance and Chief Financial Officer, is an officer and principal
stockholder. The Tartan Consulting Agreement was effective as of August 1,
1993 and terminated by agreement of both parties on April 30, 1994.
Pursuant to the Tartan Consulting Agreement Ms. Fraser performed
administrative, financial and accounting services for the Company.
Pursuant to the Tartan Consulting Agreement, the Company granted
indemnification to Ms. Fraser with respect to any and all claims, damages
or costs which arise out of her performance of consulting services to the
Company. Tartan received a consulting fee of $45,000.
On May 1, 1994, upon the termination of the Tartan Consulting
Agreement, Ms. Fraser entered into a consulting agreement (the "Fraser
Consulting Agreement") with the Company which terminated by its terms on
June 30, 1994. Under the Fraser Consulting Agreement, Ms. Fraser received
$15,000 and (i) an option to purchase 50,000 shares of the Company's Common
Stock at an exercise price of $3.22 per share at any time during the period
commencing on May 1, 1994 and terminating on November 10, 1997 at 5.00 p.m.
local time and (ii) an option to purchase 75,000 shares of the Company's
Common Stock at an exercise price of $5.00 per share at any time during the
four year period commencing on November 11, 1994 and terminating on
November 10, 1998 at 5.00 p.m. local time. Pursuant to the Fraser
Consulting Agreement, the Company granted indemnification to Ms. Fraser
with respect to any and all claims, damages or costs which arise out of her
performance of consulting services to the Company.
Robert R. Henry purchased an aggregate of 160,000 shares of Common
Stock and warrants to purchase 60,000 shares of Common Stock in the March
1994 Private Placement, the September 1994 Private Placement and the
September 1995 Private Placement on the same terms and conditions as the
other participants in such private placements.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information concerning stock
ownership of each person who is the beneficial owner of five percent or
more of the Company's outstanding Common Stock and of each director and
each Named Officer and all directors and executive officers as a group as
of November 10, 1995. Except as otherwise noted, each person has sole
voting and investment power with respect to the shares shown as
beneficially owned.
<TABLE>
<CAPTION>
DIRECTORS, OFFICERS OR NUMBER OF PERCENTAGE OF
5% STOCKHOLDERS(1) SHARES(2) COMMON STOCK
OUTSTANDING{(3)}
<S> <C> <C> <C> <C>
Kuslima Shogen 2,348,548{(4)} 18.7%
Stanislaw Mikulski 763,814{(5)} 6.4%
Allen Siegel 315,262{(6)} 2.7%
Alan Bell 120,929{(7)} 1.0%
Robert R. Henry 246,250{(8)} 2.1%
Gail E. Fraser 195,000{(9)} 1.7%
All officers and directors 3,989,803{(10)} 29.5%
as a group (six persons)
</TABLE>
(1) The address of all officers and directors listed above is in the care
of the Company.
(2) All shares listed are Common Stock. Except as discussed below, none
of these shares are subject to rights to acquire beneficial ownership,
as specified in Rule 13d-3(d)(1) under the Exchange Act, and the
beneficial owner has sole voting and investment power, subject to
community property laws where applicable.
(3) The percentage of stock outstanding for each stockholder is calculated
by dividing (i) the number of shares of Common Stock deemed to be
beneficially held by such stockholder as of November 10, 1995 by (ii)
the sum of (A) the number of shares of Common Stock outstanding as of
November 10, 1995 plus (B) the number of shares issuable upon exercise
of options or warrants held by such stockholder which were exercisable
as of November 10, 1995 or which will become exercisable within 60
days after November 10, 1995.
(4) Includes 1,005,548 shares subject to options which were exercisable as
of November 10, 1995 or which will become exercisable within 60 days
after November 10, 1995.
(5) Includes 402,564 shares subject to options which were exercisable as
of November 10, 1995 or which will become exercisable within 60 days
after November 10, 1995.
(6) Includes 130,000 shares subject to options which were exercisable as
of November 10, 1995 or which will become exercisable within 60 days
after November 10, 1995 owned by Dr. Siegel, 40,485 shares owned by
Dr. Siegel's wife, who was an employee of the Company and 50,000
shares subject to options which were exercisable as of November 10,
1995 or will become exercisable within 60 days of November 10, 1995
owned by Dr. Siegel's wife. Dr. Siegel disclaims beneficial ownership
as to the shares owned by his wife.
(7) Includes 80,000 shares subject to options which were exercisable as of
November 10, 1995 or which will become exercisable within 60 days
after November 10, 1995 owned by Mr. Bell, 20,000 shares subject to
options which were exercisable as of November 10, 1995 or which will
become exercisable within 60 days after November 10, 1995 owned by Mr.
Bell's wife, 20,429 shares owned jointly by Mr. and Mrs. Bell and 500
shares owned by Mrs. Bell. Mr. Bell disclaims beneficial ownership as
to the shares owned by his wife.
(8) Includes 26,250 shares subject to options which were exercisable as of
November 10, 1995 or which will become exercisable within 60 days
after November 10, 1995 and 60,000 shares underlying warrants which
were exercisable as of November 10, 1995 or which will become
exercisable within 60 days after November 10, 1995.
(9) Includes 195,000 shares underlying options which were exercisable as
of November 10, 1995 or which will become exercisable within 60 days
after November 10, 1995.
(10) Includes all shares owned beneficially by the directors and the
executive officers named in the table.
SELLING STOCKHOLDERS
GENERAL
On September 29, 1995, the Company completed the September 1995
Private Placement resulting in the issuance of 1,925,616 shares of Common
Stock and three-year Warrants to purchase 55,945 shares of Common Stock at
an exercise price of $4.00 per share. The Common Stock was sold alone at
per share prices ranging from $2.00 to $3.70 and in combination with
Warrants at unit prices ranging from $4.96 to $10.92, which related to the
number of Warrants contained in the Unit. On October 21, 1994 the Company
completed a private placement to a single private investor of 40,000 shares
of restricted common stock at a price per share of $2.50 and three-year
Warrants to purchase 40,000 shares of Common Stock at an exercise price of
$5.50 per share. After deducting the expenses of the offerings, the
Company received net proceeds of approximately $4.2 million from the
offerings. On November 29, 1995, the Company amended the Term Loan
agreement with its bank, effective as of October 1, 1995. In connection
with the amendment of the Term Loan, the Company issued to the bank a
Warrant to purchase 10,000 shares of Common Stock through August 31, 1997
at an exercise price of $4.19 per share.
The Company's sale of Common Stock and Warrants to accredited
investors (as that term is defined in Rule 501 under the Securities Act)
and several non-accredited investors in the October 1994 and September 1995
Private Placements was effected in reliance upon Section 4(2) of the
Securities Act and Rule 506 thereunder except that 115,000 shares were sold
pursuant to Regulation S under the Securities Act. The Company's issuance
of the Warrant to the bank in connection with the amendment of the Term
Loan was effected in reliance upon Section 4(2) of the Securities Act.
Pursuant to stock purchase agreements entered into by the Company with each
of the private placement investors and the warrant agreement entered into
with the bank (the "Agreements"), the Company agreed to indemnify each of
the private placement investors and the bank (all of whom are Selling
Stockholders) against any liabilities, under the Securities Act or
otherwise, arising out of or based upon any untrue or alleged untrue
statement of a material fact in the Registration Statement or this
Prospectus or by any omission of a material fact required to be stated
therein except to the extent that such liabilities arise out of or are
based upon any untrue or alleged untrue statement or omission in any
information furnished in writing to the Company by the private placement
investors or the bank expressly for use in the Registration Statement.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to its certificate of incorporation and by-laws, the Company has
been informed that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and
is therefore unenforceable.
The private placement investors have the right, at the Company's
expense, to have the shares of Common Stock offered hereby registered for
the offer and sale to the public under the Securities Act for a period of
three years commencing with the initial effective date of this Registration
Statement.
The bank has the right, at the Company's expense, to have the shares
of Common Stock underlying the Warrant registered on this Registration
Statement for the offer and sale to the public under the Securities Act
until the earlier of October 1, 1999 or the date on which all of the shares
underlying such Warrant are sold. The bank also has certain demand and
piggy-back registration rights which become effective in the event this
Registration Statement is not declared effective by December 31, 1995, in
which event the bank has the right to have the shares of Common Stock
underlying the Warrant registered until the earlier October 1, 1999, the
date on which all of the shares underlying the Warrant are sold, or the
expiration of the one year.
In connection with the registration of the shares of Common Stock
offered hereby, the Company will supply prospectuses to the Selling
Stockholders, use its best efforts to qualify the Common Stock for sale in
the states of New York, New Jersey, Massachusetts and certain other states
which may be designated and indemnify the Selling Stockholders for certain
liabilities relating thereto.
STOCK OWNERSHIP
The table below sets forth the number of shares of Common Stock (i)
owned beneficially by each of the Selling Stockholders; (ii) being offered
by each Selling Stockholder pursuant to this Prospectus; (iii) to be owned
beneficially by each Selling Stockholder after completion of the offering,
assuming that all of the Warrants held by the Selling Stockholders are
exercised and all of the shares offered hereby are sold and that none of
the other shares held by the Selling Stockholders, if any, are sold and
(iv) the percentage to be owned by each Selling Stockholder after
completion of the offering, assuming that all of the shares offered hereby
are sold and that none of the other shares held by the Selling
Stockholders, if any, are sold. For purposes of this table each Selling
Stockholder is deemed to own beneficially (i) the shares of Common Stock
underlying the Warrants, (ii) the issued and outstanding shares of Common
Stock owned by the Selling Stockholder as of November 10, 1995, and (iii)
the shares of Common Stock underlying any other options or warrants owned
by the Selling Stockholder which are exercisable as of November 10, 1995 or
which will become exercisable within 60 days after November 10, 1995.
Except as otherwise noted, none of such persons or entities has had any
material relationship with the Company during the past three years.
<TABLE>
<CAPTION>
Number of Number of Number of Shares to be Percentage of
Shares Beneficially Shares OFFERED Owned Beneficially Outstanding Shares to
SELLING STOCKHOLDERS(1) OWNED After Completion of be Owned Beneficially
OFFERING After Completion of
OFFERING(1)
<S> <C> <C> <C> <C>
Ansam Investment Establishment 125,000 125,000 0 *
Arinia Establishment Vaduz 125,000 125,000 0 *
Banque Diamantaire Anversoise 43,478 43,478 0 *
(Suisse) SA
Barlow, A.T. 151,929 63,636 88,293 *
Barlow, Steven C. and 10,500 10,500 0 *
Dianne F.
Brearly, Robert Boyd 2,040 2,040 0 *
Budhrani, Devidas Naraindas 38,910 38,910 0 *
Connor, Clark & Co. 115,000 115,000 0 *
Einhorn D.D.S. Ltd., Gerald 15,000 15,000 0 *
Elliott, Thomas 4,500 4,500 0 *
Essex Flexport Fund Limited 18,000 18,000 0 *
Partnership - Small Cap
Investment Pool
Essex Performance Fund, L.P. 510,000 510,000 0 *
Essex Special Growth Opportunities 150,000 150,000 0 *
Fund, L.P.
First Fidelity Bank, N.A. 10,000 10,000 0 *
Fry Jr., Kenneth L. 15,120 15,120 0 *
Henry, Robert R.(2) 246,250 100,000 146,250 1.2%
Herrington, Henry Charles 210,000 200,000 10,000 *
Hofferbert, J. Harv 15,500 15,000 500 *
Jacobson, Richard M. 15,120 15,120 0 *
Kaufman Jr., C.L. 15,120 15,120 0 *
Kaufman, David L. 6,000 6,000 0 *
Kilachand, Radhika N. 21,739 21,739 0 *
Lampl, Stephen C. and 55,000 15,000 40,000 *
Anne B. Shumadine TTEE
Le Buhn, Robert 17,000 15,000 2,000 *
Maraist, Michael P. 87,393 47,393 40,000 *
McMahan, Gary D. 30,000 30,000 0 *
Merrion Group, L.P. 10,000 10,000 0 *
Milgram, Annmarie 1,000 1,000 0 *
N. River Trading Co. LLC 20,408 20,408 0 *
Pisani, B. Michael(3) 171,500 136,500 35,000 *
Rosenwald, Barbara K. 15,000 15,000 0 *
Santonacita, Patrick 6,122 6,122 0 *
Skidmore, C. Eric 5,000 5,000 0 *
Spengler, Thomas M. 10,075 9,075 1,000 *
Smith Barney IRA Custodian 7,000 5,000 2,000 *
FBO Richard Siracusa
Sylvester, Carmine 12,000 1,000 11,000 *
The New Discovery Fund Limited 72,000 72,000 0 *
Threthewey, R.K. 33,032 13,400 19,632 *
Walker, David R. 10,000 10,000 0 *
Wigton, William B. 29,000 29,000 0 *
Wingfield, Charles L. 11,500 11,500 0 *
</TABLE>
(*) Less than one percent.
(1) The last name of individual Seller Stockholders is listed first.
(2) Mr. Henry is a Director of the Company and is a member of both the
compensation committee and audit committee. See "Management and
"Principal Stockholders."
(3) Mr. Pisani is a consultant to the Company and his beneficial ownership
includes shares underlying options he received for services rendered.
PLAN OF DISTRIBUTION
Shares of Common Stock currently outstanding and shares of Common
Stock issuable upon exercise of the Warrants may be sold pursuant to this
Prospectus by the Selling Stockholders. These sales may occur in privately
negotiated transactions or in the over-the-counter market through brokers
and dealers as agents or to brokers and dealers as principals, who may
receive compensation in the form of discounts or commissions from the
Selling Stockholders or from the purchasers of the Common Stock for whom
the broker-dealers may act as agent or to whom they may sell as principal,
or both. The Company has been advised by the Selling Stockholders that
they have not made any arrangements relating to the distribution of the
shares of Common Stock covered by this Prospectus. In effecting sales,
broker-dealers engaged by the Selling Stockholders may arrange for other
broker-dealers to participate. Broker-dealers will receive commissions or
discounts from the Selling Stockholders in amounts to be negotiated
immediately prior to the sale.
Upon being notified by a Selling Stockholder that any material
arrangement (other than a customary brokerage account agreement) has been
entered into with a broker or dealer for the sale of shares through a block
trade, purchase by a broker or dealer, or similar transaction, the Company
will file a supplemented Prospectus pursuant to Rule 424(c) under the
Securities Act disclosing (a) the name of each such broker-dealer, (b) the
number of shares involved, (c) the price at which such shares were sold,
(d) the commissions paid or discounts or concessions allowed to such
broker-dealer(s), (e) if applicable, that such broker-dealer(s) did not
conduct any investigation to verify the information set out or incorporated
by reference in the Prospectus, as supplemented, and (f) any other facts
material to the transaction.
Certain of the Selling Stockholders and any broker-dealers who execute
sales for the Selling Stockholders may be deemed to be "underwriters"
within the meaning of the Securities Act by virtue of the number of shares
of Common Stock to be sold or resold by such persons or entities or the
manner of sale thereof, or both. If any of the Selling Stockholders,
broker-dealers or other holders were determined to be underwriters, any
discounts or commissions received by them or by brokers or dealers acting
on their behalf and any profits received by them on the resale of their
shares of Common Stock might be deemed underwriting compensation under the
Securities Act.
The Selling Stockholders have represented to the Company that any
purchase or sale of the Common Stock by them will be in compliance with
Rules 10b-6 and 10b-7 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). In general, Rule 10b-6 under the Exchange Act
prohibits any person connected with a distribution of the Company's Common
Stock (the "Distribution") from directly or indirectly bidding for, or
purchasing for any account in which he has a beneficial interest, any
Common Stock or any right to purchase Common Stock, or attempting to induce
any person to purchase Common Stock or rights to purchase Common Stock,
until after he has completed his participation in the Distribution (the
"Distribution Period").
During the Distribution Period, Rule 10b-7 under the Exchange Act
prohibits the Selling Stockholders and any other person engaged in the
Distribution from engaging in any stabilizing bid or purchasing the Common
Stock except for the purpose of preventing or retarding a decline in the
open market price of the Common Stock. No such person may effect any
stabilizing transaction to facilitate any offering at the market. Inasmuch
as the Selling Stockholders will be reoffering and reselling the Common
Stock at the market, Rule 10b-7 prohibits them from effecting any
stabilizing transaction with respect to the Common Stock.
DESCRIPTION OF SECURITIES
An aggregate of 2,071,561 shares of the Company's Common Stock are
being included in the Registration Statement of which this Prospectus forms
a part.
COMMON STOCK
The Company is currently authorized to issue 25,000,000 shares of
Common Stock, par value $.001 per share. As of November 10, 1995, there
were 11,580,063 shares of Common Stock issued and outstanding and held of
record by approximately 1,541 stockholders.
As of November 10, 1995, 435,000 shares of Common Stock were reserved
for issuance pursuant to the options issued and outstanding under the 1989
Stock Plan, 2,334,678 shares of Common Stock were reserved for issuance
pursuant to outstanding options which were not issued under either the 1989
Stock Plan or the 1993 Stock Option Plan, 800,000 shares of Common Stock
were reserved for issuance pursuant to the warrants sold in the March 1994
Private Placement, 288,506 shares of Common Stock were reserved for
issuance pursuant to the warrants sold in the September 1994 Private
Placement, 95,945 shares were reserved for issuance pursuant to the
Warrants sold in the October 1994 and September 1995 Private Placements,
10,000 shares were reserved for issuance pursuant to the Warrant issued to
the bank in connection with the amendment of the Term Loan and 1,994,009
shares of Common Stock were reserved for issuance pursuant to options
issued and outstanding under the 1993 Stock Option Plan.
A majority of the issued and outstanding shares of the Company's
Common Stock must be present at a duly called stockholders' meeting in
order to have a quorum under the Company's By-Laws. In most cases, if a
quorum is present the affirmative vote of the majority of the shares
represented at the meeting constitutes the act of the stockholders.
Consequently, the holders of one share more than one-quarter of the
outstanding Common Stock could exercise effective control over the Company.
The affirmative vote of a majority of all shares entitled to vote, however,
is required to amend the Company's Certificate of Incorporation, as well as
to accomplish certain other matters.
All shares of Common Stock are equal to each other with respect to
voting, liquidation, dividend and other rights. Owners of shares of Common
Stock are entitled to one vote for each share they own at any stockholders'
meeting. Holders of shares of Common Stock are entitled to receive such
dividends as may be declared by the Board of Directors out of funds legally
available therefor, and upon liquidation are entitled to participate pro
rata in a distribution of assets available for such a distribution to
stockholders. The Term Loan Agreement restricts the payment of dividends
to stockholders without the bank's consent. There are no preemptive rights
or privileges with respect to any shares of Common Stock. The Common Stock
of the Company does not have cumulative voting rights which means that the
holders of more than 50% of the shares voting for the election of the
directors may elect all of the directors if they choose to do so. In such
event, the holders of the remaining shares aggregating less than 50% would
not be able to elect any directors.
PREFERRED STOCK
The Company is currently authorized to issue 1,000,000 shares of
Preferred Stock, par value $.001 per share. As of November 10, 1995, there
were no shares of Preferred Stock outstanding. The Board of Directors is
empowered, without stockholder approval, to issue one or more series of
Preferred Stock and to determine the rights, preferences, privileges and
restrictions to be granted to, or imposed upon, any such series, including
the voting rights, redemption provisions (including sinking fund
provisions), dividend rights, dividend rates, liquidation preferences and
conversion rights and the description and number of shares constituting any
wholly unissued series of Preferred Stock. Under Delaware law, the Board
of Directors is permitted to use a depositary receipt mechanism which
enables the Board to issue an unlimited number of fractional interests in
each share of Preferred Stock without stockholder approval. Consequently,
the Board of Directors, without further stockholder approval, can issue
Preferred Stock or fractional interests therein, with rights that could
adversely affect the rights of the holders of the Company's Common Stock.
All shares of any one series of Preferred Stock shall be identical in all
respects with all other shares of such series, except that shares of any
one series issued at different times may differ as to the dates from which
dividends thereof shall be cumulative.
WARRANTS
At November 10, 1995, there were outstanding (i) warrants to purchase
800,000 shares of the Company's Common Stock at an exercise price of $5.00
per share issued in the March 1994 Private Placement; (ii) warrants to
purchase 288,506 shares of the Company's Common Stock at an exercise price
of $5.50 per share issued in the September 1994 Private Placement; (iii)
Warrants to purchase 95,945 shares of the Company's Common Stock at
exercise prices ranging from $4.00 to $5.50 per share issued in the October
1994 and September 1995 Private Placements; and (iv) Warrants to purchase
10,000 shares of the Company's Common Stock at an exercise price of $4.19
per share issued in connection with the amendment to the Company's Term
Loan with its bank. Each of the foregoing warrants is exercisable for a
period of three (3) years commencing three (3) months after the date of its
issuance except that the Warrant issued in connection with the amendment to
the Term Loan is exercisable immediately for a period of approximately two
(2) years from the date of its issuance. Issuance dates range from
December 21, 1993 through October 1, 1995.
OPTIONS
At November 10, 1995, there were outstanding options to purchase
4,763,687 shares of the Company's Common Stock with exercise prices ranging
from $2.27 to $7.00 and expiration dates ranging from January 29, 1996 to
March 30, 2004.
TRANSFER AGENT
The Transfer Agent for the Common Stock is American Stock Transfer and
Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
The Company had 11,580,063 shares of Common Stock outstanding as of
November 10, 1995. Of these outstanding shares, approximately 5,300,783
shares are "restricted securities" as defined in Rule 144 adopted under the
Securities Act. Of these restricted shares, 1,965,616 shares are covered
by this Registration Statement and were sold in the October 1994 and
September 1995 Private Placements, approximately 2,281,201 were eligible to
be sold under Rule 144 as of November 10, 1995, approximately 21,060 will
become eligible to be sold under Rule 144 on various dates commencing June
28, 1996 through August 23, 1997 and an aggregate of 1,002,906 shares were
issued and sold in the March 1994 and September 1994 Private Placements and
30,000 shares were issued pursuant to the exercise of options and are
included on a registration statement which the Company has filed with the
Commission. The (i) 1,965,616 shares of Common Stock included in this
Registration Statement will, if sold pursuant to this Registration
Statement, and (ii) the 105,945 shares of Common Stock underlying the
Warrants included in this Registration Statement will, if issued upon
exercise of the Warrants and sold pursuant to this Registration Statement,
be freely tradeable without restriction under the Securities Act, except
that any shares held by an "affiliate," as that term is defined under the
Securities Act, will be subject to the resale limitations of Rule 144. In
addition to the Warrants to purchase 105,945 shares of Common Stock as of
November 10, 1995 there were outstanding (i) options to purchase an
aggregate of 3,585,538 shares of Common Stock which are covered by an
effective Registration Statement on Form S-8 and generally, will be freely
tradeable upon issuance; (ii) warrants to purchase an aggregate of
1,088,506 shares which were issued and sold in the March 1994 and September
1994 Private Placements; and (iii) options to purchase an aggregate of
1,178,149 shares, all of which shares are included in a registration
statement filed by the Company with the Commission.
In general, under Rule 144 as currently in effect, any person (or
persons whose shares are aggregated), including affiliates, who have
beneficially owned shares for at least two years is entitled to sell,
within any three-month period, a number of shares that does not exceed the
greater of one percent of the then outstanding shares of the Company's
Common Stock or the weekly trading volume in the Company's Common Stock
during the four calendar weeks preceding such sale. A person (or persons
whose shares are aggregated), who is not deemed an affiliate of the
Company, and who has beneficially owned shares for at least three years is
entitled to sell such shares under Rule 144 without regard to the
limitations described above.
REGISTRATION RIGHTS
The private placement investors in the October 1994 and September 1995
Private Placements who acquired an aggregate of 2,061,561 shares (including
shares underlying Warrants) have the right to have the shares of Common
Stock issued in the offering and the shares of Common Stock underlying the
Warrants issued in such offering, registered at the Company's expense, for
the offer and sale by such investors to the public under the Securities
Act. The Company shall not, however, be required to maintain the
effectiveness of a registration statement beyond three (3) years of the
initial effective date thereof. In connection with such registration, the
Company has agreed to supply prospectuses to the investors, use its best
efforts to qualify the Common Stock for sale in the states of New York, New
Jersey, Massachusetts and certain additional states that may be designated
and to indemnify the investors for certain liabilities relating thereto.
The bank has the right, at the Company's expense, to have the shares
of Common Stock underlying the Warrant issued to it in connection with the
amendment of the Term Loan registered on this Registration Statement for
the offer and sale to the public under the Securities Act until the earlier
of October 1, 1999 or the date on which all of the shares underlying such
Warrant are sold. The bank also has certain demand and piggy-back
registration rights which become effective in the event this Registration
Statement is not declared effective by December 31, 1995, in which event
the bank has the right to have the shares of Common Stock underlying the
Warrant registered until the earlier of October 1, 1999, the date on which
all of the shares underlying the Warrant are sold or the expiration of one
year. In connection with such registration, the Company has agreed to
supply prospectuses to the bank and, in connection with any demand
registration, use its best efforts to qualify the Common Stock in such
states as the bank may reasonably request and to indemnify the bank for
certain liabilities relating thereto.
The Company's Debt Conversion Agreement dated March 30, 1994 (the
"Conversion Agreement") with Ms. Shogen requires the Company, at the
request of Ms. Shogen, to file a registration statement under the
Securities Act, with respect to all or part of the Common Stock to which
the 379,678 options granted to Ms. Shogen under the Conversion Agreement
are then exercisable. The Company agreed to bear all of the costs of
registering the shares of Common Stock under the Securities Act and
registering or qualifying such shares of Common Stock with the States of
New York and New Jersey. Such shares of Common Stock underlying these
options are included in a registration statement filed by the Company with
the Commission.
The Company's Debt Conversion Agreement dated March 30, 1994 with a
certain investor (the "Investor Agreement") requires the Company to permit
such investor the opportunity to include the shares of Common Stock
underlying the 73,804 options granted to him pursuant to the Investor
Agreement, in any registration statement filed by the Company pursuant to
the Conversion Agreement of Ms. Shogen, prior to the expiration of the
options granted to the investor under the Investor Agreement or the sale of
all of the shares of Common Stock underlying such options. These shares of
Common Stock are included in a registration statement filed by the Company
with the Commission.
Pursuant to the Company's pledge agreements with First Fidelity Bank,
N.A., New Jersey, the bank has the right under certain circumstances to
require the Company to register, at the Company's expense, the shares of
Common Stock owned by Ms. Shogen which have been pledged to the bank. In
connection with such registration, the Company agreed to obtain the
effectiveness of a registration statement and maintain the effectiveness of
such registration statement for a period of one (1) year from the date of
the first offering of the pledged shares of Common Stock or until such
shares are sold. The Company must also register or qualify the pledged
shares of Common Stock in such states as the bank requests.
The Company has filed a registration statement on Form S-8 which
registers 3,000,000 shares reserved for options which may be issued under
the 1993 Stock Option Plan and 1,591,529 shares underlying additional
options granted to Ms. Shogen and Dr. Mikulski.
The private placement investors in the March 1994 Private Placement
have the right to have the shares of Common Stock and the shares of Common
Stock underlying Warrants, issued in such offering registered, at the
Company's expense, for the offer and sale to the public under the
Securities Act. The Company shall not, however, be required to maintain
the effectiveness of a registration statement for such shares beyond August
3, 1997. In connection with such registration, the Company has agreed to
supply prospectuses to the investors, use its best efforts to qualify the
Common Stock for sale in such states as any holder of same reasonably
designates and indemnify the investors for certain liabilities relating
thereto. The Company has filed with the Commission a registration
statement to cover 772,000 shares of Common Stock and 800,000 shares of
Common Stock underlying warrants issued in the March 1994 Private
Placement.
The private placement investors in the September 1994 Private
Placement have the right, to have the shares of Common Stock, and the
shares of Common Stock underlying the Warrants, issued in such offering,
registered at the Company's expense, for the offer and sale to the public
under the Securities Act. The Company shall not, however, be required to
maintain the effectiveness of a registration statement for such shares
beyond September 14, 1997. In connection with such registration, the
Company has agreed to supply prospectuses to the investors, use its best
efforts to qualify the Common Stock for sale in the states of New York and
New Jersey and to indemnify the investors for certain liabilities relating
thereto. The Company has filed with the Commission a registration
statement to cover 230,906 shares of Common Stock and 288,506 shares of
Common Stock underlying Warrants issued in the September 1994 Private
Placement.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be
passed upon for the Company by Ross & Hardies, New York, New York.
EXPERTS
The audited financial statements of Alfacell Corporation (a
development stage company) for the period from August 24, 1981 (date of
inception) to July 31, 1992 appearing in this Prospectus and Registration
Statement have been audited by Armus, Harrison & Co. ("AHC"), independent
certified public accountants, as set forth in AHC's report thereon (which
describe an uncertainty as to a going concern) appearing herein and
elsewhere in the Registration Statement, and are included herein in
reliance upon the consent and report of AHC as experts in accounting and
auditing. Such report of AHC with respect to the financial statements of
the Company is included in this Registration Statement. As of December 1,
1993, certain shareholders of AHC terminated their association with AHC and
AHC has ceased performing any audit and accounting services, except for
limited accounting services being provided to the Company. Consequently,
an investor's ability to recover damages from AHC for material
misstatements or omissions, if any, in the Registration Statement and
Prospectus, including the financial statements may be significantly
limited.
The financial statements of Alfacell Corporation (a development stage
company) as of July 31, 1995 and 1994, and for each of the years in the
three-year period ended July 31, 1995, and for the period from August 24,
1981 (date of inception) to July 31, 1995, have been included herein and in
the Registration Statement in reliance upon the report of KPMG Peat Marwick
LLP, independent certified public accountants, appearing elsewhere herein,
and upon the authority of KPMG Peat Marwick LLP as experts in accounting
and auditing. The report of KPMG Peat Marwick LLP covering the July 31,
1995 financial statements contains an explanatory paragraph stating that
the Company's recurring losses from operations, its working capital
deficiency and net capital deficiency raise substantial doubt about the
Company's ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty. Further, the report of KPMG Peat Marwick LLP as it relates to
the financial statements for the period from August 24, 1981 (date of
inception) to July 31, 1995 is based on the report of other auditors as to
the amounts included therein for the period from August 24, 1981 (date of
inception) to July 31, 1992.
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
Index
PAGE
Independent Auditors' Report of KPMG Peat Marwick LLP..................F-2
Independent Auditors' Report of Armus, Harrison & Co. .................F-4
Financial Statements:
Balance Sheets - July 31, 1995 and 1994.........................F-5
Statements of Operations - Years ended July 31, 1995, 1994
and 1993 and the Period from August 24, 1981 (Date of
Inception) to July 31, 1995...................................F-6
Statement of Stockholders' Deficiency - Period from
August 24, 1981 (Date of Inception) to July 31, 1995...........F-7
Statements of Cash Flows - Years ended July 31, 1995, 1994
and 1993 and the Period from August 24, 1981 (Date of
Inception) to July 31, 1995.................................. F-11
Notes to Financial Statements - Years ended July 31, 1995,
1994 and 1993 and the Period from August 24, 1981
(Date of Inception) to July 31, 1995..........................F-14
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Alfacell Corporation:
We have audited the accompanying balance sheets of Alfacell Corporation (a
development stage company) as of July 31, 1995 and 1994, and the related
statements of operations, stockholders' deficiency, and cash flows for each of
the years in the three-year period ended July 31, 1995 and the period from
August 24, 1981 (date of inception) to July 31, 1995. 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. The financial statements of Alfacell Corporation (a development
stage company) for the period from August 24, 1981 (date of inception) to July
31, 1992 were audited by other auditors whose report dated December 9, 1992,
except as to note 18 which is July 19, 1993 and note 3 which is October 28,
1993, expressed an unqualified opinion on those statements with an explanatory
paragraph regarding the Company's ability to continue as a going concern.
We conducted our audits in accordance with generally accepted auditing
standards. 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, based on our audits and, for the effect on the period from
August 24, 1981 (date of inception) to July 31, 1995 of the amounts for the
period from August 24, 1981 (date of inception) to July 31, 1992, on the report
of other auditors, the financial statements referred to above present fairly,
in all material respects, the financial position of Alfacell Corporation (a
development stage company) as of July 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the years in the three-year period
ended July 31, 1995 and the period from August 24, 1981 (date of inception) to
July 31, 1995 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that Alfacell
Corporation (a development stage company) will continue as a going concern. As
discussed in note 1 to the financial statements, the Company's recurring losses
from operations, its working capital deficiency and net capital deficiency
raise substantial doubt about the entity's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/S/KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Short Hills, New Jersey
September 29, 1995
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Alfacell Corporation
Bloomfield, New Jersey
We have audited the balance sheets of Alfacell Corporation (a Development Stage
Company) as of July 31, 1992 and 1991, as restated, and the related statements
of operations, stockholders' deficiency, and cash flows for the three years
ended July 31, 1992, as restated, and for the period from inception August 24,
1981 to July 31, 1992, as restated. In connection with our audit of the 1992
and 1991 financial statements, we have also audited the 1992, 1991 and 1990
financial statement schedules as listed in the accompanying index. These
financial statements and financial statement schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides a reasonable basis
for our opinion.
In our opinion the financial statements referred to above present fairly in all
material respects, the financial position of Alfacell Corporation as of July
31, 1992 and 1991, as restated, and for the three years ended July 31, 1992, as
restated, and for the period from inception August 24, 1981 to July 31, 1992,
as restated, and the results of operations and cash flows for the years then
ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the statement of
operations, the Company has incurred substantial losses in each year since its
inception. In addition, the Company is a development stage company and its
principal operation for production of income has not commenced. The Company's
working capital has been reduced considerably by operating losses, and has a
deficit net worth. These factors, among others, as discussed in Note 2 of the
Notes to Financial Statements, indicate substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts and the amount of classification of liabilities that
might be necessary should the Company be unable to continue its existence.
/S/ARMUS, HARRISON & CO.
Armus, Harrison & Co.
Mountainside, New Jersey
December 9, 1992
Except as to Note 18 which
is July 19, 1993 and Note 3
which is October 28, 1993
Balance Sheets
July 31, 1995 and 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
<S> <C> <C> <C> <C>
Current assets:
Cash $ 648,027 $ 202,654
Marketable securities 750,000 251,209
Prepaid expenses 38,607 68,667
Total current assets 1,436,634 522,530
Property and equipment, net of accumulated depreciation 104,301 94,367
and
amortization of $666,261 in 1995 and $644,316 in 1994
Other assets:
Patents, net - 82,562
Deferred debt costs, net 31,500 73,500
Other 43,735 6,804
75,235 162,866
Total assets $ 1,616,170 $ 779,763
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Current portion of long-term debt $ 1,602,974 $ 88,359
Loans payable, other - 44,000
Loans and interest payable, related party 138,638 203,723
Accounts payable 183,222 413,025
Accrued payroll and expenses, related parties 414,996 158,265
Accrued expenses 101,777 52,833
Total current liabilities 2,441,607 960,205
Long-term debt, less current portion 7,129 1,593,976
Total liabilities 2,448,736 2,554,181
Commitments and contingencies
Stockholders' deficiency:
Preferred stock, $.001 par value. Authorized and - -
unissued,
1,000,000 shares at July 31, 1995 and 1994
Common stock $.001 par value. Authorized 25,000,000 10,319 9,125
shares;
issued and outstanding 10,319,187 shares in 1995
and
9,124,681 shares in 1994
Capital in excess of par value 36,262,427 33,680,954
Common stock to be issued, 139,080 shares in 1995 343,808 50,000
and 20,000
shares in 1994
Deficit accumulated during development stage (37,449,120) (35,455,997)
(832,566) (1,715,918)
Deferred compensation, restricted stock -
(58,500)
Total stockholders' deficiency (832,566) (1,774,418)
Total liabilities and stockholders' deficiency $ 1,616,170 $ 779,763
See accompanying notes to financial statements.
</TABLE>
August 24,
1981
(date of
inception)
to
July 31,
1995199519941993Revenue:Sales$553,489---Investment income201,00414,9926,064489
Other income 60,1036,000 - - 814,59620,992 6,064
489Costs and expenses:Cost of sales336,495---Research and development
20,370,5001,205,5231,114,4551,091,762General and administrative
14,898,820664,435903,350903,955Interest:Related parties
1,032,15914,98274,221198,330Others 1,625,742 129,175 148,466
163,79238,263,7162,014,1152,240,4922,357,839 Net loss
$(37,449,120)(1,993,123)(2,234,428)(2,357,350)Loss per common share$
(7.72) (.21) (.26) (.31)Weighted average number of shares
outstanding
4,853,000
9,598,000
8,466,000
7,602,000See accompanying notes to financial statements.
<PAGE>
Statement of Stockholders' Deficiency, Continued
Statement of Stockholders' Deficiency
Period from August 24, 1981
(Date of Inception) to July 31, 1995
<TABLE>
<CAPTION>
Common Stock Capital Common Deficit Deferred Total
in stock accumulated compen- stock-
excess to be during sation, holders'
of PAR ISSUED developmentrestrictedDEFICIENCY
VALUE STAGE STOCK
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C><C> <C><C> <C><C>
Number AMOUNT
of
SHARES
Issuance of shares to officers and 712,500 $ 713 212,987 - - -213,700
stockholders for equipment, research and
development, and expense reimbursement
Issuance of shares for organizational legal 50,000 50 4,950 - - -5,000
services
Sale of shares for cash, net 82,143 82 108,418 - - - 108,500
Adjustment for 3 for 2 stock split declared 422,321 422 (422) - - - -
September 8, 1982
Net loss - - - - (121,486) - (121,486)
Balance at July 31, 1982 1,266,964 1,267 325,933 - (121,486) - 205,714
Issuance of shares for equipment 15,000 15 13,985 - - - 14,000
Sale of shares to private investors 44,196 44 41,206 - - - 41,250
Sale of shares in public offering, net 660,000 660 1,307,786 - - - 1,308,446
Issuance of shares under stock grant program 20,000 20 109,980 - - - 110,000
Exercise of warrants, net 1,165 1 3,494 - - - 3,495
Net loss - - - - (558,694) - (558,694)
Balance at July 31, 1983 2,007,325 2,007 1,802,384 - (680,180) - 1,124,211
Exercise of warrants, net 287,566 287 933,696 - - - 933,983
Issuance of shares under stock grant program 19,750 20 101,199 - - - 101,219
Issuance of shares under stock bonus plan for 130,250 131 385,786 - - -385,917
directors and consultants
Net loss - - - - (1,421,083) -(1,421,083)
Balance at July 31, 1984 2,444,891 2,445 3,223,065 - (2,101,263) - 1,124,247
Issuance of shares under stock grant program 48,332 48 478,057 - - - 478,105
Issuance of shares under stock bonus plan for 99,163 99 879,379 - - -879,478
directors and consultants
Shares canceled (42,500) (42) (105,783) - - - (105,825)
Exercise of warrants, net 334,957 335 1,971,012 - - - 1,971,347
Net loss - - - - (2,958,846) -(2,958,846)
Balance at July 31, 1985 2,884,843 2,885 6,445,730 - (5,060,109) - 1,388,506
Issuance of shares under stock grant program 11,250 12 107,020 - - - 107,032
Issuance of shares under stock bonus plan for 15,394 15 215,385 - - -215,400
directors and consultants
Exercise of warrants, net 21,565 21 80,977 - - - 80,998
Net loss - - - - (2,138,605) -(2,138,605)
Balance at July 31, 1986 (carried forward) 2,933,052 2,933 6,849,112 - (7,198,714) - (346,669)
(Continued)
Balance at July 31, 1986 (brought forward) 2,933,052 2,933 6,849,112 - (7,198,714) - (346,669)
Exercise of warrants at $10.00 per share 14,745 15 147,435 - - - 147,450
Issuance of shares under stock bonus plan for 5,000 5 74,995 - - -75,000
directors and consultants
Issuance of shares for services 250,000 250 499,750 - - - 500,000
Sale of shares to private investors, net 5,000 5 24,995 - - - 25,000
Net loss - - - - (2,604,619) -(2,604,619)
Balance at July 31, 1987 3,207,797 3,208 7,596,287 - (9,803,333) -(2,203,838)
Issuance of shares for legal and consulting 206,429 207 724,280 - - -724,487
services
Issuance of shares under employment incentive 700,000 700 2,449,300 - -(2,450,000) -
program
Issuance of shares under stock grant program 19,000 19 66,481 - - - 66,500
Exercise of options at $3.00 per share 170,000 170 509,830 - - - 510,000
Issuance of shares for litigation settlement 12,500 12 31,125 - - - 31,137
Exercise of warrants at $7.06 per share 63,925 64 451,341 - - - 451,405
Sale of shares to private investors 61,073 61 178,072 - - - 178,133
Amortization of deferred compensation, - - - - - 449,167449,167
restricted stock
Net loss - - - - (3,272,773) -(3,272,773)
Balance at July 31, 1988 4,440,724 4,441 12,006,716 -(13,076,106)(2,000,833)(3,065,782)
Sale of shares for litigation settlement 135,000 135 1,074,703 - - - 1,074,838
Conversion of debentures at $3.00 per share 133,333 133 399,867 - - - 400,000
Sale of shares to private investors 105,840 106 419,894 - - - 420,000
Exercise of options at $3.50 per share 1,000 1 3,499 - - - 3,500
Issuance of shares under employment agreement 750,000 750 3,749,250 - -(3,750,000) -
Issuance of shares under the 1989 Stock Plan 30,000 30 149,970 - - (150,000) -
Amortization of deferred compensation, - - - - - 1,050,7561,050,756
restricted stock
Net loss - - - - (2,952,869) -(2,952,869)
Balance at July 31, 1989 5,595,897 5,596 17,803,899 -(16,028,975)(4,850,077)(3,069,557)
Issuance of shares for legal and consulting 52,463 52 258,725 - - -258,777
services
Issuance of shares under the 1989 Stock Plan 56,000 56 335,944 - - (336,000) -
Sale of shares for litigation settlement 50,000 50 351,067 - - - 351,117
Exercise of options at $3.00 - $3.50 per 105,989 106 345,856 - - -345,962
share
Sale of shares to private investors 89,480 90 354,990 - - - 355,080
Issuance of shares under employment agreement 750,000 750 3,749,250 - -(3,750,000) -
Conversion of debentures at $5.00 per share 100,000 100 499,900 - - - 500,000
Amortization of deferred compensation, - - - - - 3,015,5613,015,561
restricted stock
Net loss - - - - (4,860,116) -(4,860,116)
Balance at July 31, 1990 (carried forward) 6,799,829 6,800 23,699,631 -(20,889,091)(5,920,516)(3,103,176)
(Continued)
Balance at July 31, 1990 (brought forward) 6,799,829 6,800 23,699,631 -(20,889,091)(5,920,516)(3,103,176)
Exercise of options at $6.50 per share 16,720 16 108,664 - - - 108,680
Issuance of shares for legal consulting 87,000 87 358,627 - - -358,714
services
Issuance of shares under the 1989 Stock Plan 119,000 119 475,881 - - (476,000) -
Amortization of deferred compensation, - - - - - 2,891,5612,891,561
restricted stock
Net loss - - - - (5,202,302) -(5,202,302)
Balance at July 31, 1991 7,022,549 7,022 24,642,803 - (26,091,393)(3,091,393)
(4,946,523)
Exercise of options at $3.50 per share 1,000 1 3,499 - - - 3,500
Sale of shares to private investors 70,731 71 219,829 - - - 219,900
Conversion of debentures at $5.00 per share 94,000 94 469,906 - - - 470,000
Issuance of shares for services 45,734 46 156,944 - - - 156,990
Issuance of shares under the 1989 Stock Plan 104,000 104 285,896 - - (286,000) -
Amortization of deferred compensation, - - - - - 3,046,7263,046,726
restricted stock
Net loss - - - - (4,722,826) -(4,722,826)
Balance at July 31, 1992 7,338,014 7,338 25,778,877 - (30,864,219) (744,229)
(5,822,233)
Sale of share to private investors 352,667 353 735,147 - - - 735,500
Issuance of shares for legal services 49,000 50 132,180 - - - 132,230
Issuance of shares for services 5,000 5 9,995 - - (10,000) -
Issuance of shares under the 1989 Stock Plan 117,000 117 233,883 - - (234,000) -
Amortization of deferred compensation, - - - - - 664,729664,729
restricted stock
Net loss - - - - (2,357,350) -(2,357,350)
Balance at July 31, 1993 7,862,281 7,863 26,890,082 -(33,221,569) (323,500)(6,647,124)
Conversion of debentures at $2.75 per share 425,400 425 1,701,575 - - -1,702,000
to $6.00 per share
Sale of shares to private investors, net 743,000 743 1,710,048 - - - 1,710,791
Conversion of short-term borrowings 72,000 73 181,927 - - - 182,000
Issuance of shares for services 16,200 16 43,334 - - - 43,350
Issuance of shares under the 1989 Stock Plan, 5,000 5 14,995 - - -15,000
for services
Issuance of options to related parties upon - - 3,194,969 - - -3,194,969
conversion of
accrued interest, payroll and expenses
Repurchase of stock options from related - - (198,417) - - -3,194,969
party
Issuance of options upon conversion of - - 142,441 - - -142,441
accrued interest
Common stock to be issued - - - 50,000 - - 50,000
Amortization of deferred compensation, - - - - - 265,000265,000
restricted stock
Net loss - - - - (2,234,428) -(2,234,428)
Balance at July 31, 1994 (carried forward) 9,124,681 9,125 33,680,954 50,000(35,455,997) (58,500)(1,774,418)
(Continued)
Balance at July 31, 1994 (brought forward) 9,124,681 9,125 33,680,954 50,000(35,455,997) (58,500)(1,774,418)
Sale of shares to private investors, net 961,000 961 2,023,241 (50,000) - - 1,974,202
Conversion of short-term borrowings 17,600 17 43,983 - - - 44,000
Issuance of shares for services 30,906 31 77,234 - - - 77,265
Exercise of options at $2.27 - $2.50 per 185,000 185 437,015 - - -437,200
share
Common stock to be issued - - - 339,008 - - 339,008
Common stock to be issued, for services - - - 4,800 - - 4,800
Amortization of deferred compensation, - - - - - 58,50058,500
restricted stock
Net loss - - - - (1,993,123) -(1,993,123)
Balance at July 31, 1995 10,319,187 $ 10,319 36,262,427 343,808 (37,449,120) - (832,566)
</TABLE>
See accompanying notes to financial statements.
<PAGE>
ALFACELL CORPORATION
(A Development Stage
Company)
Statements of
Cash Flows
Years ended July 31,
1995, 1994 and 1993,
and the Period from
August 24, 1981
(Date of Inception) to
July 31, 1995
<TABLE>
<CAPTION>
August 24, 1995 1994 1993
1981 (date
of incep-
tion) to
July 31,
1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(37,449,120) (1,993,123) (2,234,428) (2,357,350)
Adjustments to reconcile net loss to net cash used in operating
activities:
Gain on sale of marketable securities (25,963) - - -
Depreciation and amortization 977,993 69,699 75,157 42,923
Loss on disposal of property and equipment 18,926 - - -
Noncash operating expenses 4,771,011 4,800 58,350 132,230
Amortization of deferred compensation 11,442,000 58,500 265,000 664,729
Amortization of organization costs 4,590 - - -
Changes in assets and liabilities:
(Increase) decrease in prepaid expenses (38,607) 30,060 (13,091) 45,490
(Increase) decrease in other assets 28,483 39,877 (1,723) 5,586
Increase (decrease) in loans and interest payable, related 883,177 (65,085) 5,306 198,330
party
Increase (decrease) in accounts payable 260,487 (152,538) (61,388) 161,691
Increase in accrued payroll and expenses, related parties 2,763,141 256,731 386,246 301,979
Increase (decrease) in accrued expenses 643,290 48,944 (10,318) 228,152
Net cash used in operating (15,720,592) (1,702,135) (1,530,889) (576,240)
activities
Cash flows from investing activities:
Purchase of marketable equity securities (1,040,420) (750,000) (251,209) -
Proceeds from sale of marketable equity securities 316,383 251,209 - -
Purchase of property and equipment (996,187) (31,879) (13,660) (97,049)
Patent costs (97,841) - (37,251) -
Net cash used in investing (1,818,065) (530,670) (302,120) (97,049)
activities
(Continued)
</TABLE>
<PAGE>
Statement of Cash Flows, Continued
<TABLE>
<CAPTION>
August
24,
1981
(date
of
incep- 1995 1994
tion)
to
July
31,
1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash
flows
from
financing
1993 activities:
$ 849,500 - 169,500
Proceeds
from
short-
term
borrowings
56,500 (623,500) - -
Payment
of
short-
term
borrowings
- 2,628,868 - 175,798
Increase
(decrease)
in loans
payable,
related
party,
net
(107,080) 2,377,14317,595 4,028
Proceeds
from
bank
debt and
other
long-
term
debt,
net of
deferred
debt
costs
(68,980) (1,281,612)(89,827) (67,285)
Reduction
of bank
debt and
long-
term
debt
- 389,008339,008 50,000
Proceeds
from
common
stock to
be
issued
- 13,063,0771,974,202 1,710,791
Proceeds
from
issuance
of
common
stock,
net
735,500 437,200 437,200 -
Proceeds
from
exercise
of stock
options
- 347,000 - -
Proceeds
from
issuance
of
convertible
debentures
- - - (7,169)
(Decrease)
increase
in bank
overdraft
7,169 Net 18,186,684
cash 2,678,178 2,035,663
provided
by
financing
activities
648,027445,373
623,109 Net 202,654
increase
(decrease)
in cash
Cash at - 202,654 -
(50,180) beginning
of
period
50,180
Cash at $ 648,027648,027 202,654
end of
period
-
Supplemental $1,359,504129,477 144,322
disclosure
of cash
flow
information
-
interest
paid
- Noncash
financing
activities:
$ 2,725,000 - -
Issuance
of
convertible
subordinated
debenture
for loan
payable
to
officer
275,000 $ 2,945,000 - 1,575,000
Issuance
of
common
stock
upon the
conversion
of
convertible
subordinated
debentures,
related
party
- $ 226,00044,000 182,000
Conversion
of
short-
term
borrowings
to
common
stock
-
</TABLE>
<PAGE>
Statement of Cash Flows, Continued
<TABLE>
<CAPTION>
August 1995 1994
24,
1981
(date
of
incep-
tion)
to
July
31,
1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993
Conversion $ 3,194,969 - 3,194,969
of
accrued
interest,
payroll
and
expenses
by
related
parties
to
stock
options
$ (198,417) - (198,417)
- Repurchase
of stock
options
from
related
party
- $ 142,441 - 142,441
Conversion
of
accrued
interest
to stock
options
- $ 77,26577,265 -
Conversion
of
accounts
payable
to common
stock
-
Conversion $ 1,699,072 - -
of
notes
payable,
bank
and
accrued
interest
to
long-
term debt
1,699,072 Conversion
of $ 1,863,514 - -
loans
and
interest
payable,
related
party
and
accrued
payroll
and
expenses,
related
parties
to long-
term
accrued
payroll
and
other,
related
party
Issuance $ - 127,000
1,863,514 of 127,000
common
stock
upon
the
conversion
of
convertible
subordinated
debentures,
other
-
</TABLE>
<PAGE>
Notes to Financial Statements, Continued
Notes to Financial Statements
Years ended July 31, 1995, 1994 and 1993
and the Period From August 24, 1981
(Date of Inception) to July 31, 1995
(1)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS DESCRIPTION
Alfacell Corporation (the "Company") was incorporated in Delaware on August
24, 1981 for the purpose of engaging in the discovery, investigation and
development of a new class of anticancer drugs and antiviral agents. To
date, the Company is in the initial stage of its operations and has not yet
engaged in any significant commercial activities.
The Company is a development stage company as defined in the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
7. The Company is devoting substantially all of its present efforts to
establishing its business. Its planned principal operations have not
commenced and, accordingly, no significant revenue has been derived
therefrom.
BASIS OF FINANCIAL STATEMENTS
The Company's financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business.
As shown in the financial statements, the Company has reported net losses of
$1,993,123, $2,234,428 and $2,357,350 for the fiscal years ended July 31,
1995, 1994 and 1993, respectively. The loss from date of inception, August
24, 1981, to July 31, 1995 amounts to $37,449,120. As of July 31, 1995, the
Company had a working capital deficit of $1,004,973, liabilities exceeded
its assets and there is a deficit in stockholders' equity of $832,566.
These factors raise substantial doubt about the Company's ability to
continue as a going concern.
The Company's continued operations will depend on its ability to raise
additional funds through a combination of equity or debt financings,
collaborative agreements, strategic alliances and revenues from the
commercial sale of ONCONASE. The Company believes that its current
resources (including proceeds of the recently completed private placement,
see note 16), will be sufficient to meet its anticipated cash needs through
August 1996. To date, a significant portion of the Company's financing has
been provided by its President and Chief Executive Officer and through
private placements of common stock, the issuance of common stock for
services rendered and debt financing.
(1)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED)
BASIS OF FINANCIAL STATEMENTS, (CONTINUED)
The Company's long-term liquidity will depend on its ability to raise
substantial additional funds. There can be no assurance that such funds
will be available to the Company on acceptable terms, if at all.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the respective
assets ranging from five to ten years. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed from
the accounts and any resulting gain or loss is included in operations for
the period.
The cost of repairs and maintenance is charged to operations as incurred;
significant renewals and betterments are capitalized.
MARKETABLE SECURITIES
The Company's investments in marketable securities are available for sale to
fund its operations. The Company, subject to changes in market conditions,
does not intend to hold the marketable securities for an extended period of
time and, accordingly, they have been classified as current assets and are
carried at fair value.
PATENTS
Costs related to patents are expensed when incurred. Previously, costs
related to approved patents were capitalized and were amortized using the
straight-line method over the life of the patent, usually 17 years. As a
result of this change in policy, the Company wrote-off $76,807 of
capitalized patent costs during the fiscal year ended July 31, 1995.
DEFERRED DEBT COSTS
Deferred debt costs associated with the Company's long-term debt are being
amortized using the straight-line method over the life of the debt
agreement. Accumulated amortization as of July 31, 1995 and 1994 was
$90,416 and $48,416, respectively.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
(1)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED)
NET LOSS PER SHARE
Net loss per share is based on the weighted average number of common shares
outstanding during the period and shares to be issued at the end of the
period. Common stock equivalents are not included in the computations since
the effect would be antidilutive.
(2)MARKETABLE SECURITIES
Effective July 31, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115 (SFAS No. 115), "Accounting for Certain
Investments in Debt and Equity Securities." There was no effect upon
adopting this Statement. Under this new accounting standard, securities for
which there is not the positive intent and ability to hold to maturity are
classified as available-for-sale and are carried at fair value. Unrealized
holding gains and losses on securities classified as available-for-sale are
carried as a separate component of stockholders' equity. The Company
considers its marketable securities to be available-for-sale. The Company's
marketable securities were purchased during July 1995 for the current fiscal
year and June 1994 for the prior fiscal year. The market value approximates
cost due to the short holding period. As of July 31, 1995 and 1994, there
were no unrealized holding gains or losses.
(3)PROPERTY AND EQUIPMENT
Property and equipment consists of the following at July 31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C> <C>
Laboratory equipment $ 587,443 568,672
Office equipment 130,143 117,035
Leasehold improvements 52,976 52,976
$ 770,562 738,683
</TABLE>
(4)LONG-TERM DEBT
Long-term debt consists of the following at July 31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C> <C> <C>
$ 1,577,049 $ 1,645,513
First Fidelity Bank, N.A., New Jersey, payable in
monthly
installments of $15,945, including principal and
interest at 7.5% commencing on October 1, 1993.
Subject to other provisions, the entire unpaid
amount shall be due and payable on May 31, 1996.
The note is secured by substantially all of the
assets of the Company and contains restrictive
covenants including restrictions on the payment of
dividends to stockholders. The President and Chief
Executive Officer of the Company has personally
guaranteed the note and has pledged certain
additional collateral including a majority of the
shares of common stock and options to purchase
common stock of the Company owned by her. Certain
obligations owed by the Company to the President and
Chief Executive Officer are subordinated to the bank
debt.
Note payable in monthly installments of $600, 9,833 16,193
including
principal and interest at 6.3%, commencing September
1993 and each month thereafter until September 1996,
secured by equipment.
Note payable in monthly installments of $164, 2,411 3,559
including
principal and interest, commencing May 1994 and each
month thereafter until September 1996, secured by
equipment.
Note payable in monthly installments of $822, 8,586 17,070
including
principal and interest at 10.4%, commencing May 1993
and each month thereafter until April 1996, secured by
equipment.
Note payable in monthly installments of $728, 12,224 -
including
principal and interest at 8.5%, commencing February
1995 and each month thereafter until January 1997,
secured by equipment.
1,610,103 1,682,335
Less current portion 1,602,974 88,359
$ 7,129 $ 1,593,976
</TABLE>
(4) LONG-TERM DEBT, (CONTINUED)
Principal maturities for the next two years ending July 31, are as follows:
<TABLE>
<CAPTION>
1996 $ 1,602,974
<S> <C> <C>
1997 7,129
$ 1,610,103
</TABLE>
(5)LOANS AND INTEREST PAYABLE, RELATED PARTY
From time to time, the Company's President and Chief Executive Officer has
advanced sums of money to the Company in the form of unsecured obligations,
payable on demand. The following table provides a summary of the related-
party loan activity involving the President and Chief Executive Officer at
July 31:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C> <C> <C>
Loans and interest payable, related party at
beginning of year $ 203,723 $ -
Reduction in loan balance (80,067) -
Accrued interest 14,982 5,306
Repurchase of stock options - 198,417
Loans and interest payable, related party at $ 138,638 $ 203,723
end of year
</TABLE>
In March 1994, the following liabilities were converted into options to
purchase common stock: the long-term liability at July 31, 1993 of
$2,061,844, accrued payroll and expenses, related parties of $729,346 at
July 31, 1993, additional advances by the President and Chief Executive
Officer and accrued interest during the period from August 1, 1993 to
January 31, 1994 of $260,353 and accrued salaries and expense for that
period owed to the President and Chief Executive Officer and to the
Executive Vice President and Medical Director aggregating $143,426. These
liabilities as of January 31, 1994 were converted into 5-year options to
purchase 1,655,423 shares of common stock at an exercise price of $3.20.
Certain options were issued pursuant to the 1993 Stock Option Plan (see note
10).
On May 1, 1994, the Company, with its bank's consent, reinstituted certain
advances of $198,417 from the Company's President and Chief Executive
Officer as short-term debt that was previously converted into 102,807
options on March 30, 1994. Such options were returned to the Company. The
Company's bank has consented to allow repayment of such advances under
certain circumstances and $80,067 was repaid during fiscal 1995.
(6)LOANS PAYABLE, OTHER
At July 31, 1994, a Company stockholder had a loan outstanding to the
Company of $44,000. The loan, which was payable on demand, did not have any
stated interest rate. During fiscal 1995, this loan was converted into
17,600 shares of common stock.
(7)LEASES
The Company leases its facility under a five-year operating lease which was
due to expire on October 31, 1993, but has been extended to November 11,
1996 at a reduced annual rental obligation commencing April 1, 1993, of
$66,000. The Company has an option to further extend its lease, subject to
certain conditions, through October 31, 1998, at the current rent. In
addition to the basic rent, the Company pays its pro rata share of increases
in real estate taxes and utilities over the base year. Rent expense charged
to operations was $66,000, $66,500 and $61,334 in 1995, 1994 and 1993,
respectively.
Future minimum lease payments under noncancellable leases are approximately
as follows:
<TABLE>
<CAPTION>
Operating
LEASES
<S> <C> <C>
Year ending July 31:
1996 $ 66,000
1997 16,500
Total minimum lease payments $ 82,500
</TABLE>
(8)STOCKHOLDERS' DEFICIENCY
On September 1, 1981, the Company issued 712,500 shares of common stock
(1,068,750 shares adjusted for the stock split on September 8, 1982) to
officers and stockholders in exchange for equipment, research and
development services, stock registration costs, reimbursement of expenses
and other miscellaneous services. The common stock issued for services was
recorded at the estimated fair value of services rendered based upon the
Board of Directors' determination and ratification of the value of services.
Equipment received in exchange for common stock was recorded at the
transferor's cost. Common stock issued for reimbursement of expenses was
recorded based upon expenses incurred. All values assigned for expenses and
services rendered have been charged to operations except for stock
registration costs which were charged against proceeds.
On July 30, 1982, the Company sold 82,143 shares of common stock (123,214
shares adjusted to reflect the stock split on September 8, 1982) to a
private investor at a price of $1.40 per share, resulting in net proceeds to
the Company of approximately $108,500.
On September 8, 1982, the Company declared a 3-for-2 stock split. Shares
previously issued by the Company have been restated in accordance with the
stock split.
(8)STOCKHOLDERS' DEFICIENCY, (CONTINUED)
On September 8, 1982, the Company issued 15,000 shares of common stock to an
officer and stockholder in exchange for equipment. The equipment received
in exchange for the common stock was recorded at the transferor's cost.
On November 1, 1982 and January 3, 1983, the Company sold 28,125 and 16,071
shares of common stock, respectively, to private investors at $.93 per
share, resulting in net proceeds to the Company of approximately $41,250.
On January 17, 1983, the Company sold 660,000 shares of its common stock and
330,000 common stock purchase warrants in a public offering at a price of
$2.50 per share, resulting in net proceeds to the Company of approximately
$1,308,446. The warrants were to expire 12 months after issuance; however,
the Company extended the expiration date to July 16, 1984. During the
fiscal years ended July 31, 1983 and 1984, the net proceeds to the Company
from the exercising of the warrants amounted to $934,000. Each common stock
purchase warrant was not detachable from its common stock or exercisable
until six months after the issuance date of January 17, 1983. Each warrant
entitled the holder to purchase one share of common stock at an exercise
price of $3.00 after six months and prior to nine months after issuance.
The exercise price increased to $3.50 after nine months and prior to 12
months after issuance.
In connection with the public offering, the Company sold 60,000 five-year
purchase warrants to the underwriters at a price of $.001 per warrant. Each
warrant entitled the holder to purchase one share of common stock at an
exercise price of $3.00. Pursuant to the antidilution provisions of the
warrants, the underwriters received warrants to purchase 67,415 shares at an
exercise price of $2.67 per share. As of July 31, 1986, all such warrants
were exercised and the Company received proceeds of approximately $180,000.
On February 22, 1984, the Company filed a registration statement with the
Securities and Exchange Commission for the issuance of two series of new
warrants each to purchase an aggregate of 330,000 shares (hereinafter
referred to as one-year warrants and two-year warrants). The one-year
warrants had an exercise price of $6.50 per share and expired July 17, 1985.
The two-year warrants had an exercise price of $10.00 per share and were to
expire July 17, 1986. However, the Company extended the expiration date to
August 31, 1987. The one-year warrants and two-year warrants were issued as
of July 17, 1984 on a one-for-one basis to those public offering warrant
holders who exercised their original warrants, with the right to
oversubscribe to any of the warrants not exercised. During the fiscal years
ended July 31, 1985, 1986, 1987 and 1988, the Company received net proceeds
of approximately $2,471,000 as a result of the exercising of the warrants.
On January 2, 1987, the Company issued 250,000 shares of common stock to
officers and stockholders, including the President and Chief Executive
Officer, in recognition of services performed for the Company. The fair
value of such shares was recorded as compensation expense.
On February 3, 1987, the Company sold 5,000 shares of common stock to a
private investor for $5.00 per share, resulting in net proceeds to the
Company of approximately $25,000.
(8)STOCKHOLDERS' DEFICIENCY, (CONTINUED)
During the year ended July 31, 1988, the Company issued 206,429 shares of
common stock for payment of legal and consulting services. The fair value
of such shares was charged to operations.
On September 1, 1987, the Board of Directors approved new wage contracts for
three officers. The contracts provided for the issuance of 700,000 shares
of common stock as an inducement for signing; the shares of common stock
were issued on November 16, 1987. The fair value of these shares has been
recorded as deferred compensation and is being amortized over the term of
the employment agreements. The contracts also provided for the issuance of
1,500,000 shares of common stock in 750,000 increments on the occurrence of
certain events. These shares were issued during the fiscal years ended July
31, 1989 and 1990 and the fair value of such shares has been recorded as
deferred compensation and is being amortized over the remaining term of the
employment agreements. The contracts also provided for five-year options to
purchase 750,000 shares of common stock at $3.00 per share; options for the
purchase of 170,000 shares were exercised on June 16, 1988 and the remaining
options for the purchase of 580,000 shares expired on September 2, 1992.
During fiscal 1988, the Company issued 12,500 shares of common stock in
connection with the settlement of certain litigation. The fair value of
these shares was charged to operations.
During the fiscal year ended July 31, 1988, the Company sold 61,073 shares
of common stock to private investors at $2.92 per share resulting in net
proceeds to the Company of approximately $178,133.
On September 21, 1988, the Company entered into a stipulation of settlement
arising from a lawsuit wherein it agreed to pay a total of $250,000 in 12
monthly installments. Under the agreement, the Company authorized the
issuance on September 7, 1988 and October 18, 1988 of 85,000 and 50,000
shares, respectively, to an escrow account to secure payment of the $250,000
due under the stipulation of settlement. During the fiscal year ended July
31, 1989, the Company issued and sold the 135,000 shares of common stock for
$1,074,838. On February 14, 1989, the Board of Directors authorized the
issuance of an additional 50,000 shares. During the year ended July 31,
1990, the shares were sold for $351,117. The proceeds from the above
transactions were used to pay the settlement and related legal costs, reduce
loans from and interest due to the Company's President and Chief Executive
Officer, and for working capital.
During the fiscal year ended July 31, 1989, the Company sold 105,840 shares
of common stock to private investors at $3.97 per share resulting in net
proceeds to the Company of approximately $420,000.
During the fiscal year ended July 31, 1990, the Company issued 52,463 shares
of common stock for payment of legal and consulting services. The fair
value of the common stock was charged to operations.
During the fiscal year ended July 31, 1990, the Company issued 50,000 shares
of common stock in connection with the settlement of certain litigation.
The fair value of these shares was charged to operations.
(8)STOCKHOLDERS' DEFICIENCY, (CONTINUED)
During the fiscal year ended July 31, 1990, the Company sold 89,480 shares
of common stock to private investors at $3.97 per share resulting in net
proceeds to the Company of approximately $355,080.
During the fiscal year ended July 31, 1991, the Company issued 87,000 shares
of common stock for payment of legal and consulting services. The fair
value of the common stock was charged to operations.
During the fiscal year ended July 31, 1992, the Company sold 70,731 shares
of common stock to private investors at $2.75 to $3.50 per share resulting
in net proceeds to the Company of approximately $219,900.
During the fiscal year ended July 31, 1992, the Company issued 45,734 shares
of common stock as payment for services rendered to the Company. The fair
value of this common stock was charged to operations.
During the fiscal years ended July 31, 1992 and 1990, 94,000 and 50,000
shares of common stock, respectively, were issued to the Company's President
and Chief Executive Officer upon the conversion of outstanding debentures.
During the fiscal year ended July 31, 1993, the Company sold 352,667 shares
of common stock to private investors at prices ranging from $2.00 to $3.00
resulting in net proceeds to the Company of approximately $735,500. In
addition, the private investors were granted options to purchase common
stock totaling 587,167 shares at prices ranging from $3.00 to $7.00. During
the fiscal year ended July 31, 1995, 322,500 options expired. A total of
30,167 options due to expire on July 31, 1995 were extended to July 31,
1996, their exercise price was reduced to $2.50 and they are currently
outstanding. The remaining 234,500 options are currently outstanding and
will expire during fiscal 1996.
During the fiscal year ended July 31, 1993, the Company issued 54,600 shares
of common stock as payment for legal and other services performed for the
Company. The fair value of 49,600 shares was charged to operations. The
remaining 5,000 shares were recorded as deferred compensation and were
amortized over a one-year period, beginning in February 1993, in accordance
with the agreement entered into with the recipient.
During the fiscal year ended July 31, 1994, the Company issued 7,000 shares
of common stock as payment for services performed for the Company. The fair
value of the shares issued was charged to operations.
During the fiscal year ended July 31, 1994, the Company sold 25,000 shares
of common stock to a private investor at $2.00 per share resulting in net
proceeds to the Company of $50,000. In addition, the private investor was
granted options to purchase common stock totaling 25,000 shares at $4.00 per
common share. The options expire during fiscal 1997.
(8)STOCKHOLDERS' DEFICIENCY, (CONTINUED)
During the fiscal year ended July 31, 1994, the Company sold 800,000 shares
of common stock to private investors at $2.50 per share resulting in net
proceeds to the Company of $1,865,791. In addition, the private investors
were granted warrants to purchase common stock totaling 800,000 shares at
$5.00 per common share. The warrants expire during fiscal 1997.
During the fiscal year ended July 31, 1994, 400,000 shares of common stock
were issued to the Company's President and Chief Executive Officer upon the
conversion of outstanding debentures.
During the fiscal year ended July 31, 1994, 25,400 shares of common stock
were issued upon the conversion of other outstanding debentures.
In September 1994, the Company completed a private placement resulting in
the issuance of 288,506 shares of common stock and three-year warrants to
purchase 288,506 shares of common stock at an exercise price of $5.50 per
share. The common stock and warrants were sold in units consisting of
20,000 shares of common stock and warrants to purchase 20,000 shares of
common stock. The price per unit was $50,000. The Company received
proceeds of approximately $545,000, net of costs associated with the
placement of approximately $55,000 and the conversion of certain debt by
creditors of $121,265 into equivalent private placement units, of 17,600
shares for conversion of short-term borrowings and 30,906 shares issued for
services rendered. In October 1994, an additional two units at $50,000 per
unit were sold to a private investor under the same terms as the September
1994 private placement resulting in the issuance of 40,000 shares of common
stock.
During the fiscal year ended July 31, 1995, 185,000 shares of common stock
were issued upon the exercise of stock options by unrelated parties
resulting in net proceeds to the Company of $437,200. The exercise prices
of the options ranged from $2.27 to $2.50, which had been reduced from $3.50
and $5.00, respectively, during fiscal 1995.
During the fiscal year ended July 31, 1995, the Company sold 681,000 shares
of common stock to private investors resulting in net proceeds to the
Company of approximately $1,379,000. The shares were sold at prices ranging
from $2.00 to $2.25.
During the fiscal year ended July 31, 1995, the Company sold 139,080 shares
of common stock and 47,405 three-year warrants to purchase shares of common
stock at an exercise price of $4.00 per share to private investors. The
stock and warrants were sold at prices ranging from $2.25 to $2.73 per share
and resulted in net proceeds to the Company of $343,808, of which $4,800 was
for services rendered. The common shares were issued to the investors
subsequent to July 31, 1995.
(9)COMMON STOCK WARRANTS
The following table summarizes the activity of the common stock warrants
issued in connection with the public stock offering during 1983:
<TABLE>
<CAPTION>
SHARES PRICE RANGE
<S> <C> <C> <C> <C>
Sold in public offering 330,000 $3.00-3.50
Sold to underwriters 60,000 3.00
Exercised (1,165) 3.00
Outstanding at July 31, 1983 388,835 3.00-3.50
Exercised (287,566) 2.00-3.50
Expired (41,269) 3.50
Issued (one-year warrants) 288,731 6.50
Issued (two-year warrants) 288,731 10.00
Outstanding at July 31, 1984 637,462 3.00-10.00
Additional underwriters' warrants 7,415 2.67
pursuant to antidilution provisions
Exercised (334,957) 2.67-10.00
Expired (4,359) 6.50
Outstanding and exercisable at July 31, 1985 305,561 2.67-10.00
Reinstated 2,000 6.50
Exercised (21,565) 2.67-10.00
Outstanding and exercisable at July 31, 1986 285,996 10.00
Exercised (14,745) 10.00
Outstanding and exercisable at July 31, 1987 271,251 10.00
Exercised (63,925) $ 7.06
Expired (207,236)
Outstanding at July 31, 1988 -
</TABLE>
STOCK PURCHASE WARRANTS
On July 28, 1988, the Board of Directors granted stock purchase warrants to
acquire a maximum of 200,000 shares of common stock at $5.00 per share which
were not exercised and expired.
On July 23, 1991, the Board of Directors granted stock purchase warrants to
purchase 200,000 shares of common stock at $5.00 per share which were not
exercised and expired.
(9)COMMON STOCK WARRANTS, (CONTINUED)
WARRANTS SOLD IN 1994 AND 1995 PRIVATE PLACEMENTS
<TABLE>
<CAPTION>
WARRANTS EXERCISE PRICE EXPIRATION
<S> <C> <C> <C> <C> <C>
Sold in March 1994 Private Placement 800,000 $ 5.00 3/21/97 to 6/21/97
Outstanding at July 31, 1994 800,000 5.00 3/21/97 to 6/21/97
Sold in September 1994 Private Placement 288,506 5.50 12/9/97 to 12/14/97
Sold in October 1994 Private Placement 40,000 5.50 1/21/98
Sold in September 1995 Private Placement 47,405 4.00 10/1/98
Outstanding and exercisable at July 31, 1995 1,175,911 $ 4.00 - 5.50 3/21/97 to 10/1/98
</TABLE>
(10)STOCK OPTIONS
1981 NON-QUALIFIED STOCK OPTION PLAN
In 1981, the Board of Directors adopted a non-qualified stock option plan
and had reserved 300,000 shares for issuance to key employees or
consultants. Options were nontransferable and expired if not exercised
within five years. The maximum amount exercisable in any one year was one-
fifth of the options granted which accumulated if not exercised. The
options were issuable in such amounts as determined by the Board of
Directors and such prices as determined by the Board of Directors, except
that no single recipient would be granted options to purchase more than
15,000 shares.
The following table summarizes stock options outstanding:
<TABLE>
<CAPTION>
SHARES PRICE RANGE
<S> <C> <C> <C> <C>
Granted, August 24, 1984 15,000 $ 5.00
Granted, August 1, 1985 45,000 15.00
Subtotal 60,000 5.00-15.00
Cancelled (45,000) 5.00-15.00
Outstanding, July 31, 1990 15,000 15.00
Expired (15,000) $ 15.00
Outstanding, July 31, 1991 -
</TABLE>
(10)STOCK OPTIONS, (CONTINUED)
NON-QUALIFIED STOCK OPTIONS
The Board of Directors issued non-qualified stock options which were not
part of the 1981 non-qualified stock option plan or the 1989 Stock Plan as
follows:
<TABLE>
<CAPTION>
SHARES PRICE RANGE
<S> <C> <C> <C> <C>
Granted 1,032,000 $ 3.00-3.50
Exercised (170,000) 3.00
Cancelled (6,000) 3.50
Balance at July 31, 1988 856,000 3.00-3.50
Exercised (1,000) 3.50
Balance at July 31, 1989 855,000 3.00-3.50
Cancelled (100,000) 3.00
Expired (59,011) 3.50
Exercised (105,989) 3.00-3.50
Balance at July 31, 1990, 1991 and 1992 590,000 3.00-3.50
Expired (590,000) 3.00-3.50
Granted 750,000 3.50
Balance at July 31, 1993 750,000 3.50
Granted pursuant to conversion of certain
liabilities: 1,324,014 3.20
related party
unrelated party 73,804 3.20
Repurchased stock options (102,807) 3.20
Balance at July 31, 1994 and 1995 2,045,011 $ 3.20-3.50
Exercisable at July 31, 1995 1,143,982 $ 3.20-3.50
</TABLE>
The options outstanding at July 31, 1995 will expire between September 16,
1996 and March 30, 2004. Subsequent to July 31, 1995, certain of these
options were extended, see Note 16.
(10)STOCK OPTIONS, (CONTINUED)
In connection with certain private placements, the Board of Directors have
included in the agreements, options to purchase additional shares of the
Company's common stock as follows:
<TABLE>
<CAPTION>
SHARES PRICE RANGE
<S> <C> <C> <C> <C>
Granted 126,000 $ 3.97
Exercised (included in 1989 proceeds from
sale to (25,200) 3.97
private investors)
Balance at July 31, 1989 100,800
Granted 61,720 6.50
Exercised (included in 1990 proceeds from
sale to (39,080) 3.97
private investors)
Expired (61,720) 3.97
Balance at July 31, 1990 61,720
Granted 45,000 6.50
Exercised (included in 1991 proceeds from
sale to (16,720) 6.50
private investors)
Expired (45,000) 6.50
Balance at July 31, 1991 45,000 6.50
Granted 50,000 5.00
Expired (45,000) 6.50
Balance at July 31, 1992 50,000
Granted (30,167 options were repriced and 587,167 2.50-7.00
extended
as described in note 8)
Expired (50,000) 5.00
Balance at July 31, 1993 587,167
Granted 25,000 4.00
Balance at July 31, 1994 612,167 2.50-7.00
Expired (322,500) 3.00
Balance outstanding and exercisable at July
31, 1995 289,667 $ 2.50-7.00
</TABLE>
The options outstanding at July 31, 1995, will expire during the fiscal
years ending July 31, 1996 and 1997.
(10)STOCK OPTIONS, (CONTINUED)
1989 STOCK PLAN
On February 14, 1989, the Company adopted the Alfacell Corporation 1989
Stock Plan (the "1989 Stock Plan"), pursuant to which the Board of Directors
shall issue awards, options and grants. The maximum amount of shares of
common stock that may be issued pursuant to the option plan is 2,000,000.
The per share option exercise price shall be determined by the Board of
Directors. All options are nontransferable and forfeitable in the event
employment is terminated within two years of the date an option is exercised
or prior to an option being exercised. In the event the option is exercised
and said shares are forfeited, the Company will return to the optionee the
lesser of the current market value of the securities or the exercise price
paid.
The stock option activity is as follows:
<TABLE>
<CAPTION>
SHARES PRICE RANGE
<S> <C> <C> <C> <C>
Granted, February 14, 1989 230,000 $ 5.00
Granted, April 27, 1990 450,000 5.00
Granted, November 2, 1990 260,000 5.00
Granted, April 23, 1991 945,000 5.00
1,885,000
Options issued in connection
with share purchase 36,365 2.75
Expired (680,000) 5.00
Cancelled 5.00
(10,000)
Balance at July 31, 1992 1,231,365 2.75-5.00
Expired (1,195,000) 5.00
Granted 1,575,000 3.50-5.00
Balance at July 31, 1993 1,611,365 2.75-5.00
Expired (36,365) 2.75
Balance at July 31, 1994 1,575,000 3.50-5.00
Expired (945,000) 3.50-5.00
Exercised (185,000) 2.27-2.50
Balance outstanding and
exercisable at July 31, 1995 445,000 $ 2.50-2.68
</TABLE>
(10) STOCK OPTIONS, (CONTINUED)
In order to induce the exercise of options due to expire, the Board of
Directors approved the extension and repricing of certain options as
follows:
<TABLE>
<CAPTION>
Exercise Price
<S> <C> <C> <C> <C>
No. of Options
NO. OF OPTIONS ORIGINAL REVISED EXERCISED EXPIRATION DATE
110,000 $ 3.50 $ 2.27 110,000 January 9, 1995
320,000 5.00 2.50 75,000 July 31, 1996
200,000* 5.00 2.68 - July 31, 1996
630,000 185,000
</TABLE>
* Options to related parties were repriced at the fair market value of the
common stock at the time of extension.
1993 STOCK OPTION PLAN
The Company's Board of Directors adopted the 1993 Stock Option Plan (the
"Plan") in November 1993 and the stockholders ratified the plan in January
1994. The total number of shares of common stock authorized for issuance
upon exercise of options granted under the Plan is 3,000,000.
The stock options activity is as follows:
<TABLE>
<CAPTION>
OPTIONS PRICE RANGE
<S> <C> <C> <C>
Granted 1,371,750 $ 2.71 - 5.00
Granted pursuant to conversion 331,409 3.12
of certain liabilities, related
party
Balance at July 31, 1994 1,703,159 2.71 - 5.00
Granted 188,850 2.27 - 5.00
Balance at July 31, 1995 1,892,009 2.27 - 5.00
Exercisable at July 31, 1995 771,864 $ 2.71 - 5.00
</TABLE>
These options become exercisable over five years starting at various dates
from date of grant, up to one year after the grant date.
The options outstanding at July 31, 1995 will expire from November 10, 1997
to March 13, 2005.
(11)STOCK GRANT AND COMPENSATION PLANS
The Company had adopted a stock grant program effective September 1, 1981,
and pursuant to said Plan, had reserved 375,000 shares of its common stock
for issuance to key employees. The stock grant program was superseded by
the 1989 Stock Plan and no further grants will be given pursuant to the
grant plan. The following stock transactions occurred under the Company's
stock grant program:
<TABLE>
<CAPTION>
Year SHARES Fair Amount
ended VALUE of
JULY 31, COMPENSATION
<S> <C> <C> <C> <C> <C>
1983 20,000 $ 5.50 $ 110,000
1984 19,750 5.125 101,219
1985 48,332 5.125-15.00 478,105
1986 11,250 5.125-15.00 107,032
1988 19,000 $ 3.50 $ 6,500
</TABLE>
On January 26, 1984, the Company adopted a stock bonus plan for directors
and consultants. The plan was amended on October 6, 1986, to reserve
500,000 shares for issuance under the plan and to clarify a requirement that
a stock cannot be transferred until three years after the date of the grant.
The stock bonus plan for directors and consultants was superseded by the
1989 Stock Plan and no further grants will be given pursuant to the stock
bonus plan for directors and consultants. The following stock transactions
occurred under the Company's stock bonus plan:
<TABLE>
<CAPTION>
Year Amount
ended Fair of
JULY 31, SHARES VALUE COMPENSATION
<S> <C> <C> <C> <C> <C>
1984 130,250 $ 2.50-3.88 $ 385,917
1985 99,163 3.50-15.00 879,478
1985 (42,500) 2.50 (105,825)*
1986 15,394 9.65-15.00 215,400
1987 5,000 $ 15.00 $ 75,000
</TABLE>
* Shares granted in 1984 were renegotiated in 1985 and cancelled as a
result of recipient's termination.
(11)STOCK GRANT AND COMPENSATION PLANS, (CONTINUED)
ALFACELL CORPORATION 1989 STOCK PLAN
Under the 1989 Stock Plan, one million shares of the Company's common stock
have been reserved for issuance as awards to employees. The 1989 Stock Plan
also provides for the granting of options to purchase common stock of the
Company (see note 10). In addition, the 1989 Stock Plan provides for the
issuance of one million shares of the Company's common stock as grants. To
be eligible for a grant, grantees must have made substantial contributions
and shown loyal dedication to the Company and be ineligible to receive an
award or option.
During the fiscal years ended, the following awards and grants were
authorized under the 1989 Stock Plan:
<TABLE>
<CAPTION>
Year SHARES Fair Amount
ended VALUE of
JULY 31, COMPENSATION
<S> <C> <C> <C> <C> <C> <C>
1989 30,000 $ 5.00 $ 150,000
1990 56,000 6.00 336,000
1991 119,000 4.00 476,000
1992 104,000 2.75 286,000
1993 117,000 2.00 234,000
1994 5,000 $ 3.00 $ 15,000
</TABLE>
Compensation expense is recorded for the fair value of all stock awards and
grants over the vesting period. The 1994 stock award was immediately
vested. There were no stock awards in fiscal 1995.
(12)INCOME TAXES
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109) for the year
ended July 31, 1993. Under this method, deferred tax assets and liabilities
are determined based on the difference between the financial statement
carrying amounts and tax bases of assets and liabilities using enacted tax
rates in effect for all years in which the temporary differences are
expected to reverse.
(12)INCOME TAXES, (CONTINUED)
At July 31, 1995 and 1994, the tax effects of temporary differences that
give rise to the deferred tax assets are as follows:
<TABLE>
<CAPTION>
1995 1994
Deferred tax assets:
<S> <C> <C> <C> <C>
Excess of book over tax depreciation $ 26,223 $ 56,116
Deferred compensation 165,999 55,916
Other 7,993 1,996
Federal and state net operating loss 8,926,338 8,662,634
carryforwards
Research and experimentation and investment
tax 473,287 471,234
credit carryforwards
Total gross deferred tax assets 9,599,840 9,247,896
Valuation allowance (9,599,840) (9,247,896)
Net deferred tax assets $ - $ -
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
At July 31, 1995, the Company has federal net operating loss carryforwards
of approximately $23,460,000 that expire in the years 1997 to 2010. The
Company also has investment tax credit carryforwards of $63,076 and research
and experimentation tax credit carryforwards of $410,211 that expire in the
years 1998 to 2010. Ultimate utilization/availability of such net operating
losses and credits may be significantly curtailed if a significant change in
ownership occurs.
(13)OTHER FINANCIAL INFORMATION
Accrued expenses as of July 31, consist of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C> <C> <C>
Payroll and payroll $ 27,539 $ 12,535
taxes
Interest 10,196 10,623
Professional fees 23,800 29,675
Other 40,242 -
$ 101,777 $ 52,833
</TABLE>
(13)OTHER FINANCIAL INFORMATION, (CONTINUED)
Prepaid expenses as of July 31, consist of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C> <C> <C>
Insurance $ 31,607 $ 26,223
NIH research - 32,000
Other 7,000 10,444
$ 38,607 $ 68,667
</TABLE>
(14)COMMITMENTS AND CONTINGENCIES
On July 23, 1991, the Board of Directors authorized the Company to pay to
the President and Chief Executive Officer of the Company an amount equal to
15% of any gross royalties which may be paid to the Company from any
license(s) with respect to the Company's principal product, ONCONASE, or any
other products derived from amphibian source extract, produced either as a
natural, synthesized, and/or genetically engineered drug for which the
Company is the owner or co-owner of the patents, or acquires such rights in
the future, for a period not to exceed the life of the patent. If the
Company manufactures and markets its own drugs, then the Company will pay an
amount equal to 5% of gross sales from any products sold during the life of
the patents. In addition, the agreement provides for a reduction of
indebtedness to the President and Chief Executive Officer in the amount of
$200,000 upon the Company entering into a licensing agreement for its
principal product.
The Company has product liability insurance coverage in the amount of
$6,000,000 for clinical trials. No product liability claims have been filed
against the Company. If a claim arises and the Company is found liable in
an amount that significantly exceeds the policy limits, it may have a
material adverse effect upon the financial condition of the Company.
(15)RESEARCH AND DEVELOPMENT AGREEMENT
In November 1992, the Company entered into a Cooperative Research and
Development Agreement (CRADA) with the National Institutes of Health (NIH).
In accordance with this CRADA, the NIH will perform research for the Company
on potential uses for its drug technology. During the term of this research
and development agreement, which expires in January 1996, the Company is
obligated to pay approximately $5,000 per month to the NIH. Total research
and development expenses under this arrangement amounted to $64,000, $43,000
and $17,000 during the years ended July 31, 1995, 1994 and 1993,
respectively.
(16)SUBSEQUENT EVENTS
In order to preserve stock options as a source of financing which were
granted during fiscal year 1993 and due to expire, the Board of Directors
approved effective September 15, 1995, a one-year extension for 750,000
options which were held by officers and due to expire on that day. The
exercise price was increased from $3.50 to $3.87, the fair market value of
the common stock at the time of the extension.
(16)SUBSEQUENT EVENTS, (CONTINUED)
On September 29, 1995, the Company completed a private placement resulting
in the issuance of 1,105,536 shares of common stock and 8,540 three-year
warrants to purchase shares of common stock at an exercise price of $4.00
per share to private and institutional investors. The stock and warrants
were sold at prices ranging from $2.00 to $3.70 per share and resulted in
net proceeds to the Company of approximately $2.3 million.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the General Corporation Law of Delaware (the "GCL")
a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation),
by reason of the fact that he is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with such action,
suit or proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful.
A corporation also may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation. However, in such an
action by or on behalf of a corporation, no indemnification may be made in
respect of any claim, issue or matter as to which the person is adjudged
liable to the corporation unless and only to the extent that the court
determines that, despite the adjudication of liability but in view of all
the circumstances, the person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.
In addition, the indemnification provided by Section 145 shall not be
deemed exclusive of any other rights to which those seeking indemnification
may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
The Certificate of Incorporation of the Company is consistent with Section
145 of the GCL and its Bylaws provide that each director, officer, employee
and agent of the Company shall be indemnified to the extent permitted by
the GCL.
In this connection, the Company has entered into indemnification
agreements (the "Indemnity Agreements") with each of its directors. The
Indemnity Agreements are consistent with the Company's By-laws and the
Company's policy to indemnify directors to the fullest extent permitted by
law. The Indemnity Agreements provide for indemnification of directors for
liabilities arising out of claims against such persons acting as directors
of the Company (or any entity controlling, controlled by or under common
control with the Company) due to any actual or alleged breach of duty,
neglect, error, misstatement, misleading statement, omission or other act
done, or suffered or wrongfully attempted by such directors, except as
prohibited by law. The Indemnity Agreements also provide for the
advancement of costs and expenses, including attorneys' fees, reasonably
incurred by directors in defending or investigating any action, suit,
proceeding or claim, subject to an undertaking by such directors to repay
such amounts if it is ultimately determined that such directors are not
entitled to indemnification. The Indemnity Agreements cover future acts
and omissions of directors for which actions may be brought.
The Indemnity Agreements also provide that directors, officers,
employees and agents are entitled to indemnification against all expenses
(including attorneys' fees) reasonably incurred in seeking to collect an
indemnity claim or to obtain advancement of expenses from the Company. The
rights of directors under the Indemnity Agreements are not exclusive of any
other rights directors may have under Delaware law, any liability insurance
policies that may be obtained, the Company's By-Laws or otherwise. The
Company would not be required to indemnify a director for any claim based
upon the director gaining in fact a personal profit or advantage to which
such director was not legally entitled, any claim for an accounting of
profits made in connection with a violation of Section 16(b) of the
Securities Exchange Act of 1934 or a similar state or common law provision
or any claim brought about or contributed to by the dishonesty of the
director.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a list of the estimated expenses to be incurred by the
Registrant in connection with the distribution of the securities being
registered hereby, other than underwriting discounts and commissions.
Registration $ 3,500
Accountants' Fees and Expenses $ 6,000
Legal Fees and Expenses $ 10,000
Printing Expenses $ 2,000
Miscellaneous $ 2,500
Total $ 24,000
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On January 9, 1993, the Company issued 5,000 shares of Common Stock to
Diane Scudiery in payment of accrued wages aggregating $10,000 and 500
shares of Common Stock to S. Spector for payment of consulting services
rendered to the Company aggregating $1,000. On January 29, 1993, the
Company issued 10,000 shares of Common Stock to Mark Jay in payment of
legal fees aggregating $20,000; 75,000 shares of Common Stock to James
McCash for an aggregate of $150,000; 115,000 shares of Common Stock to
Digital Creations Inc for an aggregate of $230,000 and 32,500 shares of
Common Stock to Kimberly Computer Inc. for an aggregate of $65,000. On May
5, 1993, the Company issued 23,500 shares of Common Stock to John Frohling
in payment of legal fees aggregating $69,680. On May 24, 1993, the Company
issued 12,000 shares of Common Stock to James McCash for an aggregate of
$36,000; on June 16, 1993, the Company issued 3,000 shares of Common Stock
to Anatoly Ritikoff for an aggregate of $9,000; on June 29, 1993, the
Company issued 11,834 shares of Common Stock to James McCash for an
aggregate of $35,500; and on July 15, 1993, the Company issued 3,333 shares
of Common Stock to Ahmed Farag for an aggregate of $10,000. Pursuant to
these transactions, the private investors were granted options to purchase
an aggregate of 587,167 shares of Common Stock at prices ranging from $3.00
to $7.00. On September 22, 1995 the exercise price of options to purchase
30,167 shares of the 587,167 shares was reduced from $5.00 to $2.50 per
share and the exercise period was extended from July 31, 1995 to July 31,
1996. Of the 587,167 options, 322,500 expired during fiscal 1995 and the
balance will expire during the period January 1996 to July 1996.
In September 1993, the Company sold 25,000 shares of Common Stock to
James McCash, at an aggregate purchase price of $50,000. Pursuant to this
transaction, Mr. McCash was granted options to purchase an aggregate of
25,000 shares of Common Stock at an exercise price of $4.00 per share.
These options expire on September 14, 1996.
On January 5, 1994, $127,000 of convertible debentures were converted
into 25,400 shares of Common Stock by John Schierloh, pursuant to the terms
of the debentures. Additionally, on March 30, 1994 the Company issued
5,000 shares of Common Stock to Ms. Anita Franklin for services rendered to
the Company.
In November 1993, the Company commenced a private placement which was
completed on March 21, 1994. The private placement resulted in the
issuance of 800,000 shares of Common Stock and three-year warrants to
purchase 800,000 shares of Common Stock at an exercise price of $5.00 per
share. The Common Stock and Warrants were sold in units consisting of
20,000 shares of Common Stock and Warrants to purchase 20,000 shares of
Common Stock. The price per unit was $50,000. After deducting the
expenses of the offering, and including the conversion of debt by a certain
investor and conversion of accounts payable by a certain creditor, the
Company received net proceeds of approximately $1,865,791 from the
offering. The units were acquired by the investors in such private
placement transaction from the Company pursuant to purchase agreements (the
"Purchase Agreements"). In the Purchase Agreements, the Company agreed to
bear all expenses in connection with the registration of the Common Stock
(other than underwriting discounts and selling commissions and the fees and
expenses of counsel and other advisors to the investors).
In September 1994, the Company commenced a private placement which was
completed on September 13, 1994. The private placement resulted in the
issuance of 288,506 shares of Common Stock and three-year Warrants to
purchase 288,506 shares of Common Stock at an exercise price of $5.50 per
share. The Common Stock and Warrants were sold in units consisting of
20,000 shares of Common Stock and Warrants to purchase 20,000 shares of
Common Stock. The price per unit was $50,000. After taking into account
expenses of the offering, the conversion of debt by a certain investor and
conversion of accounts payable by certain creditors, the Company received
net proceeds of approximately $545,000 from the offering. The units were
acquired by the investors in such private placement transaction from the
Company pursuant to purchase agreements. In the purchase agreements, the
Company agreed to bear all expenses in connection with the registration of
the Common Stock (other than underwriting discounts and selling commissions
and the fees and expenses of counsel and other advisors to the investors).
During the fiscal year ended July 31, 1994, $1,575,000 of convertible
debentures were converted into Common Stock by the Company's President and
Chief Executive Officer, pursuant to the terms of the debentures as
follows:
July 31, 1993, convertible debentures,
related party $1,575,000
August 18, 1993, converted to 50,000
shares of Common Stock (300,000)
September 28, 1993, converted to 50,000
shares of Common Stock (200,000)
March 30, 1994, converted to 300,000
shares of Common Stock (1,075,000)
July 31, 1994, convertible debentures,
related party $ --
In February 1995 the Company issued an aggregate of 110,000 shares of
Common Stock upon the exercise of 110,000 options for aggregate
consideration of $249,700; in March 1995 the Company issued an aggregate of
30,000 shares of Common Stock upon the exercise of 30,000 options for
aggregate consideration of $75,000; in June 1995 the Company issued an
aggregate 35,000 shares of Common Stock upon the exercise of 35,000 options
for aggregate consideration of $87,500; in July 1995 the Company issued an
aggregate 10,000 shares of Common Stock upon the exercise of 10,000 options
for aggregate consideration of $25,000; in August 1995 the Company issued
an aggregate of 10,000 shares of Common Stock upon the exercise of 10,000
options for aggregate consideration of $25,000.
On September 29, 1995, the Company completed a private placement which
resulted in the issuance of 1,925,616 shares of Common Stock and three-year
warrants to purchase 55,945 shares of Common Stock at an exercise price of
$4.00 per share. On October 21, 1994, the Company completed a private
placement which resulted in the issuance of 40,000 shares of Common Stock
and 40,000 shares of Common Stock underlying warrants at an exercise price
of $5.50 per share. After taking into account expenses of these offerings,
the Company received net proceeds of approximately $4.2 million from the
offerings. The Common Stock and warrants were acquired by the investors in
such private placement transactions from the Company pursuant to purchase
agreements. In the purchase agreements, the Company agreed to bear all
expenses in connection with the registration of the Common Stock (other
than underwriting discounts and selling commissions and the fees and
expenses of counsel and other advisors to the investors). 115,000 shares
of Common Stock sold in this private placement were sold pursuant to
Regulation S under the Securities Act.
On November 29, 1995 the Company issued a warrant expiring October 1,
1997 to First Fidelity Bank, N.A., New Jersey to purchase 10,000 shares of
Common Stock.
Unless otherwise stated, the foregoing sales of the Company's
securities were effected in private transactions in reliance upon Section
4(2) of the Securities Act, or upon Section 4(2) of the Securities Act and
Rule 506 thereunder.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following are filed either as exhibits to this Registration
Statement or incorporated by reference to the exhibits to prior
Registration Statements and reports of the Registrant as indicated:
(a) EXHIBITS (numbered in accordance with Item 601 of Regulation
S-B).
<TABLE>
<CAPTION>
Exhibit No. or
Incorporation BY
Exhibit REFERENCE
NO. ITEM TITLE
<S> <C> <C>
3.1 Certificate of Incorporation *
3.2 By-Laws *
3.3 Amendment to Certificate of Incorporation
++++
4.1 Form of Convertible Debenture **
5.1 Opinion of Ross & Hardies ##
10.1 Employment Agreement dated as of July 1, 1994 with ++
Kuslima Shogen
10.2 Lease, as amended - 225 Belleville Avenue, **
Bloomfield, New Jersey
10.3 Amendment to amended Lease - 225 Belleville ++++
Avenue, Bloomfield, New Jersey
10.4 Term Loan Agreement dated as of May 31, 1993 by **
and between the Company and First Fidelity Bank,
N.A., New Jersey
10.5 Term Note dated as of May 31, 1993 issued by the **
Company to First Fidelity Bank, N.A., New Jersey
10.6 Patent Security Agreement dated as of May 31, 1993 **
by and between the Company and First Fidelity
Bank, N.A., New Jersey
10.7 Security Agreement dated as of May 31, 1993 by and **
between the Company and First Fidelity Bank, N.A.,
New Jersey
10.8 Subordination Agreement dated as of May 31, 1993 **
by and among the Company, Kuslima Shogen, and
First Fidelity Bank, N.A., New Jersey
10.9 Amendment to Subordination Agreement dated as of ++++
May 31, 1993 by and among the Company, Kuslima
Shogen, and First Fidelity Bank, N.A., New Jersey
dated June 30, 1995
10.10 Form of Stock Purchase Agreement and Certificate ***
used in connection with private placements
10.11 Form of Stock and Warrant Purchase Agreement and ***
Warrant Agreement used in Private Placement
completed on March 21, 1994
10.12 The Company's 1993 Stock Option Plan and Form of *****
Option Agreement
10.13 Debt Conversion Agreement dated March 30, 1994 ****
with Kuslima Shogen
10.14 Accrued Salary Conversion Agreement dated March ****
30, 1994 with Kuslima Shogen
10.15 Accrued Salary Conversion Agreement dated March ****
30, 1994 with Stanislaw Mikulski
10.16 Debt Conversion Agreement dated March 30, 1994 ****
with John Schierloh
10.17 Option Agreement dated March 30, 1994 with Kuslima ****
Shogen
10.18 Option Agreement dated March 30, 1994 with Kuslima ****
Shogen
10.19 Amendment No. 1 dated June 20, 1994 to Option ****
Agreement dated March 30, 1994 with Kuslima Shogen
10.20 Amendment No. 1 dated June 17, 1994 to Term Loan ****
Agreement dated May 31, 1993 between Kuslima
Shogen and First Fidelity Bank, N.A., New Jersey
10.21 Second Pledge Agreement dated June 17, 1994 by and ****
among the Company, Kuslima Shogen and First
Fidelity Bank, N.A., New Jersey
10.22 Form of Amendment No. 1 dated June 20, 1994 to *****
Option Agreement dated March 30, 1994 with Kuslima
Shogen
10.23 Form of Amendment No. 1 dated June 20, 1994 to *****
Option Agreement dated March 30, 1994 with
Stanislaw Mikulski
10.24 Form of Stock and Warrant Purchase Agreement and +
Warrant Agreement used in Private Placement
completed on September 13, 1994
10.25 Employment Agreement dated as of July 15, 1994 ++
with Gail E. Fraser
10.26 Form of Subscription Agreements and Warrant ++++
Agreement used in private placements closed
between October 1994 and September 1995.
10.27 Amendment No. 1 dated as of October 1, 1995 to ##
Term Loan Agreement dated as of May 31, 1993 by
and between the Company and First Fidelity Bank,
N.A. New Jersey
10.28 Amended and Restated Term Note dated as of October ##
1, 1995 issued by the Company to First Fidelity
Bank, N.A. New Jersey
10.29 Warrant dated as of October 1, 1995 issued by the ##
Company to First Fidelity Bank, N.A. New Jersey
21.0 Subsidiaries of Registrant **
23.1 Consent of Ross & Hardies (included in Exhibit
5.1)
23.2 Consent of KPMG Peat Marwick LLP ##
23.3 Consent of Armus, Harrison & Co. ##
24.0 Powers of Attorney +++
</TABLE>
___________________________
* Previously filed as exhibit to the Company's Registration Statement
on Form S-18 (File No. 2-79975-NY) and incorporated herein by
reference thereto.
** Previously filed as exhibits to the Company's Annual Report on Form
10-K for the year ended July 31, 1993 and incorporated herein by
reference thereto.
*** Previously filed as exhibits to the Company's Quarterly Report on
Form 10-QSB for the quarter ended January 31, 1994 and incorporated
herein by reference thereto.
**** Previously filed as exhibits to the Company's Quarterly Report on
Form 10-QSB for the quarter ended April 30, 1994 and incorporated
herein by reference thereto.
***** Previously filed as exhibits to the Company's Registration Statement
on Form SB-2 (File No. 33-76950) and incorporated herein by reference
thereto.
+ Previously filed as exhibits to the Company's Registration Statement
on Form SB-2 (File No. 33-83072) and incorporated herein by reference
thereto.
++ Previously filed as exhibits to the Company's Quarterly Report on
Form 10-QSB for the quarter ended April 30, 1995 and incorporated
herein by reference thereto.
+++ Powers of Attorney are contained in signatures.
++++ Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB for the year ended July 31, 1995 and incorporated herein by
reference thereto.
# Previously filed hereto on October 11, 1995.
## Filed herewith.
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in the volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to any provision or
arrangement, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements of filing on Form SB-2 and has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Bloomfield, State of New Jersey,
on November 29, 1995.
ALFACELL CORPORATION
(Registrant)
By:/S/KUSLIMA SHOGEN
Kuslima Shogen, President
and Chief Executive Officer
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
/S/KUSLIMA SHOGEN President and Chief Executive November 29, 1995
Kuslima Shogen Officer and Director
(Principal Executive Officer)
/S/GAIL E. FRASER Vice President, Finance and November 29, 1995
Gail E. Fraser Chief Financial Officer and
Director (Principal Financial Officer
and Principal Accounting Officer)
* Executive Vice November 29, 1995
Stanislaw M. Mikulski, M.D. President, Medical Director
and Director
* Director November 29, 1995
Allen Siegel, D.D.S.
* Director November 29, 1995
Alan Bell
* Director November 29, 1995
Robert R. Henry
/S/GAIL E. FRASER
*By: Gail E. Fraser
as Attorney-in-fact
November 30, 1995
Alfacell Corporation
225 Belleville Avenue
Bloomfield, NJ 07003
Dear Sirs:
You have requested our opinion with respect to the public offering
and sale by certain stockholders (the "Selling Stockholders") of Alfacell
Corporation (the "Company"), pursuant to a Registration Statement on Form SB-2
(the "Registration Statement") of up to 1,965,616 shares (the "Outstanding
Shares") of the Company's common stock, par value $.001 per share (the "Common
Stock") and up to 105,945 shares of Common Stock issuable upon exercise of
certain outstanding warrants held by certain of the Selling Stockholders (the
"Issuable Shares").
We have examined originals, or copies certified or otherwise
identified to our satisfaction, of such documents and corporate and public
records as we deemed necessary as a basis for the opinion hereinafter
expressed. With respect to such examination we have assumed the genuineness of
all signatures appearing on all documents presented to us as originals, and the
conformity to the originals of all documents presented to us as conformed or
reproduced copies. With respect to factual matters relevant to such opinion,
we have relied, without independent verification thereof, upon certificates of
appropriate state and local officials and executive officers and responsible
employees and agents of the Company.
Based upon the foregoing we are of the following opinion:
1. Based upon the foregoing, and in reliance thereon, and subject
to the limitations and qualifications set forth herein, we are of the opinion
that the Outstanding Shares are legally and validly issued, fully paid, and
non-assessable.
2. Based upon the foregoing, and in reliance thereon, and subject
to the limitations and qualifications set forth herein, we are of the opinion
that, when issued and paid for in accordance with the warrant agreements
covering such shares between the Company and the respective Selling
Stockholder, the Issuable Shares will constitute legally and validly issued,
fully paid and non-assessable shares.
We consent to the use of our name in the Registration Statement and
the related Prospectus under the caption "Legal Matters", and we consent to the
filing of this opinion as an Exhibit to the Registration Statement.
Very truly yours,
/S/ ROSS & HARDIES
ROSS & HARDIES
AMENDMENT NO. 1 TO TERM LOAN AGREEMENT
AMENDMENT NO. 1 ("Amendment No. 1") dated as of October 1, 1995 to Term
Loan Agreement dated as of May 31, 1993 between ALFACELL CORPORATION
("Borrower") and FIRST FIDELITY BANK, N.A. ("Bank") (successor by consolidation
to First Fidelity Bank, N.A., New Jersey).
W I T N E S S E T H:
SECTION 1. RECITALS.
1.1. This Amendment No. 1 is made in contemplation of the following
matters.
1.2. The Borrower, a Delaware corporation, and the Bank have
previously entered into a Term Loan Agreement (the "Loan Agreement"), dated as
of May 31, 1993, and a term note (the "Term Note"), dated as of May 31, 1993,
pursuant to which the Bank agreed to restructure a term loan previously
extended by the Bank to the Borrower (the term loan, as so restructured, the
"Alfacell Term Loan"). Terms defined in the Loan Agreement are used herein as
therein defined unless otherwise defined herein.
1.3. Under the Loan Agreement, the unpaid principal amount of the
Alfacell Term Loan is due and payable no later than the earlier of May 31, 1996
or the date on which the Bank demands payment in full of the Term Note pursuant
to Section 6.01 of the Loan Agreement (the "Termination Date"). The Borrower
has requested that the Bank consent to (i) an extension of the Termination Date
under the Loan Agreement to the earlier of August 31, 1997 or the date on which
the Bank demands payment in full of the Term Note pursuant to Section 6.01 of
the Loan Agreement and (ii) a re-amortization of the payment of principal and
interest on the Alfacell Term Loan based on a one hundred fifty (150) month
amortization schedule effective as of October 1, 1995. The Bank has agreed to
such extension on the conditions that (i) the annual rate of interest on the
Alfacell Term Loan be increased from 7.5% per annum to 8.375% per annum as of
October 1, 1995 and (ii) the Borrower issue to the Bank a warrant to purchase
10,000 shares of the Common Stock, par value $.001 per share, of the Borrower.
1.4. The Borrower has requested the Bank to enter into this Amendment
No. 1 on the conditions specified herein to reflect the foregoing
modifications.
SECTION 2. AMENDMENTS.
2.1. The definition of "Termination Date" in SECTION 1.01 is amended
in its entirety to read as follows:
"TERMINATION DATE" means the earlier of August 31, 1997 or the date
on which the Bank demands payment in full of its Term Note pursuant
to Section 6.01.
2.2. The first two sentences of SECTION 2.02 of the Loan Agreement
are amended in their entirety to read as follows:
SECTION 2.02. TERM NOTE. On the date hereof, subject to the
terms and conditions hereinafter set forth, the Borrower will issue
to the Bank, and the Bank will accept, in substitution and exchange
for (but not in payment of) the Original Note, a term note in
substantially the form attached hereto as Schedule 2.02 in the
principal amount of the Term Loan, and as of October 1, 1995, subject
to the terms and conditions hereof, the Borrower will issue to the
Bank, and the Bank will accept, in substitution and exchange for (but
not in payment of) the term note in the form of Schedule 2.02, a term
note substantially in the form attached hereto as Schedule 2.02A
(each of the term notes attached hereto as Schedules 2.02 and 2.02A
referred to as a "Term Note").
2.3. SECTION 2.03(b) of the Loan Agreement is amended in its entirety
to read as follows:
(b) Subject to the following subparagraphs (d) and (e),
commencing with the Payment Date of October 1, 1993, and on each
Payment Date thereafter until and including October 1, 1995, the Term
Loan shall be payable on each Payment Date in consecutive equal
monthly installments of principal and interest, based on a one
hundred seventy-six (176) month amortization schedule of the unpaid
principal amount of the Term Note together with interest thereon at
the rate of seven and one-half percent (7.5%) per annum.
2.4. A new SECTION 2.03(c) of the Loan Agreement is added as follows:
(c) Subject to the following subparagraphs (d) and (e),
commencing with the Payment Date of November 1, 1995 and on each
Payment Date thereafter until payment in full of the unpaid principal
amount thereof together with interest thereon, the Term Loan shall be
payable on each Payment Date in consecutive equal monthly
installments of principal and interest each in the amount of Sixteen
Thousand Two Hundred Thirteen and 49/100 dollars ($16,213.49) based
on a one hundred fifty (150) month amortization schedule of the
unpaid principal amount of the Term Note together with interest
thereon at the rate per annum set forth in the Term Note.
2.5. SECTION 2.03(c) is renumbered as SECTION 2.03(d).
2.6. SECTION 2.03(d) is renumbered as SECTION 2.03(e).
2.7. SECTION 2.03(e) is renumbered as SECTION 2.03(f).
2.8. SECTION 5.02(b)(ii) is deleted in its entirety and replaced with
the following:
(ii) intentionally omitted
2.9. SECTION 5.02(b)(v) is amended in its entirety to read as
follows:
(v) unsecured Indebtedness arising in the ordinary course of the
Borrower's business which at no time exceeds $1,452,000 in the
aggregate.
2.10. SECTION 5.02(j) is amended in its entirety to read as follows:
(j) ISSUANCE OF SHARES. Issue any shares of Stock of the
Borrower to any Person, or issue any options, warrants or any other
rights to purchase any shares of Stock to any Person if after giving
immediate effect to any such issuance the ratio of (i) the Market
Value (as such term is defined below) of the Pledged Stock under the
Pledge Agreement to (ii) the aggregate Indebtedness of the Borrower
and Kuslima Shogen to the Bank then outstanding shall be less than
1:1; PROVIDED, HOWEVER, that, without limiting SECTION 6.01(m)
hereof, the foregoing shall not prohibit the Borrower from issuing
shares of common stock of the Borrower upon the conversion, in
accordance with the terms thereof, of any convertible subordinated
debenture outstanding as of the date hereof or of any other options,
warrants or convertible securities which may be issued in the
ordinary course of business. For purposes of this SECTION 5.02(j),
"Market Value" per share of common stock as of any date shall equal
the average of the daily closing prices for the twenty (20) trading
days immediately preceding the date in question unless there shall
not have occurred twenty (20) trading days over the two (2) month
period preceding the date in question in which case "Market Value"
per share of common stock as of any date shall be determined by the
Bank in its reasonable discretion. The closing price for each day
shall be the last reported sales price on the primary exchange or
market (including the NASDAQ - National Market System) on which the
common stock is then listed or traded, or if not listed or admitted
to trading on any such market, the average of the closing bid and
asked prices on the NASDAQ or in the over-the-counter market as
furnished by any New York Stock Exchange member firm selected from
time to time by the Borrower for that purpose.
2.11. SECTION 6.01(m) is amended in its entirety to read as follows:
(m) At any time, the ratio of (i) the Market Value (as such
term is defined in Section 5.02(j) hereof) of the Pledged Stock under
the Pledge Agreement to (ii) the aggregate Indebtedness of the
Borrower and Kuslima Shogen to the Bank then outstanding shall be
less than 1:1 for five (5) consecutive Business Days unless the
Borrower shall within fifteen (15) days following such five (5) day
period pledge and grant to the Bank a security interest in such
amount and form of additional collateral as shall be acceptable to
the Bank in its sole discretion;
2.12. SECTION 7.03 of the Loan Agreement is amended to reflect that
copies of notices to the Borrower no longer be sent to Frohling & Hanley, P.C.
and that such notices instead be sent to the following:
Ross & Hardies
Park Avenue Tower
65 East 55th Street
New York, New York 10022-3219
Attention: Kevin T. Collins, Esq.
2.13. The second sentence of SECTION 7.13 is amended in its entirety
to read as follows:
The Borrower hereby waives personal service of process and
consents that service of process upon it may be made by
certified or registered mail, return receipt requested, at its
address specified or determined in accordance with the
provisions of Section 7.03, and hereby appoints Helen Chaitman,
Esq. as its agent for service of process and consents that
service of process upon it may be made upon such agent at her
offices located at Ross & Hardies, 580 Howard Avenue, Somerset,
New Jersey 08873.
SECTION 3. REPRESENTATIONS AND WARRANTIES.
3.1. Notwithstanding anything otherwise contained in the Loan
Agreement to the contrary, the Borrower represents, warrants and acknowledges
to the Bank and the Bank agrees that as of the date hereof the unpaid principal
amount of the Term Loan is $1,504,662.16. The Borrower represents, warrants
and acknowledges to the Bank that the Term Loan, together with all other
amounts payable in respect thereof, are payable to the Bank by the Borrower
without deduction, set-off, defense or counterclaim for any reason whatsoever.
The Borrower hereby acknowledges and agrees that it has no claims against the
Bank, or any of its officers, directors, employees or agents, arising out of or
in connection with the Loan Documents, or any other transactions contemplated
thereby, and hereby expressly waives and releases any and all such claims.
3.2. Subject to Section 4.1 below, each representation and warranty
by the Borrower set forth in Article IV of the Loan Agreement (other than that
set forth in SECTION 4.01(a)) is true and correct on and as of the date of this
Amendment No. 1 as though made by the Borrower on and as of such date.
SECTION 4. SCHEDULES.
4.1. Schedule 4.01(q) of the Loan Agreement is superseded in its
entirety as of October 1, 1995 by Schedule 4.01(q) annexed hereto.
SECTION 5. TERM NOTE.
5.1. Simultaneously with the execution and delivery by Borrower to
the Bank of this Amendment No. 1, the Borrower shall execute and deliver to the
Bank, and the Bank will accept, in substitution and exchange for (but not in
payment of) the Term Note, dated as of May 31, 1993, an Amended and Restated
Term Note, dated as of the date hereof, in the principal amount of
$1,504,662.16 substantially in the form annexed hereto as Schedule 2.02A. The
Amended and Restated Term Note shall supersede Schedule 2.02 to the Loan
Agreement and be entitled to all the benefits and subject to the terms and
conditions of the Loan Agreement and the other Loan Documents applicable to the
Term Note.
SECTION 6. WARRANT.
6.1. Simultaneously with the execution and delivery by Borrower to
the Bank of this Amendment No. 1, the Borrower shall execute and deliver to the
Bank a warrant (the "Warrant") to purchase 10,000 shares of the Common Stock,
par value $.001 per share, of the Borrower, substantially in the form annexed
hereto as Schedule 6.01.
SECTION 7. GENERAL.
7.1. This Amendment No. 1 is made pursuant to Section 7.02 of the
Loan Agreement and the Borrower and the Bank acknowledge that all provisions of
the Loan Agreement and the Loan Documents, except as amended hereby, are and
shall remain, in full force and effect, and nothing herein contained shall be
deemed a waiver of, or impair the effectiveness or enforceability of, any other
terms or conditions of the Loan Agreement or any of the other Loan Documents,
or constitute a waiver of any Event of Default thereunder.
7.2. The Bank hereby acknowledges receipt of payment in full of the
amount required to be paid by Borrower pursuant to SECTION 2.04(b)(iii) of the
Loan Agreement.
SECTION 8. EFFECTIVENESS.
8.1. This Amendment No. 1 shall become effective when (i) this
Amendment shall have been signed and delivered by Kuslima Shogen and on behalf
of the Borrower and the Bank, (ii) the Borrower shall have executed and
delivered to the Bank the Amended and Restated Note and the Warrant, and (iii)
the Bank shall have delivered to the Borrower the Term Note of the Borrower,
dated as of May 31, 1993, marked "replaced and superseded."
SECTION 9. COUNTERPARTS.
9.1. This Amendment No. 1 may be executed in any number of
counterparts, each of which shall be an original and all of which shall
constitute one agreement. It shall not be necessary in making proof of this
Amendment No. 1 or of any document required to be executed and delivered in
connection herewith or therewith to produce or account for more than one
counterpart.
IN WITNESS WHEREOF, the parties hereto have executed, or caused to be
executed by their respective officers thereunto duly authorized, this Amendment
No. 1 as of the date first above written.
ALFACELL CORPORATION
By:/S/ KUSLIMA SHOGEN
Kuslima Shogen, President
FIRST FIDELITY BANK, N.A.
By:/S/ RICHARD A. WOLBACH
Richard A. Wolbach,
Vice President
The undersigned, as Guarantor of the Alfacell
Term Loan pursuant to that certain Guaranty
dated as of May 31, 1993, hereby consents to
this Amendment No. 1 and confirms and re-
affirms her obligations under the Guaranty
including the guaranty of payment and
performance by the Borrower of the Alfacell
Term Loan as modified by this Amendment
No. 1.
/S/ KUSLIMA SHOGEN
Kuslima Shogen
<PAGE>
Schedule 2.02A
AMENDED AND RESTATED TERM NOTE
$1,504,662.16 As of October 1, 1995
Newark, New Jersey
FOR VALUE RECEIVED, ALFACELL CORPORATION, a Delaware corporation
("Borrower"), promises to pay to the order of FIRST FIDELITY BANK, N.A.,
NEW JERSEY (the "Bank") at its office at 550 Broad Street, Newark, New
Jersey 07102, in accordance with the Loan Agreement referred to below, the
principal sum of ONE MILLION FIVE HUNDRED FOUR THOUSAND SIX HUNDRED SIXTY-
TWO DOLLARS AND SIXTEEN CENTS ($1,504,662.16) together with interest from
the date hereof on the unpaid principal amount hereof at the rate of EIGHT
AND THREE-EIGHTHS PERCENT (8-3/8%) per annum (computed on the basis of the
actual number of days elapsed over a year of three hundred sixty (360)
days.
This Note shall be payable in the following manner:
(i) Commencing on November 1, 1995 and on each Payment Date
thereafter until payment in full of the unpaid principal amount hereof
together with interest hereon, the Borrower shall pay to the Bank
consecutive equal monthly installments of principal and interest each in
the amount of Sixteen Thousand Two Hundred Thirteen and 49/100 dollars
($16,213.49) based on a one hundred fifty (150) month amortization schedule
of the unpaid principal amount hereof together with interest hereon at the
rate set forth above;
(ii) On the fourth (4th) Payment Date to occur following the
execution by the Borrower of a Licensing Agreement, the unpaid principal
amount hereof together with interest hereon at the rate set forth above
will be re-amortized, and on such fourth (4th) Payment Date and on each
Payment Date thereafter until payment in full of the unpaid principal
amount hereof together with interest hereon, the Borrower shall pay to the
Bank consecutive equal monthly installments of principal and interest based
on a one hundred twenty (120) month amortization schedule of the unpaid
principal amount hereof together with interest hereon at the rate set forth
above;
(iii) In any event, the entire unpaid principal amount hereof
together with unpaid interest accrued thereon shall be due and payable on
August 31, 1997.
Both principal and interest due hereunder shall be paid in
immediately available funds to the Bank at 550 Broad Street, Newark, New
Jersey 07102 or at such other address as the Bank shall notify Borrower.
This Amended and Restated Term Note is issued in substitution and
exchange for (but not in payment of) the Term Note referred to in the Term
Loan Agreement dated as of May 31, 1993 between Borrower and the Bank, as
the same has been, or may further be, amended, modified or supplemented
from time to time (the "Loan Agreement"; terms not defined herein being
used as defined therein) and is entitled to all the benefits and subject to
the terms and conditions of the Loan Agreement and the other Loan Documents
applicable to the Term Note. All of the terms and conditions of the Loan
Agreement are incorporated herein as though fully set forth and the
undersigned acknowledges the reading and execution of said Loan Agreement.
The Loan Agreement, among other things, contains provisions for
acceleration of the maturity hereof upon the happening of certain stated
events and also for prepayments on account of principal prior to the
maturity hereof upon the terms and conditions therein specified.
Presentment for payment, demand, notice or dishonor, protest,
notice of protest and all other demands and notices in connection with the
delivery, performance and enforcement of this Note are hereby waived.
This Amended and Restated Term Note shall be construed and is
enforceable in accordance with, and shall be governed by, the internal laws
of the State of New Jersey without regard to principles of conflict of
laws. If any term or provision of this Amended and Restated Term Note is
at anytime held to be invalid by any court of competent jurisdiction, such
invalidity shall not affect the remaining terms and provisions of this Note
which shall continue to be in full force and effect.
ATTEST: ALFACELL CORPORATION
By: /S/KUSLIMA SHOGEN
Kuslima Shogen, President
<PAGE>
Schedule 4.01(q)
ALFACELL CORPORATION
Estimated Unsecured Liabilities
As of October 1, 1995
Accounts Payable $192,000
Payroll Taxes 35,000
Accrued Expenses Payroll - Mikulski 225,000
TOTAL $452,000
AMENDED AND RESTATED TERM NOTE
$1,504,662.16 As of October 1, 1995
Newark, New Jersey
FOR VALUE RECEIVED, ALFACELL CORPORATION, a Delaware corporation
("Borrower"), promises to pay to the order of FIRST FIDELITY BANK, N.A.,
NEW JERSEY (the "Bank") at its office at 550 Broad Street, Newark, New
Jersey 07102, in accordance with the Loan Agreement referred to below, the
principal sum of ONE MILLION FIVE HUNDRED FOUR THOUSAND SIX HUNDRED SIXTY-
TWO DOLLARS AND SIXTEEN CENTS ($1,504,662.16) together with interest from
the date hereof on the unpaid principal amount hereof at the rate of EIGHT
AND THREE-EIGHTHS PERCENT (8-3/8%) per annum (computed on the basis of the
actual number of days elapsed over a year of three hundred sixty (360)
days.
This Note shall be payable in the following manner:
(i) Commencing on November 1, 1995 and on each Payment Date
thereafter until payment in full of the unpaid principal amount hereof
together with interest hereon, the Borrower shall pay to the Bank
consecutive equal monthly installments of principal and interest each in
the amount of Sixteen Thousand Two Hundred Thirteen and 49/100 dollars
($16,213.49) based on a one hundred fifty (150) month amortization schedule
of the unpaid principal amount hereof together with interest hereon at the
rate set forth above;
(ii) On the fourth (4th) Payment Date to occur following the
execution by the Borrower of a Licensing Agreement, the unpaid principal
amount hereof together with interest hereon at the rate set forth above
will be re-amortized, and on such fourth (4th) Payment Date and on each
Payment Date thereafter until payment in full of the unpaid principal
amount hereof together with interest hereon, the Borrower shall pay to the
Bank consecutive equal monthly installments of principal and interest based
on a one hundred twenty (120) month amortization schedule of the unpaid
principal amount hereof together with interest hereon at the rate set forth
above;
(iii) In any event, the entire unpaid principal amount hereof
together with unpaid interest accrued thereon shall be due and payable on
August 31, 1997.
Both principal and interest due hereunder shall be paid in
immediately available funds to the Bank at 550 Broad Street, Newark, New
Jersey 07102 or at such other address as the Bank shall notify Borrower.
This Amended and Restated Term Note is issued in substitution and
exchange for (but not in payment of) the Term Note referred to in the Term
Loan Agreement dated as of May 31, 1993 between Borrower and the Bank, as
the same has been, or may further be, amended, modified or supplemented
from time to time (the "Loan Agreement"; terms not defined herein being
used as defined therein) and is entitled to all the benefits and subject to
the terms and conditions of the Loan Agreement and the other Loan Documents
applicable to the Term Note. All of the terms and conditions of the Loan
Agreement are incorporated herein as though fully set forth and the
undersigned acknowledges the reading and execution of said Loan Agreement.
The Loan Agreement, among other things, contains provisions for
acceleration of the maturity hereof upon the happening of certain stated
events and also for prepayments on account of principal prior to the
maturity hereof upon the terms and conditions therein specified.
Presentment for payment, demand, notice or dishonor, protest,
notice of protest and all other demands and notices in connection with the
delivery, performance and enforcement of this Note are hereby waived.
This Amended and Restated Term Note shall be construed and is
enforceable in accordance with, and shall be governed by, the internal laws
of the State of New Jersey without regard to principles of conflict of
laws. If any term or provision of this Amended and Restated Term Note is
at anytime held to be invalid by any court of competent jurisdiction, such
invalidity shall not affect the remaining terms and provisions of this Note
which shall continue to be in full force and effect.
ATTEST: ALFACELL CORPORATION
/S/GAIL FRASER By: /S/KUSLIMA SHOGEN
Gail Fraser Kuslima Shogen, President
WARRANT
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR STATE SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED WITHOUT COMPLIANCE WITH THE REGISTRATION PROVISIONS
OF SUCH ACT OR SUCH LAWS, UNLESS AN EXEMPTION THEREFROM IS AVAILABLE.
No. W - 1 Warrant to Purchase 10,000 Shares of Common Stock
(subject to adjustment)
WARRANT TO PURCHASE COMMON STOCK
OF
ALFACELL CORPORATION
VOID AFTER AUGUST 31, 1997
This certifies that, for value received, First Fidelity Bank,
N.A., a national bank association, or registered assigns ("Holder") is
entitled, subject to the terms set forth below, to purchase from ALFACELL
CORPORATION (the "Company"), a Delaware corporation, ten thousand (10,000)
shares (the "Warrant Shares") of the Common Stock, par value $.001 per
share ("Common Stock"), of the Company, as constituted on the date hereof,
upon surrender hereof, at the principal office of the Company, located at
225 Belleville Avenue, Bloomfield, New Jersey 07003 (or such other address
as the Company may designate in writing to the Holder), with the Notice of
Exercise attached hereto duly executed, and simultaneous payment therefor
in lawful money of the United States or otherwise as hereinafter provided,
at the Exercise Price as set forth in Section 2 below. The number and
character of such shares of Common Stock and the Exercise Price are subject
to adjustment as provided below. The term "Warrant" as used herein shall
include this Warrant, and any warrants delivered in substitution or
exchange therefor as provided herein.
2. TERM OF WARRANT. Subject to the terms and conditions set
forth herein, this Warrant shall be exercisable, in whole or in part,
during the term commencing on the date hereof and ending at 5:00 p.m., New
York time, on August 31, 1997, and shall be void thereafter.
3. EXERCISE PRICE. The Exercise Price at which this Warrant
may be exercised shall be $4.19 per share of Common Stock, as adjusted form
time to time pursuant to Section 13 hereof.
4. EXERCISE OF WARRANT.
(a) The purchase rights represented by this Warrant are
exercisable by the Holder in whole or in part, at any time, and from time
to time, during the term hereof as described in Section 1 above, by the
surrender of this Warrant and the Notice of Exercise annexed hereto duly
completed and executed on behalf of the Holder at the office of the
Company, upon payment (i) in cash or by check payable to the Company, (ii)
by cancellation by the Holder of indebtedness of the Company to the Holder,
or (iii) by a combination of (i) and (ii), of the purchase price of the
shares to be purchased.
(b) This Warrant shall be deemed to have been exercised
immediately prior to the close of business on the date of its surrender for
exercise as provided above, and the person entitled to receive the shares
of Common Stock issuable upon such exercise shall be treated for all
purposes as the holder of record of such shares as of the close of business
on such date. As promptly as practicable on or after such date and in any
event within ten (10) days thereafter, the Company, at its expense, shall
issue and deliver to the person or persons entitled to receive the same a
certificate or certificates for the number of shares issuable upon such
exercise. In the event that this Warrant is exercised in part, the
Company, at its expense, will execute and deliver a new Warrant of like
tenor exercisable for the number of shares for which this Warrant may still
be exercised.
5. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or
scrip representing fractional shares shall be issued upon the exercise of
this Warrant. In lieu of any fractional share to which the Holder would
otherwise be entitled, the Company shall make a cash payment equal to the
Exercise Price multiplied by such fraction.
6. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation
of this Warrant and, in the case of loss, theft or destruction, on delivery
of an indemnity agreement reasonably satisfactory in form and substance to
the Company or, in the case of mutilation, on surrender and cancellation of
this Warrant, the Company, at its expense, shall execute and deliver, in
lieu of this Warrant, a new warrant of like tenor and amount.
7. RIGHTS OF STOCKHOLDERS. Except as provided herein, the
Holder hereof shall not be entitled to vote or receive dividends or be
deemed the holder of Common Stock or any other securities of the Company
that may at any time be issuable on the exercise hereof for any purpose,
nor shall anything contained herein be construed to confer upon the Holder,
as such, any of the rights of a stockholder of the Company or any right to
vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action or to receive notice of meetings, or to receive dividends
or subscription rights or otherwise until the Warrant shall have been
exercised as provided herein.
8. TRANSFER OF WARRANT.
(a) WARRANT REGISTER. The Company will maintain a register
(the "Warrant Register") containing the name and address of the Holder or
Holders. Any Holder of this Warrant or any portion thereof may change his
or its address as shown on the Warrant Register by written notice to the
Company requesting such change. Any notice or written communication
required or permitted to be given to any Holder may be delivered or given
by mail to such Holder at the address shown on the Warrant Register. Until
this Warrant is transferred on the Warrant Register of the Company, the
Company may treat the Holder as shown on the Warrant Register as the
absolute owner of this Warrant for all purposes, notwithstanding any notice
to the contrary.
(b) TRANSFERABILITY OF WARRANT. Subject to applicable
laws, this Warrant may be transferred or assigned, in whole or in part, at
any time and from time to time by the Holder. Title to this Warrant may be
transferred by endorsement (by the Holder executing the Assignment Form
annexed hereto) and delivery in the same manner as a negotiable instrument
transferrable by endorsement and delivery. Any subsequent Holder or
Holders of this Warrant or any portion thereof shall have all of the rights
set forth herein, including without limitation all rights under Sections 14
and 15 hereof.
(c) EXCHANGE OF WARRANT UPON A TRANSFER. On surrender of
this Warrant for exchange, properly endorsed on the Assignment Form
attached hereto, the Company, at its expense, shall issue to or on the
order of the Holder a new warrant or warrants or like tenor, in the name of
the Holder or as the Holder may direct, for the number of shares which
remain issuable upon exercise hereof.
(d) COMPLIANCE WITH SECURITIES LAWS. All shares of Common
Stock or other securities issued upon exercise hereof shall be stamped or
imprinted with a legend in substantially the following form (in addition to
any legend required by state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT.
9. RESERVATION OF STOCK. The Company shall at all times
reserve and keep available, free from preemptive rights, out of its
authorized but unissued Common Stock, for the purpose of effecting the
exercise of Warrants, the full number of shares of Common Stock then
issuable upon the exercise of this Warrant.
10. COVENANT AS TO COMMON STOCK. The Company covenants that all
shares of Common Stock which may be issued upon exercise of this Warrant
will upon issuance be fully paid and nonassessable and, except as provided
in Section 10, the Company will pay all taxes, liens and charges with
respect to the issuance thereof.
11. TAXES ON EXERCISES. The Company shall pay any and all taxes
that may be payable in respect of the issue or delivery of shares of Common
Stock to the Holder on exercise of this Warrant; PROVIDED that the Company
shall not be required to pay any tax which may be payable in respect of
income of the Holder.
12. NOTICES. In case:
(a) the Company shall declare a dividend (or any other
distribution) on the Common Stock payable in cash or other property or a
combination of cash and other property; or
(b) the Company shall authorize the granting to all or
substantially all of the holders of Common Stock of any options, warrants
or other rights to subscribe for or purchase any shares of capital stock of
any class or other securities; or
(c) of any reclassification of the Common Stock of the
Company, or of any consolidation or merger to which the Company is a party
and for which approval of any stockholders of the Company is required, or
of the sale or transfer of all or substantially all of the assets of the
Company; or
(d) of the voluntary or involuntary dissolution,
liquidation or winding up of the Company; or
(e) the Company or any subsidiary thereof shall commence a
tender offer for all or a portion of the Company's outstanding shares of
Common Stock (or shall amend any such tender offer);
then the Company shall cause to be mailed to all Holders at their last
addresses as they shall appear in the Warrant Register, at least 20 days
prior to the applicable record or effective date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the
purpose of such dividend, distribution, rights, options or warrants, or, if
a record is not to be taken, the date as of which the holders of Common
Stock of record to be entitled to such dividend, distribution, rights,
options or warrants are to be determined, or (y) the date on which such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation, winding up or tender offer (or amendment thereto) is expected
to become effective, and the date as of which it is expected that holders
of record of the Common Stock shall be entitled to exchange or tender their
shares of Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation, winding up or tender offer.
13. AMENDMENTS.
(a) Any term of this Warrant may be amended with the
written consent of the Company and the Holder. Any amendment effected in
accordance with this Section 12 shall be binding upon each future Holder of
this Warrant and the Company.
(b) No waivers of, or exceptions to, any term, condition or
provision of this Warrant, in any one or more instances, shall be deemed to
be, or construed as, a further or continuing waiver of any such term,
condition or provision.
14. ADJUSTMENTS.
(a) STOCK DIVIDENDS. In case the Company shall pay or make
a dividend or other distribution on or in respect of any class of its
capital stock in shares of Common Stock, the Exercise Price in effect at
the opening of business on the day following the date fixed for the
determination of stockholders entitled to receive such dividend or other
distribution shall be reduced by multiplying such Exercise Price by a
fraction of which the numerator shall be the number of shares of Common
Stock outstanding at the close of business on the date fixed for such
determination and the denominator shall be the sum of such number of shares
of Common Stock and the total number of shares of Common Stock constituting
such dividend or other distribution, such reduction to become effective
immediately after the opening of business on the day following the date
fixed for such determination. For the purposes of this subsection (a), the
number of shares of Common Stock at any time outstanding shall not include
shares held in the treasury of the Company or shares of Common Stock
issuable pursuant to any right, option, warrant or convertible security.
The Company will not pay any dividend or make any distribution on shares of
Common Stock held in the treasury of the Company.
(b) RIGHTS, OPTIONS, WARRANTS AND CONVERTIBLE SECURITIES.
In case the Company shall issue rights, options, warrants or convertible
securities to all or substantially all of the holders of Common Stock
entitling them to subscribe for, purchase or otherwise acquire shares of
Common Stock at a price per share less than the Exercise Price in effect on
the date of issuance of such rights, options, warrants or convertible
securities, the Exercise Price in effect at the opening of business on the
day following the date of such issuance shall be reduced by multiplying
such Exercise Price by a fraction of which the numerator shall be the
number of shares of Common Stock outstanding at the close of business on
the date of such issuance plus the number of shares of Common Stock which
the aggregate of the offering price of the total number of shares of Common
Stock so offered for subscription or purchase would purchase at such
Exercise Price and the denominator shall be the number of shares of Common
Stock outstanding at the close of business on the date of such issuance
plus the number of shares of Common Stock so offered for subscription or
purchase, such reduction to become effective immediately after the opening
of business on the day following the date of such issuance. For the
purposes of this subsection (b), the number of shares of Common Stock at
any time outstanding shall not include shares held in the treasury of the
Company or shares of Common Stock issuable pursuant to any right, option,
warrant or convertible security. The Company will not issue any rights,
options or warrants in respect of shares of Common Stock held in the
treasury of the Company.
(c) SUBDIVISIONS. In case outstanding shares of Common
Stock shall be subdivided into a greater number of shares of Common Stock,
the Exercise Price in effect at the opening of business on the day
following the day upon which such subdivision becomes effective shall be
proportionately reduced, and, conversely, in case outstanding shares of
Common Stock shall be combined into a smaller number of shares of Common
Stock, the Exercise Price in effect at the opening of business on the day
following the day upon which such combination becomes effective shall be
proportionately increased, such reduction or increase, as the case may be,
to become effective immediately after the opening of business on the day
following the day upon which such subdivision or combination becomes
effective.
(d) DISTRIBUTIONS. In case the Company shall, by dividend
or otherwise, distribute to the holders of Common Stock cash (excluding any
cash that is distributed upon a merger or consolidation), evidences of its
indebtedness or assets (including, without limitation, securities of the
Company or stock of a subsidiary (or securities convertible into or
exercisable for such stock), but excluding any dividend or distribution
referred to in subsection (a) of this Section and any rights, options or
warrants referred to in subsection (b) of this Section), the Exercise Price
shall be adjusted so that the same shall equal the price determined by
multiplying the Exercise Price in effect immediately prior to the close of
business on the date fixed for the determination of stockholders entitled
to receive such distribution by a fraction of which the numerator shall be
the Current Aggregate Market Price (as defined below) of all of the
outstanding Common Stock on the date fixed for such determination less the
then fair market value (as determined in good faith by the Board of
Directors) of the cash, assets or evidences of indebtedness so distributed
and the denominator shall be such Current Aggregate Market Price of the
Common Stock on such date, such adjustment to become effective immediately
prior to the opening of business on the day following the date fixed for
the determination of stockholders entitled to receive such distribution.
(e) STOCK REPURCHASES. In case the Company or any
subsidiary thereof shall, by tender offer or otherwise, purchase any shares
of Common Stock (the "Purchased Shares") for an aggregate consideration
having a fair market value (as determined in good faith by the Board of
Directors) in excess of the then Current Market Price of the Purchased
Shares, then, and in each such case, effective as of the close of business
on the date of such purchase (the "Purchase Date"), the Exercise Price
shall be adjusted so that the same shall equal the price determined by
multiplying the Exercise Price in effect immediately prior to the close of
business on the Purchase Date by a fraction of which the numerator shall be
the Current Aggregate Market Price of all of the outstanding Common Stock
at the close of business on the Purchase Date less the aggregate amount by
which the aggregate consideration paid for the Purchased Shares exceeds the
Current Market Price of the Purchased Shares, and the denominator shall be
the aggregate Current Market Price of all of the outstanding Common Stock
as of the close of business on the Purchase Date.
(f) RECLASSIFICATIONS. In the event the Company shall at
any time issue other securities to all holders of shares of Common Stock by
reclassification of its shares of Common Stock or issue by means of a
capital reorganization other securities of the Company in lieu of the
Common Stock or in addition to the Common Stock, the Holder of this Warrant
shall have the right thereafter, during the period this Warrant shall be
exercisable as specified in Section 1, to exercise this Warrant only into
the kind and amount of securities receivable upon such reclassification or
reorganization by a holder of the number of shares of Common Stock of the
Company into which this Warrant might have been exercised immediately prior
to such reclassification or reorganization. The above provisions of this
Section shall similarly apply to successive reclassifications and
reorganizations.
(g) CONSOLIDATION, MERGER OR SALE OF ASSETS. In case of
any consolidation of the Company with, or merger of the Company into, any
other Person, any merger of another Person into the Company (other than a
merger which does not result in any reclassification, conversion, exchange
or cancellation of outstanding shares of Common Stock of the Company) or
any sale or transfer of all or substantially all of the assets of the
Company (each, a "Transaction"), the Holder of this Warrant shall have the
right thereafter, during the period this Warrant shall be exercisable as
specified in Section 1, to exercise this Warrant only into the kind and
amount of securities, cash and other property receivable upon such
Transaction by a holder of the number of shares of Common Stock of the
Company into which this Warrant might have been exercised immediately prior
to such Transaction. The above provisions of this Section shall similarly
apply to successive Transactions.
(h) READJUSTMENT OF EXERCISE PRICE. If any adjustment in
the Exercise Price is made pursuant to paragraph (b) in respect of any
rights, options, warrants or convertible securities ("Derivative
Securities") which subsequently expire unexercised or unconverted, as the
case may be, the Exercise Price shall, upon such expiration, be readjusted
as of the date of such expiration (after taking into account any events
subsequent to the issuance of such Derivative Securities which required an
adjustment pursuant to this Section 13) as if the only Derivative
Securities that had been issued by the Company were such Derivative
Securities that (i) had actually been exercised or converted on or prior to
the date of such expiration and (ii) remain outstanding as of the date of
such expiration.
(i) DETERMINING CURRENT MARKET VALUE. For the purpose of
any computation under this Section, the Current Market Price per share of
Common Stock on any date shall equal the average of the daily closing
prices for the twenty (20) trading days on which sales of Common Stock
occurred immediately preceding the date in question. For the purpose of any
computation under this Section, the Current Aggregate Market Price of all
of the outstanding shares of Common Stock on any date shall be deemed to be
the product of the number of outstanding shares of Common Stock on such
date and the average of the daily closing prices of the Common Stock for
the twenty (20) trading days immediately preceding the date in question.
The closing price for each day shall be the last reported sales price on
the primary exchange or market (including the NASDAQ-National Market
System) on which the Common Stock is then listed or traded, or if not
listed or admitted to trading on any such primary exchange or admitted to
trading in any such market, the average of the closing bid and asked prices
on the NASDAQ or in the over-the-counter market as furnished by any New
York Stock Exchange member firm selected from time to time by the Company
for that purpose.
(j) DIMINIMIS ADJUSTMENTS. No adjustment shall be made in
the Exercise Price as required by this Section unless such adjustment would
require a change of at least 1% in the Exercise Price then in effect, but
any adjustment that would otherwise be required to be made shall be carried
forward and taken into account in any subsequent adjustment.
(k) CERTIFICATE AS TO ADJUSTMENTS. Whenever the Exercise
Price is adjusted or other rights are granted as herein provided, the
Company shall compute the adjusted Exercise Price in accordance with this
Section 13 and shall promptly mail to all Holders at their last addresses
as they shall appear in the Warrant Register a notice stating that the
Exercise Price has been adjusted and setting forth the adjusted Exercise
Price, along with a certificate signed by the Chief Financial Officer or
Chief Accounting Officer of the Company setting forth the adjusted Exercise
Price and showing in reasonable detail the facts upon which such adjustment
is based.
15. RESALE REGISTRATION STATEMENT. (a) The Company has filed
with the Securities and Exchange Commission (the "Commission") a
Registration Statement on Form SB-2 (the "Resale Registration Statement")
to register under the Securities Act of 1933, as amended (the "Securities
Act"), the sale of certain shares of Common Stock by certain selling
stockholders of the Company on a delayed or continuous basis pursuant to
Rule 415 promulgated under the Securities Act. The Company expects that
the Resale Registration Statement will become effective on or prior to
December 31, 1995. The Company hereby covenants that it will promptly
amend the Resale Registration Statement to include the sale of the Warrant
Shares and any securities issued or issuable with respect to the Warrant
Shares by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization (collectively, the "Registrable Securities") by the Holder
or Holders of this Warrant, and will use its best efforts to obtain and
maintain the effectiveness of the Resale Registration Statement until the
expiration of the four (4) year period immediately following the date of
this Warrant, or until all of the Registrable Securities have been sold by
the Holder or Holders, if sooner (the "Registration Period").
(b) The Holder or Holders of this Warrant shall provide the
Company, from time to time, as reasonably requested by the Company, written
information concerning the Holder's ownership of the Company's securities,
such Holder's intentions concerning the sale of Registrable Securities and
such other matters as are required in order to enable the Company to amend,
and obtain and maintain the effectiveness of, such Resale Registration
Statement in accordance with this Section 14.
(c) In the event the Resale Registration Statement shall
not be declared effective by the Commission by December 31, 1995, or the
Resale Registration Statement is declared effective but shall thereafter at
any time during the Registration Period cease to be effective, the Holder
or Holders of this Warrant shall have the rights set forth in Sections 15
and 16 below to request registration of the Registrable Securities until
such time as the Resale Registration Statement shall have been declared
effective or again becomes effective, as the case may be; provided that to
the extent the Company is required to file a post-effective amendment to
the Resale Registration Statement in order to update such registration
statement as required by Section 10(a)(3) of the Securities Act of 1933,
the Holder or Holders of this Warrant shall not be entitled to exercise the
rights set forth in Sections 15 and 16 below during the 60 day period
following the filing of such post-effective amendment with the Commission
(the "Stand-Still Period"), provided the Company uses its reasonable best
efforts to obtain the effectiveness of such post-effective amendment during
such Stand-Still Period.
(d) In the event the Company is for any reason unable to
include the Registrable Securities in the Resale Registration Statement,
during the Registration Period the Holder or Holders of this Warrant shall
have the rights set forth in Sections 15 and 16 below to request
registration of the Registrable Securities, it being agreed by the Company
that the Holder or Holders of this Warrant shall not be required to
exercise this Warrant if such exercise is necessary to include the
Registrable Securities in the Resale Registration Statement.
16. DEMAND REGISTRATION RIGHTS.
(a) DEMAND REGISTRATION. Subject to the limitations set
forth in Section 15(c) below, the Company shall, upon the written request
of any Holder, use its best efforts to cause the Registrable Securities
specified in such request to be registered (a "Demand Registration") under
the Securities Act of 1933, as amended (the "Securities Act"). In the
event that the Company shall receive a written request under this Section
15(a), the Company shall give prompt written notice thereof to any other
Holder which did not join in such written request. If requested in writing
by any of such other Holders within fifteen days after the Company gives
the notice described in the preceding sentence, the Company shall include
among the Registrable Securities that it endeavors to register under this
Section 15(a) such Registrable Securities as shall be specified in the
request of such other Holders.
(b) REQUIREMENTS OF REQUEST. Each request delivered
pursuant to Section 15(a) shall: (i) specify the amount of Registrable
Securities intended to be offered and sold by the Holder; (ii) express the
Holder's present intent to offer such Registrable Securities for
distribution; (iii) describe the nature or method of the proposed offer and
sale of the Registrable Securities; and (iv) contain the undertaking of the
Holder to provide all such information and materials and take all such
action as may be reasonably required in order to permit the Company to
comply with all applicable requirements of the Securities Act and state
securities and "blue sky" laws, and to obtain acceleration of the effective
date of the registration statement.
(c) LIMITATIONS ON DEMAND REGISTRATIONS. Notwithstanding
anything herein to the contrary, the obligations of the Company to cause
any Registrable Securities to be registered pursuant to this Section 15 are
subject to each of the following limitations, conditions and
qualifications:
(i) The Company shall only be required to effect one
Demand Registration pursuant to Section 15(a). A Demand Registration shall
be counted for that purpose when the corresponding registration statement
has become effective under the Securities Act and has remained effective
for the period of time specified in Section 17(b) (plus the amount of time
during which sales are suspended under such registration statement through
no fault of the Holders).
(ii) No Holder shall be entitled to request Demand
Registration at any time that the Resale Registration Statement shall be
effective with respect to the Registrable Securities or during any Stand-
Still Period.
17. PIGGYBACK REGISTRATION RIGHTS.
(a) PIGGYBACK REGISTRATION. Subject to the limitations set
forth in Section 16(c), at each time that the Company shall propose the
registration under the Securities Act of an offering of any securities on a
registration form which can be used for registration of the Registrable
Securities (other than in connection with an offering solely to the
Company's employees pursuant to a registration statement on Form S-8 under
the Securities Act or an offering pursuant to a registration statement on
Form S-4 under the Securities Act, or any successor forms thereto), the
Company shall give written notice as promptly as possible of such proposed
registration to the Holders, and shall include in the offering such amount
of Registrable Securities as the Holders shall request to be included by
written notice to the Company received within fifteen days after receipt of
the Company's notice, upon the same terms (including the method of
distribution) as the securities being sold by the Company pursuant to any
such offering (a "Piggyback Registration").
(b) REQUIREMENTS OF REQUEST. Each request delivered
pursuant to Section 16(a) shall: (i) specify the amount of Registrable
Securities intended to be offered and sold by the Holder; and (ii) contain
the undertaking of the Holder to provide all such information and materials
and take all such action as may be reasonably required in order to permit
the Company to comply with all applicable requirements of the Securities
Act and state securities and "blue sky" laws and to obtain acceleration of
the effective date of the registration statement.
(c) LIMITATIONS ON PIGGYBACK REGISTRATIONS.
Notwithstanding anything contained herein to the contrary, the obligations
of the Company to cause Registrable Securities to be registered pursuant to
this Section 16 are subject to each of the following limitations,
conditions and qualifications:
(i) If the Company is advised in writing by the
managing underwriter (or its investment banking firm if the offering is not
underwritten) that the inclusion of any Registrable Securities may, in the
opinion of such underwriter or investment banking firm, as the case may be,
interfere with the orderly sale and distribution of the securities proposed
to be offered by the Company or adversely affect the price at which such
securities may be sold, the number of Registrable Securities to be included
in the offering shall be proportionately reduced or eliminated to the
extent necessary as shall be reasonably determined by such underwriter or
investment banker, as the case may be, in good faith.
(ii) In the event the Holders request registration
pursuant to Section 16(a) and the related offering is to be underwritten,
the Holders will enter into an underwriting agreement containing
representations, warranties and agreements not substantially different from
those customarily made by an issuer and a selling shareholder in
underwriting agreements with respect to secondary distributions.
(iii) The Company may, at any time in its sole
discretion, without the consent of the Holders and without liability to any
Holder for such action, withdraw such registration statement and abandon
the proposed offering in which the Holders had requested to participate.
(iv) No Holder shall be entitled to request Piggyback
Registration at any time that the Resale Registration Statement shall be
effective with respect to the Registrable Securities or during any Stand-
Still Period.
(v) Other than as set forth above or expressly
elsewhere in this Agreement, there shall be no other limitations upon the
timing or number of Piggyback Registrations which Holders may request
pursuant to this Section 16.
18. REGISTRATION PROCEDURES. With respect to the Resale
Registration Statement, and whenever the Holders have properly requested
that any Registrable Securities be registered pursuant to Section 15 or 16
of this Warrant (the Resale Registration Statement and such other
registration statement including the Registrable Securities being referred
to herein as a "Registration Statement"), the Company will, subject to all
limitations set forth herein, use its best efforts to effect the
registration and the sale of such Registrable Securities in accordance with
the intended method of disposition thereof, and pursuant thereto the
Company will, if applicable, as expeditiously as possible:
(a) prepare and file with the Commission a Registration
Statement with respect to such Registrable Securities and use its best
efforts to cause such Registration Statement to become effective (PROVIDED
that before filing a Registration Statement or prospectus or any amendments
or supplements thereto, the Company will furnish to each Holder copies of
all such documents proposed to be filed);
(b) prepare and file with the Commission such amendments
and supplements to such Registration Statement and the prospectus used in
connection therewith as may be necessary to keep such Registration
Statement effective for a period ending on the earlier of (i) the date all
such registered Registrable Securities are sold and any prospectus delivery
requirements under the Securities Act shall have lapsed, and (ii) (A) one
year (in the case of a registration statement on Form S-1 or comparable
long-form registration statement) or (B) until the expiration of the
Registration Period (in the case of any other Registration Statement,
including the Resale Registration Statement), and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during such period in
accordance with the intended methods of disposition by the Holders thereof
set forth in such Registration Statement;
(c) notify each Holder of such Registrable Securities, and
the managing underwriter for an underwritten offering, at any time when a
prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such Registration Statement contains an untrue
statement of a material fact or omits any fact necessary to make the
statements therein not misleading, and at the request of any Holder
participating in such registration, the Company will prepare a supplement
or amendment to such prospectus so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus will not contain
an untrue statement of a material fact or omit to state any fact necessary
to make the statements therein not misleading;
(d) furnish to the Holders and to each underwriter, if any,
such number of copies of any prospectus (including any preliminary
prospectus) and such other documents as the Holders or such underwriters
may reasonably request in order to effect the offering and sale of the
Registrable Securities to be offered and sold by the Holders, but only
while the Company is required under the provisions hereof to cause the
Registration Statement to remain current;
(e) in the case of a request for Demand Registration under
Section 15(a), as expeditiously as possible use its best efforts to qualify
the offering under applicable blue sky laws or such other state securities
laws as the Holders may reasonably request and do any and all other acts
and things which may be reasonably necessary to enable the Holders to offer
and sell the Registrable Securities; PROVIDED, however, that the Company
shall not be obligated to qualify as a foreign corporation to do business
under the laws of any jurisdiction in which it is not then qualified;
(f) cause all such Registrable Securities to be listed on
each securities exchange or automated interdealer quotation system on which
similar securities issued by the Company are then listed, if any;
(g) enter into such customary agreements (including
underwriting agreements in customary form) and take all such other actions
as the holders of a majority of the Registrable Securities being sold or
the underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities (PROVIDED no such
agreement shall require the Company to expend funds other than as provided
in this Section or provide indemnities other than as are provided in
Section 18 hereof);
(h) during normal business hours and upon reasonable
notice, make available for inspection by any legal or accounting
representative of the Holders and any underwriter participating in any
disposition pursuant to such Registration Statement, all financial and
other records, pertinent corporate documents and properties of the Company,
and cause the Company's officers, directors, employees and independent
accountants to supply all information reasonably requested by any such
Holder, underwriter, attorney, accountant or agent in connection with such
Registration Statement;
(i) advise each seller of Registrable Securities,
immediately after it shall receive notice or obtain knowledge thereof, of
the issuance of any stop order by the Commission (or any comparable state
authority) suspending the effectiveness of such Registration Statement or
the initiation or threatening of any proceeding for such purpose and
promptly use reasonable efforts to prevent the issuance of any stop order
or to obtain its withdrawal if such stop order should be issued.
In connection with any registration of the Registrable
Securities pursuant to this Warrant, (a) the Company shall pay (i) the fees
and disbursements of legal counsel for the Company, (ii) fees and
disbursements of any accounting firm and other experts used by the Company
in connection with such registration, (iii) expenses of any audits of the
Company incidental to or required in connection with such registration and
(iv) all other expenses attributable to any registration effected by the
Company pursuant to Sections 14, 15 or 16, including without limitation,
all Commission and blue sky registration and filing fees, printing
expenses, fees and disbursements of blue sky counsel, transfer agent and
registrar fees; and (b) the Company shall pay all reasonable fees and
disbursements of counsel for the Company's underwriters, and reasonable
disbursements of such underwriters, underwriting discounts and commission
and expenses incidental to any post-effective amendment to any such
Registration Statement; PROVIDED, HOWEVER, that the Holders shall pay any
underwriting discounts and commissions associated with the sale of
Registrable Securities and shall bear their own costs of separate counsel
and professional fees.
19. INDEMNIFICATION.
(a) BY THE COMPANY. In the case of each registration
effected by the Company pursuant to Sections 14, 15 or 16, the Company
agrees to indemnify and hold harmless the Holders, their respective
officers, directors, shareholders and partners (if any), the Holders'
underwriter of the Registrable Securities so registered, if any, and each
person who controls the Holders or any such underwriter, if any, within the
meaning of Section 15 of the Securities Act, against any and all losses,
claims, damages, liabilities and expenses to which they or any of them may
become subject under the Securities Act or any other statute or common law,
and any legal or other expenses incurred by them in connection with
defending any actions, insofar as any such losses, claims, damages,
liabilities or actions arise out of or are based upon (A) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement relating to the sale of such shares, or any post-
effective amendment thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; (B) any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus
(if suit is brought prior to the effective date of such Registration
Statement) or contained in the final prospectus (as amended or
supplemented) if used within the period during which the Company is
required to keep the Registration Statement to which such prospectus
relates current pursuant to the terms of Section 17(b), or the omission or
alleged omission to state therein a material fact necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading; PROVIDED, however, that the indemnification
agreement contained in this Section 18(a) shall not apply to such losses,
claims, damages, liabilities or actions arising out of, or based upon, the
failure of any Holder or any of the Holders' underwriters to comply with
the prospectus delivery requirements of the Securities Act applicable to
Holders or Holders' underwriters, or with respect to any such untrue
statement or alleged untrue statement or any such omission or alleged
omission that was made in reliance upon and in conformity with information
furnished directly to the Company by the Holders or any such underwriter.
(b) BY THE HOLDERS. In the case of each registration
effected by the Company pursuant to Sections 14, 15 or 16, each Holder
participating in such registration agrees, severally and not jointly, to
indemnify and hold harmless the Company, its officers and directors, each
underwriter of the shares so registered and each person who controls the
Company or any such underwriter, if any, within the meaning of Section 15
of the Securities Act, against any and all losses, claims, damages,
liabilities and expenses to which they or any of them may become subject
under the Securities Act or any other statute or common law, and any legal
or other expenses incurred by them in connection with investigating any
claims and defending any actions, insofar as any such losses, claims,
damages, liabilities or actions arise out of or are based upon (A) any
untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement relating to the sale of such shares by such
Holder, or any post-effective amendment thereto, or the omission or alleged
omission of such Holder to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading
or (B) any untrue statement or alleged untrue statement of a material fact
attributable to such Holder and contained in any preliminary prospectus, if
suit is brought prior to the effective date of such Registration Statement,
or contained in the final prospectus (as amended or supplemented) if used
within the period during which the Company is required to keep the
Registration Statement to which such prospectus relates current pursuant to
the terms of Section 17(b), or the omission or alleged omission by such
Holder to state therein a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading, in each case, if such statement or omission was (x)
made in reliance upon and in conformity with information furnished to the
Company by such Holder, any underwriter of such Holder's Registrable
Securities or any controlling person of such Holder or any such underwriter
in connection with such registration, or (y) contained in any preliminary
prospectus that was corrected by any subsequent prospectus and such Holder
or underwriter of such Holder's Registrable Securities or any controlling
person of such Holder or any such underwriter failed to deliver such
corrected prospectus; PROVIDED that such Holder shall be liable under this
Section 18(b) for only that amount of losses, claims, damages and
liabilities as does not exceed the proceeds to such Holder as a result of
the sale of Registrable Securities pursuant to such registration.
(c) The indemnities provided for under this Agreement will
remain in full force and effect regardless of any investigation made by or
on behalf of the indemnified party or any officer, director or controlling
person of such indemnified party and will survive the transfer or other
assignment of Registrable Securities and the termination of this Agreement.
20. GOVERNING LAW. This Warrant shall be governed by and
interpreted in accordance with the laws of the State of New Jersey, without
giving effect to conflict-of-law principles thereof.
IN WITNESS WHEREOF, ALFACELL CORPORATION has caused this Warrant
to be executed by its officers thereunto duly authorized.
Dated as of October 1, 1995
ALFACELL CORPORATION
By /S/ KUSLIMA SHOGEN
Name: Kuslima Shogen
Title:President
<PAGE>
NOTICE OF EXERCISE
To: ALFACELL CORPORATION
(1) The undersigned hereby elects to purchase ________ shares of
Common Stock of ALFACELL CORPORATION, pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price for such shares
in full as follows:
( ) Cash in the amount of $________;
( ) Check, bank draft or money order payable to the order of
"Alfacell Corporation" in the amount of $_________; and/or
( ) Discharge of Indebtedness in principal amount of $_______,
due to the Holder pursuant to _______________
______________________________________________________.
(2) Please issue a certificate or certificates representing said
shares of Common Stock in the name of the undersigned or in such other name
as is specified below:
(Name) (Number of shares)
(Name) (Number of shares)
(3) Please issue a new Warrant for the unexercised portion of
the attached Warrant in the name of the undersigned or in such other name
as is specified below:
(Name)
(Date) (Signature)
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee named below
all of the rights of the undersigned under the within Warrant, with respect
to the number of shares of Common Stock (or Common Stock) set forth below:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
and does hereby irrevocably constitute and appoint Attorney
___________________ to make such transfer on the books of ALFACELL
CORPORATION maintained for the purpose, with full power of substitution in
the premises.
Date:
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Alfacell Corporation:
We consent to the use of our report included herein and to the reference to
our firm under the headings "Selected Financial Data" and "Experts" in the
Prospectus.
Our report dated September 29, 1995 contains an explanatory paragraph that
states that the Company's recurring losses from operations, working capital
deficiency and net capital deficiency raise substantial doubt about the
entity's ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome of that
uncertainty. Further, our report as it relates to the financial statements
for the period from August 24, 1981 (date of inception) to July 31, 1995,
is based on the report of other auditors as to the amounts included therein
for the period from August 24, 1981 (date of inception) to July 31, 1992.
/S/KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Short Hills, New Jersey
November 29, 1995
INDEPENDENT AUDITOR'S CONSENT
The Board of Directors
Alfacell Corporation
We consent to the use of our report incorporated herein and to the
reference to our firm under the heading "experts" in the prospectus.
Our report dated December 9, 1992, except as to Note 18 which is July 19,
1993, and Note 3 which is October 28, 1993, contains an explanatory
paragraph that states that the Company's recurring losses from operations,
working capital deficiency and net capital deficiency raise substantial
doubt about the entity's ability to continue as a going concern. The
financial statements and financial statement schedules do not include any
adjustments that might result from the outcome of that uncertainty.
/S/ARMUS, HARRISON & CO.
Armus, Harrison & Co.
Mountainside, New Jersey
November 29, 1995
