UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
October 31, 1997 0-11088
For the quarterly period ended Commission file number
ALFACELL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 22-2369085
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
225 Belleville Avenue, Bloomfield, New Jersey 07003
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (973) 748-8082
NOT APPLICABLE
(Former name, former address, and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant has (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Common shares outstanding as of December 3, 1997: 14,847,793
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
BALANCE SHEETS
October 31, 1997 and July 31, 1997
October 31,
1997 July 31,
ASSETS (Unaudited) 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,927,012 $ 7,542,289
Prepaid expenses 193,554 165,106
------------ ------------
Total current assets 5,120,566 7,707,395
------------ ------------
Property and equipment, net of accumulated depreciation and amortization
of $764,832 at October 31, 1997 and $742,319 at July 31, 1997 341,600 326,003
------------ ------------
Other assets:
Deferred debt costs, net -- 1,556
------------ ------------
Total assets $ 5,462,166 $ 8,034,954
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 8,531 $ 1,381,416
Accounts payable 483,916 377,704
Accrued expenses 795,882 693,841
------------ ------------
Total current liabilities 1,288,329 2,452,961
------------ ------------
Long-term debt, less current portion 13,691 15,902
------------ ------------
Total liabilities 1,302,020 2,468,863
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value
Authorized and unissued, 1,000,000 shares at October 31, 1997
and July 31, 1997 -- --
Common stock $.001 par value
Authorized 25,000,000 shares at October 31, 1997; Issued and
outstanding 14,847,793 shares at October 31, 1997
and 14,847,793 shares at July 31, 1997 14,848 14,848
Capital in excess of par value 51,013,855 50,961,382
Deficit accumulated during development stage (46,868,557) (45,410,139)
------------ ------------
Total stockholders' equity 4,160,146 5,566,091
------------ ------------
Total liabilities and stockholders' equity $ 5,462,166 $ 8,034,954
============ ============
</TABLE>
See accompanying notes to financial statements.
- 2 -
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Three months ended October 31, 1997 and 1996,
and the Period from August 24, 1981
(Date of Inception) to October 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
August 24, 1981
(Date of
Three Months Ended Inception)
October 31, to
1997 1996 October 31, 1997
------------ ------------ ----------------
<S> <C> <C> <C>
REVENUE:
Sales $ -- -- 553,489
Investment income 85,026 111,983 912,852
Other income -- -- 60,103
------------ ------------ ------------
TOTAL REVENUE 85,026 111,983 1,526,444
------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales -- -- 336,495
Research and development 1,196,204 850,893 27,618,310
General and administrative 326,892 265,750 17,508,298
Interest:
Related parties -- -- 1,033,960
Others 20,348 31,794 1,897,938
------------ ------------ ------------
TOTAL COSTS AND EXPENSES 1,543,444 1,148,437 48,395,001
------------ ------------ ------------
NET LOSS $ (1,458,418) (1,036,454) (46,868,557)
============ ============ ============
Loss per common share $ (.10) (.07) (6.96)
============ ============ ============
Weighted average number of shares outstanding 14,847,793 14,320,871 6,729,658
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
- 3 -
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Three months ended October 31, 1997 and 1996,
and the Period from August 24, 1981
(Date of Inception) to October 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
August 24, 1981
Three Months Ended (Date of Inception)
October 31, to
1997 1996 October 31, 1997
----------- ----------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Loss $(1,458,418) (1,036,454) (46,868,557)
Adjustments to reconcile net loss to
net cash used in operating activities:
Gain on sale of marketable securities -- -- (25,963)
Depreciation and amortization 24,069 13,245 1,144,097
Loss on disposal of property and
equipment -- -- 18,926
Noncash operating expenses 52,473 27,900 5,016,937
Amortization of deferred compensation -- -- 11,442,000
Amortization of organization costs -- -- 4,590
Changes in assets and liabilities:
Decrease in loan receivable,
related party -- 112,250 --
(Increase) in prepaid expenses (28,448) (85,551) (193,554)
Decrease in other assets -- 4,334 36,184
Increase in interest payable
related party -- -- 744,539
Increase in accounts payable 106,212 186,531 561,181
Increase in accrued payroll and
expenses, related parties -- -- 2,348,145
Increase (decrease) in accrued expenses 102,041 (110,445) 1,337,395
----------- ----------- -----------
Net cash used in operating activities (1,202,071) (888,190) (24,434,080)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of marketable equity securities -- -- (290,420)
Proceeds from sale of marketable equity
securities -- -- 316,383
Purchase of property and equipment (38,110) (13,517) (1,332,055)
Patent costs -- -- (97,841)
----------- ----------- -----------
Net cash used in investing activities (38,110) (13,517) (1,403,933)
----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements. (continued)
- 4 -
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS, Continued
Three months ended October 31, 1997 and 1996,
and the Period from August 24, 1981
(Date of Inception) to October 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
August 24, 1981
Three Months Ended (Date of Inception)
October 31, to
1997 1996 October 31, 1997
------------ --------- ----------------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from short-term borrowings $ -- -- 849,500
Payment of short-term borrowings -- -- (623,500)
Increase in loans payable - related party, net -- -- 2,628,868
Proceeds from bank debt and other long-
term debt, net of deferred debt costs -- 4,200 2,410,883
Reduction of bank debt and long-term debt (1,375,096) (28,547) (2,903,233)
Proceeds from common stock to be issued -- 125,000 433,358
Proceeds from issuance of common stock, net -- -- 22,172,561
Proceeds from exercise of stock options and warrants, net -- 2,424,078 5,449,588
Proceeds from issuance of convertible debentures -- -- 347,000
------------ --------- -----------
Net cash provided by financing activities (1,375,096) 2,524,731 30,765,025
------------ --------- -----------
Net increase (decrease) in cash (2,615,277) 1,623,024 4,927,012
Cash and cash equivalents at beginning of period 7,542,289 8,131,442 --
------------ --------- -----------
Cash and cash equivalents at end of period $ 4,927,012 9,754,466 4,927,012
============ ========= ===========
Supplemental disclosure of cash flow information -
interest paid $ 20,348 43,540 1,644,921
============ ========= ===========
Noncash financing activities:
Issuance of convertible subordinated
debenture for loan payable to officer $ -- -- 2,725,000
============ ========= ===========
Issuance of common stock upon the conversion of
convertible subordinated debentures, related party $ -- -- 2,945,000
============ ========= ===========
Conversion of short-term borrowings to common stock $ -- -- 226,000
============ ========= ===========
Conversion of accrued interest, payroll and expenses by
related parties to stock options $ -- -- 3,194,969
============ ========= ===========
Repurchase of stock options from related party $ -- -- (198,417)
============ ========= ===========
Conversion of accrued interest to stock options $ -- -- 142,441
============ ========= ===========
Conversion of accounts payable to common stock $ -- -- 77,265
============ ========= ===========
Conversion of notes payable, bank and
accrued interest to long-term debt $ -- -- 1,699,072
============ ========= ===========
Conversion of loans and interest payable,
related party and accrued payroll and
expenses, related parties to long-term
accrued payroll and other, related party $ -- -- 1,863,514
============ ========= ===========
Issuance of common stock upon the conversion of
convertible subordinated debentures, other $ -- -- 127,000
============ ========= ===========
</TABLE>
See accompanying notes to financial statements.
- 5 -
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting of normal recurring accruals)
necessary to present fairly the Company's financial position as of October 31,
1997 and the results of operations for the three month periods ended October 31,
1997 and 1996 and the period from August 24, 1981 (date of inception) to October
31, 1997. The results of operations for the three months ended October 31, 1997
are not necessarily indicative of the results to be expected for the full year.
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
a new business. Its planned principal operations have not commenced and,
accordingly, no significant revenue has been derived therefrom.
2. CAPITAL STOCK
In August 1997, the Company issued 833 three-year stock options as payment
for services to be rendered. The options vested thirty days from the issuance
date and have an exercise price of $4.47 per share. The Company recorded general
and administrative expense of $1,700 for the quarter ended October 31, 1997,
based upon the fair value of such options on the date of issuance.
In September 1997, the Company issued 15,000 three-year stock options with
an exercise price of $4.15 per share as payment for services to be rendered. An
equal portion of these options vest monthly for one year commencing September
30, 1997. The Company also issued 5,000 three-year stock options with an
exercise price of $4.15 per share as payment for services to be rendered. Of
these options, 833 vest monthly for five months commencing September 30, 1997
and 835 vest on the last day of the sixth month. The Company recorded general
and administrative expense of $7,900 for the quarter ended October 31, 1997,
based upon the fair value of the 20,000 stock options on the date of the
issuance, amortized on a straight-line basis over the vesting periods of the
grants.
- 6 -
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS, continued
(Unaudited)
2. CAPITAL STOCK (continued)
In October 1997, the Company issued 12,000 five-year stock options with an
exercise price of $3.91 per share as payment for services to be rendered. An
equal portion of these options vest monthly for one year commencing October 10,
1997. The Company recorded research and development expense of $4,400 for the
quarter ended October 31, 1997, based upon the fair value of such options on the
date of issuance, amortized on a straight-line basis over the vesting period of
the grant.
In October 1997, the Company issued 75,000 stock options to a director with
an exercise price of $3.66 per share as payment for services to be rendered.
These options will vest as follows provided he is serving continuously on the
Company's board of directors at the time of vesting: 10,000 vested immediately;
10,000 after one full calendar year; 10,000 annually for each of the following
three years; and 25,000 on October 31, 2002. The vesting and exercisability of
the 25,000 options which vest in October 2002 may be accelerated upon the good
faith determination of the Company's Board of Directors that a substantive
collaborative agreement with a major pharmaceutical/biotechnology company was a
direct result of the director's efforts. The Company recorded general and
administrative expense of $20,500 for the quarter ended October 31, 1997, based
upon the fair value of such 75,000 options on the date of issuance, amortized on
a straight-line basis over the vesting period of the grant.
On December 2, 1997 the Company filed an amendment to a registration
statement previously filed on June 16, 1997, and amended on September 9, 1997,
for the offer and sale by certain stockholders of up to 4,123,247 shares of
common stock. Of these shares (I) an aggregate of 2,837,680 shares were issued
to the private placement investors in the private placement transactions which
were completed during the period from March 1994 through June 1996 (the "Earlier
Private Placements"), (ii) an aggregate of 698,251 shares are issuable upon
exercise of warrants which were issued to private placement investors in the
Earlier Private Placements and (iii) an aggregate of 587,316 shares may be
issued, or have been issued, upon exercise of the options which were issued to
the option holders in certain other private transactions. As of December 8,
1997, the Securities and Exchange Commission had not declared this registration
statement effective.
- 7 -
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Information contained herein contains "forward-looking statements" which
can be identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," or "anticipates" or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy. No assurance can be given that the future results covered by the
forward- looking statements will be achieved. The matters set forth in Exhibit
99.1 to the Company's Annual Report on Form 10-K for the fiscal year ended July
31, 1997, which is incorporated herein by reference, constitute cautionary
statements identifying important factors with respect to such forward-looking
statements, including certain risks and uncertainties, that could cause actual
results to vary materially from the future results indicated in such
forward-looking statements. Other factors could also cause actual results to
vary materially from the future results indicated in such forward- looking
statements.
Results of Operations
Three month periods ended October 31, 1997 and 1996
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 focuses most of its productive and financial
resources on the development of ONCONASE and as such has not had any sales in
the three months ended October 31, 1997 and 1996. Investment income for the
three months ended October 31, 1997 was $85,000 compared to $112,000 for the
same period last year, a decrease of $27,000. This decrease was due to lower
balances of cash and cash equivalents.
Research and Development. Research and development expense for the three
months ended October 31, 1997 was $1,196,000 compared to $851,000 for the same
period last year, an increase of $345,000 or 41%. This increase was primarily
due to an increase in costs in support of on-going clinical trials, including
the two Phase III clinical trials for pancreatic cancer and the Phase II and III
clinical trials for malignant mesothelioma and regulatory costs in preparation
for an NDA for ONCONASE, offset by decreases in costs associated with the
purchase of raw materials and the manufacture of clinical supplies of ONCONASE.
General and Administrative. General and administrative expense for the
three months ended October 31, 1997 was $327,000 compared to $266,000 for the
same period last year, an increase of $61,000 or 23%. This increase was
primarily due to an increase in legal fees, public relations activities and
insurance expense.
- 8 -
<PAGE>
Interest. Interest expense for the three months ended October 31, 1997 was
$20,000 compared to $32,000 for the same period last year, a decrease of $12,000
or 38%. This decrease was primarily due to the payment of the entire principal
amount of the Company's Term Loan on October 3, 1997.
Net Loss. The Company has incurred net losses during each year since its
inception. The net loss for the three months ended October 31, 1997 was
$1,458,000 as compared to $1,036,000 for the same period last year. The
cumulative loss from the date of inception, August 24, 1981 to October 31, 1997,
amounted to $46,868,000. 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
the three months ended October 31, 1997, the Company had a net decrease in cash
and cash equivalents of $2,615,000, which resulted primarily from payment of
bank debt and reduction of long-term debt of $1,375,000, net cash used in
operating activities of $1,202,000 and purchase of property and equipment of
$38,000.
The Company's Term Loan agreement with its bank, (the "Term Loan") matured
on August 31, 1997. On October 3, 1997, the Company paid the entire loan
balance, including accrued interest, in the amount of $1,376,646 out of its cash
resources. This is the primary reason for a significant decrease in current
liabilities as of October 31, 1997 compared to July 31, 1997.
The Company's continued operations will depend on its ability to raise
additional funds through several potential sources such as equity or debt
financing, collaborative agreements, strategic alliances and revenues from the
commercial sale of ONCONASE. The Company is in discussions with several
potential collaborative partners for further development and marketing of
ONCONASE, 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 on-going clinical trials. The Company believes that its
cash and cash equivalents as of October 31, 1997, will be sufficient to meet its
anticipated cash needs through the fiscal year ending July 31, 1998. To date, a
significant portion of the Company's financing has been through private
placements of common stock and warrants, the issuance of common stock upon the
exercise of stock options and for services rendered, debt financing and
financing provided by the Company's Chief Executive Officer. 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.
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.
- 9 -
<PAGE>
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share". The new
statement replaces the calculations currently used with "basic earnings per
share" that includes only actual weighted shares outstanding and "diluted
earnings per share" that includes the effect of any common stock equivalents or
other items that dilute earnings per share. The new rules are effective for the
Company in the quarter ending January 31, 1998 and are retroactively applied to
the previous quarterly periods. The adoption of this statement will not be
material.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-K).
<TABLE>
<CAPTION>
Exhibit No.
or
Exhibit Incorporation
No. Item Title by Reference
----- ---------- ------------
<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 **
10.1 Form of Stock and Warrant Purchase Agreements used in private
placements completed April 1996 and June 1996 ##
10.2 Lease Agreement - 225 Belleville Avenue, Bloomfield, New
Jersey ###
10.3 Form of Stock Purchase Agreement and Certificate used in
connection with various private placements ***
10.4 Form of Stock and Warrant Purchase Agreement and Warrant
Agreement used in Private Placement completed on March 21,
1994 ***
10.5 The Company's 1993 Stock Option Plan and Form of Option
Agreement *****
10.6 Debt Conversion Agreement dated March 30, 1994 with Kuslima
Shogen ****
10.7 Accrued Salary Conversion Agreement dated March 30, 1994
with Kuslima Shogen ****
</TABLE>
- 10 -
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.
or
Exhibit Incorporation
No. Item Title by Reference
----- ---------- ------------
<S> <C> <C>
10.8 Accrued Salary Conversion Agreement dated March 30, 1994
with Stanislaw Mikulski ****
10.9 Debt Conversion Agreement dated March 30, 1994 with John
Schierloh ****
10.10 Option Agreement dated March 30, 1994 with Kuslima Shogen ****
10.11 Option Agreement dated March 30, 1994 with Kuslima Shogen ****
10.12 Amendment No. 1 dated June 20, 1994 to Option Agreement
dated March 30, 1994 with Kuslima Shogen ****
10.13 Form of Amendment No. 1 dated June 20, 1994 to Option
Agreement dated March 30, 1994 with Kuslima Shogen *****
10.14 Form of Amendment No. 1 dated June 20, 1994 to Option
Agreement dated March 30, 1994 with Stanislaw Mikulski *****
10.15 Form of Stock and Warrant Purchase Agreement and
Warrant Agreement used in Private Placement completed on September
13, 1994 +
10.16 Form of Subscription Agreements and Warrant Agreement used
in Private Placements closed in October 1994 and September
1995 #
10.17 1997 Stock Option Plan. ###
10.18 Separation Agreement with Michael C. Lowe dated as of
October 9, 1997 #####
27.1 Financial Data Schedule #####
99.1 Factors to Consider in Connection with Forward-Looking ####
Statements
</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.
- 11 -
<PAGE>
*****Previously filed as exhibits to the Company's Registration Statement 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 Annual Report on Form 10-KSB
for the year ended July 31, 1995 and incorporated herein by reference
thereto.
## Previously filed as exhibits to the Company's Registration Statement on
Form SB-2 (File No. 333-11575) 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, 1997 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, 1997 and incorporated herein by reference
thereto.
##### Filed herewith.
(b) Reports on Form 8-K.
None.
- 12 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALFACELL CORPORATION
--------------------------------
(Registrant)
December 8, 1997 /s/ GAIL E. FRASER
--------------------------------
Gail E. Fraser
Vice President, Finance and
Chief Financial Officer (Principal
Accounting Officer and Principal
Financial Officer)
- 13 -
PLEASE READ CAREFULLY
IF YOU DO NOT UNDERSTAND THE DOCUMENT FULLY,
DO NOT SIGN IT
CONSULT WITH AN ATTORNEY BEFORE SIGNING
THIS SEPARATION AGREEMENT AND GENERAL RELEASE
INCLUDES A RELEASE OF ANY AND
ALL KNOWN AND UNKNOWN CLAIMS AGAINST THE COMPANY
SEPARATION AGREEMENT and GENERAL RELEASE (the "Agreement") made as of this
9th day of October 1997, between Dr. Michael Lowe ("Lowe") and Alfacell
Corporation and related and/or affiliated companies (the "Company").
WHEREAS, the Company and Lowe wish to resolve and to fully and finally
settle, compromise and forever discharge any and all claims and issues that were
raised, or which could have been raised, or which Lowe has now or may ever have
had against the Company;
NOW THEREFORE, in consideration of the mutual promises contained herein, it
is agreed as follows:
1. Lowe submitted his resignation as President, Director and an employee of
the Company by letter of August 4, 1997, and for purposes of this Agreement the
parties agree that
Lowe Separation.2/gen/alf/ktc/ny2a
October 8, 1997
<PAGE>
his resignation was effective as of July 31, 1997 and the parties agree that
Lowe is not entitled to any compensation from the Company subsequent to such
date, except as specifically set forth herein.
2. In full satisfaction of the Company's obligations to Lowe and in
consideration for all of Lowe's agreements and covenants set forth herein, the
Company agrees:
a) For the period commencing August 1, 1997 and terminating January
31, 1998, the Company shall pay Lowe the aggregate amount of $100,000. Such
amount shall be payable in bimonthly installments in accordance with the
Company's standard payroll procedures (less customary statutory
withholdings). It is understood and agreed that all payments made by the
Company to Lowe for payroll periods subsequent to July 31, 1997 shall be
credited to the Company's obligation to Lowe under this Section 2(a).
b) The Company and Lowe acknowledge that (i) an option to purchase an
aggregate of 100,000 shares of Common Stock (the "Original Option") was
granted to Lowe under the Company's 1993 Stock Option Plan, as amended (the
"Plan") on August 1, 1996 and had vested as of July 31, 1997, and (ii)
pursuant to the terms of the Plan, the Original Option would terminate in
its entirety on February 3, 1998. The Company and Lowe agree that,
notwithstanding the foregoing, the Original Option will remain exercisable
until, and will terminate on, January 31, 1999. The
2
<PAGE>
Company and Lowe agree that an option to purchase an aggregate of 75,000
shares of Common Stock (the "Additional Option") that was granted to Lowe
under the Plan on August 1, 1996, will be deemed to have vested as of
August 1, 1997 in accordance with its terms and will remain exercisable
until, and will terminate on, January 31, 1999. The Company represents that
the Compensation Committee of its board of directors has specifically
waived the provisions of the Plan that would prohibit the Additional Option
from vesting in accordance with the preceding sentence and which would have
caused both the Original Option and the Additional Option to terminate on
the 190th day after the termination of Lowe's employment with the Company.
Except for the forgoing modifications, the terms of the Original Option,
the Additional Option and the Plan shall remain unchanged. Lowe shall
deliver to the Company upon the execution of this Agreement, the original
option certificate issued to him on August 1, 1996 which represented the
Original Option, the Additional Option and the Terminated Option (as
defined below) (the "Initial Option Certificate") or if Lowe cannot locate
the Initial Option Certificate he shall deliver a lost option certificate
affidavit to the Company. Upon its receipt of the Initial Option
Certificate or such lost option certificate affidavit, the Company shall
issue and deliver to Lowe the option certificate in the form attached
hereto as Exhibit A which represents the Original Option and the Additional
Option (the "New Option Certificate").
3
<PAGE>
c) Lowe and the Company agree that the remaining option to purchase an
aggregate of 475,000 shares of Common Stock which was granted to Lowe under
the Plan on August 1, 1996 (the "Terminated Option") had not vested as of
July 31, 1997 and had terminated and was of no further force or effect as
of such date in accordance with the Plan.
d) The Company will continue and assume the payments for Lowe's and/or
his dependents' (who are qualified beneficiaries) health insurance until
July 31, 1998 under the terms and conditions currently applicable to
full-time employees of the Company to the extent available to full-time
employees during this period, and under the terms and conditions of the New
Jersey Group Continuation ("NJGC"), provided, however, that if Lowe
receives or is offered health insurance pursuant to a new employment
arrangement and he accepts that employment, the Company's obligation under
this paragraph will terminate. All coverage provided to Lowe and/or his
dependents pursuant to this paragraph shall be subject to the provisions of
the applicable insurance policies and the continuation provisions of NJGC
(and any changes or amendments with respect to such plans, policies or
statute).
3. Lowe agrees that the benefit package set forth in paragraph 2 is more
than the Company is required to pay under its normal policies and procedures.
4
<PAGE>
4. This Agreement is not an admission of wrongdoing or liability of any
kind by the Company or any of its principals or representatives and any such
wrongdoing and liability is expressly denied.
5. a) Lowe for himself, his heirs, executors, administrators, successors
and assigns (collectively, the "Releasors"), does hereby fully release and
forever discharge the Company, its parents, subsidiaries, affiliates, divisions
and related entities, their successors and assigns, and the Company's directors,
Alan Bell, Stephen Carter, Donald Conklin, Gail Fraser, Robert Henry, Stanley
Mikulski, Kuslima Shogen and Allen Siegel, and the Company's agents, officers,
employees, fiduciaries and servants in both their individual and representative
capacities and each of them (collectively, the "Releasees"), of and from any and
all claims (including without limitation any claims for reinstatement or
reemployment), whether or not now known or suspected, by reason of any actual or
alleged act, omission, transaction, practice or occurrence, or other matter up
to and including the date of this Agreement.
b) The Company for itself and for its affiliates, successors and assigns
(collectively, the "Company Releasors") does hereby fully release and forever
discharge Lowe, his heirs, executors, administrators, successors and assigns, of
and from any and all claims, whether or not now known or suspected, by reason of
any actual or alleged act, omission, transaction, practice or
5
<PAGE>
occurrence, or other matter up to and including the date of this
Agreement.
6. The general release contained in Sections 5(a) and 5(b) herein includes
but is not limited to a release of any rights which either party may have in or
with respect to breach of contract (whether express, implied or oral); personnel
policies; employee handbooks; wages; vacation pay; severance pay; commissions or
bonuses; tort; wrongful termination; defamation; infliction of emotional
distress; slander; promissory estoppel; prima facie tort; breach of the covenant
of fair dealing; fraud; violation of public policy; claims for physical or
emotional injury; any and all claims based on any federal, state or local laws
including, without limitation, all employment and securities laws and
regulations, the Age Discrimination in Employment Act, Title VII of the Civil
Rights Act of 1964, as amended, the Americans with Disabilities Act, the
Employee Retirement Income Security Act, the Family Medical Leave Act, the Civil
Rights Acts, the rules or regulations of the Federal Trade Commission, the rules
and regulations of the Food and Drug Administration, the Securities Act of 1933,
as amended, the Securities Exchange Act of 1934, as amended, or any rules or
regulations promulgated by or releases or decrees of the Securities and Exchange
Commission (the "SEC"), the "blue sky" laws or regulations of any state, the
civil rights laws or regulations of the State of New Jersey, and any laws of the
states of New Jersey or Delaware.
6
<PAGE>
7. Each party further understands and agrees that the other party is in no
way liable or responsible for such party's attorney's fees and costs, if any, in
this matter.
8. Lowe represents that he has not filed and agrees that he will not file
any claims or causes of action of any kind against the Releasees based upon any
actions, conduct or circumstances occurring prior to the effective date of this
Agreement with any local, state or federal agency, court or tribunal, nor does
he have any knowledge or reason to believe that anyone else has filed such a
charge or complaint on his behalf. If Lowe should file such a charge or
complaint, or if a charge or complaint is filed on his behalf, or if any such
agency shall ever assume jurisdiction against the Releasees on behalf of Lowe,
Lowe agrees that the compensation and benefits provided to him by the Company
under this Agreement shall be his sole remedy against the Releasees and he shall
not seek or accept any further compensation or damages from the Company or the
Releasees. Lowe agrees not to assist or aid any other person in bringing,
prosecuting, or maintaining any claim, charge, action or proceeding against the
Company unless required by law to do so, and then only to the extent required by
law.
9. a) The terms of this Agreement are to be kept strictly confidential by
each party. Unless compelled to testify
7
<PAGE>
at a deposition, administrative proceeding, trial, or as required by law,
government rule or regulation, each party shall refrain from issuing to the
public, including without limitation, other potential or present plaintiffs,
claimants or complainants, press or media, any article, memorandum, release,
publicity or statement, whether oral or written, concerning the terms or
conditions of this Agreement, except that each party may discuss such terms with
its respective legal counsel, tax advisor, accountant, and financial institution
or potential lenders, and Lowe may discuss such terms with his wife and
children, provided that all such persons abide by the confidentiality provisions
herein applicable to the party making such disclosure to such person.
Notwithstanding the foregoing, the parties acknowledge that the Company may be
required to publicly disclose the terms of this Agreement and to file this
Agreement as an exhibit with the SEC in order to comply with its disclosure
obligations under applicable securities laws and regulations. Notwithstanding
the foregoing, either party can discuss this Agreement publicly to the extent
its terms are disclosed in a filing by the Company with the SEC.
b) Lowe agrees that the Company has issued a press release (which Lowe
reviewed prior to its release and to which Lowe did not object) and may make
further public statements it deems necessary to inform the public of his
resignation which shall refer to such resignation as based on the mutual
agreement of Lowe and the Company.
8
<PAGE>
10. a) The Company agrees not to make any disparaging or negative comments
concerning Lowe. Lowe agrees that he will not make any disparaging or negative
comments concerning the Company, any officers, directors, employees and
consultants to the Company, or concerning the Company's drug products, clinical
trials, technologies or therapies in any stage of development, nor will he take
any action which could have reasonably been viewed as to be intended to be
detrimental to the Company.
b) Lowe expressly agrees that should he breach any of the material
covenants and provisions contained herein, the Company's obligation to make the
payments provided in paragraph 2(a) shall terminate immediately, and all of the
Original Option and Additional Option described in paragraph 2(b) and then held
by Lowe shall terminate immediately. Any such breach shall be subject to the
dispute resolution provisions in Section 13. The foregoing shall not be the
Company's exclusive remedy for any such breach.
c) The Company expressly agrees that should it breach any of the material
covenants and provisions contained herein, Lowe's obligations hereunder shall
terminate immediately. Any such breach shall be subject to the dispute
resolution provisions in Section 13. The foregoing shall not be Lowe's exclusive
remedy for any such breach.
9
<PAGE>
d) Notwithstanding the foregoing, Lowe may provide testimony to the FDA or
any other federal agency if required to by an administrative or judicial
subpoena.
11. a) Lowe agrees to keep secret and shall not use all confidential
information of the Company and its subsidiaries, including, without limitation,
information regarding trade secrets, "know-how," information concerning clinical
trials, consultant contracts, details of author or consultant contracts,
operational methods, marketing plans or strategies, product development
techniques or plans, business acquisition plans, new personnel acquisition
plans, methods of manufacture, technical processes, designs and design projects,
investigations, searches, other confidential documents, whether or not so
labelled, and other business affairs of the Company and its subsidiaries learned
by him at any time, and shall not disclose them to anyone outside of the
Company.
b) All memoranda, notes, lists, records, work product and other documents
whether or not labelled "Confidential" (and all copies thereof), made or
compiled by Lowe or made available to Lowe, concerning the Company, shall be the
Company's property and shall be delivered to the Company promptly upon the
execution of this Agreement.
c) Employee agrees that all methods, analyses, reports, plans and all
similar or related information which (i) relate to the Company and which (ii)
were conceived, developed or
10
<PAGE>
made by Lowe in the course of his relationship with the Company belong to the
Company. Lowe will promptly disclose such work product to the Company and
perform all actions reasonably requested by the Company to establish and conform
such ownership by the Company.
d) Lowe agrees that he shall not for the period of July 31, 1997 to January
31, 1998 directly or indirectly, for his own account or jointly with another, or
for or on behalf of any current or potential competitor of the Company, employer
or other entity, solicit, induce or encourage any person to leave the employment
of the Company or any of its parents, subsidiaries, affiliates, divisions,
related entities and their successors or assigns, or solicit, induce or
encourage any business or account of the Company in which Lowe has participated
or in any way been active prior to the termination of Lowe's employment to
terminate their employment of, or otherwise terminate their relations with, the
Company.
e) For the period of July 31, 1997 to January 31, 1998, Lowe shall not
engage directly or indirectly in or become employed by, serve as an agent or
consultant to, or become a partner, principal, affiliate, representative or
stockholder of any partnership, corporation or any other entity which conducts
research on, manufactures, distributes, or develops RNase-based pharmaceuticals
provided, however, that Lowe's ownership of less than five percent of the issued
and outstanding stock of any
11
<PAGE>
corporation whose stock is traded on an established securities market shall not
constitute a breach of this provision.
12. Lowe agrees that for the period from July 31, 1997 to January 31, 1998
the Company, may require Lowe to answer questions and provide information
concerning activities for which Lowe was responsible while he was employed by
the Company. The Company agrees that such request of Lowe's services shall be
made at reasonable times and in a reasonable manner and shall not be unduly
burdensome on Lowe.
13. a) If either party believes that the other party has committed or is
about to commit a breach of the Agreement, counsel for such party shall notify
counsel for such other party of the substance of the information which forms the
basis for such belief. Counsel for such other party shall provide a response and
both counsel shall attempt to reach an amicable resolution of the matter prior
to pursuing the remedies set forth herein.
b) If Lowe breaches or threatens to commit a breach of any of the
provisions of Paragraph 11, the Company shall have, without limitation, the
following rights and remedies, severally enforceable, in addition to any other
rights and remedies available to the Company under this Agreement or otherwise:
(i) The right to have the covenants contained in Paragraph 11
specifically enforced by any court
12
<PAGE>
having equity jurisdiction, it being agreed that any such breach or
threatened breach will cause irreparable injury to the Company and that
money damages will not provide an adequate remedy to the Company.
(ii) The right to require Lowe to account for and pay over to the
Company all compensation, profits, monies, accruals, increments or other
benefits (collectively, "Benefits") derived or received by Lowe as the
result of any transaction(s) constituting a breach of any of the covenants
contained in Paragraph 11.
(iii) Lowe will forfeit all benefits received under this Agreement,
the Company's obligation to make the payments provided in paragraph 2(a)
shall terminate immediately and all of the Original Options and the
Additional Options described in paragraph 2(b) and then held by Lowe shall
terminate immediately, except in each case with respect to those benefits
and payments covered by the Employees Retirement Investment Security Act.
c) The Company and Lowe agree that if any court determines that any of the
covenants contained in paragraph 11, or any part thereof, are unenforceable
because of the duration or geographic scope of such provision, such court shall
have the power to reduce the duration or scope of such provision, as the case
may be, and, in its reduced form, such provision shall then be enforceable.
13
<PAGE>
14. Lowe hereby represents that he has been advised by the Company (a) that
the execution of this Agreement is a very important decision which should not be
made before discussing it with his family, and (b) Lowe agrees that the Company
has recommended that he consult with an attorney before signing this Agreement.
Lowe also acknowledges that he received a copy of this Agreement on August 6,
1997 and that he has been given up to 22 calendar days to review and consider
it.
15. Lowe expressly states that he has carefully reviewed the Company's
proposals concerning Lowe's separation from the Company and acknowledges and
agrees that he fully understands the terms and conditions of this Agreement, and
expressly agrees that the signing of this document is done voluntarily.
16. This Agreement is made and entered into in the State of New Jersey and
shall in all respects be interpreted, governed and by the laws of the State of
Delaware and to be enforced by the federal or state courts in the State of New
Jersey.
17. This Agreement sets forth the entire agreement between the parties, and
fully supersedes any and all prior agreements or understandings which may have
existed between the parties, and may not be modified except by a writing signed
by all parties.
14
<PAGE>
18. Nothing in this Agreement shall affect the option to purchase 20,000
shares of Common Stock of the Company granted to Lowe prior to his becoming a
full time employee of the Company.
19. THIS AGREEMENT MAY BE REVOKED BY LOWE BY DELIVERING A SIGNED WRITTEN
NOTICE OF SUCH REVOCATION TO THE COMPANY, ATTENTION OF GAIL FRASER WITHIN EIGHT
(8) DAYS AFTER THIS AGREEMENT IS SIGNED (THE "REVOCATION PERIOD").
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT, THE PLAN,
THE INITIAL OPTION CERTIFICATE OR THE NEW OPTION CERTIFICATE, NEITHER THE
ORIGINAL OPTION OR THE ADDITIONAL OPTION MAY BE EXERCISED BY LOWE UNTIL THE
REVOCATION PERIOD HAS EXPIRED.
ALFACELL CORPORATION:
/S/MICHAEL C. LOWE By:/S/ KUSLIMA SHOGEN
- ------------------------ ------------------------
Michael Lowe Kuslima Shogen
Chairman and Chief
Executive Officer
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Alfacell Corporation Balance Sheet as of October 31, 1997 and the Statements of
Operations for the three months ended October 31, 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> OCT-31-1997
<CASH> 4,927,012
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,120,566
<PP&E> 1,106,432
<DEPRECIATION> 764,832
<TOTAL-ASSETS> 5,462,166
<CURRENT-LIABILITIES> 1,288,329
<BONDS> 0
0
0
<COMMON> 14,848
<OTHER-SE> 4,145,298
<TOTAL-LIABILITY-AND-EQUITY> 5,462,166
<SALES> 0
<TOTAL-REVENUES> 85,026
<CGS> 0
<TOTAL-COSTS> 1,523,096
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,348
<INCOME-PRETAX> (1,458,418)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,458,418)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,458,418)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
