U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-KSB/A1
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
July 31, 1996 0-11088
For the fiscal year ended Commission file number
ALFACELL CORPORATION
(Name of small business issuer 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)
Issuer's telephone number: (201) 748-8082
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $.001 par value
(Title of Class)
- --------------------------------------------------------------------------------
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 _____
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
Issuer's revenues for the fiscal year ended July 31, 1996 were $184,250.
The aggregate market value of the Common Stock, par value $.001 per share,
held by non-affiliates based upon the average of the bid and asked prices as
reported by the National Quotation Bureau on September 23, 1996 was $57,295,203.
As of September 23, 1996 there were 14,446,193 shares of Common Stock, par value
$.001 per share, outstanding.
Transitional Small Business Disclosure Format: Yes _____ No __X__
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Part I
Item 1. BUSINESS.
Overview
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(R)which targets solid tumors, most of which are known to ultimately
become resistant to other chemotherapeutic drugs. To date, the most significant
clinical results with ONCONASE have been observed in advanced pancreatic,
non-small cell lung, malignant mesothelioma and metastatic breast cancer.
According to the American Cancer Society in 1996, approximately 388,000 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 patients with advanced stages of pancreatic,
non-small cell lung, malignant mesothelioma and metastatic breast cancer on a
weekly basis. Encouraging results have been observed in Phase I and II clinical
trials in patients with these tumor types, warranting further trials, some of
which are underway. Side effects associated with ONCONASE have been modest, are
primarily renal and are reversible upon reduction of dose, or 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. In November 1995, Alfacell began a randomized
multi-center Phase III clinical trial to test the combination of ONCONASE and
tamoxifen versus 5-fluorouracil ("5-FU") in approximately 200 patients with
advanced pancreatic cancer. A subsequent Phase III clinical trial was initiated
in August 1996, to compare ONCONASE and tamoxifen with Eli Lilly's product,
Gemzar(R) ("Gemzar"), a Food and Drug Administration ("FDA") approved drug for
pancreatic cancer, in approximately 100 patients.
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.
In addition, in vitro findings by NIH scientists revealed that ONCONASE
significantly inhibited production of the HIV virus in several persistently
infected human cell lines, preferentially degrading viral RNA while not
affecting normal cellular ribosomal RNA and messenger RNAs. Although the Company
plans to conduct
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further research concerning ONCONASE's anti-viral activity, 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 both
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.
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 hereto 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.
ONCONASE(R)
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. In 1987, the Company isolated a specific protein, P-30
Protein, (herein referred to by its registered trade name 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 protein belonging to the superfamily of pancreatic ribonucleases.
Postulated Mechanism of Action
Although the full mechanism of ONCONASE's anti-tumor activity has not been fully
delineated, the following processes have been identified experimentally:
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Binding of ONCONASE to cell surface receptors followed by:
o Cellular internalization;
o Ribonucleolytic degradation of RNAs;
o Inhibition of protein synthesis;
o Inhibition of the cell growth; and
o Cell death.
Pre-clinical and clinical data to date have 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
ONCONASE was tested as a single agent in patients with a variety of solid tumors
and in combination with tamoxifen in advanced pancreatic patients. 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, 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.
Alfacell has two on-going Phase III clinical trials in advanced pancreatic
cancer patients. The Company began a randomized multi-center Phase III clinical
trial in November 1995. In May 1996, the FDA approved Gemzar for the treatment
of advanced pancreatic cancer; therefore, in August 1996 the Company broadened
the criteria for inclusion in its study to include patients previously treated
with Gemzar. The trial is designed to compare the survival and quality of life
of patients treated with the combination of ONCONASE and tamoxifen versus
5-fluorouracil (5-FU), an FDA approved chemotherapy. Additionally, Alfacell
initiated a new Phase III multi-center clinical trial in August 1996, comparing
ONCONASE plus tamoxifen with Gemzar in newly diagnosed pancreatic patients.
ONCONASE is being tested in a Phase II clinical trial for malignant
mesothelioma. No standard therapy exists to treat this deadly cancer, and most
advanced malignant mesothelioma patients die of progressive disease within 6-12
months of diagnosis.
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Results to date have been encouraging; however, there can be no assurance that
previous clinical trial results will be reflective of future clinical results or
will be sufficient to obtain FDA approval.
Research and Development
Research and development expenses for the fiscal years ended July 31, 1996,
1995, and 1994 were $2,188,890, $1,205,523 and $1,114,455, respectively. During
fiscal 1996, the Company's research and development efforts were focused on
manufacturing ONCONASE under cGMP conditions ("current Good Manufacturing
Practices") for the Phase III clinical trials, commencing the Phase III clinical
trial in advanced pancreatic cancer and monitoring on-going activity of the
Phase II clinical trial in malignant mesothelioma.
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 plays 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.
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Manufacturing
The Company has signed an agreement 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 filling, 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, or were required, to do so.
Marketing
Neither the Company nor any of its officers or employees has pharmaceutical
marketing experience. 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. The
Company intends, in some instances, 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.
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.
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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 or other 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 or any foreign country.
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 believes it is important to develop new technology and improve its
existing technology. When appropriate, the Company files patent applications to
protect such inventions.
The Company owns four U.S. Patents:
a) U.S. Patent No. 4,888,172 issued in 1989, which covers pharmaceuticals
derived from an amphibian source;
b) U.S. Patent No. 5,559,212 issued in 1996, which covers ONCONASE; and
c) U.S. Patents Nos. 5,529,775 and 5,540,925 issued in 1996, which cover
combinations of ONCONASE with certain other chemotherapeutics.
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The Company also owns U.S. Patent No. 4,882,421, which has now been disclaimed
and is therefore legally unenforceable. This disclaimer permitted the Company to
obtain U.S. Patents Nos. 5,529,775, 5,540,925 and 5,559,212.
The Company owns two European patents. These European patents cover ONCONASE,
process technology for making ONCONASE, and combinations of ONCONASE with
certain other chemotherapeutics. The Company also owns other patent
applications, which are pending in the United States, Europe, and Japan. The
Company owns an undivided interest in each of two applications that are pending
in the United States. Each application relates to a Subject Invention (as that
term is defined in CRADAs to which the Company and the NIH are parties).
Patents covering biotechnological inventions have an uncertain scope, and the
Company is subject to this uncertainty. The Company's patent applications may
not issue as patents. Moreover, the Company's patents may not provide the
Company with competitive advantages and may not withstand challenges by others.
Likewise, patents owned by others may adversely affect the ability of the
Company to do business. Furthermore, others may independently develop similar
products, may duplicate the Company's products, and may design around patents
owned by the Company.
The Company also relies on proprietary know-how and on trade secrets to develop
and maintain its competitive position. Others may independently develop such
know-how or trade secrets or may otherwise obtain access thereto. Although
Company employees and consultants having access to proprietary information are
contractually required to keep such information confidential, such agreements
may be breached or held unenforceable.
Pursuant to the Term Loan (as hereinafter defined), the Company's bank acquired
a security interest in the Company's patent portfolio. The bank has agreed 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
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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 than ONCONASE.
Employees
As of September 23, 1996, Alfacell employed thirteen persons, of whom nine were
engaged in research and development activities and four were engaged in
administration and management. The Company has five 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.
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Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Results of Operations
Fiscal Years Ended July 31, 1996, 1995 and 1994
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 1996, 1995 and 1994. Investment income for fiscal 1996 was $184,250
compared to $14,992 for fiscal 1995, an increase of $169,258. This increase was
due to higher balances of cash and cash equivalent. Investment income for fiscal
1995 was $14,992 compared to $6,064 for fiscal 1994, an increase of $8,928.
Research and Development
Research and development expense for fiscal 1996 was $2,189,000 compared to
$1,206,000 for fiscal 1995, an increase of $983,000 or 82%. This increase was
primarily due to an increase in costs associated with manufacturing clinical
supplies of ONCONASE and costs in support of on-going clinical trials, including
the initial Phase III clinical trial for pancreatic cancer and the Phase II
clinical trial for malignant mesothelioma.
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 Chief Executive Officer and Medical Director.
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General and Administrative
General and administrative expense for fiscal 1996 was $807,000 compared to
$664,000 for fiscal 1995, an increase of $143,000 or 22%. This increase was
primarily due to an increase in public relations activities and legal and
accounting fees.
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 over the same period last year 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 Chief Executive Officer.
Interest
Interest expense for fiscal 1996 was $131,000 compared to $144,000 in fiscal
1995, a decrease of $13,000 or 9%. The decrease in fiscal 1996 was primarily due
to the conversion of convertible subordinated debentures to common stock and a
reduction in short-term loans payable over the prior period.
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.
Net Loss
The Company has incurred net losses during each year since its inception. The
net loss for fiscal 1996 was $2,942,000 as compared to $1,993,000 in fiscal 1995
and $2,234,000 in fiscal 1994. The cumulative loss from the date of inception,
August 24, 1981, to July 31, 1996 amounted to $40,391,000. 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
During fiscal 1996, the Company had a net increase in cash of $5,783,000. This
increase resulted from net cash provided by financing activities of $10,184,000,
primarily from private placements of common stock and warrants to purchase
common stock and proceeds from the exercise of stock options offset by net cash
used in operating activities of $3,405,000 and net cash used in investing
activities of $996,000 principally due to the purchase of marketable securities.
Total cash resources, including marketable securities, as of July 31, 1996 were
$8,131,000 compared to $1,398,000 at July 31, 1995. In addition, approximately
$2,200,000 was
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received in the aggregate in August and September 1996 in connection with option
exercises.
The Company's term loan agreement with its bank, (the "Term Loan") was amended
effective as of October 1, 1995. Among other things, the amendment extended the
maturity date of the Term Loan from May 31, 1996 to August 31, 1997, which has
enabled the Company to reflect substantially the entire principal amount of the
Term Loan outstanding as of July 31, 1996 as long-term debt. This is the primary
reason for the significant decrease in current liabilities as of July 31, 1996
compared to July 31, 1995 and the significant increase in long-term debt as of
July 31, 1996 compared to July 31, 1995. It is estimated that the outstanding
balance on August 31, 1997 will be $1,369,000. At that time, the Company intends
to refinance the Term Loan or use its current cash resources to pay off the
unpaid balance. However, there can be no assurance that the Company will be able
to successfully conclude a refinancing.
Pursuant to the terms of the Term Loan, 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 Chief Executive Officer has pledged a majority of the shares of the
Company's Common Stock owned by her to secure the repayment of the Term Loan and
the Chief Executive Officer's personal loan agreement with the same bank (the
"Shogen 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 both the Shogen Loan and the Term Loan agreement. If such
personal proceeds of the Company's Chief Executive Officer are used to repay the
Term Loan, the Company would be indebted to the Chief Executive Officer in the
same amount. As sales of the Chief Executive Officer's Common Stock were made in
payment of the Company's obligation to the bank pursuant to the Term Loan, the
Company reflected a reduction to Notes Payable owed to the bank and an increase
in the same amount to Loans Payable to Ms. Shogen. The Term Loan 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 such pledged stock to the aggregate debt outstanding under the Term
Loan and the Shogen Loan below 1:1. As of July 31, 1996, the Company, pursuant
to the Term Loan, and the Chief Executive Officer, pursuant to the Shogen
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Loan, owed the bank $1,453,290 and $736,565, respectively. See "Certain
Relationships and Related Transactions".
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. 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 on hand, including marketable securities, as of July 31, 1996 coupled with
the proceeds from the exercise of stock options in August and September 1996
will be sufficient to meet its anticipated cash needs for approximately the next
two years. 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 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.
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for
Stock-Based Compensation. This statement establishes an alternative method of
accounting for stock-based compensation awarded to employees, such as stock
options granted by the Company to employees. SFAS No. 123 provides for the
recognition of compensation expense based on the fair value of the stock-based
award, but allows companies to continue to measure compensation costs in
accordance with Accounting Principles Board Opinion (APB) No. 25, Accounting for
Stock Issued to Employees. Companies electing to retain this method must make
pro forma disclosures of net income and earnings per share as if the fair market
value based method had been applied. The Company plans to continue to use the
APB No. 25 which does not require the Company to record compensation expense for
the stock options it awards to employees. In 1997, the Company will disclose the
pro forma effect of the fair value method on 1996 and 1997 net income and
earnings per share.
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Item 10. 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, 1996, 1995 and 1994 with
respect to Alfacell's Chief Executive Officer and the only two other executive
officers of the Company during the last three fiscal years (the "Named Executive
Officers").
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
------------------------------------------------------
Name and Year Salary($) Bonus($)- Other Securities All Other
Principal Position Annual Underlying Compensation ($)
Compensa- Options/
tion ($)(1) SARs(#)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Kuslima Shogen 1996 $150,000 - 0 - - 0 - 500,000(3) - 0 -
Chief Executive Officer and 1995 150,000 - 0 - - 0 - - 0 - (4) - 0 -
Chairman of the Board of 1994 150,000 - 0 - - 0 - 1,306,529(2) - 0 -
Directors(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Gail E. Fraser(5) 1996 $130,000 - 0 - - 0 - - 0 - - 0 -
Vice President, 1995 121,163 - 0 - - 0 - - 0 - (4) - 0 -
Finance and Chief 1994 8,333 - 0 - - 0 - 475,000(6) - 0 -
Financial Officer
- ------------------------------------------------------------------------------------------------------------------------------------
Stanislaw M. Mikulski(7) 1996 $130,000 - 0 - - 0 - 250,000(3) - 0 -
Executive Vice President 1995 130,000 - 0 - - 0 - - 0 - (4) - 0 -
and Medical Director 1994 130,000 - 0 - - 0 - 431,409(7) - 0 -
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Excludes perquisites and other personal benefits that in the aggregate do
not exceed 10% of the Named Executive Officers' total annual salary and
bonus.
(2) Ms. Shogen resigned from her position as the Company's President in August
1996 and Chief Financial Officer in July 1994. Ms. Shogen was paid her
salary in full for fiscal 1996. No salary was paid to Ms. Shogen in fiscal
1995 and 1994 and these salary amounts were accrued on the Company's
financial statements as obligations owed to Ms. Shogen. During fiscal 1996,
Ms. Shogen was paid $225,978 representing payment in full of accrued back
salary. Of the $225,978, $150,000 was her full salary for fiscal year 1995
and $75,978 was part of her accrued salary for fiscal year 1994. The
balance of her accrued salary of $74,022 for fiscal year 1994 was paid by
the grant of stock options in March 1994. 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
13
<PAGE>
January 31, 1994, in March 1994 the Company granted Ms. Shogen five-year
options to purchase 841,529 shares of the Company's Common Stock at an
exercise price of $3.20 per share. Of the 841,529 options, 168,306 vested
September 30, 1994, 168,306 vested March 30, 1995, 168,306 vested March 30,
1996, 168,306 vested March 30, 1997 and 168,305 will vest March 30, 1998.
Also in March 1994, the Company granted Ms. Shogen five-year options to
purchase 465,000 shares of the Company's Common Stock at an exercise price
of $3.12 per share. Of the 465,000 shares, 93,000 vested March 30, 1995,
93,000 vested March 30, 1996, 93,000 vested March 30, 1997, 93,000 will
vest March 30, 1998 and 93,000 will vest March 30, 1999.
(3) These options were originally granted during the fiscal year ended July 31,
1992, and were due to expire by their terms in September 1995. In September
1995, the exercise period for these options was extended until September
1996 and the per share exercise price was increased to the fair market
value of the Common Stock on the date of such extension.
(4) No options were granted to the Named Executive Officers during the fiscal
year ended July 31, 1995.
(5) 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. During fiscal 1996,
Ms. Fraser was paid $25,000 representing payment in full of accrued back
salary. Ms. Fraser was paid her salary in full for fiscal 1996.
(6) 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 exercise prices of $3.22 and $5.00, respectively.
Of the 50,000 options, 25,000 vested immediately and 25,000 vested July 1,
1994 and expire November 10, 1997. The 75,000 options vested November 11,
1994 and expire November 10, 1998. On July 15, 1994, Ms. Fraser was granted
five-year options to purchase 350,000 shares of the Company's Common stock
at an exercise price of $4.11 per share. Of the 350,000 shares, 70,000
vested July 15, 1995, 70,000 vested July 15, 1996, 70,000 vested July 15,
1997, 70,000 will vest July 15, 1998 and 70,000 will vest July 15, 1999.
(7) No salary was paid to Dr. Mikulski in fiscal 1994. $5,000 of Dr. Mikulski's
salary in fiscal 1995 was paid to Dr. Mikulski. During fiscal 1996, Dr.
Mikulski was paid $194,996 representing payment in full of accrued back
salary. Of the $194,996, $125,000 was his remaining salary for fiscal 1995
and $69,996 was part of his salary accrued in fiscal 1994. The balance of
his accrued salary of $60,004 for fiscal 1994 was exchanged for stock
options that were granted in March
14
<PAGE>
1994. Dr. Mikulski was paid his salary in full for fiscal 1996. 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 five-year options to purchase
331,409 shares of the Company's Common Stock at an exercise price of $3.20
per share. Of the 331,409 options, 66,282 vested September 30, 1994, 66,282
vested March 30, 1995, 66,282 vested March 30, 1996, 66,282 vested March
30, 1997 and 66,282 will vest March 30, 1998. Also in March 1994, the
Company granted Dr. Mikulski five-year options to purchase 100,000 shares
of the Company's Common Stock at an exercise price of $3.12 per share. Of
the 100,000 shares, 20,000 vested March 30, 1995, 20,000 vested March 30,
1996, 20,000 vested March 30, 1997, 20,000 will vest March 30, 1998 and
20,000 will vest March 30, 1999.
15
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options to the Named Executive Officers during the fiscal year ended July 31,
1996.
Individual Grants
<TABLE>
<CAPTION>
% of Total Potential Realizable Value at Assumed
Options Annual Rates of Stock Price
Granted to Appreciation for Option Term (2)
Options Employees in Exercise of Base Expiration ------------------------------------
Granted Fiscal Year Price ($/Share) Date 0%($) 5%($) 10%($)
------- ------------ ----------------- ---------------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Kuslima
Shogen 500,000(1) -- $ 3.87 9/16/96 0 $ 96,750 $193,500
Gail E. Fraser 0 -- -- -- -- -- --
Stanislaw M
Mikulski 250,000(1) -- 3.87 9/16/96 0 $ 48,375 $ 96,750
</TABLE>
(1) These options, with an exercise price of $3.50 per share, vested on
the date of grant and were due to expire on September 16, 1995.
However, in order to induce the exercise of these options, the Board
of Directors approved the extension of such options. The expiration
date of the vested options was extended to September 16, 1996 and the
per share exercise price was increased to $3.87 which was the fair
market value of the Common Stock on the date of such extension.
(2) The amounts set forth in the three columns represent hypothetical
gains that might be achieved by the optionees if the respective
options are exercised at the end of their terms. These gains are based
on assumed rates of stock price appreciation of 0%, 5% and 10%. The 0%
appreciation column is included because the exercise price of the
options equals the market price of the underlying Common Stock on the
date the exercise period of the options was extended, and thus will
have no value unless the Company's stock price increases above the
exercise price.
16
<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth the information with respect to the Named
Executive Officers concerning the exercise of options during the fiscal year
ended July 31, 1996 and unexercised options held as of July 31, 1996.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options at Fiscal in-the-Money Options
Year End at Fiscal Year-End ($)(2)
Shares ----------------------------- -----------------------------
Acquired
On Value
Exercise Realized Exer- Exercis-
Name # ($)(1) cisable Unexercisable able Unexercisable
---- --------- --------- ------------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kuslima
Shogen 87,500 $82,576 1,255,289 873,418 $1,721,862 $1,354,920
Gail E. Fraser None None 265,000 210,000 $171,800 $140,700
Stanislaw M
Mikulski 86,500 $77,940 402,346 192,563 $529,362 $309,050
</TABLE>
(1) Based upon the fair market value of the purchased shares on the option
exercise date less the exercise price paid for the shares.
(2) The fair market value of the common stock at the fiscal year end was based
on the average of the bid and asked price ($4.78) for the common stock as
reported by the National Quotation Bureau on the last date of the fiscal
year, July 31, 1996.
17
<PAGE>
Item 12. Certain Relationships and Related 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 (the
"Term Loan"). Interest was 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 majority of the shares of Common Stock
of the Company owned by her and certain options, as additional collateral,
pursuant to a pledge agreement (the "Pledge Agreement") dated May 31, 1993
between Ms. Shogen, the Company and the bank. The Pledge Agreement secures the
obligations of the Company to the bank pursuant to the Term Loan as well as a
personal loan Ms. Shogen had with the same bank (the "Shogen Loan").
Substantially all of the obligations owed by the Company to Ms. Shogen were
subordinated to the Note. In order to satisfy the Company's obligations to the
bank pursuant to the Term Loan, from time to time, as contemplated by the Pledge
Agreement, portions of the shares of Common Stock pledged to the bank by Ms.
Shogen have been sold. During fiscal 1994, shares pledged by Ms. Shogen were
sold in payment of such obligation in the amount of $48,673 during the quarter
ended October 31, 1993, $15,945 during November 1993, $15,957 during December
1993 and $15,704 during January 1994. Through January 31, 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 under the Term Loan and the
Shogen Loan, below 1:1. In June 1994, the Shogen Loan 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 certain options to purchase Common
Stock issued to Ms. Shogen in connection with the conversion to options of
advances and interest thereon made by Ms. Shogen to the Company and accrued
salary owed to Ms. Shogen by the Company. Based upon the average of the closing
bid and asked prices on July 31, 1996, the shares of the Company's Common Stock
pledged by Ms. Shogen to secure the Term Loan and the Shogen Loan were valued at
$6,419,540 (excluding the value of shares of Common Stock underlying certain
options pledged to the bank) and the aggregate outstanding debt of the Company
pursuant to the Term Loan and the aggregate outstanding debt of Ms. Shogen
pursuant to the Shogen Loan as of July 31, 1996 were $1,453,290 and $736,565,
respectively. 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, which amount has been paid to Ms. Shogen by the Company, and paid
to the bank by Ms. Shogen. In November 1995, the Note was amended and restated
and the Term Loan agreement was amended to provide for, effective as of October
1,
18
<PAGE>
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.
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"). The
Company incurred such indebtedness to Ms. Shogen pursuant to sales of Common
Stock owned by Ms. Shogen pursuant to the Pledge Agreement, the proceeds of
which were used to reduce the Company's indebtedness under the Term Loan. Ms.
Shogen has at various times converted portions of the demand loans into
convertible debentures. At July 31, 1994, the Company owed Ms. Shogen an
aggregate of $203,723 pursuant to a demand loan and accrued interest on the
demand loan. During the fiscal year ended July 31, 1995, the Company, with its
bank's consent, repaid $80,067 of the principal amount of the demand loans. At
July 31, 1995, the Company owed Ms. Shogen an aggregate of $138,638 pursuant to
demand loans and accrued interest on the demand loans. During the fiscal year
ended July 31, 1996, the Company, with its bank's consent, repaid $138,638 in
principal representing payment in full of principal of Ms. Shogen's demand loans
to the Company. In July 1996, the Company advanced Kuslima Shogen $112,500 in
anticipation of proceeds due from the exercise of options by her. The principal
amount plus interest have been repaid in full.
During the fiscal years ended July 31, 1996 and 1995, the Company paid to The
Weinberg Group $77,060 and $158,649, respectively, for consulting services
provided to the Company by The Weinberg Group. Michael C. Lowe was a principal
of the Weinberg Group from 1988 through July 1996.
Robert R. Henry purchased an aggregate of 147,100 shares of Common Stock and
warrants to purchase 20,000 shares of Common Stock in private placements
completed by the Company in September 1994, September 1995 and June 1996 (the
"June 1996 Private Placement") on the same terms and conditions as the other
participants in the private placements. Certain of the shares purchased in the
June 1996 Private Placement were purchased by Mr. Henry on behalf of his
children.
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
19
<PAGE>
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.
20
<PAGE>
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-B).
Exhibit No. or
Exhibit Incorporation
No. Item Title by Reference
--- ---------- ------------
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 in April 1996 and June 1996
##
10.2 Lease, as amended - 225 Belleville Avenue, Bloomfield,
New Jersey **
10.3 Amendment to 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 #
21
<PAGE>
10.10 Form of Stock Purchase Agreement and Certificate used in
connection with various 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 Amendment No. 1 dated June 20, 1994 to Option Agreement
dated March 30, 1994 with Kuslima Shogen ****
10.19 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 ****
10.20 Second Pledge Agreement dated June 17, 1994 by and among
the Company, Kuslima Shogen and First Fidelity Bank,
N.A., New Jersey ****
10.21 Form of Amendment No. 1 dated June 20, 1994 to Option
Agreement dated March 30, 1994 with Kuslima Shogen *****
10.22 Form of Amendment No. 1 dated June 20, 1994 to Option
Agreement dated March 30, 1994 with Stanislaw Mikulski
*****
10.23 Form of Stock and Warrant Purchase Agreement and Warrant
Agreement used in Private Placement completed on
September 13, 1994 +
10.24 Form of Subscription Agreements and Warrant Agreement
used in Private Placements closed in October 1994 and
September 1995. #
22
<PAGE>
10.25 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 ####
10.26 Amended and Restated Term Note dated as of October 1,
1995 issued by the Company to First Fidelity Bank, N.A.
New Jersey ####
10.27 Warrant dated as of October 1, 1995 issued by the
Company to First Fidelity Bank, N.A. New Jersey ####
10.28 Pledge Agreement dated as of May 31, 1993 between the
Company, Kuslima Shogen and First Fidelity Bank, New
Jersey ###
21.1 Subsidiaries of Registrant **
23.1 Consent of KPMG Peat Marwick LLP ###
27.1 Financial Data Schedule +++
99.1 Factors to Consider in Connection with Forward-Looking
Statements +++
* 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 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.
23
<PAGE>
+++ Previously filed as exhibits to the Company's Annual Report on Form 10-KSB
for the year ended July 31, 1996 and incorporated by reference thereto.
#### Previously filed as exhibits to the Company's Registration Statement on
Form SB-2 (File No. 33-63341) 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 files as exhibits to the Company's Registration statement on Form
SB-2 (File No. 333-11575) and incorporated herein by reference thereto.
### Filed herewith.
(b) Reports on Form 8-K.
On July 16, 1996, the Company filed with the Securities and Exchange Commission
a Current Report on Form 8-K dated June 11, 1996 (Item 5).
24
<PAGE>
Signature
Pursuant to the requirements of Section 13 or 15(d) 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
Dated: October 7, 1997 /s/ GAIL E. FRASER
------------------
Gail E. Fraser, Chief Financial Officer,
Vice President of Finance, (Principal
Financial Officer and Principal
Accounting Officer) and Director
25
<PAGE>
EXHIBIT INDEX
10.28 Pledge Agreement dated May 31, 1993 between E-1
the Company, Kuslima Shogen and First Fidelity
Bank, N.A., New Jersey
23.1 Consent of KPMG Peat Marwick LLP E-2
26
Exhibit 10.28
PLEDGE AGREEMENT
PLEDGE AGREEMENT (this "Pledge Agreement"), dated as of May 31, 1993, by
KUSLIMA SHOGEN (the "Pledgor") and ALFACELL CORPORATION, a Delaware corporation
("Alfacell"), to FIRST FIDELITY BANK, NEW JERSEY, as the secured party (the
"Pledgee").
W I T N E S S E T H:
WHEREAS, Alfacell, as borrower, and the Pledgee have entered into a Term
Loan Agreement dated as of May 31, 1993 (as the same may be amended, modified or
supplemented from time to time, the "Alfacell Agreement") and a term note, dated
as of May 31, 1993 (the "Alfacell Term Note"), pursuant to which the Pledgee has
agreed to restructure a term loan previously extended to Alfacell (the term
loan, as so restructured, the "Alfacell Term Loan"); and
WHEREAS, the Pledgor, as borrower (Alfacell and the Pledgor are
collectively referred to herein as the "Borrowers"), and the Pledgee have
entered into a term loan agreement dated as of May 31, 1993 (as the same may be
amended, modified or supplemented from time to time, the "Shogen Agreement"; the
Alfacell Agreement and the Shogen Agreement are collectively referred to herein
as the "Agreements") and a term note dated as of May 31, 1993 (the "Shogen Term
Note"), pursuant to which the Pledgee has agreed to restructure a term loan
1
<PAGE>
previously extended to the Pledgor (the term loan, as so restructured, the
"Shogen Term Loan"; the Alfacell Term Loan and the Shogen Term Loan are
collectively referred to herein as the "Loans"); and
WHEREAS, simultaneously herewith, the Pledgor has executed a guaranty (the
"Guaranty") dated as of May 31, 1993 in favor of the Pledgee which guaranty will
be secured by, among other things, the collateral pledged by the Pledgor under
this Pledge Agreement; and
WHEREAS, simultaneously herewith, the Pledgor has executed the Shogen Term
Note dated as of May 31, 1993, pursuant to the Shogen Agreement, in favor of the
Pledgee which note will be secured by, among other things, the collateral
pledged by the Pledgor under this Pledge Agreement; and
WHEREAS, the Pledgor is the legal and beneficial owner of the shares of
capital stock of Alfacell listed on Exhibit A hereto and has previously
delivered to the Pledgee certificates representing shares of such capital stock
as collateral security for the payment and performance of Pledgor's obligations
to the Pledgee;
WHEREAS, it is a condition precedent to the obligations of the Pledgee to
enter into the Agreements and to restructure the Loans, that the Pledgor and
Alfacell shall execute and deliver to the Pledgee this Pledge Agreement; and
WHEREAS, the Borrowers will derive substantial benefit from the Loans as
restructured and wish to induce the Pledgee to restructure the Loans to the
Borrowers pursuant to the Agreements; and
2
<PAGE>
WHEREAS, the Borrowers desire to execute this Pledge Agreement to satisfy
the conditions described in the Agreements.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Pledgor hereby makes the following representations and
warranties to the Pledgee and hereby covenants and agrees with Pledgee as
follows.
SECTION 1. Defined Terms. Unless otherwise defined herein, terms defined in
the Agreements (as in effect on the date hereof whether or not the Agreements
are later amended, terminated or canceled) shall have all of the meanings as
defined therein when used herein.
SECTION 2. The Pledged Stock. As used herein, the term "Pledged Stock"
shall mean (i) the 1,134,000 shares of common stock, par value $00.001 per
share, of Alfacell, listed on Exhibit A hereto, (ii) any and all securities now
or hereafter issued in substitution, exchange, or replacement for such shares,
or as a dividend or distribution with respect to the Pledged Stock, (iii) any
and all warrants, options, partnership interests, or other rights to subscribe
to or acquire any additional capital stock of Alfacell obtained by the Pledgor
in connection with her ownership of such shares, and (iv) any and all capital
stock or other types of interests that are required to be pledged hereunder
pursuant to this Pledge Agreement or the Agreements, including without
limitation Section 4 hereof, and (v) any proceeds of any of the foregoing
including any cash proceeds realized upon the sale or other disposition of
Pledged Stock.
3
<PAGE>
SECTION 3. Pledge. The Pledgor hereby pledges, assigns, hypothecates,
transfers, and delivers (or has previously delivered) to the Pledgee, all the
Pledged Stock owned by the Pledgor on the date hereof, including, without
limitation, the share described on Exhibit A hereto, and hereby delivers (or has
previously delivered) to the Pledgee the certificates representing such Pledged
Stock and hereby assigns, transfers, hypothecates and sets over to the Pledgee
and grants to the Pledgee, a first lien on, and security interest in, all of
Pledgor's right, title and interest in and to the Pledged Stock and in all
proceeds thereof, together with appropriate undated stock powers duly executed
in blank, to be held by the Pledgee upon the terms and conditions set forth in
this Pledge Agreement, as collateral security for the punctual payment, when
due, and performance by Pledgor of all indebtedness, obligations and liabilities
of the Pledgor to the Pledgee now or hereafter incurred or created under,
arising out of or in connection with the Shogen Agreement, The Shogen Term Note
and the Guaranty, together with any and all expenses which may be incurred by
the Pledgee in collecting any or all of the Obligations or enforcing any rights
under this Pledge Agreement (all the foregoing being hereinafter called the
"Obligations").
SECTION 4. Subsequently Acquired Stock; Certain Distributions. Subject to
Section 6, if, while this Pledge Agreement is in effect, the Pledgor shall
become entitled to receive or shall receive any other or additional shares of
the capital stock of Alfacell of any class whatsoever (the "Stock") or any
Property (including cash) paid or distributed in respect of the Pledged Stock
(including without limitation, all
4
<PAGE>
other or additional Stock or Property paid or distributed in respect of the
Pledged Stock by way of stock-split, spin-off, stock dividends, split-up,
reclassification, combination of shares, increase or reduction in capital or
issued in connection with any reorganization, or similar arrangement, or by
reason of any consolidation, merger, exchange of stock, conveyance of assets,
liquidation or similar corporate reorganization), whether such Stock or Property
is received in substitution of, or in exchange for any shares of any Pledged
Stock, the Pledgor shall deliver to and the Pledgee shall be entitled to receive
directly and to retain as part of the Pledged Stock, such other Stock or
Property and the Pledgor agrees to accept the same as the Pledgee's agent and to
hold the same in trust on behalf of and for the benefit of the Pledgee and to
deliver the same forthwith to the Pledgee in the exact form received, with the
endorsement of the Pledgor when necessary or appropriate undated stock powers
duly executed in blank to be held by the Pledgee, subject to the terms hereof,
as additional collateral security for the Obligations. Any Stock delivered
pursuant to this Section 4 shall be accompanied by a certificate of the Pledgor
and the Secretary of Alfacell describing the Stock and certifying that the same
has been duly pledged with the Pledgee hereunder.
SECTION 5. Voting Rights. Unless an Event of Default under either the
Shogen Agreement or the Alfacell Agreement shall have occurred and be
continuing, the Pledgor shall be entitled to vote any and all Pledged Stock and
to give consents, waivers or ratifications in respect thereof, provided,
however, that no vote shall be cast nor any consent, waiver or ratification
given or action taken which
5
<PAGE>
would violate or be inconsistent with any of the terms of this Pledge Agreement,
the Agreements, the Shogen Term Note, the Alfacell Term Note, the Loans, the
Guaranty, or any other Loan Documents, or which would have the effect of
impairing the Pledged Stock or the position or interests of the Pledgee unless
(i) at least five (5) days' prior to casting any such vote Pledgor shall deliver
to Pledgee notice of the manner in which she intends to exercise, or the reasons
for refraining from exercising, any such right in the good faith business
judgment of the Pledgor, if the exercise or non-exercise of such right
potentially may violate or be inconsistent with the aforementioned agreements or
may impair the position or interests of the Pledgee and (ii) the Bank shall have
consented thereto in writing. After an Event of Default has occurred and is
continuing, the Pledgee shall be entitled to vote the Pledged Stock and give
consents, waivers or ratifications.
SECTION 6. Dividends and Other Distributions. All cash dividends paid in
respect of the Pledged Stock, and any sums paid or payable upon or in respect of
the Pledged Stock, upon the partial or complete liquidation or dissolution of
any issuer thereof, shall be paid over to the Pledgee to be held by it in escrow
as additional collateral security for the Obligations. All sums of money so paid
or distributed in respect of the Pledged Stock which are received by the
Pledgor, shall, until paid or delivered to the Pledgee, be held by the Pledgor
in trust as additional collateral security for the Obligations, unless an Event
of Default shall have occurred in which case such sums of money hall immediately
be paid to the Pledgee to be applied against the Obligations.
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SECTION 7. Pledgee's Rights. The Pledgee shall not be liable for failure to
collect or realize upon the Obligations or any collateral security or guarantee
therefor, or any part thereof, or for any delay in so doing nor shall it be
under any obligation to take any action whatsoever with regard thereto. If an
Event of Default has occurred and is continuing, the Pledgee may, without
notice, register any or all shares of the Pledged Stock held by it, in the name
of the Pledgee or its nominee, and the Pledgee or its nominee thereafter,
without notice, may exercise all voting and corporate rights at any meeting of
any corporation issuing any of the Pledged Stock and exercise any and all rights
of conversion, exchange, subscription or any other rights, privileges or options
pertaining to any shares of the Pledged Stock as if it were the absolute owner
thereof, including without limitation, the right to exchange at its discretion,
any and all of the Pledged Stock upon the merger, consolidation, reorganization,
recapitalization or other readjustment of any corporation issuing any of such
shares or upon the exercise by any such issuer or the Pledgee of any right,
privilege or option pertaining to any shares of the Pledged Stock, and in
connection therewith, to deposit and deliver any and all of the Pledged Stock
with any committee, depository, transfer agent, registrar or other designated
agency upon such terms and conditions as it may determine, all without liability
except to account for Property actually received by it, but the Pledgee shall
have no duty to exercise any of the aforesaid rights, privileges or options and
shall not be responsible for any failure to do so or delay in so doing.
7
<PAGE>
SECTION 8. Remedies. In the event that any portion of the Obligations has
been declared due and payable (whether at the stated maturity, by acceleration
or otherwise), the Pledgee, without demand of performance or other demand or
notice of any into to or upon the Pledgor, or any other Person (all and each of
which demands or notices are hereby expressly waived), may forthwith collect,
receive, appropriate and realize upon the Pledged Stock, or any part thereof,
and may forthwith sell, assign, given an option or options to purchase, contract
to sell or otherwise dispose of and deliver said Pledged Stock, or any part
thereof, in one or more parcels at public or private sale or sales, at any
exchange, broker's board or at any of the Pledgee's offices or elsewhere upon
such terms and conditions as it may deem advisable and at such prices as it may
deem best, for cash or on credit or for future delivery without assumption of
any credit risk, with the right to the Pledgee upon any such sales, public or
private, to purchase the whole or any part of said Pledged Stock so sold, free
of any right or equity of redemption in the Pledgor, which right or equity is
hereby expressly waived or released. The Pledgee shall apply the net proceeds of
any such collection, recovery, receipt, appropriation, realization or sale,
after deducting all reasonable costs and expenses of every kind therein or
incidental to the care, safekeeping or otherwise of any and all of the Pledged
Stock or in any way relating to the rights of the Pledgee hereunder, including
reasonable attorneys' fees and legal expenses, to the payment in whole or in
part, of the Obligations in such order as the Pledgee may elect and only after
so paying over such net proceeds and after the payment by the Pledgee of any
other amount required by
8
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any provisions of law including, without limitation, Section 9-504(1)(c) of the
Uniform Commercial Code, need the Pledgee account for the surplus, if any, to
the Pledgor. The Pledgor agrees that the Pledgee need not give more than ten
(10) Business Days' notice of the time and place of any public sale or of the
time after which a private sale or other intended disposition is to take place
and that such notice is reasonable notification of such matters. No notification
need be given to the Pledgor if she has signed after default a statement
renouncing any right to notification of sale or other intended disposition. In
addition to the rights and remedies granted to it in this Pledge Agreement and
in any other instrument or agreement securing, evidencing or relating to any of
the Obligations, the Pledgee shall have all the rights and remedies of a secured
party under the Uniform Commercial Code of the State of New Jersey.
SECTION 9. Remedies, etc., Cumulative. Each right, power and remedy of the
Pledgee provided for in this Pledge Agreement, the Agreements, the Shogen Term
Note, the Alfacell Term Note, the Guaranty or any other Loan Documents now or
hereafter existing at law or in equity or by statute shall be cumulative, and
may be exercised cumulatively or concurrently and are not exclusive of any
rights or remedies provided by law or by any other security agreement executed
by the Grantor in favor of the Bank. The exercise or beginning of the exercise
by the Pledgee of any one or more of the rights, powers or remedies provided for
in this Pledge Agreement, the Agreements, the Alfacell Term Note, the Shogen
Term Note, the Guaranty or any other Loan Documents now or hereafter existing at
law
9
<PAGE>
or in equity or by statute or any other security agreement or otherwise shall
not preclude the simultaneous or later exercise by the Pledgee of all such other
rights, powers or remedies. The Pledgee shall not by any act, delay, omission or
otherwise be deemed to have waived any of its rights or remedies hereunder and
no waiver shall be valid unless executed and delivered in accordance with the
provisions of Section 18 hereof, and then only to the extent therein set forth.
A waiver by the Pledgee of any right or remedy hereunder on any one occasion
shall not be construed as a bar to any right or remedy which the Pledgee would
otherwise have on any future occasion. No failure to exercise nor any delay in
exercising on the part of the Pledgee, any right, power or privilege hereunder,
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The existence
and terms and conditions of any other security agreement executed by the Grantor
in favor of the Bank, whether covering the Collateral or any other property of
the Grantor shall remain in full force and effect and shall not be deemed to
have been terminated by, or as a result of the execution and delivery of this
Agreement.
SECTION 10. Representations, Warranties and Covenants of the Pledgor.
(a) The Pledgor represents and warrants that as of the date of delivery of
the Pledged Stock (i) she is the legal, beneficial and record owner of, and
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<PAGE>
has good and marketable title to, the Pledged Stock described in Exhibit A
hereto, subject to no pledge, lien, mortgage, hypothecation, security interest,
charge, option or other encumbrance whatsoever, except the liens created by this
Pledge Agreement; (ii) the Pledged Stock constitutes approximately 14.7% of the
issued and outstanding capital stock of Alfacell; (iii) she has full power,
capacity and legal right to pledge all the Pledged Stock pursuant to this Pledge
Agreement; (iv) this Pledge Agreement has been duly executed and delivered by
the Pledgor and constitutes the legal, valid and binding obligation of the
Pledgor enforceable in accordance with its terms; (v) no consent of any other
party (including, without limitation, any stockholder or creditor of any of the
Borrowers) and, no consent, license,permit, approval or authorization of,
exemption by, notice or report to, or registration, filing or declaration with,
any governmental body is required to be obtained by the Pledgor in connection
with the execution, delivery or performance of this Pledge Agreement or for the
exercise by the Pledgee of the voting or other rights provided for in this
Pledge Agreement or the remedies in respect of the Pledged Stock pursuant to
this Pledge Agreement except as may be required in connection with such
disposition by laws affecting the offering and sale of securities generally;
(vi) the execution, delivery and performance of this Pledge Agreement will not
violate any provision of any applicable law or regulation or of any order,
judgment, writ, award or decree of any governmental body, domestic or foreign,
or of the Certificate of Incorporation or By-Laws of Alfacell or of any
securities issued by Alfacell, or of any mortgage, indenture, lease, contract or
other agreement, instrument or undertaking to which
11
<PAGE>
either of the Borrowers is a party or which purports to be binding upon the
Borrowers or upon any of their respective assets and will not result in the
creation or imposition of any lien or encumbrance on any of the assets of the
Borrowers except as contemplated by this Pledge Agreement; (vii) all the shares
of Pledged Stock listed on Exhibit A hereto have been duly and validly issued,
are fully paid and nonassessable; and (viii) the pledge, assignment and delivery
of such Pledged Stock pursuant to this Pledge Agreement creates a valid and
perfected first priority security interest in the Pledged Stock, and the
proceeds thereof, subject to no prior liens or encumbrance or to any agreement
purporting to grant to any third party (other than the Pledgee) a lien or
encumbrance on the Property or assets of the Pledgor which would include the
Stock.
(b) The Pledgor covenants and agrees that (i) she will defend the Pledgee's
right, title and security interest in and to the Pledged Stock and the proceeds
thereof against the claims and demands of all Persons whomsoever; and (ii) she
will have like title to and right to pledge any other Property at any time
hereafter pledged to the Pledgee hereunder and will likewise defend the right
thereto and security interest therein.
SECTION 11. Purchasers of Pledged Stock. Upon any sale of any of the
Pledged Stock by the Pledgee hereunder (whether by virtue of the power of sale
herein granted, pursuant to judicial process or otherwise), the receipt of the
Pledgee or the officer making the sale shall be a sufficient discharge to the
purchaser or purchasers of the Pledged Stock so sold, and such purchaser or
purchasers shall not
12
<PAGE>
be obligated to see to the application of any part of the purchase money paid
over to the Pledgee or any officer or be answerable in any way for the
misapplication or nonapplication thereof.
SECTION 12. Registration Rights. (a) If the Pledgee shall determine to
exercise its rights to sell any or all of the Pledged Stock pursuant to Section
8 hereof at any time when the issuer of any Pledged Stock has a class of
securities registered pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), or the Securities Exchange Act of 1934, as amended, and if in
the opinion of counsel for the Pledgee it is necessary, or if in the opinion of
the Pledgee it is advisable, to have the Pledged Stock, or that portion thereof
to be sold, registered under the provisions of the Securities Act, the Pledgor
and Alfacell will each execute and deliver and will cause the directors and
officers of Alfacell to execute and deliver, all at Alfacell's expense, all such
instruments and documents, and to do or cause to be done all such other acts and
things as may be necessary or, in the opinion of the Pledgee, advisable to
register the Pledged Stock, or that portion thereof to be sold, under the
provisions of the Securities Act and to cause the registration statement
relating thereto to become effective and to remain effective for a period of one
year from the date of the first public offering of the Pledged Stock, or that
portion thereof to be sold, and to make all amendments thereto and the related
prospectus which in the opinion of the Pledgee are necessary or advisable, all
in conformity with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission applicable thereto.
Alfacell agrees and the Pledgor agrees
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<PAGE>
to cause Alfacell to comply with the provisions of the securities or "Blue Sky"
laws of any jurisdiction which the Pledgee shall designate and to make available
to Alfacell security holders, as soon as practicable, an earnings statement
(which need not be audited) which will satisfy the provisions of Section 11(a)
of the Securities Act.
(b) The Pledgor recognizes that the Pledgee may be unable to effect a
public sale of any or all of the Pledged Stock by reason of certain prohibitions
contained in the Securities Act and applicable state securities laws, but may be
compelled to resort to one or more private sales thereof to a restricted group
of purchasers who will be obliged to agree, among other things, to acquire such
securities for their own account for investment and not with a view to the
distribution or resale thereof. The Pledgor acknowledges and agrees that any
such private sale may result in prices and other items less favorable to the
seller than if such sale were a public sale and, notwithstanding such
circumstances, agrees that any such private sale shall be deemed to have been
made in a commercially reasonable manner. The Pledgee shall be under no
obligation to delay a sale of any of the Pledged Stock for the period of time
necessary to permit any issuer of such securities to register such securities
for public sale under the Securities Act, or under applicable state securities
laws, even if such issuer would agree to do so.
(c) The Pledgor further agrees to do or cause to be done all such other
acts and things as may be necessary to make such sale or sale of any portion or
all of the Pledged Stock valid and binding and in compliance with any and all
14
<PAGE>
applicable laws, regulations, orders, writs, injunctions, decrees or awards of
any and all governmental bodies, agencies, authorities or instrumentalities,
domestic or foreign, having jurisdiction over any such sale or sales, all at the
Pledgor's expense. The Pledgor further agrees that a breach of any of the
covenants contained in this Section 12 will cause irreparable injury to the
Pledgee, that the Pledgee has no adequate remedy at law in respect of such
breach and, as a consequence, agrees that each and every covenant contained in
this Section 12 shall be specifically enforceable against the Pledgor and the
Pledgor hereby waives and agrees not to assert any defenses against any action
for specific performance of such covenants except for a defense that no Event of
Default has occurred and is continuing under the Agreements.
(d) The Pledgor will indemnify the Pledgee and the Pledgee's and its
respective shareholders, directors, agents, officers, subsidiaries and
affiliates and all others participating in the distribution of such securities
against all claims, losses, damages, judgments and liabilities caused by any
untrue statement (or alleged untrue statement) of a material fact contained
therein (or in any related registration statement, notification or the like) or
by any omission (or alleged omission) to state therein (or in any related
registration statement, notification or the like) a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as the same may have been caused by an untrue statement or
omission based upon information furnished in writing to the Pledgor by the
Pledgee expressly for use therein.
15
<PAGE>
SECTION 13. Expenses. The Pledgor will upon demand pay to the Pledgee the
amount of any and all reasonable expenses, including the reasonable fees and
disbursements of the Pledgee's counsel and of any experts and agents, which the
Pledgee may incur in connection with (i) the custody, preservation, use, or the
sale of, collection from, or other realization upon, any of the Stock, (ii) the
lawful exercise or enforcement of any of the rights of the Pledgee hereunder, or
(iii) the failure by Pledgor to perform or observe any of the provisions hereof.
SECTION 14. The Pledgee as Agent.
(a) The Pledgee will hold in accordance with this Pledge Agreement all
items of the Pledged Stock at any time received under this Pledge Agreement.
Subject to this Pledge Agreement, it is expressly understood and agreed that the
obligations of the Pledgee as holder of the Pledged Stock and interests therein
and with respect to the disposition thereof, and otherwise under this Pledge
Agreement, are only those expressly set forth in this Pledge Agreement.
(b) The Pledgee shall be deemed to have exercised reasonable care in the
custody and preservation of the Pledged Stock in its possession if the Pledged
Stock is accorded treatment substantially equal to that which the Pledgee
accords its own Property, it being understood that the Pledgee shall not have
responsibility for (i) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to any of
the Pledged Stock, whether or not the Pledgee has or is deemed to have knowledge
of such matters, or
16
<PAGE>
(ii) taking any necessary steps to preserve rights against any parties with
respect to any of the Pledged Stock.
SECTION 15. Transfer by the Pledgor; Release of Pledged Stock. (a) Neither
the Pledgor, nor Alfacell, will make any sale, transfer or other disposition in
respect of, or grant, assume, create or suffer to exist any lien with respect
to, any of the Pledged Stock or any interest therein (except pursuant to this
Pledge Agreement), provided, however, that notwithstanding anything contained
herein to the contrary, the Pledgor may, from time to time, request that the
Pledgee, in its sole discretion, release a portion of the Pledged Stock when
market conditions are favorable, in order to permit the sale of such stock in a
public or private sale whereupon the proceeds of any such sale shall be
delivered (net of capital gains taxes, if any) to the Pledgee to be applied
against the Obligations. A request to sell a portion of the Pledged Stock will
be approved by the Pledgee only after receipt of an opinion letter from the
Pledgor's counsel, in a form acceptable to the Pledgee in its sole discretion,
that any such sale of the Pledged Stock conforms with the requirements of Rule
144 of the Securities Act. The Pledgee shall provide to the Pledgor and its
counsel written notice of the amount and application of any proceeds realized
upon the sale of any shares of Pledged Stock hereunder.
(b) The sale by the Pledgee of any of the Pledged Stock shall not affect
the Pledgee's security interest in the remaining Pledged Stock under this Pledge
Agreement.
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(c) If, at any time, the market value of the Pledged Stock held by the
Pledgee, as determined by the Pledgee in its reasonable discretion as of the
most recent date of sale of Pledged Stock hereunder, is less than the aggregate
amount of the outstanding principal due under the Shogen Term Note and the
Alfacell Term Note, the Pledgor will provide to the Pledgee within fifteen (15)
days thereafter, sufficient additional capital stock of Alfacell or other
collateral acceptable to the Pledgee so that the market value of the Pledged
Stock in which the Bank has a security interest, together with any such other
collateral and any cash proceeds realized upon the sale of shares of Pledged
Stock will equal or exceed the aggregate amount of outstanding principal under
the Shogen Term Note and the Alfacell Term Note.
SECTION 16. Further Assurances.
The Pledgor agrees that at any time and from time to time upon the written
request of the Pledgee, the Pledgor will promptly, and in any event within three
(3) days following such request, execute and deliver, such further documents and
do such further acts and things as the Pledgee may reasonably request in order
to effect the purposes of this Pledge Agreement, except, that matters of an
emergent nature shall be acted upon by the Pledgor more promptly.
SECTION 17. Severability. Any provision of this Pledge Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
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unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 18. Waivers and Amendments; Successors and Assigns. None of the
terms or provisions of this Pledge Agreement may be waived, altered, modified,
terminated or amended except by an instrument in writing, duly executed by the
Pledgor and the Pledgee. This Pledge Agreement and all obligations of the
Pledgor hereunder shall be binding upon the successors and assigns of the
Pledgor, and shall, together with the rights and remedies of the Pledgee
hereunder, inure to the benefit of the Pledgee, and its successors and assigns;
provided, however, that the Pledgor may not assign or otherwise dispose of any
of his rights or obligations hereunder. The remedies herein are cumulative are
not exclusive of any remedies provided by law or by any other security agreement
executed by Pledgor in favor of Pledgee. The existence and terms and conditions
of any other security agreement executed by the Pledgor in favor of Pledgee,
whether covering the Pledged Stock or any other property of the Pledgor, shall
remain in full force and effect and shall not be deemed to have been terminated
by, or as a result of the execution and delivery of, this Agreement.
SECTION 19. Governing Law. This Pledge Agreement shall be governed by, and
be construed and interpreted in accordance with, the laws of the State of New
Jersey, without regard to principles of conflicts of laws. The Pledgor agrees to
submit to the jurisdiction of any state or federal court within the State of
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New Jersey in any action arising out of the terms, enforcement or breach of this
Pledge Agreement or any other documents delivered hereunder.
SECTION 20. Counterparts. This Pledge Agreement 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 Pledge Agreement or of any document required to be executed and delivered
in connection herewith or therewith to produce or account for more than one
counterpart.
SECTION 21. Headings, Plurals. Article and Section headings have been
inserted herein for convenience only and shall not be construed to be a part
hereof or thereof. Unless the context otherwise requires, words in the singular
number include the plural and words in the plural include the singular.
SECTION 22. Termination; Release. After full payment and performance of all
of the Obligations, this Pledge Agreement shall terminate, and the Pledgee, at
the request and expense of the Pledgor, will execute and deliver to the Pledgor
a proper instrument or instruments acknowledging the satisfaction and
termination of this Pledge Agreement, and will duly assign, transfer and deliver
to the Pledgor (without recourse and without any representation, warranty or
release) such of the Pledged Stock as may be in the possession of the Pledgee
and as has not theretofore been sold or otherwise applied or released pursuant
to this Pledge Agreement.
20
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SECTION 23. WAIVER OF JURY TRIAL. THE PLEDGOR, ALFACELL AND THE PLEDGEE
HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING TO WHICH THEY ARE PARTIES
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH
THIS PLEDGE AGREEMENT OR THE RELATIONSHIP ESTABLISHED HEREUNDER OR ANY OF THE
OTHER LOAN DOCUMENTS.
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IN WITNESS WHEREOF, the Pledgor and the Pledgee have caused this Pledged
Agreement to be duly executed and delivered as of the day and year first above
written.
PLEDGOR
/s/KUSLIMA SHOGEN
-----------------
Kuslima Shogen
ALFACELL CORPORATION
BY: /s/KUSLIMA SHOGEN
------------------
Kuslima Shogen
Title: President
FIRST FIDELITY BANK, N.A., NEW JERSEY
By: /s/RICHARD A. WOLBACH
---------------------
Richard A. Wolbach
Title: Vice President
22
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EXHIBIT A
Certificate Nos. Dated Unit Total Shares
- ---------------- ----- ------- ------------
CU17142 to 5 4-27-92 1,000 4,000
CU16298 to 301 5-29-91 1,000 4,000
CU12873 9-1-87 500,000 500,000
CU17098 to 105 4-27-92 5,000 40,000
CU17106 to 141 4-27-92 1,000 36,000
CU14422 to 7 5-30-89 50,000 300,000
CU16675 10-23-91 300 300
CU16665 10-21-91 700 700
CU16694 11-8-91 500 500
CU16477 8-7-91 500 500
CU7300 3-21-85 100,000 100,000
CU11495 12-29-86 150,000 150,000
---------
1,136,000
shares held
23
Exhibit 23.1
Independent Auditors' Consent
-----------------------------
The Board of Directors
Alfacell Corporation
We consent to incorporation by reference in the registration statement (No.
33-81308 on Form S-8 of Alfacell Corporation of our report dated September 24,
1996, relating to the balance sheets of Alfacell Corporation as of July 31, 1996
and 1995, and the related statements of operations, stockholders' equity
(deficiency), and cash flows for each of the years in the three-year period
ended July 31, 1996 and the period from August 24, 1981 (date of inception) to
July 31, 1996, which report appears in the July 31, 1996 annual report on Form
10-KSB/A1 of Alfacell Corporation.
Our report dated September 24, 1996 as it relates to the financial statements
for the period from August 24, 1981 (date of inception) to July 31, 1996, 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
October 7, 1997
