UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
April 30, 1997 0-11088
For the quarterly period ended Commission file number
ALFACELL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 22-2369085
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
225 Belleville Avenue, Bloomfield, New Jersey 07003
(Address of principal executive offices)
(973) 748-8082
(Issuer's telephone number)
NOT APPLICABLE
(Former name, former address, and former fiscal year, if changed
since last report)
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
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common shares outstanding as of June 2, 1997: 14,837,843
Transitional small business disclosure format (check one): Yes No X
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
Part I. Financial Information
Item 1. Financial Statements
BALANCE SHEETS
April 30, 1997 and July 31, 1996
<TABLE>
<CAPTION>
April 30, July 31,
ASSETS 1997 1996
------ ----- ----
(Unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 8,322,572 $ 8,131,442
Loan receivable, related party - 112,250
Prepaid expenses 201,543 63,850
------- ------
Total current assets 8,524,115 8,307,542
--------- ---------
Property and equipment, net of accumulated depreciation and amortization
of $722,913 at April 30, 1997 and $688,325 at July 31, 1996 262,101 127,930
------- -------
Other assets:
Deferred debt costs, net 6,258 20,362
Other 24,681 31,877
------ ------
Total other assets 30,939 52,239
------- -------
Total assets $ 8,817,155 $ 8,487,711
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,400,198 $ 86,936
Accounts payable 135,359 189,536
Accrued expenses 44,076 162,213
------ -------
Total current liabilities 1,579,633 438,685
Long-term debt, less current portion 18,060 1,398,760
------ ---------
Total liabilities 1,597,693 1,837,445
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value.
Authorized and unissued, 1,000,000 shares
at April 30, 1997 and July 31, 1996 - -
Common stock, $.001 par value.
Authorized 25,000,000 shares April 30, 1997; Issued and
outstanding 14,771,343 shares at April 30,
1997 and 13,859,209 shares at July 31, 1996 14,771 13,859
Capital in excess of par value 50,561,541 47,023,529
Common stock to be issued, 89,634 shares at July 31, 1996 - 258,335
Subscription receivable, 89,634 shares at July 31, 1996 - (254,185)
Deficit accumulated during development stage (43,356,850) (40,391,272)
------------ ------------
Total stockholders' equity 7,219,462 6,650,266
--------- ---------
Total liabilities and stockholders' equity $ 8,817,155 $ 8,487,711
========= =========
See accompanying notes to financial statements.
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</TABLE>
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Three months and nine months ended
April 30, 1997 and 1996 and the
Period from August 24, 1981
(Date of Inception) to April 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
August 24, 1981
(Date of
Three Months Ended Nine Months Ended Inception)
April 30, April 30, To
1997 1996 1997 1996 April 30, 1997
---- ---- ---- ---- --------------
REVENUE:
<S> <C> <C> <C> <C> <C>
Sales $ - $ - $ - $ - $ 553,489
<S> <C> <C> <C> <C> <C>
Investment income 109,232 31,083 338,280 105,563 723,534
Other income - - - - 60,103
------- ------ ------- ------- ------
TOTAL REVENUE 109,232 31,083 338,280 105,563 1,337,126
------- ------ ------- ------- ---------
COSTS AND EXPENSES:
Cost of sales - - - - 336,495
Research and development 677,007 520,826 2,370,768 1,541,826 24,930,158
General and administrative 285,863 197,138 840,290 621,627 16,546,072
Interest:
Related parties - 45 - 1,801 1,033,960
Others 29,757 31,205 92,800 96,517 1,847,291
------ ------ ------- ------- ---------
TOTAL COSTS AND EXPENSES 992,627 749,214 3,303,858 2,261,771 44,693,976
-------- ------- --------- --------- ----------
NET LOSS $ (883,395) $ (718,131) $ (2,965,578) $ (2,156,208) $ (43,356,850)
========= ========= =========== =========== ============
Loss per common share $ ( .06) $ (.06)$ (.20) $ (.19) $ (7.23)
Weighted average number of shares
outstanding 14,668,354 11,798,079 14,517,375 11,595,982 5,989,290
========== ========== ========== ========== =========
</TABLE>
See accompanying notes to financial statements.
- 3 -
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Nine months ended April 30, 1997 and
1996 and the Period from August
24, 1981
(Date of Inception) to April 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended August 24, 1981
April 30, (Date of inception)
1997 1996 April 30, 1997
---- ---- --------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net Loss $ (2,965,578) $ (2,156,208) $ (43,356,850)
Adjustments to reconcile net loss to net cash
used in operating activities:
Gain on sale of marketable securities - - (25,963)
Depreciation and amortization 50,130 58,398 1,097,359
Loss on disposal of property and equipment - - 18,926
Noncash operating expenses 27,900 15,997 4,915,861
Amortization of deferred compensation - - 11,442,000
Amortization of organization costs - - 4,590
Changes in assets and liabilities:
Decrease in loan receivable, related party 112,250 - -
Increase in prepaid expenses (137,693) (52,139) (201,543)
(Increase) decrease in other assets 7,196 (5,651) 11,503
Increase (decrease) in interest payable, related party - (137,388) 744,539
Increase (decrease) in accounts payable (54,177) 168,542 212,624
Increase (decrease) in accrued payroll and expenses,
related parties - (205,950) 2,348,145
Increase (decrease) in accrued expenses (118,137) 37,512 585,589
-------- ------ --------
Net cash used in operating activities (3,078,109) (2,276,887) (22,203,220)
----------- ----------- ------------
Cash flows from investing activities:
Purchase of marketable securities - - (290,420)
Proceeds from sale of marketable equity securities - - 316,383
Purchase of property and equipment (170,197) (26,228) (1,212,077)
Patent costs - - (97,841)
---------
Net cash used in investing activities (170,197) (26,228) (1,283,955)
-------- -------- -----------
</TABLE>
See accompanying notes to financial statements.
(Continued)
- 4 -
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS (continued)
Nine months ended April 30, 1997
and 1996 and the Period from
August 24, 1981
(Date of Inception) to April 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended August 24, 1981
April 30, (Date of inception)
1997 1996 April 30, 1997
---- ---- ----------------
Cash flows from financing activities:
<S> <C> <C>
Proceeds from short-term borrowings $ - - 849,500
Payment of short-term borrowings - - (623,500)
Increase in loans payable - related party, net - - 2,628,868
Proceeds from bank debt and other long-term debt,
<S> <C> <C> <C>
net of deferred debt costs 4,200 29,540 2,410,883
Reduction of bank debt and long-term debt (71,638) (127,915) (1,507,197)
Proceeds from common stock to be issued - - 433,358
Proceeds from issuance of common stock
and warrants, net 504,000 3,033,876 22,172,561
Proceeds from exercise of stock options and
warrants, net 3,002,874 326,630 5,098,274
Proceeds from issuance of convertible debentures - - 347,000
------------ ---------- -----------
Net cash provided by financing activities 3,439,436 3,262,131 31,809,747
------------ ---------- -----------
Net increase in cash 191,130 959,016 8,322,572
Cash and cash equivalents at beginning of period 8,131,442 1,398,027 -
----------- --------- -----
Cash and cash equivalents at end of period $ 8,322,572 2,357,043 8,322,572
=========== ========= =========
Supplemental disclosure of cash flow information -
interest paid $ 104,546 96,446 1,594,274
=========== ========= =========
Noncash financing activities:
Issuance of convertible subordinated debenture for
loan payable to officer $ - - 2,725,000
======== ========= =========
Issuance of common stock upon the conversion of
convertible subordinated debentures, related party $ - - 2,945,000
======== ========= =========
Conversion of short-term borrowings to common stock $ - - 226,000
======== ========= =======
Conversion of accrued interest, payroll and expenses
by related parties to stock options $ - - 3,194,969
======== ===== ---------
Repurchase of stock options from related party $ - - (198,417)
======== ========= =========
Conversion of accrued interest to stock options $ - - 142,441
======== ========= =======
Conversion of accounts payable to common stock $ - - 77,265
======== ========= ======
Conversion of notes payable, bank and accrued
interest to long-term debt $ - - 1,699,072
======== ========= =========
Conversion of loans and interest payable, related
party and accrued payroll and expenses, related
parties to long-term accrued payroll and other,
related party $ - - 1,863,514
======== ========= =========
Issuance of common stock upon the conversion of
convertible subordinated debentures, other $ - - 127,000
======== ========= =======
</TABLE>
See accompanying notes to financial statements.
- 5 -
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting of normal recurring accruals)
necessary to present fairly the Company's financial position as of April 30,
1997; the results of operations for the nine month periods ended April 30, 1997,
and 1996; and the period August 24, 1981 (date of inception) to April 30, 1997.
The results of operations for the nine months ended April 30, 1997 are not
necessarily indicative of the results to be expected for the full year.
The Company is a development stage company as defined in the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No. 7.
The Company is devoting substantially all of its present efforts to establishing
a new business. Its planned principal operations have not commenced and,
accordingly, no significant revenue has been derived therefrom.
Certain reclassifications to the prior year financial information were made
to conform with the April 30, 1997 presentation.
2. CAPITAL STOCK
In August 1996, a total of 387,300 stock options were exercised by related
parties, resulting in net proceeds of approximately $1,499,000 to the Company.
The exercise price of the options was $3.87 per share.
In August 1996, the Company issued 10,000 stock options with an exercise
price of $4.69 exercisable for five years as payment for services rendered. An
equal portion of these options vest monthly for one year commencing September 1,
1996. The Company recorded general and administrative expense of $27,900 which
was the fair value on the date of issuance.
In September 1996, 213,700 stock options were exercised by both related and
unrelated parties resulting in net proceeds of approximately $830,000 to the
Company. The exercise prices of the options ranged from $3.87 to $4.00 per
share.
On September 13, 1996, the Securities and Exchange Commission declared
effective a registration statement for the offer and sale by certain
stockholders of up to 2,042,506 shares of common stock. Of these shares (i)
1,722,646 were issued in several private placement transactions during the
period October 1995 through April 1996 and in the private placement completed in
June 1996 (the "June 1996 Private Placement"), (ii) 313,800 are issuable upon
exercise of warrants which were issued in the June 1996 Private Placement, and
(iii) 6,060 were issued to one of the Company's raw material suppliers in
connection with a supply agreement.
- 6 -
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. CAPITAL STOCK (continued)
Also on September 13, 1996, the Securities and Exchange Commission declared
effective another registration statement for the offer and sale by certain
stockholders of up to 3,767,787 shares of common stock of the Company. Of these
shares (i) an aggregate of 1,951,020 shares were issued to the private placement
investors in the private placement transactions which were completed during the
period March 1994 through September 1995 (the "Earlier Private Placements"),
(ii) an aggregate of 1,184,451 shares are issuable upon the exercise of warrants
which were issued to the private placement investors in the Earlier Private
Placements, (iii) an aggregate of 622,316 shares may be issued, or have been
issued, upon exercise of options which were issued to the option holders in
certain other private transactions, and (iv) up to 10,000 shares may be issued
to the Company's bank upon exercise of the warrant issued to the bank in
connection with an amendment to the Company's term loan agreement with its bank
(the "Term Loan").
In November and December 1996, an aggregate of 26,000 stock options and
2,000 warrants were exercised by both related and unrelated parties resulting in
net proceeds of approximately $84,000 to the Company. The exercise prices of the
options ranged from $2.45 to $3.12 per share and the exercise price of the
warrants was $5.00 per share.
In March 1997, a private placement of 112,000 shares of common stock at
$4.50 per share was made to a single investor resulting in net proceeds of
$504,000 to the Company.
In March 1997, 12,500 stock options and 24,000 warrants were exercised by
unrelated parties resulting in net proceeds of $158,300 to the Company. The
exercise prices of the options ranged from $2.84 to $3.12 per share and the
exercise price of the warrants was $5.00 per share.
In April 1997, 45,000 warrants were exercised by unrelated parties
resulting in net proceeds of $225,000 to the Company. The exercise price of the
warrants was $5.00 per share.
- 7 -
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Information contained herein contains "forward-looking statements" which
can be identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should" or "anticipates" or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy. No assurance can be given that the future results covered by the
forward-looking statements will be achieved. The matters set forth in Exhibit
99.1 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.
Results of Operations
Three and nine month periods ended April 30, 1997 and 1996
Revenues. The Company is a development stage company as defined in the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 7. As such, the Company is devoting substantially all of its
present efforts to establishing a new business and developing new 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 the nine month periods ended April 30, 1997 and 1996.
Investment income for the nine months ended April 30, 1997 increased to
$338,000, compared to $106,000 for the same period last year due to an increase
in the amount of funds invested.
Research and Development. Research and development expense for the three
months ended April 30, 1997 was $677,000 compared to $521,000 for the same
period last year, an increase of 156,000 or 30%. The increase was primarily due
to the hiring of additional clinical and laboratory personnel and costs in
support of on-going clinical trials, including the Phase III clinical trials for
pancreatic cancer and the Phase II clinical trial for malignant mesothelioma and
additional costs related to applications for new patents, offset by decreases in
costs associated with the purchase of raw materials and the manufacture of
clinical supplies of ONCONASE.
Research and development expense for the nine months ended April 30, 1997
was $2,371,000 compared to $1,542,000 for the same period last year, an increase
of $829,000 or 54%. The increase was primarily due to the hiring of additional
clinical and laboratory personnel, increases in costs associated with the
purchase of raw materials for anticipated future production of ONCONASE, costs
to manufacture clinical supplies of ONCONASE, costs in support of on-going
clinical trials, including the Phase III clinical trials for pancreatic cancer
and the Phase II clinical trial for malignant mesothelioma and additional costs
related to applications for new patents.
General and Administrative. General and administrative expense for the
three months ended April 30, 1997 was $286,000 compared to $197,000 for the same
period last year, an increase of $89,000 or 45%. The increase was primarily due
to the hiring of additional personnel, including the Company's new President in
August 1996, and an increase in public relations activities and insurance and
depreciation expense.
General and administrative expense for the nine months ended April 30, 1997
was $840,000 compared to $622,000 for the same period last year, an increase of
$218,000 or 35%. The increase was primarily due to the hiring of additional
personnel, including the Company's new President in August 1996, and an increase
in public relations activities and insurance and depreciation expense, offset by
a reduction in amortization expense on the Company's Term Loan.
- 8 -
<PAGE>
Interest. Interest expense for the three months ended April 30, 1997 was
$30,000 compared to $31,000 for the same period last year, a decrease of $1,000
or 3%. The decrease was primarily due to a reduction in the principal balance of
the Company's Term Loan which was amended effective as of October 31, 1995.
Interest expense for the nine months ended April 30, 1997 was $93,000
compared to $98,000 for the same period last year, a decrease of $5,000 or 5%.
The decrease was primarily due to a reduction in the principal balance of the
Company's Term Loan and reductions in related and unrelated party payables.
Net Loss. The Company has incurred net losses during each year since its
inception. The net loss for the three months ended April 30, 1997 was $883,000
compared to $718,000 for the same period last year, an increase of $165,000 or
23%. The net loss for the nine months ended April 30, 1997 was $2,966,000 as
compared to $2,156,000 for the same period last year, an increase of $810,000 or
38%. The cumulative loss from the date of inception, August 24, 1981 to April
30, 1997 amounted to $43,357,000. Such losses are attributable to the fact that
the Company is still in the development stage and accordingly, has not derived
sufficient revenues from operations to offset the development stage expenses.
Liquidity and Capital Resources
Alfacell has financed its operations since inception primarily through
equity and debt financing and interest income. During the nine months ended
April 30, 1997, the Company had a net increase in cash and cash equivalents of
$191,000, which resulted from net cash provided by financing activities of
$3,439,000, primarily from the issuance of common stock upon the exercise of
stock options and warrants and from a private placement of common stock in March
1997, offset by the purchase of property and equipment of $170,000 and net cash
used in operating activities of $3,078,000.
The Company's Term Loan matures on August 31, 1997. The entire principal
amount outstanding on the Term Loan as of April 30, 1997 was reflected as a
current liability. This is the primary reason for a significant increase in
current liabilities as of April 30, 1997 compared to July 31, 1996 and a
significant decrease in long-term debt as of April 30, 1997 compared to July 31,
1996. The Company estimates that the outstanding balance on August 31, 1997 will
be $1,369,000. At that time, the Company intends to either refinance the Term
Loan, or use its current cash resources or raise sufficient equity to pay off
the unpaid balance. However, there can be no assurance that the Company will
have sufficient cash resources available at that time, that it will be able to
raise sufficient equity or that it will be able to successfully conclude a
refinancing.
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 and cash equivalents as of April 30, 1997 will be sufficient to meet its
anticipated cash needs for approximately the next two years, assuming that a
significant portion of such cash reserves is not used to repay the Term Loan. To
date, a significant portion of the Company's financing has been through private
placements of common stock and warrants, the exercise of stock options and
warrants, 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.
- 9 -
<PAGE>
Pursuant to the terms of the Term Loan agreement, the Company is prohibited
without the bank's consent, 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, or (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 the shares of the Company's
Common Stock owned by her to secure repayment of the Term Loan. The pledgor may
from time-to-time request that the bank release a portion of the pledged stock
when market conditions are favorable in order to permit sales of such stock
whereupon the proceeds will be used to make payments under the pledgor's term
loan agreement with the bank. The Term Loan agreement prohibits the issuance of
any shares by the Company or right to purchase any shares of the Company's stock
if the result of such issuance or purchase would be to decrease the ratio of the
market value of the stock pledged to the bank by the Chief Executive Officer to
the aggregate outstanding debt of the Company and the Company's Chief Executive
Officer, as pledgor to the bank, below 1:1.
The Company's working capital and capital requirements may depend upon
numerous factors, including the progress of the Company's research and
development programs, the timing and cost of obtaining regulatory approvals and
the levels of resources that the Company devotes to the development of
manufacturing and marketing capabilities.
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<PAGE>
PART II. OTHER INFORMATION
Item 2. (c) Recent Sales of Unregistered Securities
On March 3, 1997, pursuant to a Purchase Agreement for Common
Stock, the Company issued 112,000 shares of Common Stock, par value $.001 to a
single investor with an aggregate value of $504,000. This transaction was
consummated as a private sale pursuant to Section 4 (2) of the Securities Act of
1933, as amended.
In March 1997, 24,000 warrants received in connection with the
Earlier Private Placements were exercised to purchase Common Stock, for an
aggregate consideration of $120,000. This transaction was consummated as a
private sale pursuant to Section 4 (2) of the Securities Act of 1933, as
amended.
In April 1997, 45,000 warrants received in connection with the
Earlier Private Placements were exercised to purchase Common Stock, for an
aggregate consideration of $225,000. This transaction was consummated as a
private sale pursuant to Section 4 (2) of the Securities Act of 1933, as
amended.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-B).
<TABLE>
<CAPTION>
Exhibit No.
or
Exhibit Incorporation
No. Item Title by Reference
---- ---------- -------------
<C> <C>
3.1 Certificate of Incorporation *
3.2 By-Laws *
3.3 Amendment to Certificate of Incorporation #
4.1 Form of Convertible Debenture **
10.1 Form of Stock and Warrant Purchase Agreements used in private
placements completed April 1996 and June 1996 ##
10.2 Lease Agreement - 225 Belleville Avenue, Bloomfield, New
Jersey ###
10.3 Term Loan Agreement dated as of May 31, 1993 by and
between the Company and First Fidelity Bank, N.A., New
Jersey **
10.4 Term Note dated as of May 31, 1993 issued by the Company to
First Fidelity Bank, N.A., New Jersey **
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<PAGE>
10.5 Patent Security Agreement dated as of May 31, 1993 by and
between the Company and First Fidelity Bank, N.A., New
Jersey **
10.6 Security Agreement dated as of May 31, 1993 by and between
the Company and First Fidelity Bank, N.A., New Jersey **
10.7 Subordination Agreement dated as of May 31, 1993 by and
among the Company, Kuslima Shogen, and First Fidelity Bank,
N.A., New Jersey **
10.8 Amendment to Subordination Agreement dated as of May 31,
1993 by and among the Company, Kuslima Shogen, and First
Fidelity Bank, N.A., New Jersey dated June 30, 1995 #
10.9 Form of Stock Purchase Agreement and Certificate used in
connection with various private placements ***
10.10 Form of Stock and Warrant Purchase Agreement and Warrant
Agreement used in Private Placement completed on March 21,
1994 ***
10.11 The Company's 1993 Stock Option Plan and Form of Option
Agreement *****
10.12 Debt Conversion Agreement dated March 30, 1994 with Kuslima
Shogen ****
10.13 Accrued Salary Conversion Agreement dated March 30, 1994
with Kuslima Shogen ****
10.14 Accrued Salary Conversion Agreement dated March 30, 1994
with Stanislaw Mikulski ****
10.15 Debt Conversion Agreement dated March 30, 1994 with John
Schierloh ****
10.16 Option Agreement dated March 30, 1994 with Kuslima Shogen ****
10.17 Amendment No. 1 dated June 20, 1994 to Option Agreement
dated March 30, 1994 with Kuslima Shogen ****
10.18 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 ****
10.19 Second Pledge Agreement dated June 17, 1994 by and among
the Company, Kuslima Shogen and First Fidelity Bank, N.A.,
New Jersey ****
10.20 Form of Amendment No. 1 dated June 20, 1994 to Option
Agreement dated March 30, 1994 with Kuslima Shogen *****
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<PAGE>
10.21 Form of Amendment No. 1 dated June 20, 1994 to Option
Agreement dated March 30, 1994 with Stanislaw Mikulski *****
10.22 Form of Stock and Warrant Purchase Agreement and Warrant
Agreement used in Private Placement completed on September
13, 1994 +
10.23 Form of Subscription Agreements and Warrant Agreement used
in Private Placements closed in October 1994 and September
1995 +
10.24 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 ~
10.25 Amended and Restated Term Note dated as of October 1, 1995
issued by the Company to First Fidelity Bank, N.A. New Jersey ~
10.26 Warrant dated as of October 1, 1995 issued by the Company to
First Fidelity Bank, N.A. New Jersey ~
10.27 Common Stock Purchase Agreement by and between the
Company and Digital Creations, Inc. dated March 3, 1997 ###
10.28 The Company's 1997 Stock Option Plan ###
27.1 Financial Data Schedule ###
99.1 Factors to Consider in Connection with Forward-Looking
Statements ###
</TABLE>
* Previously filed as exhibit to the Company's Registration Statement on Form
S-18 (File No. 2-79975-NY) and incorporated herein by reference thereto.
** Previously filed as exhibits to the Company's Annual Report on Form 10-K
for the year ended July 31, 1993 and incorporated herein by reference
thereto.
*** Previously filed as exhibits to the Company's Quarterly Report on Form
10-QSB for the quarter ended January 31, 1994 and incorporated herein by
reference thereto.
**** Previously filed as exhibits to the Company's Quarterly Report on Form
10-QSB for the quarter ended April 30, 1994 and incorporated herein by
reference thereto.
*****Previously filed as exhibits to the Company's Registration Statement Form
SB-2 (File No. 33-76950) and incorporated herein by reference thereto.
- 13 -
<PAGE>
+ 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.
+++ Previously filed as exhibits to the Company's Annual Report on Form 10-KSB
for the year ended July 31, 1996 and incorporated herein 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 filed 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.
None.
- 14 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALFACELL CORPORATION
(Registrant)
June 13, 1997 /s/GAIL E. FRASER
- ------------- -----------------
Date Gail E. Fraser
Vice President, Finance and
Chief Financial Officer (Principal
Accounting Officer and Principal
Financial Officer)
Exhibit 10.2
LEASE AGREEMENT
THIS LEASE, made as of the 26th day of March, 1997, by and between
Bloomtex Associates, a New Jersey limited partnership having an office at 460
Main Avenue, Wallington, New Jersey 07057 (hereinafter "Landlord"), and ALFACELL
Corporation, a Delaware corporation having an office at 225 Belleville Avenue,
Bloomfield, New Jersey 07003 (hereinafter "Tenant"):
W I T N E S S E T H:
1. PREMISES.
Landlord hereby demises and leases unto Tenant, and Tenant
hereby takes and hires from Landlord, upon the terms and conditions hereinafter
set forth, those portions of that certain office/laboratory building (the
"Building") located at 225 Belleville Avenue in the Town of Bloomfield, County
of Essex, State of New Jersey, more particularly delineated as the crosshatched
areas on Exhibit A attached hereto and made a part hereof (hereinafter the
"Premises"). Tenant acknowledges that it is leasing the Premises in its AS IS
condition on the date hereof.
Tenant shall have the non-exclusive right to utilize the
parking areas of the Building for parking, as well as the non-exclusive use of
the driveway connected thereto, for its employees, agents, invitees and
licensees. In the event that the parking areas available for non-exclusive use
by Tenant are reduced, restricted, or relocated due to a taking by eminent
domain or similar proceeding, there shall be no liability on the part of the
Landlord for such reduction, restriction, or relocation and this Lease shall not
be affected, except as otherwise provided in Section 12 below.
2. TERM.
The term of this lease shall be five (5) years, commencing
January 1, 1997 (hereinafter the "Commencement Date") and terminating on
December 31, 2001 (hereinafter the "Expiration Date").
This lease shall automatically be renewed an additional period of five
(5) years on the same terms and conditions unless either party gives at least
nine (9) months written notice prior to its expiration of their intention not to
renew same. The "Basic Rent" for said renewal shall be calculated by applying a
cost of living (COLA) adjustment. The COLA shall be equal to the difference
between the Consumer price index for January 2002 and January 1997 for Northern
New Jersey applied to the final years "Basic Rent" Annual COLA adjustments shall
be applied to each succeeding year of said five year option.
<PAGE>
3. BASIC RENT.
The Tenant shall pay to the Landlord at the Landlord's present
mailing address set forth above (or at such other place as the Landlord may
designate in writing from time to time), without offset or deduction, on the
Commencement Date and, thereafter, monthly in advance on the first day of each
and every calendar month during the Lease Term (except as set forth in
subsections 3.1(a), 3.1(b),and 3.1(c) below), a sum equal to the following
(hereinafter referred to as the "Basic Rent"):
3.1(a) Commencing on the Commencement Date to December 31,
1998, Tenant shall pay Landlord annually the sum of $96,775 payable in equal
monthly installments each in the amount of Eight Thousand Sixty Four and 83/100
Dollars ($8,064.83); and
3.1(b) Commencing on January 1, 1999 to December 31, 1999,
Tenant shall pay Landlord annually the sum of $115,594 payable in equal monthly
installments each in the amount of Nine Thousand Six Hundred Thirty Two and
83/100 Dollars ($9,632.83); and
3.1(c) Commencing on January 1, 2000 to December 31, 2001,
Tenant shall pay Landlord annually the sum of $136,000 payable in equal monthly
installments each in the amount of Eleven Thousand Three Hundred Thirty Three
and 33/100 Dollars ($11,333.33).
In addition to the "Basic Rent" Tenant shall pay to the
Landlord Tenant's proportionate share (based on the square footage of the
Premises and the square footage of the Building) of any increase in real estate
taxes on Building over the base tax year of calendar 1996. Landlord shall submit
a statement to Tenant calculating said increase. Payment shall be made by Tenant
within thirty (30) days of receipt of said statement. Notwithstanding the
foregoing, if less than 95% of the Building (or the property which is the basis
for computing real estate taxes) was occupied during all or part of calendar
year 1996, real estate taxes for calendar year 1996 shall be deemed increased to
equal the real estate taxes that would have been payable if the Building (or
such property) had been 95% occupied throughout calendar year 1996 and the
vacant space had been leased at fair market rental.
Landlord is responsible for payment of all costs necessary to
supply the Premises with electricity, water, gas, heating and air conditioning
as provided in Section 6 below and all real estate taxes assessed against the
building of which the Premises forms a part (the "Building").
4. USE OF PREMISES.
Tenant shall use and occupy the Premises throughout the term
hereof solely for office purposes or any other legal purpose. It is understood
and agreed, however, that Tenant shall not engage in heavy manufacturing in the
Premises.
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<PAGE>
Tenant shall promptly comply with all laws, ordinances, rules,
regulations, requirements and directives of the Federal, State and Municipal
Governments or Public Authorities and of all their departments, bureaus and
subdivisions, applicable to and affecting the said Premises, their use and
occupancy, for the correction, prevention and abatement of violations in, upon
or connected with the said Premises, during the term hereof; and shall promptly
comply with all orders, regulations, requirements and directives of the Board of
Fire Underwriters or similar authority and of any insurance companies which have
issued or are about to issue policies of insurance covering the said Premises
and its contents, for the prevention of fire or other casualty, damage or
injury, at the Tenant's own cost and expense. Notwithstanding the foregoing,
Tenant shall have no obligation to perform any structural alterations to the
Premises unless the need for same arises from Tenant's specific manner of use
(as opposed to general office and/or laboratory use) of the Premises. Anything
to the contrary herein notwithstanding, Landlord shall comply with all such
requirements for site conformance, except if nonconformance is due to an act or
omission of Tenant. Tenant may contest any legal requirement and may defer
compliance with such legal requirement provided that such deferral does not
create a lien against the Premises or impose any criminal liability against
Landlord.
5. REPAIRS AND MAINTENANCE.
5.1(a) By Landlord. Landlord has agreed at Landlord's expense,
upon signing of this lease, to hire a contractor to clean the airway ducts and
air conditioning unit of Premises. From and after the Commencement Date,
Landlord shall keep the exterior walls, foundations and roof of the Building
waterproof, shall be responsible for the maintenance and repair in good and
proper working order of the roof of the Building, the structural and exterior
portions of the Building, and the electrical, plumbing, air conditioning and
heating systems of the Building, except for repairs or maintenance occasioned by
the negligence of Tenant, its agents, employees or invitees, which shall be the
responsibility of Tenant. Landlord shall ensure that the heating and air
conditioning systems provide sufficient and reasonable heat and air conditioning
to the Premises. In addition, Landlord shall keep and maintain in good and clean
condition all of the parking areas and keep such areas well lighted and free of
ice and snow. In the event Landlord fails to perform work on its part to be
performed hereunder, Tenant shall serve upon Landlord written notice thereof,
given in the manner as provided in this Lease. If Landlord fails to perform such
work within ten (10) days thereafter, Tenant may, at its option, undertake such
work and shall deduct the actual cost thereof to Tenant from the next monthly
installment or installments, as the case may be, of rent as shall be payable by
Tenant.
5.1(b) By Tenant. Except as provided in paragraph A above, Tenant shall be
responsible for all maintenance, cleaning and repair of the Premises.
- 3 -
<PAGE>
6. SERVICES TO BE PROVIDED BY LANDLORD.
During Normal Business Hours, Landlord will supply to the
Premises reasonable and sufficient heat, ventilation and air conditioning.
Tenant agrees to keep peripheral windows closed at all times and to cooperate
with Landlord and observe all reasonable regulations which Landlord may
prescribe for the proper functioning and protection of the heating, ventilation
and air conditioning system. For and during that portion of each lease year
between October 15 and May 15, Landlord shall provide heat to the PREMISES as
climatic conditions shall require, and for and during the portion of each lease
year between May 16 and October 14, Landlord shall provide air conditioning to
the PREMISES as climatic conditions shall require. For the purposes of this
Lease, "Normal Business Hours" shall mean the period between 8 A.M. and 6 P.M.
on Monday through Friday, and between 8 A.M. and 1 P.M. on Saturday, of each
week, excluding days which are designated as legal holidays in the State of New
Jersey. In the event that Tenant occupies the PREMISES at any time other than
during Normal Business Hours and Tenant requests heating or air conditioning
during such hours, Landlord shall provide such services to Tenant and, Tenant
shall pay to Landlord additional rent for the Landlord's actual out of pocket
costs for such services provided during other than Normal Business Hours.
Landlord shall at no cost or expense to Tenant, provide to the Premises (a)
electric current in such quantities as Tenant shall require, (b) water for
drinking, lavatory and cooking purposes, (c) gas as shall be required by Tenant.
7. INSURANCE.
Tenant shall, at Tenant's sole cost and expense, maintain for
the mutual benefit of Landlord and Tenant, general public liability insurance
against claims for bodily injury or death or property damage occurring upon, in
or about the Premises, such insurance to afford protection to the limit of not
less than One Million Dollars ($1,000,000) combined single limit for bodily
injury and property damage.
Upon execution of this Lease, and thereafter no less than
fifteen (15) days prior to the expiration date of the policy theretofore
furnished pursuant to this section, an original of the policy or certificate of
insurance shall be delivered by Tenant to Landlord. Such policy, and all
renewals thereof, shall name Landlord and Tenant as insurers, and shall provide
that such policy shall not be canceled without 30-day prior written notice to
Landlord.
In the event that Tenant fails to take out, pay for, maintain
or deliver the insurance policy required herein, then Landlord may, but shall
not be obligated to, take such action as it deems necessary to effect such
insurance, and the total cost thereof, together with interest at 8% per annum,
shall be payable to Landlord on demand, or at the option of Landlord may be
added to any installment of Rent then due or thereafter to become due, and
Tenant covenants to pay same, as additional rent.
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<PAGE>
8. ALTERATIONS.
No alterations, additions or improvements shall be made, and
no climate regulating, air conditioning, cooling, heating or sprinkler systems,
television or radio antennas or heavy equipment shall be installed in or
attached to the Premises without the prior written consent of the Landlord, such
consent not to be unreasonably withheld or delayed. Tenant is not obligated to
request or obtain Landlord's consent to make decorations or nonstructural
alterations.
All of the aforesaid maintenance and repairs shall be of
quality or class substantially equal to the original work or construction and in
conformity with all fire and casualty insurance rating services and according to
all applicable building codes and regulations. Tenant agrees that at all times
during the Term it shall maintain at its sole cost and expense the sprinkler
systems and lines at the Premises in working order. Tenant acknowledges that
throughout the Term Landlord shall keep in force and Tenant shall pay for a
service contract with a reputable service company for a quarterly inspection and
examination of the sprinkler systems and lines at the Premises and shall also
allow inspections and examinations to be conducted at any time upon the request
of any and all insurance companies which provide or may provide insurance with
regard to the Premises. Subject to Tenant's rights set forth at termination
clause, Tenant agrees to comply at its sole cost and expense with all
requirements of the insurance company or companies conducting such inspections
and examinations of the sprinkler system and lines at the Premises.
Not later than the last day of the term, Tenant shall, at
Tenant's expense, remove all Tenant's personal property and those improvements
made by Tenant which have not become the property of Landlord, including, but
not limited to trade fixtures, moveable paneling and the like; repair all injury
done by or in connection with the installation or removal of said property and
improvements; and surrender the Premises in as good condition as they were at
the beginning of the term, excepting reasonable wear and tear, repairs required
to be performed by Landlord and damage by fire, the elements, casualty, or other
cause not due to the misuse or neglect by Tenant, Tenant's agents, servants, or
visitors. All other property of Tenant remaining on the Premises after the last
day of the term or earlier termination of this Lease shall be conclusively
deemed abandoned and may be removed by Landlord, and Tenant shall reimburse
Landlord for the cost of such removal. Landlord may have any such property
stored at Tenant's risk and expense.
In the event that any mechanics' lien is filed against the
premises as a result of alterations, additions or improvements made by the
Tenant, the Landlord, at its option, after thirty (30) days notice to the
Tenant, may pay the said lien, without inquiring into the validity thereof, and
the Tenant shall forthwith reimburse the Landlord the total expense incurred by
the Landlord in discharging the said lien, as additional rent hereunder.
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<PAGE>
9. INSPECTION.
The Landlord, or its agents, shall have the right to enter the
Premises upon not less than twenty-four (24) hours notice to Tenant at
reasonable hours to examine the same, or to make such repairs, additions or
alterations as it shall deem necessary for the safety, preservation or
restoration of the improvements, or for the safety or convenience of the
occupants thereof or to exhibit the same to prospective tenants, purchasers and
mortgagees provided the Landlord indemnify Tenant, its directors, officers,
employees and agents and their respective heirs, successors and assigns from and
against all liability and expense, including reasonable attorney's fees, from
claims for bodily injury, property damage or otherwise alleged to arise out of
such entry. In no event shall the Landlord be liable for any interruption of the
Tenants's business as a result of the making of any such repair, replacement or
addition that is necessary, provided that Landlord uses its best efforts to
minimize interference with Tenant's use and enjoyment of the Premises.
10. INDEMNIFICATION.
The Landlord shall not be responsible for the loss of or
damage to property, or injury to persons, occurring in or about the Premises, by
reason of any existing or future condition, defect, matter or thing in said
Premises or the property of which the Premises are a part, or for the act,
omissions or negligence of other persons or tenants in and about the said
property, unless caused by Landlord's breach of its obligations under this Lease
or the negligence or willful wrongful act of Landlord or its agents, employees
or contractors. Tenant agrees to indemnify and save Landlord harmless from all
claims and liability for losses of or damage to property, or injuries to persons
occurring in the Premises, unless caused by the negligence or willful wrongful
act of Landlord or its agents, employees or contractors or Landlord's breach of
its obligations under this Lease. In case any action or proceeding be brought
against the Landlord by reason of any such claim, the Tenant, upon notice from
the Landlord, shall resist and defend such action or proceeding. Landlord agrees
to indemnify and save Tenant harmless from all claims and liability for losses
of or damage to property or injuries to persons (a) occurring in the Building
but outside the Premises or in the parking areas unless caused by the negligence
of Tenant, (b) arising from Landlord's breach of its obligations under this
Lease, (c) arising from the negligence or willful misconduct of Landlord or its
agents, employees or contractors or (d) arising out of the failure of any
present or past tenant to comply with all applicable laws. The provisions of
this Section 10 shall survive the expiration or earlier termination of the Term.
11. CASUALTY LOSSES.
11.1 In the event of destruction of the Premises or the
building containing the Premises by fire, explosion, the elements, other
casualty or otherwise during the term hereby created and as a result thereof
should the Premises or access thereto be so badly injured that the same cannot
be repaired within one hundred twenty (120) days from the happening of such
injury, then and in such a case the term hereby created shall, at the option of
the Tenant
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<PAGE>
or Landlord to be exercised within 30 days of the injury, cease and become null
and void from the date of such damage or destruction, and the Tenant shall
immediately surrender Premises and all the Tenant's interest therein to the
Landlord, and shall pay rent only to the time of destruction, in which event the
Landlord may re-enter and repossess the premises thus discharged from this Lease
and may remove all parties therefrom. Should the Premises be rendered
untenantable and unfit for occupancy, but yet be repairable within one hundred
twenty (120) days from the happening of said injury, the Landlord shall enter
and repair the same with reasonable speed, and rent shall abate and shall not
accrue after said injury or while repairs are being made, but shall recommence
immediately after said repairs shall be completed. But if the Premises shall be
so slightly injured as not to be rendered untenantable and unfit for occupancy,
then the Landlord agrees to repair the same with reasonable promptness and in
that case the rent accrued and accruing shall not cease. The Tenant shall
immediately notify the Landlord in case of fire or other damage to the Premises.
In the event of partial destruction, Landlord must notify Tenant within thirty
(30) days of its intent to rebuild or not, and if there is no notification,
Tenant shall have the right to cancel this Lease.
11.2 Each party hereto waives any and every claim which arises
or may arise in its favor and against the other party hereto during the term of
this Lease or any renewal or extension thereof for any and all loss of or damage
to any of its property located within or upon, or constituting a part of the
premises leased to Tenant hereunder, which loss or damage is covered by valid
and collectible fire and extended coverage insurance policies, to the extent
such that loss or damage is recoverable under said insurance policies. Said
mutual waivers shall be in addition to and not in limitation or derogation of,
any other waiver or release contained in this Lease with respect to and loss of,
or damage to, property of the parties hereto. Inasmuch as the above mutual
waivers precluded the assignment of any aforesaid claim by way of subrogation
(or otherwise) to an insurance company (or any other person), each party hereto
hereby agrees immediately to give each insurance company which has issued to its
policies of fire and extended coverage insurance, written notice of the terms of
said mutual waivers, and to have said insurance policies properly endorsed, if
necessary, to prevent the invalidation of said insurance coverages by reason of
said waivers.
12. TAKING BY EMINENT DOMAIN.
If all or any part of the Premises shall be taken by public or
quasi-public authority under any power of eminent domain or condemnation, this
Lease, at the option of the Landlord or Tenant, shall forthwith terminate and
the Tenant shall have no claim or interest in or to any award of damages for
such taking, provided this clause shall not prevent the Tenant from making a
claim on its own behalf separate and apart from any claims of the Landlord. If
there is a taking but neither party terminates this Lease, then Landlord shall
make all repairs necessitated by such taking, rent shall be equitably reduced
and the Lease shall otherwise continue in force and effect.
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<PAGE>
13. LANDLORD'S REMEDIES; DEFAULT PROVISIONS.
13.1 It is further agreed that if at any time during the term
of this Lease the Tenant shall make any assignment for the benefit of creditors,
or be decreed insolvent or bankrupt according to law, or if a receiver shall be
appointed for the Tenant, then the Landlord may, at its option, terminate this
lease, exercise of such option to be evidenced by notice to that effect of the
liquidation of the property of the Tenant or the Tenant's estate, but such
termination shall not release or discharge any payment of rent payable hereunder
and then accrued, or any liability then accrued by reason of any agreement or
covenant herein contained on the part of the Tenant, or the Tenant's legal
representatives.
13.2 If Tenant (i) defaults in any payment of Rent or any
other amounts due hereunder, following not less than ten (10) days notice of
default or (ii) defaults in the performance of any of the other covenants and
conditions hereof following not less than thirty (30) days notice or default and
the opportunity to cure (provided, however, that if the matter of the default is
such that it cannot be cured within thirty (30) days, Tenant shall have a
reasonable period of time within which to cure such default beyond such 30 day
period) then this Lease shall, at the option of Landlord, terminate and Tenant's
right to possession of the Premises shall cease.
13.3(a) DEFICIENCY. In any case where the Landlord has
recovered (or has a right pursuant to the terms of this Lease to recover)
possession of the Premises by reason of the Tenant's default and Landlord's
termination of this Lease, the Landlord may, at the Landlord's option, occupy
the Premises or cause the Premises to be redecorated, altered, divided,
consolidated with other adjoining Premises, or otherwise change or prepare for
reletting, and may relet the premises or any part thereof as agent of the Tenant
or otherwise, for a term or terms to expire prior to, at the same time as, or
subsequent to, the original expiration date of the Term of this Lease, at the
Landlord's option, and receive the rent therefor. Rent so received shall be
applied first to the payment of such expenses as Landlord may have incurred in
connection with the recovery of possession, redecorating, altering, dividing,
consolidating with other adjoining Premises, or otherwise changing or preparing
for reletting, and the reletting, including brokerage and reasonable attorneys'
fees, and then to the payment of damages in amounts equal to the rent hereunder
and to the costs and expenses of performance of the other covenants of the
Tenant as herein provided. The Tenant agrees, in any such case, whether or not
the Landlord has relet, to pay to the Landlord damages equal to the Basic and
Additional Rent and other sums herein agreed to be paid by the Tenant, less the
net proceeds of the reletting, if any, as ascertained from time to time; and the
same shall be payable by the Tenant at the time and in the manner specified in
Section 3, above. The Tenant shall not be entitled to any surplus accruing as a
result of any such reletting. In reletting the Premises as aforesaid, the
Landlord may grant rent concessions, and the Tenant shall not be credited
therewith. No such reletting shall constitute a surrender and acceptance or be
deemed evidence thereof.
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<PAGE>
13.3(b) Tenant hereby waives all rights of redemption to which
the Tenant might be entitled by any law now or hereafter in force.
13.3(c) Landlord's remedies hereunder are in addition to any
remedy allowed by law. Tenant agrees to pay, as Additional Rent, all reasonable
attorneys' fees and disbursements, and other expenses incurred by the Landlord
in enforcing any of the obligations under this Lease, this covenant to survive
the expiration or sooner termination of this Lease. Tenant shall have a similar
right of collection in the event Tenant shall incur any such expenses to enforce
any of the obligations contained in this Lease on the part of the Landlord to
perform.
13.4 RIGHT TO CURE TENANT'S BREACH. If the Tenant breaches any
covenant or condition of this Lease, the Lessor may, on reasonable notice to the
Tenant (except that no notice need be given in case of emergency), cure such
breach at the expense of the Tenant and the reasonable amount of all expenses,
including attorneys' fees and expenses, incurred by the Landlord in so doing
(whether paid by the Landlord or not) shall be deemed Additional Rent payable on
demand. In no way whatsoever shall the Landlord be obligated to effect such
cure.
14. NOTICES.
All notices, demands and requests which may or are required to
be given by either party to the other shall be in writing. All notices, demands
and requests by Landlord to Tenant shall be deemed properly made or given if
mailed postage prepaid, registered or certified mail, return receipt requested,
or sent by overnight courier or hand delivered addressed to Tenant at 225
Belleville Avenue, Bloomfield, New Jersey, or at such other place as Tenant may
from time to time designate in a written notice to Landlord. All notices,
demands and requests by Tenant to Landlord shall be deemed to have been properly
given if and when sent by United States registered or certified mail, postage
prepaid, return receipt requested, or sent by overnight courier or hand
delivered addressed to Landlord at Bloomtex Corporation, 460 Main Avenue,
Wallington, New Jersey 07057, Attn: Corporate Secretary, or at such other place
as Landlord may from time to time designate in a written notice to Tenant. All
notices shall be deemed given when received or when delivery is refused.
15. CERTIFICATE BY TENANT.
Tenant agrees at any time and from time to time upon not less
than fifteen (15) days, notice by Landlord to execute, acknowledge and deliver
to Landlord, at Landlord's expense, a statement or statements (to the extent
true) in writing certifying (I) that this Lease is unmodified and in full force
and effect; (ii) that it sets forth the entire agreement between the Landlord
and Tenant; (iii) that to the extent best of Tenant's knowledge the landlord is
not in default under any of the terms hereof and has performed all of its
obligations pursuant hereto; (iv) that to the extent best of Tenant's knowledge
there are no existing offsets or defenses against the enforcement of any of the
terms, covenants, or conditions hereof upon the
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<PAGE>
part of the Tenant to be performed; and (v) as to the dates to which the Rent
has been paid in advance, if any, it being intended that any such statement
delivered pursuant to this Section may be relied upon by any prospective
purchaser or mortgagee of the fee of the Premises or of Landlord's interest
therein, or any assignee or any such mortgagee.
16. SUBORDINATION.
Landlord represents and warrants that on the date hereof there
are no mortgages affecting or encumbering the Premises. This Lease shall be
subject and subordinate to all mortgages which may hereafter affect the
Premises, Landlord's interest therein, or the real property of which the
Premises form a part, and to all renewals, modifications, consolidations,
replacements and extensions thereof, provided and on the express condition that
the holder of such mortgage executes and delivers to Tenant a subordination and
nondisturbance agreement which provides that the mortgagee will not disturb this
Lease or Tenant's rights in the Premises provided that Tenant is not in default
hereunder beyond the expiration of the applicable grace period and which is
otherwise reasonably satisfactory to Tenant. This Section shall be
self-operative and no further instrument of subordination shall be required by
any mortgagee. In confirmation of such subordination, Tenant shall execute
promptly any certificate that Landlord may request. Tenant hereby irrevocably
constitutes and appoints Landlord the Tenant's attorney-in-fact to execute any
such certificate or certificates for and on behalf of the Tenant.
17. ASSIGNMENT AND SUBLETTING.
The Tenant shall not transfer or assign the Tenant's interest
in and to the Premises, or sublet the Premises or any portion thereof, without
first procuring the written consent of the Landlord, which consent shall not be
unreasonably withheld or delayed; and any attempted transfer, assignment or
subletting without such written consent shall be void and confer no rights upon
any third person. No such assignment or subletting shall relieve Tenant of any
obligations herein. The consent by Landlord to any transfer, assignment or
subletting shall not be deemed a waiver on the part of the Landlord of any
requirement of consent to any future transfer, assignment or subletting. If
Landlord does not respond to Tenant's request to consent to an assignment or
subletting within 20 days, Landlord shall be deemed to have consented thereto.
Notwithstanding the foregoing, Tenant may, without Landlord's consent, assign
this Lease or sublet all or any part of the Premises to any corporation or other
legal entity controlled by, which controls or which is under common control with
Tenant where control shall mean ownership of 50% or more of the beneficial
interests in the entity in question.
18. BROKER.
Tenant represents and warrants that it has not dealt with any
broker in connection with this Lease, and was not shown the Premises by any
broker.
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<PAGE>
19. SIGNS.
Tenant may place any signs of any kind whatsoever, upon, in or
about the Premises or any part thereof, of a design and structure and in or at
such places as may be permitted by law. All such signs shall be removed by
Tenant prior to the expiration of the Term. In case Landlord shall deem it
necessary to remove any such signs in order to paint or make any repairs,
alterations or improvements in or upon the Premises or any part thereof, such
signs may be removed, but shall be replaced at Landlord's expense when the said
repairs, alterations, or improvements shall have been completed. Any signs shall
at all times conform with all municipal ordinances or other laws and regulations
applicable thereto at Tenant's expense, and Tenant shall obtain any required
permits or licenses for the installation of such signs at Tenant's expense.
20. ENVIRONMENTAL MATTERS.
20.1 Tenant's Standard Individual Classification ("SIC") Number is 8731.
Tenant shall promptly notify Landlord if the SIC Number becomes inapplicable or
if another SIC Number becomes applicable.
20.2 ISRA COMPLIANCE. Tenant shall, at Tenant's sole expense,
comply with the New Jersey Industrial Site Recovery Act and the regulations
promulgated thereunder (referred to as "ISRA") as same relate to Tenant's
occupancy of the Premises, as well as any other environmental law, rule, or
regulation affecting or affected by Tenant's use and occupancy of the Premises
to the extent same arises from Tenant's acts. Tenant shall, at Tenant's own
expense, make all submissions to, provide all information to, and comply with
all the requirements of, the Bureau of Industrial Site Evaluation (the "Bureau")
of the New Jersey Department of Environmental Protection and Energy ("NJDEP")
which arise due to Tenant's acts. Should the Bureau or any other division of
NJDEP, pursuant to any other environmental law, rule, or regulation, determine
that a cleanup plan be prepared and that a cleanup be undertaken because of any
spills or discharge of hazardous substances or wastes at the Premises which
occur during the term of this Lease and were caused by Tenant or its agents or
contractors, then Tenant shall, at Tenant's own expenses prepare and submit the
required plans and financial assurances, and carry out the approved plans.
20.3 LANDLORD'S ISRA COMPLIANCE. In the event that Landlord
shall have to comply with ISRA by reason of Landlord's actions or the actions of
any prior or existing tenant of the building, Tenant shall, at no cost or
expense to Tenant, promptly provide all information requested by Landlord for
Landlord's preparation of nonapplicability affidavits or a Negative Declaration
and Landlord shall, at its own cost and expense comply with ISRA. Tenant shall
indemnify, defend, and save harmless Landlord from all fines, suits, procedures,
claims, and actions of any kind arising out of or in any way connected with any
spills or discharges of hazardous substances or wastes at the Premises which
occur during the term of this Lease and were caused by Tenant or its agents or
contractors, and from all fines, suits, procedures, claims, and actions of any
kind arising out of Tenant's failure to provide all
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<PAGE>
information, make all submissions and take all actions required by the Bureau or
any other divisions of NJDEP which arise due to Tenant's acts. Tenant's
obligations and liabilities under this paragraph shall continue so long as
Landlord remains responsible for any spills or discharges of hazardous
substances or wastes at the Premises which occur during the term of this Lease
and were caused by Tenant or its agents or contractors. Tenant's failure to
abide by the terms of this paragraph shall be restrainable by injunction. Tenant
shall have no responsibility to obtain a "Negative Declaration" or "Letter of
Non-Applicability" from the NJDEP in connection with a sale or other disposition
of the real estate by Landlord or an interest in the Landlord or a change in the
tenancy of or ownership of any other tenant, but Tenant agrees to cooperate with
Landlord at no cost, expense or liability to Tenant in Landlord's effort to
obtain same.
20.4 Tenant covenants that the Premises shall not be used to
generate, manufacture, refine, transport, treat, store, handle, dispose,
transfer, produce, process or in any manner deal with Extraordinary Hazardous
Materials in violation of applicable laws. Tenant shall comply with and ensure
compliance by all Occupants with, all applicable Federal, State and local laws,
ordinances, rules and regulations with respect to any Extraordinary Hazardous
Materials and Hazardous Materials (hereinafter defined), and shall keep the
Premises free and clear of any liens imposed pursuant to such laws, ordinances,
rules and regulations. In the event that Tenant receives any notice or advice
from any governmental authority, or from any Occupant, with regard to Hazardous
Materials or Extraordinary Hazardous Materials on, from or affecting the
Premises in violation of applicable laws, Tenant shall immediately notify
Landlord. Tenant shall conduct and complete at Tenant's sole cost and expense
all investigations, studies, sampling and testing, and all remedial, removal and
other actions necessary to clean up and remove all Hazardous Materials or
Extraordinary Hazardous Materials (other than any Hazardous Materials or
Extraordinary Hazardous Materials introduced by a person other than the Tenant
or an Occupant) on, from or affecting the Premises in accordance with all
applicable Federal, State and local laws, ordinances, rules, regulations and
policies. The term "Hazardous Materials" as used in this Lease shall include,
gasoline, petroleum products, explosives, radioactive materials, hazardous
materials, hazardous wastes, hazardous or toxic substances, polychlorinated
biphenyls, or related similar materials, asbestos or any material containing
asbestos, or any other substance or material as may be defined as a hazardous or
toxic substance by any Federal, State or local governmental law, ordinance, rule
or regulation, including (without limitation) the Hazardous Materials
Transportation Act, as amended (49 U.S.C. ss.1801, et seq.), the Comprehensive
Environmental Response, Compensation and Liability Act, as amended (42 U.S.C.
ss.9601 et seq.) ("CERCLA"), the Resource Conservation and Recovery Act, as
amended (42 U.S.C. ss.6901, et seq.), the Federal Water Pollution Control Act
(33 U.S.C. ss.1251, et seq.), the Clean Air Act (42 U.S.C. ss.7401, et seq.),
the Industrial Site Recovery Act which is the successor to the Environmental
Cleanup Responsibility Act, as amended (N.J.S.A. 13:1K-6 et seq.) ("ECRA") and
the New Jersey Spill Compensation and Control Act, as amended (N.J.S.A.
58:10-23.11b et seq.) and the rules and regulations adopted and publications
promulgated pursuant thereto; and, the term "Extraordinary Hazardous Materials"
shall have the meaning given to such term in the Superfund Amendments and
Reauthorization Act of 1986 ("SARA"), Public Law No.
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<PAGE>
99-499, 100 Stat. 1613) and/or all such materials as are or may be listed on and
described by the NJDEP's list of extremely hazardous substances (all the
foregoing laws, rules and regulations, hereafter referred to as the
"Environmental Laws"). The obligations and liabilities of Tenant under this
Section shall survive any termination, expiration or permitted assignment of
this Lease. The term "Occupant" as used in this Lease shall mean the Tenant or
an agent, permitted sublessee, licensee, customer or invitee of Tenant.
20.5 In the event of Tenant's failure to comply in full with
the provisions of this section, Landlord may, at its option, perform any and all
of Tenant's obligations as aforesaid, and all costs and expenses incurred by
Landlord in exercise of this self-help right shall be deemed to be Additional
Rent payable on demand.
20.6 Tenant shall indemnify, defend and hold harmless the
Landlord and each mortgagee of the Premises from and against any and all
liabilities, damages, suits, fines, claims, losses, judgments, causes of action,
costs and expenses (including reasonable fees and expenses of counsel) of any
kind which may be incurred by the Landlord or any such mortgagee or threatened
against the Landlord or such mortgagee, arising out of or in any way connected
with (a) any breach by Tenant of the undertakings set forth in this Section, (b)
any spills or discharges of Hazardous Materials and/or Extraordinary Hazardous
Materials at the Premises by Tenant, Tenant's agents, servants, and the like, or
any Occupant, and (c) any violation by Tenant of ISRA, including but not limited
to failure to provide all information, make all submissions and take all actions
required by the NJDEP. Tenant's agreement to indemnify shall survive the
permitted assignment, expiration or sooner termination of this Lease.
20.7 Landlord shall indemnify, defend and hold harmless the
Tenant from and against all liabilities, damages, suits, fines, claims, losses,
judgments, causes of action, costs and expenses (including reasonable fees and
expenses of counsel) of any kind which may be incurred by Tenant or threatened
against Tenant arising out of or in any way connected with any Hazardous
Materials or Extraordinary Hazardous Materials located in the Building or any
parking area on the date hereof and any action to remediate or remove same
unless same was created by or introduced into the Building or any parking area
by Tenant or its agents, employees or contractors.
21. MISCELLANEOUS.
21.1 Tenant shall not record this Lease or any short-form
Memorandum thereof. Any such recordation by Tenant in violation of this
prohibition shall be a default hereunder and Landlord, among Landlord's rights
upon default, may execute and record in Tenant's name, place, and stead, an
instrument adequate and sufficient to discharge such document from the public
records, and for such purposes, Tenant hereby grants an irrevocable power of
attorney to Landlord.
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<PAGE>
21.2 This Lease constitutes the entire agreement of the
parties and may not be changed or modified orally, but only by a written
agreement signed by Landlord and Tenant.
21.3 This Lease shall be binding on Landlord and Tenant and
their respective heirs, successors, administrators and assigns.
21.4 The rights of Landlord and Tenant hereunder are
cumulative, and no waiver or failure to enforce the same by either shall prevent
the subsequent enforcement of such rights.
21.5 The captions herein contained are for convenience only,
and do not constitute part of this Lease.
21.6 This Lease shall be governed by the laws of the State of New Jersey.
21.7 The remedies of Landlord and Tenant specified herein
shall be in addition to those available to them at law or equity.
21.8 Landlord agrees to deliver to Tenant a permanent
certificate of occupancy for the Premises within 60 days after the Commencement
Date.
21.9 Wherever the consent of the Landlord is required in this
Lease, said consent shall not be unreasonably withheld or delayed.
21.10 If any of the provisions of the Lease, or the
application thereof to any person or circumstance, shall to any extent be
invalid or unenforceable, the remainder of this Lease, or the application of
such provision or provisions to persons or circumstances other than those as to
whom or which it is held invalid or unenforceable, shall not be affected
thereby, and every provision of this Lease shall be valid and enforceable to the
fullest extent allowed by law.
21.11 Notwithstanding anything to the contrary provided in
this Lease, it is specifically understood and agreed (such agreement being a
primary consideration for the execution of this Lease by the Landlord) that
there shall be absolutely no personal liability on the part of the Landlord, its
successors, assigns, officers, directors, principals, constituent partners (or
their heirs, successors and/or assigns), or any ground Landlord or mortgagee in
possession, with respect to any of the terms, covenants or conditions of this
Lease, and that the Tenant shall look solely to the equity (if any) of the
Landlord in the Premises for the satisfaction of each and every remedy of the
Tenant in the event of any breach by the Landlord of any of the terms, covenants
and conditions of this Lease to be performed by the Landlord, such exculpation
of liability to be absolute and without any exceptions whatsoever.
21.12 Tenant represents and warrants to Landlord that this
Lease is valid, enforceable and binding upon Tenant, that no consent(s) are
necessary to render this Lease
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<PAGE>
valid, enforceable and binding against Tenant and that the person whose
signature is set forth below is authorized to execute and deliver this Lease on
behalf of Tenant (a true copy of Tenant's corporate resolutions are attached
hereto which authorize this transaction).
21.13 If the Premises or any material portion thereof are
rendered unusable in whole or in part for a period of ten (10) consecutive days
for any reason, other than by the making of repairs necessitated by misuse or
neglect by the Tenant or any agent, customer, invitee or licensee of the Tenant,
there shall be an appropriate abatement of Basic Rent from and after such tenth
day and continuing for the period of such unusability. In no event shall the
Tenant be entitled to terminate this Lease by claiming a constructive eviction
from the Premises unless the Tenant shall first have notified the Landlord in
writing of the condition or conditions giving rise thereto and, if the
complaints be justified, unless the Landlord shall have failed within a
reasonable time after receipt of such notice to remedy, or commence and proceed
with due diligence to remedy, such condition or conditions.
21.14 Landlord covenants that so long as Tenant is not in
default hereunder which default remains uncured beyond the expiration of the
applicable grace period, Tenant shall have the right to peaceably and quietly
have, hold and enjoy the Premises subject to the terms of this Lease.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
executed by their duly authorized representatives, as of the date of this Lease
identified in Section 1 hereof.
LANDLORD:
WITNESS: BLOOMTEX ASSOCIATES
By /s/MAYER A. RUBENSTEIN
----------------------------
MAYER A. RUBENSTEIN, GENERAL PARTNER
TENANT:
ATTEST: ALFACELL CORPORATION
By /s/KUSLIMA SHOGEN
------------------------
KUSLIMA SHOGEN, C.E.O.
<PAGE>
Exhibit 10.27
ALFACELL CORPORATION
PURCHASE AGREEMENT FOR
COMMON STOCK
Alfacell Corporation
225 Belleville Avenue
Bloomfield, New Jersey 07003
Attention: Kuslima Shogen, Chairman
and Chief Executive Officer
Dear Ms. Shogen:
The undersigned acknowledges that there is no minimum proceeds
requirement for the closing of this Offering, the Company may close only on the
undersigned's investment and such investment may be inadequate to meet the
Company's cash requirements. The Company intends to utilize the proceeds of this
offering for general corporate purposes.
The undersigned hereby subscribes to purchase 112,000 shares of Common
Stock, $.001 par value per share (the "Shares") of Alfacell Corporation, a
Delaware corporation (the "Company") at a cost of $4.50 per share. The Shares
are being sold in a transaction exempt from registration under the Securities
Act of 1933, as amended (the "Act"). The undersigned tenders herewith $504,000
in full payment of the purchase price for the 112,000 Shares to which the
undersigned subscribes (in the manner indicated on the signature page hereof).
The undersigned understands that the right to transfer all or any part
of the Shares (hereinafter sometimes collectively referred to as the
"Securities") will be restricted. The undersigned may not transfer the
Securities unless they are registered under the Act and applicable state
securities or "blue sky" laws, or an exemption from such registration is
available. The undersigned recognizes that the Company shall have no obligation
to register the Securities, except as set forth herein.
The undersigned hereby represents, warrants and covenant that:
1. The undersigned is acquiring the Shares for the undersigned's own
account for investment and not with a view towards distribution. The undersigned
will not sell, hypothecate, transfer or otherwise dispose of the Securities,
unless such transaction has been registered under the Act or, in the opinion of
counsel for the Company, an exemption from registration is available.
2. (i) Please check here if the representation contained in this paragraph
2(i) is applicable to the undersigned _____________. (A) If an individual, (a)
the undersigned's individual net worth or joint net worth with the undersigned's
spouse exceeds $1,000,000 as of
<PAGE>
the date hereof, or (b) the undersigned's individual income has been in excess
of $200,000 in each of 1995 and 1994 and is expected to be in excess of $200,000
in 1996, or (c) the undersigned's joint income with the undersigned's spouse has
been in excess of $300,000 in each of 1995 and 1994 and is expected to be in
excess of $300,000 in 1996; or (B) if a corporation, partnership, or other
entity, the foregoing representation applies to all of the equity owners of the
corporation, partnership, or entity.
(ii) If a corporation, partnership, or other entity, was such
a corporation, partnership , or other entity formed for the specific purpose of
acquiring the Shares?______Yes_____No
(iii) If the answer to 2(ii) is yes, how many equity owners does the
corporation partnership or entity have?_______
3. Whether or not the representation contained in paragraph 2(i) is
applicable to the undersigned, the undersigned has adequate means of providing
for the undersigned's current needs and possible contingencies and has no need
for liquidity of the Shares. The undersigned's overall commitment to investments
is not disproportionate to the undersigned's net worth, and acquisition of the
Shares will not cause such overall commitment to become excessive. Prior to the
execution hereof, the undersigned has received and had the opportunity to
review, examine and read all documents, records and books pertaining to this
investment, including the Company's Annual Report on Form 10-K for the fiscal
year ended July 31, 1996, the Company's Quarterly Reports on Form 10-QSB for
each of the two quarterly periods subsequent to the fiscal year ended July 31,
1996 and a copy of the Company's Proxy Statement as distributed to its
stockholders in connection with the annual meeting of stockholders which was
held on November 21, 1996 (collectively, the "Disclosure Documents").
4. The undersigned is knowledgeable and experienced in financial and
business matters. The undersigned recognizes and is fully cognizant of the fact
that the investment contemplated hereby involves a high degree of risk. The
undersigned is able to evaluate the merits and risks of an investment in the
Shares. The undersigned has been given an opportunity to ask questions of, and
receive answers and obtain information from, representatives of the Company
concerning the Company.
5. The undersigned has been given no oral or written representations or
assurances by the Company or any other person acting or purporting to act on
behalf of the Company in connection with the acquisition of the Shares, in each
case except as provided herein or in the Disclosure Documents.
6. The undersigned understands and specifically acknowledges and agrees
that since the Shares have not been registered under the Act, the certificates
representing the Securities will bear a legend to such effect and a stop
transfer order will be placed on the Securities in the Company's transfer books.
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<PAGE>
7. By its acceptance hereof, the Company hereby agrees that no later
than July 31, 1997, the Company shall use its best efforts to file a
registration statement (the "Registration Statement") under the Act to register
the resale of the Shares. The Company further agrees to use its best efforts to
cause such Registration Statement to become effective.
In connection with the Registration Statement, the undersigned
shall provide the Company, from time to time, as reasonably requested by the
Company, written information concerning its ownership of the Company's Shares,
their intentions concerning the sale of its Shares and such other matters as are
required in order to enable the Company to prepare, file and obtain the
effectiveness of such Registration Statement. Notwithstanding any of the
foregoing, the Company shall not be required to maintain the effectiveness of
the Registration Statement for more than three (3) years after the initial
effective date thereof.
In connection with any such registration of Shares, the
Company shall supply a reasonable number or prospectuses to the undersigned, use
its best efforts to qualify the Shares for sale in the states of New York and
New Jersey and furnish indemnification in the manner set forth below.
The Company shall bear the entire cost and expense of any such
Registration hereunder. Notwithstanding the foregoing, the undersigned shall
bear the fees of all persons retained by it, such as counsel and accountants,
and any transfer taxes or underwriting discounts or commissions applicable to
the Shares sold by it pursuant to the Registration Statement.
The Company shall indemnify and hold harmless each holder of
Shares that are registered pursuant to the Registration Statement and each
underwriter, within the meaning of the Act, who may purchase from or sell for
any such holder any such Shares and each person, if any, who controls any such
holder or underwriter within the meaning of the Act, from and against any and
all losses, claims, damages and liabilities caused by any untrue statement of a
material fact contained in the Registration Statement or any post-effective
amendment thereto or any prospectus included therein required to be filed or
furnished in connection therewith or caused by any omission to state therein a
material fact required to be stated therein in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any such untrue statement or omission based upon information furnished
or required to be furnished in writing to the Company by such holder or
underwriter expressly for use therein; provided, however, that such holder or
underwriter shall indemnify the Company, its directors, each officer signing the
Registration Statement and each person, if any, who controls the Company within
the meaning of the Act, from and against any and all losses, claims, damages and
liabilities caused by any untrue statement of a material fact contained in any
Registration Statement or any post-effective amendment thereto or any prospectus
included therein required to be filed or furnished pursuant thereto or caused by
any omission to state therein a material fact required to be stated therein in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading, insofar as such losses, claims, damages or
liabilities are caused
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<PAGE>
by any untrue statement or omission based upon information furnished in writing
to the Company by any such holder or underwriter expressly for use therein.
If the indemnification provided for herein from either the holder of
the Shares or the Company is unavailable to an indemnified party (the
"Indemnitee") hereunder in respect of any losses, claims, damages or liabilities
(or actions in respect thereof) referred to herein, then the party responsible
for such indemnification (the "Indemnitor"), in lieu of indemnifying the
Indemnitee, shall contribute to the amount paid or payable by the Indemnitee as
a result of such losses, claims, damages or liabilities in such proportion as is
appropriate to reflect the relative fault of the Indemnitor and Indemnitee in
connection with the actions which resulted in such losses, claims, damages or
liabilities (including legal or other fees and expenses reasonably incurred in
connection with any investigation or proceeding) as well as any other equitable
considerations.
If indemnification is available, the Indemnitor shall indemnify each
Indemnitee to the full extent provided for herein without regard to the relative
fault of the Indemnitor, the Indemnitee or any other equitable consideration
provided for hereunder.
After the Registration Statement becomes effective and in connection
with the sale of the Shares under such Registration Statement, the undersigned
shall take such steps as may be necessary to ensure that the offer and sale
thereof are in compliance with the requirements of the federal securities laws,
including, but not limited to, compliance with the anti-manipulation
requirements of the Securities Exchange Act of 1934, as amended.
By its acceptance hereof, the Company hereby acknowledges that the
foregoing accurately reflects its understanding concerning the transaction
contemplated hereby.
Very truly yours,
/s/ CHARLES MUNIZ
-----------------
(Signature)
Charles Muniz, Vice President
Please type or print name
(and title if applicable)
Name & Address (as it
should appear on
certificates):
Digital Creations Inc.
P.O. Box 1059
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<PAGE>
Alpine, New Jersey 07620
22-2863771
Social Security Number or
Taxpayer Identification Number
(H) (W)201-784-4444
Telephone Numbers
3-3-97
As of date
112,000
Number of Shares
504,000
Amount of Subscription
(U.S. Dollars)
ACCEPTED AND AGREED: Deliver to Address: (if
ALFACELL CORPORATION different from above)
-------------------------
/s/ KUSLIMA SHOGEN _________________________
- ------------------
Name: Kuslima Shogen
Title: Chairman and CEO
<PAGE>
Exhibit 10.28
ALFACELL CORPORATION
1997 STOCK OPTION PLAN
The purpose of this Plan is to encourage stock ownership by employees and
directors of, and independent consultants to, Alfacell Corporation, a Delaware
corporation (herein called the "Company"), to provide an incentive to such
persons to develop, expand and improve the profits and prosperity of the
Company, and to assist the Company in attracting key personnel and consultants
through the grant of Options to purchase shares of the Company's Common Stock.
1. DEFINITIONS
Unless otherwise required by the context:
(a) "Board" shall mean the Board of Directors of the Company.
(b)"Committee" shall mean the Compensation Committee of the Board, which is
appointed by the Board, and which shall be composed of at least two members of
the Board.
(c) "Common Stock" shall mean the Common Stock of the Company, par value
$.001.
(d) "Company" shall mean Alfacell Corporation.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(f) "Independent Director" shall mean a director who is not an employee of
the Company.
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<PAGE>
(g) "Non-Employee Director" shall have the meaning ascribed in Rule 16b-3
("Rule 16b-3") promulgated under the Securities Exchange Act of 1934, as
amended.
(h) "Option" shall mean a right to purchase Common Stock, granted pursuant
to the Plan.
(i) "Optionee" shall mean a person to whom an Option is granted.
(j) "Option Price" shall mean the purchase price for Common Stock under an
option, as determined in Section 7 below.
(k) "Participant" shall mean an employee of the Company, a director of the
Company, a consultant or advisor to the Company or any person to whom an Option
is granted under the Plan.
(l) "Plan" shall mean this Alfacell Corporation 1997 Stock Option Plan.
2. STOCK TO BE OPTIONED
The maximum number of shares of Common Stock which may be issued upon
exercise of Options granted pursuant to this Plan shall not exceed 2,000,000
shares of Common Stock of the Company. Such shares may be treasury shares or
shares of original issue or a combination of the foregoing. If any Option
terminates, expires or is cancelled with respect to any shares of Common Stock,
new Options may thereafter be granted covering such shares of Common Stock.
3. ADMINISTRATION
This Plan shall be administered by the Committee or the Board; provided,
however, that with respect to Options granted or to be granted to Employees who
are subject to the provisions of Section 16(b) of the Exchange Act (i) unless
the Committee is composed solely of
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<PAGE>
two or more Non-Employee Directors appointed by the Board, or (ii) if the
Committee includes Directors who are not Non-Employee Directors (A) such
persons, by abstention or recusal, do not participate in the vote with respect
to Options granted or to be granted to Employees who are subject to the
provisions of Section 16(b) of the Exchange Act, and (B) the Committee includes
at least two Non-Employee Directors, or (iii) notwithstanding (i) or (ii) above,
the transaction upon which a vote is being had is otherwise exempt pursuant to
the provisions of Rule 16b-3(d). Except with respect to Options granted pursuant
to Sections 6.2 and 6.3 hereof, the Committee or the Board shall make all
decisions with respect to the operations of the Plan, the participation in the
Plan by employees or directors of, or consultants or advisors to the Company,
and with respect to the extent of that participation. The interpretation and
construction of any provision of the Plan by the Board or the Committee shall be
final. No member of the Board or the Committee shall be liable for any action or
determination made by him in good faith.
4. ELIGIBILITY
The Board or the Committee may grant Options to any director, officer
(including officers who are members of the Board of Directors), other employees
or consultants or advisors of the Company. Options may be awarded by the Board
or the Committee at any time and from time to time to new Participants, or to
then current Participants, or to a greater or lesser number of Participants, and
may include or exclude previous Participants, as the Board or the Committee
shall determine. Options granted at different times need not contain similar
provisions. 5. OPTION AGREEMENTS Each Option granted under the Plan shall be
evidenced by a stock option agreement (a "Stock Option Agreement") duly executed
on behalf of the Company and by the
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<PAGE>
Optionee; dated as of the applicable date of grant and shall state the number of
shares to which the Option pertains, the Option Price, and, except for Options
granted pursuant to Sections 6.2 and 6.3, such other terms, provisions and
conditions not inconsistent with the Plan, as the Board or the Committee may
approve subject to the terms of the Plan. The Stock Option Agreement shall be
signed on behalf of the Company by an officer or officers delegated such
authority by the Board or the Committee.
6. OPTION GRANTS
6.1 Discretionary Grants. Except for Options granted pursuant
to Sections 6.2 and 6.3, the Board or the Committee may grant from time to time
such number of Options with such terms as they determine, to those meeting the
eligibility requirements contained in Section 4 hereof (each a "Discretionary
Grant").
6.2 Independent Directors' Regular Grants. An Option to
purchase 15,000 shares of Common Stock shall automatically be granted to each
Independent Director on December 31st of each year (each an "Independent
Director's Regular Grant").
6.3 Independent Directors' Pro Rata Grants. On the date of
each Independent Director's initial election to the Board pursuant to a vote of
the Board, such newly elected Independent Director shall automatically be
granted such Independent Director's pro rata share of the Regular Grant for the
year in which such Independent Director is first elected to the Board which
shall equal the product of 1,250 multiplied by the number of whole months
remaining in the calendar year in which such Independent Director is first
elected to the Board (each an "Independent Director's Pro Rata Grant").
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<PAGE>
7. OPTION PRICE
The Option Price for Common Stock under each Option shall be
at least 100 percent of the fair market value of the Common Stock at the time
the Option is granted, but in no event less than the par value of the Common
Stock. Except as the Board or the Committee may otherwise determine in good
faith due to a limited or sporadic trading market for the Company's Common
Stock, the fair market value of the Common Stock shall equal the average of the
high bid and the low asked prices for the Common Stock during the 20 trading
days preceding the date the Option is granted as reported by Nasdaq.
8. VESTING; EXERCISABILITY AND OPTION PERIOD
8.1 Discretionary Grants. An Option granted pursuant to a Discretionary
Grant shall vest and become exercisable as to 20% of the shares underlying such
Option one year after the date of grant, and as to an additional 20% of the
shares each year thereafter, until the Option is fully vested and exercisable as
to all of the shares underlying such Option. Notwithstanding the foregoing, the
Board or the Committee may provide that an Option granted pursuant to a
Discretionary Grant will vest and become exercisable in accordance with such
other schedule as they may determine in their sole discretion and specify in the
Stock Option Agreement; provided, however, that in no event shall an Option
granted pursuant to a Discretionary Grant vest or become exercisable until a
period of at least six months has elapsed from the date of grant thereof.
8.2 Independent Directors' Regular Grants. An Option granted pursuant to an
Independent Director's Regular Grant or an Independent Director's Pro Rata Grant
shall vest and become exercisable on the December 30th following the date of
grant. Notwithstanding the
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<PAGE>
foregoing, an Option shall not become exercisable as to any shares unless such
Independent Director has served continuously on the Board during the year
preceding the date on which such Options are scheduled to become exercisable, or
during the period of time from the date such Independent Director joined the
Board until the date such Options are scheduled to become exercisable if such
Independent Director joined the Board during such preceding year; provided,
however, that if an Independent Director does not fulfill such continuous
service requirement due to such Independent Director's death or disability (as
hereinafter defined) all Options held by such Independent Director shall
nonetheless vest and become exercisable as provided for herein by those persons
specified in Section 11. For the purposes of this Section 8.2, "disability"
shall mean a physical or mental condition which prevents an Independent Director
from performing his or her duties as an Independent Director for a continuous
six month period or for a total of six months during any eight month period.
8.3 Termination of Employment. Except as provided in Section 8.4 hereof, if
a Participant who is an employee ceases to be employed by the Company, his or
her Options, unless otherwise exercised, shall terminate as of the close of
business on the one hundred and ninetieth (190th) day following the termination
of the Participant's employment with the Company; provided, however, that such
Participant may exercise his or her Options during such one hundred and ninety
(190) day period following such termination of employment only to the extent
that such Options had vested and became exercisable on the date of termination
of Participant's employment and only to the extent such Participant would have
otherwise been able to exercise such Options during such one hundred and ninety
(190) day period. Notwithstanding the foregoing, the Board or the Committee may
cancel an option during the one hundred and
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<PAGE>
ninety (190) day period referred to in this section, if the Participant engages
in employment or activities contrary, in the opinion of the Board or the
Committee, to the best interests of the Company. The Board or the Committee
shall determine in each case whether a termination of employment shall be
considered a retirement with the consent of the Company, and, subject to
applicable law, whether a leave of absence shall constitute a termination of
employment. Any such determination of the Board or the Committee shall be final
and conclusive. The foregoing provisions may be modified or waived by the Board
or the Committee and do not, in any case, apply to any Participant who is not an
employee of the Company. The Board or the Committee will determine who shall be
deemed to be an employee of the Company for the purposes of this Section 8.3 and
Section 8.4 below at the time the Option is granted and, except for Options
granted pursuant to Independent Directors' Regular Grants or Independent
Directors' Pro Rata Grants, the Board or the Committee will determine what, if
any, provisions concerning exercise of the Option upon the cessation of the
service provided to the Company by a non-employee will be included in the Stock
Option Agreement issued to such non-employee.
8.4 Rights in Event of Death of Employee. If a Participant who is an
employee while employed by the Company, or within three months after having
retired with the consent of the Company, and without having fully exercised his
or her Options, the executors or administrators, or legatees or heirs, of his or
her estate shall have the right to exercise such Options to the extent that such
deceased Participant was entitled to exercise the Options on the date of his or
her death; provided, however, that in no event shall the Options be exercisable
more than ten years from the date they were granted. The foregoing provisions
may be modified or waived by the Board or the Committee and do not, in any case,
apply to any Participant who
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<PAGE>
is not an employee of the Company. Except for the Options granted pursuant to
Independent Directors' Regular Grants or Independent Directors' Pro Rata Grants,
the Board or the Committee will determine what, if any, provisions concerning
exercise of the Option upon the death of the holder will be included in the
Stock Option Agreement issued to any non-employee.
8.5 Term of Options. No Option shall expire more than ten
years from its date of grant. Except as otherwise determined by the Board or the
Committee when the Option is granted, an Option granted pursuant to a
Discretionary Grant shall expire as to each tranche of shares five years after
the date on which such Option became exercisable as to such tranche of shares.
An Option granted pursuant to an Independent Director's Regular Grant or an
Independent Director's Pro Rata Grant shall expire five years after the date on
which such Option first became exercisable.
9. TIME AND MANNER OF OPTION EXERCISE
Any vested and exercisable Option is exercisable in whole or
in part by giving written notice, signed by the person exercising the Option, to
the Company stating the number of shares with respect to which the Option is
being exercised, accompanied by payment in full of the Option Price for the
number of shares to be purchased. The date both such notice and payment are
received by the Company shall be the date of exercise of the Option as to such
number of shares. No Option may at any time be exercised with respect to a
fractional share. In the case of exercise in part only, the Company upon
surrender of the Stock Option Agreement, will deliver to Participant a new Stock
Option Agreement in substantially similar form to that surrendered evidencing
the remaining shares as to which the Option has not been exercised.
- 8 -
<PAGE>
10. PAYMENT OF OPTION PRICE
Payment of the Option Price may be in cash or by
bank-certified, cashier's, or personal check or, to the extent permitted by the
Board or the Committee in its sole discretion, payment may be in whole or part
by:
(a) transfer to the Company of shares of Common Stock having a
fair market value equal to the Option Price at the time of such
exercise, or
(b) delivery of instructions to the Company to withhold from
the shares that would otherwise be issued on exercise that number of
shares having a fair market value equal to the Option Price at the time
of such exercise.
For purposes of the foregoing, the Fair Market Value shall be determined in
accordance with Section 7. If the fair market value of the number of whole
shares transferred or the number of whole shares surrendered in accordance with
the foregoing is less than the total Option Price, the shortfall must be paid in
cash.
11. NONTRANSFERABILITY
No Option granted under the Plan is transferable other than by will or the
laws of descent and distribution, or pursuant to a qualified domestic relations
order as defined by the Internal Revenue Code of 1986, as amended or Title I of
the Employee Retirement Income Security Act of 1974, as amended or the rules
thereunder. During the holder's lifetime, an Option may only be exercised by the
holder or, in the event of his legal incapacity to do so, the holder's guardian
or legal representative. Upon the holder's death an Option may be exercised by
the executors, administrators, legatees, or heirs of such Participant's estate.
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<PAGE>
12. LIMITATION OF RIGHTS
Except as provided in this Plan, no employee, director,
consultant or advisor to the Company shall have any claim or right to be granted
an Option under this Plan. Neither the Plan nor action thereunder shall be
construed as giving an employee, director, consultant or advisor to the Company
any right to be retained in the service of the Company. No employee, director,
consultant or advisor to the Company shall have any rights as a stockholder with
respect to any shares subject to an Option granted to such employee, director,
consultant or advisor to the Company until the date of issuance of a stock
certificate for such shares.
13. CAPITAL ADJUSTMENTS
The aggregate number of shares of Common Stock available for
Options under the Plan, the shares subject to any Option, and the price per
share, shall all be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock subsequent to the effective date of the
Plan resulting from (1) a subdivision or consolidation of shares or any other
capital adjustment, (2) the payment of a stock dividend on the Company's Common
Stock, or (3) other increase or decrease in such shares effected without receipt
of consideration by the Company. If the Company shall be the surviving
corporation in any merger or consolidation, any Option shall pertain, apply, and
relate to the securities to which a holder of the number of shares of Common
Stock subject to the Option would have been entitled after the merger or
consolidation. Upon dissolution or liquidation of the Company, or upon a merger
or consolidation in which the Company is not the surviving corporation, all
Options outstanding under the Plan shall terminate; provided, however, that each
Participant (and each other person entitled under Section 11 to exercise an
Option) shall have the right, immediately prior to such
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<PAGE>
dissolution or liquidation, or such merger or consolidation, to exercise such
Participant's Options in whole or in part, notwithstanding any provisions
contained in the Plan or the Stock Option Agreement, including any vesting
requirements to the contrary.
14. EFFECTIVE DATE
The Plan shall be effective as of the date it is initially
adopted by the Board.
15. RESERVATION OF SHARES OF STOCK
The Company, during the term of this Plan, will at all times
reserve and keep available, and will seek or obtain from any regulatory body
having jurisdiction any requisite authority necessary to issue and to sell, the
number of shares of Common Stock that shall be sufficient to satisfy the
requirements of this Plan. The inability of the Company to obtain from any
regulatory body having jurisdiction the authority deemed necessary by counsel
for the Company for the lawful issuance and sale of its Common Stock hereunder
shall relieve the Company of any liability in respect of the failure to issue or
sell its securities as to which the requisite authority has not been obtained.
16. AGREEMENT AND REPRESENTATION OF PARTICIPANTS
As a condition to the exercise of any portion of an Option,
the Company may require the person exercising such Option to represent and
warrant at the time of such exercise that any shares of Stock acquired at
exercise are not registered under the Securities Act of 1933 (the "Act"), are
"restricted securities" as that term is defined in Rule 144 under the Act and
are being acquired only for investment and without any present intention to sell
or distribute such shares, if, in the opinion of counsel for the Company, such a
representation is required under the Act or any other applicable law,
regulation, or rule of any governmental agency.
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<PAGE>
17. AMENDMENT AND TERMINATION
Subject to the last 2 paragraphs of this Section 17, the Board
or the Committee, by resolution, may terminate, amend, or revise the Plan with
respect to any shares as to which Options have not been granted. Neither the
Board nor the Committee may, without the consent of the holder of an Option,
alter or impair any Option previously granted under the Plan, except as
authorized herein. Unless sooner terminated, the Plan shall remain in effect for
a period of ten years from the date of the Plan's initial adoption by the Board.
Termination of the Plan shall not affect any Option previously granted.
The Plan may be amended by the Board or the Committee as they
shall determine in their discretion from time to time, provided, however, that
to the extent necessary to comply with any applicable law, rule, regulation,
stock exchange listing or Nasdaq or other inclusion requirements to which the
Company is or may become subject to in the future at the time of any such
amendment, any additional authorizations or approvals required to effect such
amendment shall be secured by the Company.
No amendment shall be made more than once every six months
that would change the amount, price or timing of either the Non-Employee
Director's Regular Grants or Non- Employee Director's Pro Rata Grants, other
than to comport with changes in the Internal Revenue Code of 1986, as amended,
or the rules and regulations promulgated thereunder.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the Alfacell Corporation Balance Sheet as of April 30, 1997 and the Statements
of Operations for the nine months ended April 30, 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> APR-30-1997
<CASH> $8,322,572
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,524,115
<PP&E> 985,014
<DEPRECIATION> 722,913
<TOTAL-ASSETS> 8,817,155
<CURRENT-LIABILITIES> 1,579,633
<BONDS> 0
0
0
<COMMON> 14,771
<OTHER-SE> 7,204,691
<TOTAL-LIABILITY-AND-EQUITY> 8,817,155
<SALES> 0
<TOTAL-REVENUES> 338,280
<CGS> 0
<TOTAL-COSTS> 3,211,058
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 92,800
<INCOME-PRETAX> (2,965,578)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,965,578)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,965,578)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
Exhibit 99.1
FACTORS TO CONSIDER IN CONNECTION WITH FORWARD LOOKING STATEMENTS
Development Stage Company, Accumulated Deficit, Stockholders'
Deficiency and Uncertainty of Future Profitability. The Company is a development
stage company which is subject to all of the risks and uncertainties of such a
company, including uncertainties of product development, constraints on
financial and personnel resources and dependence upon and need for third party
financing. The Company's profitability will depend primarily upon its success in
developing, obtaining regulatory approvals for, and effectively marketing
ONCONASE. ONCONASE has not been approved by the United States Food and Drug
Administration ("FDA"). Potential investors should be aware of the difficulties
a development stage enterprise encounters, especially in view of the intense
competition in the pharmaceutical industry in which the Company competes. There
can be no assurance that the Company's plans will either materialize or prove
successful, that its products under development will be successfully developed
or that such products will generate revenues sufficient to enable the Company to
earn a profit. Since the Company's incorporation in 1981, a significant source
of cash for the Company has been public and private placements of its
securities. At July 31, 1996, and April 30, 1997, respectively, the Company had
an accumulated deficit of approximately $40,400,000, and $43,400,000,
respectively, and a total stockholders' equity of approximately $6,700,000, and
$7,200,000, respectively. The Company anticipates that it will continue to incur
substantial losses in the future. The Company is pursuing licensing, marketing
and development arrangements that may result in contract revenue to the Company
prior to its receiving revenues from commercial sales of ONCONASE. To date, the
Company has not received any such revenues. There can be no assurance, however,
that the Company will be able to successfully consummate any such arrangements.
Need for, and Uncertainty of, Future Financing. The Company will be
required to expend significant funds on the further development of ONCONASE and
its continued operations will depend on its ability to raise additional funds
through equity or debt financings, collaborative agreements, strategic alliances
and revenues from the commercial sale of ONCONASE. To date, the Company has had
several preliminary discussions regarding potential collaborative agreements and
strategic alliances, however there can be no assurance that any such
arrangements will be consummated. Indeed, there can be no assurance that such
funds will be available to the Company on acceptable terms, if at all. The
Company believes that its cash on hand, including marketable securities, as of
April 30, 1997 will be sufficient to meet its anticipated cash needs for
approximately the next two years assuming that a significant portion of such
cash reserves is not used to repay the Term Loan. The Company will be required
to raise additional funds to meet its cash needs upon exhaustion of its current
cash resources. The Company continues to be primarily financed by proceeds from
private placements of Common Stock and investments in its equity securities. If
the Company is unable to secure sufficient future financing or refinance its
bank debt it may be necessary for the Company to curtail or discontinue its
research and development activities.
Government Regulation; No Assurance of FDA Approval. The
pharmaceutical industry in the United States is subject to stringent
governmental regulation and the sale of ONCONASE for use in humans in the United
States will require the prior approval of the FDA. 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.
Pharmaceutical manufacturing facilities are also regulated by state, local and
other authorities. Obtaining FDA approval for a new therapeutic drug may take
several years and involve substantial expenditures. ONCONASE has not been
approved for sale in the United States or elsewhere. There can be no assurance
that the Company will be able to obtain FDA approval for ONCONASE or any of its
future products. Failure to obtain requisite governmental approvals or failure
to obtain approvals of the scope requested will delay or preclude the Company
from marketing its products while under patent protection, or limit the
commercial use of the products, and thereby may have a material adverse effect
on the Company's liquidity and financial condition. Further, even if
governmental approval is obtained, new drugs are subject to continual review and
a later discovery of previously unknown problems may result in restrictions on
the particular product, including withdrawal of such product from the market.
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<PAGE>
Uncertain Ability to Protect Patents and Proprietary Technology.
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 five U.S. Patents: (i) U.S. Patent No.
4,888,172 issued in 1989, which covers a pharmaceutical for treating tumors
derived from fertilized eggs of a frog species; (ii) U.S. Patent No. 5,559,212
issued in 1996 which covers the amino acid composition and structure of
ONCONASE; and (iii) U.S. Patents Nos. 5,529,775 and 5,540,925 issued in 1996 and
U.S. Patent No.5,595,734 issued in 1997, which cover combinations of ONCONASE
with certain other chemotherapeutics. 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.
Additionally, the Company owns an undivided interest in an application that is
pending in the United States. This application relates to a Subject Invention
(as that term is defined in cooperative research and development agreements to
which the Company and the National Institutes of Health 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's patent protection is limited to that afforded under the
claims of its issued patents, unless and until other patent protection is
available to the Company. Although the Company believes that its patents and
patent applications are of substantial value to the Company, there can be no
assurance that such patents will be of substantial commercial benefit to the
Company, will afford the Company adequate protection from competing products or
will not be challenged or declared invalid. The Company expects that there will
continue to be significant litigation in the industry regarding patents and
other proprietary rights and, if the Company were to become involved in such
litigation, there could be no assurance that the Company would have the
resources necessary to litigate the contested issues effectively. Pursuant to
its loan agreement with the Company, the Company's bank has a security interest
in the Company's patent portfolio. The bank has agreed, however, to subordinate
its interest to licensees of the Company if certain conditions are met. The loss
of the rights to the Company's patents through the enforcement of the bank's
security interest could have a material adverse effect on the Company.
Intense Competition and Technological Obsolescence. There are
several companies, universities, research teams and scientists, both private and
government-sponsored, which engage in developing products for the same
indications as the Company. Many of these entities and associations have far
greater financial resources, larger research staffs and more extensive physical
facilities than the Company. Several competitors are more experienced and have
substantially greater clinical, marketing and regulatory capabilities and
managerial resources than the Company. Such competitors may succeed in their
research and development of products for the same indications as the Company
prior to the Company achieving any measure of success in its efforts.
The number of persons skilled in the research and development of
pharmaceutical products is limited and significant competition exists for such
individuals. As a result of this competition and the Company's limited
resources, the Company may find it difficult to attract skilled individuals to
research, develop and investigate anti- cancer drugs in the future.
The business in which the Company is engaged is highly competitive
and involves rapid changes in the technologies of discovering, investigating and
developing new drugs. Rapid technological development by others may result in
the Company's products becoming obsolete before the Company recovers a
significant portion of the research, development and commercialization expenses
incurred with respect to those products. Competitors of the Company are numerous
and are expected to increase as new technologies become available. The Company's
success depends upon developing and maintaining a competitive position in the
development of new drugs and technologies
- 2 -
<PAGE>
in its area of focus. There can be no assurance that, if attained, the Company
will be able to maintain a competitive position in the pharmaceutical industry.
Uncertain Availability of Health Care Reimbursement; Health Care
Reform. The Company's ability to commercialize its product candidates may depend
in part on the extent to which reimbursement for the costs of such product will
be available from government health administration authorities, private health
insurers and others. Significant uncertainty exists as to the reimbursement
status of newly approved health care products. There can be no assurance of the
availability of adequate third-party insurance reimbursement coverage that
enables the Company to establish and maintain price levels sufficient for
realization of an appropriate return on its investment in developing its
products. Government and other third-party payors are increasingly attempting to
contain health care costs by limiting both coverage and the level of
reimbursement for new therapeutic products approved for marketing by the FDA and
by refusing, in some cases, to provide any coverage for uses of approved
products for disease indications for which the FDA has not granted marketing
approval. If adequate coverage and reimbursement levels are not provided by
government and third-party payors for uses of the Company's product candidates,
the market acceptance of these products would be adversely affected.
Health care reform proposals have been introduced in Congress and
in various state legislatures. It is currently uncertain whether any health care
reform legislation will be enacted at the federal level, or what actions
governmental and private payors may take in response to the suggested reforms.
The Company cannot predict when any proposed reforms will be implemented, if
ever, or the effect of any implemented reforms on the Company's business. There
can be no assurance that any implemented reforms will not have a material
adverse effect on the Company. Such reforms, if enacted, may affect the
availability of third-party reimbursement for products developed by the Company
as well as the price levels at which the Company is able to sell such products.
In addition, if the Company is able to commercialize products in overseas
markets, the Company's ability to achieve success in such markets may depend, in
part, on the health care financing and reimbursement policies of such countries.
Potential Product Liability. The use of the Company's products
during testing or after regulatory approval entails an inherent risk of adverse
effects which could expose the Company to product liability claims. The Company
maintains product liability insurance coverage in the total amount of $6,000,000
for claims arising from the use of its products in clinical trials prior to FDA
approval. There can be no assurance that the Company will be able to maintain
its existing insurance coverage or obtain coverage for the use of its products
in the future. Management believes that the Company maintains adequate insurance
coverage for the operation of its business at this time, however, there can be
no assurance that such insurance coverage and the resources of the Company would
be sufficient to satisfy any liability resulting from product liability claims.
Dependence Upon Key Personnel. The Company is currently managed by
a small number of key management and operating personnel, whose efforts will
largely determine the Company's success. The loss of key management personnel,
particularly Kuslima Shogen, the Company's Chairman and Chief Executive Officer,
would likely have a material adverse effect on the Company. The bank may call
due all amounts payable under the its term loan agreement with the Company (the
"Term Loan") in the event Ms. Shogen ceases for any reason, except death, to be
a full time employee, officer or director of the Company. The Company carries
key person life insurance on the life of Ms. Shogen with a face value of
$1,000,000. The Company's bank has been assigned this policy as security for the
approximately $1,400,000 outstanding under the Term Loan.
No Dividends. The Company has not paid any dividends on its Common
Stock since its inception and does not currently foresee the payment of cash
dividends in the future. Furthermore, under the Term Loan the Company is
prohibited from paying any dividends without the bank's consent. The Company
currently intends to retain all earnings, if any, to finance its operations.
Preferred Stock; Anti-takeover Device. The Company is currently authorized
to issue 1,000,000 shares of preferred stock, par value $.001 per share. The
Company's Board of Directors is authorized, without any
- 3 -
<PAGE>
approval of the stockholders, to issue the preferred stock and determine the
terms of such preferred stock. As of June 2, 1997, there were no shares of
preferred stock outstanding. The authorized and unissued shares of preferred
stock may be classified as an "anti-takeover" measure and may discourage
attempted takeovers of the Company which are not approved by the Board of
Directors. The authorized shares of preferred stock will remain available for
general corporate purposes, may be privately placed and can be used to make a
change in control of the Company more difficult. Under certain circumstances,
the Board of Directors could create impediments to, or frustrate, persons
seeking to effect a takeover or transfer in control of the Company by causing
such shares to be issued to a holder or holders who might side with the Board of
Directors in opposing a takeover bid that the Board of Directors determines is
not in the best interests of the Company and its stockholders, but in which
unaffiliated stockholders may wish to participate. Under Delaware law, the Board
of Directors is permitted to use a depositary receipt mechanism which enables
the Board to issue an unlimited number of fractional interests in each of the
authorized and unissued shares of preferred stock without stockholder approval.
Consequently, the Board of Directors, without further stockholder approval,
could issue authorized shares of preferred stock or fractional interests therein
with rights that could adversely affect the rights of the holders of the
Company's Common Stock to a holder or holders which, when voted together with
other securities held by members of the Board of Directors and the executive
officers and their families, could prevent the majority stockholder vote
required by the Company's certificate of incorporation or Delaware law to effect
certain matters. Furthermore, the existence of such authorized shares of
preferred stock might have the effect of discouraging any attempt by a person,
through the acquisition of a substantial number of shares of Common Stock, to
acquire control of the Company. Accordingly, the accomplishment of a tender
offer may be more difficult. This may be beneficial to management in a hostile
tender offer, but have an adverse impact on stockholders who may want to
participate in such tender offer.
Control By Present Management. The Company's officers and directors, as a
group, beneficially owned 25.1% of the outstanding Common Stock of the Company
as of June 2, 1997 and thus could in some instances exercise effective control
over the Company. The Company's Chief Executive Officer has pledged
substantially all of the shares of the Company's Common Stock beneficially owned
by her to secure repayment of the Term Loan.
Volatility and Possible Reduction in Price of Common Stock. The
market price of the Common Stock, like that of the securities of many other
development stage biotechnology companies, has been and may continue to be,
highly volatile. Factors such as announcements of technological innovations or
new commercial products by the Company or its competitors, disclosure of results
of clinical testing or regulatory proceedings, governmental regulation and
approvals, developments in patent or other proprietary rights, public concern as
to the safety of products developed by the Company and general market conditions
may have a significant effect on the market price of the Common Stock. In
addition, the stock market has experienced and continues to experience extreme
price and volume fluctuations which have effected the market price of many
biotechnology companies. These broad market fluctuations, as well as general
economic and political conditions, may adversely effect the market price of the
Company's Common Stock.
Dependence on Third Parties for Manufacturing. The Company does not
currently have facilities capable of manufacturing its product in commercial
quantities and, for the foreseeable future, the Company intends to rely on third
parties to manufacture its product. If the Company were to establish a
manufacturing facility, which it currently does not intend to do, the Company
would require substantial additional funds and would be required to hire and
retain significant additional personnel to comply with the extensive current
Good Manufacturing Practices ("cGMP") regulations of the FDA applicable to such
a facility. No assurance can be given that the Company would be able to make the
transition successfully to commercial production, if it chose to do so.
Dependence on Third Parties for Marketing; No Marketing Experience.
Neither the Company nor any of its officers or employees has pharmaceutical
marketing experience. The Company intends to enter into development and
marketing agreements with third parties. The Company expects that under such
arrangements it would act as a co-marketing partner or would grant exclusive
marketing rights to its corporate partners in return
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for up-front fees, milestone payments and royalties on sales. Under these
agreements, the Company's marketing partner may have the responsibility for a
significant portion of development of the product and regulatory approval. In
the event that the marketing partner fails to develop a marketable product or
fails to market a product successfully, the Company's business may be adversely
affected. If the Company were to market its products itself, significant
additional expenditures and management resources would be required to develop an
internal sales force and there can be no assurance that the Company would be
successful in penetrating the markets for any products developed or that
internal marketing capabilities would be developed at all.
