================================================================================
The financial statements of the Company from inception to July 31, 1992
incorporated by reference into this Registration Statement, were audited by the
independent accounting firm of Armus Harrison & Co. ("Armus Harrison"). The
accounting firm of Armus Harrison dissolved and ceased all operations in June,
1996. As a result of such dissolution, investors seeking to sue and recover
damages from Armus Harrison for material misstatements or omissions, if any, in
the Registration Statement or Prospectus, including the financial statements,
may be unable to do so. Armus Harrison has not consented to the use of its audit
report and as a result, investors seeking to recover damages pursuant to Section
11 of the Securities Act of 1933, as amended (the "Securities Act") against
Armus Harrison for false and misleading statements, if any, may be limited, and
the lack of such consent may preclude directors or officers of the Company from
asserting a due diligence defense in connection with a Section 11 action. See
"Experts".
================================================================================
PROSPECTUS
3,918,299 Shares
Alfacell Corporation
Common Stock, par value $.001 per share
The Registration Statement, of which this Prospectus forms a part,
registers the offer and sale of up to 3,918,299 shares of Common Stock, par
value $.001 per share (the "Common Stock"), of Alfacell Corporation (the
"Company" or "Alfacell") by certain holders of Common Stock, warrants to
purchase Common Stock and options to purchase Common Stock (collectively, the
"Selling Stockholders"). Of these 3,918,299 shares, 2,337,150 shares are
outstanding and held by investors, (the "Private Placement Investors") in the
Company's February 1998 private placement (the "February 1998 Private
Placement"), 1,168,575 shares are issuable upon the exercise of outstanding
warrants to purchase Common Stock (the "Warrants") held by the Private Placement
Investors, 350,574 shares are issuable upon the exercise of a warrant issued to
the placement agent (the "Placement Agent") in the February 1998 Private
Placement (the "Placement Agent Warrant"), 50,000 shares are outstanding and
held by the Company's raw material supplier (the "Supplier"), and 12,000 shares
are issuable upon the exercise of outstanding options to purchase Common Stock
(the "Options") held by one of the Selling Stockholders (the "Option Holder").
The Company's Common Stock is traded on the Nasdaq SmallCap Market. On
March 27, 1998 the high and low sale prices of the Common Stock were $2.50 and
$2.38 respectively, as reported by Nasdaq.
The Company will bear all of the expenses in connection with the
registration of the Common Stock offered hereby, which expenses are estimated to
be $10,820. The Selling Stockholders will pay any brokerage compensation in
connection with their sale of the Common Stock.
THESE ARE SPECULATIVE SECURITIES AND AN INVESTMENT IN THE SECURITIES OFFERED
HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON PAGE 3.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is April 20, 1998
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports and proxy
and information statements and other information filed by the Company can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at
its regional offices located at Seven World Trade Center, Suite 1300, New York,
New York 10048, and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511; and copies of such material can be obtained
from the Public Reference Section of the Commission in Washington, D.C., at
prescribed rates. The Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
site is http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act, with respect to the
shares of Common Stock offered hereby. This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
shares of Common Stock offered hereby, reference is hereby made to the
Registration Statement, exhibits and schedules.
The following trademarks appear in this Prospectus: ONCONASE(R) is a
registered trademark of Alfacell Corporation; and Gemzar(R) is a registered
trademark of Eli Lilly & Co.
No dealer, salesman or any other person has been authorized to give any
information or to make any representation not contained or incorporated by
reference in this Prospectus in connection with this offering. Any information
or representation not contained or incorporated by reference herein must not be
relied on as having been authorized by the Company. This Prospectus does not
constitute an offer to sell or the solicitation of an offer to buy the
securities offered hereby in any state to any person to whom it is unlawful to
make such offer or solicitation. Except where otherwise indicated, this
Prospectus speaks as of its date and neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create an implication
that there has been no change in the affairs of the Company since the date
hereof.
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<PAGE>
TABLE OF CONTENTS
Page
----
Available Information................................................... i
Incorporation of Certain Documents by Reference......................... 1
Prospectus Summary...................................................... 2
Risk Factors............................................................ 3
Use of Proceeds......................................................... 9
Selling Stockholders.................................................... 9
Plan of Distribution.................................................... 14
Legal Matters........................................................... 15
Experts................................................................. 15
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<PAGE>
================================================================================
The financial statements of the Company from inception to July 31, 1992
incorporated by reference into this Registration Statement, were audited by the
independent accounting firm of Armus Harrison. The accounting firm of Armus
Harrison dissolved and ceased all operations in June, 1996. As a result of such
dissolution, investors seeking to sue and recover damages from Armus Harrison
for material misstatements or omissions, if any, in the Registration Statement
or Prospectus, including the financial statements, may be unable to do so. Armus
Harrison has not consented to the use of its audit report and as a result,
investors seeking to recover damages pursuant to Section 11 of the Securities
Act against Armus Harrison for false and misleading statements, if any, may be
limited, and the lack of such consent may preclude directors or officers of the
Company from asserting a due diligence defense in connection with a Section 11
action. See "Experts".
================================================================================
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference into this Prospectus (i) its
Annual Report on Form 10-K for the Fiscal Year Ended July 31, 1997 which
contains audited financial statements for the Company's latest fiscal year for
which a Form 10-K was required to have been filed, and incorporates by reference
certain portions of the Company's definitive Proxy Statement for the Annual
Meeting of Stockholders held December 9, 1997, (ii) its quarterly report on From
10-Q for the quarter ended January 31, 1998, (iii) all other reports filed by
the Company pursuant to Section 13(a) or 15(d) of the Exchange Act since July
31, 1997, including but not limited to, the Form 8-K filed on February 20, 1998
and (iv) the description of the Company's Common Stock, $.001 par value, as
contained in its registration statement on Form 8-A, filed with the Commission
on April 26, 1983.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act, subsequent to the date hereof and prior to the
filing of a post-effective amendment to the Registration Statement which
indicates that all shares of Common Stock offered hereby have been sold or which
deregisters all shares of Common Stock then remaining unsold, shall be deemed to
be incorporated by reference into this Prospectus and to be a part hereof from
the date of filing of such documents.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that such statement is modified or
superseded by a statement contained herein or in a subsequently filed document
which also is or is deemed to be incorporated by reference herein. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide, without charge, to each person (including any
beneficial owner) to whom this Prospectus is delivered, upon written or oral
request of such person, a copy of any and all of the information that has been
incorporated by reference in this Prospectus (not including exhibits to such
information unless such exhibits are specifically incorporated by reference into
such information). Such requests should be directed to Gail Fraser, Vice
President, Finance and Chief Financial Officer, at the Company's principal
executive offices at 225 Belleville Avenue, Bloomfield, New Jersey 07003,
telephone (973) 748-8082.
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<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and consolidated financial statements appearing elsewhere
and incorporated by reference in this Prospectus.
THE COMPANY
Alfacell Corporation ("Alfacell" or the "Company") is a biopharmaceutical
company organized in 1981 to engage in the discovery, investigation and
development of a new class of anti-cancer drugs isolated from leopard frog eggs
and early embryos. The Company's first product under development is ONCONASE(R)
which targets solid tumors, most of which are known to be resistant to other
chemotherapeutic drugs. To date, the most significant clinical results with
ONCONASE have been observed in pancreatic, non-small cell lung, malignant
mesothelioma and metastatic breast cancer.
The Selling Stockholders acquired all of the outstanding shares of Common
Stock offered hereby, the Warrants, the Placement Agent Warrant and the Options
directly from the Company (i) in the February 1998 Private Placement; (ii) in
connection with the conversion by the Supplier of an outstanding account payable
(the "Conversion Agreement"); and (iii) in connection with services to be
rendered to the Company. See "Selling Stockholders". The Company will not
receive any of the proceeds from the sale of Common Stock by the Selling
Stockholders. To the extent any of the Warrants, Placement Agent Warrant or
Options are exercised, the Company will apply the proceeds thereof to its
general corporate purposes. See "Use of Proceeds."
Alfacell, a Delaware corporation, was incorporated in 1981. The Company's
executive offices are located at 225 Belleville Avenue, Bloomfield, New Jersey
07003, telephone (973) 748-8082.
The Offering
Securities Offered.......
This Prospectus relates to an offering by the
Selling Stockholders of up to 3,918,299 shares of
Common Stock of the Company. Of these shares (i) an
aggregate of 2,337,150 shares of Common Stock are
currently outstanding and were issued to the
Private Placement Investors in the February 1998
Private Placement, (ii) an aggregate of 1,168,575
shares may be issued upon exercise of the Warrants
which were issued to the Private Placement
Investors in the February 1998 Private Placement,
(iii) 350,574 shares may be issued upon the
exercise of the Placement Agent Warrant which was
issued to the Placement Agent in the February 1998
Private Placement, (iv) 50,000 shares of Common
Stock are currently outstanding and were issued to
the Supplier in connection with the Conversion
Agreement, and (v) 12,000 shares may be issued upon
the exercise of Options which were issued to the
Option Holder. See "Selling Stockholders."
Securities Outstanding.. As of March 26, 1998, the Company had 17,234,943
shares of Common Stock outstanding. Assuming that
all of the Warrants, the Placement Agent Warrant
and the Options are exercised and no other shares
of Common Stock are issued subsequent to March 26,
1998, the Company would have 18,766,092 shares of
Common Stock outstanding.
Use of Proceeds........ The Company will not receive any proceeds from the
sale of the shares of Common Stock offered by the
Selling Stockholders. If all of the Warrants, the
Placement Agent Warrant and the Options are
exercised, the Company will receive estimated net
proceeds of $3,774,678. The Company intends to
utilize any proceeds received from the exercise of
the Warrants, the Placement Agent Warrant and the
Options for general corporate purposes, including
the funding of research and development activities.
There can be no assurance that any of the Warrants,
the Placement Agent Warrant or the Options will be
exercised. See "Use of Proceeds."
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<PAGE>
Risk Factors............. See "Risk Factors" below for a discussion of
certain risk factors that should be considered by
prospective investors in connection with an
investment in the shares of Common Stock offered
hereby.
RISK FACTORS
The shares of Common Stock offered hereby are speculative and involve a
high degree of risk. They should not be purchased by anyone who cannot afford
the loss of his or her entire investment. In analyzing this offering,
prospective investors should consider the matters set forth below, among others,
and carefully read this Prospectus. Information contained or incorporated by
reference in this Prospectus 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 discussion of strategy
or future plans. No assurance can be given that the future results covered by
the forward-looking statements will be achieved. The following matters include
cautionary statements, including certain risks and uncertainties, that could
cause actual results to vary materially from the future results covered in such
forward-looking statements. Other factors could also cause actual results to
vary materially from the future results covered in such forward-looking
statements.
Development Stage Company, Significant Accumulated Deficit, 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 offerings of its securities. At January 31,
1998 the Company had an accumulated deficit of approximately $48,600,000. The
Company anticipates that it will continue to incur substantial losses in the
future. The Company is pursuing licensing, marketing and development
arrangements that may result in contract revenue to the Company prior to its
receiving revenues from commercial sales of ONCONASE. To date, the Company has
not received any such revenues. There can be no assurance that the Company will
be able to successfully consummate any such arrangements.
No Assurance Of Successful Product Development Or Commercialization;
Uncertainties Related To Clinical Trials. The Company's research and development
programs are at various stages of development, ranging from the preclinical
stage to Phase III clinical trials. Substantial additional research and
development will be necessary for the Company to develop and obtain regulatory
approval for its product candidates, and there can be no assurance that the
Company's research and development program will lead to development of products
that are shown to be safe and effective in clinical trials and that are
commercially viable. In addition to further research and development, the
Company's product candidates will require clinical testing, regulatory approval
and development of marketing and distribution channels, all of which are
expected to require substantial additional investment prior to
commercialization. There can be no assurance that the Company's products will be
successfully developed, prove to be safe and efficacious in clinical trials,
meet applicable regulatory standards, receive marketing approval from the FDA,
be capable of being produced in commercial quantities at acceptable costs, be
eligible for third party reimbursement from governmental or private insurers, be
successfully marketed or achieve market acceptance. Further, the Company's
products may prove to have undesirable or unintended side effects that may
prevent or limit their commercial use.
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<PAGE>
The Company may find, at any stage of its research and development, that
products which appeared promising in preclinical studies or Phase I and Phase II
clinical trials do not demonstrate efficacy in larger-scale Phase III clinical
trials and do not receive regulatory approvals. The results from preclinical
testing and early clinical trials may not be predictive of results obtained in
later clinical trials and large-scale testing. Companies in the pharmaceutical
and biotechnology industries have suffered significant setbacks in various
stages of clinical trials, even in advanced clinical trials after promising
results had been obtained in earlier trials. Accordingly, any product
development program undertaken by the Company may be curtailed, redirected or
eliminated at any time. The rate of completion of the Company's clinical trials
may be delayed by many factors, including slower than anticipated patient
enrollment or adverse events occurring during the clinical trials. Completion of
testing, studies and trials may take several years, and the length of time
varies substantially with the type, complexity, novelty and intended use of the
product. In addition, data obtained from preclinical and clinical activities are
susceptible to varying interpretations, which could delay, limit or prevent
regulatory approval. Delays or rejections may be encountered based upon many
factors, including changes in regulatory policy during the period of product
development. No assurance can be given that any of the Company's development
programs will be successfully completed, or that the Company's products will
receive FDA approval.
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 financing, collaborative agreements, strategic alliances
and revenues from the commercial sale of ONCONASE. The Company believes that its
cash and cash equivalents as of January 31, 1998, after giving effect to the net
proceeds received by the Company in the February 1998 Private Placement, will be
sufficient to meet its anticipated cash needs through the fiscal year ending
July 31, 1999. 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 its
Common Stock and investments in its equity securities. If the Company is unable
to secure sufficient future financing 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.
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 inventions made by its personnel. The Company owns six U.S. Patents: (i)
U.S. Patent No. 4,888,172 issued in 1989, which covers a pharmaceutical produced
from fertilized frog eggs and the methodology for producing it; (ii) U.S. Patent
No. 5,559,212 issued in 1996 which covers the amino acid sequence of ONCONASE;
(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 pharmaceuticals; and (iv) U.S. Patent No. 5,728,805 issued in 1998 which
covers a family of variants of ONCONASE. The Company owns three European patents
which have been validated in certain European countries. These European patents
cover ONCONASE, process technology for
- 4 -
<PAGE>
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 two applications that are pending in the United States.
Each of these applications relate 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 (the "NIH") are parties). Patents covering
biotechnological inventions have an uncertain scope, and the Company is subject
to this uncertainty. The Company's patent applications may not issue as patents.
Moreover, the Company's patents may not provide the Company with competitive
advantages and may not withstand challenges by others. Likewise, patents owned
by others may adversely affect the ability of the Company to do business.
Furthermore, others may independently develop similar products, may duplicate
the Company's products, and may design around patents owned by the Company. The
Company'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.
Intense Competition and Technological Obsolescence. There are several
companies, universities, research teams and scientists, both private and
government-sponsored, which engage in developing products for the same
indications as the Company. Many of these entities and associations have far
greater financial resources, larger research staffs and more extensive physical
facilities than the Company. Several competitors are more experienced and have
substantially greater clinical, marketing and regulatory capabilities and
managerial resources than the Company. Such competitors may succeed in their
research and development of products for the same indications as the Company
prior to the Company achieving any measure of success in its efforts.
The number of persons skilled in the research and development of
pharmaceutical products is limited and significant competition exists for such
individuals. As a result of this competition and the Company's limited
resources, the Company may find it difficult to attract skilled individuals to
research, develop and investigate anti-cancer drugs in the future.
The business in which the Company is engaged is highly competitive and
involves rapid changes in the technologies of discovering, investigating and
developing new drugs. Rapid technological development by others may result in
the Company's products becoming obsolete before the Company recovers a
significant portion of the research, development and commercialization expenses
incurred with respect to those products. Competitors of the Company are numerous
and are expected to increase as new technologies become available. The Company's
success depends upon developing and maintaining a competitive position in the
development of new drugs and technologies in its area of focus. There can be no
assurance that, if attained, the Company will be able to maintain a competitive
position in the pharmaceutical industry.
Uncertain Availability Of Health Care Reimbursement. The Company's ability
to commercialize its product candidates will depend in part on the extent to
which reimbursement for the costs of such products 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.
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<PAGE>
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 Company carries
key person life insurance on the life of Ms. Shogen with a face value of
$1,000,000.
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, it 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 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.
Liquidity. The Company's Common Stock has been quoted on the NASDAQ
SmallCap Market since December 5, 1996 and is currently thinly traded. A limited
trading market could result in an investor being unable to liquidate his or her
investment.
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. 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 approval of the
stockholders, to issue the preferred stock and determine the terms of such
preferred stock. There are 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
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<PAGE>
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 20.9% of the outstanding Common Stock of the Company
as of March 26, 1998 and thus could in some instances exercise effective control
over the Company. The Company's Chief Executive Officer has pledged
substantially all the shares of the Company's Common Stock beneficially owned by
her to secure repayment of a term loan owed by her.
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.
Shares Eligible for Future Sale. As of March 26, 1998, the Company had
outstanding 17,234,943 shares of Common Stock and, options and warrants to
acquire an additional 5,946,357 shares of Common Stock. Of these outstanding
shares, 10,513,162 shares are freely transferable without restriction or further
registration under the Securities Act. The remaining 6,721,781 shares are
"restricted securities" as that term is defined in Rule 144 adopted under the
Securities Act. Of these restricted shares, approximately 4,294,631 were
eligible to be sold under Rule 144 as of March 26, 1998, 2,542,125 (including
2,502,125 eligible to be sold under Rule 144) were covered by an effective
registration statement (the "January 1998 Registration Statement") and 2,387,150
are covered by the Registration Statement of which this Prospectus forms a part.
Such 2,542,125 shares of restricted Common Stock covered by the January 1998
Registration Statement and 2,387,150 shares of restricted Common Stock included
in the Registration Statement filed with the Commission, will, if sold pursuant
thereto, be freely tradeable without restriction under the Securities Act,
except that any shares sold to an "affiliate," as that term is defined under the
Securities Act, will be subject to the resale limitations of Rule 144. As of
March 26, 1998, in addition to the Warrants to purchase 1,168,575 shares of
Common Stock, the Placement Agent Warrant to purchase 350,574 shares of Common
Stock issued in the February 1998 Private Placement, and the Options to purchase
12,000 shares of Common Stock, all of which are covered by the Registration
Statement of which this Prospectus forms a part, and Warrants to purchase
369,745 shares of Common Stock and options to purchase 453,482 shares of Common
Stock, which were covered by the January 1998 Registration Statement, there were
outstanding options issued to officers,
- 7 -
<PAGE>
directors and consultants of the Company (the "Employee Options") to purchase an
aggregate of 3,278,231 shares of Common Stock, which are covered by an effective
Registration Statement on Form S-8. The 5,632,607 shares of Common Stock
underlying such Warrants, Placement Agent Warrant, Options and Employee Options
will, if issued upon exercise and sold pursuant to their respective registration
statements, be freely tradeable without restriction under the Securities Act,
except that any shares of Common Stock held by an "affiliate," as that term is
defined under the Securities Act, will be subject to the resale limitations of
Rule 144. The existence of such Warrants, Placement Agent Warrant, Options and
Employee Options may adversely affect the Company's ability to consummate future
equity financings. The future sale of a substantial number of shares of Common
Stock by existing holders of Common Stock and holders of warrants and options
exercisable for Common Stock pursuant to Rule 144 under the Securities Act or
through effective registration statements may have an adverse impact on the
market price of the Common Stock.
Utilization of Carryforwards. At July 31, 1997, the Company had federal net
operating loss carryforwards of approximately $27,700,000 that expire in the
years 1998 to 2012. The Company also had investment tax credit carryforwards of
approximately $52,000 and research and experimentation tax credit carryforwards
of approximately $391,000 that expire in the years 1998 to 2011. Ultimate
utilization/availability of such net operating losses and credits may be
significantly curtailed if a significant change in ownership occurs.
Termination of Company's Auditors. The financial statements of the Company
from inception to July 31, 1992 incorporated by reference into this Registration
Statement, were audited by the independent accounting firm of Armus Harrison. On
December 1, 1993, certain shareholders of Armus Harrison terminated their
association with Armus Harrison (the "Armus Harrison Termination"), and Armus
Harrison ceased performing accounting and auditing services, except for limited
accounting services to be performed on behalf of the Company. In June 1996,
Armus Harrison dissolved and ceased all operations. The report of KPMG Peat
Marwick LLP with respect to the financial statements of the Company from
inception to July 31, 1997 is based on the report of Armus Harrison for the
period from inception to July 31, 1992 (the "Armus Harrison Report"), although
Armus Harrison has not consented to the use of such report herein and will not
be available to perform any subsequent review procedures with respect to such
report. Accordingly, based upon the provisions of Section 11(a)(4) of the
Securities Act, it is the Company's belief that investors may be limited to
asserting claims against Armus Harrison under Section 11 of the Securities Act
on the basis of the use of the Armus Harrison Report in any registration
statement of the Company into which such report is incorporated by reference,
including but not limited to this Registration Statement. In addition, in the
event any persons seek to assert a claim against Armus Harrison for false or
misleading financial statements and disclosures in documents previously filed by
the Company, such claim may also be adversely affected and possibly barred.
Furthermore, as a result of the lack of a consent from Armus Harrison to the use
of its audit report herein, or to its incorporation by reference into a
registration statement, the officers and directors of the Company will be unable
to rely on the authority of Armus Harrison as experts in auditing and accounting
in the event any claim is brought against any such persons under Section 11 of
the Securities Act based on alleged false and misleading financial statements
and disclosures attributable to Armus Harrison. To the Company's knowledge,
Armus Harrison is not, and has not been, the subject of any proceeding under any
federal or state bankruptcy or insolvency laws. The Company has not
investigated, and has no knowledge concerning, the assets of Armus Harrison or
its shareholders, if any, which may be available to satisfy any claims brought
by any investors. In addition, the Company has not investigated the status and
nature of the liability of any of the shareholders of Armus Harrison and it may
be that any such obligation may be limited or precluded under applicable law.
The discussion regarding certain effects of the Armus Harrison Termination is
not meant and should not be construed in any way as legal advice to any party
and any potential purchaser should consult with his, her or its own counsel with
respect to the effect of the Armus Harrison Termination on a potential
investment in the Common Stock of the Company or otherwise. The Company believes
that the Armus Harrison Report is correct and accurate in all material respects.
- 8 -
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the shares of
Common Stock offered herein by the Selling Stockholders. If all of the Warrants,
the Placement Agent Warrants and the Options are exercised, the Company will
receive estimated net proceeds of approximately $3,774,678. The Company intends
to utilize any proceeds received from the exercise of the Warrants, the
Placement Agent Warrants and the Options primarily to fund research and
development activities and for general corporate purposes. There can be no
assurance that any of the Warrants, the Private Placement Agent Warrants or the
Options will be exercised.
SELLING STOCKHOLDERS
On February 20, 1998 the Company completed the February 1998 Private
Placement resulting in the issuance of an aggregate of 2,337,150 shares of
restricted Common Stock and three-year Warrants to purchase an aggregate of
1,168,575 shares of Common Stock at an exercise price of $2.50 per share. The
Common Stock and Warrants were sold in units consisting of two (2) shares of the
Company's Common Stock and one (1) three-year warrant to purchase one (1) share
of Common Stock (the "Units"). The price per unit was $4.00. The Company
received net proceeds of approximately $4.3 million which will be used primarily
for general corporate purposes, including the funding of research and
development activities, which include collaborations with the National
Institutes of Health ("NIH") and the National Cancer Institute ("NCI") and Phase
II/III clinical trials. This Prospectus relates to the offer and sale of
2,337,150 shares of Common Stock and 1,168,575 shares of Common Stock underlying
Warrants which were purchased in the aggregate in the February 1998 Private
Placement and are held by investors in the February 1998 Private Placement as of
the date hereof.
Harris, Webb & Garrison, Inc., ("HWG") an investment banking firm located
in Houston, Texas acted as Placement Agent in the February 1998 Private
Placement and received as part of its compensation a three-year warrant to
purchase 116,858 units (the "Placement Agent Unit") at an exercise price of
$4.40 per unit. Each Placement Agent Unit consists of two (2) shares of the
Company's Common Stock and one (1) three-year warrant to purchase one (1) share
of Common Stock. This Prospectus relates to the offer and sale by the Placement
Agent of 350,574 shares of Common Stock underlying the Placement Agent Warrant.
On March 20, 1998, the Company entered into a Conversion Agreement with one
of its raw material suppliers for the conversion of a total of $100,000 of
outstanding payable into 50,000 shares of the Company's Common Stock. Pursuant
to the Conversion Agreement the Company issued 50,000 shares of Common Stock to
R.P. Biologicals, Inc. ("RPB"). This Prospectus relates to the offer and sale by
RPB of 50,000 shares of Common Stock.
On October 10, 1997, Options to purchase 12,000 shares of Common Stock were
issued as payment for services to be rendered. The Options expire on various
dates from the date hereof through September 10, 2003. The exercise price of the
Options is $3.91 per share. As of the date hereof, all of the Options remain
outstanding. This Prospectus relates to the offer and sale by the Option Holder
of 12,000 shares of Common Stock underlying the Options.
The Company's sale of Common Stock and Warrants to accredited investors (as
that term is defined in Rule 501 under the Securities Act) and several
non-accredited investors covered under the January 1998 Registration Statement
and the February 1998 Private Placement was effected in reliance upon Section
4(2) of the Securities Act and Rule 506 thereunder, except that 115,000 shares
were sold pursuant to Regulation S under the Securities Act. Pursuant to stock
purchase agreements entered into by the Company with each of the Private
Placement Investors (the "Purchase Agreements"), the Company agreed to indemnify
each of the Private Placement Investors (all of whom are Selling Stockholders)
against any liabilities, under the Securities Act or otherwise, arising out of
or based upon any untrue or alleged untrue statement of a material fact in the
Registration Statement or this Prospectus or by any
- 9 -
<PAGE>
omission of a material fact required to be stated therein except to the extent
that such liabilities arise out of or are based upon any untrue or alleged
untrue statement or omission in any information furnished in writing to the
Company by the Private Placement Investors expressly for use in the Registration
Statement. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to its certificate of incorporation and by-laws, the
Company has been informed that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
The Company is required to file a Registration Statement by March 31, 1998
registering all of the shares of Common Stock offered hereby, (except for the
shares issued to the Supplier), and to use its commercially reasonable efforts
to have such Registration Statement declared effective as soon as reasonably
practicable.
The Company is required to maintain the effectiveness of such Registration
Statement until all of the shares registered thereunder have been sold or until
the second anniversary of the closing of the Private Placement.
Stock Ownership
The table below sets forth the number of shares of Common Stock (i) owned
beneficially by each of the Selling Stockholders; (ii) offered by each Selling
Stockholder pursuant to this Prospectus; (iii) to be owned beneficially by each
Selling Stockholder after completion of the offering, assuming that all of the
Warrants, Placement Agent Warrant and Options held by the Selling Stockholders
are exercised and all of the shares offered hereby are sold and that none of the
other shares held by the Selling Stockholders, if any, are sold; and (iv) the
percentage to be owned by each Selling Stockholder after completion of the
offering, assuming that all of the Warrants, Placement Agent Warrant and Options
held by the Selling Stockholders are exercised and all of the shares offered
hereby are sold and that none of the other shares held by the Selling
Stockholders, if any, are sold. For purposes of this table each Selling
Stockholder is deemed to own beneficially (i) the shares of Common Stock
underlying the Warrants, Placement Agent Warrant and Options, (ii) the issued
and outstanding shares of Common Stock owned by the Selling Stockholder as of
March 6, 1998 and (iii) the shares of Common Stock underlying any other options
or warrants owned by the Selling Stockholder which are exercisable as of March
6, 1998 or which will become exercisable within 60 days after March 6, 1998.
Except as otherwise noted, none of such persons or entities has had any material
relationship with the Company during the past three years.
In connection with the registration of the shares of Common Stock offered
hereby, the Company will supply prospectuses to the Selling Stockholders.
- 10 -
<PAGE>
SELLING SHAREHOLDERS TABLE
<TABLE>
<CAPTION>
Number of
Number of Shares Offered Number of
Number of Shares Offered and Acquired Shares
Shares and Acquired in in the Offered
Selling Beneficially February 1998 Conversion Underlying
Stockholders(1) Owned Private Placement Agreement Options
- --------------- ----- ----------------- --------- -------
<S> <C> <C> <C> <C>
Aries Domestic Fund, L.P. (3) 742,500 742,500 0 0
The Aries Fund, A Cayman Island Trust (4) 1,507,500 1,507,500 0 0
Berkley Corporation 37,500 37,500 0 0
Bridgewater Partners, L.P. 75,000 75,000 0 0
Burke Jr., William R. 9,000 9,000 0 0
C.S.L. Associates, L.P. 75,000 75,000 0 0
Cobbs, Jerald (5) (6) 63,549 63,549 0 0
Cranshire Capital, L.P. 93,750 93,750 0 0
Curran Partners, L.P. 185,625 185,625 0 0
Davis, Richard H. 15,000 15,000 0 0
Duncan, Robert D. 15,000 15,000 0 0
EC Investment Ltd. 265,000 150,000 0 0
Expert Medical Consultants, Inc. 12,000 0 0 12,000
Garcia, Ray R. 1,500 1,500 0 0
Garrison II, Robert E. (5) 35,058 35,058 0 0
Harris, Webb and Garrison, Inc. (5) (7) 171,363 171,363 0 0
Henry, Heather 20,400 15,000 0 0
Henry, Kimberly A. 20,400 15,000 0 0
Henry, Robert R. (8) 277,550 45,000 0 0
Huque, Khundker Selim 3,000 3,000 0 0
</TABLE>
<TABLE>
<CAPTION>
Percentage of
Outstanding
Number of Shares to be
Shares to be Owned
Owned Beneficially
Beneficially After
Selling After Completion Completion
Stockholders(1) of Offering of Offering(2)
- --------------- ----------- --------------
<S> <C> <C>
Aries Domestic Fund, L.P. (3) 0 *
The Aries Fund, A Cayman Island Trust (4) 0 *
Berkley Corporation 0 *
Bridgewater Partners, L.P. 0 *
Burke Jr., William R. 0 *
C.S.L. Associates, L.P. 0 *
Cobbs, Jerald (5) (6) 0 *
Cranshire Capital, L.P. 0 *
Curran Partners, L.P. 0 *
Davis, Richard H. 0 *
Duncan, Robert D. 0 *
EC Investment Ltd. 115,000 *
Expert Medical Consultants, Inc. 0 *
Garcia, Ray R. 0 *
Garrison II, Robert E. (5) 0 *
Harris, Webb and Garrison, Inc. (5) (7) 0 *
Henry, Heather 5,400 *
Henry, Kimberly A. 5,400 *
Henry, Robert R. (8) 232,550 1.3%
Huque, Khundker Selim 0 *
</TABLE>
- 11 -
<PAGE>
<TABLE>
<CAPTION>
Number of
Number of Shares Offered Number of
Number of Shares Offered and Acquired Shares
Shares and Acquired in in the Offered
Selling Beneficially February 1998 Conversion Underlying
Stockholders(1) Owned Private Placement Agreement Options
- --------------- ----- ----------------- --------- -------
<S> <C> <C> <C> <C>
Khondker, Zia (5) 420 420 0 0
Cowen & Co. Cust. FBO Brit W. King 3,000 3,000 0 0
King, Brit (5) 120 120 0 0
Knutsen, A. Roy 40,750 33,750 0 0
Delaware Charter Guarantee and Trust Company
Trustee F/B/O Richard T. LeBuhn IRA 16,000 15,000 0 0
First Trust Corp. Robert LeBuhn Keogh 64,500 37,500 0 0
McCash, James O. 342,785 75,000 0 0
Odin Partners, L.P. 56,250 56,250 0 0
Phillips, Charles B. & Deidre JT TEN 750 750 0 0
Pisani, B. Michael (9) 235,500 135,000 0 0
R.P. Biologicals, Inc. (10) 53,030 0 50,000 0
Ramsey, James D. (5) 77,670 77,670 0 0
Reza, Mashud M. 7,500 7,500 0 0
Stadler, Martin & Kristine JT TEN (11) 76,250 75,000 0 0
Paul L. Trump Trust U/A/Dtd 10/10/80, Revised and
Amended 1/9/96 125,000 75,000 0 0
Webb, Richard (5) 1,950 1,950 0 0
Cowen & Co. Cust. FBO David F. Willardson 3,600 3,600 0 0
Willardson, David K. (12) 3,444 3,444 0 0
</TABLE>
<TABLE>
<CAPTION>
Percentage of
Outstanding
Number of Shares to be
Shares to be Owned
Owned Beneficially
Beneficially After
Selling After Completion Completion
Stockholders(1) of Offering of Offering(2)
- --------------- ----------- --------------
<S> <C> <C>
Khondker, Zia (5) 0 *
Cowen & Co. Cust. FBO Brit W. King 0 *
King, Brit (5) 0 *
Knutsen, A. Roy 7,000 *
Delaware Charter Guarantee and Trust Company
Trustee F/B/O Richard T. LeBuhn IRA 1,000 *
First Trust Corp. Robert LeBuhn Keogh 27,000 *
McCash, James O. 267,785 1.6%
Odin Partners, L.P. 0 *
Phillips, Charles B. & Deidre JT TEN 0 *
Pisani, B. Michael (9) 100,500 *
R.P. Biologicals, Inc. (10) 3,030 *
Ramsey, James D. (5) 0 *
Reza, Mashud M. 0 *
Stadler, Martin & Kristine JT TEN (11) 1,250 *
Paul L. Trump Trust U/A/Dtd 10/10/80, Revised and
Amended 1/9/96 50,000 *
Webb, Richard (5) 0 *
Cowen & Co. Cust. FBO David F. Willardson 0 *
Willardson, David K. (12) 0 *
</TABLE>
Footnotes appear on the following page.
- 12 -
<PAGE>
(*) Less than one percent.
(1) The last name of each individual Seller Stockholder is listed first.
(2) Based upon shares of Common Stock outstanding as of March 6, 1998 after
giving effect to shares of Common Stock underlying options or warrants.
(3) The Selling Stockholder is a limited partnership of which Paramount Capital
Asset Management, Inc. ("Paramount Capital") is the General Partner.
According to a Schedule 13D filed by Paramount Capital in March 1998, it,
along with its sole shareholder Lindsay A. Rosenwald, M.D., is the
beneficial owner of an aggregate of 2,250,000 shares of the Common Stock of
the Company or 12.5% of the Company's outstanding securities.
(4) The Selling Stockholder is a Cayman Islands Trust of which Paramount
Capital is the Investment Manager. According to a Schedule 13D filed by
Paramount Capital in March 1998, it, along with its sole shareholder
Lindsay A. Rosenwald, M.D., is the beneficial owner of an aggregate of
2,250,000 shares of the Common Stock of the Company or 12.5% of the
Company's outstanding securities.
(5) The shares offered represent shares underlying the Placement Agent Warrant.
(6) Mr. Jerald Cobbs is a principal of HWG who acted as the Placement Agent in
the February 1998 Private Placement.
(7) HWG acted as Placement Agent in the February 1998 Private Placement. The
shares offered represent shares underlying the Placement Agent Warrant.
(8) Mr. Robert R. Henry was a director of the Company until December 9, 1997.
His share ownership gives effect to shares underlying options he received
as director of the Company.
(9) Mr. B. Michael Pisani was a consultant to the Company and his share
ownership gives effect to shares underlying options he received for
services rendered and 12,500 shares owned by Granite Securities
Corporation, which is a corporation controlled by him.
(10) RPB is a party to the Company's Conversion Agreement. RPB's share ownership
includes 3,030 shares owned by Doris L. Graska, who is the wife of RPB's
President and CEO.
(11) Mr. Martin F. Stadler is a director of the Company and his share ownership
gives effect to shares underlying options he received as director of the
Company.
(12) Mr. David K. Willardson's offering includes 444 shares of Common Stock
underlying the Placement Agent Warrant.
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<PAGE>
PLAN OF DISTRIBUTION
Shares of Common Stock currently outstanding and shares of Common Stock
issuable upon exercise of the Warrants, the Placement Agent Warrant and the
Options may be sold pursuant to this Prospectus by the Selling Stockholders.
These sales may occur in privately negotiated transactions or in the
over-the-counter market through brokers and dealers as agents or to brokers and
dealers as principals, who may receive compensation in the form of discounts,
concessions or commissions from the Selling Stockholders or from the purchasers
of the Common Stock for whom the broker-dealers may act as agent or to whom they
may sell as principal, or both. Certain of the Selling Stockholders may also
sell certain of their shares of Common Stock pursuant to Rule 144 under the
Securities Act. The Company has been advised by the Selling Stockholders that
they have not made any arrangements relating to the distribution of the shares
of Common Stock covered by this Prospectus. In effecting sales, broker-dealers
engaged by the Selling Stockholders may arrange for other broker-dealers to
participate. Broker-dealers will receive commissions or discounts from the
Selling Stockholders in amounts to be negotiated immediately prior to the sale.
Upon being notified by a Selling Stockholder that any material arrangement
(other than a customary brokerage account agreement) has been entered into with
a broker or dealer for the sale of shares through a block trade, purchase by a
broker or dealer, or similar transaction, the Company will file a supplemented
Prospectus pursuant to Rule 424(c) under the Securities Act disclosing (a) the
name of each such broker-dealer, (b) the number of shares involved, (c) the
price at which such shares were sold, (d) the commissions paid or discounts or
concessions allowed to such broker-dealer(s), (e) if applicable, that such
broker-dealer(s) did not conduct any investigation to verify the information set
out or incorporated by reference in the Prospectus, as supplemented, and (f) any
other facts material to the transaction.
Certain of the Selling Stockholders and any broker-dealers who execute
sales for the Selling Stockholders may be deemed to be "underwriters" within the
meaning of the Securities Act by virtue of the number of shares of Common Stock
to be sold or resold by such persons or entities or the manner of sale thereof,
or both. If any of the Selling Stockholders, broker-dealers or other holders
were determined to be underwriters, any discounts, concessions or commissions
received by them or by brokers or dealers acting on their behalf and any profits
received by them on the resale of their shares of Common Stock might be deemed
underwriting discounts and commissions under the Securities Act.
The Selling Stockholders have represented to the Company that any purchase
or sale of the Common Stock by them will be in compliance with the Exchange Act.
In general, Rule 102 under Regulation M ("Regulation M") under the Exchange Act
prohibits any person connected with a distribution of the Company's Common Stock
(the "Distribution") from directly or indirectly bidding for, or purchasing for
any account in which he has a beneficial interest, any Common Stock or any right
to purchase Common Stock, or attempting to induce any person to purchase Common
Stock or rights to purchase Common Stock, for a period of one business day prior
to and subsequent to completion of his participation in the Distribution (the
"Distribution Period").
During the Distribution Period, Rule 104 ("Rule 104") under Regulation M
prohibits the Selling Stockholders and any other person engaged in the
Distribution from engaging in any stabilizing bid or purchasing the Common Stock
except for the purpose of preventing or retarding a decline in the open market
price of the Common Stock. No such person may effect any stabilizing transaction
to facilitate any offering at the market. Inasmuch as the Selling Stockholders
will be reoffering and reselling the Common Stock at the market, Rule 104
prohibits them from effecting any stabilizing transaction in contravention of
Rule 104 with respect to the Common Stock.
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<PAGE>
LEGAL MATTERS
The legality of the shares of Common Stock offered hereby has been passed
on for the Company by Dorsey & Whitney LLP, New York, New York.
EXPERTS
The financial statements of Alfacell Corporation (a development stage
company) as of July 31, 1997 and 1996 and for each of the years in the
three-year period ended July 31, 1997, and for the period from August 24, 1981
(date of inception) to July 31, 1997, have been incorporated by reference herein
and in the Registration Statement in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing. The report of KPMG Peat Marwick LLP as it relates to the financial
statements for the period from August 24, 1981 (date of inception) to July 31,
1997 is based on the report of Armus Harrison as to the amounts included therein
for the period from August 24, 1981 (date of inception) to July 31, 1992,
although Armus Harrison has not consented to the use of such report herein and
will not be available to perform any subsequent review procedures with respect
to such report.
================================================================================
The financial statements of the Company from inception to July 31, 1992
incorporated by reference into this Registration Statement, were audited by the
independent accounting firm of Armus Harrison. The accounting firm of Armus
Harrison dissolved and ceased all operations in June, 1996. As a result of such
dissolution, investors seeking to sue and recover damages from Armus Harrison
for material misstatements or omissions, if any, in the registration statement
or prospectus, including the financial statements, may be unable to do so. Armus
Harrison has not consented to the use of its audit report and as a result,
investors seeking to recover damages pursuant to Section 11 of the Securities
Act against Armus Harrison for false and misleading statements, if any, may be
limited, and the lack of such consent may preclude directors or officers of the
Company from asserting a due diligence defense in connection with a Section 11
action.
================================================================================
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