UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
January 31, 1998 0-11088
For the quarterly period ended Commission file number
ALFACELL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 22-2369085
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
225 Belleville Avenue, Bloomfield, New Jersey 07003
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (973) 748-8082
NOT APPLICABLE
(Former name, former address, and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant has (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
Shares of Common Stock, $.001 par value outstanding as of March 6, 1998:
17,184,943
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEETS
January 31, 1998 and July 31, 1997
<TABLE>
<CAPTION>
January 31,
1998 July 31,
ASSETS (Unaudited) 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,922,386 $ 7,542,289
Prepaid expenses 167,137 165,106
------------ ------------
Total current assets 4,089,523 7,707,395
------------ ------------
Property and equipment, net of accumulated depreciation and amortization
of $788,909 at January 31, 1998 and $742,319 at July 31, 1997 350,870 326,003
------------ ------------
Other assets:
Deferred debt costs, net -- 1,556
------------ ------------
Total assets $ 4,440,393 $ 8,034,954
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 8,740 $ 1,381,416
Accounts payable 934,255 377,704
Accrued expenses 540,900 693,841
------------ ------------
Total current liabilities 1,483,895 2,452,961
------------ ------------
Long-term debt, less current portion 11,426 15,902
------------ ------------
Total liabilities 1,495,321 2,468,863
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value
Authorized and unissued, 1,000,000 shares at January 31, 1998
and July 31, 1997 -- --
Common stock $.001 par value
Authorized 40,000,000 shares at January 31, 1998 and
25,000,000 shares at July 31, 1997;
Issued and outstanding 14,847,793 shares at January 31, 1998
and July 31, 1997 14,848 14,848
Capital in excess of par value 51,060,202 50,961,382
Common stock to be issued, 213,333 shares at January 31, 1998 479,969 --
Deficit accumulated during development stage (48,609,947) (45,410,139)
------------ ------------
Total stockholders' equity 2,945,072 5,566,091
------------ ------------
Total liabilities and stockholders' equity $ 4,440,393 $ 8,034,954
============ ============
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Three months and six months ended January 31, 1998 and 1997,
and the Period from August 24, 1981
(Date of Inception) to January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended August 24, 1981
January 31, January 31, (Date of Inception)
to
1998 1997 1998 1997 January 31, 1998
------------ ------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
REVENUE:
Sales $ -- $ -- $ -- $ -- $ 553,489
Investment income 59,500 117,065 144,526 229,048 972,352
Other income -- -- -- -- 60,103
------------ ------------ ------------ ------------ ------------
TOTAL REVENUE 59,500 117,065 144,526 229,048 1,585,944
------------ ------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales -- -- -- -- 336,495
Research and development 1,411,096 842,868 2,607,300 1,693,761 29,029,406
General and administrative 389,266 288,677 716,158 554,427 17,897,564
Interest:
Related parties -- -- -- -- 1,033,960
Others 528 31,249 20,876 63,043 1,898,466
------------ ------------ ------------ ------------ ------------
TOTAL COSTS AND EXPENSES 1,800,890 1,162,794 3,344,334 2,311,231 50,195,891
------------ ------------ ------------ ------------ ------------
NET LOSS $ (1,741,390) $ (1,045,729) $ (3,199,808) $ (2,082,183) $(48,609,947)
============ ============ ============ ============ ============
Loss per basic and diluted common
share $ (.12) $ (.07) $ (.21) $ (.14) $ (7.33)
============ ============ ============ ============ ============
Weighted average number of shares
outstanding 15,043,921 14,567,821 14,882,968 14,444,346 6,629,826
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Six months ended January 31, 1998 and 1997,
and the Period from August 24, 1981
(Date of Inception) to January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended August 24, 1981
January 31, (Date of Inception)
to
1998 1997 January 31, 1998
------------ ------------ ------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Loss $ (3,199,808) $ (2,082,183) $(48,609,947)
Adjustments to reconcile net loss to
net cash used in operating activities:
Gain on sale of marketable securities -- -- (25,963)
Depreciation and amortization 48,146 29,517 1,168,174
Loss on disposal of property and equipment -- -- 18,926
Noncash operating expenses 98,820 27,900 5,063,285
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 (2,031) (57,934) (167,137)
Decrease in other assets -- 9,415 36,184
Increase in interest payable, related party -- -- 744,539
Increase in accounts payable 556,551 49,532 1,011,520
Increase in accrued payroll and expenses, related parties -- -- 2,348,145
Increase (decrease) in accrued expenses (152,941) (110,581) 1,082,413
------------ ------------ ------------
Net cash used in operating activities (2,651,263) (2,022,084) (25,883,271)
------------ ------------ ------------
Cash flows from investing activities:
Purchase of marketable equity securities -- -- (290,420)
Proceeds from sale of marketable equity securities -- -- 316,383
Purchase of property and equipment (71,457) (136,623) (1,365,403)
Patent costs -- -- (97,841)
------------ ------------ ------------
Net cash used in investing activities (71,457) (136,623) (1,437,281)
------------ ------------ ------------
</TABLE>
See accompanying notes to financial statements. (continued)
- 4 -
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS, Continued
Six months ended January 31, 1998 and 1997,
and the Period from August 24, 1981
(Date of Inception) to January 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended August 24, 1981
January 31, (Date of Inception)
to
1998 1997 January 31, 1998
------------ ----------- -------------------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from short-term borrowings $ -- $ -- $ 849,500
Payment of short-term borrowings -- -- (623,500)
Increase in loans payable - related party, net -- -- 2,628,868
Proceeds from bank debt and other long-term debt, net of
deferred debt costs -- 4,200 2,410,883
Reduction of bank debt and long-term debt (1,377,152) (50,274) (2,905,289)
Proceeds from common stock to be issued 479,969 -- 479,969
Proceeds from issuance of common stock, net -- -- 22,605,919
Proceeds from exercise of stock options and warrants, net -- 2,620,025 5,449,588
Proceeds from issuance of convertible debentures -- -- 347,000
------------ ----------- ------------
Net cash provided (used) by financing activities (897,183) 2,573,951 31,242,938
------------ ----------- ------------
Net increase (decrease) in cash (3,619,903) 415,244 3,922,386
Cash and cash equivalents at beginning of period 7,542,289 8,131,442 --
------------ ----------- ------------
Cash and cash equivalents at end of period $ 3,922,386 $ 8,546,686 $ 3,922,386
============ =========== ============
Supplemental disclosure of cash flow information -
interest paid $ 20,876 $ 74,790 $ 1,645,449
============ =========== ============
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 January 31,
1998 and the results of operations for the six month periods ended January 31,
1998 and 1997 and the period from August 24, 1981 (date of inception) to January
31, 1998. The results of operations for the six months ended January 31, 1998
are not necessarily indicative of the results to be expected for the full year.
The Company is a development stage company as defined in the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No. 7.
The Company is devoting substantially all of its present efforts to establishing
a new business. Its planned principal operations have not commenced and,
accordingly, no significant revenue has been derived therefrom.
2. EARNINGS PER COMMON SHARE
Statement of Financial Accounting Standards No. 128, "Earnings Per Share",
became effective for financial statements for periods ending after December 31,
1997, and requires presentation of two calculations of earnings per common
share. "Basic" earnings per common share equals net income divided by weighted
average common shares outstanding during the period. "Diluted" earnings per
common share equals net income divided by the sum of weighted average common
shares outstanding during the period plus common stock equivalents. The
Company's Basic and Diluted per share amounts are the same since the assumed
exercise of stock options and warrants are all anti-dilutive. The amount of
options and warrants excluded from the calculation was 4,358,208 at January 31,
1998 and 5,745,476 at January 31, 1997. The Company restated all prior period
amounts to reflect these calculations.
3. CAPITAL STOCK
The Company issued 833 three-year stock options as payment for services
rendered in August 1997. The options vested thirty days from the issuance date
and have an exercise price of $4.47 per share. The total general and
administrative expense recorded for these options was $1,700, based upon the
fair value of such options on the date of issuance.
In September 1997, the Company issued 15,000 three-year stock options with
an exercise price of $4.15 per share as payment for services to be rendered. An
equal portion of these options vest monthly and a total general and
administrative expense of $30,000 is being amortized over a one-year period
which commenced September 1997. The Company also issued 5,000 three-year stock
options with an exercise price of $4.15 per share as payment for services to be
rendered. Of these options, 833 vest monthly for
- 6 -
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS, continued
(Unaudited)
3. CAPITAL STOCK (continued)
five months commencing September 30, 1997 and 835 vest on the last day of the
sixth month. Total general and administrative expense of $9,700 is being
amortized over a six-month period which commenced September 1997. As of January
31, 1998, the Company recorded general and administrative expense of $20,100,
based upon the fair value of the 20,000 stock options on the date of the
issuance, amortized on a straight-line basis over the vesting periods of the
grants.
In October 1997, the Company issued 12,000 five-year stock options with an
exercise price of $3.91 per share as payment for services to be rendered. An
equal portion of these options vest monthly and a total research and development
expense of $27,500 is being amortized over a one-year period which commenced in
October 1997. As of January 31, 1998, the Company recorded research and
development expense of $11,200, based upon the fair value of such options on the
date of issuance, amortized on a straight-line basis over the vesting period of
the grant.
In October 1997, the Company issued 75,000 stock options to a director with
an exercise price of $3.66 per share as payment for non-board related services
to be rendered. These options will vest as follows provided he is serving
continuously on the Company's board of directors at the time of vesting: 10,000
vested immediately; 10,000 after one full calendar year; 10,000 annually for
each of the following three years; and 25,000 on October 31, 2002. The vesting
and exercisability of the 25,000 options which vest in October 2002 may be
accelerated upon the good faith determination of the Company's Board of
Directors that a substantive collaborative agreement with a major
pharmaceutical/biotechnology company was a direct result of the director's
efforts. A total general and administrative expense of $185,600 is being
amortized over a five-year period which commenced in October 1997. As of January
31, 1998, the Company recorded general and administrative expense of $30,000,
based upon the fair value of such 75,000 options on the date of issuance,
amortized on a straight-line basis over the vesting period of the grant.
On December 9, 1997, the stockholders authorized the amendment of the
Company's Certificate of Incorporation to increase the number of authorized
shares of common stock, par value $.001 from 25,000,000 shares to 40,000,000
shares.
On December 9, 1997, the stockholders approved the 1997 Stock Option Plan
(the "1997 Plan"). The total number of shares of common stock authorized for
issuance upon exercise of options granted under the 1997 Plan is 2,000,000.
Options are granted at fair market value on the date of the grant and generally
are exercisable in 20% increments annually over five years starting one year
after the date of grant and terminate five years from their initial exercise
date.
- 7 -
<PAGE>
ALFACELL CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS, continued
(Unaudited)
3. CAPITAL STOCK (continued)
On January 23, 1998 the Securities and Exchange Commission declared
effective a registration statement for the offer and sale by certain
stockholders of up to 3,734,541 shares of common stock. Of these shares (i) an
aggregate of 2,737,480 shares were issued to private placement investors in
private placement transactions which were completed during the period from March
1994 through June 1996 (the "Earlier Private Placements"), (ii) an aggregate of
409,745 shares are issuable upon exercise of warrants which were issued to
private placement investors in the Earlier Private Placements and (iii) an
aggregate of 587,316 shares may be issued, or have been issued, upon exercise of
options which were issued to option holders in certain other private
transactions.
Subsequent to January 31, 1998, the Company completed a private placement
primarily to institutional investors which resulted in the issuance of 1,168,575
units (the "Units") at a unit price of $4.00. Each Unit consisted of two (2)
shares of the Company's common stock, par value $.001 per share and one (1)
three-year warrant to purchase one (1) share of common stock at an exercise
price of $2.50 per share. The Company received proceeds of approximately
$4,300,000, net of the placement agent's commission and expenses of $365,000,
including $480,000 in proceeds received during the three-month period ended
January 31, 1998. The placement agent also received warrants to purchase an
additional 116,858 similar Units at an exercise price of $4.40 per unit as part
of its compensation. As a condition of the private placement, the Company agreed
to file a registration statement covering the shares underlying the Units at no
cost to the stockholders other than such stockholders' selling commissions and
expenses of counsel, if any, no later than March 31, 1998. As noted above, the
Company received $480,000 related to this financing as of January 31, 1998 which
is recorded as common stock to be issued.
- 8 -
<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 six month periods ended January 31, 1998 and 1997
Revenues. The Company is a development stage company as defined in the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 7. As such, the Company is devoting substantially all of its
present efforts to establishing a new business and developing new drug products.
The Company's planned principal operations of marketing and/or licensing of new
drugs have not commenced and, accordingly, no significant revenue has been
derived therefrom. The Company focuses most of its productive and financial
resources on the development of ONCONASE and as such has not had any sales in
the six months ended January 31, 1998 and 1997. Investment income for the six
months ended January 31, 1998 was $144,000 compared to $229,000 for the same
period last year, a decrease of $85,000. This decrease was due to lower balances
of cash and cash equivalents.
Research and Development. Research and development expense for the three
months ended January 31, 1998 was $1,411,000 compared to $843,000 for the same
period last year, an increase of $568,000 or 67%. This increase was primarily
due to a 122% increase in costs related to the purchase of raw materials and the
manufacture of clinical supplies of ONCONASE, a 59% increase in costs associated
with increased patient enrollment in on-going clinical trials, including the two
Phase III clinical trials for pancreatic cancer and the Phase II and III
clinical trials for malignant mesothelioma, and a 243% increase in expenses in
preparation of a New Drug Application ("NDA") for ONCONASE.
Research and development expense for the six months ended January 31, 1998
was $2,607,000 compared to $1,694,000 for the same period last year, an increase
of $913,000 or 54%. This increase was primarily due to a 123% increase in costs
related to increased patient enrollment in on-going clinical trials, including
the two Phase III clinical trials for pancreatic cancer and the Phase II and III
clinical trials for malignant mesothelioma, a 32% increase in costs related to
the purchase of raw materials and the manufacture of clinical supplies of
ONCONASE and a 225% increase in expenses in preparation of an NDA for ONCONASE.
General and Administrative. General and administrative expense for the
three months ended January 31, 1998 was $389,000 compared to $289,000 for the
same period last year, an increase of $100,000 or 35%. This increase was
primarily due to an $80,000 increase in legal costs primarily related to SEC
matters and an $18,000 increase in insurance expenses.
- 9 -
<PAGE>
General and administrative expense for the six months ended January 31,
1998 was $716,000 compared to $554,000 for the same period last year, an
increase of $162,000 or 29%. This increase was primarily due to a $106,000
increase in legal costs primarily related to SEC matters and a $41,000 increase
in insurance expenses.
Interest. Interest expense for the three months ended January 31, 1998 was
$500 compared to $31,200 for the same period last year, a decrease of $30,700 or
98%. Interest expense for the six months ended January 31, 1998 was $20,900
compared to $63,000 for the same period last year, a decrease of $42,100 or 67%.
This decrease was primarily due to the payment of the entire principal amount of
the Company's $1.4 million term loan on October 3, 1997.
Net Loss. The Company has incurred net losses during each year since its
inception. The net loss for the three months ended January 31, 1998 was
$1,741,000 as compared to $1,046,000 for the same period last year, an increase
of $695,000 or 66%. The net loss for the six months ended January 31, 1998 was
$3,200,000 as compared to $2,082,000 for the same period last year, an increase
of $1,118,000 or 54%. The cumulative loss from the date of inception, August 24,
1981 to January 31, 1998, amounted to $48,610,000. Such losses are attributable
to the fact that the Company is still in the development stage and accordingly
has not derived sufficient revenues from operations to offset the development
stage expenses.
Liquidity and Capital Resources
Alfacell has financed its operations since inception primarily through
equity and debt financing, research product sales and interest income. During
the six months ended January 31, 1998, the Company had a net decrease in cash
and cash equivalents of $3,620,000, which resulted primarily from net cash used
in operating activities of $2,651,000, payment of bank debt and reduction of
long-term debt of $1,377,000 and purchase of property and equipment of $72,000,
offset by proceeds from common stock to be issued of $480,000.
The Company's accounts payable balance at January 31, 1998 was $934,000
compared to $378,000 on July 31, 1997. The increase is primarily due to higher
levels of raw material purchases, increased legal costs, higher costs associated
with increased patient enrollment in on-going clinical trials and increased
regulatory and manufacturing costs in preparation of an NDA for ONCONASE.
The Company's term loan with its bank, matured on August 31, 1997. On
October 3, 1997, the Company paid the entire loan balance, including accrued
interest, in the amount of $1,376,646 out of its cash resources. This is the
primary reason for a significant decrease in current liabilities as of January
31, 1998 compared to July 31, 1997.
On February 20, 1998 the Company completed a private placement primarily to
institutional investors which resulted in the issuance of 1,168,575 units at a
unit price of $4.00. Each Unit consisted of two (2) shares of the Company's
Common Stock, par value $.001 per share and one (1) three-year warrant to
purchase one (1) share of Common Stock at an exercise price of $2.50 per share.
The Company received proceeds of approximately $4,300,000, net of the placement
agent's commission and expenses of approximately $365,000, including $480,000 in
proceeds received during the three-month period ended January 31, 1998. The
placement agent also received warrants to purchase an additional 116,858 similar
Units at an exercise price of $4.40 per unit as part of its compensation.
- 10 -
<PAGE>
The Company's continued operations will depend on its ability to raise
additional funds through several potential sources such as equity or debt
financing, collaborative agreements, strategic alliances and revenues from the
commercial sale of ONCONASE. The Company 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 January 31, 1998, after taking into
account the approximately $4,300,000 in net proceeds received from the private
placement completed in February 1998, will be sufficient to meet its anticipated
cash needs through the fiscal year ending July 31, 1999. To date, a significant
portion of the Company's financing has been through private placements of common
stock and warrants, the issuance of common stock upon the exercise of stock
options and for services rendered, debt financing and financing provided by the
Company's Chief Executive Officer. The Company's long-term liquidity will depend
on its ability to raise substantial additional funds. There can be no assurance
that such funds will be available to the Company on acceptable terms, if at all.
The Company's working capital and capital requirements may depend upon
numerous factors including, the progress of the Company's research and
development programs, the timing and cost of obtaining regulatory approvals, and
the levels of resources that the Company devotes to the development of
manufacturing and marketing capabilities.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) An annual meeting of stockholders was held on December 9, 1997.
(b) The directors elected at the annual meeting were Kuslima Shogen, Gail
E. Fraser, Stanislaw M. Mikulski, Stephen K. Carter, Donald R. Conklin and
Martin F. Stadler.
(c) The matters voted upon at the annual meeting and the results of the
voting are set forth below. Except with respect to the matter described in
paragraph (ii) below, broker non-votes were not applicable. All of such matters
were approved by the stockholders.
(i) The stockholders voted 10,330,827 shares in favor and withheld
169,550 shares with respect to the election of Kuslima Shogen as a
director; 10,354,327 shares in favor and withheld 146,050 shares with
respect to the election of Gail E. Fraser, as a director; 10,358,427 shares
in favor and withheld 141,950 shares with respect to the election of
Stanislaw M. Mikulski as a director; 10,360,427 shares in favor and
withheld 139,950 shares with respect to the election of Stephen K. Carter
as a director; 10,363,527 shares in favor and withheld 136,850 shares with
respect to the election of Donald R. Conklin as a director; and 10,360,387
shares in favor and withheld 139,990 shares with respect to the election of
Martin F. Stadler as a director;
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<PAGE>
(ii) The stockholders voted 4,885,824 shares in favor and 1,194,840
shares against a proposal to ratify the Company's 1997 Stock Option Plan.
95,785 shares abstained from voting and there were 4,323,928 broker
non-votes with respect to this proposal;
(iii) The stockholders voted 9,240,487 shares in favor and 1,166,740
shares against a proposal to amend the Company's certificate of
incorporation to increase the number of shares of common stock the Company
is authorized to issue from 25,000,000 to 40,000,000. 93,150 shares
abstained from voting on this proposal;
(iv) The stockholders voted 10,381,769 shares in favor and 47,558
shares against a proposal to select KPMG Peat Marwick LLP to audit the
Company's financial statements for the fiscal year ending July 31, 1998.
71,050 shares abstained from voting on this proposal.
Item 5. Other Information
On February 20, 1998 the Company completed a private placement primarily to
institutional investors which resulted in the issuance of 1,168,575 units at a
unit price of $4.00. Each Unit consisted of two (2) shares of the Company's
Common Stock, par value $.001 per share and one (1) three-year warrant to
purchase one (1) share of Common Stock at an exercise price of $2.50 per share.
The Company received proceeds of approximately $4,300,000, net of the placement
agent's commission and expenses of approximately $365,000, including $480,000 in
proceeds received during the three-month period ended January 31, 1998. The
placement agent also received warrants to purchase an additional 116,858 similar
Units at an exercise price of $4.40 per unit as part of its compensation. The
securities offered and sold were not registered under the Securities Act of 1933
and may not be offered or sold in the United States absent registration or an
applicable exemption from such registration requirements.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits (numbered in accordance with Item 601 of Regulation S-K).
<TABLE>
<CAPTION>
Exhibit No. or
Exhibit Incorporation
No. Item Title by Reference
- ------- ---------- --------------
<C> <S> <C>
3.1 Certificate of Incorporation *
3.2 By-Laws *
3.3 Amendment to Certificate of Incorporation #
3.4 Amendment to Certificate of Incorporation #####
4.1 Form of Convertible Debenture **
10.1 Form of Stock and Warrant Purchase Agreements used in private
placements completed April 1996 and June 1996 ##
10.2 Lease Agreement - 225 Belleville Avenue, Bloomfield, New Jersey ###
10.3 Form of Stock Purchase Agreement and Certificate used in
connection with various private placements ***
10.4 Form of Stock and Warrant Purchase Agreement and Warrant
Agreement used in Private Placement completed on March 21, 1994 ***
</TABLE>
- 12 -
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. or
Exhibit Incorporation
No. Item Title by Reference
- ------- ---------- --------------
<C> <S> <C>
10.5 The Company's 1993 Stock Option Plan and Form of Option
Agreement *****
10.6 Debt Conversion Agreement dated March 30, 1994 with Kuslima
Shogen ****
10.7 Accrued Salary Conversion Agreement dated March 30, 1994 with
Kuslima Shogen ****
10.8 Accrued Salary Conversion Agreement dated March 30, 1994 with
Stanislaw Mikulski ****
10.9 Debt Conversion Agreement dated March 30, 1994 with John
Schierloh ****
10.10 Option Agreement dated March 30, 1994 with Kuslima Shogen ****
10.11 Option Agreement dated March 30, 1994 with Kuslima Shogen ****
10.12 Amendment No. 1 dated June 20, 1994 to Option Agreement dated
March 30, 1994 with Kuslima Shogen ****
10.13 Form of Amendment No. 1 dated June 20, 1994 to Option
Agreement dated March 30, 1994 with Kuslima Shogen *****
10.14 Form of Amendment No. 1 dated June 20, 1994 to Option
Agreement dated March 30, 1994 with Stanislaw Mikulski *****
10.15 Form of Stock and Warrant Purchase Agreement and Warrant
Agreement used in Private Placement completed on September 13,
1994 +
10.16 Form of Subscription Agreements and Warrant Agreement used in
Private Placements closed in October 1994 and September 1995 #
10.17 1997 Stock Option Plan. ###
10.18 Separation Agreement with Michael C. Lowe dated as of October 9,
1997 ++
10.19 Form of Subscription Agreement and Warrant Agreement used in
Private Placement completed on February 20, 1998. #####
10.20 Form of Warrant Agreement issued to the Placement Agent in
connection with the Private Placement completed on February 20,
1998. #####
10.21 Placement Agent Agreement dated December 15, 1997. #####
27.1 Financial Data Schedule #####
99.1 Factors to Consider in Connection with Forward-Looking Statements #####
</TABLE>
<TABLE>
<C> <S>
* 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.
</TABLE>
- 13 -
<PAGE>
<TABLE>
<C> <S>
*** Previously filed as exhibits to the Company's Quarterly Report on
Form 10-QSB for the quarter ended January 31, 1994 and
incorporated herein by reference thereto.
**** Previously filed as exhibits to the Company's Quarterly Report on
Form 10-QSB for the quarter ended April 30, 1994 and incorporated
herein by reference thereto.
***** Previously filed as exhibits to the Company's Registration
Statement Form SB-2 (File No. 33-76950) and incorporated herein by
reference thereto.
+ Previously filed as exhibits to the Company's Registration
Statement on Form SB-2 (File No. 33-83072) and incorporated herein
by reference thereto.
++ Previously filed as exhibits to the Company's Quarterly Report on
Form 10-Q for the quarter ended October 31, 1997 and incorporated
herein by reference thereto.
# Previously filed as exhibits to the Company's Annual Report on
Form 10-KSB for the year ended July 31, 1995 and incorporated
herein by reference thereto.
## Previously filed as exhibits to the Company's Registration
Statement on Form SB-2 (File No. 333-11575) and incorporated
herein by reference thereto.
### Previously filed as exhibits to the Company's Quarterly Report on
Form 10-QSB for the quarter ended April 30, 1997 and incorporated
herein by reference thereto.
#### Previously filed as exhibits to the Company's Annual Report on
Form 10-K for the year ended July 31, 1997 and incorporated
herein by reference thereto.
##### Filed herewith.
</TABLE>
(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)
March 16, 1998 /s/ GAIL E. FRASER
----------------------------------
Gail E. Fraser
Vice President, Finance and
Chief Financial Officer (Principal
Accounting Officer and Principal
Financial Officer)
- 15 -
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ALFACELL CORPORATION
* * * * * * * * * * * * *
Alfacell Corporation, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said Corporation, at a meeting of its
members, adopted resolutions proposing and declaring advisable the following
amendments to the Certificate of Incorporation of said Corporation:
RESOLVED, that the first sentence of Article 4 of the Certificate of
Incorporation be amended to read in its entirety as set forth below:
"4. Number of Shares. The total number of shares of capital stock
which the Corporation shall have authority to issue is forty-one million
(41,000,000) shares, of which forty million (40,000,000) shares shall be
Common Stock, par value $.001 per share, and one million (1,000,000) shares
shall be Preferred Stock, par value $.001 per share".
SECOND: That the remainder of Article 4 of the Certificate of Incorporation
of said Corporation shall remain unchanged.
THIRD: That at the Annual Meeting of Stockholders of the Corporation, the
holders of a majority of the outstanding stock entitled to vote thereon voted in
favor of said amendments in accordance with the provisions of Section 216 and
242 of the General Corporation Law of the State of Delaware.
FOURTH: That the aforesaid amendments were duly adopted in accordance with
the applicable provisions of Sections 242 and 216 of the General Corporation Law
of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, Alfacell Corporation has caused this certificate to be
signed by Kuslima Shogen, its Chairman and Chief Executive Officer and attested
to by Gail Fraser, Secretary of the Corporation, this 20th day of December,
1997.
By: /s/ KUSLIMA SHOGEN
------------------------------------------------
KUSLIMA SHOGEN, Chairman and Chief Executive
Officer
ATTEST:
By: /s/ GAIL FRASER
- ---------------------------------
Gail Fraser, Secretary
2
SUBSCRIPTION AGREEMENT
- --------------------------------------------------------------------------------
Alfacell Corporation
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Up to 2,500,000 Units, each Unit consisting of two (2) Shares of
Common Stock and one (1) three-year Warrant to purchase one
share of Common Stock
- --------------------------------------------------------------------------------
To: Alfacell Corporation
This Subscription Agreement (this "Agreement") is made between Alfacell
Corporation, a Delaware Corporation (the "Company"), and the undersigned
prospective purchaser who is subscribing hereby for units (the "Units"), each
such Unit consisting of two (2) shares of the Company's common stock, par value
$.001 per share (the "Common Stock") and one (1) warrant to purchase one (1)
share of Common Stock (the "Warrant"). The shares of Common Stock (the "Shares")
and Warrants which comprise the Units will be detached and are separately
transferable and for purposes of this Subscription Agreement all references to
Units shall mean such Shares and Warrants. The form of the Warrant is attached
hereto as Exhibit A. Each Warrant shall be exercisable at a price of $2.50 per
share of Common Stock during the period commencing three (3) months after
issuance thereof and terminating three (3) years after issuance thereof. This
subscription is submitted to you in accordance with and subject to the terms and
conditions described in this Subscription Agreement and the Company's
Confidential Private Placement Memorandum dated December 15, 1997 (as it may be
supplemented or updated from time to time, the "Memorandum"), relating to the
offering (the "Offering") of up to 4,000,000 Shares of Common Stock. It is
agreed that the terms of the Offering are hereby amended to reflect the offering
by the Company of up to 2,500,000 of the Units described herein. Except as
specifically provided otherwise herein all of the terms of the Offering
contained in the Memorandum shall remain in effect.
In consideration of the Company's agreement to sell Units to the undersigned
upon the terms and conditions summarized in the Memorandum, the undersigned
agrees and represents as follows:
A. SUBSCRIPTION
(1) The undersigned hereby irrevocably subscribes for and agrees to purchase the
number of Units indicated on the signature page hereto (the "Signature Page") at
the purchase price set forth on the Signature Page. The undersigned hereby
agrees to wire the aggregate purchase price of the Units subscribed for by the
undersigned as set forth in the Signature Page (the "Payment") to the following
non-interest bearing escrow account:
1
<PAGE>
(2) The Payment (or, in the case of rejection of a portion of the undersigned's
subscription, the part of the Payment relating to such rejected portion) will be
returned promptly, without interest or deduction, if the undersigned's
subscription is rejected in whole or in part or if the Offering is terminated
without a closing. Upon receipt by the Company of the requisite payment for all
Units to be purchased by the subscribers whose subscriptions are accepted (each,
a "Purchaser" and, collectively, the "Purchasers") at each closing of the
Offering (a "Closing"), the Shares and Warrants so purchased will be issued in
the name of each Purchaser, and the name of such Purchaser will be registered on
the books of the Company as the record owner of such Shares and Warrants. The
Company will issue to each Purchaser the stock certificates representing the
Shares purchased and the Warrant Agreement representing the Warrants purchased.
The Shares and Warrants may not be transferred prior to the Closing.
(3) The undersigned hereby acknowledges receipt of a copy of the Memorandum, and
hereby agrees to be bound thereby, as amended hereby, upon the (i) execution and
delivery to the Company, in care of Harris Webb & Garrison, Inc. (the "Placement
Agent"), of the Signature Page, and (ii) acceptance at a Closing by the Company
of the undersigned's subscription (the "Subscription").
(4) The undersigned agrees that the Company may, in its sole and absolute
discretion, reduce the undersigned's Subscription to any amount of Units that in
the aggregate does not exceed the amount of Units hereby applied for without any
prior notice to or further consent by the undersigned. The undersigned hereby
irrevocably constitutes and appoints the Placement Agent and each officer of the
Placement Agent, each of the foregoing acting singly, in each case with full
power of substitution, the true and lawful agent and attorney-in-fact of the
undersigned, with full power and authority in the undersigned's name, place and
stead, to amend this Subscription Agreement, including in each case the
Signature Page, to effect any of the foregoing provisions of this Paragraph (4).
Alfacell Escrow Account(1)
9100725
Southwest Bank of Texas as Escrow Agent
- ----------
(1)Wire instructions to be provided by Placement Agent prior to submission
of Subscription Agreement by Purchasers and Closing.
2
<PAGE>
B. REPRESENTATIONS AND WARRANTIES
The undersigned hereby represents and warrants to, and agrees with, the Company
and the Placement Agent as follows:
(1) The undersigned has been furnished with and has carefully read the
Memorandum (including the Attachments thereto) and this Subscription Agreement
and is familiar with and understands the Memorandum and the terms of the
Offering, has based his or her decision to invest on the information contained
in the Memorandum and this Subscription Agreement and has not been furnished
with any other offering literature or prospectus which is inconsistent or
contradictory in any material way with the Memorandum (including Annexes
thereto). The undersigned has carefully considered and has, to the extent the
undersigned believes such discussion necessary, discussed with the undersigned's
professional legal, tax, accounting and financial advisors the suitability of an
investment in the Units for the undersigned's particular tax and financial
situation and has determined that the Units being subscribed for by the
undersigned are a suitable investment for the undersigned.
(2) The undersigned acknowledges that (i) the undersigned has had the right to
request copies of any documents, records, and books pertaining to this
investment and (ii) any such documents, records and books which the undersigned
requested have been made available for inspection by the undersigned, the
undersigned's attorney, accountant or adviser(s).
(3) The undersigned and/or the undersigned's adviser(s) has/have had a
reasonable opportunity to ask questions of and receive answers from a person or
persons acting on behalf of the Company concerning the Offering and all such
questions have been answered to the full satisfaction of the undersigned.
(4) The undersigned is not subscribing for Units as a result of or subsequent to
any advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio or
presented at any seminar or meeting.
(5) If the undersigned is a natural person, the undersigned has reached the age
of majority in the state in which the undersigned resides, has adequate means of
providing for the undersigned's current financial needs and contingencies, is
able to bear the substantial economic risks of an investment in the Units for an
indefinite period of time, has no need for liquidity in such investment and, at
the present time, could afford a complete loss of such investment.
(6) The undersigned or the undersigned's purchaser representative, as the case
may be, has had such knowledge and experience in financial, tax and business
matters so as to enable the undersigned to utilize the information made
available to the undersigned in connection with the Offering to evaluate the
merits and risks of an investment in the Units and to make an informed
investment decision with respect thereto.
3
<PAGE>
(7) The undersigned will not sell or otherwise transfer the Units without
registration under the Securities Act of 1933, as amended (the "Securities Act")
or applicable state securities laws or an exemption therefrom. None of the Units
have been registered under the Securities Act or under the states' securities
laws. The undersigned represents that the undersigned is purchasing the Units
for the undersigned's own account, for investment and not with a view toward
resale or distribution except in compliance with the Securities Act. The
undersigned has not offered or sold the Units being acquired nor does the
undersigned have any present intention of selling, distributing or otherwise
disposing of such Units either currently or after the passage of a fixed or
determinable period of time or upon the occurrence or non-occurrence of any
predetermined event or circumstances in violation of the Securities Act.
(8) The undersigned recognizes that investment in the Units involves substantial
risks, including loss of the entire amount of his or her investment. Further,
the undersigned has carefully read and considered the matters set forth under
the caption "Risk Factors" in the Memorandum, and has taken full cognizance of
and understands all of the risks related to the purchase of the Units.
(9) The undersigned acknowledges that the certificates representing the shares
of Common Stock purchased and the Warrants purchased shall each be stamped or
otherwise imprinted with a legend substantially in the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT WITH RESPECT TO
THE SECURITIES OR AN EXEMPTION THEREFROM. ANY SUCH TRANSFER MAY ALSO BE SUBJECT
TO APPLICABLE STATE SECURITIES LAWS.
(10) If this Subscription Agreement is executed and delivered on behalf of a
partnership, corporation, trust or estate: (i) such partnership, corporation,
trust or estate has the full legal right and power and all authority and
approval required (a) to execute and deliver, or authorize execution and
delivery of, this Subscription Agreement and all other instruments executed and
delivered by or on behalf of such partnership, corporation, trust or estate in
connection with the purchase of its Units, (b) to delegate authority pursuant to
power of attorney and (c) to purchase and hold such Units, (ii) the signature of
the party signing on behalf of such partnership, corporation, trust or estate is
binding upon such partnership, corporation, trust or estate; and (iii) such
partnership, corporation or trust has not been formed for the specific purpose
of acquiring such Units, unless each beneficial owner of such entity is
qualified as an accredited investor within the meaning of Rule 501(a) of
Regulation D promulgated under the Securities Act and has submitted information
substantiating such individual qualification.
4
<PAGE>
(11) The undersigned acknowledges that if he or she is purchasing the Units
subscribed for hereby in a fiduciary capacity, the above representations and
warranties shall be deemed to have been made on behalf of the person or persons
for whom he or she is so purchasing.
(12) If the undersigned is a retirement plan or is investing on behalf of a
retirement plan, the undersigned acknowledges that investment in the Units poses
additional risks including the inability to use losses generated by an
investment in the Units to offset taxable income.
(13) The undersigned acknowledges that if he or she is purchasing the Units
subscribed for hereby in a fiduciary capacity, the above representations and
warranties shall be deemed to have been made on behalf of the person or persons
for whom he or she is so purchasing.
(14) The undersigned represents and warrants that the information set forth
herein concerning the undersigned is complete, true and correct.
(15) The undersigned agrees to indemnify and hold the Company and its directors,
officers, employees, affiliates, controlling persons and agents (including the
Placement Agent and any control persons of the Placement Agent) and their
respective heirs, representatives, successors and assigns harmless against all
liabilities, costs and expenses incurred by them as a result of, (a) any
misrepresentation made by the undersigned contained in this Agreement (including
the Investor Questionnaire contained herein), (b) any sale or distribution by
the undersigned in violation of the Securities Act or any applicable state
securities or "blue sky" laws or (c) any untrue statement of a material fact
made by the undersigned and contained herein.
C. UNDERSTANDINGS
The undersigned understands, acknowledges and agrees with the Company and the
Placement Agent as follows:
(1) This Subscription may be rejected, in whole or in part, by the Company or
the Placement Agent, in the sole and absolute discretion of either of them, at
any time before the Closing on the Units covered by such subscription,
notwithstanding prior receipt by the undersigned of notice of acceptance of the
undersigned's Subscription. The Company may terminate this Offering at any time
in its sole discretion. The execution of this Agreement or solicitation of the
investment contemplated hereby, shall create no obligation of the Company to
accept any subscription or complete the Offering.
(2) The undersigned hereby acknowledges and agrees that the Subscription
hereunder is irrevocable by the undersigned, that, except as required by law,
the undersigned is not entitled to cancel, terminate or revoke this Agreement or
any agreements of the undersigned hereunder and that this Agreement and such
other agreements shall survive the death or disability of the undersigned and
shall be binding upon and inure to the benefit of the parties and their heirs,
executors, administrators, successors, legal representatives and permitted
assigns. If the undersigned is more than one person, the obligations of the
undersigned hereunder shall be joint and several and the agreements,
representations, warranties and acknowledges herein contained shall be deemed to
be made by and be binding upon each such person and his/her heirs, executors,
administrators, successors, legal representatives and permitted assigns.
5
<PAGE>
(3) No federal or state agency has made any finding or determination as to the
accuracy or adequacy of the Memorandum or as to the fairness of the terms of
this Offering for investment nor any recommendation or endorsement of the Units.
(4) The Offering is intended to be exempt from registration under the Securities
Act by virtue of Section 4(2) of the Securities Act and the provisions of
Regulation D thereunder, which is in part dependent upon the truth, completeness
and accuracy of the statements made by the undersigned herein.
(5) There can be no assurance that the undersigned will be able to sell or
dispose of the Units. It is understood that in order not to jeopardize the
Offering's exempt status under Section 4(2) of the Securities Act and Regulation
D, any transferee may, at a minimum, be required to fulfill the investor
suitability requirements thereunder.
(6) The Placement Agent will receive compensation in connection with the
Offering but is not guaranteeing or assuming responsibility of the operation or
possible liability of the Company, including, without limitation, compliance by
the Company with the agreements entered into in connection with the Offering,
and will not supervise or participate in the operation or management of the
Company.
(7) The undersigned understands that. With the exception of the registration
rights set forth in Section D of this Subscription Agreement, (i) the Company
has no obligation to register the Units for resale under any federal or state
securities laws or to take any action which would make available any exemption
from the registration requirements of such laws, and (ii) the undersigned
therefore may be precluded from selling or otherwise transferring or disposing
the Units or any portion thereof for an indefinite period of time or at any
particular time and may therefore have to bear the economic risk of investment
in the Share of an indefinite period of time.
(8) The undersigned agrees that if and to the extent required by an underwriter
of the Company's Securities in a public offering the undersigned will execute a
"lock-up" agreement regarding some or all of his or her Units thereby agreeing
not to sell such Units for a period of time (not to exceed 180 days) after
completion of the public offering whether or not such Units are included in the
public offering.
(9) The undersigned understands that the Units are being offered and sold in
reliance on specific exemptions from the registration requirements of federal
and state securities laws and that the Company and the principals and
controlling persons thereof are relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments, and understandings set
forth in this Subscription Agreement in order to determine the applicability of
such exemptions and the suitability of the undersigned to acquire Units.
(10) The undersigned acknowledges that the information contained in the
Memorandum, including without limitations the existence and terms of the
Offering, is confidential and non-public and agrees that all such information
shall be kept in confidence by the undersigned and neither used for the
undersigned's personal benefit (other than in connection with this Subscription)
nor disclosed to any third party for any reason; provided, however, that this
confidentiality obligation shall not apply to any such information that (i) is
part of the public knowledge or literature and readily accessible at the date
hereof, (ii) becomes part of the public knowledge or literature and readily
6
<PAGE>
accessible by publication (except as a result of a breach of this provision) or
(iii) is received from third parties (except third parties who disclose such
information in violation of any confidentiality agreements or obligations,
including, without limitation, any Subscription Agreement entered into with the
Company). The undersigned acknowledges that the foregoing restrictions on the
undersigned's use and disclosure of the confidential, non-public information
contained in the Memorandum restricts the undersigned from trading in the
Company's securities to the extent information would be deemed to be material by
a reasonable investor in determining whether to invest in the Company's
securities.
(11) The representations, warranties and agreements of the undersigned contained
herein and in any other writing delivered in connection with the transactions
contemplated hereby shall be true and correct in all respects on and as of the
date of sale of the Units as if made on and as of such date and shall survive
the execution and delivery of this Agreement and the purchase of the Units.
(12) Insofar as indemnification for liabilities under the Securities Act may be
permitted to directors, officers or controlling persons of the Company, the
Company has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in such
Act and is therefore unenforceable to such extent.
D. REGISTRATION RIGHTS
(1) The Company covenants and agrees that on or before the earlier to occur of
(i) March 31, 1998 or (ii) the 45th day following the final closing of the
Offering by the Company, the Company will cause to be filed under of the
Securities Act a registration statement ( the "Registration Statement"),
registering the resale of (A) the Shares and (B) the shares of Common Stock or
other securities issuable under the Warrants (the "Warrant Shares"), included in
the Units purchased in the Offering by the undersigned and naming the
undersigned in the Registration Statement as a selling shareholder.
(a) Except to the extent any delay is due to the failure of the undersigned
to reasonably cooperate in providing to the Company such information as shall be
reasonably requested by the Company in writing for use in the Registration
Statement, if the Registration Statement is not filed with the Securities and
Exchange Commission within the target dates set forth in the first sentence of
section D(1) (the "Outside Filing Date"), the Company shall declare and pay for
no additional consideration to the undersigned additional shares of Common Stock
equal to 1% of the sum of the Shares plus the Warrant Shares (the "Delay
Shares") then held by the undersigned for each week after the Outside Filing
Date that the Registration Statement remains unfiled.
(b) All Delay Shares issuable pursuant to paragraph (a) above when issued,
shall be duly authorized, fully paid and nonassessable and shall be included in
the Registration Statement contemplated hereby. Such Delay Shares shall be
registered in the name of the undersigned or the name or names of the nominee(s)
of the undersigned in such denominations as the undersigned shall request
pursuant to instructions delivered to the Company.
(2) The Company shall use its commercially reasonable best efforts to have the
Registration Statement declared effective as soon as reasonably practicable
after such filing, and to keep such
7
<PAGE>
Registration Statement continuously effective until the earlier of (i) the date
of all the Shares and Warrant Shares purchased by Purchasers in the Offering and
included in the Registration Statement have been sold publicly by the Purchasers
and (ii) the second anniversary of the final Closing of the Offering; provided,
however, that the Company may voluntarily suspend the effectiveness of such
Registration Statement for a limited time, which is no event shall be longer
than 120 days, if the Company has been advised by its counsel or underwriters to
the Company that the offering of the shares of Common Stock pursuant to the
Registration Statement would adversely affect, or would be improper in view of
(or improper without disclosure in a prospectus), a proposed financing, a
reorganization, recapitalization, merger, consolidation, or similar transaction
involving the Company, in which case the Company shall be required to keep such
Registration Statement effective for an additional period of time beyond two
years following the final Closing of the Offering equal to the number of days
the effectiveness thereof is suspended pursuant to this provision.
(3) Upon the occurrence of any event that would cause the Registration Statement
to contain a material misstatement or omission or not to be effective and usable
during the period that such Registration Statement is required to be effective
and usable, the Company shall promptly file an amendment or supplement to the
Registration Statement and use its commercially reasonable best efforts to cause
such amendment to be declared effective as soon as practicable thereafter.
(4) The Company will bear all costs and expenses related to the Registration
Statement other than the expenses incurred by the Purchasers for underwriters'
commissions and discounts, if any, or legal fees incurred by the Purchasers.
(5) The Company shall furnish each Purchaser with such number of copies of the
prospectus forming a part of the Registration Statement as such person may
reasonably request in order to facilitate a public sale or disposition of the
Shares covered by the Registration Statement.
(6) The Company shall use commercially reasonable efforts to register or qualify
the Shares and Warrant Shares owned by the undersigned which are included in the
Registration Statement under the securities or blue sky laws of the
undersigned's state of residence and the state of New York.
(7) The Company shall notify each Purchaser and its counsel of any stop order
threatened or issued by the Securities and Exchange Commission or any state
securities regulatory authority, or a trading halt threatened or issued by
NASDAQ or other exchange or over-the-counter market in which the Common Stock is
publicly traded, and take all actions required to prevent the entry of such stop
order or the imposition of such trading halt or to remove such stop order or
trading halt if entered or imposed.
(8) In connection with the registration hereunder and as a condition to the
Company's obligation hereunder, the undersigned will furnish to the Company in
writing such information with respect to the undersigned and the proposed
distribution of the Shares and Warrant Shares by the undersigned as shall be
reasonably necessary in order to assure compliance with Federal and applicable
state securities laws.
(9) (a) In connection with the registration of the Shares and Warrant Shares
under the Securities Act, the Company will indemnify and hold harmless each
seller of such Shares and
8
<PAGE>
Warrant Shares thereunder and each other person, if any, who controls such
seller, against any losses, claims, damages or liabilities, joint or several, to
which such seller or controlling person may become subject under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any registration
statement under which the Shares and Warrant Shares were registered under the
Securities Act, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances then existing, and shall reimburse each such
seller and each such controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
Company shall not be liable in any such case if and to the extent that any such
loss, claim, damage or liability arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission in any
document made in reliance upon and in conformity with information furnished by
such seller or such controlling person in writing specifically for use in the
preparation of such documents.
(b) In connection with the registration of the Shares and Warrant Shares
under the Securities Act, each seller of such shares thereunder severally and
not jointly, will indemnify and hold harmless the Company and each person, if
any, who controls the Company within the meaning of the Securities Act, each
officer of the Company, each director of the Company and each person who
controls the Company against all losses, claims, damages or liabilities to which
the Company or any such officer, director or controlling person may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities or actions or omissions in respect thereof arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the registration statement under which such Shares or
Warrant Shares were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances then
existing, and shall reimburse the Company and each such officer, director, and
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that such seller shall be liable
hereunder in any such case if and only to the extent that such untrue statement
or alleged untrue statement or omission or alleged omission in any document was
made in reliance upon and conformity with information furnished to the Company
by or on behalf of such seller in writing for use in the preparation of such
documents; provided, further, however, that the liability of each seller
hereunder shall be limited to the proportion of any such loss, claim, damage,
liability or expense which is equal to the proportion that the public offering
price of Shares and Warrant Shares sold by such seller under such registration
statement bears to the total public offering price of all securities sold
thereunder, but not to exceed the proceeds allocable to such seller from the
sale of Shares and Warrant Shares covered by such registration statement. The
registration rights with respect to the Warrant Shares shall transfer to any
transferee should the Warrant be transferred. The Company shall use its best
efforts to allow Rule 144 under the Securities Act to be used.
9
<PAGE>
E. MISCELLANEOUS
(1) All pronouns and any variations thereof used herein shall be deemed to refer
to the masculine, feminine, singular or plural, as the identity of the person or
persons may require.
(2) Except as set forth in Section A(4) herein, neither this Agreement nor any
provision hereof shall be waived, modified, changed, discharged, terminated,
revoked or canceled except by an instrument in writing signed by the party
against whom any change, discharge or termination is sought.
(3) Notices required or permitted to be given hereunder shall be in writing and
shall be deemed to be sufficiently given when personally delivered or sent by
registered mail, return receipt requested, addressed: (i) if to the Company, to
Alfacell Corporation, 225 Belleville Avenue, Bloomfield, New Jersey 07003,
Attention: Gail E. Fraser, Telecopy: (973) 748-1355, with a copy to the
Placement Agent addressed to Harris Webb & Garrison, Inc., 5599 San Felipe,
Suite 301, Houston, Texas 77056, Attention: Jerald S. Cobbs, Telecopy (713)
993-4696, or (ii) if to the undersigned, to the address for correspondence set
forth in the Signature Page, or at such other address as may have been specified
by written notice given in accordance with this Paragraph (3).
(4) Failure of the Company to exercise any right or remedy under this Agreement
or any other agreement between the Company and the undersigned, or otherwise, or
delay by the Company in exercising such right or remedy, will not operate as a
waiver thereof. No waiver by the Company will be effective unless and until it
is in writing and signed by the Company.
(5) This Agreement shall be enforced, governed and construed in all respects in
accordance with the laws of the State of New Jersey, as such laws are applied by
the New Jersey courts to agreements entered into and to be performed in New
Jersey by and between residents of New Jersey, and shall be binding upon the
undersigned, the undersigned's heirs, estate, legal representatives, successors
and assigns and shall inure to the benefit of the Company, its successors and
assigns. If any provision of this Subscription Agreement is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed modified to conform with such statute or rule of law. Any
provision hereof that may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provisions hereof.
(6) This Subscription Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and may be amended only
by a writing executed by both parties hereto. This Subscription Agreement shall
supersede any prior agreement relating to the subject matter hereof, between the
parties hereto, including without limitation any prior subscription agreements.
(7) Each party hereto has had the opportunity to review this Agreement with its
separate legal counsel.
F. SIGNATURE
The signature of this Agreement is contained as part of the applicable
subscription package, entitled "Signature Page".
10
<PAGE>
ALFACELL CORPORATION
SIGNATURE PAGE
The undersigned hereby subscribes for the number of Units as set forth below.
1. Dated: ____________________, 19___
2. Number of Units subscribed for : ____________________
3. Aggregate purchase price for number of Units subscribed for, at $4.00 per
Unit:
$____________________
----------------------------------- -------------------------------------
Signature of Subscriber Taxpayer Identification or
(and title, if applicable) Social Security Number
----------------------------------- -------------------------------------
Signature of Joint Purchaser Taxpayer Identification or
(if any) Social Security Number
----------------------------------- -------------------------------------
Name and Residence Address Mailing Address
(Post Office Address Not Acceptable) (if different from Residence Address)
----------------------------------- -------------------------------------
Name (please print as name will Name (please print)
appear on certificate)
----------------------------------- -------------------------------------
Number and Street Number and Street
----------------------------------- -------------------------------------
City, State, Zip Code City, State, Zip Code
11
<PAGE>
ALFACELL CORPORATION
SIGNATURE PAGE
Subscription for______________________Units at $4.00 per Unit for an aggregate
purchase price of $_______________________is hereby accepted.
By:_______________________________________Dated: ______________________________
Kuslima Shogen
Chief Executive Officer
12
<PAGE>
ACCREDITED INVESTOR STATUS
INVESTORS MUST CHECK APPLICABLE CHOICE OR CHOICES.
The undersigned is an "accredited investor" as that term is defined in Rule
501(a) of Regulation D promulgated pursuant to the Act ("Regulation D"), by
virtue of the fact that:
1. Accredited investors must initial at least one of the following two
statements:
____ A. The undersigned had individual income of more than $200,000 (or $300,000
including income attributable to spouse) in each of the most recent two years
and reasonably expects to have an individual income in excess of $200,000 (or
$300,000 including income attributable to spouse) for the current year.
____ B. The undersigned has an individual net worth, or a combined net worth
with the undersigned's spouse, in excess of $1,000,000. For purposes of this
Subscription Agreement, "individual net worth" means the excess of total assets
as fair market value, including homes and personal property, over total
liabilities.
2. Accredited partnerships, corporations, trusts or other equity investors
must initial one or more of the following statements:
____ A. All of the individual equity owners of the undersigned qualify as
accredited investors under statements (1A) or (1B) above.
____ B. The undersigned is a bank, savings and loan, or insurance company as
defined in the Act, or is a corporation, partnership, or business trust with
total assets in excess of $5,000,000.
____ C. The undersigned otherwise meets the definition of an accredited investor
set forth in Rule 501(a) of Regulation D, as follows (explain briefly and
contact the Company prior to submission to verify accredited investor status):
------------------------------
Signature of Subscriber
------------------------------
Signature of Joint Purchasers
------------------------------
Print Name of Subscriber
------------------------------
Print Name of Joint Purchasers
13
<PAGE>
WARRANT TO PURCHASE _____________ SHARES OF COMMON STOCK VOID AFTER 5:00 p.m.
NEW JERSEY TIME, ON __________________. THIS WARRANT AND THE SHARES OF COMMON
STOCK ISSUABLE UPON THE EXERCISE HEREOF HAVE BEEN AND WILL BE ISSUED IN
TRANSACTIONS WHICH HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES OR BLUE SKY LAWS. THIS
WARRANT AND SUCH SHARES MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF, IN WHOLE OR IN PART, IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE LAW, OR AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
NO. _________ _______________SHARES
ALFACELL CORPORATION
This certifies that, for value received,_________________, the registered
holder hereof or assigns (the "Warrant holder") is entitled to purchase from
Alfacell Corporation, a Delaware corporation (the "Company"), at any time on and
after _____________________, and before 5:00 p.m., New Jersey time, on
___________________ (the "Termination Date"), at the purchase price of $2.50 per
share (the "Exercise Price"), the number of shares of Common Stock, par value
$.001 per share, of the Company set forth above (the "Warrant Stock"). The
number of shares of Warrant Stock, the Termination Date and the Exercise Price
per share of this Warrant shall be subject to adjustment from time to time as
set forth below.
SECTION I. TRANSFER OR EXCHANGE OF WARRANT.
The Company shall be entitled to treat the Warrant holder as the owner in
fact hereof for all purposes and shall not be bound to recognize any equitable
or other claim to or interest in this Warrant on the part of any other person.
This Warrant shall be transferable only on the books of the Company, maintained
at its principal office upon delivery of this Warrant Certificate duly endorsed
by the Warrant holder or by his duly authorized attorney or representative, or
accompanied by proper evidence of succession, assignment or authority to
transfer. Upon any registration of transfer, the Company shall deliver a new
Warrant Certificate or Certificates to the persons entitled thereto.
SECTION II. TERM OF WARRANT; EXERCISE OF WARRANTS.
A. Termination. The Company may, in its sole discretion, extend the
Termination Date with respect to the exercise of this Warrant upon notice to the
Warrant holder. As used herein, "Termination Date" shall be deemed to include
any such extensions.
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<PAGE>
B. Exercise. This Warrant shall be exercised by surrender to the Company,
at its principal office, of this Warrant Certificate, together with the Purchase
Form attached hereto duly completed and signed, and upon payment to the Company
of the Exercise Price for the number of shares of Warrant Stock in respect of
which this Warrant is then exercised. Payment of the aggregate Exercise Price
shall be made in cash or by certified or official bank check.
C. Warrant Certificate. Subject to Section III hereof, upon such surrender
of this Warrant Certificate and payment of the Exercise Price as aforesaid, the
Company shall issue and cause to be delivered to or upon the written order of
the Warrant holder a certificate or certificates for the number of full shares
of Warrant Stock so purchased upon the exercise of such Warrant, together with
cash, as provided in Section VI hereof, in respect of any fractional shares of
Warrant Stock otherwise issuable upon such surrender. Such certificate or
certificates representing the Warrant Stock shall be deemed to have been issued
and any person so designated to be named therein shall be deemed to have become
a holder of record of such shares of Warrant Stock as of the date of receipt by
the Company of this Warrant Certificate and payment of the Exercise Price as
aforesaid; provided, however, that if, at the date of surrender of this Warrant
Certificate and payment of the Exercise Price, the transfer books for the
Warrant Stock or other class of stock purchasable upon the exercise of this
Warrant shall be closed, the certificate or certificates for the shares of
Warrant Stock in respect of which this Warrant is then exercised shall be deemed
issuable as of the date on which such books shall next be opened (whether before
or after the Termination Date) and until such date the Company shall be under no
duty to deliver any certificate for such shares of Warrant Stock; provided
further, however, that the transfer books of record, unless otherwise required
by law, shall not be closed at any one time for a period longer than twenty (20)
days. The rights of purchase represented by this Warrant shall be exercisable,
at the election of the Warrant holder, either in full or from time to time in
part, and, in the event that this Warrant is exercised in respect of fewer than
all of the shares of Warrant Stock purchasable on such exercise at any time
prior to the Termination Date, a new Warrant Certificate evidencing the
remaining Warrant or Warrants will be issued, and the Company shall deliver the
new Warrant Certificate or Certificates pursuant to the provisions of this
Section.
SECTION III. PAYMENT OF TAXES.
The Company will pay all documentary stamp taxes, if any, attributable to
the initial issuance of the shares of Warrant Stock upon the exercise of this
Warrant; provided, however, that the Warrant holder shall pay any tax or taxes
which may be payable in respect of any transfer involved in the issue or
delivery of Warrant Certificates or the certificates for the shares of Warrant
Stock in a name other than that of the Warrant holder in respect of which this
Warrant or shares of Warrant Stock are issued.
SECTION IV. MUTILATED OR MISSING WARRANT CERTIFICATES.
In case this Warrant Certificate shall be mutilated, lost, stolen or
destroyed, the Company shall, at the request of the Warrant holder, issue and
deliver, in exchange and substitution for and upon cancellation of this
certificate if mutilated, or in lieu of and in substitution for this certificate
15
<PAGE>
if lost, stolen or destroyed, a new Warrant Certificate of like tenor and
representing an equivalent right or interest, but only upon receipt of evidence
satisfactory to the Company of such loss, theft or destruction of this Warrant
Certificate and indemnity, if requested, also satisfactory to the Company.
SECTION V. RESERVATION OF SHARES OF WARRANT STOCK.
There has been reserved, and the Company shall at all times keep reserved
so long as this Warrant remains outstanding, out of its authorized Common Stock
a number of shares of Common Stock sufficient to provide for the exercise of the
rights of purchase represented by this Warrant. The transfer agent for the
Common Stock and every subsequent transfer agent for any shares of the Company's
capital stock issuable upon the exercise of this Warrant will be irrevocably
authorized and directed at all times to reserve such number of authorized shares
as shall be requisite for such purpose.
SECTION VI. FRACTIONAL SHARES.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of this Warrant. With respect to any fraction of a
share called for upon the exercise of this Warrant, the Company shall pay to the
Warrant holder an amount in cash equal to such fraction multiplied by the
current market price of such fractional share. "Market Price", as of any date
means, (i) the last reported sale price for the shares of Common Stock as
reported by the National Association of Securities Dealers Automated Quotation
National Market System, ("NASDAQ-NMS"), (ii) the closing bid price for the
shares of Common Stock as reported by the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") if the shares are not traded on
NASDAQ-NMS, (iii) the average of the closing bid and closing asked prices of the
Common Stock as reported by the National Quotations Bureau if the shares are not
traded on NASDAQ; (iv) the last reported sale price, if the shares of Common
Stock are listed on a national securities exchange or (v) if market value cannot
be calculated as of such date on any of the foregoing basis, the fair market
price determined by the Board of Directors of the Company, acting with
reasonable business judgment.
SECTION VII. EXERCISE PRICE; ANTI-DILUTION PROVISIONS.
A. Exercise Price. The shares of Warrant Stock shall be purchasable upon
the exercise of this Warrant, at a price of $2.50 per share. The Company may, in
its sole discretion, reduce the Exercise Price applicable to the exercise of
this Warrant upon notice to the Warrant holder. As used herein, "Exercise Price"
shall be deemed to include any such reduction.
If the Company shall at any time issue Common Stock by way of dividend or
other distribution on any stock of the Company or effect a stock split or
reverse stock split of the outstanding shares of Common Stock, the Exercise
Price shall be proportionately decreased in the case of such issuance (on the
day following the date fixed for determining stockholders entitled to receive
such dividend or other distribution or such stock split) or increased in the
case of such reverse stock split (on the date that such reverse stock split
shall become effective), by multiplying the Exercise Price in effect immediately
prior to the stock dividend or other distribution, stock split
16
<PAGE>
or reverse stock split by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately prior to such stock dividend or
other distribution, stock split or reverse stock split, and the denominator of
which is the number of shares of Common Stock outstanding immediately after such
stock dividend or other distribution, stock split or reverse stock split.
B. No Impairment. The Company (a) will not increase the par value of any
shares of stock receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise, and (b) will take all such action as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of Common Stock upon the exercise of this
Warrant.
C. Number of Shares Adjusted. Upon any adjustment of the Exercise Price
pursuant to this Warrant, the Warrant holder shall thereafter (until another
such adjustment) be entitled to purchase upon the exercise of this Warrant, at
the new Exercise Price, the number of shares, calculated to the nearest full
share, obtained by multiplying the number of shares of Warrant Stock initially
issuable upon exercise of this Warrant by the Exercise Price in effect on the
date hereof and dividing the product so obtained by the new Exercise Price.
SECTION VIII. RECLASSIFICATION, REORGANIZATION OR MERGER.
In case of any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the Company (other than a change in par
value or as a result of an issuance of Common Stock by way of dividend or other
distribution or of a stock split or reverse stock split) or in case of any
consolidation or merger of the Company with or into another corporation (other
than a merger with a subsidiary in which merger the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock of the
Company issuable upon exercise of this Warrant) or in case of any sale or
conveyance to another corporation of the property of the Company as an entirety
or substantially as an entirety, the Company shall cause effective provision to
be made so that the Warrant holder shall have the right thereafter, by
exercising this Warrant, to purchase the kind and amount of shares of stock and
other securities and property the Warrant holder would have been entitled to
receive if the Warrant holder had exercised this Warrant immediately prior to
such reclassification, capital reorganization or other change, consolidation,
merger, sale or conveyance. Any such provision shall include provision for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Warrant. The foregoing provisions of this
Section shall similarly apply to successive reclassifications, capital
reorganizations and changes of shares of Common Stock and to successive
consolidations, mergers, sales and conveyances.
SECTION IX. REGISTRATION RIGHTS.
The Warrant holder shall have the registration rights with respect to the
resale of the Warrant Stock as set forth in Section D of the Subscription
Agreement by and between the Company and the Warrant holder of even date
herewith. The registration rights with respect to the transfer of the Warrant
stock shall transfer to any transferee should the Warrant be transferred.
17
<PAGE>
SECTION X. NOTICES TO WARRANT HOLDERS.
So long as this Warrant shall be outstanding and unexercised (a) if the
Company shall pay any dividend or make any distribution upon the Common Stock or
(b) if the Company shall offer to the holders of Common Stock for subscription
or purchase by them any shares of stock of any class or any other rights or (c)
if any capital reorganization of the Company, reclassification of the capital
stock of the Company, consolidation or merger of the Company with or into
another corporation, sale, lease or transfer of all or substantially all of the
assets of the Company to another corporation, or the voluntary or involuntary
dissolution, liquidation or winding up of the Company shall be effected, then,
in any such case, the Company shall cause to be delivered to the Warrant holder,
at least ten days prior to the date specified in (i) or (ii) below, as the case
may be, a notice containing a brief description of the proposed action and
stating the date on which (i) a record is to be taken for the purpose of such
dividend or distribution, or (ii) such reclassification, reorganization,
consolidation, merger, conveyance, lease, dissolution, liquidation or winding up
is to take place and the date, if any, as of which the holders of Common Stock
of record shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
SECTION XI. NOTICES.
Any notice pursuant to this Warrant by the Company or by the Warrant holder
shall be in writing and shall be deemed to have been duly given if delivered or
mailed certified mail, return receipt requested, (a) if to the Company, to it at
225 Belleville Avenue, Bloomfield, New Jersey 07003, Attention: Chief Executive
Officer and (b) if to the Warrant holder to the Warrant holder at the address
set forth on the signature page hereto. Each party hereto may from time to time
change the address to which such party's notices are to be delivered or mailed
hereunder by notice in accordance herewith to the other party.
SECTION XII. SUCCESSORS.
All the covenants and provisions of this Warrant by or for the benefit of
the Company or the Warrant holder shall bind and inure to the benefit of their
respective successors and assigns hereunder.
SECTION XIII. APPLICABLE LAW.
This Warrant shall be deemed to be a contract made under the laws of the
State of Delaware applicable to agreements made and to be performed entirely in
Delaware and for all purposes shall be construed in accordance with the internal
laws of Delaware without giving effect to the conflicts of laws principles
thereof.
18
<PAGE>
SECTION XIV. BENEFITS OF THIS WARRANT.
Nothing in this Warrant shall be construed to give to any person or
corporation other than the Company and the Warrant holder any legal or equitable
right, remedy or claim under this Warrant and this Warrant shall be for the sole
and exclusive benefit of the Company and the Warrant holder.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant
Certificate or caused this Warrant Certificate to be duly executed as of the day
and year first above written.
ALFACELL CORPORATION
By: __________________________________
Name: Kuslima Shogen
Title: Chief Executive Officer
Warrant holder
By: __________________________________
Name: ________________________________
Address:
______________________________________
______________________________________
______________________________________
______________________________________
Social Security or
Taxpayer Identification Number
19
<PAGE>
PURCHASE FORM
The undersigned hereby irrevocably elects to exercise the Warrant
represented by this Warrant Certificate to the extent of _____________ shares of
Common Stock, par value $.001 per share, of Alfacell Corporation, and hereby
makes payment of $______________ in payment of the actual exercise price
thereof.
Name: _______________________________________________________________
(Please type or print in block letters)
Address:_____________________________________________________________
(Address for delivery of Stock Certificate)
Social Security or
Taxpayer Identification Number:______________________________________
Signature:___________________________________________________________
20
<PAGE>
ASSIGNMENT FORM
FOR VALUED RECEIVED, _____________________________ hereby sells, assigns and
transfers unto__________________________________________________________________
(Please type or print in block letters)
Address ________________________________________________________________________
the right to purchase Common Stock, par value $.001 per share, of Alfacell
Corporation, represented by this Warrant Certificate to the extent of
______________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint ___________________________, to transfer the
same on the books of the Company with full power of substitution in the
premises.
_______________________________
Signature
Dated:_________________ , 199_
Notice: The signature of this assignment must
correspond with the name as it appears upon the
face of this Warrant Certificate in every
particular, without alteration or enlargement or
any change whatever.
SIGNATURE GUARANTEED:
_______________________________
21
Exhibit 10.20
PLACEMENT AGENT'S UNIT PURCHASE WARRANT
WARRANT TO PURCHASE _____________ UNITS EACH CONSISTING OF TWO SHARES OF
COMMON STOCK AND ONE WARRANT TO PURCHASE ONE SHARE OF COMMON STOCK AT AN INITIAL
EXERCISE PRICE OF $2.50 PER SHARE VOID AFTER 5:00 p.m. NEW JERSEY TIME, ON
__________________. THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE
HEREOF HAVE BEEN AND WILL BE ISSUED IN TRANSACTIONS WHICH HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER
ANY STATE SECURITIES OR BLUE SKY LAWS. THIS WARRANT AND SUCH SECURITIES MAY NOT
BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF, IN WHOLE
OR IN PART, IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
AND APPLICABLE STATE LAW, OR AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED.
NO. _________ _______________UNITS
ALFACELL CORPORATION
This certifies that, for value received,_________________, the registered
holder hereof or assigns (the "Warrant holder") is entitled to purchase from
Alfacell Corporation, a Delaware corporation (the "Company"), at any time on and
after May 20, 1998, and before 5:00 p.m., New Jersey time, on May 19, 2001 (the
"Termination Date"), at the purchase price of $4.40 per unit (the "Exercise
Price"), the number of units ("Units"), each consisting of two shares of Common
Stock, par value $.001 per share, of the Company and one Warrant (an "Underlying
Warrant"), in the form annexed hereto, as Exhibit A, to purchase one share of
Common Stock of the Company at the initial exercise price (subject to adjustment
in certain circumstances as set forth therein) of $2.50 per share set forth
above. The number of shares of Common Stock included in the Units, the
Termination Date and the Exercise Price per share of this Warrant shall be
subject to adjustment from time to time as set forth below.
SECTION I. TRANSFER OR EXCHANGE OF WARRANT.
The Company shall be entitled to treat the Warrant holder as the owner in
fact hereof for all purposes and shall not be bound to recognize any equitable
or other claim to or interest in this Warrant on the part of any other person.
This Warrant shall be transferable only on the books of the Company, maintained
at its principal office upon delivery of this Warrant Certificate duly endorsed
by the Warrant holder or by his duly authorized attorney or representative, or
accompanied by proper evidence of succession, assignment or authority to
transfer. Upon any registration of transfer, the Company shall deliver a new
Warrant Certificate or Certificates to the persons entitled thereto.
1
<PAGE>
SECTION II. TERM OF WARRANT; EXERCISE OF WARRANTS.
A. Termination. The Company may, in its sole discretion, extend the
Termination Date with respect to the exercise of this Warrant upon notice to the
Warrant holder. As used herein, "Termination Date" shall be deemed to include
any such extensions.
B. Exercise. This Warrant shall be exercised by surrender to the Company,
at its principal office, of this Warrant Certificate, together with the Purchase
Form attached hereto duly completed and signed, and upon payment to the Company
of the Exercise Price for the number of Units in respect of which this Warrant
is then exercised. Payment of the aggregate Exercise Price shall be made in cash
or by certified or official bank check.
C. Warrant Certificate. Subject to Section III hereof, upon such surrender
of this Warrant Certificate and payment of the Exercise Price as aforesaid, the
Company shall issue and cause to be delivered to or upon the written order of
the Warrant holder a certificate for the number of full shares of Common Stock
and Underlying Warrants in the Units so purchased upon the exercise of such
Warrant, together with cash, as provided in Section VI hereof, in respect of any
fractional shares of Common Stock otherwise issuable upon such surrender. Such
certificate or certificates representing the Common Stock and Underlying
Warrants in the Units shall be deemed to have been issued and any person so
designated to be named therein shall be deemed to have become a holder of record
of such shares of Common Stock and Underlying Warrants in the Units as of the
date of receipt by the Company of this Warrant Certificate and payment of the
Exercise Price as aforesaid; provided, however, that if, at the date of
surrender of this Warrant Certificate and payment of the Exercise Price, the
transfer books for the Common Stock or other class of securities purchasable
upon the exercise of this Warrant shall be closed, the certificate or
certificates for the shares of Common Stock or other class in respect of which
this Warrant is then exercised shall be deemed issuable as of the date on which
such books shall next be opened (whether before or after the Termination Date)
and until such date the Company shall be under no duty to deliver any
certificate for such shares of Common Stock or other class; provided further,
however, that the transfer books of record, unless otherwise required by law,
shall not be closed at any one time for a period longer than twenty (20) days.
The rights of purchase represented by this Warrant shall be exercisable, at the
election of the Warrant holder, either in full or from time to time in part,
and, in the event that this Warrant is exercised in respect of fewer than all of
the Units purchasable on such exercise at any time prior to the Termination
Date, a new Warrant Certificate evidencing the remaining Warrant or Warrants
will be issued, and the Company shall deliver the new Warrant Certificate or
Certificates pursuant to the provisions of this Section.
SECTION III. PAYMENT OF TAXES.
The Company will pay all documentary stamp taxes, if any, attributable to
the initial issuance of the shares of Common Stock included in the Units upon
the exercise of this Warrant; provided, however, that the Warrant holder shall
pay any tax or taxes which may be payable in respect of any transfer involved in
the issue or delivery of Warrant Certificates or the certificates for the shares
of Common Stock in a name other than that of the Warrant holder in respect of
which this Warrant or shares of Common Stock are issued.
2
<PAGE>
SECTION IV. MUTILATED OR MISSING WARRANT CERTIFICATES.
In case this Warrant Certificate shall be mutilated, lost, stolen or
destroyed, the Company shall, at the request of the Warrant holder, issue and
deliver, in exchange and substitution for and upon cancellation of this
certificate if mutilated, or in lieu of and in substitution for this certificate
if lost, stolen or destroyed, a new Warrant Certificate of like tenor and
representing an equivalent right or interest, but only upon receipt of evidence
satisfactory to the Company of such loss, theft or destruction of this Warrant
Certificate and indemnity, if requested, also satisfactory to the Company.
SECTION V. RESERVATION OF SHARES OF COMMON STOCK.
There has been reserved, and the Company shall at all times keep reserved
so long as this Warrant remains outstanding, out of its authorized Common Stock
a number of shares of Common Stock sufficient to provide for the exercise of the
rights of purchase represented by this Warrant. The transfer agent for the
Common Stock and every subsequent transfer agent for any shares of the Company's
capital stock issuable upon the exercise of this Warrant and any Underlying
Warrants issued upon exercise hereof will be irrevocably authorized and directed
at all times to reserve such number of authorized shares as shall be requisite
for such purpose.
SECTION VI. FRACTIONAL SHARES.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of this Warrant. With respect to any fraction of a
share of Common Stock called for upon the exercise of this Warrant, the Company
shall pay to the Warrant holder an amount in cash equal to such fraction
multiplied by the current market price of such fractional share. "Market Price",
as of any date means, (i) the last reported sale price for the shares of Common
Stock as reported by the National Association of Securities Dealers Automated
Quotation National Market System, ("NASDAQ-NMS"), (ii) the closing bid price for
the shares of Common Stock as reported by the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") if the shares are not traded on
NASDAQ-NMS, (iii) the average of the closing bid and closing asked prices of the
Common Stock as reported by the National Quotations Bureau if the shares are not
traded on NASDAQ; (iv) the last reported sale price, if the shares of Common
Stock are listed on a national securities exchange or (v) if market value cannot
be calculated as of such date on any of the foregoing basis, the fair market
price determined by the Board of Directors of the Company, acting with
reasonable business judgment.
SECTION VII. EXERCISE PRICE; ANTI-DILUTION PROVISIONS.
A. Exercise Price. The Units shall be purchasable upon the exercise of this
Warrant, at a price of $4.40 per Unit. The Company may, in its sole discretion,
reduce the Exercise Price applicable to the exercise of this Warrant upon notice
to the Warrant holder. As used herein, "Exercise Price" shall be deemed to
include any such reduction.
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If the Company shall at any time issue Common Stock by way of dividend or
other distribution on any stock of the Company or effect a stock split or
reverse stock split of the outstanding shares of Common Stock, the Exercise
Price shall be proportionately decreased in the case of such issuance (on the
day following the date fixed for determining stockholders entitled to receive
such dividend or other distribution or such stock split) or increased in the
case of such reverse stock split (on the date that such reverse stock split
shall become effective), by multiplying the Exercise Price in effect immediately
prior to the stock dividend or other distribution, stock split or reverse stock
split by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately prior to such stock dividend or other
distribution, stock split or reverse stock split, and the denominator of which
is the number of shares of Common Stock outstanding immediately after such stock
dividend or other distribution, stock split or reverse stock split.
B. No Impairment. The Company (a) will not increase the par value of any
shares of stock receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise, and (b) will take all such action as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of Common Stock upon the exercise of this
Warrant.
C. Number of Shares Adjusted. Upon any adjustment of the Exercise Price
pursuant to this Warrant, the Warrant holder shall thereafter (until another
such adjustment) be entitled to purchase upon the exercise of this Warrant, at
the new Exercise Price, the number of shares, calculated to the nearest full
share, obtained by multiplying the number of shares of Common Stock initially
issuable upon exercise of this Warrant by the Exercise Price in effect on the
date hereof and dividing the product so obtained by the new Exercise Price. The
number of Underlying Warrants issuable upon the exercise hereof shall not be
adjusted. However, the number of shares for which the Underlying Warrants may be
exercised, and the exercise price thereof, shall be adjusted in accordance with
the terms of the Underlying Warrants.
SECTION VIII. RECLASSIFICATION, REORGANIZATION OR MERGER.
In case of any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the Company (other than a change in par
value or as a result of an issuance of Common Stock by way of dividend or other
distribution or of a stock split or reverse stock split) or in case of any
consolidation or merger of the Company with or into another corporation (other
than a merger with a subsidiary in which merger the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock of the
Company issuable upon exercise of this Warrant) or in case of any sale or
conveyance to another corporation of the property of the Company as an entirety
or substantially as an entirety, the Company shall cause effective provision to
be made so that the Warrant holder shall have the right thereafter, by
exercising this Warrant, to purchase the kind and amount of shares of stock and
other securities and property the Warrant holder would have been entitled to
receive if the Warrant holder had exercised this Warrant immediately prior to
such reclassification, capital reorganization or other change, consolidation,
merger, sale or conveyance. Any such provision shall include provision for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Warrant. The foregoing provisions of this
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<PAGE>
Section shall similarly apply to successive reclassifications, capital
reorganizations and changes of shares of Common Stock and to successive
consolidations, mergers, sales and conveyances.
SECTION IX. REGISTRATION RIGHTS.
The Warrant holder shall have the same registration rights with respect to
the resale of the Common Stock included in the Units and issuable upon exercise
of the Underlying Warrants as set forth in Section D of the Subscription
Agreement by and between the Company and certain investors in the Company of
even date herewith with respect to Common Stock included in Units and Underlying
Warrants constituting a portion of the Units being issued to such investors. The
registration rights with respect to the transfer of the Warrant stock shall
transfer to any transferee should the Warrant be transferred.
SECTION X. NOTICES TO WARRANT HOLDERS.
So long as this Warrant shall be outstanding and unexercised (a) if the
Company shall pay any dividend or make any distribution upon the Common Stock or
(b) if the Company shall offer to the holders of Common Stock for subscription
or purchase by them any shares of stock of any class or any other rights or (c)
if any capital reorganization of the Company, reclassification of the capital
stock of the Company, consolidation or merger of the Company with or into
another corporation, sale, lease or transfer of all or substantially all of the
assets of the Company to another corporation, or the voluntary or involuntary
dissolution, liquidation or winding up of the Company shall be effected, then,
in any such case, the Company shall cause to be delivered to the Warrant holder,
at least ten days prior to the date specified in (i) or (ii) below, as the case
may be, a notice containing a brief description of the proposed action and
stating the date on which (i) a record is to be taken for the purpose of such
dividend or distribution, or (ii) such reclassification, reorganization,
consolidation, merger, conveyance, lease, dissolution, liquidation or winding up
is to take place and the date, if any, as of which the holders of Common Stock
of record shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
SECTION XI. NOTICES.
Any notice pursuant to this Warrant by the Company or by the Warrant holder
shall be in writing and shall be deemed to have been duly given if delivered or
mailed certified mail, return receipt requested, (a) if to the Company, to it at
225 Belleville Avenue, Bloomfield, New Jersey 07003, Attention: Chief Executive
Officer and (b) if to the Warrant holder to the Warrant holder at the address
set forth on the signature page hereto. Each party hereto may from time to time
change the address to which such party's notices are to be delivered or mailed
hereunder by notice in accordance herewith to the other party.
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<PAGE>
SECTION XII. SUCCESSORS.
All the covenants and provisions of this Warrant by or for the benefit of
the Company or the Warrant holder shall bind and inure to the benefit of their
respective successors and assigns hereunder.
SECTION XIII. APPLICABLE LAW.
This Warrant shall be deemed to be a contract made under the laws of the
State of Delaware applicable to agreements made and to be performed entirely in
Delaware and for all purposes shall be construed in accordance with the internal
laws of Delaware without giving effect to the conflicts of laws principles
thereof.
SECTION XIV. BENEFITS OF THIS WARRANT.
Nothing in this Warrant shall be construed to give to any person or
corporation other than the Company and the Warrant holder any legal or equitable
right, remedy or claim under this Warrant and this Warrant shall be for the sole
and exclusive benefit of the Company and the Warrant holder.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant
Certificate or caused this Warrant Certificate to be duly executed as of the day
and year first above written.
ALFACELL CORPORATION
By: _________________________________
Name: Kuslima Shogen
Title: Chief Executive Officer
Warrant holder
By: __________________________________
Name: _______________________________
Address:
______________________________________
______________________________________
______________________________________
______________________________________
Social Security or
Taxpayer Identification Number
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<PAGE>
PURCHASE FORM
The undersigned hereby irrevocably elects to exercise the Warrant
represented by this Warrant Certificate to the extent of _______ Units
consisting of an aggregate of _____________ shares of Common Stock, par value
$.001 per share, and _______ Warrants to purchase Common Stock at an initial
exercise price of $2.50 per share, of Alfacell Corporation, and hereby makes
payment of $______________ in payment of the actual exercise price thereof.
Name: _______________________________________________________________
(Please type or print in block letters)
Address:_____________________________________________________________
(Address for delivery of Stock Certificate)
Social Security or
Taxpayer Identification Number:______________________________________
Signature:___________________________________________________________
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<PAGE>
ASSIGNMENT FORM
FOR VALUED RECEIVED, _____________________________ hereby sells, assigns and
transfers unto__________________________________________________________________
(Please type or print in block letters)
Address_______________________________________________________________________
the right to purchase Units of Alfacell Corporation, represented by this Warrant
Certificate to the extent of ______________Units as to which such right is
exercisable and does hereby irrevocably constitute and appoint
___________________________, to transfer the same on the books of the Company
with full power of substitution in the premises.
___________________________________
Signature
Dated: _________________________, 199_
Notice: The signature of this assignment must correspond
with the name as it appears upon the face of this Warrant
Certificate in every particular, without alteration or
enlargement or any change whatever.
SIGNATURE GUARANTEED:
___________________________________
8
Exhibit 10.21
As of December 15, 1997
Harris, Webb & Garrison, Inc.
5599 San Felipe, Suite 301
Houston, Texas 77056
Ladies and Gentlemen:
Alfacell Corporation, a Delaware corporation (the "Company"), hereby
confirms its agreement, as amended and restated, with Harris, Webb & Garrison,
Inc. (the "Placement Agent") as follows:
1. Description of Transaction. The Company proposes to issue and sell
through the Placement Agent, in a transaction exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act"), to a limited number
of persons meeting criteria for "Accredited Investor" status (as more fully
described in the confidential private offering memorandum dated the date hereof
and exhibits thereto, as the same may be supplemented from time to time (the
"Memorandum"), up to 2,500,000 units (the "Units"), each consisting of two (2)
shares ("Shares") of the Company's Common Stock, $0.001 par value per share (the
"Common Stock") at an offering price per share which will be determined prior to
each closing of the offering (individually, a "Closing" and collectively, the
"Closings") by negotiation between the Company and the Placement Agent and which
will be based upon the market price of the Common Stock and one (1) three-year
warrant (the "Warrant") to purchase one (1) share of Common Stock (the "Private
Offering"). The Shares and the Warrants which comprise the Units will be
detached and are separately transferable. Each Warrant shall be exercisable at a
price of $2.50 per share of Common Stock during the period commencing three (3)
months after issuance thereof and terminating three (3) years after issuance
thereof. The Private Offering shall be conducted on a "reasonable efforts" basis
by the Company with the assistance of the Placement Agent. The Company may
increase the size of the Private Offering in its discretion.
The full terms of the Private Offering and the securities to be sold in
connection therewith, are more fully described in the Memorandum. Capitalized
terms not defined herein shall have the meaning set forth in the Memorandum.
2. Appointment of the Placement Agent. On the basis of the representations,
warranties, covenants and agreements of the Placement Agent contained herein and
subject to the conditions contained herein, the Company hereby appoints the
Placement Agent as its exclusive agent to offer and sell to Accredited Investors
the Units, on a "reasonable efforts" basis, until the earlier of (i) the date on
which all of the Units offered in the Private Offering have been sold, or (ii)
on or before the close of business on February 22, 1998, or (iii) such earlier
date as shall be determined by the Company in its sole discretion (the "Offering
Expiration Date"). The Placement Agent, on the basis of the representations,
warranties,
<PAGE>
covenants and agreements of the Company contained herein, and subject to the
conditions contained herein, accepts such appointment and agrees to use its
reasonable efforts to sell the Units. It is understood that the Placement Agent
has no commitment to sell the Units other than to use its reasonable efforts.
3. Purchase, Sale and Delivery of the Units. On the basis of the
representations and warranties contained herein, and subject to the terms and
conditions set forth herein, the parties agree that:
(a) Regulation D Placement. Neither the offer nor the sale of the
Units has been or will be registered with the U.S. Securities and Exchange
Commission ("SEC"). The Units will be offered and sold in reliance upon the
exemption from registration provided by Regulation D ("Reg D") adopted
under the Securities Act, and will only be sold to "Accredited Investors"
as such term is defined under Reg D; the Units will be offered for sale
only in states in which the Units have been qualified or registered for
sale or are exempt from such qualification or registration and the
conditions for such exemption have been met; and the Company will provide
the Placement Agent for delivery to all offerees and purchasers and their
representatives, if any, with any information, documents and instruments
which the Placement Agent and the Company deem necessary to comply with the
rules, regulations and judicial and administrative interpretations
concerning compliance with applicable federal and state statutes and
regulations.
(b) Subscription for the Units. Subscription for the Units shall occur
by execution and delivery by the subscriber of a subscription agreement
(the "Subscription Agreement") in the form annexed to the Memorandum,
together with the accredited investor status form (the "Accredited Investor
Status Form" and together with the Subscription Agreement the "Subscription
Documents") and such other documents and instruments as are set forth in
the Memorandum and payment of the required subscription amount (the
"Subscription Payment") all in accordance with the terms of the
Subscription Agreement. The Placement Agent will notify Subscribers of the
offering price per Unit prior to submission and acceptance of their
Subscription Documents.
(c) Distribution of Proceeds; Closing; Termination of Private
Offering. The proceeds of the Private Offering will be held in a segregated
non-interest-bearing escrow account maintained by the Placement Agent and
the Company until such funds are released to the Company at each Closing of
the Private Offering (each, a "Closing Date"). The Company shall deliver to
the Placement Agent on each Closing Date, on behalf of the Subscribers, the
certificates evidencing the Unit against payment therefor, after deducting
the amounts set forth in Section 4 below.
(d) Registration Rights. The Subscribers shall have registration
rights, as described in the Subscription Agreement.
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<PAGE>
(e) Closing. Each of the Closings will occur on such date and at such
time and place as the Placement Agent and the Company agree, prior to the
Offering Expiration Date. On each Closing Date, the parties shall deliver
the closing documents described in Section 8 of this Agreement as well as
such other documents as the Company and the Placement Agent and their
respective legal counsel reasonably request.
4. Compensation of Placement Agent. As compensation for its services
rendered as Placement Agent under this Agreement, the Placement Agent shall
receive at each Closing: (i) a placement fee equal to eight percent (8%) of the
gross proceeds from the sale of the Units, provided that no placement fee will
be paid to the Placement Agent for subscriptions received from purchasers
introduced to the Placement Agent by T.C. Management, Inc. ("TCM") and for the
investors listed on Exhibit A hereto, and (ii) Placement Agent warrants (the
"Placement Agent Warrants") to purchase that number of Units equal to ten
percent (10%) of the aggregate number of Units sold, excluding the total amount
of securities sold to purchasers introduced to the Placement Agent by TCM. The
Placement Agent Warrants will be exercisable for a period commencing three (3)
months after and ending three (3) years after issuance of the Units upon which
such Placement Agent Warrants are based, at an exercise price per Unit equal to
110% of the offering price per Unit of the Units upon which such Placement Agent
Warrants are based. The securities underlying the Placement Agent Warrants will
be registered contemporaneously with the registration of the Units. At the first
Closing, the $35,000 paid to the Placement Agent upon the signing of that
certain engagement letter, dated October 24, 1997, will be credited to the
Company and debited against the compensation paid to the Placement Agent
hereunder.
5. Representations and Warranties of the Company. The Company represents
and warrants to the Placement Agent that:
(a) Memorandum. The Company has prepared the Memorandum which contains
information, accurate as of the date specified therein. The Memorandum, as
of its date and at all times subsequent thereto up to and including each
Closing Date, does not and will not include any untrue statement of a
material fact, or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
(b) Reg D Qualification. The Company has used its best efforts to
ensure that the offer and sale of the Units by the Company has satisfied,
and on the Closing Date will have satisfied, in all material respects, all
of the requirements of Reg D.
(c) Organization and Good Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware, with full power and authority to own or lease and
operate its properties and to conduct its business as described in the
Memorandum and to execute, deliver and perform this Agreement and to
consummate the transactions contemplated hereby. The Company is duly
qualified to do business as a foreign corporation and is in good standing
in all jurisdictions where such
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<PAGE>
qualification is necessary and where failure to so qualify could have a
material adverse effect on the financial condition, results of operations,
business or properties of the Company (a "Material Adverse Effect"). The
Company has no subsidiaries or predecessors.
(d) Corporate Authorization. This Agreement has been duly executed and
delivered by the Company and constitutes the valid and binding obligation
of the Company, enforceable against the Company in accordance with its
terms except as such enforceability may be limited by applicable
bankruptcy, insolvency, moratorium, or other similar laws or arrangements
affecting creditors' rights generally and subject to principles of equity
and public policy considerations, including with respect to indemnification
and contribution for liabilities under the Securities Act and the
Securities Exchange Act of 1934 (the "Exchange Act"). The execution,
delivery and performance of this Agreement by the Company, the consummation
by the Company of the transactions herein contemplated, and the compliance
by the Company with the terms of this Agreement have been duly authorized
by all necessary corporate action and do not and will not, with or without
the giving of notice or the lapse of time, or both: (i) result in any
violation of the Certificate of Incorporation or Bylaws of the Company,
(ii) result in a material breach of or material conflict with any of the
terms or provisions of, or constitute a default under, or result in the
modification or termination of, or result in the creation or imposition of
any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company pursuant to any indenture, mortgage,
note, contract, commitment or other agreement or instrument to which the
Company is a party or by which the Company or any of its properties or
assets are or may be bound or affected, (iii) violate any existing
applicable law, rule, regulation, judgment, order or decree of any
governmental agency or court, domestic or foreign, having jurisdiction over
the Company or any of its properties or business or (iv) have any effect on
any permit, certification, registration, approval, consent, license or
franchise necessary for the Company to own or lease and operate its
properties and to conduct its business.
(e) Consents. No authorization, approval, consent, order,
registration, license or permit of any court or governmental agency or
body, other than under the Securities Act, the rules and regulations of the
SEC promulgated pursuant thereto (the "Regulations"), and the rules and
regulations of the state securities laws of the states in which offers or
sales will be made, is required for the valid authorization, issuance, sale
and delivery of the Securities in accordance herewith or the consummation
by the Company of the transactions contemplated by this Agreement.
(f) Capitalization. The Company had at the date or dates indicated in
the Memorandum a duly authorized and outstanding capitalization as set
forth in the Memorandum. Based on the assumptions stated in the Memorandum,
the Company will have on each Closing Date the capitalization set forth
therein. Except as set forth in the Memorandum, on each Closing Date, there
will be no options to purchase, warrants, or other rights to subscribe for
securities, or any securities or obligations convertible into, or any
contracts or commitments to issue or sell, shares of the Company's capital
stock or any such warrants, convertible securities or obligations;
provided, however, nothing herein shall prohibit the Company from granting
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<PAGE>
options to employees and consultants of the Company from the date hereof to
the Closing Date provided such options are granted in the ordinary course
of business and the Placement Agent is notified prior to the grant of such
options. Except as set forth in the Memorandum, no holder of any of the
Company's securities has any rights, "demand," "piggyback" or otherwise, to
have such securities registered under the Securities Act.
(g) Material Contracts. The descriptions in the Memorandum of
contracts and other agreements of the Company do not include any untrue
statement of material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein in light of
the circumstances in which they are made, not misleading and present fairly
the information required to be disclosed, and there are no material
contracts or other agreements which have not been so described.
(h) Financial Statements. KPMG Peat Marwick LLP (the "Accountants"),
the accountants who have audited the financial statements attached as an
exhibit to the Memorandum, except as disclosed in the Memorandum, are
independent public accountants within the meaning of the Securities Act and
the Regulations. The financial statements and schedules and the notes
thereto incorporated by reference in the Memorandum and made a part thereof
are complete and correctly and fairly present the financial position of the
Company as of the dates thereof, and the results of operations and cash
flows of the Company for the periods indicated therein, all in conformity
with generally accepted accounting principles applied on a consistent basis
throughout the periods involved except as otherwise stated in the
Memorandum.
(i) Taxes. The Company has filed with the appropriate federal, state
and local governmental agencies, and all foreign countries and political
subdivisions thereof, all tax returns, including franchise tax returns,
which are required to be filed or has duly obtained extensions of time for
the filing thereof and has paid all taxes shown on such returns and all
assessments received by it to the extent that the same have become due; and
the provisions for income taxes payable, if any, shown on the financial
statements included as part of the Memorandum are sufficient for all
accrued and unpaid foreign and domestic taxes, whether or not disputed, and
for all periods to and including the dates of such financial statements.
Except as disclosed in writing to the Placement Agent, the Company has not
executed or filed with any taxing authority, foreign or domestic, any
agreement extending the period for assessment or collection of any income
taxes and is not a party to any pending action or proceeding by any foreign
or domestic governmental agency for assessment or collection of taxes; and
no claims for assessment or collection of taxes have been asserted against
the Company.
(j) Authorization of Outstanding Shares. The outstanding shares of
Common Stock and outstanding options to purchase shares of Common Stock
have been duly authorized and validly issued. The outstanding shares of
Common Stock are fully paid and non-assessable. The outstanding options to
purchase shares of Common Stock, all as disclosed in the Memorandum,
constitute the valid and binding obligations of the Company, enforceable in
accordance with their terms, except as such enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar statutes, rules,
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<PAGE>
regulations or other law affecting the unavailability of, or limitation on
the availability of, a particular right or remedy (whether in a proceeding
in equity or at law) because of an equitable principle or a requirement as
to commercial reasonableness, conscionability or good faith. None of the
outstanding shares of Common Stock or options to purchase shares of Common
Stock has been issued in violation of the preemptive rights of any
stockholder of the Company. None of the holders of the outstanding shares
of Common Stock is subject to personal liability solely by reason of being
such a holder. The authorized shares of Common Stock and outstanding
options to purchase shares of Common Stock conform to the descriptions
thereof contained in the Memorandum. Except as set forth in the Memorandum,
on each Closing Date, there will be no outstanding options, warrants,
debentures or notes for the purchase of, or other outstanding rights to
purchase, Common Stock or securities convertible into Common Stock;
provided, however, nothing herein shall prohibit the Company from granting
options to employees and consultants of the Company from the date hereof to
each Closing Date provided such options are granted in the ordinary course
of business and the Placement Agent is notified prior to the grant of such
options.
(k) Authorization. The issuance and sale of the Units have been duly
authorized and, upon closing of the Private Offering and delivery to the
Company of the net proceeds therefrom, the Shares included in the Units
will be validly issued, fully paid and non-assessable, and holders thereof
will not be subject to personal liability solely by reason of being such
holders. Upon proper exercise of the Warrants and the Placement Agent's
Warrants, the shares of Common Stock issued thereby will be validly issued,
fully paid and non-assessable. Except as described in the Memorandum, the
Common Stock issuable upon exercise of the Warrants and the Placement
Agent's Warrants is not and will not be subject to preemptive rights of any
stockholder of the Company. The Shares, the Warrants and the Placement
Agent's Warrants conform to the descriptions thereof contained in the
Memorandum.
(l) Noncontravention. The Company is not in violation of, or in
default under: (i) any term or provision of its Certificate of
Incorporation or Bylaws; (ii) any material term or provision or any
financial covenants of any indenture, mortgage, contract, commitment or
other agreement or instrument to which it is a party or by which it or its
property or business is or may be bound or affected, or (iii) any existing
applicable law, rule, regulation, judgment, order or decree of any
governmental agency or court, domestic or foreign, having jurisdiction over
the Company or any its properties or business except for violations or
defaults which, individually or in the aggregate, do not have a Material
Adverse Effect. Except as disclosed in the Memorandum, the Company owns,
possesses or has obtained all governmental and other (including those
obtainable from third parties) licenses, permits, certifications, patents,
registrations, approvals or consents and other authorizations necessary to
own or lease, as the case may be, and to operate its properties, whether
tangible or intangible, of which the failure to obtain could reasonably be
expected to have a Material Adverse Effect, and to conduct any of the
business or operations of the Company as presently conducted and all such
licenses, permits, certifications, patents, registrations, approvals,
consents and other authorizations are outstanding and in good standing, and
there are no proceedings pending or, to the best
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<PAGE>
knowledge of the Company, threatened, seeking to cancel, terminate or limit
such licenses, permits, certifications, patents, registrations, approvals
or consents or other authorizations.
(m) Litigation. Except as set forth in the Memorandum, there are no
pending actions, suits, proceedings, or arbitrations, and the Company is
not aware of any claims, investigations or inquiries, before any
governmental agency, court or tribunal, domestic or foreign, or before any
private arbitration tribunal against the Company or involving its
properties or business that, if determined adversely to the Company, could
reasonably, individually or in the aggregate, be expected to result in a
Material Adverse Effect or that question the validity of the capital stock
of the Company or this Agreement or of any action taken or to be taken by
the Company pursuant to, or in connection with, this Agreement. There are
no outstanding orders, judgments or decrees of any court, governmental
agency or other tribunal naming the Company and enjoining the Company from
taking, or requiring the Company to take, any action, or to which the
Company, its properties or businesses are bound or subject.
(n) Finder's Fees. Except for possible finder's fees payable to TCM
with respect to investors introduced to the Placement Agent by TCM, the
Company has not incurred any liability for any finder's fees or payments in
connection with the transaction herein contemplated, except as specifically
provided in this Agreement. The Company agrees to indemnify the Placement
Agent with respect to any claim for a finder's fee based upon any agreement
by or on behalf of the Company in connection with the Private Offering.
(o) Intangibles. As of the date of this Agreement, the Company owns
and has adequate and enforceable rights to use, or has pending applications
for the requisite rights to use each of the patents described in the
Memorandum as being owned by the Company (the "Patents") and, except as
disclosed in the Memorandum, the Company owns and has adequate and
enforceable rights to use, or has pending applications for the requisite
licenses or other rights to use all trademarks, service marks, service
names, trade names, inventions, product processes and formulations
(collectively with the Patents, "Intangibles") utilized in the conduct of
its business as now conducted or proposed to be conducted without, to the
Company's knowledge, infringing upon or otherwise acting adversely to the
right or claimed right of any person, corporation or other entity under or
with respect to any of the foregoing. The Company, except as disclosed in
the Memorandum, is not obligated or under any liability whatsoever to make
any payments by way of royalties, fees or otherwise to any owner or
licensee of, or other claimant to, any patent, trademark, service mark,
trade name, or other intangible asset, with respect to the use thereof or
in connection with the conduct of its business or otherwise. The Company
has not received any notice of conflict with the asserted rights of others
with respect to the Intangibles which, singly or in the aggregate, could
reasonable be expected to have a Material Adverse Effect and, except as
disclosed in the Memorandum, the Company is not aware of any licenses with
respect to the Intangibles which are required to be obtained by the
Company, and the Company knows of no basis therefor; and, except as
disclosed in the Memorandum, to the Company's knowledge, no other persons
or entities have infringed upon or are infringing upon the Intangibles of
the Company.
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(p) No Adverse Change. Since the respective dates as of which
information is given in the Memorandum and the Company's latest financial
statements, except as disclosed in the Memorandum, the Company has not
incurred any material liability or obligation, direct or contingent, or
entered into any material transaction, whether or not in the ordinary
course of business, and has not sustained any material loss or interference
with its business from fire, storm, explosion, flood or other casualty,
whether or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree; prior to each Closing Date there will
not be, any changes in the capital stock or any material increases in the
long-term debt of the Company or any materially adverse change in or
affecting the general affairs, management, financial condition,
stockholders' equity, results of operations or prospects of the Company,
other than in the ordinary course of business or as set forth in the
Memorandum.
(q) Title to Properties. The Company has good and marketable title in
fee simple to all real property and good title to all personal property
(tangible and intangible) owned by it, free and clear of all security
interests, charges, mortgages, liens, encumbrances and defects, except as
are described in the Memorandum. The leases, licenses or other contracts or
instruments under which the Company leases, holds or is entitled to use any
property, real or personal, are valid, subsisting and enforceable, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
moratorium or other similar laws or arrangements affecting creditors'
rights generally and subject to principles of equity and public policy
considerations. All rentals, royalties or other payments accruing
thereunder that became due prior to the date of this Agreement have been
duly paid (unless disputed in good faith), and neither the Company nor any
other party is in default thereunder, and no event has occurred that, with
the passage of time or the giving of notice, or both, would constitute a
default thereunder. The Company is not in violation of any applicable law,
ordinance, regulation, order or requirement relating to its owned or leased
properties except for violations which, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect, and has
not received any notice of an alleged violation. The Company has adequately
insured its properties against loss or damage by fire or other casualty and
maintains, in adequate amounts, such other insurance as is usually
maintained by companies engaged in the same or similar businesses located
in its geographical area.
(r) Enforceability of Contracts. Except as described in the
Memorandum, the Company has in all material respects performed all material
obligations required to be performed by it to date under all material
contracts to which it is party, is not in default in any material respect
under any such contract and has received no notice of any dispute, default
or alleged default thereunder which has not heretofore been cured or which
notice has not heretofore been withdrawn. The Company does not know of any
material default under any such contract by any other party thereto or by
any other person, firm or corporation bound thereunder. Management of the
Company is not aware and the Company has not received notice that any of
the material provisions of such contracts or instruments violates any
existing applicable law, rule, regulation, judgment, order or decree of any
governmental agency or court having jurisdiction over the Company or any of
its assets or businesses except for violations
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which, individually or in the aggregate, could not reasonably be expected
to have a Material Adverse Effect.
(s) Employee Benefit Plans. Except as set forth in the Memorandum, the
Company has no employee benefit plans (including, without limitation,
profit sharing and welfare benefit plans) or deferred compensation
arrangements that are subject to the provisions of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA").
(t) Labor Relations. No labor problem exists with any of the Company's
employees or is imminent that could reasonably be expected to have a
Material Adverse Effect.
(u) Foreign Corrupt Practices Act. The Company has not, directly or
indirectly, at any time (i) made any contributions to any candidate for
political office in violation of law or failed to disclose fully any such
contribution, or (ii) made any payment to any state, federal or foreign
governmental officer or official, or other person charged with similar
public or quasi-public duties, other than payments or contributions
required or allowed by applicable law. The Company's internal accounting
controls and procedures are sufficient to cause the Company to comply in
all material respects with the Foreign Corrupt Practices Act of 1977, as
amended.
(v) Criminal History or Bankruptcy. The Company represents that no
director or executive officer of the Company has been convicted within the
last 5 years of any felony, experienced a personal bankruptcy, or been an
officer or director of any company that during their tenure with such
company experienced any bankruptcy, or had any trustee, receiver, or
conservator appointed with respect to its business or assets.
(w) Exchange Act Compliance. On the date of the Memorandum and on each
Closing Date, the Company shall be in compliance in all material respects
with the Exchange Act and the rules and regulations of the SEC thereunder.
All reports included as Exhibits to the Memorandum and filed with the SEC,
when they were filed (or, if any amendment with respect to any such report
was filed, when such amendment was filed), conformed in all material
respects with the requirements of the Exchange Act and the rules and
regulations of the SEC thereunder; no such report, when it was filed (or,
if an amendment with respect to any such report was filed, when such
amendment was filed), contained or contains any untrue statement of a
material fact or omitted or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading;
and there are no facts or circumstances existing that would require the
filing of an amendment to any such previously filed report or amendment.
6. Covenants of the Company.
(a) Memorandum. The Company will furnish the Placement Agent, during
the Private Offering, with as many copies of the Memorandum (and any
amendments or supplements thereto) as the Placement Agent may reasonably
request. If, during the Private
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Offering, any event occurs as a result of which the Memorandum, as then
amended or supplemented, would include an untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements made in light of the circumstances in which they were made not
misleading, or if it otherwise shall be necessary to amend or supplement
the Memorandum to comply with applicable law, the Company will forthwith
notify the Placement Agent thereof, and furnish to the Placement Agent in
such quantities as may be reasonably requested, an amendment or supplement
to the Memorandum, or an amended or supplemented Memorandum which corrects
such statements or omissions or causes the Memorandum to comply with
applicable law.
(b) State Securities Registration. The Company will take all necessary
action and file all necessary forms and documents in order to qualify or
register the Units for sale under the securities laws of the states in
which offers or sales will be made, such states to be mutually agreed upon
between the Company and the Placement Agent (the "Agreed-Upon States"), or
to take any necessary action and file any necessary forms which are
required to obtain an exemption from such qualification or registration in
such jurisdictions; it being understood that the Company's obligation
herein is subject to the Placement Agent not soliciting investors in states
other than the Agreed-Upon States and advising the Company and its counsel
promptly of the states in which Subscribers who submit Subscription
Documents to the Placement Agent reside. The Company will promptly advise
the Placement Agent:
(i) if any securities regulator of any state shall make a request
or suggestion of or to the Company of any amendment to the Memorandum
or any registration materials or for any additional information,
including the nature and substance thereof; and
(ii) of the issuance of a stop order suspending the qualification
of the Securities for sale in any state, including the initiation or
threatening of any proceeding for such purpose, and the Company will
use its reasonable best efforts to prevent the issuance of such a stop
order, or if such an order shall be issued, to obtain the withdrawal
thereof at the earliest reasonably practicable date.
The Company will provide the Placement Agent with copies of any
additional information, documents and instruments which the Placement
Agent's counsel shall determine to be necessary to comply with the rules,
regulations and judicial and administrative interpretations in those states
and jurisdictions where the Units are to be offered for sale or sold for
delivery to all offerees and purchasers. The Company will file all
post-offering forms, documents or materials and take all other actions
required by states in which the Units have been offered or sold. The
Placement Agent will not make offers or sales of the Units in any
jurisdiction in which the Units have not been qualified or registered, or
are not exempt from such qualification or registration.
(c) Use of Proceeds. The Company intends to apply net proceeds from
this Private Offering in the manner set forth in the Memorandum.
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(d) Reg D Compliance. The Company will use its reasonable best efforts
to determine whether a Subscriber is an "Accredited Investor", and the
Company will comply in all respects with the terms and conditions of Reg D
and applicable state securities laws with respect to the offering and the
sale of the Units to qualified investors.
(e) Listing on Nasdaq. The Company's Common Stock is currently traded
on the Nasdaq SmallCap Market under the symbol "ACEL." Prior to the first
Closing, the Company shall file an additional listing application for the
Shares with the Nasdaq Stock Market, Inc.
(f) Repayment of Indebtedness. Prior to the Closing Date, the Company
shall not repay (or agree to repay) any indebtedness to any of its
stockholders (or incur any indebtedness to any of its stockholders) other
than salaries or other compensation paid in the ordinary course of business
or repayments of indebtedness consistent with past practices, unless the
terms thereof are approved in advance by the Placement Agent.
(g) Reservation of Shares. The Company will reserve for issuance
sufficient shares of Common Stock for issuance in connection with the Units
and the exercise of the Warrants and the Placement Agent Warrants.
(h) Engagement of the Placement Agent as Warrant Solicitation Agent.
The Company hereby appoints the Placement Agent as warrant solicitation
agent for a period of three years after the Effective Date, and the
Placement Agent shall be entitled to receive a 4% solicitation conversion
fee upon exercise of the Warrants (excluding the Placement Agent Warrants
or the Warrants issuable on exercise thereof), pursuant to the NASD Notice
to Members 81-38.
7. Representations, Warranties and Covenants of the Placement Agent. The
Placement Agent represents, warrants and covenants to the Company that:
(a) Duly Registered. The Placement Agent is duly registered, pursuant
to the applicable provisions of the Exchange Act, as a dealer, and is a
member in good standing of the National Association of Securities Dealers,
Inc. ("NASD"), and is duly registered as a broker-dealer in such states as
the Placement Agent is required to be registered in order to complete the
Private Offering contemplated by this Agreement and the Memorandum.
(b) No General Solicitation or Advertising. The Placement Agent has
not and will not offer or sell the Units by means of general solicitation
or general advertising.
(c) Furnish Memoranda. A reasonable time prior to the Closing Date,
the Placement Agent will furnish to each offeree of the Units a copy of the
Memorandum, including each supplement, attachment or amendment thereto, and
the Subscription Documents. Notwithstanding the foregoing, the delivery of
the Memorandum shall not constitute an offer to sell the Units to any
person. Such sale may be made only upon acceptance by the Company of
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<PAGE>
a Subscriber's subscription, after a determination that the Subscriber
satisfies all of the applicable requirements.
(d) Reg D Compliance. The Placement Agent will use its reasonable
efforts to determine whether a Subscriber is an Accredited Investor. The
Placement Agent is not disqualified from participation in the Private
Offering by reason of Rules 262(b) and (c) of Regulation A and Reg D or any
other applicable law, order or regulation. The Placement Agent will not
conduct the Private Offering contrary to any of the provisions of Reg D or
corresponding state statutes or regulations.
(e) Blue Sky Compliance. The Placement Agent will solicit purchasers
of the Units only in those jurisdictions where such solicitation could and
can be made in and in which it is so qualified to act and will conduct the
Private Offering in such jurisdictions in full compliance with all
applicable state statutes and regulations.
(f) Authorization. This Agreement has been duly authorized, executed
and delivered by the Placement Agent, constitutes the valid and binding
obligation of the Placement Agent and is enforceable against the Placement
Agent in accordance with its terms, subject, as to enforcement of remedies,
to applicable bankruptcy, insolvency, reorganization, moratorium and other
laws affecting the rights of creditors generally and the discretion of
courts in granting equitable remedies and except that enforceability of the
indemnification provisions and the contribution provisions set forth herein
may be limited by federal or state securities laws or public policy
underlying such laws.
(g) Litigation. There are no pending actions, suits, proceedings, or
arbitrations, and the Placement Agent is not aware of any claims,
investigations or inquiries, before any governmental agency, court or
tribunal, domestic or foreign, or before any private arbitration tribunal,
against or involving the Placement Agent or its business that question the
validity of this Agreement or of any action taken or to be taken by the
Placement Agent pursuant to or in connection with this Agreement.
(h) Finder's Fees. The Placement Agent has not incurred any liability
for any finder's fees or payments in connection with the transaction herein
contemplated, except as specifically provided in this Agreement. The
Placement Agent agrees to indemnify the Company with respect to any claim
for a finder's fee, based upon any agreement by or on behalf of the
Placement Agent, in connection with the Private Offering.
(i) Subscription Documents. Promptly, after its receipt of same, the
Placement Agent will furnish to the Company copies of all Subscription
Documents completed by the Subscribers as well as copies of any and all
correspondence between the Placement Agent and the Subscribers.
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<PAGE>
8. Conditions to Obligations.
(a) Conditions to Placement Agent's Obligations. The obligations of
the Placement Agent hereunder will be subject to the accuracy of the
representations and warranties of the Company herein contained as of the
date hereof and as of each Closing Date, to the performance by the Company
of its obligations hereunder and to the following additional conditions:
(i) Due Qualification or Exemption. (A) The Private Offering
contemplated by this Agreement will become qualified or be exempt from
qualification under the securities laws of the several states pursuant
to Section 6(b) above not later than each Closing Date, and (B) at
each Closing Date, no stop order suspending the sale of the Units
shall have been issued, and no proceeding for that purpose shall have
been initiated or threatened;
(ii) No Material Misstatements; Satisfactory Memorandum. (A) The
Placement Agent will not have notified the Company that any Blue Sky
Application (as hereinafter defined) or the Memorandum, or any
amendment, attachment or supplement thereto, contains an untrue
statement of a fact which in its opinion is material, or omits to
state a fact, which in its opinion is material and is required to be
stated therein, or is necessary to make the statements therein not
misleading, and (B) the Memorandum shall be reasonably satisfactory in
form and in substance to the Placement Agent and its legal and
accounting advisors;
(iii) Compliance with Agreements. The Company will have complied
with all agreements and satisfied all conditions on its part to be
performed or satisfied in all material respects hereunder at or prior
to each Closing Date;
(iv) Corporate Action. The Company will have taken all necessary
corporate action, including, without limitation, obtaining the
approval of the Company's board of directors for the execution and
delivery of this Agreement, the issuance of the Shares, the Warrants
and the Placement Agent's Warrants and the performance by the Company
of its obligations hereunder and thereunder, if applicable, and the
consummation of the Private Offering;
(v) Opinion of Counsel. On the Closing Date, the Placement Agent
will have received from the Company's counsel, Dorsey & Whitney, LLP
("Company Counsel") and the Company's intellectual property counsel,
Mark H. Jay, P.A. (the "Intellectual Property Counsel"), a signed
opinion reasonably satisfactory to Placement Agent's counsel, in form
and substance reasonably satisfactory to the Placement Agent and its
counsel.
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<PAGE>
(vi) Representations and Warranties. The representations and
warranties of the Company, set forth in Section 5 hereof, will be, as
of the Closing Date, accurate in all material respects.
(vii) Certificate of Chief Executive Officer. On the Closing
Date, the Company will have delivered a certificate of its Chief
Executive Officer confirming the satisfaction of the conditions set
forth in this Section 8(a).
(viii) Delivery of Share Certificates. On the Closing Date, the
Company will have delivered to the Placement Agent certificates
evidencing the Shares against payment of good funds for such Shares.
(ix) Delivery of Warrant Certificates. On the Closing Date, the
Company will have delivered to Placement Agent certificates evidencing
the Warrants and the Placement Agent Warrants against payment of good
funds for the Warrants and the Placement Agent Warrants.
(b) Conditions to the Company's Obligations. The obligations of the
Company hereunder will be subject to the accuracy of the representations
and warranties and compliance with the covenants of the Placement Agent
contained herein as of the date hereof and as of each Closing Date, to the
performance by the Placement Agent of its obligations hereunder and to the
following additional conditions:
(i) Absence of Events. At each Closing Date no stop order or
other judicial or administrative action suspending the sale of the
Units will have been issued, and no proceeding for that purpose will
have been initiated or threatened.
(ii) No Material Misstatements. The Company will not have
notified the Placement Agent that the Blue Sky Application (as
hereinafter defined) or the Memorandum, or any amendment, attachment
or supplement thereto, contains an untrue statement of a fact, which
in its opinion is material, or omits to state a fact, which in its
opinion is material and is required to be stated therein or is
necessary to make the statements therein not misleading, in each case
only with respect to information contained therein concerning the
Placement Agent or subscribers for the Units.
(iii) Compliance with Agreements. The Placement Agent will have
complied with all agreements and satisfied all conditions on its part
to be performed or satisfied hereunder in all material respects at or
prior to the Closing Date.
(iv) Corporate Action. The Placement Agent will have taken all
necessary corporate action, including, without limitation, obtaining
the approval of the Placement Agent's board of directors for the
execution and delivery of this
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Agreement and the performance by the Placement Agent of its
obligations hereunder and the consummation of the Private Offering.
(v) Registration. The Placement Agent will continue to be duly
registered as a member in good standing of the NASD and as a
broker-dealer in states required for the Private Offering.
(vi) Representations and Warranties. The representations and
warranties of the Placement Agent will be, as of each Closing Date,
accurate in all material respects.
(vii) Certificate. On the Closing Date, the Placement Agent will
have delivered a certificate of its President or Vice President
confirming the satisfaction of the conditions set forth in this
Section 8(b).
9. Expenses of Sale. In addition to the fees payable to the Placement Agent
pursuant to Section 4 herein, the Company will pay all of its expenses incident
to the proposed sale and delivery of the Units, whether or not the Private
Offering is consummated, including, without limitation, (a) the fees,
disbursements and expenses of its counsel and accountants, (b) all fees and
expenses of registering or qualifying the Units for offer and sale in the
applicable states, or obtaining exemptions therefrom, and (c) all other expenses
relating to the offering of the Units. The Placement Agent shall be responsible
for the fees, disbursements and expenses of its counsel. The Memorandum and the
exhibits thereto shall be reviewed by Company Counsel, whose costs and expenses
shall be paid for by the Company at the time such services are rendered.
If the Private Offering is not completed because (i) of any reason solely
within the control of the Company, its management, or its stockholders
including, without limitation, the inability or unwillingness of the Company to
keep its SEC filings current under the Exchange Act, (ii) the Company
unilaterally terminates the Private Offering or withdraws the Private Offering
from the Placement Agent for any reason, other than unreasonable delays by the
Placement Agent, or (iii) of any material discrepancy in any representation made
by the Company to the Placement Agent or the failure of the Company to meet any
of its material obligations under this Agreement, then the Company will be
obligated to reimburse the Placement Agent as to its out-of-pocket expenses of
up to $25,000 for its reasonable costs, expenses and legal fees incurred in
connection with the Private Offering, of which amount may be increased at the
request of the Placement Agent and with the approval of the Company.
10. Indemnification and Contribution.
(a) Indemnification by the Company. The Company agrees to indemnify
and hold harmless the Placement Agent and each person, if any, who controls
the Placement Agent within the meaning of the Securities Act or the
Exchange Act against any losses, claims, damages or liabilities, joint or
several, to which the Placement Agent or such controlling person
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may become subject, under the Securities Act or otherwise, to the extent
and only to the extent such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact contained (A) in
the Memorandum, or (B) in any Blue Sky Application (as hereinafter defined)
or other document executed by the Company specifically for that purpose or
based upon false or misleading written information furnished by the Company
and filed in any state or other jurisdiction in order to qualify any or all
of the Shares under the securities laws thereof (any such application,
document or information being hereinafter called a "Blue Sky Application"),
(ii) the omission or alleged omission to state in the Memorandum or in any
Blue Sky Application a material fact required to be stated therein or
necessary to make the statements therein not misleading, or (iii) any
untrue statement or alleged untrue statement of a material fact contained
in the Memorandum or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading; and will reimburse the Placement Agent and each
such controlling person for any legal or other expenses reasonably incurred
by the Placement Agent or such controlling person in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in reliance upon and in conformity with
written information furnished to the Company by the Placement Agent or
counsel for the Placement Agent specifically for use in the preparation of
the Memorandum or any such Blue Sky Application.
(b) Indemnification by the Placement Agent. The Placement Agent agrees
to indemnify and hold harmless the Company, its directors and officers and
each person, if any, who controls the Company within the meaning of the
Securities Act and the Exchange Act against any losses, claims, damages or
liabilities, joint or several, to which the Company or such controlling
person may become subject, under the Securities Act or otherwise to the
extent such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon (i) any untrue statement or alleged
untrue statement of a material fact contained (A) in the Memorandum, or (B)
in any Blue Sky Application, (ii) the omission or alleged omission to state
in the Memorandum or in any Blue Sky Application a material fact required
to be stated therein or necessary to make the statements therein not
misleading, or (iii) any untrue statement or alleged untrue statement of a
material fact contained in the Memorandum, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and will
reimburse the Company and each director, officer and controlling person for
any legal or other expenses reasonably incurred by the Company or such
director, officer or controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however, that the Placement Agent will not be liable in any such case to
the extent that any such loss, claim, damage or liability arises out of or
is based upon an untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by the
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Placement Agent or counsel for the Placement Agent specifically for use in
the preparation of the Memorandum or any such Blue Sky Application.
(c) Procedure. Within five (5) business days (unless shorter period is
required) of receipt by an indemnified party under this Section 10 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party under
this Section 10, notify in writing the indemnifying party of the
commencement thereof; and the omission so to notify the indemnifying party
will relieve it from any liability under this Section 10 as to the
particular item for which indemnification is then being sought, but not
from any other liability which it may have to any indemnified party. In
case any such action is brought against any indemnified party, and it
notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein, and to the
extent that it may wish, jointly with any other indemnifying party,
similarly notified, to assume the defense thereof, with counsel who shall
be to the reasonable satisfaction of such indemnified party, and after
notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party under this Section 10 for any legal or
other expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation. Any such indemnifying party shall not be liable to any such
indemnified party on account of any settlement of any claim or action
effected without the consent of such indemnifying party.
(d) Contribution. If the indemnification provided for in this Section
10 is unavailable to any indemnified party with respect to any losses,
claims, damages, liabilities or expenses referred to therein, then the
indemnifying party, in lieu of indemnifying such indemnified party, will
contribute to the amount paid or payable by such indemnified party, as a
result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by
the Company on the one hand, and the Placement Agent on the other hand,
from the offering of the Shares, or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the Company on the one
hand, and of the Placement Agent on the other hand, in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one
hand, and the Placement Agent on the other hand, shall be deemed to be in
the same proportion as the total proceeds from the Private Offering (net of
sales commissions and non-accountable expense allowance, but before
deducting expenses) received by the Company relative to the commissions and
non-accountable expense allowance received by the Placement Agent. The
relative fault of the Company on the one hand, and the Placement Agent on
the other hand, will be determined with reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Company or the Placement Agent, and its relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or
omission. The amount payable by a party as a result of the losses, claims,
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damages, liabilities or expenses referred to above will be deemed to
include, subject to the limitations set forth in Section 10(e) below, any
legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any action or claim.
(e) Equitable Considerations. The Company and the Placement Agent
agree that it would not be just and equitable if contribution pursuant to
this Section 10 were determined by pro rata allocation or by any other
method of allocation which does not take into account the equitable
considerations referred to in the immediately preceding paragraph. No
person committing fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution or
indemnification from any person not committing such fraudulent
misrepresentation.
11. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements of the Company and of the Placement
Agent herein will survive the delivery and execution hereof and the closing
hereunder, and shall remain operative and in full force and effect for a period
of two years from the Closing Date regardless of any investigation made by or on
behalf of the Placement Agent or any person who controls the Placement Agent
within the meaning of the Securities Act, or by the Company or any person who
controls the Company within the meaning of the Securities Act, and will survive
delivery of the securities constituting the Shares hereunder and any termination
of this Agreement. Notwithstanding anything contained herein to the contrary,
the Placement Agent will promptly notify the Company if it becomes aware of any
facts that could be deemed to be a breach of any representation or warranty of
the Company.
12. Termination.
(a) In addition to the Company's right to terminate the Private
Offering pursuant to Section 2 hereof, either the Placement Agent or the
Company will have the right to terminate this Agreement by giving written
notice as herein specified, at any time, at or prior to each Closing Date:
(i) If the other shall have failed, refused, or been unable, at
or prior to the Offering Expiration Date, to perform any of its
respective obligations hereunder; or
(ii) If there has occurred an event materially or adversely
affecting the value of the Shares.
(b) If the Placement Agent or the Company elects to terminate this
Agreement pursuant to Subsections (i) or (ii) hereof, notice will be
provided to the non-terminating party promptly by telephone, telecopier or
telegram, and such notification will be confirmed by written notice as
provided for in Section 13 below.
13. Notices. Any notice hereunder shall be in writing and shall be
effective when delivered, or mailed by certified or registered mail, postage
prepaid, return receipt requested,
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to the appropriate party or parties, at the following addresses: if to the
Placement Agent, to Harris, Webb & Garrison, Inc., 5599 San Felipe, Suite 301,
Houston, Texas 77056, Attention: Jerald S. Cobbs; with a copy to Broad and
Cassel, Miami Center, 201 South Biscayne Boulevard, Suite 3000, Miami, Florida
33131, Attention: Dale S. Bergman, Esq.; if to the Company, Alfacell
Corporation, 225 Belleville Avenue, Bloomfield, New Jersey 07003, Attention:
Gail E. Fraser, Vice President, Finance, and Chief Financial Officer; with a
copy to Dorsey & Whitney LLP, 250 Park Avenue, New York, New York 10177,
Attention: Kevin T. Collins, Esq., or, in each case, to such other address as
the parties may hereinafter designate by like notice.
14. Parties. This Agreement will inure to the benefit of and be binding
upon the Placement Agent, the Company and their respective successors and
assigns. This Agreement is intended to be, and is for the sole and exclusive
benefit of the parties hereto and the persons described in Sections 10(a) and
10(b) hereof, and their respective successors and assigns, and for the benefit
of no other person, and no other person will have any legal or equitable right,
remedy or claim under, or in respect of this Agreement and the parties hereto
may not assign their rights or obligations hereunder. No purchaser of any of the
Shares will be construed as successor or assign merely by reason of such
purchase.
15. Amendment and/or Modification. Neither this Agreement, nor any term or
provision hereof, may be changed, waived, discharged, amended, modified or
terminated orally, or in any manner other than by an instrument in writing
signed by each of the parties hereto.
16. Further Assurances. Each party to this Agreement will perform any and
all acts and execute any and all documents as may be necessary and proper under
the circumstances in order to accomplish the intents and purposes of this
Agreement and to carry out its provisions.
17. Validity. In case any term of this Agreement will be held invalid,
illegal or unenforceable, in whole or in part, the validity of any of the other
terms of this Agreement will not in any way be affected thereby.
18. Non-Waiver. The failure of any party hereto to insist upon strict
performance of any of the covenants and agreements herein contained, or to
exercise any option or right herein conferred in any one or more instances, will
not be construed to be a waiver or relinquishment of any such option or right,
or of any other covenants or agreements, and the same will be and remain in full
force and effect.
19. Entire Agreement. This Agreement contains the entire agreement and
understanding of the parties with respect to the entire subject matter hereof,
and there are no representations, inducements, promises or agreements, oral or
otherwise, not embodied herein, except, however, with respect to the section
entitled "Confidential Information" contained in that certain engagement letter
between the Company and the Placement Agent dated October 24, 1997, shall
survive the execution of this Agreement and shall remain in full force and
effect. Any and all prior discussions, negotiations, commitments and
understanding relating thereto are
-19-
<PAGE>
superseded hereby, including, without limitation, that certain engagement letter
dated October 24, 1997, between the Company and the Placement Agent. There are
no conditions precedent to the effectiveness of this Agreement other than as
stated herein, and there are no related collateral agreements existing between
the parties that are not referred to herein.
20. Counterparts. This Agreement may be executed in counterparts and each
of such counterparts will for all purposes be deemed to be an original, and such
counterparts will together constitute one and the same instrument.
21. Law. This Agreement will be deemed to have been made and delivered in
Houston, Texas, and will be governed as to validity, interpretation,
construction, effect and in all other respects by the internal laws of the State
of Texas, without application of the principles of conflicts of law.
If the foregoing correctly sets forth our understanding, please so indicate
in the space provided below for that purpose, whereupon this letter will
constitute a binding agreement between us.
ALFACELL CORPORATION, a Delaware
corporation
By: /s/ KUSLIMA SHOGEN
---------------------------
Name: Kuslima Shogen
Title: Chairman/
Chief Executive Officer
CONFIRMED and ACCEPTED as of this 15th day of December, 1997 by the
undersigned authorized representative.
HARRIS, WEBB & GARRISON, INC., a
Texas corporation
By: /s/ JERALD S. COBBS
---------------------------
Name: Jerald S. Cobbs
Title: Managing Director
-20-
<PAGE>
EXHIBIT A
(No Commission)
Paul L. Trump Trust
U/A/Ltd 10/10/80, Revised and
Amended 1/9/96
801 Maplewood Court
Kingswood, MI 49802
Martin Stadler
18 Dey Hill Trail
Totowa, NJ 07512
James McCash
N3820 S. Grand Oak Drive
Iron Mountain, MI 49801
A-1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Alfacell Corporation Balance Sheet as of January 31, 1998 and the Statements of
Operations for the six months ended January 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 3,922,386
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,089,523
<PP&E> 1,139,779
<DEPRECIATION> 788,909
<TOTAL-ASSETS> 4,440,393
<CURRENT-LIABILITIES> 1,483,895
<BONDS> 0
0
0
<COMMON> 14,848
<OTHER-SE> 2,930,224
<TOTAL-LIABILITY-AND-EQUITY> 4,440,393
<SALES> 0
<TOTAL-REVENUES> 144,526
<CGS> 0
<TOTAL-COSTS> 3,323,458
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,876
<INCOME-PRETAX> (3,199,808)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,199,808)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,199,808)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</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 January 31,
1998, the Company had an accumulated deficit of approximately $48,610,000, and a
total stockholders' equity of approximately $2,945,000. 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, 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 several potential sources such as 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 taking into account the approximately $4,300,000 in net
proceeds received from the private placement completed in February 1998, 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 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.
<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
inventions made by its personnel. The Company owns five 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; 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 owns three European patents which have been
validated in certain European countries. 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 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.
<PAGE>
Uncertain Availability of Health Care Reimbursement. 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.
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, 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 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 upfront 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.
