SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14 (a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)
(2)
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11 (C) or ss. 240.14a-12
ALFACELL CORPORATION
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person (s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No Fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(I) (4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11. (Set forth the amount on which the filing fee is
calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11 (a) (2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.
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3) Filing Party:
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4) Date Filed:
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ALFACELL CORPORATION
225 Belleville Avenue
Bloomfield, New Jersey 07003
(973) 748-8082
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 9, 1997
To our Stockholders:
You are hereby notified that the annual meeting of stockholders (the
"Annual Meeting") of Alfacell Corporation, a Delaware corporation ("Alfacell" or
the "Company") will be held at the Radisson Suite Hotel Meadowlands, 350 Route 3
West, Mill Creek Drive, Secaucus, New Jersey 07094 on Tuesday, December 9, 1997
at 10:00 a.m. local time, for the following purposes:
1. To elect six directors (Proposal No. 1);
2. To approve the Company's 1997 Stock Option Plan (Proposal No. 2);
3. To increase the number of authorized shares of Common Stock, par value
$.001 (Proposal No. 3);
4. To ratify the selection of KPMG Peat Marwick LLP, independent
certified public accountants, to audit the financial statements of the
Company for the fiscal year ending July 31, 1998 (Proposal No. 4); and
5. To transact such other matters as may properly come before the Annual
Meeting or any adjournment thereof.
Only holders of record of the Company's Common Stock, par value $.001 per
share, at the close of business on October 20, 1997 are entitled to notice of
and to vote at the Annual Meeting.
Alfacell hopes that as many stockholders as possible will personally attend
the Annual Meeting. Whether or not you plan to attend the Annual Meeting, please
complete the enclosed proxy card and sign, date and return it promptly so that
your shares will be represented. Sending in your proxy will not prevent you from
voting in person at the Annual Meeting.
By order of the board of directors,
Gail E. Fraser, Secretary
Bloomfield, New Jersey
November 17, 1997
ALFACELL CORPORATION
---------
PROXY STATEMENT
---------
This Proxy Statement is furnished in connection with the solicitation of
proxies for use at the annual meeting of stockholders (the "Annual Meeting") of
Alfacell Corporation ("Alfacell" or the "Company") to be held on Tuesday,
December 9, 1997 and at any adjournment thereof. The accompanying proxy is
solicited by the board of directors of the Company and is revocable by the
stockholder any time before it is voted. For more information concerning the
procedure for revoking the proxy, see "General." This Proxy Statement was first
mailed to stockholders of the Company on or about November 17, 1997, accompanied
by the Company's Annual Report to Stockholders for the fiscal year ended July
31, 1997. The principal executive offices of the Company are located at 225
Belleville Avenue, Bloomfield, New Jersey 07003, telephone (973) 748-8082.
OUTSTANDING SHARES AND VOTING RIGHTS
Only holders of the Company's common stock, par value $.001 per share (the
"Common Stock" or "Common Shares"), at the close of business on October 20, 1997
(the "Record Date") are entitled to receive notice of and to vote at the Annual
Meeting. As of the Record Date, 14,847,793 Common Shares, were outstanding and
will be entitled to vote at the Annual Meeting. Each Common Share is entitled to
one vote on all matters. There are no cumulative voting rights.
To be elected, a director must receive a plurality of the votes of the
Common Shares present in person or represented by proxy at the Annual Meeting
and entitled to vote on the election of directors. The affirmative vote of at
least a majority of the outstanding Common Shares is required for the approval
of Proposal No. 3. The affirmative vote of at least a majority of the Common
Shares present in person or represented by proxy at the Annual Meeting and
entitled to vote thereon, whether or not a quorum is present when the vote is
taken, is necessary for approval of Proposal No. 2 and Proposal No. 4. A quorum
is representation in person or by proxy at the Annual Meeting of at least a
majority of the Common Shares outstanding as of the Record Date.
Pursuant to the Delaware General Corporation Law, votes cast "For" a matter
constitute affirmative votes. Proxy cards which are voted by marking "Withheld"
or "Abstain" on a particular matter are counted as present for quorum purposes
and for purposes of determining the outcome of such matter, but since they are
not cast "For" a particular matter, they will have the same effect as negative
votes or votes "Against" a particular matter. If a validly executed proxy card
is not marked to indicate a vote on a particular matter and the proxy granted
thereby is not revoked before it is voted, it will be voted "For" such matter.
Where brokers are prohibited from exercising discretionary authority for
beneficial owners who have not provided voting instructions (commonly referred
to as "broker non-votes"), such broker non- votes will be treated as shares that
are present for purposes of determining the presence of a quorum. With respect
to proposals which require the affirmative vote of a percentage of votes present
at the Annual Meeting for approval, however, such broker non-votes will be
treated as not present for purposes of determining the outcome of any such
matters. With respect to proposals which require the affirmative vote of a
percentage of the outstanding shares for approval, since such broker non-votes
are not cast "For" a particular matter, they will have the same effect as a
negative vote or votes "Against" such matter.
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
The Company By-Laws provide that the full Board of Directors shall not be
less than one, nor more than ten Directors, as may be fixed from time to time by
resolution of the Board of Directors. The Board of Directors is currently fixed
at eight Directors and pursuant to a determination of the Board will be fixed at
six Directors as of the date of the Annual Meeting. Proxies cannot be voted for
a greater number of persons than the number of nominees named. Directors are
elected to serve until the next annual meeting of stockholders and until their
successors are elected and qualified.
The nominees for election to the office of Director, and certain
information with respect to their ages and backgrounds, are set forth below. It
is the intention of the persons named in the accompanying proxy card, unless
otherwise instructed, to vote to elect the nominees named herein as directors.
If any nominee declines to serve or becomes unavailable for any reason, or if a
vacancy should occur before the election (although management knows of no reason
to anticipate that this will occur), the proxies may be voted for such
substitute nominees as management may designate. Alan Bell, Robert Henry and
Allen Siegel have elected to retire from the Board of Directors and will not
stand for election.
Nominees for Election to the Office of Director
at the Annual Meeting
Nominee Age Director Position with the Company
- ------- --- -------- -------------------------
Since
-----
Kuslima Shogen 52 1981 Chief Executive Officer,
Chairman of the Board
Gail E. Fraser 39 1995 Vice President, Finance,
Chief Financial Officer and
Director
Stanislaw M. Mikulski, 53 1986 Executive Vice President,
M.D. Medical Director and Director
Stephen K. Carter, M.D.(1) 59 1997 Director and Chairman of the
Scientific Advisory Board
Donald R. Conklin (1)(2) 61 1997 Director
Martin F. Stadler(1)(2) 55 1997 Director
===============================================================================
(1) Member of Compensation Committee
(2) Member of Audit Committee
The Board of Directors recommends a vote FOR Ms. Shogen, Ms. Fraser, Dr.
Mikulski, Dr. Carter, Mr. Conklin and Mr. Stadler as Directors (Proposal No. 1
on the Proxy Card).
2
BUSINESS EXPERIENCE OF NOMINEES
Kuslima Shogen has served as the Company's Chief Executive Officer since
September 1986, Chairman of the Board since August 1996, and as a Director since
the inception of the Company. She also served as the Company's Chief Financial
Officer from September 1986 through July 1994 and as its President from
September 1986 through July 1996. Ms. Shogen formed the Company in 1981 to
pursue research that she had initiated while a biology student in the University
Honors Program at Fairleigh Dickenson University. Prior to founding Alfacell,
from 1976 to 1981 she was founder and president of a biomedical research
consortium specializing in Good Laboratory Practices and animal toxicology.
During that time, she also served as a consultant for the Lever Brothers
Research Group. Ms. Shogen has received numerous awards for achievements in
biology, including the Sigma Xi first prize from the Scientific Research Society
of North America in 1974 and first prize for the most outstanding research paper
in biology at the Eastern College Science Conferences competitions in 1972,
1973, and 1974. She earned a B.S. degree in 1974 and an M.S. degree in 1976 in
biology from Fairleigh Dickenson, and also completed graduate studies in 1978 in
embryology. Ms. Shogen was the first teaching fellow from Fairleigh Dickenson's
Rutherford, NJ campus. She graduated Phi Beta Kappa.
Gail E. Fraser joined the Company as its Chief Financial Officer in July
1994 and subsequently became a Director in April 1995. From August 1993 to July
1994, she served as a consultant to the Company and was the Company's business,
financial and accounting advisor. From April 1989 to February 1993, Ms. Fraser
served as the Chief Financial Officer of Enzon, Inc., a biopharmaceutical
company located in Piscataway, New Jersey, where she was responsible for raising
more than $80 million in equity capital. From 1982 to 1989, she served as the
Vice President of Finance and Controller for Sidmak Laboratories, Inc., a
generic drug manufacturer located in East Hanover, New Jersey. Ms. Fraser earned
a B.S. degree in accounting from Kean University of New Jersey in 1985 and an
M.B.A. from the Wharton School of the University of Pennsylvania in 1993. She is
also a Certified Public Accountant in the state of New Jersey.
Stanislaw M. Mikulski, M.D., F.A.C.P. has served the Company as Executive
Vice President and Medical Director since 1987 and as a Director since 1986.
Prior to his affiliation with Alfacell, Dr. Mikulski was Special Assistant to
the Chief of the Investigational Drug Branch of the National Cancer Institute
("NCI") and the Coordinator for Immunotherapy Trials in Cancer for the Division
of Cancer Treatment. Prior to joining the Company, he maintained a private
practice in medical oncology for over eight years. He is a diplomate of the
American Board of Internal Medicine and Medical Oncology as well as a fellow of
the American College of Physicians and a member of the American Society of
Clinical Oncology. Dr. Mikulski is currently a clinical assistant Professor of
Medicine at the University of Medicine and Dentistry of New Jersey. He received
his M.D. in 1967 from the Medical School of Warsaw, Poland and subsequently
performed post-doctoral studies in human tumor immunology at the University of
California in Los Angeles.
Stephen K. Carter, M.D. joined the Board of Directors in May 1997 and
serves as Chairman of the Company's Scientific Advisory Board. In addition to
his positions with Alfacell, Dr. Carter also serves as a senior clinical
consultant to Sugen, Inc. From 1995 through 1997, he served as Senior Vice
President of Research and Development for Boehringer-Ingelheim Pharmaceuticals.
Before this, Dr. Carter spent over 13 years with Bristol-Myers Squibb, an
international leader in the development of innovative anti-cancer and anti-viral
therapies. He held a variety of senior executive research and development
positions while at Bristol-Myers, including serving for five years as Senior
Vice President of worldwide clinical research and development of its
Pharmaceutical Research Institute. From 1976 to 1982, he established and
directed the Northern California Cancer Program. Prior to this, he held a number
of
3
positions during a nine-year tenure at the NCI, including the position of Deputy
Director at the National Institutes of Health. He has also been a member of the
faculties of the medical schools of Stanford University, the University of
California at San Francisco and New York University. Dr. Carter has published
extensively on the development of anti-cancer drugs, was the co-founding editor
of journals devoted to cancer therapeutics or immunology, and has served on the
editorial boards of a number of additional journals dedicated to cancer
treatment. He is a member of the American Society of Clinical Oncology, the
American Association for Cancer Research, and the Society of Surgical Oncology,
as well as several other medical societies. Dr. Carter earned his B.A. from
Columbia University and his M.D. from New York Medical College. He currently
serves on the Board of Directors of Allos Therapeutics.
Donald R. Conklin joined the Board of Directors in May 1997. Prior to his
retirement in May 1997, Mr. Conklin was a senior executive with Schering-Plough,
a major worldwide pharmaceutical firm. During his more than 35 years with
Schering-Plough, he held a variety of key management positions within the firm.
From 1986 to 1994, he served as President of Schering-Plough Pharmaceuticals. In
this position, he was responsible for worldwide pharmaceutical operations,
including the launch of INTRON A(R) (interferon alfa-2b). Prior to this, Mr.
Conklin had served as President of Schering USA and had held a variety of
executive marketing positions in the United States, Europe, and Latin America.
Immediately preceding his retirement, he was Chairman of Schering-Plough Health
Care Products and an Executive Vice President of Schering-Plough Corporation.
Mr. Conklin received his B.A. with highest honors from Williams College and his
M.B.A. degree from the Rutgers University School of Business. He currently
serves on the Board of Directors of Vertex Pharmaceuticals, Inc.,
CytoTherapeutics, Inc. and BioTransplant, Inc.
Martin F. Stadler joined the Board of Directors in November 1997. He
recently retired from Hoffmann La-Roche, Inc. after 32 years of pharmaceutical,
chemical and diagnostic experience. Mr. Stadler served as senior vice president
and chief financial officer, and was a member of the Hoffmann La- Roche, Inc.
Board of Directors from 1985 through 1996. His responsibilities included
finance, information technology, human resources, quality control and technical
services. Prior to 1985, Mr. Stadler served as vice-president of strategic
planning and business development. Mr. Stadler received his B.S. degree from
Rutgers University and his M.B.A. from Fairleigh Dickenson University. He is a
member of the Finance Council of the American Management Association and the
President's Advisory Board of Fairleigh Dickenson University.
The SEC has notified Ms. Shogen, Dr. Mikulski and Dr. Siegel (the
"Reporting Persons") that the Enforcement Division had commenced an informal
investigation (the "SEC Investigation") of certain allegedly late filings
required to be made by the Reporting Persons pursuant to Sections 13 and 16 of
the Securities and Exchange Act of 1934 (the "Exchange Act") with respect to
changes in beneficial ownership of the Company's securities which, except for
one late filing by Ms. Shogen in 1996 which is discussed below, occurred for
each of the Reporting Persons during the years 1983 to 1994. The alleged
violations relate solely to the filings of required forms, and to the Company's
knowledge, the Enforcement Division has not alleged any fraudulent or willful
misconduct by any of the Reporting Persons. The Reporting Persons and the
Company have been cooperating fully with the SEC in connection with its
investigation. The staff of the Enforcement Division has agreed to recommend to
the SEC, and the Reporting Persons have agreed in principle, to the settlement
of this matter which would result in the Reporting Persons consenting to the
entry of a cease-and-desist order in which they will neither admit nor deny the
allegations made by the SEC and the payment of monetary penalties totaling
$40,000 for all of the Reporting Persons. Since mid-1994 when the Company and
its officers and directors, with the assistance of the Company's current
securities counsel, fully implemented a comprehensive Section 16(a) compliance
program, all changes of beneficial ownership for the Reporting
4
Persons which have occurred have been reported on a timely basis, except for one
Form 4 reporting changes in beneficial ownership occurring in 1996 which Ms.
Shogen filed one month late. See "Compliance with Section 16(a) of the Exchange
Act".
INFORMATION CONCERNING BOARD AND COMMITTEE MEETINGS
AND COMMITTEES OF THE BOARD
Seven meetings of the Company's board of directors were held during the
fiscal year ended July 31, 1997. As of July 31, 1997 there were two standing
committees of the Board, a Compensation Committee and an Audit Committee. During
fiscal 1997, the Compensation Committee was comprised of Alan Bell, Robert R.
Henry and Allen Siegel. The primary functions of the Compensation Committee are
to administer the 1993 Stock Option Plan and the 1997 Stock Option Plan,
determine the compensation of the Company's officers and senior management and
review compensation policy for all of the Company's employees. The Compensation
Committee met once during the fiscal year ended July 31, 1997. All of the
decisions regarding executive compensation were made by the Compensation
Committee during the fiscal year ended July 31, 1997. During fiscal 1997, the
Audit Committee was comprised of Alan Bell and Robert R. Henry.
The primary functions of the Audit Committee are to meet with the Company's
independent auditors to discuss and review audit procedures and issues, meet
with management on matters concerning the Company's financial condition,
internal controls and year-end audit, and report to the Board on such matters.
The Audit Committee met one time during the fiscal year ended July 31, 1997.
During fiscal 1997, no incumbent director attended fewer than 75 % of the
aggregate of the total number of meetings of the board of directors and the
total number of meetings held by all committees of the board on which such
director served. On October 31, 1997 Messrs. Bell and Henry and Dr. Siegel
retired from the Compensation Committee and Messrs. Bell and Henry retired from
the Audit Committee. Messrs. Conklin and Stadler have been elected to the Audit
Committee and Dr. Carter and Messrs. Conklin and Stadler have been elected to
the Compensation Committee.
EXECUTIVE COMPENSATION
Directors' Compensation
Directors receive no cash compensation in consideration for their serving
on the Board of Directors.
In November 1993 and January 1994, the Board of Directors and the
stockholders, respectively, approved the Company's 1993 Stock Option Plan (the
"Plan") which, among other things, provides for automatic grants of options
("Automatic Grants") under a formula (the "Formula") to non-employee directors
("Independent Directors" ) on an annual basis.
The Formula provides that (i) on each December 31st each Independent
Director receives automatically an option to purchase 15,000 shares of the
Company's Common Stock (the "Regular Grant"); and (ii) on the date of each
Independent Director's initial election to the Board of Directors, such newly
elected Independent Director automatically receives an option to purchase such
Independent Director's pro rata share of the Regular Grant which equals the
product of 1,250 multiplied by the number of whole months remaining in the
calendar year (the "Pro Rata Grant"). Each option granted pursuant to
5
a Regular Grant and a Pro Rata Grant vests and becomes exercisable on December
30th following the date of grant. Notwithstanding the foregoing, an option will
not become exercisable as to any shares unless such Independent Director has
served continuously on the Board during the year preceding the date on which
such options are scheduled to vest and become exercisable, or from the date such
Independent Director joined the Board until the date on which such options are
scheduled to vest and become exercisable; provided, however, that if an
Independent Director does not fulfill such continuous service requirement due to
such Independent Director's death or disability all options held by such
Independent Director nonetheless vest and become exercisable as described
herein. An option granted pursuant to the Formula remains exercisable for a
period of five years after the date the option first becomes exercisable. The
per share exercise price of an option granted under the Formula is required to
be equal to the fair market value of a share of Common Stock on the date of
grant.
During the fiscal year ended July 31, 1997, the following Independent
Directors were granted the options listed below pursuant to the Formula under
the 1993 Plan and the Company's 1997 Stock Option Plan (the "1997 Plan"). The
exercise prices of the options are equal to the fair market value of the Common
Stock on the date of grant.
Name Number of Options Exercise Price Expiration
- ---- ----------------- -------------- ----------
Alan Bell 15,000 $ 6.97 12/30/02
Stephen K. Carter 8,750 $ 5.20 12/30/02
Donald R. Conklin 8,750 $ 5.28 12/30/02
Robert R. Henry 15,000 $ 6.97 12/30/02
Allen Siegel 15,000 $ 6.97 12/30/02
The options granted to Mssrs. Bell and Henry and Dr. Siegel will vest and
become exercisable upon their retirement from the Board.
If the 1997 Plan is approved by stockholders, Independent Directors will
receive automatic grants of options under that Plan pursuant to a formula which
is substantially identical to the Formula in the 1993 Plan. See "Proposal No.
2."
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended July 31, 1997, the members of the Board of
Directors who served on the Compensation Committee of the Board of Directors
were Alan Bell, Robert R. Henry and Allen Siegel.
Dr. Siegel has made a request for indemnification by the Company in
connection with the SEC's informal investigation regarding his alleged
violations of Section 16 of the Exchange Act pursuant to his indemnification
agreement with the Company. See "Certain Relationships and Related
Transactions".
6
Summary Compensation Table
The following table provides a summary of cash and non-cash compensation
for each of the last three fiscal years ended July 31, 1997, 1996 and 1995
earned by the Chief Executive Officer and the only three other executive
officers of the Company during the last three fiscal years (the "Named Executive
Officers").
Long Term
Annual Compensation Compensation
-------------------------------------------------------------- -----------------------------
Securities
Other Annual Underlying All Other
Name and Compensation Options/ Compensation
Principal Position Year Salary($) Bonus($) ($)(1) SARs(#) ($)
------------------ ---- --------- -------- ------------ ----------- -------------
Kuslima Shogen 1997 $150,000 - 0 - - 0 - - 0 - (3) - 0 -
Chief Executive 1996 150,000 - 0 - - 0 - 500,000 (4) - 0 -
Officer and 1995 150,000 - 0 - - 0 - - 0 - - 0 -
Chairman of the
Board of
Directors(2)
Michael C. Lowe 1997 $189,968 - 0 - - 0 - 175,000(5) - 0 -
President(5) 1996 - 0 - - 0 - - 0 - - 0 - - 0 -
1995 - 0 - - 0 - - 0 - - 0 - - 0 -
Gail E. Fraser(6) 1997 $130,000 - 0 - - 0 - - 0 - (3) - 0 -
Vice President, 1996 130,000 - 0 - - 0 - - 0 - - 0 -
Finance and Chief 1995 121,163 - 0 - - 0 - - 0 - - 0 -
Financial Officer
Stanislaw M 1997 $130,000 - 0 - - 0 - - 0 - (3) - 0 -
Mikulski(7) 1996 130,000 - 0 - - 0 - 250,000(4) - 0 -
Executive Vice 1995 130,000 - 0 - - 0 - - 0 - - 0 -
President and
Medical Director
(1) Excludes perquisites and other personal benefits which in the aggregate do
not exceed 10% of the Named Executive Officers' total annual salary and
bonus.
(2) No salary was paid to Ms. Shogen in fiscal 1995 and this salary was accrued
on the Company's financial statements as obligations owed to Ms. Shogen.
During fiscal 1996, Ms. Shogen was paid $150,000 representing payment in
full of accrued back salary. Ms. Shogen was paid her salary in full for
fiscal 1996 and 1997.
(3) Except for the options granted to Dr. Lowe and described in note (5), no
options were granted to the Named Executive Officers during the fiscal year
ended July 31, 1997.
(4) These options were originally granted during the fiscal year ended July 31,
1992, and were due to expire by their terms in September 1995. In September
1995, the exercise period for these options was extended until September
1996 and the per share exercise price was increased to $3.87 per share, the
fair market value of the Common Stock on the date of such extension. These
options were exercised at an exercise price of $3.87 per share during
fiscal 1996 and 1997. See "Option Exercises and Fiscal Year-End Values."
7
(5) Dr. Lowe was hired as President of the Company in August 1996 and resigned
as of July 31, 1997. He was originally granted options to purchase 650,000
shares of Common Stock at an exercise price of $4.70 per share, the fair
market value of the Common Stock on the date of grant. Pursuant to a
separation agreement between Dr. Lowe and the Company, 100,000 of these
options vested immediately upon grant and expire January 31, 1999, 75,000
options vested July 31, 1997 and expire January 31, 1999, and the remaining
475,000 options were canceled upon his resignation as President of the
Company. See "Employment and Termination Agreements."
(6) In fiscal 1995, $96,163 of Ms. Fraser's salary was paid to Ms. Fraser. That
portion of Ms. Fraser's salary which was not paid to her was accrued on the
Company's financial statements as obligations owed to Ms. Fraser. During
fiscal 1996, Ms. Fraser was paid $25,000 representing payment in full of
accrued back salary. Ms. Fraser was paid her salary in full for fiscal 1996
and 1997.
(7) In fiscal 1995, $5,000 of Dr. Mikulski's salary was paid to Dr. Mikulski.
That portion of Dr. Mikulski's salary which was not paid to him was accrued
on the Company's financial statements as obligations owed to Dr. Mikulski.
During fiscal 1996, Dr. Mikulski was paid $125,000 representing payment in
full of accrued back salary. Dr. Mikulski was paid his salary in full for
fiscal 1996 and 1997.
Option Grants in Last Fiscal Year
The following table contains information concerning the grant of stock
options to the Named Executive Officers during the fiscal year ended July 31,
1997:
====================================================================================================================================
Individual Grants
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for Option
Term (1)
- ---------------------------------------------------------------------------------------------
Number of
Securities % of Total
Underlying Options Granted Exercise or
Options to Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Share) Date
----------------------------------------
0%($) 5%($) 10%($)
- ------------------------------------------------------------------------------------------------------------------------------------
Kuslima Shogen 0 -- -- -- -- -- --
Gail E. Fraser 0 -- -- -- -- -- --
Stanislaw M. 0 -- -- -- -- -- --
Mikulski
Michael C. 175,000(2) 61.4% $4.70 1/31/99 0 $41,125 $82,250
Lowe
====================================================================================================================================
(1) The amounts set forth in the three columns represent hypothetical gains
that might be achieved by the optionees if the respective options are
exercised at the end of their terms. These gains are based on assumed rates
of stock price appreciation of 0%, 5% and 10%. The 0% appreciation
8
column is included because the exercise price of the options equals the
market price of the underlying Common Stock on the date the options were
granted, and thus the options will have no value unless the Company's stock
price increases above the exercise price.
(2) Dr. Lowe was hired as President of the Company in August 1996 and resigned
as of July 31, 1997. He was originally granted options to purchase 650,000
shares of Common Stock at an exercise price of $4.70 per share, the fair
market value of the Common Stock on the date of grant. Pursuant to a
separation agreement between Dr. Lowe and the Company, 100,000 of these
options vested immediately upon grant and expire January 31, 1999 75,000
options vested July 31, 1997 and expire January 31, 1999, and the remaining
475,000 options were canceled upon his resignation as President of the
Company.
Option Exercises and Fiscal Year-End Values
The following table sets forth the information with respect to the Named
Executive Officers concerning the exercise of options during the fiscal year
ended July 31, 1997 and unexercised options held as of July 31, 1997.
====================================================================================================================================
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options
Options at Fiscal Year-End at Fiscal Year-End($)(2)
(#)
- ------------------------------------------------------------
Shares Value
Name Acquired on Realized Exercisable Unexercisable Exercisable Unexercisable
Exercise (#) ($)(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Kuslima Shogen 422,500 $295,170 1,245,967 430,240 $1,628,817 $569,890
Gail E. Fraser None None 335,000 140,000 $143,300 $53,200
Stanislaw M. 163,500 $138,902 325,128 106,281 $424,215 $140,302
Mikulski
Michael C. Lowe None None 195,000 - 0 - $27,400 - 0 -
====================================================================================================================================
(1) Based upon the fair market value of the purchased shares on the option
exercise date less the exercise price paid for the shares.
(2) The fair market value of the Common Stock at the fiscal year end was based
on the average of the bid and asked price ($4.49) for the Common Stock as
reported by the NASDAQ SmallCap Market on the last day of the fiscal year,
July 31, 1997.
Employment and Termination Agreements
On October 9, 1997 the Company entered into a separation agreement and
general release with Dr. Michael Lowe pursuant to which (i) Dr. Lowe confirmed
his resignation as president, director and
9
employee of the Company effective as of July 31, 1997, (ii) the Company agreed
to pay Dr. Lowe a total of $100,000 during the period commencing August 1, 1997
through January 31, 1998, (iii) the Company and Dr. Lowe agreed that of the
650,000 options granted to Dr. Lowe when he became the Company's president,
100,000 options had vested immediately upon grant and will remain exercisable
until January 31, 1999, 75,000 options had vested as of August 1, 1997 and will
remain exercisable until January 31, 1999 and 475,000 options were canceled as
of July 31, 1997 (iv) the Company agreed under certain circumstances to pay for
health insurance for Dr. Lowe and his dependents until July 31, 1998, (v) Dr.
Lowe and the Company released each other from all claims and (vi) Dr. Lowe
agreed not to compete with the Company until January 31, 1998.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
During the fiscal year ended July 31, 1997, the Compensation Committee
consisted of three non-employee directors. The three directors who comprised the
Compensation Committee during fiscal 1997 are retiring from the board effective
as of the date of the fiscal 1997 Annual Meeting and three non-employee
directors were elected to replace the retiring directors on the Compensation
Committee in October and November 1997. This report is rendered by the three
directors who sat on the Compensation Committee and made all compensation
decisions regarding the Company's executive officers, including the Named
Executive Officers in the Summary Compensation Table, during fiscal 1997.
As with many other biotechnology companies, Alfacell's current level of
development and the highly volatile nature of biotechnology stocks in general
makes executive compensation which is based on sales and earnings goals, or
strictly based on stock performance, impracticable. In determining compensation,
the Compensation Committee generally reviews the progress made by the individual
officer in attaining his or her individual goals and the progress made by the
Company in its drug development programs. In addition, the Compensation
Committee keeps the Company's stock performance in mind when making compensation
decisions. Finally, the Compensation Committee generally reviews and takes into
account, competitive factors regarding compensation. The compensation of the
Company's executive officers consists of three principal components: (i) base
salary and benefits, (ii) a bonus based on individual contributions evaluated
against annual goals and (iii) long-term incentives in the form of stock option
grants.
Kuslima Shogen, Gail E. Fraser and Dr. Stanislaw M. Mikulski did not
receive any salary increases, bonuses or option grants for fiscal 1997.
Considering the fact that the Company's stock had not performed in a manner
which they considered to be satisfactory given general market conditions and in
an attempt to limit increases in cash expenditures, these executive officers did
not petition the Compensation Committee for additional compensation even though
the Company's goals as set forth at the 1996 Annual Meeting had satisfactorily
been achieved. The amounts paid to Dr. Michael Lowe were based upon arms-length
negotiations between the Company and Dr. Lowe, taking into account competitive
factors and Dr. Lowe's compensation at his prior employer.
THE COMPENSATION COMMITTEE
Robert Henry, Chairman
Alan Bell
Allen Siegel
10
Stockholder Return Performance Graph
The graph below summarizes the total cumulative return experienced by the
Company's stockholders from July 31, 1992 to July 31, 1997, compared to the
NASDAQ Stock Market Index and the NASDAQ Pharmaceutical Index.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG ALFACELL CORPORATION, THE NASDAQ STOCK MARKET (U.S.) AND THE NASDAQ
PHARMACEUTICAL INDEX
- -----------------------------------------------------------------------------------------------------------------------------
ACEL Cumulative Total Return
- -----------------------------------------------------------------------------------------------------------------------------
7/92 7/93 7/94 7/95 7/96 7/97
- -----------------------------------------------------------------------------------------------------------------------------
ALFACELL CORPORATION 100 126 66 53 97 89
- -----------------------------------------------------------------------------------------------------------------------------
NASDAQ STOCK MARKET (U.S.) 100 122 125 176 191 283
- -----------------------------------------------------------------------------------------------------------------------------
NASDAQ PHARMACEUTICAL 100 80 71 99 120 141
INDEX
- -----------------------------------------------------------------------------------------------------------------------------
11
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
As of October 25, 1996, when the Company filed its definitive Proxy
Statement for fiscal year 1996, the Company had received no forms or other
information from any reporting person indicating that there were any changes in
beneficial ownership that had not been previously fully reported which were not
disclosed in a previous proxy statement or Form 10-KSB filed by the Company,
with the exception of one Form 4 which had been filed one month late by Ms.
Shogen in 1996. Thereafter, the SEC advised the Reporting Persons that forms
reflecting changes in their respective beneficial ownership of Alfacell
securities which, with the one exception discussed above, occurred between three
and fifteen years ago, had been filed late. The SEC also asked the Reporting
Persons to confirm on a voluntary basis whether all other changes in beneficial
ownership had in fact been previously fully reported.
The Reporting Persons and the Company voluntarily undertook an extensive
search for and review of records to determine the extent to which any such
changes in beneficial ownership were not previously fully reported. The Company
has learned of the following filing deficiencies:
As of July 31, 1997, Kuslima Shogen had one late Form 3, 43 late Form 4s,
three late Form 5s and 188 transactions not reported on a timely basis. As of
July 31, 1997, Ms. Shogen had failed to file 40 Form 4s and had failed to report
187 transactions. Subsequent to July 31, 1997, Ms. Shogen filed a Form 5
reporting all such unreported transactions. With the one exception discussed
above, all of the these transactions occurred between three and fifteen years
ago.
As of July 31, 1997, Stanislaw Mikulski had one late Form 3, eight late
Form 4s and one late Form 5 and 11 transactions not reported on a timely basis.
As of July 31, 1997, Dr. Mikulski had failed to file 18 Form 4s and two Form 5s
and had failed to report 79 transactions. Subsequent to July 31, 1997, Dr.
Mikulski filed a Form 5 reporting all such unreported transactions. All of the
these transactions occurred between three and fifteen years ago.
As of July 31, 1997, Allen Siegel had one late Form 3, 22 late Form 4s,
three late Form 5s and 28 transactions not reported on a timely basis. As of
July 31, 1997, Dr. Siegel had failed to file 27 Form 4s and one Form 5 and had
failed to report 54 transactions. Subsequent to July 31, 1997, Dr. Siegel filed
a Form 5 reporting all such unreported transactions. All of the these
transactions occurred between three and fifteen years ago.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning stock
ownership of each person who is the beneficial owner of five percent or more of
the Company's outstanding Common Stock, each of the current directors, each of
the Named Executive Officers and all directors and executive officers as a group
as of October 10, 1997.
12
Percentage of Common
Directors, Officers or 5% Stockholders(1) Number of Shares(2) Stock Outstanding(3)
- ----------------------------------------- ------------------- --------------------
Kuslima Shogen 2,545,467 (4) 15.8%
Stanislaw M. Mikulski 686,378 (5) 4.5%
Gail E. Fraser 335,000 (6) 2.2%
Michael C. Lowe 245,000 (7) 1.6%
Alan Bell 65,929 (8) *
Stephen K. Carter 10,000 (9) *
Donald R. Conklin 25,500 (10) *
Robert R. Henry 237,550 (11) 1.6%
Allen Siegel 198,562 (12) 1.3%
Martin F. Stadler 0 (13) 0
All executive officers and
directors as a group
(nine persons) 4,349,386 (14) 25.4%
* Less than one percent.
(1) The address of all officers and directors listed above is in the care of
the Company.
(2) All shares listed are Common Stock. Except as discussed below, none of
these shares are subject to rights to acquire beneficial ownership, as
specified in Rule 13d-3(d)(1) under the Exchange Act, and the beneficial
owner has sole voting and investment power, subject to community property
laws where applicable.
(3) The percentage of stock outstanding for each stockholder is calculated by
dividing (i) the number of shares of Common Stock deemed to be beneficially
held by such stockholder as of October 10, 1997 by (ii) the sum of (A) the
number of shares of Common Stock outstanding as of October 10, 1997 plus
(B) the number of shares issuable upon exercise of options or warrants held
by such stockholder which were exercisable as of October 10, 1997 or which
will become exercisable within 60 days after October 10, 1997.
(4) Includes 1,245,967 shares subject to options which were exercisable as of
October 10, 1997 or which will become exercisable within 60 days after
October 10, 1997.
(5) Includes 325,128 shares subject to options which were exercisable as of
October 10, 1997 or which will become exercisable within 60 days after
October 10, 1997.
(6) Includes 335,000 shares underlying options which were exercisable as of
October 10, 1997 or which will become exercisable within 60 days after
October 10, 1997. Of such options, 50,000 expired unexercised on November
10, 1997.
13
(7) Includes 195,000 shares subject to options which were exercisable as of
October 10, 1997 or which will become exercisable within 60 days after
October 10, 1997. Dr. Lowe resigned as a director and president of the
Company as of July 31, 1997.
(8) Includes 45,000 shares subject to options which were exercisable as of
October 10, 1997 or which will become exercisable within 60 days after
October 10, 1997 owned by Mr. Bell, 20,429 shares owned jointly by Mr. Bell
and his wife and 500 shares owned by Mrs. Bell. Mr. Bell disclaims
beneficial ownership as to the shares owned by his wife.
(9) Includes 10,000 shares underlying options which were exercisable as of
October 10, 1997 or which will become exercisable within 60 days after
October 10, 1997.
(10) Includes 10,000 shares underlying options which were exercisable as of
October 10, 1997 or which will become exercisable within 60 days after
October 10, 1997.
(11) Includes 41,250 shares subject to options which were exercisable as of
October 10, 1997 or which will become exercisable within 60 days after
October 10, 1997 and 20,000 shares underlying warrants which were
exercisable as of October 10, 1997 or which will become exercisable within
60 days after October 10, 1997.
(12) Includes 45,000 shares subject to options which were exercisable as of
October 10, 1997 or which will become exercisable within 60 days after
October 10, 1997 owned by Dr. Siegel, 37,785 shares owned by Dr. Siegel's
wife, who is a former employee of the Company and 20,000 shares subject to
options which were exercisable as of October 10, 1997 or which will become
exercisable within 60 days after October 10, 1997 owned by Dr. Siegel's
wife. Dr. Siegel disclaims beneficial ownership as to the shares owned by
his wife.
(13) Mr. Stadler was elected to the Board of Directors on November 12, 1997.
(14) Includes all shares owned beneficially by the directors and the executive
officers named in the table.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective May 31, 1993, the Company restructured a pre-existing bank note
(the "Note") to include the principal balance of $1,300,000, accrued interest of
$349,072, and legal fees of $50,000 into a new term loan of $1,699,072 (the
"Term Loan"). Interest was to be computed at a rate of seven and one-half
percent (7.5%) per annum. The Term Loan was secured by substantially all of the
assets of the Company. Ms. Shogen had personally guaranteed the Note and had
pledged certain collateral, including a majority of the shares of Common Stock
of the Company owned by her and certain options, as additional collateral,
pursuant to a pledge agreement (the "Pledge Agreement") dated May 31, 1993
between Ms. Shogen, the Company and the bank. The Pledge Agreement secured the
obligations of the Company to the bank pursuant to the Term Loan as well as a
personal loan Ms. Shogen had with the same bank (the "Shogen Loan").
Substantially all of the obligations owed by the Company to Ms. Shogen were
subordinated to the Note. In order to satisfy the Company's obligations to the
bank pursuant to the Term Loan, from time to time, as contemplated by the Pledge
Agreement, portions of the shares of Common Stock pledged by Ms. Shogen have
been sold. During fiscal 1994, shares pledged by Ms. Shogen were sold in payment
of such obligation, in the amount of $48,673 during the quarter ended October
31, 1993,
14
$15,945 during November 1993, $15,957 during December 1993 and $15,704 during
January 1994. Through January 31, 1994, the monthly payments of interest and
principal under the Term Loan were paid primarily pursuant to this procedure,
and subsequent to such time, have been paid directly by the Company. The Term
Loan agreement prohibited the issuance of any shares, or right to purchase any
shares of the Company's stock if the result of such issuance would be to
decrease the ratio of the market value of Ms. Shogen's pledged stock to the
aggregate outstanding debt under the Term Loan and the Shogen Loan, below 1:1.
In June 1994, the Shogen Loan and the related Pledge Agreement were amended to
provide for, among other things, the issuance to Ms. Shogen, and subsequent
pledge to the bank, of certain options to purchase Common Stock issued to Ms.
Shogen in connection with the conversion to options of advances and interest
thereon made by Ms. Shogen to the Company and accrued salary owed to Ms. Shogen
by the Company. Based upon the average of the closing bid and asked prices on
July 31, 1997, the shares of the Company's Common Stock pledged by Ms. Shogen to
secure the Term Loan and the Shogen Loan were valued at $6,052,520 (excluding
the value of shares of Common Stock underlying certain options pledged to the
bank) and the aggregate outstanding debt of the Company pursuant to the Term
Loan and the aggregate outstanding debt of Ms. Shogen pursuant to the Shogen
Loan as of July 31, 1997 was $1,373,090 and $700,402, respectively. In
connection with the Term Loan, Ms. Shogen also assigned to the bank her right to
payment of up to $200,000 of outstanding debt owed to her by the Company, which
amount was paid to Ms. Shogen by the Company, and paid to the bank by Ms. Shogen
during fiscal 1995 and 1996. In November 1995, the Note was amended and restated
and the Term Loan agreement was amended to provide for, effective as of October
1, 1995, among other things (i) the extension of the Term Loan from May 31, 1996
to August 31, 1997, (ii) a re-amortization of the payment of principal and
interest based on a one hundred fifty (150) month amortization schedule, (iii)
an increase in the interest rate from seven and one-half percent (7.5%) per
annum to eight and three- eighths percent (8.375%) per annum, and (iv) the
issuance to the bank of a warrant to purchase 10,000 shares of Common Stock
through August 31, 1997 at an exercise price of $4.19 per share. Such warrant
expired unexercised. The Company had a verbal agreement with the bank to extend
the maturity date of the Term Loan until December 1, 1997 provided the Company
deposited a compensating balance in the amount of the principal balance as of
the date the extension was negotiated with the bank. On October 2, 1997, the
Company paid the entire Term Loan balance, including accrued interest, in the
amount of $1,376,646.
In accordance with their respective indemnification agreements with the
Company, Ms. Shogen and Drs. Mikulski and Siegel have given written notice to
the Company of their claims for indemnification of all damages, judgments,
settlements, costs and expenses of investigation, costs and expenses of defense
of legal actions, claims and proceedings and any appeals therefrom incurred in
connection with the SEC Investigation and any related or ancillary, threatened
or pending actions, suits or proceedings, whether civil, criminal,
administrative or investigative. As of July 31, 1997, the amount of attorneys'
fees and expenses incurred in responding to the SEC's requests for information
in connection with the SEC Investigation totaled approximately $150,000.
In May 1997 the Company issued 100,000 stock options to Dr. Stephen Carter
with an exercise price of $5.20 per share as payment for his serving as Chairman
of the Scientific Advisory Board (the "SAB"). The vesting provisions of these
options were amended in August 1997. These options will vest as follows provided
Dr. Carter is then serving as Chairman of the SAB at the time of vesting, 10,000
vest immediately, 10,000 vest after one full calendar year, 10,000 vest annually
for each of the following three years and 50,000 vest on May 13, 2002. The
vesting of the 50,000 options which vest in May 2002 may be accelerated upon the
occurrence of the following events: 25,000 options upon the good faith
determination by the Company's Board of Directors that a substantive
collaborative agreement with a major biopharmaceutical company was a result of
Dr. Carter's efforts and 25,000 options upon the good
15
faith determination by the Company's Board of Directors that Dr. Carter made a
material contribution towards the approval by the United States Food and Drug
Administration of a New Drug Application for the marketing of ONCONASE in the
United States.
PROPOSAL NO. 2 - 1997 STOCK OPTION PLAN
The Board of Directors (the "Board") of the Company recognizes that the
Company experiences intense competition from other companies for talented
managers and employees and that the ultimate success of the Company depends upon
its ability to attract and retain high caliber employees, officers and
directors. The Compensation Committee of the Board (the "Committee") has
determined that one of the most effective means to compete for such personnel is
through the issuance of stock options. The Committee does not believe the
Company is in a position to offer the type of retirement packages normally
offered by larger corporations and thus has used the Company's 1993 Stock Option
Plan (the "1993 Plan") and now intends to also use the 1997 Stock Option Plan
(the "1997 Plan") to advance this compensation philosophy.
Under the 1993 Plan, the Company reserved 3,000,000 shares for issuance. Of
such 3,000,000 shares, as of October 10, 1997 a total of 2,504,702 shares are
subject to outstanding stock options, 40,000 shares have been issued pursuant to
the exercise of options granted and 455,298 shares are available for future
option grants. Due to the relatively few shares remaining under the 1993 Plan,
the Board determined to create a new plan designed to meet the Company's
compensation needs. The 1997 Plan was approved by the Board on May 22, 1997. The
following is a summary of the relevant terms of the 1997 Plan and is qualified
in its entirety by the text of the 1997 Plan attached to this proxy statement as
Appendix A.
1997 STOCK OPTION PLAN
The 1997 Plan reserves a total of 2,000,000 shares for option grants. If
approved by the shareholders, the 1997 Plan will terminate ten years from May
22, 1997 or May 22, 2007. Options may be granted under the 1997 Plan to any
persons who are employees, consultants, advisors, or directors of the Company.
The Plan is to be administered by the full Board or the Committee, which may
make discretionary grants to persons meeting the eligibility criteria. The 1997
Plan also provides for formula grants to independent directors.
Options granted under the 1997 Plan are nonqualified options. The selection
of participants, allotment of shares, determination of price and other
conditions of purchase of such options will be determined by the Board or
Committee, in their sole discretion. The exercise price of discretionary options
shall be at least equal to the fair market value of the Common Stock on the date
of grant. Options constituting discretionary grants generally vest in increments
of 20% per year beginning one year after grant date, until fully vested. The
Board or Committee can exercise its discretion to provide an alternate vesting
schedule, but in no event may options granted under the 1997 Plan be exercised
sooner than six months from the date of grant, provided, however, that in the
event of a merger or consolidation of the Company in which the Company is not
the surviving entity or a dissolution or liquidation of the Company, all options
shall become immediately exercisable. Once vested with respect to any portion of
an option grant, an option holder may exercise the options for a period of five
years. The Board or the Committee may, in their discretion, extend the exercise
period, but in no event will an option granted under the 1997 Plan expire more
than ten years after the date of grant.
16
Under the 1997 Plan, each independent director receives a formula grant of
options to purchase 15,000 shares per year, provided the director serves
continuously on the Board for an entire calendar year. Formula grants will be
made on December 31 of each year. During the year in which a director is
initially elected to the Board, the director is eligible for a pro rata grant of
options to purchase 1,250 shares for each full month remaining in the calendar
year for which the independent director initially serves. Formula grants of
options vest in their entirety on December 30 of the year following the grant,
provided the director has served continuously on the Board during the preceding
year. The exercise price of formula options must equal 100% of the fair market
value of the Common Stock on the date of grant and in no event may be granted at
less than the par value of the Common Stock.
Options granted under the 1997 Plan are nontransferable other than to
immediate family members, by the laws of descent and distribution or pursuant to
a qualified domestic relations order as defined under the Internal Revenue Code
of 1986.
When an option holder ceases to be employed by the Company or to serve as a
director, the option holder loses the unvested portion of the options previously
granted. Thereafter, on the 190th day following the termination of employment,
the entire option terminates. The Board or the Committee may, however, waive or
modify this provision. Notwithstanding this provision, the Board or Committee
has discretion to terminate the options of any option holder who engages in
activities contrary to the best interests of the Company. In the event that the
employee ceases to be employed by the Company due to death or disability, the
option holder's executors, administrators, legatees, heirs or estate shall have
the right to exercise the option under the same conditions under which the
option holder would have been able to exercise the options. Subject to
compliance with applicable laws and regulations and the consent of holders of
outstanding options, the Board can amend the 1997 Plan.
Tax Consequences
An optionee will not recognize taxable income for Federal income tax
purposes upon the receipt of an option under the 1997 Plan, and the Company will
not be entitled to a deduction upon the grant of an option. Upon exercise of an
option, the optionee will recognize ordinary income equal to the excess of the
fair market value on the date of exercise of the Common Stock received upon
exercise over the exercise price for such Common Stock. However, any such
optionee who is subject to the trading restrictions of Section 16(b) of the
Exchange Act would, unless the optionee elected to recognize ordinary income on
the date of exercise, recognize ordinary income on the date such trading
restrictions terminate (the "Deferred Date"). The amount of such income would
equal the excess of the fair market value on the Deferred Date of the Common
Stock received upon exercise of the option over the exercise price for such
Common Stock, and the holding period for long-term capital gain treatment would
not begin until the Deferred Date. The Company will be entitled to a deduction
equal to the amount of ordinary income recognized by any optionee at the same
time that such optionee recognized such income.
The Board of Directors recommends a vote FOR approval of the 1997 Stock
Option Plan (Proposal No. 2 on the Proxy Card.)
17
PROPOSAL NO. 3 - APPROVAL OF
PROPOSED AMENDMENT TO THE COMPANY'S CERTIFICATE
OF INCORPORATION TO INCREASE AUTHORIZED COMMON STOCK
At present the Company is authorized to issue 25,000,000 shares of Common
Stock, $.001 par value per share and 1,000,000 shares of Preferred Stock, $.01
par value per share. As of October 10, 1997, there were no shares of Preferred
Stock outstanding. Also as of that date, there were 14,847,793 shares of Common
Stock outstanding and 3,917,213 shares reserved for issuance pursuant to various
outstanding options to purchase Common Stock, 455,298 shares reserved for
additional options which may be granted under the 1993 Stock Option Plan,
1,882,500 shares reserved for additional options which may be granted under the
1997 stock option plan and 698,251 shares reserved pursuant to outstanding
warrants to purchase Common Stock. Thus, as of October 10, 1997, 3,198,945
shares of Common Stock were available for issuance.
The Board of Directors believes that it is in the best interest of the
Company to increase the authorized number of shares of Common Stock from
25,000,000 to 40,000,000. The Company may need to issue additional Common Stock
to obtain additional financing, implement additional management or employee
incentive programs or consummate strategic acquisitions, technology or product
licensing agreements. On October 31, 1997, the Board of Directors voted to
submit to a vote of stockholders an amendment to the Certificate of
Incorporation increasing the authorized Common Stock. Although the Company is
pursuing potential financing, the Company has no present agreement or commitment
to issue any of the additional shares provided for in this Proposal.
If this Proposal is approved, the additional authorized Common Stock as
well as the currently authorized but unissued Common Stock, would be available
for issuance in the future for such corporate purposes as the Board of Directors
deems advisable from time to time without further action by the stockholders,
unless such action is required by applicable law or by the rules of NASDAQ or of
any stock exchange upon which the Company's shares may then be listed.
The Company's Common Stock is currently quoted on the NASDAQ SmallCap
market. One of the non-quantitative maintenance criteria recently approved for
NASDAQ securities and which becomes applicable to the Company on February 23,
1998 requires stockholder approval for the establishment of certain plans or
arrangements by the Company or the issuance of designated securities by the
Company. This criteria provides that, for so long as the Company's Common Stock
is included in the NASDAQ SmallCap market, stockholder approval will be required
for (i) the establishment of a stock option or purchase plan or other
arrangement made pursuant to which stock may be acquired by officers or
directors, except for warrants or rights issued generally to security holders of
the Company or broadly based plans or arrangements including other employees,
and certain de minimus issuances thereunder or issuances to induce individuals
to enter employment contracts; (ii) the issuance of securities which will result
in a change of control of the issuer; (iii) the issuance of securities in
connection with the acquisition of the stock or assets of another company (a) if
any director, officer or substantial stockholder of the Company has a 5% or
greater interest (or such persons collectively have a 10% or greater interest),
directly or indirectly, in the company or assets to be acquired or in the
consideration to be paid in the transaction or series of related transactions
and the present or potential issuance of Common Stock or securities convertible
into or exercisable for Common Stock, could result in an increase in outstanding
Common Shares or voting power of 5% or more, or (b) where the present or
potential issuance of Common Stock, or securities convertible into or
exercisable for Common Stock, other than a public offering for cash, if the
Common Stock has, or will have upon issuance, voting power equal to or in excess
of 20% of the voting power outstanding before the issuance of stock or
securities convertible into
18
or exercisable for Common Stock, or the number of shares of Common Stock to be
issued is or will be equal to or in excess of 20% of the number of shares of
Common Stock outstanding before the issuance of stock or securities; or (iv) in
connection with a transaction, other than a public offering, involving (x) the
sale or issuance of Common Stock, or securities convertible into or exercisable
for Common Stock, at a price less than the greater of book or market value,
which together with sales by officers, directors or substantial stockholders of
the Company equals 20% or more of the Common Stock or 20% or more of the voting
power outstanding before the issuance, or (y) the sale or issuance by the
Company of the Common Stock (or securities convertible into or exercisable for
Common Stock) equals 20% or more of the Common Stock or 20% or more of the
voting power outstanding before the issuance for less than the greater of book
or market value of the stock.
The additional authorized shares of Common Stock resulting from this
Proposal would be the same as the existing shares of Common Stock. All
outstanding Common Stock would continue to have one vote per share. Stockholders
of the Company do not presently have preemptive rights nor will they as a result
of the Proposal.
Authorized shares of Common Stock in excess of those shares outstanding
(including, if authorized, the additional Common Stock provided for in this
Proposal) will remain available for general corporate purposes, may be privately
placed and can be used to make a change in control of the Company more
difficult. Under certain circumstances, the Board of Directors could create
impediments to, or frustrate persons seeking to effect a takeover or transfer in
control of the Company by causing such shares to be issued to a holder or
holders who might side with the Board of Directors in opposing a takeover bid
that the Board of Directors determines is not in the best interests of the
Company and its stockholders, but in which unaffiliated stockholders may wish to
participate. The existence of such shares might have the effect of discouraging
any attempt by a person, through the acquisition of a substantial number of
shares of Common Stock, to acquire control of the Company, since the issuance of
such shares could dilute the Company's book value per share and the Common Stock
ownership of such person. One of the effects of the Proposal, if approved, might
be to render the accomplishment of a tender offer more difficult. This may be
beneficial to management in a hostile tender offer, thus having an adverse
impact on stockholders who may want to participate in such tender offer.
It should be noted that subject to the limitations discussed above, all of
the types of Board action described in the preceding paragraph can currently be
taken and that the power of the Board of Directors to take such actions would
not be enhanced by the Proposal, although the Proposal would increase the number
of shares of Common Stock that are subject to such action.
This Proposal and the Company's authorized but unissued Preferred Stock may
generally be classified as "anti-takeover" measures and may each, or in
conjunction with each other, discourage attempted takeovers of the Company which
are not approved by the Board of Directors. The Company does not believe that
any other provision of its current Certificate of Incorporation or By-Laws are
intended or would have the effect of discouraging or making more difficult the
acquisition of control of the Company.
If the proposal is approved and the Amendment becomes effective, the first
sentence of Article 4 of the Company's Certificate of Incorporation, which sets
forth the Company's presently authorized capital stock will be amended to read
in its entirety as follows:
19
"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."
The Board of Directors recommends a vote FOR approval of an amendment to
the Company's Certificate of Incorporation to increase the authorized shares of
Common Stock from 25,000,000 to 40,000,000 (Proposal No. 3 on the proxy card).
PROPOSAL NO. 4 - RATIFICATION OF AUDITORS
On October 31, 1997, the board of directors approved the retention of KPMG
Peat Marwick LLP ("KPMG"), independent certified public accountants, to audit
the consolidated financial statements of the Company for the fiscal year ending
July 31, 1998. KPMG has served as auditor of the financial statements of the
Company for each of the fiscal years since and including, the fiscal year ended
July 31, 1993. Representatives of KPMG are expected to be present at the Annual
Meeting and will have the opportunity to make a statement should they desire to
do so. Such representatives are also expected to be available to respond to
questions.
The Board of Directors recommends a vote FOR ratification of the selection
of KPMG Peat Marwick LLP, independent certified public accountants, to audit the
financial statements of the Company for the fiscal year ending July 31, 1998
(Proposal No. 4 on the Proxy Card).
ANNUAL REPORT TO STOCKHOLDERS
The Company's Annual Report to Stockholders for the fiscal year ended July
31, 1997 accompanies this Proxy Statement.
STOCKHOLDERS' PROPOSAL
It is anticipated that the Company's fiscal 1998 Annual Meeting of
Stockholders will be held on or about November 19, 1998. Stockholders who intend
to present proposals at such Annual Meeting of Stockholders must submit their
proposals to the Secretary of the Company on or before July 14, 1998.
GENERAL
The cost of soliciting proxies will be borne by the Company. In addition to
the use of mails, proxies may be solicited by personal interview, telephone and
telegraph, and by directors, officers and regular employees of the Company,
without special compensation therefor. The Company expects to reimburse banks,
brokers and other persons for their reasonable out-of pocket expenses in
handling proxy materials for beneficial owners of the Company's Common Stock.
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Unless contrary instructions are indicated on the proxy card, all Common
Shares represented by valid proxies received pursuant to this solicitation (and
not revoked before they are voted) will be voted FOR the election of the
nominees for directors named herein and FOR Proposals Nos. 2, 3 and 4.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by filing with
the Secretary of the Company written notice of revocation bearing a later date
than the proxy, by duly executing a subsequent proxy relating to the same Common
Shares or by attending the Annual Meeting and voting in person. Attendance at
the Annual Meeting will not in and of itself constitute revocation of a proxy
unless the stockholder votes his or her Common Shares in person at the Annual
Meeting. Any notice revoking a proxy should be sent to the Company, at 225
Belleville Avenue, Bloomfield, New Jersey 07003 Attention: Gail E. Fraser,
Secretary.
The board of directors knows of no business other than that set forth above
to be transacted at the meeting, but if other matters requiring a vote of the
stockholders arise, the persons designated as proxies will vote the Common
Shares represented by the proxies in accordance with their judgment on such
matters. If a stockholder specifies a different choice on the proxy, his or her
Common Shares will be voted in accordance with the specification so made.
Please complete, sign and date the enclosed proxy card, which is revocable
as described herein, and mail it promptly in the enclosed postage-paid envelope.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. WE URGE YOU TO FILL IN,
SIGN AND RETURN THE ACCOMPANYING PROXY CARD, NO MATTER HOW LARGE OR SMALL YOUR
HOLDINGS MAY BE.
By order of the board of directors,
Gail E. Fraser, Secretary
Bloomfield, New Jersey
November 17, 1997
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Proxy Card
Alfacell Corporation
Annual Meeting of Stockholders December 9, 1997
This Proxy Is Solicited on Behalf of the Board of Directors
Kuslima Shogen and Gail E. Fraser and each of them, as proxies, with full
power of substitution in each of them, are hereby authorized to represent and to
vote, as designated below and on the reverse side, on all proposals and in the
direction of the proxies on such other matters as may properly come before the
annual meeting of stockholders of Alfacell Corporation (the "Company") to be
held on December 9, 1997 or any adjournment(s), postponement(s), or other
delay(s) thereof (the "Annual Meeting"), all shares of stock of the Company to
which the undersigned is entitled to vote at the Annual Meeting.
UNLESS OTHERWISE DIRECTED, THIS PROXY WILL BE VOTED "FOR" PROPOSALS 1, 2, 3
and 4 AND WILL BE VOTED IN THE DISCRETION OF THE PROXIES ON SUCH OTHER MATTERS
AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING. THE BOARD OF DIRECTORS
RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" PROPOSALS 1, 2, 3 and 4.
(1) Election of the following nominees as Directors to serve in such capacities
until their successors are duly elected and qualified:
Kuslima Shogen Gail E. Fraser Stanislaw M. Mikulski, M.D.
Stephen K. Carter, M.D. Donald R. Conklin Martin F. Stadler
(Authority to vote for any nominee(s) may be withheld by lining through the
name(s) of any such nominee(s).)
/ / FOR all nominees / / WITHHOLD authority for all
(2) Proposal to approve the Company's 1997 Stock Option Plan.
/ / FOR / / AGAINST / / ABSTAIN
(3) Proposal to amend to Company's Certificate of Incorporation to increase the
number of authorized shares from twenty-five million (25,000,000) to forty
million (40,000,000).
/ / FOR / / AGAINST / / ABSTAIN
(4) Ratification of the selection of KPMG Peat Marwick LLP to audit the
consolidated financial statements of the Company for the fiscal year ending July
31, 1998.
/ / FOR / / AGAINST / / ABSTAIN
/ / Please check this box if you expect to attend the Annual Meeting in person.
(Please sign exactly as name appears to the left, date and return. If
shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustees or guardian, please give
full title as such. If a corporation, please sign in full corporate
name by president or other authorized officer. If a partnership,
please sign in partnership name by authorized person.)
Date:
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Sign Here
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Signature (if held jointly)
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Capacity (Title or Authority, i.e. Executor, Trustee)
PLEASE SIGN, DATE AND MAIL YOUR PROXY TODAY.