SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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 Under Rule 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)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------------
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):
--------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------
5) Total fee paid:
--------------------------------------------------------------------------
|_| 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:
--------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------------
3) Filing Party:
--------------------------------------------------------------------
4) Date Filed:
--------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 14, 2004
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 Newark Liberty International Airport Marriott
Hotel, Newark International Airport, Newark, New Jersey 07114 on Wednesday,
January 14, 2004 at 2:00 p.m. local time, for the following purposes:
1. To elect five directors, each for a term of one year (Proposal
No.1);
2. To approve an amendment to Alfacell's Certificate of Incorporation
to increase the number of authorized shares of Common Stock from
40,000,000 shares to 100,000,000 shares (Proposal No. 2);
3. To ratify the appointment of J.H. Cohn LLP, independent public
accountants, to audit the financial statements of the Company for
the fiscal year ending July 31, 2004 (Proposal No. 3);
4. To approve the Company's 2004 Stock Incentive Plan (Proposal No. 4);
and
5. To transact such other matters as may properly come before the
Annual Meeting or any adjournment thereof.
Only stockholders of record of the Company's Common Stock, par value $.001
per share (the "Common Stock"), at the close of business on November 24, 2003
are entitled to vote at the Annual Meeting or at any postponement or
adjournment.
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,
--------------------------------------------------
Kuslima Shogen
Chief Executive Officer, Chairman of the Board and
Acting Chief Financial Officer
December 11, 2003
TABLE OF CONTENTS
Page
----
PROXY STATEMENT................................................................3
ABOUT THE MEETING..............................................................3
What is the purpose of the Annual Meeting?..................................3
Who is entitled to vote?....................................................3
Who can attend the meeting?.................................................3
What constitutes a quorum?..................................................3
How do I vote?..............................................................4
Can I vote by telephone or electronically?..................................4
Can I change my vote after I return my proxy card?..........................4
What are the Board's recommendations?.......................................4
What vote is required to approve each item?.................................4
STOCK OWNERSHIP................................................................5
Who are the largest owners of Alfacell's stock?.............................5
How much stock do Alfacell's directors and executive officers own?..........6
Section 16(a) beneficial ownership reporting compliance.....................7
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS........................................7
Nominees standing for election to the Board.................................8
Business experience of nominees to the Board................................8
Board recommendation and stockholder vote required..........................9
How often did the Board meet during 2003?...................................9
How are directors compensated?..............................................9
DIRECTORS' STOCK OPTIONS......................................................10
BOARD COMMITTEE MEMBERSHIP....................................................10
What committees has the Board established?.................................10
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS.......................12
PRINCIPAL ACCOUNTANT FEES AND SERVICES........................................13
SUMMARY COMPENSATION TABLE....................................................14
OPTION GRANTS IN LAST FISCAL YEAR.............................................15
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUES........................................................15
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION...................16
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS................16
Chief Executive Officer's Compensation.....................................16
STOCKHOLDER RETURN PERFORMANCE GRAPH..........................................17
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................18
i
PROPOSAL NO. 2 -- APPROVAL OF AN AMENDMENT TO THE CERTIFICATE OF
INCORPORATION TO INCREASE AUTHORIZED COMMON STOCK.............................18
Summary....................................................................18
Purpose of the proposed amendment..........................................18
Certain financing transactions.............................................18
Effect of amendment........................................................19
Board recommendation and stockholder vote required.........................20
PROPOSAL NO. 3 -- RATIFICATION OF AUDITORS....................................20
Board recommendation and stockholder vote required.........................20
PROPOSAL NO. 4 -- APPROVAL OF THE 2004 STOCK INCENTIVE PLAN...................21
EQUITY COMPENSATION PLAN INFORMATION..........................................21
OPTION PLAN BENEFITS GRANTED IN FISCAL 2003...................................22
THE 2004 STOCK INCENTIVE PLAN.................................................22
General....................................................................22
Summary of Current Stock Plan..............................................22
Federal Tax Consequences...................................................25
Board recommendation and stockholder vote required.........................26
CODE OF ETHICS................................................................26
ANNUAL REPORT TO STOCKHOLDERS AND INCORPORATION OF DOCUMENTS BY REFERENCE.....27
STOCKHOLDERS' PROPOSALS.......................................................27
GENERAL.......................................................................27
OTHER MATTERS.................................................................27
ALFACELL CORPORATION PROXY....................................................28
EXHIBIT A.....................................................................30
EXHIBIT B.....................................................................34
ii
Alfacell Corporation
225 Belleville Avenue
Bloomfield, New Jersey 07003
-------------------
PROXY STATEMENT
-------------------
This proxy statement contains information related to the Annual Meeting of
stockholders of Alfacell Corporation to be held on Wednesday, January 14, 2004,
beginning at 2:00 p.m., at the Newark Liberty International Airport Marriott
Hotel, Newark International Airport, Newark, New Jersey 07114 and at any
postponements or adjournments thereof. The approximate date of mailing for this
proxy statement and card as well as a copy of Alfacell's 2003 Annual Report is
December 11, 2003.
ABOUT THE MEETING
What is the purpose of the Annual Meeting?
At Alfacell's Annual Meeting, stockholders will act upon the matters
outlined in the accompanying notice of meeting, including:
o the election of directors;
o the approval of an amendment to the Certificate of Incorporation
increasing the number of authorized shares;
o the ratification of our independent auditors; and
o the approval of the Company's 2004 Stock Incentive Plan.
In addition, management will report on our performance during 2003 and
respond to questions from stockholders.
Who is entitled to vote?
Only stockholders of record at the close of business on the record date,
November 24, 2003, are entitled to receive notice of the Annual Meeting and to
vote the shares of Common Stock that they held on that date at the meeting, or
any postponement or adjournment of the meeting. Each outstanding share entitles
its holder to cast one vote on each matter to be voted upon. There are no
cumulative voting rights.
Who can attend the meeting?
All stockholders as of the record date, or their duly appointed proxies,
may attend the meeting. Cameras, recording devices and other electronic devices
will not be permitted at the meeting. Please note that if you hold your shares
in "street name" (that is, through a broker or other nominee), you will need to
bring a copy of a brokerage statement reflecting your stock ownership as of the
record date and check in at the registration desk at the meeting. Onsite parking
is available at the hotel for US$20.00 per day or US$6.00 per hour. Shuttle bus
is also available from the airport if arriving by plane.
What constitutes a quorum?
The presence at the meeting, in person or by proxy, of the holders of a
majority of the shares of Common Stock issued and outstanding and entitled to
vote on the record date, will constitute a quorum, permitting the meeting to
conduct its business. As of November 24, 2003, the record date, 28,248,658
shares of Alfacell's
3
Common Stock were outstanding. Proxies received but marked as abstentions and
broker non-votes will be included in the calculation of the number of shares
considered present at the meeting.
How do I vote?
If you complete and properly sign the accompanying proxy card and return
it to us, it will be voted as you direct. If you are a registered stockholder as
of the record date and attend the meeting, you may deliver your completed proxy
card in person. "Street name" stockholders who wish to vote at the meeting will
need to obtain a proxy card from the institution that holds their shares.
Can I vote by telephone or electronically?
No. We have not instituted any mechanism for telephone or electronic
voting. However, "street name" stockholders may be able to vote electronically
through their brokers. If so, instructions regarding electronic voting will be
provided by the broker as part of the package which includes this proxy
statement.
Can I change my vote after I return my proxy card?
Yes. Even after you have submitted your proxy, you may change your vote at
any time before the proxy is exercised by filing with Alfacell's Secretary
either a notice of revocation or a duly executed proxy bearing a later date. The
powers of the proxy holders will be suspended if you attend the meeting in
person and so request, although attendance at the meeting will not by itself
revoke a previously granted proxy.
What are the Board's recommendations?
Unless you give other instructions on your proxy card, the persons named
as proxy holders on the proxy card will vote in accordance with the
recommendations of the Board of Directors. The Board's recommendation is set
forth together with the description of each item in this proxy statement. In
summary, the Board recommends a vote:
o FOR election of the nominated slate of directors (see page 7);
o FOR approval of an amendment to the Certificate of Incorporation
(see page 18);
o FOR ratification of the appointment of J.H. Cohn LLP as Alfacell's
independent auditors (see page 20);
o FOR approval of the Company's 2004 Stock Incentive Plan (see page
21).
Pursuant to the provisions of Rule 14a-4(c) promulgated under the
Securities Exchange Act of 1934, with respect to any other matter that properly
comes before the meeting, the proxy holders will vote as recommended by the
Board of Directors or, if no recommendation is given, in their own discretion.
What vote is required to approve each item?
Election of directors. The affirmative vote of a plurality of the votes
cast at the meeting, represented in person or by proxy and entitled to vote, is
required for the election of directors.
Amendment to Certificate of Incorporation to increase the authorized
shares. The affirmative vote of at least a majority of the outstanding shares of
Common Stock, as of the record date, November 24, 2003, is required to amend the
Certificate of Incorporation and increase the number of authorized shares.
Other proposals. For each other proposal, the affirmative vote of the
holders of at least a majority of the shares represented in person or by proxy
at the meeting and entitled to vote on the proposal will be required for
approval.
4
Votes cast "FOR" a proposal constitute affirmative votes. A properly
executed proxy card marked "WITHHOLD" or "ABSTAIN" with respect to any such
matter will not be voted on such matter, although it will be counted for
purposes of determining whether there is a quorum and in determining the number
of shares necessary for approval of such matter. Accordingly, a "WITHHOLD" or
"ABSTAIN" will have the effect of a negative vote.
Broker non-votes. 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; however, with respect to proposals which require the
affirmative vote of a percentage of shares present at the Annual Meeting and
entitled to vote on such proposal for approval, such broker non-votes will be
treated as not present for purposes of determining the outcome of any such
matter. 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
negative votes or votes cast "AGAINST" such proposals.
STOCK OWNERSHIP
Who are the largest owners of Alfacell's stock?
The following table sets forth certain information as of October 31, 2003
concerning stock ownership of all persons known by the Company to own
beneficially 5% or more of the outstanding shares of the Company's voting stock.
Name and address of beneficial Aggregate number of shares Percent of shares
owner or identity of group beneficially owned outstanding)(1)
- ------------------------------------- -------------------------- -----------------
Michael A. Roth and Brian J. Stark(2) 1,704,546(3) 6.2%(4)
3600 South Lake Drive
St. Francis, WI 53235
Kuslima Shogen 1,858,065(5) 6.5%(6)
- ----------
(1) The percentage of stock outstanding for each stockholder is calculated by
dividing (i) the number of shares deemed to be beneficially held by such
stockholder as of the date of the calculation by (ii) the sum of (A) the
number of shares of Common Stock outstanding as of the date of the
calculation, plus (B) the number of shares issuable upon exercise of
options or warrants held by such stockholder which were exercisable as of
the date of the calculation or which will become exercisable within 60
days after the date of the calculation.
(2) Michael A. Roth and Brian J. Stark are the joint and indirect owners of
the aforementioned stock. They are the founding members and direct the
management of Staro Asset Management, L.L.C., a Wisconsin limited
liability company ("Staro"). Staro acts as investment manager and has sole
power to direct the management of SF Capital Partners, Ltd., a British
Virgin Islands company ("SF Capital"), which directly holds all of the
shares of Common Stock. Through Staro, Messrs. Roth and Stark possess sole
voting and dispositive power over all of the foregoing shares. This
information concerning the stock ownership of Messrs. Roth and Stark was
obtained from the Schedule 13G filed with the Securities and Exchange
Commission on September 15, 2003.
(3) This does not include 852,273 shares of Common Stock that are issuable to
the stockholders pursuant to certain outstanding warrants, because as of
September 15, 2003 such warrants were not exercisable nor will they
automatically become exercisable within 60 days after September 15, 2003.
(4) The date of calculation was September 15, 2003.
(5) As of October 31, 2003.
(6) The date of calculation was October 31, 2003.
5
How much stock do Alfacell's directors and executive officers own?
The table below shows the amount of Alfacell Common Stock beneficially
owned (unless otherwise indicated) by Alfacell's directors and executive
officers individually, and Alfacell's directors and executive officers as a
group. All information is as of October 31, 2003.
Aggregate number
of shares Percent of
Name and address of beneficial beneficially shares
owner or identity of group(1) Position owned(2) outstanding(3)
- --------------------------------- ------------------------------- ---------------- --------------
Kuslima Shogen Chief Executive Officer, 1,858,065(4) 6.5%
Chairman of the Board and
Acting Chief Financial Officer
Stanislaw Mikulski Executive Vice President, 624,531(5) 2.2%
Medical Director and Director
Stephen K. Carter, M.D. Director and Chairman of the 180,000(6) *
Scientific Advisory Board
Donald R. Conklin Director 455,500(7) 1.6%
Martin F. Stadler Director 450,000(8) 1.6%
Paul M. Weiss, Ph.D., MBA(9) Director 25,000(10) *
All executive officers and directors as a 3,593,096(11) 12.1%
group (6 persons)
- ----------
* Represents less than 1% of Alfacell's outstanding Common Stock.
(1) Unless otherwise indicated below, the persons in the above table have sole
voting and investment power with respect to all shares beneficially owned
by them. The address of all executive officers and directors is c/o
Alfacell Corporation, 225 Belleville Avenue, Bloomfield, New Jersey,
07003.
(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(1) under the Exchange Act, and the beneficial
owner has sole voting and investment power, subject to community property
law where applicable.
(3) The percentage of stock outstanding for each stockholder is calculated by
dividing (i) the number of shares deemed to be beneficially held by such
stockholder as of October 31, 2003 by (ii) the sum of (A) the number of
shares of Common Stock outstanding as of October 31, 2003 plus (B) the
number of shares issuable upon exercise of options or warrants held by
such stockholder which were exercisable as of October 31, 2003 or which
will become exercisable within 60 days after October 31, 2003.
6
(4) Includes 389,445 shares underlying options which are currently exercisable
or which will become exercisable within 60 days after October 31, 2003 and
110,000 shares underlying warrants which are currently exercisable or
which will become exercisable within 60 days after October 31, 2003.
(5) Stanislaw Mikulski resigned as the Company's Executive Vice President,
Medical Director and as a member of the Board of Directors effective as of
January 7, 2003. His beneficial ownership includes 263,281 shares
underlying options which were exercisable as of January 31, 2003 or which
became exercisable within 60 days after January 31, 2003. Of these
options, 124,000 were exercised and the balance have since been cancelled.
(6) Includes 180,000 shares underlying options which are currently exercisable
or which will become exercisable within 60 days after October 31, 2003.
(7) Includes 115,000 shares underlying options which are currently exercisable
or which will become exercisable within 60 days after October 31, 2003 and
110,000 shares underlying warrants which are currently exercisable or
which will become exercisable within 60 days after October 31, 2003.
(8) Includes 175,000 shares underlying options which are currently exercisable
or which will become exercisable within 60 days after October 31, 2003 and
110,000 shares underlying warrants which are currently exercisable or
which will become exercisable within 60 days after October 31, 2003.
(9) Dr. Weiss joined Alfacell's Board of Directors effective as of February 3,
2003.
(10) Dr. Weiss' beneficial ownership includes 12,500 shares underlying options
which are currently exercisable or which will become exercisable within 60
days after October 31, 2003.
(11) Includes all shares owned beneficially by the directors and the executive
officers named in the table.
Section 16(a) beneficial ownership reporting compliance
Based upon a review of filings with the Securities and Exchange Commission
and written representations that no other reports were required, we believe that
all of our directors and executive officers complied during 2003 with the
reporting requirements of Section 16(a) of the Securities Exchange Act of 1934,
as amended, with the exception of one set of transactions involving the grant of
options to our Independent Directors in December 2002 and one grant of options
to our CEO in October 2002. All such grants were reported one day late, except
for the report of one of the Independent Directors, which was reported one week
late. These late filings resulted from the new two day reporting requirement
promulgated by the Securities and Exchange Commission pursuant to the
Sarbanes-Oxley Act of 2002, and pursuant to which the Company has adopted a set
of procedures which has enabled the Company to be able to comply with this new
two day reporting requirement since January 2003.
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
Under Alfacell's By-laws, all directors elected by stockholders are
elected for a one-year term. Each of the nominees has consented to serve a
one-year term. If any of them should become unavailable to serve as a director,
the Board may designate a substitute nominee. In that case, the persons named as
proxies will vote for the substitute nominee designated by the Board.
Mr. Martin F. Stadler will not be standing for re-election to the Board of
Directors. Thus, on November 13, 2003, the Board adopted resolutions reducing
the number of directors to four, effective as of January 14, 2004, the date of
the Annual Meeting. The Board has found a qualified candidate to replace Mr.
Stadler in Mr. John P. Brancaccio, C.P.A. and has determined to nominate Mr.
Brancaccio to fill the vacancy left by Mr. Stadler on our Board. Prior to
January 14, 2004, the Board expects to adopt resolutions stating that upon our
stockholder's election of Mr. Brancaccio as a director of Alfacell, the number
of directors will be automatically increased to five. Accordingly, the Board has
nominated five persons to fill such positions.
7
Nominees standing for election to the Board
Current Position
Name Age Director Since With Company
- -------------------------- ----- -------------- ----------------------------------------
Kuslima Shogen 58 1981 Chief Executive Officer, Chairman of the
Board and Acting Chief Financial Officer
John P. Brancaccio, C.P.A. 55 -- Director Nominee
Stephen K. Carter, M.D. 65 1997 Director and Chairman of the Scientific
Advisory Board
Donald R. Conklin 67 1997 Director
Paul M. Weiss, Ph.D. 45 2003 Director
Business experience of nominees to the Board
Kuslima Shogen has served as our Chief Executive Officer since September
1986, as Chairman of the Board since August 1996, as a Director since our
inception and as Acting Chief Financial Officer since June 23, 1999. She also
served as our Chief Financial Officer from September 1986 through July 1994 and
as our 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 our founding, 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 University, or FDU, and
also completed graduate studies in 1978 in embryology. She is a Phi Beta Kappa
graduate.
John P. Brancaccio, C.P.A, is being nominated by the Board for election at
the January 14, 2004 annual stockholder meeting to replace Mr. Martin F. Stadler
who has decided to not stand for reelection. Mr. Brancaccio has been a financial
consultant to life sciences companies for the last two years, most recently
serving specific companies which are development stage and focusing on the
discovery and development of pharmaceutical and biopharmaceutical compounds and
technology platforms. For approximately one year preceding that time, he was the
President /Chief Operating Officer and a member of the Board of Directors for
Eline Group Entertainment, a publicly traded company in the entertainment and
media industry. Prior thereto, Mr. Brancaccio was the Chief Financial Officer
and Americas Area Controller for Zambon Group, a Milan, Italy based
multinational pharmaceutical company for eleven years. He is a Certified Public
Accountant in the State of New Jersey and a graduate of Seton Hall University.
Stephen K. Carter, M.D. joined the Board of Directors in May 1997 and
serves as Chairman of our Scientific Advisory Board. In addition to his
positions with us, 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 positions during a
nine-year tenure at the National Cancer Institute, 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 Cytogen Corporation, Vion Pharmaceuticals,
Achillion Pharmaceuticals and Sopherion 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 and
Executive Vice-President of Schering-Plough Corporation. 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
8
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 Ventiv Health, Inc.
Paul Weiss, Ph.D., MBA, was appointed to our Board of Directors on
February 3, 2003. Dr. Weiss is President of Gala Design, a wholly-owned
subsidiary of Cardinal Health. He had served as a director on Gala's Board from
1998 to 2001, when he joined the management team as Senior Vice President of
Business Development. Prior to joining Gala Design, Dr. Weiss was Vice President
of Technology and Product Licensing at 3-Dimensional Pharmaceuticals from 1998
to 2001. Prior to joining 3-Dimensional Pharmaceuticals, Dr. Weiss was Director
of Licensing for Wyeth-Ayerst Laboratories, a division of Wyeth Pharmaceuticals.
Dr. Weiss holds a Ph.D. in Biochemistry and an MBA from the University of
Wisconsin-Madison and a B.Sc. in Biochemistry from Carleton University Institute
of Biochemistry in Ottawa, Ontario.
Board recommendation and stockholder vote required
The Board of Directors recommends a vote FOR the election of each of the
nominees named above. (Proposal No. 1 on the proxy card). The affirmative vote
of a plurality of the votes represented in person or by proxy and entitled to
vote, cast at the meeting is required for the election of directors.
How often did the Board meet during 2003?
The Board of Directors met twice during 2003. Each director attended at
least 75% of the total number of meetings of the Board and committees on which
he or she served.
How are directors compensated?
Directors receive no cash compensation in consideration for their serving
on the Board of Directors.
In May 1997 and in December 1997, the Board of Directors and the
stockholders, respectively, approved our 1997 Stock Option Plan, which, among
other things, provides for automatic grants of options under a formula to
non-employee directors or 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 our Common Stock, or the
regular grant; and (ii) on the date of each independent director's initial
election to the Board of Directors, the newly elected independent director
automatically receives an option to purchase the 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, or the pro rata grant.
Each option granted pursuant to a regular grant and a pro rata grant vests and
becomes exercisable on December 30th following the date of grant. An option will
not become exercisable as to any shares unless the 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 the
independent director joined the Board until the date on which the options are
scheduled to vest and become exercisable. However, if an independent director
does not fulfill such continuous service requirement due to the independent
director's death or disability all options held by the 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 equal to the average of the high and low
trade prices of our Common Stock for the twenty (20) trading days preceding the
date of grant.
9
DIRECTORS' STOCK OPTIONS
During the fiscal year ended July 31, 2003, the following independent
directors listed below were granted options under Alfacell's 1997 Stock Option
Plan, pursuant to the formula set forth above. The exercise prices of the
options are equal to the formula set forth above.
Number of
Name Options(1) Exercise Price
- ------------------------ ---------- --------------
Stephen K. Carter 15,000 $0.39
Donald R. Conklin 15,000 $0.39
Martin F. Stadler 15,000 $0.39
Paul M. Weiss 12,500 $0.71
- ----------
(1) All of the options listed here were granted on December 30, 2002, except
for the 12,500 options which were granted to Dr. Weiss on February 3,
2003, vest on December 30, 2003 and expire on December 30, 2008.
BOARD COMMITTEE MEMBERSHIP
What committees has the Board established?
The Board of Directors has standing Compensation and Audit Committees. The
membership of the standing committees during the fiscal year ended July 31,
2003, is set forth in the following table.
Compensation Audit
Name Committee Committee
------------------------------------ ------------ ---------
Stephen K. Carter, M.D.............. *
Donald R. Conklin................... ** *
Martin F. Stadler................... * **
Paul M. Weiss, Ph.D., MBA(1) * *
- ----------
* Member
** Chair
(1) Appointed as a member effective as of November 10, 2003.
Compensation Committee. The Compensation Committee is charged with:
o administering the 1993 Stock Option Plan and the 1997 Stock Option
Plan;
o establishing salaries and bonuses for officers and senior
management; and
o reviewing the compensation policy for all of Alfacell's employees.
In 2003, the Compensation Committee met once.
Audit Committee. As of April 28, 1999, Alfacell's Common Stock trades on
the OTC Bulletin Board under the symbol "ACEL". Thus, Alfacell is no longer
subject to Nasdaq audit committee requirements.
10
During the fiscal year ended July 31, 2003, Alfacell's Audit Committee was
composed of two directors, Messrs. Conklin and Stadler, both of whom were
considered "independent directors," as independence is defined in Rule
4200(a)(15) of the National Association of Securities Dealers listing standards.
In fiscal 2003, the Audit Committee met twice.
On November 9, 2003, the Board of Directors adopted Alfacell Corporation's
Audit Committee Charter, which is attached hereto as Exhibit A. According to the
Charter, the Audit Committee shall be comprised of at least three directors,
each of whom shall meet the independence requirements of the Nasdaq National
Market and Section 10A(m)(3) of the Securities Exchange Act of 1934 (the
"Exchange Act"), as amended, and each of whom shall not have participated in the
preparation of the financial statements of the Company at any time during the
past three years.
The Charter describes the primary functions of the Audit Committee as
follows:
o reviewing with management and the independent auditor the effect of
regulatory and accounting initiatives as well as off-balance sheet
structures on the Company's financial statements;
o recommending to the Board the appointment of the independent
auditor, which firm is ultimately accountable to the Audit Committee
and the Board;
o approving the fees to be paid to the independent auditor;
o reviewing the experience and qualifications of the senior members of
the independent auditor team and the quality control procedures of
the independent auditor. Reviewing the experience and qualifications
of the Company's senior finance executives;
o pre-approving all audit services and permitted non-audit services to
be performed by the independent auditor and establishing policies
and procedures for the engagement of the independent auditor to
provide permitted non-audit services;
o conducting annual reviews and assessments of the adequacy of the
Charter and the continued independence of the independent auditor
and recommend any proposed changes to the Board for approval;
o reviewing all related-party transactions for potential conflict of
interest situations and approve such related-party transactions;
o establishing policies for the hiring of employees and former
employees of the independent auditor;
o establishing procedures for the confidential and anonymous receipt,
retention and treatment of complaints regarding the Company's
accounting, internal controls and auditing matters; and
o reporting to the Board on such matters.
11
REPORT OF THE AUDIT
COMMITTEE OF THE BOARD OF DIRECTORS
As of July 31, 2003, the Audit Committee of Alfacell's Board of Directors
was composed of Martin F. Stadler and Donald R. Conklin, both of whom were
non-employee directors. Both members of the Audit Committee were independent as
independence is defined in Rule 4200(a)(15) of the National Association of
Securities Dealers listing standards. Mr. Stadler qualifies as an audit
committee financial expert as defined by Item 401(h) of Regulation S-K of the
Securities and Exchange Act of 1934, as amended, however, Mr. Stadler is not
standing for re-election to the Board of Directors. However, Mr. John P.
Brancaccio, C.P.A. qualifies as an audit committee financial expert as defined
by Item 401(h) of Regulation S-K of the Securities and Exchange Act of 1934, as
amended and therefore, effective as of January 14, 2004, upon Mr. Brancaccio's
election to our Board of Directors, he will serve as our audit committee
financial expert. In addition, Dr. Paul M. Weiss was appointed to our Audit
Committee on November 9, 2003. We are confident that the present members of the
Audit Committee possess the requisite financial expertise to handle the
responsibilities set forth in our Audit Committee Charter.
On November 9, 2003, the Board of Directors adopted a written charter,
which is attached hereto as Exhibit A. Such charter requires the Company to meet
the rules and regulations of the Securities and Exchange Commission and the
Sarbanes-Oxley Act of 2002. The members of the Audit Committee meet current
audit committee requirements, and with Mr. Brancaccio's election to our Board of
Directors on January 14, 2004, replacing Mr. Stadler as our audit committee
financial expert, we will continue to meet all current audit committee
requirements. The Audit Committee is charged with the responsibility of
selecting and appointing the independent accountants and has chosen to have the
selection ratified by stockholders.
Management is responsible for Alfacell's internal controls and the
financial reporting process. Alfacell's independent accountants are responsible
for performing an independent audit of Alfacell's consolidated financial
statements in accordance with generally accepted auditing standards and to issue
a report on Alfacell's financial statements. The Audit Committee's
responsibility is to monitor and oversee these processes.
In this context, the Audit Committee has reviewed and discussed the
consolidated financial statements with management and the independent
accountants. Management represented to the Audit Committee that Alfacell's
consolidated financial statements were prepared in accordance with generally
accepted accounting principles generally accepted in the United States. The
Audit Committee discussed with the independent accountants matters required to
be discussed by Statement on Auditing Standards No. 61, Communications with
Audit Committees, as amended.
Alfacell's independent accountants also provided and discussed with the
Audit Committee the written disclosure required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees). The Audit
Committee also reviewed and discussed with the independent accountants the
accounting firm's independence. The Audit Committee found that the non-audit
services, as described on page [13] under "Audit-Related Fees," "Tax Fees," and
"All Other Fees" provided by the independent accountants during the year ended
July 31, 2003 were compatible with maintaining the independent accountants'
independence.
Based upon the Audit Committee's discussion with management and the
independent accountants and the Audit Committee's review of the representation
of management and the report of the independent accountants to the Audit
Committee, the Audit Committee recommended to the Board of Directors that the
audited consolidated financial statements be included in Alfacell's Annual
Report on Form 10-K for the year ended July 31, 2003 filed with the Securities
and Exchange Commission on October 29, 2003.
MEMBERS OF THE AUDIT COMMITTEE
Martin F. Stadler, Chairman
Donald R. Conklin
12
PRINCIPAL ACCOUNTANT FEES AND SERVICES
In accordance with the requirements of the Sarbanes-Oxley Act of 2002 (the
"Act") and the Audit Committee's charter, all audit and audit-related work and
all non-audit work performed by the independent accountants, KPMG Peat Marwick
LLP ("KPMG LLP") and J.H. Cohn LLP, is approved in advance by the Audit
Committee, including the proposed fees for such work. The Audit Committee is
informed of each service actually rendered that was approved through its
pre-approval process.
Audit fees
Audit fees billed or expected to be billed to Alfacell by KPMG LLP and
J.H. Cohn LLP for the audit of the financial statements included in Alfacell's
Annual Report on Form 10-K, reviews of the financial statements included in
Alfacell's Quarterly Reports on Form 10-Q, work related to Alfacell's
registration statements and consultation on accounting topics for the years
ended July 31, 2003 and July 31, 2002 totaled approximately $50,926 (includes
$8,000 paid to KPMG LLP) and $43,850, respectively.
Audit-related fees
None.
Tax fees
The aggregate fees billed by KPMG LLP for tax services for the year ended
July 31, 2002 were $8,850. The fees primarily relate to the preparation of
income tax returns, tax advice and planning services related to income tax
returns.
All other fees
None.
13
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, 2003, 2002 and 2001 with
respect to the person serving as Alfacell's Chief Executive Officer during the
year ended July 31, 2003, and Alfacell's only executive officer whose annual
salary and bonus during the year ended July 31, 2003 exceeded $100,000
(collectively, the "Named Officers").
Long-Term
Annual Compensation Compensation
---------------------------------------- ------------
Other
Annual Securities All Other
Compensation Underlying Compensation
Name and Principal Position Year Salary ($) Bonus ($) ($)(1) Options (#) ($)(2)
- --------------------------- ---- ---------- --------- ------------ ----------- ------------
Kuslima Shogen 2003 $150,000(3) 0 0 115,000 $2,077
Chief Executive Officer, Chairman
of the Board of Directors and 2002 $150,000 0 0 115,000 $4,154
Acting Chief Financial Officer 2001 $150,000 0 0 115,000(4) $4,154
Stanislaw Mikulski(5) 2003 $ 55,000(5) 0 0 50,000(6) 0
Executive Vice President and
Medical Director 2002 $130,000(5) 0 0 50,000(6) $2,100
2001 $130,000 0 0 55,000(6) $3,900
------
- ----------
(1) Excludes perquisites and other personal benefits that in the aggregate do
not exceed the lesser of $50,000 or 10% of the Named Officer's total
annual salary and bonus.
(2) Consist of Alfacell's annual contributions to a 401(k) plan.
(3) Includes $80,780 of unpaid gross salary for Ms. Shogen.
(4) Of these options, 23,000 were exercised in March 2001 and the balance
remains outstanding.
(5) Stanislaw Mikulski resigned as the Company's Executive Vice President,
Medical Director and as a member of the Board of Directors effective as of
January 7, 2003. His unpaid gross salary for calendar year 2002 has been
paid in full as of September 30, 2003.
(6) Of these options, an aggregate of 74,000 shares were exercised in June
2003 and July 2003 and the balance either expired or were cancelled.
14
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options to the Named Officers during the fiscal year ended July 31, 2003:
Individual Grants
-----------------------------------------------------------
Number of % of Total Potential Realizable Value at
Securities Options Assumed Annual Rates of Stock
Underlying Granted to Exercise or Price Appreciation for Option Term (2)
Options Employees in Base Price Expiration ---------------------------------------
Name Granted (#) Fiscal Year ($/Share)(1) Date 0%($) 5%($) 10%($)
- ------------------------------------------------------------------------------------------------------------------------------
Kuslima Shogen 115,000(3) 31.08% $.26 (3) -- $ 1,150 $ 3,450
- ------------------------------------------------------------------------------------------------------------------------------
Stanislaw Mikulski 50,000(3)(4) 13.51% $.26 (3) -- $ 500 $ 1,500
- ----------
(1) The exercise price of these options was based on the average of the high
and low trade prices of our Common Stock for the twenty trading days
preceding the date of grant.
(2) The amounts set forth in the three columns represent hypothetical gains
that might be achieved by the optionees if the respective options are
exercised at the end of their terms. These gains are based on assumed
rates of stock price appreciation of 0%, 5% and 10%. The 0% appreciation
column is included because the exercise prices of the options equal the
market price of the underlying Common Stock on the date the options were
granted, and thus the options will have no value unless our stock price
increases above the exercise prices.
(3) These options vest and become exercisable as to 20% of the shares on the
date of grant and as to an additional 20% of the shares each year
thereafter until these options are fully vested and will expire five years
after the date they become exercisable.
(4) Of these options, 10,000 were exercised in June 2003 and the balance were
canceled.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth the information with respect to the Named
Officers concerning the exercise of options during 2003 and unexercised options
held as of July 31, 2003.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Year-End (#) at Year-End ($)(2)
Shares ----------------------------- ------------------------------
Acquired on
Exercise Value
Name (#) Realized ($)(1) Exercisable Unexercisable Exercisable Unexercisable
- ---------------------- ----------- -------------- ----------- ------------- ----------- -------------
Kuslima Shogen None None 267,445 230,000 $228,523 $301,300
Stanislaw Mikulski 124,000 $28,460 0 0 $ 0 $ 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 high and low trade prices ($1.31) for the Common
Stock obtained from the OTC Bulletin Board on the last trading day of the
fiscal year July 31, 2003.
15
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
During the fiscal year ended July 31, 2003, the members of the Board of
Directors who served on the Compensation Committee were Donald R. Conklin,
Stephen K. Carter and Martin F. Stadler, all of whom are non-employee directors
and have never been an officer of Alfacell. During the fiscal year ended July
31, 2003, no executive officer of Alfacell served on the Compensation Committee
or Board of Directors of any other entity which had any executive officer who
also served on the Compensation Committee or Board of Directors of Alfacell.
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
Decisions on compensation of the Company's executive officers are made by
the Compensation Committee of the Board of Directors. During the fiscal year
ended July 31, 2003, the Compensation Committee consisted of three non-employee
directors. 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 and Stanislaw M. Mikulski did not receive any salary
increases or bonuses during fiscal 2003. 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 the financial situation of the Company, the
Compensation Committee awarded these executive officers long-term incentives in
the form of stock option grants.
Chief Executive Officer's Compensation
The compensation paid in the fiscal year ended July 31, 2003, to the
Company's Chief Executive Officer and the other executive officer named in the
Summary Compensation Table above consisted of base salary and stock options. The
compensation level for each of these executives in the fiscal year ended July
31, 2003, was based on the Compensation Committee's evaluation of a number of
factors, including the executive's position and responsibilities, service and
accomplishments and present and future value to the Company.
MEMBERS OF THE COMPENSATION COMMITTEE
Donald R. Conklin, Chairman
Stephen K. Carter
Martin F. Stadler
16
STOCKHOLDER RETURN PERFORMANCE GRAPH
The graph below summarizes the total cumulative return experienced by
Alfacell's stockholders during the five-year period ended July 31, 2003,
compared to the Nasdaq Stock Market Index and the Nasdaq Pharmaceutical Index.
The changes for the periods shown in the graph and table are based on the
assumption that $100.00 was invested in Alfacell Corporation Common Stock and in
each index below on July 31, 1998 and that all cash dividends were reinvested.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG ALFACELL CORPORATION, THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ PHARMACEUTICAL INDEX
[THE FOLLOWING TABLE WAS DEPICTED AS A LINE CHART IN THE PRINTED MATERIAL.]
Cumulative Total Return
------------------------------------------------------
7/98 7/99 7/00 7/01 7/02 7/03
ALFACELL CORPORATION 100.00 66.67 120.80 114.67 44.67 176.00
NASDAQ STOCK MARKET (U.S.) 100.00 142.70 203.61 109.31 72.25 94.37
NASDAQ PHARMACEUTICAL 100.00 156.15 297.01 247.53 159.52 235.03
* $100 invested on 7/31/98 in stock or index- including reinvestment of
dividends. Fiscal year ending July 31.
17
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal year ended July 31, 2003, the Company's CEO made loans
to the Company payable on demand bearing interest at 8% per annum. At July 31,
2002, the Company owed $139,794 to the Company's CEO which was repaid during the
fiscal year 2003. The Company also owed approximately $81,000 of gross salary to
its CEO as of July 31, 2003. Also, at fiscal year ended July 31, 2003, $142,287
was due from the Company's CEO, from which the Company earned approximately
$9,500 interest. This loan was made prior to July 30, 2002 and has not since
been materially modified, thus it is not in violation of the Sarbanes-Oxley Act
of 2002.
PROPOSAL NO. 2 -- APPROVAL OF AN AMENDMENT TO THE CERTIFICATE OF
INCORPORATION TO INCREASE AUTHORIZED COMMON STOCK
Summary
The Board of Directors has authorized an amendment to Alfacell's
Certificate of Incorporation, as amended, subject to stockholder approval, to
increase the number of authorized shares of Common Stock by 60,000,000 shares so
that the total number of shares of Common Stock authorized for issuance will be
100,000,000 shares. Currently, Alfacell's Certificate of Incorporation
authorizes the issuance of 40,000,000 shares of Common Stock, $.001 par value
per share, and 1,000,000 shares of preferred stock, $.001 par value per share
("Preferred Stock").
As of November 24, 2003, 105,666 shares of Series A Preferred Stock were
reserved for issuance upon conversion of certain outstanding notes and warrants.
As of November 24, 2003, Alfacell's capital structure included 39,706,460 shares
of Common Stock issued and outstanding, consisting of:
o 28,248,658 shares of Common Stock issued and outstanding; and
o 11,457,802 shares of Common Stock reserved for issuance
pursuant to options, warrants, contractual commitments and
other arrangements.
The Board of Directors has determined that the amendment is in the best
interests of Alfacell, and unanimously recommends approval by the stockholders.
Purpose of the proposed amendment
Alfacell proposes an increase in the number of shares of Common Stock in
order to (i) reserve shares for issuance in the future for appropriate corporate
purposes without the need to further amend the Certificate of Incorporation,
(ii) reserve shares of Common Stock for issuance upon the conversion of certain
warrants described below and (iii) reserve shares of Common Stock for issuance
upon the conversion of certain outstanding notes described below. Other than as
described herein, Alfacell does not have any other oral or written
understandings, agreements or arrangements in place with identified third
parties to issue shares of Common Stock in connection with the proposed
amendment.
Certain financing transactions
In September 2003, Alfacell entered into a two-part financing agreement
with SF Capital Partners, Ltd. for the initial sale of 1,704,546 shares of
Common Stock and warrants to purchase 852,273 shares of Common Stock, at an
exercise price of $1.50 per share. As consideration, Alfacell received
$1,500,000. In addition, the Company has agreed to grant SF Capital Partners,
Ltd. a warrant to invest an additional $1,500,000 to purchase the Company's
Common Stock ("Additional Warrants"). At the time of the transaction, Alfacell
did not have sufficient shares of Common Stock authorized to issue the
Additional Warrants, thus the agreement provides for the issuance of the
Additional Warrants one business day after stockholder approval of an amendment
to the Certificate of Incorporation to increase the authorized shares of Common
Stock of the Company. Therefore, if the stockholders approve an increase in the
number of authorized shares, a sufficient number of shares of Common Stock will
be
18
reserved for issuance upon conversion of the Additional Warrants. For example,
using November 7, 2003, for calculation purposes, approximately 679,758 shares
of the Company's Common Stock would be reserved for issuance upon exercise of
the Additional Warrants.
Alfacell used the proceeds from the transaction with SF Capital Partners,
Ltd. first to pay the accrued and unpaid salary of Stanislaw Mikulski, accrued
payroll taxes, legal fees and fees associated with clinical data management.
Remaining proceeds will be used for working capital purposes only.
During the fiscal years 2002 and 2003, Alfacell also entered into a series
of convertible debt transactions with unrelated parties. The unrelated parties
were issued various convertible notes and were guaranteed certain warrants upon
the maturity dates of the notes (the "Convertible Debt"). As consideration, the
Company received $1,215,000. In September 2003, the Company amended the terms of
the Convertible Debt such that (i) the notes are convertible into shares of
Series A Preferred Stock rather than Common Stock, and (ii) the warrants to be
issued upon the due date of the notes are warrants to purchase shares of Series
A preferred stock rather than Common Stock. In September 2003, the Board of
Directors also designated 200,000 of the 1,000,000 shares of Preferred Stock as
Series A Preferred Stock. 105,666 shares of the Series A Preferred Stock were
reserved for issuance upon the conversion of the Convertible Debt.
The September 2003 amendments, however, also contain a provision allowing
for reversion to the original terms of the Convertible Debt in the event
Alfacell's stockholders approve an increase in the number of shares of Common
Stock authorized before January 31, 2004. To the extent the notes have not yet
been converted, then the holders of the notes will receive Common Stock upon
conversion, rather than Preferred Stock. As of November 24, 2003, no notes had
been converted. Thus, if the stockholders approve an increase in the number of
authorized shares, an aggregate of 10,566,612 shares of Common Stock will be
reserved for issuance upon conversion of the Convertible Debt.
Alfacell did not receive any consideration for the September 2003
amendments.
Finally, Alfacell proposes an increase in the number of shares of Common
Stock in order to reserve shares for issuance in the future without the need to
further amend its Certificate of Incorporation. The Company may need to issue
additional Common Stock to consummate strategic acquisitions, technology or
product licensing agreements, implement additional management or employee
incentive programs or obtain additional financing.
Effect of amendment
The additional authorized shares of Common Stock resulting from this
proposal will be the same as the existing shares of Common Stock. All
outstanding Common Stock would continue to have one vote per share. Stockholders
of Alfacell do not presently have preemptive rights nor will they as a result of
this proposal.
If the authorized shares are increased as proposed, the shares would be
available for issuance from time to time upon such terms and for such purposes
as the Board of Directors may deem advisable without further action by our
stockholders, except as may be required by law or the rules of any stock
exchange on which Common Stock may be listed. Such an issuance may decrease or
increase the book value per share of the Common Stock presently issued and
outstanding. The issuance of additional shares could also dilute the voting
power and equity of the holders of outstanding Common Stock.
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. Furthermore, 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
19
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 this proposal, although this 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:
"4. The total number of shares of capital stock which the
Corporation shall have authority to issue is 101,000,000 shares, of
which 100,000,000 shares shall be Common Stock, par value $.001 per
share, and 1,000,000 shares shall be Preferred Stock, par value
$.001 per share."
Board recommendation and stockholder vote required
The Board of Directors recommends a vote FOR the amendment to the
Certificate of Incorporation as proposed. (Proposal No. 2 on the proxy card).
The affirmative vote of a majority of the shares outstanding will be required
for approval.
PROPOSAL NO. 3 -- RATIFICATION OF AUDITORS
On December 6, 2002, KPMG LLP resigned as our independent accountants and
was replaced by J.H. Cohn LLP as our independent accountants for fiscal 2003.
The engagement of J.H. Cohn LLP was approved by our Audit Committee. The reports
of KPMG on the financial statements for the past two fiscal years contained no
adverse opinion or disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope or accounting principle except that the report on
our financial statements for the fiscal years ended July 31, 2002 and 2001
contained a separate paragraph stating that "the Company has suffered recurring
losses from operations, has a working capital deficit and has limited liquid
resources which raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty." During our two most recent fiscal
years through December 6, 2002, there were no disagreements between us and KPMG
on any matter of accounting principles or practices, financial statement
disclosures or auditing scope or procedures, which disagreements if not resolved
to the satisfaction of KPMG would have caused them to make reference thereto in
their report on the financial statements for such years.
The Audit Committee of the Board of Directors approved the retention of
J.H. Cohn LLP as Alfacell's independent auditors for the year ending July 31,
2004. Representatives of J.H. Cohn LLP will be available to answer appropriate
questions at the Annual Meeting.
20
Board recommendation and stockholder vote required
The Board of Directors recommends a vote FOR ratification of the
appointment of J.H. Cohn LLP as Alfacell's independent auditors for the year
ending July 31, 2004 (Proposal No. 3 on the proxy card). The affirmative vote of
a majority of the shares represented in person or by proxy at the meeting and
entitled to vote on the proposal will be required for approval.
If the appointment is not ratified, the Audit Committee will select other
independent auditors. If the appointment is ratified, the Audit Committee
reserves the right to appoint other independent auditors
PROPOSAL NO. 4 -- APPROVAL OF THE 2004 STOCK INCENTIVE PLAN
EQUITY COMPENSATION PLAN INFORMATION
We have two stock option plans both of which have been approved by our
stockholders. The following table sets forth additional information on our
equity based compensation plans as of July 31, 2003.
Number of securities
remaining available for
Number of securities to Weighted-average future issuance under
be issued upon exercise of exercise price of equity compensation plans
outstanding options, outstanding options, (excluding securities
Plan Category warrants and rights warrants and rights reflected in column (a))
------------- ------------------- ------------------- ------------------------
(a) (b) (c)
- --------------------------------------------------------------------------------------------------------------------
Equity compensation plans 2,393,666 $1.26 2,181,779
approved by security holders
- --------------------------------------------------------------------------------------------------------------------
Equity compensation plans not
approved by security holders 779,556(1) $1.02 0
- --------------------------------------------------------------------------------------------------------------------
Total 3,173,222 $2.28 2,181,779
- --------------------------------------------------------------------------------------------------------------------
- ----------
(1) The following 779,556 securities to be issued upon the exercise of
outstanding options and warrants that were not approved by the shareholders,
relate to options and warrants we issued to third parties in connection with
services rendered.
On October 1, 1998, we issued options to purchase 200,000 shares of Common
Stock at an exercise price of $1.00 per share to Sage Partners as payment for
services to be rendered. 150,000 of such options were cancelled in November 1999
upon the cancellation of the contract with Sage Partners. The remaining options
vested as to 2,500 shares per month from October 31, 1998 through September 30,
1999 and as to 20,000 shares on October 1, 1999. The options expire five years
from the respective vesting date. As of July 31, 2003, options to purchase
50,000 shares remained outstanding. On September 10, 2003, the option to
purchase these remaining 50,000 shares was exercised.
In August 2001, we converted $50,000 of our accounts payable owed to DZS
Computer Solutions, Inc., into 55,556 shares of Common Stock. In addition, we
issued to DZS Computer Solutions, Inc. 55,556 five-year warrants to purchase
55,556 shares of Common Stock at an exercise price of $1.50 per share.
In February 2002, we issued 1,500,000 five-year warrants to purchase an
aggregate of 1,500,000 shares of Common Stock in connection with the engagement
of a consultant. We received $1,500 for the issuance of the warrants. Of such
warrants 500,000 are exercisable immediately, 250,000 at an exercise price of
$0.50 and 250,000 at an exercise price of $1.00. The remaining 1,000,000
warrants will become exercisable if the consultant is successful in helping us
raise capital. For each $1 million in capital financing raised with the
assistance of the consultant, 200,000 warrants will become exercisable up to
1,000,000 warrants in the aggregate. Of these 1,000,000
21
warrants, 400,000 are exercisable at $1.00 per share and 600,000 are exercisable
at $1.50 per share. During the fiscal year 2003, the vesting of the 600,000
warrants was amended to vest immediately and the exercise price was amended from
$1.50 to $.50 per share. As of July 31, 2003, warrants to purchase 826,000
shares of Common Stock had been exercised and warrants to purchase 674,000
shares of Common Stock remained outstanding.
OPTION PLAN BENEFITS GRANTED IN FISCAL 2003
The following table contains information concerning the grant of stock
options under the Company's 1993 Stock Option Plan and the 1997 Stock Option
Plan to the persons and groups named below during the fiscal year ended July 31,
2003:
-----------------------------------------------------------------------------------------------
Number of
Securities
Underlying
Name and Position Options Granted
----------------- ---------------
-----------------------------------------------------------------------------------------------
Kuslima Shogen, Chief Executive Officer, Chairman of the Board and Acting 115,000
Chief Financial Officer
-----------------------------------------------------------------------------------------------
Stephen K. Carter, M.D., Director and Chairman of the Scientific Board 15,000
-----------------------------------------------------------------------------------------------
Donald R. Conklin, Director 15,000
-----------------------------------------------------------------------------------------------
Martin F. Stadler, Director 15,000
-----------------------------------------------------------------------------------------------
Paul M. Weiss, Ph.D., Director 12,500
-----------------------------------------------------------------------------------------------
Executive Officers as a Group 115,000
-----------------------------------------------------------------------------------------------
Non-Employee Directors as a Group 57,500
-----------------------------------------------------------------------------------------------
All Employees Other than Executive Officers 205,000
-----------------------------------------------------------------------------------------------
THE 2004 STOCK INCENTIVE PLAN
General
On November 13, 2003, the Board of Directors adopted the 2004 Stock
Incentive Plan (the "Stock Plan"), subject to stockholder approval. The Stock
Plan provides for the grant of stock options and other stock-based awards to
employees, officers, consultants, independent contractors and Directors
providing services to Alfacell and its subsidiaries as determined by the Board
of Directors or by a committee of Directors designated by the Board of Directors
to administer the Stock Plan. Alfacell intends to file a registration statement
on Form S-8 covering the securities to be issued under the Stock Plan.
The following summary of the Stock Plan is qualified in its entirety by
reference to the full text of the Stock Plan, which is attached to this Proxy
Statement as Exhibit B.
Summary of Current Stock Plan
Purpose
The purpose of the Stock Plan is to promote the interests of Alfacell and
its stockholders by aiding Alfacell in attracting and retaining employees,
officers, consultants, independent contractors, non-employee Directors and other
persons or entities capable of contributing to the future success of Alfacell,
to offer such persons incentives to put forth maximum efforts for the success of
Alfacell's business and to afford such persons an opportunity to acquire
22
a proprietary interest in Alfacell. The Stock Plan is also designed to align the
interests of Alfacell's employees with those of its stockholders by providing
the participants with appropriate incentives to build stockholder value.
Administration
The Compensation Committee has been designated by the Board of Directors
to administer the Stock Plan. The Compensation Committee has full power and
authority to determine when and to whom awards will be granted and the type,
amount, form of payment and other terms and conditions of each award, consistent
with the provisions of the Stock Plan. Subject to the provisions of the Stock
Plan, the Compensation Committee may amend or waive the terms and conditions of
an outstanding award. The Compensation Committee has full authority to interpret
the Stock Plan and establish rules and regulations for the administration of the
Stock Plan. The Compensation Committee may delegate to one or more Directors or
a committee of Directors], or the Board of Directors may exercise, the
Compensation Committee's powers and duties under the Stock Plan.
Eligibility
Any employee, officer, consultant, independent contractor, non-employee
Director or any other person or entity that the Compensation Committee deems
eligible, providing services to Alfacell and its subsidiaries are eligible to be
selected by the Compensation Committee to receive awards under the Stock Plan.
As of November 24, 2003, there were approximately 28 persons who were eligible
as a class to be selected by the Compensation Committee to receive awards under
the Stock Plan.
Number of Shares
The Stock Plan provides for the issuance of up to 8,500,000 shares of
Common Stock, subject to adjustment in the event of a stock dividend or other
distribution, recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase or exchange of shares or other securities of Alfacell, to all holders
of Common Stock pro rata whether as a dividend or otherwise. Shares of Common
Stock subject to awards under the Stock Plan which are not used or are forfeited
because the terms and conditions of the awards are not met, or because the award
terminates without delivery of any shares, may again be used for awards under
the Stock Plan. Shares of Common Stock used by a participant as full or partial
payment to Alfacell of the purchase price relating to an award, or in connection
with the satisfaction of tax obligations relating to an award, will also be
available for awards under the Stock Plan. The shares of Common Stock issued
under the Stock Plan may be authorized but unissued shares, shares re-acquired
and held in treasury, shares acquired on the open market or otherwise. The
closing price of Alfacell's Common Stock on November 24, 2003 was $4.05.
No participant may be granted stock options and any other award, the value
of which is based solely on an increase in the price of the Common Stock, of
more than 1,000,000 shares in the aggregate in any calendar year.
Types of Awards and Certain Terms and Conditions
The types of awards that may be granted under the Stock Plan are stock
options, stock appreciation rights, restricted stock, restricted stock units,
performance awards, dividend equivalents, other stock grants, other stock-based
awards and any combination thereof. The Stock Plan provides that all awards are
to be evidenced by written agreements containing the terms and conditions of the
awards. The Compensation Committee may not amend or discontinue any outstanding
award without the consent of the holder of the award if such action would
adversely affect the rights of the holder. Except as provided by the Stock Plan,
awards will not be transferable other than to family members (as defined in the
stock option agreement) through a gift or domestic relations order or by will or
by the laws of descent and distribution. During the lifetime of a participant,
an award may be exercised only by the participant to whom such award is granted
or a permitted assignee. Awards may be granted for no cash consideration or for
such minimal cash consideration as may be required by law. Generally, the
consideration to be received by Alfacell for the grant of awards under the Stock
Plan will be the participant's past, present or expected future contributions to
Alfacell.
Stock Options
23
Incentive stock options meeting the requirements of Section 422 of the
Internal Revenue Code ("Incentive Stock Options") and non-qualified options may
be granted under the Stock Plan. The Compensation Committee determines the
exercise price of any option granted under the Stock Plan, provided however that
the exercise price of any option will not be less than the fair market value of
the Common Shares on the date of grant. Stock options will be exercisable at
such times as the Compensation Committee determines. Stock options may be
exercised in whole or in part by payment in full of the exercise price in cash
or such other form of consideration as the Compensation Committee may specify,
including delivery of shares of Common Stock having a fair market value on the
date of exercise equal to the exercise price. The Compensation Committee may
grant reload options when a participant pays the exercise price or tax
withholding upon exercise of an option by using shares of Common Stock. The
reload option would be for that number of shares surrendered or withheld.
Stock Appreciation Rights
The Compensation Committee may grant stock appreciation rights exercisable
at such times and subject to such conditions or restrictions as the Compensation
Committee may determine. Upon exercise of a stock appreciation right by a
holder, the holder is entitled to receive the excess of the fair market value of
one share of Common Stock on the date of exercise over the grant price of the
stock appreciation rights as determined by the Compensation Committee, which
grant price shall not be less than the fair market value of one share of Common
Stock on the date of grant. The payment may be made in cash or shares of Common
Stock, or other form of payment, as determined by the Compensation Committee.
Restricted Stock and Restricted Stock Units
The Compensation Committee may grant shares of restricted stock and
restricted stock units subject to such restrictions and terms and conditions as
the Compensation Committee may impose. Shares of restricted stock granted under
the Stock Plan will be evidenced by stock certificates, which will be held by
Alfacell, and the Compensation Committee may, in its discretion, grant voting
and dividend rights with respect to such shares. No shares of stock will be
issued at the time of award of restricted stock units. A restricted stock unit
will have a value equal to the fair market value of one share of Common Stock
and may include, if so determined by the Compensation Committee, the value of
any dividends or other rights or property received by stockholders after the
date of grant of the restricted stock unit. The Compensation Committee has the
right to waive any vesting requirements or to accelerate the vesting of
restricted stock or restricted stock units.
Performance Awards
A performance award will entitle the holder to receive payments upon the
achievement of specified performance goals. The Compensation Committee
determines the terms and conditions of a performance award, including the
performance goals to be achieved during the performance period, the length of
the performance period and the amount and form of payment of the performance
award. A performance award may be denominated or payable in cash, shares of
stock or other securities, or other awards or property.
Dividend Equivalents
Dividend equivalents will entitle certain recipients to receive payments
equal to cash dividends paid by the Company. The Compensation Committee
determines the terms and conditions of dividend equivalents. A dividend
equivalent may be denominated or payable in cash, shares of stock or other
securities, or other awards or property.
Other Stock Grants
The Compensation Committee may otherwise grant shares of Common Stock as
are deemed by the Compensation Committee to be consistent with the purpose of
the Stock Plan. The Compensation Committee determines the terms and conditions
of such other stock grant.
Other Stock-Based Awards
24
The Compensation Committee may grant other awards denominated or payable
in, valued by reference to, or otherwise based on or related to shares of Common
Stock as are deemed by the Compensation Committee to be consistent with the
purpose of the Stock Plan. The Compensation Committee will determine the terms
and conditions of such other stock-based award, including the consideration to
be paid for shares of Common Stock or other securities delivered pursuant to a
purchase right granted under such award. The value of such consideration shall
not be less than the fair market value of such shares or other securities as of
the date such purchase right is granted.
Duration, Termination and Amendment
Unless earlier discontinued or terminated by the Board of Directors, no
awards may be granted under the Stock Plan after November 13, 2013. The Stock
Plan permits the Board of Directors to amend, alter, suspend, discontinue or
terminate the Stock Plan at any time, except that prior stockholder approval
will be required for any amendment to the Stock Plan that requires stockholder
approval under the rules or regulations of the Nasdaq Stock Market or any
securities exchange that are applicable to Alfacell or that would cause Alfacell
to be unable, under the Internal Revenue Code, to grant Incentive Stock Options
under the Stock Plan.
Federal Tax Consequences
The following is a summary of the principal federal income tax
consequences generally applicable to awards under the Stock Plan.
Stock Options and Stock Appreciation Rights
The grant of an option or stock appreciation right is not expected to
result in any taxable income for the recipient. The holder of an Incentive Stock
Option generally will have no taxable income upon exercising the Incentive Stock
Option (except that a liability may arise pursuant to the alternative minimum
tax), and Alfacell will not be entitled to a tax deduction when an Incentive
Stock Option is exercised. Upon exercising a non-qualified stock option, the
optionee must recognize ordinary income equal to the excess of the fair market
value of the shares of Common Stock acquired on the date of exercise over the
exercise price, and Alfacell will be entitled at that time to a tax deduction
for the same amount. Upon exercising a stock appreciation right, the amount of
any cash received and the fair market value on the exercise date of any shares
of Common Stock received are taxable to the recipient as ordinary income and
deductible by Alfacell. The tax consequence to an optionee upon a disposition of
shares acquired through the exercise of an option will depend on how long the
shares have been held and whether such shares were acquired by exercising an
Incentive Stock Option or by exercising a non-qualified stock option or stock
appreciation right. Generally, there will be no tax consequence to Alfacell in
connection with disposition of shares acquired under an option, except that
Alfacell may be entitled to a tax deduction in the case of a disposition of
shares acquired under an Incentive Stock Option before the applicable Incentive
Stock Option holding periods set forth in the Internal Revenue Code have been
satisfied.
Other Awards
With respect to other awards granted under the Stock Plan that are payable
either in cash or shares of Common Stock that are either transferable or not
subject to substantial risk of forfeiture, the holder of such an award will
recognize ordinary income at the time of receipt of such award, in an amount
equal to the excess of (a) the cash or the fair market value of the shares of
Common Stock received (determined as of the date of such receipt) over (b) the
amount (if any) paid for such shares of Common Stock by the holder of the award,
and Alfacell will be entitled at that time to a deduction for the same amount.
With respect to an award that is payable in shares of Common Stock that are
restricted as to transferability and subject to substantial risk of forfeiture,
unless a special election is made pursuant to the Internal Revenue Code, the
holder of the award must recognize ordinary income at the time the restrictions
lapse equal to the excess of (i) the fair market value of the shares of Common
Stock received (determined as of the first time the shares become transferable
or not subject to substantial risk of forfeiture, whichever occurs earlier) over
(ii) the amount (if any) paid for such shares of Common Stock by the holder, and
Alfacell will be entitled at that time to a tax deduction for the same amount.
25
Satisfaction of Tax Obligations
Under the Stock Plan, the Compensation Committee may permit participants
receiving or exercising awards, subject to the discretion of the Compensation
Committee and upon such terms and conditions as it may impose, to surrender
shares of Common Stock (either shares received upon the receipt or exercise of
the award or shares previously owned by the participant) to Alfacell to satisfy
federal and state tax obligations. In addition, pursuant to its general
authority outside of the 2004 Stock Plan, the Compensation Committee may grant,
subject to its discretion, a cash bonus to a participant in order to provide
funds to pay all or a portion of federal and state taxes due as a result of the
exercise or receipt of (or lapse of restrictions relating to) an award. The
amount of any such bonus will be taxable to the participant as ordinary income,
and Alfacell will have a corresponding deduction equal to such amount (subject
to the usual rules concerning reasonable compensation).
Section 162(m) Requirements
The Stock Plan has been designed to meet the requirements of Section
162(m) of the Internal Revenue Code regarding the deductibility of executive
compensation.
Board recommendation and stockholder vote required
The Board of Directors recommends a vote FOR the Stock Plan as proposed.
(Proposal No. 4 on the proxy card). The affirmative vote of a majority of the
shares represented in person or by proxy at the meeting and entitled to vote on
the proposal will be required for approval.
CODE OF ETHICS
Alfacell has adopted a written Code of Business Conduct and Ethics ("Code
of Ethics") that applies to the Company's principal executive officer, principal
financial officer, principal accounting officer, controller and to all its other
employees. These standards are a guide to help ensure that all our employees
live up to our high ethical standards. A copy of the Code of Ethics is
maintained on our website at www.alfacell.com.
We intend to post on our website, as required by Item 10 of Form 8-K, any
amendment to or waiver from any provision in our Code of Ethics that applies to
our principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions, and
that relates to any element of the standards enumerated in the rules of the
Securities and Exchange Commission.
26
ANNUAL REPORT TO STOCKHOLDERS AND INCORPORATION OF
DOCUMENTS BY REFERENCE
Alfacell's 2003 Annual Report to Stockholders on Form 10-K for the fiscal
year ended July 31, 2003, including audited financial statements, filed with the
Securities and Exchange Commission on October 29, 2003, accompanies this proxy
statement. The following portions of the Annual Report are incorporated herein
by reference: Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations; Item 7A. Quantitative and Qualitative
Disclosures About Market Risk and Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure.
STOCKHOLDERS' PROPOSALS
It is anticipated that Alfacell's fiscal 2004 Annual Meeting of
Stockholders will be held on or about January 14, 2005. In order for a
stockholder to have a proposal included in the proxy statement for the 2004
annual stockholders' meeting, the proposal must comply with both the procedures
identified by Rule 14a-8 under the Securities Exchange Act of 1934, as amended,
(the "Exchange Act"), and be received in writing by Alfacell's Secretary on or
before 5:00 P.M. Eastern Standard Time on August 8, 2004. Such a proposal will
be considered at the 2004 annual stockholders' meeting.
In the event a stockholder does not meet the August 8, 2004 deadline, the
stockholder can still give notice of a proposal to be presented at the 2004
annual stockholders' meeting until October 23, 2004, however, such proposal will
not be included in the proxy materials relating to such meeting. Such a proposal
will be considered timely within Rule 14a-4(c) and may be considered at the 2004
annual stockholders' meeting if it complies with Rule 14a-8.
Any proposal received after October 23, 2004 will be considered untimely
within 14a-4(c) of the Exchange Act and the persons named in the proxy for such
meeting may exercise their discretionary voting power with respect to such
proposal.
GENERAL
The expenses of preparing and mailing this proxy statement and the
accompanying proxy card and the cost of solicitation of proxies, if any, will be
borne by Alfacell. In addition to the use of mailings, proxies may be solicited
by personal interview, telephone and telegraph, and by directors, officers and
regular employees of Alfacell without special compensation therefore. Alfacell
expects to reimburse banks, brokers and other persons for their reasonable
out-of-pocket expenses in handling proxy materials for beneficial owners of
Alfacell's Common Stock.
Unless contrary instructions are indicated on the proxy card, all shares
of Common Stock represented by valid proxies received pursuant to this
solicitation (and not revoked before they are voted) will be voted FOR all of
the proposals described in this proxy statement.
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before the
Annual Meeting. If matters other than the foregoing should arise at the Annual
Meeting, it is intended that the shares represented by proxies will be voted in
accordance with the judgment of the persons named in the proxy card. 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.
By Order of the Board of Directors,
-----------------------------------
Kuslima Shogen
Chief Executive Officer, Chairman
of the Board and Acting Chief
Financial Officer
Dated: December 11, 2003
27
ALFACELL CORPORATION
PROXY
COMMON STOCK
ANNUAL MEETING: JANUARY 14, 2004
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Kuslima Shogen, as proxy, with full power of substitution in each of them,
is hereby authorized to represent and to vote, as designated below and on the
reverse side, upon the following proposals and in the discretion of the proxies
on such other matters as may properly come before the Annual Meeting of
Stockholders of Alfacell Corporation to be held at the Newark Liberty
International Airport Marriott Hotel, Newark International Airport, Newark, New
Jersey 07114 on Wednesday, January 14, 2004 at 2:00 p.m. local time, or any
adjournment(s), postponement(s) or other delay(s) thereof (the "Annual
Meeting"), all shares of common stock of Alfacell to which the undersigned is
entitled to vote at the Annual Meeting. The following proposals are more fully
described in the Notice of Annual Meeting and Proxy Statement for the Annual
Meeting dated December 11, 2003 (receipt of which is hereby acknowledged).
UNLESS OTHERWISE DIRECTED, THIS PROXY WILL BE VOTED "FOR" PROPOSALS 1, 2,
3 AND 4 AND WILL BE VOTED, EITHER FOR OR AGAINST, AT 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.
(Continued and to be dated and signed on the reverse side.)
ALFACELL CORPORATION
225 BELLEVILLE AVENUE
BLOOMFIELD, NJ 07003
28
1. To elect five (5) FOR all nominees |_|
directors. listed below.
WITHHOLD AUTHORITY |_| FOR ALL EXCEPT |_|
for all nominees listed below those nominees that I
have listed below
Nominees: Kuslima Shogen, John P. Brancaccio, Stephen K. Carter, Donald R.
Conklin and Paul M. Weiss. (INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY
INDIVIDUAL NOMINEE, MARK THE "FOR ALL EXCEPT" BOX AND WRITE THAT NOMINEE'S NAME
IN THE SPACE PROVIDED BELOW.)
Exceptions: _____________________________________________________________
2. To approve an amendment to the Certificate of Incorporation, to increase
the number of authorized shares of Common Stock which may be issued from
40,000,000 to 100,000,000.
FOR |_| AGAINST |_| ABSTAIN |_|
3. To ratify the appointment of J.H. Cohn LLP as Alfacell's independent
auditors for the year ending July 31, 2004.
FOR |_| AGAINST |_| ABSTAIN |_|
4. To approve the Company's 2004 Stock Incentive Plan.
FOR |_| AGAINST |_| ABSTAIN |_|
5. To transact such other business as may properly come before the Annual
Meeting.
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 an attorney, executor, administrator,
trustee 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.)
Please Date:_________________________________
Sign Here: __________________________________
_____________________________________________
Additional Signature (if held jointly)
Votes must be indicated in Black or Blue ink.
PLEASE SIGN AND DATE AND RETURN YOUR PROXY TODAY
29
EXHIBIT A
ALFACELL CORPORATION
AUDIT COMMITTEE CHARTER
The Audit Committee (the "Committee") is appointed by and generally acts
on behalf of the Board of Directors (the "Board") to assist the Board in
monitoring (1) the integrity of the financial statements of Alfacell Corporation
(the "Company"), (2) the compliance by the Company with ethical policies and
legal and regulatory requirements, (3) the appointment, compensation,
qualifications, independence and performance of the Company's internal and
external auditors, (4) the performance of the Company's internal audit function
and (5) the financial reporting process and systems of internal accounting and
Internal Controls.
The Audit Committee shall be comprised of at least three directors, each
of whom shall meet the independence requirements of the Nasdaq National Market
and Section 10A(m)(3) of the Securities Exchange Act of 1934 (the "Exchange
Act"), as amended, and each of whom shall not have participated in the
preparation of the financial statements of the Company at any time during the
past three years.
Under current Nasdaq rules, all directors on the Audit Committee must meet
certain financial literacy requirements, and at least one member must have
increased financial sophistication. A director who qualifies as an audit
committee financial expert under Item 401(h) of Regulation S-K of the Exchange
Act is presumed to qualify as having increased financial sophistication. The
Company will diligently work to attempt to ensure that the Committee meets these
experience requirements at soon as reasonably possible.
The Audit Committee shall have the authority to retain and obtain funding
for special legal, accounting or other consultants to advise the Committee. The
Audit Committee may request any officer or employee of the Company or the
Company's outside counsel or independent auditor to attend a meeting of the
Committee or to meet with any members of, or consultants to, the Committee.
Audit Committee members receive no compensation other than for Board or
Committee services.
The Audit Committee shall make regular reports to the Board.
The Audit Committee shall:
1. Review with management and the independent auditor the effect of
regulatory and accounting initiatives as well as off-balance sheet
structures on the Company's financial statements;
2. Review with management and the independent auditor the Company's
quarterly financial statements prior to the filing of the Company's
Form 10-Q, including the results of the independent auditor's
reviews of the quarterly financial statements;
3. Recommend to the Board the appointment of the independent auditor,
which firm is ultimately accountable to the Audit Committee and the
Board;
4. Review the experience and qualifications of the senior members of
the independent auditor team and the quality control procedures of
the independent auditor. Review the experience and qualifications of
the Company's senior finance executives;
5. Approve the fees to be paid to the independent auditor;
6. Evaluate together with the Board the performance of the independent
auditor and, whether it is appropriate to rotate independent
auditors on a regular basis. If so determined by the Audit
Committee, recommend that the Board replace the independent auditor;
1
7. Recommend to the Board guidelines for the Company's hiring of
employees of the independent auditor who were engaged on the
Company's account;
8. Obtain from the independent auditor assurance that Section 10A of
the Private Securities Litigation Reform Act of 1995 has not been
implicated;
9. Pre-approve all audit services to be provided by the independent
auditor;
10. Pre-approve all permitted non-audit services to be performed by the
independent auditor and establish policies and procedures for the
engagement of the independent auditor to provide permitted non-audit
services. Current guidelines are set forth on Exhibit A attached to
this Charter;
11. Review and reassess the adequacy of this Charter and the
independence of the independent auditor annually and recommend any
proposed changes to the Board for approval;
12. Receive periodic reports from the independent auditor regarding the
auditor's independence consistent with Independence Standards Board
Standard 1, discuss such reports with the auditor, and if so
determined by the Audit Committee, take or recommend that the full
Board take appropriate action to oversee the independence of the
auditor;
13. Review the annual audited financial statements and quarterly
financial statements with management, including major issues
regarding accounting and auditing principles and practices as well
as the adequacy of internal controls that could significantly affect
the Company's financial statements;
14. Review an analysis prepared by management and the independent
auditor of significant financial reporting issues and judgments made
in connection with the preparation of the Company's financial
statements;
15. Meet periodically with management to review the Company's major
financial risk exposures and the steps management has taken to
monitor and control such exposures;
16. Review major changes to the Company's auditing and accounting
principles and practices as suggested by the independent auditor,
internal auditors or management;
17. Review the appointment and replacement of the senior internal
auditing executive;
18. Review the significant reports to management prepared by the
internal auditing department and management's responses;
19. Meet with the independent auditor prior to the audit to review the
planning and staffing of the audit;
20. Discuss with the independent auditor the matters required to be
discussed by Statement on Auditing Standards No. 61 relating to the
conduct of the audit;
21. Review with the independent auditor any problems or difficulties the
auditor may have encountered and any management letter provided by
the auditor and the Company's response to that letter. Such review
should include:
(a) Any difficulties encountered in the course of the audit work,
including any restrictions on the scope of activities or
access to required information;
2
(b) Any changes required in the planned scope of the internal
audit; and
(c) The internal audit department responsibilities, budget and
staffing.
22. Prepare the report required by the rules of the Securities and
Exchange Commission to be included in the Company's annual proxy
statement;
23. Advise the Board with respect to the Company's policies and
procedures regarding compliance with applicable laws and regulations
and with the Company's Code of Business Conduct and Ethics;
24. Meet at least annually with the chief financial officer, the senior
internal auditing executive and the independent auditor in separate
executive sessions;
25. Review all related-party transactions for potential conflict of
interest situations and approve such related-party transactions;
26. Establish policies for the hiring of employees and former employees
of the independent auditor; and
27. Establish procedures for the confidential and anonymous receipt,
retention and treatment of complaints regarding the Company's
accounting, internal accounting controls and auditing matters.
While the Audit Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Company's financial statements are complete and
accurate and are in accordance with generally accepted accounting principles.
This is the responsibility of management and the independent auditor. Nor is it
the duty of the Audit Committee to conduct investigations, to resolve
disagreements, if any, between management and the independent auditor or to
assure compliance with laws and regulations and the Company's Code of Business
Conduct and Ethics. Any responsibilities that the Audit Committee has the power
to act upon, may be recommended to the Board to act upon.
3
Exhibit A
Guidelines for the Retention of the
Independent Auditor for Non-Audit Services
Allowable Non-Audit Services
o Foreign statutory audits
o 11K and ERISA audits
o Carve-out audits in connection with divestitures
o Tax compliance including preparation and filing returns
o Tax counseling
o Due diligence assistance in connection with M&A transactions
o Providing "comfort letters" in connection with securities offerings
o Litigation support involving disputes related to financial
statements audited by the independent auditor
Unallowable Non-Audit Services
o Information Technology consulting services
o Human Resources consulting services
o Management consulting services
o Valuation services
o M&A transaction structuring services
EXHIBIT B
================================================================================
ALFACELL CORPORATION
2004 STOCK INCENTIVE PLAN
NOVEMBER 12, 2003
================================================================================
Table of Contents
Section 1. Purpose..........................................................1
Section 2. Definitions......................................................1
Section 3. Administration...................................................3
(a) Power and Authority of the Committee.............................3
(b) Power and Authority of the Board.................................4
Section 4. Shares Available for Awards......................................4
(a) Shares Available.................................................4
(b) Accounting for Awards............................................4
(c) Adjustments......................................................4
(d) Award Limitations Under the Plan.................................5
Section 5. Eligibility......................................................5
Section 6. Awards...........................................................5
(a) Options..........................................................5
(b) Stock Appreciation Rights........................................7
(c) Restricted Stock and Restricted Stock Units......................7
(d) Performance Awards...............................................8
(e) Dividend Equivalents.............................................8
(f) Other Stock Grants...............................................8
(g) Other Stock-Based Awards.........................................8
(h) General..........................................................9
Section 7. Amendment and Termination; Adjustments..........................10
(a) Amendments to the Plan..........................................10
(b) Amendments to Awards............................................11
(c) Correction of Defects, Omissions and Inconsistencies............11
Section 8. Income Tax Withholding..........................................11
Section 9. General Provisions..............................................12
(a) No Rights to Awards.............................................12
(b) Award Agreements................................................12
(c) Plan Provisions Control.........................................12
(d) No Rights of Stockholders.......................................12
(e) No Limit on Other Compensation Arrangements.....................12
(f) No Right to Employment..........................................12
(g) Governing Law...................................................13
(h) Severability....................................................13
(i) No Trust or Fund Created........................................13
(j) Other Benefits..................................................13
ii
(k) No Fractional Shares............................................13
(l) Headings........................................................13
(m) Section 16 Compliance; Section 162(m) Administration............13
(n) Conditions Precedent to Issuance of Shares......................14
Section 10. Effective Date of the Plan......................................14
Section 11. Term of the Plan................................................14
iii
ALFACELL CORPORATION
2004 STOCK INCENTIVE PLAN
Section 1. Purpose
The purpose of the Plan is to promote the interests of the Company and its
stockholders by aiding the Company in attracting and retaining employees,
officers, consultants, independent contractors, non-employee directors and other
persons or entities capable of assuring the future success of the Company, to
offer such persons incentives to put forth maximum efforts for the success of
the Company's business and to afford such persons an opportunity to acquire a
proprietary interest in the Company.
Section 2. Definitions
As used in the Plan, the following terms shall have the meanings set forth
below:
(a) "Affiliate" shall mean (i) any entity that, directly or indirectly
through one or more intermediaries, is controlled by the Company and (ii) any
entity in which the Company has a significant equity interest, in each case as
determined by the Committee.
(b) "Award" shall mean any Option, Stock Appreciation Right, Restricted
Stock, Restricted Stock Unit, Performance Award, Dividend Equivalent, Other
Stock Grant or Other Stock-Based Award granted under the Plan.
(c) "Award Agreement" shall mean any written agreement, contract or other
instrument or document evidencing any Award granted under the Plan. Each Award
Agreement shall be subject to the applicable terms and conditions of the Plan
and any other terms and conditions (not inconsistent with the Plan) determined
by the Committee.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and any regulations promulgated thereunder.
(f) "Committee" shall mean a committee of Directors designated by the
Board to administer the Plan, which shall initially be the Company's
compensation committee. The Committee shall be comprised of not less than such
number of Directors as shall be required to permit Awards granted under the Plan
to qualify under Rule 16b-3 and Section 162(m) of the Code, and each member of
the Committee shall be a "Non-Employee Director."
(g) "Company" shall mean Alfacell Corporation, a Delaware corporation, and
any successor corporation.
(h) "Director" shall mean a member of the Board, including any
Non-Employee Director.
1
(i) "Dividend Equivalent" shall mean any right granted under Section 6(e)
of the Plan.
(j) "Eligible Person" shall mean any employee, officer, consultant,
independent contractor or director providing services to the Company, any
Affiliate or any other person the Committee determines to be an Eligible Person.
(k) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(l) "Fair Market Value" shall mean, with respect to any property
(including, without limitation, any Shares or other securities), the fair market
value of such property determined by such methods or procedures as shall be
established from time to time by the Committee. Notwithstanding the foregoing
and unless otherwise determined by the Committee, the Fair Market Value of a
Share as of a given date shall be, if the Shares are then listed on the OTC
Bulletin Board, the average of the high and low sales price of one Share as
reported on the OTC Bulletin Board on the last trading day before such date.
(m) "Incentive Stock Option" shall mean an option granted under Section
6(a) of the Plan that is intended to qualify as an "incentive stock option" in
accordance with the terms of Section 422 of the Code or any successor provision.
(n) "Non-Employee Director" shall mean any Director who is not also an
employee of the Company or an Affiliate within the meaning of Rule 16b-3 and an
"outside director" within the meaning of Section 162(m) of the Code.
(o) "Non-Qualified Stock Option" shall mean an option granted under
Section 6(a) of the Plan that is not an Incentive Stock Option.
(p) "Option" shall mean an Incentive Stock Option or a Non-Qualified Stock
Option.
(q) "Other Stock Grant" shall mean any right granted under Section 6(f) of
the Plan.
(r) "Other Stock-Based Award" shall mean any right granted under Section
6(g) of the Plan.
(s) "Participant" shall mean an Eligible Person designated to be granted
an Award under the Plan.
(t) "Performance Award" shall mean any right granted under Section 6(d) of
the Plan.
(u) "Person" shall mean any individual or entity, including a corporation,
partnership, limited liability company, association, joint venture or trust.
(v) "Plan" shall mean the Alfacell Corporation 2004 Stock Incentive Plan,
as amended from time to time, the provisions of which are set forth herein.
(w) "Reload Option" shall mean any Option granted under Section 6(a)(v) of
the Plan.
2
(x) "Restricted Stock" shall mean any Share granted under Section 6(c) of
the Plan.
(y) "Restricted Stock Unit" shall mean any unit granted under Section 6(c)
of the Plan evidencing the right to receive a Share (or a cash payment equal to
the Fair Market Value of a Share) at some future date.
(z) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended, or
any successor rule or regulation.
(aa) "Securities Act" shall mean the Securities Act of 1933, as amended.
(bb) "Share" or "Shares" shall mean a share or shares of common stock,
$.001 par value per share, of the Company or such other securities or property
as may become subject to Awards pursuant to an adjustment made under Section
4(c) of the Plan.
(cc) "Stock Appreciation Right" shall mean any right granted under Section
6(b) of the Plan.
Section 3. Administration
(a) Power and Authority of the Committee. The Plan shall be administered
by the Committee. Subject to the express provisions of the Plan and to
applicable law, the Committee shall have full power and authority to: (i)
designate Participants; (ii) determine the type or types of Awards to be granted
to each Participant under the Plan; (iii) determine the number of Shares to be
covered by (or the method by which payments or other rights are to be determined
in connection with) each Award; (iv) determine the terms and conditions of any
Award or Award Agreement; (v) amend the terms and conditions of any Award or
Award Agreement and accelerate the exercisability of any Option or waive any
restrictions relating to any Award; (vi) determine whether, to what extent and
under what circumstances Awards may be exercised in cash, Shares, promissory
notes (provided, however, that the par value of any Shares to be issued pursuant
to such exercise shall be paid in the form of cash, services rendered, personal
property, real property or a combination thereof and the acceptance of such
promissory notes does not conflict with Section 402 of the Sarbanes-Oxley Act of
2002) other securities, other Awards or other property, or canceled, forfeited
or suspended; (vii) determine whether, to what extent and under what
circumstances cash, Shares, promissory notes (provided, however, that the
acceptance of such promissory notes does not conflict with Section 402 of the
Sarbanes-Oxley Act of 2002), other securities, other Awards, other property and
other amounts payable with respect to an Award under the Plan shall be deferred
either automatically or at the election of the holder thereof or the Committee
(provided, however, that the par value of any Shares and Restricted Stock shall
be paid in the form of cash, services rendered, personal property, real property
or a combination thereof prior to their issuance); (viii) interpret and
administer the Plan and any instrument or agreement, including an Award
Agreement, relating to the Plan; (ix) establish, amend, suspend or waive such
rules and regulations and appoint such agents as it shall deem appropriate for
the proper administration of the Plan; and (x) make any other determination and
take any other action that the Committee deems necessary or desirable for the
administration of the Plan. Unless otherwise expressly provided in the Plan, all
designations,
3
determinations, interpretations and other decisions under or with respect to the
Plan or any Award shall be within the sole discretion of the Committee, may be
made at any time and shall be final, conclusive and binding upon any Eligible
Person and any holder or beneficiary of any Award.
(b) Power and Authority of the Board. Notwithstanding anything to the
contrary contained herein, the Board may, at any time and from time to time,
without any further action of the Committee, exercise the powers and duties of
the Committee under the Plan.
Section 4. Shares Available for Awards
(a) Shares Available. Subject to adjustment as provided in Section 4(c) of
the Plan, the aggregate number of Shares that may be issued under the Plan shall
be 8,500,000. Shares to be issued under the Plan may be either authorized but
unissued Shares or Shares re-acquired and held in treasury. Notwithstanding the
foregoing, (i) the number of Shares available for granting Incentive Stock
Options under the Plan shall not exceed 1,500,000, subject to adjustment as
provided in Section 4(c) of the Plan and subject to the provisions of Section
422 or 424 of the Code or any successor provision and (ii) the number of Shares
available for granting Restricted Stock and Restricted Stock Units shall not
exceed 1,500,000, subject to adjustment as provided in Section 4(c) of the Plan.
(b) Accounting for Awards. For purposes of this Section 4, if an Award
entitles the holder thereof to receive or purchase Shares, the number of Shares
covered by such Award or to which such Award relates shall be counted on the
date of grant of such Award against the aggregate number of Shares available for
granting Awards under the Plan. Any Shares that are used by a Participant as
full or partial payment to the Company of the purchase price relating to an
Award, including Shares tendered in connection with the grant of a Reload
Option, or in connection with the satisfaction of tax obligations relating to an
Award, shall again be available for granting Awards (other than Incentive Stock
Options) under the Plan. In addition, if any Shares covered by an Award or to
which an Award relates are not purchased or are forfeited, or if an Award
otherwise terminates without delivery of any Shares, then the number of Shares
counted against the aggregate number of Shares available under the Plan with
respect to such Award, to the extent of any such forfeiture or termination,
shall again be available for granting Awards under the Plan.
(c) Adjustments. In the event that the Committee shall determine that any
dividend or other distribution (whether in the form of cash, Shares, other
securities or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase or exchange of Shares or other securities of the Company, issuance of
warrants or other rights to purchase Shares or other securities of the Company
or other similar corporate transaction or event affects the Shares such that an
adjustment is determined by the Committee to be appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan, then the Committee shall, in such manner as it
may deem equitable, adjust any or all of (i) the number and type of Shares (or
other securities or other property) that thereafter may be made the subject of
Awards, (ii) the number and type of Shares (or other securities or other
property) subject to outstanding Awards and (iii) the purchase price or exercise
price with respect to any Award; provided,
4
however, that the number of Shares covered by any Award or to which such Award
relates shall always be a whole number.
Notwithstanding the above, in the event (i) of any reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase or exchange of Shares
or other securities of the Company or any other similar corporate transaction or
event or (ii) the Company shall enter into a written agreement to undergo such a
transaction or event, the Committee may, in its sole discretion, cancel any or
all outstanding Awards and pay to the holders of any such Awards that are
otherwise vested, in cash, the value of such Awards based upon the price per
share of capital stock received or to be received by other stockholders of the
Company in such event.
(d) Award Limitations Under the Plan. No Eligible Person may be granted
any Award or Awards under the Plan, the value of which Award or Awards is based
solely on an increase in the value of the Shares after the date of grant of such
Award or Awards, for more than 1,000,000 Shares (subject to adjustment as
provided for in Section 4(c) of the Plan), in the aggregate in any taxable year.
The foregoing annual limitation specifically includes the grant of any Award or
Awards representing "qualified performance-based compensation" within the
meaning of Section 162(m) of the Code.
Section 5. Eligibility
Any Eligible Person shall be eligible to be designated a Participant. In
determining which Eligible Persons shall receive an Award and the terms of any
Award, the Committee may take into account the nature of the services rendered
by the respective Eligible Persons, their present and potential contributions to
the success of the Company or such other factors as the Committee, in its
discretion, shall deem relevant. Notwithstanding the foregoing, an Incentive
Stock Option may only be granted to full-time or part-time employees (which term
as used herein includes, without limitation, officers and directors who are also
employees), and an Incentive Stock Option shall not be granted to an employee of
an Affiliate unless such Affiliate is also a "subsidiary corporation" of the
Company within the meaning of Section 424(f) of the Code or any successor
provision.
Section 6. Awards
(a) Options. The Committee is hereby authorized to grant Options to
Eligible Persons with the following terms and conditions and with such
additional terms and conditions not inconsistent with the provisions of the Plan
as the Committee shall determine:
(i) Exercise Price. The purchase price per Share purchasable under
an Option shall be determined by the Committee; provided, however, that
such purchase price shall not be less than 100% of the Fair Market Value
of a Share on the date of grant of such Option.
(ii) Option Term. The term of each Option shall be fixed by the
Committee at the time of grant.
(iii) Time and Method of Exercise. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part and
the method or
5
methods by which, and the form or forms (including, without limitation,
cash, Shares, promissory notes (provided, however, that the par value of
any Shares to be issued pursuant to such exercise shall be paid in the
form of cash, services rendered, personal property, real property or a
combination thereof and the acceptance of such promissory notes does not
conflict with Section 402 of the Sarbanes-Oxley Act of 2002) other
securities, other Awards or other property, or any combination thereof,
having a Fair Market Value on the exercise date equal to the applicable
exercise price) in which, payment of the exercise price with respect
thereto may be made or deemed to have been made.
(iv) Incentive Stock Options. Notwithstanding anything in the Plan
to the contrary, the following additional provisions shall apply to the
grant of stock options which are intended to qualify as Incentive Stock
Options:
(A) The Committee will not grant Incentive Stock Options in
which the aggregate Fair Market Value (determined as of the time the
option is granted) of the Shares with respect to which Incentive
Stock Options are exercisable for the first time by any Participant
during any calendar year (under this Plan and all other plans of the
Company and its Affiliates) shall exceed $100,000.
(B) All Incentive Stock Options must be granted within ten
years from the earlier of the date on which this Plan was adopted by
the Board or the date this Plan was approved by the stockholders of
the Company.
(C) Unless sooner exercised, all Incentive Stock Options shall
expire and no longer be exercisable no later than 10 years after the
date of grant; provided, however, that in the case of a grant of an
Incentive Stock Option to a Participant who, at the time such Option
is granted, owns (within the meaning of Section 422 of the Code)
stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company or of its Affiliate, such
Incentive Stock Option shall expire and no longer be exercisable no
later than five years from the date of grant.
(D) The purchase price per Share for an Incentive Stock Option
shall be not less than 100% of the Fair Market Value of a Share on
the date of grant of the Incentive Stock Option; provided, however,
that, in the case of the grant of an Incentive Stock Option to a
Participant who, at the time such Option is granted, owns (within
the meaning of Section 422 of the Code) stock possessing more than
10% of the total combined voting power of all classes of stock of
the Company or of its Affiliate, the purchase price per Share
purchasable under an Incentive Stock Option shall be not less than
110% of the Fair Market Value of a Share on the date of grant of the
Incentive Stock Option.
(E) Any Incentive Stock Option authorized under the Plan shall
contain such other provisions as the Committee shall deem advisable,
but shall in all events be consistent with and contain all
provisions required in order to qualify the Option as an Incentive
Stock Option.
6
(v) Reload Options. The Committee may grant Reload Options,
separately or together with another Option and subject to the terms and
conditions established by the Committee, pursuant to which the Participant
would be granted a new Non-Qualified Stock Option when the payment of the
exercise price of a previously granted option for common stock is made by
the delivery of Shares owned by the Participant pursuant to Section
6(a)(iii) hereof or the relevant provisions of another plan of the
Company, when Shares are tendered or withheld as payment of the amount to
be withheld under applicable income tax laws in connection with the
exercise of an Option, which new Non-Qualified Stock Option would be a
Non-Qualified Stock Option to purchase the number of Shares not exceeding
the sum of (A) the number of Shares so provided as consideration upon the
exercise of the previously granted option to which such Reload Option
relates and (B) the number of Shares, if any, tendered or withheld as
payment of the amount to be withheld under applicable tax laws in
connection with the exercise of the option to which such Reload Option
relates pursuant to the relevant provisions of the plan or agreement
relating to such option. Reload Options may be granted with respect to
options previously granted under the Plan or any other stock option plan
of the Company or any Affiliate or may be granted in connection with any
option granted under the Plan or any other stock option plan of the
Company or any Affiliate at the time of such grant. Such Reload Options
shall have a per share exercise price equal to the Fair Market Value of
one Share as of the date of grant of the new Non-Qualified Stock Option.
Any Reload Option shall be subject to availability of sufficient Shares
for grant under the Plan. Shares surrendered as part or all of the
exercise price of the Non-Qualified Stock Option to which it relates that
have been owned by the optionee less than six months will not be counted
for purposes of determining the number of Shares that may be purchased
pursuant to a Reload Option.
(b) Stock Appreciation Rights. The Committee is hereby authorized to grant
Stock Appreciation Rights to Eligible Persons subject to the terms of the Plan.
Each Stock Appreciation Right granted under the Plan shall confer on the holder
upon exercise the right to receive, as determined by the Committee, cash or a
number of Shares equal to the excess of (i) the Fair Market Value of one Share
on the date of exercise (or, if the Committee shall so determine, at any time
during a specified period before or after the date of exercise) over (ii) the
grant price of the Stock Appreciation Right as determined by the Committee,
which grant price shall not be less than 100% of the Fair Market Value of one
Share on the date of grant of the Stock Appreciation Right. Subject to the terms
of the Plan, the grant price, term, methods of exercise, dates of exercise,
methods of settlement and any other terms and conditions (including conditions
or restrictions on the exercise thereof) of any Stock Appreciation Right shall
be as determined by the Committee.
(c) Restricted Stock and Restricted Stock Units. The Committee is hereby
authorized to grant Restricted Stock and Restricted Stock Units to Eligible
Persons with the following terms and conditions and with such additional terms
and conditions not inconsistent with the provisions of the Plan as the Committee
shall determine:
(i) Restrictions. Shares of Restricted Stock and Restricted Stock
Units shall be subject to such restrictions as the Committee may impose
(including, without limitation, a restriction on or prohibition against
the right to receive any dividend or other
7
right or property with respect thereto), which restrictions may lapse
separately or in combination at such time or times, in such installments
or otherwise as the Committee may deem appropriate.
(ii) Stock Certificates. Any Restricted Stock granted under the Plan
shall be evidenced by the issuance of a stock certificate or certificates,
which shall be held by the Company. Such certificate or certificates shall
be registered in the name of the Participant and shall bear an appropriate
legend referring to the applicable Award Agreement and possible forfeiture
of such shares of Restricted Stock.
(iii) Forfeiture. Except as otherwise determined by the Committee,
upon a Participant's termination of employment (as determined under
criteria established by the Committee) during the applicable restriction
period, all applicable Shares of Restricted Stock and Restricted Stock
Units at such time subject to restriction shall be forfeited and
reacquired by the Company; provided, however, that the Committee may, when
it finds that a waiver would be in the best interest of the Company, waive
in whole or in part any or all remaining restrictions with respect to
Shares of Restricted Stock or Restricted Stock Units.
(d) Performance Awards. The Committee is hereby authorized to grant
Performance Awards to Eligible Persons subject to the terms of the Plan. A
Performance Award granted under the Plan (i) may be denominated or payable in
cash, Shares (including, without limitation, Restricted Stock and Restricted
Stock Units), other securities, other Awards or other property and (ii) shall
confer on the holder thereof the right to receive payments, in whole or in part,
upon the achievement of such performance goals during such performance periods
as the Committee shall establish. Subject to the terms of the Plan, the
performance goals to be achieved during any performance period, the length of
any performance period, the amount of any Performance Award granted, the amount
of any payment or transfer to be made pursuant to any Performance Award and any
other terms and conditions of any Performance Award shall be determined by the
Committee.
(e) Dividend Equivalents. The Committee is hereby authorized to grant
Dividend Equivalents to Eligible Persons under which the Participant shall be
entitled to receive payments (in cash, Shares, other securities, other Awards or
other property as determined in the discretion of the Committee) equivalent to
the amount of cash dividends paid by the Company to holders of Shares with
respect to a number of Shares determined by the Committee. Subject to the terms
of the Plan, such Dividend Equivalents may have such terms and conditions as the
Committee shall determine.
(f) Other Stock Grants. The Committee is hereby authorized, subject to the
terms of the Plan, to grant to Eligible Persons Shares without restrictions
thereon as are deemed by the Committee to be consistent with the purpose of the
Plan.
(g) Other Stock-Based Awards. The Committee is hereby authorized to grant
to Eligible Persons, subject to the terms of the Plan, such other Awards that
are denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to, Shares (including, without limitation,
securities convertible into Shares), as are deemed by the
8
Committee to be consistent with the purpose of the Plan. Shares or other
securities delivered pursuant to a purchase right granted under this Section
6(g) shall be purchased for such consideration, which may be paid by such method
or methods and in such form or forms (including, without limitation, cash,
Shares, promissory notes promissory notes (provided, however, that the par value
of any Shares to be issued pursuant to such exercise shall be paid in the form
of cash, services rendered, personal property, real property or a combination
thereof and the acceptance such promissory notes does not conflict with Section
402 of the Sarbanes-Oxley Act of 2002) other securities, other Awards or other
property or any combination thereof), as the Committee shall determine, the
value of which consideration, as established by the Committee, shall not be less
than 100% of the Fair Market Value of such Shares or other securities as of the
date such purchase right is granted.
(h) General.
(i) Consideration for Awards. Awards may be granted for no cash
consideration or for any cash or other consideration as determined by the
Committee and required by applicable law.
(ii) Awards May Be Granted Separately or Together. Awards may, in
the discretion of the Committee, be granted either alone or in addition
to, in tandem with or in substitution for any other Award or any award
granted under any plan of the Company or any Affiliate. Awards granted in
addition to or in tandem with other Awards or in addition to or in tandem
with awards granted under any such other plan of the Company or any
Affiliate may be granted either at the same time as or at a different time
from the grant of such other Awards or awards.
(iii) Forms of Payment under Awards. Subject to the terms of the
Plan, payments or transfers to be made by the Company or an Affiliate upon
the grant, exercise or payment of an Award may be made in such form or
forms as the Committee shall determine (including, without limitation,
cash, Shares, promissory notes (provided, however, that the acceptance of
such promissory notes does not conflict with Section 402 of the
Sarbanes-Oxley Act of 2002), other securities, other Awards or other
property or any combination thereof), and may be made in a single payment
or transfer, in installments or on a deferred basis, in each case in
accordance with rules and procedures established by the Committee. Such
rules and procedures may include, without limitation, provisions for the
payment or crediting of reasonable interest on installment or deferred
payments or the grant or crediting of Dividend Equivalents with respect to
installment or deferred payments.
(iv) Limits on Transfer of Awards. No Award (other than Other Stock
Grants) and no right under any such Award shall be transferable by a
Participant otherwise than by will or by the laws of descent and
distribution and the Company shall not be required to recognize any
attempted assignment of such rights by any Participant; provided, however,
that, if so determined by the Committee, a Participant may, in the manner
established by the Committee, designate a beneficiary or beneficiaries to
exercise the rights of the Participant and receive any property
distributable with respect to any Award upon the death of the Participant;
provided, further, that, if so determined by the
9
Committee, a Participant may transfer a Non-Qualified Stock Option to any
Family Member (as such term is defined in the General Instructions to Form
S-8 (or successor to such Instructions or such Form)) at any time that
such Participant holds such Option, provided that the Participant may not
receive any consideration for such transfer, the Family Member may not
make any subsequent transfers other than by will or by the laws of descent
and distribution and the Company receives written notice of such transfer,
provided, further, that, if so determined by the Committee and except in
the case of an Incentive Stock Option, Awards may be transferable as
determined by the Committee. Except as otherwise determined by the
Committee, each Award (other than an Incentive Stock Option) or right
under any such Award shall be exercisable during the Participant's
lifetime only by the Participant or, if permissible under applicable law,
by the Participant's guardian or legal representative. Except as otherwise
determined by the Committee, no Award (other than an Incentive Stock
Option) or right under any such Award may be pledged, alienated, attached
or otherwise encumbered, and any purported pledge, alienation, attachment
or other encumbrance thereof shall be void and unenforceable against the
Company or any Affiliate.
(v) Term of Awards. Subject to Section 6(a)(iv)(C) of the Plan, the
term of each Award shall be for such period as may be determined by the
Committee.
(vi) Restrictions; Securities Exchange Listing. All Shares or other
securities delivered under the Plan pursuant to any Award or the exercise
thereof shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the Plan,
applicable federal or state securities laws and regulatory requirements,
and the Committee may direct appropriate stop transfer orders and cause
other legends to be placed on the certificates for such Shares or other
securities to reflect such restrictions. If the Shares or other securities
are traded on a securities exchange, the Company shall not be required to
deliver any Shares or other securities covered by an Award unless and
until such Shares or other securities have been admitted for trading on
such securities exchange.
(vii) Prohibition on Repricing. Except as provided in Section 4(c)
hereof, no Option or Stock Appreciation Right may be amended to reduce its
initial exercise price and no Option shall be canceled and replaced with
Options or Stock Appreciation Rights having a lower exercise price,
without the approval of the stockholders of the Company or unless there
would be no material adverse effect on the Company's financial statements
as prepared in accordance with Generally Accepted Accounting Principles.
Section 7. Amendment and Termination; Adjustments
(a) Amendments to the Plan. The Board may amend, alter, suspend,
discontinue or terminate the Plan at any time; provided, however, that,
notwithstanding any other provision of the Plan or any Award Agreement, without
the approval of the stockholders of the Company, no such amendment, alteration,
suspension, discontinuation or termination shall be made that, absent such
approval:
10
(i) violates the rules or regulations of the National Association of
Securities Dealers, Inc. or any other securities exchange that are
applicable to the Company;
(ii) causes the Company to be unable, under the Code, to grant
Incentive Stock Options under the Plan;
(iii) increases the number of shares authorized under the Plan as
specified in Section 4(a) of the Plan;
(iv) permits the award of Options or Stock Appreciation Rights at a
price less than 100% of the Fair Market Value of a Share on the date of
grant of such Option or Stock Appreciation Right, as prohibited by
Sections 6(a)(i) and 6(b)(ii) of the Plan or the repricing of Options or
Stock Appreciation Rights, as prohibited by Section 6(h)(vii) of the Plan;
or
(v) would prevent the grant of Options or Stock Appreciation Rights
that would qualify under Section 162(m) of the Code.
(b) Amendments to Awards. The Committee may waive any conditions of or
rights of the Company under any outstanding Award, prospectively or
retroactively. Except as otherwise provided herein or in an Award Agreement, the
Committee may not amend, alter, suspend, discontinue or terminate any
outstanding Award, prospectively or retroactively, if such action would
adversely affect the rights of the holder of such Award, without the consent of
the Participant or holder or beneficiary thereof.
(c) Correction of Defects, Omissions and Inconsistencies. The Committee
may correct any defect, supply any omission or reconcile any inconsistency in
the Plan or any Award in the manner and to the extent it shall deem desirable to
carry the Plan into effect.
Section 8. Income Tax Withholding
In order to comply with all applicable federal, state or local income tax
laws or regulations, the Company may take such action as it deems appropriate to
ensure that all applicable federal, state or local payroll, withholding, income
or other taxes, which are the sole and absolute responsibility of a Participant,
are withheld or collected from such Participant. In order to assist a
Participant in paying all or a portion of the federal, state and local taxes to
be withheld or collected upon exercise or receipt of (or the lapse of
restrictions relating to) an Award, the Committee, in its discretion and subject
to such additional terms and conditions as it may adopt, may permit the
Participant to satisfy such tax obligation by (i) electing to have the Company
withhold a portion of the Shares otherwise to be delivered upon exercise or
receipt of (or the lapse of restrictions relating to) such Award with a Fair
Market Value equal to the amount of such taxes (but only to the extent of the
minimum amount required to be withheld under applicable laws or regulations) or
(ii) delivering to the Company Shares other than Shares issuable upon exercise
or receipt of (or the lapse of restrictions relating to) such Award with a Fair
Market Value equal to the amount of such taxes. The election, if any, must be
made on or before the date that the amount of tax to be withheld is determined.
11
Section 9. General Provisions
(a) No Rights to Awards. No Eligible Person or other Person shall have any
claim to be granted any Award under the Plan, and there is no obligation for
uniformity of treatment of Eligible Persons or holders or beneficiaries of
Awards under the Plan. The terms and conditions of Awards need not be the same
with respect to any Participant or with respect to different Participants.
(b) Award Agreements. No Participant will have rights under an Award
granted to such Participant unless and until an Award Agreement shall have been
duly executed on behalf of the Company and, if requested by the Company, signed
by the Participant.
(c) Plan Provisions Control. In the event that any provision of an Award
Agreement conflicts with or is inconsistent in any respect with the terms of the
Plan as set forth herein or subsequently amended, the terms of the Plan shall
control.
(d) No Rights of Stockholders. Except with respect to Shares of Restricted
Stock as to which the Participant has been granted the right to vote, neither a
Participant nor the Participant's legal representative shall be, or have any of
the rights and privileges of, a stockholder of the Company with respect to any
Shares issuable to such Participant upon the exercise or payment of any Award,
in whole or in part, unless and until such Shares have been issued in the name
of such Participant or such Participant's legal representative without
restrictions thereto.
(e) No Limit on Other Compensation Arrangements. Nothing contained in the
Plan shall prevent the Company or any Affiliate from adopting or continuing in
effect other or additional compensation arrangements, and such arrangements may
be either generally applicable or applicable only in specific cases.
(f) No Right to Employment. The grant of an Award shall not be construed
as giving a Participant the right to be retained in the employ, or as giving a
director of the Company or an Affiliate the right to continue as a director or
an Affiliate of the Company or any Affiliate, nor will it affect in any way the
right of the Company or an Affiliate to terminate such employment at any time,
with or without cause. In addition, the Company or an Affiliate may at any time
dismiss a Participant from employment, or terminate the term of a director of
the Company or an Affiliate, free from any liability or any claim under the Plan
or any Award, unless otherwise expressly provided in the Plan or in any Award
Agreement. Nothing in this Plan shall confer on any person any legal or
equitable right against the Company or any Affiliate, directly or indirectly, or
give rise to any cause of action at law or in equity against the Company or an
Affiliate. The Awards granted hereunder shall not form any part of the wages or
salary of any Eligible Person for purposes of severance pay or termination
indemnities, irrespective of the reason for termination of employment. Under no
circumstances shall any person ceasing to be an employee of the Company or any
Affiliate be entitled to any compensation for any loss of any right or benefit
under the Plan which such employee might otherwise have enjoyed but for
termination of employment, whether such compensation is claimed by way of
damages for wrongful or unfair dismissal, breach of contract or otherwise. By
participating in the Plan, each Participant shall be deemed to have accepted all
the conditions of the Plan and the terms and
12
conditions of any rules and regulations adopted by the Committee and shall be
fully bound thereby.
(g) Governing Law. The validity, construction and effect of the Plan or
any Award, and any rules and regulations relating to the Plan or any Award,
shall be determined in accordance with the internal laws, and not the law of
conflicts, of the State of Delaware.
(h) Severability. If any provision of the Plan or any Award is or becomes
or is deemed to be invalid, illegal or unenforceable in any jurisdiction or
would disqualify the Plan or any Award under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be so construed or deemed amended without, in
the determination of the Committee, materially altering the purpose or intent of
the Plan or the Award, such provision shall be stricken as to such jurisdiction
or Award, and the remainder of the Plan or any such Award shall remain in full
force and effect.
(i) No Trust or Fund Created. Neither the Plan nor any Award shall create
or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any Affiliate and an Eligible Person or any
other Person. To the extent that any Person acquires a right to receive payments
from the Company or any Affiliate pursuant to an Award, such right shall be no
greater than the right of any unsecured general creditor of the Company or any
Affiliate.
(j) Other Benefits. No compensation or benefit awarded to or realized by
any Participant under the Plan shall be included for the purpose of computing
such Participant's compensation under any compensation-based retirement,
disability, or similar plan of the Company unless required by law or otherwise
provided by such other plan.
(k) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall determine
whether cash shall be paid in lieu of any fractional Shares or whether such
fractional Shares or any rights thereto shall be canceled, terminated or
otherwise eliminated.
(l) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
(m) Section 16 Compliance; Section 162(m) Administration. The Plan is
intended to comply in all respects with Rule 16b-3 or any successor provision,
as in effect from time to time, and in all events the Plan shall be construed in
accordance with the requirements of Rule 16b-3. If any Plan provision does not
comply with Rule 16b-3 as hereafter amended or interpreted, the provision shall
be deemed inoperative. The Board of Directors, in its absolute discretion, may
bifurcate the Plan so as to restrict, limit or condition the use of any
provision of the Plan with respect to persons who are officers or directors
subject to Section 16 of the Exchange Act without so restricting, limiting or
conditioning the Plan with respect to other Eligible Persons. With respect to
Options and Stock Appreciation Rights, the Company intends to have the Plan
administered in accordance with the requirements for the award of "qualified
performance-based compensation" within the meaning of Section 162(m) of the
Code.
13
(n) Conditions Precedent to Issuance of Shares. Shares shall not be issued
pursuant to the exercise or payment of the purchase price relating to an Award
unless such exercise or payment and the issuance and delivery of such Shares
pursuant thereto shall comply with all relevant provisions of law, including,
without limitation, the Securities Act, the Exchange Act, the rules and
regulations promulgated thereunder, the requirements of any applicable Stock
Exchange and the Delaware General Corporation Law. As a condition to the
exercise or payment of the purchase price relating to such Award, the Company
may require that the person exercising or paying the purchase price represent
and warrant that the Shares are being purchased only for investment and without
any present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation and warranty is required by law.
Section 10. Effective Date of the Plan
The Plan shall be effective upon its adoption by the Board, provided,
however, that in the event the Plan is not approved by the stockholders of the
Company within one year thereafter, the Plan will be terminated and all Awards
granted under the Plan will be terminated and deemed null and void, provided,
however, that with respect to any Shares (including Shares of Restricted Stock)
issued under the Plan prior to such termination, the Plan shall be deemed to be
effective.
Section 11. Term of the Plan
No Award shall be granted under the Plan after November 12, 2013 or any
earlier date of discontinuation or termination established pursuant to Section
7(a) of the Plan. However, unless otherwise expressly provided in the Plan or in
an applicable Award Agreement, any Award theretofore granted may extend beyond
such date, and the authority of the Committee provided for hereunder with
respect to the Plan and any Awards, and the authority of the Board to amend the
Plan, shall extend beyond the termination of the Plan.
14