UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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Alfacell Corporation
(Name of Registrant as Specified In Its Charter)
N/A
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 31, 2007
To Our Stockholders:
We are pleased to notify you that the annual meeting of stockholders (the
"Annual Meeting") of Alfacell Corporation, a Delaware corporation ("Alfacell" or
the "Company"), will be held at the Liberty International Airport Marriott
Hotel, Newark International Airport, Newark, New Jersey 07114 on Wednesday,
January 31, 2007 at 2:00 p.m. local time, for the following purposes as more
fully described in the accompanying Proxy Statement:
1. To elect seven directors, each for a term of one year, to hold
office until the fiscal 2007 Annual Meeting of Stockholders and
until their successors are elected and qualified (Proposal No.1);
2. To ratify the appointment of J.H. Cohn LLP, independent registered
public accounting firm, to audit the financial statements of the
Company for the fiscal year ending July 31, 2007 (Proposal No. 2);
and
3. To transact such other matters as may properly come before the
Annual Meeting or any postponement or 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 December 4, 2006 are
entitled to vote at the Annual Meeting or at any postponement or adjournment
thereof.
WE HOPE 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,
/s/ Kuslima Shogen
------------------
Kuslima Shogen
Chief Executive Officer and Chairman of the Board
December 22, 2006
TABLE OF CONTENTS
Page
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PROXY STATEMENT AND NOTICE OF ANNUAL MEETING OF STOCKHOLDERS...................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
Director nomination process.................................................7
Nominees standing for election to the Board.................................9
Business experience of nominees to the Board................................9
Family relationships.......................................................11
Board recommendation and stockholder vote required.........................11
How often did the Board meet during 2006?..................................11
Which directors are "independent"?.........................................11
How are directors compensated?.............................................11
DIRECTORS' STOCK OPTIONS......................................................12
BOARD COMMITTEE MEMBERSHIP....................................................12
What committees has the Board established?.................................12
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS.......................14
COMMUNICATIONS WITH DIRECTORS.................................................15
PRINCIPAL ACCOUNTANT FEES AND SERVICES........................................15
IDENTIFICATION OF EXECUTIVE OFFICERS..........................................16
BUSINESS EXPERIENCE OF EXECUTIVE OFFICERS.....................................16
i
SUMMARY COMPENSATION TABLE....................................................16
OPTION GRANTS IN LAST FISCAL YEAR.............................................17
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES.................................................................17
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION...................18
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS................18
Chief Executive Officer's Compensation.....................................18
STOCKHOLDER RETURN PERFORMANCE GRAPH..........................................19
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................19
PROPOSAL NO. 2 -- RATIFICATION OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM...............................................................20
Board recommendation and stockholder vote required.........................20
CODE OF ETHICS................................................................20
ANNUAL REPORT.................................................................21
STOCKHOLDERS' PROPOSALS.......................................................21
GENERAL.......................................................................21
OTHER MATTERS.................................................................21
APPENDIX A....................................................................22
ALFACELL CORPORATION PROXY....................................................26
ii
Alfacell Corporation
225 Belleville Avenue
Bloomfield, New Jersey 07003
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PROXY STATEMENT AND NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS
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Alfacell Corporation ("Alfacell" or the "Company") is furnishing this
Proxy Statement and the enclosed proxy card in connection with the solicitation
of proxies by the Board of Directors of the Company for use at the Annual
Meeting of Stockholders to be held on Wednesday, January 31, 2007, beginning at
2:00 p.m., at the 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 proxy card as well as a copy of Alfacell's 2006 Annual Report is December
22, 2006.
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 ratification of our independent registered public accounting
firm.
In addition, management will report on our performance during 2006 and
respond to questions from stockholders.
Who is entitled to vote?
Only stockholders of record of the Company's Common Stock at the close of
business on the record date, December 4, 2006, 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 of the Company's Common Stock 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.
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 December 4, 2006, the record date, approximately
44,508,401 shares of Alfacell's 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.
3
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 request that the previously granted proxy be revoked, 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 11);
o FOR ratification of the appointment of J.H. Cohn LLP as Alfacell's
independent registered public accounting firm (see page 20);
Pursuant to the provisions of Rule 14a-4(c) promulgated under the
Securities Exchange Act of 1934, as amended, (the "Exchange Act") 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.
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.
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-
4
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, 2006
concerning stock ownership of all persons known by the Company to own
beneficially 5% or more of the outstanding shares of the Company's Common Stock.
Security Ownership of Certain Beneficial Owners
Name and address of beneficial Amount and Nature of Beneficial Percent of shares
owner or identity of group Ownership outstanding(1)
---------------------------------------- ------------------------------- -----------------
McCash Family Limited Partnership 9,148,652 (2) 18.0%
N3820 S. Grand Oak Drive
Iron Mountain, MI 49801
McCash, James O., and Trust 2,998,820 (3) 6.7%
N3820 S. Grand Oak Drive
Iron Mountain, MI 49801
The Knoll Group(4) 2,725,002 (5) 6.1%
200 Park Avenue, Suite 3900
New York, NY 10166
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(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) Includes 6,427,090 shares subject to warrants which are currently
exercisable or which will become exercisable within 60 days of October 31,
2006. This information concerning the stock ownership of the McCash Family
Limited Partnership was obtained from the Schedule 13D/A filed with the
Securities and Exchange Commission on May 5, 2005 and other information
known to the Company.
(3) Includes 120,000 shares subject to warrants which will become exercisable
within 60 days of October 31, 2006. This information concerning the stock
ownership of the McCash, James O., and Trust was obtained from the
Schedule 13G/A filed with the Securities and Exchange Commission on
February 9, 2006 and other information known to the Company.
(4) Pursuant to Section 13(d)(3) of the Exchange Act and for purposes of this
table, Knoll Capital Management LP, Fred Knoll and Europa International,
Inc. are deemed to be a "group" and therefore are collectively referred to
as The Knoll Group.
(5) Does not include 1,613,572 shares issuable upon exercise of outstanding
warrants because as of October 31, 2006 such warrants were not exercisable
and will not become exercisable within 60 days after October 31, 2006.
This information concerning the stock ownership of Knoll Capital
Management was obtained from the Schedule 13G filed with the Securities
and Exchange Commission on February 9, 2006 and other information known to
the Company.
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, 2006.
Security Ownership of Management
Amount and
Nature of Percent of
Name and address of beneficial Beneficial shares
owner or identity of group(1) Position Ownership(2) outstanding(3)
------------------------------------- ----------------------------- ------------ --------------
Kuslima Shogen Chief Executive Officer, 1,368,778(4) 3.0%
Chairman of the Board
John P. Brancaccio Director 57,750(5) *
Stephen K. Carter, M.D. Director 165,000(6) *
Donald R. Conklin Director 480,500(7) 1.1%
James J. Loughlin Director 63,750(8) *
Robert D. Love(9) Chief Financial Officer 145,000(9) *
David Sidransky, M.D. Director, Chairman of the 123,750(10) *
Scientific Advisory Board
Paul M. Weiss, Ph.D. Director 113,305(11) *
All executive officers and directors as a 2,517,833(12) 5.5%
group (9 persons)
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* 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, 2006 by (ii) the sum of (A) the number of
shares of Common Stock outstanding as of October 31, 2006 plus (B) the
number of shares issuable upon exercise of options or warrants held by
such stockholder which were exercisable as of October 31, 2006 or which
will become exercisable within 60 days after October 31, 2006.
(4) Includes 825,333 shares underlying options which are currently exercisable
or which will become exercisable within 60 days after October 31, 2006.
(5) Includes 53,750 shares underlying options which are currently exercisable
or which will become exercisable within 60 days after October 31, 2006.
(6) Includes 150,000 shares underlying options which are currently exercisable
or which will become exercisable within 60 days after October 31, 2006.
(7) Includes 95,000 shares underlying options which are currently exercisable
or which will become exercisable within 60 days after October 31, 2006.
6
(8) Includes 53,750 shares underlying options which are currently exercisable
or which will become exercisable within 60 days after October 31, 2006.
(9) Includes 125,000 shares underlying options which are currently exercisable
or which will become exercisable within 60 days after October 31, 2006.
Mr. Love will retire as the Company's Chief Financial Officer on December
31, 2006.
(10) Includes 78,750 shares underlying options which are currently exercisable
or which will become exercisable within 60 days after October 31, 2006.
(11) Includes 92,500 shares underlying options which are currently exercisable
or which will become exercisable within 60 days after October 31, 2006.
(12) 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 of certain reporting persons that no other reports
were required, we believe that during fiscal year 2006 all of our directors,
executive officers and beneficial owners of more than 10% of any class of equity
securities complied on a timely basis with the reporting requirements of Section
16(a) of the Securities Exchange Act.
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.
Director nomination process
Prior to November 7, 2006, the Board of Directors (the "Board") did not
have a standing nominating committee or nominating committee charter. Nominees
for the fiscal year 2006 annual meeting were recommended for the Board's
selection by at least a majority of our directors meeting the criteria for
independence as required by the Nasdaq Stock Market. Previously, the Company had
believed it was appropriate not to have a standing nominating committee because
we felt that obtaining an input from all the Independent Directors in connection
with the nominations enhanced the nomination process. However, on November 7,
2006, the Board determined that it was in the best interests of the Company to
form a Nominating Committee, initially comprised of John Brancaccio and James
Loughlin. Such Nominating Committee has not yet participated in the nomination
of directors, and has not yet adopted a charter.
CRITERIA FOR BOARD MEMBERSHIP. The Board determines the required selection
criteria and qualifications of director nominees based upon the needs of the
Company at the time nominees are considered. Directors should possess the
highest personal and professional ethics, integrity and values, and be committed
to representing the long-term interests of the Company's stockholders. In
evaluating a candidate for nomination as a director of the Company, the
Nominating Committee will consider criteria including business and financial
expertise; geography; experience as a director of a public company; gender and
ethnic diversity on the Board; and general criteria such as ethical standards,
independent thought, practical wisdom and mature judgment. The Board will
consider these criteria for nominees identified by the Nominating Committee, by
stockholders, or through some other source.
These general criteria are subject to modification and the Board shall be
able, in the exercise of its discretion, to deviate from these general criteria
from time to time, as the Board may deem appropriate or as required by
applicable laws and regulations.
7
STOCKHOLDER NOMINEES. The Nominating Committee will consider qualified
candidates for possible nomination that are submitted by the Company's
stockholders. Stockholders wishing to make such a submission may do so by
sending the following information to the Board c/o Chief Executive Officer at
225 Belleville Avenue, Bloomfield, New Jersey 07003 within the timeframe
described under the caption, "Stockholder Proposals" below.
o Name, age and contact information of the candidate;
o A brief biographical sketch and resume;
o Written consent evidencing the candidate's willingness to be named
in the proxy and to serve as a director if elected;
o A description of all arrangements or understandings between the
stockholder and the candidate and any other person relating to the
candidate;
o A signed statement as to the submitting stockholder's current status
as a stockholder and the number of shares currently held; and
o All other information about the candidate that would be required to
be included in the proxy statement soliciting proxies for the
election of directors under the rules promulgated under the Exchange
Act.
PROCESS FOR IDENTIFYING AND EVALUATING NOMINEES. The Nominating Committee
believes Alfacell is well-served by its current directors. In the ordinary
course, absent special circumstances or a material change in the criteria for
Board membership, the Nominating Committee will recommend to the Board that they
renominate incumbent directors who continue to be qualified for Board service
and are willing to continue as directors. If an incumbent director is not
standing for re-election, or if a vacancy on the Board occurs between annual
stockholder meetings, the Nominating Committee will seek out potential
candidates for Board appointment who meet the criteria for selection as a
nominee and have the specific qualities or skills being sought. The Nominating
Committee will conduct a process of making a preliminary assessment of each
proposed nominee based upon the resume and biographical information, an
indication of the individual's willingness to serve and other background
information. This information is evaluated against the criteria set forth above
and the Company's specific needs at that time. Based upon a preliminary
assessment of the candidate(s), those who appear best suited to meet the
Company's needs may be invited to participate in a series of interviews, which
are used as a further means of evaluating potential candidates. On the basis of
information learned during this process, the Nominating Committee will determine
which nominee(s) to recommend to the Board for inclusion as the slate of
candidates that the Board recommends for election at each annual meeting of the
Company's stockholders.
The Board uses the same process for evaluating all nominees, regardless of
the original source of the nomination.
8
Nominees standing for election to the Board
Name Age Director Since (1) Current Position With Company
------------------------- ------- ------------------ -----------------------------------------------------
Kuslima Shogen 61 1981 Chief Executive Officer, Chairman of the Board
John P. Brancaccio 58 2004 Director
Stephen K. Carter, M.D. 68 1997 Director
Donald R. Conklin 70 1997 Director
James J. Loughlin 63 2004 Director
David Sidransky, M.D. 47 2004 Director, Chairman of the Scientific Advisory Board
Paul M. Weiss, Ph.D. 48 2003 Director
(1) The current term of each director expires on the Annual Meeting for fiscal
year 2006 to be held on January 31, 2007.
Business experience of nominees to the Board
The nominees have provided the following information about their principal
occupation, business experience and other matters.
Kuslima Shogen has served as our Chief Executive Officer since September
1986, as Chairman of the Board since August 1996 and as a Director since our
inception. She also served as our Acting Chief Financial Officer from June 23,
1999 until March 2004, 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 also received the
first-ever Pioneer Award from the Mesothelioma Applied Research Foundation in
October 2005 and in August 2005, was named to the inaugural PharmaVOICE 100 list
of Most Inspiring People in the healthcare industry and was one of only 27 CEO's
recognized. She earned a B.S. degree in 1974, M.S. in 1976 and also completed
graduate studies in 1978 in embryology from Fairleigh Dickenson University. In
April 1998, Ms. Shogen received the Pinnacle Award from FDU, the highest honor
the University bestows on its graduates. She is a Phi Beta Kappa graduate.
John P. Brancaccio joined the Board of Directors in January 2004. Mr.
Brancaccio has been the chief financial officer of Accelerated Technologies,
Inc., an incubator for venture backed medical device companies. He also serves
on the boards of Callisto Pharmaceuticals, Inc., Xenomics, Inc. and FermaVir
Pharmaceuticals, Inc. all of which are publicly traded biopharmaceutical
companies where he is chairman of their respective Audit Committees. He was the
secretary and treasurer of Memory Pharmaceuticals Corporation from December 2003
to March 2004 after serving in the capacity of their acting chief financial
officer from May 2002 to December 2003. Prior to Memory Pharmaceuticals, Mr.
Brancaccio held the positions of chief financial officer and chief operating
officer of Eline Group, a publicly traded entertainment and media company, where
he oversaw the roll up of several related companies into the group and completed
private equity financing placements. Prior to joining Eline Group, he held a
number of senior executive positions in public and private companies including
Atlantic Pharmaceuticals, Zambon Corporation, Deven International and Health
Learning Systems. During his tenure with these companies he participated in
initial public offerings and the negotiating of licensing and development
agreements within both the pharmaceutical and biotechnology industries. He is a
retired Certified Public Accountant and a graduate of Seton Hall University.
9
Stephen K. Carter, M.D. joined the Board of Directors in May 1997. In
addition, Dr. Carter 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 Boards of Directors of Callisto Pharmaceuticals, Inc., Cytogen
Corporation, Celator Pharmaceuticals, Inc., Vion Pharmaceuticals, Emisphere
Technologies, Inc. and Tapestry Pharmaceuticals, Inc.
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
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. and Vertex Pharmaceuticals, Inc.
James J. Loughlin joined the Board of Directors in January 2004. Mr.
Loughlin retired as a partner with KPMG LLP ("KPMG") in September 2003, where he
was responsible for the Pharmaceuticals Practice, Life Sciences and Chemicals
division. During his career, Mr. Loughlin served in various executive positions
throughout KPMG, including Managing Partner of the firm's Milwaukee, Wisconsin
office, Partner-in-Charge of Human Resources for the United States in the firm's
National Executive Office in New York, and Partner-in-Charge of Audit Practice
in the firm's Short Hills, New Jersey office. Mr. Loughlin was also elected to
and served on the firm's Board of Directors from 1995 until 2000. Mr. Loughlin
has gained extensive experience serving multinational pharmaceutical
manufacturing and distribution companies. Mr. Loughlin is a Certified Public
Accountant. He received his B.S. in accounting from St. Peter's College. He
currently serves on the Board of Directors of Datascope Corporation.
David Sidransky, M.D., joined our Board of Directors May 2004 and serves
as Chairman of our Scientific Advisory Board. Dr. Sidransky is a founder of
several private biotechnology companies and has served on numerous scientific
advisory boards of many private and public companies, including Medimmune,
Telik, Roche and Amgen. He was formerly on the board of scientific counselors at
the NIDCR and a member of the Recombinant DNA advisory committee at the National
Institute of Health NIH (RAC). He currently serves on the Board of Directors of
ImClone Systems, Zila, Inc. and Xenomics, Inc. Dr. Sidransky is on numerous
editorial boards and has served as senior editor of several cancer related
journals. Currently, Dr. Sidransky is the Director of the Head and Neck Cancer
Research Division at Johns Hopkins University School of Medicine. In addition,
he is Professor of Oncology, Otolaryngology-Head and Neck Surgery, Cellular &
Molecular Medicine, Urology, Genetics, and Pathology at John Hopkins University
and Hospital. Dr. Sidransky is certified in Internal Medicine and Medical
Oncology by the American Board of Medicine. He has over 300 peer-reviewed
publications, and has contributed more than 50 cancer reviews and chapters and
also has numerous issued biotechnology patents. He has been the recipient of
many awards and honors, including the 1997 Sarstedt International prize from the
German Society of
10
Clinical Chemistry, 1998 Alton Ochsner Award Relating Smoking and Health by the
American College of Chest Physicians and the 2004 Hinda Rosenthal Award by the
American Association of Cancer Research.
Paul Weiss, Ph.D., joined our Board of Directors in February 2003. Dr.
Weiss is President of the Gala Biotech business unit 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. He later
became President of Gala and has remained so since the acquisition of Gala by
Cardinal Health in 2003. Prior to joining Gala Design, Dr. Weiss was Vice
President of Technology and Product Licensing at 3-Dimensional Pharmaceuticals
(3DP) from 1998 to 2001, which went public in 2001 and was later acquired by
J&J. Prior to joining 3DP, Dr. Weiss was Director of Licensing for 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.
Family relationships
There are no family relationships among any of the Company's directors or
executive officers.
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 2006?
The Board of Directors met eight times during the 2006 fiscal year. Each
director attended at least 75% of the total number of meetings of the Board and
committees on which he or she served.
Which directors are "independent"?
The Board of Directors has determined that the following directors are
"independent" under the current Nasdaq rules: John P. Brancaccio, Stephen K.
Carter, M.D., Donald R. Conklin, James J. Loughlin and Paul M. Weiss, Ph.D.
How are directors compensated?
Each member of the Board who is not an employee of Alfacell receives
$10,000 per annum in consideration of the member's serving on the Board, payable
in four equal quarterly installments. Each Board member who was not an employee
of Alfacell also received $1,000 for each Board meeting attended in person, $500
for each Board meeting attended telephonically and reimbursement for travel and
related expenses incurred in connection with attendance at meetings. Under our
director compensation policies, directors who also serve as executive officers
do not receive compensation for their service on our 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 which are independent directors for purposes of this plan
on an annual basis. The formula provides that (i) on each December 31st each
independent director automatically receives 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
11
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 closing price of our Common Stock on the date
of grant.
In addition to the regular option grants awarded to each of the
independent or non-employee directors of the Company during the fiscal year
ended July 31, 2006, the non-employee directors were awarded a discretionary
grant pursuant to the 1997 Stock Option Plan. Pursuant to the discretionary
grants, each non-employee director was granted an option to purchase 5,000
shares of our Common Stock. The exercise price and vesting schedules for the
regular and discretionary grants are set forth in the table titled "Directors'
Stock Options" below.
DIRECTORS' STOCK OPTIONS
During the fiscal year ended July 31, 2006, the following independent or
non-employee directors were granted options under Alfacell's 1997 Stock Option
Plan as set forth above.
Name Number of Options(1) Exercise Price
----------------------------- -------------------- --------------
John P. Brancaccio 20,000 $1.89
Stephen K. Carter, M.D. 20,000 $1.89
Donald R. Conklin 20,000 $1.89
James J. Loughlin 20,000 $1.89
David Sidransky, M.D. 20,000 $1.89
Paul M. Weiss, Ph.D. 20,000 $1.89
----------
(1) All the options listed here were granted on December 31, 2005, vest on
December 30, 2006 and expire on December 30, 2011.
BOARD COMMITTEE MEMBERSHIP
What committees has the Board established?
The Board of Directors has standing Compensation, Nominating and Audit
Committees. The current membership of the standing committees is set forth in
the following table.
Compensation Nominating Audit
Name Committee Committee Committee
-------------------- ------------ ---------- ---------
John P. Brancaccio ** * *
Donald R. Conklin *
James J. Loughlin * **
Paul M. Weiss, Ph.D. * *
----------
* Member
** Chair
12
Compensation Committee. All of the members of Alfacell's Compensation
Committee are considered "independent directors," as independence is defined in
Rule 4200(a)(15) of the National Association of Securities Dealers ("NASD")
listing standards. In fiscal year 2006, the Compensation Committee met twice.
The Compensation Committee's primary functions are to:
o Approve executive compensation, including the corporate goals and
objectives to be used in evaluating the performance of the CEO and
determining the CEO's compensation;
o Approve salary ranges and bonus plans for non-executive officers;
o Administering stock plans and benefit programs and approve any
amendments to existing plans;
o Recommend director compensation; and
o Review the compensation policy for all of Alfacell's employees.
Nominating Committee. All of the members of Alfacell's Nominating
Committee are considered "independent directors," as independence is defined in
Rule 4200(a)(15) of the National Association of Securities Dealers ("NASD")
listing standards. The Nominating Committee was formed by the Board on November
7, 2006 for the purpose of considering future nominees to the Board. The
Nominating Committee has not yet appointed a Chair. In fiscal year 2006, the
Nominating Committee did not meet because the Committee had not yet been formed.
The Nominating Committee has not yet adopted a charter, but intends to do so
imminently.
Audit Committee. All of the members of Alfacell's Audit Committee are
considered "independent directors," as independence is defined in Rule
4200(a)(15) of the National Association of Securities Dealers ("NASD") listing
standards and Section 10A(m)(3) of the Exchange Act. Alfacell's Board of
Directors has determined that Mr. Loughlin and Mr. Brancaccio qualify as "audit
committee financial experts" as defined by Item 401(h) of Regulation S-K. In
fiscal year 2006, the Audit Committee met four times.
On November 9, 2003, the Board of Directors adopted Alfacell Corporation's
Audit Committee Charter. A copy of the Audit Committee Charter is included as
Appendix A to this Definitive Proxy Statement. 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, 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 Audit Committee's purpose, duties and
responsibilities under its charter include those specified in the listing
standards of the Nasdaq Stock Exchange for audit committees.
The Charter describes the primary functions of the Audit Committee as
follows:
o To appoint, evaluate and, as the Committee may deem appropriate,
terminate and replace our independent registered public accounting
firm;
o To monitor the independence of our independent registered public
accounting firm;
o To determine the compensation to be paid to our independent
registered public accounting firm;
o To review with management and our independent registered public
accounting firm the effect of regulatory and accounting initiatives
as well as off-balance sheet structures on the Company's financial
statements;
o To review the experience and qualifications of the senior members of
the independent registered public accounting firm team and the
quality control procedures thereof. To review the experience and
qualifications of our Company's senior finance executives;
o To pre-approve all audit services and permitted non-audit services
to be performed by our independent registered public accounting firm
and to establish policies and procedures for the
13
engagement of our independent registered public accounting firm to
provide permitted non-audit services;
o To conduct annual reviews and assessments of the adequacy of our
Charter and the continued independence of the independent registered
public accounting firm and recommend any proposed changes to the
Board for approval;
o To review all related-party transactions for potential conflict of
interest situations and approve such related-party transactions;
o To establish procedures for the confidential and anonymous receipt,
retention and treatment of complaints regarding the Company's
accounting, internal controls and auditing matters; and
o To report to the Board on such matters.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
As of July 31, 2006, the Audit Committee of Alfacell's Board of Directors
was composed of James J. Loughlin, Chairman, John P. Brancaccio and Paul M.
Weiss, Ph.D., all of whom were non-employee directors. All members of the Audit
Committee were independent as independence is defined in Rule 4200(a)(15) of the
NASD listing standards and Section 10A(m)(3) of the Exchange Act. Alfacell's
Board of Directors has determined that Messrs. Loughlin and Brancaccio qualify
as audit committee financial experts as defined by Item 401(h) of Regulation
S-K.
On November 9, 2003, the Board of Directors adopted a written Audit
Committee charter, a copy of which is attached as Appendix A to this Definitive
Proxy Statement. 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. Alfacell will endeavor to continue to meet all current audit
committee requirements. The Audit Committee is charged with the responsibility
of selecting and appointing the independent registered public accounting firm
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 registered public accounting
firm is responsible for performing an independent audit of Alfacell's financial
statements and management's assessment of internal control over financial
reporting in accordance with the standards of the Public Company Accounting
Oversight Board (United States) and to issue a report on Alfacell's financial
statements, internal control over financial reporting, and management's
assessment of internal control over financial reporting. The Audit Committee's
responsibility is to monitor and oversee these processes. In carrying out its
oversight responsibilities, the Audit Committee is not providing any expert,
professional or special assurances as to our financial statements or any
professional certification. The Audit Committee relies on the information
provided and representations made to it by management, and also on the reports
on our financial statements that it receives from our independent registered
public accounting firm.
In this context, the Audit Committee has reviewed and discussed the
financial statements with management and our independent registered public
accounting firm. Management represented to the Audit Committee that Alfacell's
financial statements were prepared in accordance with accounting principles
generally accepted in the United States. The Audit Committee discussed with the
independent registered public accounting firm matters required to be discussed
by Statement on Auditing Standards No. 61, Communications with Audit Committees,
as amended.
Alfacell's independent registered public accounting firm 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 registered public accounting firm the firm's independence.
Based upon the Audit Committee's discussion with management and the
independent registered public accounting firm and the Audit Committee's review
of the representation of management and the report of the independent registered
public accounting firm to the Audit Committee, the Audit Committee recommended
to the
14
Board of Directors that the audited financial statements be included in
Alfacell's Annual Report on Form 10-K for the year ended July 31, 2006 filed
with the Securities and Exchange Commission on October 16, 2006.
In addition, the Audit Committee has approved the reappointment of J.H.
Cohn LLP as our independent registered public accounting firm for fiscal year
2007, and has submitted the reappointment to the stockholders for ratification
at this annual meeting. The Audit Committee pre-approved the terms of the audit
services to be provided by our independent registered public accounting firm for
fiscal year 2007.
This report is respectfully submitted by the members of the Audit
Committee of the Board.
James J. Loughlin, Chairman
John P. Brancaccio
Paul M. Weiss, Ph.D.
COMMUNICATIONS WITH DIRECTORS
Stockholders or other interested parties may communicate with any director
or committee of the Board by writing to them c/o Chairman of the Board, Alfacell
Corporation, 225 Belleville Avenue, Bloomfield, New Jersey 07003. Comments or
questions regarding the Company's accounting, internal controls or auditing
matters will be referred to members of the Audit Committee. Comments or
questions regarding the nomination of directors and other corporate governance
matters will be referred to the appropriate independent directors.
The Company has a policy of encouraging all directors to attend the annual
stockholder meetings. All of our directors attended the annual meeting for
fiscal year 2005.
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 registered public accounting
firm, 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 to Alfacell by J.H. Cohn LLP for the audit of the
financial statements, internal control over financial reporting, and
management's assessment of internal control over financial reporting included in
Alfacell's Annual Report on Form 10-K, audit of 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, 2006 and July 31, 2005 totaled approximately $188,000
and $108,000 respectively.
Audit-related fees
None.
Tax fees
None.
All other fees
None.
15
IDENTIFICATION OF EXECUTIVE OFFICERS
Name Age Current Position With Company Officer Since (1)
----------------- ----- ------------------------------------------------- -----------------
Kuslima Shogen 61 Chief Executive Officer and Chairman of the Board 1981
Robert D. Love(2) 56 Chief Financial Officer 2005
(1) Officers of Alfacell hold office until their successors are elected and
qualified or until their earlier removal, death or resignation.
(2) Mr. Love will retire as the Company's Chief Financial Officer on December
31, 2006.
BUSINESS EXPERIENCE OF EXECUTIVE OFFICERS
Set forth below is certain information regarding the executive officers of
the Company who do not serve on the Board of Directors.
Robert D. Love has over 25 years of domestic and international experience
in the pharmaceutical industry. Mr. Love joined Alfacell as its Chief Financial
Officer in May 2005. He has held senior-level positions in Finance, Corporate
Development and Marketing with P&L responsibility at large, privately-held
companies as well as major, publicly traded global pharmaceutical corporations.
From 2003 to 2005, Mr. Love served as Senior Vice President, CFO and COO of
TriGenesis Therapeutics, Inc., a start-up specialty pharmaceutical company that
he co-founded. From 1998 through 2002, he served as both Senior Vice President
in charge of Business Partnering and Senior Vice President, Finance and
Acquisitions at Quintiles Transnational Corporation/Innovex, a leading
pharmaceutical services organization. Prior to Innovex, Mr. Love was CFO at
Mutual Pharmaceuticals/United Research Labs from 1995 to 1998. From 1976 through
1995, he held several senior management positions at SmithKline Beecham,
including Vice President and Director, Strategic Product Development - Worldwide
from 1993 to 1995, Vice President, CFO in the UK - one of the Company's largest
ex-U.S. operations - from 1991 to 1993, and Director, Finance - North America
from 1988 to 1991. Mr. Love began his career as an accountant at Coopers and
Lybrand in 1972. He earned a B.A. in Accounting from Rutgers University and a
M.B.A. with a concentration in Finance/Marketing from Villanova University. He
is a Certified Public Accountant.
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, 2006, 2005 and 2004 with
respect to the person serving as Alfacell's Chief Executive Officer during the
year ended July 31, 2006, and Alfacell's only other executive officer
(collectively, the "Named Officers").
Long-Term
Annual Compensation Compensation
-------------------------------------- ------------
Other Annual Securities All Other
Name and Principal Bonus Compensation Underlying Compensation
Position Year Salary ($) ($) ($)(1) Options (#) ($)(2)
---------------------- ---- ---------- ------- ------------ ----------- ------------
Kuslima Shogen 2006 $215,000 -- -- 250,000 $4,891
Chief Executive
Officer, Chairman of 2005 $207,002 -- -- 250,000 $6,012
the Board of Directors
2004 $150,000(3) -- -- 300,000 $6,058
Robert D. Love 2006 $180,000 -- -- -- $2,908
Chief Financial Officer
2005 $ 13,846 -- -- 400,000 --
16
----------
(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) Consists of Alfacell's annual contributions to a 401(k) plan.
(3) Unpaid gross salary of $80,780 for the fiscal year ended July 31, 2003 was
paid during the fiscal year ended July 31, 2004.
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options to the Named Officers during the fiscal year ended July 31, 2006:
Individual Grants
------------------------------------------------------------- Potential Realizable Value at
Number of % of Total Assumed Annual Rates of Stock
Securities Options Price Appreciation for Option
Underlying Granted to Exercise or Term (2)
Options Employees in Base Price Expiration ------------------------------
Name Granted (#) Fiscal Year ($/Share)(1) Date 5%($) 10%($)
----------------------------------------------------------------------------------------------------------------------
Kuslima Shogen 250,000(3) 47.6% $1.61 11/17/15 $ 253,130 $ 641,481
Robert D. Love -- -- -- -- -- --
----------
(1) The exercise price of these options was based on the closing price of our
Common Stock on the date of grant.
(2) The amounts set forth in the two 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 5% and 10%.
(3) The options vest and become exercisable in accordance with the following
schedule: 33,333 options vest one year from grant date, 33,333 options
vest two years from grant date, 33,334 options vest three years from grant
date and 150,000 options vest upon the filing of an NDA by the Company on
or before March 31, 2007. If the Company does not file an NDA by March 31,
2007, these 150,000 options will be cancelled.
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 2006 and unexercised options
held as of July 31, 2006.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Year-End (#) at Year-End ($)(2)
Shares ----------------------------- ------------------------------
Acquired on Value
Name Exercise (#) Realized ($)(1) Exercisable Unexercisable Exercisable Unexercisable
-------------- ----------- --------------- ----------- ------------- ----------- -------------
Kuslima Shogen 13,445 $ 14,521 758,000 433,000 $ 906,840 $ 659,340
Robert D. Love None None 50,000 350,000 $ 99,000 $ 693,000
----------
(1) Based on the fair market value of the purchased shares on the exercise
date less the share exercise price paid.
(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 ($1.98) for the Common
Stock obtained from the Nasdaq Capital Market on the last trading day of
the fiscal year ended July 31, 2006.
17
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended July 31, 2006, the members of the Board of
Directors who served on the Compensation Committee were Messrs. Brancaccio,
Conklin and Weiss. All such directors are independent directors and have never
been officers of Alfacell. During the fiscal year ended July 31, 2006, 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
The Compensation Committee has overall responsibility for evaluating and
approving the Company's executive officer compensation plans, policies and
programs, including compensation of the Chief Executive Officer. During the
fiscal year ended July 31, 2006 the Compensation Committee consisted of three
independent directors. Our compensation program, both for our executive officers
as well as for all employees, is based on the philosophy that the interests of
our employees should be closely aligned with those of our stockholders. 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 normally 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. Our compensation program is
based on the following principles:
o Compensation opportunities should attract the best talent, motivate
individuals to perform at their highest levels, reward outstanding
achievement, and retain the leadership and skills necessary for
building long-term stockholder value;
o A bonus potential which is tied directly to operating objectives;
and
o A long-term incentive award generally in the form of stock option
grants to increase ownership in the Company and encourage executives
to manage from the perspective of owners of the Company.
Chief Executive Officer's Compensation
The compensation paid in the fiscal year ended July 31, 2006, 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, 2006, 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 expected future value to the Company.
This report is respectfully submitted by the members of the Compensation
Committee of the Board.
John P. Brancaccio, Chairman
Donald R. Conklin
Paul M. Weiss, Ph.D.
18
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, 2006,
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, 2001 and that all cash dividends were reinvested.
The table does not forecast performance of our common stock.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG ALFACELL CORPORATION, THE NASDAQ COMPOSITE INDEX
AND THE NASDAQ PHARMACEUTICAL INDEX
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE GRAPH IN THE PRINTED MATERIAL.]
Cumulative Total Return
-------------------------------------------------
7/01 7/02 7/03 7/04 7/05 7/06
ALFACELL CORPORATION 100.00 38.95 153.49 767.44 246.51 232.56
NASDAQ COMPOSITE 100.00 67.67 85.86 95.83 110.84 109.27
NASDAQ PHARMACEUTICAL 100.00 63.79 96.67 90.77 109.88 109.45
* $100 invested on 7/31/01 in stock or index-including reinvestment of
dividends. Fiscal year ending July 31.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since July 31, 2005, the Company was a party to the following transactions
in which the amount involved exceeded $60,000 and in which any executive
officers, directors, holders of more than 5% of our capital stock and members of
such persons immediate families had or will have a direct or indirect material
interest.
At fiscal years ended July 31, 2006 and 2005, $170,870 and $161,342,
respectively were due from Kuslima Shogen, the Company's CEO, from which the
Company earned 8% interest in the amount of approximately $9,500 on the unpaid
principal balance for each of the fiscal years 2006 and 2005. 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.
19
On July 7, 2006, our board of directors unanimously approved the amendment
of outstanding warrants to purchase 110,000 shares of our common stock at a
purchase price of $1.50 per share held by Kuslima Shogen, our CEO, extending the
expiration date of the warrants from July 7, 2006 to July 14, 2006, resulting in
the expiration of the original warrants and the deemed grant of replacement
warrants.
On July 19, 2006, we completed a private placement pursuant to which we
issued an aggregate of 6,457,172 shares of our restricted common stock to
certain accredited investors for a per share purchase price of $1.75 or an
aggregate purchase price of approximately $11.3 million. The investors also
received warrants to purchase up to an additional 6,457,172 shares of our common
stock. Knoll Capital Fund II Master Fund, Ltd. and Europa International, Inc.
("Europa"), which are part of a group of shareholders including Fred Knoll and
Knoll Capital Management (the "Knoll Group") which beneficially owns greater
than 5% of our capital stock, each purchased 214,286 shares of our common stock,
and warrants to purchase 214,286 shares of our common stock in the private
placement at the same price and on the same terms as the other investors in the
private placement. The securities sold in the financing were subsequently
registered on a Form S-3 in accordance with the terms of a registration rights
agreement between the Company and the investors.
Concurrent with the closing of the financing described above, we agreed to
amend a warrant held by Knoll Capital Fund II (an affiliate of the Knoll Group)
to purchase 592,500 shares of our common stock and a warrant held by Europa to
purchase 592,500 shares of our common stock (collectively, the "Knoll
Warrants"). The Knoll Warrants were amended to reduce the exercise price to
$2.88 per share and to restrict the exercisability of the warrants so that they
will not be exercisable until January 19, 2007. Otherwise, the terms of the
Knoll Warrants remained unchanged.
See also, "Summary Compensation Table" and "Option Grants in Last Fiscal
Year" included elsewhere in this proxy statement.
PROPOSAL NO. 2 -- RATIFICATION OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
The Audit Committee selected our independent registered public accounting
firm, reviewed the scope of the annual audit and pre-approved audit-related and
other services to be performed by the independent registered public accounting
firm. After evaluating their performance in fiscal 2006, the Audit Committee has
selected J.H. Cohn LLP as our independent registered public accounting firm for
our fiscal year 2007 ending July 31, 2007. You are requested to ratify the Audit
Committee's appointment of J.H. Cohn LLP as independent registered public
accounting firm for our fiscal 2007. A representative of J.H. Cohn LLP will be
present at the Annual Meeting and will have the opportunity to make statements
if he/she desires to do so. Such representative is also expected to be available
to respond to appropriate questions from stockholders present at the meeting.
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 registered public
accounting firm for the year ending July 31, 2007 (Proposal No. 2 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
another independent registered public accounting firm. If the appointment is
ratified, the Audit Committee reserves the right to appoint another independent
registered public accounting firm.
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.
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We intend to post on our website, 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.
ANNUAL REPORT
Alfacell's 2006 Annual Report on Form 10-K for the fiscal year ended July
31, 2006, including audited financial statements, filed with the Securities and
Exchange Commission on October 16, 2006, accompanies this proxy statement.
STOCKHOLDERS' PROPOSALS
It is anticipated that Alfacell's fiscal year 2007 Annual Meeting of
Stockholders will be held on or about January 31, 2008. In order for a
stockholder to have a proposal included in the proxy statement for the fiscal
year 2007 annual stockholders' meeting, the proposal must comply with both the
procedures identified by Rule 14a-8 under the Securities Exchange Act, and be
received in writing by Alfacell's Secretary on or before 5:00 P.M. Eastern
Standard Time on August 24, 2007. Such a proposal will be considered at the
fiscal year 2007 annual stockholders' meeting.
In the event a stockholder does not meet the August 24, 2007 deadline, the
stockholder can still give notice of a proposal to be presented at the fiscal
year 2007 annual stockholders' meeting until November 7, 2007, 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 fiscal year 2007 annual stockholders' meeting if it complies
with Rule 14a-8.
Any proposal received after November 7, 2007 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,
/s/ Kuslima Shogen
------------------
Kuslima Shogen
Chief Executive Officer, Chairman of the Board
Dated: December 22, 2006
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APPENDIX A
AUDIT COMMITTEE CHARTER
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;
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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:
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(a) Any difficulties encountered in the course of the audit work,
including any restrictions on the scope of activities or
access to required information;
(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.
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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
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ALFACELL CORPORATION
PROXY
COMMON STOCK
ANNUAL MEETING: JANUARY 31, 2007
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Kuslima Shogen and Paul Weiss, and each of them, as proxies, with full
power of substitution in each of them, are hereby authorized to represent and to
vote as designated below and on the reverse side 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 Liberty International Airport Marriott Hotel, Newark International Airport,
Newark, New Jersey 07114 on Wednesday, January 31, 2007 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 22, 2006 (receipt of which is hereby acknowledged).
UNLESS OTHERWISE DIRECTED, THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF
ALL OF THE NOMINEES LISTED IN PROPOSAL 1 AND "FOR" PROPOSAL 2 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 AND 2.
(Continued and to be dated and signed on the reverse side.)
ALFACELL CORPORATION
225 BELLEVILLE AVENUE
BLOOMFIELD, NJ 07003
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1. To elect seven (7) FOR all nominees |_| WITHHOLD AUTHORITY |_|
directors listed below for all nominees
listed below
FOR ALL EXCEPT |_|
those nominees that
I have listed below
Nominees: Kuslima Shogen, John P. Brancaccio, Stephen K. Carter, Donald R.
Conklin, James J. Loughlin, David Sidransky 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 ratify the appointment of J.H. Cohn LLP as Alfacell's independent
registered public accounting firm for the fiscal year ending July 31,
2007.
FOR |_| AGAINST |_| ABSTAIN |_|
3. 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
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