Published on June 26, 2007
Via
EDGAR
Submission
June
26,
2007
Mr.
Jeffrey Riedler
Assistant
Director
Division
of Corporation Finance - Mail Stop 6010
United
States Securities and Exchange Commission
Washington,
D.C. 20549
| Re: | Novelos Therapeutics, Inc. | ||
| Amendment No. 2 to the Registration Statement on Form SB-2 (Registration No. | |||
| 333-143263 |
Dear
Mr.
Riedler:
This
letter constitutes supplemental correspondence on behalf of Novelos
Therapeutics, Inc., a Delaware corporation (the “Company”), related to and filed
together with the Company’s Amendment No. 2 to the Registration Statement on
Form SB-2, Registration No. 333-143263, which was filed with the SEC on May
25,
2007. This letter also responds to the comments contained in your letter dated
June 15, 2007 addressed to the undersigned concerning Amendment No. 1 to our
Registration Statement on Form SB-2, Registration No. 333-14363, filed June
1,
2007. For your convenience, we have listed each comment below with the
associated response immediately following. Please note that where the comment
letter referred to “convertible notes” we have responded in the context of
convertible preferred stock.
General
| 1. | Please provide us, with a view toward disclosure in the prospectus, with the total dollar value of the securities underlying the preferred securities that you have registered for resale (using the number of underlying securities that you have registered for resale and the market price per share for those securities on the date of the sale of the convertible note). |
Response
| We have amended the registration statement to include this disclosure under a new caption titled “Private Placement of Series B Convertible Preferred Stock and Warrants”. |
Payments
to the investor and affiliates
| 2. | Please provide us, with a view toward disclosure in the prospectus, with tabular disclosure of the dollar amount of each payment (including the value of any payments to be made in common stock) in connection with the transaction that you have made or may be required to make to any selling shareholder, any affiliate of a selling shareholder, or any person with whom any selling shareholder has a contractual relationship regarding the transaction (including any interest payments, liquidated damages, payments made to "finders" or "placement agents," and any other payments or potential payments). Please provide footnote disclosure of the terms of each such payment. |
| Further, please provide us, with a view toward disclosure in the prospectus, with disclosure of the net proceeds to the issuer from the sale of the preferred securities and the total possible payments to all selling shareholders and any of their affiliates in the first year following the sale of convertible notes. |
Response
| The payments and required or possible payments to selling stockholders or any of their affiliates consist of the payment of placement agent fees, reimbursement of expenses incurred in connection with the transaction to investors and placement agents, the payment of dividends on outstanding shares of the Series B Preferred Stock and potential liquidated damages in connection with registration rights between the Company and the Series B Preferred Stock investors. We have amended the registration statement to include a summary of these arrangements under the new caption “Private Placement of Series B Convertible Preferred Stock and Warrants” and to also include a tabulation presenting disclosure of net proceeds to the Company after considering the total possible payments to all selling stockholders and any of their affiliates in the first year following the sale of the Series B Convertible Preferred Stock under the sub caption “Gross Proceeds and Payments to Selling Stockholders”. |
Potential
profits on conversion
| 3. | Please provide us, with a view toward disclosure in the prospectus, with tabular disclosure of: |
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·
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the
total possible profit the selling shareholders could realize as a
result
of the conversion discount for the securities underlying the preferred
securities, presented in a table with the following information disclosed
separately:
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|
o
|
the
market price per share of the securities underlying the convertible
securities on the date of the sale of the convertible
securities;
|
|
o
|
the
conversion price per share of the underlying securities on the date
of the
sale of the preferred securities, calculated as
follows:
|
-if
the conversion price per share is set at a fixed price, use the price per share
established in the preferred securities; and
-if
the conversion price per share is not set at a fixed price and, instead, is
set
at a floating rate in relationship to the market price of the underlying
security, use the conversion discount rate and the market rate per share on
the
date of the sale of the preferred securities and determine the conversion price
per share as of that date;
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·
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the
total possible shares underlying the preferred
securities;
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the
combined market price of the total number of shares underlying the
preferred securities, calculated by using the market price per share
on
the date of the sale of the preferred securities and the total possible
shares underlying the preferred
securities;
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·
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the
total possible shares the selling shareholders may receive and the
combined conversion price of the total number of shares underlying
the
preferred securities calculated by using the conversion price on
the date
of the sale of the preferred securities and the total possible number
of
shares the selling shareholders may receive;
and
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·
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the
total possible discount to the market price as of the date of the
sale of
the preferred securities, calculated by subtracting the total conversion
price on the date of the sale of the convertible note from the combined
market price of the total number of shares underlying the preferred
securities on that date.
|
If
there are provisions in the preferred securities that could result in a change
in the price per share upon the occurrence of certain events, please provide
additional tabular disclosure as appropriate. For example, if the conversion
price per share is fixed unless and until the market price falls below a stated
price, at which point the conversion price per share drops to a lower price,
please provide additional disclosure.
Response
| The shares of Series B Preferred Stock issued to investors are convertible into shares of common stock at $1.00 per share at any time after issuance at the option of the holder. The conversion price is subject to adjustment only for stock dividends, stock splits or similar capital reorganizations. If there is an effective registration statement covering the shares of common stock underlying the Series B Preferred Stock and the volume weighted average price (“VWAP”), as described more fully in the Series B Certificate of Designations, of the Company’s common stock exceeds $2.00 for 20 consecutive trading days, then the outstanding Series B Preferred Stock will automatically convert into common stock at the conversion price then in effect. |
|
We
have amended the registration statement to include, in the new
caption
“Private Placement of Series B Convertible Preferred Stock and
Warrants”,
under the sub caption “Nominal Market Value of Securities Being Offered”,
a tabulation presenting disclosure of the difference between
the nominal
market value of securities underlying the Series B Preferred
Stock at the
date of sale and the gross proceeds from the sale of the Series
B
Preferred Stock. We have adopted the term “nominal market value” rather
than using the term “discount” since the underlying securities were not
registered and therefore not freely tradeable on the date of
the
closing.
|
Total
potential profit from other securities
| 4. | Please provide us, with a view toward disclosure in the prospectus, with tabular disclosure of: |
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·
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the
total possible profit to be realized as a result of any conversion
discounts for securities underlying any other warrants, options,
notes, or
other securities of the issuer that are held by the selling shareholders
or any affiliates of the selling shareholders, presented in a table
with
the following information disclosed
separately:
|
|
o
|
market
price per share of the underlying securities on the date of the sale
of
that other security;
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3
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o
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the
conversion/exercise price per share as of the date of the sale of
that
other security, calculated as
follows:
|
-if
the conversion/exercise price per share is set at a fixed price, use the price
per share on the date of the sale of that other security; and
-if
the conversion/exercise price per share is not set at a fixed price and,
instead, is set at a floating rate in relationship to the market price of the
underlying security, use the conversion/exercise discount rate and the market
rate per share on the date of the sale of that other security and determine
the
conversion price per share as of that date;
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·
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the
total possible shares to be received under the particular securities
(assuming complete
conversion/exercise);
|
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·
|
the
combined market price of the total number of underlying shares, calculated
by using the market price per share on the date of the sale of that
other
security and the total
possible shares to be
received;
|
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·
|
the
total possible shares to be received and the combined conversion
price of
the total number of shares underlying that other security calculated
by
using the conversion price on the date of the sale of that other
security
and the total possible number of underlying shares;
and
|
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·
|
the
total possible discount to the market price as of the date of the
sale of
that other security, calculated by subtracting the total
conversion/exercise price on the date of the sale of that other security
from the combined market price of the total number of underlying
shares on
that date.
|
Response:
| The common stock purchase warrants issued to investors and placement agents are exercisable for an aggregate of 8,400,000 shares of the Company’s common stock at an exercise price of $1.25 per share and expire in May 2012. The warrant exercise price and/or number of warrants is subject to adjustment only for stock dividends, stock splits or similar capital reorganizations so that the rights of the warrant holders after such event will be equivalent to the rights of warrant holders prior to such event. If there is an effective registration statement covering the shares underlying the warrants and the VWAP of the Company’s common stock exceeds $2.25 for 20 consecutive trading days, then on the 31st day following the end of such period any remaining warrants for which a notice of exercise was not delivered shall no longer be exercisable and shall be converted into a right to receive $.01 per share. |
| We have amended the registration statement to include, in the new caption “Private Placement of Series B Convertible Preferred Stock and Warrants”, under the sub caption “Nominal Market Value of Securities Being Offered”, a tabulation presenting disclosure of the difference between the nominal market value of the common stock underlying the warrants and the aggregate exercise price of the warrants at the date of sale of the Series B Preferred Stock. |
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Comparison
of issuer proceeds to potential investor profit
| 5. | Please provide us, with a view toward disclosure in the prospectus, with tabular disclosure of: |
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the
gross proceeds paid or payable to the issuer in the preferred security
transaction;
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·
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all
payments that have been made or that may be required to be made by
the
issuer that are disclosed in response to Comment
2;
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·
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the
resulting net proceeds to the issuer;
and
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·
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the
combined total possible profit to be realized as a result of any
conversion discounts
regarding the securities underlying the convertible notes and any
other
warrants, options, notes, or other securities of the issuer that
are held
by the selling shareholders or any affiliates of the selling shareholders
that is disclosed in response to Comment 3 and Comment
4.
|
| Further, please provide us, with a view toward disclosure in the prospectus, with disclosure - as a percentage - of the total amount of all possible payments, as disclosed in response to Comment 2 and the total possible discount to the market price of the shares underlying the convertible note, as disclosed in response to Comment 3 divided by the net proceeds to the issuer from the sale of the convertible notes, as well as the amount of that resulting percentage averaged over the term of the convertible notes. |
| Response |
| As described in our responses to Comments 2, 3 and 4, we have amended the registration statement to include the following disclosures: |
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·
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In
the new caption “Private Placement of Series B Convertible Preferred Stock
and Warrants”, under the sub caption “Gross Proceeds and Payments to
Selling Stockholders”, a tabulation presenting disclosure of net proceeds
to the Company after considering the total possible payments to all
selling stockholders and any of their affiliates in the first year
following the sale of the Series B Convertible Preferred Stock; and
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·
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In
the new caption “Private Placement of Series B Convertible Preferred Stock
and Warrants”, under the sub caption “Nominal Market Value of Securities
Being Offered”, a tabulation presenting disclosure of the excess of the
nominal market value of securities underlying the securities being
offered
at the date of sale over the total purchase price of those securities.
|
| The table summarizing total possible payments also includes a calculation of the percentage of those total payments in relation to gross proceeds. The table summarizing the excess of nominal market value of the securities being offered over the total purchase price of the securities also includes the percentage of that excess in relation to the total purchase price. The Series B Preferred Stock does not contain a fixed redemption date. Therefore, it is not possible to perform a calculation of a percentage averaged over a term. |
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5
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Prior
transactions between the issuer and the selling
stockholders
| 6. |
Please
provide us, with a view toward disclosure in the prospectus, with
tabular
disclosure of all prior securities transactions between the issuer
(or any
of its predecessors) and the selling shareholders, any affiliates
of the
selling shareholders, or any person with whom any selling shareholder
has
a contractual relationship regarding the transaction (or any predecessors
of those persons), with the table including the following information
disclosed separately for each
transaction:
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·
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the
date of the transaction;
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·
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the
number of shares of the class of securities subject to the transaction
that were outstanding prior to the
transaction;
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·
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the
number of shares of the class of securities subject to the transaction
that were outstanding prior to the transaction and held by persons
other
than the selling shareholders, affiliates of the company, or affiliates
of
the selling shareholders;
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·
|
the
number of shares of the class of securities subject to the transaction
that were issued or issuable in connection with the
transaction;
|
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·
|
the
percentage of total issued and outstanding securities that were issued
or
issuable in the transaction (assuming full issuance), with the percentage
calculated by taking the number of shares issued and outstanding
prior to
the applicable transaction and held by persons other than the selling
shareholders, affiliates of the company, or affiliates of the selling
shareholders, and dividing that number by the number of shares issued
or
issuable in connection with the applicable
transaction;
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·
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the
market price per share of the class of securities subject to the
transaction immediately prior to the transaction (reverse split adjusted,
if necessary); and
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·
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the
current market price per share of the class of securities subject
to the
transaction (reverse split adjusted, if
necessary).
|
Response
|
There
have been no prior securities transactions between the Company
and the
purchasers of Series B Preferred
Stock.
|
|
However,
Rodman & Renshaw LLC, the primary placement agent for the private
placement of Series B Preferred Stock and a “Selling Stockholder”, acted
as co-placement agent in connection with our 2006 private placement
and
received common stock purchase warrants and a cash payment as compensation
for their placement agent services. In the amended registration
statement
filed herewith, this disclosure is included under the sub caption
“Relationships with Selling Stockholders”.
|
Comparison
of registered shares to outstanding shares
| 7. |
Please
provide us, with a view toward disclosure in the prospectus, with
tabular
disclosure comparing:
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the
number of shares outstanding prior to the preferred securities transaction
that are held by persons other than the selling shareholders, affiliates
of the company, and affiliates of the selling
shareholders;
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·
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the
number of shares registered for resale by the selling shareholders
or
affiliates of the selling shareholders in prior registration
statements;
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·
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the
number of shares registered for resale by the selling shareholders
or
affiliates of the selling shareholders that continue to be held by
the
selling shareholders or affiliates of the selling
shareholders;
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·
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the
number of shares that have been sold in registered resale transactions
by
the selling shareholders or affiliates of the selling shareholders;
and
|
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·
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the
number of shares registered for resale on behalf of the selling
shareholders or affiliates of the selling shareholders in the current
transaction.
|
In
this analysis, the calculation of the number of outstanding shares should not
include any securities underlying any outstanding convertible securities,
options, or warrants.
Response
|
We
have amended the registration statement to include a table that
discloses
the number of shares that the Company is requesting to be registered
in
connection with the private placement of Series B Preferred Stock
in
relation to the outstanding shares of common stock held by persons
other
than the directors, executive officers and holders of 5% or greater
of our
common stock prior to the private placement. This disclosure
is located
under the caption “Selling Stockholders”.
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|
As
discussed in our response to Comment 6, there have been no prior
securities transactions between the Company and the purchasers
of Series B
Preferred Stock. Based on information provided to us by the selling
stockholders, we understand that Knoll Capital Fund II Master
Fund, Ltd.
and Europa International, Inc. have acquired 15,000 and 308,400
shares of
Novelos common stock, respectively, in open market transactions
subsequent
to the closing of the sale of Series B Preferred Stock. Other
than the
Series B Preferred Stock and warrants, the warrants issued to
Rodman &
Renshaw LLC (see our response to Comment 6) and the shares acquired
in
open market transactions by Knoll Capital Fund II Master Fund,
Ltd. and
Europa International, Inc., there are no outstanding shares held
by the
selling stockholders or their affiliates. As of the date of this
letter,
none of the shares of Series B Preferred Stock have been converted
or sold
by the selling stockholders and none of the warrants have been
exercised
by the selling stockholders.
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The
issuer’s intention and ability to make all note payments and the presence or
absence of short selling by the selling stockholders
| 8. |
Please
provide us, with a view toward disclosure in the prospectus,
with the
following information:
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whether
the issuer has the intention, and a reasonable basis to believe that
it
will have the financial ability, to make all payments on the overlying
securities; and
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·
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whether
- based on information obtained from the selling shareholders - any
of the
selling shareholders have an existing short position in the company's
common stock and, if any of the selling shareholders have an existing
short position in the company's stock, the following additional
information:
|
-the
date on which each such selling shareholder entered into that short position;
and
-the
relationship of the date on which each such selling shareholder entered into
that short position to the date of the announcement of the convertible note
transaction and the filing of the registration statement (e.g., before or after
the announcement of the convertible note transaction, before the filing or
after
the filing of the registration statement; etc.).
Response
|
The
Company has the full intention and a reasonable basis to believe
that it
has the financial ability to make all dividend payments and,
if necessary,
any payments for liquidated damages, to the Series B Preferred
Stock
investors. We have amended the registration statement to include
this
disclosure under the sub caption “Series B Convertible Preferred Stock -
Dividends”.
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|
Based
on the information provided by the selling stockholders, none
of the
selling stockholders have an existing short position in the
Company’s
common stock. We have amended the registration statement to
include this
disclosure in the new caption “Private Placement of Series B Convertible
Preferred Stock and Warrants”, under the sub caption “Short Positions”.
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Relationships
between the issuer and selling stockholders
| 9. |
Please
provide us, with a view toward disclosure in the prospectus,
with:
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·
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a
materially complete description of the relationships and arrangements
that
have existed in the past three years or are to be performed in the
future
between the issuer (or any of its predecessors) and the selling
shareholders, any affiliates of the selling shareholders, or any
person
with whom any selling shareholder has a contractual relationship
regarding
the transaction (or any predecessors of those persons) - the information
provided should include, in reasonable detail, a complete description
of
the rights and obligations of the parties in connection with the
sale of
the convertible notes; and
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copies
of all agreements between the issuer (or any of its predecessors)
and the
selling shareholders, any affiliates of the selling shareholders,
or any
person with whom any selling shareholder has a contractual relationship
regarding the transaction (or any predecessors of those persons)
in
connection with the sale of the convertible
notes.
|
If
it
is your view that such a description of the relationships and arrangements
between and among those parties already is presented in the prospectus and
that
all agreements between and/or among those parties are included as exhibits
to
the registration statement, please provide us with confirmation of your view
in
this regard.
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Response
|
The
description of the relationships and arrangements associated
with the sale
of the Series B Preferred Stock are described in the following
locations
within the registration statement:
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·
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The
new caption “Private Placement of Series B Convertible Preferred Stock and
Warrants”, contains a summary of the shares being registered and a
description of the financing, the associated registration rights
and the
placement agent compensation;
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·
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The
caption “Description of Securities” contains a detailed description of the
rights and preferences of the Series B Preferred Stock;
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·
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The
“Subsequent Event” footnote also contains a detailed description of the
agreements associated with the financing as well as a table that
shows the
anti-dilution adjustments made to warrants existing prior to the
financing
as a result of the Series B Preferred Stock financing.
|
|
The
Certificate of Designations of the Series B Preferred Stock,
agreements
with selling stockholders and the placement agent agreement entered
into
in connection with the sale of Series B Preferred Stock are listed
as
exhibits 3.2, 10.22, 10.23, 10.24, 10.25 and 10.27 in the current
registration statement. All such exhibits are incorporated by
reference
from the Company’s Form 10-QSB filed on May 8, 2007.
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|
As
discussed in our response to Comment 6, Rodman & Renshaw LLC acted as
co-placement agent in connection with the Company’s 2006 private placement
of securities. Rodman & Renshaw LLC also provides research coverage on
the Company and is a market maker in the Company’s common stock. The
registration statement has been amended to include this disclosure
under
the sub caption “Relationships with the Selling Stockholders”. Other than
these relationships, there were no previous relationships with
any of the
other selling stockholders.
|
The
method by which the number of registered shares was determined
| 10. |
Please
provide us, with a view toward disclosure in the prospectus,
with a
description of the method by which the company determined the
number of
shares it seeks to register in connection with this registration
statement. In this regard, please ensure that the number of shares
registered in the fee table is consistent with the shares listed
in the
"Selling Shareholders" section of the
prospectus.
|
Response
|
The
total number of shares that the Company is seeking to register
is
23,400,000. This total consists of:
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·
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15,000,000
shares of common stock to be obtained upon conversion of the Series
B
Preferred Stock. This is based on a conversion price of $1.00 and
gross
proceeds of $15,000,000;
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7,500,000
shares of common stock to be obtained upon exercise of five-year
common
stock purchase warrants with an exercise price of $1.25 per share
that
were issued to investors in the private placement;
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·
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900,000
shares of common stock to be obtained upon the exercise of five-year
common stock purchase warrants with an exercise price of $1.25 per
share
that were issued as partial compensation for services to placement
agents.
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|
This
information is described under the sub caption “The Offering - Securities
Offered”.
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|
The
conversion price of the Series B Preferred Stock and the
exercise price of
the warrants are subject to adjustment only for stock dividends,
stock
splits or similar capital reorganizations. Therefore, we
did not register
for resale more shares than are currently issuable upon conversion
or
exercise of these securities.
|
|
The
number of shares in the Selling Stockholder table also
totals 23,400,000.
This number agrees to the tabular summary included in
the calculation of
the registration
fee.
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Information
regarding institutional shareholders
| 11. |
With
respect to the shares to be offered for resale by each selling
security
holder that is a legal entity, please disclose the natural person
or
persons who exercise the sole or shared voting and/or dispositive
powers
with respect to the shares to be offered by that
shareholder.
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Response
|
The
table under the sub caption “Voting and Investment Control” sets forth the
selling stockholders that are entities and the names of individuals
having
voting and investment control over the securities held by these
entities.
|
If
you
have any questions concerning this filing, it is requested that you contact
Paul
Bork at (617) 832-1113, or in his absence, Amanda Kirouac at (617)
832-3091.
Sincerely,
Novelos
Therapeutics, Inc.
By: /s/
Harry S.
Palmin
Harry
S.
Palmin
President
and Chief Executive Officer
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