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Delaware (State or other jurisdiction of incorporation or organization)

2834 (Primary Standard Industrial Classification Code Number)

04-3321804 (I.R.S. employer identification number)

 

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Approximate date of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 (“Securities Act”), check the following box.  x

 

 

Large accelerated filer    o	Accelerated filer   o
Non-accelerated filer      o	Smaller reporting company  x

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The registrant hereby amends this post-effective amendment to the registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this post-effective amendment to the registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

 

 

 

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		Page
PROSPECTUS SUMMARY		6
RISK FACTORS		8
FORWARD-LOOKING STATEMENTS		14
USE OF PROCEEDS		14
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS		15
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION		15
BUSINESS		19
LITIGATION		26
PROPERTIES		27
MANAGEMENT		27
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT		34
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS		35
PRIVATE PLACEMENT OF SERIES B CONVERTIBLE PREFERRED STOCK AND WARRANTS		35
SELLING STOCKHOLDERS		38
DESCRIPTION OF SECURITIES		40
PLAN OF DISTRIBUTION		43
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES		45
WHERE YOU CAN FIND MORE INFORMATION		45
LEGAL MATTERS		45
EXPERTS		46
FINANCIAL STATEMENTS		F-1
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS		47
SIGNATURES		54

 

 

 

 

We are not making any representation to you regarding the legality of an investment in our common stock under any legal investment or similar laws or regulations. You should not consider any information in this prospectus to be legal, business, tax or other advice. You should consult your own attorney, business advisor and tax advisor for legal, business and tax advice regarding an investment in our common stock.

 

 

 

 

 

 

 

 

 

 

 

 

Securities Offered:		12,000,000 shares of our common stock issuable upon conversion of shares of our Series D Convertible Preferred Stock
Use of Proceeds:		We will not receive any of the proceeds from the sale by any selling stockholder of common stock or the conversion of preferred stock.
Total Shares of our Common Stock Outstanding as of April 11, 2008:		39,360,272

 

 

 

 

 

 

 

 

 

·

the number of potential products and technologies in development;

 

·

continued progress and cost of our research and development programs;

 

·

progress with pre-clinical studies and clinical trials;

 

·

the time and costs involved in obtaining regulatory clearance;

 

·

costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims;

 

·

costs of developing sales, marketing and distribution channels and our ability to sell our drugs;

 

·

costs involved in establishing manufacturing capabilities for clinical trial and commercial quantities of our drugs;

 

·

competing technological and market developments;

 

·

market acceptance of our products;

 

·

costs for recruiting and retaining management, employees and consultants;

 

·

costs for training physicians;

 

·

our status as a Bulletin-Board listed company and the prospects for our stock to be listed on a national exchange; and

 

·

uncertainty and economic instability resulting from terrorist acts and other acts of violence or war.

 

 

 

 

 

·

demonstrating benefit from delivery of each specific drug for specific medical indications;

 

·

demonstrating through pre-clinical and clinical trials that each drug is safe and effective; and

 

·

demonstrating that we have established a viable Good Manufacturing Practices capable of potential scale-up.

 

 

 

·

uncertainties arising from the rapidly growing scientific aspects of drug therapies and potential treatments;

 

·

uncertainties arising as a result of the broad array of alternative potential treatments related to cancer, hepatitis and other diseases; and

 

 

·

anticipated expense and time believed to be associated with the development and regulatory approval of treatments for cancer, hepatitis and other diseases.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

·

the receipt of regulatory clearance of marketing claims for the uses that we are developing;

 

·

the establishment and demonstration of the advantages, safety and efficacy of our technologies;

 

·

pricing and reimbursement policies of government and third-party payers such as insurance companies, health maintenance organizations and other health plan administrators;

 

·

our ability to attract corporate partners, including pharmaceutical companies, to assist in commercializing our intended products; and

 

·

our ability to market our products.

 

 

 

 

·

cease selling, incorporating or using any of our technologies and/or products that incorporate the challenged intellectual property, which would adversely affect our future revenue;

 

 

·

obtain a license from the holder of the infringed intellectual property right, which license may be costly or may not be available on reasonable terms, if at all; or

 

·

redesign our products, which would be costly and time-consuming.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

·

fail to satisfy financial or contractual obligations to us;

 

·

fail to adequately market our products;

 

·

cease operations with little or no notice; or

 

·

offer, design, manufacture or promote competing products.

 

 

 

 

 

We have initiated a portion of our clinical trial activities in both Western and Eastern Europe. We anticipate that approximately 40% of the remaining Phase 3 clinical trial budget of approximately $18 million will be incurred in Euros. Significant depreciation in the value of the U.S. Dollar against principally the Euro could adversely affect our ability to complete the trials, particularly if we are unable to redirect funding or raise additional funds. Since the timing and amount of foreign-denominated payments are uncertain and dependent on a number of factors, it is difficult to cost-effectively hedge the potential exposure. Therefore, to date, we have not entered into any foreign currency hedges to mitigate the potential exposure.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

·

announcements or press releases relating to the bio-pharmaceutical sector or to our own business or prospects;

 

·

regulatory, legislative, or other developments affecting us or the healthcare industry generally;

 

·

the dilutive effect of conversion of our Series B or Series C preferred stock into common stock at conversion rates or the exercise of options and warrants at below-current-market prices;

 

·

sales by those financing our company through convertible securities and warrants of the underlying common stock, when it is registered with the SEC and may be sold into the public market, immediately upon conversion or exercise; and

 

·

market conditions specific to biopharmaceutical companies, the healthcare industry and the stock market generally.

 

 

 

 

 

 

 

·

the election of directors;

 

·

the amendment of charter documents;

 

·

issuance of blank-check preferred or convertible stock, notes or instruments of indebtedness which may have conversion, liquidation and similar features, or completion of other financing arrangements; or

 

·

the approval of certain mergers and other significant corporate transactions, including a sale of substantially all of our assets, or merger with a publicly-traded shell or other company.

 

 

 

 

 

Except for historical facts, the statements in this prospectus are forward-looking statements. Forward-looking statements are merely our current predictions of future events. These statements are inherently uncertain, and actual events could differ materially from our predictions. Important factors that could cause actual events to vary from our predictions include those discussed under the headings “Risk Factors,” “Management’s Discussion and Analysis or Plan of Operation” and “Business.” We assume no obligation to update our forward-looking statements to reflect new information or developments. We urge readers to review carefully the risk factors described in this prospectus and the other documents that we file with the Securities and Exchange Commission. You can read these documents at www.sec.gov.

 

 

 

 

 

 

 

 

Fiscal Year 2006		High			Low
First Quarter		$	2.25		$	1.60
Second Quarter		$	1.95		$	0.85
Third Quarter		$	1.05		$	0.63
Fourth Quarter		$	1.02		$	0.60

 

Fiscal Year 2007		High			Low
First Quarter		$	1.24		$	0.85
Second Quarter		$	1.40		$	0.82
Third Quarter		$	0.90		$	0.45
Fourth Quarter		$	0.67		$	0.43

Fiscal Year 2008		High			Low
First Quarter		$	0.82		$	0.43
Second Quarter (through April 14, 2008)		$	0.64		$	0.44

 

Our transfer agent and registrar is American Stock Transfer and Trust Company, 59 Maiden Lane, New York, NY 10038.

 

 

 

 

 

 

 

 

Our plan of operation for the next twelve months is to continue the clinical development of our two product candidates. We expect our principal expenditures during those 12 months to include the costs associated with clinical trials. We will continue to maintain a low number of permanent employees and utilize senior advisors, consultants, contract research and manufacturing organizations and third parties to perform certain aspects of product development, including clinical and non-clinical development, manufacturing and, in some cases, regulatory and quality assurance functions. Based on our current and anticipated spending, we anticipate that we will be able to fund these activities with existing working capital into mid-2008. We plan to seek additional capital in the first half of 2008. We also plan to evaluate out-license opportunities for NOV-002 in Europe and/or Japan and use resources from these potential arrangements to offset, in part, the expense of our development. If we are unable to obtain funding on a timely basis, we may be required to significantly curtail or terminate one or more of our research or development programs or take other steps that could significantly impact the execution of our strategy.

 

In 2005 following the settlement of certain of our indebtedness, we completed a two-step reverse merger with Common Horizons, Inc. (“Common Horizons”), a Nevada-based developer of web portals, and its wholly-owned subsidiary Nove Acquisition, Inc. After the completion of the reverse merger Novelos became the surviving corporation, the business of Common Horizons, which was insignificant, was abandoned and the business of Novelos was adopted. The transaction was therefore treated as a reverse acquisition recapitalization with Novelos as the acquiring party and Common Horizons as the acquired party for accounting purposes. 

During 2005, 2006 and 2007 we completed various private placements of securities. In May through August of 2005 we sold an aggregate of 4,000,000 shares of common stock and warrants to purchase 2,000,000 shares of common stock for net cash proceeds of $3,715,000 and the conversion of $550,000 of convertible debt and accrued interest. In September and October 2005, we sold in a private placement 3,200 shares of Series A preferred stock and warrants to purchase 969,696 shares of common stock for aggregate net proceeds of $2,864,000. On March 7, 2006, we sold 11,154,073 shares of our common stock and warrants to purchase 8,365,542 shares of our common stock for net proceeds of $13,847,000. On May 2, 2007, we sold 300 shares of our Series B preferred stock and warrants to purchase 7,500,000 shares of our common stock for net proceeds of $13,693,000. In connection with that financing, the holders of the existing Series A preferred stock exchanged their 3,264 shares of Series A preferred stock for 272 shares of a new Series C convertible preferred stock, which are convertible into 3,264,000 shares of common stock. On April 11, 2008, we sold 113.5 shares of our Series D preferred stock and warrants to purchase 4,365,381 shares of common stock for estimated net proceeds of $5,475,000 (net of issuance costs). The shares of Series D preferred stock sold in the financing are convertible into 8,730,755 shares of common stock. In connection with that financing, the holders of the existing Series B preferred stock exchanged their 300 shares of Series B preferred stock for 300 shares of Series D preferred stock, which are convertible into 23,076,900 shares of common stock.

 

Research and development expense. Research and development expense consists of costs incurred in identifying, developing and testing product candidates, which primarily consist of salaries and related expenses for personnel, fees paid to professional service providers for independent monitoring and analysis of our clinical trials, costs of contract research and manufacturing and costs to secure intellectual property. We are currently developing two proprietary compounds, NOV-002 and NOV-205. To date, most of our research and development costs have been associated with our NOV-002 compound.

General and administrative expense. General and administrative expense consists primarily of salaries and other related costs for personnel in executive, finance and administrative functions. Other costs include facility costs, insurance, costs for public and investor relations, directors’ fees and professional fees for legal and accounting services.

 

 

Research and Development. Research and development expense for the year ended December 31, 2007 was $17,428,000 compared to $6,441,000 for the year ended December 31, 2006. The $10,987,000, or 171%, increase in research and development expense was due to increased funding of our clinical, contract manufacturing and non-clinical activities. The overall increase resulted principally from expanded activities relating to our pivotal Phase 3 clinical trial of NOV-002 for non-small cell lung cancer. The increase includes $4,712,000 in additional contract research and consulting services, an increase of $3,310,000 in clinical investigator expenses, an increase of $669,000 in drug manufacturing and distribution costs (including storage and shipping chemotherapy drug) and an increase of $217,000 related to salaries and overhead costs such as travel and related expenses. We also purchased $3,392,000 of chemotherapy drugs during 2007 (an increase of $2,101,000 over 2006) to be used in the Phase 3 clinical trial, specifically for clinical sites in Eastern and Western Europe. Since we do not anticipate recovering any of the costs of the chemotherapy and we not have a reliable method for tracking the drugs that have been administered to patients or evaluating any losses associated with spoilage, we recorded the entire amount as an expense in the period purchased. As disclosed in Note 9, we have a commitment to purchase an additional $1,000,000 of chemotherapy drugs. The commitment was fulfilled during January 2008. The increases discussed above were offset by a decrease of $22,000 in stock compensation expense during 2007 as compared to 2006.   

 

General and Administrative. General and administrative expense for the year ended December 31, 2007 was $2,866,000 compared to $2,488,000 for the year ended December 31, 2006. The $378,000, or 15%, increase in general and administrative expense was due to four factors. First, we recorded $396,000 in potential liquidated damages associated with the registration of less than 100% of the securities required by the registration rights agreements with investors in our Series B Preferred Stock. This represents a $421,000 increase over 2006, which included a credit of $25,000 for potential liquidated damages associated with a previous financing. Second, compensation and related costs and fees to directors increased $160,000 as a result of the hiring of a full-time director of finance in mid-2006, salary increases to administrative personnel, and increases in director fees. Third, overhead costs increased $96,000 due principally to increases in insurance and travel costs. Lastly, stock compensation associated with stock options increased by $81,000 due to new option grants during late 2006 and early 2007 to employees, directors and consultants. These increases were offset by a decrease of $380,000 in professional and consulting costs associated with legal, accounting and investor-relations professional services as we increased our use of internal resources to perform those functions. Also, during 2006 we issued restricted stock to certain investor relations firms. There were no restricted stock issuances during 2007.

Interest Income. Interest income for the year ended December 31, 2007 was $730,000 compared to $638,000 for the year ended December 31, 2006. The increase in interest income during 2007 related to higher average cash balances in 2007 as a result of the net proceeds received from 2006 and 2007 financing transactions.

Preferred Stock Dividends and Deemed Dividends. During the year ended December 31, 2007 we paid cash dividends to Series A and C preferred stockholders of $261,000 and dividends of $563,000 to Series B preferred stockholders. An additional $337,000 of dividends were declared and accrued but not paid to Series B preferred stockholders. During the year ended December 31, 2007 we also recorded deemed dividends to preferred stockholders totaling $9,003,000 (including a payment of $40,000 made upon the exchange of Series A for Series C preferred shares). This amount represents the value attributed to the beneficial conversion feature of the Series B convertible preferred stock of $7,824,000 and the fair value of warrants and cash of $1,179,000 transferred to the former Series A preferred stockholders in connection with the exchange of their shares for shares of Series C preferred stock that were subordinated to the Series B shares. The deemed dividends and cash dividends have been included in the calculation of net loss attributable to common stockholders of $29,721,000, or $0.76 per share, for the year ended December 31, 2007. The deemed dividends and cash dividends are excluded from our net loss (from operating activities) of $19,557,000 or $0.50 per share, for the year ended December 31, 2007. There were no deemed dividends recorded during 2006; however we paid cash dividends totaling $261,000 to Series A preferred stockholders. 

 

 

 

 

Based on our current and anticipated spending, we believe that our available cash and equivalents, including the net proceeds from the Series D financing, will fund our operations into late 2008. We will need to raise additional capital in order to complete the pivotal Phase 3 clinical trial for NOV-002 in NSCLC and other research and development activities. We plan to seek additional funding through collaborative arrangements and public or private financings. Our ability to continue as a going concern is dependent on our ability to obtain such funding. Additional funding may not be available to us on acceptable terms or at all. In addition, the terms of any financing may adversely affect the holdings or the rights of our stockholders. For example, if we raise additional funds by issuing equity securities, further dilution to our existing stockholders may result. If we are unable to obtain funding on a timely basis, we may be required to significantly curtail one or more of our research or development programs. We also could be required to seek funds through arrangements with collaborators or others that may require us to relinquish rights to some of our technologies, product candidates, or products which we would otherwise pursue on our own.

 

·

the resources required to successfully complete our clinical trials;

 

·

the time and costs involved in obtaining regulatory approvals;

 

·

continued progress in our research and development programs, as well as the magnitude of these programs;

 

·

the cost of manufacturing activities;

 

·

the costs involved in preparing, filing, prosecuting, maintaining, and enforcing patent claims;

 

·

the timing, receipt, and amount of milestone and other payments, if any, from collaborators; and

 

·

fluctuations in foreign exchange rates.

 

 

 

 

Accrued Liabilities. As part of the process of preparing financial statements, we are required to estimate accrued liabilties. This process involves identifying services that have been performed on our behalf, and estimating the level of service performed and the associated cost incurred for such service as of each balance sheet date in our financial statements. Examples of estimated expenses for which we accrue include: contract service fees such as amounts paid to clinical research organizations and investigators in conjunction with clinical trials; fees paid to contract manufacturers in conjunction with the production of clinical materials; and professional service fees, such as for lawyers and accountants. In connection with such service fees, our estimates are most affected by our understanding of the status and timing of services provided relative to the actual levels of services incurred by such service providers. The majority of our service providers invoice us monthly in arrears for services performed. In the event that we do not identify certain costs that have begun to be incurred, or we over- or underestimate the level of services performed or the costs of such services, our reported expenses for such period would be too high or too low. The date on which certain services commence, the level of services performed on or before a given date and the cost of such services are often determined based on subjective judgments. We make these judgments based on the facts and circumstances known to us in accordance with generally accepted accounting principles.

 

Stock-based Compensation. Commencing on January 1, 2006 we began applying the provisions of Statement of Financial Accounting Standards (SFAS) 123R, Share-Based Payment, or SFAS 123R, in accounting for stock-based compensation. SFAS 123R requires measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized over the period during which an employee is required to provide service in exchange for the award, the requisite service period (usually the vesting period). Prior to January 1, 2006, we followed Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, or APB 25, and related interpretations, in accounting for our stock-based compensation plans, rather than the alternative fair-value method provided for under SFAS No. 123, Accounting for Stock-Based Compensation, or SFAS 123. We account for transactions in which services are received from non-employees in exchange for equity instruments based on the fair value of such services received or of the equity instruments issued, whichever is more reliably measured, in accordance with SFAS 123 and the Emerging Issues Task Force (EITF) Issue 96-18, Accounting for Equity Instruments That Are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services, or EITF 96-18.

 

 

BUSINESS 

 

 

 

 

 

 

 

 

 

 Business Strategy

 

 

 

 

 

 

 

 

§

Cell signaling pathways

§

Cytoskeletal structure/function

§

Protein folding/stability

§

Calcium homeostasis

§

Energy metabolism

§

Redox homeostasis

 

 

 

 

 

 

 

 

 

 

 

According to the American Cancer Society, about 1.44 million U.S. men and women were expected to be diagnosed with cancer in 2007. Over 550,000 U.S. cancer patients were expected to die in 2007, which makes cancer the second leading cause of death in the U.S., exceeded only by deaths related to heart disease. Lung cancer is the leading cause of cancer death in the U.S. Approximately 213,000 people were expected to be diagnosed with lung cancer in 2007, with over 160,000 deaths. According to a Rodman and Renshaw report dated December 2006, there are approximately 405,000 cases of lung cancer among industrial nations and the pharmaceutical market for treating lung cancer is currently approximately $800 million per year in the U.S. and $1.8 billion worldwide, expected to grow to greater than $8 billion by 2011. Non-small cell lung cancer accounts for more than 80% of lung cancer. Only about 15% of non-small cell lung cancer patients are diagnosed early enough to be eligible for surgery.

 

Platinum-based chemotherapy regimens are standard first-line treatment for advanced non-small cell lung cancer patients, since these patients are not eligible for surgery. Carboplatin and paclitaxel are the most common combination therapy in the U.S., while cisplatin and gemcitabine are more common in Europe. During treatment, patients continue to be subject to serious adverse effects. According to December 2003 Credit Suisse First Boston and UBS reports and Phase 3 clinical trials conducted as recently as 2005, the one-year survival rate for first-line therapy is typically only about 35%, median survival is approximately 8.5 months and the objective tumor response rate is about 20%. Overall, fewer than 5% of advanced non-small cell lung cancer patients survive five years. Docetaxel is approved for use as second-line treatment of non-small cell lung cancer. New dosing regimens with existing cytotoxic drugs are likely to provide only incremental improvements in efficacy and/or safety, and are very expensive. Similarly, emerging targeted biologic therapies, such as Astra Zeneca’s IRESSA®, OSI’s TARCEVA®, Genentech’s AVASTIN® and ImClone’s ERBITUX®, may offer some benefit for certain patient subpopulations, but overall efficacy has remained low. Moreover, there are significant safety concerns and the costs to manufacture are very high. Thus, there is an absence of effective treatments for non-small cell lung cancer, particularly for late stage patients.

 

 

 

 

 

·

Group A: NOV-002, administered intravenously and intramuscularly, in combination with cytotoxic chemotherapy (carboplatin + paclitaxel).

 

·

Group B: NOV-002, administered intravenously and subcutaneously, in combination with cytotoxic chemotherapy.

 

·

Group C: Cytotoxic chemotherapy alone was administered to this control group.

 

 

 

 

 

According to the American Cancer Society, approximately 22,000 U.S. women were expected to be diagnosed with ovarian cancer in 2007 and 15,000 women are expected to die from it. According to a Rodman and Renshaw report dated December 2006, the pharmaceutical market for treating ovarian cancer is estimated to be $300 million per year. There is a lack of effective treatment, particularly in the case of patients who are chemotherapy refractory (those who do not respond to chemotherapy) or resistant (those who relapse shortly after receiving chemotherapy). 

 

 

Refractory/resistant ovarian cancer patients have a very poor prognosis because they are faced with inadequate therapeutic options. According to a Lehman Brothers report dated September 2002, response rates from second-line treatments, such as doxorubicin and topotecan, are typically less than 12%. Once a woman’s ovarian cancer is defined as platinum resistant, the chance of having a partial or complete response to further platinum therapy is typically less than 10%, according to an article by A. Berkenblit in the June 2005 issue of the Journal of Reproductive Medicine.

 

 

 

 

 

 

 

 

 

 

 

According to the World Health Organization, chronic hepatitis C affected 170 million people worldwide in 2003, and up to four million people are newly infected each year. Chronic infection can progress to cirrhosis and end-stage liver disease. While there are varying estimates about the size of the global market for hepatitis C drugs, according to a September 2006 publication of Nature Reviews Drug Discovery the current global market is believed to be in excess of $3 billion per year, growing to more than $8 billion by 2010. In the U.S., according to the Centers for Disease Control and Prevention, an estimated 3.9 million persons were infected with hepatitis C, and 2.7 million persons in the U.S. had chronic infection in 2003. Further, hepatitis C infections account for approximately 30,000 new infections and 8,000-10,000 deaths each year in the U.S.

 

 

 

 

 

 

 

We are engaged in funded research collaboration with the laboratory of Kenneth Tew, Ph.D., D.Sc., Chairman of the Department of Cell and Molecular Pharmacology and Experimental Therapeutics at The Medical University of South Carolina. Dr. Tew is also chairman of our Scientific Advisory Board and a stockholder. The general objectives of this research program are to add to the understanding of NOV-002 and NOV-205 as drug products, particularly with respect to their molecular and cellular mechanism(s) of action and to facilitate: (1) the design and execution of clinical studies, (2) the interactions with the FDA and (3) the interactions with others in the scientific community. Funded research collaborations are also underway at other academic/scientific institutions including Harvard/Massachusetts General Hospital, the Wistar Institute and the University of Massachusetts Medical Center to further elaborate in vitro and in vivo mechanisms of drug action that may underlie the clinical therapeutic profiles of NOV-002 and NOV-205.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

·

Pre-clinical laboratory tests, in vivo pre-clinical studies, and formulation studies;

 

·

The submission to the FDA of an Investigational New Drug Application for human clinical testing, which must become effective before human clinical trials can commence;

 

·

Adequate and well controlled human clinical trials to establish the safety and efficacy of the product;

 

·

The submission of a New Drug Application or Biologic Drug License Application to the FDA; and

 

·

FDA approval of the New Drug Application or Biologic Drug License Application prior to any commercial sale or shipment of the product.

 

 

 

 

 

 

 

We lease our executive office in Newton, Massachusetts. Our office consists of approximately 3,000 square feet and is rented for approximately $7,700 per month. This lease expires in August 2009. We believe that our present facilities are adequate to meet our current needs. If new or additional space is required, we believe that adequate facilities are available at competitive prices.

 

 

 

 

Name		Age		Position
Stephen A. Hill, B.M. B.Ch., M.A., F.R.C.S.		49		Chairman of the Board
Harry S. Palmin		38		President, Chief Executive Officer, Director
M. Taylor Burtis		56		Vice President of Regulatory, Quality and Compliance
Christopher J. Pazoles, Ph.D.		57		Vice President of Research and Development
Joanne M. Protano		39		Vice President, Chief Financial Officer and Treasurer
Kristin C. Schuhwerk		37		Vice President of Clinical Development and Operations
Michael J. Doyle (1) (2) (3)		49		Director
Sim Fass, Ph.D. (1) (2) (3)		66		Director
James S. Manuso, Ph.D.		59		Director
David B. McWilliams (2) (3)		64		Director
Simyon Palmin		63		Director
Howard M. Schneider (1) (3)		63		Director

(1)	Member of the audit committee.

(2)	Member of the compensation committee.

(3)	Member of the nominating and corporate governance committee.

 

Stephen A. Hill, B.M. B.Ch., M.A., F.R.C.S. Dr. Hill was elected our chairman of the board of directors in September 2007. Dr. Hill has served as ArQule's President and Chief Executive Officer since April 1999, a position from which he has resigned effective March 31, 2008. As of April 1, 2008, Dr. Hill joined Solvay Pharmaceuticals, Inc. as its President and Chief Executive Officer. Before joining ArQule, Dr. Hill was the Head of Global Drug Development at F. Hoffmann-La Roche Ltd. from 1997 to 1999. Dr. Hill joined Roche in 1989 as Medical Adviser to Roche Products in the United Kingdom. He held several senior positions at Roche, including Medical Director where he was responsible for clinical trials of compounds across a broad range of therapeutic areas, including CNS, HIV, cardiovascular, metabolic and oncology products. Subsequently, he served as Head of International Drug Regulatory Affairs at Roche headquarters in Basel, Switzerland, where he led the regulatory submissions for seven major new chemical entities. Dr. Hill also was a member of Roche's Portfolio Management, Research, Development and Pharmaceutical Division Executive Boards. Prior to Roche, Dr. Hill served seven years with the National Health Service in the United Kingdom in General and Orthopedic Surgery. Dr. Hill is a Fellow of the Royal College of Surgeons of England and holds his scientific and medical degrees from St. Catherine's College at Oxford University.

Harry S. Palmin. Mr. Palmin has served as our president and a director since 1998 and our chief executive officer since January 2005. From 1998 to September 2005, he served as our acting chief financial officer. From 1996 to 1998, he was a vice president at Lehman Brothers and from 1993 to 1996, he was an associate at Morgan Stanley & Co. Mr. Palmin earned a B.A. in economics and business and a M.A. in international economics and finance from the International Business School at Brandeis University. He has also studied at the London School of Economics and the Copenhagen Business School.

 

M. Taylor Burtis. Ms. Burtis has served as our vice president of regulatory, quality and compliance since July 2005. From October 2004 to June 2005, she served as a senior director of regulatory affairs at Therion Biologics. From November 2003 to September 2004, she served as a senior director of regulatory affairs at Antigenics. From May 2000 to October 2003, Ms. Burtis served as an associate director for worldwide regulatory affairs at Wyeth BioPharma. From 1996 to April 2000, she served as a senior manager of regulatory affairs at Genentech. From 1992 to 1996, Ms. Burtis was an FDA consumer safety officer in the Office of Compliance at the Center for Biologics Evaluation and Research. From 1991 to 1992, Ms. Burtis served as a medical research manager at Boston Veterans Administration Center. From 1987 to 1991, she served as a research lab manager at Children’s Hospital, from 1985 to 1987, she served as a laboratory director at Brigham & Women’s Hospital and from 1980 to 1985, she served as a technical specialist international liaison with the American Red Cross. Ms. Burtis earned a B.S. in biology from Framingham State College and a M.B.A. in operations and strategy from Simmons College.

 

Christopher J. Pazoles, Ph.D. Dr. Pazoles has served as our vice president of research and development since July 2005. From May 2004 to June 2005, he held a senior research and development position at the Abbott Bioresearch Center, a division of Abbott Laboratories. From October 2002 to January 2004, he served as chief operating officer and head of research and development at ALS Therapy Development Foundation. From 1994 to October 2002, Dr. Pazoles served as vice president of research for Phytera, Inc. From 1981 to 1994, he served as a researcher and senior manager with Pfizer. Dr. Pazoles holds a Ph.D. in microbiology from the University of Notre Dame.

 

Joanne M. Protano. Ms. Protano was appointed our vice president, chief financial and accounting officer, and treasurer in December 2007. She previously held the position of Senior Director of Finance and Controller of the Company from June 2006 to December 2007. From 1996 to 2006, she held various management and senior management positions with Ascential Software, Inc. and predecessor companies including Assistant Controller, Reporting for Ascential Software, Vice President and Chief Financial Officer for the Ascential Software Division of Informix Software, Inc. and Corporate Controller of Ardent Software, Inc. Prior to her tenure in the technology industry, from 1990 to 1996 she was employed by Deloitte and Touche LLP as an audit manager, where she practiced as a certified public accountant serving technology and healthcare clients. Ms. Protano received a B.S. in business administration from Bryant College.

Kristin C. Schuhwerk. Ms. Schuhwerk was appointed our vice president of clinical development and operations in December 2007. She previously served as our Director/Senior Director of Operations from July 2005 to December 2007. Prior to her employment at Novelos, she worked in the biopharmaceutical industry managing and overseeing business operations for multiple global Phase 2 and 3 clinical studies. From 2002 to 2005 she held the positions of Senior Project Manager and Director of Planning and Business Operations in Clinical Development at Antigenics, Inc., a cancer biotechnology company. From 1993 to 2002, she held research, project management and management positions at Boston University Medical Center, Parexel International, AstraZeneca and Brigham & Women’s Hospital. Ms. Schuhwerk earned a B.S. degree in Chemistry from the University of New Hampshire.

 

Michael J. Doyle. Mr. Doyle has served as one of our directors since October 2005. Since October 2007 he has served as the chief executive officer of Medsphere Systems Corporation. From April 2006 to June 2007, he served as chief executive officer of Advantedge Healthcare Solutions. From January 2005 to March 2006, he served as chief executive officer of Windward Advisors. From March 2000 to December 2004, Mr. Doyle served as chairman and chief executive officer of Salesnet. From 1989 to 1997, he served as chairman and chief executive officer of Standish Care/Carematrix, a company he founded. He received a B.S. in biology from Tufts University and a M.B.A. with a concentration in finance and health care from the University of Chicago.

Sim Fass, Ph.D. Dr. Fass has served as one of our directors since February 2005. Dr. Fass, now retired, served as chief executive officer and chairman of Savient Pharmaceuticals from 1997 to 2004, its president and chief executive officer from 1984 to 1997, and its chief operating officer from 1983 to 1984. From 1980 to 1983, Dr. Fass served as vice president and general manager of Wampole Laboratories. From 1969 to 1980, he held a number of marketing, sales and senior management positions at Pfizer, Inc in both pharmaceuticals and diagnostics. He received a B.S. in biology and chemistry from Yeshiva College and a doctoral degree in developmental biology/biochemistry from the Massachusetts Institute of Technology.

 

 

James S. Manuso, Ph.D. Dr. Manuso was elected as one of our directors in August 2007. Since January 2005, Dr. Manuso has served as Chairman, President and Chief Executive Officer of SuperGen, Inc. and has served as a director of SuperGen since February 2001. Dr. Manuso is co-founder and former president and chief executive officer of Galenica Pharmaceuticals, Inc. Dr. Manuso co-founded and was general partner of PrimeTech Partners, a biotechnology venture management partnership, from 1998 to 2002, and Managing General Partner of The Channel Group LLC, an international life sciences corporate advisory firm. He was also president of Manuso, Alexander & Associates, Inc., management consultants and financial advisors to pharmaceutical and biotechnology companies. Dr. Manuso was a vice president and Director of Health Care Planning and Development for The Equitable Companies (now Group Axa), where he also served as Acting Medical Director. He currently serves on the board of privately-held KineMed, Inc. and Merrion Pharmaceuticals Ltd. (Dublin, Ireland). Previously, he served on the boards of Inflazyme Pharmaceuticals, Inc., Symbiontics, Inc., Quark Biotech, Inc., Galenica Pharmaceuticals, Inc., and Supratek Pharma, Inc. Dr. Manuso earned a B.A. in economics and chemistry from New York University, a Ph.D. in experimental psychophysiology from the Graduate Faculty of The New School University, a certificate in health systems management from Harvard Business School, and an executive M.B.A. from Columbia Business School.

David B. McWilliams. Mr. McWilliams has served as one of our directors since March 2004. From February 2004 to December 2004, Mr. McWilliams performed chief executive officer services for us. Since August 2004, Mr. McWilliams has served as chief executive officer of Opexa Therapeutics, Inc. (formerly PharmaFrontiers Corp.). From 1992 to March 2002, he served as president, chief executive officer and a director of Encysive Pharmaceuticals (formerly Texas Biotech). From 1989 to 1992, Mr. McWilliams served as president, chief executive officer and director of Zonagen. From 1984 to 1988, he served as president and chief executive officer of Kallestad Diagnostics. From 1980 to 1984, he served as president of Harleco Diagnostics Division. From 1972 to 1980, he was an executive at Abbott Laboratories, rising to general manager for South Africa. From 1969 to 1972, he was a management consultant at McKinsey & Co. Mr. McWilliams is also a director of Fairway Medical Technologies, Houston Technology Center and Texas Healthcare and Bioscience Institute. Mr. McWilliams received a M.B.A. in finance from the University of Chicago and a B.A. in chemistry from Washington and Jefferson College.

Simyon Palmin. Mr. Palmin founded us in 1996. He served as our chairman of the board from 1996 until September 2007 and currently serves as a director and our director of Russian relations. From 1996 to February 2004, he served as our chief executive officer. From 1984 to 1998, Mr. Palmin served as vice president of strategic planning and vice president of new product development of Design Components Inc. Mr. Palmin received a B.S. in naval instrumentation from St. Petersburg Navy Institute, St. Petersburg, Russia and a M.A. in aviation instrumentation from the Institute of Aviation Instrumentation, St. Petersburg, Russia. He also completed studies for a Ph.D. in electrical engineering.

Howard M. Schneider. Mr. Schneider has served as one of our directors since February 2005. Mr. Schneider is currently retired. From January to December 2003, he served as chief executive officer of Metrosoft, Inc., and had been an advisor to such company from July to December 2002. From May 2000 to May 2001, he served as president of Wofex Brokerage, Inc. and from 1965 to 1999, he served as an executive at Bankers Trust Company holding a variety of positions in the commercial banking and investment banking businesses. Mr. Schneider received a B.A. in economics from Harvard College and a M.B.A. from New York University.

 

Summary Compensation: The following table sets forth certain information about the compensation we paid or accrued with respect to our principal executive officer and our two most highly compensated executive officers (other than our chief executive officer) who served as executive officers during the year ended December 31, 2007 and whose annual compensation exceeded $100,000 for that year.

 

 

 

Name and Principal Position		Year			Salary ($)			Bonus ($) (4)			Option Awards ($) (5)			All other compensation ($)			Total ($)
Harry S. Palmin (1) President, Chief Executive Officer			2007 2006		$	245,000 225,000		$	37,500 50,000		$	59,660 91,410		$	0 0		$	342,160 366,410
Christopher J. Pazoles (2) Vice President of Research and Development			2007 2006		$	216,720 199,200		$	30,000 40,320		$	37,288 60,940		$	0 0		$	284,008 300,460
M. Taylor Burtis (3) Vice President of Quality, Regulatory and Compliance			2007 2006		$	203,175 186,750		$	20,000 37,800		$	29,830 60,940		$	0 0		$	253,005 285,490

(1) On December 17, 2007, the board of directors approved an increase in Mr. H. Palmin’s annual base salary to $270,000, effective January 1, 2008.

(2) On December 17, 2007, the board of directors approved an increase in Dr. Pazoles’ annual base salary to $223.000, effective January 1, 2008.

(3)   On December 17, 2007, the board of directors approved an increase in Ms. Burtis’ annual base salary to $218,000, effective January 1, 2008.

(4)  Bonus amounts shown in this column relate to services performed in the year shown, but were paid in the subsequent year. The bonus amount shown for 2007 represents 50% of the award approved by the compensation committee. The remaining 50% is payable upon the completion of an equity financing during 2008.

(5)  The fair value of each stock award was estimated on the grant date using the Black-Scholes option-pricing model.  

 

On January 31, 2006, we entered into an employment agreement with Harry Palmin effective January 1, 2006, whereby he agreed to serve as our president and chief executive officer for an initial term of two years at an annual salary of $225,000. The agreement is automatically renewed for one-year terms unless 90-day notice is provided by either party. The agreement has been renewed for an additional one-year term in accordance with its terms. On December 17, 2007, the Board of Directors approved an increase in Mr. Palmin’s annual salary to $270,000 effective January 1, 2008. He is eligible to receive an annual cash bonus at the discretion of the compensation committee and he is entitled to participate in our employee fringe benefit plans or programs generally available to our senior executives. The agreement provides that in the event that we terminate Mr. Palmin without cause or he resigns for good reason (as defined below), we will (i) pay Mr. Palmin his pro rata share of the average of his annual bonus paid during the two fiscal years preceding his termination; (ii) pay Mr. Palmin his base salary for 11 months after the date of termination; (ii) continue to provide him benefits for 11 months after the date of termination; and (iii) fifty percent of his unvested stock options will vest. The agreement also contains a non-compete provision, which prohibits Mr. Palmin from competing with us for one year after termination of his employment with us.

 

 

 

 

 

 

 

 

Outstanding equity awards at Fiscal Year-End. The following table sets forth certain information regarding stock options held as of December 31, 2007 by the executive officers named in the summary compensation table.

 

		Individual Grants
Name		Year of Grant			Number of securities underlying unexercised options (#) exercisable			Number of securities underlying unexercised options (#) unexercisable			Exercise or base price ($/share)			Expiration date
Harry S. Palmin			2007	(1)		—			200,000		$	0.45			12/17/2017
			2006	(1)		50,000			100,000			0.91			12/11/2016
			2005	(2)		250,000			—			0.01			1/31/2015
			2005	(2)		150,000			—			0.01			3/31/2015
			2004	(3)		330,000			—			0.01			4/1/2014
			2003	(4)		7,130			—			0.70			8/1/2013
Christopher J. Pazoles.			2007	(1)		—			125,000		$	0.45			12/17/2017
			2006	(1)		33,333			66,667			0.91			12/11/2016
			2005	(5)		200,000			—			0.01			4/8/2015
			2004	(6)		16,667			—			0.01			4/1/2014
M. Taylor Burtis			2007	(1)		—			100,000		$	0.45			12/17/2017
			2006	(1)		33,333			66,667			0.91			12/11/2016
			2005	(7)		150,000			—			2.20			7/1/2015

 

 

(1)	These shares vest annually in increments of one-third over three years from the date of grant. The exercise price equals the closing price on the date of grant.

(2)

These shares initially vested over a two-year period. Pursuant to their terms, the shares fully vested upon the completion of a non-bridge loan financing, which occurred in the second quarter of 2005. The exercise price equals the fair market value of our common stock on the date of grant as determined by our board of directors.

(3)

These shares initially vested one-third upon grant and one third annually over the following two years. Pursuant to their terms, one additional year of vesting occurred upon the completion of a non-bridge loan financing, which occurred in the second quarter of 2005. The exercise price equals the fair market value of our common stock on the date of grant as determined by our board of directors.

(4)	These shares vest annually in increments of one-third over three years from the date of grant. The exercise price equals the fair market value of our common stock on the date of grant as determined by our board of directors.

(5)	These shares vest in increments of one-fourth every six months over two years from the date of grant. The exercise price equals the fair market value of our common stock on the date of grant as determined by our board of directors.

(6)	These shares represent the fully vested portion of an option grant made to Mr. Pazoles in consideration of consulting services delivered during 2004. Pursuant to their terms, the shares vested at the completion of the consulting engagement expire ten years from the date of grant.

(7)	These shares vest in increments of one-fourth every six months over two years from the date of grant. The exercise price equals the closing price on the date of grant.

 

 

Summary Compensation: The following table sets forth certain information about the compensation we paid or accrued with respect to our directors who served during the year ended December 31, 2007.

Name and Principal Position		Year			Director Fees ($) (2)			Option Awards ($) (3)			All other compensation ($)			Total ($)
Stephen A. Hill, Chairman			2007		$	10,542		$	70,020		$	—		$	80,562
Michael J. Doyle, Director			2007			31,500			17,919			—			49,419
Sim Fass, Director			2007			30,750			17,919			—			48,669
James S. Manuso, Director			2007			8,250			37,510						45,760
David B. McWilliams, Director			2007			25,000			17,919			—			42,919
Simyon Palmin, Director and director of Russian relations (1)			2007			—			—			81,880			81,880
Howard M. Schneider, Director			2007			38,000			17,919			—			55,919

(1)	Other compensation for Simyon Palmin represents salary and bonus he received in his capacity as director of Russian relations for the Company.

(2)	Director fees include all fees earned for director services including quarterly fees, meeting fees and committee chairman fees.

(3)	The fair value of each stock award was estimated on the grant date using the Black-Scholes option-pricing model. See Note 6 to the financial statements for a description of the assumptions used in estimating the fair value of stock options.

 

 

 

 

 

 

 

 

 

Plan category		Number of shares to be issued upon exercise of outstanding options, warrants and rights (#)			Weighted-average exercise price of outstanding options, warrants and rights ($)			Number of shares remaining available for future issuance under equity compensation plans (excluding shares reflected in column (a)) (#)
		(a)			(b)			(c)
Equity compensation plans approved by stockholders			2,293,873		$	0.81			2,780,000
Equity compensation plans not approved by stockholders			2,553,778		$	0.55			0
Total			4,847,651		$	0.67			2,780,000

 

 

 

·	Each person known by us to be the beneficial owner of more than five percent of our common stock;

 

·	Each of our directors;

 

·	Each executive officer named in the summary compensation table; and

 

·	All of our current directors and executive officers as a group.

 

 

		Shares Beneficially Owned
Name and Address of Beneficial Owner		Outstanding			Right to Acquire			Total			Percentage
Harry S. Palmin (1)			582,118			787,130			1,369,248			3.4	%
M. Taylor Burtis			0			183,333			183,333			*
Christopher J. Pazoles			0			250,000			250,000			*
Stephen A. Hill			0			61,250			61,250			*
Michael J. Doyle			0			140,625			140,625			*
Sim Fass			0			140,625			140,625			*
James S. Manuso			0			42,500			42,500			*
David McWilliams			0			193,403			193,403			*
Simyon Palmin (2)			1,947,481			487,826			2,435,307			6.1	%
Howard Schneider			100,000			40,625			140,625			*
All directors and officers as a group (12 persons)			2,629,599			2,485,650			5,115,249			12.2	%

* Less than one percent.

(1)	Shares owned by H. Palmin include 94,000 shares owned by his wife, Deanna Palmin.

(2)	Shares owned by S. Palmin include 236,542 shares owned by his wife, Alla Palmin.

(3)

The terms of the Series D Preferred Stock and common stock purchase warrants provide that the number of shares of common stock to be obtained by each of the holders of Series D Preferred Stock and common stock purchase warrants, upon conversion of the Series D Preferred Stock or exercise of the common stock purchase warrants, cannot exceed the number of shares that, when combined with all other shares of our common stock and securities owned by each of them, would result in any one of them owning more than 4.99% or 9.99%, as applicable in the certificate of designations and warrant agreement, of our outstanding common stock, provided, however that this limitation may be revoked by the stockholder upon 61 days prior notice to us. For this reason, holders of our Series D Preferred Stock who might otherwise have the right to acquire 5% or more of our common stock have been omitted from this table. Similar provisions apply to outstanding shares of our Series C Preferred Stock and common stock purchase warrants issued to the holders of Series C Preferred Stock and therefore holders of our Series C Preferred Stock who might otherwise have the right to acquire 5% or more of our common stock have also been omitted from this table.

 

 

 

As a result of the assignment to Novelos of the exclusive worldwide intellectual property and marketing rights of oxidized glutathione (excluding Russia and the states of the former Soviet Union), Novelos is required to pay Oxford Group, Ltd., a company that provides consulting and financial services, a royalty in the amount of 0.8% of our net sales of oxidized glutathione-based products. One of our directors is president of Oxford Group, Ltd.

 

Each member of the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee meets the independence requirements of the Nasdaq Stock Market for membership on the committees on which he serves. The board of directors considered the information included in transactions with related parties as outlined above along with other information the board considered relevant, when considering the independence of each director. Messrs. Harry and Simyon Palmin are not independent directors.

 

 

 

 

Gross proceeds		$	15,000,000
Less payments made:
Placement agent fee – Rodman & Renshaw LLC			892,500
Placement agent fee – Emerging Growth Equities, Ltd.			157,500
Reimbursement of placement agent legal fees			18,400
Reimbursement of investor legal fees			77,000
Reimbursement of due diligence expenses			7,295
Less payments that are be required to be made:
Dividends paid to holders of Series B Preferred Stock on September 30, 2007			562,500
Dividends due to holders of Series B Preferred Stock on March 31, 2008			675,000
Less payments that may be required to be made:
Liquidated damages associated with registration rights defaults (1)			157,500
Net (2)		$	12,452,305
Total payments as a percentage of gross proceeds			17	%

 

 

 

 

Outstanding shares of common stock on April 11, 2008			39,360,272
Less:
Shares held by executive officers and directors			2,629,599
			36,730,673
Shares of common stock underlying the Series D Preferred Stock registered for resale on behalf of the selling stockholders			12,000,000

 

 

 

 

 

 

 

 

 

(1)	Shares in the “Outstanding” column consist of shares purchased in market transactions following the closing of the sale of Series B Preferred Stock.

 

(2)

On October 1, 2007, Hunt BioVentures, L.P. purchased 5 shares of our Series B Preferred Stock and warrants to purchase 125,000 shares of our common stock from HFR SHC Aggressive Master Trust. The shares of Series B Preferred Stock were exchanged for shares of Series D Preferred Stock on April 11, 2008. The 384,615 shares of common stock issuable upon conversion of the 5 shares of Series D preferred stock and the 125,000 shares of common stock issuable upon exercise of the warrants are included in the “Right to Acquire” column.

 

 

The table below sets forth selling stockholders that are entities and the names of individuals having voting and investment control over the securities held by these entities. We determined beneficial ownership based upon information supplied to us by the selling stockholders and in accordance with rules promulgated by the Securities and Exchange Commission, and the information is not necessarily indicative of beneficial ownership for any other purpose. The inclusion of shares listed as beneficially owned does not constitute an admission of beneficial ownership. Except as otherwise indicated, we believe that the persons or entities named in the following table have voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable, and have not held any office or maintained any material relationship, except as investor or as described above, with us, or any of our predecessors or affiliates, over the past three years. Certain of the individuals with voting and investment control have indicated that they exercise such control through a corporate or other organizational structure, which structural information has not been included.

 

 

Entity		Voting and Investment Control
Xmark Opportunity Fund, Ltd.		Mitchell Kaye and David Cavalier
Xmark Opportunity Fund, L.P.		Mitchell Kaye and David Cavalier

Entity		Voting and Investment Control
Xmark JV Investment Partners, LLC		Mitchell Kaye and David Cavalier
Caduceus Capital Master Fund Limited		Samuel D. Isaly
Caduceus Capital II, L.P.		Samuel D. Isaly
UBS Eucalyptus Fund, L.L.C.		Samuel D. Isaly
PW Eucalyptus Fund, Ltd.		Samuel D. Isaly
Knoll Capital Fund II Master Fund, Ltd.		Fred Knoll, KOM Capital Management as Investment Manager for Knoll Capital Fund II Master Fund, Ltd.
Europa International, Inc.		Fred Knoll, Knoll Capital Management as Investment Manager for Europa International Inc.
Hunt BioVentures, L.P.		Christopher W. Kleinert

 

 

 

 

 

Voting. Holders of our common stock are entitled to one vote per share held of record on all matters to be voted upon by our stockholders. Our common stock does not have cumulative voting rights. Persons who hold a majority of the outstanding common stock entitled to vote on the election of directors can elect all of the directors who are eligible for election.

 

Dividends. Subject to preferences that may be applicable to the holders of any outstanding shares of our preferred stock, the holders of our common stock are entitled to receive such lawful dividends as may be declared by our board of directors.

 

Liquidation and Dissolution. In the event of our liquidation, dissolution or winding up, and subject to the rights of the holders of any outstanding shares of our preferred stock, the holders of shares of our common stock will be entitled to receive pro rata all of our remaining assets available for distribution to our stockholders.

 

Other Rights and Restrictions. Our charter prohibits us from granting preemptive rights to any of our stockholders. All outstanding shares are fully paid and nonassessable.

 

Listing. Our common stock is traded on the over-the-counter bulletin board under the trading symbol “NVLT.OB”.

 

 

Stated Value: The Series C preferred stock has a stated value of $12,000 per share.

 

Voting Rights: The Series C preferred stockholders do not have voting rights.

Dividends: The Series C preferred stock has an annual dividend rate of 8% until October 1, 2008 and thereafter has an annual dividend rate of 20%. The dividends are payable quarterly commencing on June 30, 2007. Such dividends shall only be paid after all outstanding dividends on the Series B preferred stock (with respect to the current fiscal year and all prior fiscal years) shall have been paid to the holders of the Series B preferred stock. Such dividends shall be paid in cash. Upon the occurrence of an event of default (as defined in the Series C Certificate of Designations) the dividend rate shall increase to 20%.

Conversion: Each share of Series C preferred stock is convertible at a price of $1.00 per common share. The Series C preferred stock can be converted only to the extent that the Series C stockholder will not, as a result of the conversion, hold in excess of 4.99% of the total outstanding shares of our common stock, provided however that this limitation may be revoked by the stockholder upon 61 days prior notice to us.

 

Antidilution: Upon the occurrence of a stock split, stock dividend, combination of our common stock into a smaller number of shares, issuance of any of our shares or other securities by reclassification of our common stock, merger or sale of substantially all of our assets, the conversion rate shall be adjusted so that the conversion rights of the Series C preferred stock stockholders will be equivalent to the conversion rights of the Series C preferred stock stockholders prior to such event.

 

Redemption: The Series C preferred stock is not redeemable at the option of the holder. However, we may redeem the Series C preferred stock by paying to the holder a sum of money equal to one hundred twenty percent (120%) of the stated value per share plus any accrued but unpaid dividends upon 30 days’ (during which time the Series A preferred stock may be converted) prior written notice if a registration statement has been filed with and declared effective by the Securities and Exchange Commission covering the shares of our common stock issuable upon conversion of the Series C preferred stock.

 

Dissolution: In the event of any voluntary or involuntary liquidation, dissolution or winding up of our affairs, the Series C preferred stock will be treated as senior to our common stock. After all required payments are made to holders of Series B preferred stock, the Series C preferred stockholders will be entitled to receive first, $12,000 per share and all accrued and unpaid dividends. If, upon any winding up of our affairs, our remaining assets available to pay the holders of Series C preferred stock are not sufficient to permit the payment in full, then all our assets will be distributed to the holders of our Series C preferred stock (and any remaining holders of Series B preferred stock as may be required) on a pro rata basis.

 

 

Stated Value: The Series D preferred stock has a stated value of $50,000 per share.

 

Voting and Board Rights: The Series D preferred stockholders are entitled to vote on all matters on which the holders of common stock are entitled to vote. The number of votes to which each holder of Series D preferred stock is entitled is equal to the number of shares of common stock that would be issued to such holder if the Series D Preferred Stock had been converted at the record date for the meeting of stockholders.

 

Pursuant to the Securities Purchase Agreement dated March 26, 2008 from and after the closing of the sale of the Series D preferred stock, Xmark Opportunity Fund, Ltd. and its affiliates (the “Xmark Entities”), will have the right to designate one member to our Board of Directors. This right shall last until such time as the Xmark Entities no longer hold at least one-third of the Series D preferred stock issued to them at closing. In addition, the Xmark Entities and Caduceus Capital Master Fund Limited and its affiliates (together with the Xmark Entities, the “Lead Investors”) will have the right to designate one observer to attend all meetings of our Board of Directors, committees thereof and access to all information made available to members of the Board. This right shall last until such time as the Lead Investors no longer hold at least one-third of the Series D preferred stock issued to them.

Dividends: The Series D preferred stock has a dividend rate of 9% per annum, payable semi-annually. Such dividends may be paid in cash or in registered shares of common stock. While any shares of Series D preferred stock remain outstanding, we are prohibited from paying dividends to common stockholders or any other class of preferred stock other than Series C preferred stock without the prior consent of the Series D holders. If consent is given, the holders of outstanding shares of Series D preferred stock are also entitled to participate in any dividends paid to common stockholders.

 

Conversion: Each share of Series D preferred stock is convertible at a price of $0.65 per common share at any time after issuance. The Series D preferred stock can be converted only to the extent that the Series B stockholder will not, as a result of the conversion, beneficially hold in excess of 4.99% or 9.99%, as applicable, of the total outstanding shares of our common stock, provided however that this limitation may be revoked by the stockholder upon 61 days prior notice to the Company. If there is an effective registration statement covering the shares of common stock underlying the outstanding shares of Series D preferred stock and the daily volume weighted average price (“VWAP”), as defined in the Series D Certificate of Designations, of our common stock exceeds $2.00 for 20 consecutive trading days, then the outstanding Series D preferred stock will automatically convert into common stock at the conversion price then in effect.

 

Antidilution: Upon the occurrence of a stock split, stock dividend, combination of our common stock into a smaller number of shares, issuance of any of our shares or other securities by reclassification of our common stock, merger or sale of substantially all of our assets, the conversion rate shall be adjusted so that the conversion rights of the Series D preferred stock will be equivalent to the conversion rights of the Series D preferred stock stockholders prior to such event.

 

Liquidation: The Series D preferred stock ranks senior to all other outstanding series of preferred stock and common stock as to the payment of dividends and the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding up of our affairs. The Series D preferred stockholders will be entitled to receive first, $50,000 per share and all accrued and unpaid dividends. They are then entitled to participate with the holders of the remaining classes of common stock in the distribution of remaining assets on a pro rata basis. If, upon any winding up of our affairs, our assets available to pay the holders of Series D Preferred Stock are not sufficient to permit the payment in full, then all our assets will be distributed to the holders of our Series D Preferred Stock on a pro rata basis.

 

 

Other restrictions:  For as long as any shares of Series D Preferred Stock remain outstanding, the Company is prohibited from (i) paying dividends to common stockholders; (ii) amending the Company’s certificate of incorporation; (iii) issuing any equity security or any security convertible into or exercisable for any equity security at a price of $0.65 or less or with rights senior to the Series D Preferred Stock (except for certain exempted issuances); (iv) increasing the number of shares of Series D Preferred Stock or issuing any additional shares of Series D Preferred Stock other than the shares designated in the Series D Certificate of Designations; (v) selling or otherwise disposing of all or substantially all of the Company’s assets or intellectual property or entering into a merger or consolidation with another company unless Novelos is the surviving corporation, the Series D Preferred Stock remains outstanding and there are no changes to the rights and preferences of the Series D Preferred Stock; (vi) redeeming or repurchasing any capital stock other than Series D Preferred Stock; (vii) incurring any new debt for borrowed money in excess of $500,000 and (viii) changing the number of the Company’s directors.

 

 

Authorized but Unissued Stock. We have shares of common stock and preferred stock available for future issuance, in some cases, without stockholder approval. We may issue these additional shares for a variety of corporate purposes, including public offerings to raise additional capital, corporate acquisitions, stock dividends on our capital stock or equity compensation plans.

 

 

Business Combinations. As a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law, an anti-takeover law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years after the date the person becomes an interested stockholder, unless the business combination or the transaction in which the person becomes an interested stockholder is approved in a prescribed manner. Generally, a business combination includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to an interested stockholder. An interested stockholder includes a person who, together with affiliates and associates, owns, or did own within three years before the person was determined to be an interested stockholder, 15% or more of a corporation’s voting stock. The existence of this provision generally will have an anti-takeover effect for transactions not approved in advance by the board of directors, including discouraging attempts that might result in a premium over the market price of our common stock.

 

Vacancies on the Board of Directors. Our by-laws provide that any vacancy on the board of directors, however occurring, including a vacancy resulting from an enlargement of the board, may be filled only by the vote of a majority of the directors then in office. This limitation on the filling of vacancies could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, control of us.

 

Special Meeting of Stockholders. Our by-laws provide that any action required or permitted to be taken by our stockholders at an annual meeting or special meeting of stockholders may only be taken if it is properly brought before the meeting.

 

 

·

ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

·

block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction;

·

purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

·

an exchange distribution in accordance with the rules of the applicable exchange;

·

privately negotiated transactions;

·

short sales;

·

through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

·

broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;

·

a combination of any such methods of sale; and

·

any other method permitted pursuant to applicable law.

In order to comply with the securities laws of some states, if applicable, the common stock may be sold in these jurisdictions only through registered or licensed brokers or dealers. In addition, in some states the common stock may not be sold unless it has been registered or qualified for sale or an exemption from registration or qualification requirements is available and is complied with.

 

 

 

 

 

 

 

·

read a copy of the registration statement, including the exhibits and schedules, without charge at the SEC’s Public Reference Room; or

 

·

obtain a copy from the SEC upon payment of the fees prescribed by the SEC.

 

 

 

 

 

 

 

 

As discussed in Note 6, effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123(R), Share-Based Payment.

 

 

 

 

		December 31, 2007			December 31, 2006
ASSETS
CURRENT ASSETS:
Cash and equivalents		$	9,741,518		$	9,938,428
Restricted cash			1,184,702			1,655,251
Prepaid expenses and other current assets			133,281			294,995
Total current assets			11,059,501			11,888,674
FIXED ASSETS, NET			32,809			23,810
DEPOSITS			15,350			10,875
TOTAL ASSETS		$	11,107,660		$	11,923,359
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable and accrued liabilities		$	6,372,478		$	1,088,041
Accrued compensation			349,412			225,384
Accrued dividends			337,500			—
Total current liabilities			7,059,390			1,313,425
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK:
Series B convertible preferred stock, $0.00001 par value; 400 shares designated; 300 shares issued and outstanding at December 31, 2007 (liquidation preference $15,337,500) (Note 4)			9,918,666			—
STOCKHOLDERS’ EQUITY (DEFICIENCY):
Preferred stock, $0.00001 par value; 7,000 shares authorized: Series A 8% cumulative convertible preferred stock; no shares outstanding at December 31, 2007, 3,264 shares issued and outstanding at December 31, 2006; Series C 8% cumulative convertible preferred stock; 272 shares issued and outstanding at December 31, 2007 (liquidation preference $3,264,000), no shares outstanding at December 31, 2006 (Note 4)			—			—
Common stock, $0.00001 par value; 150,000,000 shares authorized; 39,260,272 shares issued and outstanding at December 31, 2007; 39,235,272 shares issued and outstanding at December 31, 2006			392			392
Additional paid-in capital			37,370,959			34,294,154
Accumulated deficit			(43,241,747	)		(23,684,612	)
Total stockholders’ equity (deficiency)			(5,870,396	)		10,609,934
TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIENCY)		$	11,107,660		$	11,923,359

 

 

		Year Ended December 31,
		2007			2006
COSTS AND EXPENSES:
Research and development		$	17,427,804		$	6,441,394
General and administrative			2,866,383			2,488,414
Total costs and expenses			20,294,187			8,929,808
OTHER INCOME:
Interest income			729,922			637,752
Miscellaneous			7,130			6,000
Total other income			737,052			643,752
NET LOSS			(19,557,135	)		(8,286,056	)
PREFERRED STOCK DIVIDEND			(1,161,120	)		(261,120	)
PREFERRED STOCK DEEMED DIVIDEND			(9,003,083	)		—
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS		$	(29,721,338	)	$	(8,547,176	)
BASIC AND DILUTED NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS PER COMMON SHARE		$	(0.76	)	$	(0.23	)
SHARES USED IN COMPUTING BASIC AND DILUTED NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS PER COMMON SHARE			39,247,532			37,179,878