ACQUISITION |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||
| ACQUISITION |
Merger Agreement
On
April 8, 2011, Novelos acquired Cellectar through a merger with and
into the Merger Subsidiary, pursuant to the merger Agreement
entered into on that date. As a result of the Acquisition,
the Merger Subsidiary, which has been renamed Cellectar, Inc., owns
all assets of and operates the business previously owned and
operated by Cellectar.
In
the Acquisition, the former stockholders of Cellectar received an
aggregate number of shares of Novelos common stock constituting
approximately 85% of the outstanding shares of Novelos common
stock, after giving effect to the Acquisition but before giving
effect to the concurrent private placement of Novelos securities
described below. Prior to the Acquisition, Novelos amended
and restated its certificate of incorporation and in connection
therewith, among other things, effected a 1-for-153 reverse split
of its common stock (the “Reverse Split”) resulting
in 2,959,871 shares of Novelos common stock outstanding.
Novelos then issued 17,001,596 shares of Novelos common stock to
the stockholders of Cellectar upon the effective date of the
Acquisition. Warrants and options to purchase Novelos common
stock that were outstanding prior to the Acquisition remained
outstanding following the Acquisition. These consist of warrants to
purchase a total of 315,164 shares of Novelos common stock with
prices ranging from $16.07 to $191.25 and options to purchase a
total of 49,159 shares of Novelos common stock with prices ranging
from $1.53 to $1,072.53.
XMS
Capital Partners, the financial advisor to Cellectar in connection
with the Acquisition, received a cash fee of $200,000 upon the
completion of the Acquisition in consideration of their
services. Rodman & Renshaw, LLC (“Rodman”),
financial advisor to Novelos in connection with the Acquisition,
received a cash fee of $250,000 upon the completion of the
Acquisition in consideration of their services. These amounts
were recorded as merger costs and expensed as incurred on the date
of the Acquisition. In addition to the investment banking
fees, the Company also incurred an additional $296,207 of
merger-related legal and other costs during the nine months ended
September 30, 2011 which were included as a component of expense in
the respective period.
The
Acquisition was completed principally to leverage synergies between
Novelos’ strategic focus and experience in developing and
funding the development of cancer drugs and Cellectar’s
portfolio of cancer-targeted compounds.
Purchase Accounting
The
Acquisition was accounted for using the purchase method of
accounting as a reverse acquisition. In a reverse
acquisition, the post-acquisition net assets of the surviving
combined company includes the historical cost basis of the net
assets of the accounting acquirer (Cellectar) plus the fair value
of the net assets of the accounting acquiree (Novelos).
Further, under the purchase method, the purchase price is allocated
to the assets acquired and liabilities assumed based on their
estimated fair values and the excess of the purchase price over the
estimated fair value of the identifiable net assets is presented as
excess purchase price over net assets acquired. The cost of
acquisition and related purchase-price allocation is based on
preliminary evaluation of the fair value of assets and liabilities
assumed from Novelos and may change when the final valuation of
certain intangible assets is determined. The evaluation is
preliminary principally due to the pending evaluation of the
Company’s intangible assets. The excess of purchase
price over net assets acquired will be allocated to intangibles and
goodwill once the Company completes the final allocation of
purchase price.
The
fair value of the consideration transferred in the Acquisition was
$2,219,903 and was calculated as the number of shares of common
stock that Cellectar would have had to issue (adjusted for the
Exchange Ratio) in order for Novelos shareholders to obtain a 15%
equity interest in the combined Company post-acquisition,
multiplied by the estimated fair value of the Company’s
common stock on the acquisition date. The estimated fair
value of the Company’s common stock was based on the offering
price of the common stock sold in the private placement which was
both completed concurrently with and conditioned upon the closing
of the Acquisition. This
price was determined to be the best indication of fair value on
that date since the price was based on an arm’s length
negotiation with a group consisting of both new and existing
investors that had been advised of the pending Acquisition and
assumed similar liquidity risk as those investors holding the
majority of shares being valued as purchase
consideration.
The
following table summarizes the Company’s preliminary
estimated fair values of the assets acquired and the liabilities
assumed at the date of acquisition.
The
excess of purchase price over net assets acquired will be allocated
to intangibles, which could potentially include the fair value of
the compounds developed prior to the Acquisition by Novelos, with
the remainder allocated to goodwill once the Company completes the
final allocation of purchase price. The estimated fair values
of assets acquired and liabilities assumed are provisional and are
based on the information that was available as of the acquisition
date to estimate the fair value of assets acquired and liabilities
assumed. The Company believes that the information provides a
reasonable basis for estimating the fair values of assets acquired
and liabilities assumed, but the Company is waiting for additional
information necessary to finalize those fair values.
Therefore, the provisional measurements of fair value reflected are
subject to change and such changes may be significant. The
Company expects to finalize the valuation and complete the purchase
price allocation as soon as practicable but no later than one year
from the acquisition date.
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