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ACQUISITION
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6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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| ACQUISITION |
Merger Agreement
On
April 8, 2011, Novelos acquired Cellectar through a merger with and
into the Merger Subsidiary, pursuant to an Agreement and Plan of
Merger (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”). Immediately prior to the Acquisition,
there were approximately 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 expensed an additional $45,773 and $296,207 of
merger-related legal and other costs during the three and six
months ended June 30, 2011, respectively.
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 represents the fair value of common stock that
Cellectar would have had to issue in order for Novelos shareholders
to obtain a 15% equity interest in the combined Company
post-acquisition, taking into effect the conversion of the
Convertible Notes (Note 4). 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 occurred
concurrently with the Acquisition and which is the best indication
of fair value on that date.
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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