-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MhKj4tnx4iCwdfdTgYxdA3ZUXmCqi1K5HvHRm/zfm+TP0oLAYpqwBs5jb7MlgHUh Q5esXG1vAsQweixnWqUPHg== 0000950136-07-005494.txt : 20070809 0000950136-07-005494.hdr.sgml : 20070809 20070809140932 ACCESSION NUMBER: 0000950136-07-005494 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20070630 FILED AS OF DATE: 20070809 DATE AS OF CHANGE: 20070809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VION PHARMACEUTICALS INC CENTRAL INDEX KEY: 0000944522 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 133671221 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26534 FILM NUMBER: 071039424 BUSINESS ADDRESS: STREET 1: 4 SCIENCE PARK CITY: NEW HAVEN STATE: CT ZIP: 06511 BUSINESS PHONE: 2034984210 MAIL ADDRESS: STREET 1: FOUR SCIENCE PARK CITY: NEW HAVEN STATE: CT ZIP: 06511 FORMER COMPANY: FORMER CONFORMED NAME: ONCORX INC DATE OF NAME CHANGE: 19950615 10-Q 1 file1.htm FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)


			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007


			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-26534

VION PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)			13-3671221 (I.R.S. Employer Identification No.)
4 Science Park New Haven, CT			06511
(Address of principal executive offices)			(Zip Code)

(203) 498-4210

(Registrant’s telephone number, including area code)

NOT APPLICABLE

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of ‘‘accelerated filer and large accelerated filer’’ in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer			Accelerated filer			Non-accelerated filer

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes No

The number of shares outstanding of the registrant’s common stock as of August 8, 2007 was 72,943,929.

VION PHARMACEUTICALS, INC.

TABLE OF CONTENTS


		Page No.
	PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)		1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		9
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		18
Item 4.	Controls and Procedures		18
	PART II — OTHER INFORMATION
Item 1A.	Risk Factors		20
Item 4.	Submission of Matters to a Vote of Security Holders		25
Item 6.	Exhibits		26
SIGNATURES			27

In this report, unless the context otherwise requires, the terms ‘‘we,’’ ‘‘us,’’ ‘‘our,’’ ‘‘the Company’’ and ‘‘Vion’’ refer to Vion Pharmaceuticals, Inc., a Delaware corporation.

PART I

FINANCIAL INFORMATION

ITEM 1. Financial Statements

Vion Pharmaceuticals, Inc.
(A Development Stage Company)

Condensed Consolidated Balance Sheets
(Unaudited)


(In thousands, except share and per share data)	June 30, 2007				December 31, 2006
ASSETS
Current Assets:
Cash and cash equivalents		$	74,360			$	30,914
Available-for-sale securities			37				100
Accounts receivable			43				9
Prepaid expenses			271				203
Deferred issuance costs			253				—
Total current assets			74,964				31,226
Property and equipment, net			765				605
Deferred issuance costs, net of current portion			917				—
Security deposits			25				25
Total assets		$	76,671			$	31,856
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accrued expenses		$	4,809			$	4,263
Interest payable			1,744				—
Accounts payable			1,597				1,057
Accrued payroll and payroll-related expenses			570				740
Deferred revenue			18				18
Total current liabilities			8,738				6,078
Deferred revenue			315				324
Convertible senior notes			53,753				—
Total liabilities			62,806				6,402
Shareholders’ Equity:
Preferred stock, $0.01 par value, authorized: 5,000,000 shares; issued and outstanding: none			—				—
Common stock, $0.01 par value, authorized: 300,000,000 shares; issued and outstanding: 72,943,929 and 71,366,506 shares at June 30, 2007 and December 31, 2006, respectively			730				714
Additional paid-in capital			205,048				199,793
Accumulated other comprehensive income			37				100
Deficit accumulated during the development stage			(191,950	)			(175,153	)
			13,865				25,454
Total liabilities and shareholders’ equity		$	76,671			$	31,856

The accompanying notes are an integral part of these financial statements.

Vion Pharmaceuticals, Inc.
(A Development Stage Company)

Condensed Consolidated Statements of Operations
(Unaudited)


	For the Three Months Ended June 30,								For the Six Months Ended June 30,								For the Period From May 1, 1994 (Inception) through June 30,2007
(In thousands, except per share data)	2007				2006				2007				2006
Revenues:
Technology license fees		$	5			$	1			$	10			$	10			$	4,541
Research and laboratory support fees			—				—				—				—				5,932
Contract research grants			—				—				—				—				2,501
Total revenues			5				1				10				10				12,974
Operating expenses:
Clinical trials			3,892				3,563				7,291				6,698				66,869
Other research and development			2,599				2,233				5,112				4,178				87,141
Total research and development			6,491				5,796				12,403				10,876				154,010
Selling, general and administrative			2,141				1,635				4,108				3,044				40,843
Total operating expenses			8,632				7,431				16,511				13,920				194,853
Loss from operations			(8,627	)			(7,430	)			(16,501	)			(13,910	)			(181,879	)
Interest income			998				526				1,665				1,058				10,907
Interest expense			(1,490	)			—				(2,229	)			—				(2,443	)
Other expense, net			(1	)			(18	)			(4	)			(28	)			(176	)
Loss before income taxes			(9,120	)			(6,922	)			(17,069	)			(12,880	)			(173,591	)
Income tax provision (benefit)			(278	)			11				(272	)			24				(385	)
Net loss			(8,842	)			(6,933	)			(16,797	)			(12,904	)			(173,206	)
Preferred stock dividends and accretion			—				—				—				—				(18,489	)
Loss applicable to common shareholders		$	(8,842	)		$	(6,933	)		$	(16,797	)		$	(12,904	)		$	(191,695	)
Loss applicable to common shareholders per share		$	(0.13	)		$	(0.10	)		$	(0.25	)		$	(0.20	)
Weighted-average number of shares of common stock outstanding			66,365				66,158				66,363				66,134

The accompanying notes are an integral part of these financial statements.

Vion Pharmaceuticals, Inc.
(A Development Stage Company)

Condensed Consolidated Statement of Changes in Shareholders’ Equity
(Unaudited)


										Accumulated				Deficit Accumulated
	Common Stock					Additional Paid-in Capital				Other Comprehensive Income (Loss)				During the Development Stage				Total Shareholders’ Equity
(In thousands, except share data)	Shares		Amount			Additional Paid-in Capital				Other Comprehensive Income (Loss)				During the Development Stage				Total Shareholders’ Equity
Balance at December 31, 2006		71,366,506		$	714		$	199,793			$	100			$	(175,153	)		$	25,454
Issuance of warrants – February 2007								3,036												3,036
Stock-based compensation expense								2,221												2,221
Restricted stock awards		1,562,134			16			(16	)											—
Issuance under employee stock plan		15,289			—			14												14
Change in net unrealized gains and losses												(63	)							(63	)
Net loss																(16,797	)			(16,797	)
Comprehensive loss																				(16,860	)
Balance at June 30, 2007		72,943,929		$	730		$	205,048			$	37			$	(191,950	)		$	13,865

The accompanying notes are an integral part of these financial statements.

Vion Pharmaceuticals, Inc.
(A Development Stage Company)

Condensed Consolidated Statements of Cash Flows
(Unaudited)


	For the Six Months Ended June 30,								For The Period From May 1, 1994 (Inception) through June 30, 2007
(In thousands)	2007				2006
Cash flows from operating activities:
Net loss		$	(16,797	)		$	(12,904	)		$	(173,206	)
Adjustments to reconcile net loss to net cash used in operating activities –
Stock-based compensation			2,221				946				5,262
Amortization of issuance costs, original issue discount and assigned warrant value			484				—				484
Depreciation and amortization			133				111				3,399
Loss on equipment disposals			—				—				12
Purchased research and development			—				—				4,481
Stock issued for services			—				—				600
Amortization of financing costs			—				—				346
Extension/reissuance of placement agent warrants			—				—				168
Changes in operating assets and liabilities –
Receivables and prepaid expenses			(102	)			23				(313	)
Other assets			—				—				(22	)
Current liabilities			2,660				473				8,685
Deferred revenue			(9	)			(9	)			333
Net cash used in operating activities			(11,410	)			(11,360	)			(149,771	)
Cash flows from investing activities:
Acquisition of equipment			(293	)			(42	)			(3,232	)
Purchases of marketable securities			—				—				(321,052	)
Maturities of marketable securities			—				—				321,052
Net cash used in investing activities			(293	)			(42	)			(3,232	)
Cash flows from financing activities:
Net proceeds from placement of notes and warrants			55,135				—				55,135
Net proceeds from initial public offering			—				—				9,696
Net proceeds from issuance of common stock			14				55				112,360
Net proceeds from issuance of preferred stock			—				—				20,716
Net proceeds from exercise of warrants			—				—				30,669
Repayment of equipment capital leases			—				—				(927	)
Other financing activities, net			—				—				(286	)
Net cash provided by financing activities			55,149				55				227,363
Change in cash and cash equivalents			43,446				(11,347	)			74,360
Cash and cash equivalents, beginning of period			30,914				52,762				—
Cash and cash equivalents, end of period		$	74,360			$	41,415			$	74,360
Supplemental disclosure of cash flow information:
Cash paid for interest		$	1			$	—			$	215
Cash paid for income taxes		$	13			$	52			$	149

The accompanying notes are an integral part of these financial statements.

Vion Pharmaceuticals, Inc.
(A Development Stage Company)

Notes to Condensed Consolidated Financial Statements
(Unaudited)

1. The Company

Vion Pharmaceuticals, Inc. (the ‘‘Company’’) is a development stage company engaged in the development of therapeutics for the treatment of cancer. The Company, formerly OncoRx, Inc., was incorporated in March 1992 as a Delaware corporation and began operations on May 1, 1994.

2. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. They do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal and recurring adjustments) considered necessary for a fair presentation have been included. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 (File No. 000-26534).

3. Per Share Data – Anti-dilution

As of June 30, 2007, the Company had outstanding warrants to purchase 16,998,971 shares of its common stock at exercise prices between $2.00 and $3.25 per share, outstanding stock options to purchase 4,211,592 shares of its common stock at exercise prices between $0.36 and $17.88 per share and 6,498,604 restricted shares of common stock not yet vested. As the Company has not generated net income in the periods presented, there is no dilutive per share calculation and therefore, these options, warrants and restricted shares have not been considered in the per share calculations presented.

4. Convertible Senior Notes and Warrants

In February 2007, the Company completed a private placement of $60 million aggregate principal amount of 7.75% convertible senior notes due 2012 (the ‘‘Notes’’) and warrants to purchase up to an additional 7.8 million shares of its common stock. The Company is required to pay interest on the Notes semi-annually on February 15 and August 15. The Company may pay interest at its option in cash or registered shares of its common stock, subject to certain limitations.

The Company received net proceeds after debt discount and issuance costs of approximately $55.1 million from the sale of the Notes and warrants. The Notes were recorded in the consolidated financial statements at an initial carrying value of approximately $53.4 million, which represents the principal amount of the Notes of $60 million less the original issue discount (OID) of $3.6 million given to the initial purchaser of the Notes and the amount of the proceeds of approximately $3.0 million allocated to the warrants based on their relative fair value. Deferred issuance costs of approximately $1.3 million were also recorded in the consolidated financial statements. The deferred issuance costs, OID and assigned warrant value are being amortized as a component of interest expense using the effective interest method over the five-year term of the Notes. For the three and six-month periods ended June 30, 2007, the Company incu rred interest expense of $1.5 million and $2.2 million, respectively, which included amortization expense of $327,000 and $484,000, respectively, related to the costs and discounts incurred in connection with the issuance of the Notes and warrants.

The Notes are convertible into shares of the Company’s common stock at the option of the holder of Notes prior to the close of business on February 15, 2012, at an initial conversion rate of

520.833 shares of common stock per $1,000 principal amount of Notes, which is equivalent to a conversion price of approximately $1.92 per share. The conversion price is subject to adjustment under certain circumstances. If the Notes are called for redemption, the noteholders will be entitled to convert the Notes at any time before the close of business on the date immediately preceding the date fixed for redemption.

The Company is obligated to pay the principal amount of the Notes in cash on the maturity date, February 15, 2012. On or after February 15, 2010, the Company has the right to redeem some or all of the Notes for cash at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest to, but not including, the redemption date. Upon certain fundamental changes, holders of Notes will have the right, subject to various conditions and restrictions, to require the Company to repurchase their Notes, in whole or in part, at 100% of the principal amount, plus accrued and unpaid interest up to, but not including, the repurchase date.

The warrants are exercisable into shares of the Company’s common stock at the option of the holder of warrants prior to the close of business on February 15, 2010, at an initial exercise price of $2.00 per share. Upon 30 days written notice, the Company may redeem the warrants, in whole or in part, at a price of $0.01 per warrant; provided that, the last sales price of the Company’s common stock equals or exceeds 150% of the exercise price per share of the warrants then in effect for any 20 trading days within a 30-consecutive trading day period ending three days before the Company sends the notice of redemption; and provided further that, at all times during such 30-consecutive trading day period there is an effective registration statement relating to the resale of all of the shares of common stock issuable to warrant holders upon exercise of the warrants.

The Company filed a shelf registration statement on Form S-3 and amendments thereto relating to the resale of the shares of common stock underlying the Notes and warrants by the investors and the primary issuance of shares of common stock which may be used by the Company to pay interest and make-whole amounts on such Notes. The shelf registration statement became effective on August 3, 2007.

5. Increase in Authorized Shares

At the Company’s Annual Meeting of Stockholders held on June 26, 2007, the stockholders approved an increase in the Company’s authorized shares of common stock from 150 million shares to 300 million shares. The stockholders also approved a 3 million share increase in the number of authorized shares of common stock that may be granted under the Company’s 2005 Stock Incentive Plan.

6. Stock-Based Compensation

Equity Compensation Plans

2005 Stock Incentive Plan (2005 Plan) – The 2005 Plan, as amended, provides for the issuance of up to 10,531,818 shares of common stock for a range of awards, including restricted stock, stock appreciation rights, deferred stock, other awards based on shares of common stock and performance awards. No award may be made under the 2005 Plan after October 25, 2015.

Stock Option Plans – As of June 30, 2007, the Company had stock options outstanding to purchase 4,211,592 shares of common stock under the following stock option plans: (i) the 2003 Stock Option Plan; (ii) the Amended and Restated 1993 Stock Option Plan; and (iii) the Senior Executive Stock Option Plan. There are no additional shares available for issuance under these plans. The incentive options outstanding will continue to vest in annual installments of 25% on each of the first, second, third and fourth anniversaries of the date of grant, or earlier upon a change of control. Incentive options expire the earlier of: (i) ten years after the date of grant, or (ii) three months after termination of service, if vested. Incentive options which are not vested expire immediately upon termination of service. The 1993 and 2003 Stock Option Plans provided for the automatic grant of non-qualified stock options to purchase shares of common stock to directors of the Company.

All outstanding director options are vested. Generally, director options will expire the earlier of: (i) 10 years after the date of grant, or (i) one year after termination of service as a director under the 2003 Plan or 90 days after termination of service as a director under the 1993 Plan.

Employee Stock Purchase Plan (ESPP) – A total of 450,000 shares of common stock are authorized for issuance under the ESPP. The ESPP permits eligible employees to purchase up to 2,000 shares of common stock at the lower of 85% of the fair market value of the common stock at the beginning or at the end of each six-month offering period.

Stock-Based Compensation Expense

Beginning January 1, 2006, the Company has recognized compensation expense in accordance with Statement of Financial Accounting Standards 123 (revised 2004), ‘‘Share-Based Payment,’’ (SFAS 123R) using the straight-line attribution method for awards of restricted stock, grants of stock options and purchases under its employee stock purchase plan based on the grant-date fair value of the portion of stock-based payment awards that is ultimately expected to vest. For the three and six months ended June 30, 2007, the Company recorded stock-based compensation expense of approximately $1.2 million and $2.2 million, respectively. For the three and six months ended June 30, 2006, the Company recorded stock-based compensation expense of approximately $445,000 and $946,000, respectively. Stock-based compensation expense includes (i) compensation expense for all share-based payments granted prior to, but not yet vested, as of December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123, and (ii) compensation expense for share-based payments granted subsequent to December 31, 2005 estimated in accordance with the provisions of SFAS 123R.

The following table shows the pro forma impact on net loss if the Company had applied the fair-value method under SFAS 123 to stock-based compensation for the period from inception through December 31, 2005 (in thousands, except per share amounts):


	From Inception (May 1, 1994) to December 31, 2005
Reported net loss		$	(131,062	)
Add: Stock-based employee compensation expense included in reported net loss			795
Deduct: Stock-based employee compensation expense determined under the fair value based method for all awards			(22,707	)
Pro forma net loss			(152,974	)
Pro forma preferred stock dividend and accretion			(18,489	)
Pro forma loss applicable to common shareholders		$	(171,463	)

Stock Option Activity

A summary of the activity under the Company’s stock option plans as of and for the six-month period ended June 30, 2007 is as follows:


	Options Outstanding (in 000’s)			Weighted- Average Exercise Price Per Share			Weighted- Average Fair Value Per Share			Weighted- Average Remaining Contractual Term in Years
Outstanding at January 1, 2007		4,232			$	4.73		$	3.79
Granted		—				—			—
Exercised		—				—			—
Forfeited		—				—			—
Expired		(20	)		$	4.22		$	2.91
Outstanding at June 30, 2007		4,212			$	4.74		$	3.73		4.2
Exercisable at June 30, 2007		3,974			$	4.75		$	3.78		4.1
Vested or expected to vest at June 30, 2007⁽¹⁾		4,212			$	4.74		$	3.73		4.2

(1)	In addition to the vested options, the Company expects a portion of the options not yet vested to vest at some point in the future. Options expected to vest are calculated by applying an estimated forfeiture rate to the options not yet vested.

The total grant-date fair value of stock options that vested during the six-month period ended June 30, 2007 was approximately $40,000.

For the three and six months ended June 30, 2007, the Company recorded compensation expense related to stock options of approximately $81,000 and $162,000, respectively. For the three and six months ended June 30, 2006, the Company recorded compensation expense related to stock options of approximately $142,000 and $355,000, respectively. As of June 30, 2007, there was approximately $486,000 of total unrecognized compensation cost related to unvested stock option awards. That cost is expected to be recognized throughout the period ending October 2009.

Restricted Stock Activity

For the six months ended June 30, 2007 and 2006, the Company issued 1,562,134 and 1,773,425 shares of restricted stock, respectively, at a weighted-average fair value of $1.50 per share and $1.74 per share, respectively. For the three and six months ended June 30, 2007, the Company recorded compensation expense related to restricted stock of approximately $1.1 million and $2.1 million, respectively. For the three and six months ended June 30, 2006, the Company recorded compensation expense related to restricted stock of approximately $303,000 and $591,000, respectively. As of June 30, 2007, there was approximately $6.6 million of total unrecognized compensation cost related to 6,498,604 shares of restricted stock not yet vested. That cost is expected to be recognized throughout the period ending January 2010.

Employee Stock Purchase Plan Activity

For the six months ended June 30, 2007 and 2006, the Company issued 15,289 and 20,868 shares of common stock, respectively, under the ESPP. For each of the three and six-month periods ended June 30, 2007, the Company recorded compensation expense of approximately $2,000. For each of the three and six-month periods ended June 30, 2006, the Company recorded compensation expense of approximately $4,000.

7. Income Taxes

For the six months ended June 30, 2007, the Company recorded a state tax benefit of approximately $272,000 for the sale of certain research and development tax credits to the State of Connecticut net of a provision for state capital taxes. For the six months ended June 30, 2006, the Company recorded a provision of approximately $24,000 for state capital taxes.

The Company adopted the provisions of Financial Accounting Standards Board Interpretation No. 48, ‘‘Accounting for Uncertainty in Income Taxes’’ (FIN48) on January 1, 2007. Except for the provisions recorded for minimum state capital taxes and sales recorded of certain research and development tax credits to the State of Connecticut, the Company has not recorded a provision or benefit for income taxes in the consolidated financial statements due to recurring historical losses. The Company had unrecognized tax benefits as of the date of adoption of approximately $68.2 million. The Company has provided a full valuation allowance for its deferred tax asset. The adoption of FIN 48 did not have a material impact on the Company’s consolidated financial position or results of ope rations.

The Company and its subsidiaries file a consolidated U.S. federal income tax return and tax returns in Connecticut and foreign jurisdictions. With limited exceptions, and due to the impact of net operating loss and other credit carryforwards, we may effectively be subject to U.S. federal and Connecticut state income tax examinations for periods beginning with 1993. Our foreign affiliates are subject to examination by tax authorities for periods beginning with 2004.

The Company recognizes accrued interest and penalties related to unrecognized taxes as additional tax expense. During the year ended December 31, 2006 and the six month ended June 30, 2007, the Company did not recognize any interest and penalties.

8. Related Party Transactions

In March 2007, the Company made a gift of $200,000 to support research projects through March 31, 2008 at a Yale University (‘‘Yale’’) research laboratory headed by Dr. Sartorelli, a director of the Company. The gift is payable in four equal quarterly installments beginning April 1, 2007. In accordance with Statement of Financial Accounting Standards No. 116, ‘‘Accounting for Contributions Received and Contributions Made’’, the Company recorded the total amount of the gift as research and development expense in the three-month period ended March 31, 2007. Included in the Company’s current liabilities at June 30, 2007, is $150,000 for the balance of the gift. The Company licenses various compounds from Yale, includi ng Cloretazine^® (VNP40101M), Triapine^® and VNP40541, which were developed by Dr. Sartorelli’s laboratory through research funded in part by the Company’s gifts.

Mr. Bickerstaff, one of the Company’s directors, is a principal of CRT Capital Group LLC (‘‘CRT’’), which was the initial purchaser of the Company’s convertible senior notes and warrants in a private placement in February 2007. CRT received a purchase discount of $3.6 million, which represented 6% of the $60 million principal amount of the Notes.

9. Commitments and Contingencies

The Company leases its office and laboratory facilities in New Haven, Connecticut. In June 2007, the Company entered into an amendment of its lease to include approximately 6,500 additional square feet of office space. The term of the lease will run through December 31, 2010, unless sooner terminated or extended pursuant to the terms of the lease. The Company has the right to extend the term of the lease for two successive terms of five years each. The amendment provides for a change in the total base annual rent for all premises from $217,118, or $18,093 per month, to $288,618, or $24,052 per month beginning March 12, 2008.

During the first six months of 2007, except for the aforementioned obligations for the Yale gift, lease payments and the payment of the principal amount of the Notes on the maturity date, there were no significant changes in the Company’s reported payments due under contractual obligations and disclosed contingent contractual obligations related to potential milestone payments under its license agreements and potential cancellation fees under various agreements at December 31, 2006.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q, including without limitation statements under ‘‘Management’s Discussion and Analysis of

Financial Condition and Results of Operations,’’ regarding our financial position, business strategy, and plans and objectives of our management for future operations, are forward-looking statements. When used in this Quarterly Report on Form 10-Q, words such as ‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘could,’’ ‘‘potential,’’ ‘‘seek,’’ ‘‘project,’’ ‘‘predict,’’ ‘‘anticipate,’’ ‘‘believe,’’ ‘‘estimate,’’ ‘‘expect,’’ ‘‘intend’’ and similar expressions, as they relate to us or our management, identify forward-looking statements. Forward-looking statements are based on the beliefs of our management as well as assumptions made by and information currently available to our management. Such statements are subject to certain risk factors which may cause our plans to differ or results to vary from those expected, including our ability to secure external sources of funding to continue operations, the inability to access capital and funding on favorable terms, continued operating losses and, as a result, the inability to continue operations, our dependence on regulatory approval for our products, delayed or unfavorable results of drug trials, the possibility that favorable results of earlier clinical trials are not predictive of safety and efficacy results in later clinical trials, the need for additional research and testing, and a variety of other risks set forth from time to time in our filings with the Securities and Exchange Commission including, but not limited to, the detailed discussion of risks attendant to the forward-looking statements contained in Part II, Item 1A, ‘‘Risk Factors’’ in this Quarterly Report on Form 10-Q. The information contained in this Quarterly Report on For m 10-Q is believed to be current as of the date of filing with the Securities and Exchange Commission. Except in special circumstances in which a duty to update arises under law when prior disclosure becomes materially misleading in light of subsequent events, we do not intend to update any of these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Overview

We are a development stage pharmaceutical company engaged in the development of therapeutics for the treatment of cancer. Our activities to date have consisted primarily of research and product development, preclinical trials of product candidates, obtaining regulatory approval for clinical trials, conducting clinical trials, conducting pre-launch commercialization activities, negotiating and obtaining collaborative agreements, and obtaining financing in support of these activities. Historically, our revenues have primarily consisted of contract research grants, technology license fees, and research and laboratory support fees. Since inception, we have generated minimal revenues and have incurred substantial operating losses from our activities. We currently have no material source of revenue and expect to incur substantial operating losses for the next several years due to expenses associated with our activities.

Our plan of operations for the next twelve months includes the following elements:


	•	Conduct clinical studies of Cloretazine^® (VNP40101M) as a single agent or in combination with standard chemotherapy treatments;


	•	Complete the medical and safety review of our Phase III trial in relapsed acute myelogenous leukemia (AML) of Cloretazine^® (VNP40101M) which is currently on hold and review the findings with the trial’s Data Safety Monitoring Board (DSMB) and the regulatory authorities;


	•	Prepare for a potential filing of a New Drug Application for Cloretazine^® (VNP40101M) with the U.S. Food and Drug Administration (FDA);


	•	Conduct pre-launch commercialization activities for Cloretazine^® (VNP40101M);


	•	Provide product for clinical studies sponsored by the National Cancer Institute (NCI) of an intravenous formulation of Triapine^®;


	•	Resubmit an Investigational New Drug application for VNP40541 to the FDA and, if approved, conduct Phase I clinical studies of VNP40541;


	•	Continue to conduct internal product development with respect to our clinical and preclinical products;


	•	Seek development partners for our TAPET^® product development program;


	•	Continue to support research and development being performed at Yale University and by other collaborators; and


	•	Continue to seek collaborative partnerships, joint ventures, co-promotional agreements or other arrangements with third parties.

We have five research and development projects, which include two product candidates in clinical trials (Cloretazine^® (VNP40101M) and Triapine^®), two product development programs in preclinical development (VNP40541 and hydrazone compounds) and one drug delivery technology (TAPET^®) for which we are seeking a development partner. The following table provides information concerning the commencement dates of our clinical trials of Cloretazine^® (VNP40101M) sponsored by us that remain open for patient accrual as of August 1, 2007:


Trial			Trial Commencement Date
Phase II trial in small cell lung cancer			September 2005
Phase II trial in elderly de novo poor-risk acute myelogenous leukemia			May 2006

On January 25, 2007, we announced that we had recorded at least nine responses in our pivotal Phase II trial of Cloretazine^® (VNP40101M) in elderly patients with de novo poor-risk AML in the first 42 patients and that, in accordance with the trial design we would continue to a total accrual of 85 patients. On August 8, 2007, we announced that, as of August 1, 2007, 83 patients had been enrolled to this trial and that we expect to accrue an additional two patients shortly. We plan on presenting preliminary information from the trial at the American Society of Hematology Meeting in December 2007. There can be no assurance as to the results of this trial or the timing of completion of this trial, and there should be no inference that the trial has achieved favorable results to date.

On May 23, 2007, we announced that we would suspend enrollment and further patient treatment in our Phase III clinical study of Cloretazine^® (VNP40101M) for patients with AML pending a detailed review of all of the data from the trial. This decision was based on the recommendation of the trial’s independent DSMB after a planned interim analysis. The Phase III trial is a double-blind placebo-controlled randomized evaluation of an experimental treatment consisting of Ara-C plus Cloretazine^® (VNP40101M) versus a control arm regimen of Ara-C and placebo. The trial is designed to accrue patients in first relapse AML whose first complete remission (CR) was more than three months but less than twenty-four months in duration. Patients are stratified according to (i): age, greater than or less than 60 years and (ii) length of the first CR, more than or less than 12 months in duration. The primary endpoint for the trial is the objective response rate, defined as CR plus CRp (a complete remission with incomplete recovery of platelet count). Secondary endpoints include time to progression, duration of response, overall survival and toxicity.

The DSMB’s review of clinical data from the first 210 treated patients resulted in a recommendation that enrollment and further treatment of patients on study be suspended. The DSMB’s recommendation was based on their evaluation that any advantage in complete remission could be compromised by the observed on-study mortality.

During a teleconference with the FDA initiated by us regarding the suspension of the Phase III trial, the FDA informed us that the trial would be placed on hold.

On August 8, 2007, we announced that a medical and safety review of the Phase III trial had been completed and that discussions were in process with the DSMB for the trial regarding the findings. After the DSMB has made its recommendation, we will discuss the recommendation with the regulatory authorities. There can be no assurance that these discussions will result in a continuation of the Phase III trial or what the timing of any such continuation might be.

The National Cancer Institute (NCI) is sponsoring clinical trials of Triapine^®. We provide product for the NCI trials.

Completion of clinical trials may take several years or more and the length of time can vary substantially according to the type, complexity, novelty and intended use of a product candidate. Factors that can cause delay or termination of our clinical trials include:


	•	slow patient enrollment;


	•	long period of time required to track safety and effectiveness;


	•	lack of sufficient supplies of the product candidate;


	•	adverse medical events or side effects in treated patients;


	•	lack of effectiveness of the product candidate being tested;


	•	negative or equivocal findings of the data safety monitoring board, or DSMB, for a trial; and


	•	lack of sufficient funds.

The amount and types of costs incurred during a clinical trial vary depending upon the type of product candidate, the disease treated and the nature of the study.

We budget and monitor our research and development costs by category, as opposed to by product or study. Significant categories of costs include personnel, clinical, third party research and development services, and laboratory supplies. The cost to take a product candidate through clinical trials is dependent upon, among other things, the targeted disease indications, the timing, size and dosing schedule of the clinical trials for such product candidate, the number of patients enrolled in each trial and the speed at which patients are enrolled and treated. We could incur increased product development costs if we experience delays in trial enrollment, the evaluation of clinical trial results, or in applying for or obtaining regulatory approvals for any reason including the possible reasons for delay described above. These uncertainties and variability make it difficult to accurately predict the future cost of or timing to complete our product development project s.

We cannot be certain that any of our products will prove to be safe or effective, will achieve the safety and efficacy needed to proceed through Phase III or registrational clinical trials, will receive regulatory approvals, or will be successfully commercialized. Our clinical trials might prove that our product candidates may not be effective in treating disease or may have undesirable or unintended side effects, toxicities or other characteristics that require us to cease further development of the product.

We expect that we will need to enter into and complete Phase III or registrational clinical trials of our products in order to apply for regulatory approval. If we achieve successful completion of Phase III or registrational trials, which have commenced or which we may in the future commence, of which there can be no certainty, we intend to submit the results to the FDA to support an application for regulatory approval of the product.

Given the uncertainties related to pharmaceutical product development, we are currently unable to reliably estimate when, if ever, our product candidates will generate revenue and cash flows. We do not expect to receive net cash inflows from any of our major research and development projects until and unless a product candidate becomes a profitable commercial product.

Critical Accounting Policies and Estimates

The accompanying discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements and the related disclosures, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. These estimates form the basis for making judgments about the carrying values of assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates.

We believe the following policies to be the most critical to an understanding of our financial condition and results of operations because they require us to make estimates, assumptions and judgments about matters that are inherently uncertain.

Research and Development Expenses

We record research and development expenses as incurred. We disclose clinical trials expenses and other research and development expenses as separate components of research and development expense in our consolidated statements of operations to provide more meaningful information to our investors. These expenses are based, in part, on estimates of certain costs when incurred. The effect of any change in the clinical trials expenses and other research and development expenses would be reflected in the period such determination was made.

Income Taxes

The Company adopted the provisions of Financial Accounting Standards Board Interpretation No. 48, ‘‘Accounting for Uncertainty in Income Taxes’’ (FIN48) on January 1, 2007. The adoption of FIN 48 did not have a material impact on our consolidated financial position or results of operations. We provide deferred income taxes for the future tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities, and on operating loss and tax credit carryforwards. Except for the provisions recorded for minimum state capital taxes and the sales recorded of certain research and development tax credits to the State of Connecticut, we have not recorded a provision or benefit for income taxes in the consolidated financial statemen ts due to recurring historical losses. Accordingly, we have provided a full valuation allowance for our deferred income tax asset as of June 30, 2007. In the event we were to determine that we would be able to realize deferred income tax assets in the future, an adjustment would be made to reduce the valuation allowance in the period of determination.

We recognize accrued interest and penalties related to unrecognized taxes as additional tax expense. During the year ended December 31, 2006 and the six month ended June 30, 2007, we did not recognize any interest and penalties.

Stock-Based Compensation

For the six-month periods ended June 30, 2007 and 2006, we recognized $2.2 million and $946,000 of stock-based compensation expense in accordance with Statement of Financial Accounting Standard 123 (revised 2004), ‘‘Share-Based Payment,’’ (SFAS 123R). We adopted SFAS 123R as of January 1, 2006 using the modified prospective method. Prior to the adoption of SFAS 123R, we accounted for share-based payments to employees using APB Opinion No. 25’s, ‘‘Accounting for Stock Issued to Employees,’’ intrinsic value method and, as such, generally recognized no compensation cost for employee stock opt ions. Under the modified prospective application method, prior periods are not restated for the effect of SFAS 123R. We use the straight-line attribution method for all stock option grants.

Employee stock-based compensation is estimated at the date of grant using the fair value of the stock awards and is recognized as expense ratably over the requisite service period. Stock-based compensation cost recognized is based on (i) the requirement of SFAS 123R for all share-based payments granted after January 1, 2006 and (ii) the requirements of SFAS 123 for all awards granted to employees prior to January 1, 2006 that remained unvested as of that date.

As of June 30, 2007, the total compensation cost related to unvested awards of restricted stock and stock options not yet recognized in the statement of operations was approximately $7.1 million, which will be recognized throughout the period ending January 2010.

See Note 6 to our Condensed Consolidated Financial Statements contained in Item 1 of this Quarterly Report on Form 10-Q for further information regarding stock-based compensation expense.

Results of Operations

Comparison of the Three-Month Periods Ended June 30, 2007 and 2006

Revenues. Revenues from technology license fees were $5,000 and $1,000 for the three-month periods ended June 30, 2007 and 2006, respectively. We have no material source of revenues.

Research and Development Expenses. Total research and development (R&D) expenses were $6.5 million and $5.8 million for the three-month periods ended June 30, 2007 and 2006, respectively, as a result of higher other R&D expenses of $366,000 and higher clinical trials expenses of $329,000. The increase in other R&D expenses was primarily due to an higher costs to support a potential registration filing for Cloretazine^® (VNP40101M) and higher 2007 stock-based compensation expense of $243,000 for employees included in the other R&D group. The increase in clinical trials expenses was primarily due to higher drug production costs of $483,000 of Cloretazine^® (VNP40101M), and higher 2007 stock-based compensation expense of costs of $91,000 for employees included in the clinical group, partially offset by lower costs for clinical trials of $236,000.

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $2.1 million for the three-month period ended June 30, 2007 as compared to $1.6 million for the same period in 2006. The increase was primarily due to higher 2007 stock-based compensation expense for employees included in the selling, general and administrative group and our directors.

Interest Income. Interest income was $998,000 for the three months ended June 30, 2007, as compared to $526,000 for the same 2006 period. The increase was due to higher invested balances in 2007 as a result of the proceeds received from the issuance of our convertible senior notes and warrants in February 2007.

Interest Expense. Interest expense, which included amortization of the deferred financing costs, original issue discount (OID), and assigned warrant value, of $1.5 million was recorded for the three months ended June 30, 2007 related to our convertible senior notes and warrants issued in February 2007.

Other Expense, Net. Other expense, net was $1,000 for the three months ended June 30, 2007, as compared to $18,000 for the same 2006 period due to foreign currency exchange rate fluctuations for payments to a vendor outside the U.S. denominated in a foreign currency.

Income Taxes. For the three-month periods ended June 30, 2007 and 2006, a provision (benefit) for state taxes of ($278,000) and $11,000, respectively, was recorded. Included in the 2007 amount was a state tax benefit of $281,000 for the sale of certain research and development tax credits to the State of Connecticut.

Net Loss. As a result of the foregoing increases in expenses, the net loss was $8.8 million, or $0.13 per share based on weighted average shares outstanding of 66.4 million, for the three months ended June 30, 2007, compared to a net loss of $6.9 million, or $0.10 per share based on weighted average shares outstanding of 66.2 million, for the same 2006 period.

Comparison of the Six-Month Periods Ended June 30, 2007 and 2006

Revenues. Revenues from technology license fees were $10,000 for each of the six-month periods ended June 30, 2007 and 2006, respectively. We have no material source of revenues.

Research and Development Expenses. Total research and development (R&D) expenses were $12.4 million and $10.9 million for the six-month periods ended June 30, 2007 and 2006, respectively, as a result of higher other R&D expenses of $934,000 and higher clinical trials expenses of $593,000. The increase in other R&D expenses was primarily due to higher costs to support a potential registration filing for Cloretazine^® (VNP40101M), a $200,000 gift to support research projects at a Yale University laboratory, and higher 2007 stock-based compensation expense of $430,000 for employees included in the other R&D group, partially offset by lower preclinical drug production co sts of $451,000. The increase in clinical trials expenses was primarily due to higher drug production costs of $291,000 of Cloretazine^® (VNP40101M), higher costs for clinical trials of $133,000, and higher 2007 stock-based compensation expense of costs of $182, 000 for employees included in the clinical group.

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $4.1 million for the six-month period ended June 30, 2007 as compared to $3.0 million for the same period in 2006. The increase was primarily due to higher 2007 stock-based compensation expense for employees included in the selling, general and administrative group and our directors.

Interest Income. Interest income was $1.7 million for the six months ended June 30, 2007, as compared to $1.1 million for the same 2006 period. The increase was due to higher invested balances as a result of the proceeds received from our convertible senior notes and warrants issued in February 2007, and, to a lesser extent, higher interest rates in 2007.

Interest Expense. Interest expense, which included amortization of the deferred financing costs, original issue discount (OID), and assigned warrant value, of $2.2 million was recorded for the six months ended June 30, 2007 related to our convertible senior notes and warrants issued in February 2007.

Other Expense, Net. Other expense, net was $4,000 for the six months ended June 30, 2007, as compared to $28,000 for the same 2006 period due to foreign currency exchange rate fluctuations for payments to a vendor outside the U.S. denominated in a foreign currency.

Income Taxes. For the six-month periods ended June 30, 2007 and 2006, a provision (benefit) for state taxes of ($272,000) and $24,000, respectively, was recorded. Included in the 2007 amount was a state tax benefit of $281,000 for the sale of certain research and development tax credits to the State of Connecticut.

Net Loss. As a result of the foregoing increases in expenses, the net loss was $16.8 million, or $0.25 per share based on weighted average shares outstanding of 66.4 million, for the six months ended June 30, 2007, compared to a net loss of $12.9 million, or $0.20 per share based on weighted average shares outstanding of 66.1 million, for the same 2006 period.

Liquidity and Capital Resources

At June 30, 2007, we had cash and cash equivalents of $74.4 million, compared to $30.9 million at December 31, 2006. The increase in 2007 was due primarily to net proceeds of $55.1 million from a private placement of convertible senior notes and warrants, described below, offset by cash used to fund operating activities of $11.4 million and acquisitions of capital equipment of $293,000. Cash used in operations was primarily to fund clinical and preclinical product development activities as well as for working capital and general corporate purposes.

Cash Used in Operating Activities

Cash used in operating activities is primarily a result of our net loss. However, operating cash flows differ from net loss as a result of non-cash charges, changes in operating assets and liabilities, or differences in the timing of cash flows and earnings/expense recognition.

Significant components of cash used in operating activities are as follows:

Receivables and prepaid expenses increased $102,000 during the six-month period ended June 30, 2007 compared to a decrease of $23,000 for the same 2006 period. The increase in 2007 was primarily due to higher prepaid insurance expense and other prepaid expense as the timing of payments differed from the recognition of expense. The decrease in 2006 was due to lower prepaid insurance expense as the timing of insurance premium payments differed from the recognition of insurance expense.

Current liabilities increased $2.7 million and $473,000 during the six-month periods ended June 30, 2007 and 2006, respectively. The increase in 2007 was primarily due to interest accrued related to the convertible senior notes issued in February 2007. The decrease in 2006 was primarily due to a reduction in accrued expenses and accrued payroll-related expenses due to the payment in 2006 of amounts accrued as of December 31, 2005.

Cash Used in Investing Activities

Cash used in investing activities relates to the acquisition of capital equipment. Capital expenditures of $293,000 and $42,000 for the six months ended June 30, 2007 and 2006, respectively,

were primarily for leasehold improvements, computer software and computer hardware. Capital expenditures for fiscal 2007 are not expected to exceed $750,000.

Cash Provided by Financing Activities

Cash provided by financing activities is primarily related to capital raised from our sale of convertible senior notes and warrants, and proceeds from common stock issuances under our employee stock plans. For the six months ended June 30, 2007, we received net proceeds of $55.1 million from a private placement of convertible senior notes and warrants, described below, and $14,000 from the issuance of 15,289 shares of our common stock under employee stock plans. For the six months ended June 30, 2006, we received proceeds of $55,000 from the issuance of 74,611 shares of our common stock under employee stock plans. All proceeds are being and will be used to fund clinical and preclinical product development activities, and for working capital and general corporate purposes.

On February 20, 2007, we completed the sale of $60 million aggregate principal amount of our 7.75% convertible senior notes due 2012 and warrants to purchase up to 7,800,000 additional shares of our common stock to an initial purchaser for resale in a private placement to qualified institutional buyers pursuant to Rule 144A promulgated under the Securities Act of 1933, as amended, or the Act, to persons outside the United States under Regulation S under the Act and to institutional investors that are accredited investors within the meaning of Rule 501 of Regulation D under the Act. We received net proceeds of approximately $55.1 million from the sale of the notes and warrants.

We are obligated to pay the principal amount of the notes in cash on the maturity date, February 15, 2012. On or after, but not prior to, February 15, 2010, we have the right to redeem some or all of the notes for cash at any time, at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest to, but not including, the redemption date. Upon certain fundamental changes (as described below), holders of notes will have the right, subject to various conditions and restrictions, to require us to repurchase their notes, in whole or in part, at 100% of the principal amount plus accrued and unpaid interest up to, but not including, the repurchase date.

The notes bear interest at a rate of 7.75% per year, payable on February 15 and August 15 of each year, beginning on August 15, 2007. Interest may be paid at the Company’s option in cash or registered shares of common stock or some combination of cash and registered shares of common stock having a fair market value equal to the interest payment due, in each case at our option subject to compliance with Nasdaq shareholder approval rules, from the date of issuance until repayment in full or until an earlier conversion, redemption or repurchase.

The notes and the Indenture under which they were issued restrict us from incurring indebtedness or other obligations, including senior secured indebtedness or other secured obligations, in the future.

The notes shall automatically convert at any time prior to maturity if the closing price per share of the common stock has exceeded 150% of the conversion price then in effect for at least 20 trading days within any 30-consecutive trading day period, provided that only those notes as to which we are then able to make the make-whole payment (defined below) under Nasdaq shareholder approval rules shall be automatically converted; and further provided that only those notes (i) for which a shelf registration statement was in effect with respect to the resale of the shares of common stock issuable upon automatic conversion for each day during such 30-consecutive trading day period or (ii) for which the shares issuable upon automatic conversion may be freely transferred pursuant to Rule 144(k) under the Act, shall be automatically converted. Upon any automatic conversion of the notes, we shall pay to holders an amount equal to $232.50 per $1,000 principal amount of no tes so converted, less the amount of any interest paid on such notes prior to the conversion date. This payment may be made at the Company’s option in cash, registered shares of common stock or some combination of cash and registered shares of common stock having a fair market value equal to the make-whole payment due.

Upon certain fundamental changes, holders of notes will have the right, subject to various conditions and restrictions, to require us to repurchase the notes, in whole or in part, at 100% of the

principal amount plus accrued and unpaid interest up to, but not including, the repurchase date. If a fundamental change occurs prior to February 15, 2010, we may be required to pay a make-whole premium on the notes converted and not repurchased in connection with the fundamental change by issuing additional shares of common stock upon conversion of such notes.

If there is an event of default on the notes, the principal amount of the notes, plus accrued and unpaid interest may be declared immediately due and payable, subject to certain conditions set forth in the Indenture.

The warrants are exercisable into shares of our common stock at the option of the holder of Warrants prior to the close of business on February 15, 2010, or earlier upon redemption, at an initial exercise price of $2.00 per share. The exercise price is subject to adjustment in accordance with the terms of the warrant. The Company may redeem the outstanding warrants in whole or in part for $0.01 per warrant at any time after the warrants become exercisable if, and only if, the last sales price of our common stock equals or exceeds 150% of the exercise price per share of the warrants then in effect for any 20 trading days within a 30-consecutive trading day period and at all times during such period there is an effective registration statement relating to the resale of all the shares of common stock issuable upon exercise of the warrants. A shelf registration statement relating to the resale of the Notes and the shares of common stock issuable upon conve rsion of the Notes and exercise of the warrants became effective on August 3, 2007.

Future Cash Requirements

Based on our current operating plan, we estimate that our existing cash and cash equivalents totaling $74.4 million at June 30, 2007 will be sufficient to fund our operations through mid-2009. Our current operating plan and cash requirements may vary materially from the planned estimates due to results of preclinical development, clinical trials, product testing, relationships with strategic partners, changes in focus and direction of our preclinical and clinical development programs, competitive and technological advances, the regulatory process in the United States and abroad, and other factors.

Unless we have a product that is generating significant revenues, or generate cash from other sources, we will need to raise substantial capital to complete our product development and clinical trials and to fund operations beyond mid-2009, however, we cannot assure you that we will be able to raise additional capital, nor can we predict what the terms of any financing might be.

We lease our office and laboratory facilities in New Haven, Connecticut. In June 2007, we entered into an amendment of our lease to include approximately 6,500 additional square feet of office space. The term of the lease will run through December 31, 2010, unless sooner terminated or extended pursuant to the terms of the lease. We have the right to extend the term of the lease for two successive terms of five years each. The amendment provides for a change in the total base annual rent for all premises from $217,118, or $18,093 per month, to $288,618, or $24,052 per month beginning March 12, 2008.

Off-Balance Sheet Financing

We have no off-balance sheet arrangements that have a material current effect or are reasonably likely to have a material future effect on our financial position or results of operations.

Contractual Obligations

In February 2007, the Company completed a private placement of $60 million aggregate principal amount of 7.75% convertible senior notes (the ‘‘Notes’’) and warrants to purchase up to an additional 7.8 million shares of its common stock. The Company is required to pay interest on the Notes semi-annually on February 15 and August 15. The Company is obligated to pay the principal amount of the Notes in cash on the maturity date, February 15, 2012, unless converted or redeemed under certain circumstances prior to the maturity date.

In March 2007, we made a gift of $200,000 to support research projects through March 31, 2008 at a Yale University research laboratory. The gift is payable in four equal quarterly installments beginning April 1, 2007. Included in our current liabilities at June 30, 2007, is $150,000 for the balance of the gift.

In June 2007, we entered into an amendment of our lease for our office and laboratory facilities to include approximately 6,500 additional square feet of office space. The term of the lease will run through December 31, 2010, unless sooner terminated or extended pursuant to the terms of the lease. The amendment provides for a change in the total base annual rent for all premises from $217,118, or $18,093 per month, to $288,618, or $24,052 per month beginning March 12, 2008.

During the first six months of 2007, except for the aforementioned obligations for the Yale gift, lease payments and the payments of the principal amount of the Notes on the maturity date, there were no significant changes in our reported payments due under contractual obligations and disclosed contingent contractual obligations related to potential milestone payments under our license agreements and potential cancellation fees under various agreements at December 31, 2006.

Available Information

The following information can be found on our website at http://www.vionpharm.com or may be obtained free of charge by contacting our Investor Relations Department at (203) 498-4210 or by sending an e-mail message to info@vionpharm.com:


	•	our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission;


	•	our policies related to corporate governance, including the charter for the Nominating and Governance Committee of our Board of Directors, our code of ethics and business conduct applying to our directors, officers and employees, and our code of ethics applying to our chief executive officer and senior financial officials; and


	•	the charters of the Audit Committee and the Compensation Committee of our Board of Directors.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk, including changes to interest rates associated with our cash equivalents, and foreign currency exchange rates. The following describes the nature of these risks which we do not believe to be material to us.

Our cash equivalents are generally highly liquid investments in money market funds and U.S. treasury securities. These investments are subject to interest rate risk and as such our future investment income may fall short of expectations due to changes in interest rates. However, the conservative nature of our investments mitigates our interest rate exposure. Our investments are held for purposes other than trading and we believe that we currently have no material adverse market risk exposure. The weighted-average interest rate on cash equivalents held at June 30, 2007 was approximately 5.2%.

We have contracts with a vendor outside the U.S. that are denominated in a foreign currency. To date, fluctuations in this currency have not materially impacted our results of operations. We have no derivative financial instruments. We do not believe we have material exposures to changes in foreign currency exchange rates.

ITEM 4. Controls and Procedures

(a) Disclosure controls and procedures – Our management, with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2007. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective to ensure that the information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.

(b) Changes in internal control over financial reporting – There has been no change in our internal control over financial reporting during the period covered by this quarterly report or in other factors that has materially affected or is reasonably likely to materially affect the Company’s internal control.

PART II

OTHER INFORMATION

ITEM 1A. Risk Factors

There are many risks and uncertainties that can affect our future business, financial performance or share price. In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, ‘‘Item 1A. Risk Factors’’ in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006. Below are new or updated risk factors from those appearing in Annual Report on Form 10-K. In addition to the other information set forth in this report, you should carefully consider the following factors, which could materially affect our business, financial condition or future results. The risks described below and in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.< /font>

Risks Related to Our Business

We do not have any products approved for sale. All of our proposed products are in clinical trials or preclinical development. If our trials are delayed or achieve unfavorable results, we might not be able to obtain regulatory approval for our products.

Our product candidates are all pharmaceutical products. We must conduct extensive testing of our product candidates, including in human clinical trials, before we can apply for or obtain regulatory approval to sell our products. These tests and trials may not achieve favorable results. We would need to reevaluate any drug that did not test favorably and either alter the drug or dose, modify the trial protocol, commence additional trials, or abandon the drug development project completely. In such circumstances, we would not be able to apply for or obtain regulatory approval for an extended period of time, if ever.

Factors that can cause delay or termination of our clinical trials include:


	•	slow patient enrollment;


	•	long treatment time required to demonstrate safety and effectiveness;


	•	lack of sufficient supplies of the product candidate;


	•	adverse medical events or side effects in treated patients;


	•	lack of effectiveness of the product candidate being tested;


	•	negative or equivocal findings of the DSMB for a trial; and


	•	lack of sufficient funds.

If we do not obtain regulatory approval for our product candidates, we will not be able to sell our products and the value of our company and our financial results will be materially adversely affected.

We cannot sell or market our drugs without regulatory approval. If we cannot obtain regulatory approval for our products, the value of our company and our financial results will be materially adversely affected. In the United States, we must obtain approval from the FDA for each drug that we intend to sell. The current status of our potential products is as follows:


	•	Cloretazine^® (VNP40101M) is being evaluated in three clinical trials sponsored by us including a Phase III trial in relapsed AML in combination with Ara-C, a pivotal Phase II trial as a single agent in elderly patients with de novo poor-risk AML, and a Phase II trial as a single agent in small-cell lung cancer;


	•	The NCI is sponsoring clinical trials of Triapine^®; and


	•	VNP40541 and hydrazones are being evaluated in preclinical studies.

The Phase III clinical trial of Cloretazine^® (VNP40101M) in relapsed AML in combination with Ara-C was suspended and subsequently put on hold by the FDA. See ‘‘—We may be delayed, limited or precluded from obtaining regulatory approval of Cloretazine^® (VNP40101M) for patients with AML given that our Phase III clinical trial of Cloretazine^® (VNP40101M) in relapsed AML has been suspended.’’

If and when we complete the several phases of clinical testing for each drug candidate, we will submit our test results to the FDA. FDA review may generally take up to two years and approval is not assured. Foreign governments also regulate drugs distributed outside the United States. A delay in obtaining regulatory approvals for any of our drug candidates will also have a material adverse effect on our business.

We may be delayed in, and limited or precluded from, obtaining regulatory approval of Cloretazine^® (VNP40101M) given that our Phase III clinical trial of Cloretazine^® (VNP40101M) in relapsed AML has been suspended.

During a teleconference with the FDA initiated by us regarding the suspension of the Phase III trial, the FDA informed us that the trial would be placed on hold.

There can be no assurance that this trial will be resumed or, that, if resumed, it will be completed or what the timing to completion might be. Any resumption of the trial will require regulatory approval. Such regulatory approval might not be received. In addition, based on an analysis of the data, the trial protocol might need to be modified, and such modification could result in a need to repeat the trial or conduct additional trials, and in additional and extensive delays in receiving regulatory approval to recommence the trial or to conduct additional trials. Further, depending upon the results of the medical review of the data from our suspended Phase III trial of Cloretazine^® (VNP40101M) and Ara-C in relapsed AML, our pivotal Phase II trial of Cloretazine^® (VNP40101M) as a single agent in elderly patients with de novo poor risk AML could be affected.

If we cannot resume the Phase III trial of Cloretazine^® (VNP40101M) or the resumption of the Phase III trial is delayed or the results of the medical review of the data from the Phase III trial adversely affect our clinical trials of Cloretazine (VNP40101M) as a single agent, our business, operations and prospects could be materially adversely affected.

In the near term, we are heavily dependent on the success of our lead product candidate Cloretazine^® (VNP40101M) which is still under development. If Cloretazine^® (VNP40101M) is not successful in clinical trials or we do not obtain FDA approval of Cloretazine^® (VNP40101M ), or if FDA delays approval or narrows the indications for which we may market Cloretazine^® (VNP40101M), our business will be materially adversely affected.

We anticipate that our ability to generate revenues in the foreseeable future will depend on the successful development and commercialization of Cloretazine^® (VNP40101M). The commercial success of Cloretazine^® (VNP40101M) will depend on several factors, including resumption and successful completion of our ongoing Phase III trial and successful completion of our pivotal Phase II clinical trial for Cloretazine^® (VNP40101M); receipt of approvals from the FDA and similar foreign regulatory authorities; establishing comme rcial manufacturing capabilities through third party manufacturers; successfully launching commercial sales of the products, either ourselves or through third parties; and acceptance of the products in the medical community and by third party payers, none of which can be assured. If the data from our Phase III trial and our ongoing pivotal Phase II clinical trial for Cloretazine^® (VNP40101M) are not satisfactory, we may not proceed with the filing for regulatory approval or we may be forced to delay the filing. Even if the FDA and similar foreign regulatory authorities do grant approval for Cloretazine^® (VNP40101M), they may narrow the indications for which we are permitted to market it, may pose other restricti ons on the use or marketing of the product, or may require us to conduct additional post-marketing trials. A narrowed indication or other restrictions may limit the market potential for Cloretazine^® (VNP40101M) and any obligation to conduct additional clinical trials would result in increased expenditures and lower revenues. If we are not successful in commercializing our lead product candidate Cloretazine^® (VNP40101M), or are significantly delayed or limited in doing so, our business will be materially adversely affected and we may need to curtail or cease operations.

In particular, as set forth above, the timing of a filing with respect to the data from our Phase III clinical trial is particularly uncertain, given that, on recommendation from the trial’s independent DSMB, the trial has been suspended pending a detailed review of all the data from the trial. There can be no assurance as to the results of the evaluation of the data from this trial or the timing of completion of this evaluation and there can be no assurance that we will obtain regulatory authorization to recommence the Phase III trial. The trial may need to be terminated or modified and there can be no assurance that the DSMB will allow the Phase III trial to continue.

On January 25, 2007, we announced that we had recorded at least nine responses in our pivotal Phase II trial of Cloretazine^® (VNP40101M) in elderly patients with de novo poor-risk AML. The trial is designed to continue to a total accrual of 85 patients if there have been at least nine responses in the first 42 patients. On August 8, 2007, we announced that, as of August 1, 2007, 83 patients had been enrolled to this trial and that we expect to accrue an additional two patients shortly. We plan on presenting preliminary information from the trial at the American Society of Hematology meeting in December 2007. There can be no assurance as to the results of this trial or the timing of completion of this trial, and there should be no inference that the trial has achieved favorable results to date. There can be no assurance as to whether the results of the medical review of the data from our suspended Phase III trial of Cloretazine^® (VNP40101M) in relapsed AML would or would not have any effect on our pivotal Phase II trial of Cloretazine^® (VNP40101M) as a single agent and other clinical trials.

As with all drug development, we would need to reevaluate Cloretazine^® (VNP40101M) if it does not test favorably in either of these trials. In such event, we would alter the drug or dose as used in the trial, modify the clinical trial protocol, commence additional trials, or abandon the drug development project. In any such event, our business, operations and prospects would be materially adversely affected, and our ability to apply for or obtain regulatory approval might be delayed, or we might not be able to obtain regulatory approval at all.

If we fail to recruit and retain key personnel, our research and development programs may be delayed.

We are highly dependent upon the efforts of our senior management and scientific personnel, particularly, Alan Kessman, our chief executive officer and director; Howard B. Johnson, our president and chief financial officer; Ann Lee Cahill, our vice president, clinical development; Ivan King, Ph.D., our vice president, research and development; Meghan Fitzgerald, our vice president and chief business officer; Aileen Ryan, our vice president, regulatory affairs and James Tanguay, Ph.D., our vice president, chemistry, manufacturing & control. There is intense competition in the drug development industry for qualified scientific and technical personnel. Since our business is very technical and specialized, we need to continue to attract and retain such people. We may not be able to continue to attract and retain the qualified personnel necessary for developing our business, particularly in light of our need to raise substantial additional financing in order to c ontinue our operations beyond mid-2009. We have no key man insurance policies on any of the officers listed above and we only have an employment agreement with Mr. Kessman. If we lose the services of our management and scientific personnel or fail to recruit other scientific and technical personnel, our research and product development programs will be significantly and detrimentally affected.

If Yale does not conduct research relating to products we would like to pursue, we may never realize any benefits from our funding provided to Yale.

Through June 30, 2007, we have paid approximately $10.6 million to Yale for research funding. We have agreed to pay an additional $150,000 to support the research activities of one of our directors, an affiliate of Yale, through March 31, 2008. We may continue to support certain research projects at Yale. We generally do not have the right to control the research that Yale is conducting with our funding, and our funds may not be used to conduct research relating to products that we would like to pursue. Additionally, if the research being conducted by Yale results in technologies that Yale has not already licensed or agreed to license to us, we may need to negotiate additional license agreements or we may be unable to utilize those technologies.

Our common stock could be delisted from the Nasdaq Capital Market^SM. Among other things, delisting from the Nasdaq Capital Market^SM would cause us to become ineligible to use Form S-3 for the registration of the resale of our securities held by certain of our security holders.

If the price of our common stock declines below $1.00 per share, we may fail to meet Nasdaq’s maintenance criteria, which may result in the delisting of our common stock from the Nasdaq Capital Market^SM. Recently, our stock has traded below $1.00. In particular, on May 23, 2007, the day we announced that we would suspend enrollment and further patient treatment in our Phase III clinical study of Cloretazine^® (VNP40101M) for patients with relapsed AML, our stock price fell from $2.02 per share to $.86 per share. On August 8, 2007, the last reported sale price for our common stock as quoted on the Nasdaq Capital Market^SM was $0.95.

In the event of such delisting, trading, if any, in our common stock may then continue to be conducted in the non-Nasdaq over-the-counter market in what are commonly referred to as the electronic bulletin board and the ‘‘pink sheets.’’ As a result, an investor may find it more difficult to dispose of or obtain accurate quotations as to the market value of our common stock. In addition, we would be subject to a Rule promulgated by the SEC that, if we fail to meet criteria set forth in such Rule, imposes various practice requirements on broker-dealers who sell securities governed by the Rule to persons other than established customers and accredited investors. For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transactions prior to the sale. Consequently, the Rule may have a materially adverse effect on the ability of broker-dealers to sell our securities, which may materially affect the ability of stockholders to sell our securities in the secondary market.

A delisting from the Nasdaq Capital Market^SM will also make us ineligible to use Form S-3 to register the sale of shares of our common stock or to register the resale of our securities held by certain of our security holders with the SEC, thereby making it more difficult and expensive for us to register our common stock or other securities and raise additional capital. We are a party to several

registration rights agreements, which require us to maintain the effectiveness of registration statements relating to the resale of shares of common stock issuable upon the exercise of outstanding warrants and upon conversion of our outstanding notes by holders of such warrants and notes. If we are ineligible to use Form S-3, we will need to file new registration statements on some other permitted Form and maintenance of the effectiveness of such registration statements will become extremely difficult. Under the applicable registration rights agreements, we could become subject to certain liquidated damages upon and during the continuance of any such failure. We would also incur additional costs under state blue-sky laws to sell equity if we are delisted.

Our common stock price has been highly volatile, and an investment in our common stock could suffer a decline in value.

The trading price of our common stock has been highly volatile and could continue to be subject to wide fluctuations in price in response to various factors, many of which are beyond our control, including:


	•	positive or adverse developments with respect to obtaining regulatory approval of our proposed products;


	•	positive or adverse developments with respect to our drug trials;


	•	actual or anticipated period-to-period fluctuations in financial results;


	•	litigation or threat of litigation;


	•	failure to achieve, or changes in, financial estimates by securities analysts;


	•	announcements of new products or services or technological innovations by us or our competitors;


	•	comments or opinions by securities analysts or major stockholders;


	•	conditions or trends in the pharmaceutical, biotechnology and life science industries;


	•	announcements by us of significant acquisitions, strategic partnerships, joint ventures or capital commitments;


	•	additions or departures of key personnel;


	•	sales of our common stock;


	•	economic and other external factors or disasters or crises;


	•	limited daily trading volume; and


	•	developments regarding our patents or other intellectual property or that of our competitors.

In particular, on May 23, 2007, the day we announced that we would suspend enrollment and further patient treatment in our Phase III clinical study of Cloretazine^® (VNP40101M) for patients with relapsed AML, our stock price fell from $2.02 per share to $.86 per share. On August 8, 2007, the last reported sale price for our common stock as quoted on the Nasdaq Capital Market^SM was $0.95.

In addition, the stock market in general, and the Nasdaq Capital Market^SM and the market for biotechnology companies in particular, have experienced significant price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Further, there has been significant volatility in the market prices of securities of life science companies. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted. A securities class action suit against us could result in substantial costs, potential liabilities and the diversion of management& rsquo;s attention and resources.

ITEM 4. Submission of Matters to a Vote of Security Holders

At our annual meeting of stockholders held on June 26, 2007, four proposals were voted upon by our stockholders. A description of each proposal and a tabulation of the votes for each of the proposals follows:

1. To elect eight directors to hold office until the 2008 annual meeting of stockholders or until their successors are elected and qualified. All eight nominees were elected:


	For Nominee		Authority Withheld From Nominee
William R. Miller		55,204,296		2,189,737
George Bickerstaff		55,654,761		1,739,272
Stephen K. Carter, M.D		55,467,726		1,926,307
Alan Kessman		55,185,856		2,208,177
Kevin Rakin		55,423,839		1,970,194
Alan C. Sartorelli, Ph.D.		55,018,899		2,375,134
Ian Williams, D. Phil.		55,429,429		1,964,604
Gary K. Willis		55,422,829		1,971,204

2. To approve an amendment to the Company’s Restated Certificate of Incorporation, as amended, to increase the authorized shares of common stock from 150 million shares to 300 million shares. The amendment was approved:


For	Against	Abstentions and Broker Non-Vote
49,927,912	7,290,815	175,306

3. To approve a 3 million share increase in the number of authorized shares of common stock that may be granted under the Company’s 2005 Stock Incentive Plan. The increase was approved:


For	Against	Abstentions and Broker Non-Vote
18,394,647	4,531,097	383,390

4. Ratification of the appointment of Ernst & Young LLP as the Company’s independent auditors for the year ending December 31, 2007. The appointment of Ernst & Young LLP was ratified:


For	Against	Abstentions and Broker Non-Vote
55,988,183	1,209,127	196,723

ITEM 6. Exhibits


3		Restated Certificate of Incorporation of Vion Pharmaceuticals, Inc. dated August 8, 2007
10	.1	Second Amendment to Lease, dated June 27, 2007, by and between the Registrant and Science Park Development Corporation⁽¹⁾
10	.2	Vion Pharmaceuticals, Inc. 2005 Stock Incentive Plan, as Amended and Restated
31	.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31	.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	.1	Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32	.2	Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(1)	Incorporated by reference to the Company’s current report on Form 8-K filed on June 28, 2007.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

EX-3 2 file2.htm RESTATED CERT. OF INCORP. OF VION PHARMACEUTICALS

Exhibit 3

RESTATED CERTIFICATE OF INCORPORATION
of
VION PHARMACEUTICALS, INC.

(Under Section 245 of the General Corporation Law of the State of Delaware)

Vion Pharmaceuticals, Inc. (the ‘‘Corporation’’), does hereby certify under the seal of the Corporation as follows:

A. The name of the Corporation is Vion Pharmaceuticals, Inc.; the Corporation was originally incorporated as MelaRx Pharmaceuticals, Inc.

B. The Certificate of Incorporation of the Corporation was originally filed with the Secretary of State of the State of Delaware in Dover, Delaware, on the 27th day of March, 1992.

C. This Restated Certificate of Incorporation was duly adopted in accordance with Section 245 of the General Corporation Law of the State of Delaware and only restates and integrates and does not further amend the provisions of the Corporation’s Amended and Restated Certificate of Incorporation as heretofore restated, amended and supplemented. There is no discrepancy between those provisions and the provisions of this Restated Certificate of Incorporation.

D. The text of the Certificate of Incorporation of the Corporation, as amended, is hereby restated to read in full, as follows:

FIRST: The name of the Corporation is VION PHARMACEUTICALS, INC.

SECOND: The address, including street, number, city, and country, of the registered office of the Corporation in the State of Delaware is 32 Loockerman Square, Suite L-100, City of Dover, County of Kent; and the name of the registered agent of the Corporation in the State of Delaware is The Prentice-Hall Corporation System, Inc.

THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which Corporations may be organized under the General Corporation Law of the State of Delaware.

FOURTH: Authorization, Designation and Amount. The total number of shares of all classes of stock which the Corporation shall have authority to issue is 305,000,000 shares, consisting of (a) 300,000,000 shares of common stock, par value $.01 per share (the ‘‘Common Stock’’) and (b) 5,000,000 shares of Preferred Stock, par value $.01 per share (the ‘‘Preferred Stock’’). The powers, terms, conditions, designations, preferences and privileges, relative, participat ing, optional and other special rights, and qualifications, limitations and restrictions, of the Preferred Stock shall be set forth in this Article FOURTH.

Part A. Preferred Stock

(a) Designation of Preferred Stock. The Board of Directors of the Corporation (the ‘‘Board of Directors’’) is hereby expressly authorized to provide for, designate and issue, out of the authorized but unissued shares of Preferred Stock, one or more series of Preferred Stock subject to the terms and conditions set forth herein. Before any shares of any such series are issued, the Board of Directors shall fix, and hereby is expressly empowered to fix, by resolution or resolutions, the following provisions of the shares of any such series:

(1) the designation of such series, the number of shares to constitute such series and the stated value thereof, if different from the par value thereof;

(2) whether the shares of such series shall have voting rights or powers in addition to any voting rights required by law and, if so, the terms of such voting rights or powers, which may be full or limited;

(3) the dividends, if any, payable on such series, whether any such dividends shall be cumulative, and, if so, from what dates, the conditions and dates upon which such dividends shall

be payable, the preference or relation which such dividends shall bear to the dividends payable on any shares of stock of any other class or series;

(4) whether the shares of such class or series shall be subject to redemption by the Corporation, and, if so, the times, prices and other conditions of such redemption;

(5) the amount or amounts payable with respect to shares of such class or series upon, and the rights of the holders of such class or series in, the voluntary or involuntary liquidation, dissolution or winding up, or upon any distribution of the assets, of the Corporation;

(6) whether the shares of such class or series shall be subject to the operation of a retirement or sinking fund and, if so, the extent to and manner in which any such retirement or sinking fund shall be applied to the purchase or redemption of the shares of such class or series for retirement or other corporate purposes and the terms and provisions relative to the operation thereof;

(7) whether the shares or series shall be convertible into, or exchangeable for, shares of stock of any other class or series of any other securities and, if so, the price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same, and any other terms and conditions of exchange;

(8) the limitations and restrictions, if any, to be effective while any shares of such class or series are outstanding upon the payment of dividends or the making of other distributions on, and upon the purchase, redemption or other acquisition by the Corporation of the Common Stock or shares of stock of any other class or series;

(9) the conditions or restrictions, if any, to be effective while any shares of such class or series are outstanding upon the creation of indebtedness of the Corporation or upon the issue of any additional stock, including additional shares of such class or series or of any other class or series; and

(10) any other powers, designations, preferences and relative, participating, optional or other special rights, and any qualifications, limitations or restrictions thereof.

The powers, designations, preferences and relative, participating, optional or other special rights of each series of Preferred Stock, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding. The Board of Directors is hereby expressly authorized from time to time to increase (but not above the total number of authorized shares of Preferred Stock) or decrease (but not below the number of shares thereof then outstanding) the number of shares of stock of any series of Preferred Stock so designated pursuant to this Part A.

Part B. Common Stock

1. Common Stock.

(a) Voting. Each holder of Common Stock shall be entitled to one vote for each share of Common Stock held of record on all matters as to which holders of Common Stock shall be entitled to vote, which voting rights shall not be cumulative. In any election of directors, no holder of Common Stock shall be entitled to more than one vote per share.

(b) Other Rights. Each share of Common Stock issued and outstanding shall be identical in all respects with each other such share and each share of Common Stock shall be entitled to all of the rights and privileges, and subject to the limitations and qualifications, of shares of Common Stock provided by the Delaware General Corporation Law.

FIFTH: The Corporation is to have perpetual existence.

SIXTH: Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this corporation or of any creditor or stockholder thereof or on the application of

any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said applicat ion has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation.

SEVENTH: The Board of Directors is expressly authorized to adopt, amend or repeal by-laws of the Corporation.

EIGHTH: Elections of the directors need not be by written ballot except and to the extent provided by the by-laws of the Corporation.

NINTH: The personal liability of the directors of the Corporation is hereby eliminated to the fullest extent permitted by the provisions of paragraph (7) of subsection (b) of Section 102 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented.

TENTH: The Corporation shall, to the fullest extent permitted by the provisions of Section 145 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented, indemnify any and all directors and officers of the Corporation from and against any and all of the expenses, liabilities or other matters referred to in or covered by said section, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any By-Law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director or officer and shall insure to the benefit of the heirs, executors and administrators of such a person.

ELEVENTH: From time to time any of the provisions of this certificate of incorporation may be amended, altered or repealed, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted in the manner and at the time prescribed by said laws, and all rights at any time conferred upon the stockholders of the Corporation by this certificate of incorporation are granted subject to the provisions of this Article ELEVENTH.

IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be affixed hereto and this Restated Certificate to be executed by its Chief Executive Officer and attested by its Secretary this 8th day of August, 2007.

By: /s/ Alan Kessman

Alan Kessman
Chief Executive Officer

[SEAL]

ATTEST:

By: /s/ Karen Schmedlin
        Karen Schmedlin
        Secretary

EX-10.2 3 file3.htm STOCK INCENTIVE PLAN

Exhibit 10.2

VION PHARMACEUTICALS, INC.
2005 STOCK INCENTIVE PLAN, AS AMended and RESTATED

1. Purpose. The purpose of the Vion Pharmaceuticals, Inc. 2005 Stock Incentive Plan is to establish a flexible vehicle through which the Company can attract, motivate, reward and retain key personnel of the Company and its affiliates through the use of equity-based incentive compensation awards.

2. Definitions. For purposes of the Plan, the following terms shall have the following meanings:

(a) ‘‘Award’’ shall mean any Option, SAR, Restricted Stock, Deferred Stock, Performance Award or Other Stock-Based Award granted to a participant under the Plan.

(b) ‘‘Board’’ shall mean the Board of Directors of the Company.

(i) any ‘‘person,’’ as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, of any corporation owned, directly or indirectly, by all stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), is or becomes the ‘‘beneficial owner’’ (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the combined voting power of the Company’s then outstanding securities;

(ii) during any period of one year (not including any period prior to the Effective Date), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clause (i), (iii) or (iv) of this subsection) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof;

(iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or

(iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets.

Notwithstanding the foregoing, the events set forth above shall not constitute a ‘‘Change in Control’’ if the applicable event occurs due to the actions of members of the management of the Company (e.g., a management buy-out or similar transaction).

(d) ‘‘Code’’ shall mean the Internal Revenue Code of 1986, as amended.

(e) ‘‘Committee’’ shall mean the Compensation Committee of the Board.

(f) ‘‘Common Stock’’ shall mean the Company’s common stock, par value $0.01.

(g) ‘‘Company’’ shall mean Vion Pharmaceuticals, Inc., a Delaware corporation, and any successor thereto.

(h) ‘‘Deferred Stock’’ means a right, granted to a participant under Section 6(e), to receive Common Stock or other Awards or a combination thereof at the end of a specified deferral period. Deferred Stock may be denominated as ‘‘stock units,’’ ‘‘restricted stock units,’’ ‘‘phantom shares,’’ ‘‘performance shares,’’ or other appellations.

(i) ‘‘Detrimental Activities’’ shall mean any of the following, unless authorized by the Company: (i) the rendering of services for any organization or engaging directly or indirectly in any business which is or becomes competitive with the Company or its affiliates, or which organization or business, or the rendering of services to such organization or business, is or becomes otherwise prejudicial to or in conflict with the interests of the Company or its affiliates, (ii) the disclosure to anyone outside the Company or its affiliates or use in other than the Company’s or its affiliates’ business of any confidential information or material relating to the business of the Company or its affiliates, acquired by the Award recipient either during or after employment or other service with the Company or its affiliates, (iii) the failure or refusal to disclose promptly and to assign to the Company or its affil iates all right, title and interest in any invention or idea, patentable or not, made or conceived by the Award recipient during employment by or other service with the Company or its affiliates, relating in any manner to the actual or anticipated business, research or development work of the Company or its affiliates or the failure or refusal to do anything reasonably necessary to enable the Company or its affiliates to secure a patent where appropriate in the United States and in other countries, or (iv) any attempt directly or indirectly to induce any employee of the Company or its affiliates to be employed or perform services elsewhere or any attempt directly or indirectly to solicit the trade or business of any current or prospective customer, supplier or partner of the Company or its affiliates.

(j) ‘‘Effective Date’’ shall mean the date on which the Plan is approved by the Company’s stockholders.

(k) ‘‘Exchange Act’’ shall mean the Securities Exchange Act of 1934, as amended.

(l) ‘‘Fair Market Value’’ shall mean the fair market value of the Common Stock as determined in good faith by the Committee or under procedures established by the Committee. Unless otherwise determined by the Committee, the Fair Market Value of the Common Stock as of any given date shall be the closing sale price per share of Common Stock reported on a consolidated basis for securities listed on the principal stock exchange or market on which the Common Stock is traded on the date as of which such value is being determined or, if there is no sale on that day, then on the last previous day on which a sale was reported.

(m) ‘‘Option’’ means a right, granted to a participant under Section 6(b), to purchase Common Stock at a specified price during specified time periods.

(n) ‘‘Other Stock-Based Award’’ means an Award granted to a participant under Section 6(f).

(o) ‘‘Performance Award’’ means an Award granted to a participant under Section 6(g).

(p) ‘‘Plan’’ shall mean this Vion Pharmaceuticals, Inc. 2005 Stock Incentive Plan, as amended from time to time.

(q) ‘‘Restricted Stock’’ means Common Stock granted to a participant under Section 6(d) which is subject to certain restrictions and to a risk of forfeiture.

(r) ‘‘Securities Act’’ shall mean the Securities Act of 1933, as amended.

(s) ‘‘Stock Appreciation Right’’ or ‘‘SAR’’ means a right granted to a participant under Section 6(c).

3. Administration.

(a) Committee. The Plan will be administered by the Committee. Unless the Board determines otherwise, the members of the Committee shall consist solely of individuals who

qualify as ‘‘non-employee directors’’ under Rule 16b-3 promulgated under Section 16 of the Exchange Act, and as ‘‘outside directors’’ under Section 162(m) of the Code. Notwithstanding the foregoing, the Board will have sole responsibility and authority for matters relating to the grant and administration of Awards to any member of the Board who is not an employee of the Company or its affiliates.

(b) Responsibility and Authority of Committee. Subject to the provisions of the Plan, the Committee, acting in its discretion, will have responsibility and full power and authority to (i) select the persons to whom Awards will be made, (ii) prescribe the terms and conditions of each Award and make amendments thereto, (iii) construe, interpret and apply the provisions of the Plan and of any agreement or other document evidencing an Award made under the Plan, and (iv) make any and all determinations and take any and all other actions as it deems necessary or desirable in order to carry out the terms of the Plan. In exercising its responsibilities under the Plan, the Committee may obtain at the Company’s expense such advice, guidance and other assistance from outside compensati on consultants and other professional advisers as it deems appropriate.

(c) Delegation of Authority. To the fullest extent authorized under Section 157(c) and other applicable provisions of the Delaware General Corporation Law, the Committee may delegate to officers or managers of the Company or any affiliate, or committees thereof, the authority, subject to such terms as the Committee shall determine, to perform such functions, including administrative functions, as the Committee may determine.

(d) Committee Actions. A majority of the members of the Committee shall constitute a quorum. The Committee may act by the vote of a majority of its members present at a meeting at which there is a quorum or by unanimous written consent. The decision of the Committee as to any disputed question, including questions of construction, interpretation and administration, shall be final and conclusive on all persons. The Committee shall keep a record of its proceedings and acts and shall keep or cause to be kept such books and records as may be necessary in connection with the proper administration of the Plan.

(e) Limitation on Repricing. Subject to the provisions of Section 9, in no event shall any repricing (within the meaning of any stock exchange or market on which the shares of Common Stock may then be listed) of any outstanding Option granted under the Plan be permitted, without the approval of the stockholders of the Company.

(f) Indemnification. The Company shall indemnify and hold harmless each member of the Board, the Committee or any subcommittee appointed by the Committee and any employee of the Company who provides assistance with the administration of the Plan from and against any loss, cost, liability (including any sum paid in settlement of a claim with the approval of the Board), damage and expense (including reasonable legal fees and other expenses incident thereto and, to the extent permitted by applicable law, advancement of such fees and expenses) arising out of or incurred in connection with the Plan, unless and except to the extent attributable to such person’s fraud or willful misconduct.

4. Eligibility and Certain Award Limitations.

(a) Eligibility. Awards may be granted under the Plan to any member of the Board (whether or not an employee of the Company or its affiliates), to any officer or other employee of the Company or its affiliates (including prospective officers and employees) and to any consultant or other independent contractor who performs or will perform services for the Company or its affiliates.

(b) Per-Person Award Limitations. In each fiscal year during any part of which the Plan is in effect, the maximum number of shares of Common Stock with respect to which Options, SARs or Performance Awards intended to qualify as ‘‘performance-based compensation’’ under Section 162(m) of the Code may be granted to an eligible person may not exceed his or her Annual Share Limit for such year (such Annual Share Limit to apply separately for each type of Award). Subject to the provisions of Section 9, an eligible person’s ‘‘Annual Share Limit’’ shall equal, in

any fiscal year during any part of which the eligible person is then eligible under the Plan, 1,000,000 shares, plus the amount of the eligible person’s unused Annual Share Limit relating to the same type of Award as of the close of the previous year.

5. Aggregate Share Limitation. Subject to adjustment as provided in Section 9 below, the aggregate number of shares of Common Stock which may be issued pursuant to the Plan (the ‘‘Authorized Shares’’) is the sum of (a) 9,725,000 and (b) the aggregate number of shares of Common Stock available for new awards under the Vion Pharmaceuticals, Inc. 2003 Stock Option Plan, as amended (the ‘‘Prior Plan’’) as of the Effective Date. In determining the number of Authorized Shares available for issuance under the Plan at any time after t he Effective Date, the following shares shall be deemed not to have been issued (and will remain available for issuance) pursuant to the Plan: (i) shares subject to an Award granted under the Plan or an option granted under the Prior Plan that is forfeited, canceled, terminated or settled in cash, (ii) shares repurchased by the Company from the recipient of an Award for not more than the original purchase price of such shares or forfeited to the Company by the recipient of an Award, and (iii) shares withheld or tendered by the recipient of an Award granted under the Plan or an option granted under the Prior Plan as payment of the exercise or purchase price thereunder or the tax withholding obligations associated therewith. Subject to adjustment as provided in Section 9 below, in no event may more than 9,725,000 shares of Common Stock be issued under the Plan pursuant to ‘‘incentive stock options’’ (as defined in Section 422 of the Code). Shares of Common Stock available for issuance u nder the Plan may be either authorized and unissued or held by the Company in its treasury. No fractional shares of Common Stock may be issued under the Plan.

6. Specific Terms of Awards.

(a) General. Awards may be granted on the terms and conditions set forth in this Section 6. In addition, the Committee may impose on any Award or the exercise thereof, at the date of grant or thereafter, such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall determine, including terms requiring forfeiture of Awards in the event of termination of employment or service by the participant and terms permitting a participant to make elections relating to his or her Award. The Committee shall require the payment of lawful consideration for an Award to the extent necessary to satisfy the requirements of the Delaware General Corporation Law, and may otherwise require payment of consideration for an Award except as limited by the Plan.

(b) Options. The Committee is authorized to grant Options to participants on the following terms and conditions:

(i) Exercise Price. The exercise price per share of Common Stock purchasable under an Option shall be determined by the Committee, provided that such exercise price shall be not less than the Fair Market Value of a share of Common Stock on the date of grant of such Option.

(ii) Option Term; Time and Method of Exercise. The Committee shall determine the term of each Option, which in no event shall exceed a period of ten years from the date of grant. The Committee shall determine the time or times at which or the circumstances under which an Option may be exercised in whole or in part (including based on achievement of performance goals and/or future service requirements), the methods by which such exercise price may be paid or deemed to be paid and the form of such payment (including, cash, Common Stock, other Awards or awards granted under other plans of the Company or any affiliate, or other property (including through ‘‘cashless exercise’’ arrangements, to the extent permitted by applicable law)), and the methods by or forms in which Common Stock will be delivered or deemed to be delivered to participants.

(c) Stock Appreciation Rights. The Committee is authorized to grant SARs to participants on the following terms and conditions:

(i) Right to Payment. A SAR shall confer on the participant to whom it is granted a right to receive, upon exercise thereof, the excess of (1) the Fair Market Value of one share

of Common Stock on the date of exercise over (2) the base price of the SAR as determined by the Committee, which base price shall be not less than the Fair Market Value of a share of Common Stock on the date of grant of such SAR.

(ii) Other Terms. The Committee shall determine at the date of grant or thereafter, the time or times at which and the circumstances under which a SAR may be exercised in whole or in part (including based on achievement of performance goals and/or future service requirements), the method of exercise, method of settlement, method by or forms in which Common Stock will be delivered or deemed to be delivered to participants, whether or not a SAR shall be free-standing or in tandem or combination with any other Award, and the maximum term of an SAR, which in no event shall exceed a period of ten years from the date of grant.

(d) Restricted Stock. The Committee is authorized to grant Restricted Stock to participants on the following terms and conditions:

(i) Grant and Restrictions. Restricted Stock shall be subject to such restrictions on transferability, risk of forfeiture and other restrictions, if any, as the Committee may impose, which restrictions may lapse separately or in combination, at such times, under such circumstances (including based on achievement of performance goals and/or future service requirements), in such installments or otherwise and under such other circumstances as the Committee may determine at the date of grant or thereafter. Except to the extent restricted under the terms of the Plan or any Award agreement evidencing the Restricted Stock, a participant granted Restricted Stock shall have all of the rights of a stockholder, including the right to vote the Restricted Stock and the right to receive dividends thereon (subject to any m andatory reinvestment or other requirement imposed by the Committee).

(ii) Forfeiture. Except as otherwise determined by the Committee, upon termination of employment or service during the applicable restriction period, Restricted Stock that is at that time subject to restrictions shall be forfeited and reacquired by the Company; provided that the Committee may provide, by rule or regulation or in any Award agreement, or may determine in any individual case, that restrictions or forfeiture conditions relating to Restricted Stock will lapse in whole or in part, including in the event of terminations resulting from specified causes.

(iii) Certificates for Stock. Restricted Stock granted under the Plan may be evidenced in such manner as the Committee shall determine. If certificates representing Restricted Stock are registered in the name of the participant, the Committee may require that such certificates bear an appropriate legend referring to the terms, conditions and restrictions applicable to such Restricted Stock, that the Company retain physical possession of the certificates, and that the participant deliver a stock power to the Company, endorsed in blank, relating to the Restricted Stock.

(iv) Dividends and Splits. As a condition to the grant of an Award of Restricted Stock, the Committee may require that any dividends paid on a share of Restricted Stock shall be either ((1) paid with respect to such Restricted Stock at the dividend payment date in cash, in kind, or in a number of shares of unrestricted Common Stock having a Fair Market Value equal to the amount of such dividends, or (2) automatically reinvested in additional Restricted Stock or held in kind, subject to the same terms as applied to the original Restricted Stock to which it relates. Unless otherwise determined by the Committee, Common Stock distributed in connection with a stock split or stock dividend, and other property distributed as a dividend, shall be subject to restrictions and a risk of forfeitur e to the same extent as the Restricted Stock with respect to which such Common Stock or other property has been distributed.

(e) Deferred Stock. The Committee is authorized to grant Deferred Stock to participants, which are rights to receive Common Stock, other Awards, or a combination thereof at the end of a specified deferral period, subject to the following terms and conditions:

(i) Award and Restrictions. Issuance of Common Stock will occur upon expiration of the deferral period specified for an Award of Deferred Stock by the Committee. In addition, Deferred Stock shall be subject to such restrictions on transferability, risk of forfeiture and other restrictions, if any, as the Committee may impose, which restrictions may lapse at the expiration of the deferral period or at earlier specified times (including based on achievement of performance goals and/or future service requirements), separately or in combination, in installments or otherwise, and under such other circumstances as the Committee may determine at the date of grant or thereafter. Deferred Stock may be satisfied by delivery of Common Stock, other Awards, or a combination thereof, as determined b y the Committee at the date of grant or thereafter.

(ii) Forfeiture. Except as otherwise determined by the Committee, upon termination of employment or service during the applicable deferral period or portion thereof to which forfeiture conditions apply (as provided in the Award agreement evidencing the Deferred Stock), all Deferred Stock that is at that time subject to such forfeiture conditions shall be forfeited; provided that the Committee may provide, by rule or regulation or in any Award agreement, or may determine in any individual case, that restrictions or forfeiture conditions relating to Deferred Stock will lapse in whole or in part, including in the event of terminations resulting from specified causes.

(iii) Dividend Equivalents. Unless otherwise determined by the Committee, dividend equivalents on the specified number of shares of Common Stock covered by an Award of Deferred Stock shall be either (1) paid with respect to such Deferred Stock at the dividend payment date in cash or in shares of unrestricted Common Stock having a Fair Market Value equal to the amount of such dividends, or (2) deferred with respect to such Deferred Stock, with the amount or value thereof automatically deemed reinvested in additional Deferred Stock.

(f) Other Stock-Based Awards. The Committee is authorized, subject to limitations under applicable law, to grant to participants such other Awards that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, Common Stock or factors that may influence the value of Common Stock, including, without limitation, stock bonuses, dividend equivalents, convertible or exchangeable debt securities, other rights convertible or exchangeable into Common Stock, purchase rights for Common Stock, Awards with value and payment contingent upon performance of the Company or business units thereof or any other factors designated by the Committee, and Awards valued by reference to the book value of Common Stock or the value of securities of or the performance of specified subsidiaries or affiliates or other business units and awards designed to comply with or take advantage of other applicable local laws or jurisdictions other than the United States. The Committee shall determine the terms and conditions of such Awards.

(g) Performance Awards. The Committee is authorized to grant Performance Awards to eligible persons on the following terms and conditions:

(i) Generally. The Committee may specify that any Award granted under the Plan shall constitute a Performance Award by conditioning the grant, exercise, vesting or settlement, and the timing thereof, upon achievement or satisfaction of such performance conditions as may be specified by the Committee. The Committee may use such business criteria and other measures of performance as it may deem appropriate in establishing any performance conditions, and may exercise its discretion to reduce or increase the amounts payable under any award subject to performance conditions, except as limited under this Section 6(g) in the case of a Performance Award intended to qualify as ‘‘performance-based compensation’’ under Section 162(m) of the Code.

(ii) Awards exempt under Section 162(m) of the Code. If the Committee determines that an Award should qualify as ‘‘performance-based compensation’’ for purposes of Section 162(m) of the Code (other than Options or SARs which otherwise qualify as ‘‘performance-based compensation’’ for purposes of Section 162(m) of the Code), the grant,

exercise, vesting and/or settlement of such Performance Award shall be contingent upon achievement of one or more pre-established, objective performance goals. The performance goal or goals for such Performance Awards shall consist of one or more business criteria and a targeted level or levels of performance with respect to each of such criteria, as specified by the Committee consistent with this subsection (ii). One or more of the following business criteria for the Company, on a consolidated basis, and/or, where appropriate, for specified subsidiaries, affiliates or other business units or products of the Company, shall be used by the Committee in establishing performance goals for such Performance Awards: (1) the commencement, completion or progress of preclinical or clinical trials of proposed products; (2) regulatory filings with respect to the Company’s proposed products; (3) regulatory approvals (including approvals of products and approvals of protocols for trials of proposed products); (4) pa tent applications or issuances; (5) achievement of other product development milestones; (6) manufacturing or process development; (7) information technology; (8) corporate development (including licenses or establishment of third party collaborations or joint ventures); (9) mergers, acquisitions or dispositions (including acquisitions of an licenses of new products and technologies or intellectual property); (10) basic or diluted earnings per share; (11) sales or revenues; (12) earnings before interest and taxes (in total or on a per share basis); (13) net income; (14) returns on equity, assets, capital, revenue or similar measure; (15) economic value added; (16) working capital; and/or (17) total stockholder return. The targeted level or levels of performance with respect to such business criteria may be established at such levels and in such terms as the Committee may determine, in its discretion, including in absolute terms, as a goal relati ve to performance in prior periods, or as a goal compared to the performance of one or more comparable companies or an index covering multiple companies. All determination by the Committee as to the establishment of performance goals, the amount potentially payable in respect of Performance Awards, the level of actual achievement of the specified performance goals relating to Performance Awards and the amount of any final Performance Award shall be recorded in writing. Specifically, the Committee shall certify in writing, in a manner conforming to applicable regulations under Section 162(m) of the Code, prior to settlement of each such award, that the performance objective relating to the Performance Award and other material terms of the Award upon which settlement of the award was conditioned have been satisfied.

7. Limits on Transferability; Beneficiaries. No Award or other right or interest of a participant under the Plan shall be pledged, hypothecated or otherwise encumbered or subject to any lien, obligation or liability of such participant to any party (other than the Company or an affiliate thereof), or assigned or transferred by such participant otherwise than by will or the laws of descent and distribution or to a beneficiary upon the death of a participant, and such Awards or rights that may be exercisable shall be exercised during the lifetime of the participant only by the participant or his or her guardian or legal representative, except that Awards (other than Options intended to qualify as ‘‘incentive stock options’’ (as defined in Section 422 of the Code)) and other rights may be transferred to one or more transferees during the lifetime of the participant, and may be exercised by such transferees in accordance with the terms of such Award, but only if and to the extent such transfers are permitted by the Committee, subject to any terms and conditions which the Committee may impose thereon. A beneficiary, transferee, or other person claiming any rights under the Plan from or through any participant shall be subject to all terms and conditions of the Plan and any Award agreement applicable to such participant, except as otherwise determined by the Committee, and to any additional terms and conditions deemed necessary or appropriate by the Committee. For purposes hereof, ‘‘beneficiary’’ shall mean the legal representatives of the participant’s estate entitled by will or the laws of descent and distribution to receive the benefits under a participant’s Award upon a participant’s death, provided that, if and to the extent authorized by the Committee, a participant may be permitted to designate a beneficiary, in which case the ‘‘beneficiary’’ instead will be the person, persons, trust or trusts (if any are then surviving) which have been designated by the participant in his or her most recent written beneficiary designation filed with the Committee to receive the benefits specified under the participant’s Award upon such participant’s death.

8. Effect of Non-Compliance or Detrimental Activities. Unless an Award agreement specifies otherwise, the Committee may cancel, rescind, suspend, withhold or otherwise limit or restrict any Award at any time if (a) the participant is not in compliance with all material provisions of the Award agreement and the Plan, or (b) the participant engages in any Detrimental Activities. If so requested by the Company, a participant shall certify in a manner acceptable to the Company that he or she is in compliance with the terms and conditions of the Plan and has not engaged in any Detrimental Activities.

9. Capital Changes, Reorganization, Sale.

(a) Adjustments upon Changes in Capitalization. The aggregate number and class of Authorized Shares, the aggregate number and class of shares issuable pursuant to ‘‘incentive stock options’’ (as defined in Section 422 of the Code), the aggregate number and class of shares referenced by the Annual Share Limit, the number and class of shares and the exercise price per share of, each outstanding Option, the number and class of shares covered by, and the base price per share covered by each outstanding SAR, the number and class of shares covered by each outstanding Award of Deferred Stock or Other Stock-Based Award or Performance Award, any per-share base or purchase price or target market price included in the terms of any such award, and related terms shall all be adjusted proportionately or as otherwise deemed appropriate by the Board in its sole discretion to reflect any increase or decrease in the number of issued shares of Common Stock resulting from a split-up or consolidation of shares or any like capital adjustment, or the payment of any stock dividend, and/or to reflect a change in the character or class of shares covered by the Plan arising from a readjustment or recapitalization of the Company’s capital stock.

(b) Acceleration of Vesting upon Change in Control. Notwithstanding anything herein to the contrary, in the event of a Change in Control of the Company, the Board, acting in its sole discretion, may accelerate the vesting of any or all outstanding Awards under the Plan.

(c) Conversion of Options and SARs upon Stock for Stock Exchange. If the stockholders of the Company receive capital stock of another corporation (‘‘Exchange Stock’’) in exchange for their shares of Common Stock in any transaction involving a merger (other than a merger of the Company in which the holders of the Company’s voting securities immediately prior to the merger have the same proportionate ownership of the voting securities in the surviving corporation immediately after the merger), consolidation, acquisition of property or stock, separation or reorganization (other than a mere reincorporation or the creation of a holding company), all Options and SARs granted hereunder shall be converted into option to purchase or SARs relating to shares of Excha nge Stock unless the Board, in its sole discretion, determines that any or all such Options or SARs granted hereunder shall not be so converted but instead shall terminate, in which case the Company shall (i) notify the option and SAR holders in writing or electronically, at least fifteen (15) days prior to the consummation of the transaction, that the Options or SARs shall become fully exercisable whether or not the vesting conditions, if any, set forth in the related Award agreements have been satisfied for the period specified in the notice (but in any case not less than fifteen (15) days from the date of such notice), or (ii) provide for payment to each option or SAR holder of an amount in cash, Common Stock or other property equal to the difference between the Fair Market Value of the shares of Common Stock covered by his or her outstanding Options or SARs, whether or not the vesting conditions, if any, set forth in the related Award agreements have been satisfied, reduced by the aggregate exercise or b ase price thereof. The amount and price of converted options and SARs shall be determined by adjusting the amount and price of the Options and SARs granted hereunder in the same proportion as used for determining the number of shares of Exchange Stock the holders of the Common Stock receive in such merger, consolidation, acquisition of property or stock, separation or reorganization. To the extent provided in subsection (b) above, the converted Options and SARs shall be fully vested whether or not the vesting requirements set forth in the Award agreement have been satisfied.

(d) Fractional Shares. In the event of any adjustment in the number of shares covered by any Award pursuant to the provisions hereof, any fractional shares resulting from such adjustment will be disregarded and each such Award will cover only the number of full shares resulting from the adjustment.

(e) Determination of Board to be Final. All adjustments under this Section 9 shall be made by the Board, and its determination as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive.

10. Tax Withholding. As a condition to the exercise of any Award, the delivery of any shares of Common Stock pursuant to any Award, the lapse of restrictions on any Award or the settlement of any Award, or in connection with any other event that gives rise to a federal or other governmental tax withholding obligation on the part of the Company or an affiliate relating to an Award, the Company and/or the affiliate may (a) deduct or withhold (or cause to be deducted or withheld) from any payment or distribution to an Award recipient whether or not pursuant to the Plan or (b) require the recipient to remit cash (through payroll deduction or otherwise), in each case in an amount sufficient in the opinion of the Company to satisfy such withholding obligation. If the event giving rise to the withholding obligation involves a transfer of shares of Common Stock, then, at the sole discretion of the Committee, the recipient may satisfy the withholding obligation described under this Section 10 by electing to have the Company withhold shares of Common Stock or by tendering previously-owned shares of Common Stock, in each case having a Fair Market Value equal to the amount of tax to be withheld (or by any other mechanism as may be required or appropriate to conform with local tax and other rules). Other provisions of the Plan notwithstanding, only the minimum amount of Common Stock deliverable in connection with an Award necessary to satisfy statutory withholding requirements will be withheld, except a greater amount of Common Stock may be withheld if such withholding would not result in additional accounting expense to the Company.

11. Amendment and Termination. Except as may otherwise be required by law or the requirements of any stock exchange or market upon which the Common Stock may then be listed, the Board, acting in its sole discretion and without further action on the part of the stockholders of the Company, may amend the Plan at any time and from time to time and may terminate the Plan at any time. No amendment or termination may affect adversely any outstanding award without the written consent of the award recipient.

12. General Provisions.

(a) Compliance with Law. The Company will not be obligated to issue or deliver shares of Common Stock pursuant to the Plan unless the issuance and delivery of such shares complies with applicable law, including, without limitation, the Securities Act, the Exchange Act and the requirements of any stock exchange or market upon which the Common Stock may then be listed, and shall be further subject to the approval of counsel to the Company with respect to such compliance.

(b) Transfer Orders; Placement of Legends. All certificates for shares of Common Stock delivered under the Plan shall be subject to such stock-transfer orders and other restrictions as the Company may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange or market upon which the Common Stock may then be listed, and any applicable federal or state securities law. The Company may cause a legend or legends to be placed on any such certificates to make appropriate reference to such restrictions.

(c) No Employment or other Rights. Nothing contained in the Plan or in any Award agreement shall confer upon any recipient of an Award any right with respect to the continuation of his or her employment or service with the Company or an affiliate or interfere in any way with the right of the Company and its affiliates at any time to terminate such employment or service or to increase or decrease, or otherwise adjust, the other terms and conditions of the recipient’s employment or service.

(d) Decisions and Determinations Final. Except to the extent rights or powers under the Plan are reserved specifically to the discretion of the Board, the Committee shall have full power

and authority to interpret the Plan and any Award agreement made under the Plan and to determine all issues which arise thereunder or in connection therewith, and the decision of the Board or the Committee, as the case may be, shall be binding and conclusive on all interested persons.

(e) Nonexclusivity of the Plan. No provision of the Plan, and neither its adoption Plan by the Board or submission to the stockholders for approval, shall be construed as creating any limitations on the power of the Board or a committee thereof to adopt such other incentive arrangements, apart from the Plan, as it may deem desirable.

13. Governing Law. All rights and obligations under the Plan and each Award agreement or instrument shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to its principles of conflict of laws.

14. Term of the Plan. The Plan shall become effective on the Effective Date. Unless sooner terminated by the Board, the Plan shall terminate on the tenth anniversary of the Effective Date. The rights of any person with respect to an Award made under the Plan that is outstanding at the time of the termination of the Plan shall not be affected solely by reason of the termination of the Plan and shall continue in accordance with the terms of the Award and of the Plan, as each is then in effect or is thereafter amended.

Effective Date: October 25, 2005
As Amended by the Board and Approved by the
Stockholders: June 26, 2007
Termination Date: October 25, 2015

EX-31.1 4 file4.htm CERTIFICATION

EXHIBIT 31.1

CERTIFICATION

I, Alan Kessman, Chief Executive Officer of Vion Pharmaceuticals, Inc., certify that:


1.	I have reviewed this quarterly report on Form 10-Q (this ‘‘report’’) of Vion Pharmaceuticals, Inc. (the ‘‘registrant’’);


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


	(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


	(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s first fiscal quarter) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2007

/s/ Alan Kessman
Alan Kessman
Chief Executive Officer

EX-31.2 5 file5.htm CERTIFICATION

EXHIBIT 31.2

CERTIFICATION

I, Howard B. Johnson, Chief Financial Officer of Vion Pharmaceuticals, Inc., certify that:


1.	I have reviewed this quarterly report on Form 10-Q (‘‘this report’’) of Vion Pharmaceuticals, Inc. (the ‘‘registrant’’);


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


	(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


	(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s first fiscal quarter) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2007

/s/ Howard B. Johnson
Howard B. Johnson
Chief Financial Officer

EX-32.1 6 file6.htm CERTIFICATION

EXHIBIT 32.1

WRITTEN STATEMENT OF THE CHIEF EXECUTIVE OFFICER

Pursuant to 18 U.S.C. Section 1350, I, the undersigned Chief Executive Officer of Vion Pharmaceuticals, Inc. (the ‘‘Company’’), hereby certify that the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2007 (the ‘‘Report’’) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 9, 2007

/s/ Alan Kessman
Alan Kessman
Chief Executive Officer

EX-32.2 7 file7.htm CERTIFICATION

EXHIBIT 32.2

WRITTEN STATEMENT OF THE CHIEF FINANCIAL OFFICER

Pursuant to 18 U.S.C. Section 1350, I, the undersigned Chief Financial Officer of Vion Pharmaceuticals, Inc. (the ‘‘Company’’), hereby certify that the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2007 (the ‘‘Report’’) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 9, 2007

/s/ Howard B. Johnson
Howard B. Johnson
Chief Financial Officer

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Date: August 9, 2007

VION PHARMACEUTICALS, INC.

/s/ Howard B. Johnson

Howard B. Johnson
President and Chief Financial Officer