September 29, 2006
[LOWENSTEIN SANDLER LETTERHEAD]
ALAN WOVSANIKER Tel 973 597 2564 Fax 973 597
2565
awovsaniker@lowenstein.com
Member of the Firm
September 29, 2006
VIA EDGAR AND FEDEX
Securities and Exchange Commission
Division of Corporation Finance
Mail Stop 7010
Washington, DC 20549-7010
Re: NeoStem, Inc.
Registration Statement on Form S-1
File No. 333-137045
Ladies and Gentlemen:
On behalf of NeoStem, Inc. (the "Company"), we are hereby responding to the
comment contained in the letter, dated September 12, 2006 (the "Comment
Letter"), from Jeffrey Riedler, Assistant Director, of the staff (the "Staff")
of the Securities and Exchange Commission (the "Commission") regarding the
Company's Registration Statement on Form S-1 (Registration No. 333-137045) (the
"Registration Statement").
For ease of reference, set forth in bold below is the comment to the
Registration Statement, as reflected in the Comment Letter. The Company's
response is set forth below the comment.
The Company has authorized this firm to respond to the Comment Letter as
follows:
Given the nature and size of the transaction being registered, advise
the staff of the company's basis for determining that the transaction
is appropriately characterized as a transaction that is eligible to be
made on a shelf basis under Rule 415(a)(1)(i).
Response: The Company believes that the proposed offering pursuant to
the Registration Statement is a valid secondary offering under Rule
415(a)(1)(i) that may be made on a continuous or delayed basis for the
following reasons:
(i) The 19,805,698 shares of common stock being registered are
either currently outstanding (13,271,776 shares) or are
issuable to the selling securityholders upon the conversion of
outstanding convertible promissory notes (625,004 shares) or
upon the exercise of outstanding warrants (5,908,918 shares).
September 29, 2006
Securities and Exchange Commission
Division of Corporation Finance
Page 2
(ii) Pursuant to Rule 415(a)(1)(i), the securities which are
to be offered or sold must be done so solely by or on behalf
of persons other than the registrant, a subsidiary of the
registrant or a person of which the registrant is a
subsidiary. In this case, the Company is not offering for sale
any of the shares to be registered. None of the selling
securityholders is a subsidiary or parent corporation of the
Company. In addition, the Company does not have any
arrangement, either express or implied, with any of the
selling securityholders for the purpose of selling any shares
of common stock.
(iii) None of the selling securityholders should be considered
the Company's alter ego. With the exception of one selling
securityholder, DCI Master LDC, which beneficially owns 14% of
the Company's common stock, none of the other selling
securityholders participating in the offering beneficially
owns, to the Company's knowledge, more than 10% of the
Company's common stock. Indeed, only one of these other
securityholders, Mark Weinreb, the President and a director of
the Company, beneficially owns more than 5% of the Company's
common stock. Consequently, DCI Master LDC is the only selling
securityholder that beneficially owns enough shares of Company
common stock to possibly be considered an affiliate of the
Company. However, even considering DCI Master LDC's 14%
beneficial ownership and its business relationships with the
Company(1), the Company does not believe that DCI Master LDC
is an affiliate of the Company because neither DCI Master LDC
nor any of its affiliates is an officer of or has any board or
other control positions or relationships with the Company.(2)
Moreover, DCI Master LDC and its affiliate, Duncan Capital
Group LLC, are registering in the aggregate only, 2,813,865
shares of common stock, which is 14% the total number of
shares being registered and represents an amount equal to only
15% of the Company's outstanding shares of common stock.
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(1) The Company has retained Duncan Capital Group LLC, an affiliate of DCI
Master LDC, to act as the Company's financial consultant in connection with
equity or debt financings, mergers or acquisitions, and with respect to the
Company's other financial matters. Pursuant to the one-year advisory agreement,
dated May 5, 2006, between the Company and Duncan Capital Group, the Company
pays Duncan Capital Group a monthly retainer of $7,500, up to 50% of which the
Company, at its option, may pay in shares of Company common stock. As
consideration for DCI Master LDC being the lead investor in the Company's June
2006 private placement of common stock and warrants, the Company paid Duncan
Capital Group under the advisory agreement $200,000 in cash plus 2.4 million
shares of Company common stock. In addition, Duncan Capital Group also would be
entitled under the advisory agreement to a commercially reasonable fee to be
negotiated by the Company and Duncan Capital Group for a merger or acquisition
in which the Company acts as either the buyer or the seller. In addition, the
Company subleases its executive offices from DC Associates LLC, another
affiliate of DCI Master LDC, on month-to-month basis for a monthly rent of
$7,500.
September 29, 2006
Securities and Exchange Commission
Division of Corporation Finance
Page 3
None of the Company's executive officers and directors, all of
whom are participating as selling securityholders in the
proposed offering, is the Company's alter ego. Other than Mark
Weinreb, none of the Company's executive officers and
directors beneficially owns more than 5% of the Company's
common stock. Although the Company's executive officers and
directors beneficially own in the aggregate 19% of the
Company's common stock, they are not acting in concert with
one another or with any of the other selling securityholders
or any other securityholder of the Company for purposes of
selling the shares that are being registered. None of the
executive officers and directors is a member of a group, as
described in Section 13(d)(3) of the Securities Exchange Act
of 1934, for purposes of acquiring, holding or disposing of
Company securities or is a party to any voting trust or voting
agreement with respect to the common stock. Moreover, the
Company's two largest securityholders, DCI Master LDC and
Robert Aholt, Jr.,(3) who are not affiliated with or
represented by the Company's executive officers and directors,
beneficially own in the aggregate 21% of the Company's common
stock, with the remaining stock ownership being widely
dispersed among the Company's numerous other securityholders.
Consequently, the Company's executive officers and directors,
assuming arguendo that they acted in concert, would not
control the voting of the Company's common stock on matters
submitted to the Company's stockholders for approval.
Moreover, the executive officers and directors are registering
in the aggregate only 1,741,815 shares of common stock, which
is less than 10% of the total number of shares being
registered and represents an amount equal to 9% of the
Company's outstanding shares of common stock. As a result,
none of the executive officers and directors should be
considered to be the Company's alter ego.
(iv) The proposed offering is a valid secondary offering even
if one or more affiliates of the Company may be participating.
As the Staff has made clear, the inclusion of an affiliate as
a selling securityholder does not prevent a registered resale
offering from being considered a valid secondary offering
under Rule 415(a)(1)(i). In this regard, telephone
interpretation number 38 of the section marked Securities Act
Rule 415 (July 1997) of the Commission's Manual of Publicly
Available Telephone Interpretations (the "Manual") states,
"Aside from parents and subsidiaries, affiliates of issuers
are not necessarily treated as being the alter egos of the
issuers. Under appropriate circumstances, affiliates may make
offerings which are deemed to be genuine secondaries."
Telephone interpretation number 44 of the section marked
Securities Act Rule 415 (July 1997) of the Manual provides
that a secondary offering by a 73% owner of an issuer that is
not deemed to be by or on behalf of the issuer is not
restricted by Rule 415(a)(4) and may be made on an
"at-the-market" basis. Moreover, telephone interpretation
number 20 of the section marked Securities Act Form S-3 (July
1997) of the Manual provides:
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(2) Although DC Associates has the right to designate an additional member to
the Company's board of directors pursuant to the securities purchase agreement,
dated as of June 1, 2006, among the Company and the investors party thereto, DC
Associates has not exercised this right.
(3) Mr. Aholt resigned as the Company's chief operating officer effective
February 19, 2006, and has no continuing relationship with the Company other
than as a stockholder and except that Mr. Aholt is entitled to receive severance
payments from the Company.
September 29, 2006
Securities and Exchange Commission
Division of Corporation Finance
Page 4
"[T]he Division staff had indicated, however, that
secondary sales by affiliates may be made under
General Instruction I.B.3. to Form S-3 relating to
secondary offerings, even in cases where the
affiliate owns more than 50% of the issuer's
securities, unless the facts clearly indicate that
the affiliate is acting as an underwriter on behalf
of the issuer."
As a result, even if one or more of DCI Master LDC or the
Company's executive officers and directors were assumed to
control the Company, such affiliate status would not prevent
the proposed offering from being considered a valid secondary.
This position is supported by the fact that, as described
above, none of DCI Master LDC or the Company's executive
officers and directors is seeking to register a number of
shares equal to more than 15% of the Company's outstanding
shares of common stock or is acting in concert with any other
such selling securityholder for purposes of selling the shares
of common stock that are being registered.
(v) None of the selling securityholders is acting as a conduit
for the Company with respect to the sale of the shares of
common stock being registered. In this regard:
o Each of the selling securityholders has already
purchased and fully paid for or otherwise given
valuable consideration for the shares of common stock
that the selling securityholder is proposing to sell or
the securities, the underlying shares of common stock
of which are being registered.
o The Company will not receive any of the proceeds from
the sale of the shares of common stock being registered
on behalf of the selling securityholders.
o None of the selling securityholders has, to the
Company's knowledge, any agreement or understanding as
to the price, quantity or timing of the sale of the
shares.
September 29, 2006
Securities and Exchange Commission
Division of Corporation Finance
Page 5
o None of the selling securityholders has, to the
Company's knowledge, any obligation to sell the shares.
o The Company's current and future officers and directors
agreed in connection with the Company's June 2006
private placement of common stock and warrants, for
which DCI Master LDC was the lead investor, not to
dispose of any shares of Company capital stock, or any
securities convertible into, or exchangeable for or
containing rights to purchase, shares of Company
capital stock until three months after the effective
date of the Registration Statement, except with DCI
Master LDC's prior written consent.
o Each of the selling securityholders has represented to
the Company (or is required to represent to the Company
on the exercise of warrants or other conversion rights)
that it acquired the relevant Company warrants,
convertible promissory notes and shares of common stock
for its own account and not for the purpose of
effecting a distribution of those securities or the
underlying shares of common stock.
(vi) To the Company's knowledge, none of the selling
securityholders, other than Westpark Capital, Inc., is a
registered broker-dealer or in the business of underwriting
securities offerings.(4) Although Westpark Capital is a
broker-dealer, it acquired from the Company all of the 77,500
shares that it is offering for sale pursuant to the
Registration Statement as compensation for its having acted as
the placement agent for the Company's private placement of
convertible promissory notes and warrants from December 2005
to January 2006. Given the limited number of shares that
Westpark Capital is offering for sale compared to the total
number of shares being offered for sale, as well as compared
to the number of shares of Company common stock outstanding,
Westpark Capital's inclusion in the offering as a selling
securityholder should not affect the validity of the offering
as a secondary offering. The Company will revise the "Selling
Securityholders" section of the prospectus included in the
Registration Statement to disclose Westpark Capital's status
as a broker-dealer.
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(4) Michelle Cona, Mark Lev, Anthony Pintsopoulus and Neal Scott, who are
selling securityholders, have each informed the Company that they are affiliates
of Westpark Capital. In addition, each of Christopher P. Baker, Paul
Fruchthandler and John Yerkes, who are also selling securityholders, has
informed the Company that he is an affiliate of a broker-dealer. Each of these
broker-dealer affiliates has represented to the Company that (i) it acquired
either the shares of common stock that the broker-dealer affiliate is offering
for sale, or the securities pursuant to which such shares are to be issued, in
the ordinary course of business and (ii) at the time of acquisition, the
broker-dealer affiliate did not have any arrangement or understandings with any
person to distribute the securities. Given these representations and the limited
number of shares (623,056 shares in the aggregate) that these broker-dealer
affiliates are offering for sale pursuant to the Registration Statement compared
to the total number of shares being offered for sale, as well as compared to the
total number of shares of Company common stock outstanding, their inclusion in
the offering as selling securityholders should not affect the validity of the
offering as a secondary offering. The Company will revise the "Selling
Securityholders" section of the prospectus included in the Registration
Statement to disclose each such individual's status as an affiliate of a
broker-dealer.
September 29, 2006
Securities and Exchange Commission
Division of Corporation Finance
Page 6
(vii) Moreover, unlike a traditional underwriting arrangement
where the underwriter agrees to purchase the securities only
after the registration statement relating to the sale of the
securities has been declared effective, each of the selling
securityholders purchased the securities from the Company in
advance of the filing of the Registration Statement. The
shares being registered were issued in a number of different
transactions that occurred over a period of more than a year
and a half, with over half of the securities being registered
having been issued in transactions occurring prior to June 30,
2006. Thus each of the selling shareholders has been subject
to market risk, as well as the risk that the Registration
Statement would not be declared effective promptly, for a
significant period of time. These facts support the conclusion
that the proposed offering is a secondary offering.
Based on the foregoing analysis, the Company believes that the proposed offering
pursuant to the Registration Statement is a valid secondary offering and may be
made on a continuous or delayed basis pursuant to Rule 415.
Any questions regarding the contents of this letter or the Registration
Statement should be addressed to the undersigned at (973) 597-2564.
Very truly yours,
/s/ Alan Wovsaniker
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Alan Wovsaniker
September 29, 2006
Securities and Exchange Commission
Division of Corporation Finance
Page 7
PWH:cba
F2827/1
09/28/06 2015194.03
Attachment
cc: Catherine M. Vaczy, Esq.