UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. _)
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NeoStem, Inc.
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2
NEOSTEM, INC.
420 LEXINGTON AVENUE, SUITE 450
NEW YORK, NEW YORK 10170
NOTICE OF 2007 ANNUAL MEETING OF STOCKHOLDERS
June 14, 2007
To the Stockholders of NeoStem, Inc.
The Annual Meeting of Stockholders of NeoStem, Inc., (the "Company")
will be held at the Company's offices at 420 Lexington Avenue, Suite 450, New
York, New York 10170, on June 14, 2007, at 4:30 p.m. (Eastern Daylight time) for
the purpose of considering and acting upon the following matters:
1. Election of five directors;
2. Consideration of and vote to approve an amendment to the Company's Amended
and Restated Certificate of Incorporation, to effect a reverse stock split
of the Company's Common Stock at a ratio within the range of 3:1 to 7:1 in
the event it is deemed by the Board of Directors necessary to be accepted
onto a Securities Exchange;
3. Ratification of the appointment of Holtz Rubenstein Reminick LLP as the
Company's independent registered public accounting firm for the fiscal year
ending December 31, 2007; and
4. Any other matters properly brought before the stockholders at the meeting.
The Board of Directors has fixed the close of business on April 16,
2007 as the record date for the determination of stockholders entitled to notice
of, and to vote at, the meeting or any adjournment or adjournments thereof.
Your proxy vote is important. Whether or not you expect to attend the
meeting in person, you are urged to mark, sign, date and return the enclosed
proxy in the enclosed prepaid envelope.
Your attention is directed to the Proxy Statement which is set forth on
the following pages.
By Order of the Board of Directors,
Catherine M. Vaczy
May , 2007 Secretary
3
NEOSTEM, INC.
420 Lexington Avenue, Suite 450
New York, New York 10170
PROXY STATEMENT
---------------
ANNUAL MEETING OF STOCKHOLDERS
June 14, 2007
SOLICITATION OF PROXY
The enclosed proxy is being mailed and solicited on or about the
_____________ day of May 2007, by and on behalf of the Board of Directors of
NeoStem, Inc. (the "Company"), for use in connection with the Annual Meeting of
Stockholders to be held at 4:30 p.m. (Eastern Daylight time) on June 14, 2007 at
the principal executive offices of the Company located at 420 Lexington Avenue,
Suite 450, New York, New York 10170 and at any adjournments thereof. The matters
to be considered and acted upon at such meeting are referred to in the preceding
Notice and are more fully discussed below. All shares represented by proxies
which are returned properly signed will be voted as specified on the proxy card.
If choices are not specified on the proxy card, the shares will be voted IN
FAVOR OF the Board's nominees for director named herein, adoption of the
amendment to the Amended and Restated Certificate of Incorporation to effect the
reverse stock split at a ratio within the range of 3:1 to 7:1 in the event it
is deemed by the Board of Directors necessary to be accepted onto a Securities
Exchange, and the ratification of the appointment of the Company's auditors to
audit the Company's financial statements for the 2007 fiscal year. The By-Laws
of the Company require that the holders of a majority of the total number of
shares entitled to vote at the meeting be represented in person or by proxy in
order for the business of the meeting to be transacted with respect to such
matters.
This solicitation is being made by the Company. The cost of this
solicitation will be paid by the Company. In addition to soliciting proxies by
mail, the Company may make requests for proxies by telephone or messenger, or by
personal solicitation by officers, directors or employees of the Company at
nominal cost to the Company or by any one or more of the foregoing means. The
Company will reimburse brokers, dealers, banks and others authorized by the
Company for their reasonable expenses in forwarding proxy solicitation material
to the beneficial owner of shares.
REVOCATION OF PROXY
A proxy may be revoked by a stockholder by giving written notice of
revocation to the Secretary of the Company, by filing a later dated proxy with
the Secretary at any time prior to its exercise, or by voting in person at the
meeting. The presence at the meeting of a stockholder who has given a proxy does
not revoke the proxy unless the stockholder files a notice of revocation or
votes by written ballot.
4
STOCK OUTSTANDING
On April 16, 2007, there were outstanding and entitled to vote at the
Annual Meeting 26,388,098 shares of common stock, par value, $.001 per share
(the "Common Stock"). Holders of record of Common Stock at the close of business
on April 16, 2007, will be entitled to one vote for each share held on all
matters properly coming before the meeting. Holders of shares of the Company's
Series B Convertible Redeemable Preferred Stock (the "Series B Preferred
Stock"), are not entitled to vote on any of the matters described in this Proxy
Statement.
There is no right to cumulate votes in the election of directors.
Holders of the Common Stock will not have any dissenters' rights of appraisal in
connection with any of the matters to be voted on at the Meeting.
The presence in person or by proxy of the holders of shares of Common
Stock entitled to cast a majority of the votes of all shares entitled to vote
will constitute a quorum for purposes of conducting business at the Meeting.
Assuming that a quorum is present, directors will be elected by a plurality
vote. The ratification of Proposal 2 will require the affirmative vote of a
majority of the shares outstanding. The ratification of Proposal 3 will require
the affirmative vote of a majority of the votes cast. Pursuant to Delaware
corporate law, abstentions and broker non-votes will be counted for the purpose
of determining whether a quorum is present and do not have an effect on the
election of directors. Abstentions, but not broker non-votes, are treated as
shares present and entitled to vote, and will be counted as a "no" vote. Broker
non-votes are treated as not entitled to vote, and so reduce the absolute
number, but not the percentage of votes needed for approval of Proposal 3. Since
Proposal 2 requires approval by an absolute majority of shares outstanding,
broker non-votes will be counted as a "no" vote.
PROPOSAL ONE
ELECTION OF DIRECTORS
The size of the Board of Directors has been fixed at five members. Five
individuals have been nominated by the Board for election as directors at the
forthcoming Annual Meeting, to hold office until the next annual meeting and
until their successors are elected and have qualified. Shares represented by
proxies which are returned properly signed will be voted for the nominees unless
the stockholder indicates on the proxy that authority to vote the shares is
withheld for one or more or for all of the nominees listed. Should a nominee
become unable to serve as a director (which is not anticipated), the proxy will
be voted for the election of a substitute nominee who shall be designated by the
Board.
Information with respect to each nominee and executive officer of the
Company, including the principal occupation of each for the past five years,
positions and offices held with the Company, membership on other boards of
directors and age is set forth below. There are no family relationships among
any of the Company's directors and officers. For information with respect to
beneficial ownership of the Company's Common Stock, see "Security Ownership of
Certain Beneficial Owners and Management."
5
Name Age Position Position held since
- ---- --- -------- -------------------
Robin L. Smith, M.D. 42 Chief Executive Officer and Chairman 2006
of the Board
Mark Weinreb 54 President and Director 2003
Joseph Zuckerman, M.D. 55 Director 2004
Richard Berman 64 Director 2006
Steven S. Myers 60 Director 2006
Catherine M. Vaczy 45 Vice President and General Counsel 2005
Larry A. May 57 Chief Financial Officer 2006
Nominees for Election as Directors
Robin L. Smith, M.D.
Chief Executive Officer and Chairman of the Board
Dr. Robin L. Smith joined the Company as Chairman of its Advisory Board in
September 2005 and, effective June 2, 2006, is the Chief Executive Officer and
Chairman of the Board. Dr. Smith, who received a medical degree from Yale
University in 1992 and a master's degree in business administration from the
Wharton School in 1997, brings to the Company extensive experience in medical
enterprises and business development. From 2000 to 2003, Dr. Smith served as
President and Chief Executive Officer of IP2M. During her term, the company was
selected as being one of the 10 fastest growing technology companies in Houston.
IP2M was sold to a publicly traded company in February of 2003. Previously, from
1998 to 2000, she was Executive Vice President and Chief Medical Officer for
HealthHelp, Inc., a National Radiology Management company that managed 14
percent of the healthcare dollars spent by large insurance companies.
Dr. Smith has acted as a senior advisor and investor to both publicly traded and
privately held companies including but not limited to China Biopharmaceutical
Holdings, Phase III Medical (our Company's predecessor), the Madelin Fund, HC
Innovations Inc, Navstar Media Holdings, Strike Force and Health Quest, where
she has played a significant role in restructuring and or growing the companies.
Additionally, she assists multiple investment banks including Capital Growth
Financial, Duncan Capital and Wellfleet Partners where she evaluated companies
in healthcare, media and emerging technologies. Dr. Smith also serves on the
Board of Directors of two privately held companies, Talon Air and Biomega, as
well as on the Board of Trustees of the NYU School of Medicine Foundation
(becoming the NYU Medical Center Board) and Co-Chairman of the Board of
Directors for the New York University Hospital for Joint Diseases where she is
heads up new development efforts and board member recruitment. She was also
recently appointed to the Chemotherapy Foundation Board of Trustees, The New
York Theatre Ballet and Choose Living.
6
Mark Weinreb
President and Director
Mr. Weinreb joined the Company on February 6, 2003 as a Director, Chief
Executive Officer and President and effective June 2, 2006, continues as a
Director and President. In 1976, Mr. Weinreb joined Bio Health Laboratories,
Inc., a state-of-the-art medical diagnostic laboratory providing clinical
testing services for physicians, hospitals, and other medical laboratories. He
progressed to become the laboratory administrator in 1978 and then an owner and
the laboratory's Chief Operating Officer in 1982. Here he oversaw all technical
and business facets, including finance, laboratory science technology and all
the additional support departments. He left Bio Health Labs in 1989 when he sold
the business to a biotechnology company listed on the New York Stock Exchange.
In 1992, Mr. Weinreb founded Big City Bagels, Inc., a national chain of
franchised upscale bagel bakeries and became Chairman and Chief Executive
Officer of such entity. The company went public in 1995 and in 1999 he
redirected the company and completed a merger with an Internet service provider.
In 2000, Mr. Weinreb became the Chief Executive Officer of Jestertek, Inc., a
12-year old software development company pioneering gesture recognition and
control using advanced inter-active proprietary video technology. In 2002, he
left Jestertek after arranging additional financing. Mr. Weinreb received a
Bachelor of Arts degree in 1975 from Northwestern University and a Master of
Science degree in 1982 in Medical Biology, from C.W. Post, Long Island
University.
Joseph Zuckerman, M.D.
Director
Joseph D. Zuckerman joined the Board of Directors of the Company in January 2004
and serves on the Compensation Committee and the Audit Committee. Since 1997,
Dr. Zuckerman has been Chairman of the NYU-Hospital for Joint Diseases
Department of Orthopaedic Surgery and the Walter A. L. Thompson Professor of
Orthopaedic Surgery at the New York University School of Medicine. He is
responsible for one of the largest departments of orthopaedic surgery in the
country, providing orthopaedic care at five different hospitals including Tisch
Hospital, the Hospital for Joint Diseases, Bellevue Hospital Center, the
Manhattan Veteran's Administration Medical Center and Jamaica Hospital. He is
also the Director of the Orthopaedic Surgery Residency Program, which trains
more than 60 residents in a five year program.
7
Dr. Zuckerman was recently elected Second Vice President of the Board of
Directors of the American Academy of Orthopaedic Surgeons. He has also held
other leadership positions in national organizations and was President of the
American Shoulder and Elbow Surgeons and Chair of the Council on Education for
the American Academy of Orthopaedic Surgeons. He recently developed and
successfully implemented a sponsorship program between the hospital and the New
York Mets. His clinical practice is focused on shoulder surgery and hip and knee
replacement and he is the author or editor of ten textbooks, 60 chapters and
more than 200 articles in the orthopaedic and scientific literature.
Richard Berman
Director
Richard Berman joined the Board of Directors of the Company in November 2006 and
serves as Chairman of the Compensation Committee and Chairman of the Audit
Committee. Mr. Berman's career spans over 35 years of venture capital,
management and merger & acquisitions experience. In the last five years, he has
served as a professional director and/or officer of about a dozen public and
private companies. He is currently CEO of Nexmed, a small public biotech
company, Chairman of National Investment Managers, a public company in pension
administration and investment management, Chairman of Candidate Resources, a
private company delivering HR services over the Web., and Chairman of Fortress
Technology Systems (homeland security). In addition, he serves as a director of
seven public companies: Dyadic International, Inc., Broadcaster, Inc., Internet
Commerce Corporation, MediaBay, Inc., NexMed, Inc., National Investment
Managers, and Advaxis, Inc.
Steven S. Myers
Director
Steven S. Myers joined the Board of Directors of the Company in November 2006
and serves on the Compensation Committee and Audit Committee. Mr. Myers is the
founder, and until his retirement in March 2007 was the Chairman and CEO, of
SM&A (Nasdaq:WINS), the world's leading provider of Competition Management
Services. SM&A helps businesses win structured competitive procurements and
design successful transitions from proposals to programs. Since 1982, SM&A has
managed over 1,000 proposals worth more than $340 billion for its clients and
has achieved an 85% win rate on awarded contracts. The company has also
supported more than 140 programs with a better than 93% client-satisfaction
rating. SM&A routinely supports clients such as Boeing, Lockheed Martin,
Accenture, Raytheon, Northrop Grumman, Motorola, and other Fortune 500
companies.
Mr. Myers graduated from Stanford University with a B.S. in Mathematics and had
a successful career in the aerospace and defense sector supporting DoD and NASA
programs before founding SM&A. He has a strong technical background in systems
engineering and program management. Mr. Myers is also founder, President and CEO
of Dolphin Capital Holdings, Inc, which owns, operates and leases business jet
aircraft and does private equity investing in innovative enterprises. A serial
entrepreneur, Mr. Myers has spearheaded a number of business innovations in
aerospace & defense and in business aviation. He is a highly accomplished
aviator.
8
EXECUTIVE OFFICERS
Catherine M. Vaczy
Vice President and General Counsel
Ms. Vaczy joined the Company in April 2005 as Executive Vice President and
General Counsel. Ms. Vaczy is responsible for overseeing the Company's legal
affairs. From 1997 through 2003, Ms. Vaczy held various senior positions at
ImClone Systems Incorporated, a publicly traded company developing a portfolio
of targeted biologic treatments to address the medical needs of patients with a
variety of cancers, most recently as its Vice President, Legal and Associate
General Counsel, While at ImClone, Ms. Vaczy served as a key advisor in the
day-to-day operation of the company and helped forge a number of important
strategic alliances, including a $1 billion co-development agreement for
Erbitux(R), the company's targeted therapy approved for the treatment of
metastatic colorectal and head and neck cancers. From 1988 through 1996, Ms.
Vaczy served as a corporate attorney advising clients in the life science
industry at the New York City law firm of Ross & Hardies. Ms. Vaczy received a
Bachelor of Arts degree in 1983 from Boston College and a Juris Doctor from St.
John's University School of Law in 1988.
Larry A. May
Chief Financial Officer
Mr. May, the former Treasurer of Amgen (one of the world's largest biotechnology
companies), initially joined the Company to assist with licensing activities in
September 2003. He became an officer of the Company upon the Company's
acquisition of the business of NS California. For the last 20 years, Mr. May has
worked in the areas of life science and biotechnology. From 1983 to 1998, Mr.
May worked for Amgen as Corporate Controller (1983 to 1988), Vice
President/Corporate Controller/Chief Accounting Officer (1988 to 1997), and Vice
President/Treasurer (1997 to 1998). At Amgen, Mr. May helped build Amgen's
accounting, finance and IT organizations. From 1998 to 2000, Mr. May served as
the Senior Vice President, Finance & Chief Financial Officer of Biosource
International, Inc., a provider of biologic research reagents and assays. From
2000 to May 2003, Mr. May served as the Chief Financial Officer of Saronyx,
Inc., a company focused on developing productivity tools and secure
communication systems for research scientists. From August 2003 to January 2005,
Mr. May served as the Chief Financial Officer of NS California. In March 2005,
Mr. May was appointed CEO of NS California and in May 2005 he was elected to the
Board of Directors of NS California. He received a Bachelor of Science degree in
Business Administration & Accounting in 1971 from the University of Missouri.
9
OTHER KEY EMPLOYEES
Arlene R. Graime
Director, Government Affairs and Special Projects
Ms. Graime joined the company in March, 2007 as Director, Government Affairs and
Special Projects. In her new position, Ms. Graime will spearhead initiatives
aimed at working with key federal and state agencies, and crucial Congressional
committees in order to raise awareness for the benefits of adult stem cell
therapy as a treatment option. She will be working with these groups, as well
as, other corporations, agencies and organizations to provide resources for
First Responders (fire, police, and military) who are at high risk for exposure
to radiation, burns and other trauma.
Ms. Graime has had an accomplished and multifaceted career in corporate
marketing, development, special event planning and government relations. Ms.
Graime's career began working on Capital Hill at the House of Representatives
for Congressmen Jim Florio and Jack Kemp as a Legislative Assistant. Ms. Graime
then worked for Group W Cable, Inc. in Southern California as an Area Manager
working to secure cable franchises. From 1985-2000, Ms. Graime worked for the
United States Olympic Committee where she served as the Eastern Regional Manager
for the Development Division and later became the National Director of Events.
She also worked on diplomatic efforts to promote goodwill and sportsmanship
through public relations with United States and International Olympic athletes.
She also worked with key staff members of three White House administrations.
From 2000-2006, Ms. Graime worked as the Senior Director of Marketing at Coach,
Inc., where she directed an executive sales team that introduced new marketing
strategies, processes and procedures that successfully achieved financial
objectives.
Ms. Graime has a Bachelor of Science degree in Marketing and Management from the
University of Maryland, College Park.
Julio V. Guerra, MD, ABP
Director of Sales and Marketing
In October of 2006, Dr. Guerra was appointed Director of Sales and Marketing for
NeoStem. As a pioneer in umbilical cord and placental stem cell science since
the mid 1990s, Dr. Guerra brings extensive experience in healthcare marketing.
He will be responsible for developing NeoStem's alliances with hospitals,
physicians and health and wellness clinics nationwide for the establishment of
adult stem cell collection centers.
Previously Dr. Guerra was Senior Vice President of Marketing and New Program
Development at Anthrogenesis Corporation until 2002, when the company, a private
business focused on cord blood banking and placental stem cell therapeutics, was
acquired by Celgene Corporation (Nasdaq:CELG). As an experienced healthcare
marketing consultant for many Fortune 500 companies such as Gerber, Ross
Products and Mead Johnson, he brought his expertise in "online" and "offline"
marketing to Anthrogenesis and developed a robust and successful advertising and
public relations campaign in addition to a state-of-the-art interactive website.
10
Immediately following the acquisition by Celgene, Dr. Guerra co-founded
Bancovida, a company that developed umbilical cord and placental stem cell donor
programs in Puerto Rico. Within four months he had enrolled six major hospitals
and over 120 physicians, making Bancovida the largest umbilical cord and
placental stem cell donor program in the world, collecting over 6,000 units in a
year and a half. As Chief Operating Officer of Bancovida, Dr. Guerra was in
charge of all aspects of this new company including hospital recruitment, human
resources, professional education, transport logistics, medical records and
online database development.
Dr. Guerra is trained in both Internal Medicine and Pediatrics. Immediately
after graduation from residency, he served as Director of Ambulatory Pediatrics
and was asked to be on the board of Atlantic Health Care MSO Project. He is the
medical director of College Plaza Pediatrics and is a diplomate of the American
Board of Pediatrics. He is well known for his "newborn visual stimulation"
designs which he developed in 1994 and has received many awards including "Best
Doctors of America" in 2005. His clinical interests are in high risk pediatrics
and growth and development. Dr. Guerra is presently collaborating with the
Columbia Presbyterian Pediatric Transplant team in hopes of utilizing umbilical
cord stem cells for the treatment and cure of Sickle Cell Anemia for one of his
patients.
He is an associate member of the American Society of Blood and Marrow
Transplant. He has lectured to many medical professional groups both in the
United States and internationally regarding the science of umbilical cord and
placental stem cell technologies.
Denis Rodgerson, Ph.D.
Director of Stem Cell Science
Dr. Rodgerson joined the Company upon the closing of the Company's acquisition
of the business of NeoStem, Inc. (California). Dr. Rodgerson, one of the
original founders of NeoStem (California), has over 36 years experience managing
large tertiary care and reference clinical laboratories with many patents and
articles to his credit. Prior to joining NeoStem, Inc. (California) he
co-founded StemCyte, and oversaw the company to the world's second largest
umbilical cord stem cell bank with multinational collection centers. His
distinguished career has included being the Vice-Chairman and Professor of the
Department of Pathology and Laboratory Medicine at the University of California
Los Angeles ("UCLA") and Director of Pediatric Laboratories and Analytical
Toxicology Service at the University of Colorado. At UCLA, where he was the Head
of Clinical Chemistry and Toxicology and Clinical Laboratory Computing, he was
in charge of a laboratory and administrative staff of more than 300 with an
annual operating budget of $12 million and revenues of $60 million.
11
Prior to UCLA, he held the positions of Director of Pediatric Laboratories and
Analytical Toxicology Service at the University of Colorado for 12 years. He is
a Fellow of the Association of Clinical Scientists and Institute of Medical
Laboratory Science. As a long-standing member of the American Association for
Clinical Chemistry, he served on its Board of Directors and was the Chairman of
the 1969 National Meeting and many other committees. The numerous committees
that he has served on at UCLA and the University of California system-wide,
include serving as the Director of the Office of Industry Relations, Chairman of
the System-wide Library Committee, member of the System-wide Committee on
Information Transfer and Technology Policy and the President's Task-Force on the
California Digital Library. Dr. Rodgerson has published more than 150 articles
in the medical and scientific literature. He has held consulting positions for
many institutions and corporations, including NASA, National Bureau of
Standards, Hewlett Packard, Beckman Instruments, Hybridtech, Boehringer-Mannheim
Corporation, 3M Company, Warren-Teed Pharmaceuticals, Micromedic Systems, Ortho
Diagnostics, National Health Laboratories, Consolidated Biomedical Laboratories,
Bio-Dynamics, Inc., Fisher Scientific, E. I. DuPont de Nemours, Ciba
Pharmaceuticals, DNA Technology, and Diagnostic Products Corporation. Dr.
Rodgerson received his M.S. and Ph.D. from the University of Colorado.
George Smith, M.D.
Medical Director of Laboratory Operations, California
Dr. George Smith was appointed NeoStem's Medical Director of Laboratory
Operations, California in January 2006. His responsibilities are to oversee all
operations at the Company's California laboratory, including the processing and
storage of autologous adult stem cells procedures, licensing requirements and
collection protocols.
After graduation from University of California Los Angeles (UCLA) Medical School
with five years of specialty training in Pathology in 1965, Dr. Smith spent two
years in the Public Health Service assigned to the Atomic Bomb Commission in
Hiroshima, Japan. During this assignment, he examined surgical tissue from
hospitals all over western Japan and from people who were exposed to radiation
from the bombing. He rejoined the UCLA Pathology faculty in 1967 until
retirement, in July of 1999. For six years he was Assistant Head of the Blood
Bank and Associate Head of Hematopathology where he established a unique bone
marrow service in the UCLA Medical Center, and continued to assist in these
functions for over 30 years. During these early years, Dr. Smith was a
participant in one of the research laboratories, which along with a dozen plus
international laboratories, developed and defined the HLA antigen system for
tissue transplantation. Dr. Smith was appointed the Director of the UCLA
Clinical Laboratories in 1975, which included supervision of 32 patient care
laboratories around the Medical Center. During this period he was also the
Director of the Blood Bank, Director of the Medical Technologist Training
Program and Chief of Clinical Pathology. These responsibilities continued over
the next 14 years. Under his tutelage, the Blood Bank was greatly expanded by
adding a Blood Donor Center, an apheresis center and new facilities that are all
in use today. He initiated a designated donor program, a very active autologous
donor program and designed a transfusion safety program. Dr. Smith was directly
involved in planning and providing all laboratory and blood services, including
bone marrow examinations for the start of the bone marrow and liver transplant
programs at UCLA.
12
SCIENTIFIC ADVISORY BOARD
Wayne Marasco, M.D., Ph.D.
Chairman, Scientific Advisory Board
Dr. Marasco is an Associate Professor in the Department of Cancer Immunology &
AIDS at the Dana-Farber Cancer Institute and Associate Professor of Medicine at
Harvard Medical School. A former founding Director and long time Senior
Scientific Advisor to the Company, in November 2006 he relinquished his position
as Director to focus his efforts on heading and expanding NeoStem's new
Scientific Advisory Board effective as of January 29, 2007. In addition, Dr.
Marasco will assist in the Company's initiatives of establishing partnerships
with leading academic institutions focused on stem cell therapies and
translational research and will help source intellectual property that will keep
NeoStem in the forefront of the adult stem cell field.
Dr. Marasco will continue to advise the Company on identifying and engaging
leading physicians and scientists who are increasingly revolutionizing adult
stem cell treatments in the fields of cardiology, radiation exposure, diabetes,
blood cancer and other cancers, wound and burn healing, skeletal repair, and
autoimmune disorders such as lupus, multiple sclerosis and rheumatoid arthritis.
Dr. Marasco is a licensed physician-scientist with training in Internal Medicine
and specialty training in infectious diseases. His clinical practice
sub-specialty is in the treatment of immunocompromised (cancer, bone marrow and
solid organ transplant) patients.
Dr. Marasco's research laboratory is primarily focused on the areas of antibody
engineering and gene therapy. New immuno- and genetic- therapies for HIV-1
infection / AIDS, HTLV-1, the etiologic agent in Adult T-cell Leukemia, and
other emerging infectious diseases such as SARS and Avian Influenza are being
studied. Dr. Marasco's laboratory is recognized internationally for its
pioneering development of intracellular antibodies (sFv) or "intrabodies" as a
new class of molecules for research and gene therapy applications. He is the
author of more than 70 peer reviewed research publications, numerous chapters,
books and monographs and has been an invited speaker at many national and
international conferences in the areas of antibody engineering, gene therapy and
AIDS. Dr. Marasco is also the Scientific Director of the National Foundation for
Cancer Research Center for Therapeutic Antibody Engineering (the "Center"). The
Center is located at the Dana-Faber Cancer Institute and will work with
investigators globally to develop new human monoclonal antibody drugs for the
treatment of human cancers.
13
In 1995, Dr. Marasco founded IntraImmune Therapies, Inc., a gene therapy and
antibody engineering company. He served as the Chairman of the Scientific
Advisory Board until the company was acquired by Abgenix in 2000. He has also
served as a scientific advisor to several biotechnology companies working in the
field of antibody engineering, gene discovery and gene therapy. He is an
inventor on numerous issued and pending patent applications.
Douglas W. Losordo, MD
For many years a Professor of Medicine at Tufts University School of Medicine
and Chief of Cardiovascular Research at St. Elizabeth's Medical Center in
Boston, Dr. Losordo was recently appointed Professor of Medicine at Northwestern
University and Director of the Feinberg Cardiovascular Research Institute and
Program in Cardiovascular Regenerative Medicine. A Fellow or Member of many
national professional organizations, he currently serves on committees of the
American College of Cardiology, the American Diabetes Association and the
American Society of Gene Therapy where he chairs the Cardiovascular Gene Therapy
Committee. Dr. Losordo serves as Principal Investigator in many grant research
projects and has published widely, contributing to more than 300 professional
articles, abstracts and book chapters in recent years. He also serves on the
Editorial Boards of numerous medical specialty journals including Stem Cells,
Vascular Medicine and Circulation Research.
Stephen D. Nimer, MD
Dr. Nimer is Professor of Medicine and Professor of Pharmacology at Weill
Medical College of Cornell University. He also serves as Chief of Hematology
Service and Head of the Division of Hematologic Oncology at Memorial
Sloan-Kettering Cancer Center in New York City. Dr. Nimer is a member of many
national professional organizations, including the American Society of
Hematology, the American Society of Clinical Oncology, and the International
Society for Stem Cell Research. He serves as a Reviewer for major medical
journals, including the New England Journal of Medicine and the Journal of the
American Medical Association (JAMA) among many others. He serves on numerous
national and international Grant Review Committees and is a prominent invited
speaker at conferences on his areas of expertise. He has authored or co-authored
nearly 200 peer-reviewed papers, reviews, editorials and textbook chapters,
primarily focused on issues concerning hematology and oncology.
ADVISORY BOARD
Ronald Rothenberg, MD, FACEP
Dr. Rothenberg is a Fellow of the American College of Emergency Physicians
(FACEP) and is the founder of the California HealthSpan Institute in Encinitas,
California. He was the 10th M.D. in the world to become fully board certified by
the American Board of Anti-Aging Medicine. A graduate of Columbia University,
College of Physicians and Surgeons, and a specialist in Emergency Medicine at
Los Angeles County-USC Medical Center, he has served as Clinical Professor of
Preventive and Family Medicine at the UCSD School of Medicine Clinical Facility.
He is currently Attending Physician at Scripps Memorial Hospital in Encinitas.
14
Douglas Wynyard
Mr. Douglas Wynyard is a Senior Vice President for Nordblom Company, a
full-service commercial real estate firm headquartered in the Boston area. Mr.
Wynyard has worked in the field of commercial real estate for more than thirty
years and has been associated with Nordblom Company since 1986. He is
experienced in real estate development, asset management, leasing, investment
sales, and marketing. He also represents numerous corporations with the
planning, acquisition and disposition of their facilities. Having received a
Bachelor's degree in Zoology from Bristol University, Mr. Wynyard is passionate
about the biological sciences and is an investor in a number of medtech
companies.
Richard Gatti, MD
Dr. Richard Gatti, a professor at the University of California, Los Angeles
(UCLA) and renowned Pathologist at the UCLA Medical Center, was one of the early
pioneers of bone marrow transplantation, among the earliest known forms of adult
stem cell therapeutics, for immunodeficiency in the late sixties. Dr. Gatti is
also a leading authority in the field of gene therapeutics and has authored or
co-authored hundreds of papers related to the molecular identification and
treatment of genetic disorders. He has worked for many years to help find a cure
for Ataxia-Telangiectasia, a progressive neurological disorder of childhood,
associated with increased cancer risk, immunodeficiency, radiosensitivity, and
cell cycle defects.
Dr. Neil C. Livingstone
Dr. Livingstone is currently the Chairman and Chief Executive Officer of
ExecutiveAction LLC. He was the founder and, until January, 2007, Chief
Executive Officer of GlobalOptions Inc., which went public in 2005. He is also
Lead Director of Erickson Air-Crane, a $200 million helicopter company. Dr.
Livingstone has noted expertise on national security, and is the author of nine
books on terrorism. He has served on advisory panels to The Secretary of State,
The Chief of Naval Operations, and The Pentagon. He has testified before
Congress and delivered more than 500 major addresses in the U.S. and abroad,
including recent speeches at The House of Commons and The United Nations. Dr.
Livingstone serves on numerous advisory boards, including Supercom Inc., Digital
Ally, the Africa Society, and No Greater Love. He was a Founding Member and
Incorporator of the Solidarity Endowment, formed in the West to promote the
goals of Polish Solidarity. He was the Founder and Chairman of the Institute on
Terrorism and Sub-national Conflict and served as President of Watergate South
for more than seven years.
15
CORPORATE GOVERNANCE
Director Independence
Our current Board members consist of Dr. Smith, Dr. Zuckerman, Mr. Berman, Mr.
Myers and Mr. Weinreb. The Board has determined that Messrs. Myers and Berman
and Dr. Zuckerman are independent applying the definition of independence under
the listing standards of the American Stock Exchange. Dr. Smith and Mr. Weinreb
are not independent. Dr. Wayne Marasco, who previously served as a director of
the Company during 2006, was not independent under such standards.
Term of Directors
Directors hold office until the next annual meeting and until their successors
are elected and have qualified.
Committees
In November 2006, our Board established separate Audit and Compensation
Committees. Mr. Berman was appointed as chairman of each of the Audit and
Compensation Committees with Mr. Myers and Dr. Zuckerman serving as additional
members. The functions which would be performed by a Nominating Committee are
performed by the Board as a whole, and there is no separate Nominating Committee
charter.
Audit Committee
Our Audit Committee consists of three directors, Mr. Berman (chairman), Mr.
Myers and Dr. Zuckerman. Each such member of the committee is independent
applying the definition of independence under the listing standards of the
American Stock Exchange. The Audit Committee was formed on November 10, 2006 and
did not meet during the year ended December 31, 2006. The Board has determined
that Mr. Berman qualifies as an "audit committee financial expert" as defined by
Item 407(d)(5)(ii) of Regulation S-B, and Mr. Berman is independent applying the
definition of independence under the listing standards of the American Stock
Exchange. For information on Mr. Berman's experience, please see "Nominees for
Director - Richard Berman."
Pursuant to the terms of the Audit Committee charter, our Audit Committee is
required to consist of at least three "independent" directors of the Company and
shall serve at the pleasure of the Board. An "independent" director is defined
as an individual who (a) is not an officer or salaried employee or an affiliate
of the Company, (b) does not have any relationship that, in the opinion of the
Board, would interfere with his or her exercise of independent judgment as an
Audit Committee member, (c) meets the independence requirements of the SEC and
the American Stock Exchange or such other securities exchange or market on which
the Company's securities are traded and (d) except as permitted by the SEC and
the American Stock Exchange or such other securities exchange or market on which
the Company's securities are traded, does not accept any consulting, advisory or
other compensatory fee from the Company.
16
Our Audit Committee has a charter that requires the committee to oversee our
accounting and financial reporting process, the Company's system of internal
controls regarding finance, accounting, legal compliance and ethics, and the
audits of the Company's financial statements. The primary duties of the Audit
Committee consist of, among other things:
o Serve as an independent and objective party to monitor the Company's
financial reporting process, internal control system and disclosure
control system.
o Review and appraise the audit efforts of the Company's independent
accountants.
o Assume direct responsibility for the appointment, compensation,
retention and oversight of the work of the outside auditors and for
the resolution of disputes between the outside auditors and the
Company's management regarding financial reporting issues.
o Provide an open avenue of communication among the independent
accountants, financial and senior management and the Board.
Statement of Audit Committee
The Audit Committee of the Board offers this statement regarding the
Company's audited financial statements contained in its annual report on Form
10-K for the year ended December 31, 2006 and regarding certain matters with
respect to Holtz Rubenstein Reminick LLP, the Company's independent auditors.
This statement shall not be deemed to be incorporated by reference by any
general statement incorporating by reference this proxy statement into any
filing with the Securities and Exchange Commission by the Company, except to the
extent that the Company specifically incorporates this information by reference,
and shall not otherwise be deemed to be filed with the Securities and Exchange
Commission.
The Audit Committee has reviewed and discussed the audited financial statements
for the fiscal year ended December 31, 2006 with management. We have discussed
with the Company's independent auditors the matters required to be discussed by
the statement on Auditing Standards 61, as amended, as adopted by the Public
Company Accounting Oversight Board in Rule 3200T. We have received the written
disclosures and the letter from the Company's independent auditors required by
Independence Standards Board Standard No. 1, as adopted by the Public Company
Accounting Oversight Board in Rule 3600 T, and have discussed with the
independent accountant the independent accountant's independence. Based on the
review and discussions referred to above, the Audit Committee recommended to the
Company's Board of Directors that the audited financial statements be included
in the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 2006 for filing with the Securities and Exchange Commission.
The Audit Committee of the Board of Directors
Richard Berman, Chairman
Steven S. Myers
Joseph Zuckerman
17
Compensation Committee
Our Compensation Committee consists of three directors, Mr. Berman (chairman),
Mr. Myers and Dr. Zuckerman. Each such member of the Compensation Committee is
independent applying the definition of independence under the listing standards
of the American Stock Exchange. The Compensation Committee was formed on
November 10, 2006 and met once during the year ended December 31, 2006.
Each member of our Compensation Committee must (i) be an independent director of
the Company satisfying the independence requirements of the American Stock
Exchange and other applicable regulatory requirements; (ii) qualify as an
"outside director" under Section 162(m) of the Internal Revenue Code, as
amended; and (iii) meet the requirements of a "non-employee director" for
purposes of Section 16 of the Securities Exchange Act of 1934, as amended.
The Compensation Committee oversees the determination of all matters relating to
employee compensation and benefits and specifically reviews and approves
salaries, bonuses and equity-based compensation for our executive officers.
We have adopted a Compensation Committee charter which outlines the Compensation
Committee's primary duties which are to:
o evaluate the performance of the Chief Executive Officer in light of the
Company's goals and objectives and determine the Chief Executive Officer's
compensation based on this evaluation and such other factors as the
Committee shall deem appropriate;
o approve all salary, bonus, and long-term incentive awards for executive
officers;
o approve the aggregate amounts and methodology for determination of all
salary, bonus, and long-term incentive awards for all employees other than
executive officers;
o review and recommend equity-based compensation plans to the full Board
and approve all grants and awards thereunder;
o review and approve changes to the Company's equity-based compensation
plans other than those changes that require shareholder approval under the
plans, the requirements of The American Stock Exchange or any exchange on
which the Company's securities may be listed and/or any applicable law;
o review and recommend to the full Board changes to the Company's
equity-based compensation plans that require shareholder approval under the
plans, the requirements of The American Stock Exchange or any exchange on
which the Company's securities may be listed and/or any applicable law;
o review and approve changes in the Company's retirement, health, welfare
and other benefit programs that result in a material change in costs or the
benefit levels provided;
o administer the Company's equity-based compensation plans; and
o approve, as required by applicable law, the annual Committee report on
executive compensation (if required) for inclusion in the Company's proxy
statement.
18
The Compensation Committee may form and delegate its authority to subcommittees
as appropriate. Additionally, the Chief Executive Officer may make
recommendations to the Compensation Committee relating to executive and director
compensation.
Director Nomination Process
Nominating Functions Performed by Board as a Whole
The Board of Directors (the "Board") does not currently have a standing
nominating committee. The functions which would be performed by a nominating
committee are performed by the Board as a whole, and there is no separate
nominating committee charter. Our Board consists of Dr. Smith, Dr. Zuckerman,
Mr. Berman, Mr. Myers and Mr. Weinreb. The Board has determined that Messrs.
Myers and Berman and Dr. Zuckerman are independent applying the definition of
independence under the listing standards of the American Stock Exchange. Dr.
Smith and Mr. Weinreb are not independent. Nominees for the 2007 Annual Meeting
were recommended for the Board's selection by at least a majority of our
directors meeting the criteria for independence under the standards of the
American Stock Exchange. The Company believes it is appropriate not to have a
standing nominating committee because the size of our board makes it unnecessary
to have a separately designated committee and we feel that obtaining an input
from all the independent directors in connection with the nominations enhances
the nomination process.
Criteria for Board Membership
The Board determines the required selection criteria and qualifications of
director nominees based upon the needs of the Company at the time nominees are
considered. Directors should possess the highest personal and professional
ethics, integrity and values, and be committed to representing the long-term
interests of the Company's stockholders. In evaluating a candidate for
nomination as a director of the Company, the Board will consider criteria
including business and financial expertise; knowledge of our industry or other
background relevant to our needs; "independence;" geography; experience as a
director of a public company; and general criteria such as ethical standards,
independent thought, practical wisdom, mature judgment, and willingness, ability
and availability for service. Other than the foregoing general considerations,
there are no stated minimum criteria for director nominees, although our Board
may also consider such other factors as it may deem are in the best interests of
us and our stockholders.
These general criteria are subject to modification and the Board shall be able,
in the exercise of its discretion, to deviate from these general criteria from
time to time, as the Board may deem appropriate or as required by applicable
laws and regulations.
Stockholder Nominees
The Board will consider stockholder recommendations regarding candidates for
director submitted in writing to the Board. Stockholders wishing to submit such
recommendations may do so by sending a written notice to the Secretary of the
Company together with supporting information a reasonable period of time prior
to the mailing of the Company's Proxy Statement for the related annual meeting.
There will be no differences in the manner in which the Board evaluates nominees
recommended by stockholders and nominees recommended by the Board or management,
except that no specific process shall be mandated with respect to the nomination
of any individuals who have previously served on the Board. In connection with
the 2007 Annual Meeting, the Board did not receive any nominations from any
stockholder or group of stockholders which owned more than 5% of the Company's
Common Stock for at least one year.
19
Process for Identifying and Evaluating Nominees
The Board believes the Company is well-served by its current directors. In the
ordinary course, absent special circumstances or a material change in the
criteria for Board membership, the Board will renominate incumbent directors who
continue to be qualified for Board service and are willing to continue as
directors. If an incumbent director is not standing for re-election, if a
vacancy on the Board occurs between annual stockholder meetings or if our Board
believes it is in the Company's best interests to expand its size, the Board may
seek out potential candidates for Board appointment who meet the criteria for
selection as a nominee and have the specific qualities or skills being sought.
Nominees for director must be discussed by the full Board and approved for
nomination by the affirmative vote of a majority of our Board, including the
affirmative vote of a majority of the independent directors. Two of our
directors are nominated pursuant to certain contractual rights (see below).
The Board will conduct a process of making a preliminary assessment of each
proposed nominee based upon the resume and biographical information, an
indication of the individual's willingness to serve and other background
information. This information is evaluated against the criteria set forth above
and the Company's specific needs at that time. Based upon a preliminary
assessment of the candidate(s), those who appear best suited to meet the
Company's needs may be invited to participate in a series of interviews, which
are used as a further means of evaluating potential candidates. On the basis of
information learned during this process, the Board will determine which
nominee(s) to include in the slate of candidates that the Board recommends for
election at each annual meeting of the Company's stockholders.
Pursuant to the Company's securities purchase agreement with the purchasers in
its June 2006 private placement (the "June 2006 Private Placement") of units
consisting of shares of Common Stock and Warrants to purchase shares of Common
Stock pursuant to which it raised aggregate funds of $2,079,000, the Company
agreed to (i) prior to the initial closing of the 2006 Private Placement,
increase the size of its Board from three to four persons and appoint Dr. Robin
Smith to fill such vacancy and to include Dr. Smith on the slate of Directors
presented to shareholders for election at each annual meeting of stockholders of
the Company; (ii) following the final closing in the June 2006 Private
Placement, permit DC Associates LLC or its related entities ("DC"), who acted as
lead investor in the June 2006 Private Placement, to designate one Board member
reasonably acceptable to the Company, increase the size of the Board by one
additional member and appoint such designee to fill such vacancy and to serve in
such capacity until the Company's next annual meeting of stockholders and
otherwise pursuant to the Company's By-laws. Should such designee constitute an
independent director, such designee is entitled to serve on the Company's
Compensation Committee of the Board, should the Company have one. Thereafter,
such designee shall be included on the slate of Directors presented to
shareholders for election at each annual meeting of stockholders of the Company.
Mr. Berman was appointed to the Board of Directors in November 2006 and serves
as such designee. The Company further agreed in its June 2006 Private Placement,
that following the closing, the Company will endeavor to add additional members
to its Board of Directors such that a majority of the Board is composed of
Independent Directors. Steven S. Myers, an independent director, was appointed
to the Board in November 2006.
20
Board Meeting Attendance
During the year ended December 31, 2006, the Board of Directors held twenty
meetings. Each director attended at least 75% of the total number of meetings of
the Board and committees on which he or she served.
Director Attendance at Annual Meetings
Board members are encouraged, but not required by any specific Board policy, to
attend the Company's Annual Meeting. All four then current and incumbent Board
members attended the Company's 2006 Annual Meeting.
Shareholder Communications
The Board has established a procedure that enables stockholders to communicate
in writing with members of the Board. Any such communication should be addressed
to the Company's Secretary and should be sent to such individual c/o the
Company. Any such communication must state, in a conspicuous manner, that it is
intended for distribution to the entire Board. Under the procedures established
by the Board, upon the Secretary's receipt of such a communication, the
Company's Secretary will send a copy of such communication to each member of the
Board, identifying it as a communication received from a stockholder. Absent
unusual circumstances, at the next regularly scheduled meeting of the Board held
more than two days after such communication has been distributed, the Board will
consider the substance of any such communication.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS OF THE
COMPANY VOTE "FOR" ITS SLATE OF DIRECTORS.
21
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as to the number of shares of the
Company's Common Stock beneficially owned, as of April 16, 2007 by (i) each
beneficial owner of more than five percent of the outstanding Common Stock, (ii)
each current executive officer and director and (iii) all current executive
officers and directors of the Company as a group. All shares are owned both
beneficially and of record unless otherwise indicated. Unless otherwise
indicated, the address of each beneficial owner is c/o NeoStem, Inc., 420
Lexington Avenue, Suite 450, New York, New York 10170.
"Beneficial ownership" is a technical term defined by the SEC to mean more than
ownership in the usual sense. Generally, it includes any shares you own directly
or indirectly (e.g., through a relationship, a position as a trustee or through
an agreement) or if you have the right to acquire it within 60 days (e.g., upon
the exercise of options). Beneficial ownership includes shares over which a
person possesses sole or shared voting or investment power. Except as otherwise
indicated by footnote, to our knowledge, the persons named in the table have
sole voting and investment power with respect to all shares of Common Stock
beneficially owned by them. In calculating the number of shares beneficially
owned by a person and the percentage ownership of that person, shares of Common
Stock subject to options or warrants held by that person that are exercisable as
of April 16, 2007, or will become exercisable within 60 days thereafter, are
deemed outstanding, while such shares are not deemed outstanding for purposes of
calculating percentage ownership of any other person. As of April 16, 2007,
there were 26,388,098 shares of Common Stock outstanding.
22
Number and Percentage of Shares of Common Stock Owned
Percentage
Number of Shares of Common Stock
Name and Address of Beneficial Holder Beneficially Owned Beneficially Owned
- ------------------------------------- ------------------ ------------------
Dr. Robin L. Smith 2,062,551(1) 7.52%
Chief Executive Officer and Chairman of the Board
Mark Weinreb 1,334,226(2) 4.91%
President and Director
Larry A. May 199,372(3) .76%
Vice President and Chief Financial Officer
Catherine M. Vaczy 938,571(4) 3.54%
Vice President and General Counsel
Dr. Joseph Zuckerman 348,425(5) 1.31%
Director
Richard Berman 740,909(6) 2.78%
Director
Steven S. Myers 890,818(7) 3.34%
Director
Michael Crow 2,411,592(8) 9.99%
Alex Clug
DCI Master LDC
Duncan Capital Group LLC
MW Crow Family LP
420 Lexington Avenue
Suite 450
New York, New York 10107
All Directors and Officers as a group (seven persons) 6,514,872(9) 22.50%
(1) Includes currently exercisable options to purchase an aggregate of
770,000 shares of Common Stock and currently exercisable warrants to
purchase an aggregate of 309,932 shares of Common Stock.
(2) Includes currently exercisable options to purchase 805,000 shares of
Common Stock.
(3) Includes currently exercisable options to purchase 55,000 shares of
Common Stock.
(4) Includes currently exercisable options to purchase 110,000 shares of
Common Stock and currently exercisable warrants to purchase 40,834 shares
of Common Stock.
(5) Includes currently exercisable options to purchase 215,000 shares of
Common Stock and currently exercisable warrants to purchase 20,834 shares
of Common Stock.
(6) Includes currently exercisable warrants to purchase 113,636 shares of
Common Stock.
(7) Includes currently exercisable warrants to purchase 227,272 shares of
Common Stock.
(8) Includes 1,704,546 shares of Common Stock held by DCI Master LDC;
257,046 shares of Common Stock held by Duncan Capital Group LLC; and
450,000 shares held by MW Crow Family LP. Does not include warrants to
purchase 852,273 shares of Common Stock held by DCI Master LDC to the
extent such inclusion would result in the Issuance Limitation (as described
below) being exceeded. Such warrants are exercisable immediately, have an
exercise price of $.80 per share, and expire on June 1, 2011. Such warrants
are subject to beneficial ownership limitations that render them
unexercisable while the holder thereof beneficially owns more than 9.99% of
the total number of shares of Common Stock of the Company then issued and
outstanding, or to the extent exercise thereof would result in the
beneficial ownership by the holder thereof of more than 9.99% of the total
number of shares of Common Stock of the Company then issued and outstanding
(the "Issuance Limitation"). The holder may waive the Issuance Limitation
only upon 61 days' prior written notice. Mr. Crow and Mr. Clug are
Directors of DCI Master LDC and Mr. Crow is the President of Duncan Capital
Group LLC. Duncan Capital Group LLC is owned by MW Crow Family LP. In the
Schedule 13G/A filed with the Securities and Exchange Commission on
December 12, 2006, the reporting persons state that they may be deemed to
be a group and filed jointly.
23
(9) Includes currently exercisable options and warrants to purchase
2,567,506 shares of Common Stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 20, 2006, Mr. Robert Aholt, Jr. tendered his resignation as Chief
Operating Officer of the Company. In connection therewith, on March 31, 2006,
the Company and Mr. Aholt entered into a Settlement Agreement and General
Release. Pursuant to the settlement agreement, the Company agreed to pay to Mr.
Aholt the aggregate sum of $250,000 (less applicable Federal and California
state and local withholdings and payroll deductions), payable over a period of
two years in biweekly installments of $4,808 commencing on April 7, 2006, except
that the first payment was in the amount of $9,615. In July 2006, this agreement
was amended to provide for semi-monthly payments of $10,417 for the remaining 21
months. In the event the Company breaches its payment obligations under the
Settlement Agreement and such breach remains uncured, the full balance owed
shall become due. The Company and Mr. Aholt each provided certain general
releases. Mr. Aholt also agrees to continue to be bound by his obligations not
to compete with the Company and to maintain the confidentiality of Company
proprietary information.
On January 19, 2006, the Company consummated the acquisition of the assets of NS
California. Larry May, the Company's Chief Financial Officer, was the Chief
Executive Officer of NS California at the time of the transaction. The purchase
price for NS California's assets, in addition to the assumption of certain
liabilities, included 500,000 shares of the Company's Common Stock, of which Mr.
May received a pro rata distribution of 14,383 shares in exchange for his shares
of NS California preferred stock, and 9,615 shares of Company Common Stock as
consideration for existing debt owed by NS California to Mr. May. Of the stock
consideration paid to NS California, 60% (or 300,000 shares) has been retained
in escrow for a period of one (1) year from the date of the agreement, subject
to certain indemnification claims and setoffs. Provided that no claims are made
against the escrowed shares, Mr. May will be entitled to receive up to 35,057
shares of Company Common Stock in escrow in exchange for his shares of NS
California common stock. Due to the delay in obtaining the biologics license for
the California facility, pursuant to the acquisition agreement, in May 2006 the
Company demanded the return of 100,000 shares of the Company's Common Stock from
NS California. Accordingly, Mr. May's proportionate interest in the shares of
Common Stock to be distributed to him has been reduced. In addition, upon the
acquisition, Mr. May entered into a three year employment agreement with the
Company. See "Executive Compensation--Employment Agreements."
24
Pursuant to the securities purchase agreement in the June 2006 private
placement, on June 2, 2006, Dr. Robin L. Smith was appointed Chief Executive
Officer and Chairman of the Board of the Company. See "Executive
Compensation--Employment Agreements." In September 2005, Dr. Smith had entered
into an advisory agreement with the Company pursuant to which Dr. Smith agreed
to become Chairman of the Company's advisory board. Under the terms of the
advisory agreement, Dr. Smith was required to provide various business and
scientific advice to the Company for a period of one year in consideration for
which she received 50,000 shares of Common Stock and warrants to purchase 24,000
shares of Common Stock. The warrants are exercisable at $.80 per share, the
closing price of the Common Stock on the date of grant, and were scheduled to
vest as to 2,000 shares per month during the term of the agreement. Dr. Smith
received registration rights for such shares of Common Stock and Common Stock
underlying warrants. In January 2006, the Company and Dr. Smith entered into a
supplement to the advisory agreement to set forth certain supplemental
understandings with respect to a potential financing transaction. Under the
supplement to the advisory agreement, Dr. Smith agreed that through April 30,
2006 (as such date was later extended) Dr. Smith would provide additional
business and financial advisory services beyond those set forth in the original
agreement. In return, Dr. Smith would receive upon the closing of a financing
(i) 20,000 shares of Common Stock and a cash payment in the amount of $25,000 if
the gross proceeds of the financing are at least $500,000; (ii) 40,000 shares of
Common Stock and a cash payment in the amount of $50,000 if the gross proceeds
of the financing are at least $1,000,000; (iii) 80,000 shares of Common Stock
and a cash payment in the amount of $100,000 if the gross proceeds of the
financing are at least $2,000,000; (iv) 100,000 shares of Common Stock and a
cash payment in the amount of $150,000 if the gross proceeds of the financing
are at least $3,000,000; (v) 120,000 shares of Common Stock and a cash payment
of $175,000 if the gross proceeds of the financing are at least $3,500,000; and
(vi) 160,000 shares of Common Stock and a cash payment in the amount of $200,000
if the gross proceeds of the financing are at least $4,000,000. Dr. Smith was
also entitled to receive a cash payment of $3,000 for each of January, February
and March 2006. The advisory agreement was terminated in connection with Dr.
Smith's employment as Chief Executive Officer and Chairman of the Board in June
2006.
In the June 2006 private placement, Dr. Smith also purchased for aggregate
consideration of $22,000, units consisting of 50,000 shares of Common Stock and
five-year warrants to purchase 25,000 shares of Common Stock at a per share
purchase price of $.80. In December 2005, Dr. Smith purchased from the Company
in the Westpark private placement, units consisting of a 9% convertible
promissory note in the principal amount of $12,500 and three year Warrants to
purchase 20,834 shares of Common Stock at a per share purchase price of $1.20 .
WestPark Capital, Inc. ("WestPark"), the placement agent for this private
placement, was issued as compensation for this private placement (i) 50,000
shares of Common Stock (25,000 shares on December 30, 2005 and 25,000 shares in
January 2006); and (ii) Warrants to purchase an aggregate of 83,334 shares of
Common Stock (41,667 on December 30, 2005 and 41,667 in January 2006). WestPark
assigned its rights to 14,584 of these warrants to Starobin Partners, Inc., an
entity in which Dr. Smith has a 7% interest. Dr. Smith waived her rights to any
interest in these warrants.
25
On August 11, 2006, Dr. Smith accepted the offer from the Company which the
Company extended to all holders of promissory notes acquired in the Westpark
private placement, pursuant to which (i) the $12,500 promissory note was
converted into 28,409 shares of Common Stock, (ii) the Company issued to her
5,682 shares of Common Stock, (iii) the exercise price of the warrants was
reduced from $1.20 to $.80 and (iv) a new warrant was issued to purchase 20,833
shares of Common Stock at $.80.
On August 29, 2006, Ms. Vaczy and Dr. Zuckerman each purchased from the then
holder a $12,500 promissory note after which Ms. Vaczy and Dr. Zuckerman
accepted the offer from the Company which the Company extended to all holders of
promissory notes acquired in the Westpark private placement, pursuant to which
(i) each of the $12,500 promissory notes was converted into 28,409 shares of
Common Stock, (ii) the Company issued to each of Ms. Vaczy and Dr. Zuckerman
5,682 shares of Common Stock, and (iii) a new warrant was issued to each to
purchase 20,833 shares of Common Stock at $.80.
Prior to his appointment as a director and as part of the Summer 2006 private
placement, on August 30, 2006 Mr. Berman entered into a Subscription Agreement
with the Company for the purchase of units consisting of 227,273 shares of
Common Stock of the Company at a purchase price of $.44 per share and warrants
to purchase up to 113,636 shares of Common Stock of the Company at a price per
share of $0.80. Such warrants are exercisable immediately and will expire on
August 29, 2011.
Prior to his appointment as a director and as part of the June 2006 private
placement, Mr. Myers entered into a Subscription Agreement with the Company on
June 2, 2006 for the purchase of units consisting of 454,546 shares of Common
Stock of the Company at a purchase price of $.44 per share and warrants to
purchase up to 227,272 shares of Common Stock of the Company at a price per
share of $0.80. Such warrants are exercisable immediately and will expire on
June 1, 2011.
In the January 2007 private placement, Dr. Smith purchased 110,000 units for an
aggregate consideration of $110,000, each unit comprised of two shares of Common
Stock, one redeemable seven-year warrant to purchase one share of Common Stock
at a purchase price of $.80 per share and one non-redeemable seven-year warrant
to purchase one share of Common Stock at a purchase price of $.80 per share.
In the January 2007 private placement, Ms. Vaczy purchased 10,000 units for an
aggregate consideration of $10,000, each unit comprised of two shares of Common
Stock, one redeemable seven-year warrant to purchase one share of Common Stock
at a purchase price of $.80 per share and one non-redeemable seven-year warrant
to purchase one share of Common Stock at a purchase price of $.80 per share.
26
EXECUTIVE COMPENSATION
The following table sets forth all compensation paid during the year ended
December 31, 2006 to the two persons who served as the Company's Chief Executive
Officer and the two other most highly compensated executive officers of the
Company whose total compensation was in excess of $100,000 (the "Named Executive
Officers").
Name and Principal Stock Option All Other Total
Function Year Salary Bonus Awards Awards(1) Compensation Compensation
- --------------------------------------- ---- ------------ ----------- -------------- --------- ------------ ------------
Dr. Robin L. Smith, Chief Executive 2006 $ 103,269 $ 20,000(3) $ 148,000(3)(4) $ 242,637 $ 17,766(5) $ 531,672
Officer(2)
Mark Weinreb, President(6)(7) 2006 $ 219,314 $ 25,000(8) $ 0(7) $ 161,386 $ 31,396(9) $ 437,096
Catherine M. Vaczy, Vice President and 2006 $ 139,295(12) $ 7,000(3) $ 60,000(13) $ 30,533 $ 8,250(14) $ 245,078
General Counsel(10)(11)
Larry A. May, Chief Financial 2006 $ 129,315(17) $ 6,000(3) $ 30,000(18) $ 10,479 $ 7,500(14) $ 183,894
Officer(15)(16)
(1) Effective January 1, 2006, the Company's Stock Option Plan is accounted
for in accordance with the recognition and measurement provisions of
Statement of Financial Accounting Standards ("FAS") No. 123 (revised 2004),
Share-Based Payment ("FAS 123(R)"), which replaces FAS No. 123, Accounting
for Stock-Based Compensation, and supersedes Accounting Principles Board
Opinion ("APB") No. 25, Accounting for Stock Issued to Employees, and
related interpretations. FAS 123 (R) requires compensation costs related to
share-based payment transactions, including employee stock options, to be
recognized in the financial statements. In addition, the Company adheres to
the guidance set forth within Securities and Exchange Commission ("SEC")
Staff Accounting Bulletin ("SAB") No. 107, which provides the Staff's views
regarding the interaction between SFAS No. 123(R) and certain SEC rules and
regulations and provides interpretations with respect to the valuation of
share-based payments for public companies. In adopting FAS 123(R), the
Company applied the modified prospective approach to transition. Under the
modified prospective approach, the provisions of FAS 123 (R) are to be
applied to new awards and to awards modified, repurchased, or cancelled
after the required effective date. Additionally, compensation cost for the
portion of awards for which the requisite service has not been rendered
that are outstanding as of the required effective date shall be recognized
as the requisite service is rendered on or after the required effective
date. The compensation cost for that portion of awards shall be based on
the grant-date fair value of those awards as calculated for either
recognition or pro-forma disclosures under FAS 123. The general assumptions
made in calculating the fair value of options are set forth in Note 7 of
the Company's notes to its audited consolidated financial statements for
the fiscal years ended December 31, 2006 and 2005.
(2) Dr. Smith joined the Company as of June 2, 2006.
(3) Pursuant to Dr. Smith's employment agreement dated May 26, 2006, her
advisory agreement dated September 15, 2005 with the Company was terminated
effective June 2, 2006, except that: (i) the vesting of a warrant to
purchase 24,000 shares of Common Stock granted under the advisory agreement
was accelerated so that the warrant became fully vested as of the effective
date of the employment agreement (not considered a material change in the
terms of such option and accordingly the fair value was not adjusted), (ii)
Dr. Smith received $100,000 in cash and 100,000 shares upon the initial
closing of the June 2006 private placement, (iii) if an aggregate of at
least $3,000,000 was raised in a financing prior to August 15, 2006, Dr.
Smith was to receive an additional payment of $50,000, and (iv) a final
payment of $3,000 relating to services rendered in connection with Dr.
Smith's advisory agreement, was paid at the closing of the June 2006
private placement. Upon the effective date of her employment agreement, Dr.
Smith was awarded under the Company's 2003 Equity Participation Plan
200,000 shares of Common Stock of the Company, and options to purchase
540,000 shares of Common Stock. On August 30, 2006, the milestone set forth
in (iii) was achieved. Dr. Smith elected to have $30,000 of this amount
distributed to certain employees of the Company including its Chief
Financial Officer, Mr. May, who received $6,000 and Vice President and
General Counsel, Ms. Vaczy, who received $7,000, in recognition of their
efforts on behalf of the Company. Dr Smith was paid the remaining $20,000.
27
(4) On December 5, 2006 Dr. Smith was granted a stock award of 300,000
shares of Common Stock, of which 100,000 shares vested immediately, with a
per share value equal to $.60 pursuant to an action by the Compensation
Committee of the Board of Directors. The remaining 200,000 shares will vest
upon the achievement of a milestone, which has not yet been achieved (see
the Outstanding Equity Awards Table).
(5) Consists of (i) a car allowance of $7,000 and (ii) approximately
$10,700 paid by the Company on behalf of Dr. Smith for life insurance.
(6) Mr. Weinreb joined the Company as of February 6, 2003. In June 2006, he
resigned as Chief Executive Officer and Chairman of the Board but continued
as President.
(7) On June 2, 2006, in connection with the June 2006 private placement,
Mr. Weinreb agreed to certain adjustments to his employment agreement dated
as of August 12, 2005 which resulted in the acceleration of the vesting
dates of all unvested options on June 2, 2006 (see the Outstanding Equity
Awards Table for the specific options effected--the acceleration of vesting
dates was not considered a material change in the terms of such options and
accordingly the fair value was not adjusted) and the issuance of a new
option to purchase 150,000 shares of Common Stock at $.53 per share. This
new option will vest as the Company achieves certain business milestones,
which have not yet been achieved (see the Outstanding Equity Awards Table).
Such adjustments to Mr. Weinreb's employment agreement also resulted in the
acceleration of the vesting dates of a stock award granted on July 20,
2005, as follows: the vesting of 200,000 shares which was originally
scheduled to vest as to 100,000 shares on each of July 20, 2006 and July
20, 2007, was accelerated to June 2, 2006. All compensation related to the
stock award of July 20, 2005 was recognized as compensation expense in
2005.
(8) As of December 31, 2006, Mr. Weinreb received only $12,500 of this
bonus. The balance was paid on February 2, 2007.
(9) Consists of (i) a car allowance of $11,000 and (ii) approximately
$20,396 paid by the Company on behalf of Mr. Weinreb for disability, life
and long-term care insurance.
(10) Ms. Vaczy joined the Company as of April 20, 2005.
(11) On June 2, 2006, in connection with the June 2006 private placement,
Ms. Vaczy agreed to certain adjustments to her employment agreement dated
as of April 20, 2005 which resulted in the acceleration of the vesting
dates of all unvested options on June 2, 2006 (see the Outstanding Equity
Awards Table for the specific options effected--the acceleration of vesting
dates was not considered a material change in the terms of such options and
accordingly the fair value was not adjusted) and the issuance of a new
option to purchase 100,000 shares of Common Stock at $.53 per share. This
new option will vest as the Company achieves certain business milestones,
which have not yet been achieved (see the Outstanding Equity Awards Table).
(12) $14,903 of this amount was paid to Ms. Vaczy through the issuance of
Common Stock with a per share price equal to $.44 per share pursuant to Ms.
Vaczy's letter agreement with the Company, entered into in connection with
the June 2006 private placement.
(13) On December 5, 2006 Ms. Vaczy was granted a stock award of 100,000
shares of Common Stock with a per share value equal to $.60 pursuant to an
action by the Compensation Committee of the Board of Directors.
(14) Consists of a car allowance per Ms. Vaczy's and Mr. May's respective
employment agreements with the Company.
(15) Mr. May joined the Company as of January 19, 2006.
(16) On June 2, 2006, in connection with the June 2006 private placement,
Mr. May agreed to certain adjustments to his employment agreement dated as
of January 19, 2006, which resulted in the acceleration of the vesting
dates of all unvested options on June 2, 2006 (see the Outstanding Equity
Awards Table for the specific options effected--the acceleration of vesting
dates was not considered a material change in the terms of such options and
accordingly the fair value was not adjusted) and the issuance of a new
option to purchase 100,000 shares of Common Stock at $.53 per share. This
new option will vest as the Company achieves certain business milestones,
which have not yet been achieved (see the Outstanding Equity Awards Table).
(17) $7,514 of this amount was paid to Mr. May through the issuance of
Common Stock with a per share price equal to $.44 per share pursuant to Mr.
May's letter agreement with the Company, entered into in connection with
the June 2006 private placement in June 2006.
(18) On December 5, 2006 Mr. May was granted a stock award of 50,000 shares
of Common Stock with a per share value equal to $.60 pursuant to an action
by the Compensation Committee of the Board of Directors.
28
EMPLOYMENT AGREEMENTS, POST-EMPLOYMENT PAYMENTS AND EQUITY GRANTS
OVERVIEW
Following is a description of the employment agreements the Company has with the
officers named in the Summary Compensation Table. These descriptions provide
further information about the compensation which is shown in the Summary
Compensation Table for these officers. They also give you information about
payments which could be received by these officers under certain circumstances
at such time as their employment ends with the Company, for example, certain
severance arrangements. Following these descriptions you will see a table called
Outstanding Equity Awards at Fiscal Year End. This table contains details about
the terms of options and certain stock grants to these officers which are
included in the Summary Compensation Table.
EMPLOYMENT AGREEMENTS
The officers of the Company, as a condition of the initial closing under the
securities purchase agreement in the June 2006 private placement, entered into
letter agreements with the Company pursuant to which they converted an aggregate
of $278,654 of accrued salary into shares of Common Stock at a per share price
of $.44. After adjustments for applicable payroll and withholding taxes which
were paid by the Company, the Company issued to such officers an aggregate of
379,983 shares of Common Stock. The Company also adopted an Executive Officer
Compensation Plan, effective as of the date of closing of the securities
purchase agreement and pursuant to the letter agreements each officer agreed to
be bound by the Executive Officer Compensation Plan. In addition to the
conversion of accrued salary, the letter agreements provided for a reduction by
25% in base salary for each officer until the Company achieved certain
milestones. In consideration of the officers' agreement to such reduction in
base salary, the Company granted to the officers options to purchase shares of
Common Stock under the Company's 2003 Equity Participation Plan which become
exercisable upon the Company achieving certain revenue milestones, and the
accelerated the vesting of certain options and restricted shares held by the
officers.
In January 2007, the milestones relating to the reduction in base salary had
been achieved and the executive officers were entitled to have their salaries
restored to their original levels. The Company was informed by the placement
agent for the January 2007 private placement that it was advisable for the
executive officers of the Company to make continued salary concessions and/or to
agree to extend the term of their employment agreements. Accordingly, on January
26, 2007, letter agreements were entered into which provided instead for each
such officer's salary to be set in an amount which is twenty percent less than
that to which they were originally entitled pursuant to their original
employment agreements (subject to increase in certain circumstances) and/or an
extension of the officer's employment term, and certain additional or amended
terms. In consideration of the salary concessions and/or agreement to a
substantial extension of employment term, the officers were generally either
granted options, option vesting was accelerated, and/or performance bonus
formulas were put into place.
29
Robin L. Smith--Chief Executive Officer and Chairman of the Board
On May 26, 2006, the Company entered into an employment agreement with Dr. Robin
L. Smith, pursuant to which Dr. Smith serves as the Chief Executive Officer of
the Company. This agreement was for a period of two years, which term could be
renewed for successive one-year terms unless otherwise terminated by Dr. Smith
or the Company. The effective date of Dr. Smith's employment agreement was June
2, 2006, the date of the initial closing under the securities purchase agreement
for the June 2006 private placement. Under this agreement, Dr. Smith was
entitled to receive a base salary of $180,000 per year, to be increased to
$236,000 after the first year anniversary of the effective date of her
employment agreement. If the Company raised an aggregate of $5,000,000 through
equity or debt financing (with the exception of the financing under the
securities purchase agreement), Dr. Smith's base salary was to be raised to
$275,000. Dr. Smith was also eligible for an annual bonus determined by the
Board, a car allowance of $1,000 per month and variable life insurance with
payments not to exceed $1,200 per month. Pursuant to the employment agreement,
Dr. Smith's advisory agreement with the Company, as supplemented (see "Certain
Relationships and Related Transactions"), was terminated, except that (i) the
vesting of the warrant to purchase 24,000 shares of Common Stock granted
thereunder was accelerated so that the warrant became fully vested as of the
effective date of the employment agreement, (ii) Dr. Smith received $100,000 in
cash and 100,000 shares upon the initial closing under the June 2006 private
placement, (iii) if an aggregate of at least $3,000,000 was raised and/or other
debt or equity financings prior to August 15, 2006 (as amended, August 31,
2006), Dr. Smith was to receive an additional payment of $50,000, (iv) a final
payment of $3,000 relating to services rendered in connection with Dr. Smith's
advisory agreement, paid at the closing of the June 2006 private placement, and
(v) all registration rights provided in the advisory agreement were to continue
in effect.
As of August 30, 2006, in excess of $3,000,000 had been raised and accordingly,
Dr. Smith was entitled to a payment of $50,000. Dr. Smith elected to have
$30,000 of this amount distributed to certain employees of the Company,
including its Chief Financial Officer and General Counsel, in recognition of
their efforts on behalf of the Company and retained $20,000. Upon the effective
date of the Employment Agreement, Dr. Smith was awarded under the Company's 2003
Equity Participation Plan 200,000 shares of Common Stock of the Company, and
options to purchase 540,000 shares of Common Stock, which options expire ten
years from the date of grant.
On January 26, 2007, in connection with the January 2007 private placement, the
Company entered into a letter agreement with Dr. Smith, pursuant to which Dr.
Smith's employment agreement dated as of May 26, 2006 was amended to provide
that: (a) the term of her employment would be extended to December 31, 2010; (b)
upon the first closings in the January 2007 private placement, Dr. Smith's base
salary would be increased to $250,000; (c) her base salary would be increased by
10% on each one year anniversary of the agreement; (d) no cash bonus would be
paid to Dr. Smith for 2007; and (e) cash bonuses and stock awards under the
Company's 2003 Equity Participation Plan would be fixed at the end of 2007 for
2008, in an amount to be determined. Other than as set forth therein, Dr.
Smith's original employment agreement and all amendments thereto remain in full
force and effect. As consideration for her agreement to substantially extend her
employment term, among other agreements contained in this amendment, on January
18, 2007 Dr. Smith was also granted an option under the Company's 2003 Equity
Participation Plan to purchase 550,000 shares of the Common Stock at a per share
exercise price equal to $.50 vesting as to (i) 250,000 shares upon the first
closings in the January 2007 private placement; (ii) 150,000 shares on June 30,
2007; and (iii) 150,000 shares on December 31, 2007.
30
Mark Weinreb--President
On February 6, 2003, Mr. Weinreb was appointed President and Chief Executive
Officer of the Company and the Company entered into an employment agreement with
Mr. Weinreb. On June 2, 2006, Mr. Weinreb resigned as Chief Executive Officer
and Chairman of the Board, but will continue as President and a director of the
Company. Mr. Weinreb's original employment agreement had an initial term of
three years, with automatic annual extensions unless earlier terminated by the
Company or Mr. Weinreb. Under this agreement, in addition to base salary he was
entitled to an annual bonus in the amount of $20,000 for the initial year in the
event, and concurrently on the date, that the Company received debt and/or
equity financing in the aggregate amount of at least $1,000,000 since the
beginning of his service, and $20,000 for each subsequent year of the term,
without condition.
On May 4, 2005, the Board voted to approve an amendment to Mr. Weinreb's
employment agreement, subject to approval of the stockholders which was obtained
on July 20, 2005, pursuant to which among other things Mr. Weinreb's employment
agreement was amended to (a) extend the expiration date thereof from February
2006 to December 2008; (b) change Mr. Weinreb's annual base salary of $217,800
(with an increase of 10% per annum) to an annual base salary of $250,000 (with
no increase per annum); (c) grant Mr. Weinreb 300,000 shares of Common Stock,
100,000 shares of which shall vest on each of the date of grant and the first
and second anniversaries of the date of grant; (d) commencing in August 2006,
increase Mr. Weinreb's annual bonus from $20,000 to $25,000; and (e) in 2006,
provide for the reimbursement of all premiums in an annual aggregate amount of
up to $18,000 payable by Mr. Weinreb for life and long term care insurance
covering each year during the remainder of the term of his employment. Pursuant
to and as a condition of the closing of the June 2006 private placement, Mr.
Weinreb entered into a letter agreement with the Company in which he agreed to
convert $121,532 of accrued salary (after giving effect to employment taxes
which were paid by the Company) into 165,726 shares of Common Stock at a per
share price equal to $.44 (the price of the shares being sold in the June 2006
private placement). Mr. Weinreb further agreed to a reduction in his base salary
by 25% until the achievement by the Company of certain milestones. In
consideration for such compensation concessions: (i) the remaining vesting of
the shares which was scheduled to vest as to 100,000 shares each on July 20,
2006 and July 20, 2007, was accelerated such that it became fully vested as of
June 2, 2006, the date of the closing of the June 2006 private placement; and
(ii) options to purchase 200,000 shares of Common Stock which were also
scheduled to vest as to 100,000 shares on each of July 20, 2006 and July 20,
2007, were similarly accelerated.
31
On January 26, 2007, the Company entered into a letter agreement with Mr.
Weinreb pursuant to which Mr. Weinreb's employment agreement dated as of August
12, 2005 was supplemented with new terms which provide that: (a) upon the first
closings in the January 2007 private placement, Mr. Weinreb's base salary would
be paid at the annual rate of $200,000 (an annual rate which is 20% lower than
the amount to which he was otherwise entitled under his employment agreement);
(b) he would be entitled to quarterly bonuses of $5,000 commencing March 31,
2007; (c) he would be entitled to bonuses ranging from $3,000 to $5,000 upon the
Company achieving certain business milestones (as follows: (i) a $5,000 bonus
for every fifty collection fees paid to the Company; (ii) a $5,000 bonus for
every five collection agreements signed and for which the fee is collected by
the Company; and (iii) a $3,000 bonus for every twenty five fees paid to the
Company for collection through certain strategic alliances negotiated by Mr.
Weinreb; and (d) any other bonuses would only be paid upon approval by the
Compensation Committee of the Board of Directors. In consideration of his
agreement to a reduction in base salary, and in connection with his entering
into this agreement, an option to purchase 100,000 shares of Common Stock at
$.60 per share, previously granted to Mr. Weinreb on December 5, 2006 and tied
to the opening of certain collection centers, vested upon the execution of the
agreement. This supplemental agreement will terminate upon the Company achieving
certain revenue, financing or adult stem cell collection milestones, or at the
discretion of the Compensation Committee of the Board of Directors. Other than
as set forth therein, Mr. Weinreb's original employment agreement and all
amendments thereto remain in full force and effect.
Catherine M. Vaczy--Vice President and General Counsel
On April 20, 2005, the Company entered into a letter agreement with Catherine M.
Vaczy pursuant to which Ms. Vaczy served as the Company's Vice President and
General Counsel. The term of this original agreement was three years. In
consideration for Ms. Vaczy's services under the letter agreement, Ms. Vaczy was
entitled to receive an annual salary of $155,000 during the first year of the
term, a minimum annual salary of $170,500 during the second year of the term,
and a minimum annual salary of $187,550 during the third year of the term. On
the date of the letter agreement, Ms. Vaczy was granted an option to purchase
15,000 shares of Common Stock pursuant to the Company's 2003 Equity
Participation Plan, with an exercise price equal to $1.00 per share. The option
was to vest and become exercisable as to 5,000 shares on each of the first,
second and third year anniversaries of the date of the agreement and remain
exercisable as to any vested portion thereof in accordance with the terms of the
Company's 2003 Equity Participation Plan and the Company's Incentive Stock
Option Agreement. Pursuant to and as a condition of the closing of the June 2006
private placement, Ms. Vaczy entered into a letter agreement with the Company in
which she agreed to convert $44,711 in accrued salary (after giving effect to
employment taxes which were paid by the Company) into 60,971 shares of Common
Stock at a per share price equal to $.44 (the price of the shares being sold in
the June 2006 private placement). Ms. Vaczy further agreed to a reduction in her
base salary by 25% until the achievement by the Company of certain milestones.
In consideration for such compensation concessions, the vesting of the option to
purchase 15,000 shares of Common Stock was accelerated such that it became fully
vested as of June 2, 2006, the date of the closing of the June 2006 private
placement.
32
On January 26, 2007, the Company entered into another letter agreement with Ms.
Vaczy pursuant to which Ms. Vaczy continues to serve as the Company's Vice
President and General Counsel. This agreement supercedes Ms. Vaczy's employment
agreement dated as of April 20, 2005 and all amendments thereto. Subject to the
terms and conditions of the letter agreement, the term of Ms. Vaczy's employment
in such capacity will continue through December 31, 2008. In consideration for
her services under the letter agreement, Ms. Vaczy will be entitled to receive a
minimum annual salary of $150,000 during 2007 (such amount being 20% less than
the annual salary to which Ms. Vaczy would have been entitled commencing April
20, 2007 pursuant to the terms of her original employment agreement) and a
minimum annual salary of $172,500 during 2008.
In consideration for such salary concessions and agreement to extension of her
employment term, Ms. Vaczy is also entitled to receive a cash bonus upon the
occurrence of each of the following milestones: (a) $5,000 upon the first
closings in the January 2007 private placement; and (b) $7,500 upon the next
registration statement (other than a Form S-8) being declared effective by the
Securities and Exchange Commission. Ms. Vaczy shall also be eligible for
additional cash bonuses as follows, in each case as may be approved by the
Compensation Committee of the Board of Directors: (a) for other tasks and
responsibilities as mutually agreed, such as foundation legal counsel; (b)
pursuant to milestones for 2008 as shall be set no later than December 31, 2007
by Ms. Vaczy and the Company's Chief Executive Officer, which the Chief
Executive Officer shall recommend to the Compensation Committee of the Board of
Directors for their vote thereon; and (c) as may be approved from time to time.
Ms. Vaczy is also entitled to payment or reimbursement of certain expenses
(including a car allowance equal to $1,000 per month) incurred by her in
connection with the performance of her duties and obligations under the letter
agreement, and to participate in any incentive and employee benefit plans or
programs which may be offered by the Company and in all other plans in which the
Company executives participate.
33
Larry A. May--Chief Financial Officer
In connection with the Company's acquisition of the assets of NS California on
January 19, 2006, the Company entered into an employment agreement with Larry A.
May. Mr. May is the former Chief Executive Officer of NS California. Pursuant to
Mr. May's employment agreement, he is to serve as an officer of the Company
reporting to the CEO for a term of three years, subject to earlier termination
as provided in the agreement. In return, Mr. May was to be paid an annual salary
of $165,000, payable in accordance with the Company's standard payroll
practices, and was entitled to participate in the Company's benefit plans
generally available to other executives, including a car allowance equal to $750
per month. Mr. May was granted on his commencement date an employee stock option
under the Company's 2003 Equity Participation Plan to purchase 15,000 shares of
the Company's Common Stock at a per share purchase price equal to $.50, the
closing price of the Common Stock on the commencement date, which was scheduled
to vest as to 5,000 shares of Common Stock on the first, second and third
anniversaries of the commencement date. Pursuant to and as a condition of the
closing of the June 2006 private placement, Mr. May entered into a letter
agreement with the Company in which he agreed to convert $12,692 in accrued
salary (after giving effect to employment taxes which were paid by the Company)
into 17,308 shares of Common Stock at a per share price equal to $.44 (the price
of the shares being sold in the June 2006 private placement). Mr. May further
agreed to a reduction in his base salary by 25% until the achievement by the
Company of certain milestones. In consideration for such compensation
concessions, the vesting of the option to purchase 15,000 shares of Common Stock
was accelerated such that it became fully vested as of June 2, 2006, the date of
the closing of the June 2006 private placement.
On January 26, 2007, in connection with the January 2007 private placement, the
Company entered into a letter agreement with Mr. May, pursuant to which Mr.
May's employment agreement dated as of January 19, 2006 was supplemented with
new terms to provide that: (a) upon the first closings in the January 2007
private placement, Mr. May's base salary would be paid at the annual rate of
$132,000 (an annual rate which is 20% lower than the amount to which he was
otherwise entitled under his original employment agreement); and (b) any bonus
would only be paid upon approval by the Compensation Committee of the Board of
Directors. This supplemental agreement will terminate upon the Company achieving
certain revenue, financing or adult stem cell collection milestones, at the
discretion of the Compensation Committee of the Board of Directors or at such
time as Mr. May is no longer the Company's Chief Financial Officer. Other than
as set forth therein, Mr. May's original employment agreement and all amendments
thereto remain in full force and effect.
POST EMPLOYMENT PAYMENTS
Robin L. Smith
34
Per Dr. Smith's January 26, 2007 letter agreement with the Company, upon
termination of Dr. Smith's employment by the Company without cause or by Dr.
Smith with good reason, the Company shall pay to Dr. Smith her base salary at
the time of termination for the two year period following such termination. In
addition, per Dr. Smith's May 26, 2006 employment agreement, upon termination of
Dr. Smith's employment by the Company without cause or by Dr. Smith for good
reason, Dr. Smith is entitled to: (i) a pro-rata bonus based on the annual bonus
received for the prior year; (ii) COBRA payments for a one year period; and
(iii) have all vested options, as well as all options which would have vested
during the 12 month period following the date of termination, become fully
vested and remain exercisable for a maximum of 48 months (but in no event longer
than the original term of exercise). Upon termination of Dr. Smith's employment
by the Company for cause or by Dr. Smith without good reason, Dr. Smith is
entitled to: (i) the payment of all amounts due for services rendered under the
agreement up until the termination date; and (ii) have all vested options remain
exercisable for a period of ninety days (all stock options which have not vested
shall be forfeited). Upon termination for death or disability, Dr. Smith (or her
estate) is entitled to: (i) the payment of all amounts due for services rendered
under the agreement until the termination date; (ii) family COBRA payments for
the applicable term; and (ii) have all vested options, as well as all options
which would have vested during the 12 month period following the date of
termination, become fully vested and remain exercisable for a maximum of 48
months (but in no event longer than the original term of exercise).
Upon a change in control of the Company, per Dr. Smith's May 26, 2006 employment
agreement, Dr. Smith is entitled to: (i) the payment of base salary for one
year; (ii) a pro-rata bonus based on the annual bonus received for the prior
year; (iii) COBRA payments for a one year period; and (iv) have all vested
options, as well as all options which would have vested during the 12 month
period following the date of termination, become fully vested and remain
exercisable for a maximum of 48 months (but in no event longer than the original
term of exercise).
Mark Weinreb
Pursuant to the amendments to Mr. Weinreb's employment agreement in August 2005,
in the event of termination of Mr. Weinreb's employment by the Company without
cause (except for certain instances of disability), Mr. Weinreb was entitled to
receive a lump sum payment equal to his then base salary and automobile
allowance of $1,000 per month for a period of one year, and to be reimbursed for
disability insurance for Mr. Weinreb and for medical and dental insurance for
Mr. Weinreb and his family for the remainder of the term (through December 31,
2008). Per Mr. Weinreb's January 26, 2007 letter agreement with the Company, in
the event of termination of his employment, severance will instead be paid in
equal installments over a 12 month period in accordance with the payroll
policies and practices of the Company. The January 2007 agreement is in effect
until the Company achieves certain adult stem cell collection, revenue or
financing milestones, or until the Compensation Committee of the Board of
Directors determines to terminate the agreement. Mr. Weinreb's original
employment agreement provides that in the event of certain instances of
disability, Mr. Weinreb is entitled to receive his base salary for three months
followed by half his base salary for another three months. Mr. Weinreb's
original employment agreement also provides that in the event of termination by
the Company without cause, by Mr. Weinreb other than for good reason, or upon
the expiration of the term, Mr. Weinreb will be bound by certain non-competition
provisions for a period of one year following such termination or expiration.
35
Catherine M. Vaczy
Pursuant to Ms. Vaczy's amended employment agreement dated January 26, 2007, in
the event Ms. Vaczy's employment is terminated prior to the end of the term
(December 31, 2008), for any reason, earned but unpaid cash compensation and
unreimbursed expenses due as of the date of such termination will be payable in
full. In addition, in the event Ms. Vaczy's employment is terminated prior to
the end of the term for any reason other than by the Company with cause or Ms.
Vaczy without good reason, Ms. Vaczy or her executor of her last will or the
duly authorized administrator of her estate, as applicable, will be entitled to
receive severance payments equal to $187,500 in the event the employment
termination date is during 2007 and $215,700 in the event the employment
termination date is during 2008 (such amounts based upon the amount of base
salary to which Ms. Vaczy would have been entitled pursuant to the terms of her
original employment agreement), paid in accordance with the Company's standard
payroll practices for executives. In no event will such payments exceed the
remaining salary payments in the term. In the event her employment is terminated
prior to the end of the term by the Company without cause or by Ms. Vaczy for
good reason, all options granted by the Company will immediately vest and become
exercisable in accordance with their terms. No other payments shall be made, nor
benefits provided, by the Company in connection with the termination of
employment prior to the end of the term, except as otherwise required by law. No
severance payments will be payable without Ms. Vaczy first providing the Company
with a release in customary form.
Larry A. May
Under Mr. May's original employment agreement, upon termination of Mr. May's
employment by the Company for any reason except a termination for cause, Mr. May
is entitled to receive severance payments equal to one year's salary, paid
according to the same timing of salary as he is then receiving. No severance
payments shall be made unless and until Mr. May executes and delivers to the
Company a release of all claims against the Company. No other payments are to be
made, or benefits provided, except as otherwise required by law. In
consideration for such payments, Mr. May agreed to certain non-competition and
non-solicitation restrictions for a two year period following such termination.
The January 26, 2007 agreement did not affect such severance arrangements.
36
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table sets forth information on option and stock awards
outstanding at December 31, 2006 for the Named Executive Officers.
Option Awards* Stock Awards*
----------------------------------------------------------------- -------------------------------
Number of Number of Number of Market Value
Securities Securities Shares or of Shares
Underlying Underlying Units of or Units
Unexercised Unexercised Option Option Stock that of Stock that
Options Options Exercise Expiration have not have not
Name # Exercisable** # Unexercisable** Price Date vested vested
- --------------------- ----------------- ----------------- ---------- ---------------- ------------- ---------------
Dr. Robin L. Smith 100,000(1) $ .53 June 1, 2016 200,000(7) $ 150,000
100,000(1) $ .80 June 1, 2016 -- --
100,000(1) $ 1.00 June 1, 2016 -- --
120,000(4) $ 1.60 June 1, 2016 -- --
120,000(5) $ 2.50 June 1, 2016 -- --
100,000(2) $ .60 Dec. 4, 2016 -- --
50,000(6) $ .60 Dec. 4, 2016 -- --
24,000(3) $ .80 Sept. 8, 2008 -- --
Mark Weinreb 250,000(8) $ .30 Feb. 5, 2013 -- --
5,000(9) $ 1.00 Sept. 13, 2014 -- --
400,000(10) $ .60 July 19, 2015 -- --
150,000(12) $ .53 June 1, 2016 -- --
50,000(11) $ .60 Dec. 4, 2016 -- --
100,000(13) $ .60 Dec. 4, 2016 -- --
100,000(14) $ .60 Dec. 4, 2016 -- --
50,000(15) $ .60 Dec. 4, 2016 -- --
Catherine M. Vaczy 15,000(16) $ 1.00 Apr. 19, 2015 -- --
75,000(17) $ .60 July, 19, 2015 -- --
20,000(18) $ .60 Dec. 21, 2015 -- --
100,000(19) $ .53 June 1, 2016 -- --
50,000(20) $ .60 Dec. 4, 2016 -- --
100,000(21) $ .60 Dec. 4, 2016 -- --
Larry A. May 30,000(22) $ 1.80 Sept. 10, 2013 -- --
10,000(23) $ 1.00 Nov. 14, 2014 -- --
15,000(24) $ .50 Jan. 18, 2016 -- --
100,000(25) $ .53 June 1, 2016 -- --
50,000(26) $ .60 Dec. 4, 2016 -- --
50,000(27) $ .60 Dec. 4, 2016 -- --
100,000(28) $ .60 Dec. 4, 2016 -- --
* Unless otherwise noted, all option and stock awards were made under and
are governed by the terms of the Company's 2003 Equity Participation Plan.
** Unless otherwise noted, this option contains a reload feature.
(1) These options were granted to Dr. Smith pursuant to the terms of her
employment agreement dated as of May 26, 2006 and vested in their entirety
on June 2, 2006.
(2) These options were granted to Dr. Smith by the Compensation Committee
of the Board of Directors (the "Compensation Committee") on December 5,
2006 and vested in their entirety upon grant. Non-reload.
(3) Pursuant to the terms of Dr. Smith's employment agreement dated as of
May 26, 2006, Dr. Smith's advisory agreement with the Company dated as of
September 15, 2005 was terminated on June 2, 2006, the date of the
effectiveness of Dr. Smith's employment agreement, except that (i) the
vesting of a warrant to purchase 24,000 shares of Common Stock granted,
September 15, 2005, with an original vesting schedule of 2,000 shares per
month commencing with the date of grant, was accelerated so that the
warrant became fully vested as of June 2, 2006 (not considered a material
change in the terms of such option and accordingly the fair value was not
adjusted). Non-reload.
37
(4) This option vests and becomes exercisable on June 2, 2007.
(5) This option vests and becomes exercisable on June 2, 2008.
(6) This option vests upon the Company's Common Stock being listed for
trading on a securities exchange or upon the Company's acquisition.
Non-reload.
(7) On December 5, 2006 Dr. Smith was granted a stock award of 300,000
shares of Common Stock, of which 100,000 shares vested immediately, with a
per share value equal to $.60 pursuant to an action by the Compensation
Committee of the Board of Directors. The remaining 200,000 shares of Common
Stock will vest upon the close of the Company's next financing with gross
proceeds of at least $4,000,000.
(8) This option was granted to Mr. Weinreb pursuant to the terms of his
employment agreement dated as of February 6, 2003 and vested in its
entirety on the date of grant.
(9) This option was granted to Mr. Weinreb by the Board of Directors on
September 14, 2004 and vested in its entirety on the date of grant.
Non-reload.
(10) This option was granted to Mr. Weinreb by the Board of Directors and
approved by the shareholders on July 20, 2005. The option originally was
scheduled to vest as to 200,000 shares on July 20, 2005; as to an
additional 100,000 shares on July 20, 2006 and as to the remaining 100,000
shares on July 20, 2007. As a condition of the closing of the June 2006
private placement, Mr. Weinreb entered into a letter agreement with the
Company pursuant to which he agreed to convert $121,532 in accrued salary
into shares of Common Stock at a per share price equal to $.44 (the price
of the shares being sold in the June 2006 private placement) and further
agreed to a reduction in his base salary by 25% until the achievement by
the Company of certain milestones, in partial consideration for which the
vesting of this option was accelerated such that it became fully vested as
of June 2, 2006, the date of the closing of the June 2006 private
placement. This was not considered a material change in the terms of such
option and accordingly the fair value was not adjusted.
(11) These options were granted to Mr. Weinreb by the Compensation
Committee of the Board of Directors on December 5, 2006 and vested in their
entirety on December 15, 2006, the date the Company entered into a
collection agreement with Hemacare Corporation. Non-reload.
(12) This option was granted to Mr. Weinreb pursuant to the letter
agreement described in footnote 10, above, and is scheduled to vest as to
33% of the shares upon the Company reaching $1,000,000 in cumulative
revenues; as to an additional 33% of the shares upon the Company reaching
$2,000,000 in cumulative revenues; and as to the remaining 34% upon the
Company reaching $3,000,000 in cumulative revenues. Non-reload.
(13) This option was granted to Mr. Weinreb by the Compensation Committee
on December 5, 2006 and was originally scheduled to vest based upon stem
cell collections commencing by a New York or California Company owned
facility. In connection with the January 2007 private placement, the
Company was informed by the placement agent that it was advisable for the
executive officers of the Company to make continued salary concessions
and/or agree to an extension of their employment term. On January 26, 2007,
Mr. Weinreb therefore entered into a letter agreement with the Company
pursuant to which, among other things, he agreed to a reduction in his
salary by 20% from that to which he would otherwise be entitled under his
employment agreement. In consideration for this salary concession, the
Compensation Committee agreed, among other things, to the acceleration of
the vesting of these options. Non-reload.
(14) This option was granted by the Compensation Committee on December 5,
2006 and vests upon the Company achieving a specified number of adult stem
cell collections by December 31, 2007. Non-reload.
(15) This option was granted by the Compensation Committee on December 5,
2006 and vests upon the Company achieving a specified number of adult stem
cell collections through new selling programs. Non-reload.
38
(16) This option was granted to Ms. Vaczy pursuant to the terms of her
employment agreement dated April 20, 2005 and was originally scheduled to
vest as to 5,000 shares on April 20, 2006; as to an additional 5,000 shares
on April 20, 2007 and as to the remaining 5,000 shares on April 20, 2008.
As a condition of the closing of the June 2006 private placement, Ms. Vaczy
entered into a letter agreement with the Company pursuant to which she
agreed to convert $44,711 in accrued salary into shares of Common Stock at
a per share price equal to $.44 (the price of the shares being sold in the
June 2006 private placement) and further agreed to a reduction in her base
salary by 25% until the achievement by the Company of certain milestones,
in partial consideration for which the vesting of this option was
accelerated such that it became fully vested as of June 2, 2006, the date
of the closing of the June 2006 private placement. This was not considered
a material change in the terms of such option and accordingly the fair
value was not adjusted. Non-reload.
(17) This option was granted to Ms. Vaczy by the Board of Directors and
approved by the shareholders on July 20, 2005. The option originally was
scheduled to vest as to 37,500 shares on July 20, 2006 and as to the
remaining 37,500 shares on July 20, 2007. In partial consideration for Ms.
Vaczy entering into the letter agreement described in Footnote 16, above,
the vesting of this option was accelerated such that it became fully vested
as of June 2, 2006, the date of the closing of the June 2006 private
placement. This was not considered a material change in the terms of such
option and accordingly the fair value was not adjusted.
(18) This option was granted to Ms. Vaczy by the Board of Directors on
December 22, 2005 and was vested in its entirety on the date of grant.
(19) This option was granted to Ms. Vaczy pursuant to the letter agreement
described in footnote 16, above, and is scheduled to vest as to 33% of the
shares upon the Company reaching $1,000,000 in cumulative revenues; as to
an additional 33% of the shares upon the Company reaching $2,000,000 in
cumulative revenues; and as to the remaining 34% upon the Company reaching
$3,000,000 in cumulative revenues. Non-reload.
(20) This option was granted to Ms. Vaczy by the Compensation Committee on
December 5, 2006, and is scheduled to vest upon the close of the Company's
next financing with gross proceeds of at least $4,000,000. Non-reload.
(21) This option was granted to Ms. Vaczy by the Compensation Committee on
December 5, 2006 and is scheduled to vest upon the next registration
statement filed with the SEC by the Company being declared effective.
Non-reload.
(22) This option was granted to Mr. May on September 11, 2003 in connection
with consulting services provided by Mr. May to the Company and was fully
vested upon grant. Non-reload.
(23) This option was granted to Mr. May on November 15, 2004 in connection
with consulting services provided by Mr. May to the Company and was fully
vested upon grant. Non-reload.
(24) This option was granted to Mr. May pursuant to the terms of his
employment agreement dated as of January 19, 2006 and was originally
scheduled to vest as to 5,000 shares on January 19, 2007; as to an
additional 5,000 shares on January 19, 2008 and as to the remaining 5,000
shares on January 19, 2009. As a condition of the closing of the June 2006
private placement, Mr. May entered into a letter agreement with the Company
pursuant to which he agreed to convert $12,692 in accrued salary into
shares of Common Stock at a per share price equal to $.44 (the price of the
shares being sold in the June 2006 private placement) and further agreed to
a reduction in his base salary by 25% until the achievement by the Company
of certain milestones, in partial consideration for which the vesting of
this option was accelerated such that it became fully vested as of June 2,
2006, the date of the closing of the June 2006 private placement. This was
not considered a material change in the terms of such option and
accordingly the fair value was not adjusted.
(25) This option was granted to Mr. May pursuant to the letter agreement
described in footnote 24, above, and is scheduled to vest as to 33% of the
shares upon the Company reaching $1,000,000 in cumulative revenues; as to
an additional 33% of the shares upon the Company reaching $2,000,000 in
cumulative revenues; and as to the remaining 34% upon the Company reaching
$3,000,000 in cumulative revenues. Non-reload.
39
(26) This option was granted to Mr. May by the Compensation Committee on
December 5, 2006, and is scheduled to vest upon the close of the Company's
next financing with gross proceeds of at least $4,000,000. Non-reload.
(27) This option was granted to Mr. May on December 5, 2006 and is
scheduled to vest upon approval, purchase and integration of laboratory
management software appropriate for processing and inventory of autologous
adult stem cells. Non-reload.
(28) This option was granted to Mr. May on December 5, 2006 and is
scheduled to vest upon the hiring by the Company of a new Chief Financial
Officer and the successful handoff of these responsibilities. Non-reload.
DIRECTOR COMPENSATION
The following table sets forth information on all compensation to our directors
for the year ended December 31, 2006.
Fees Earned
or Paid in Stock Option All Other
Name Cash Awards Awards(1) Compensation Total
- --------------------------- ---------------- ---------------- ---------------- ---------------- ----------------
Richard Berman -- $ 93,333(2) -- -- $ 93,333
Steven Myers -- $ 46,667(3) -- -- $ 46,667
Joseph Zuckerman, MD -- -- $ 31,387(4) -- $ 31,387
Wayne A. Marasco, MD(5) $ 92,812(6) -- $ 51,282(7) $ 20,000(8) $ 164,094
(1) Effective January 1, 2006, the Company's Stock Option Plan is accounted
for in accordance with the recognition and measurement provisions of
Statement of Financial Accounting Standards ("FAS") No. 123 (revised 2004),
Share-Based Payment ("FAS 123(R)"), which replaces FAS No. 123, Accounting
for Stock-Based Compensation, and supersedes Accounting Principles Board
Opinion ("APB") No. 25, Accounting for Stock Issued to Employees, and
related interpretations. FAS 123 (R) requires compensation costs related to
share-based payment transactions, including employee stock options, to be
recognized in the financial statements. In addition, the Company adheres to
the guidance set forth within Securities and Exchange Commission ("SEC")
Staff Accounting Bulletin ("SAB") No. 107, which provides the Staff's views
regarding the interaction between SFAS No. 123(R) and certain SEC rules and
regulations and provides interpretations with respect to the valuation of
share-based payments for public companies. In adopting FAS 123(R), the
Company applied the modified prospective approach to transition. Under the
modified prospective approach, the provisions of FAS 123 (R) are to be
applied to new awards and to awards modified, repurchased, or cancelled
after the required effective date. Additionally, compensation cost for the
portion of awards for which the requisite service has not been rendered
that are outstanding as of the required effective date shall be recognized
as the requisite service is rendered on or after the required effective
date. The compensation cost for that portion of awards shall be based on
the grant-date fair value of those awards as calculated for either
recognition or pro-forma disclosures under FAS 123. The general assumptions
made in calculating the fair value of options are set forth in Note 7 of
the Company's notes to its audited consolidated financial statements for
the fiscal years ended December 31, 2006 and 2005.
(2) Mr. Berman was awarded a stock grant of 400,000 shares of Common Stock,
valued at $.70 per share, on November 15, 2006 in connection with his
appointment as a member of the Board of Directors, Chairman of the Audit
Committee and Chairman of the Compensation Committee. This stock grant
vests as follows: 133,333 shares on November 15, 2006, 133,333 shares on
November 15, 2007 and 133,334 on November 15, 2008. At December 31, 2006,
266,667 shares of Common Stock remain unvested with a market value of
$200,000. Mr. Berman had no option awards outstanding at December 31, 2006.
(3) Mr. Myers was awarded a stock grant of 200,000 shares of Common Stock,
valued at $.70 per share, on November 16, 2006 in connection with his
appointment as a member of the Board of Directors. This stock grant vests
as follows: 66,666 shares on November 16, 2006, 66,666 shares on November
16, 2007 and 66,668 on November 16, 2008. At December 31, 2006, 133,334
shares of Common Stock remain unvested with a market value of $100,000. Mr.
Myers had no option awards outstanding at December 31, 2006.
40
(4) Dr. Zuckerman was awarded options to purchase 190,000 shares of Common
Stock with exercise prices ranging from $.60 to $1.50 per share, originally
vesting between January 20, 2004 and July 20, 2007, with termination dates
ranging from January 18, 2014 to August 29, 2016. 50,000 of such shares
were not scheduled to vest until July 20, 2006 as to 25,000 and July 20,
2007 as to 25,000; the vesting of such options was accelerated such that
they became fully vested as of June 2, 2006, the date of the closing of the
June 2006 private placement. This was not considered a material change in
the terms of such options and accordingly the fair values were not
adjusted. On August 29, 2006, Dr. Zuckerman was awarded an option to
purchase 25,000 shares at $.60 per share, all of which vested immediately.
At December 31, 2006 all 215,000 Common Stock options were unexercised and
outstanding. Dr. Zuckerman had no stock awards outstanding at December 31,
2006.
(5) Wayne A. Marasco served as a director of the Company through November
12, 2006 and as Senior Scientific Advisor of the Company through January
29, 2007. Dr. Marasco currently serves as the Chairman of the Company's
Scientific Advisory Board.
(6) This amount represents salary paid to Dr. Marasco in 2006 in his
capacity as the Company's Senior Scientific Advisor.
(7) Dr. Marasco was awarded options to purchase 250,000 shares of Common
Stock with an exercise price of $.60 per share, originally vesting between
July 20, 2005 and July 20, 2007, with termination dates ranging from July
20, 2015 to July 20, 2017. 150,000 of such shares were not scheduled to
vest until July 20, 2006 as to 75,000 and July 20, 2007 as to 75,000; the
vesting of such options was accelerated such that they became fully vested
as of June 2, 2006, the date of the closing of the June 2006 private
placement. This was not considered a material change in the terms of such
options and accordingly the fair values were not adjusted. On June 2, 2006,
Dr. Marasco was awarded an option to purchase 10,000 shares of Common Stock
at $.44 per share. This new option will vest as the Company achieves
certain business milestones, which have not yet been achieved. At December
31, 2006, Dr. Marasco had outstanding and unexercised, options to purchase
362,500 shares of Common Stock. Dr. Marasco had no stock awards outstanding
at December 31, 2006.
(8) This amount consists of: (i) a contractual bonus of $12,000; (ii) a
bonus award of $3,000; and (iii) a distribution of $5,000 from the
Company's Chief Executive Officer upon her receipt of a bonus awarded upon
the achievement of a business milestone (see the Summary Compensation
Table, footnote 3).
GENERAL INFORMATION ON DIRECTOR COMPENSATION
Directors who are employees of the Company do not receive additional
compensation for serving as directors. Independent (non-employee) directors of
the Company are entitled to reimbursement for out-of-pocket travel expenses
incurred in their capacity as directors of the Company. Pursuant to the
Company's 2003 Equity Participation Plan, independent directors also received
upon joining the Board an option to purchase 200,000 shares that vested and
became exercisable as to 50,000 shares on each of the date of grant and the
first, second and third anniversaries of the date of grant at an exercise price
equal to the fair market value of the Common Stock on the date of grant. This
arrangement was approved by the Company's stockholders in August 2006. In
October 2006, the Board amended the 2003 Equity Participation Plan to remove the
provision relating to automatic grants of options to non-employee directors to
provide greater flexibility as the Company grows. The Company's then only
current independent director, Joseph Zuckerman, received options to purchase
40,000 shares of the Company's Common Stock pursuant to the standard arrangement
existing prior to the August 2006 arrangement. In addition, in July 2005 the
shareholders approved a grant to Dr. Zuckerman of an option to purchase 150,000
shares of the Company's Common Stock at $0.60 per share (which was greater than
the market price on the date the Board approved the grant), with respect to
which the option to purchase 100,000 shares vested immediately upon the date of
grant and 25,000 shares were scheduled to vest on each of the first and second
anniversaries of the date of grant. In connection with the June 2006 financing,
the vesting of this option was accelerated such that it became vested in its
entirety on June 2, 2006. On August 29, 2006, the Board approved the grant to
Dr. Zuckerman of an option to purchase 25,000 shares of the Company's Common
Stock at $0.60 per share (the market price on the date the Board approved the
grant) which vested immediately.
41
Upon appointment as directors on November 15, 2006 and November 16, 2006,
respectively, Mr. Berman and Mr. Myers were each granted 200,000 shares of
restricted stock of the Company, pursuant to the Company's 2003 Equity
Participation Plan. Mr. Berman was also granted 200,000 shares for his
appointment as Chairman of the Audit Committee and the Compensation Committee of
the Board of Directors, pursuant to the terms of the 2003 Equity Participation
Plan. One-third of the shares of restricted stock granted vested upon the date
of grant, and the remainder will vest in two equal annual installments beginning
one year from the date of grant.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file initial reports of
ownership and reports of changes in ownership with the Securities and Exchange
Commission. These persons are required by the Securities and Exchange Commission
to furnish the Company with copies of all Section 16(a) reports that they file.
Based solely on the Company's review of these reports and written
representations furnished to the Company, the Company believes that in 2006 each
of the reporting persons complied with these filing requirements.
Code of Ethics
The Company has adopted a Code of Ethics that applies to the Company's
principal executive officer, principal financial officer, principal accounting
officer or controller (or persons performing similar functions). The Code of
Ethics is available on our website, www.neostem.com, and also has been filed as
Exhibit 14.1 to Annual Report on Form 10-K for the year ended December 31, 2003.
42
PROPOSAL TWO
CONSIDERATION OF AND VOTE TO APPROVE THE ADOPTION OF AN AMENDMENT TO THE
COMPANY'S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO EFFECT A REVERSE
STOCK SPLIT OF THE COMPANY'S COMMON STOCK IN THE EVENT IT IS DEEMED BY THE BOARD
OF DIRECTORS NECESSARY TO BE ACCEPTED ONTO A SECURITIES EXCHANGE
On April 13, 2007, the Company's Board of Directors approved, subject to
the approval of the holders of the Company's Common Stock, the adoption of an
amendment to the Company's Amended and Restated Certificate of Incorporation
effecting a reverse stock split of the issued shares of the Company's Common
Stock, at a ratio within the range of 3:1 to 7:1. The Board is seeking
shareholder approval of the reverse split but has determined to effect it only
in the event it is necessary in order for the Company's Common Stock to be
accepted for listing on a securities exchange. Should the split be effected,
upon the effectiveness of the amendment to the Company's Amended and Restated
Certificate of Incorporation, referred to as the split effective time, the
issued shares of the Company's Common Stock immediately prior to the split
effective time will be reclassified into a smaller number of shares such that a
Company stockholder will own one new share of the Company's Common Stock for
each 3 to 7 shares of issued Common Stock held by that stockholder immediately
prior to the split effective time. If the Board of Directors deems a split is
necessary, the exact split ratio within the 3:1 to 7:1 range will be determined
by the Board prior to the split effective time and will be publicly announced by
the Company. The par value of each share of Common Stock shall be maintained at
$.001 per share for the reduced number of shares after the reverse split. Even
if the stockholders approve the reverse stock split, the Company may not effect
the reverse stock split if the Board of Directors does not deem it to be in the
best interests of the Company and its stockholders.
Purpose
If the Board chooses to effect the reverse stock split, it will be based
upon the following considerations:
o Because the Company expects to apply for listing on the American Stock
Exchange, which listing standards will require the Company to have,
among other things, a $3.00 per share minimum price;
o because the Company may in the future apply for listing on another
stock exchange or market which includes in its listing standards a
minimum price per share;
o because the Board believes a higher stock price may otherwise help
generate investor interest in the Company and increase trading volume
in the Company's Common Stock; or
43
o because the Board believes that raising the per share market price of
the Company's Common Stock may facilitate future financings or
increase its ability to use its capital stock in acquisitions.
American Stock Exchange Requirements for Listing
The Company's Common Stock is currently traded on the OTC Bulletin Board, a
regulated U.S. quotation service for stocks of reporting companies which are not
listed on one of the major U.S. Stock Exchanges. The Board of Directors believes
that obtaining and maintaining a listing on the American Stock Exchange may
provide a broader market for the Company's Common Stock, increase shareholder
value and facilitate the use of the Company's Common Stock in financing,
acquisition and other transactions. The listing standards for initial inclusion
in the American Stock Exchange will require the Company to have, among other
things, a $3.00 per share minimum price. On April 12, 2007, the Company's Common
Stock closed at $0.61 per share. Therefore, the reverse stock split may be
necessary in order to be eligible to apply for initial inclusion. The Company's
Board of Directors unanimously approved the reverse stock split with this in
mind in the event the Common Stock does not attain the $3.00 minimum price
independently despite the anticipated growth in the Company's business.
Requirements for Listing on Other Exchanges or Markets
The Company may also consider application for listing of its Common Stock
on other exchanges or markets in or outside the United States. Any such listing
may require the market price of the Company's Common Stock to be increased above
its current level.
Potential Increased Investor Interest
In approving the proposal approving the amendment to the Company's Amended
and Restated Certificate of Incorporation, the Company's Board of Directors
noted that a low share price can reduce the effective marketability of stocks
because of the reluctance of some brokerage firms to recommend low-priced stocks
to their clients and because many institutional investors generally do not
invest in low priced stocks. Further, a variety of brokerage house policies and
practices tend to discourage individual brokers within those firms from dealing
in low-priced stocks. Some of those policies and practices pertain to the
payment of brokers' commissions and to time-consuming procedures that function
to make the handling of low-priced stocks unattractive to brokers from an
economic standpoint. In addition, the structure of trading commissions also
tends to have an adverse impact upon holders of low-priced stocks because the
brokerage commission on a sale of low-priced stock generally represents a higher
percentage of the sales price than the commission on a relatively higher-priced
issue. The Board of Directors believes that the reverse stock split may result
in a higher trading range for the Common Stock and may encourage institutional
investors to invest in, and brokerage houses to recommend, the Company's Common
Stock. If the reverse stock split is effected, the market price of the Company's
Common Stock will also be based on the Company's performance and other factors
unrelated to the number of shares outstanding.
44
Principal Effects of the Reverse Stock Split
In the event the Board determines to effect the reverse stock split, the
form of amendment to the Company's Amended and Restated Certificate of
Incorporation effecting the reverse stock split would be as set forth in Annex A
to this proxy statement. This amendment, as more fully described below, would
effect the reverse stock split but would not change the number of authorized
shares of Common Stock or preferred stock, or the par value of the Common Stock
or preferred stock.
In the event the reverse stock split is effected, it will be effected
simultaneously for all outstanding shares of the Company's Common Stock. The
reverse stock split will affect all of the Company's stockholders uniformly and
will not affect any stockholder's percentage ownership interests in the Company,
except to the extent that the reverse stock split results in any of the
Company's stockholders owning a fractional share, in which case such fractional
share will be rounded up to the next whole share. Common Stock issued pursuant
to the reverse stock split will remain fully paid and nonassessable. The reverse
stock split will not affect the Company's continuing to be subject to the
periodic reporting requirements of the Securities Exchange Act of 1934, as
amended.
As shown in the table below, in the event the reverse stock split is
effected, one of its effects will be to effectively increase the proportion of
authorized shares which are unissued relative to those which are issued. This
could result in the Company's management being able to issue more shares without
further stockholder approval. The Company's Board of Directors believes that the
continued availability of sufficient shares of the Company's Common Stock is
necessary and desirable to permit the Company the flexibility of engaging in
future equity financings or acquisitions utilizing Common Stock.
45
The following table provides estimates of the number of shares of the
Company's Common Stock authorized, issued and outstanding, reserved for issuance
and authorized but neither issued nor reserved for issuance at the following
times: (i) prior to the reverse stock split, (ii) in the event a reverse stock
split is effected and it is at a 3:1 ratio and (iii) in the event a reverse
stock split is effected and it is at a 7:1 ratio:
Number of Number of Shares
Shares of Number of Shares Number of Authorized but Neither
Common Stock Issued and Shares Reserved Issued nor Reserved for
Authorized Outstanding(1) For Issuance(1)(2)(3) Issuance(1)(2)(3)
-------------------- ------------------- --------------------- -----------------------
Prior to the Reverse Stock Split: 500,000,000 26,388,098 19,162,525 454,449,377
After Assumed 3:1 Reverse Stock 500,000,000 8,796,033 6,387,508 484,816,459
Split:
After Assumed 7:1 Reverse Stock 500,000,000 3,769,728 2,737,504 493,492,768
Split:
(1) These estimates assume 26,388,098 shares of NeoStem, Inc. Common Stock
issued and outstanding immediately prior to the reverse stock split which
was the number of shares issued and outstanding as of April 16, 2007.
(2) The Company has an additional 17,644,000 shares reserved for issuance under
its 2003 Equity Participation Plan, as amended. 5,616,000 shares issuable
upon the exercise of options are already outstanding and included in the
total number of shares reserved for issuance in this Table. 1,740,000
shares are already issued and outstanding under the Plan.
(3) These estimates do not reflect the potential effect of rounding up for
fractional shares that may result from the reverse stock split.
There are at present no plans, agreements, undertakings or arrangements on
the part of the Company concerning the issuance of shares of Common Stock, other
than those shares presently reserved for issuance upon exercise of options and
warrants from time to time, and other than shares that could be issued to
certain service providers, employees and consultants and in connection with
potential acquisitions of intellectual property and capital raising activities
conducted by the Company from time to time. If any plans, understandings,
agreements or arrangements are made concerning the issuance of any such shares,
holders of then outstanding shares of the Company's Common Stock may or may not
be given the opportunity to vote thereon, depending on the nature of any such
transactions, the law applicable thereto and the judgment of the Company's Board
of Directors regarding the submission thereof to the Company's stockholders.
Board Discretion to Effect Reverse Stock Split
46
The Board of Directors may effect only one reverse stock split in
connection with this Proposal No. Two. The Board may not effect any reverse
stock split. The Board of Directors' decision to effect the reverse split at all
will be based primarily on achieving the listing criteria of the American Stock
Exchange, but it may also consider other factors, including market conditions,
and existing and expected trading prices for the Company's Common Stock based on
milestone achievements in the Company's development.
Par Value
In the event the reverse stock split is effected, the par value of the
Company's Common Stock will remain at $.001 per share, the same pre-reverse
split as post-reverse split. If the reverse stock split is effected, the total
stated capital will be reduced and additional paid-in-capital will be increased
in the same amount, as discussed below.
Accounting Matters
In the event the reverse stock split is effected, it will not affect the
total amount of stockholders' equity on the Company's balance sheet. However,
because the par value of the Company's Common Stock will remain unchanged on the
effective date of the split, the components that make up the Common Stock
capital account will change by offsetting amounts. In the event the reverse
stock split is effected, depending on the size of the reverse stock split the
board of directors decides to implement, the stated capital component will be
reduced to an amount between ___________ (in the event of a ratio of 3:1) and
______________ (in the event of a ratio of 7:1) from its present amount, and the
additional paid-in capital component will be increased by the same amount by
which the stated capital is reduced. The per share net income or loss and per
share net book value of the Company will be increased because there will be
fewer shares of the Company's Common Stock outstanding. Prior periods' per share
amounts on future financial statement reports will be restated to reflect the
reverse stock split for comparative purposes.
Potential Anti-Takeover Effect
Although the increased proportion of unissued authorized shares to issued
shares could, under certain circumstances, have an anti-takeover effect, for
example, by permitting issuances that would dilute the stock ownership of a
person seeking to effect a change in the composition of the Company's board of
directors or contemplating a tender offer or other transaction for the
combination of the Company with another company, the reverse stock split
proposal is not being proposed in response to any effort of which the Company is
aware to accumulate shares of the Company's Common Stock or obtain control of
the Company, nor is it part of a plan by management to recommend a series of
similar amendments to the Company's board of directors and stockholders. The
board of directors does not currently contemplate recommending the adoption of
any other actions that could be construed to affect the ability of third parties
to take over or change control of the Company.
47
No Appraisal Rights
Under the Delaware General Corporation Law, the Company's stockholders are
not entitled to appraisal rights with respect to the reverse stock split, and
the Company will not independently provide stockholders with any such right.
Fractional Shares
The Company will not issue fractional shares of stock in connection with
any reverse stock split. In lieu thereof, stockholders who would otherwise be
entitled to receive a factional share as a consequence of the reverse stock
split will be rounded up to the next whole share of our Common Stock. As a
result, shareholders will not receive cash for fractional shares.
Miscellaneous
In the event the reverse stock split is effected, it will result in an
increased number of stockholders owning "odd lots" of fewer than 100 shares of
Common Stock after the reverse split. The per share costs, including brokerage
commissions, of transactions in odd lots, are generally higher than the costs of
transactions in "round lots" of multiples of 100 shares.
Procedure for Effecting Reverse Stock Split and Exchange of Stock Certificates
If the Company's stockholders approve the amendment to the Company's
Amended and Restated Certificate of Incorporation effecting the reverse stock
split, and if the Company's board of directors believes that effecting a reverse
stock split is in the best interests of the Company and its stockholders, the
Company's board will determine the ratio of the reverse stock split to be
implemented and publicly announce such ratio. The Company will file a
certificate of amendment with the Secretary of State of the State of Delaware at
such time as the board of directors has determined to be the appropriate split
effective time. The board of directors may delay effecting the reverse stock
split without resoliciting stockholder approval. Beginning at the split
effective time, each certificate representing pre-split shares will be deemed
for all corporate purposes to evidence ownership of post-split shares.
In the event the reverse stock split is effected, as soon as practicable
after the split effective time, stockholders will be notified that the reverse
stock split has been effected. The Company's transfer agent will act as exchange
agent for purposes of implementing the exchange of stock certificates. Holders
of pre-split shares may surrender to the exchange agent certificates
representing pre-split shares in exchange for certificates representing
post-split shares in accordance with the procedures to be set forth in a letter
of transmittal to be sent by the Company. No new certificates will be issued to
a stockholder until such stockholder has surrendered such stockholder's
outstanding certificate(s) together with the properly completed and executed
letter of transmittal to the exchange agent and the applicable transfer fee
payable by the stockholder. Any pre-split shares submitted for transfer, whether
pursuant to a sale or other disposition, or otherwise, will automatically be
exchanged for post-split shares. STOCKHOLDERS SHOULD NOT DESTROY ANY STOCK
CERTIFICATE(S) AND SHOULD NOT SUBMIT ANY CERTIFICATE(S) UNLESS AND UNTIL
REQUESTED TO DO SO.
48
Vote Required to Approve the Amendment to the Amended and Restated Certificate
of Incorporation
Approval of any reverse stock split described herein and as set forth in
the amendment to the Company's Amended and Restated Certificate of
Incorporation, attached hereto as Exhibit A, requires the affirmative vote of a
majority of the aggregate number of shares of Common Stock outstanding. By
approving the amendment to the Company's Amended and Restated Certificate of
Incorporation effecting the reverse stock split, stockholders will be approving
the potential combination of any whole number of issued shares of Common Stock
between and including 3 and 7 shares into one share.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY VOTE
"FOR" THIS PROPOSAL.
49
PROPOSAL THREE
RATIFICATION OF THE APPOINTMENT OF HOLTZ RUBENSTEIN REMINICK LLP
AS THE COMPANY'S INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2007
The Audit Committee has appointed Holtz Rubenstein Reminick LLP as the
Company's independent registered public accounting firm for the year ending
December 31, 2007. Our Board is submitting this appointment to our stockholders
for ratification. Holtz Rubenstein Reminick LLP has served as the Company's
independent registered public accounting firm since 2003. It is intended that
the persons named in the accompanying proxy will vote for the ratification of
Holtz Rubenstein Reminick LLP. Representatives of Holtz Rubenstein Reminick LLP
are expected to attend the meeting, to have an opportunity to make a statement
if they desire to do so and to be available to respond to appropriate questions.
ACCOUNTING FEES AND OTHER ACCOUNTING MATTERS
The following is a summary of the fees billed or expected to be billed to us by
Holtz Rubenstein Reminick LLP, the Company's independent auditors, for
professional services rendered for the fiscal years ended December 31, 2006 and
December 31, 2005:
Fee Category Fiscal 2006 Fees Fiscal 2005 Fees
- ------------- ---------------- ----------------
Audit Fees(1) $ 60,000 $ 32,000
Audit-Related Fees(2) 51,000 54,000
Tax Fees(3) 10,000 8,000
All Other Fees(4) - -
---------------- ----------------
Total Fees $ 121,000 $ 94,000
(1) Audit Fees consist of aggregate fees billed or expected to be billed for
professional services rendered for the audit of the Company's annual
consolidated financial statements included in the Company's Annual Reports on
Form 10-K and review of the interim consolidated financial statements included
in Quarterly Reports on Form 10-Q or services that are normally provided by the
independent auditors in connection with statutory and regulatory filings or
engagements for the fiscal years ended December 31, 2006 and December 31, 2005,
respectively.
(2) Audit-Related Fees consist of aggregate fees billed for assurance and
related services that are reasonably related to the performance of the audit or
review of the Company's consolidated financial statements and are not reported
under "Audit Fees." Such services include review of S-1 filings and research
into various accounting issues.
(3) Tax Fees consist of aggregate fees billed or expected to be billed for
professional services rendered for tax compliance, tax advice and tax planning.
These fees related to preparation of the Company's federal and state income tax
returns and other tax compliance activities.
(4) All Other Fees consist of aggregate fees billed for products and services
provided by Holtz Rubenstein Reminick LLP, other than those disclosed above.
These fees related to general accounting consulting services.
The Audit Committee is responsible for the appointment, compensation and
oversight of the work of the independent auditors and approves in advance any
services to be performed by the independent auditors, whether audit-related or
not. The Audit Committee reviews each proposed engagement to determine whether
the provision of services is compatible with maintaining the independence of the
independent auditors. All of the fees shown above were pre-approved by the Audit
Committee.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS OF
THE COMPANY VOTE "FOR" THIS PROPOSAL.
STOCKHOLDER PROPOSALS
Any proposal intended to be presented by a stockholder at the 2008 Annual
Meeting of Stockholders must be received by the Company at the Company's
principal executive offices, 420 Lexington Avenue, Suite 450, New York, New York
10170 no later than the close of business on _______________, 2008 to be
considered for inclusion in the Proxy Statement for the 2008 Annual Meeting and
by _________________, 2008 in order for the proposal to be considered timely for
consideration at next year's Annual Meeting (but not included in the Proxy
Statement for such meeting).
ANNUAL REPORTS
The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2006 (the "2006 Annual Report") containing consolidated financial
statements reflecting the financial position of the Company as of December 31,
2006 and 2005, and the results of operations and statements of cash flows for
each of the three years in the period ended December 31, 2006, has been mailed
with this proxy material to all stockholders. The 2006 Annual Report is not to
be regarded as proxy soliciting material or as a communication by means of which
any solicitation is to be made.
DELIVERY OF DOCUMENTS TO SECURITY HOLDERS SHARING AN ADDRESS
The Company delivers its proxy materials and annual reports to each
stockholder of record. If any stockholders sharing an address wish to receive
only one copy of each such document, they should send a letter with this request
to the Company's principal executive offices, c/o Corporate Secretary, 420
Lexington Avenue, Suite 450, New York, New York 10170.
50
OTHER BUSINESS
The Annual Meeting of Stockholders is called for the purposes set forth in
the Notice. The Board does not know of any matter for action by stockholders at
such meeting other than the matters described in the Notice. However, the
enclosed proxy will confer discretionary authority with respect to matters which
are not known at the date of printing hereof which may properly come before the
meeting. It is the intention of the person named in the proxy to vote in
accordance with their judgment on any such matter.
You are cordially invited to attend the Annual Meeting in person. Your
participation in and discussion of the Company's affairs will be welcome.
By Order of the Board of Directors
--------------------------------
Catherine M. Vaczy, Secretary
51
Exhibit A
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
NEOSTEM, INC.
Pursuant to Section 242 of the General Corporation Law of the State of
Delaware, NeoStem, Inc., a corporation organized and existing under the laws of
the State of Delaware (the "Corporation"), does hereby certify as follows:
1. The name of the Corporation is NeoStem, Inc. The date of filing of its
original Certificate of Incorporation with the Secretary of State of
the State of Delaware was September 18, 1980, under the name of
Fidelity Medical Services, Inc. The name of the Corporation was
changed to Phase III Medical Inc. by filing a Certificate of Amendment
to the Certificate of Incorporation with the Secretary of State of
Delaware on July 24, 2003. The name of the Corporation was changed to
NeoStem, Inc. by filing an Amended and Restated Certificate of
Incorporation with the Secretary of State of Delaware on August 29,
2006.
2. The Board of Directors of the Corporation has duly adopted a
resolution pursuant to Section 242 of the General Corporation Law of
the State of Delaware setting forth a proposed amendment to the
Amended and Restated Certificate of Incorporation of the Corporation
and declaring said amendment to be advisable. The requisite
stockholders of the Corporation have duly approved said proposed
amendment in accordance with Section 242 of the General Corporation
Law of the State of Delaware. The amendment amends the Amended and
Restated Certificate of Incorporation of the Corporation as follows:
Article FOURTH is hereby amended by adding a Section E which reads as follows:
"1. Effective upon the filing of this Certificate of Amendment of the
Amended and Restated Certificate of Incorporation with the Secretary of State of
the State of Delaware (the "Effective Time"), the shares of Common Stock issued
and outstanding immediately prior to the Effective Time and the shares of Common
Stock issued and held in the treasury of the Corporation immediately prior to
the Effective Time are reclassified into a smaller number of shares such that
each three to seven shares of issued Common Stock immediately prior to the
Effective Time is reclassified into one share of Common Stock, the exact ratio
within the three-to-seven range to be determined by the board of directors of
the Corporation prior to the Effective Time and publicly announced by the
Corporation. Notwithstanding the immediately preceding sentence, no fractional
shares shall be issued and, in lieu thereof, any person who would otherwise be
entitled to a fractional share of Common Stock as a result of the
reclassification shall be entitled to be rounded up to the next whole share of
Common Stock.
2. Each stock certificate that, immediately prior to the Effective Time,
represented shares of Common Stock that were issued and outstanding immediately
prior to the Effective Time shall, from and after the Effective Time,
automatically and without the necessity of presenting the same for exchange,
represent that number of whole shares of Common Stock after the Effective Time
into which the shares of Common Stock formerly represented by such certificate
shall have been reclassified (as well as the right to receive a whole share in
lieu of a fractional share of Common Stock), provided, however, that each person
of record holding a certificate that represented shares of Common Stock that
were issued and outstanding immediately prior to the Effective Time shall
receive, upon surrender of such certificate, a new certificate evidencing and
representing the number of whole shares of Common Stock after the Effective Time
into which the shares of Common Stock formerly represented by such certificate
shall have been reclassified (including the right to receive a whole share in
lieu of a fractional share of Common Stock)."
A-1
52
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by its Chief Executive Officer this [ ] day of
[ ], [ ].
NEOSTEM, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
A-2
53
NEOSTEM, INC.
PROXY CARD FOR HOLDERS OF COMMON STOCK
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
JUNE 14, 2007
The undersigned hereby appoints Robin L. Smith and Catherine M. Vaczy, and
each of them, attorneys and proxies with power of substitution, to vote for and
on behalf of the undersigned at the NeoStem, Inc. Annual Meeting of Stockholders
to be held on June 14, 2007 and at any adjournments or postponements thereof
(the "Meeting"), upon the following matters and upon any other business that may
properly come before the Meeting, as set forth in the related Notice of Meeting
and Proxy Statement, both of which have been received by the undersigned.
This proxy, when properly executed, will be voted in the manner directed
by the undersigned stockholder. If this proxy is executed but no direction is
made, this proxy will be voted FOR the Board's nominees for director named
herein, adoption of an amendment to the Company's Amended and Restated
Certificate of Incorporation, effecting a reverse stock split of the Company's
Common Stock at a ratio of one-for-three shares to one-for-seven shares and
ratification of the appointment of the Company's independent registered public
accounting firm to audit the Company's financial statements for the 2007 fiscal
year.
PLEASE INDICATE YOUR VOTE ON THE OTHER SIDE.
(CONTINUED, AND TO BE DATED AND SIGNED, ON THE OTHER SIDE)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR" PROPOSALS 1, 2 AND 3
Withold authority for
all nominees
For all *(except as marked to
nominees the contrary below) Nominees:
-------------- ------------------------
1. Election of 5 Robin L. Smith
Directors. Mark Weinreb
-------------- ------------------------ Joseph D. Zuckerman
Richard Berman
Steven S. Myers
* To withhold authority for any individual nominees, print nominee's name on the
line below.
- --------------------------------------------------------------------------------
54
FOR AGAINST ABSTAIN
- -------------------------------------- ------------- ------------- -------------
2. Approval of the amendment to
the Company's Amended and
Restated Certificate of
Incorporation, effecting a
reverse stock split of the
Company's Common Stock at a
ratio of one-for-three to
one-for-seven shares.
- -------------------------------------- ------------- ------------- -------------
3. Ratification of Holtz Rubenstein
Reminick LLP to audit the
Company's financial statements
for the fiscal year ending 2007
- -------------------------------------- ------------- ------------- -------------
In their discretion, the above named proxies are authorized to vote upon such
other business as may properly come before the meeting or any adjournment
thereof and upon matters incident to the conduct of the meeting.
UNLESS OTHERWISE SPECIFIED IN THE SQUARES OR SPACE PROVIDED IN THIS PROXY,
THIS PROXY WILL BE VOTED FOR THE BOARD'S NOMINEES FOR DIRECTOR NAMED HEREIN,
ADOPTION OF THE AMENDMENT TO THE COMPANY'S AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION EFFECTING A REVERSE STOCK SPLIT OF THE COMPANY'S COMMON STOCK AT A
RATIO OF ONE-FOR-THREE SHARES TO ONE-FOR-SEVEN SHARES AND THE RATIFICATION OF
THE APPOINTMENT OF THE COMPANY'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO AUDIT THE COMPANY'S FINANCIAL STATEMENTS FOR THE 2007 FISCAL YEAR.
Please sign this proxy and return it promptly whether or not you expect to
attend the meeting. You may nevertheless vote in person if you attend.
Signed:
--------------------------
Signed: Dated: , 2007
-------------------------- --------------
NOTE: Please sign exactly as your name appears hereon. Give full title if an
Attorney, Executor, Administrator, Trustee, Guardian, etc. For an account in the
name of two or more persons, each should sign, or if one signs, he should attach
evidence of his authority.
55