UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
FORM 10-K/A
(Mark One)
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| þ | | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2008
OR
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| o | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-33718
BIOHEART, INC.
(Exact name of registrant as specified in its charter)
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| Florida | | 65-0945967 |
(State or other jurisdiction of
incorporation or organization) | | (I.R.S. Employer Identification No.) |
13794 NW 4th Street, Suite 212, Sunrise, Florida 33325
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code(954) 835-1500
Securities registered pursuant to Section 12(b) of the Act:None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 Par Value
Indicate by check mark if the registrant is a well known seasoned issuer, as defined in Rule 405 of the Securities Act. Yeso Nox
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yeso Nox
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx Noo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yeso Noo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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| Large accelerated filero | | Accelerated filero | | Non-accelerated filero | | Smaller reporting companyx |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
As of June 30, 2008, the aggregate market value of the registrant’s common stock, $0.001 par value, held by non-affiliates, computed by reference to the closing sale price of the common stock reported on the NASDAQ Capital Market as of June 30, 2008, was approximately $23.6 million. For purposes of the above statement only, all directors, executive officers and 10% shareholders are assumed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
The number of shares outstanding of the registrant’s Common Stock, $0.001 Par Value, as of April 17, 2009 was 17,095,570.
DOCUMENTS INCORPORATED BY REFERENCE
None
EXPLANATORY NOTE
Bioheart, Inc. (“Bioheart”) is filing this Amendment No. 1 on Form 10-K/A (this “Amendment”) to amend its Annual Report on Form 10-K for the fiscal year ended December 31, 2008, filed with the Securities and Exchange Commission (the “SEC”) on April 15, 2009 (the “Original Filing”). This Amendment is being filed to include the information required by Items 10 through 14 of Part III of Form 10-K that, in the Original Filing, was incorporated by reference to the definitive Proxy Statement for our 2009 Annual Meeting of Shareholders. In addition, on the cover page, (i) the reference in the Original Filing to the incorporation by reference of the definitive Proxy Statement for Bioheart’s 2009 Annual Meeting of Shareholders has been deleted and (ii) the information with respect to the number of outstanding shares of Bioheart’s common stock has been updated.
Pursuant to Rule 12b-5 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), this Amendment includes new Rule 13(a)-14(a)/15d-14(a) certifications as Exhibits 31.1 to this Amendment. Except for the exhibit referenced in the preceding sentence, the exhibits included in Item 15 of this report speak as of the date of the Original Filing.
Except as described above, no other information in the Original Filing has been updated and this Amendment continues to speak as of the date of the Original Filing. Other events occurring after the filing of the Original Filing or other disclosures necessary to reflect subsequent events have been or will be addressed in other reports filed with or furnished to the SEC subsequent to the date of the Original Filing.
“Bioheart,” “we,” “us” or “the Company” refers to Bioheart, Inc.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
Executive Officers and Directors
Set forth below is information regarding our executive officers and directors as of April 17, 2009.
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| Name | | Age | | Position |
| Howard J. Leonhardt | | | 47 | | | Chairman of the Board, Chief Executive Officer and Chief Technology Officer |
| Scott Bromley | | | 47 | | | Vice President of Public Relations |
| Kristin Comella | | | 32 | | | Vice President of Research and Corporate Development |
| Matt Fendrich | | | 42 | | | Vice President of Sales and Marketing |
| Catherine Sulawske-Guck | | | 40 | | | Vice President of Administration and Human Resources |
| Bruce Carson | | | 45 | | | Director |
| Peggy A. Farley | | | 62 | | | Director |
| Karl E. Groth | | | 61 | | | Director |
| William P. Murphy, Jr., M.D. | | | 84 | | | Director |
| Richard T. Spencer III | | | 72 | | | Director |
Executive Officers
Howard J. Leonhardt. Mr. Leonhardt is the co-founder, Chairman of the Board, Chief Executive Officer and Chief Technology Officer of Bioheart. He has served as our Chairman of the Board since our incorporation in August 1999. He resumed his position as Chief Executive Officer in July 2008 after having also served in such capacity from August 1999 until March 2007. He has served as our Chief Technology Officer since March 2007. Mr. Leonhardt also served as our Executive Chairman from March 2007 until March 2008. In 1986, Mr. Leonhardt founded World Medical Manufacturing Corporation, or World Medical, and served as its Chief Executive Officer from 1986 until December 1998 when World Medical was acquired by Arterial Vascular Engineering, Inc., or AVE. AVE was acquired by Medtronic, Inc. in January 1999. Mr. Leonhardt was the co-inventor of World Medical’s primary product, the TALENT (Taheri-Leonhardt) stent graft system. From December 1998 until June 1999, Mr. Leonhardt served as President of World Medical Manufacturing Corporation, a subsidiary of Medtronic. Scientific articles written by Mr. Leonhardt have been published in a number of publications including Techniques in Vascular and Endovascular Surgery and the Journal of Cardiovascular Surgery. Mr. Leonhardt received a diploma in International Trade from the Anoka-Hennepin Technical College, attended the University of Minnesota and Anoka-Ramsey Community College and holds an honorary Doctorate Degree in Biomedical Engineering from the University of Northern California.
Scott Bromley.Mr. Bromley joined Bioheart in December 1999 and serves in a full-time capacity as our Vice President of Public Relations. From 1986 until 1998, Mr. Bromley was employed in the sales and marketing department at World Medical. In May 1986, Mr. Bromley co-founded Bromley Printing, Inc., a private printing and communications firm.
Kristin Comella. Ms. Comella was appointed as our Vice President of Research and Corporate Development in December 2008. Ms. Comella joined Bioheart in September 2004 and has played a major role in managing our product development, manufacturing and quality systems. Ms. Comella has over ten years of cell culturing experience including managing the stem cell laboratory at Tulane University’s Center for Gene Therapy. Ms. Comella also developed stem cell therapies for osteoarthritis at Osiris Therapeutics. Ms. Comella holds an M.S. in Chemical Engineering from The Ohio State University.
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Matt Fendrich.Matt Fendrich joined Bioheart in November 2008 as Vice President of Sales and Marketing. Mr. Fendrich was previously Senior Product Sales Executive for Siemens Medical where he helped lead Siemens’ entryway into cardiology accounts in the United States. Prior to that, he served as Vice President Diagnostics Division of Physician Sales & Service (A PSS/World Medical Inc. Company) having been with the firm for 12 years. Mr. Fendrich has a BS in Economics from Florida State University.
Catherine Sulawske-Guck.Since January 2007, Ms. Sulawske-Guck has served as our Vice President of Administration and Human Resources. Ms. Sulawske-Guck joined Bioheart in the full-time capacity as Director of Administration and Human Resources in January 2004 after having served us in a consulting capacity since December 2001. Prior to joining Bioheart, from May 1989 until November 2001, Ms. Sulawske-Guck served as Director of Operations and Customer Service for World Medical.
Board of Directors
Bruce C. Carson.Mr. Carson has served as a member of our Board of Directors since January 2001. Since May 2001, Mr. Carson has served as the Vice President of Sales of FinishMaster, Inc., a privately held company specializing in the distribution of paints and products to the automotive and industrial refinishing industries. From 1987 until May 2001, Mr. Carson was President of Badger Paint Plus, Inc., a privately held distributor of paints and products, until Badger Paint Plus’ merger with FinnishMaster, Inc. Mr. Carson is co-owner of the Southern Minnesota Express Hockey Club, a member of the North American Hockey League. Mr. Carson is also the founder and President of the Athletic Performance Academy in Eden Prairie, Minnesota, a privately held athletic training facility that has specialized in sports specific training for elite athletes since August 2004.
Peggy A. Farley.Ms. Farley has served as a member of our Board of Directors since January 2007. Ms. Farley was appointed to our Board as a representative of Ascent Medical Technology Funds. Since January 1998, Ms. Farley has served as a managing director of the general partner and co-founder of the Ascent Medical Technology Funds. She is also the President and Chief Executive Officer of Ascent Capital Management, Inc. From 1984 until 1997, Ms. Farley was Chief Executive Officer of a set of firms that she developed as the locus for investment in the United States for non-US investors, engaging in venture capital investments, identifying and conducting acquisition transactions in the United States and South Asia as well as directing the management of private and corporate assets. From 1978 to 1984, she was with Morgan Stanley & Co. Incorporated, in the International Group of the Corporate Finance Division. Prior to joining Morgan Stanley, Ms. Farley served as consultant to U.S. corporations, including Avon, Ingersoll-Rand, Citibank, and Morgan Stanley. Her career in business began in the mid-1970s in Citibank’s Athens-based Middle East and North Africa Regional Office. She received an M.A. from Columbia University in 1972 and an A.B. from Barnard College in 1970.
Karl E. Groth., Ph.D.Dr. Groth has served as a member of our Board of Directors since January 2009. Dr. Groth is co-founder, along with Ms. Farley, of the Ascent Medical Technology Funds and since May 2000 has served as President and CEO of Ascent Private Equity, the General Partner of the funds, which are focused on investments in medical device, life science and biotechnology. Dr. Groth has over 30 years experience in the health care industry. Dr. Groth received his B.S. from the State University of New York in biology, his M.S. in plant physiology from New York University and his Ph.D. in microbiology from the University of Minnesota. He has published over 30 peer-reviewed articles in professional journals. In addition, Dr. Groth continues to publish and present on topics including vascular disease and endovascular intervention.
William P. Murphy, Jr., M.D.Dr. Murphy has served as a member of our Board of Directors since June 2003. Dr. Murphy founded Small Parts, Inc., a supplier of high quality mechanical components for design engineers, in 1964 and served as its Chairman until his retirement in April 2005. Small Parts, Inc. was acquired by Amazon.com, Inc. in March 2005. From October 1999 until October 2004, Dr. Murphy served as the Chairman and Chief Executive Officer of Hyperion, Inc., a medical diagnosis company which had an involuntary bankruptcy filed against it in December 2003. Dr. Murphy is the founder of Cordis Corporation (now Cordis Johnson & Johnson) which he led as President, Chairman and Chief Executive Officer at various times during his 28 years at Cordis until his retirement in October 1985. Cordis Johnson & Johnson is a leading firm in cardiovascular instrumentation. Dr. Murphy received an M.D. in 1947 from the University of Illinois and a B.S in pre-medicine from Harvard College in 1946. He also studied physiologic instrumentation at Massachusetts Institute of Technology, or MIT. After a two year rotating internship at St. Francis Hospital in Honolulu, he became a Research Fellow in Medicine at the Peter Bent Brigham Hospital in Boston where he was the dialysis engineer on the first clinical dialysis team in the United States. He continued as an Instructor in Medicine and then a research associate in Medicine at Harvard Medical School. Dr. Murphy is the author of numerous papers and owns 17 patents. He is the recipient of a number of honors, including the prestigious Lemelson-MIT Lifetime Achievement Award, the MIT Corporate Leadership Award, the Distinguished Service Award from North American Society of Pacing and Electrophysiology, and the Jay Malina Award from the Beacon Council of Miami, Florida.
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Richard T. Spencer, III.Mr. Spencer has served as a member of our Board of Directors since December 2001. From April 1982 until July 1987, Mr. Spencer was President of the Marketing Division of Cordis Corporation (now Cordis Johnson & Johnson) and a member of its executive committee and a Vice President of Cordis Dow Corporation, a joint venture of the Dow Chemical Company and Cordis to manufacture hollow fiber dialysers and machinery for dialysis. Mr. Spencer was Chief Operating Officer and held other executive positions with World Medical from 1993 to January 1999. Mr. Spencer received a B.A. in Economics in 1959 from the University of Michigan. He has studied business theory, case studies and financial management while attending executive programs at the Stanford University School of Business, the University of Pennsylvania’s Wharton School of Business and the Clemson University School of Business. Between his University of Michigan studies and embarking on a career in healthcare, Mr. Spencer served in Europe with the U.S. Army Counter Intelligence Corps as a military intelligence analyst with top secret security clearance. Mr. Spencer is also the founder and a member of the board of directors of Viacor, Inc., a private company that is developing techniques for the percutaneous repair of heart mitral valves.
Family Relationships
Mr. Leonhardt, our Chairman of the Board and Chief Technology Officer, is the cousin of Scott Bromley, our Vice President of Public Relations, and the brother-in-law of Ms. Sulawske-Guck, our Vice President of Administration and Human Resources.
Other than as set forth above, there are no family relationships among our officers and directors.
Shareholder Recommendations for Board Nominees
Our Governance & Nominating Committee is tasked with, among other things, assisting the Board by identifying individuals qualified to become Board members and recommending to the Board the director nominees for the next Annual Meeting of Shareholders.
The Governance & Nominating Committee’s Charter provides that shareholder nominees to the Board of Directors will be evaluated using the same guidelines and procedures used in evaluating nominees nominated by other persons. In evaluating director nominees, the Governance & Nominating Committee will consider the following factors:
| | • | | the appropriate size and the diversity of our Board; |
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| | • | | our needs with respect to the particular talents and experience of our directors; |
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| | • | | the knowledge, skills and experience of nominees, including experience in technology, business, finance, administration or public service, in light of prevailing business conditions and the knowledge, skills and experience already possessed by other members of the Board; |
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| | • | | familiarity with national and international business matters; |
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| | • | | experience in political affairs; |
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| | • | | experience with accounting rules and practices; |
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| | • | | whether such person qualifies as an “audit committee financial expert” pursuant to the SEC Rules; |
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| | • | | appreciation of the relationship of our business to the changing needs of society; and |
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| | • | | the desire to balance the considerable benefit of continuity with the periodic injection of the fresh perspective provided by new members. |
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In identifying director nominees, the Governance & Nominating Committee will first evaluate the current members of the Board of Directors willing to continue in service. Current members of the Board with skills and experience that are relevant to our business and who are willing to continue in service shall be considered for re-nomination, balancing the value of continuity of service by existing members of the Board with that of obtaining a new perspective. Generally, the Governance & Nominating Committee strives to assemble a Board of Directors that brings to us a variety of perspectives and skills derived from business and professional experience. In doing so, the Governance & Nominating Committee will also consider candidates with appropriate non-business backgrounds. If any member of the Board does not wish to continue in service or if the Governance & Nominating Committee or the Board decides not to re-nominate a member for re-election, the Governance & Nominating Committee will identify the desired skills and experience of a new nominee in light of the criteria above. Other than the foregoing, there are no specific, minimum qualifications that the Governance & Nominating Committee believes that a Committee-recommended nominee to the Board of Directors must possess, although the Governance & Nominating Committee may also consider such other factors as it may deem are in our and our shareholders’ best interests.
The Governance & Nominating Committee and Board of Directors are polled for suggestions as to individuals meeting the criteria of the Governance & Nominating Committee. Research may also be performed to identify qualified individuals.
Our bylaws contain advance notice procedures with respect to shareholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of the Board of Directors or a committee thereof. Our bylaws also specify certain requirements as to the form and content of a shareholder’s notice. These provisions may preclude our shareholders from bringing matters before our annual meeting of shareholders or from making nominations for directors at our annual meeting or a special meeting of shareholders.
Audit Committee
We do have a separately-designed standing Audit Committee established in accordance with the Exchange Act. The members of our Audit Committee include Ms. Farley, who serves as Chairperson of the Audit Committee, Mr. Carson and Dr. Groth. Our Board of Directors has determined that all members of our Audit Committee are independent under the NASDAQ Marketplace Rules and Rule 10A-3 under the Exchange Act.
Our Board of Directors has determined that Ms. Farley qualifies as a “financial expert” as that term is defined in rules of the SEC implementing requirements of the Sarbanes-Oxley Act of 2002.
Communications with the Board of Directors
In January 2007, our Board of Directors adopted a Shareholder Communication Policy for shareholders wishing to communicate with various Board committees and individual members of the Board of Directors. Shareholders wishing to communicate with the Board of Directors, the Governance & Nominating Committee and specified individual members of the Board of Directors can send communications to the Board of Directors and, if applicable, to the Governance & Nominating Committee or to specified individual directors in writing c/o Catherine Sulawske-Guck, Bioheart, Inc., 13794 NW 4th Street, Suite 212, Sunrise, FL 33325. We do not screen such mail and all such letters will be forwarded to the intended recipient.
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Code of Ethics
As part of our system of corporate governance, our Board of Directors has adopted a code of ethics that is specifically applicable to our Chief Executive Officer and senior financial officers. This Code of Ethics for Senior Financial Officers, as well as our Code of Business Conduct and Ethics, applicable to all directors, officers and employees, are available on our web site at http://ir.bioheartinc.com/governance.cfm.
If we make substantive amendments to the Code of Ethics for Senior Financial Officers or the Code of Business Conduct and Ethics or grant any waiver, including any implicit waiver, we will disclose the nature of such amendment or waiver on our website or in a report on Form 8-K within four days of such amendment or waiver.
Whistleblower Policy
In January 2007, the Board of Directors adopted Procedures for the Submission, Receipt and Handling of Concerns and Complaints Regarding Internal Controls and Auditing Matters, or a whistleblower policy. This policy outlines the process for the submission, receipt, retention and treatment of concerns and complaints received by us regarding our and our affiliates’ respective accounting, auditing and internal controls practices and procedures, including the process for the confidential, anonymous submission by our directors, officers and employees of concerns regarding questionable accounting or auditing matters.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than ten percent (10%) of our outstanding Common Stock, to file with the SEC initial reports of ownership on Form 3 and reports of changes in ownership of Common Stock on Forms 4 or 5. Such persons are required by SEC regulation to furnish us with copies of all such reports they file.
Based solely on our review of the copies of such reports furnished to us or written representations that no other reports were required, we believe that all Section 16(a) filing requirements applicable to our officers, directors and greater than ten (10%) percent beneficial owners have been complied with during the year ended December 31, 2008 and through the date hereof except for one late Form 4 filed by Mr. Leonhardt, two late Form 4’s filed by Mr. Bromley, two late Form 4’s filed by Ms. Sulawske-Guck and one late Form 4 filed by Ms. Farley.
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Item 11. Executive Compensation
Compensation Discussion and Analysis
The primary goals of our Compensation Committee with respect to executive compensation are to attract and retain the most talented and dedicated executives possible, to assure that our executives are compensated effectively in a manner consistent with our strategy and competitive practice and to align executives’ incentives with shareholder value creation. To achieve these goals, our Compensation Committee, with management’s input, recommends executive compensation packages to our Board of Directors that are generally based on a mix of salary, discretionary bonus and equity awards. Although our Compensation Committee has not adopted any formal guidelines for allocating total compensation between equity compensation and cash compensation, we believe it is important for these executives to have equity ownership in our company to provide them with long-term incentives to build value for our shareholders. Accordingly, we generally award our executive officers, other than Mr. Leonhardt, initial option grants upon the commencement of their employment with us and ongoing option grants as circumstances warrant. Mr. Leonhardt beneficially owns a significant percentage of our outstanding common stock and, accordingly, we believe his interests are strongly aligned with the interests of our shareholders. We intend to implement and maintain compensation plans that tie a substantial portion of our executives’ overall compensation to achievement of corporate goals and value-creating milestones. We believe that performance and equity-based compensation are important components of the total executive compensation package for maximizing shareholder value while, at the same time, attracting, motivating and retaining high-quality executives.
We have not retained a compensation consultant to review our policies and procedures with respect to executive compensation. We conduct an annual review of the aggregate level of our executive compensation, as well as the mix of elements used to compensate our executive officers. The Compensation Committee develops our compensation plans by utilizing publicly available compensation data for national and regional companies in the biopharmaceutical industry and/or the South Florida market. We believe that the practices of this group of companies provide us with appropriate compensation benchmarks, because these companies have similar organizational structures and tend to compete with us for executives and other employees. For benchmarking executive compensation, we typically review the compensation data we have collected from the complete group of companies, as well as a subset of the data from those companies that have a similar number of employees as our company.
Our Compensation Committee may retain the services of third-party executive compensation specialists from time to time, as it sees fit, in connection with the establishment of cash and equity compensation and related policies.
Elements of Compensation
Our Compensation Committee evaluates individual executive performance with a goal of setting compensation at levels the Compensation Committee believes are comparable with executives in other companies of similar size and stage of development operating in the biopharmaceutical industry and/or the South Florida market. The compensation received by our executive officers consists of the following elements:
Base Salary.Base salaries for our executives are established based on the scope of their responsibilities and individual experience, taking into account competitive market compensation paid by other companies for similar positions within our industry and geographic market. Base salaries are reviewed at least annually, and adjusted from time to time to realign salaries with market levels after taking into account individual responsibilities, performance and experience. The base salaries of our named executive officers were not adjusted in 2008.
Discretionary Annual Bonus.In addition to base salaries, our Compensation Committee has the authority to award discretionary annual bonuses to our executive officers. In 2008, the Compensation Committee did not award any cash bonuses. The annual incentive bonuses are intended to compensate officers for achieving corporate goals and for achieving what the Compensation Committee believes to be value-creating milestones. Our annual bonus, if any, is paid in cash in an amount reviewed and approved by our Compensation Committee. Each executive officer is eligible for a discretionary annual bonus up to an amount equal to 50% of such executive officer’s salary.
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The Compensation Committee continues to examine whether to adopt a more formal process for discretionary annual bonuses. If adopted, the Compensation Committee expects to utilize annual incentive bonuses to compensate officers for achieving financial and operational goals and for achieving individual annual performance objectives. These objectives will likely vary depending on the individual executive, but will relate generally to strategic factors such as establishment and maintenance of key strategic relationships, development of our product candidates, identification and advancement of additional product candidates, and to financial factors such as improving our results of operations and increasing the price per share of our common stock.
Long-Term Incentive Program.At present, our long-term compensation consists primarily of stock options. Our option grants are designed to align management’s performance objectives with the interests of our shareholders. Our Compensation Committee grants options to key executives in order to enable them to participate in the long-term appreciation of our shareholder value, while personally feeling the impact of any business setbacks, whether Company-specific or industry based. We have not adopted stock ownership guidelines, and, other than for Mr. Leonhardt, our equity benefit plans have provided the principal method for our executive officers to acquire equity or equity-linked interests in our company.
Since inception, we have granted equity awards to our executive officers through our Officers and Employees Stock Option Plan, which was adopted by our Board of Directors and shareholders to permit the grant of stock options to our officers and employees. The initial option grant made to each executive upon joining us is primarily based on competitive conditions applicable to the executive’s specific position. In addition, the Compensation Committee considers the number of options owned by other executives in comparable positions within our company and has established stock option targets for specified categories of executives. We believe this strategy is consistent with the approach of other development stage companies in our industry and, in our Compensation Committee’s view, is appropriate for aligning the interests of our executives with those of our shareholders over the long term.
We do not have any program, plan or obligation that requires us to grant equity compensation on specified dates and we have not made equity grants in connection with the release or withholding of material non-public information. Authority to make equity grants to executive officers rests with our Compensation Committee, although our Compensation Committee does consider the recommendations of our Chairman for officers other than himself.
In 2008, we did not make any stock option grants to our named executive officers.
In 2007, we did not make any stock option grants to our named executive officers other than to Mr. Pinon, our former Chief Executive Officer. We granted Mr. Pinon options to purchase 169,890 shares of our common stock upon the commencement of his employment in March 2007. These options had an exercise price of $8.47 per share and were scheduled to vest ratably over a four year period. Upon the termination of Mr. Pinon’s employment in July 2008, 42,473 options had vested and will expire in July 2009. The other 127,417 options were forfeited.
Other Compensation.We maintain broad-based benefits that are provided to full-time employees, including health insurance, life and disability insurance, dental insurance and vision insurance
Compensation Committee Report
The Compensation Committee has reviewed and discussed the Compensation Discussion & Analysis set forth above with management and, based upon such review and discussion, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion & Analysis be included in this report.
THE COMPENSATION COMMITTEE
Bruce Carson, Chairperson
Karl Groth
Peggy Farley
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Summary Compensation Table
The following table sets forth, for the fiscal years ended December 31, 2008 and December 31, 2007, the aggregate compensation awarded to, earned by or paid to Mr. Pinon and Mr. Leonhardt, both of whom served as our Chief Executive Officer in 2008 and 2007, our former Chief Financial Officer, and our two other most highly compensated executive officers who were serving at December 31, 2008 and whose total compensation was in excess of $100,000, or collectively, the Named Executive Officers.
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| | | | | | | Annual Compensation | | | Long-Term Compensation Awards | | | | | | | |
| | | | | | | Salary | | | Bonus | | | Stock Awards | | | Option Awards | | | All Other | | | | |
| Name and Principal Position | | Year | | | ($) | | | ($) | | | ($) | | | ($)(1) | | | Compensation ($) | | | Total ($) | |
Howard J. Leonhardt(2) | | | 2008 | | | | 150,000 | | | | — | | | | — | | | | — | | | | — | | | | 150,000 | |
| Chairman of the Board, | | | 2007 | | | | 150,000 | | | | — | | | | — | | | | — | | | | — | | | | 150,000 | |
| Chief Executive Officer and | | | 2006 | | | | 150,000 | | | | 1,000 | | | | — | | | | — | | | | — | | | | 151,000 | |
| Chief Technology Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
William M. Pinon(3) | | | 2008 | | | | 164,223 | | | | — | | | | — | | | | 162,022 | (4) | | | — | | | | 326,245 | |
| Former President & Chief | | | 2007 | | | | 220,209 | | | | — | | | | — | | | | 226,831 | (5) | | | — | | | | 447,040 | |
| Executive Officer | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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William H. Kline(6) | | | 2008 | | | | 130,000 | | | | — | | | | — | | | | 240,000 | (7) | | | — | | | | 370,000 | |
| Former Chief Financial | | | 2007 | | | | 50,000 | | | | — | | | | — | | | | 240,000 | (8) | | | — | | | | 370,000 | |
| Officer | | | 2006 | | | | | | | | 1,000 | | | | — | | | | 96,000 | (9) | | | — | | | | 147,000 | |
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| Scott Bromley | | | 2008 | | | | 130,000 | | | | — | | | | — | | | | — | | | | — | | | | 130,000 | |
| Vice President of Public | | | 2007 | | | | 130,000 | | | | — | | | | — | | | | — | | | | — | | | | 130,000 | |
| Relations | | | 2006 | | | | 130,000 | | | | 1,000 | | | | 366,429 | (10) | | | 2,928,000 | (11) | | | 153,000 | (12) | | | 3,578,429 | |
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Nicholas M. Burke(13) | | | 2008 | | | | 120,000 | | | | — | | | | — | | | | 101,004 | (14) | | | — | | | | 221,004 | |
| Former Vice President of | | | 2007 | | | | 49,846 | | | | — | | | | — | | | | 43,768 | (15) | | | — | | | | 93,614 | |
| Financial Operations | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| (1) | | Amount reflects the expensed fair value of stock options in 2008, 2007 and 2006, calculated in accordance with SFAS No. 123(R). |
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| (2) | | Mr. Leonhardt served as our Chief Executive Officer during all of 2006 and from January through March 2007. In July 2008, he resumed the position as our Chief Executive Officer upon the resignation of Mr. Pinon. |
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| (3) | | Mr. Pinon commenced his employment with us in March 2007 and resigned effective July 2008. |
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| (4) | | Represents the 2008 expensed fair value of options to purchase 169,890 shares of our common stock granted March 7, 2007, with an exercise price of $8.47 per share. The options were scheduled to vest in four equal installments on each of March 7, 2008, March 7, 2009, March 7, 2010 and March 7, 2011. Vested options will expire one year subsequent to the date of termination of employment. All unvested options expired upon the date of termination of employment. |
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| (5) | | Represents the 2007 expensed fair value of options to purchase 169,890 shares of our common stock granted March 7, 2007, with an exercise price of $8.47 per share. The options vest in four equal installments on each of March 7, 2008, March 7, 2009, March 7, 2010 and March 7, 2011. Vested options will expire one year subsequent to the date of termination of employment. All unvested options expired upon the date of termination of employment. |
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| (6) | | Mr. Kline commenced his employment with us in August 2006 and resigned effective January 2009. |
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| (7) | | Represents the 2008 expensed fair value of options to purchase 154,445 shares of our common stock granted August 7, 2006, with an exercise price of $5.67 per share, vesting in four equal installments on each of August 7, 2007, August 7, 2008, August 7, 2009 and August 7, 2010. Vested options will expire 90 days subsequent to the date of termination of employment. All unvested options expired upon the date of termination of employment. |
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| (8) | | Represents the 2007 expensed fair value of options to purchase 154,445 shares of our common stock granted August 7, 2006, with an exercise price of $5.67 per share, vesting in four equal installments on each of August 7, 2007, August 7, 2008, August 7, 2009 and August 7, 2010. Vested options will expire 90 days subsequent to the date of termination of employment. All unvested options expired upon the date of termination of employment. |
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| (9) | | Represents the 2006 expensed fair value of options to purchase 154,445 shares of our common stock granted August 7, 2006, with an exercise price of $5.67 per share, vesting in four equal installments on each of August 7, 2007, August 7, 2008, August 7, 2009 and August 7, 2010. Vested options will expire 90 days subsequent to the date of termination of employment. All unvested options expired upon the date of termination of employment. |
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| (10) | | Relates to the issuance of 47,658 shares to Mr. Bromley in accordance with the terms of the Bromley Letter Agreement. |
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| (11) | | Represents the expensed fair market value of (i) options to purchase 282,635 shares of our common stock granted August 24, 2006, with an exercise price of $5.67 per share and (ii) a warrant to purchase 188,423 shares of our common stock granted August 24, 2006, with an exercise price of $5.67 per share. |
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| (12) | | Relates to amounts paid to Mr. Bromley to reimburse him for federal and state income taxes due in connection with his receipt of 47,658 shares of our common stock in accordance with the Bromley Letter Agreement. |
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| (13) | | Mr. Burke commenced his employment with us in July 2007 and resigned effective January 2009. |
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| (14) | | Represents the 2008 expensed fair value of options to purchase 61,778 shares of our common stock granted July 25, 2007, with an exercise price of $8.47 per share, vesting in four equal installments on each of July 25, 2008, July 25, 2009, July 25, 2010 and July 25, 2011. In January 2009, Mr. Burke resigned. Vested options will expire 90 days subsequent to the date of termination of employment. All unvested options expired upon the date of termination of employment. |
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| (15) | | Represents the 2007 expensed fair value of options to purchase 61,778 shares of our common stock granted July 25, 2007, with an exercise price of $8.47 per share, vesting in four equal installments on each of July 25, 2008, July 25, 2009, July 25, 2010 and July 25, 2011. In January 2009, Mr. Burke resigned. Vested options will expire 90 days subsequent to the date of termination of employment. All unvested options expired upon the date of termination of employment. |
Our Stock Option Plans
1999 Officers and Employees Stock Option Plan and the 1999 Directors and Consultants Stock Option Plan
In December 1999, our Board of Directors and shareholders adopted our 1999 Officers and Employees Stock Option Plan, or the Employee Plan, and the 1999 Directors and Consultants Stock Option Plan, or the Director Plan. The Employee Plan and the Director Plan are collectively referred to herein as the Plans. The Plans are administered by the Compensation Committee. The objectives of the Plans include attracting and retaining key personnel by encouraging stock ownership in the Company by such persons.
Options Available for Issuance
There are an aggregate of 3,088,898 shares of common stock authorized for options grants under the Plans. As of December 31, 2008, an aggregate of 714,333 shares of common stock were available for grant under the Plans. The options to be delivered under the Plans will be made available, at the discretion of the Compensation Committee, from authorized but unissued shares or outstanding options that expire or are cancelled. If shares covered by an option cease to be issuable for any reason such number of shares will no longer count against the shares authorized under the Plans and may again be granted under the Plans.
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Material Terms of the Plans
The Employee Plan provides for the grant of options to employees and officers, and the Director Plan provides for the grant of options to directors, consultants and certain other non-employees. Only the Employee Plan permits the granting of “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended from time to time, or the Code, and both Plans permit grants of “non-qualified” options (options that are not incentive stock options). As of the date of this report, all options granted to employees under the Plans are incentive stock options and all options granted to persons other than employees are “non-qualified” options.
The Compensation Committee determines those individuals who shall receive options, the time period during which the options may be partially or fully exercised, the number of shares that may be purchased under each option and the option price, as well as other terms in their discretion. However, in no event shall an option be exercisable after the expiration of 10 years from the date of the grant of the option. In addition, no person is entitled to be granted options to purchase more than an aggregate of 370,668 shares of our common stock pursuant to the Plans. Unless otherwise provided in any option agreement, each outstanding option shall become fully exercisable in the event of a “change in control” (as such term is defined in the Plans). In connection with a liquidation of the company or any merger, reorganization or similar corporate transaction in which we are not the surviving corporation and the successor corporation does not assume our outstanding options, the Compensation Committee or Board of Directors may cancel any options that remain unexercised effective as of the closing of such transaction.
Each option is evidenced by an option agreement. In granting options, the Compensation Committee takes into consideration the contribution the person has made to our success and such other factors as the Compensation Committee shall determine. The Plans provide for circumstances under which the options shall terminate.
The option price per share of any option shall be any price determined by the Compensation Committee but shall not be less than the par value per share; provided, that in no event shall the option price per share of any incentive stock option be less than the “Fair Market Value” (as determined under the Plans) of the shares underlying such option on the date the option is granted.
Bioheart Omnibus Equity Compensation PlanIn July 2008, the Board of Directors approved, subject to shareholder approval, the establishment of the Bioheart Omnibus Equity Compensation Plan (the “Omnibus Plan”). The establishment of the Omnibus Plan was approved by the Company’s shareholders at the Annual Meeting of Shareholders held on July 30, 2008. Pursuant to the Omnibus Plan, the Company may grant restricted stock, incentive stock options, non-statutory stock options, stock appreciation rights, deferred stock, stock awards, performance shares, and other stock-based awards consisting of cash, restricted stock or unrestricted stock in various combinations to the Company’s employees, directors and consultants. 5,000,000 shares of common stock have been reserved for issuance under the Omnibus Plan. As of December 31, 2008, no instruments had been issued under the Omnibus Plan.
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Outstanding Equity Awards at Fiscal Year End
The following table sets forth outstanding equity awards held by our Named Executive Officers as of December 31, 2008.
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Option | | | | |
| | | Number of Securities Underlying | | | Exercise | | | Option | |
| | | Unexercised Options and Warrants | | | Price | | | Expiration | |
| Name | | Exercisable (#) | | | Unexercisable (#) | | | ($/per share) | | | Date | |
| Howard J. Leonhardt | | | 23,167 | | | | — | | | | 5.67 | | | | 12/31/11 | |
| | | | 3,212 | | | | — | | | | 5.67 | | | | 12/31/15 | |
| William M. Pinon | | | 42,472 | (1) | | | — | | | | 8.47 | | | | 07/25/09 | |
| William H. Kline | | | 38,612 | (2) | | | — | | | | 5.67 | | | | 04/02/09 | |
| Scott Bromley | | | 61,778 | | | | — | | | | 1.28 | | | | 12/25/09 | |
| | | | 25,947 | | | | — | | | | 5.67 | | | | 12/18/10 | |
| | | | 309 | | | | — | | | | 5.67 | | | | 12/31/15 | |
| | | | 282,635 | | | | — | | | | 5.67 | | | | 08/24/16 | |
| | | | 188,423 | | | | — | | | | 5.67 | | | | 08/24/16 | |
| Nicholas M. Burke | | | 15,445 | | | | 46,333 | (3) | | | 5.67 | | | | 04/16/09 | |
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| (1) | | The options expire one year subsequent to the date of termination of employment. |
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| (2) | | The options expire 90 days subsequent to the date of termination of employment. |
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| (3) | | The unexercisable options were to vest in three equal installments on each of July 25, 2009, July 25, 2010 and July 25, 2011. In January 2009, Mr. Burke resigned. All unvested options expired upon the date of termination of employment. Vested options will expire 90 days subsequent to the date of termination of employment. |
Option Exercises
In 2008 and 2007, none of our Named Executive Officers exercised any options to purchase shares of our common stock.
Pension Benefits
We do not have any plan that provides for payments or other benefits at, following, or in connection with the retirement of any of our employees.
Nonqualified Defined Contribution and Other Nonqualified Deferred Compensation Plans
We do not have any defined contribution or other plan that provides for the deferral of compensation on a basis that is not tax-qualified.
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Potential Payments upon Termination or Change in Control
We do not have any contract, agreement, plan or arrangement that provides for any payment to any of our Named Executive Officers at, following, or in connection with a termination of the employment of such Named Executive Officer, a change in control of the Company or a change in such Named Executive Officer’s responsibilities.
Director Compensation
We currently have five non-employee directors that qualify for compensation. Our non-employee directors do not receive cash compensation for their services as directors. However, it is generally our policy to annually grant each non-employee director options to purchase shares of our common stock provided that he or she has served as a member of our Board of Directors for at least six months and one day of the twelve month period immediately preceding the date of grant. In addition, we reimburse non-employee directors for actual out-of-pocket expenses incurred. In consideration of the extraordinary time and effort dedicated to the Company by the members of the Board of Directors throughout the IPO process and in consideration of the lack of stock option grants to directors in the fiscal year ended December 31, 2007 (notwithstanding the Company’s policy of providing grants each September), the Company, effective as of the close of business immediately after the Company’s Form S-8 Registration Statement became effective in 2008, granted to each director an option to purchase 35,000 shares of common stock. We did not grant any stock options to our non-employee directors. Accordingly, in the fiscal year ended December 31, 2007, no compensation was awarded to our non-employee directors.
Compensation Committee Interlocks and Insider Participation
During 2008, the members of our Compensation Committee included Mr. Tomas, who served as Chairperson of the Compensation Committee, Mr. Carson and Ms. Farley. On October 23, 2008 Ms. Farley was appointed as Chairperson with Mr. Carson and Mr. Timmins serving as members on our Compensation Committee. On January 19, 2009 Mr. Carson was appointed as Chairperson of our Compensation Committee with Dr. Groth and Ms. Farley serving as members. No member of the Compensation Committee has been an officer or employee of ours at any time. Also, none of our executive officers serves, nor served in 2007 or 2008, on the board of directors or compensation committee of a company with an executive officer serving on our Board of Directors or Compensation Committee.
In connection with our private placement of 390,177 shares of our common stock in May 2007, we paid a fee of $150,000 to an entity affiliated with Ms. Farley and Dr. Groth. In August 2007, we also entered into a research agreement with another affiliate of Ms. Farley and Dr. Groth, pursuant to which we agreed to pay an aggregate fee of $150,000 for the research services contracted for. We paid $75,000 of this fee in 2007, $10,000 in 2008, and the balance is expected to be paid in 2009.
Except as described above, no person who served on our Compensation Committee in 2008 had any relationship requiring disclosure under Item 404 of Regulation S-K.
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| Item 12. | | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The following table sets forth the beneficial ownership(1) of our common stock as of April 17, 2009, for each of our greater than 5% shareholders, directors, Named Executive Officers that continue to serve as executive officers of Bioheart and by all of our directors and executive officers as a group. Unless otherwise indicated, the address of each of the individuals and entities named below is: c/o Bioheart, Inc., 13794 NW 4th Street, Suite 212, Sunrise, Florida 33325.
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| | | | | | | Options or | | | | | | | |
| | | | | | | Warrants | | | | | | | |
| | | | | | | Currently | | | Total | | | | |
| | | | | | | Exercisable or | | | Common | | | | |
| | | | | | | Exercisable | | | Stock and | | | | |
| | | Common | | | within 60 days | | | Common Stock | | | Percentage | |
| | | Stock | | | for Shares of | | | Based | | | of Class | |
| Name | | (#) | | | Common Stock | | | Holdings | | | (%)(2) | |
| Howard J. Leonhardt | | | 4,727,571 | (3) | | | 230,249 | (4) | | | 4,957,820 | | | | 28.6 | |
| Scott Bromley | | | 47,658 | | | | 564,509 | (5) | | | 612,167 | | | | 3.5 | |
| Bruce Carson | | | 208,501 | | | | 170,912 | (6) | | | 379,413 | | | | 2.2 | |
| Peggy A. Farley | | | 549,410 | (7) | | | 35,000 | (8) | | | 584,410 | | | | 3.4 | |
| Karl E. Groth, Ph.D. | | | 509,410 | (9) | | | — | | | | 509,410 | | | | 3.0 | |
| William P. Murphy, Jr., M.D. | | | 74,134 | (10) | | | 88,286 | (11) | | | 162,420 | | | | * | |
| Richard T. Spencer, III | | | 18,535 | | | | 178,637 | (12) | | | 197,172 | | | | 1.1 | |
| Roger Telecommunications | | | 877,190 | | | | 714,200 | (13) | | | 1,591,390 | | | | 8.9 | |
| Limited Directors and Executive | | | | | | | | | | | | | | | | |
| Officers as a group (10 persons) | | | 5,650,079 | | | | 1,351,275 | | | | 7,001,354 | | | | 38.0 | |
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| * | | Represents less than 1% of the total number of shares of common stock outstanding. |
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| (1) | | A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days from April 17, 2009 upon exercise of options, warrants and convertible securities. Each beneficial owner’s percentage ownership is determined by assuming that options, warrants and convertible securities that are held by such person (but not those held by any other person) and that are exercisable within 60 days from April 17, 2009 have been exercised. |
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| (2) | | Applicable percentage ownership is based on 17,095,570 shares of common stock outstanding as of April 17, 2009. |
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| (3) | | Shares are directly and jointly held by Mr. Leonhardt and his spouse. |
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| (4) | | Includes (i) 26,379 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $5.67 per share and (ii) 203,870 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $7.69 per share. |
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| (5) | | Consists of (i) 61,778 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $1.28 per share, (ii) 308,891 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $5.67 per share, (iii) 188,423 shares issuable upon the exercise of a presently exercisable warrant at an exercise price of $5.67 per share (iv) 3,250 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $0.71 per share and (v) 2,167 shares issuable upon the exercise of stock options at an exercise price of $0.71 per share that are subject to exercise within 60 days. |
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| (6) | | Consists of (i) 129,734 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $5.67 per share, (ii) 6,178 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $7.69 per share and (iii) 35,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $5.25 per share. |
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| (7) | | Includes (i) 40,000 shares owned directly by Ms. Farley, (ii) 42,010 shares over which Ms. Farley has voting power, (iii) 77,223 shares owned by Ascent Medical Technology Fund, LP, over which Ms. Farley has shared voting and investment power and (iv) 390,177 shares owned by Ascent Medical Technology Fund II, LP, over which Ms. Farley has shared voting and investment power. |
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| (8) | | Consists of 35,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $5.25 per share. |
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| (9) | | Includes (i) 42,010 shares over which Dr. Groth has voting power, (ii) 77,223 shares owned by Ascent Medical Technology Fund, LP, over which Dr. Groth has shared voting and investment power and (iii) 390,177 shares owned by Ascent Medical Technology Fund II, LP, over which Dr. Groth has shared voting and investment power. |
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| (10) | | Shares are directly owned by trusts controlled by Dr. Murphy and his spouse. |
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| (11) | | Includes (i) 12,356 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $5.67 per share, (ii) 6,178 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $7.69 per share, (iii) 35,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $5.25 per share and (iv) 34,752 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $7.69 per share. |
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| (12) | | Includes (i) 67,957 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $5.67 per share, (ii) 6,178 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $7.69 per share, (iii) 35,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $5.25 per share and (iv) 69,502 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $7.69 per share. |
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| (13) | | Includes (i) 263,157 shares issuable upon the exercise of a presently exercisable warrant at an exercise price of $2.05 per share and (ii) 451,043 shares issuable upon the exercise of presently exercisable warrant at an exercise price of $0.5321 per share. Does not include shares potentially issuable as payment of a $1 million promissory note and accrued interest. The shares are issuable at the option of the Company and only upon the achievement of certain conditions by the Company. |
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Item 13. Certain Relationships and Related Transactions and Director Independence
Certain Relationships and Related Party Transactions
Bank of America Note Payable
On June 1, 2007, or the Closing Date, we entered into a $5 million loan with Bank of America, N.A. (the “Bank of America Loan”). The Bank of America Loan was originally scheduled to mature on January 31, 2008. However, effective as of January 31, 2008, Bank of America agreed to extend the maturity date of the loan until June 1, 2008. Effective as of June 1, 2008, Bank of America agreed to extend the maturity date of the loan until January 5, 2009. Effective January 5, 2009, Bank of America agreed to extend the maturity date of the loan until July 6, 2009.
We did not pledge any assets to Bank of America as collateral for this loan. However, on the Closing Date, Mr. and Mrs. Leonhardt provided a $1.1 million limited personal guarantee of the Bank of America Loan and pledged securities accounts with Bank of America to back-up this limited personal guarantee. As discussed below, in October 2007, Mr. and Mrs. Leonhardt guaranteed additional portions of this loan. Two of our other directors, including Dr. William Murphy and Mr. Richard Spencer, III, or the Director Guarantors, each provided collateral on the Closing Date valued at $750,000 and $1.5 million, respectively, to secure the Bank of America Loan. In addition, one of our shareholders, or the Shareholder Guarantor, provided collateral on the Closing Date valued at $2.2 million to secure the Bank of America Loan. Each of the Director Guarantor’s and the Shareholder Guarantor’s exposure under the Bank of America Loan is or was limited to the collateral it provided to Bank of America. Mr. and Mrs. Leonhardt, the Director Guarantors and the Shareholder Guarantor are collectively referred to herein as the Guarantors.
Under the terms of the Bank of America Loan, Bank of America is entitled to receive a semi-annual payment of interest and all outstanding principal and accrued interest by the maturity date. We and Bank of America have agreed with BlueCrest Capital that we will not individually make any payments due under the Bank of America Loan while our senior loan from BlueCrest Capital is outstanding. For our benefit, the Guarantors agreed to provide Bank of America in the aggregate up to $5.5 million of funds and/or securities to make the payments due to Bank of America.
We have agreed to reimburse the Guarantors with interest at an annual rate of the prime rate plus 5.0% for any and all payments made by them under the Bank of America Loan as well as to pay them certain cash fees in connection with their provision of collateral for the Bank of America Loan. We have agreed to pay these amounts to the Guarantors upon our repayment in full of the BlueCrest Loan. In addition, we issued to each Guarantor warrants to purchase 3,250 shares of our common stock at an exercise price of $7.69 per share for each $100,000 of principal amount of the Bank of America Loan guaranteed by such Guarantor. Warrants to purchase an aggregate of 216,095 shares of common stock were issued to the Guarantors. The warrants have a ten-year term and became exercisable one year following the date the warrants were issued.
In September 2007, one of our former directors and two of our shareholders, collectively referred to as the New Guarantors, agreed to provide collateral valued at $750,000, $600,000 and $500,000, respectively, to secure the Bank of America Loan. The collateral provided by the New Guarantors fully replaced the collateral originally provided by Mr. Spencer and partially replaced the collateral originally provided by Dr. Murphy. The collateral provided by Dr. Murphy now secures $400,000 of the Bank of America Loan. Our agreements with the New Guarantors are identical in all respects to our agreements with the original Guarantors as described above, except that the arrangements with the New Guarantors do not contain certain provisions included in the agreements with the original Guarantors, which have expired in accordance with their terms. In consideration for providing the collateral, we issued to the New Guarantors warrants to purchase 3,250 shares of our common stock at an exercise price of $7.69 per share for each $100,000 of principal amount of the Bank of America Loan guaranteed by such New Guarantor. Warrants to purchase an aggregate of 60,118 shares of the Company’s common stock were issued to the New Guarantors. The warrants have a ten-year term and became exercisable one year following the date the warrants were issued.
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In accordance with the provisions of the warrants issued to the Guarantors and New Guarantors, the aggregate number of shares of common stock underlying such warrants increased on September 30, 2007 as the Bank of America Loan remained outstanding at that date. This resulted in an additional 38,861 warrant shares.
In October 2007, Mr. and Mrs. Leonhardt agreed to provide an additional $2.2 million limited personal guarantee of the Bank of America Loan and pledged securities accounts with Bank of America to back-up this limited personal guarantee. The additional collateral provided by Mr. and Mrs. Leonhardt fully replaced the collateral originally provided by the Shareholder Guarantor. At such time, Mr. and Mrs. Leonhardt had personally guaranteed an aggregate of $3.3 million of the Bank of America Loan. Our agreement with Mr. and Mrs. Leonhardt with respect to the additional collateral is substantially similar to our agreement with them in connection with the $1.1 million personal guarantee they originally provided in June 2007. In consideration for providing the additional collateral, we issued to Mr. and Mrs. Leonhardt a warrant to purchase 81,547 shares of our common stock at an exercise price of $7.69 per share. The warrant has a ten-year term and is not exercisable until the date that is one year following the date the warrant was issued.
In October 2007, we cancelled the warrant previously issued to the Shareholder Guarantor, which warrant included the adjustment provisions discussed below, and, in exchange, issued to it a warrant to purchase 101,934 shares of our common stock at an exercise price of $7.69 per share. This new warrant does not contain the adjustment provisions discussed below.
In accordance with the provisions of the warrants issued to the Guarantors and New Guarantors, the aggregate number of shares of common stock underlying such warrants increased on June 1, 2008 as the Bank of America Loan remained outstanding at that date. This resulted in an additional 78,773 warrant shares. In the event that as of the second anniversary and third anniversary of the closing date of the Bank of America Loan, we have not reimbursed the Guarantors and New Guarantors in full for payments made by them in connection with the Bank of America Loan, the number of shares subject to the warrants will further increase.
In March 2009, Mr. and Mrs. Leonhardt paid $3,000,000 to the Bank of America on account of amounts payable by the Company to Bank of America that were guaranteed by Mr. and Mrs. Leonhardt. As a result of the payment, Mr. and Mrs. Leonhardt were released as guarantors of the Bank of America Loan and Bioheart became indebted to Mr. and Mrs. Leonhardt in the amount of $3,000,000. At present there is no formal repayment arrangement between Bioheart and Mr. and Mrs. Leonhardt with regard to such sum.
Guarantees Provided By Mr. Leonhardt
In addition to the guarantee arrangement described above, from time to time, Mr. Leonhardt has, without compensation, personally guaranteed certain of our financial obligations. As of the date of this report, he is the guarantor of our obligations under the lease for our facilities in Sunrise, Florida. He is also the guarantor of our obligations under corporate credit cards issued by Bank of America. Mr. Leonhardt does not receive any compensation for providing these guarantee services.
Mr. Leonhardt has guaranteed Dr. Murphy, a director, the repayment of his initial $200,000 investment in the Company.
Purchase of Shares in Our Initial Public Offering
Mr. Leonhardt purchased 114,000 shares of our common stock in our initial public offering at the offering price of $5.25 per share.
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Placement Fee
In connection with our private placement of 390,177 shares of our common stock in May 2007 pursuant to a subscription agreement executed prior to February 13, 2007, we paid to Ascent Capital Advisors, LLC, an affiliate of Ms. Farley and Dr. Groth, a fee of $150,000.
Research Fee
In August 2007, we also entered into a research agreement with Ascent Medical Product Development Centre, Inc., an affiliate of Ms. Farley and Dr. Groth, pursuant to which we agreed to pay an aggregate fee of $150,000 for the research services contracted for. We paid $75,000 of this fee in 2007, $10,000 in 2008, and the balance is expected to be paid in 2009.
Review of Related Party Transactions
The Board of Directors has delegated to the Audit Committee the responsibility to review and approve all transactions or series of transactions in which we or a subsidiary is a participant, the amount involved exceeds $120,000 and a “Related Person” (as defined in Item 404 of Regulation S-K”) has a direct or indirect material interest. Transactions that fall within this definition will be referred to the Audit Committee for approval, ratification or other action. Based on its consideration of all of the relevant facts and circumstances, the Audit Committee will decide whether or not to approve such transaction and will approve only those transactions that are in the best interests of the Company.
Board Committee Independence
Our Board of Directors has three committees: the Audit Committee, the Compensation Committee and the Governance & Nominating Committee.
Audit Committee
The members of our Audit Committee from January 1, 2008 through February 13, 2008 included Mr. Gury, who served as Chairperson of the Audit Committee, Mr. Spencer, Dr. Murphy, and Ms. Linda Tufts. Mr. Spencer resigned from the Audit Committee on February 13, 2008. Ms. Tufts did not stand for re-election to our Board of Directors and Mr. Carson replaced Ms. Tufts on the Audit Committee on July 30, 2008. On August 25, 2008 Mr. Tomas and Ms. Farley replaced Mr. Carson and Dr. Murphy in order for all members of the Audit Committee to be deemed independent pursuant to the NASDAQ Marketplace Rules and Rule 10A-3 under the Exchange Act. On October 22, 2008 Mr. Timmins was elected to the Board of Directors and replaced Mr. Tomas on the Audit Committee. Mr. Carson replaced Ms. Farley. On January 9, 2009 Mr. Timmins was appointed Chairperson of the Committee to replace Mr. Gury, who resigned from the Board of Directors and as Chairperson of the Audit Committee, and Ms. Farley was appointed to the Committee. On January 19, 2009 Ms. Farley replaced Mr. Timmins as Chairperson of the Committee upon his resignation from the Board of Directors and the Audit Committee. Mr. Carson and Dr. Groth were both appointed to the Audit Committee. As of April 17, 2009 our Audit Committee consists of Ms. Farley as Chairperson of the Audit Committee, Mr. Carson, and Dr. Groth. The Board of Directors has determined that each member of the Audit Committee is independent pursuant to the NASDAQ Marketplace Rules and Rule 10A-3 under the Exchange Act.
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Compensation Committee
The members of our Compensation Committee from January 1, 2008 through July 30, 2008 included Mr. Tomas, who served as Chairperson of the Compensation Committee, Mr. Carson, and Ms. Farley. On July 30, 2008 Dr. Ahn replaced Mr. Carson. On August 25, 2008 Dr. Ahn resigned from the Compensation Committee in order for all members of the Compensation Committee to be deemed independent pursuant to the NASDAQ Marketplace Rules and Rule 10A-3 under the Exchange Act. On December 3, 2008 Ms. Farley replaced Mr. Tomas as Chairperson of the Compensation Committee upon his resignation from the Board of Directors and the Compensation Committee. Mr. Timmins was appointed to the Compensation Committee. On January 9, 2009 Mr. Carson was appointed to the Compensation Committee. On January 19, 2009 Mr. Carson was appointed as Chairperson of our Compensation Committee with Dr. Groth and Ms. Farley serving as members of our Compensation Committee. As of April 17, 2009 the members of our Compensation Committee include Mr. Carson, who serves as Chairperson of the Compensation Committee, Ms. Farley, and Dr. Groth. The Board of Directors has determined that each member of the Compensation Committee is independent pursuant to the NASDAQ Marketplace Rules.
Governance & Nominating Committee CSG to update changes
The members of our Governance & Nominating Committee from January 1, 2008 through August 25, 2008 included Ms. Farley who served as Chairperson of the Governance and Nominating Committee, Mr. Tomas and Dr. Ahn. On August 25, 2008 Dr. Ahn resigned from the Governance and Nominating Committee in order for all members of the Committee to be deemed independent pursuant to the NASDAQ Marketplace Rules and Rule 10A-3 under the Exchange Act. On December 3, 2008 Mr. Timmins replaced Mr. Tomas upon his resignation from the Board of Directors and Governance and Nominating Committee. On January 19, 2009, Dr. Groth replaced Ms. Farley as Chairperson of the Governance & Nominating Committee and Mr. Carson replaced Mr. Timmins upon his resignation from the Board of Directors and Governance and Nominating Committee. As of April 17, 2009 the members of our Governance and Nominating Committee include Dr. Groth who serves as Chairperson of the Committee Ms. Farley, and Mr. Carson. The Board of Directors has determined that each member of the Governance & Nominating Committee is independent pursuant to the NASDAQ Marketplace Rules.
Item 14. Principal Accounting Fees and Services
Independent Registered Public Accounting Firm Fees
On January 13, 2009, the Chairman of the Audit Committee received a letter from Grant Thornton LLP (“Grant Thornton”) notifying the Company of Grant Thornton’s resignation as the Company’s independent registered public accounting firm. On February 12, 2009, the Company engaged Jewett Schwartz Wolfe & Associates to serve as the Company’s independent registered public accounting firm. Aggregate fees billed to us for the fiscal years ended December 31, 2008 and 2007 by our independent registered public accounting firms are as follows:
| | | | | | | | | |
| Types of Fees | | 2008 | | | 2007 | |
| Audit Fees (1) | | $ | 155,895 | (2) | | $ | 388,336 | (3) |
| Audit Related Fees | | | — | | | | — | |
| Tax Fees | | | — | | | | — | |
| All Other Fees | | | — | | | | — | |
| | |
| (1) | | This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit of the annual consolidated financial statements or the reviews of the interim financial statements. |
| |
| (2) | | Includes the aggregate fees billed to us by Jewett Schwartz Wolfe & Associates for professional services rendered for the audit of our 2008 and 2007 annual consolidated financial statements. Also includes the aggregate fees billed to us by Grant Thornton during 2008 for professional services rendered for the reviews of the financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by our independent registered public accounting firm in connection with consents and other services related to SEC matters, including our Registration Statement on Form S-1. |
| |
| (3) | | Represents the aggregate fees billed to us by Grant Thornton for professional services rendered for the audit of our 2007 annual consolidated financial statements, the reviews of the financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by our independent registered public accounting firm in connection with consents and other services related to SEC matters, including our Registration Statement on Form S-1. |
See Item 9 “Changes in and Disagreements with Accountants on Accounting and Financial Disclosure” contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, filed with the SEC on April 15, 2009, for further discussion.
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Audit Committee Pre-Approval Policy
Consistent with policies of the SEC regarding auditor independence, the Audit Committee has responsibility for the appointment, compensation and oversight of the work of the independent auditor. As part of this responsibility, the Audit Committee has adopted, and our Board has ratified, an Audit and Non-Audit Services Pre-Approval Policy pursuant to which the Audit Committee is required to pre-approve the audit and non-audit services performed by our independent registered public accounting firm in order to assure that these services do not impair the auditor’s independence from us.
Prior to engagement of the independent auditor for the next year’s audit, the independent auditor and the Audit Committee will review a list of services and related fees expected to be rendered during that year within each of four categories of services to the Audit Committee for approval:
(i) Audit Services: Audit services include the annual financial statement audit (including required quarterly reviews), subsidiary audits, equity investment audits and other procedures required to be performed by the independent auditor to be able to form an opinion on our consolidated financial statements. Audit Services also include information systems and procedural reviews and testing performed in order to understand and place reliance on the systems of internal control, and consultations relating to the audit or quarterly review as well as the attestation engagement for the independent auditor’s report on management’s report on internal controls for financial reporting.
(ii) Audit-Related Services: Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of our financial statements, including due diligence related to potential business acquisitions/dispositions, accounting consultations related to accounting, financial reporting or disclosure matters not classified as “Audit Services,” assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities, financial audits of employee benefit plans, agreed-upon or expanded audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters and assistance with internal control reporting requirements.
(iii) Tax Services: Tax services include services such as tax compliance, tax planning and tax advice; however, the Audit Committee will not permit the retention of the independent registered public accounting firm in connection with a transaction initially recommended by the independent registered public accounting firm, the sole business purpose of which may be tax avoidance and treatment which may not be supported in the Internal Revenue Code and related regulations.
(iv) All Other Services: All other services are those permissible non-audit services that the Audit Committee believes are routine and recurring and would not impair the independence of the auditor and are consistent with the SEC’s rules on auditor independence.
Prior to engagement, the Audit Committee pre-approves the services and fees of the independent auditor within each of the above categories. During the year, it may become necessary to engage the independent auditor for additional services not previously contemplated as part of the engagement. In those instances, the Audit and Non-Audit Services Pre-Approval Policy requires that the Audit Committee specifically approve the services prior to the independent auditor’s commencement of those additional services. Under the Audit and Non-Audit Services Pre-Approval Policy, the Audit Committee may delegate the ability to pre-approve audit and non-audit services to one or more of its members provided the delegate reports any pre-approval decision to the Audit Committee at its next scheduled meeting. As of the date hereof, the Audit Committee has not delegated its ability to pre-approve audit services.
All of the 2007 and 2008 fees paid to Grant Thornton LLP and Jewett Schwartz Wolfe & Associates described above were pre-approved by the Audit Committee in accordance with the Audit and Non-Audit Services Pre-Approval Policy.
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PART IV
Item 15. Exhibits, Financial Statement Schedules
(a)(3) Exhibits
| | | |
| Exhibit | | |
| No. | | Exhibit Description |
| 31.1* | | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | | |
| 32.1* | | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | |
| | BIOHEART, INC.
| |
| | By: | /s/ Howard J. Leonhardt | |
| | | Howard J. Leonhardt | |
| | | Chairman of the Board, Chief Executive Officer and Chief Technology Officer
(Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) | |
| |
Dated: April 30, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | |
| SIGNATURE | | TITLE | | DATE |
| | | | | |
| /s/ Howard J. Leonhardt Howard J. Leonhardt | | Chairman of the Board, Chief Executive Officer and Chief Technology Officer
(Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) | | April 30, 2009 |
Bruce Carson | | Director | | |
| /s/ Peggy A. Farley Peggy A. Farley | | Director | | April 30, 2009 |
| /s/ Karl E. Groth, Ph.D. Karl E. Groth, Ph.D. | | Director | | April 30, 2009 |
| /s/ William P. Murphy, Jr., M.D. William P. Murphy, Jr., M.D. | | Director | | April 30, 2009 |
| /s/ Richard T. Spencer III Richard T. Spencer III | | Director | | April 30, 2009 |
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INDEX OF EXHIBITS
As required under Item 15. Exhibits, Financial Statement Schedules, the exhibits filed as part of this report are provided in this separate section. The exhibits included in this section are as follows:
| | | | | |
| Exhibit No. | | Description |
| | 31.1 | | | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | | | | |
| | 32.1 | | | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
