10-K/A 1 d27040.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Amendment No. 1 to

FORM 10-K/A

(Mark One)

 

 

 

x

 

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

For the fiscal year ended December 31, 2009

OR

 

 

 

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)

 

 

 

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. Yes o      No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o      No x

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

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). Yes o       No o

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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Large accelerated filer o

 

Accelerated filer o

 

Non-accelerated filer o

 

Smaller reporting company x

 

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

As of June 30, 2010, 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 OTCBB as of June 30, 2010, was approximately $8.3 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 March 31, 2010 was 25,966,366.

DOCUMENTS INCORPORATED BY REFERENCE

 

None

 


INDEX

 

 

 

 

 

 

 

 

 

 

 

Page

 

 

 

 

 

 

 

Explanatory Note

 

 

2

 

 

 

 

 

 

 

 

PART III

 

 

 

 

 

 

 

 

 

 

 

Item 10.

 

Directors, Executive Officers and Corporate Governance

 

 

2

 

Item 11.

 

Executive Compensation

 

 

8

 

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

 

13

 

Item 13.

 

Certain Relationships and Related Transactions, and Director Independence

 

 

15

 

Item 14.

 

Principal Accounting Fees and Services

 

 

19

 

 

 

 

 

 

 

 

PART IV

 

 

 

 

 

 

 

 

 

 

 

Item 15.

 

Exhibits, Financial Statement Schedules

 

 

22

 

EX-31.1

EX-32.1

 

1


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, 2009, filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2010 (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 2010 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.

 

 

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 March 31, 2010(1)

 

Karl E. Groth

62

Director, Chairman of the Board, Chief Executive Officer

Peggy A. Farley

63

Director, Chief Operating Officer and Chief Financial Officer

Howard J. Leonhardt

48

Chief Technology Officer

Bruce C. Carson

46

Director

Richard T. Spencer III

74

Director

William P. Murphy, Jr., M.D.

86

Director

Mark P. Borman

55

Director

Charles A. Hart

49

Director

Lee A. Jones

53

Director

 

Executive Officers and Directors

 

Karl E. Groth., Ph.D. Dr. Groth has served as Chairman and CEO of Bioheart since August of 2009 and has served as a member of the Board of Directors since January 2009. 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. Dr.

 

2

 


Groth resigned as Chief Executive Officer effective June 19, 2010. Dr. Groth’s capital markets, operations, marketing, and sales experience in the healthcare industry make Dr. Groth well-qualified to be a part of, and a valued member of, our Board of Directors.

 

Peggy A. Farley. Ms. Farley served as the Company’s Chief Operating Officer since August 2009 and as Chief Financial Officer since February 2010. 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. On June 19, 2010 Ms. Farley resigned as Chief Financial Officer and Chief Operating Officer, effective July 1, 2010. Ms. Farley’s healthcare investing and capital markets experience make Ms. Farley well-qualified to serve on, and a valuable member of, our Board of Directors.

 

Howard J. Leonhardt. Mr. Leonhardt is the co-founder, and Chief Technology Officer of Bioheart. He has served as our Chairman of the Board since our incorporation in August 1999, until March 2007. He resumed his position as Chief Executive Officer in July 2008, and served until August, 2009. 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. Mr. Leonhardt rejoined the Board of Directors in June 2010. Mr. Leonhardt’s experience with us, and in the medical device industry, together with his other board experience; make him well-qualified to serve on, and a valuable member of, our management team and Board of Directors.

Bruce C. Carson. Mr. Carson has served as a member of our Board of Directors since January 2001. From May 2001 until January 2010, Mr. Carson 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 FinishMaster, Inc. Mr. Carson was co-founder of the Southern Minnesota Express Hockey Club, a member of the North American Hockey League. Mr. Carson was also the founder and President of the Athletic Performance Academy in Eden Prairie, Minnesota, a privately held athletic training facility that specialized in sports specific training for elite athletes. Mr. Carson’s experience with us, together with his other board experience; make him well-qualified to serve on, and a valuable member of, our Board of Directors.

 

3

 


 

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. Mr. Spencer’s healthcare industry related experience, together with his other board experience, makes him well-qualified to serve on, and a valuable member of, our Board of Directors.

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. Dr. Murphy’s healthcare industry related experience, together with his experience with us, makes him well-qualified to serve on, and a valuable member of, our Board of Directors.

Mark P. Borman. Mr. Borman has served as a member of the Company’s Board of Directors since May 2009. Mr. Borman is a seasoned financial officer with more than 30 years of broad-based financial and investor relations experience. He most recently served as Vice President, Investor Relations and Treasurer of ADC Telecommunications from 1998 to 2008. During his career, Mr. Borman has held positions with General Instrument Corporation, First Chicago Corporation, FMC Corporation, Price Waterhouse, and KMG. Mr. Borman received his B.A. in Accounting from Michigan State University and his MBA from the University of Chicago Graduate School of Business.  He is a Certified Public Accountant and Chartered Financial Analyst and has experience as an advisor, board member, faculty, speaker, and mentor. Mr. Borman’s accounting and audit experience, his other board experience, and his transactional and capital markets experience, make him well-qualified to serve on, and a valuable member of, our Board of Directors.

 

4

 


Charles A. Hart. Mr. Hart has served as a member of our Board of Directors since May 2009. Mr. Hart has more than 20 years of entrepreneurial experience. Mr. Hart founded Hart Masonry, Inc. in 1986 and has served as its President since then. He is also the Founder and President of Wildridge Enterprises. Mr. Hart is a member of the Board of Directors for Eagle Street Properties LLP. Mr. Hart’s operations experience, together with his other board experience, makes him well-qualified to serve on, and a valuable member of, our Board of Directors.

 

Lee Jones. Ms. Jones has been the Chief Administrative Officer of the Schulze Diabetes Institute at the University of Minnesota since June 2009. She has more than 25 years of healthcare and medical device industry experience. From 1997 to 2005, she served as President and Chief Executive Officer of Inlet Medical, Inc. (a Cooper Surgical company since November 2005), specializing in minimally interventional laparoscopic products. Prior to joining Inlet, she had a 14-year career at Medtronic, Inc. where she held various technical and operating positions, most recently serving as Director, General Manager of Medtronic Urology/Interstim division. Ms. Jones currently also serves as a member of the board of directors of Uroplasty, Inc. and Aveus. She holds a Bachelor of Science degree in Chemical Engineering and an Executive Management degree from the University of Minnesota. Ms. Jones extensive experience in the healthcare industry, together with her other board experience makes her well-qualified to serve on, and a valuable member of, our Board of Directors. Ms. Jones resigned from the Board in June 2010.

Mr. Mike Tomas was appointed President and Chief Executive Officer and a member of our Board of Directors on June 19, 2010. Mike Tomas was appointed as the Company’s President and Chief Executive Officer, and as a director on June 19, 2010. Mr. Tomas has been President for the past nine years of The ASTRI Group, an early stage private equity investment company in Florida with an investment in Bioheart since 2001. In 2003, he joined Bioheart’s board as the independent representative of The ASTRI Group. ASTRI provides capital, business development and strategic marketing support to emerging private companies. Mr. Tomas will continue to serve as President of The ASTRI Group. Previously from 1983 to 2001, Mr. Tomas held ascending executive positions including Chief Marketing Officer at Avantel, a $1 billion dollar joint venture with MCI. Upon retiring from MCI and WorldCom, Tomas joined other ex-MCI executives and helped raise $40M in venture capital to form Ineto, an integrated customer communications software solution that was successfully sold in 2001. Today Mr. Tomas sits on the boards of Perimeter Internetworking (SaaS providing secure transfer of information for medical and financial institutions), Avisena (revenue cycle management for medical practices) and Total Home Health (Medicare-certified home care provider).  Mr. Tomas is also the current chairman of the Global Entrepreneurship Center at Florida International University and a founding coach/mentor at the University of Miami’s Launch Pad at the Toppel Center.  Mr. Tomas holds a Masters of Business Administration from the University of Miami and a Bachelors degree from Florida International University. This experience, together with his other board experience and his extensive experience in strategic development, makes him well-qualified to serve on, and a valuable member of, our Board of Directors.

 

Ms. Catherine Sulawske-Guck was appointed Chief Operating Officer in July 2010. From January 2007 to June 2010, Ms. Sulawske-Guck 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 Manufacturing Corporation, a subsidiary of Medtronic. Ms. Sulawske-Guck’s operations experience in the biotechnology and medical device industry make Ms. Sulawske-Guck well-qualified to be a part of, and a valued member of, our management team.

Dr. Groth resigned as Chief Executive Officer June 19, 2010.

 

Ms. Farley resigned as Chief Financial Officer and Chief Operating Officer, effective July 1, 2010.

 

Ms. Jones resigned from the Board of Directors effective as of June 18, 2010.

 

Family Relationships

 

There are no family relationships among our officers and directors.

 

5

 


 

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;

 

 

 

 

 

 

our needs with respect to the particular talents and experience of our directors;

 

 

 

 

 

 

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;

 

 

 

 

 

 

familiarity with national and international business matters;

 

 

 

 

 

 

experience in political affairs;

 

 

 

 

 

 

experience with accounting rules and practices;

 

 

 

 

 

 

whether such person qualifies as an “audit committee financial expert” pursuant to the SEC Rules;

 

 

 

 

 

 

appreciation of the relationship of our business to the changing needs of society; and

 

 

 

 

 

 

the desire to balance the considerable benefit of continuity with the periodic injection of the fresh perspective provided by new members.

 

 

 

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.

 

6

 


 

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

 

The Board of Directors has a standing Audit Committee established in accordance with the Exchange Act. The members of our Audit Committee include Mr. Borman, who serves as Chairperson of the Audit Committee and Dr. Murphy. Until June 19, 2010 Ms. Jones also served on the Audit Committee. Our Board of Directors has determined that Mr. Borman is independent under the NASDAQ Marketplace Rules and Rule 10A-3 under the Exchange Act and that Mr. Borman qualifies as a “financial expert” as that term is defined in rules of the SEC implementing requirements of the Sarbanes-Oxley Act of 2002.

 

During the third quarter of 2010 the Board of Directors intends to evaluate the Audit Committee and examine the independence of each of the members of the Board and their qualifications as a financial expert for purposes of considering their service on the Audit Committee.

 

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.

 

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://www.bioheartinc.com/investorrelations.html

 

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.

 

7

 



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, 2009 and through the date hereof except for two late Form 4’s filed by Mr. Leonhardt, one late Form 4 filed by Mr. Bromley, a late Form 3 filed by Mr. Borman, a late Form 3 and two late Form 4’s filed by Mr. Hart, a late Form 3 filed by Dr. Groth, one late Form 4 filed by Dr. Murphy, a late Form 3 filed by Ms. Jones, three late Form 4’s filed by Ms. Farley, a late Form 3 and one late Form 4 filed by Ms. Comella, and a late Form 3 and Form 4 filed by Mr. Fendrich. As of the date hereof, however, all late Form 3s and Form 4s have been filed.

 

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:

 

8

 


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 adjusted in 2009.

 

Discretionary Annual Bonus. In addition to base salaries, our Board of Directors has the authority to award discretionary annual bonuses to our executive officers. In 2009, the Board of Directors did not award any cash bonuses. The annual incentive bonuses are intended to compensate officers for achieving corporate goals and for achieving what the Board of Directors believes to be value-creating milestones. Our annual bonus, if any, is paid in cash in an amount reviewed and approved by our Board of Directors. Each executive officer is eligible for a discretionary annual bonus up to an amount equal to 50% of such executive officer’s salary.

The Compensation Committee continues to examine whether to adopt a more formal process for discretionary annual bonuses. If adopted, the Board of Directors 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 Board of Directors 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 Board of Directors, although our Board of Directors does consider the recommendations of our Compensation Committee and Chief Executive Officer for officers other than himself.

 

In 2009, we did not make any stock option grants to our named executive officers.

 

In 2008, we did not make any stock option grants to our named executive officers.

 

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.

 

9


 

THE COMPENSATION COMMITTEE

Bruce Carson, Chairperson

Peggy Farley

Charles Hart

 

Summary Compensation Table

 

The following table sets forth, for the fiscal years ended December 31, 2009 and December 31, 2008, the aggregate compensation awarded to, earned by or paid to Mr. Leonhardt and Dr. Groth, both of whom served as our Chief Executive Officer in 2009 or 2008, and our Chief Financial Officers, or collectively, the Named Executive Officers.

 

 

 

 

 

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)

 

2009

 

129,831

 

 

 

 

 

 

129,831

Chief Scientific & Technology Officer

 

2008

 

150,000

 

 

 

 

 

 

150,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

William H. Kline (3)

 

2009

 

    5,000

 

 

 

 

 

 

5,000

Former Chief Financial

 

2008

 

130,000

 

 

 

240,000(4)

 

 

370,000

Officer 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Karl E. Groth Ph.D. (5)

 

2009

 

 

 

 

 

 

 

Chairman & Chief Executive Officer

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Peggy A. Farley (6)

 

2009

 

 

 

 

 

 

 

Chief Operating & Financial Officer

 

2008

 

 

 

 

 

 

 

 

(1)

Amount reflects the expensed fair value of stock options in 2009, 2008 and 2007, calculated in accordance with SFAS No. 123(R).

(2)

Mr. Leonhardt also served as our Chief Executive Officer from July 2008 through August 2009.

(3)

Mr. Kline commenced his employment with us in August 2006 and resigned effective January 2009.

(4)

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 expired 90 days subsequent to the date of termination of employment. All unvested options expired upon the date of termination of employment.

(5)

Dr. Groth served as Chief Executive Officer from August 2009 until June 2010 without compensation.

(6)

Ms. Farley served as Chief Operating and Financial Officer from August 2009 until July 1, 2010 without compensation.

 

10


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 Board of Directors and the Compensation Committee. The objectives of the Plans include attracting and retaining key personnel by encouraging stock ownership in the Company by such persons. In February 2010 the plan was amended to extend the termination date of the Plan to December 1, 2011.

 

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, 2009, an aggregate of 953,315 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 Board of Directors, 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.

 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 recommends and the Board of Directors 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 recommending the granting of 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 Board of Directors 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 Plan In 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

 

11


reserved for issuance under the Omnibus Plan. As of December 31, 2008, no instruments had been issued under the Omnibus Plan.

 

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, 2009.

 

 

 

 

 

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

 

12/31/2011

 

3,212

 

 

5.67

 

12/31/2015

Option Exercises

 

In March 2009, one of our Named Executive Officers exercised an option to purchase 40,000 shares of our common stock at an exercise price of $0.80.

 

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.

 

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

 

As of December 31, 2009 we had eight non-employee directors that qualified 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 in 2009. Accordingly, in the fiscal year ended December 31, 2009, no compensation was awarded to our non-employee directors.

 

12


Compensation Committee Interlocks and Insider Participation

 

The members of our Compensation Committee from January 1, 2009 through January 19, 2009 included Ms. Farley who served as Chairperson of the Compensation Committee, Mr. Carson, and Mr. Timmins. On January 19, 2009 Mr. Carson replaced Ms. Farley as Chairperson and Dr. Groth replaced Mr. Timmins upon his resignation from the Board of Directors and the Compensation Committee. On May 12, 2009 Mr. Hart replaced Ms. Farley. 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 August 2007, we entered into a research agreement with 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 was paid in 2009.

 

On February 2, 2010, Bioheart, Inc. (the “Company”) and the Ascent Medical Product Development Centre Inc. (“Ascent”) entered into an agreement whereby Ascent would oversee the conduct of a Phase I Clinical Trial for the Company, namely the REGEN trial. Ascent is owned by the Ascent Medical Technology Fund II, LP, (the “Fund”). The Fund’s General Partner is Ascent Private Equity II, LLC, which is controlled by Karl E. Groth, Ph.D. and Peggy A. Farley, who were, respectively, the Chief Executive Officer and the Chief Operating Officer of the Company.

Except as described above, no person who served on our Compensation Committee in 2009 had any relationship requiring disclosure under Item 404 of Regulation S-K.

 

 

 

 

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 March 31, 2010, 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.

 

 

 

 

 

Options or

 

 

 

 

 

 

 

 

 

Warrants

 

 

 

 

 

 

 

 

 

Currently

 

 

 

 

 

 

 

 

 

Exercisable or

 

Total

 

 

 

 

 

 

 

Exercisable

 

Common

 

 

 

 

 

 

 

within 60 days

 

Stock and

 

Percentage

 

 

 

Common

 

for Shares of

 

Common Stock

 

of Class

 

Name

Position

Stock #

 

Common Stock

 

Based Holdings

 

(%) (2)

 

Karl E. Groth

Chairman and Chief Executive Officer

1,018,217(3)

40,000(4)

 

1,058,217

 

4.1%

Peggy A. Farley

Chief Operating & Financial Officer and Director

1,068,227(5)

 

77,400(6)

 

1,145,627

 

4.4%

 

Howard Leonhardt

Chief Technology Officer

5,650,360(7)

205,158(8)

 

5,855,518

 

22.4%

 

Mark P. Borman

Director

23,450

 

20,000(9)

 

43,450

 

0.2%

 

 

13


 

Bruce Carson

Director

208,501

 

210,912(10)

 

419,413

 

1.6%

Charles A. Hart

Director

1,034,501

 

381,010(11)

 

1,415,511

 

5.4%

William P. Murphy

Director

304,984(12)

 

170,541(13)

 

475,525

 

1.8%

Richard T. Spencer, III

Director

18,535

 

218,637(14)

 

237,172

 

0.9%

Lee Jones

Director

0

 

10,000(15)

 

10,000

 

0.0%

Rogers Telecommunications Ltd.

Shareholder

877,190

 

714,200(16)

 

1,591,390

 

6.0%

Sam Ahn

Shareholder

1,830,889

 

113,459(17)

 

1,944,348

 

7.4%

 

 

 

 

 

 

 

 

 

Directors and Executive

 

 

 

 

 

 

 

 

Officers as a group
(11 persons)

 

11,016,637

 

2,161,317

 

13,177,954

 

51%

 

(1)

A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days from March 31, 2010 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 March 31, 2010 have been exercised.

(2)

Applicable percentage ownership is based on 25,988,126 shares of common stock outstanding as of March 31, 2010.

(3)

Includes (i) 507,400 shares owned by Ascent Medical Technology Fund, LP, over which Dr. Groth has shared voting and investment power and (iii) 510,817 shares owned by Ascent Medical Product Development Centre, over which Dr. Groth has shared voting and investment power.

(4)

Consists of 40,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $0.68 per share.

(5)

Includes (i) 42,010 shares over which Ms. Farley has voting power, (ii) 507,400 shares owned by Ascent Medical Technology Fund, LP, over which Ms. Farley has shared voting and investment power, (iii) 510,817 shares owned by Ascent Medical Product Development Centre, over which Ms. Farley has shared voting and investment power and (iv) 8,000 shares over which Ms. Farley has sole voting and investment power.

(6)

Consists of 35,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $5.25 per share and 40,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $0.68 per share.

(7)

Shares are directly and jointly held by Mr. Leonhardt and his former spouse.

(8)

Includes (i) 26,379 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $5.67 per share, (ii) 203,870 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $7.69 per share and (iii) an aggregate of 90,033 shares issuable upon the exercise of presently exercisable warrants at an average exercise price of $0.85.

(9)

Consists of 20,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $0.68 per share.

(10)

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, (iii) 35,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $5.25 per share and (iv) 40,000 shares issuable upon exercise of presently exercisable stock options at an exercise price of $0.68.

(11)

Includes (i) 17,280 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $2.60 per share, (ii) 183,672 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $0.59 per share, (iii) 26,316 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $0.68 per share, (iv) 22,059 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $0.82 per share, (v) 108,963 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $0.64 per share, and (vi) 20,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $0.68 per share.

(12)

Shares are directly owned by trusts controlled by Dr. Murphy and his spouse.

 

14


(13)

Includes (i) 20,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $5.67 per share, (ii) 10,000 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, (iv) 40,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $0.68 per share and (iv) 34,752 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $7.69 per share, (v) 42,255 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $0.85 per share, and (vi) 27,000 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $0.70 per share.

(14)

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, (iv) 40,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $0.68 per share and (v) 69,502 shares issuable upon the exercise of presently exercisable warrants at an exercise price of $7.69 per share.

(15)

Consists of 10,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $0.68 per share.

(16)

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.

(17)

Includes (i) 72,281 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.

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, the Company entered into a loan agreement with Bank of America, N.A. for an eight month, $5.0 million term loan, to be used for working capital purposes. The loan bears interest at the annual rate of the prime rate plus 1.5%. The prime rate was 3.25% and 7.25% at December 31, 2008 and 2007, respectively. As consideration for the loan, the Company paid Bank of America a fee of $100,000. Effective as of January 31, 2008, the maturity date of the loan was extended until June 1, 2008. As consideration for this extension of the maturity date of the loan, the Company paid Bank of America a fee of $50,000. Effective as of June 1, 2008, Bank of America agreed to extend the maturity date of the loan until January 5, 2009. As consideration for this extension of the maturity date of the loan, the Company paid Bank of America a fee of $75,000. Effective January 5, 2009, Bank of America agreed to extend the maturity date of the loan until July 6, 2009. As consideration for this extension of the maturity date of the loan, the Company paid Bank of America a fee of $50,000. Effective July 6, 2009, Bank of America agreed to extend the maturity of the loan until January 5, 2010. As consideration for this extension of the maturity date of the loan, the Company paid Bank of America a fee of $25,000. Effective January 5, 2010, Bank of America agreed to extend the maturity of the loan until July 6, 2010. As consideration for this extension of the maturity date of the loan, the Company paid Bank of America a fee of $25,000. Under the terms of the 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.

The Company has provided no collateral for the loan. On June 1, 2007, for the Company’s benefit, the Company’s Chief Science and Technology Officer and his former spouse, certain other members of the Company’s Board of Directors and one of the Company’s shareholders (the “Guarantors”) provided collateral to guarantee the loan. Except for a $1.1 million personal guaranty (backed by collateral) provided by the Company’s Chief

15


Science and Technology Officer and his former spouse, these guarantees are limited to the collateral each provided to the lender.

The Company and Bank of America have agreed with BlueCrest Capital Finance, L.P., the lender of the BlueCrest Loan (defined below), that the Company will not individually make any payments due under the Bank of America loan while the BlueCrest Loan is outstanding. For the Company’s benefit, the Guarantors agreed to provide Bank of America in the aggregate up to $5.5 million of funds and/or securities to make these payments.

The Company has 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 to guarantee the loan. Upon entering into the loan agreement, the Company issued to each Guarantor warrants to purchase 3,250 shares of common stock at an exercise price of $7.69 per share for each $100,000 of principal amount of the loan guaranteed by such Guarantor. The warrants have a ten-year term and became exercisable one year following the date the warrants were issued. Warrants to purchase an aggregate of 216,095 shares of common stock were issued to the Guarantors. These warrants had an aggregate fair value of $1,437,638, which amount was accounted for as additional paid in capital and reflected as a component of deferred loan costs and amortized as interest expense over the initial term of the loan using the effective interest method. As discussed below, certain of these Guarantors were replaced in September 2007. The unamortized fair value of the warrants issued to the Guarantors that were replaced, which was previously reflected as a component of deferred loan costs, was recorded as interest expense in September 2007.

In September 2007, a member of the Company’s Board of Directors and two of the Company’s shareholders agreed to provide collateral valued at $750,000, $600,000 and $500,000, respectively, to secure the loan. The collateral provided by these new Guarantors fully replaced the collateral originally provided by one of the members of the Company’s Board of Directors and partially replaced the collateral originally provided by another member of the Company’s Board of Directors whose collateral now secures $400,000 of the loan. In consideration for providing the collateral, the Company issued to the new Guarantors warrants to purchase 3,250 shares of common stock at an exercise price of $7.69 per share for each $100,000 of principal amount of the loan guaranteed by such new Guarantor. The warrants have a ten-year term and became exercisable one year following the date the warrants were issued. Warrants to purchase an aggregate of 60,118 shares of the Company’s common stock were issued to the new Guarantors. These warrants had an aggregate fair value of $380,482, which was accounted for as additional paid in capital and reflected as a component of deferred loan costs and amortized as interest expense over the initial term of the loan using the effective interest method.

In accordance with the provisions of the warrants issued to the 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. The additional 38,861 warrant shares had an aggregate fair value of $244,463. The portion of this amount attributed to the Guarantors that were replaced in September 2007 was accounted for as additional paid in capital and immediately recorded as interest expense with the remainder accounted for as additional paid in capital and reflected as a component of deferred loan costs and amortized as interest expense over the initial term of the loan using the effective interest method.

In October 2007, the Company's Chief Science and Technology Officer and his former spouse agreed to provide an additional $2.2 million limited personal guarantee of the loan and pledged securities accounts to backup this limited personal guarantee. The additional collateral provided by the Company's Chief Science and Technology Officer and his former spouse fully replaced the collateral provided by one of the original Guarantors. The Company's Chief Science and Technology Officer and his former spouse by then had personally guaranteed an aggregate of $3.3 million of the loan. The Company's agreement with the Company's Chief Science and Technology Officer and his former spouse with respect to the additional collateral is substantially similar to the Company's

16


agreement with them in connection with the $1.1 million personal guarantee they originally provided in June 2007. In consideration for providing the collateral, the Company issued to the Company's Chief Science and Technology Officer and his former spouse, a warrant to purchase 81,547 shares of the Company's common stock at an exercise price of $7.69 per share. The warrant has a ten-year term and became exercisable one year following the date the warrant was issued. The warrant had a fair value of $516,193, which was accounted for as additional paid in capital and reflected as a component of deferred loan costs and amortized as interest expense over the initial term of the loan using the effective interest method.

As a result of this replacement of the collateral originally provided by one of the original Guarantors in October 2007, the unamortized fair value of the warrant to purchase 81,548 shares of the Company's common stock at an exercise price of $7.69 per share issued to that Guarantor was recorded as interest expense in October 2007. In October 2007, the Company cancelled the warrant previously issued to such original Guarantor, which warrant included the adjustment provisions discussed above, and, in exchange, issued to them a warrant to purchase 101,934 shares of the Company's common stock at an exercise price of $7.69 per share, which new warrant does not contain the adjustment provisions discussed above. The additional 20,386 warrant shares had an aggregate fair value of $128,228, which was accounted for as additional paid in capital and immediately recorded as interest expense.

In accordance with the provisions of the warrants issued to the 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. The additional 78,773 warrant shares had an aggregate fair value of $168,387. The portion of this amount attributed to the Guarantors that were replaced in September 2007 was accounted for as additional paid in capital and immediately recorded as interest expense with the remainder accounted for as additional paid in capital and reflected as a component of deferred loan costs to be amortized as interest expense over the term of the loan using the effective interest method. In the event that as of the second anniversary and third anniversary of the closing date of the loan, the Company has not reimbursed the Guarantors in full for payments made by them in connection with the loan, the number of shares subject to the warrants will further increase.

The amount of interest expense on the principal amount of the loan for the three months ended March 31, 2010 and 2008 totaled approximately $23,700 and $68,000, respectively. Fees and interest earned by the Guarantors, which are recorded as interest expense, for the three months ended March 31, 2010 and 2008 totaled approximately $140,000 and $88,000, respectively. Interest due on the principal amount of the loan has been paid by the Guarantors. As of March 31, 2010 and December 31, 2009, that amount totaled approximately $445,000 and $692,000, respectively, and was included in accrued expenses at those dates.

In March 2009, the Company’s Chief Science and Technology Officer and his former spouse repaid $3.0 million of principal and a pro rata portion of accrued interest on behalf of the Company. The Company then owed this $3.0 million to the Company's Chief Science and Technology Officer and his former spouse. . This liability was reflected on the Company’s consolidated balance sheet on a separate line titled “Subordinated related party loan.” This amount continued to accrue interest at an annual rate of the prime rate plus 5.0%.

In February 2010 the Company’s Chief Science and Technology Officer and his spouse filed divorce papers. Pursuant to the divorce, their jointly owned shares and their ownership of the loan to Bioheart which they hold as a result of their payment of $3 million of principal and related interest to Bank of America on behalf of Bioheart, would be divided equally between them. As a result, the Chief Science and Technology Officer’s common shares were then reduced to 2,513,840 and his percentage shareholding of the Company to 13.8%, with his former spouse assuming ownership of the same number of common shares and percentage shareholding of the Company. Their commonly owned loan and related interest, as of March 29, 2010, $4,140,201, was been equally split. The Chief Science and Technology Officer on March 29, 2010, elected to convert his portion of the loan and related interest to

17


restricted common stock and warrants. As a result, Howard Leonhardt, the Company’s Chief Science and Technology Officer, as of March 31, 2010, owns approximately 22 % of the Company.

In March of 2010, one of the Guarantors paid directly to Bank of America the $666,600 of principal that he had been guaranteeing, and a pro rata portion of accrued interest on behalf of the Company. That Guarantor agreed to accept from the Company the equivalent of his payment to Bank of America in restricted common stock and warrants. With his acceptance of the restricted common stock and warrants, the former Guarantor owned, at March 31, 2010, approximately 8% of the Company.Thus, the outstanding obligation to Bank of America was reduced to $1.3 million plus interest.

On July 16, 2010, the Company received a written notice of an event of default under the Bank of America Loan, by reason of the Company’s failure to pay the loan in full at maturity on July 5, 2010 and failure to pay the extension fee of $30,000 by June 28, 2010, as required by the loan documents, as amended. The Company is engaged in discussions with the 3rd parties who have provided the loan collateral regarding a restructuring of the indebtedness in the event Bank of America seeks recourse against the collateral and those 3rd parties, by reason of such action, become the successors to Bank of Americas rights and interests under the Bank of America Loan.

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.

 

Placement Fee

 

None.

 

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 was paid in 2009. {credit for $10k in expenses & balance of $65k was credited for issuance of shares}.

 

On February 2, 2010, Bioheart, Inc. (the “Company”) and the Ascent Medical Product Development Centre Inc. (“Ascent”) entered into an agreement whereby Ascent would oversee the conduct of a Phase I Clinical Trial for the Company, namely the REGEN trial. Ascent is owned by the Ascent Medical Technology Fund II, LP, (the “Fund”). The Fund’s General Partner is Ascent Private Equity II, LLC, which is controlled by Karl E. Groth, Ph.D. and Peggy A. Farley, who were, respectively, the Chief Executive Officer and the Chief Operating Officer of the Company.

 

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

 

18


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, 2009 through January 19, 2009 included Mr. Timmins, who served as Chairperson of the Audit Committee, Ms. Farley and Mr. Carson. 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. On May 12, 2009 Mr. Borman replaced Mr. Carson. As of June 18, 2010 our Audit Committee consists of Mr. Borman as Chairperson of the Audit Committee and Dr. Murphy. The Board of Directors has determined that Mr. Borman is independent pursuant to the NASDAQ Rules and Rule 10A-3 under the Exchange Act.

 

Compensation Committee

 

The members of our Compensation Committee from January 1, 2009 through January 19, 2009 included Ms. Farley who served as Chairperson of the Compensation Committee, Mr. Carson, and Mr. Timmins. On January 19, 2009 Mr. Carson replaced Ms. Farley as Chairperson and Dr. Groth replaced Mr. Timmins upon his resignation from the Board of Directors and the Compensation Committee. On May 12, 2009 Mr. Hart replaced Ms. Farley. On February 10, 2010 Ms. Farley replaced Dr. Groth. As of June 18, 2010 the members of our Compensation Committee include Mr. Carson, who serves as Chairperson of the Compensation Committee, Ms. Farley, and Mr. Hart. The Board of Directors has determined that Mr. Carson and Mr. Hart are independent pursuant to the NASDAQ Rules and Rule 10A-3 under the Exchange Act.

 

Governance & Nominating Committee

 

The members of our Governance & Nominating Committee from January 1, 2009 through Janaury 19, 2009 included Ms. Farley who served as Chairperson and Mr. Timmins. 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. On February 10, 2010 Ms. Jones replaced Dr. Groth as Chairperson. Mr. Borman and Mr. Spencer replaced Mr. Carson and Ms. Farley. As of June 18, 2010 the members of our Governance and Nominating Committee include Mr. Borman and Mr.Spencer. The Board of Directors has determined that Mr. Borman 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, 2009 and 2009 by our independent registered public accounting firms are as follows:

 

Types of Fees

 

2009

 

 

2008

 

Audit Fees (1)

 

$

96,900

 

 

$

158,633

(2)

Audit Related Fees

 

 

 

 

 

 

Tax Fees

 

 

 

 

 

 

All Other Fees

 

 

 

 

 

 

 

19


 

 

 

(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 Grant Thornton LLP and Jewett Schwartz Wolfe & Associates for professional services rendered for the audit of our 2009 and 2008 annual consolidated financial statements. Also includes the aggregate fees billed to us by Jewett Schwartz Wolfe & Associates during 2009 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.

 

 

 

 

 

 

     

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.

 

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.

 

20


(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 2009 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.

 

21


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 2002

 

 

 

 

*

 

Filed herewith

 

22


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/Mike Tomas

 

 

 

 

 

 

 

President and Chief Executive Officer

 

 

 

Dated: August 11, 2010

 

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/ Karl E. Groth

 

 

Chairman of the Board

 

 

August 11, 2010

Karl E. Groth

 

 

 

 

 

 

 

 

 

/s/ Mike Tomas

 

President, Chief Executive Officer and Director

 

August 11, 2010

Mike Tomas

 

 

 

 

 

 

 

 

 

/s/ Peggy A. Farley

 

Director

 

August 11, 2010

Peggy A. Farley

 

 

 

 

 

 

 

 

 

/s/ Mark Borman

 

Director

 

August 10, 2010

Mark Borman

 

 

 

 

 

 

 

 

 

/s/ Bruce C. Carson

 

Director

 

August 11, 2010

Bruce C. Carson

 

 

 

 

 

23


 

 

 

 

 

 

/s/ William P. Murphy, Jr., M.D.

 

Director

 

August 10, 2010

William P. Murphy, Jr., M.D.

 

 

 

 

 

 

 

 

 

/s/ Richard T. Spencer III

 

Director

 

August 11, 2010

Richard T. Spencer III

 

 

 

 

 

 

 

 

 

/s/ Charles A. Hart

 

Director

 

August 10, 2010

Charles A. Hart

 

 

 

 

 

 

 

 

 

/s/ Howard Leonhardt

 

Director and Chief Technology Officer

 

August 10, 2010

Howard Leonhardt

 

 

 

 

 

24


Table of Contents

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

 

25