September
23, 2009
Via
EDGAR and FedEx
Division
of Corporation Finance
Mail Stop
3561
Washington,
DC 20549-7010
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Re:
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NeoStem,
Inc.
Registration Statement on Form S-4, Pre-Effective Amendment No. 2 Filed August 28, 2009 File No. 333-160578 |
On behalf
of NeoStem, Inc. (the “Company”), we are responding to the comments contained in
the letter, dated September 18, 2009 (the “Comment Letter”), from John Reynolds,
Assistant Director, of the staff (the “Staff”) of the Securities and Exchange
Commission (the “Commission”) regarding the Company’s Pre-Effective Amendment
No. 2 to Registration Statement on Form S-4 (Registration No. 333-160578) (the
“Registration Statement”). This letter accompanies the Company’s
filing of Amendment No. 3 to that registration statement (the “Amendment No.
3”). Enclosed are three courtesy copies of Amendment No. 3, which are marked to
show changes from Pre-Effective Amendment No. 2 to the Registration Statement as
filed with the Commission on August 28, 2009.
For ease
of reference, set forth in bold below is the comment to the Registration
Statement, as reflected in the Comment Letter. The Company’s
supplemental response is set forth below the comment.
The
Company has authorized this firm to respond to the Comment Letter as
follows:
General
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1.
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With respect to prior comments
one and two from our letter dated August 17, 2009, we remind you of the
outstanding comments.
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Response: With
respect to the accounting comments regarding the Company’s Form 10-K for the
fiscal year ended December 31, 2008, the Company and its representatives have
been engaging in communications with members of the Staff. We have
been verbally advised that the accounting comments will be deemed resolved when
we file an amendment to our quarterly report on Form 10-Q for the three and six
months ended June 30, 2009, which we plan to file on or before September 25,
2009, and make conforming changes to the Registration Statement. We
understand that the accounting comments must be resolved prior to effectiveness
of the Registration Statement. With respect to the Staff’s comments
on Company’s Application for Confidential Treatment filed July 16, 2009 relating
to a certain network agreement (the “Confidential Treatment Request”), the
Company and its representatives have communicated with members of the Staff
regarding such comments and the Company has provided a letter dated August 28,
2009 in response to such comments. We understand that the comments
regarding the Confidential Treatment Request must be resolved prior to the
effectiveness of the Registration Statement.
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Securities
and Exchange Commission
Page 2
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September
23, 2009
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2.
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We note your response to prior
comment 18 in which you indicate that you will not be conducting an
exchange offer. Please advise us what action, if any, you
anticipate taking with respect to the outstanding
warrants.
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Response: As
stated in Pre-Effective Amendment No. 2 to the Registration Statement (at page
2, and in other appropriate locations), NeoStem will honor the existing
contractual rights of the holders of outstanding warrants to purchase shares of
CBH Common Stock (other than warrants held by RimAsia) (“Existing CBH
Warrants”). All such warrants contain provisions dictating how such
warrants are to be treated in the event that CBH consummates a merger
transaction.
Cover Page, Letter to
Shareholders
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3.
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Please revise to quantify the
total consideration to be paid in the merger
transaction.
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Response: In
response to the Comment Letter, the Company has revised the Letter to
Shareholders to quantify the total consideration to be paid in the merger
transaction.
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4.
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Please revise to limit the
cover page to one page and avoid unnecessary repetition of detailed
information provided in the
document.
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Response: In
response to the Comment Letter, the Company has revised the cover page to avoid
unnecessary repetition of detailed information provided in the document and to
limit the cover page to one page.
NeoStem Proposal No. 1, page
84
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5.
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On page 29 you indicate that
RimAsia may foreclose on all of CBH’s assets. Please clarify,
here and elsewhere, what effect this would have on CBH
shareholders. With a view to disclosure, advise us of the
current transaction value of the shares to be received by Dr. Smith and
Mr. Myers for their CBH holdings and compare it against the likely value
assuming foreclosure by
RimAsia.
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Response: In
response to the Comment Letter, the Company has revised the disclosure on pages
17, 29, 38, 43, 97 and 202 to clarify the effect on the CBH
shareholders if RimAsia were to foreclose on all of CBH’s assets.
In
response to the Comment Letter, the Company has revised the disclosure on pages
24, 38, 39, 100 and 322 to provide the transaction value as of the
most recent practicable date of the shares to be received by Dr. Smith and Mr.
Myers for their CBH holdings and to provide a comparison of such value against
the likely value assuming foreclosure by RimAsia. Furthermore, the
Company advises the Staff that as of October 31, 2008, immediately prior to the
execution of the definitive merger agreement, the transaction value of the
shares to be received by Dr. Smith and Mr. Myers for their CBH holdings would be
$84,681 and $62,042, respectively, based on the closing price of $1.13 on
October 31, 2008 of NeoStem common stock and assuming conversion of the CBH
common stock into NeoStem common stock in the merger.
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Securities
and Exchange Commission
Page 3
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September
23, 2009
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6.
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We note your response to prior
comment three. Please revise to further clarify the significant
negotiations and changes to the material terms. For example,
the last full paragraph on page 84 refers to a NeoStem management
presentation to the board, but it is unclear what discussions about
mergers and acquisitions with Mr. Mao, if any, had taken place with the
board before that time. Also, it is unclear how CBH became part
of the term sheet discussions in April. Please replace
references to “all hands” by identifying the principal negotiating
parties. Also, please disclose the terms of the initial
transaction proposal, and explain what material changes were made leading
up to the terms found in the executed agreement. Currently you
refer to “transaction structure and accounting issues,” “structural
issues” and other changes without explaining what material terms were
discussed or if and how they were amended since the previous conference
call or other meeting of the
parties.
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Response: In
response to the Comment Letter, the Company has substantially revised the
disclosure in the “Background of Merger” section beginning on page 84 to
further clarify the significant negotiations, changes to the material terms and
the principal parties involved in the negotiations. The Company has
revised the disclosure in the “Background of Merger” section beginning on
page 86 to include a summary of the initial transaction proposals and a
discussion of any material changes from the initial transaction proposal to the
terms in the definitive merger agreement. The Company has also revised the
disclosure in the “Background of Merger” section to include a summary of the
significant
structural and accounting issues that were discussed during the months preceding
the execution of the definitive agreements.
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7.
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As another non-exclusive
example, you reference Amendment No. 1 and Amendment No. 2 but you do not
explain what material changes were made the agreement at those
times. If the only material changes were the Agreement and Plan
of Merger as referenced on page
104.
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Response: In
response to the Comment Letter, the Company has revised the disclosure in the
“Background of Merger” section to add a discussion of the material changes made
to the merger agreement in Amendments No. 1 and 2 to such merger
agreement. Please see pages 90-92.
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Securities
and Exchange Commission
Page 4
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September
23, 2009
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8.
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Please provide a copy of the
Strategic Alternatives
Analysis.
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Response: In
response to the Comment Letter, the Company has or concurrently herewith will
provide a copy of the Strategic Alternatives Analysis to members of the Staff on
a supplemental basis pursuant to Rule 418 promulgated under the Securities Act
of 1933. It is not to be filed with or deemed part of the
Registration Statement.
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9.
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Please revise to clarify the
capacity in which Dr. Smith was acting when she met with CBH’s CEO in
December 2007. For example, it is unclear whether the board had
authorized the discussions, whether she was meeting in her capacity as a
private investor, or
otherwise.
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Response: In
response to the Comment Letter, the Company has revised the disclosure in the
“Background of Merger” section to clarify the capacity in which Dr. Smith was
acting when she met with CBH’s CEO in December 2007 and whether the Company’s
Board of Directors had authorized such discussions. Please see page
84.
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10.
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We note disclosure in your
document indicating that you used a Special Committee due to the shares
that Dr. Smith and Mr. Myers hold in the target. Please revise
to identify the parties and clarify the role played by the Special
Committee. It is unclear, for example, if and under what
capacity the committee participated in negotiating deal
terms.
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Response: In
response to the Comment Letter, the Company notes that the members of the
special committee were identified on pages 89-90 of the Pre-Effective Amendment
No. 2 to the Registration Statement. Specifically, the special
committee of the NeoStem Board of Directors was initially comprised of Mark
Weinreb, Joseph Zuckerman and Richard Berman, and as of the current time, the
special committee is comprised of Joseph
Zuckerman,
Richard Berman and Drew Bernstein. In response to the Comment Letter,
the Company has revised the disclosure on pages 24, 39, 95, 100 and 322 of
Amendment No. 3 to clarify the role played by the special committee. More
specifically, the special committee’s role was to provide an independent review
of the proposed transaction which was negotiated by the Company’s management
team, led by Dr. Smith; to provide an independent review of the desirability and
fairness of the proposed transaction; and to offer a recommendation regarding
the proposed transaction to the full Board of Directors. The Company
advises the Staff that the special committee did not participate in negotiating
the deal terms.
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Securities
and Exchange Commission
Page 5
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September
23, 2009
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11.
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Please revise to address any
materials reviewed by the board in making its fairness
determination. Also, revise to disclose the date on which the
fairness opinion was received and indicate whether it was received before
or after the final agreement was adopted on November 2,
2008.
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Response: On
October 31, 2008, at a meeting of the NeoStem Board of Directors called to
discuss the proposed agreement with CBH, the Board received oral guidance from
vFinance Investments, Inc. (‘‘vFinance’’) regarding its preliminary analysis on
the fairness of the proposed transaction. At such time, vFinance
stated that they would provide written confirmation of such oral guidance at the
Company’s request. In or about the end of March 2009, as the Company
prepared to commence drafting its registration statement, the Company requested
vFinance to confirm in writing their oral guidance. Accordingly
vFinance gave the NeoStem Board of Directors the written fairness opinion on
April 1, 2009. Also on April 1, 2009, vFinance delivered its written
report to the special committee of the NeoStem Board of
Directors. Please see the disclosure under the heading “Fairness
Opinion - Background” on page 104 of the Pre-Effective Amendment No. 2 to the
Registration Statement. In response to the Comment Letter, the
Company has further revised the disclosure under the heading “Reasons of the
NeoStem Board of Directors” on page 97 to address the materials reviewed by the
NeoStem Board of Directors in making its fairness determination.
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12.
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Given the intervening period
between the initial signing and the shareholder vote, please revise to
address the extent to which the board or special committee have considered
reconfirming their conclusions regarding the fairness of the transaction
to shareholders.
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Response: As
disclosed on page 104 of the Pre-Effective Amendment No. 2 to the Registration
Statement, while NeoStem did not receive updated opinions at the time that
Amendments No. 1 and 2 to the definitive merger agreement were signed, NeoStem
did not believe that the matters set forth in such amendments were so material
as to necessitate
a revision of the fairness opinion, but will rely on the condition that vFinance
renew its fairness opinion prior to closing. No formal fairness
opinion was requested with each such change, however, on each occasion, vFinance
was fully informed of the proposed changes to the terms of the transaction
before they were made, and vFinance orally informed the Company that the changes
did not adversely affect its view as to the fairness of the transactions to the
shareholders of the Company from a financial point of view. This view of
vFinance was communicated to the special committee prior to its approval of each
of Amendments No. 1 and No. 2. Thus, while the fairness opinion rendered
by vFinance predates the amendments to the merger agreement, the Company has
consulted with vFinance regularly since then, and has obtained oral assurances
as recently as August 2009 that they would not consider the changes in
consideration to adversely affect fairness from NeoStem’s point of view.
As stated in the Registration Statement, NeoStem does not believe that the
matters set forth in Amendments No. 1 and No. 2 were so material as to
necessitate a revision of the fairness opinion.
In
addition, the Company advises the Staff that pursuant to the definitive merger
agreement receipt of a re-affirmation of the Fairness Opinion prior to closing
is a condition to NeoStem’s obligation to consummate the merger. If such
re-affirmation is obtained, and the Company were otherwise prepared to close,
the Company would close without further information being provided to investors
prior to closing. If for any reason not anticipated by the Company at this
time, vFinance were unable to reconfirm the fairness of the transaction to
NeoStem’s shareholders from a financial point of view, NeoStem would either not
close and abandon the transaction or resolicit shareholder approval, possibly on
amended terms if necessitated by the views of the NeoStem Board of Directors at
such time.
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Securities
and Exchange Commission
Page 6
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September
23, 2009
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Material United States
Federal Income Tax Consequences of the Merger, page 102
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13.
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We note your response to prior
comment four. The Lowenstein Sandler letter filed as exhibit
8.A indicates that “[i]n our opinion, such discussion of those [tax]
consequences, insofar as it summarizes United States federal income tax
law, is accurate in all material respects.” Please revise this
statement to explicitly indicate that the discussion contained in this
section is the opinion of counsel. Similar revisions should be
made to the Troutman Sanders
opinion.
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Response: In
response to the Comment Letter, the tax opinion of each of Lowenstein Sandler PC
and Troutman Sanders LLP have been revised and such revised opinions were filed
with Amendment No. 3.
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14.
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We note statements in your
document on page 102 that the receipt of a
tax opinion is a waivable condition to your merger
agreement. Please undertake to recirculate and resolicit in the
event that this condition is waived and the tax consequence is
material.
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Response: As
requested, the Company undertakes to recirculate and resolicit in the event the
tax condition is waived and the tax consequence is material.
Fairness Opinion, page
104
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15.
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We note that the target is a
publicly traded company whose shares trade under the symbol
CHBP.OB. It does not appear that vFinance Investments, Inc.
performed any analysis of the target’s historical trading price in
reaching its conclusion. If true, please revise to briefly
state so and indicate whether the board or special committee considered
this relevant to their determinations. Also, please revise your
Background of the Merger discussion to address the consideration, if any,
your board gave to the target’s historical trading
price.
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Response: vFinance
has advised us that while vFinance had monitored the stock trading of CBH due to
its involvement in the March 2006 financing of CBH, it did not deem it relevant
for purposes of this engagement. The Company understands from vFinance that the
CBH stock has historically been very illiquid. In addition, other factors may
have influenced the trading activity of CBH’s stock, such as other financings
and acquisitions not related to the Erye assets in question. Accordingly, in
rendering its fairness opinion, vFinance treated the transaction more as an
asset purchase. In response to the Comment Letter, the Company has revised the
disclosure on page 113 to disclose that vFinance did not focus on the historical
trading price for CBH stock because the CBH stock has historically been illiquid
and may have been influenced by factors unrelated to the 51% interest in
Erye being acquired by NeoStem.
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16.
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Please revise to disclose the
approximate transaction value of the shares and warrants held by vFinance
as of the most recent practicable date and indicate their value in the
event that RimAsia
forecloses.
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Response: In
response to the Comment Letter, the Company has revised the disclosure on pages
42 and 112 to disclose the approximate transaction value of the shares and
warrants held by vFinance as of the most recent practicable date and indicate
their value in the event that RimAsia forecloses. Furthermore, the
Company advises the Staff that as of October 31, 2008, immediately prior to the
execution of the definitive merger agreement, the transaction value of the
shares of common stock to be received by the principals of vFinance would be
$9,501 based on the closing price of $1.13 of NeoStem
Common Stock on October 31, 2008 and assuming conversion of the CBH common stock
into NeoStem common stock in the merger.
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Securities
and Exchange Commission
Page 7
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September
23, 2009
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17.
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We note your response to prior
comment seven and the opinion provided as Annex C. Please
advice us how the transaction consideration described in paragraph two of
the opinion relates to the fee table. With a view to
disclosure, advise us if the fairness opinion does not opine on the actual
consideration being paid. Also, advise us what information you
will provide investors about vFinance’s fairness opinion
“renewal”.
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Response: There
have been some changes in the aggregate consideration being paid in the Merger
from the original November 2, 2008 agreement through the amendments to the
Merger Agreement. These changes are fully described in the descriptions of
Amendment No. 1 and No. 2 now included in the proxy statement in response to
your Comment 7. No formal fairness opinion was requested with each such
change, however, on each occasion, vFinance was fully informed of the proposed
changes to the terms of the transaction before they were made, and vFinance
orally informed the Company that the changes did not adversely affect its view
as to the fairness of the transactions to the shareholders of the Company from a
financial point of view. This view of vFinance was communicated to the
special committee prior to its approval of each of Amendments No. 1 and No.
2. Thus, while the fairness opinion rendered by vFinance is a number of
months old and does not reflect the exact consideration now being paid in the
Merger, the Company has consulted with vFinance regularly since then, and has
obtained oral assurances as recently as August 2009 that they would not consider
the changes in consideration to adversely affect fairness from NeoStem’s point
of view. In response to the comment letter, the Company has revised the
disclosure on page 110 to clarify that the fairness opinion received on April 1,
2009 does not opine on the actual consideration being paid.
Furthermore,
the Company advises the Staff that pursuant to the definitive merger agreement
receipt of a re-affirmation of the Fairness Opinion prior to closing is a
condition to NeoStem’s obligation to consummate the merger. The Company
has revised the disclosure on page 110 to indicate that such fairness opinion
will opine on the actual consideration being paid. If such re-affirmation
is obtained, and the Company were otherwise prepared to close, the Company would
close without further information being provided to investors prior to
closing. If for any reason not anticipated by the Company at this time,
vFinance were unable to reconfirm the fairness of the transaction to NeoStem’s
shareholders from a financial point of view, NeoStem would either not close and
abandon the transaction or resolicit shareholder approval, possibly on amended
terms if necessitated by the views of the NeoStem Board of Directors at such
time.
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18.
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We note your response to prior
comment nine and revised disclosure regarding
the total consideration. It appears that the fairness opinion
uses varying dates in its calculation. For example, in
determining the transaction consideration the opinion uses NeoStem’s
common stock price as of April 1, 2009. Later, when valuing the
target you describe figures from 2008, including pro-forma financial
information from September 30, 2008. With a view to disclosure,
advise us why these alternate dates were used and explain the impact, if
any, they have on the analysis. Also, revise the disclosure
throughout this section to more clearly identify dates and
time-periods. It is unclear, for example, what period 2008 E
Revenue on page 116 relates to, or what periods comprise trailing twelve
months revenue for the comparable
companies.
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Response: In
response to the Comment Letter, the Company has revised the disclosure under the
section heading “Fairness Opinion” beginning on page 121 to clarify the use of
alternate dates in the footnotes to the various tables presented. vFinance has
advised the Company that the varying dates are the result of the timing of the
fairness opinion (April 1, 2009). As of the time vFinance rendered its opinion,
it informs us that most of the comparable companies (seven out of the nine) had
not filed their latest financial results. The most recent results for the
majority of the comparable companies covered the period through September 30,
2008. vFinance has informed us that it does not believe the alternate dates had
any impact on its analysis.
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Securities
and Exchange Commission
Page 8
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September
23, 2009
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19.
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We note your response to prior
comment 11. Please provide the selection criteria used for your
comparable company and transaction
analyses.
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Response: vFinance
has advised the Company that: (a) the comparable company selection criteria
were: public issuers based in China whose stock traded on either the Amex,
Nasdaq or OTC, whose industry classification was either pharmaceuticals or
nutraceuticals and which had trailing twelve month revenues between $10 million
and $80 million; and (b) the criteria for selection of transactions were:
transactions announced or closed within a two year time frame from the date of
its opinion and involving target companies that were primarily based in the PRC
that were either classified as a pharmaceutical or nutraceutical company and had
revenues below $90 million. In response to the Comment Letter the
Company has revised the disclosure under the section heading “Fairness Opinion”
on page 117 and 124 to provide the selection criteria used for its comparable
company and transaction analyses.
*****
This will
confirm that the Company understands that:
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should
the Commission or the staff, acting pursuant to delegated authority,
declare the filing
effective, it does not foreclose the Commission from taking any action
with respect to the filing;
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Securities
and Exchange Commission
Page 9
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September
23, 2009
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·
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the
action of the Commission or the staff, acting pursuant to delegated
authority, in declaring the filing effective, does not relieve the Company
from its full responsibility for the adequacy and accuracy of the
disclosure in the filing; and
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·
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the
Company may not assert staff comments and the declaration of effectiveness
as a defense in any proceeding initiated by the Commission or any person
under the federal securities laws of the United
States.
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If you
have any questions with respect to the foregoing, please feel free to call me at
973-597-2564.
| Very truly yours, | ||||
| /s/ Alan Wovsaniker | ||||
AW:
mb
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cc:
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Catherine
M. Vaczy, Esq.
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