UNITED STATES
SECURITIES EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 13, 2006
PHARMAFRONTIERS CORP.
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(Exact name of registrant as specified in its charter)
Texas 000-25513 76-0333165
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(State of organization) (Commission File Number) (IRS Employer
Identification No.)
2635 N. Crescent Ridge Drive
The Woodlands, Texas 77381
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (281) 272-9331
Former name or former address, if changed since last report: Not Applicable
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
|_| Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 1.01 Entry into a Material Definitive Agreement
Financing
On April 13, 2006, PharmaFrontiers Corp. (the "Company") closed upon a
transaction in which the Company issued 46,000,000 shares of the Company's
common stock and warrants to purchase 23,000,000 shares of the Company's common
stock for $23,000,000 to certain institutional and accredited investors (the
"Transaction"). In connection with the Transaction, the Company agreed to hold a
shareholder's meeting by June 30, 2006 to vote on a proposal to effect a 1 for
10 reverse split of the Company common stock that will not reduce the number of
shares of common stock the Company is authorized to issue. Additionally, three
board members resigned at the closing of the Transaction, two new directors were
appointed to fill two vacancies and the Company agreed to file a Schedule 14f-1
to appoint a third new director. The Company also agreed to take all necessary
action to list the Company's common stock on the Nasdaq Capital Market.
The warrants will expire in five years, and are exercisable at $0.65
per share only after the Company effects a 1 for 10 reverse split. The warrants
contain standard adjustment provisions for stock splits, distributions,
reorganizations, mergers and consolidations. The Company has the right to call
the warrants commencing one year from the effective date of a resale
registration statement if the closing bid price per share of the Company's
common stock equals or exceeds $1.30 for twenty consecutive trading days in
which the daily average trading volume of the common stock is at least 200,000
shares. Additionally, if the resale registration statement is not effective for
any period after April 13, 2007, then the warrant holders may exercise their
warrants on a cashless basis during the period the resale registration statement
is not effective.
The Company has agreed to file a registration statement with the
Securities and Exchange Commission by May 13, 2006 in order to register the
resale of the shares of common stock issued pursuant to the Transaction and the
shares issuable upon exercise of the warrants. If the Company fails to meet this
deadline, if the registration statement is not declared effective prior July 12,
2006 or August 11, 2006 (if the Securities and Exchange Commission comments on
the registration statement), or if the registration statement ceases to remain
effective, the Company has agreed to pay the investors liquidated damages of
1.5% of the amount invested per 30 day period during such failure, up to 24% of
the aggregate amount invested.
The Company intends to conduct an appropriate accounting analysis
consistent with general accepted accounting principles, including SFAS 133 and
EITF 00-19, with respect to the securities issued in the Transaction, which may
result in a portion of the proceeds being classified as a derivative liability.
Any such derivative liability would be measured at each reporting date at fair
value with the any change in fair value resulting in a gain or loss in the
Company's statement of operations. Any such derivative liability initially will
be reflected in the Company's financial statements for the fiscal quarter ending
on June 30, 2006.
Additionally, the Transaction triggered certain adjustment provisions
contained in the Company's series B warrants and series C warrants issued in
June and July 2005. Pursuant to the adjustment provisions, the number of shares
issuable upon exercise of the series B warrants increased to 6,037,365 shares
from 4,163,701 shares and the exercise price was reduced to $2.00 from $2.90 per
share. The number of shares issuable upon exercise of the series C warrants
increased to 11,105,477 shares from 8,329,108 shares and the exercise price was
reduced to $3.00 from $4.00 per share.
In connection with the Transaction, the Company paid commissions and
fees to our placement agent, MDB Capital Group LLC ("MDB"), and another broker
dealer for services in connection with the Transaction an aggregate of
$1,754,100 and issued MDB and another broker dealer three year warrants to
purchase an aggregate of 2,137,200 shares of common stock at an exercise price
of $0.50 per share, exercisable after the Company effects a 1 for 10 reverse
split. These warrants are not callable, have a cashless exercise option, and
have standard adjustment provisions. The Company agreed to register the resale
of the shares underlying the warrants issued to MDB and the other broker dealer.
This summary description of the financing arrangements does not purport
to be complete and is qualified in its entirety by reference to the form of the
agreements and the other documents and instruments that are filed as exhibits to
this current report.
University of Chicago License
On April 13, 2006, the Company amended that certain Amended and
Restated License Agreement, dated December 30, 2004, with the University of
Chicago with respect to certain payment obligations of the Company, as follows:
(i) an April 30, 2006 $1,500,000 cash payment obligation was extended until
October 31, 2006; and (ii) the obligation to issue 216,228 shares of the
Company's common stock issuable upon the close of the Transaction was extended
until October 31, 2006.
Item 2.02 Results of Operations and Financial Condition
The Company intends to use the net proceeds of this Transaction for
Phase IIb clinical trials on Tovaxin (our multiple sclerosis cell therapy), the
completion of its GMP manufacturing facility, finalizing preclinical studies and
preparing the investigational new drug application for stem cells, the
development of a T-cell vaccine for rheumatic arthritis, and general working
capital. Management believes that the proceeds received from the Transaction
will be sufficient to meet projected operating and capital expenditures through
the third quarter of 2007.
Certain milestones are expected to occur before the third quarter of
2007 including a planned Descriptive Analysis which is a mid-trial interim
report of the results of the Phase IIb trial. Other milestones planned to occur
before the third quarter of 2007 are the completion of the Tovaxin Phase I/II
trails including the final report for these trials and the filing of an
investigational new drug application to initiate human trials in Rheumatoid
Arthritis.
Item 3.02 Unregistered Sales of Equity Securities
As more fully described in Item 1.01, the Company issued (i) 46,000,000
shares of Company common stock and warrants to purchase a total of 23,000,000
shares of Company common stock to 41 "accredited investors" as such term is
defined in Rule 501 under the Securities Act of 1933 (the "Act"); and (ii)
warrants to purchase 2,137,200 shares of Company common stock to MDB and another
broker dealer. The Company received gross proceeds of $23,000,000 ($21,245,900
proceeds after the deduction of sales commissions) from the private placement.
The offers and sales were made without registration under the Act, or
the securities laws of certain states, in reliance on the exemptions provided by
Section 4(2) of Act and Regulation D under the Act and in reliance on similar
exemptions under applicable state laws. The issuance of the Company's common
stock and the warrants issued in the Transaction did not involve any public
offering; each investor made representations regarding its investment intent,
experience and sophistication; each investor either received or had access to
adequate information about us in order to make an informed investment decision;
having received representations to this effect, we believe that each investor is
an "accredited investor" as that term is defined under Rule 501(a) of Regulation
D; and no advertising or general solicitation was made in connection with the
sale and issuance of the Company's common stock and warrants in the transaction.
Item 5.01 Changes of Control of Registrant
Pursuant to the Transaction, the new investors in the aggregate will
own approximately 69% of the total outstanding shares of the Company's common
stock, without giving effect to the warrants. To our knowledge, the investors
did not act as a group in the Transaction. Certain of the investors, due to
their ownership or related ownerships, may be required to file a Schedule 13D or
13G with the Securities and Exchange Commission.
In addition as discussed more fully in Item 5.02, Scott B. Seaman and
Gregory H. Bailey, M.D. were appointed to the Board of Directors to fill two of
the vacancies, and the Company agreed to file a Schedule 14f-1 to appoint a
third new director, Mr. David Hung.
Item 5.02 Departure of Directors or Principal Officers; Election of
Directors; Appointment of Principal Officers
On April 13, 2006, in connection with the Transaction, Messrs Boveroux,
Kamin and Wesner resigned as directors, and the remaining two directors
subsequently appointed Scott B. Seaman and Gregory H. Bailey to the Board of
Directors to fill two of the three vacancies.
For the last ten years, Mr. Seaman has been the executive director of
Albert and Margaret Alkek Foundation, a private foundation primarily supporting
institutions in the Texas Medical Center in Houston, Texas. Mr. Seaman has held
various financial positions in companies affiliated with the Alkek family
interests for the last twenty years. Since January 2003, Mr. Seaman has served
as chairman and, since July 2004, president of ICT Management Inc., the general
partner of Impact Composite Technology Ltd. Since May 2004, Mr. Seaman has
served as a member of the investment committee of Global Hedged Equity Fund LP.
Since September 1986, Mr. Seaman has served as a Secretary and Treasurer for M&A
Properties, Inc.
Dr. Bailey, has served as a managing director of MDB since May 2004.
From June 2002 to June 2003, Dr. Bailey served as a managing director of Gilford
Securities, Inc and from 1998 to June 2002, Dr. Bailey served as a managing
director of Knightsford Bank Corp. Since May 2005, Dr. Bailey has served as
director of Medivation, Inc., a public company focused on acquiring biomedical
technologies. Dr. Bailey holds a M.D. from the University of Western Ontario.
Prior to the Transaction, Mr. Seaman, individually owned 50,500 shares
of the Company's common stock, series B warrants to purchase 29,000 shares of
the Company's common stock, and series C warrants to purchase 53,333 shares of
the Company's common stock. In addition, Albert and Margaret Alkek Foundation
and Alkek & Williams Ventures, Ltd, entities in which Mr. Seaman may be deemed
to have voting power and/or investment power, owned in the aggregate 303,334
shares of the Company's common stock, series B warrants to purchase 219,918
shares of the Company's common stock, and series C warrants to purchase 404,446
shares of the Company's common stock. In connection with the Transaction, (i)
Mr. Seaman individually purchased 150,000 shares of the Company's common stock
and was issued a warrant to purchase 75,000 shares of the Company's common
stock, and (ii) Albert and Margaret Alkek Foundation and Alkek & Williams
Ventures, Ltd, entities in which Mr. Seaman may be deemed to have voting power
and/or investment power, acquired in the aggregate 7,500,000 shares of the
Company's common stock and warrants to purchase 3,750,000 shares of the
Company's common stock. As an individual investor in the Transaction and being
deemed to have or share voting power and/or investment power with respect to the
shares of the Company's common stock and the warrants to purchase the Company's
common stock held by the Albert and Margaret Alkek Foundation and Alkek &
Williams Ventures, Ltd., both of which were investors in the Transaction, Mr.
Seaman beneficially owns 17.53% of the outstanding shares of the Company.
In connection with the Transaction, (i) Palantir Group, Inc., an entity
in which Dr. Bailey has voting power and/or investment power, acquired 100,000
shares of the Company's common stock and a warrant to purchase 50,000 shares of
the Company's common stock, (ii) MDB, an entity in which Dr. Bailey is an
managing director, but disclaims any voting power and/or investment power,
acquired 2,000,000 shares of the Company's common stock and a warrant to
purchase 1,000,000 shares of the Company's common stock, and (iii) MDB received
$1,723,300 for its services in the Transaction and a warrant to purchase
2,083,300 shares of the Company's common stock. Dr. Bailey beneficially owns
less than 1% of the total outstanding shares of the Company.
Due to the resignations of Messrs Boveroux, Kamin and Wesner, the
entire Board of Directors is acting as the nominating committee and audit
committee and Mr. Frison is the sole member of the compensation committee.
Neither Dr. Bailey nor Mr. Seaman has been appointed to any committee of the
board of directors. It is expected that the nominating committee and audit
committee will be immediately reconstituted and that one or more directors will
be added to the compensation committee.
Other than as set forth above, neither Mr. Seaman nor Dr. Bailey have
been involved with a related transaction or relationship as defined by Item
404(a) of Regulation S-B with the Company.
Item 9.01 Financial Statements and Exhibit
(c) Exhibits
The following exhibits are to be filed as part of this 8-K:
Exhibit No. Identification of Exhibit
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10.1 Purchase Agreement dated April 11, 2006
10.2 Registration Rights Agreement dated April 11, 2006
10.3 Form of Warrant issued in connection with April 2006
financing
10.4 Second Amendment to the Amended and Restated License
Agreement
10.5 Form of Warrant issued to MDB Capital Group LLC
99.1 Press Release dated April 17, 2006
99.2 Press Release dated April 17, 2006
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PHARMAFRONTIERS CORP.
By: /s/ David McWilliams
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David McWilliams, Chief Executive Officer
DATE: April 18, 2006
EXHIBIT INDEX
Exhibit No. Description
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10.1 Purchase Agreement dated April 11, 2006
10.2 Registration Rights Agreement dated April 11, 2006
10.3 Form of Warrant issued in connection with April 2006 financing
10.4 Second Amendment to the Amended and Restated License Agreement
10.5 Form of Warrant issued to MDB Capital Group LLC
99.1 Press Release dated April 17, 2006
99.2 Press Release dated April 17, 2006