Unassociated Document
UNITED
STATES
SECURITIES
AND 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): June 24, 2010
PATIENT
SAFETY TECHNOLOGIES, INC.
(Exact
Name of Registrant as Specified in Charter)
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DELAWARE
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001-09727
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13-3419202
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(State
or Other Jurisdiction
of
Incorporation)
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(Commission
File Number)
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(I.R.S.
Employer
Identification
No.)
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5
Caufield Place, Suite 102
Newtown,
Pennsylvania
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18940
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(Address
of Principal Executive Offices)
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(Zip
Code)
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(215)
579-7789
(Registrant’s
telephone number, including area code)
N/A
(Former
name or former address, if changed since last report)
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:
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o
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Written
communications pursuant to Rule 425 under the Securities Act of 1933,
as amended (17 CFR 230.425)
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o
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Soliciting
material pursuant to Rule 14a-12 under the Securities Exchange Act of
1934, as amended (17 CFR
240.14a-12)
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o
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Securities
Exchange Act of 1934, as amended (17 CFR
240.14d-2(b))
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o
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Securities
Exchange Act of 1934, as amended (17 CFR
240.13e-4(c))
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Item
1.01
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Entry
into a Material Definitive
Agreement
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Sale
of Series B Convertible Preferred Stock
On June
24, 2010 (the “Closing
Date”), Patient Safety Technologies, Inc., a Delaware corporation (“we,” “us,” “our,” or the “Company”) entered
into a Convertible Preferred Stock Purchase Agreement (the “Purchase Agreement”)
with the Buyers identified on the signature pages thereto, (the “Buyers”), each of
whom is an accredited investor, as defined under Rule 501(a) of Regulation D of
the Securities Act of 1933, as amended (the “Act”). The
Buyers included A Plus International, Inc., JMR Capital Ltd. and Catalysis
Partners, LLC. Wenchen (“Wayne”) Lin, a member of our Board of
Directors (“Board”), is a founder
and significant beneficial owner of A Plus International, Inc. John
P. Francis, a member of our Board, has voting and investment control over
securities held by Francis Capital Management, LLC, which acts as the investment
manager for Catalysis Partners, LLC.
Pursuant
to the Purchase Agreement, we issued to the Buyers an aggregate 60,000 shares of
our Series B Convertible Preferred Stock (the “Series B Preferred”)
at a purchase price of $100.00 per share (or $6,000,000 in the aggregate),
payable in cash or as a reduction of indebtedness or a combination of
both. The terms of the Series B Preferred are described below under
(“—Terms of the Series B Convertible Preferred Stock”). We refer to
this transaction as the “Financing.”
We also
agreed to grant the Buyers certain pre-emptive rights in respect of any future
issuance of equity securities (subject to certain exceptions set forth in the
Purchase Agreement) for a period of five years from the closing date of the
transactions contemplated by the Purchase Agreement, and agreed to reimburse the
Buyers for their reasonable costs and expenses incurred in connection with the
Financing up to $175,000. In addition, as contemplated by the
Purchase Agreement, we granted the Buyers certain registration rights for the
shares of our common stock issuable upon conversion of the Series B Preferred,
as described below under “—Registration Rights Agreement.” In
connection with the Financing, we placed a portion of the proceeds ($651,223) in
an escrow account to pay certain contingent tax liabilities.
Terms
of the Series B Convertible Preferred Stock
The
rights, preferences and privileges of the Series B Preferred are set forth in
the Certificate of Designation of Preferences, Rights and Limitations of Series
B Convertible Preferred Stock filed with the Secretary of State of the State of
Delaware on the Closing Date (the “Series B
Certificate”).
The
Series B Certificate authorizes 150,000 shares of Series B Preferred, with a par
value of $1.00 per share and a stated value per share of
$100.00. Holders of the Series B Preferred are entitled to receive
quarterly cumulative dividends at a rate of 7.00% per annum, beginning on July
1, 2010. All dividends due on or prior to December 31, 2011 are
payable in kind in the form of additional shares of Series B Preferred, and all
dividends payable after December 31, 2011 are payable solely in
cash.
As long
as shares of Series B Preferred are outstanding, we are restricted from making
certain payments in respect of any of our junior and pari passu securities,
except that we may pay dividends due and paid in the ordinary course on our
Series A Convertible Preferred Stock when we are otherwise in compliance with
our payment obligations to the holders of the Series B Preferred.
The
Series B Preferred does not have voting rights except (a) as provided by
Delaware law; (b) upon the occurrence of the fifth anniversary of the issue
date; or (c) upon our failure to pay dividends for two consecutive quarters or
three non-consecutive quarters. Upon the occurrence of either event
described in (b) or (c), the holders of the Series B Preferred are entitled to
elect two additional directors to our board of directors and, within two
business days, we must create a special committee of our board of directors
consisting of up to three directors, of which two must be the two newly-elected
additional directors, and promptly grant such special committee sole and
exclusive authority and power to investigate, negotiate and consummate a sale of
the Company or strategic alternative thereto.
So long
as any shares of Series B Preferred remain outstanding, we may not, without the
consent of a majority of the holders of the Series B Preferred: (a) alter or
change the powers, preferences or rights given to the Series B Preferred; (b)
authorize, create or issue any class or series of stock, or issue additional
shares of Series A Convertible Preferred Stock ranking senior to or pari passu with the Series B
Preferred in terms of dividends, redemption or distribution of assets upon
liquidation; (c) amend our certificate of incorporation, by-laws or other
charter documents in a manner that adversely affects the rights of the holders
of the Series B Preferred; (d) increase the number of authorized shares of
Series B Preferred; (e) enter into any transaction with any affiliate that would
be required to be disclosed in any public filing with the Securities and
Exchange Commission (the “SEC”), unless made at
arm’s length and approved by a majority of disinterested directors of the
Company; (f) issue rights, options or warrants to all holders of our common
stock that would entitle them to purchase shares of our common stock at a price
per share that is lower than the daily volume weighted average price of such
common stock on the applicable record date, or distribute (other than as a
dividend) evidence of indebtedness, assets, rights or warrants to subscribe for
or purchase such security, without, in either case, issuing or distributing such
rights, options, warrants, indebtedness or assets proportionately to the holders
of the Series B Preferred; or (g) enter into any agreement to do any of the
above.
The
Series B Preferred are entitled to receive, prior and in preference to all other
shares of our capital stock (with an exception noted below), upon liquidation,
dissolution or winding up of the Company an amount per share equal to the
greater of (i) the stated value of the Series B Preferred, plus accrued but
unpaid dividends, or (ii) such amount per share as would have been payable had
all shares of Series B Preferred been converted into our common stock
immediately prior to such liquidation. Notwithstanding the foregoing,
the first $1,095,000 of distributable amounts in a liquidation shall first be
paid to the holders of our Series A Convertible Preferred
Stock. Mergers, sales of substantially all assets and similar
transactions are deemed to be liquidations for purposes of the liquidation
preference.
The
Series B Preferred is convertible at any time at the option of the holder into
shares of our common stock at $.75 per share, subject to conventional
adjustments for stock splits, stock combinations and the like. We are
subject to certain liquidated damages if we fail to timely honor our conversion
obligations as set forth in the Series B Certificate.
The
Series B Preferred is not redeemable either by the Company or by the
holders. However, shares of our Series B Preferred automatically
convert into shares of our common stock at the applicable conversion price if
both of the following conditions are satisfied: (a) the daily volume weighted
average price of our common stock is equal to or in excess of $1.50 per share
for all trading days during any 6-month period and (b) the number of shares
traded during such period averages at least 50,000 shares of common stock per
trading day. Also, the Series B Preferred automatically convert into
shares of our common stock at the applicable conversion price if our operating
income is positive for at least four consecutive fiscal quarters and our
cumulative operating income during such four fiscal quarters is at least
$5,000,000.
There are
certain limits to the ability of the holders of Series B Preferred to convert
based upon various ownership levels that such holders may
have. Generally, there are conversion limits that apply at the 4.9%
and 9.9% beneficial ownership levels, and the 4.9% conversion limit can be
increased up to 9.9% upon 61 days notice to the Company from the applicable
holder.
Registration
Rights Agreement
As
contemplated by the Purchase Agreement, on the Closing Date we also entered into
a Registration Rights Agreement with the Buyers and Ken Traub, a consultant to
the Company (the “Holders”), to provide
for certain registration rights (the “Registration Rights
Agreement”). Pursuant to the Registration Rights Agreement, we
agreed to file a registration statement to register the shares of common stock
issued to the Holders upon conversion of the Series B Preferred Stock purchased
by them in the Financing, as well as any other shares of common stock held by
the Holders on the Closing Date, within 90 days, and have such registration
statement declared effective within 150 days of the Closing Date. In addition to
the foregoing mandatory registration, we also granted the Holders demand and
“piggyback” registration rights. We have agreed to pay substantially
all of the costs and expenses related to the filing of the registration
statements and any underwritten public offering required pursuant to the
Registration Rights Agreement.
Separation
and Release Agreements
As
contemplated by the Purchase Agreement, Steven H. Kane resigned as a Director,
President and Chief Executive Officer, and Howard E. Chase, Loren McFarland,
Eugene A Bauer, MD, and William M. Hitchcock also resigned as members of our
Board of Directors (the “Board”) effective
upon the closing of the Financing. Immediately following the closing
the Financing, the remaining members of our Board, John P. Francis, Wayne Lin,
Herbert Langsam, and Louis Glazer, MD, Ph.G. appointed Brian E. Stewart as
President, Chief Executive Officer and Director.
In
connection with Mr. Kane’s resignation as a Director, President and Chief
Executive Officer, effective as of the Closing Date, we entered into a
Separation Agreement and Mutual General Release with Steven Kane (the “Kane Release”). Other
signatories of the Kane Release include Brian Stewart, John P. Francis, John P.
Francis’ affiliated entities (Francis Capital Management, Catalysis Partners,
LLC, and Catalysis Offshore, Ltd.), Wenchen (“Wayne”) Lin, A Plus International,
Inc., and other stockholder members of the group that filed a certain Schedule
13D in respect of the Company on April 16, 2010. The Kane Release
confirms that his termination shall be considered a termination “without Cause”
for purposes of determining payments and benefits under his employment agreement
and that he shall receive the severance and benefits he is entitled to under
such agreement for a termination “without Cause,” provided that Mr. Kane waived
his rights to any bonus payment, or payment for excise taxes. The
Kane Release also provided for the payment to Mr. Kane, in cash, of an aggregate
$234,573 as payment in full for all accrued Director fees and salary, accrued
vacation, and severance benefits as provided in his employment
agreement. The Kane Release extends the expiration date of his
currently vested options to April 30, 2011, and provides that options that vest
as a result of his employment agreement shall expire September 24,
2011. The Kane Release provides for a general mutual release of any
and all claims occurring on or prior to the Closing Date and related to,
involving or arising out of any act occurring prior to the execution of the Kane
Release, as well as a waiver of unknown claims, a two year mutual
non-disparagement clause, and an 18-month “standstill” agreement whereby Mr.
Kane agreed not to solicit proxies in regard to the Company or acquire alone or
with a group, beneficial ownership of more than 1% f our total outstanding
shares (disregarding any shares acquired upon the exercise of
options).
In
connection with the resignation of Messrs. Chase, McFarland, Hitchcock and Dr.
Bauer as members of our Board, effective as of the Closing Date, we entered into
a Separation Agreement and Mutual General Release with such individuals (the
“Director
Release”). Other signatories of the Director Release include
Brian Stewart, John P. Francis, John P. Francis’ affiliated entities (Francis
Capital Management, Catalysis Partners, LLC, and Catalysis Offshore, Ltd.), A
Plus International, Inc., Wenchen “Wayne” Lin, and other stockholder members of
the group that filed a certain Schedule 13D in respect of the Company on April
16, 2010. The Director Release provides for a general mutual release
of any and all claims occurring on or prior to the Closing Date and related to,
involving or arising out of any act occurring prior to the execution of the
Director Release, as well as an agreement not to sue and a waiver of unknown
claims, and a mutual two year non-disparagement clause. The Director
Release also acknowledges that options to acquire 200,000 shares held by each of
Messrs. McFarland and Chase, and options to acquire 50,000 shares held by each
of Mr. Hitchcock and Dr. Bauer are vested and extends the expiration date for
Messrs. Chase, McFarland, Hitchcock and Dr. Bauer until June 30,
2012. The Director Release also provides for the payment, in cash, of
the following accrued but unpaid Director’s fees: $83,488 to Mr.
Chase, $64,912 to Mr. McFarland, $10,025 to Mr. Hitchcock and $10,025 to Dr.
Bauer.
Rose
Employment Agreement Amendment
In
addition, effective as of the closing of the Financing on June 24, 2010, we
amended Marc L. Rose’s employment agreement to revise the defined term “Good
Reason” to provide that “Good Reason” also includes relocation of his assigned
workplace or obligation to perform services at a location more than a 40 mile
radius from Newtown, PA.
The
foregoing descriptions of the Series B Certificate, Purchase Agreement,
Registration Rights Agreement, Kane Release, Director Release, and amendment to
Marc Rose’s employment agreement do not purport to be complete are qualified in
their entirety by the full text of such certificate and agreements, which are
filed as Exhibits 4.1, 10.1, 10.2, 10.3, 10.4 and 10.5 hereto, respectively, and
incorporated by reference herein.
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Item
1.02
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Termination
of Material Definitive Agreement
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Disclosure
responsive to this Item 1.02 is incorporated by reference from Item 1.01 of this
Report.
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Item
3.02
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Unregistered
Sale of Equity Securities
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On the
Closing Date we issued 60,000 shares of our Series B Preferred to the Buyers for
$5,000,000 in cash and the cancellation of $1,000,000 of
indebtedness. The Registration Rights Agreement provides for certain
mandatory, demand and “piggyback” registration rights, which will require us to
register all the shares of common stock issuable to the Holders upon conversion
of the Series B Preferred, as well as all other shares of common stock held by
the Holders on the Closing Date, under the Act in certain
circumstances. The Series B Preferred have not been registered under
the Act, or state securities laws and may not be offered or sold in the United
States absent registration with the SEC or an applicable exemption from the
registration requirements.
The
Series B Preferred were issued in reliance upon the exemption from the
registration requirements of the Act pursuant to Rule 506 of Regulation D
thereof. The offer, sale and issuance of the Series B Preferred was
made without general solicitation or advertising. The Series B
Preferred were offered and issued only to “accredited investors” as such term is
defined in Rule 501 of Regulation D under the Act.
Neither
this Current Report on Form 8-K nor the exhibits attached hereto is an offer to
sell or the solicitation of an offer to buy shares of our common stock or any
other security.
The disclosure in Item
1.01 of this Current Report on Form 8-K is incorporated by reference into this
Item.
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Item
5.02
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Departure
of Directors or Principal Officers; Election of Directors; Appointment of
Principal Officers
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Officer
and Director Resignations
Effective
as of the Closing Date, Steven H. Kane resigned as a Director, President and
Chief Executive Officer, and Howard E. Chase, Loren McFarland, Eugene A Bauer,
MD, and William M. Hitchcock also resigned as members of our Board effective
upon the closing of the Financing.
The
disclosure provided in item 1.01 regarding the Kane Release and Director Release
is incorporated by reference herein.
Appointment
of New Director, President and Chief Executive Officer
Immediately
following the closing the Financing, the remaining members of our Board, John P.
Francis, Wayne Lin, Herbert Langsam, and Louis Glazer, MD, Ph.G. appointed Brian
E. Stewart as President, Chief Executive Officer and Director.
The
principal occupation and brief summary of the background of Mr. Stewart is as
follows:
Brian E. Stewart, age 37, is
the Chief Executive Officer, President and Director of the Company commencing
June 24, 2010. He is the co-founder of our principal operating
subsidiary SurgiCount Medical, Inc. and co-inventor of our Safety-Sponge®
System. Mr. Stewart previously served as our Vice President Business
Development from January 2009 until March 2010. Prior to returning to
SurgiCount in January 2009, Mr. Stewart worked in the investment banking
division of Credit Suisse from 2007 to 2009 and CIBC World Markets from 2002 to
2007. In addition to his investment banking and entrepreneurial
experience, Mr. Stewart’s previous experience includes Strome Investment
Management, a hedge fund in Santa Monica, CA. Mr. Stewart received
his MBA from The Anderson School at UCLA and his BA in Economics from UCLA where
he graduated Phi Beta
Kappa and Summa Cum
Laude.
There are
no family relationships between or among any of our officers or directors who
served immediately prior to or after the closing of the
Financing.
From
January 5, 2009 through March 26, 2010, Mr. Stewart served as our Vice President
of Business Development and received compensation from the Company in such
capacity. A description of the material terms of Mr. Stewart’s
previous employment agreement is provided in our definitive proxy statement on
Schedule 14A filed with the SEC on July 13, 2009 under the heading
“—Employment Contracts and Termination and Change of Control Arrangements,”
which description is incorporated by reference herein.
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Item
5.03
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Amendments
to Articles of Incorporation or Bylaws; Change in Fiscal
Year.
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Effective
as of the Closing Date, we filed the Series B Certificate with the Secretary of
State of the State of Delaware. Our Board authorized the filing of
this certificate on June 24, 2010. See “Terms of the Series B
Preferred” set forth under Item 1.01 above for a description of the rights,
preferences and privileges of the Series B Preferred, which is incorporated
herein by reference. The description of the Series B Certificate is a summary
only and is qualified in its entirety by reference to the full text of the
Series B Certificate, a copy of which is attached hereto as Exhibit 4.1 and
incorporated herein by reference.
On June
25, 2010, the Company issued a press release, attached hereto as Exhibit 99.1
and made part of this report, announcing the Financing.
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Item
9.01
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Financial
Statements and Exhibits
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(d)
Exhibits.
EXHIBIT INDEX
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Exhibit
Number
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Description of Exhibits
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4.1
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Certificate
of Designation of Preferences, Rights and Limitations of Series B
Convertible Preferred Stock
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10.1
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Convertible
Preferred Stock Purchase Agreement dated June 24, 2010, between the
Company and the Buyers
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10.2
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Registration
Rights Agreement dated June 24, 2010, between the Company and
Holders
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10.3
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Separation
Agreement and Mutual General Release dated June 24, 2010 between the
Company and Steven Kane and the stockholder parties signatories
thereto
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10.4
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Separation
Agreement and Mutual General Release dated June 24, 2010 between the
Company and Eugene A. Bauer, MD, Howard E. Chase, William M. Hitchcock and
Loren McFarland and the stockholder parties signatories
thereto
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10.5
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Amendment
dated June 24, 2010 to Employment Agreement of Marc L.
Rose
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99.1
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Press
release dated June 25,
2010
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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.
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PATIENT
SAFETY TECHNOLOGIES, INC.
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June
29, 2010
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By:
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/s/ Marc L. Rose
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Name: Marc
L. Rose
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Title: Chief
Financial
Officer
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