SECTION
14(f) OF THE SECURITIES EXCHANGE ACT OF 1934
AND
RULE 14f-1 THEREUNDER
INTRODUCTION
This
Information Statement is being mailed on or about May 3, 2006 to the holders
of
record at the close of business on April 27, 2006 (the “Record Date”) of common
stock of PharmaFrontiers Corp., a Texas corporation (“PharmaFrontiers” or the
“Company”), in
accordance with the requirements of Section 14(f) of the Securities Exchange
Act
of 1934, as amended (the “Exchange Act”), and Rule 14f-1 promulgated thereunder.
This Information Statement is being delivered in connection the appointment
of
David Hung to the board of directors of the Company. Dr.
Hung
will be appointed to serve on the board of directors on the tenth day following
the date of mailing of this Information Statement to
shareholders of the Company as of the Record Date.
WE
ARE NOT
SOLICITING YOUR PROXY.
NO
VOTE OR
OTHER ACTION BY THE COMPANY’S SECURITY HOLDERS
IS
REQUIRED IN RESPONSE TO THIS INFORMATION STATEMENT
FINANCING
On
April13, 2006, the Company closed (“Closed” or “Closing”) on the sale of an aggregate
of 46,000,000 shares of Company common stock for $23,000,000, and in connection
therewith issued warrants (collectively, “Warrants” and each a “Warrant”) to
purchase an aggregate of 23,000,000 shares of Company common stock at an
exercise price of $0.65 per share (the “Financing”), pursuant to a purchase
agreement (the “Purchase Agreement”) entered into by and among the Company and
41 investors (the “Investors”). A copy of the Purchase Agreement was filed with
the Securities and Exchange Commission (the “SEC”) as an exhibit to a Current
Report on Form 8-K of the Company that was filed on April 18, 2006,
and the Form 8-K is incorporated herein by reference. The Warrants will expire
after five years and are exerciseable only after the Company effects a 1 for
10
reverse stock split.
Prior
to
the Closing of the Financing, we had 20,967,035 shares of common stock issued
and outstanding. Following the Closing of the Financing, we had 66,967,035
shares issued and outstanding, of which 46,000,000 shares, or approximately
69%
are now owned by the Investors (and approximately 77% will be owned by the
Investors upon the full exercise of the Warrants and assuming no further
issuance of our common stock).
To
our
knowledge, the Investors, as a whole, did not act as a group in the Financing.
Of the Investors, the following Investors acquired 5% or greater of the shares
of the Company’s common stock in the Financing: (i) Magnetar Capital Master
Fund, Ltd (“Magnetar”), which acquired 6,400,000 shares of common stock and a
Warrant to purchase 3,200,000 shares of common stock; (ii) SF Capital Partners
Ltd. (“SF Capital”), which acquired 10,000,000 shares of common stock and a
Warrant to purchase 5,000,000 shares of common stock; (iii) DLD Family
Investments, LLC, which acquired 2,200,000 shares of common stock and a Warrant
to purchase 1,100,000 shares of common stock; (iv) Special Situations Fund
III
QP, L.P, Special Situations Fund III, L.P., Special Situations Cayman Fund,
L.P,
Special Situations Private Equity Fund, L.P., Special Situations Life Sciences
Fund, L.P. (collectively “Special Situation Funds”), which acquired collectively
10,000,000 shares of common stock and Warrants to purchase 5,000,000 of common
stock; (v) Albert and Margaret Alkek Foundation (the “Foundation”), which
acquired 5,000,000 shares of common stock and a Warrant to purchase 2,500,000
shares of common stock; and (vi) Alkek & Williams Ventures, Ltd.
(“Ventures”) which acquired 2,500,000 shares of common stock and a Warrant to
purchase 1,250,000 shares of common stock. For additional information on the
beneficial ownership of the shares of common stock acquired by the Investors,
see “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT”
below.
2
To
our
knowledge, Magnetar did not enter into the Financing with the purpose or effect
of changing or influencing control of the Company. Pursuant to the Schedule
13D
filed by SF Capital, SF Capital: (i) did not enter into the Financing with
the
purpose or effect of changing or influencing control of the Company, but for
investment purposes; and (ii) used its own available net assets to purchase
its
shares of common stock and Warrants in the Financing. Pursuant to the Schedule
13G filed by Special Situation Funds, Special Situation Funds did not enter
into
the Financing with the purpose or effect of changing or influencing control
of
the Company. Pursuant to the Schedule 13D filed with the SEC on April 24, 2006,
as amended, by the Foundation, Ventures, Scott Seaman, DLD Family Investments,
LLC, and the other reporting persons named therein (the “Foundation 13D”), the
reporting persons used their respective personal or internal funds to acquire
the shares of common stock and Warrants in the Financing.
Additionally,
certain of the Investors acquired in the Financing an aggregate of 27% of our
common stock, without giving effect to the Warrants (including, the Foundation,
Ventures, DLD Family Investments, LLC, and Special Situations Funds,
collectively, the “Electing Investors”), elected to include Section 6.1(j) of
the Purchase Agreement as a condition to their closing of the Purchase
Agreement, pursuant to which Brooks Boveroux, Tony
Kamin and Terry Wesner resigned
as members of the board of directors immediately prior to Closing, and the
two
remaining directors appointed Scott B. Seaman and Gregory H. Bailey to fill
two
of the three of the vacancies at Closing.
Additionally,
the Electing Investors elected to include Section 7.10 of the Purchase
Agreement, which required the Company file this Information Statement as soon
as
practicable after the Closing, to appoint a third new director, David Hung,
to
fill the remaining vacancy. Dr. Hung will be appointed to serve on the board
of
directors on the tenth day following the date of mailing of this Information
Statement. Dr. Hung did not participate in the Financing and other than options
issuable upon his appointment as a director, Dr. Hung does not beneficially
own
any of the common stock of the Company.
In
connection with the Financing, 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 Financing, in an aggregate amount of $1,754,100
and issued MDB and another broker dealer warrants to purchase an aggregate
of
2,137,200 shares of common stock at an exercise price of $0.50 per share.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth, as of May 1, 2006,the
number
and percentage of outstanding shares of Company common stock owned by: (a)
each
person who is known by us to be the beneficial owner of more than 5% of our
outstanding shares of common stock; (b) each of our directors; (c) the named
executive officers as defined in Item 402 of Regulation S-B; and (d) all current
directors and executive officers, as a group. As of May 1, 2006, there were
66,967,035 shares of common stock issued and outstanding.
Beneficial
ownership has been determined in accordance with Rule 13d-3 under the Exchange
Act. Under this rule, certain shares may be deemed to be beneficially owned
by
more than one person (if, for example, persons share the power to vote or the
power to dispose of the shares). In addition, shares are deemed to be
beneficially owned by a person if the person has the right to acquire shares
(for example, upon exercise of an option or warrant) within 60 days of the
date
as of which the information is provided. In computing the percentage ownership
of any person, the amount of shares is deemed to include the amount of shares
beneficially owned by such person by reason of such acquisition rights. The
Warrants issued in the Financing are only exercisable upon the effectiveness
of
a 1 for 10 reverse stock split. The Company intends to file a Preliminary Proxy
Statement on or about May 3, 2006, to hold a shareholder meeting on June 15,2006, to vote on, among other items, the 1 for 10 reverse stock split. For
purposes of beneficial ownership calculations herein, it is assumed that the
1
for 10 reverse stock split will be effected and the Warrants will be exercisable
within 60 days from May 1, 2006. As a result, the percentage of outstanding
shares of any person as shown in the following table does not necessarily
reflect the person’s actual voting power at any particular date.
To
our
knowledge, except as indicated in the footnotes to this table and pursuant
to
applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of common stock shown
as
beneficially owned by them.
Name
and Address of Beneficial Owner (1)
Number
of Shares
Owned
Percentage
of Class
Beneficial
Owners of more than 5%
SF
Capital Partners Ltd. (2)
10,000,000
(3)
14.93%
Magnetar
Capital Master Fund, Ltd (4)
6,725,000
(5)
9.99%
Austin
Marxe and David Greenhouse (6)
15,000,000
(6)
20.84%
Albert
and Margaret Alkek Foundation (7)
6,859,724
(8)
9.99%
Alkek
& Williams Ventures Ltd. (9)
4,167,974
(10)
6.08%
DLD
Family Investments, LLC (11)
3,707,780
(12)
5.43%
Officers
and Directors
Scott
B. Seaman (9)
4,685,807
(13)
6.81%
David
B. McWilliams
577,148
(14)
*
C.
William Rouse
499,957
(15)
*
Gregory
H. Bailey
714,275
(16)
1.06%
Paul
Frison
75,000
(17)
*
David
Hung
175,000
(18)
*
All
directors and executive officers as a group (5 persons) **
6,552,187
(19)
9.4%
________
*
Less
than 1
**
Dr.
Hung, a proposed director, is excluded from calculation of directors and
executive officers as a group. If Dr. Hung were included in such
calculation, the number of shares beneficially owned by directors and executive
would increase to 6,727,187 shares of common stock and 9.66%
4
(1)
Unless
otherwise indicated, the mailing address of the beneficial owner
is c/o
PharmaFrontiers Corp., 2635 N. Crescent Ridge Drive, The Woodlands,
Texas77381.
(2)
Michael
A. Roth and Brian J. Stark exercise joint voting and dispositive
power
over all of the shares of common stock beneficially owned by SF Capital
Partners Ltd., but Messrs Roth and Stark disclaim beneficial ownership
of
such shares. The
information in this footnote is primarily based on a Schedule 13G
filed with the SEC on April 17, 2006 and other information provided
to
us.
The
mailing address of SF Capital Partners Ltd. is c/o Stark Offshore
Management, LLC, 3600 South Lake Drive, St. Francis, WI53235.
(3)
Excludes
5,000,000 shares of Company common stock underlying a Warrant that
SF
Capital Partners Ltd. is contractually prohibited from exercising
to the
extent that it would beneficially own in excess of 9.999% of the
total
number of issued and outstanding shares of common stock after such
exercise.
(4)
Magnetar
Financial LLC is the investment advisor of Magnetar and consequently
has
voting control and investment discretion over securities held by
Magnetar. Magnetar Financial LLC disclaims beneficial ownership of
the shares held by Magnetar. Alec Litowitz has voting control over
Supernova Management LLC, which is the general partner of Magnetar
Capital
Partners LP, the sole managing member of Magnetar Financial LLC. As
a result, Mr. Litowitz may be considered the beneficial owner of
any
shares deemed to be beneficially owned by Magnetar Financial LLC.
Mr. Litowitz disclaims beneficial ownership of these shares. The
mailing
address of the beneficial owner is 1603 Orrington Ave., 13th
Floor, Evanston, Illinois60201.
(5)
Excludes
2,875,000 shares of Company common stock underlying a Warrant that
Magnetar is contractually prohibited from exercising to the extent
that it
would beneficially own in excess of 9.999% of the total number of
issued
and outstanding shares of common stock after such
exercise.
(6)
Consisting
of: (i) 3,310,000 shares of common stock and 1,655,000 shares of
common
stock issuable upon the exercise of a Warrant held by Special Situations
Fund III QP, L.P., (ii) 284,000 shares of common stock and 142,000
shares
of common stock issuable upon the exercise of a Warrant held by Special
Situations Fund III, L.P., (iii) 906,000 shares of common stock and
453,000 shares of common stock issuable upon the exercise of a Warrant
held by Special Situations Cayman Fund, L.P., (iv) 4,000,000 shares
of
common stock and 2,000,000 shares of common stock issuable upon the
exercise of a Warrant held by Special Situations Private Equity Fund,
L.P., and (v) 1,500,000 shares of common stock and 750,000 shares
of
common stock issuable upon the exercise of a Warrant held by Special
Situations Life Sciences Fund, L.P. MGP Advisors Limited (“MGP”) is the
general partner of Special Situations Fund III, QP, L.P. and Special
Situations Fund III, L.P. AWM Investment Company, Inc. (“AWM”) is the
general partner of MGP and the general partner of and investment
adviser
to the Special Situations Cayman Fund, L.P. MG Advisers, L.L.C. (“MG”) is
the general partner of and investment adviser to the Special Situations
Private Equity Fund, L.P. LS Advisers, LLC (“LS”) is the general partner
and investment adviser to the Special Situations Life Sciences Fund,
L.P.
Austin W. Marxe and David M. Greenhouse are the principal owners
of MGP,
AWM, MG and LS. Through their control of MGP, AWM, MG and LS, Messrs.
Marxe and Greenhouse share voting and investment control over the
portfolio securities of each of the funds listed above. The
information in this footnote is primarily based on a Schedule 13D
filed with the SEC on April 24, 2006 and other information provided
to
us.
The
mailing address of Messrs. Marxe and Greenhouse is 527 Madison Avenue,
Suite 2600, New York, New York10022.The mailing address of the beneficial
owner is 3600 South Lake Drive, St. Francis, WI53235.
(7)
This
information is based on Foundation 13D. The Foundation acts through
an
investment committee of its board of directors, which includes Mr.
Daniel
Arnold, Mr. Joe Bailey, Mr. Scott Seaman and Ms. Randa Duncan Williams.
Mr. Seaman is the executive director of the Foundation and chairman
of the
investment committee. The investment committee has sole voting and
investment power over all of the shares of common stock beneficially
owned
by the Foundation. However, pursuant to the Foundation 13D, neither
the
executive director nor any member of the investment committee may act
individually to vote or sell shares of common stock held by the
Foundation; therefore, the Foundation has concluded that no
individual committee member is deemed to beneficially own,
within the meaning of Rule 13d-3 of the Exchange Act, any shares
of common
stock held by the Foundation solely by virtue of the fact that he
or she
is a member of the investment committee. Additionally, pursuant to
the
Foundation 13D, the Foundation has concluded that because Mr. Seaman,
in
his capacity as executive director or chairman of the investment
committee, cannot act in such capacity to vote or sell shares of
common
stock held by the Foundation without the approval of the investment
committee, he is not deemed to beneficially own, within the meaning
of
Rule 13d-3 of the Exchange Act, any shares of common stock held by
the
Foundation by virtue of his position as executive director or chairman
of
the investment committee. The mailing address of the beneficial owner
is
1221 McKinney #4525, Houston, Texas77010.
5
(8)
Consisting
of: (i) 120,834 shares of common stock underlying series B warrants
exercisable at $2.00 per share; (ii) 222,223 shares of common stock
underlying series C warrants exercisable at $3.00 per share; and
(iii)
1,350,000 shares of common stock underlying a Warrant. Excludes 1,150,000
shares of Company common stock underlying a Warrant that the Foundation
is
contractually prohibited from exercising to the extent that it would
beneficially own in excess of 9.999% of the total number of issued
and
outstanding shares of common stock after such exercise. Pursuant to
the Foundation 13D, the Foundation and other reporting persons named
therein may be deemed to constitute a group for purposes of Section
13(d)
or Section 13(g) of the Exchange Act. However, the Foundation,
Ventures, Chaswil, Ltd., and Mr. Seaman expressly disclaim (i) that,
for
purposes of Section 13(d) or Section 13(g) of the Exchange Act, they
are a
member of a group with respect to securities of the Company held
by DLD
Family Investments, LLC, Mr. Arnold, Mr. Bailey or Ms. Williams and
(ii)
that they have agreed to act together with DLD Family Investments,
LLC,
Mr. Arnold, Mr. Bailey or Ms. Williams as a group other than as described
in the Foundation 13D. Therefore,
this does not include the following securities: (i)
2,333,334 shares of common stock held by DLD Family Investments,
LLC; (ii)
96,667 shares of common stock underlying series B warrants exercisable
at
$2.00 per share held by DLD Family Investments, LLC; (iii) 177,779
shares
of common stock underlying series C warrants exercisable at $3.00
per
share held by DLD Family Investments, LLC; (iv) 1,100,000 shares
of common
stock underlying a Warrant held by DLD Family Investments, LLC; (v)
266,667 shares of common stock held by Mr. Arnold; (vi) 48,334 shares
of
common stock underlying series B warrants exercisable at $2.00 per
share
held by Mr. Arnold; (vii) 88,889 shares of common stock underlying
series
C warrants exercisable at $3.00 per share held by Mr. Arnold; (viii)
100,000 shares of common stock underlying a Warrant held by Mr. Arnold;
(ix) 100,000 shares of common stock held by Mr. Bailey; (x) 50,000
shares
of common stock underlying a Warrant held by Mr. Bailey; (xi) 2,636,667
shares of common stock held by Ventures; (xii) 99,084 shares of common
stock underlying series B warrants exercisable at $2.00 per share
held by
Ventures; (xiii) 182,223 shares of common stock underlying series
C
warrants exercisable at $3.00 per share held by Ventures; (xiv) 1,250,000
shares of common stock underlying a Warrant held by Ventures; (xv)
200,500
shares of common stock held by Mr. Seaman; (xvi) 29,000 shares of
common
stock underlying series B warrants exercisable at $2.00 per share
held by
Mr. Seaman; (xvii) 53,333 shares of common stock underlying series
C
warrants exercisable at $3.00 per share held by Mr. Seaman; and (xviii)
75,000 shares of common stock underlying a Warrant held by Mr.
Seaman.
The information in this footnote is primarily based on the Foundation
13D
and other information provided to us.
(9)
Chaswil,
Ltd. is the investment manager of Ventures and holds voting power
and
investment power with respect to Company securities held by Ventures
pursuant to a written agreement. Scott B. Seaman is a principal of
Chaswil, Ltd and has shared voting power and shared investment power
over
all of the shares of common stock beneficially owned by Ventures.
The
information in this footnote is primarily based on the Foundation
13D and
other information provided to us. The
mailing address of the beneficial owner is 1221 McKinney #4545, Houston,
Texas77010.
(10)
Consisting
of: (i) 99,084 shares of common stock underlying series B warrants
exercisable at $2.00 per share; (ii) 182,223 shares of common stock
underlying series C warrants exercisable at $3.00 per share; and
(iii)
1,250,000 shares of common stock underlying a Warrant.
(11)
Randa
Duncan Williams is the principal of DLD Family Investments, LLC and
she
may be deemed to exercise voting and investment power with respect
to such
shares. The
information in this footnote is primarily based on the Foundation
13D and
other information provided to us. The
mailing address of the beneficial owner is P.O. Box 4735, Houston,
Texas77210-4735.
6
(12)
Consisting
of: (i) 2,333,334 shares of common stock held by DLD Family Investments,
LLC; (ii) 96,667 shares of common stock underlying series B warrants
exercisable at $2.00 per share held by DLD Family Investments, LLC;
(iii)
177,779 shares of common stock underlying series C warrants exercisable
at
$3.00 per share held by DLD Family Investments, LLC; and (iv) 1,100,000
shares of common stock underlying the Warrants held by DLD Family
Investments, LLC. Ms. Williams is on the investment committee for
the
Foundation. Pursuant to the Foundation 13D, the Foundation has concluded
that no individual committee member is deemed to
beneficially own, within the meaning of Rule 13d-3 of the Exchange
Act,
any shares of common stock held by the Foundation solely by virtue
of the
fact that he or she is a member of the investment committee. The
information in this footnote is primarily based on the Foundation
13D and
other information provided to us. The
mailing address of the beneficial owner is P.O. Box 4735, Houston,
Texas77210-4735.
(13)
Consisting
of: (i) 175,000 shares underlying an option; (ii) 2,636,667 shares
of
common stock held by Ventures; (iii) 99,084 shares of common stock
underlying series B warrants exercisable at $2.00 per share held
by
Ventures; (iv) 182,223 shares of common stock underlying series C
warrants
exercisable at $3.00 per share held by Ventures; (v) 1,250,000 shares
of
common stock underlying the Warrants held by Ventures; (vi) 29,000
shares
of common stock underlying series B warrants exercisable at $2.00
per
share; (vii) 53,333 shares of common stock underlying series C warrants
exercisable at $3.00 per share; and (viii) 75,000 shares of common
stock
underlying the Warrants. (See footnote 8 for additional discussion
of the
information set forth in clauses (ii) through (v) of the preceding
sentence.) Pursuant to the Foundation 13D, this does not include
the
following shares which Mr. Seaman has determined he does not have
beneficial ownership or disclaimed beneficial ownership: (i) 5,166,667
shares of common stock held by the Foundation; (ii) 120,834 shares
of
common stock underlying series B warrants exercisable at $2.00 per
share
held by the Foundation; (iii) 222,223 shares of common stock underlying
series C warrants exercisable at $3.00 per share held by the Foundation;
(vi) 2,500,000 shares of common stock underlying a Warrant held by
the
Foundation; and (v) 15,000 shares of common stock that Mr. Seaman
has
agreed to transfer to his ex-wife pursuant to an Agreement Incident
to
Divorce dated April 4, 2006. (See footnote 7 for additional discussion
of
the information set forth in clauses (i) through (iv) of the preceding
sentence.) The mailing address of the beneficial owner is 1221 McKinney
#4545, Houston, Texas77010.
(14)
Consisting
of: (i) 403,333 shares of common stock underlying stock options;
(ii)
37,885 shares of common stock underlying series B warrants exercisable
at
$2.00 per share; and (iii) 69,674 shares of common stock underlying
series
C warrants exercisable at $3.00 per share.
(15)
Consisting
of: (i) 316,665 shares of common stock underlying stock options;
(ii)
6,647 shares of common stock underlying series B warrants exercisable
at
$2.00 per share; and (iii) 12,225 shares of common stock underlying
series
C warrants exercisable at $3.00 per share.
(16)
Consisting
of: (i) 175,000 shares underlying stock options; (ii)a warrant to
purchase
389,275 shares of common stock exercisable at $0.50 per share; (iii)
100,000 shares of common stock held by Palantir Group, Inc., an entity
in
which Dr. Bailey has investment and voting power; and (iv) 50,000
shares
of common stock underlying a Warrant held by Palantir Group,
Inc.
(17)
Consisting
of 75,000 shares of common stock underlying options.
(18)
Consisting
of 175,000 shares of common stock underlying stock
options.
7
(19)
Consisting
of: (a) the following held by Mr. Seaman or which Mr. Seaman may
be deemed
to have voting and investment power (i) 175,000 shares underlying
an
option; (ii) 2,636,667 shares of our common stock held by Ventures;
(iii)
99,084 shares of our common stock underlying series B warrants exercisable
at $2.00 per share held by Ventures; (iv) 182,223 shares of our common
stock underlying series C warrants exercisable at $3.00 per share
held by
Ventures; (v) 1,250,000 shares of our common stock underlying a Warrant
held by Ventures; (vi) 29,000 shares of our common stock underlying
series
B warrants exercisable at $2.00 per share; (vii) 53,333 shares of
our
common stock underlying series C warrants exercisable at $3.00 per
share;
and (viii) 75,000 shares of our common stock underlying a Warrant;
(b) the
following held by Mr. McWilliams (i) 403,333 shares of common stock
underlying stock options; (ii) 37,885 shares of common stock underlying
series B warrants exercisable at $2.00 per share; and (iii) 69,674
shares
of our common stock underlying series C warrants exercisable at $3.00
per
share; (c) the following held by Dr. Bailey or which Dr. Bailey has
voting
and investment power; (i) 175,000 shares underlying stock options;
(ii)389,275 shares of common stock underlying a warrant exercisable
at
$0.50 per share; (iii) 100,000 shares of common stock held by Palantir
Group, Inc.; and (iv) 50,000 shares of commons underlying a Warrant
held
by Palantir Group, Inc.; (d) 38,333 shares of common stock underlying
stock options held by Mr. Frison; and (e) the following held by Mr.
Rouse
(i) 316,665 shares of common stock underlying stock options; (ii)
6,647
shares of common stock underlying series B warrants exercisable at
$2.00
per share; and (iii) 12,225 shares of our common stock underlying
series C
warrants exercisable at $3.00 per share.
Pursuant
to Section 6.1(j) of the Purchase Agreement, Messrs. Boveroux, Kamin and Wesner
resigned from the board of directors prior to Closing and at Closing the board
appointed Scott B. Seaman and Gregory H. Bailey to the board of directors to
fill two of the three vacancies until their successors are duly elected and
qualified or until the next annual meeting of the shareholders. Pursuant to
Section 7.10 of the Purchase Agreement, on the tenth day following the mailing
of this Information Statement, David Hung will be appointed to serve on the
board of directors until his successor is duly elected and qualified or until
the next annual meeting of the shareholders.
Prior
to the Financing
The
following table sets for the individuals who served as officers and directors
of
the Company prior to the Closing of the Financing.
Name
Age
Position
David
B. McWilliams
63
President,
Chief Executive Officer and Director
Brooks
Boveroux
62
Chairman
of the Board
Anthony
N. Kamin
45
Director
Terry
Wesner
62
Director
Paul
M. Frison
69
Director
C.
W. Bill Rouse
58
Chief
Financial Officer
After
the Financing
The
following table sets forth the individuals who have been (or will be, as
applicable) appointed as directors or executive officers, their ages and
position with the Company. Each of the directors shall serve until their
successors are duly elected and qualified or until the next annual meeting
of
the shareholders.
Name
Age
Position
David
B. McWilliams
63
President,
Chief Executive Officer and Director
Paul
M. Frison
69
Director
Scott
B. Seaman
50
Director
Gregory
H. Bailey
50
Director
David
Hung
48
Director
(1)
C.
W. Bill Rouse
58
Chief
Financial Officer
(1)
Proposed
Director who will be appointed to serve on the board of directors
on the
tenth day following the date of mailing of this Information
Statement.
8
David
B. McWilliams
- was appointed President and Director in August 2004. From December 2004 until
August 2004, Mr. McWilliams was a private investor. From June 2003 to December
2003, Mr. McWilliams served as president and chief executive officer of
Bacterial Barcodes, Inc., a molecular diagnostics company. From May 2002 to
June
2003, Mr. McWilliams served as chief executive officer of Signase, Inc., a
cancer therapy company. Mr. McWilliams served as chief executive officer of
Encysive Pharmaceuticals Inc., a cardiovascular therapeutics company from June
1992 to March 2002. Prior to June 1992, Mr. McWilliams served as chief executive
officer of Zonagen Inc., a human reproductive products company. Prior to that
time, Mr. McWilliams was a senior executive with Abbott Laboratories and a
management consultant with McKinsey & Co. He currently serves as a director
of Novelos Therapeutics, Inc. Mr. McWilliams also serves on the boards of the
Texas Healthcare and Bioscience Institute and the Houston Technology Center.
Mr.
McWilliams received an MBA in finance from the University of Chicago, and a
B.A.
in chemistry, Phi Beta Kappa, from Washington and Jefferson
College.
Paul
M. Frison
- has served as a Director of the Company since November, 2004. Mr. Frison
has
been president and chief executive officer of the Houston Technology Center
since January 1999. Before helping to found the Houston Technology Center in
1999, Frison spent 24 years as president and/or chief executive officer building
three public companies, NYSE-listed LifeMark, Nasdaq-listed ComputerCraft,
and
Nasdaq-listed LifeCell Corp. Mr. Frison currently serves on the Board of
Directors of Micromed Technologies, Inc. He received his B.A. from Occidental
College in Los Angeles, California.
Scott
B. Seaman -
has
served as a Director of the Company since April, 2006. Mr. Seaman currently
serves as the executive director and treasurer of the Albert and Margaret Alkek
Foundation of Houston, Texas, a private foundation primarily supporting
institutions in the Texas Medical Center in Houston, Texas. Since January 1996
to present, Mr. Seaman has served as the chief financial officer of Chaswil
Ltd., an investment management company. Since September 1986, Mr. Seaman has
served as secretary and treasurer of M & A Properties Inc., a ranching and
real estate concern. 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., a composite industry supplier. Since May 2004, Mr.
Seaman has served as a Member of the Investment Committee of Global Hedged
Equity Fund LP, a hedge fund. Mr. Seaman received a bachelor’s degree in
business administration from Bowling Green State University.
Dr.Gregory
H. Bailey
- has
served as a Director of the Company since April 2006. Since May 2004, Dr. Bailey
has served as a managing director of MDB. 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.
Dr.
David Hung
- is a
proposed director who will assume his directorship after ten days of the filing
this Information Statement, in connection with the Purchase Agreement. Dr.
Hung
has served as the president, chief executive officer and on a board member
of
Medivation, Inc. since December 17, 2004. Dr. Hung also has served as
the President and Chief Executive Officer, and member of the board of directors,
of Medivation, Inc.’s subsidiary, Medivation Neurology, Inc. since its inception
in September 2003. From 1998 until 2001, Dr. Hung was employed by ProDuct
Health, Inc., a privately held medical device company, as Chief Scientific
Officer (1998-1999) and as President and Chief Executive Officer (1999-2001).
From December 2001 to January 2003, Dr. Hung served as a consultant to Cytyc
Health Corporation. From July 1999 to November 2001, Dr. Hung served as
president and chief executive officer of ProDuct Health, Inc. Dr. Hung received
his M.D. from the University of California at San Francisco, and his M.A. and
A.B. in biology and organic chemistry from Harvard College.
C.
William “Bill” Rouse
- Mr.
Rouse has served as the Company’s chief financial officer since May 2004. Prior
to May 2004, Mr. Rouse was managing director of Rouse Associates from April
1999
until May 2004. From January 1995 to April 1999 he was chief marketing officer
for Futorian Inc. and from December 1990 to January 1995 he was a division
general manager for Masco Corporation. Prior to 1990 Mr. Rouse was President
of
BEI, Inc. Mr. Rouse has led several startups and turnarounds and founded several
successful companies.
9
Family
Relationships, Arrangements and Significant Employees
There
are
no family relationships between or among any executive officers and directors.
Other than the resignations of Messrs. Boveroux, Kamin and Wesner and the
appointments of Messrs. Seaman, Bailey and Hung pursuant to the Purchase
Agreement, there are no arrangements or understandings between an executive
officer or director and any other person pursuant to which he was or is to
be
selected as an executive officer or director. We have no significant employees
other than the executive officers of the Company.
Certain
Relationships and Related Transactions, Business Relationships and Indebtedness
of Management
Prior
to
the Financing, Mr. Seaman, individually owned 50,500 shares of the Company’s
common stock, series B warrants to purchase 20,000 shares of the Company’s
common stock, and series C warrants to purchase 40,000 shares of the Company’s
common stock. In addition, Ventures, an entity in which Mr. Seaman may be deemed
to have voting power and/or investment power, owned 136,667 shares of the
Company’s common stock, series B warrants to purchase 99,084 shares of the
Company’s common stock, and series C warrants to purchase 182,223 shares of the
Company’s common stock. In connection with the Financing, (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) Ventures acquired 2,500,000 shares of the Company’s common stock and a
Warrant to purchase 1,250,000 shares of the Company’s common stock. Pursuant to
the Foundation 13D, Mr. Seaman has concluded that he does not have beneficial
ownership of the shares of stock held by Foundation. Additionally, pursuant
to
the Foundation 13D, Mr. Seaman and other reporting persons named therein may
be
deemed to constitute a group for purposes of Section 13(d) or Section 13(g)
of
the Exchange Act. However, the Foundation, Ventures, Chaswil, Ltd.,
and Mr. Seaman expressly disclaim (i) that, for purposes of Section 13(d) or
Section 13(g) of the Exchange Act, they are a member of a group with respect
to
securities of the Company held by DLD Family Investments, LLC, Mr. Arnold,
Mr.
Bailey or Ms. Williams and (ii) that they have agreed to act together with
DLD
Family Investments, LLC, Mr. Arnold, Mr. Bailey or Ms. Williams as a group
other
than as described in the Foundation 13D. The reporting persons in the Foundation
13D, other than Mr. Seaman and Ventures, own in the aggregate: (i)
7,866,668 shares of common stock; (ii) 235,835 shares of common stock underlying
series B warrants exercisable at $2.00 per share; (iii) 444,446 shares of common
stock underlying series C warrants exercisable at $3.00 per share; and (iv)
2,600,000 shares of common stock underlying Warrants.
In
connection with the Financing, (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 Financing and a three year warrant to purchase2,083,300
shares of the Company’s common stock at $0.50 per share, of which MDB assigned
the right to purchase 389,275 shares of common stock to Dr. Bailey on April24,2006.
None
of
our executive officers or directors and their family members or affiliates
are
indebted to the Company in an amount greater than $60,000.
The
board
held 35 meetings during the fiscal year ended December 31, 2005. Messrs.
McWilliams and Frison attended at least 75% or more of the board meetings held
during the fiscal year ended December 31, 2005. Messrs. Seaman and Bailey did
not attend any board meetings in fiscal 2005 because they were recently
appointed to the board in April 2006. As of the date of the Information
Statement, the board has three standing committees: (1) the compensation
committee; (2) the audit committee; and (3) the nominating and corporate
governance committee. 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 reconstituted and that one or more directors will be added
to
the compensation committee.
10
Audit
Committee
The
Audit
Committee of the Board currently consists of the entire board of directors,
but
it is expected that the audit committee will be reconstituted to consist of
at
least two non-employee directors. The audit committee selects, on behalf of
our
board of directors, an independent public accounting firm to be engaged to
audit
our financial statements, discuss with the independent auditors their
independence, review and discuss the audited financial statements with the
independent auditors and management and recommend to our board of directors
whether the audited financials should be included in our Annual Reports to
be
filed with the SEC. The audit committee operates pursuant to a written charter,
which was adopted in February 2005. During the last fiscal year, the audit
committee held 4 meetings and the then members of the Audit Committee attended
that meeting.
Upon
the
reconstitution of the Audit Committee, it is expected that all of the members
of
the audit committee will be non-employee directors who: (1) met the criteria
for
independence set forth in Rule 10A-3(b)(1) under the Securities Exchange Act
of
1934, as amended (the “Exchange Act”); (2) did not participate in the
preparation of our financial statements or the financial statements of Opexa
Pharmaceuticals, Inc.; and (3) are able to read and understand fundamental
financial statements, including a balance sheet, income statement and cash
flow
statement. The Board has determined that Mr. Seaman qualifies as an “audit
committee financial expert” as defined by Item 401(e) of
Regulation S-B of the Exchange Act.
Compensation
Committee
The
Compensation Committee of the board consists of Mr. Frison, who is an
independent director, as defined in Rule 10A-3 of the Exchange Act. The
Compensation Committee reviews and approves (1) the annual salaries and other
compensation of our executive officers and (2) individual stock and stock option
grants. The Compensation Committee also provides assistance and recommendations
with respect to our compensation policies and practices and assists with the
administration of our compensation plans. The Compensation Committee held 4
meetings in the fiscal year ended December 31, 2005,
and the
then members of the Compensation Committee attended each meeting.
The
Report
of the Compensation Committee is included in this Information Statement. In
addition, the Board has adopted a written charter for the Compensation
Committee, adopted in August 2004, which is available on the Company’s website
at www.pharmafrontierscorp.com.
Nominating
and Corporate Governance Committee
The
nominating and corporate governance committee of the board currently consists
of
the entire board of directors, but the it is expected that the nominating and
corporate governance committee will be reconstituted to consisting of members
each of whom are found by the board of directors to be an “independent director”
pursuant to the applicable rules and regulations promulgated by the SEC. The
nominating and corporate governance committee assists our board of directors
in
fulfilling its responsibilities by: identifying and approving individuals
qualified to serve as members of our board of directors, selecting director
nominees for our annual meetings of shareholders, evaluating the performance
of
our board of directors, and developing and recommending to our board of
directors corporate governance guidelines and oversight with respect to
corporate governance and ethical conduct. This committee operates pursuant
to a
written charter adopted in February 2005, which is available on the Company’s
website at http://www.pharmafrontierscorp.com
under the
heading “Investor Info”. During the fiscal year ended December 31, 2005, the
nominating and corporate governance committee held 4 meetings, and the then
members of the Compensation Committee attended each meeting.
11
Consideration
of Director Nominees
Director
Qualifications
In
discharging its responsibilities to nominate candidates for election to the
board, the nominating committee has not specified any minimum qualifications
for
serving on the board. However, the nominating committee endeavors to evaluate,
propose and approve candidates with business experience and personal skills
in
finance, marketing, financial reporting and other areas that may be expected
to
contribute to an effective board. The nominating committee seeks to assure
that
the board is composed of individuals who have experience relevant to the needs
of the Company and who have the highest professional and personal ethics,
consistent with the Company’s values and standards. Candidates should be
committed to enhancing stockholder value and should have sufficient time to
carry out their duties and to provide insight and practical wisdom based on
experience. Each director must represent the interests of all shareholders.
Identifying
and Evaluating Nominees for Directors
The
nominating committee will utilize a variety of methods for identifying and
evaluating nominees for director. Candidates may come to the attention of the
nominating committee through current board members, professional search firms,
shareholders or other persons. These candidates will be evaluated at regular
or
special meetings of the nominating committee, and may be considered at any
point
during the year. The nominating committee will consider properly submitted
shareholder nominations for candidates for the board. Following verification
of
the shareholder status of persons proposing candidates, recommendations will
be
aggregated and considered by the nominating committee. If any materials are
provided by a shareholder in connection with the nomination of a director
candidate, such materials will be forwarded to the nominating committee. The
nominating committee will also review materials provided by professional search
firms or other parties in connection with a nominee who is not proposed by
a
shareholder.
Attendance
at Annual Meetings
Members
of
the board of directors are encouraged to attend the Company’s annual meeting;
however, attendance is not mandatory. Messrs. McWilliams and Frison attended
last year’s annual meeting.
Director
Disagreements with the Company
Robert
Gow
resigned on October 20, 2005 and Brian E. Rodriguez resigned on October 26,2005. The following is a summary list of their disagreements with the Company:
(i) Mr. Gow and Mr. Rodriquez believed that the Company failed to pursue a
course of financing designed to maximize the benefit of shareholders; (ii)
Mr.
Gow and Mr. Rodriquez believed that the Company’s management did not actively
pursue a course of action designed to increase or even preserve the value of
the
Company’s common stock; (iii) Mr. Gow and Mr. Rodriquez believed that certain
management failed to timely terminate investment bankers that were not acting
in
good faith and failed to perform as represented; (iv) Mr. Gow and Mr. Rodriquez
believed that the management did not, in certain cases, provide complete and
accurate information to all directors, in an attempt to stall decision making
or
manipulate the decision of the board of directors or in some cases even mislead
the board; and (v) Mr. Gow and Mr. Rodriquez believed that the management
circumvented the determinations to be made by independent committees established
under Sarbanes Oxley requirements, in order to achieve personal objectives
and
influence decision making within the Company.
The
board
of directors formed a special committee comprised of independent directors
to
address these issues and provide a report to the Board. The Special Committee
of
the Board of Directors with its independent counsel completed its review of
statements made by Mr. Gow and Mr. Rodriguez in connection with their
resignations in October, 2005. The Special Committee immediately retained
independent counsel to assist with the review. The Special Committee completed
its review and delivered its report and conclusions to the Board. Based on
the
information reviewed, the Special Committee and its counsel found no evidence
relative to the statements that would provide the basis for a claim of a breach
of fiduciary duty, violations of applicable law, or violation of the Company’s
code of ethics governing the code of executive conduct.
12
Communications
to the Board of Directors
The
board
has adopted the following policy for shareholders who wish to communicate any
concern directly with the board. Shareholders may mail or deliver their
communication to the Company’s principal executive offices, addressed as
follows:
*Addressees:
Board of Directors; Audit Committee of the Board of Directors; Nominating
Committee of the Board of Directors; Compensation Committee of the Board of
Directors; name of individual director.
Copies
of
written communications received at such address will be forwarded to the
addressee as soon as practicable.
Code
of Ethics for the CEO, CFO and Senior Financial Officers
In
2005,
in accordance with SEC rules, the then audit committee and the board adopted
the
CEO, CFO and Senior Financial Officers Code of Ethical Conduct. The board
believes that these individuals must set an exemplary standard of conduct,
particularly in the areas of accounting, internal accounting control, auditing
and finance. This code sets forth ethical standards the designated officers
must
adhere to and other aspects of accounting, auditing and financial compliance.
Compensation
Committee Interlocks and Insider Participation
The
compensation committee of the board consists of Mr. Frison, who is not an
officer or employee of the Company. None of the Company’s executive officers
serves on the board of directors or compensation committee of a company that
has
an executive officer that serves on the Company’s board or compensation
committee. No member of the Company’s board is an executive officer of a company
in which one of the Company’s executive officers serves as a member of the board
of directors or compensation committee of that company.
REPORT
OF THE COMPENSATION COMMITTEE
Overview
The
Compensation Committee of the Board of Directors supervises our executive
compensation. We seek to provide executive compensation that will support the
achievement of our financial goals while attracting and retaining talented
executives and rewarding superior performance. In performing this function,
the
Compensation Committee reviews executive compensation surveys and other
available information.
We
seek to
provide an overall level of compensation to our executives that are competitive
within our industry and other companies of comparable size and complexity.
Compensation in any particular case may vary from any industry average on the
basis of annual and long-term performance as well as individual performance.
The
Compensation Committee will exercise its discretion to set compensation where
in
its judgment external, internal or individual circumstances warrant it. In
general, we compensate our executive officers through a combination of base
salary, annual incentive compensation in the form of cash bonuses and long-term
incentive compensation in the form of stock options.
Base
salary levels for our executive officers are set generally to be competitive
in
relation to the salary levels of executive officers in other companies within
our industry or other companies of comparable size, taking into consideration
the position’s complexity, responsibility and need for special expertise. In
reviewing salaries in individual cases the Compensation Committee also takes
into account individual experience and performance.
13
We
provide
long-term incentive compensation through our stock option plan. The number
of
shares covered by any grant is generally determined by the then current stock
price, subject in certain circumstances, to vesting requirements. In special
cases, however, grants may be made to reflect increased responsibilities or
reward extraordinary performance.
Chief
Executive Officer Compensation
Mr.
David
B. McWilliams was elected to the position of chief executive officer in August
2004. Mr. McWilliams’s salary was $250,000 per year during the fiscal year ended
December 31, 2005.
Mr.
McWilliams executed an employment agreement with the Company in August 2004.
Mr.
McWilliams’s current agreement for the position of chief executive officer is at
an annual salary of $250,000. The agreement includes incentives of options
to
purchase 370,000 shares of common stock which vested upon the Closing of the
Financing at an exercise price of $3.00 per share. In January 2005, Mr.
McWilliams was also awarded an incentive option to purchase 50,000 shares at
an
exercise price of $3.00 per share with regard to an acquisition. This option
vested one-third on the award date and one-third on each of the next two
anniversaries of the award date.
Mr.
McWilliams’ agreement may be terminated at any time by either party for any
reason and includes standard non-compete, non-disclosure, trade secret, and
proprietary information protection.
The
overall goal of the Compensation Committee is to insure that compensation
policies are established that are consistent with our strategic business
objectives and that provide incentives for the attainment of those objectives.
This is affected in the context of a compensation program that includes base
pay, annual incentive compensation and stock ownership.
Submitted
by the Compensation Committee of the Board of Directors of PharmaFrontiers
Corp.
The
value of “in-the-money” stock options represents the difference between
the $3.00 exercise price of such options and the fair market value
of
$0.60 per share of common stock as of December 31, 2005, the closing
price
of the common stock reported on the OTC Bulletin Board for December30,2005.
15
Executive
Employment Contracts
David
B.
McWilliams has an existing employment agreement with the Company that he entered
into effective August, 2004. Mr. McWilliams current agreement for the position
of chief executive officer is at an annual salary of $250,000 and may be
terminated by us or him at any time for any or no reason. Mr. McWilliams has
the
right to purchase 370,000 shares of Company common stock exercisable at a price
per share of $3.00, which all vested upon the Closing of the Financing. In
January 2005, Mr. McWilliams was granted an option to purchase 50,000 shares
of
common stock at a purchase price of $3.00 per share, of which 16,667 shares
vested immediately, 16,667 shares vested in January 2006 and 16,666 shares
will
vest in January 2007. In May 2006, subject to the shareholders’ approval of
an amendment
to the June 2004 Compensatory Stock Option Plan (“Plan”) increasing the number
of shares of common stock authorized for issuance under the Plan, Mr. McWilliams
was granted a ten year option for purchase 1,200,000 shares of common stock
at
$0.50 per share vesting in three years with ninety day acceleration upon Mr.
McWilliams termination.
C.
William
“Bill” Rouse entered into an employment agreement, expiring June 2006, providing
for an annual salary of $180,000. Mr. Rouse has the right to purchase 100,000
shares of Company common stock exercisable at a price per share of $3.00. This
option will vest in three parts: 33,333 on April 29, 2005, 33,333 on April29,2006 and finally 33,334 on April 29, 2007. Any unexercised options will expire
on April 29, 2009. In January 2005, Mr. Rouse was granted an option to purchase
50,000 shares of common stock at a purchase price of $3.00 per share, of which
16,667 shares vested immediately, 16,667 shares vested in January 2006 and
16,666 shares will vest in January 2007. In May 2006, subject to the
shareholders’ approval of an amendment
to the Plan increasing the number of shares of common stock authorized for
issuance under the Plan, Mr. Rouse was granted two options: (i) a five year
option exercisable at $0.50 per share to purchase 650,000 shares of common
stock, 1/3 vesting immediately and the balance vesting one year from the grant
date, with no acceleration or termination provisions resulting from Mr. Rouse’s
termination of employment with the Company; and (ii) a five year option
exercisable at $0.50 per share to purchase 100,000 shares of common stock to
become vested if the Company’s registration statement to be filed pursuant to
the Financing is filed with the SEC and deemed effective by the SEC without
triggering any payment obligations as provided for in the Financing, with no
acceleration or termination provisions from Mr. Rouse’s termination of
employment with the Company.
Compensation
of Directors
Mr.
Frison
was compensated $2,500 quarterly plus $1,000 for each regular board meeting
attended in person and $500 for each regular meeting attended by teleconference.
Mr. Frison is also compensated $1,000 for each compensation committee meeting
he
attends and $500 for each nominating committee meeting he attends. Mr.
McWilliams who is a director and an officer does not receive any compensation
for his services as a member of our board of directors. Subject to the
shareholders’ approval of an amendment
to the Plan increasing the number of shares of common stock authorized for
issuance under the Plan, as director’s compensation for the period ending April13, 2007, the Company approved the issuance of a ten year option to purchase
350,000 shares of common stock to Dr. Bailey, Mr. Seaman and Dr. Hung at an
exercise price of $0.52 per share. Each of these options vest 50% on the date
of
grant, 25% on the first anniversary and the remaining 25% on the second
anniversary with ninety day acceleration upon the directors termination We
reimburse our directors for travel and lodging expenses in connection with
their
attendance at board and committee meetings.
Subsequent
to the Financing, the board approved the accelerated vesting of the options
held
by Messrs. Boveroux, Wesner, Kamin and Frison and extended the term to exercise
for three years. In addition, subject to the shareholders’ approval of
an amendment
to the Plan increasing the number of shares of common stock authorized for
issuance under the Plan, as compensation for the directors’ prior efforts, the
board approved the issuance of three year options to purchase 20,000 shares
to
each of Messrs. Boveroux, Wesner and Kamin and 25,000 shares to Mr. Frison.
These options are exercisable at $0.52 per share and vest in one
year.
End
of Filing
16
Dates Referenced Herein and Documents Incorporated by Reference
