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): November 6, 2013
| AMERICAN BIO MEDICA CORPORATION |
(Exact name of registrant as specified in its charter)
| New York | 0-28666 | 14-1702188 | ||
| (State or other jurisdiction of | (Commission File Number) | (IRS Employer Identification | ||
| incorporation) | Number) |
| 122 Smith Road, Kinderhook, NY | 12106 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: 518-758-8158
Not applicable
(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 ( see General Instruction A.2. below):
| ¨ | 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 5.02 Departure of Directors or Principal Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers
As previously reported in a Current Report on Form 8-K filed with the Commission on November 1, 2013, on October 30,2013, the Board of Directors of American Bio Medica Corporation (the “Company”) appointed Melissa A. Waterhouse as the Company’s Interim Chief Executive Officer and Chief Financial Officer after the Company was notified that Stan Cipkowski was unable to continue serving as the Company’s Chief Executive Officer/Chief Financial Officer for medical reasons. Subsequently, on November 1, 2013, the Company was notified of Mr. Cipkowski’s death. We did maintain key man insurance for Cipkowski and the Company is the sole beneficiary of the policy with a face amount of $500,000. We are currently in the process of filing a claim for this key man insurance benefit.
The Company has entered into a new Employment Agreement with Waterhouse and a copy of her new Employment Agreement is attached to this 8-K as an exhibit. On November 6, 2013, the Company appointed Jean Neff, a member of its Board of Directors to the position of Corporate Secretary and Treasurer. Neff has served on the Company’s Board of Directors since February 2008. She is currently the Sr. Vice President Mid-Atlantic Region of Solstas Lab Partners. She has over 35 years experience in administration, sales and management. She served as the Sr. Vice President of New Business Development of the Occupational Testing Services division of Laboratory Corporation of America, from 1991 until her retirement in 2007. The office of Corporate Secretary was held by Waterhouse since September 2003, and the office of Treasurer was held by Cipkowski since March 2011.
Item 8.01 Other Events
The Company has been informed that the US Food and Drug Administration (“FDA”) has determined that the Company’s OralStat® is not substantially equivalent to the predicate market device. In accordance with its Consent Decree, the Company has temporarily ceased marketing and selling its OralStat to the workplace (non-forensic) market. The Company, through its legal counsel and regulatory consultants, intends to discuss its 510(k) marketing application data with FDA and take actions to resubmit a new 510(k) marketing application as quickly as possible. The Company intends to continue marketing and selling OralStat to forensic markets and to markets outside of the United States.
Risk Factor Disclosure Updates
Any adverse changes in our regulatory framework could negatively impact our business.
In the past, our industry believed that when DOA POCTs were sold in non-clinical markets (such as workplace), they did not fall under the definition of a “medical device”, but when sold in the Clinical market, they did fall under the definition of a “medical device”. When a product is a medical device, a 510(k) marketing application must be submitted to the FDA. A 510(k) is a premarketing submission made to the FDA to demonstrate that the device to be marketed is as safe and effective, that is, substantially equivalent, to a legally marketed device that is not subject to premarket approval. Applicants must compare their 510(k) device to one or more similar devices currently on the U.S. market and make and support their substantial equivalency claims. A legally marketed device is a device that was legally marketed prior to May 28, 1976 (pre-amendments device), or a device that has been reclassified from Class III to Class II or I, or a device which has been found to be substantially equivalent to such a device through the 510(k) process, or one established through Evaluation of Automatic Class III Definition. The legally marketed device(s) to which equivalence is drawn is known as the “predicate” device(s). Applicants must submit descriptive data and, when necessary, performance data to establish that a device is substantially equivalent to a predicate device.
Our urine point of collection products have received 510(k) marketing clearance from the FDA, and have therefore met FDA requirements for professional use. Our oral fluid products have never been marketed or sold to the Clinical market (or to any market that would use the products for diagnosis or treatment) and given our belief that 510(k) marketing clearance was not required to sell in non-clinical markets, we never sought 510(k) marketing clearance from FDA on our oral fluid DOA products. We have also been granted a CLIA waiver from the FDA related to our Rapid TOX product line.
In July 2009, we received a warning letter from FDA, which indicated that we were marketing OralStat (one of our oral fluid DOA products), in workplace settings without marketing clearance or approval (see Current Report on Form 8-K filed with the SEC on August 5, 2009). A warning letter is considered by FDA to be informal and advisory. While a warning letter communicates FDA’s position on a matter it does not commit the FDA to taking enforcement action. We communicated to the FDA our belief (based on legal opinion) that marketing clearance was not required in non-clinical markets, and the fact that there were many other oral fluid point of collection drug tests being sold in the Workplace market by our competitors, none of which have received FDA marketing clearance. The FDA continued to disagree with our interpretation of FDA regulations related to medical devices, and the FDA continued to assert jurisdiction of drug testing performed in the workplace. We also advised FDA that we were willing to obtain marketing clearance but that specific technical and scientific issues existed when attempting to utilize FDA’s draft guidance for our OralStat (because the draft guidance was written for urine drug tests). Nevertheless, we were unable to reach a consensus with the FDA on neither the jurisdiction issue nor the technical issues.
On July 10, 2012, we announced in a press release and a Current Report on Form 8-K that we entered into a Consent Decree of Permanent Injunction (the “Consent Decree”) with FDA. Under the terms of the Consent Decree, we will be allowed to continue to market our OralStat drug test in the workplace market while we take action to obtain a 510(k) marketing clearance. More specifically, FDA will provide the Company with its most recent guidance on the clinical and analytical studies that need to be conducted to gather data in support of a 510(k) submission for OralStat. We will then have a total of 396 days to discuss protocols with FDA, complete our analytical and clinical studies and submit a substantially complete 510(k). We have agreed to withdraw the OralStat product from the workplace market if any of the following events occur: 1) we do not submit a substantially complete 510(k) within this specified time period, 2) we fail to submit additional information within time frames specified by FDA, 3) we withdraw our submission, or 4) our 510(k) submission results in FDA’s determination that the product is not substantially equivalent. On August 3, 2012 the Consent decree was approved and entered by the United States District Court for the Northern District of New York, and on August 3, 2012, we received guidance from FDA. . On September 3, 2013, we filed our application for 510(k) marketing clearance as required under the Consent Decree and on September 18, 2013 we were notified that an administrative acceptance review was conducted, and our 510(k) marketing application was found to contain all of the necessary elements and information needed to proceed with the substantive review. In November 2013, we were informed that the FDA determined that our OralStat was not substantially equivalent to the predicate market device. In accordance with the Consent Decree, the Company has temporarily ceased marketing and selling its OralStat to the workplace (non-forensic) market.
The cost of obtaining marketing clearance was material and has had a negative impact on our efforts to improve our performance and to achieve profitability. Our point of collection oral fluid drug tests historically account for a material portion of our sales, with sales of oral fluid drug tests accounting for approximately 15% of our year to date 2013 sales (the majority of which are sales to the Workplace market). This inability to market and sell our point of collection oral fluid drug tests in the Workplace market will negatively impact our revenues, and the loss of oral fluid test customers will also negatively impact our revenues. The Company, through its legal counsel and regulatory consultants, intends to discuss its 510(k) marketing application data with FDA and take actions to resubmit a new 510(k) marketing application as quickly as possible. The Company intends to continue marketing and selling OralStat to forensic markets and to markets outside of the United States. There can be no assurance that these intended discussions or action would result in the Company obtaining 510(k) marketing clearance. Prolonged cessation of marketing and selling of OralStat to the U.S. workplace market would have a negative impact on our financial condition.
Although we are currently unaware of any additional changes in regulatory standards related to any of our markets, if regulatory standards were to further change in the future, there can be no assurance that the FDA will grant the Company appropriate marketing clearances required to comply with the changes, if and when we apply for them.
We have a history of incurring net losses.
Since our inception and throughout most of our history, we have incurred net losses, including but not limited to, a net loss of $1,111,000 incurred in the year ended December 31, 2012. We expect to continue to make substantial expenditures for sales and marketing, product development and other business purposes. Our ability to achieve profitability in the future will primarily depend on our ability to increase sales of our products (and our cessation of selling and marketing OralStat in the workplace market in November 2013 is expected to severely limit our ability to increase sales), reduce production and other costs and successfully introduce new products and enhanced versions of our existing products into the marketplace. There can be no assurance that we will be able to increase our revenues at a rate that equals or exceeds expenditures. In the year ended December 31, 2012, our sales continued to be negatively impacted by the aftermath of the recession, and a limited cash flow diminished our capacity to purchase raw materials in greater quantities (and on better terms) and this resulted in increased cost of goods. Our failure to increase sales while maintaining or reducing product costs, general and administrative, sales and marketing and research and development costs will result in the Company incurring additional losses.
We believe we will need additional funding for our existing and future operations.
Our financial statements for the year ended December 31, 2012 were prepared assuming we will continue as a going concern. If global economic conditions do not improve or return to pre-recession levels, we do not believe that our current cash balances, and cash generated from future operations will be sufficient to fund operations for the next twelve months. Future events, including the problems, delays, expenses and difficulties which may be encountered in establishing and maintaining a substantial market for our products (including but not limited to the cessation of marketing and selling OralStat in the workplace market), could make cash on hand insufficient to fund operations. If cash generated from operations is insufficient to satisfy our working capital and capital expenditure requirements, we may be required to sell additional equity or debt securities or obtain additional credit facilities. There can be no assurance that such financing will be available or that we will be able to complete financing on satisfactory terms, if at all. Any such equity financing would result in further dilution to existing shareholders.
We depend on key personnel to manage our business effectively.
We are dependent on the expertise and experience of our senior management for our future success. The loss of a member of senior management could negatively impact our business and results of operations. On October 30, 2013, Melissa A. Waterhouse, our (former) EVP, Regulatory Affairs, Chief Compliance Officer and Corporate Secretary was appointed as our interim Chief Executive Officer/Chief Financial Officer when the Company became aware that its (then current) Chief Executive Officer/Chief Executive Officer Stan Cipkowski was unable to continue due for medical reasons (Mr. Cipkowski subsequently passed away on October 31, 2013). We have an employment agreement in place with Waterhouse, but there can be no assurance that Waterhouse will continue her employment; and the loss of Waterhouse could disrupt the business and therefore have a negative impact on business results. We also have a number of other individuals in senior management positions. There can be no assurance that they too will continue their employment. We did maintain key man insurance for Cipkowski and the Company is the sole beneficiary of the policy with a face amount of $500,000.
Item 9.01 Financial Statements and Exhibits
| (d) | Exhibits |
| 10.38 | Employment Agreement between the Company and Melissa A. Waterhouse |
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.
| AMERICAN BIO MEDICA CORPORATION (Registrant) | ||
| By: | /s/ Melissa A. Waterhouse | |
| Melissa A. Waterhouse | ||
|
Interim Chief Executive Officer (Principal
Executive Officer) |
||
|
Interim Chief Financial Officer (Principal Financial
Officer) |
||
Dated: November 12, 2013
EXHIBIT 10.38
November 6, 2013
Melissa A. Waterhouse
PO Box 769
Philmont, New York 12565
Dear Melissa,
It is our pleasure to formally offer you the position of interim Chief Executive Officer/Chief Financial Officer of American Bio Medica Corporation (“ABMC” or the “Company”), reporting directly to the ABMC Board of Directors. This agreement supersedes all other agreements whether written or verbal and may not be amended except by a writing signed by you and the Board of Directors. Your position will be primarily located at our New York corporate facility although overnight travel may be required from time to time. You will perform all duties as are generally associated with the position of Chief Executive Officer/Chief Financial Officer, as directed by the Board of Directors. Below, we have outlined the major terms and conditions applicable to your position.
Term
Your employment with ABMC will be for a term of one year unless sooner terminated for cause, beginning on the date set forth above and automatically renewed for successive one-year terms unless either side gives written notice of intent not to renew at least sixty (60) days prior to the end of any one-year term. If AMBC terminates your employment for cause, this agreement shall be terminated and you will be entitled to no severance and no further compensation or benefits from ABMC, other than payment of salary and benefits up to and including the date of termination.
Compensation
Effective November 4, 2013, your base salary will be $11,667 per month, which is equivalent to $140,000 on an annualized basis. You will be eligible for your first performance review by the Board of Directors in November 2014.
All costs related to health insurance (including but not limited to dental, eye, etc. and including family coverage if you so require) shall continue to be borne 100% by the Company. Please notify Human Resources if you wish to receive this benefit.
You shall participate in any Management Bonus Program that may be approved by the Board of Directors in the future.
Benefits
| · | 20 vacation days |
| · | Usual corporate holidays |
| · | 2 personal days |
| · | 401 (k) |
Severance
In the unlikely event that ABMC elects to terminate your employment for anything other than cause, you will receive severance pay equal to twelve (12) months of your current base salary at the time of separation, with continuation of all health benefits during the twelve-month period at ABMC’s expense. Cause shall be defined as (1) death, (2) commission of a felony (3) acts of dishonesty, fraud or malfeasance in connection with your service on behalf of the Company, (4) gross dereliction of duty willful failure to carry out any lawful directive of the Board of Directors, or material violations of Company policies which continue after Company has provided you with written notice thereof and a period of thirty (30) days to cure such action or misconduct or (5) disability of a period of more than six (6) months). The severance payment will be made under the current pay cycle, each pay period, during the twelve (12) months, subject to all customary withholdings.
Additionally, you may resign your position and elect to exercise this severance provision at your option under the following circumstances:
| (1) | If you are required to relocate by the Company or its Board of Directors more than 50 miles from the Company’s Kinderhook facility as a condition of continued employment |
| (2) | A substantial change in responsibilities normally assumed by Chief Executive Office/Chief Compliance Officer at the direction of the Company or its Board of Directors (i.e. demotion) |
| (3) | You are asked to commit or conceal the commitment of any illegal act by any officer or member of the board of directors of the Company. |
Change in Control
If there is a Change in Control (defined below) of ABMC, you may elect to resign your position and to receive a lump sum severance payment equal to two (2) times your annual base salary (“CIC Payment”). If you elect to resign, ABMC will pay you the CIC Payment within thirty (30) days after you make your election, which election must be in writing and received by ABMC’s Board of Directors within ten (10) days after a Change in Control. In the event you continue employment with ABMC or any successor to ABMC following a Change in Control or fail to make an election within ten (10) days after a Change in Control, you will not be entitled to receive the CIC Payment.
Change in Control is defined as follows:
(i) the approval by shareholders of ABMC of a merger or consolidation of ABMC with any other corporation, other than a merger or consolidation which would result in the voting securities of ABMC outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the total voting power represented by the voting securities of ABMC or such surviving entity outstanding immediately after such merger or consolidation; or
(ii) the approval by the shareholders of ABMC of a plan of complete liquidation of ABMC or an agreement for the sale or disposition by ABMC of all or substantially all of ABMC’s assets.
Restrictive Covenants
Company Handbook/Compliance Certification
You are aware that it is your responsibility to read the ABMC Employee Handbook thoroughly and comply with the policies contained in the Handbook. You understand that the policies, benefits and information contained in the Handbook are subject to change and that revisions to the Handbook may be made. Any such changes will be communicated through official written notices and you hereby acknowledge that any such revisions may supercede, modify or eliminate existing policies. Only a majority of the Executive Officers, or a majority of the Board of Directors may adopt revisions to the policies contained in the Handbook. In no circumstance may a change to the employee handbook reduce the salary, benefits or other conditions outlined in this employment agreement.
You agree that in addition to any covenants included in this Employment Letter, you will sign a Compliance Certification simultaneously with the signing of this Employment Letter. If a conflicting covenant exists between the Employment Letter and the Compliance Certification and/or the Company Handbook, the Employment Letter shall be the ruling document.
Non-Solicitation
During the twelve (12) months immediately following your termination from employment with ABMC for any reason, you agree that:
| (a) | You will not, directly or indirectly, solicit in any manner or capacity whatsoever, including by way of illustration, but not limitation, call upon, mail or e-mail notices to, or make telephone calls to, any Customer (defined below) or Customer Prospect (defined below) of ABMC, for the purpose of selling any Covered Services (defined below) or engaging in any business which directly or indirectly competes with ABMC. |
| (b) | You will not solicit, endeavor to entice away from ABMC, or otherwise interfere with the relationship of ABMC with any person who is employed (or, but for any violation of this agreement, would have been employed) by or otherwise engaged to perform services for ABMC, whether for your own account or for the account of any other person or entity. |
| (c) | You will not, directly or indirectly, solicit in any manner or capacity whatsoever, including by way of illustration, but not limitation, call upon, mail, or e-mail notices to, or make telephone call to, any supplier or vendor of ABMC for the purpose of engaging in any business which directly or indirectly competes with ABMC. |
| Confidentiality |
You agree not to disclose any Confidential Information (defined below) and you promise to take all reasonable precautions to prevent its unauthorized dissemination, both at all times during your employment with ABMC and after termination of your employment for any reason. You agree to limit the disclosure of any Confidential Information to only those employees and agents of ABMC who have a need to know the information and who have similarly agreed to keep such information confidential. Upon termination of your employment or upon request, you will deliver to ABMC all documents and electronic files containing Confidential Information and any personal property owned by ABMC.
You further agree not to use any Confidential Information for your own benefit or for the benefit of anyone other than ABMC. You acknowledge that all Confidential Information is and remains the property of ABMC and that no license or rights in the Confidential Information has been or is granted to you.
“Confidential Information" means and includes all information not previously known by you prior to your employment with ABMC relating to marketing, advertising, public relations, development, services, trade secrets, trade "know-how," business plans, Customer (as defined below) and Customer Prospect (as defined below) lists, distributor lists, Customers and Customer Prospects information, distributor information, financial data, personnel data, employee compensation and benefits information, new personnel acquisition plans, details of contracts, pricing policies, operational methods, marketing plans or strategies, service development techniques or plans, business acquisition or investment plans, or other confidential and proprietary information related to the business or affairs of ABMC and/or its Customers or Customer Prospects.
The term "Customer" means any person or entity for which ABMC performed any Covered Services during the one (1) year period immediately preceding the termination of your employment with ABMC for any reason whatsoever.
"Customer Prospect" means any person or entity to which ABMC made a new business presentation or proposal, whether formal or informal related to Covered Services during the one (1) year period immediately preceding the termination of your employment with ABMC for any reason whatsoever.
“Covered Services” means any services or products of whatever kind or character offered or provided by ABMC to any person or entity.
Enforcement
If any provision of the covenants in this agreement shall be held invalid or unenforceable, the remainder nevertheless shall remain in full force and effect. If any provision is held invalid or unenforceable with respect to particular circumstances, it nevertheless shall remain in full force and effect in all other circumstances.
If, in connection with any action taken by ABMC to enforce the provisions of the covenants of this agreement, a court shall hold that all or any portion of the restrictions contained therein are unreasonable under the circumstances then existing so as to render such covenants invalid or unenforceable, the parties agree that any court of competent jurisdiction may reform such unreasonable restrictions to the extent necessary to make such restrictions reasonable under the circumstances then existing so as to render such restrictions both valid and enforceable.
You acknowledge and agree that all of the covenants contained in this agreement are necessary for the protection of ABMC's valuable and legitimate business interests and are reasonable in scope and content. Accordingly, you acknowledge and agree that if you violate any of the provisions of this agreement ABMC shall sustain irreparable harm and, therefore, in addition to the other remedies which ABMC may have under this agreement or otherwise, ABMC will be entitled to specific performance, injunctive, and other equitable relief.
You agree to indemnify, save and hold harmless ABMC from and against any and all claims, damages, losses, costs and expenses (including reasonable attorneys' fees) incurred by ABMC in any action in which a court enforces the terms of the covenants of this agreement.
Other Employment Information
In making this offer of continued employment, ABMC has relied on your representations that: (a) you are not currently a party to any contract of employment that might impede your ability to accept this offer or to perform the services completed thereby; and (b) that you are not subject to any non-competition arrangement or other restrictive covenants that might restrict your employment at ABMC as contemplated by this offer.
Exclusive Service
You will perform services exclusively for ABMC and you will not perform services for any other persons or entities related to or conducting business with the Company for personal profit during the term of this agreement without the written agreement of the Board of Directors.
Miscellaneous
This writing represents the entire agreement with respect to your employment and any prior agreements or understandings, written or oral, are merged herein. This agreement shall be governed by the laws of the State of New York. ABMC will not be deemed to have waived any provision of this agreement except by a signed writing. This agreement may not be amended, except by a signed writing. Notices given pursuant to this Agreement shall be in writing and delivered personally or by nationally recognized overnight courier in the case of ABMC to its Kinderhook facility to the attention of the Compensation Committee Chairman of the Board of Directors and in your case to your home address as set forth in ABMC’s personnel file.
Melissa, we are enthusiastic about your appointment as Chief Executive Officer/Chief Financial Officer, and our expectation is that you will continue to make a tremendous contribution to the long-term success of ABMC.
Sincerely,
| /S/ Jean Neff | |
| Jean Neff (Compensation Committee Chair) | |
| By order of the American Bio Medica Corporation Board of Directors | |
| Accepted this 6 th Day of November, 2013: | |
| /S/ Melissa A. Waterhouse | |
| Melissa A. Waterhouse | |