One of Rockwell Medical Inc.’s (Nasdaq: RMTI) biggest long-term shareholders let warrants to buy more than 860,000 shares expire rather than pay $7.18 a share to exercise them.
David A. Hagelstein said in a Securities and Exchange Commission filing that a trust he controls did not exercise the warrants by their July 31 expiration date. Rockwell’s stock closed that day at $5.05.
Hagelstein had paid $1.9 million to acquire the warrants from their original holders.
Hagelstein disclosed in the same filing that he had purchased an additional 164,241 Rockwell shares on the open market, at prices ranging from $3.48 to $5.33. He said he owned 1.99 million Rockwell shares, through two trusts. That amounted to just under 5 percent of the company.
Rockwell’s stock closed Tuesday at $5.68, off 33 cents. Had Hagelstein exercised the warrants, the company would have received more than $6 million in additional capital.
Rockwell said in its proxy filing in April that Hagelstein controlled 2.67 million shares, including the warrants. That equaled a 12 percent stake, making him its third-largest shareholder after Chief Executive Robert L. Chioini and Richmond Brothers Inc.
Rockwell has been the subject of several Sharesleuth stories (see here and here), in part because of its relationship with a hedge fund manager named Michael J. Xirinachs. He was one of Rockwell’s co-founders. The SEC brought charges against him in 2009 in connection with his role in a fraud scheme at a penny-stock company called Universal Express Corp.
Xirinachs and his management company were found liable for selling billions of unregistered shares in Universal Express and were ordered to pay more than $10 million in disgorgement, interest and fines. Earlier this year, Xirinachs was identified – but not charged – as a participant in another alleged fraud scheme.
Rockwell, which is based in Wixom, Mich., makes and distributes dialysis products. It has spent tens of millions of dollars on the development of an iron-replacement product called Soluble Ferric Pyrophosphate.
Its former vice president of drug development filed a wrongful-termination suit against the company in March 2012, alleging that he was fired after repeatedly complaining to Chioini about possible violations of SEC and Food and Drug Administration rules.
Dr. Richard C. Yocum said in the suit that Rockwell and Chioini knowingly issued false and misleading press releases about the progress of the SFP program. The judge hearing the case ruled in favor of the company, saying it was within its legal rights to fire Yocum and that there was an “absence of evidence” that he was fired in retaliation for claims of improper activity.
The judge did not rule on the validity of Yocum’s claim that Rockwell made false and misleading statements regarding the SFP program. It filed a separate defamation suit against Yocum, which is pending in federal court.
Rockwell said last month that one of its Phase III clinical trials for SFP met its primary endpoint and key secondary endpoints and showed that the treatment was safe and effective. Results of a second trial are due soon.
The warrants that Hagelstein held were issued in November 2007 in connection with a stock placement. According to SEC filings, Hagelstein bought them from other holders in 2010 and 2011, at a combined cost of roughly $1.9 million.
Rockwell twice extended the exercise deadline of the securities. Last fall, it changed the date from Nov. 28, 2012 to Jan. 28, 2013. Early this year, it again changed the date, to July 31.
SEC filing show that Hagelstein had owned 5 percent or more of Rockwell’s stock since 2008.