UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
(Rule
14a-101)
SCHEDULE
14A INFORMATION
Proxy
Statement Pursuant to Section 14(a) of
the
Securities Exchange Act of 1934
Filed
by the Registrant
x
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Filed
by a Party other than the Registrant
o
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Check
the appropriate box:
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x
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Preliminary
Proxy Statement
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¨
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Confidential,
for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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¨
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Definitive
Proxy Statement
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¨
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Definitive
Additional Materials
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¨
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Soliciting
Material Pursuant to §240.14a-12
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NYER
MEDICAL GROUP, INC.
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(Name
of Registrant as Specified in its Charter)
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(Name
of Person(s) Filing Proxy Statement, if Other Than the
Registrant)
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Payment
of Filing Fee (Check the appropriate box):
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¨
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No
fee required.
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x
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
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(1)
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Title
of each class of securities to which transaction
applies:
Common
Stock
1
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(2)
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Aggregate
number of securities to which transaction applies:
5,744,416
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(3)
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Per
unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
$20,336,106, which includes the combined
consideration from two transactions described in this proxy
statement.
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(4)
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Proposed
maximum aggregate value of transaction:
$20,336,106
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(5)
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Total
fee paid:
$4,067.22
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¨
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Fee
paid previously with preliminary materials.
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¨
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Check
box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its
filing.
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(1)
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Amount
Previously Paid:
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(2)
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Form,
Schedule or Registration Statement No.:
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(3)
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Filing
Party:
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(4)
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Date
Filed:
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1
Includes shares of common stock expected to be issued upon
exercise of options, conversion of preferred stock and conversion of convertible
promissory notes.
NYER
MEDICAL GROUP, INC.
13 Water
Street
Holliston,
Massachusetts 01746
TRANSACTIONS
PROPOSED — YOUR VOTE IS VERY IMPORTANT
The Board
of Directors, or the Board, of Nyer Medical Group, Inc., or Nyer, has approved a
series of transactions whereby: (1) Walgreen Eastern Co., Inc., or WAG, will
acquire substantially all of the assets of D.A.W., Inc., or DAW, a wholly-owned
subsidiary of Nyer, pursuant to that certain Asset Purchase Agreement dated
October 22, 2009, or the WAG Agreement, and together with the transactions
contemplated thereby, the WAG Purchase; (2) following the closing of the WAG
Purchase, certain management investors, or the Management Team, will acquire the
stock of DAW pursuant to that certain Transaction Agreement dated October 23,
2009, or the DAW Purchase Agreement, and together with the transactions
contemplated thereby, the DAW Stock Purchase, and (3) Nyer will be dissolved
pursuant to a plan of dissolution, together with the transactions contemplated
thereby, the Plan of Dissolution. The WAG Purchase, the DAW Stock
Purchase and the Plan of Dissolution are referred to herein as the
Transactions.
If all of
the Transactions are completed, all outstanding shares of Nyer will be redeemed,
with the proceeds of the WAG Agreement and DAW Purchase Agreement, and Nyer will
be delisted from the NASDAQ Capital Market and dissolved.
We are
asking shareholders of Nyer to, among other things, consider and vote upon the
approval of each of the Transactions. A special meeting of Nyer’s shareholders,
or the Special Meeting, will be held on ___________, 2009, at __ a.m., Eastern
time, at Nyer’s corporate headquarters located at 13 Water Street, Holliston,
Massachusetts, 01746. The Board unanimously recommends that Nyer shareholders
vote “
FOR
” each of the
proposals (with Messrs. Mark and David Dumouchel abstaining with respect to the
DAW Stock Purchase).
Nyer, DAW
and WAG cannot complete the WAG Purchase unless the shareholders approve the WAG
Purchase proposal; Nyer, DAW and the Management Team cannot complete the DAW
Stock Purchase unless the shareholders approve the WAG Purchase and the DAW
Stock Purchase and Nyer cannot complete the Plan of Dissolution unless the
shareholders approve the WAG Purchase, the DAW Stock Purchase and the Plan of
Dissolution.
Whether
or not you plan to attend the Special Meeting in person, we urge you to
complete, date, sign and promptly return the enclosed proxy card in the enclosed
postage pre-paid envelope to ensure that your shares will be represented at the
Special Meeting. Your proxy is revocable and will not affect your right to vote
in person if you decide to attend the Special Meeting. Because approval of each
Transaction requires the affirmative vote of the holders of a majority of the
votes entitled to be cast (which includes the votes represented by
outstanding shares of Nyer common stock and preferred stock, with each share of
preferred stock having the right to cast 2,000 votes), and, in the case of the
WAG Purchase and the DAW Stock Purchase, also requires the affirmative vote of
the majority of the outstanding shares of common stock, voting separately as a
class, any failure to vote has the same effect as a vote against each of the
Transactions, your vote is very important regardless of the number of shares you
own.
This
proxy statement provides you with detailed information about the Special Meeting
and the proposals to be voted on. We urge you to read this material carefully
and in its entirety.
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/s/
Mark A. Dumouchel
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President
and Chief Executive Officer
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Nyer
Medical Group, Inc.
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This
proxy statement is dated ___________, 2009, and is first being mailed to Nyer
shareholders on or about ___________, 2009.
NYER
MEDICAL GROUP, INC.
13 Water
Street
Holliston,
Massachusetts 01746
NOTICE
OF SPECIAL MEETING OF SHAREHOLDERS
TO
BE HELD ON ___________, 2009
___________,
2009
To the
Shareholders of Nyer Medical Group, Inc.:
Notice is
hereby given that a Special Meeting of Shareholders of Nyer Medical Group, Inc.,
a Florida corporation, or Nyer, will be held on ___________, 2009 at ___ a.m.,
Eastern time, at Nyer’s corporate headquarters located at 13 Water Street,
Holliston, Massachusetts, 01746 for the purpose of considering and voting on the
following matters:
1. To
approve the Asset Purchase Agreement, dated as of October 22, 2009, among
Walgreen Eastern Co., Inc., D.A.W., Inc. and Nyer, a copy of which is attached
as Annex A to this proxy statement, and the transactions contemplated
thereby;
2. To
approve the Transaction Agreement, dated as of October 23, 2009, among, D.A.W.,
Inc., certain members of management of D.A.W., Inc. and Nyer, a copy of which is
attached as Annex B to this proxy statement, and the transactions contemplated
thereby;
3. To
approve the Plan of Dissolution for Nyer, a copy of which is attached as Annex C
to this proxy statement, and the transactions contemplated thereby;
4. To
permit Nyer’s Board of Directors or its chairman, in its or his discretion, to
adjourn or postpone the Special Meeting if necessary for further solicitation of
proxies if there are not sufficient votes at the originally scheduled time of
the Special Meeting to approve the proposals; and
5. To
act upon such other matters as may properly come before the Special
Meeting.
The
proposals listed above, or the Proposals, are described in this proxy statement
which you are urged to read carefully and in its entirety. As of the date of
this notice, Nyer’s Board of Directors knows of no other business to be
conducted at the Special Meeting.
Nyer’s
Board of Directors unanimously recommends that Nyer shareholders vote “FOR” each
of the foregoing Proposals (with Messrs. Mark and David Dumouchel abstaining on
Proposal 2 above).
Nyer’s
Board of Directors has fixed the close of business on ___________, 2009 as the
record date for the determination of Nyer shareholders entitled to notice of,
and to vote at, the Special Meeting and any continuation, adjournment or
postponement of the Special Meeting.
INTERNET
AVAILABILITY OF PROXY MATERIALS
This
notice of meeting, the proxy statement and the proxy card are available at
www.nyermedicalgroup.com/nyerweb/specialmeetingproxystatement.pdf.
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By
Order of the Board of Directors
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/s/
Mark A. Dumouchel
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President
and Chief Executive Officer
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___________,
2009
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THE
APPROVAL OF EACH OF PROPOSALS 1, 2 AND 3 REQUIRES
THE AFFIRMATIVE VOTE OF
THE HOLDERS OF A MAJORITY OF THE VOTES ENTITLED TO BE CAST (WHICH INCLUDES THE
VOTES REPRESENTED BY OUTSTANDING SHARES OF NYER COMMON STOCK AND PREFERRED
STOCK, WITH EACH SHARE OF PREFERRED STOCK HAVING THE RIGHT TO CAST 2,000
VOTES). IN ADDITION, THE APPROVAL OF PROPOSALS 1 AND 2 REQUIRES THE
AFFIRMATIVE VOTE OF THE MAJORITY OF THE OUTSTANDING SHARES OF COMMON STOCK,
VOTING SEPARATELY AS A CLASS
. YOUR FAILURE TO VOTE HAS THE
SAME EFFECT AS A VOTE AGAINST PROPOSALS 1, 2 AND 3. THE APPROVAL OF PROPOSAL 4
REQUIRES THE AFFIRMATIVE VOTE OF THE MAJORITY OF THOSE VOTES PRESENT AT THE
MEETING, IN PERSON OR BY PROXY, AND ENTITLED TO VOTE THEREON. TO VOTE
YOUR SHARES, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND MAIL IT
PROMPTLY IN THE ENCLOSED RETURN ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME
PRIOR TO ITS EXERCISE BY DELIVERING A WRITTEN NOTICE OF REVOCATION TO OUR
PRINCIPAL OFFICE OR IN PERSON AT THE SPECIAL MEETING OF NYER
SHAREHOLDERS.
TABLE
OF CONTENTS
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Page
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QUESTIONS
AND ANSWERS ABOUT THE TRANSACTIONS
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1
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WHO
CAN HELP ANSWER YOUR QUESTIONS
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5
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SUMMARY
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6
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WARNING
CONCERNING FORWARD LOOKING STATEMENTS
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10
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THE
PARTIES TO THE TRANSACTIONS
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11
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THE
PROPOSED TRANSACTIONS
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12
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INTERESTS
OF CERTAIN PERSONS IN THE TRANSACTIONS
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33
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VOTING
SECURITIES AND HOLDINGS OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
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35
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THE
WAG PURCHASE
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38
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THE
DAW STOCK PURCHASE
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45
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THE
PLAN OF DISSOLUTION
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48
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ADJOURNMENT
OF SPECIAL MEETING TO SOLICIT ADDITIONAL PROXIES
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57
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INFORMATION
ABOUT THE NYER SPECIAL MEETING AND VOTING
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58
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SHAREHOLDER
PROPOSALS FOR NYER’S 2010 ANNUAL MEETING
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60
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WHERE
YOU CAN FIND MORE INFORMATION
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60
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ANNEX
A – WAG AGREEMENT
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A-1
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ANNEX
B – DAW PURCHASE AGREEMENT
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B-1
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ANNEX
C – PLAN OF DISSOLUTION
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C-1
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ANNEX
D-1 – OPINION OF NEWBURY PIRET AS TO THE WAG PURCHASE
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D1-1
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ANNEX
D-2 – OPINION OF NEWBURY PIRET AS TO THE DAW STOCK
PURCHASE
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D2-1
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ANNEX
E – ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JUNE 30,
2009
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E-1
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ANNEX
F – QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30,
2009
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F-1
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QUESTIONS
AND ANSWERS ABOUT THE TRANSACTIONS
Q:
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Why
am I receiving these materials?
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A:
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We
sent you this proxy statement and the enclosed proxy card because the
Board is soliciting your proxy to vote at the Special Meeting. You may
submit a proxy if you complete, date, sign and return the enclosed proxy
card. You are also invited to attend the Special Meeting in person,
although you do not need to attend the Special Meeting to have your shares
voted at the Special Meeting. We intend to mail this proxy statement and
the enclosed proxy card on or about ___________, 2009 to all shareholders
of record of Nyer entitled to vote at the Special
Meeting.
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Q:
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When
and where is the Special Meeting?
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A:
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The
Special Meeting will take place on ___________, 2009 at Nyer’s corporate
headquarters located at 13 Water Street, Holliston, Massachusetts, 01746
at ___ a.m., Eastern time.
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Q:
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Why
is my vote important?
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A:
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Approval
of Proposals 1, 2 and 3 requires the affirmative vote of the holders of a
majority of the votes entitled to be cast (which includes the votes
represented by outstanding shares of Nyer common stock and preferred
stock, with each share of preferred stock having the right to cast 2,000
votes). In addition, the approval of Proposals 1 and 2 requires
the affirmative vote of the majority of the outstanding shares of common
stock, voting separately as a class. The approval of Proposal 4
requires the affirmative vote of the majority of those votes present at
the meeting, in person or by proxy, and entitled to vote
thereon.
Accordingly,
a failure to return your proxy card or vote in person at the Special
Meeting will have the same effect as a vote against Proposals 1, 2 and
3
.
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A. There
are four matters scheduled for a vote:
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·
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Approval
of the WAG Purchase, as described in “The WAG Purchase” beginning on page
___.
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·
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Approval
of the DAW Stock Purchase, as described in “The DAW Stock Purchase”
beginning on page ___.
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·
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Approval
of the Plan of Dissolution, as described in “The Plan of Dissolution”
beginning on page ___.
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·
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Approval
of a proposal to adjourn the Special Meeting, if necessary, to permit
further solicitation of proxies if there are insufficient votes at the
time of the Special Meeting to approve the
Transactions.
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In
addition, you are entitled to vote on any other matters that are properly
brought before the Special Meeting.
Q:
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Are
the proposals dependent on one
another?
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A.
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Yes,
to some degree. The proposal to approve the WAG Purchase is not
conditioned upon the other proposals. However, the closing of
the WAG Purchase is a condition to the closing of the DAW Stock Purchase,
and the closings of the WAG Purchase and the DAW Stock Purchase are
conditions to the completion of the Plan of
Dissolution.
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Q.
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What
happens if the proposals are not adopted by Nyer
shareholders?
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A:
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If
any of the Transactions is not approved, Nyer will continue its current
existence and consider what strategies are available to
Nyer. See “The Proposed Transactions - Possible Considerations
if Any of the Transactions Are Not Approved” beginning on page
___
for a summary of the
possible actions Nyer would consider if any of the Transactions is not
approved or does not close for any other
reason.
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Q:
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What are the recommendations of
the Board
?
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·
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Recommends
a vote “FOR” Proposal 1, the approval of the WAG
Purchase.
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·
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Recommends
a vote “FOR” Proposal 2, the approval of the DAW Stock Purchase (with
Messrs. Mark and David Dumouchel
abstaining).
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·
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Recommends
a vote “FOR” Proposal 3, the approval of the Plan of
Dissolution.
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·
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Recommends
a vote “FOR” Proposal 4, the approval of a proposal to adjourn the Special
Meeting, if necessary, to permit further solicitation of proxies if there
are not sufficient votes to approve any of Proposals 1, 2 or
3.
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Q:
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What
do I need to do now?
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A:
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After
you carefully read this proxy statement, mail your signed proxy card in
the enclosed return envelope as soon as possible, so that your shares may
be represented at the Special Meeting. In order to assure that your vote
is obtained, please vote your proxy as instructed on your proxy card even
if you currently plan to attend the Special Meeting in person. If you have
received multiple proxy cards, your shares may be registered in more than
one account, such as brokerage accounts or employee stock purchase plan
accounts. It is important that you complete, sign, date and return each
proxy card that you receive.
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Q:
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If
my shares are held in “street name” by my broker, will my broker vote my
shares for me?
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A:
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No,
not on Proposals 1, 2 or 3. If you do not provide your broker with
instructions on how to vote your “street name” shares, your broker will
not be permitted to vote them on the approval of Proposals 1, 2 or 3. You
should therefore be sure to provide your broker with instructions on how
to vote your shares. Please check the voting form used by your broker to
see if it offers telephone or Internet submission of
proxies.
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Q: What
if I fail to instruct my broker?
A:
|
If
you fail to instruct your broker to vote your shares and the broker
submits an unvoted proxy, the resulting broker “non-vote” will be counted
toward a quorum at the Special Meeting, but it will otherwise have the
same effect as a vote against the approval of Proposals 1, 2 and
3.
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Q:
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Can
I change my vote after I have mailed my proxy
card?
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A:
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Yes.
You can change your vote at any time before your proxy is voted at the
Special Meeting. You can do this in any of three
ways:
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·
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timely
delivery of a valid, later-dated
proxy;
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·
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written
notice to Nyer’s principal office before the Special Meeting that you have
revoked your proxy; or
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·
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voting
by ballot at the Special Meeting.
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·
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If
you have instructed a broker to vote your shares, you must follow
directions from your broker to change those
instructions.
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Q:
|
Can
I still sell my shares?
|
A:
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Yes,
you may sell your shares at this time, but it may become difficult or
impossible to sell your shares in the near future. We intend to
have our common stock delisted from the NASDAQ Capital Market and we may
be delisted involuntarily. If our dissolution pursuant to the
Plan of Dissolution is approved, we expect to close the stock transfer
books and prohibit transfers of record ownership of our common stock upon
the date of filing articles of dissolution with the Secretary of State of
the State of Florida, or the Florida Secretary of State. (See page
___.)
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Q:
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When
and how will the shareholders receive information about Nyer during the
liquidation period?
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A:
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Whether
or not the Plan of Dissolution is approved, we have an obligation to
continue to comply with the applicable reporting requirements of the
Securities and Exchange Act of 1934, as amended, or the Exchange Act, even
though compliance with such reporting requirements may be economically
burdensome and of minimal value to our shareholders. If the Plan of
Dissolution is approved by our shareholders, in order to curtail expenses,
we intend to seek relief from the Securities and Exchange Commission, or
SEC, to suspend our reporting obligations under the Exchange Act, and
ultimately to terminate the registration of our common stock. We
anticipate that, if granted such relief, we would continue to file current
reports on Form 8-K to disclose material events relating to our
dissolution and liquidation along with any other reports that the SEC
might require. However, the SEC may not grant us the requested
relief.
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Q:
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What will shareholders receive
in the liquidation?
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A:
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Pursuant
to the Plan of Dissolution, we intend to liquidate all of our remaining
non-cash assets and, after satisfying or making reasonable provision for
the satisfaction of claims, obligations and liabilities as required by
law, distribute any remaining cash to our shareholders. We can only
estimate the amount of cash that may be available for distribution among
our shareholders. We currently estimate that the amount ultimately
distributed will be between approximately $1.84 and $2.00 per share of
common stock. We expect all holders of preferred stock to
convert those shares into common stock prior to the liquidating
distribution.
Accordingly, you will not know
the exact amount of any liquidating distribution you may receive as a
result of the Plan of Dissolution when you vote on the proposal to approve
the Plan of Dissolution. You may receive less than the amount we currently
estimate.
See “Plan of Dissolution—Estimated Liquidating
Distributions” beginning on page
___
.
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Q: When
and how will I receive a liquidation distribution?
A:
|
In
order to participate in the liquidating distribution, shareholders must
deliver their share certificates to Nyer and provide all associated
documents and tax withholding information. Additional
information regarding the process for receiving a liquidation distribution
will be provided by Nyer following the approval of the
Transactions.
|
Although
we are not able to predict with certainty the precise nature, amount or timing
of any distributions, we presently expect to make a distribution as soon as
reasonably practicable following the closing of the WAG Purchase and the DAW
Stock Purchase to the holders of record of our common stock as of the
dissolution record date, which will be set by the Board. We are not able to
predict with certainty the precise nature, amount or timing of any
distributions, primarily due to our inability to predict the amount of our
remaining liabilities or the amount that we will expend during the course of the
liquidation and the net value, if any, of our remaining non-cash assets. To the
extent that the amount of our liabilities or the amounts that we expend during
the liquidation are greater, or the value of our non-cash assets is less, than
we anticipate, our shareholders may receive substantially less than the amount
we currently estimate. See “Plan of Dissolution—Estimated Liquidating
Distributions” beginning on page ___ and “The Proposed Transactions—
Factors That Our Shareholders Should Consider With Respect to the Plan of
Dissolution” beginning on page ___ for a discussion of the estimates
and assumptions made in calculating the estimated range of liquidating
distributions.
Q:
|
What happens to my shares of
common stock after the dissolution of
Nyer?
|
A:
|
The
liquidating distributions to shareholders pursuant to the Plan of
Dissolution will be in complete redemption and cancellation of all of the
outstanding shares of our common stock. Thereafter, each holder of our
common stock will cease to have any rights with respect to his, her or its
shares, except the right to receive distributions pursuant to the Plan of
Dissolution.
|
Q:
Should I send in my stock
certificates now?
A:
|
No. You
should not forward your stock certificates before receiving instructions
to do so. As a condition to receipt of the liquidating
distributions, the Board will require our shareholders to surrender to us
their certificates evidencing their shares of common stock or to furnish
us with evidence satisfactory to the Board of the loss, theft or
destruction of such certificates, together with such surety bond or other
security or indemnity as may be required by and satisfactory to the Board.
If the surrender of stock certificates will be required following the
dissolution, we will send you written instructions regarding such
surrender. Any distributions otherwise payable by us to shareholders who
have not surrendered their stock certificates, if requested to do so, may
be held in trust for such shareholders, without interest, pending the
surrender of such certificates (subject to escheat pursuant to the laws
relating to unclaimed property).
|
Q:
|
Am
I entitled to exercise any dissenters’ or appraisal rights in connection
with any of the Transactions?
|
A:
|
No. The
sale contemplated by the WAG Agreement, together with the DAW Stock
Purchase, constitutes the sale of substantially all of Nyer’s assets for
cash. Pursuant to the Plan of Dissolution, Nyer intends to distribute
substantially all of the net proceeds from both the WAG Purchase and the
DAW Stock Purchase to its shareholders within one year regardless of
whether the other Transactions are approved. Under the Florida Business
Corporation Act, or the FBCA, a sale for cash pursuant to a plan by which
all or substantially all of the net proceeds of the sale will be
distributed to shareholders within one year after the date of sale is
exempt from shareholders’ appraisal
rights.
|
The sale
contemplated by the DAW Purchase Agreement would not independently constitute a
sale of all or substantially of Nyer’s assets, and would thus not by itself
create shareholder appraisal rights. However, when considered
together with the WAG Purchase, upon which the DAW Stock Purchase is dependent,
the two transactions will, along with the Plan of Dissolution, be deemed to
constitute, under the FBCA, a sale for cash pursuant to a plan by which all or
substantially all of the net proceeds of sale will be distributed to
shareholders within one year after the date of sale, and
would therefore be exempt from shareholders’ appraisal
rights.
There are
no dissenters’ or appraisal rights under the FBCA in connection with a
dissolution approved by shareholders.
Q:
|
When
do you expect the transactions to be
completed?
|
A:
|
WAG,
the Management Team, DAW and Nyer are working to complete all of the
Transactions as soon as practicable, and expect that the WAG Purchase and
the DAW Stock Purchase will be completed in January 2010, and in any
event, no later than March 2010 and the Plan of Dissolution will be
effected approximately 90 days after the full closings of both the WAG
Purchase and the DAW Stock Purchase. However, it is possible that factors
outside the control of the parties could result in the Transactions being
completed at a later time, or if the parties agree, the WAG Purchase or
both the WAG Purchase and the DAW Stock Purchase may be
completed sooner than January if all closing conditions are met or
otherwise waived.
|
WHO
CAN HELP ANSWER YOUR QUESTIONS
If you
have additional questions about the Transactions, you should
contact:
Nyer
Medical Group, Inc.
13 Water
Street
Holliston,
Massachusetts, 01746
Attention:
Chief Executive Officer
Phone
Number: (508) 429-8506
SUMMARY
This summary highlights selected
information from this proxy statement and may not contain all of the information
that is important to you. To understand the Transactions fully and for a more
complete description of the legal terms of the WAG Agreement, the DAW Purchase
Agreement and the Plan of Dissolution, you should carefully read this entire
proxy statement and the documents included or referred to herein. See “Where You
Can Find More Information” on page
___
.
The WAG Purchase (See
page
___
)
Under the
terms of the WAG Agreement, WAG will purchase a substantial portion of DAW’s
operating assets, including prescription files and inventory of a total of 12
neighborhood pharmacies which includes the assignment of eight real estate
leases for a purchase price, subject to certain adjustments, of $12.0 million
plus up to $5.75 million of qualifying inventory and $1.1 million of operating
equipment.
The WAG
Agreement is attached hereto as Annex A. Please read the WAG
Agreement carefully and fully, as it is the legal document that governs the WAG
Purchase. For a summary of the WAG Purchase, see “The WAG Purchase”
beginning on page
___
.
The DAW Stock Purchase (See
page
___
)
Under the
terms of the DAW Purchase Agreement, the Management Team will purchase the stock
of DAW, and Nyer will receive a benefit of $1,500,000, after giving effect to
liabilities to be retained by DAW.
The DAW
Purchase Agreement is attached hereto as Annex B. Please read the DAW
Purchase Agreement carefully and fully, as it is the legal document that governs
the DAW Stock Purchase. For a summary of the DAW Stock Purchase, see
“The DAW Stock Purchase” beginning on page
___
.
The Plan of Dissolution (See
page
___
)
Under the
terms of the Plan of Dissolution, Nyer will wind down its business and
operations, resolve its remaining liabilities and obligations, make
distributions to its shareholders and file articles of
dissolution.
The Plan
of Dissolution is attached hereto as Annex C. Please read the Plan of
Dissolution carefully and fully, as it is the legal document that governs the
dissolution. For a summary of the Plan of Dissolution, see “The Plan
of Dissolution” beginning on page
___
.
What Nyer Shareholders Will Receive
following Completion of the Transactions (See page
___
)
If all of
the Transactions are approved and completed, we expect that upon the
effectiveness of the Plan of Dissolution, shareholders will receive a
distribution in the aggregate amount of approximately $10,511,000 to
$11,397,000, which we expect to be approximately $1.84 to $2.00 per
share. We expect all holders of preferred stock to convert those
shares into common stock prior to the liquidating
distribution.
Recommendations to Nyer Shareholders
(See page
___
)
The Board
believes each of the Transactions is advisable and fair to you and in your best
interests and unanimously recommends that you vote
“FOR”
each of the proposals
(with Messrs. Mark and David Dumouchel abstaining on Proposal 2). When you
consider the Board’s recommendation of each of the Transactions, you should be
aware that Nyer’s directors may have interests in the Transactions that may be
different from, or in addition to, your interests. These interests are described
in “Interests of Certain Persons in the Transactions” beginning on
page ___.
Reasons
For and Factors Considered in Connection With the Transactions (See
page ___)
The Board
has unanimously approved each of the proposals (with Messrs. Mark and David
Dumouchel abstaining on Proposal 2). The approval of the DAW Stock
Purchase was based on the prior approval of such transaction by a special ad hoc
committee of the Board, consisting solely of independent directors of the Board,
Robert Landis, James Schweiger, and Gerald Weston, or the Special Committee. In
reaching its decision to approve the proposals relating to the Transactions, the
Board and the Special Committee considered a number of factors. These factors
are described in the section entitled “The Proposed Transactions—Reasons For and
Factors Considered in Connection With the Transactions—Factors Considered by,
and Recommendation of, the Board of Nyer” beginning on
page ___.
Nyer
Shareholder Vote Required (See page ___)
Approval
of Proposals 1, 2 and 3 requires the affirmative vote of the holders of a
majority of the votes entitled to be cast (which includes the
votes represented by outstanding shares of Nyer common stock and
preferred stock, with each share of preferred stock having the right to cast
2,000 votes). In addition, the approval of Proposals 1 and 2 requires
the affirmative vote of the majority of the outstanding shares of common stock,
voting separately as a class. The approval of Proposal 4 requires the
affirmative vote of the majority of those shares present at the meeting, in
person or by proxy, and entitled to vote thereon.
Treatment
of Nyer Stock Options and Warrant (See page ___)
Any
options or warrants to acquire shares of Nyer common stock will be cancelled,
effective at the same time the Plan of Dissolution is effective, without any
consideration. Therefore, holders of vested options or warrants
wishing to receive any proceeds in the dissolution should consider, with input
from their own advisors, whether they wish to exercise their vested options or
warrants prior to such time and notify Nyer of their intentions to exercise
their vested options or warrants on or before the record date set by the Board
for the liquidating distribution. Holders of options and warrants
will receive additional information about the deadline by which they must
exercise or have their options or warrants cancelled.
Conditions
to the WAG Purchase (See page ___)
The
completion of the WAG Purchase depends upon the satisfaction or waiver of a
number of conditions, including, but not limited to, the following:
|
·
|
the
approval of the WAG Purchase by Nyer’s
shareholders;
|
|
·
|
the
receipt by DAW of releases executed by a duly authorized agent of Parata
Systems, LLC, or Parata, relating to the Parata robotic dispensing system
leases, or the Parata Equipment;
|
|
·
|
the
procurement by WAG of all licenses, permits, Medicaid or Medicare numbers,
or similar items required to operate the business being purchased by WAG
(see “The Proposed Transactions— Regulatory Matters Relating to the
Transactions” beginning on
page ___);
|
|
·
|
the
absence of any applicable law or proceeding that would prohibit the
consummation of the WAG Purchase;
|
|
·
|
the
parties’ representations and warranties being true and correct in all
material respects as of the
closing;
|
|
·
|
the
performance in all material respects of all of the parties’ covenants
under the agreement at or prior to the effective time of the WAG Purchase;
and
|
|
·
|
the
assignment of leases at the eight operating locations and the extension of
the lease terms such that the leases will each have at least a 10 year
term as of the closing.
|
Conditions
to the DAW Stock Purchase (See page ___)
The
completion of the DAW Stock Purchase depends upon the satisfaction or waiver of
a number of conditions, including the following:
|
·
|
the
approval of the DAW Stock Purchase by Nyer’s
shareholders;
|
|
·
|
the
approval and closing of the WAG Purchase, with Nyer having received at
least $17,750,000 in cash proceeds from WAG, subject to certain
adjustments;
|
|
·
|
the
absence of any applicable law or proceeding that would prohibit the
consummation of the DAW Stock
Purchase;
|
|
·
|
the
payment in full of severance payments to the Management Team (see
“Interests of Certain Persons in the Transactions” beginning on
page ___);
|
|
·
|
the
parties’ representations and warranties being true and correct in all
material respects as of the closing;
and
|
|
·
|
the
performance in all material respects of all of the parties’ covenants
under the agreement at or prior to the effective time of the DAW Stock
Purchase.
|
Conditions to the Plan of Dissolution
(See page
___
)
The
completion of the Plan of Dissolution depends upon the satisfaction or waiver of
a number of conditions, including the following:
|
·
|
the
approval of the Plan of Dissolution by Nyer’s shareholders;
and
|
|
·
|
the
approval and closing of the WAG Purchase and the DAW Stock
Purchase.
|
Termination of WAG Agreement (See
page
___
)
Right to Terminate.
The WAG
Agreement may be terminated at any time prior to the effective time of the WAG
Purchase in any of the following ways:
|
·
|
by
the mutual written consent of DAW and
WAG;
|
|
·
|
by
either party if the other party materially breaches by its agreements,
covenants, representations or warranties in the WAG
Agreement;
|
|
·
|
by
either party if any governmental entity shall have issued a final and
non-appealable order, decree or ruling permanently restraining, enjoining
or otherwise prohibiting the consummation of the WAG
Purchase;
|
|
·
|
by
either party if the closing shall not have occurred on or before 135 days
after the date of the WAG Agreement (or such later date as may be mutually
agreed to in writing by WAG and
DAW);
|
|
·
|
by
either party in the event that DAW or Nyer enters into an Alternative
Transaction (as defined and described under “The WAG Purchase”
beginning on page ___); or
|
|
·
|
by
either party if approval by the Nyer shareholders shall not have been
obtained at the Special Meeting, or any adjournments
thereof.
|
Termination Fee Payable by
DAW.
If the WAG Agreement is terminated due to a breach by DAW
or the entry by DAW into an Alternative Transaction, DAW has agreed to pay WAG a
break-up fee of $300,000 and reimbursement of actual out-of-pocket expenses in
an amount up to $200,000.
Regulatory Matters Relating to the
Transactions (See page
___
)
For a
summary of the regulatory matters relating to the Transactions, see “The
Proposed Transactions — Regulatory Matters Relating to the Transactions”
beginning on page ___. We also need the consents of certain
landlords and equipment lessors to assign leases to WAG.
Opinion of Newbury Piret (See
page
___
)
In
connection with the Board’s evaluation of the proposed Transactions, Newbury,
Piret Companies, Inc., or Newbury Piret, who was retained by the Board and the
Special Committee, rendered written opinions to the Board and the Special
Committee on September 1, 2009 and October 17, 2009, respectively, that, as of
such date and subject to the assumptions, qualifications and limitations set
forth in its opinion, the WAG Purchase and the DAW Stock Purchase were fair,
from a financial point of view, to the Nyer shareholders. The full texts of
Newbury Piret’s written opinions, dated September 1, 2009 and October 17, 2009,
are attached to this proxy statement as Annexes D-1 and D-2. We
encourage you to read these opinions carefully in their entirety for a
description of the procedures followed, assumptions made, matters considered and
limitations on, the review undertaken.
Newbury Piret’s opinions are
addressed to the Board and the Special Committee and do not constitute a
recommendation to any shareholder as to any matters relating to the
Transactions.
See “The Proposed Transactions — Opinion of Newbury
Piret” beginning on page ___.
Accounting
Treatment (See page
___
)
For a
summary of the accounting treatment of each of the Transactions, see
“The Proposed Transactions — Accounting Treatment” beginning on
page ___.
Material U.S. Federal Income Tax
Consequences (See page
___
)
The
conversion of shares of Nyer common stock into cash pursuant to the Plan of
Dissolution is a taxable transaction for U.S. federal income tax purposes
and may also be a taxable transaction under applicable state, local or foreign
tax laws.
Your
tax consequences will depend on your own situation. You should consult your tax
advisor to determine the particular tax consequences of the dissolution to
you.
Interests
of Certain Persons in the Transactions (See page
___
)
When
considering the recommendation of the Board to vote in favor of the proposals,
Nyer shareholders should be aware that the directors and executive officers of
Nyer have agreements or arrangements that provide them with interests in the
Transactions that may be different from, or in addition to, the interests of
other Nyer shareholders. These interests include the benefits described in
“Interests of Certain Persons in the Transactions” beginning on page
___.
WARNING
CONCERNING FORWARD LOOKING STATEMENTS
This
proxy statement contains statements which constitute forward looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 and
other federal securities laws. Forward looking information includes statements
concerning expected timing of the Transactions, expected proceeds to Nyer
shareholders following the Transactions and possible alternatives to the
Transactions; as well as those that include or are preceded by the words
“expects,” “estimates,” “believes,” “plans,” “anticipates” or similar
language.
Forward
looking statements may involve risks and uncertainties, known or unknown to us
that could cause results to differ materially from management’s expectations as
projected in such forward-looking statements. The sections in this proxy
statement that have forward looking statements include, among others, “The
Proposed Transactions”, “WAG Purchase”, “DAW Stock Purchase” and “Plan of
Dissolution”.
The risks
that may impact our forward looking statements are described elsewhere in the
proxy statement, including without limitation, in “The Proposed Transactions—
Factors That Our Shareholders Should Consider With Respect to the Plan of
Dissolution” beginning on page ___ and under “Item 1A. Risk Factors” in the
Annual Report on Form 10-K attached hereto as Annex E.
Unless
otherwise required by applicable securities laws, we assume no obligation to
update our forward looking statements to reflect subsequent events or
circumstances. You should not place undue reliance upon forward looking
statements.
THE
PARTIES TO THE TRANSACTIONS
Nyer is a
Florida corporation with executive offices located at 13 Water Street Holliston,
Massachusetts, 01746. Its telephone number is (508) 429-8506. Nyer is the parent
company of a wholly owned subsidiary, D.A.W., Inc., a Massachusetts corporation,
which operates a chain of pharmacies in the suburban Boston, Massachusetts area
and provides comprehensive pharmacy management services to community health
centers.
WAG is a
New York corporation whose address is 200 Wilmot Road, Deerfield, Illinois,
60015. Its telephone number is (847) 914-2500. WAG is a wholly-owned subsidiary
of Walgreen Co., an Illinois corporation, which is principally a retail
drugstore chain that sells prescription and non-prescription drugs and general
merchandise. WAG is only party to the WAG Agreement.
The
Management Team is comprised of Mark Dumouchel, David Dumouchel, Michael Curry,
Donato Mazzola and Wayne Gunter, each of whom is an officer of
Nyer. The business address for each member of the Management Team is
13 Water Street Holliston, Massachusetts, 01746. The telephone number
for each member of the Management Team is (508) 429-8506.
Except
where indicated otherwise, as used in this proxy statement, “WAG” refers to
Walgreen Eastern Co., Inc. and “Nyer” refers to Nyer Medical Group, Inc. and its
consolidated subsidiaries.
THE
PROPOSED TRANSACTIONS
Background
of the Transactions
Nyer
continually evaluates strategic opportunities within the pharmacy business to
strengthen its business and to deliver long-term value to its
shareholders. Through DAW, Nyer has periodically purchased and sold
individual pharmacies or entered into or terminated pharmacy management
contracts. Beginning in 2006, Nyer began to receive inquiries
regarding the purchase of larger portions of its assets, rather than single
pharmacies.
In
particular, on June 14, 2006, WAG contacted Mr. Mark Dumouchel, then the
President of DAW but not yet an officer of Nyer, expressing an interest in the
possibility of purchasing certain assets of the prescription business of
DAW. Mr. Dumouchel replied that DAW hadn’t been considering selling
any portion of the business, but would listen to a proposal, should WAG make
one.
No
further discussions took place regarding the sale of assets for the remainder of
2006 through 2007. On January 23, 2008, WAG contacted Mr. Dumouchel
again to reiterate WAG’s interest in DAW. Following that call, in
early February 2008, Mr. Mark Dumouchel, now the President and Chief Executive
Officer of Nyer, the President of DAW, a member of the Board and DAW’s Board of
Directors, as well as a holder of preferred stock and common stock (see “Voting
Securities and Holdings of Certain Beneficial Owners and Management” beginning
on page ___) , and Mr. David Dumouchel, a Vice-President of DAW, met with a
team of WAG’s regional managers. WAG requested that DAW consider them
should it ever contemplate selling any stores.
In the
fall of 2008, DAW decided to sell the inventory and prescription files for its
store in Topsfield, MA, or the Topsfield Assets. Management believed
the Topsfield Assets were not performing as well as it would like and decided,
in light of an upcoming lease expiration, that the cash received from such a
sale would be more useful to DAW going forward. Mr. Mark Dumouchel
contacted CVS Realty Co., an affiliate of CVS Caremark Corporation, or
CVS. CVS purchased the Topsfield Assets on December 28,
2008. Following this transaction, though no decision had been made to
sell any further DAW assets, DAW inquired as to CVS’s interest in purchasing
DAW’s remaining stores to see if any potential opportunities might
exist. Mr. Mark Dumouchel and Mr. David Dumouchel met
with a representative of CVS at the Dorchester site and drove to many
stores.
In early
2009, management and the Board began to consider strategic alternatives for
Nyer, as they did not feel that Nyer was obtaining the full benefit being a
public company and the current market price of its common stock was not an
indication of Nyer’s market value given the fact that its common stock was very
thinly traded, and the stock price was decreasing. In addition,
remaining a public company entailed significant costs related to the required
periodic public filings to the SEC, which consumes considerable internal
resources and requires retaining specialized auditors and lawyers, as well as
diversion of management attention, plus additional expenses that would be
incurred in the future to comply with internal control audit requirements under
the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley. Management and the
Board began to discuss possible alternatives, such as going dark (suspending
public reporting requirements) since Nyer had fewer than 300 shareholders of
record, having management buy Nyer, or selling Nyer to a third party if an
opportunity presented itself. The analysis of these alternatives
continued throughout the first half of 2009. During this period,
management met with Bank of America, Citizens Bank, and Key Bank to discuss
Nyer’s financing alternatives for a management acquisition and going dark as
well as for the future working capital requirements to fund its operations and
future growth. The costs of going dark versus the costs of a
management acquisition were compared; and management concluded that going dark
was a better alternative for Nyer, as it was less costly than a management
acquisition yet would suspend Nyer’s obligation to make periodic filings to the
SEC and postpone the Sarbanes-Oxley compliance rules, which would result in
future cost savings to Nyer.
On May 5,
2009, Mr. Mark Dumouchel contacted WAG to inquire whether it would be interested
in acquiring certain assets of DAW where store leases were nearing the end of
their terms.
On May 8,
2009, Mr. David Dumouchel contacted an acquaintance at CVS to express concern
that CVS was no longer corresponding with him regarding the possible sale of DAW
stores. Later that day, CVS called Mr. David Dumouchel to say that it
had been their understanding that DAW would insist on CVS purchasing the stock
of DAW or 100% of the assets, which CVS was not prepared to
do. Understanding that a sale of less than 100% of the assets was a
possibility, CVS and DAW moved forward with discussions.
In May
and June 2009, DAW corresponded with CVS regarding the possible acquisition and
CVS toured the stores.
On June
12, 2009, DAW received an email offer from WAG indicating that its range to
purchase certain assets of the DAW stores in Danvers, MA, Westwood, MA, Salem,
MA, Gloucester, MA, Woburn, MA, Wellesley, MA, Weston, MA, Framingham, MA,
Newton, MA and Dorchester, MA was $7,000,000 to $10,000,000 plus
inventory. The offer also indicated that WAG would accept assignment
of certain of DAW’s real estate and equipment leases. The offer
stipulated, among other things, that certain of the stores had to have ten year
terms remaining on their leases and that DAW and Nyer and its management would
be required to enter into three year non-competition agreements. The
offer was subject to further due diligence.
On June
15, 2009, DAW received an offer via telephone (followed up in an e-mail the next
day) from CVS to purchase the DAW stores in Danvers, MA, Westwood, MA, Salem,
MA, Gloucester, MA, Woburn, MA, Wellesley, MA, Weston, MA, Framingham, MA,
Newton, MA, Dorchester, MA (two locations), Marblehead, MA, and Sherborn, MA for
$10,500,000 plus inventory up to $4,500,000.
DAW
management informed both WAG and CVS that they were making competing
offers.
DAW
management and the Board discussed the fact that WAG’s offer was for 10
locations, while CVS’s offer was for 13 locations and that WAG had indicated an
intention to operate seven locations and close three, while CVS intended to
operate two and close 11. The offers also included the assumption of
different amounts of lease liabilities.
On June
15, 2009, Mr. Mark Dumouchel contacted WAG, to ask if WAG would consider
including the Marblehead, MA, Sherborn, MA, and Upham’s Corner
Dorchester, MA locations in their offer, as CVS had done. Mr. Mark
Dumouchel expressed that CVS’s desire to purchase more stores made their offer
potentially more attractive to DAW.
On June
16, 2009, Mr. Mark Dumouchel e-mailed WAG to answer a question regarding
inventory. Mr. Mark Dumouchel also inquired into WAG’s interest in
DAW’s business that services health centers classified as Federally Qualified
Health Centers under Section 340B of the Public Health Services Act, or 340B,
and forwarded dispensing data for the 340B pharmacies. On June 17,
2009, a representative of WAG responded to Mr. Dumouchel, indicating that
including the three additional stores would increase their offer by $800,000 to
$1,000,000. WAG expressed no interest in the 340B
pharmacies.
Between
June 17, 2009 and June 29, 2009, DAW and WAG signed a non-disclosure agreement,
DAW responded to WAG’s due diligence requests and WAG toured the
stores.
On June
24, 2009, Mr. David Dumouchel spoke with CVS to explain that DAW was analyzing
the WAG offer, and that WAG would also assume eight real estate leases and seven
leases for Parata Equipment, which Nyer believed would more readily facilitate
closing the transaction.
On or
about June 29, 2009, DAW requested final and best offers from both WAG and
CVS.
On June
30, 2009, DAW evaluated the value of the current offers from WAG and
CVS. The current offers were economically equivalent. The
WAG offer was a cash offer of $12 million, plus up to $6 million of inventory,
and would include the assumption of eight real estate leases, along with all of
the Parata Equipment at the purchased pharmacies. The offer from CVS
was a cash offer of $13 million, plus up to $4.5 million of inventory, and would
include assumption of two real estate leases, but no Parata
Equipment.
DAW
management determined, and later presented to the Board, that the CVS offer was
higher in pure dollar terms, because inventory would be sold at cost, but Nyer
would incur more costs including costs to shut down and empty the stores,
severance to the displaced employees, and disruption to the many key accounts
that would have to find a new vendor willing to provide specialty services and
delivery. After taking all the additional costs into consideration,
the offers were comparable. In addition, the CVS deal did not take
into account the subjective items such as the number of stores closed and the
impact on employees and ability to close the transaction.
On July
2, 2009, in order to facilitate a sale of the entire company including the 340B
business, Mr. Mark Dumouchel inquired as to whether WAG would consider a tender
offer for the outstanding shares of Nyer stock.
On July
3, 2009, CVS confirmed in an email its offer to purchase the 13 stores for
$13,000,000 plus inventory up to a maximum of $4,500,000.
On July
9, 2009, WAG submitted a non-binding letter of intent to purchase certain assets
at 13 pharmacy locations (Danvers, MA, Marblehead, MA, Newton, MA, Dorchester,
MA (two locations), Wellesley, MA, Weston, MA, Westwood, MA, Woburn, MA, Salem,
MA, Gloucester, MA, Framingham, MA and Sherborn, MA) for $12 million plus the
value of the stores’ inventory up to $6 million. WAG was not
interested in a tender offer for the outstanding shares of Nyer
stock.
On July
11, 2009, Mr. David Dumouchel informed CVS that management had determined that
the WAG Purchase was more favorable than CVS’s offer and that DAW was going to
recommend to the Board that it proceed with the WAG Purchase.
On July
12, 2009, the Board met via conference call to discuss the two
offers. The current WAG offer was a cash offer of $12,000,000 for
certain operating assets, plus up to $6,000,000 of qualifying inventory, and
would include the assumption of eight real estate leases (with an estimated
present value of $500,000), along with all of the Parata Equipment at the
purchased pharmacies. The current CVS offer was a cash offer of
$13,000,000, plus up to $4,500,000 million of inventory, and would include
assumption of two real estate leases, but no Parata Equipment. The
Board discussed the range of consideration that Nyer shareholders might receive
after each such transaction. Management discussed with the Board the
reasons, as described above, why it believed the WAG Purchase was more desirable
at this point. Mr. Mark Dumouchel suggested that there might be a
group within DAW that was interested in acquiring the remaining assets, but
pointed out that the Board would need to assess its options. The
Board gave Messrs. Mark and David Dumouchel the authority to continue
negotiations and execute a letter of intent with terms at least as favorable to
the shareholders as the WAG or CVS deals presented to the Board. The
Board also discussed engaging a financial advisor to advise Nyer on the fairness
of any transaction to Nyer’s common shareholders. Further, there was
discussion about whether Nyer’s preferred shareholders might waive their right
to vote on the transaction.
On July
14, 2009, Mr. Mark Dumouchel met with representatives of DAW’s Wellesley, MA
landlord and apprised them of the discussions taking place with WAG and
CVS. Mr. Mark Dumouchel was informed that WAG would likely be
welcomed as an assignee to the lease while the landlord would fight keeping the
store “dark” as a transaction with CVS would necessitate.
On July
15, 2009, Mr. Mark Dumouchel e-mailed WAG to ask what WAG’s offer would be if
the Framingham, MA store was removed from the deal. A review of the
contract revealed that it would be problematic to terminate or assign the
agreement as necessitated by an asset sale. WAG responded that the
offer would be reduced by $250,000 if the Framingham, MA store was
removed.
On or
about July 16, 2009, a representative of WAG informed Mr. Mark Dumouchel that
WAG would agree to remove the Framingham, MA store from the deal and not
decrease the offer. In addition, WAG would accept the assignment of
two additional leases for Parata Equipment, the present value of which was
approximately $335,000.
Between
July 16 and July 23, 2009, counsel for WAG and counsel for Nyer negotiated the
terms of the non-binding letter of intent. On July 17, 2009, members
of DAW management met with a WAG transition team in Waltham, MA.
On July
24, 2009, DAW received a draft of the WAG Agreement. Following
discussions among Mr. Mark Dumouchel and a representative of WAG, the parties
decided to negotiate the purchase agreement directly rather than signing the
letter of intent.
Between
July 24, 2009 and October 22, 2009, DAW and WAG negotiated the terms of the WAG
Agreement. During this time through September 10, 2009, CVS made
inquiries of DAW management and informally suggested it would increase its
offer, but made no formal written offer. On September 10, 2009, CVS
asked if there was “any news.” Based upon the process with WAG on
transaction documents and negotiations, the lack of a recent, formal offer from
CVS, and the non-economic benefits described above, management continued to
actively pursue the WAG Purchase.
On August
7, 2009, the Board met again to discuss the proposed terms of the WAG offer and
the proposed asset purchase agreement, including the proposed “break-up” fee in
the event Nyer terminated the WAG Agreement for fiduciary reasons.
The Board
then discussed at length several measures that they believed should be
considered to help ensure that the WAG Purchase, as well as any transaction
involving Nyer’s remaining assets, would be fair and in the best interests of
Nyer’s shareholders. The topics discussed included requiring that the
transactions be approved by vote of common shareholders only, without the
preferred shareholders voting, formation of a special committee of independent
directors and engagement of an investment banker to render a fairness
opinion.
The
directors and counsel discussed the possible benefits from the preferred
shareholders refraining from voting and also discussed the possible role a
special committee could play, especially in negotiations of any transaction
where the interests of management might be deemed to conflict with the interests
of Nyer’s other shareholders. Further, the independent directors
discussed their interviews with various investment bankers and quotes received
regarding fairness opinions. It was the consensus of the Board that
Newbury Piret represented the most attractive option for the Board based on
their mix of experience and price. The Board further discussed the
scope of the possible engagement including evaluating the fairness of the WAG
Purchase and any transaction for the remaining assets of Nyer. The
Board also debated whether or not Newbury Piret should be retained by the full
Board or a special committee, balancing the potential conflicts of the
non-independent directors, especially if they were to offer to acquire the
assets remaining after the WAG Purchase. The Board resolved to engage
Newbury Piret to render a fairness opinion to the Board only on the
WAG Purchase. Following extensive discussion, the Board then
established the Special Committee for the purpose of evaluating any potential
transaction involving the sale of Nyer’s and/or DAW’s assets not being purchased
by WAG, or the Residual Assets, via the acquisition of all of DAW’s stock from
Nyer, to any members of Nyer’s management or their affiliates, and to authorize
the Special Committee to retain such advisors on such funding terms as it deemed
reasonable and appropriate to exercise its function in the best interests of
Nyer’s shareholders.
The
Special Committee then resolved to engage Newbury Piret to render a fairness
opinion or opinions on a sale of substantially all of the Residual Assets to
management or another party. Further the Special Committee indicated
that it intended to engage separate counsel.
On August
14, 2009, the Special Committee met to approve the engagement letter for the
retention of Newbury Piret for the purpose of obtaining fairness opinion on the
sale of the Residual Assets.
On August
26, 2009, Mr. David Dumouchel received an e-mail from CVS indicating that it
would be willing to change its offer regarding the Wellesley, MA store from one
where the store would be closed to one where CVS would continue to operate it if
the landlord would not agree to keep the location unused. He also
said that the value of the Framingham, MA store was $350,000; which would be the
amount CVS’s offer would decrease should the Framingham, MA store be removed
from the deal.
On August
29, 2009, Newbury Piret was formally engaged to deliver a fairness opinion on
the DAW Stock Purchase.
On
September 1, 2009, the Special Committee met to discuss a proposal made on
August 24 by Mark and David Dumouchel, for themselves and the Management Team
and their counsel for the purchase of the Residual Assets. In
addition, Mark Dumouchel updated the Special Committee on the status of the WAG
Purchase. The Special Committee asked both Mark and David Dumouchel
numerous questions about their offer and asked for a full explanation of the
methodology used in arriving at their offer. The Special Committee
then was advised by Newbury Piret that, in that firm’s opinion, the Special
Committee should receive a liquidation valuation of the Residual
Assets. Newbury Piret said that the valuation had to be performed by
a third party, and that Newbury Piret could not do that work.
Following
the Special Committee meeting, the full Board held a meeting. At the
Board meeting, Newbury Piret walked the Board through in detail a presentation
that had been distributed to the Board. The presentation related only
to the consideration to be received in the sale of assets by DAW to
WAG. Newbury Piret then rendered to the Board Newbury Piret’s oral
opinion, which would be confirmed in writing once the day’s share price had been
run through their models, that as of September 1, 2009, based upon and subject
to the various factors, assumptions, procedures, limitations and qualifications
they described, which would be set forth in such written opinion, the
consideration to be received pursuant to the WAG Purchase was fair to
shareholders, from a financial point of view.
Following
Newbury Piret’s presentation, the Board engaged in further discussion of the WAG
Agreement, stating that negotiations appeared to be substantially
complete. The Board then authorized management to enter into the
asset purchase agreement for aggregate consideration of $17,750,000 in cash,
subject to Nyer and/or DAW entering into a definitive, binding agreement to sell
all remaining assets of Nyer and DAW or the stock of DAW.
The Board
then discussed the possibility of dissolution following the completion of the
WAG Purchase and the sale of Nyer’s remaining assets, as management and the
Board believed it would be appropriate to wind Nyer down and distribute the
proceeds from these sales to Nyer shareholders. The Board approved
the Plan of Dissolution, subject to the asset sales closing.
On
September 2, 2009, Newbury Piret delivered its written opinion as of September
1, 2009.
On
September 5, 2009, the Special Committee met to discuss the assets included in
the offer made by Management Team and the need to obtain an independent analysis
from a qualified valuation company of the liquidation value of the Residual
Assets. The Special Committee voted to hire a qualified firm to
perform a valuation analysis of the Residual Assets.
On
September 11, 2009, the Special Committee met to review the two bids for
valuation services for the DAW Stock Purchase and then voted to engage the firm
of Trenwith Group, LLC, or Trenwith, to provide a valuation of the Residual
Assets.
On
September 19, 2009, the Special Committee met to review the Trenwith preliminary
valuation. The Trenwith representatives described the various
valuation methodologies used in an analysis of the kind presented.
On
September 26, 2009, the Special Committee met to review the final valuation
report from Trenwith and to further review and discuss the most current draft of
the DAW Purchase Agreement.
During
the remainder of September and early October, Nyer and WAG continued to try to
finalize the terms of the WAG Agreement, while the Special Committee continued
to review the DAW Purchase Agreement.
While the
negotiations on the WAG Agreement continued, Nyer management was informed by
counsel that under Florida law, the required shareholder approval was based on a
majority of all of the votes entitled to be cast on the
transaction. This meant that if the preferred shareholders waived
their right to vote, the matter would not pass, as the votes represented by the
preferred stock represent a majority of the votes entitled to be
cast. Management and Nyer’s counsel recommended to the Board that in
addition to a vote of shares of both classes, it would be appropriate to require
the approving vote on both the WAG Purchase and the DAW Stock Purchase of a
majority of the common shares voting as a class.
On
October 17, 2009, the Special Committee met to review the final fairness opinion
from Newbury Piret on the DAW Stock Purchase, which was then substantially
complete.
On
October 20, 2009, the Special Committee met to review the DAW Purchase
Agreement. The Special Committee members requested that the DAW
Purchase Agreement be clarified to more fully reflect the agreement of the
parties.
On
October 21, 2009, the Special Committee met and reviewed and approved the final
draft of the DAW Purchase Agreement.
Following
the Special Committee meetings on October 20 and 21, 2009, a joint meeting of
the Board and DAW’s Board, which was comprised of the same individuals, was held
to further discuss the WAG Purchase and the DAW Stock
Purchase. Newbury Piret walked the Board through updates to its
presentation from September 1 based on additional data it had received and
reiterated that it was not changing the conclusion of its September 1 opinion as
to the fairness of the WAG Purchase to Nyer shareholders, from a financial point
of view. Mark Dumouchel updated the Board and the DAW Board on the
negotiations of the WAG Agreement. The Board ratified its September 1
authorization to enter into the WAG Agreement and the DAW Board authorized its
management to enter into the WAG Agreement. Following an overnight
adjournment of the meetings, the Board next heard the report of the Special
Committee regarding the DAW Purchase Agreement. Based on the
recommendation of the Special Committee and the information it presented
regarding the fairness opinion the Special Committee had received, the
liquidation analysis it had received and the terms of the DAW Purchase
Agreement, the Board and the DAW Board each authorized management to enter into
the DAW Purchase Agreement, subject to entry into the WAG
Agreement. Messrs. David and Mark Dumouchel abstained from these
votes.
As a
condition to closing, the Board required that the WAG Purchase and the DAW Stock
Purchase be approved by the holders of a majority of the outstanding shares of
common stock, voting separately as a class, in addition to the required vote
under Florida law.
Following
these discussions and votes, Nyer’s board, on October 23, 2009, unanimously
determined that each of the Transactions was advisable for, fair to, and in the
best interests of Nyer and its shareholders, approved the and unanimously
recommended that Nyer shareholders vote
“FOR”
approval of each of the
Transactions (with Messrs. Mark and David Dumouchel abstaining with respect to
the DAW Stock Purchase).
On
October 22, 2009, the WAG Agreement was signed.
On
October 23, 2009, the DAW Purchase Agreement was signed and WAG and Nyer each
issued press releases.
Reasons
for and Factors Considered in Connection with the Transactions
The Board
believes that each of the Transactions is advisable for, fair to, and in the
best interests of Nyer and its shareholders. Accordingly, the Board
has unanimously approved each of the WAG Purchase, the DAW Stock Purchase and
the Plan of Dissolution and unanimously recommends the Nyer shareholders vote
“
FOR
” approval of each
of the Transactions (with Messrs. Mark and David Dumouchel abstaining with
respect to the DAW Stock Purchase). When Nyer’s shareholders consider
their Board’s recommendations, Nyer’s shareholders should be aware that Nyer’s
management and directors may have interests in the Transactions that may be
different from, or in addition to, their interests. These interests
are described in “Interests of Certain Persons in the Transactions” beginning on
page ___.
In
reaching its conclusion to approve the WAG Purchase, the Board consulted with
Nyer’s management as well as Newbury Piret, financial advisor to the Board, and
legal counsel, reviewed a significant amount of information and considered a
variety of factors, including the following material factors:
|
·
|
the
depressed market price of the Nyer stock, the historically low trading
volume and volatility of bid
prices;
|
|
·
|
offers
from the two largest United States pharmacy chains (CVS and
WAG);
|
|
·
|
the
willingness of certain lessors of real property to accept either CVS or
WAG as a tenant under the assignment provisions of various
leases;
|
|
·
|
market
pressures on margins and operating costs that would have an adverse effect
on the operating results of the
pharmacies;
|
|
·
|
one-price
prescription programs at large competitors such as Wal-Mart and Target
below the pharmacies’ marginal cost to
dispense;
|
|
·
|
fiduciary
out provisions in the WAG Agreement, subject to the payment of a
termination fee plus expenses;
|
|
·
|
the
written fairness opinion of Newbury Piret on the WAG
Purchase;
|
|
·
|
the
fact that the Board was voluntarily requiring an additional vote of common
shareholders voting as a separate class in addition to the vote mandated
by Florida law;
|
|
·
|
the
financial strength of WAG and its ability to make the payments accounted
for in the WAG Agreement;
|
|
·
|
declining
revenue, market share and profit margin in the core retail pharmacies
non-prescription departments;
|
|
·
|
the
recent notification by NASDAQ of delisting of Nyer’s common stock if it
does not regain compliance with their minimum bid price rule by March 15,
2010;
|
|
·
|
the
cost structure associated with the business model of the core retail
pharmacies;
|
|
·
|
the
anticipated cost of performing the required audit of the company’s
internal controls pursuant to section 404 of
Sarbanes-Oxley;
|
|
·
|
the
recurring costs solely and directly associated with existing as public
company; and
|
|
·
|
the
employee severance costs and store clean-out costs associated with
respective asset purchase
proposals.
|
In
reaching its conclusion to approve the DAW Stock Purchase, the Board received
the recommendation of the Special Committee, which separately engaged Newbury
Piret to render a fairness opinion and had separate legal counsel, and the Board
considered a variety of factors, including the following material
factors:
|
·
|
the
ability of shareholders to liquidate their interest in
Nyer;
|
|
·
|
the
lack of interest by CVS and WAG in the 340B
business;
|
|
·
|
fiduciary
out provisions in the DAW Purchase Agreement, subject to the payment of a
termination fee plus expenses;
|
|
·
|
the
written fairness opinion of Newbury Piret on the DAW Stock
Purchase;
|
|
·
|
the
recommendation by the Special Committee of the DAW Stock
Purchase;
|
|
·
|
the
fact that the Board was voluntarily requiring an additional vote of common
shareholders voting as a separate class in addition to the vote mandated
by Florida law;
|
|
·
|
the
report of fair market value and orderly liquidation value prepared by
Trenwith relative to the Residual Assets at the non-WAG acquired
pharmacies; and
|
|
·
|
the
dilutive effect on ultimate aggregate shareholder distribution from the
WAG proceeds should the non-WAG stores and their related financial
obligations not be addressed by a second
sale.
|
With
respect to the Plan of Dissolution, the Board considered the fact that Nyer will
have minimal operations after the consummation of the WAG Purchase and the DAW
Stock Purchase.
The Board
also identified and considered certain potential adverse consequences to Nyer
and its shareholders that could arise from the Transactions,
including:
|
·
|
the
possibility that one or more of the Transactions may not be completed and
the potential adverse consequences if some or all of the Transactions do
not close;
|
|
·
|
the
fact that the WAG Purchase and the DAW Stock Purchase are expected to be
taxable transactions for Nyer and the payments in the Plan of Dissolution
are expected to be taxable to Nyer
shareholders;
|
|
·
|
if
any of the Transactions is not completed, values offered by others to Nyer
could be depressed, and customers and employees could lose confidence in
Nyer; and
|
|
·
|
the
interests of Nyer’s management and directors with respect to the
Transactions may be different from, or in addition to the interests of
Nyer’s shareholders, as described in the section entitled “Interests of
Certain Persons in the Transactions” beginning on page
___.
|
After
consideration of these material factors, the Board determined that these risks
are of a nature that are customary in business transactions that are similar to
the Transactions, are reasonably acceptable under the circumstances, or, in
light of the anticipated benefits, the risks are unlikely to have a material
impact on the Transactions and that, overall, these risks are significantly
outweighed by the potential benefits of each of the Transactions.
The
foregoing discussion of the information and factors considered by the Board is
not intended to be exhaustive but includes the material factors considered by
the Board. In view of the wide variety of factors considered in
connection with its evaluation of each of the Transactions and the complexity of
these matters, the Board did not find it useful to and did not attempt to
quantify, rank or otherwise assign relative weights to these factors with
respect to any Transaction or otherwise compare the benefits or risks of one
Transaction against another Transaction. In addition, the Board did
not undertake to make any specific determination as to whether any particular
factor, or any aspect of any particular factor, was favorable or unfavorable to
its ultimate determination, but rather the Board conducted an overall analysis
of the factors described above, including discussions with Nyer’s management,
outside consultants, legal counsel and financial advisor and in addition to
considering each Transaction separately, analyzed the three Transactions as a
whole, should they all be completed. In considering the factors
described above, individual members of the Board may have given different
weights to different factors. It should be noted that explanation of
the reasoning of the Board and information presented in this section is
forward-looking in nature and, therefore should be read in light of the factors
discussed in the section entitled “Warning Concerning Forward Looking
Statements” beginning on page ___.
Possible
Considerations if Any of the Transactions Are Not Approved
If any of
the Transactions is not approved or any of the Transactions does not close due
to failure to meet any closing conditions for that Transaction, Nyer will
continue its current existence and consider what strategies are available to
Nyer.
If only
the WAG Purchase is approved, Nyer would need to assess if the remaining
pharmacies could operate profitably and what operating structure would be most
effective. Management and the Board would next have to assess the
working capital requirements of Nyer going forward, including its relationships
with suppliers and needs for additional capital. Nyer would need to
consider whether the proceeds from the WAG Purchase should be distributed to
Nyer shareholders as a dividend or used for other purposes. This
analysis would depend on many future variables, including market conditions,
ongoing revenues and expenses and availability of financing resources, and the
outcome cannot be predicted at this time.
Other
possible alternatives, which will depend on which of the Transactions is not
approved, include sale of Nyer’s assets or Nyer in some other form and possibly
at less consideration than what is currently contemplated under the
Transactions, continuing as a separate “shell company” (if the WAG Purchase and
WAG Stock Purchase both close but the Plan of Dissolution is not completed),
“going dark”, which is an option for public companies with fewer than 300
shareholders of record, as is Nyer’s case, and involves suspending our public
reporting requirements, or seeking dissolution at a later date.
At this
time, the Board has considered all of these options and has determined that it
is in the best interests of our shareholders to engage in all of the
Transactions. See “The Proposed Transactions-Reasons for the Proposed
Transactions beginning on page ___.” The Board, however,
retains the right to consider other alternatives should a more attractive offer
arise before or after the effective date of any of the
Transactions.
Opinion
of Nyer’s Financial Advisor as to the WAG Purchase
On
September 1, 2009, Newbury Piret delivered its opinion to the Board that, as of
the date of this opinion, the consideration to be received in connection with
the WAG Purchase is fair, from a financial point of view, to the shareholders of
Nyer, excluding the Management Team. The non-Management Team
shareholders of Nyer are referred to as the Public Shareholders.
THE FULL
TEXT OF THE NEWBURY PIRET OPINION DATED SEPTEMBER 1, 2009 SETS FORTH THE
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS SET ON
THE SCOPE OF THE REVIEW UNDERTAKEN BY NEWBURY PIRET IN RENDERING ITS OPINION.
THE FULL TEXT OF THE OPINION IS ATTACHED AS ANNEX D-1 TO THIS PROXY STATEMENT
AND IS INCORPORATED BY REFERENCE IN ITS ENTIRETY. NYER SHAREHOLDERS ARE URGED
TO, AND SHOULD, READ THE OPINION CAREFULLY AND IN ITS ENTIRETY. THE OPINION
ADDRESSES ONLY THE FAIRNESS TO THE NYER PUBLIC SHAREHOLDERS OF THE CONSIDERATION
TO BE RECEIVED FROM A FINANCIAL POINT OF VIEW AS OF THE DATE OF THE OPINION, AND
DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW SUCH
SHAREHOLDER SHOULD VOTE WITH RESPECT TO THE CONTEMPLATED PURCHASE. THE SUMMARY
OF THE OPINION IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FULL TEXT OF THE NEWBURY PIRET OPINION.
In
connection with its opinion, Newbury Piret reviewed, among other
things:
— Audited
financial statements of Nyer for the years ended June 30, 2007 and
2008;
— Draft
financial statements of Nyer for the year ended June 30, 2009;
— The WAG
Agreement, as provided to Newbury Piret on August 25, 2009; and
—
Internal financial analyses and related schedules prepared by the management of
Nyer and provided for the use of Newbury Piret.
Newbury
Piret also held discussions with members of the senior management of Nyer
regarding the rationale for, and potential benefits of, the WAG Purchase and the
past and current business operations, competitive risks, financial conditions,
and future prospects of Nyer. In addition, Newbury Piret reviewed financial and
stock market information for various companies whose securities are publicly
traded, compared the financial position and operating results of Nyer with those
of publicly traded companies that it deemed relevant, reviewed the financial
terms of several recent business combinations in the retail pharmacy industry
specifically and in other industries generally, and performed such other studies
and considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria that it deemed
relevant for the preparation of its opinion.
Newbury
Piret relied upon the accuracy and completeness of all of the financial and
other information reviewed by it and has assumed the accuracy and completeness
of this information for purposes of rendering its opinion.
Newbury
Piret has not made any physical inspection of Nyer properties or assets. In
addition, Newbury Piret has not made an independent evaluation or appraisal of
the assets and liabilities of Nyer or any of its subsidiaries and Newbury Piret
has not been furnished with any such evaluation or appraisal.
Newbury
Piret provided the opinion described herein for the information and assistance
of the Board in connection with its consideration of the contemplated WAG
Purchase. Newbury Piret's opinion does not constitute a recommendation as to how
any Nyer Shareholder should vote with respect to the WAG Purchase
proposal.
The
following is a summary of the material financial analyses used by Newbury Piret
in connection with providing its opinion to the Board on September 1, 2009. Some
of the summaries of financial analyses include information presented in tabular
format. To more fully understand the financial analyses used by Newbury Piret,
the tables must be read together with the text of each summary. The tables alone
do not constitute a complete description of the financial analyses.
(1) SELECTED
COMPANIES ANALYSIS. The purpose of this analysis was to provide information
regarding the fairness to the Shareholders of the consideration to be received
in the proposed WAG Purchase based upon a comparison of specific financial terms
of the proposed WAG Purchase with the valuations of several comparable public
companies. Using publicly available information, Newbury Piret analyzed the
market values and trading multiples of four selected publicly traded companies
in the retail pharmacy industry: CVS Caremark Corp., Rite Aid Corp.,
Shoppers Drug Mart Corp. and Walgreen Co. These companies range in size
from $8.8 billion to $93.3 billion in revenues and were chosen for comparison
because they have operations that, for purposes of analysis, may be considered
similar to the pharmacies being purchased by WAG. Newbury Piret
calculated various financial metrics, multiples and ratios, including the total
enterprise value and total enterprise value as a multiple of the last twelve
months, or LTM, revenue, LTM earnings before interest and taxes, or EBIT, and
LTM earnings before interest, taxes, depreciation and amortization, or EBITDA.
The financial metrics, multiples and ratios of the comparative companies were
based on the most recent publicly available information and recently published
research estimates.
The
financial information on the comparable companies reviewed by Newbury Piret
included reported revenue, EBIT, EBITDA, assets, and shareholders' equity for
the most recent four quarters, in addition to total enterprise value, and ratios
between total enterprise value and reported comparable company financial
performance. Newbury Piret determined that, for the purposes of this opinion,
the ratios of total enterprise value to revenue, EBIT and EBITDA were the only
relevant ratios using historical financial results.
For the
purpose of this analysis, the implied enterprise value, or IEV, of the
transaction was estimated to be $17.1 million and was calculated as the purchase
price of $17.75 million plus retained receivables, less retained payables and
accrued expenses related to the pharmacies.
The
following table presents the ranges for the calculated multiples and ratios for
the comparable companies, using closing prices as of September 1,
2009.
|
|
RANGES FOR
|
|
MEDIANS FOR
|
|
|
|
|
|
|
SELECTED
|
|
SELECTED
|
|
|
|
|
|
|
COMPANIES
|
|
COMPANIES
|
|
WALGREEN
|
|
PURCHASE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise
Value/Revenue
|
|
|
0.3x
– 1.1
|
x
|
|
|
0.6
|
x
|
|
|
0.5
|
x
|
|
|
0.3
|
x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise
Value/EBIT
|
|
|
9.8x
- 71.6
|
x
|
|
|
11.0
|
x
|
|
|
9.8
|
x
|
|
|
10.4
|
x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise
Value/EBITDA
|
|
|
7.7x
– 10.4
|
x
|
|
|
8.9
|
x
|
|
|
7.7
|
x
|
|
|
8.8
|
x
|
Because
of inherent differences between the businesses, operations and prospects of Nyer
and the companies listed above, Newbury Piret believes that a purely
quantitative analysis of the selected companies, without considering qualitative
judgments concerning differences between the financial and operating
characteristics of Nyer and the selected companies that could affect the public
trading values of Nyer and the selected companies, would not be particularly
meaningful in the context of the WAG Purchase.
(2)
SELECTED TRANSACTIONS ANALYSIS. The purpose of this analysis was to provide
information regarding the fairness to the Shareholders of the consideration to
be received in the proposed WAG Purchase based upon a comparison of the
financial terms of the contemplated WAG Purchase with the financial terms of
several other completed business combinations. Newbury Piret analyzed
information relating to seven selected transactions in the retail pharmacy
industry with enterprise values between $22.8 million and $3.9 billion announced
since January 1, 2000.
This
analysis focused on the multiples of revenue, EBIT and EBITDA for each of the
selected transactions. Revenue, EBIT and EBITDA were calculated using the
reported results for the most recent four quarters leading up to the transaction
for each of the selected transactions, as well as for the WAG Purchase. Newbury
Piret also calculated implied enterprise value as the ratio of revenue, EBIT and
EBITDA with respect to the selected transactions and the WAG
Purchase.
|
|
RANGES FOR
|
|
MEDIANS FOR
|
|
|
|
|
SELECTED
|
|
SELECTED
|
|
|
|
|
TRANSACTIONS
|
|
TRANSACTIONS
|
|
PURCHASE
|
|
|
|
|
|
|
|
|
|
|
Enterprise
Value/Revenue
|
|
|
0.3x
– 0.7x
|
|
|
|
0.5
|
x
|
|
|
0.3
|
x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise
Value/EBIT
|
|
|
7.4x
– 28.0x
|
|
|
|
16.2
|
x
|
|
|
10.4
|
x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise
Value/EBITDA
|
|
|
6.4x
– 14.6x
|
|
|
|
9.7
|
x
|
|
|
8.8
|
x
|
(3)
PREMIUM ANALYSIS. The purpose of this analysis was to provide
information regarding the fairness to the Shareholders of the consideration to
be received in the proposed WAG Purchase based upon a comparison of the value
per Nyer share of the consideration in the WAG Purchase with the historical
trading prices of Nyer’s common shares.
Nyer’s
shares trade infrequently and in low volume over-the-counter on the NASDAQ
Capital Market. Newbury Piret reviewed historical daily trading prices for Nyer
common shares for the period beginning January 1, 2007 and ending September 1,
2009.
The
following table presents ranges of Nyer’s stock price for the period from
January 1, 2007 to September 1, 2009, and for the indicated quarterly
periods.
PERIOD OF CALCULATION ($ PER
SHARE)
|
|
RANGE OF STOCK PRICE
|
|
|
|
|
|
January
1, 2007 through September 1, 2009
|
|
|
0.52
to 2.34
|
|
January
1, 2007 through March 31, 2007
|
|
2.01
to 2.34
|
|
April
1, 2007 through June 30, 2007
|
|
1.77
to 2.29
|
|
July
1, 2007 through September 30, 2007
|
|
1.75
to 2.08
|
|
October
1, 2007 through December 31, 2007
|
|
0.99
to 1.82
|
|
January
1, 2008 through March 31, 2008
|
|
1.06
to 1.70
|
|
April
1, 2008 through June 30, 2008
|
|
1.13
to 1.65
|
|
July
1, 2008 through September 30, 2008
|
|
1.11
to 1.49
|
|
October
1, 2008 through December 31, 2008
|
|
0.52
to 1.22
|
|
January
1, 2009 through March 31, 2009
|
|
0.76
to 1.11
|
|
April
1, 2009 through June 30, 2009
|
|
0.76
to 1.14
|
|
July
1, 2009 through September 1, 2009
|
|
0.69
to 0.85
|
|
|
|
|
|
|
Closing
Price (as of September 1, 2009)
|
|
|
0.78
|
|
52-Week
High Closing Price
|
|
|
|
|
(September
1, 2008 to September 1, 2009)
|
|
|
1.32
|
|
52-Week
Low Closing Price
|
|
|
|
|
(September
1, 2008 to September 1, 2009)
|
|
|
0.52
|
|
For the
purpose of this analysis, Newbury Piret estimated the net consideration
calculated per Nyer share to be $1.25 per share which represents a 60.3% premium
to the September 1, 2009 closing price of Nyer’s stock. The net consideration
calculated per Nyer share is Newbury Piret’s estimate of the net tangible asset
value of Nyer per share following the WAG Purchase, excluding certain assets
related to residual locations not purchased by WAG.
The
preparation of a fairness opinion is a complex process and is not necessarily
susceptible to partial analysis or summary description. Selecting portions of
the analyses or of the summary set forth above, without considering all of the
analyses as a whole, could create an incomplete view of the processes underlying
Newbury Piret's opinion. In arriving at its fairness determination, Newbury
Piret considered the results of all these analyses. No company or transaction
used as a comparable in the above analyses is directly comparable to Nyer or the
contemplated transaction. Newbury Piret prepared the analyses solely for
purposes of allowing it to provide its opinion to the Board as to the fairness
to the Shareholders, from a financial point of view, of the consideration to be
received in connection with the WAG Purchase.
These
analyses do not purport to be appraisals or necessarily reflect the prices at
which businesses or securities actually may be sold. Analyses based
upon estimates of future results are not necessarily indicative of actual future
results, which may be significantly more or less favorable than suggested by
such analyses. Because such analyses are inherently subject to uncertainty, as
they are based upon numerous factors or events beyond the control of the parties
or their respective advisors, neither Nyer nor Newbury Piret, nor any other
person assumes responsibility if future results are materially different from
those estimated. As described above, Newbury Piret's opinion to the Board was
one of many factors taken into consideration by the Board in making its
determination to approve the WAG Agreement. The foregoing summary describes
material financial analyses used by Newbury Piret in connection with providing
its opinion to the Board on September 1, 2009, but does not purport to be a
complete description of the analyses performed by Newbury Piret in connection
with its opinion and is qualified by reference to the Newbury Piret opinion as
set forth in Annex D-1 hereto.
As part
of its investment banking business, Newbury Piret is continually engaged in the
valuation of businesses and their securities in connection with purchases and
acquisitions, private placements, and valuations for strategic advisory and
other purposes. Nyer selected Newbury Piret as its financial advisor
because it is a recognized investment banking firm that has substantial
experience in these types of transactions.
Pursuant
to its engagement letter dated August 19, 2009, Nyer engaged Newbury Piret to
provide its opinion as to the fairness, from a financial perspective, to the
shareholders of Nyer, of the proposed transaction. Nyer has further agreed to
indemnify Newbury Piret against specified liabilities, including liabilities
under the federal securities laws. In the opinion of the SEC indemnification for
liabilities arising under the federal securities laws may not be
enforceable. Newbury Piret will receive a fee of $25,000 for
rendering this opinion and for other services rendered in connection with the
WAG Purchase, no portion of which is contingent on the consummation of the WAG
Purchase.
Opinion
of Newbury Piret as to the DAW Stock Purchase
On
October 17, 2009, Newbury Piret delivered its opinion to the special committee
of the Board that, as of the date of this opinion, the consideration to be
received in connection with the DAW Stock Purchase is fair, from a financial
point of view, to the Public Shareholders.
THE FULL
TEXT OF THE NEWBURY PIRET OPINION DATED OCTOBER 17, 2009 SETS FORTH THE
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS SET ON
THE SCOPE OF THE REVIEW UNDERTAKEN BY NEWBURY PIRET IN RENDERING ITS OPINION.
THE FULL TEXT OF THE OPINION IS ATTACHED AS ANNEX D-2 TO THIS PROXY STATEMENT
AND IS INCORPORATED BY REFERENCE IN ITS ENTIRETY. NYER SHAREHOLDERS ARE URGED
TO, AND SHOULD, READ THE OPINION CAREFULLY AND IN ITS ENTIRETY. THE OPINION
ADDRESSES ONLY THE FAIRNESS TO THE NYER PUBLIC SHAREHOLDERS OF THE CONSIDERATION
TO BE RECEIVED FROM A FINANCIAL POINT OF VIEW AS OF THE DATE OF THE OPINION, AND
DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW SUCH
SHAREHOLDER SHOULD VOTE WITH RESPECT TO THE CONTEMPLATED TRANSACTION. THE
SUMMARY OF THE OPINION IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE NEWBURY PIRET OPINION.
In
connection with its opinion, Newbury Piret reviewed, among other
things:
— The
draft DAW Purchase Agreement, as provided to Newbury Piret on October 14,
2009;
— Audited
financial statements of Nyer for the years ended June 30, 2007, 2008 and
2009;
—
Internal financial statements of Nyer related to the office and pharmacies to be
sold under the DAW Purchase Agreement, or the Residual Locations, and the
Residual Assets for the years ended June 30, 2008 and 2009;
—
Internal financial analyses and projections and related schedules prepared by
the management of Nyer and provided for the use of Newbury Piret;
— The
report on the Fair Market Value and Orderly Liquidation Value of specific assets
related to the Residual Locations, performed by Trenwith and dated September 28,
2009;
— The
Memorandum provided to Newbury Piret on September 24, 2009, describing the
Residual Locations and the intangible assets and contractual relationships of
each pharmacy, as prepared by management of DAW; and
— The pro
forma projected opening balance sheet for DAW as of November 30, 2009 as
provided by Nyer on October 7, 2009.
Newbury
Piret also held discussions with members of the senior management of Nyer
regarding the rationale for, and potential benefits of, the DAW Stock Purchase
contemplated by the DAW Purchase Agreement and the past and current business
operations, competitive risks, financial conditions, and future prospects of the
Residual Locations. In addition, Newbury Piret performed other studies and
considered other information, financial studies, analyses and investigations and
financial, economic and market criteria that it deemed relevant for the
preparation of its opinion.
Newbury
Piret relied upon the accuracy and completeness of all of the financial and
other information reviewed by it and has assumed the accuracy and completeness
of this information for purposes of rendering its opinion.
Newbury
Piret has not made any physical inspection of Nyer properties or assets. In
addition, Newbury Piret has not made an independent evaluation or appraisal of
the assets and liabilities of Nyer or any of its subsidiaries and Newbury Piret
has not been furnished with any such evaluation or appraisal.
Newbury
Piret provided the opinion described herein for the information and assistance
of the Special Committee in connection with its consideration of the
contemplated DAW Stock Purchase. Newbury Piret's opinion does not constitute a
recommendation as to how any Nyer Shareholder should vote with respect to the
DAW Stock Purchase proposal.
The
following is a summary of the material financial analyses used by Newbury Piret
in connection with providing its opinion to the Special Committee on October 17,
2009. The summary of some of the financial analyses includes information
presented in tabular format. To more fully understand the financial analyses
used by Newbury Piret, the table must be read together with the text of each
summary. The table alone does not constitute a complete description of the
financial analyses.
(1) PRO
FORMA FINANCIAL SUMMARY OF THE RESIDUAL LOCATIONS. The purpose of
this review was to provide information regarding the historical business
performance of the Residual Locations and to summarize the Management Team’s
plan for the first full year of operations following the DAW Stock
Purchase.
Pro forma
financial summary ($ millions) for the fiscal years ending June 30 and for the
first year following the DAW Stock Purchase:
|
|
2008
|
|
|
2009
|
|
|
Year one projected
|
|
Total
Revenue
|
|
$
|
10.3
|
|
|
$
|
20.6
|
|
|
$
|
23.3
|
|
Gross
Profit
|
|
$
|
4.2
|
|
|
$
|
8.0
|
|
|
$
|
9.4
|
|
EBITDA
|
|
$
|
(1.6
|
)
|
|
$
|
(0.8
|
)
|
|
$
|
0.3
|
|
EBITDA,
pro forma for prospective
|
|
|
|
|
|
|
|
|
|
|
|
|
cost
reductions
|
|
$
|
(0.3
|
)
|
|
$
|
0.1
|
|
|
$
|
0.3
|
|
Newbury
Piret adjusted the historical financial data for the Residual Locations to
account for the expectation of the loss of certain rebates related to volume
purchases which Newbury Piret assumed, from its discussions with management,
will not be available to the Residual Locations for the foreseeable
future. In addition, Newbury Piret adjusted the historical financial
data for certain one time gains and losses. EBITDA, pro forma for prospective
cost reductions, adjusts the historical EBITDA for those categories of cost
reductions anticipated in management’s year one plan.
(2) COMPARISON
OF THE DAW STOCK PURCHASE WITH THE LIQUIDATION VALUE ANALYSIS. The purpose of
this analysis was to provide information regarding the comparison of specific
financial terms of the proposed DAW Stock Purchase with the orderly liquidation
value performed by Trenwith. Using Trenwith’s orderly liquidation value of fixed
assets of $0.2 million; and Trenwith’s orderly liquidation value of inventory of
$1.0 million; and including book value of accounts receivables of $1.5 million;
less the present value of the non-cancellable property and equipment leases of
$2.0 million (calculated using an effective date of October 31, 2009), Newbury
Piret calculated an orderly liquidation value of $0.7 million before severance,
legal, fees and expenses, ongoing operating expenses and other expenses related
to a hypothetical liquidation.
The
following tables compare the value of the DAW Stock Purchase with the orderly
liquidation value per the Trenwith report. Newbury Piret assumed, with Nyer’s
consent, that there will be no net cash, i.e. no cash other than that required
to satisfy certain identified liabilities which may remain with DAW following
the DAW Stock Purchase, or other tangible assets remaining in DAW immediately
following the DAW Stock Purchase, other than those summarized in the following
table.
Hypothetical
gross liquidation value of the Residual Assets ($ millions):
|
|
ORDERLY
|
|
|
|
LIQUIDATION
|
|
ASSETS
|
|
VALUE
|
|
|
|
|
|
Fixed
Assets
|
|
$
|
0.2
|
|
Accounts
Receivable
|
|
$
|
1.5
|
|
Inventory
|
|
$
|
1.0
|
|
Total
Value
|
|
$
|
2.7
|
|
Less:
Present Value of Leases
|
|
$
|
(2.0
|
)
|
Hypothetical
Gross Liquidation Value
|
|
$
|
0.7
|
|
Comparison
of the DAW Stock Purchase with the hypothetical gross liquidation
value:
The
DAW Stock Purchase:
|
|
$
1.5 million
|
|
|
|
Hypothetical
Gross Liquidation Value:
|
|
$
0.7
million
|
The
preparation of a fairness opinion is a complex process and is not necessarily
susceptible to partial analysis or summary description. Selecting portions of
the analyses or of the summary set forth above, without considering all of the
analyses as a whole, could create an incomplete view of the processes underlying
Newbury Piret's opinion. In arriving at its fairness determination, Newbury
Piret considered the results of all these analyses. Newbury Piret prepared the
analyses solely for purposes of allowing it to provide its opinion to the
Special Committee as to the fairness to the Shareholders, from a financial point
of view, of the consideration to be received in connection with the DAW Stock
Purchase.
These
analyses do not purport to be appraisals or necessarily reflect the prices at
which businesses or securities actually may be sold. Analyses based
upon estimates of future results are not necessarily indicative of actual future
results, which may be significantly more or less favorable than suggested by
such analyses. Because such analyses are inherently subject to uncertainty, as
they are based upon numerous factors or events beyond the control of the parties
or their respective advisors, neither Nyer nor Newbury Piret, nor any other
person assumes responsibility if future results are materially different from
those estimated. As described above, Newbury Piret's opinion to the Special
Committee was one of many factors taken into consideration by the Special
Committee in making its determination to approve the DAW Stock Purchase. The
foregoing summary describes material financial analyses used by Newbury Piret in
connection with providing its opinion to the Special Committee on October 17,
2009, but does not purport to be a complete description of the analyses
performed by Newbury Piret in connection with its opinion and is qualified by
reference to the Newbury Piret opinion as set forth in Annex D-2
hereto.
As part
of its investment banking business, Newbury Piret is continually engaged in the
valuation of businesses and their securities in connection with purchases and
acquisitions, private placements, and valuations for strategic advisory and
other purposes. The Special Committee selected Newbury Piret as its
financial advisor because it is a recognized investment banking firm that has
substantial experience in these types of transactions.
Pursuant
to its engagement letter dated August 19, 2009, the Special Committee engaged
Newbury Piret to provide its opinion as to the fairness, from a financial
perspective, to the shareholders of Nyer, of the proposed DAW Stock Purchase.
Nyer has further agreed to indemnify Newbury Piret against specified
liabilities, including liabilities under the federal securities laws. In the
opinion of the SEC, indemnification for liabilities arising under the federal
securities laws may not be enforceable. Newbury Piret will receive a
fee of $22,000 for rendering this opinion and for other services rendered in
connection with the DAW Stock Purchase, no portion of which is contingent on the
consummation of the DAW Stock Purchase.
Factors
That Our Shareholders Should Consider With Respect to the Plan of
Dissolution
There are
many factors that shareholders should consider when deciding whether to vote to
approve the Plan of Dissolution, including the following factors:
If
our shareholders vote against the Plan of Dissolution, it would be very
difficult for us to continue our business operations.
The
approval of the Plan of Dissolution is dependent upon the affirmative vote of
the holders of a majority of the votes entitled to be cast (which includes the
votes represented by outstanding shares of Nyer common stock and preferred
stock, with each share of preferred stock having the right to cast 2,000 votes).
If our shareholders do not approve the Plan of Dissolution, we would have to
continue our business operations from a difficult position, in light of our
announced intent to liquidate and dissolve and the fact that Nyer will have no
operating assets or business operations after the closing of the WAG Purchase
and the DAW Stock Purchase.
We
cannot assure you of the exact timing and amount of any distribution to our
shareholders under the Plan of Dissolution.
The
liquidation and dissolution process is subject to numerous uncertainties, may
fail to create the value we currently expect for our shareholders. The precise
nature and timing of any distribution to our shareholders will depend on and
could be delayed by, among other things, sales of our non-cash assets, claim
settlements with creditors, resolution of outstanding litigation matters, and
unanticipated or greater-than-expected expenses. Examples of uncertainties that
could reduce the value of or eliminate distributions to our shareholders include
unanticipated costs relating to:
|
·
|
the
defense, satisfaction or settlement of lawsuits or other claims that may
be made or threatened against us in the future;
and
|
|
·
|
delays
in our liquidation and dissolution, including due to our inability to
settle claims.
|
As a
result, we cannot determine with certainty the amount or timing of distributions
to our shareholders.
It
may become difficult or impossible for shareholders to trade their
shares.
If the
Plan of Dissolution is approved, we expect to close our stock transfer books and
prohibit transfers of record ownership of our common stock on the date that we
file articles of dissolution with the Florida Secretary of State.
Our
common stock may be delisted from the NASDAQ Capital Market prior to the final
record date if we are unable to meet NASDAQ’s requirements for continued
listing.
If our
shareholders approve the Plan of Dissolution, we intend to set a final record
date as of the date we file articles of dissolution with the Florida Secretary
of State and close our stock transfer books and delist our stock from the NASDAQ
Capital Market on that date, after which our common stock, and stock
certificates evidencing the shares of our common stock, will not be assignable
or transferable on our books. In the interim, we intend to continue to list our
common stock on the NASDAQ Capital Market. In order to be eligible for continued
listing, we must, among other things, meet certain minimum requirements with
respect to net tangible assets, market value of our securities held by
non-affiliates and minimum bid prices per share, and must also maintain an
operating business. As a result of the cessation of our operations and the
anticipated decrease in our assets that will result from the WAG Purchase and
the DAW Stock Purchase, NASDAQ may take action to delist our common stock prior
to the final record date. In addition, prior to announcing the
Transactions, Nyer had received a letter from NASDAQ notifying it of its failure
to maintain a minimum closing bid price of $1.00 per share for its shares of
common stock for the prior 30 consecutive business days as required by NASDAQ
Listing Rule 5550(a)(2), or the Bid Price Rule. The letter provides that Nyer
has until March 15, 2010 to regain compliance with the Bid Price Rule by
maintaining a closing bid price of $1.00 per share for a minimum of ten
consecutive business days.
If
our common stock were delisted from the NASDAQ Capital Market, you may find it
difficult to dispose of your shares.
If our
common stock were to be delisted from the NASDAQ Capital Market, trading of our
common stock most likely will be conducted in the over-the-counter market on an
electronic bulletin board established for unlisted securities such as the Pink
Sheets or the OTC Bulletin Board. Such trading will reduce the market liquidity
of our common stock. As a result, an investor would find it more difficult to
dispose of, or obtain accurate quotations for the price of, our common
stock.
If
we decide to use a liquidating trust, interests of our shareholders in such a
trust may not be transferable.
The
interests of our shareholders in a liquidating trust set up by us may not be
transferable, which could adversely affect your ability to realize the value of
such interests. Even if transferable, the interests are not expected to be
listed on a national securities exchange, and the extent of any trading market
therein cannot be predicted. Moreover, the interests may not be accepted by
commercial lenders as security for loans as readily as more conventional
securities with established trading markets. In addition, shareholders will be
deemed to have received a liquidating distribution equal to their pro rata share
of the value of the net assets transferred to a liquidating trust, which could
result in tax liability to the interest holders without their being readily able
to realize the value of such interest to pay such taxes or
otherwise.
We
may not be able to settle all of our obligations to creditors.
We have
current and future obligations to creditors. Our estimated distribution to
shareholders takes into account all of our known obligations and our best
estimate of the amount reasonably required to satisfy such obligations. As part
of the wind-down process, we will attempt to settle those obligations with our
creditors. We cannot assure you that we will be able to settle all of these
obligations or that they can be settled for the amount we have estimated for
purposes of calculating the likely distribution to shareholders. If we are
unable to reach an agreement with a creditor relating to an obligation, that
creditor may bring a lawsuit against us. Amounts required to settle obligations
or defend lawsuits in excess of the amounts estimated by us will reduce the
amount of remaining capital available for distribution to
shareholders.
Shareholders
may not be able to recognize a loss for federal income tax purposes until they
receive a final distribution from us.
As a
result of our liquidation, for federal income tax purposes shareholders will
recognize gain or loss equal to the difference between (1) the sum of the
amount of cash distributed to them and (2) their tax basis for their shares
of our capital stock. Any loss generally will be recognized only when the final
distribution from us has been received.
We
may be the potential target of a reverse acquisition or other
acquisition.
Until we
dissolve, we will continue to exist as a public, non-operating shell company.
Public companies that exist as non-operating shell entities have from time to
time been the target of “reverse” acquisitions, meaning acquisitions of public
companies by private companies in order to bypass the costly and time-intensive
registration process to become publicly traded companies. In addition, we could
become an acquisition target, through a hostile tender offer or other means, as
a result of our cash holdings. In the event of a hostile acquisition bid,
approval of the acquisition would be subject to shareholder approval. If we
become the target of a successful acquisition, notwithstanding the shareholder
approval of the Plan of Dissolution, the Board could potentially decide to
either delay or completely abandon the liquidation and dissolution, and our
shareholders may not receive any proceeds that would have otherwise been
distributed in connection with the dissolution and may receive less than they
would have received in the dissolution.
We
will continue to incur the expenses of complying with public company reporting
requirements.
We have
an obligation to continue to comply with the applicable reporting requirements
of the Exchange Act even though compliance with such reporting requirements is
economically burdensome. In order to curtail expenses, we intend, after filing
our articles of dissolution, to seek relief from the SEC from the reporting
requirements under the Exchange Act. We anticipate that, if such relief were
granted, we would continue to file current reports on Form 8-K to disclose
material events relating to our liquidation and dissolution along with any other
reports that the SEC might require. However, the SEC may not grant any such
relief, in which case we would be required to continue to bear the expense of
being a public reporting company.
The
Board may at any time turn management of our dissolution over to a third party,
and some or all of our directors may resign from the Board at that
time.
The Board
of Directors may at any time turn our management over to a third party to
complete the liquidation of our remaining assets and distribute the available
proceeds to our shareholders, and some or all of our directors may resign from
the Board at or prior to that time. If management is turned over to a third
party and all of our directors resign from the Board, the third party would have
sole control over the dissolution process, including the sale or distribution of
any remaining assets.
If
we fail to create an adequate contingency reserve for payment of our expenses
and liabilities, each shareholder receiving liquidating distributions could be
held liable for payment to our creditors of his or her pro rata share of amounts
owed to creditors in excess of the contingency reserve, up to the amount
actually distributed to such shareholder in dissolution.
If the
Plan of Dissolution is approved by our shareholders, we intend to file articles
of dissolution with the Florida Secretary of State dissolving
Nyer. In the event we fail to create an adequate contingency reserve
for payment of our expenses and liabilities, each shareholder could be held
liable for payment to our creditors of such shareholder’s pro rata share of
amounts owed to creditors in excess of the contingency reserve, up to the amount
actually distributed to such shareholder in dissolution. Although the liability
of any shareholder is limited to the amounts previously received by such
shareholder from us (and from any liquidating trust or trusts) in the
dissolution, this means that a shareholder could be required to return all
distributions previously made to such shareholder and receive nothing from us
under the Plan of Dissolution. Moreover, in the event a shareholder has paid
taxes on amounts previously received, a repayment of all or a portion of such
amount could result in a shareholder incurring a net tax cost if the
shareholder’s repayment of an amount previously distributed does not cause a
commensurate reduction in taxes payable. While we will endeavor to make adequate
reserves for all known, contingent, and unknown liabilities, there is no
guarantee that the reserves established by us will be adequate to cover all such
expenses and liabilities.
Material
U.S. Federal Income Tax Consequences
The
following discussion is a general summary of the material U.S. federal income
tax consequences of the dissolution and liquidation of Nyer pursuant to the Plan
of Dissolution to its shareholders. The discussion does not address all of the
U.S. federal income tax considerations that may be relevant to particular
shareholders in light of their particular circumstances, or to shareholders that
are subject to special treatment under U.S. federal income tax laws, including,
without limitation, financial institutions, brokers, dealers, and traders in
securities or foreign currency, persons subject to the alternative minimum tax,
a person who owns their shares as part of a straddle, hedging transaction,
construction sale transaction constructive ownership transaction or constructive
transaction, persons that are partnerships or other pass-through entities,
non-U.S. individuals and entities, persons who acquired their shares of our
common stock through employment or other compensatory arrangements or tax-exempt
entities. This discussion does not address the U.S. federal income tax
considerations applicable to holders of options to purchase our common stock, or
to the conversion of conversion of preferred stock or notes to common stock.
Furthermore, this discussion does not address any U.S. federal estate and gift
or alternative minimum tax consequences or any state, local or foreign tax
consequences of our dissolution and liquidation pursuant to the Plan of
Dissolution. For all these reasons, we urge shareholders to consult
with a tax advisor regarding the dissolution and liquidation.
The
following discussion is based on the Internal Revenue Code of 1986, as amended,
or the Code, applicable Treasury Regulations promulgated thereunder, and
administrative and judicial interpretations thereof, each as in effect as of the
date hereof, all of which may change, possibly with retroactive effect. The
discussion assumes that shares of our common stock are held as capital assets
within the meaning of Section 1221 of the Code (generally, property held for
investment).
The
following discussion has no binding effect on the Internal Revenue Service, or
IRS, or the courts. Liquidating distributions pursuant to the Plan of
Dissolution may occur at various times and in more than one tax year. We can
give no assurance that the U.S. federal income tax treatment described herein
will remain unchanged at the time of our liquidating distributions. No ruling
has been requested from the IRS with respect to any tax consequences of the Plan
of Dissolution, and we will not seek any such ruling or an opinion of counsel
with respect to any such tax consequences.
THE
FOLLOWING DISCUSSION DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OF THE POTENTIAL
TAX CONSEQUENCES RELATING TO THE PLAN OF DISSOLUTION AND IS NOT TAX ADVICE.
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES TO THEM IN CONNECTION WITH OUR DISSOLUTION AND LIQUIDATION PURSUANT
TO THE PLAN OF DISSOLUTION, INCLUDING TAX RETURN REPORTING REQUIREMENTS AND THE
EFFECT OF FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
Material
U.S. Federal Income Tax Consequences to Nyer
After the
approval of the Plan of Dissolution and until our liquidation is completed, we
will continue to be subject to U.S. federal income tax on our taxable income, if
any, such as interest income, gain from the sale of any remaining assets or
income from operations (including operations of DAW which will be reflected on
our consolidated federal income tax return). Upon the sale of any of our assets
in connection with our liquidation, we will generally recognize gain or loss in
an amount equal to the difference between (1) the fair market value of the
consideration received for each asset sold and (2) our adjusted tax basis in the
asset sold. We should not recognize any gain or loss upon the distribution of
cash to our shareholders in liquidation of their shares of our common
stock.
It is
expected that the sale of assets by DAW in the WAG Purchase and the sale by Nyer
of the stock of DAW in the DAW Stock Purchase will both be taxable transactions,
and will give rise to taxable gain or loss to DAW (in the case of the WAG
Purchase) and Nyer (in the case of the DAW Stock Purchase), measured by the
difference between the proceeds of sale in each such transaction and the basis
of the property sold. Such gain or loss will be reflected in the Nyer
consolidated federal income tax return for the year of sale, which is expected
to be 2009.
Material
U.S. Federal Income Tax Consequences to Shareholders
In
general, for U.S. federal income tax purposes, amounts received by our
shareholders pursuant to the Plan of Dissolution should be treated as full
payment in exchange for their shares of our common stock. As a result of our
dissolution and liquidation, shareholders generally will recognize gain or loss
equal to the difference between (1) the sum of the amount of cash (it is
expected that all distributions will be in cash) distributed to them and (2)
their tax basis for their shares of our common stock. In general, a
shareholder's gain or loss will be computed on a "per share" basis so that gain
or loss is calculated separately for blocks of our common stock acquired at
different dates or for different prices. If we make more than one liquidating
distribution, which is possible, each liquidating distribution will be allocated
proportionately to each share of stock owned by a shareholder, and the value of
each liquidating distribution will be applied against and reduce a shareholder's
tax basis in his or her shares of stock. In general, a shareholder will
recognize gain as a result of a liquidating distribution to the extent that the
aggregate value of the distribution and prior liquidating distributions received
by the shareholder with respect to a share exceeds the shareholder's tax basis
for that share. Any loss generally will be recognized by a shareholder only when
the shareholder receives our final liquidating distribution to shareholders, and
then only if the aggregate value of all liquidating distributions with respect
to a share is less than the shareholder's tax basis for that share. Gain or loss
recognized by a shareholder generally will be capital gain or loss and will be
long term capital gain or loss if the stock has been held for more than one
year. The deductibility of capital losses is subject to
limitations.
In the
event that our liabilities are not fully covered by the cash or other assets in
our contingency reserve or otherwise satisfied through insurance or other
reasonable means (see “The Plan of Dissolution—Contingency Reserve” on page
___), payments made by a shareholder in satisfaction of those liabilities
generally would produce a capital loss for such shareholder in the year the
liabilities are paid. The deductibility of any such capital loss would generally
be subject to limitations under the Code.
Liquidating
Trusts
If we
transfer assets to a liquidating trust, our shareholders generally should be
treated for U.S. federal income tax purposes as having received a pro rata share
of the property transferred to the liquidating trust, reduced by the amount of
known liabilities assumed by the liquidating trust, and having contributed such
assets and liabilities to the liquidating trust. Accordingly, our transfer of
assets to the liquidating trust will cause our shareholders to be treated in the
same manner for U.S. federal income tax purposes as if the shareholder had
received a distribution directly from us. The liquidating trust should not be
subject to U.S. federal income tax; however, each shareholder must take into
account for U.S. federal income tax purposes the shareholder’s allocable portion
of any income, gain or loss recognized by the liquidating trust. As a result of
our transfer of assets to the liquidating trust and the ongoing operations of
the liquidating trust, shareholders may be subject to tax, whether or not they
have received any actual distributions from the liquidating trust with which to
pay such tax. There can be no assurance that the liquidating trust described in
the Plan of Dissolution will be treated as a liquidating trust for federal
income tax purposes; if it is not treated as a liquidating trust for federal
income tax purposes, the tax consequences will be different from those described
above. Shareholders are urged to consult with a tax advisor regarding
the liquidating trust.
Reporting
of Liquidating Distributions and Back-Up Withholding
Any
shareholder owning at least 5% (by vote or value) of our total outstanding stock
may be subject to special rules regarding information to be provided with the
shareholder's U.S. federal income tax returns. Shareholders should consult their
own tax advisors as to the specific tax consequences to them in connection with
our dissolution and liquidation pursuant to the Plan of Dissolution, including
tax return reporting requirements.
After the
close of each taxable year, we will provide shareholders and the IRS with a
statement of the amount of cash distributed to our shareholders during the
relevant taxable year.
Information
reporting and backup withholding at a rate of 28% (to increase to 31% after
2010) may apply to distributions to shareholders under the circumstances
discussed below. Amounts withheld under backup withholding are
generally not an additional tax and may be refunded by the IRS or credited
against the shareholder's federal income tax liability.
A
U.S. shareholder will be subject to backup withholding on liquidating
distributions unless the U.S. shareholder properly executes under penalties of
perjury an IRS Form W-9 or substantially similar form that:
|
·
|
provides
the U.S. shareholder's correct taxpayer identification number;
and
|
|
·
|
certifies
that the U.S. shareholder is exempt from backup withholding because it is
a corporation or comes within another exempt category, it has not been
notified by the IRS that it is subject to backup withholding, or it has
been notified by the IRS that it is no longer subject to backup
withholding.
|
If the
U.S. shareholder has not provided and does not provide its correct taxpayer
identification number on the IRS Form W-9 or substantially similar form, it may
be subject to penalties imposed by the IRS, and Nyer or another withholding
agent may have to withhold a portion of any liquidating distributions to it.
Unless the U.S. shareholder has established on a properly executed IRS Form W-9
or substantially similar form that it is a corporation or comes within another
exempt category, liquidating distributions will be reported to it and to the
IRS.
The
foregoing summary of U.S. federal income tax consequences is included for
general information only and does not constitute legal advice to any
shareholder. The tax consequences of the Plan of Dissolution may vary depending
upon the particular circumstances of each shareholder. Shareholders are urged to
consult their own tax advisors regarding the U.S. federal income tax
consequences of the Plan of Dissolution as well as any state, local, and foreign
tax consequences.
Regulatory
Matters Relating to the Transactions
Commonwealth
of Massachusetts – Board of Registration in Pharmacy
For the
Operate Location Pharmacies (as defined in the WAG Agreement), change of
ownership applications must be filed with the Massachusetts Board of
Registration in Pharmacy, or the Board of Registration. These
applications may be completed and sent to the Board of Registration in advance
of the closing but will not become official until the closing and when a copy of
the bill of sale is sent to the Board of Registration for
review. These applications require the signature of the pharmacist
seeking to manage the pharmacy department under the new ownership.
While
WAG's application for these licenses and permits are being processed, it will
operate under DAW’s licenses and permits, pursuant to a power of attorney
agreement.
For the
Non-Operate Location Pharmacies (as defined in the WAG Agreement), at least
fourteen days prior to the closure of the licensed pharmacy department a letter
will be sent by the management of DAW to the Board of Registration indicating
the date of closure and the relevant information regarding transfer of records
and controlled substances. Subsequent to the closure, additional
documentation and the original Drug Store Permit and Controlled Substance
Registration are submitted to officially close the pharmacy
department.
U.S.
Drug Enforcement Administration
For both
the Operate Location Pharmacies and the Non-Operate Location Pharmacies, DAW
will surrender its registration and WAG will need to apply for
registration. The U.S. Drug Enforcement Agency, or the DEA, does not
recognize an asset transfer as a change of ownership. At least
fourteen days prior to the closing DAW will send a letter to the DEA advising of
the proposed transfer of controlled substances and records pertaining thereto to
WAG. Subsequent to the closing, additional documentation and the
original Drug Store Permit and Controlled Substance Registration are submitted
to officially close the pharmacy department.
SEC
and Florida Business Corporation Act
We are
not aware of any U.S. federal or state regulatory requirements or governmental
approvals or actions that may be required to consummate the Plan of Dissolution,
except for compliance with applicable SEC regulations in connection with this
proxy statement and compliance with the FBCA. If our shareholders approve the
Plan of Dissolution, we intend to file our articles of dissolution with the
Florida Secretary of State as soon as reasonably practicable after the Special
Meeting.
Accounting
Treatment
If our
shareholders approve the WAG Purchase, it will be accounted for as a sale of
assets. Nyer will realize a gain of approximately $3.0 million, net
of taxes of approximately $4.0 million.
If our
shareholders approve the DAW Stock Purchase, it will be accounted for as a sale
of DAW stock. Nyer will realize a loss of approximately $1.8 million,
net of tax benefit of approximately $0.9 million.
If our
shareholders approve the Plan of Dissolution, we will change our basis of
accounting from that of a going concern to the dissolution basis of accounting,
pursuant to which assets are stated at their estimated net realizable values and
liabilities are stated at their estimated settlement
amounts. Recorded liabilities will include the estimated expenses
associated with carrying out the Plan of Dissolution. Nyer will
use the proceeds from the WAG Purchase and the DAW Stock Purchase to pay off all
existing liabilities. The remaining cash will be paid to our
shareholders in the form of a liquidating dividend as of a record date to be
declared by the Board.
INTERESTS
OF CERTAIN PERSONS IN THE TRANSACTIONS
When
considering the recommendation of the Board to vote
“FOR”
the approval of each of
the Transactions, Nyer shareholders should be aware that some directors and
executive officers of Nyer have agreements or arrangements that provide them
with interests in the Transactions that are different from, or in addition to,
the interests of Nyer shareholders. The Board was aware of these interests and
considered them, among other matters, during their deliberations with respect to
each of the Transactions and in deciding to recommend that Nyer shareholders
vote
“FOR”
the approval
of each of the Transactions.
Executive Officer Severance
Payments
In
February 2008, we entered into separate employment agreements with each of our
executive officers, namely Michael Curry, Mark Dumouchel, David Dumouchel, Wayne
Gunter and Donato Mazzola. Under these employment agreements, among
other provisions, each executive officer may terminate his employment with us or
DAW for “good reason” which includes, among other events, a “Change of
Control”. The term change of control in the employment agreements
includes a sale by Nyer of a majority of its ownership interest in DAW or a sale
by Nyer of a majority of its assets in a single sale or series of sales
authorized by the Board, and the officer’s employment is terminated by DAW in
connection with the sale or sales and the officer does not enter into an
agreement providing for comparable employment with any successor or assign of
DAW or any purchaser of the assets of DAW. Upon completion of the WAG
Purchase and the DAW Stock Purchase, we do not expect WAG or DAW to enter into
employment agreements with the officers and therefore the WAG Purchase and the
DAW Stock Purchase will each result in a Change of Control.
Upon termination of their employment agreements, these officers will
therefore be entitled under such agreements to a cash severance payment equal to
the total of (1) one year of base salary at the salary rate then in effect to
the extent allocable as to DAW and us, as the case may be, but not to exceed the
aggregate base salary then in effect; (2) the last annual bonus paid to the
officer (or, in the event that the termination occurs before any bonus has been
paid, the annualized bonus for the year in which the termination occurs); and
(3) in the case of Mark Dumouchel only, the last annual lump sum payment, or
Franchise Payment, equal to five percent of the total amount of royalties and
licensing fees collected by DAW during the prior fiscal year (or, in the event
that the termination occurs before any Franchise Payment has been paid, the
annualized Franchise Payment for the year in which the termination
occurs). Additionally, in the event of any termination under an
employment agreement, the officer will be entitled to COBRA continuation
coverage for six months after any such termination. The executives each would be
entitled to unused vacation time. Based upon their current salaries
and the last annual bonuses, (no Franchise Payments are due and payable), our
executive officers will receive the following lump sum payments following the
completion of the WAG Purchase and the DAW Stock Purchase:
Name
|
|
One Year
Base
Salary
|
|
|
2010
Annualized
Bonus
|
|
|
Total
Lump-sum
Severance
Payment
|
|
Michael
Curry
|
|
$
|
150,000
|
|
|
$
|
89,000
|
|
|
$
|
239,000
|
|
David
Dumouchel
|
|
|
150,000
|
|
|
|
89,000
|
|
|
|
239,000
|
|
Mark
Dumouchel
|
|
|
175,000
|
|
|
|
184,000
|
|
|
|
359,000
|
|
Wayne
Gunter
|
|
|
150,000
|
|
|
|
89,000
|
|
|
|
239,000
|
|
Donato
Mazzola
|
|
|
150,000
|
|
|
|
89,000
|
|
|
|
239,000
|
|
Total
|
|
$
|
775,000
|
|
|
$
|
540,000
|
|
|
$
|
1,315,000
|
|
These
payments would be made by Nyer prior to our dissolution and therefore reduce the
cash available for liquidating distributions to Nyer’s
shareholders.
Ownership
of Stock and Stock Options; Conversion of Preferred Stock and Notes
Security Ownership by Nyer Executive
Officers and Directors as of the Date of the Special
Meeting.
As of ___________, 2009, the record date for the
Special Meeting, the executive officers of Nyer beneficially owned an aggregate
of 2,000 shares of Nyer preferred stock and 597,826 shares of Nyer common
stock. They also owned options to purchase 92,000 shares of Nyer
common stock, of which 88,000 are currently exercisable. Each share of Nyer
preferred stock carries the right to 2,000 votes per share on any matter put to
a vote of the common stock. Nyer’s independent directors beneficially
owned options to purchase 100,000 shares of Nyer common stock of which 80,000
are currently exercisable. None of the outstanding options are
subject to accelerated vesting provisions.
By virtue
of their holdings of preferred stock, Nyer’s executive officers have enough
votes, if they vote in favor of each of the Transactions, to cause the approval
of the Transactions. However, the Board is requiring that the holders
of a majority of the shares of Nyer’s common stock voting separately as a class
approve each of the WAG Purchase and the DAW Stock Purchase. The
executive officers and directors of Nyer hold approximately 15.0% of the
outstanding shares of common stock, not including unexercised stock
options.
Security Ownership by Nyer Executive
Officers and Directors as of the Date of Dissolution.
Upon
completion of the WAG Purchase and DAW Stock Purchase, we expect our executive
officers to convert their 2,000 shares of our preferred stock into an aggregate
of 218,000 shares of our common stock. In addition, our
executive officers hold convertible promissory notes in an aggregate principal
amount of $1,500,000. These notes may be converted at any time into
an aggregate of 815,217 shares of our common stock. Following the
conversion of our preferred stock and convertible notes, assuming no other
purchases or sales of stock by our executive officers, the executive officers of
Nyer would beneficially own an aggregate of 1,631,043 shares of Nyer common
stock. In addition, we expect our executive officers to exercise
options to acquire an additional 76,000 shares of common stock, based on the
expected liquidation distribution of $1.84 to $2.00 per share (which is higher
than the exercise price of such options). If the executive officers
exercise their vested, in-the-money options following the conversion of their
preferred stock, they would hold approximately 33.6% of the outstanding shares
of common stock. These conversions and exercises would cause our
executive officers to receive a greater amount of the proceeds upon our
dissolution than if they did not convert the preferred stock or convertible
notes. The conversions will also dilute the holdings and
proportionately reduce the proceeds paid to other holders of our common
stock. For a discussion of the estimated proceeds to be distributed,
which gives effect to such conversions, see “The Plan of Dissolution – Estimated
Liquidating Distributions” beginning on page ___.
For
further information on our voting securities and holdings of our executive
officers and directors, see “Voting Securities and Holdings of Certain
Beneficial Owners and Management” beginning on page ___.
Continuation
of DAW Business
If the
DAW Stock Purchase is completed, Nyer’s executive officers will own DAW and
continue to operate the pharmacy business of DAW that is not otherwise sold to
WAG. DAW will be a private company owned entirely by such
individuals, and such individuals will be able to control DAW’s future
operations.
Director and Officer Liability
Nyer will
prepay directors and officers liability insurance for six years from the date of
total liquidation which will extend the directors and officers liability
insurance coverage for future claims.
VOTING
SECURITIES AND HOLDINGS OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth the number of our shares of voting stock beneficially
owned as of November 5, 2009 by (1) owners of more than 5% of our voting stock
known to us, (2) each of our directors, (3) our chief executive officer and our
next two most highly compensated executive officers and (4) all of our executive
officers and directors as a group:
Name and address of beneficial
owner
|
|
Amount and nature of
1
beneficial
ownership of voting shares
|
|
Percentage of
Voting Power (%)
|
Samuel
Nyer
698
Essex Street
Bangor,
ME 04401
|
|
|
1,320,774
|
(2)
|
|
|
14.4
|
%
|
|
|
|
|
|
|
|
|
|
Michael
and Lucille Curry
13
Water Street
Holliston,
MA 01746
|
|
|
931,565
|
(3)
|
|
|
10.1
|
%
|
|
|
|
|
|
|
|
|
|
David
Dumouchel
13
Water Street
Holliston,
MA 01746
|
|
|
939,565
|
(4)
|
|
|
10.2
|
%
|
|
|
|
|
|
|
|
|
|
Mark
A. Dumouchel
13
Water Street
Holliston,
MA 01746
|
|
|
945,566
|
(5)
|
|
|
10.3
|
%
|
|
|
|
|
|
|
|
|
|
Wayne
Gunter
13
Water Street
Holliston,
MA 01746
|
|
|
931,565
|
(6)
|
|
|
10.1
|
%
|
|
|
|
|
|
|
|
|
|
Donato
Mazzola
13
Water Street
Holliston,
MA 01746
|
|
|
937,965
|
(7)
|
|
|
10.2
|
%
|
|
|
|
|
|
|
|
|
|
Robert
J. Landis
|
|
|
20,000
|
(8)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
James
J. Schweiger
|
|
|
40,000
|
(9)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Gerald
Weston
|
|
|
20,000
|
(10)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
All
our directors and executives officers as a group (eight
persons)
|
|
4,765,826
|
(3,4,5,6,7,8,9, & 10)
|
|
|
51.8
|
%
|
* less
than 1% of class
1. Beneficial
ownership has been determined in accordance with Rule 13d-3 under the Exchange
Act and includes any options and warrants which vest within 60 days of November
5, 2009; i.e., by January 4, 2010. Unless otherwise noted, we believe
that all persons named in the table have sole voting and investment power with
respect to all voting securities beneficially owned by them.
2. Includes
272,774 shares of common stock (of which 183,174 shares are held by an affiliate
of Mr. Nyer) and 548,000 shares of common stock underlying options under Nyer’s
stock option plans. Also includes 500,000 vested non-qualified options granted
pursuant to Mr. Nyer’s 1999 employment agreement, as amended. All of Mr. Nyer’s
1,048,000 granted stock options are vested and currently
exercisable.
3. Includes
400 shares of Series 2 Class B preferred stock, or Series 2 Stock, which carry
the right to 2,000 votes per share on any matter put to a vote of the common
stock (equivalent to an aggregate of 800,000 votes of common stock), 119,565
shares of common stock and 12,000 shares of common stock underlying options
pursuant to Nyer’s stock option plans. The Currys are married to one another and
thus beneficially own, with the shared power to vote and shared power to dispose
of, these securities. Does not include 163,043 shares of common stock issuable
upon conversion of convertible promissory notes expected to be converted prior
to our dissolution but after January 4, 2010 and does not include 43,600 shares
of common stock issuable upon conversion of the Series 2 Stock expected to be
converted prior to our dissolution but after January 4, 2010.
4. Includes
400 shares of Series 2 Stock which carry the right to 2,000 votes per share on
any matter put to a vote of the common stock (equivalent to an aggregate of
800,000 votes of common stock); 119,565 shares of common stock and 20,000 shares
of common stock underlying options pursuant to Nyer’s stock option plans. Does
not include 163,044 shares of common stock issuable upon conversion of
convertible promissory notes expected to be converted prior to our dissolution
but after January 4, 2010 and does not include 43,600 shares of common stock
issuable upon conversion of the Series 2 Stock expected to be converted prior to
our dissolution but after January 4, 2010.
5. Includes
400 shares of Series 2 Stock which carry the right to 2,000 votes per share on
any matter put to a vote of the common stock (equivalent to an aggregate of
800,000 votes of common stock); 119,566 shares of common stock and 26,000 shares
of common stock underlying options pursuant to Nyer’s stock option plans. Does
not include 163,044 shares of common stock issuable upon conversion of
convertible promissory notes expected to be converted prior to our dissolution
but after January 4, 2010 and does not include 43,600 shares of common stock
issuable upon conversion of the Series 2 Stock expected to be converted prior to
our dissolution but after January 4, 2010.
6. Includes
400 shares of Series 2 Stock which carry the right to 2,000 votes per share on
any matter put to a vote of the common stock (equivalent to an aggregate of
800,000 votes of common stock), 119,565 shares of common stock and 12,000 shares
of common stock underlying options pursuant to Nyer’s stock option
plans. Does not include 163,043 shares of common stock issuable upon
conversion of convertible promissory notes t expected to be converted prior to
our dissolution but after January 4, 2010 and does not include 43,600 shares of
common stock issuable upon conversion of the Series 2 Stock expected to be
converted prior to our dissolution but after January 4, 2010.
7. Includes
400 shares of Series 2 Stock which carry the right to 2,000 votes per share on
any matter put to a vote of the common stock (equivalent to an aggregate of
800,000 votes of common stock), 119,965 shares of common stock and 18,000 shares
of common stock underlying options pursuant to Nyer’s stock option plans. Does
not include 163,043 shares of common stock issuable upon conversion of
convertible promissory notes expected to be converted prior to our dissolution
but after January 4, 2010 and does not include 43,600 shares of common stock
issuable upon conversion of the Series 2 Stock expected to be converted prior to
our dissolution but after January 4, 2010.
8. Consists
of 20,000 shares of common stock underlying vested options granted pursuant to
Nyer’s stock option plans.
9. Consists
of 40,000 shares of common stock underlying vested options granted pursuant to
Nyer’s stock option plans.
10. Consists
of 20,000 shares of common stock underlying vested options granted pursuant to
Nyer’s stock option plans.
The
following table sets forth the number of our shares of common stock to be held
by the current holders of our preferred stock and convertible notes, following
conversion thereof as a result of the completion of the WAG Purchase, as well as
the expected exercise of options by such individuals.
Name and
address of
beneficial
owner
|
|
Number of
shares of
common stock
currently
owned
|
|
|
Number of
shares of
common
stock to be
received
upon
conversion
of
preferred
stock
|
|
|
Number of
shares of
common
stock to be
received
upon
conversion
of
promissory
notes
|
|
|
Number of
shares of
common
stock to be
received
upon
exercise of
vested, in-
the-money
options
|
|
|
Total number of
shares of
common stock
to be held after
conversion of
preferred stock
and promissory
notes and
exercise of
vested, in-the-
money options
|
|
|
Percentage
of common
stock
outstanding
following
full
conversion
of preferred
stock and
promissory
notes (%)
|
Michael
and Lucille Curry
|
|
|
119,565
|
|
|
|
43,600
|
|
|
|
163,043
|
|
|
|
12,000
|
|
|
|
338,208
|
|
|
|
6.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Dumouchel
|
|
|
119,565
|
|
|
|
43,600
|
|
|
|
163,044
|
|
|
|
20,000
|
|
|
|
346,209
|
|
|
|
6.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark
A. Dumouchel
|
|
|
119,566
|
|
|
|
43,600
|
|
|
|
163,044
|
|
|
|
20,000
|
|
|
|
346,210
|
|
|
|
6.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wayne
Gunter
|
|
|
119,565
|
|
|
|
43,600
|
|
|
|
163,043
|
|
|
|
12,000
|
|
|
|
338,208
|
|
|
|
6.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donato
Mazzola
|
|
|
119,565
|
|
|
|
43,600
|
|
|
|
163,043
|
|
|
|
12,000
|
|
|
|
338,208
|
|
|
|
6.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
preferred shareholders as a group (5 persons)
|
|
|
597,826
|
|
|
|
218,000
|
|
|
|
815,217
|
|
|
|
76,000
|
|
|
|
1,707,043
|
|
|
|
33.6
|
%
|
THE
WAG PURCHASE
The
following is a summary of the material terms of the WAG Agreement. This summary
does not purport to describe all the terms of the WAG Agreement and is qualified
by reference to the complete WAG Agreement which is attached as Annex A to this
proxy statement and incorporated herein by reference. We urge you to read
carefully the full text of the WAG Agreement.
Explanatory
Note Regarding Summary of WAG Agreement and Representations and Warranties in
the WAG Agreement
The
summary of the terms of the WAG Agreement is intended to provide information
about the terms of the WAG Purchase. The terms and information in the WAG
Agreement should not be relied on as disclosures about WAG, DAW or Nyer without
consideration to the entirety of public disclosure by WAG and Nyer as set forth
in all of their respective public reports with the SEC. The terms of the WAG
Agreement (such as the representations and warranties) govern the contractual
rights and relationships, and allocate risks, between the parties in relation to
the WAG Purchaser. In particular, the representations and warranties made by the
parties to each other in the WAG Agreement have been negotiated between the
parties with the principal purpose of setting forth their respective rights with
respect to their obligation to close the WAG Purchase should events or
circumstances change or be different from those stated in the representations
and warranties. Matters may change from the state of affairs contemplated by the
representations and warranties. WAG and Nyer will provide additional disclosure
in their public reports to the extent that they are aware of the existence of
any material facts that are required to be disclosed under federal securities
law and that might otherwise contradict the terms and information contained in
the WAG Agreement and will update such disclosure as required by federal
securities laws.
General
Nyer, DAW
and WAG have entered into the WAG Agreement, which provides for a sale by DAW to
WAG of certain operating assets, including prescription files and inventory of a
total of 12 neighborhood retail pharmacies, or the Acquired
Assets. In addition, WAG will assume real estate leases, with a
present value of approximately $500,000, for each of the eight locations
from which it will continue operations, and purchase the Parata Equipment at
each of the 12 locations, or the Pharmacies, that it is acquiring the assets
from DAW. The purchase price, subject to certain adjustments, is
$12,000,000 for the acquired assets, up to $5,750,000 of qualifying inventory to
be purchased at cost, plus the purchase of certain Parata Equipment from DAW in
the amount of $1,086,106. Excluded from the sale to WAG are certain
excluded assets and liabilities of the Pharmacies, as well as the assets of
seven neighborhood retail pharmacies and each of the clinic pharmacies, or the
Excluded Assets, to which DAW provides comprehensive pharmacy management
services operating within Federally Qualified Health Centers, or FQHC, under
Section 340B of the Public Heath Service Act, and four pharmacies that operate
as hybrid traditional neighborhood retail pharmacies with separate inventory
dedicated to a FQHC, which is too small to support its own
pharmacy. The Board engaged Newbury Piret to advise it on the WAG
Purchase.
Other
than as described above, the WAG Agreement includes other important
provisions.
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DAW
is to arrange for any necessary landlord consents and for extensions of
any of the assigned real estate leases, which by their terms expire prior
to the tenth anniversary of the closing, in order that they have a term
extending at least 10 years from the closing
date.
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DAW
and Nyer are to indemnify WAG for damages related to various warranties
and covenants reported within the later of 90 days following the closing
and Nyer filing its articles of dissolution, with the exception, in the
case of DAW, of damages resulting from the breach of the non-competition
covenant, which will continue for three years following the closing and
damages resulting from a breach of warranties and covenants relating to
DAW’s use of the name Eaton Apothecary, Strand Pharmacy and associated
logos, designs or the like, which will continue for 12 months following
the closing, but only in the event any current director or officer of DAW
has a beneficial interest in DAW’s capital stock. DAW receives
a similar indemnification for any breaches of warranties and covenants by
WAG reported within 12 months following closing, with certain limited
exceptions that are limited to 90 days. Nyer guarantees DAW’s
indemnification obligations for a period co-terminous with Nyer’s
indemnification obligations.
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For
a period of three years, Nyer, DAW and their current affiliates
under their control are to refrain from competing within an area of
five miles of any of the pharmacies included in the Acquired Assets, but
specifically excluding the seven excluded neighborhood retail stores and
any pharmacies operated under agreements with a clinic, hospital or a
healthcare center primarily providing services to such clinic, hospital or
healthcare centers’ patients and located within a quarter (1/4) of a mile
of such clinic, hospital or healthcare
center.
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In
the event that DAW proceeds with an Alternative Transaction (defined
below) to that set forth in the WAG Agreement, such transaction must
provide at least $350,000 of economic benefit to DAW or Nyer in excess of
that provided under the WAG Agreement. In such instance, WAG
would receive a break-up fee in the amount of $300,000 and reimbursement
of actual out-of-pocket expenses of up to
$200,000.
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Covenants
DAW and
WAG have each undertaken certain covenants in the WAG Agreement concerning the
conduct of their respective businesses in regard to the proposed WAG Purchase,
between the date the WAG Agreement was signed and the completion of the
sale. The following summarizes these covenants.
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Alternative Transaction;
Overbid Protection; Break-up Fee
. In the event that DAW
receives an unsolicited bona fide written proposal for a transaction from
a third party or a tender offer is initiated by a third party, each
referred to as an Alternative Transaction, then DAW or Nyer may provide
non-public information to negotiate with such third
party. However, in the event that DAW or Nyer proceeds with an
Alternative Transaction, the Alternative Transaction has to be at least
$350,000 greater than the sum of (1) $17,750,000 plus (2) any real estate
rental payments on security deposits credited to WAG; and DAW would owe to
WAG a breakup fee in the amount of $300,000 and reimbursement of actual
out-of-pocket expenses paid to non-affiliate third parties by WAG in the
amount of up to $200,000, such fees referred to as the Termination Fees;
provided further that before determining to proceed with an Alternative
Transaction, Nyer or DAW has to provide WAG with five business days’ prior
written notice, which notification should include reasonable details
regarding the cause for and the nature of the withdrawal, modification,
qualification and conditioning of the WAG Agreement. In
addition, should the WAG Agreement be terminated due to DAW’s breach of
its representations, warranties or covenants, DAW would owe to WAG the
Termination Fees.
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DAW
Employees
. DAW has agreed to endeavor to use
commercially reasonable efforts to continue the employment of employees
employed at the Pharmacies as of the date of the WAG Agreement, subject to
certain conditions. WAG agreed to use reasonable best efforts
to hire certain employees at the Pharmacies, subject to certain
conditions. The parties agreed that WAG will provide up to
$75,000 and DAW will fund $30,000 toward an incentive plan for the purpose
of retention of certain employees for the one year period following the
closing.
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Non-Competition
. DAW
and Nyer agreed for a period of three years after the closing to refrain
from and not to cause any affiliates which they control to in any
manner whatsoever, directly or indirectly, operate, own, lease, engage or
participate as an owner, partner, employee, joint venturer, shareholder,
director, assignor, seller, transferor, sales or marketing agent or
otherwise in or in connection with any retail, drugstore
or pharmacy business within a five mile radius of any of the
Pharmacies other than those that will be retained by DAW after the closing
and any of those pharmacies operated in conjunction with a clinic,
hospital or a healthcare center primarily providing services to such
clinic, hospital or healthcare centers’ patients and located within a
quarter (1/4) of a mile of such clinic, hospital or healthcare
center.
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DAW and
Nyer agreed not to directly or indirectly request business from any person
who filed a prescription in a 12 month period prior to the closing date at any
of the Pharmacies for a period of three years after the
closing. Likewise, DAW and Nyer agreed that they will not
solicit or recruit any employees of the Pharmacies as of the date of the WAG
Agreement for a period of three years after the closing.
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Interim
Operations
. Pending the closing, DAW will operate and
carry on the business at the Pharmacies in the ordinary course and
substantially as operated prior to the date of the WAG
Agreement.
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Taxes
. DAW is
responsible for the payment of taxes with regard to the Pharmacies for the
period prior to the closing of the sale. DAW and WAG agreed to
cooperate with each other in the filing of any tax returns. The
obligations contained in the tax section of the WAG Agreement are
unconditional and absolute and remain in effect without limitations as to
time.
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Access
. WAG
is provided reasonable access upon reasonable notice and during regular
business hours to any of the properties, contracts, books, records, data
and personal of DAW relating to the business not yet provided as of the
date of the WAG Agreement and reasonably important to the operation of the
business.
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Consent to Third
Parties
. The parties agreed to cooperate using
commercially reasonable efforts to secure the necessary consents and
approvals of government entities and the landlords and lessors to any of
the real estate leases and equipment
leases.
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Avoiding
Abandonment
. If and to the extent necessary and
permitted under applicable law, DAW would allow WAG the right to operate
under certain permits, licenses, authorizations and waivers until WAG is
able to replace its permits and licenses with its own. WAG
provided DAW with an indemnification for any damages it may suffer as a
result of WAG’s licenses, authorizations, permits and
waivers. The parties agreed to cooperate in the applications
and permitting process that might be required to allow WAG to acquire
licenses, authorizations, permits or
waivers.
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Records and
Data.
The parties agreed that WAG will engage a
consultant to convert DAW’s prescription file and record data in
electronic form to a format specified by WAG; that DAW will maintain a
copy of all record data; and that the parties have complied and will
comply with requirements under the Health Insurance Portability and
Accountability Act of 1996, or
HIPAA.
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Prescriptions
. DAW
agreed to use reasonable efforts to fill and deliver to customers of the
Pharmacies any partial-fill prescriptions with a remaining quantity
balance. For any such balances remaining at closing, DAW will
credit the prescription to the customer or to the third-party payor, as
appropriate. WAG assumes no liability for such remaining
prescriptions. In addition, prior to closing, DAW will reverse
and return to stock any filled prescriptions that have not been picked up,
providing all necessary notice to any third-party payors, and will provide
WAG with a list of such
prescriptions.
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Remittance
. The
parties agreed that (1) in the event WAG receives payment from any parties
for services rendered by DAW on or before the closing, WAG will remit such
payment to DAW as soon as reasonably practicable after receipt thereof
(but in no event later than 15 days) and (2) in the event DAW receives
payment from any parties for services rendered by WAG after the closing,
DAW will remit such payment to WAG as soon as reasonably practicable after
receipt thereof (but in no event later than 15
days).
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Shareholder
Meeting
. The Board adopted resolutions approving the WAG
Purchase and recommending its adoption to the Nyer
shareholders.
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Proxy
Statement
. Nyer agreed to timely file with the SEC, and
mail to shareholders, a proxy statement relating to the WAG Purchase; to
respond to any SEC comments; and to provide WAG with copies of such
documentation and correspondence for its review and
comment.
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After the
closing WAG will have the right to use the trade names and trademarks associated
with the Pharmacies in connection with the signage, advertisements,
solicitations and announcements and similar matters related to any pharmacies
for a period of 12 months.
The
parties agreed to cooperate following execution of the WAG Agreement to develop
a detailed transition plan, which transition plan will include the provision of
transition services for a period of 60 days by DAW to WAG. DAW is to
provide estoppel certificates from each of the landlords for leases that are
assigned to WAG, providing the leases so require. Likewise, for any
real estate lease which is being assigned to WAG which expires by its terms
within ten years following the closing, DAW is to arrange for a lease extension
at least consistent with market terms and reasonably acceptable to
WAG.
Indemnification
DAW and
Nyer agreed to indemnify and hold WAG and its related entities harmless from and
against any loss and expenses incurred by it in connection with
any: (1) breach of warranty or an inaccuracy or representation by it
contained in the WAG Agreement or certificates delivered; (2) any breach by it
of its covenants or agreements or failing to perform its obligation and
agreement after receipt of timely notice; (3) the failure to pay, perform or
discharge any excluded liability; or (4) any claims on behalf of any current or
future, holders of capital stock or interest in it or its creditors relating to
the execution, delivery and performance of the WAG Agreement or the transactions
contemplated therein. DAW’s indemnification obligations begin at an
aggregate of $50,000 and are generally limited to a total of $1,200,000, with
certain exceptions which are limited to $4,000,000. Further, DAW and
Nyer’s indemnification obligations terminate on the later to occur of 90 days or
the filing of Nyer’s certification of dissolution, with the exception, in the
case of DAW, of damages resulting from the breach of the non-competition
covenant, which will continue for three years following the closing and damages
resulting from a breach of warranties and covenants relating to DAW’s use of the
name Eaton Apothecary, Strand Pharmacy and associated logos, designs or the
like, which will continue for 12 months following the closing, but only in the
event any current director or officer of DAW has a beneficial interest in DAW’s
capital stock. WAG agreed to indemnify DAW, with certain limited
exceptions, and Nyer for its breach of the WAG Agreement for a period of 12
months in an unlimited amount. The parties agree that the
indemnification provisions are the sole remedies available to any of the parties
except as otherwise be limited by law.
Nyer
guaranteed DAW’s indemnification obligations co-extensive with Nyer’s
indemnification period.
Representations
and Warranties
Reciprocal
representations and warranties made in the WAG Agreement relate to, among other
things:
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corporate
existence, qualification to conduct business and corporate standing and
power;
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corporate
authority to enter into, and carry out the obligations under, the WAG
Agreement and all other documents and agreements thereunder and
enforceability of the WAG Agreement and all other documents and agreements
thereunder; and
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absence
of a breach of the certificate of incorporation or articles of
organization, bylaws, law or material agreements as a result of the WAG
Purchase.
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Additional
representations and warranties made by DAW to WAG relate to, among other
things:
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the
absence of any actions, suits, or proceedings, pending or to DAW’s
knowledge threatened, with regard to the Pharmacies or assets being sold
or complaints under HIPAA or patient privacy and data protection
laws. There are currently no material judgments, decrees,
orders, writs, injunctions, rulings, decisions or the like by any court or
government entity with respect to the Pharmacies or assets being
sold;
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title
to the Acquired Assets;
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necessary
vote of shareholders;
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financial
schedules for the Pharmacies;
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relationships
with distributors, suppliers and third party
payors;
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information
provided in this proxy statement;
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affiliate
transactions;
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compliance
with anti-takeover statutes;
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warranties
on pharmaceuticals and other
products;
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prescription
count information;
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environmental
matters with respect to DAW;
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compliance
with law, including Medicare and Medicaid and other payment programs, and
obtaining of permits;
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suppliers,
distributors and third party
payors;
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employee
matters and employee relations;
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leases
to real properties;
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the
condition of personal property at the Pharmacies;
and
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inventory
and quality of inventory.
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Additional
representations and warranties made by Nyer to WAG relate to, among other
things:
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the
absence of any actions, suits, or proceedings, pending or to Nyer’s
knowledge threatened, with regard to the Pharmacies or assets being sold
or complaints under HIPAA or patient privacy and data protection
laws. There are currently no material judgments, decrees,
orders, writs, injunctions, rulings, decisions or the like by any court or
government entity with respect to the Pharmacies or assets being
sold;
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necessary
vote of shareholders;
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compliance
with anti-takeover statutes; and
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accuracy
of information to be provided in this proxy
statement.
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WAG also
made representations to DAW about the lack of any requirement of any approvals,
consents, authorization filings or registrations, as well as the sufficiency of
its funds to complete the transactions contemplated by the WAG
Agreement.
The
completion of the WAG Purchase depends upon the satisfaction or waiver of a
number of conditions, including, but not limited to, the
following:
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the
approval of the WAG Purchase by Nyer’s
shareholders;
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the
receipt by DAW of releases executed by a duly authorized agent of Parata
relating to the termination of the leases and the release of the Parata
Equipment;
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the
procurement by WAG of all licenses, permits, Medicaid or Medicare numbers,
or similar items required to operate the business being purchased by
WAG;
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the
absence of any applicable law or proceeding that would prohibit the
consummation of the WAG Purchase;
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the
parties’ representations and warranties being true and correct in all
material respects as of the
closing;
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the
performance in all material respects of all of the parties’ covenants
under the agreement at or prior to the effective time of the WAG Purchase;
and
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the
assignment of leases at the eight operating locations and the extension of
the lease terms such that the leases will each have at least a 10 year
term as of the closing.
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Termination
Termination
is permitted by mutual consent of WAG and DAW. In addition,
termination is permitted:
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By
WAG in the event of any material breach by DAW of the WAG Agreement and
such material breach is incapable of being cured or, if capable, if not
cured within 30 days following receipt by DAW of notice of such material
breach from WAG;
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By
DAW in the event of any material breach by WAG of the WAG Agreement and
such material breach is incapable of being cured or, if capable, if not
cured within 30 days following receipt by WAG of notice of such material
breach from DAW;
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By
either WAG or DAW if any governmental body shall have issued a final and
non-appealable order, decree or ruling permanently restraining, adjoining
or otherwise prohibits the consummation of the transactions contemplated
by the WAG Agreement;
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By
either DAW or WAG if the closing shall not have occurred on or before 135
days after the date that the WAG Agreement has been signed, provided that
only the party who is not in breach or exercise has this right of
termination;
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By
either DAW or WAG if DAW enters into an Alternative Transaction;
or
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By
either DAW or WAG if the Nyer shareholders do not approve the WAG
Purchase.
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The
effect of termination is that all obligations under the WAG Agreement terminate
but for the obligations of confidentiality and nondisclosure, the obligation for
overbid protection, break-up fees and expense reimbursement, and the obligation
for any shared expenses, and the application of applicable law as provided in
the WAG Agreement.
Accounting
Treatment
For a
description of the accounting treatment of the WAG Purchase, see “Proposed
Transactions — Accounting Treatment” beginning on page ___.
Required
Vote
All
holders of our common stock and preferred stock as of the record date are
entitled to vote on Proposal 1. The approval of the WAG Purchase requires the
affirmative vote of the holders of a majority of the votes entitled to be cast
(which includes the votes represented by outstanding shares of Nyer common stock
and preferred stock, with each share of preferred stock having the right to cast
2,000 votes), as well as the affirmative vote of the majority of the outstanding
shares of common stock, voting separately as a class. Abstentions and
broker non-votes will have the same effect as votes against Proposal 1. It is
intended that shares represented by the enclosed form of proxy will be voted in
favor of Proposal 1 unless otherwise specified in such proxy.
Recommendation
of our Board of Directors
The Board
has determined that the sale of assets pursuant to the WAG Purchase is advisable
and in our best interests and the best interests of our shareholders. The Board
has approved the WAG Purchase and unanimously recommends that shareholders vote
"
FOR
" approval of the
WAG Purchase.
No
Dissenters’ or Appraisal Rights
Nyer
shareholders are not entitled to any dissenters’ or appraisal rights in
connection with the WAG Purchase.
THE
DAW STOCK PURCHASE
The
following is a summary of the material terms of the DAW Purchase Agreement. This
summary does not purport to describe all the terms of the agreement and is
qualified by reference to the complete DAW Purchase Agreement which is attached
as Annex B to this proxy statement and incorporated herein by reference. We urge
you to read carefully the full text of the DAW Purchase Agreement.
Explanatory
Note Regarding Summary of DAW Purchase Agreement and Representations and
Warranties in the DAW Purchase Agreement
The
summary of the terms of the DAW Purchase Agreement is intended to provide
information about the terms of the DAW Stock Purchase. The terms and information
in the DAW Purchase Agreement should not be relied on as disclosures about the
Management Team, DAW or Nyer without consideration to the entirety of
public disclosure by Nyer as set forth in all of its public reports with the
SEC. The terms of the DAW Purchase Agreement (such as the representations and
warranties) govern the contractual rights and relationships, and allocate risks,
between the parties in relation to the transaction. In particular, the
representations and warranties made by the parties to each other in the DAW
Purchase Agreement have been negotiated between the parties with the principal
purpose of setting forth their respective rights with respect to their
obligation to close the transaction should events or circumstances change or be
different from those stated in the representations and warranties. Matters may
change from the state of affairs contemplated by the representations and
warranties. Nyer will provide additional disclosure in its public reports to the
extent that it is aware of the existence of any material facts that are required
to be disclosed under federal securities law and that might otherwise contradict
the terms and information contained in the DAW Purchase Agreement and will
update such disclosure as required by federal securities laws.
General
Certain
members of management have offered to purchase the stock of DAW immediately
following the closing of the WAG Purchase, which offer has been memorialized in
the DAW Purchase Agreement, attached hereto as Annex B, or the
Offer. The Management Team is comprised of Mark Dumouchel, David
Dumouchel, Michael Curry, Donato Mazzola and Wayne Gunter. The Board
formed the Special Committee to review and consider the Offer. The
Special Committee engaged separate counsel from Nyer and DAW to advise it on the
Offer and the investment banking firm of Newbury Piret to render an opinion on
the fairness of the Offer.
Following
negotiations, the Management Team and the Special Committee agreed on the terms
of the sale, which provide for the Management Team to purchase from Nyer all of
the issued and outstanding stock of DAW.
The DAW
Stock Purchase will provide Nyer with $1,500,000 in benefits. These benefits are
achieved through a combination of a cash payment by the Management Team in the
amount of at least $300,000 and the retention by the post closing entity of
certain pre-closing DAW liabilities and assumption of certain Nyer liabilities,
in the aggregate amount of up to $1,200,000. The allocation of the
$1,500,000 in benefits between cash and the assumption of liabilities is in the
discretion of the Management Team, subject to the limits set forth
above.
Immediately
prior to the closing of the DAW Stock Purchase, DAW will distribute to Nyer the
proceeds received from the closing of the WAG Purchase reduced by DAW's
liabilities, as defined by generally accepted accounting principles, other then
those that the Management Team has chosen to retain in the aggregate amount of
up to $1,200,000.00, increased by any cash on hand and adjusted by an amount by
which the accounts receivable balance as of closing date exceeds or is less than
the amount of the projected tax reserve. Within 60 days following the
closing, unless otherwise extended by the parties, DAW will pay to Nyer the tax
reserve and upon the completion of a closing date balance sheet, the parties
will adjust for any prior post closing over or under payments in accordance with
a final balance sheet.
Representations
and Warranties
Nyer
represents and warrants to the Management Team:
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That
it holds of record and owns beneficially, 2,500 shares of DAW common stock
free and clear of all encumbrances or restrictions on transfer to the
Management Team;
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That
upon the transfer the Management Team will acquire record title, free and
clear of all encumbrances to such
shares;
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That
proceeding with the DAW Stock Purchase is duly authorized and neither
violates any government rule, law or regulation nor requires any consents,
registration, approvals or the
like.
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The
Management Team Represents and Warrants to Nyer:
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That
each member of the Management Team is duly authorized to proceed with the
DAW Stock Purchase;
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That
each member of the Management Team is an “accredited investor” as that
term is defined in Regulation D or under the Securities Act of
1933;
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That
each member of the Management Team is acquiring the DAW common stock for
his own account, and not for resale and that he will not distribute the
DAW common stock in violation of the Securities Act of 1933, as amended,
or any applicable state securities
law;
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That
each member of the Management Team is familiar with DAW’s business and has
chosen to purchase the stock based on such knowledge;
and
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That
each member of the Management Team understands that the market for the DAW
stock is illiquid and that he is purchasing with the intent of long term
investment, understanding the risks of the
purchase.
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Conditions
to Closing
The
completion of the DAW Stock Purchase depends upon the satisfaction or waiver of
a number of conditions, including the following:
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The
WAG Purchase shall have closed and DAW shall have received at least
$17,750,000, subject to adjustment;
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No
law or order that is in effect will restrain, enjoin or otherwise prohibit
consummation of the DAW Stock
Purchase;
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That
the affirmative vote of the holders of a majority of the votes entitled to
be cast (which includes the votes represented by outstanding
shares of Nyer common stock and preferred stock, with each share of
preferred stock having the right to cast 2,000 votes), as well as the
affirmative vote of the majority of the outstanding shares of common
stock, voting separately as a class, is
obtained;
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The
parties shall have agreed upon or otherwise achieved a closing date
balance sheet in accordance with past practices and generally accepted
accounting principals;
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The
representations and warranties of each party shall be true and correct in
all material respects as of the
closing;
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Each
party shall have performed all obligations under the DAW Purchase
Agreement; and
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As
concerns the Management Team, they shall have received their severance
payments.
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Alternative
Transaction; Overbid Protection
In the
event that Nyer receives an unsolicited bona fide written proposal for an
alternative sales transaction from a third party then Nyer may provide
non-public information to negotiate with such third party. However,
in the event that DAW proceeds with an alternative transaction, the alternative
transaction has to be at least $100,000 greater consideration and, in addition,
Nyer would owe the Management Team reimbursement of reasonable, actual
out-of-pocket expenses paid to non-affiliate third parties by the Management
Team in the amount of up to $200,000. Provided further that before
determining to proceed with an alternative sales transaction, Nyer has to
provide the Management Team with five business days’ prior written notice which
notification should include reasonable details regarding cause for and the
nature of the withdrawal, modification, qualification and conditioning of the
DAW Purchase Agreement.
Accounting
Treatment
For a
description of the accounting treatment, see “Proposed Transactions — Accounting
Treatment” beginning on page ___.
Required
Vote
All
holders of our common stock and preferred stock as of the record date are
entitled to vote on Proposal 2. The approval of the DAW Stock Purchase requires
the affirmative vote of the holders of a majority of the votes entitled to be
cast (which includes the votes represented by outstanding shares of Nyer common
stock and preferred stock, with each share of preferred stock having the right
to cast 2,000 votes), as well as the affirmative vote of the majority of the
outstanding shares of common stock, voting separately as a
class. Abstentions and broker non-votes will have the same
effect as votes against Proposal 2. It is intended that shares represented by
the enclosed form of proxy will be voted in favor of Proposal 2 unless otherwise
specified in such proxy.
Recommendation
of our Board of Directors
The Board
has determined that sale of stock pursuant to the DAW Stock Purchase is
advisable and in our best interests and the best interests of our shareholders.
The Board has approved the DAW Stock Purchase and unanimously recommends that
shareholders vote "FOR" approval of the DAW Stock Purchase (with Messrs. Mark
and David Dumouchel abstaining).
No
Dissenters’ or Appraisal Rights
Nyer
shareholders are not entitled to any dissenters’ or appraisal rights in
connection with the DAW Stock Purchase.
THE
PLAN OF DISSOLUTION
The
following is a summary of the material terms of the Plan of Dissolution. This
summary does not purport to describe all the terms of the agreement and is
qualified by reference to the complete Plan of Dissolution which is attached as
Annex C to this proxy statement and incorporated herein by reference. We urge
you to read carefully the full text of the Plan of Dissolution.
Dissolution
Under Florida Law
Florida
law provides that a corporation may dissolve upon the recommendation of the
board of the corporation, followed by the approval of its shareholders.
Following such approval, the dissolution is effected by filing articles of
dissolution with the Florida Secretary of State. The corporation is dissolved
upon the effective date of its articles of dissolution, or the Effective
Date.
Section
607.1405 of the FBCA provides that once a corporation is dissolved, it continues
its corporate existence but may not carry on any business except that
appropriate to wind up and liquidate its business and affairs. The process of
winding up includes:
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·
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the
collection of assets and the disposal of properties that will be applied
toward the satisfaction or making reasonable provision for the
satisfaction of liabilities and claims or will not otherwise be
distributed in kind to the corporation's
shareholders;
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|
·
|
the
satisfaction or making reasonable provision for satisfaction of
liabilities and claims;
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|
·
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subject
to statutory limitations, the distribution of any remaining assets to the
shareholders of the corporation;
and
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·
|
the
taking of all other actions necessary to wind up and liquidate the
corporation's business and affairs.
|
Approval
of Plan of Dissolution
The Plan
of Dissolution must be approved by the affirmative vote of the holders of a
majority of the votes entitled to be cast (which includes the votes represented
by outstanding shares of Nyer common stock and preferred stock, with each share
of preferred stock having the right to cast 2,000 votes). The approval of the
Plan of Dissolution by the requisite vote of the holders of our common stock and
preferred stock will constitute adoption of the Plan of Dissolution and a grant
of full and complete authority for the Board and officers, without further
shareholder action, to proceed with the dissolution and liquidation of Nyer in
accordance with any applicable provision of the FBCA.
Dissolution
and Liquidation
If the
Plan of Dissolution is approved by the requisite vote of our shareholders, the
steps set forth below will be completed at such times as the Board, in its
discretion and in accordance with the FBCA, deems necessary, appropriate or
advisable in our best interests and the best interests of our
shareholders:
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·
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the
filing of articles of dissolution with the Florida Secretary of
State;
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|
·
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the
cessation of all of Nyer's business activities except those relating to
winding up and liquidating Nyer's business and affairs, including, but not
limited to, prosecuting and defending suits by or against Nyer, collecting
Nyer's assets, converting Nyer's assets into cash or cash equivalents,
discharging or making provision for discharging Nyer's liabilities,
withdrawing from all jurisdictions in which Nyer is qualified to do
business and distributing Nyer's remaining property among our shareholders
according to their interests;
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|
·
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the
payment of or the making of reasonable provision for the payment of all
claims and obligations known to Nyer, and the making of such provisions as
will be reasonably likely to be sufficient to provide compensation for any
claim against Nyer which is the subject of a pending action, suit or
proceeding to which Nyer is a party, including, without limitation, the
establishment and setting aside of a reasonable amount of cash and/or
property to satisfy such claims against and obligations of
Nyer;
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|
·
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the
pro rata distribution to our shareholders, or the transfer to one or more
liquidating trustees, for the benefit of our shareholders under a
liquidating trust, of the remaining assets of Nyer after payment or
provision for payment of claims against and obligations of Nyer;
and
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|
·
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the
taking of any and all other actions permitted or required by the FBCA and
any other applicable laws and
regulations.
|
Authority
of Officers and Directors
After the
Effective Date, we expect that the Board (or some subset thereof) and our
officers will continue in their positions for the purpose of winding up the
business and affairs of Nyer. The Board may appoint officers, hire employees and
retain independent contractors and agents in connection with the winding up
process, and is authorized to pay compensation to or otherwise compensate Nyer's
directors, officers, employees, independent contractors and agents above their
regular compensation in recognition of the extraordinary efforts they may be
required to undertake in connection with the successful implementation of the
Plan of Dissolution. Adoption of the Plan of Dissolution by the requisite vote
of our shareholders will constitute approval by our shareholders of any such
cash or non-cash compensation.
The
approval of the Plan of Dissolution by our shareholders also will authorize,
without further shareholder action, the Board to do and perform, or to cause our
officers to do and perform, any and all acts and to make, execute, deliver or
adopt any and all agreements, resolutions, conveyances, certificates and other
documents of every kind that the Board deems necessary, appropriate or
desirable, in the absolute discretion of the Board, to implement the Plan of
Dissolution and the transactions contemplated thereby, including, without
limitation, all filings or acts required by any state or federal law or
regulation to wind up its affairs.
Liquidating
Trust
If deemed
necessary, appropriate or desirable by the Board, in furtherance of the
dissolution and distribution of our assets to shareholders in accordance with
our Plan of Dissolution, we may transfer to one or more liquidating trustees,
for the benefit of our shareholders under a liquidating trust, any or all of our
assets, including any cash intended for distribution to creditors and
shareholders not disposed of at the time of dissolution of Nyer. The Board is
authorized to appoint one or more individuals, corporations, partnerships or
other persons, or any combination thereof, including, without limitation, any
one or more of our directors, officers, employees, agents or representatives, to
act as the initial trustee. Any trustee so appointed shall succeed to all right,
title and interest of Nyer of any kind and character with respect to such
transferred assets and, to the extent of the assets so transferred and solely in
its capacity as trustee, shall assume all of our claims and obligations,
including any unsatisfied claims and unknown or contingent liabilities. Any
conveyance of assets to a trustee shall be deemed to be a distribution of
property and assets by us to our shareholders, including for U.S. federal income
tax purposes. Approval of the Plan of Dissolution by our shareholders shall
constitute the approval of any trustee so appointed, any liquidating trust
agreement, and any transfer of assets by us to the trust.
Whether
or not a trust shall have been previously established, if it should not be
feasible for us to make the final liquidating distribution to our shareholders
of all our assets and properties prior to the third anniversary of the filing of
our articles of dissolution, then, on or before such date, we may establish a
trust and transfer any remaining assets and properties to the trustees. Any such
distribution shall be only in the form of cash.
Professional
Fees and Expenses
It is
specifically contemplated that we will obtain legal and accounting advice and
guidance from one or more law and accounting firms in implementing the Plan of
Dissolution, and we will pay all fees and expenses reasonably incurred by us in
connection with or arising out of the implementation of the Plan of Dissolution,
including the prosecution, defense, settlement or other resolution of any claims
or suits by or against us, the discharge, filing and disclosure of outstanding
obligations, liabilities and claims, filing and resolution of claims with local,
county, state and federal tax authorities, and the advancement and reimbursement
of any fees and expenses payable by us pursuant to the indemnification we
provide in our certificate of incorporation and bylaws, the FBCA or otherwise.
In addition, in connection with and for the purpose of implementing and assuring
completion of the Plan of Dissolution, we may, in the absolute discretion of the
Board, pay any brokerage, agency, professional and other fees and expenses of
persons rendering services to us in connection with collection, sale, exchange
or other disposition of Nyer's property and assets and the implementation of the
Plan of Dissolution.
Indemnification
We will
continue to indemnify our directors, officers, employees, consultants, and
agents to the maximum extent permitted in accordance with applicable law, our
certificate of incorporation and bylaws, and any contractual arrangements, for
actions taken in connection with the Plan of Dissolution and the winding up of
our business and affairs, and we will indemnify any trustees and their agents on
similar terms. The Board and trustees are authorized to obtain and maintain
insurance for the benefit of such directors, officers, employees, consultants,
agents and trustees to the extent permitted by law and as may be necessary or
appropriate to cover our obligations under the Plan of Dissolution, including
seeking an extension in time and coverage of Nyer's insurance policies currently
in effect.
Liquidating
Distributions
We will,
as determined by the Board, (1) pay or make reasonable provision to pay all
claims and obligations, including all contingent, conditional or unmatured
contractual claims known to Nyer, (2) make such provisions as will be reasonably
likely to be sufficient to provide compensation for any claim against Nyer which
is the subject of a pending action, suit or proceeding to which Nyer is a party
and (3) make such provision as will be reasonably likely to be sufficient to
provide compensation for claims that have not been made known to Nyer or that
have not arisen but that, based on facts known to Nyer or successor entity, are
likely to arise or to become known to Nyer or successor entity within 10 years
after the Effective Date. Any of our assets remaining after the payment or the
provision for payment of claims against and obligations of Nyer shall be
distributed by us pro rata to our shareholders. Such distribution may occur all
at once or in a series of distributions and shall be in cash or assets, in such
amounts, and at such time or times, as the Board or trustees, in their absolute
discretion, may determine.
If any
liquidating distribution to a shareholder cannot be made, whether because the
shareholder cannot be located, has not surrendered its certificates evidencing
our common stock as may be required pursuant to the Plan of Dissolution, or for
any other reason, then the distribution to which such shareholder is entitled
will be transferred, at such time as the final liquidating distribution is made,
to the official of such state or other jurisdiction authorized or permitted by
applicable law to receive the proceeds of such distribution. The proceeds of
such distribution will thereafter be held solely for the benefit of and for
ultimate distribution to such shareholder as the sole equitable owner thereof
and will be treated as abandoned property and escheat to the applicable state or
other jurisdiction in accordance with applicable law. In no event will the
proceeds of any such distribution revert to or become our property.
Amendment,
Modification or Revocation of Plan of Dissolution
If for
any reason the Board determines that such action would be in the best interest
of Nyer, the Board may, in its sole discretion and without requiring further
shareholder approval, revoke the Plan of Dissolution and all action contemplated
thereunder, to the extent permitted by the FBCA. The Board may not amend or
modify the Plan of Dissolution under circumstances that would require additional
shareholder approval under the FBCA and federal securities laws without
complying with such requirements. The Plan of Dissolution would be void upon the
effective date of any such revocation.
Cancellation
of Common Stock
The
liquidating distributions to shareholders pursuant to the Plan of Dissolution
shall be in complete redemption and cancellation of all of the outstanding
shares of our common stock. As a condition to receipt of the liquidating
distribution, the Board or trustees may require our shareholders to (1)
surrender to us their certificates evidencing their shares of common stock or
(2) furnish us with evidence satisfactory to the Board or trustees of the loss,
theft or destruction of such certificates, together with such surety bond or
other security or indemnity as may be required by and satisfactory to the Board
or trustees. Thereafter, each holder of our common stock will cease to have any
rights with respect to his, her or its shares, except the right to receive
distributions pursuant to the Plan of Dissolution.
Treatment
of Options and Warrants
Any
options or warrants to acquire shares of Nyer common stock will be cancelled,
effective at the same time the Plan of Dissolution is effective, without any
consideration. Therefore, holders of vested options or warrants
wishing to receive any proceeds in the dissolution should consider, with input
from their own advisors, whether they wish to exercise their vested options or
warrants prior to such time and notify Nyer of their intentions to exercise
their vested options or warrants on or before the record date set by the Nyer
Board for the liquidating distribution. Holders of options and
warrants will receive additional information about the deadline by which they
must exercise or have their options or warrants cancelled.
Liquidation
Under Code Sections 331 and 336
It is
intended that the Plan of Dissolution constitutes a plan of complete liquidation
of Nyer within the meaning of Sections 331 and 336 of the Code. The Plan of
Dissolution will be deemed to authorize the taking of such action as, in the
opinion of counsel for Nyer, may be necessary to conform with the provisions of
Sections 331 and 336 of the Code and the Treasury Regulations promulgated
thereunder.
Filing
of Tax Returns, Forms and Other Reports and Statements
The Plan
of Dissolution authorizes our officers to make such elections for tax purposes
as are deemed appropriate and in the best interest of Nyer. The Plan of
Dissolution directs us to file an appropriate statement of corporate dissolution
with the IRS to notify all jurisdictions of any withdrawals related to
qualification to do business, and to file final tax returns and reports as
required, including the proper IRS forms related to the reporting of liquidating
distributions to shareholders.
Estimated
Liquidating Distributions
MANY
OF THE FACTORS INFLUENCING THE AMOUNT OF CASH DISTRIBUTED TO OUR SHAREHOLDERS AS
A LIQUIDATING DISTRIBUTION CANNOT CURRENTLY BE QUANTIFIED WITH CERTAINTY AND ARE
SUBJECT TO CHANGE. ACCORDINGLY, YOU WILL NOT KNOW THE EXACT AMOUNT OF ANY
LIQUIDATING DISTRIBUTIONS YOU MAY RECEIVE AS A RESULT OF THE PLAN OF DISSOLUTION
WHEN YOU VOTE ON THE PROPOSAL TO APPROVE THE PLAN OF DISSOLUTION. YOU MAY
RECEIVE SUBSTANTIALLY LESS THAN THE AMOUNT WE CURRENTLY ESTIMATE.
As of
September 30, 2009, we had approximately $1 million of cash and $6 million of
trade accounts receivable and approximately $10 million of
liabilities. We expect that cash from operations, net of cash used in
operations, between September 30, 2009, and the closing dates of the WAG
Purchase and the DAW Stock Purchase will be break even. In addition,
we anticipate receiving the proceeds from the WAG Purchase and the DAW Stock
Purchase on the date of the closings and using cash, and current assets
converted to cash, between September 30, 2009, and the end of the dissolution
process for a number of items, including the following:
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costs
directly related to the WAG Purchase and the DAW Stock
Purchase;
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ongoing
operating, overhead, and administrative
expenses;
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severance
and termination benefits afforded to terminated
employees;
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insurance
coverage for periods subsequent to the Effective
Date;
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expenses
incurred in connection with the dissolution and our liquidation;
and
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professional,
legal, tax, accounting, and consulting
fees.
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This
projected liquidating distribution analysis assumes that the Plan of Dissolution
will be approved by our shareholders. If the Plan of Dissolution is
not approved by our shareholders, no liquidating distributions will be
made. Based on the foregoing, we currently estimate that the amount
ultimately distributed to our shareholders will be between approximately $1.84
and $2.00 per share of our common stock. We expect all holders of
preferred stock to convert those shares into common stock prior to the
liquidating distribution.
The following estimates are not
guarantees, do not reflect the total range of possible outcomes, and have not
been audited or reviewed by our independent registered public accounting
firm. You may receive substantially less than the amount we currently
estimate, or you may not receive any liquidating distributions if the Plan of
Dissolution is not approved by our shareholders.
Estimated Liquidating
Dividend to Shareholders
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Low
Range of
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High
Range of
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Net Proceeds
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Net Proceeds
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Cash
as of September 30, 2009
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$
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976,000
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$
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976,000
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Net
cash provided by WAG transaction (a)
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12,652,000
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12,882,000
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Net
cash provided by DAW transaction (b)
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1,175,000
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1,207,000
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Estimated
cash provided (used) in operations from October 1, 2009, through December
31, 2009 (c)
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(4,650,000
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)
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(4,068,000
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)
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Payment
in full of long-term debt (d)
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(509,000
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)
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(509,000
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)
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Professional
fees (legal, tax accounting, other) (e)
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|
(150,000
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)
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(100,000
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)
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Prepayment
of D&O insurance (f)
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(142,000
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)
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(142,000
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)
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Exercise
of fully vest stock options (g)
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1,223,000
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|
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1,223,000
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Total
cash available for distribution to shareholders
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|
10,575,000
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|
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|
11,469,000
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Shares
outstanding (h)
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5,744,416
|
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5,744,416
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Estimated
per share distribution
|
|
$
|
1.84
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|
$
|
2.00
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Notes:
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(a)
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Consists
of total proceeds of $18.9 million less $0.2 million for remaining
non-cancelable lease term on building leases of non-operative stores sold
to WAG; $1.1million for operating equipment lease buy-outs; $1.4 million
for executive and employee retention and severance benefits afforded to
employees on termination; $0.5 million to $0.6 million, in the high and
low ranges, respectively, for legal, tax, and accounting fees; and $4.0
million to $4.1 million, in the high and low ranges, respectively, for
state and federal income taxes.
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(b)
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Consists
of total proceeds of $0.3 million of cash plus income tax benefit from
loss on sale of $0.9 million.
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(c)
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Consists
of $4.5 million to $4.7 million, in the high and low range, respectively,
of accounts receivable cash collections; $6.9 million to $7.2 million, in
the low and high range of accounts payable disbursements, and $1.9 million
to $2.0 million of cash disbursements related to other current liabilities
including $0.2 million for accrued income taxes and $1.8 million for
accrued wages and related taxes. In conjunction with the DAW
Stock Purchase, the Management Team may assume up to $1.2 million of
liabilities and long-term debt of DAW and Nyer. In this case,
the benefit to Nyer of $1.5 million will be reduced for the amount of
liabilities and long-term debt
assumed.
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(d)
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Consists
of the unpaid principal balance of the Nyer and Nyle International Corp.
long-term debt. The capital lease obligations will be paid in
full in conjunction with the buy-out of the equipment
leases. The convertible debt will convert into
common stock on the date of the closing of the WAG Purchase and DAW Stock
Purchase. In conjunction with the DAW Stock Purchase, the
Management Team may assume up to $1.2 million of liabilities and long-term
debt of DAW and Nyer. In this case, the benefit to Nyer of $1.5
million will be reduced for the amount of liabilities and long-term debt
assumed.
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(e)
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Consists
of independent contractor fees, dissolution and liquidation expenses, and
other compliance costs.
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(f)
|
Consists
of directors and officers liability insurance. Nyer will prepay
directors and officers liability insurance for six years from the date of
total liquidation which will extend the directors and officers liability
insurance coverage for future
claims.
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|
(g)
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Consists
of fully vested in-the-money common stock options, which are assumed to be
exercised.
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|
(h)
|
Consists
of 3,978,199 shares of common stock outstanding as of September 30,
2009, and 733,000 shares of common stock issuable upon exercise of fully
vested in-the-money stock options, 218,000 shares of common stock issuable
upon conversion of the Series 2 Stock, and 815,217 shares of common stock
issuable upon conversion of the convertible promissory
notes.
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Pursuant
to the Plan of Dissolution, we intend to liquidate all of our remaining non-cash
assets and, after paying or making reasonable provision for the payment of
claims against and obligations of Nyer as required by law, distribute any
remaining cash to our shareholders. We may defend suits and incur claims,
liabilities and expenses (such as salaries and benefits, directors' and
officers' insurance, payroll and local taxes, facilities expenses, legal,
accounting and consulting fees, rent, and related expenses and miscellaneous
office expenses) following approval of the Plan of
Dissolution. Satisfaction of these claims, liabilities and expenses
will reduce the amount of assets available for ultimate distribution to
shareholders. While we cannot predict the actual amount of our liabilities,
other obligations and expenses and claims against us, we believe that available
cash and any amounts received from the sale of our remaining non-cash assets
will be adequate to provide for the satisfaction of our liabilities, other
obligations and expenses and claims against us and that we will make one or more
cash distributions to shareholders. The estimated range of approximately $1.84
and $2.00 per share is our best current estimate of the aggregate amount of cash
that will ultimately be available for distribution to shareholders.
We are
not able to predict with certainty the precise nature, amount or timing of any
distributions, primarily due to our inability to predict the amount of our
remaining liabilities or the amount that we will expend during the course of the
liquidation, the timing of any sales of our remaining non-cash assets and the
net value, if any, of our remaining non-cash assets. To the extent that the
amount of our liabilities or the amounts that we expend during the liquidation
are greater than we anticipate, our shareholders may receive substantially less
than the amount we currently estimate. The Board has not established a firm
timetable for any final distributions to our shareholders. Subject to
contingencies inherent in winding up our business, the Board intends to
authorize any distributions as promptly as reasonably practicable in our best
interests and the best interests of our shareholders. The Board, in its
discretion, will determine the nature, amount and timing of all distributions.
See “The Proposed Transactions— Factors That Our Shareholders Should Consider
With Respect to the Plan of Dissolution” beginning on
page ___.
Conduct
of the Company Following Dissolution
Assuming
that the Plan of Dissolution is approved by the requisite vote of our
shareholders, we intend to file articles of dissolution with the Florida
Secretary of State as soon as reasonably practicable after the closings of the
WAG Purchase and the DAW Stock Purchase. We intend to make a public announcement
in advance of the anticipated Effective Date. After the Effective Date, our
corporate existence will continue but we may not carry on any business except
that appropriate to wind up and liquidate our business and affairs, including,
without limitation, collecting and disposing of our assets, satisfying or making
reasonable provision for the satisfaction of our liabilities and, subject to
legal requirements, distributing our remaining property among our
shareholders.
Contingency
Reserve
Following
the Effective Date, we will pay all expenses and other known liabilities and,
should the Board determine it to be necessary and advisable, establish a
contingency reserve, consisting of cash or other assets, that the Board believes
will be adequate for the satisfaction of all current, contingent or conditional
claims and liabilities. We also may seek to acquire insurance coverage and take
other steps the Board determines are reasonably calculated to provide for the
satisfaction of the reasonably estimated amount of such liabilities. We are
currently unable to provide a precise estimate of the amount of a contingency
reserve or the cost of insurance or other steps we may undertake to make
provision for the satisfaction of liabilities and claims, but any such amount
will be deducted before the determination of amounts available for distribution
to shareholders.
The
actual amount of a contingency reserve, if established, may vary from time to
time and will be based upon estimates and opinions of the Board, derived from
consultations with management and outside experts, if the Board determines that
it is advisable to retain such experts, and a review of our estimated contingent
liabilities and our estimated ongoing expenses, including, without limitation:
anticipated salary, retention, compensation and benefits payments; estimated
legal and accounting fees; regulatory expenses; rent; payroll and other taxes;
miscellaneous office expenses; facilities costs; expenses accrued in our
financial statements; and costs related to public company reporting matters. We
anticipate that expenses for professional fees and other expenses of dissolution
may be significant. Our contingency reserve, if established, may not be
sufficient to satisfy all of our obligations, expenses and liabilities, in which
case a creditor could bring a claim against one or more of our shareholders for
the total amount distributed by us to that shareholder or shareholders pursuant
to the Plan of Dissolution. From time to time, we may distribute to our
shareholders on a pro rata basis any portions of a contingency reserve that the
Board deems no longer to be required.
Potential
Liability of Shareholders
Under the
FBCA, if the amount calculated to provide for the satisfaction of liabilities
and claims, including amounts in a contingency reserve, if established, are
insufficient to satisfy the aggregate amount ultimately found payable in respect
of our liabilities and claims against us, each shareholder could be held liable
for amounts due to creditors to the extent of such shareholder’s pro rata share
of the claim or up to the amounts distributed to such shareholder under the Plan
of Dissolution.
The
potential for shareholder liability regarding a distribution continues for three
years, with respect to known claims, and four years, with respect to unknown
claims, after the Effective Date. Under the FBCA, our dissolution does not
remove or impair any remedy available against Nyer, our directors, officers or
shareholders for any right or claim existing, or any liability incurred, prior
to such dissolution or arising thereafter, unless the action or other proceeding
thereon is not commenced within three years after the Effective Date as to known
claims and four years after the Effective Date with respect to unknown
claims..
If we
were held by a court to have failed to make adequate provision for our expenses
and liabilities, including amounts in a contingency reserve, if established, a
creditor could seek an injunction against us to prevent us from making
distributions to shareholders under the Plan of Dissolution. Any such action
could delay and substantially diminish liquidating distributions to our
shareholders.
Reporting
Requirements
Whether
or not the Plan of Dissolution is approved, we have an obligation to continue to
comply with the applicable reporting requirements of the Exchange Act, even
though compliance with such reporting requirements may be economically
burdensome of minimal value to our shareholders. If the Plan of Dissolution is
approved by our shareholders, in order to curtail expenses, we intend, on or
about the Effective Date, to seek relief from the SEC to suspend our reporting
obligations under the Exchange Act, and ultimately to terminate the registration
of our common stock. We anticipate that, if granted such relief, we would
continue to file current reports on Form 8-K to disclose material events
relating to our dissolution and liquidation along with any other reports that
the SEC might require. However, the SEC may not grant us the requested relief.
To the extent that we are unable to suspend our obligation to file periodic
reports with the SEC, we would be obligated to continue complying with the
applicable reporting requirements of the Exchange Act and will be required to
continue to incur the expenses associated with these reporting requirements,
which will reduce the cash available for distribution to our
shareholders.
Closing
of Transfer Books
The Board
may direct that our stock transfer books be closed and recording of transfers of
common stock discontinued as of the earliest of (1) the close of business on the
record date fixed by the Board for the first or any subsequent installment of
any liquidating distribution, (2) the close of business on the date on which our
remaining assets are transferred to a liquidating trust, or (3) the date on or
as reasonably practicable after we file our articles of dissolution under the
FBCA. We expect that the Board will close our stock transfer books on or around
the Effective Date. Thereafter, certificates representing shares of
our common stock will not be assignable or transferable on our books except by
will, intestate succession or operation of law, and we will not issue any new
stock certificates, other than replacement certificates. See “Cessation of
Trading of Common Stock” below.
The
liquidating distributions to shareholders pursuant to the Plan of Dissolution
shall be in complete redemption and cancellation of all of the outstanding
shares of our common stock. As a condition to receipt of the liquidating
distribution, the Board may require our shareholders to (1) surrender to us
their certificates evidencing their shares of common stock or (2) furnish us
with evidence satisfactory to the Board or any trustees of the loss, theft or
destruction of such certificates, together with such surety bond or other
security or indemnity as may be required by and satisfactory to the Board or any
trustees. Thereafter, each holder of our common stock will cease to have any
rights with respect to his, her or its shares, except the right to receive
distributions pursuant to the Plan of Dissolution.
In order
to participate in the liquidating distribution, shareholders must deliver their
share certificates to Nyer and provide all associated documents and tax
withholding information. Additional information regarding the process
for receiving a liquidation distribution will be provided by Nyer following the
approval of the Transactions. Any distributions otherwise payable by
us to shareholders who have not surrendered their stock certificates, if
requested to do so, may be held in trust for such shareholders, without
interest, pending the surrender of such certificates (subject to escheat
pursuant to the laws relating to unclaimed property).
Cessation
of Trading of Common Stock
We
anticipate that we will request that our common stock be delisted from the
NASDAQ Capital Market at the close of business on the Effective Date and that
trading will be suspended on the Effective Date or as soon thereafter as is
practicable. As noted above, we also currently expect to close our stock
transfer books on or around the Effective Date and to discontinue recording
transfers and issuing stock certificates (other than replacement certificates)
at that time. Accordingly, it is expected that trading in our shares of common
stock will cease after the Effective Date.
Material
U.S. Federal Income Tax Consequences
For a
description of the material U.S. federal income tax consequences, see “Proposed
Transactions — Material U.S. Federal Income Tax Consequences” beginning on page
___.
Accounting
Treatment
For a
description of the accounting treatment, see “Proposed Transactions — Accounting
Treatment” beginning on page ___.
Required
Vote
All
holders of our common stock and preferred stock as of the record date are
entitled to vote on Proposal 3. The approval of the Plan of Dissolution requires
the affirmative vote of the holders of a majority of the votes entitled to be
cast (which includes the votes represented by outstanding shares of Nyer common
stock and preferred stock, with each share of preferred stock having the right
to cast 2,000 votes). Abstentions and broker non-votes will
have the same effect as votes against Proposal 3. It is intended that shares
represented by the enclosed form of proxy will be voted in favor of Proposal 3
unless otherwise specified in such proxy.
Recommendation
of our Board of Directors
The Board
has determined that the dissolution of Nyer pursuant to the Plan of Dissolution
is advisable and in our best interests and the best interests of our
shareholders. The Board has approved the Plan of Dissolution and unanimously
recommends that shareholders vote "FOR" approval of Plan of
Dissolution.
No
Dissenters’ or Appraisal Rights
Nyer
shareholders are not entitled to any dissenters’ or appraisal rights in
connection with the Plan of Dissolution.
ADJOURNMENT
OF SPECIAL MEETING TO SOLICIT ADDITIONAL PROXIES
General
At the
Special Meeting, we may ask our shareholders to vote on a proposal to adjourn
the Special Meeting to another date, time or place, if deemed necessary in the
judgment of the proxy holders, for the purpose of soliciting additional proxies
to vote in favor of Proposals 1, 2 and 3. Any adjournment of the Special Meeting
may be made without notice, other than by the announcement made at the Special
Meeting, if the majority of those shares present at the meeting, in person or by
proxy, and entitled to vote thereon approve the adjournment proposal. However,
if, after the adjournment, the Board fixes a new record date for the adjourned
meeting, a new notice of the adjourned meeting shall be given to each
shareholder of record on the new record date entitled to vote at the adjourned
meeting. If we adjourn the Special Meeting to a later date, we will transact the
same business and, unless we must fix a new record date, only the shareholders
who were eligible to vote at the original meeting will be permitted to vote at
the adjourned meeting.
Required
Vote
The
approval of any adjournment of the Special Meeting requires the approval of the
majority of those shares present at the meeting, in person or by proxy, and
entitled to vote thereon. Abstentions from voting and broker
non-votes will have no impact on the vote on Proposal 4.
Recommendation
of our Board of Directors
The Board
unanimously recommends that shareholders vote "FOR" approval of Proposal
4.
INFORMATION
ABOUT THE NYER SPECIAL MEETING AND VOTING
Date,
Time and Place of the Special Meeting
The
enclosed Proxy is solicited on behalf of the Board of Directors of Nyer Medical
Group, Inc. for use at our Special Meeting on ___________, 2009, at Nyer’s
corporate headquarters located at 13 Water Street, Holliston, Massachusetts,
01746 at ___ a.m., Eastern time and at any and all adjournments thereof, for the
purposes set forth in the Notice of said meeting attached and incorporated
herein by this reference.
Shareholder
Record Date for the Special Meeting
Only
shareholders of record at the close of business on ___________, 2009, or the
Record Date, are entitled to notice of, and to vote at the Special Meeting. Each
share of common stock outstanding on the Record Date is entitled to one vote on
all proposals presented at the Special Meeting Series 2 Stock has aggregate
voting rights equal to 2,000 shares of our common stock. The preferred stock has
voting rights on all matters that come before the common shareholders for
vote. As of the close of business on the Record Date, we had ________
shares of common stock outstanding and ________ shares of Series 2 Stock
outstanding, which means that a total of ________ votes are eligible to be cast
at the Special Meeting.
Quorum;
Vote Required for Each Proposal
Quorum.
A majority of the
outstanding shares of each class or series of voting stock then entitled to
vote, represented in person or by proxy, shall constitute a quorum at the
Special Meeting.
Proposal 1:
The affirmative
vote of the holders of a majority of the votes entitled to be cast (which
includes the votes represented by outstanding shares of Nyer common stock and
preferred stock, with each share of preferred stock having the right to cast
2,000 votes), as well as the affirmative vote of the majority of the outstanding
shares of common stock, voting separately as a class, is required to approve the
WAG Purchase proposal.
Proposal 2:
The affirmative
vote of the holders of a majority of the votes entitled to be cast (which
includes the votes represented by outstanding shares of Nyer common stock and
preferred stock, with each share of preferred stock having the right to cast
2,000 votes), as well as the affirmative vote of the majority of the outstanding
shares of common stock, voting separately as a class, is required to approve the
DAW Stock Purchase proposal.
Proposal 3:
The affirmative
vote of the holders of a majority of the votes entitled to be cast (which
includes the votes represented by outstanding shares of Nyer common stock and
preferred stock, with each share of preferred stock having the right to cast
2,000 votes), is required to approve the Plan of Dissolution
proposal.
Proposal 4:
The affirmative
vote of the holders of a majority of the votes of Nyer common stock and
preferred stock present at the Special Meeting in person or by proxy and
entitled to vote on the proposal is required to permit the Board or its
chairman, in its or his discretion, to adjourn or postpone the Special Meeting
if necessary to solicit further proxies in favor of the transaction
proposals.
Voting
Procedures
Nyer
shareholders may vote by returning the enclosed proxy card by mail or in person
at the Special Meeting. All shares of Nyer common stock represented by properly
executed proxy cards received before or at the Special Meeting will be voted in
accordance with the instructions indicated on those proxy cards.
If no
instructions are indicated on a properly executed proxy, the shares will be
voted “FOR” each of the proposals. You are urged to sign and return the proxy
card even if you plan to attend the Special Meeting. In this way, your shares
will be voted even if you are unable to attend the Special Meeting.
If a
properly executed proxy card is returned and the shareholder has abstained from
voting on one or more of the proposals, the Nyer common stock represented by the
proxy will be considered present at the Special Meeting for purposes of
determining a quorum and entitled to vote on the abstained proposal or
proposals.
If a
shareholder wishes to give a proxy to someone other than management, he or she
may cross out the names appearing on the enclosed proxy form, insert the name of
some other person, sign and give the form to that person for use at the Special
Meeting.
If your
shares are held in the name of a brokerage firm, bank, nominee or other
institution (referred to as “in street name”), you will receive instructions
from the holder of record that you must follow in order for you to specify how
your shares will be voted. If you do not specify how you would like
your shares to be voted, the resulting broker “non-vote” will be counted toward
a quorum at the Special Meeting, but it will otherwise have the same effect as a
vote against the approval of Proposals 1, 2 and 3. Your shares may
still be voted on Proposal 4. Certain street name holders have the
authority to vote shares for which their customers do not provide voting
instructions on certain routine, uncontested items.
Shareholders
who sign, date and return a proxy but do not indicate how their shares are to be
voted are giving management full authority to vote their shares as they deem
best for us.
Revoking
your Proxy
You may
revoke your proxy at any time prior to the voting thereof by delivering a
written notice of revocation to our principal office or in person at the Special
Meeting.
Solicitation
of Proxies
We are
paying for the expense of soliciting proxies. We may use our officers to solicit
proxies from shareholders either in person or by telephone or letter without
extra compensation. We will pay all expenses of this solicitation, which are
estimated to be approximately $25,000.
Other
Business
Nyer is
not aware of any business to be acted on at the Special Meeting, except as
described in this proxy statement. If any other matters are properly presented
at the Special Meeting, or any adjournment or postponement of the Special
Meeting, the persons appointed as proxies or their substitutes will have
discretion to vote or act on the matter according to their best judgment and
according to their best judgment and applicable law unless the proxy indicates
otherwise.
Householding
of Special Meeting Materials
Some
banks, brokers and other record holders of our common stock may participate in
the practice of “householding” proxy statements, annual reports and notices of
internet availability of those documents. This means that, unless shareholders
give contrary instructions, only one copy of our proxy statement, annual report
or notice of internet availability may be sent to multiple shareholders in each
household. We will promptly deliver a separate copy of any of those documents to
you if you call or write to us at the following address: Nyer Medical Group,
Inc., 13 Water Street, Holliston, Massachusetts 07149. If you want to receive
separate copies of our proxy statement, annual report or notice of internet
availability in the future, or if you are receiving multiple copies and would
like to receive only one copy per household, you should contact your bank,
broker or other record holder, or you may contact us at the above
address.
SHAREHOLDER
PROPOSALS FOR NYER’S 2010 ANNUAL MEETING
Our
Bylaws provide that any shareholder proposal intended to be presented at any
annual meeting of shareholders must be received by our Secretary at least 60
days prior to the meeting subject to any other requirements of law; provided,
however, that in the event that less than 75 days’ notice or prior public
disclosure of the date of the meeting is given, such proposal must be received
not later than the close of business on the 15
th
day
following the day on which notice of the date of the meeting was mailed or such
public disclosure was made, whichever first occurs. A shareholder with the power
to vote at least ten percent of our then-outstanding voting securities may
nominate a director following the procedures outlined in the preceding
sentence.
If we
hold our annual meeting of shareholders for the fiscal year ending June 30, 2009
on or about the same time as last year’s annual meeting, any shareholder
proposal intended to be included in our proxy statement must be received at the
executive offices of us not later no later than 120 calendar days before the
anniversary of the release of the proxy statement related to that annual
meeting, and must otherwise satisfy the conditions established by the SEC and by
our Bylaws in order to be considered for inclusion in our proxy statement for
that meeting. However, if we hold our annual meeting of shareholders for the
fiscal year ending June 30, 2009 on a date that is more than 30 days earlier or
later than last year’s annual meeting, then a shareholder proposal must be
received by us at our principal place of business in a reasonable amount of time
prior to when we begin to print and mail our proxy materials.
If the
Transactions are approved and completed, we do not intend to hold any further
shareholder meetings.
WHERE
YOU CAN FIND MORE INFORMATION
Nyer
files annual, quarterly and current reports, proxy statements and other
information with the SEC. Our Annual Report of Form 10-K for the year ended June
30, 2009 is attached hereto as Annex E and our Quarterly Report on Form 10-Q for
the quarter ended September 30, 2009 is attached hereto as Annex
F. You may read and copy other such information at the following
location of the SEC:
Public
Reference Room
Room
1580
100 F
Street, N.E.
Washington,
D.C. 20549
Please
call the SEC at (202) 551-8090 for further information on the public reference
room. You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, at the address set forth above, at prescribed
rates. Nyer’s public filings are also available to the public from document
retrieval services and the website maintained by the SEC at www.sec.gov. Nyer’s
annual, quarterly and current reports are not incorporated by reference in this
proxy statement or delivered with it, but are available, without exhibits, to
any person, including any beneficial owner of Nyer common stock or preferred
stock, to whom this proxy statement is delivered, without charge, upon request
directed to Nyer at Nyer Medical Group, Inc., 13 Water Street, Holliston,
Massachusetts 07149, Attention: Investor Relations, with a copy to the attention
of Nyer’s chief executive officer, or by calling (508) 429-8506. You can also
get more information by visiting Nyer’s website at www.nyermedicalgroup.com.
Website materials are not part of this proxy statement.
You
should rely only on the information contained in this proxy statement. No
persons have been authorized to give any information or to make any
representations other than those contained in this proxy statement and, if given
or made, such information or representations must not be relied upon as having
been authorized by Nyer or any other person. You should not assume that the
information in this proxy statement is accurate as of any date other than
___________, 2009 (unless an earlier date is otherwise specified), and its
mailing to Nyer shareholders shall not create any implication to the
contrary.
ANNEX
A – WAG AGREEMENT
The
WAG Agreement has been included to provide you with information regarding its
terms. It is not intended to provide any other factual information about WAG,
DAW or Nyer. The terms and other information in the WAG Agreement should not be
relied upon as disclosure about WAG, DAW or Nyer without consideration of the
entirety of WAG’s and Nyer’s public disclosure as set forth in their respective
public filings with the SEC. WAG’s and Nyer’s other public disclosure can be
found elsewhere in this proxy statement and in the other public filings that WAG
and Nyer make with the SEC, which are available without charge at
www.sec.gov.
The
WAG Agreement contains representations and warranties WAG, DAW and Nyer made to
each other for purposes of allocating contractual risk among the parties to the
agreement. The assertions embodied in those representations and warranties are
qualified by information in confidential disclosure schedules that WAG, DAW and
Nyer have exchanged in connection with signing the WAG Agreement. The disclosure
schedules contain information that modifies, qualifies and creates exceptions to
the representations and warranties set forth in the attached WAG Agreement.
Accordingly, you should not rely on the representations and warranties as
characterizations of the actual state of facts, since they are modified by the
underlying disclosure schedules and may be subject to standards of materiality
that differ from those applicable to investors. None of WAG, DAW nor Nyer
believes that the disclosure schedules contain information that the securities
laws require either or both of them to publicly disclose. Moreover, information
concerning the subject matter of the representations and warranties may have
changed since the date of the agreement, which subsequent information may or may
not be fully reflected in WAG’s and Nyer’s respective public
disclosures.
ASSET PURCHASE
AGREEMENT
This ASSET PURCHASE AGREEMENT
(this “
Agreement
”) is made
and entered into as of October 22, 2009, by and among Walgreen Eastern Co., Inc.
a New York corporation (“
Buyer
”), D.A.W.,
Inc., d/b/a Eaton Apothecary, a Massachusetts corporation (“
Seller
”) and solely
respect to those sections identified in
Section 12.13
herein,
Nyer Medical Group, Inc., a Florida corporation (“
Nyer
”).
WHEREAS, Seller, among other things,
owns and operates a chain of retail pharmacies;
WHEREAS, Seller desires to sell to
Buyer, and Buyer desires to purchase from Seller, upon the terms and subject to
the conditions set forth in this Agreement, certain of (i) the assets of Seller
used in the operation of the eight pharmacy locations identified as “Operate
Location Pharmacies” on
Exhibit A
hereto (the
“
Operate Location
Pharmacies
”); and (ii) the assets related to the four pharmacy locations
identified as “Non-Operate Location Pharmacies” on
Exhibit B
hereto (the
“
Non-Operate Location
Pharmacies
” and together with the Operate Location Pharmacies, the “
Pharmacies
”);
and
NOW, THEREFORE, in consideration of the
mutual covenants and agreements hereinafter set forth, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
ARTICLE
I
DEFINITIONS
1.1.
Definitions
. In
this Agreement, the following terms have the meanings specified or referred to
in this
Section 1.1
.
“
Affiliate
”
means, with respect to any
Person, any other Person that directly or indirectly controls, is controlled by
or is under common control with such Person.
“
Assignment
and Assumption of Real Estate Lease
”
means the Assignment and
Assumption of Real Estate Lease associated with each of the Operate Location
Pharmacies as set forth on
Exhibit C
hereof, to
be delivered by Buyer and Seller at Closing, and each in the form of
Exhibit J-1
through
J-8
.
“
Assumed
Contracts
”
means
the Seller’s leasehold interest under the real estate leases, modifications,
amendments and supplements thereto, associated with the Operate Location
Pharmacies as set forth on
Exhibit
C
.
“
Bill of
Sale
”
means the
Bill of Sale, to be delivered by Seller at Closing, in the form of
Exhibit
D
.
“
Business
”
means the business of owning and operating all of the Purchased
Assets.
“
Buyer
Group Members
” means Buyer and its Affiliates, directors, officers,
employees, agents, attorneys and consultants and their respective successors and
assigns.
“
Calculation
Date
”
means the
date that is two business days prior to the Closing Date.
“
Closing
”
means the closing of the
transfer of the Purchased Assets from Seller to Buyer and
“
Closing
Date
”
means the
time and date upon which the Closing actually occurs.
“
Code
”
means the Internal Revenue
Code of 1986, as amended.
“
Confidential
Information
”
means, with respect to any Person, information regarding such Person that is not
previously disclosed to the public or to the trade and includes information
regarding, facilities, strategies, methods, trade secrets and other intellectual
property, software, systems, procedures, operational policies, manuals,
confidential reports, product price lists, pricing and cost policies, customer
lists, inventory information, financial information (including revenue, costs or
profits of the disclosing party), business plans, prospects, or
opportunities.
“
Encumbrance
”
means any lien, encumbrance,
claim, charge, security interest, assignment, collateral assignment, mortgage,
pledge, easement, conditional sale or other title retention agreement, defect in
title, covenant or other like restrictions.
“
Environmental,
Health and Safety Requirements
”
means all Requirements of
Law concerning or relating to public health and safety, worker/occupational
health and safety, and pollution or protection of the environment, including
those relating to the presence, use, manufacturing, refining, production,
generation, handling, transportation, treatment, recycling, transfer, storage,
disposal, distribution, importing, labeling, testing, processing, discharge,
release, threatened release, control, or other action or failure to act
involving cleanup of any Hazardous Substances, noise, or radiation, each as
amended and as now in effect, including: the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended; the Occupational
Safety and Health Act of 1970, as amended; the Federal Water Pollution Control
Act, as amended; the Federal Resource Conservation and Recovery Act, as amended;
the Toxic Substances Control Act, as amended; the Federal Clean Air Act, as
amended, and the Superfund Amendments and Reauthorization Act.
“
ERISA
”
means the Employee
Retirement Income Security Act of 1974, as amended.
“
Excluded
Business
” means Seller’s business other than the
Business.
“
Excluded
Inventory
”
means
(i) the Operate Excluded Inventory and the Non-Operate Excluded Inventory, as
applicable, and (ii) any amount of Inventory that would result in the Purchase
Price exceeding $18,836,106.00.
“
Expenses
”
means any and all reasonable
expenses incurred in connection with investigating, defending or asserting any
claim, action, suit or proceeding incident to any matter indemnified against
hereunder (including court filing fees, court costs, arbitration fees or costs,
witness fees, and reasonable fees and disbursements of legal counsel,
investigators, expert witnesses, accountants and other
professionals).
“
FBCA
”
means the Florida Business Corporation Act, as amended.
“
Governmental
Body
”
means any
foreign, federal, state, local or other governmental authority or regulatory
body.
“
HIPAA
”
means the Health Insurance
Portability and Accountability Act of 1996, P. L. 104-191, and its implementing
rules and regulations.
“
Hazardous
Substances
”
has
the meaning set forth in Section 101(14) of the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, and will also
expressly include petroleum, crude oil and any fraction thereof.
“
Intellectual
Property
”
means
the trade names “Eaton Apothecary”, “Strand Pharmacy” and any logos or designs
of like nature whether registered or reregistered, and registrations and pending
applications to register the foregoing.
“
knowledge
”
means, in the case of
Seller, the actual knowledge of Seller’s officers and directors and, in the case
of Nyer, the actual knowledge of Nyer’s officers and directors.
“
Loss
”
means any and all losses,
costs, obligations, liabilities, settlement payments, awards, judgments, fines,
penalties, damages, expenses, deficiencies or other charges, including any
amount payable with respect to Taxes (including any amounts relating to Taxes
payable pursuant to a contract or otherwise).
“
Non-Operate
Excluded Inventory
”
means, with respect to the Non-Operate Location Pharmacies: (i) all
inventory that is not salable in the ordinary course of business; (ii) sample
inventory; (iii) inventory out of date within ninety (90) days after the Closing
Date, as shown by manufacturer’s labeled expiration date; (iv) prescription
items over three years old; (v) vials, bottles and similar products; (vi)
diagnostic testing products (including machines, test strips and similar
products) that are for use by customers of such Non-Operate Location Pharmacy;
(vii) inventory that has been damaged or broken, is shopworn or faded (including
faded labels), or that has visible deterioration; (viii) inventory that is not
in its original packaging; (ix
)
any compounding inventory
that (a) is
without
a National Drug Code
(“
NDC
”) number, (b) is
with
a Professional
Compounding Centers of America (“
PCCA
”) identification number
or (c) is reasonably determined by Buyer to constitute hazardous
materials
;
(x)
obsolete inventory not currently being supplied by distributors to retail
stores; (xi) any items subject to a mandatory or voluntary recall; and (xii) any
other items that the parties agree to exclude.
“
Operate
Excluded Inventory
”
means, with respect to the Operate Location Pharmacies: (i) all inventory
that is not salable in the ordinary course of business; (ii) sample inventory;
(iii) inventory out of date within ninety (90) days after the Closing Date, as
shown by manufacturer’s labeled expiration date; (iv) prescription items over
three years old; (v) vials, bottles and similar products; (vi) diagnostic
testing products (including machines, test strips and similar products) that are
for use by customers of such Operate Location Pharmacy; (vii) inventory that has
been damaged or broken, is shopworn or faded (including faded labels), or that
has visible deterioration; (viii) inventory that is not in its original
packaging; (ix
)
any compounding inventory
that (a) is
without
an NDC number, (b) is
with
a PCCA identification
number or (c) is reasonably determined by Buyer to constitute hazardous
materials
;
(x)
obsolete inventory not currently being supplied by distributors to retail
stores; (xi) any items subject to a mandatory or voluntary recall; and (xii) any
other items that the parties agree to exclude.
“
Parata
Equipment Amount
”
means $1,086,106.00.
“
Permitted
Encumbrances
” means (a) Encumbrances for taxes or assessments or other
governmental charges which are not yet due and payable and (b) materialmen’s,
merchants’, carriers’, worker’s, repairer’s, or other similar Encumbrances
arising in the ordinary course of business which are not yet due or payable and
(c) the right, title and interest the landlords have under the Assumed Contracts
in accordance with their terms. Notwithstanding the foregoing, the
term “
Permitted
Encumbrances
” shall not include Encumbrances on the Purchased Assets held
by each of McKesson Corporation, Americorp Finanical, LLC, and McKesson
Automation Systems, Inc.
“
Person
”
means any individual,
corporation, partnership, joint venture, trust, Governmental Body or other
organization or entity.
“
Power of
Attorney
”
means
the Power of Attorney, to be delivered by Buyer and Seller at Closing, in the
form of
Exhibit
E
.
“
Premises
”
means the premises upon
which any of the Operate Location Pharmacies conducts its business.
“
Requirements
of Law
”
means any
foreign, federal, state and local laws, statutes, regulations, rules, codes or
ordinances enacted, adopted, issued or promulgated by any Governmental
Body.
“
Security
Deposits
”
means
all security deposits paid by Seller to any Person prior to the Closing related
to the Assumed Contracts and listed on
Exhibit
K
.
“Seller/Nyer
Group Members
” means Seller, Nyer and each of their Affiliates,
directors, officers, employees, agents, attorneys and consultants and their
respective successors and assigns.
“
Shared
Expenses
”
means
an amount equal to the aggregate of all expenses associated with the Independent
Valuator.
“
Straddle
Period
”
means any
taxable year or period beginning on or before and ending after the Closing
Date.
“
Targeted
Inventory Amount
” means $5,750,000.00.
“
Tax
”
(and, with correlative meaning, “
Taxes
”) shall mean
any federal, state, local, or foreign net income, gross income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Section 59A),
customs, ad valorem, duties, capital stock, franchise, profits, prescription tax
or fee, withholding, social security, unemployment, disability, real property,
personal property, production, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, unclaimed property, custom duties
governmental fee or other like assessment or other tax of any kind whatsoever,
including any interest, penalty, or addition thereto, whether disputed or
not.
“
Tax
Return
” means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes required to be filed with any
Governmental Body, including any schedule or attachment thereto, and including
any amendment thereof.
“
Third-Party
Payor Agreements
”
means, with respect to the Business, the contracts and agreements between
Seller and any Government Body, insurance company, managed care company or other
third party payor.
1.2.
Additional
Definitions
. The following terms are defined in the Sections
set forth across from such term in the following table:
Agreement
|
|
Preamble
|
Alternate
Transaction
|
|
8.17
|
Assumed
Liabilities
|
|
2.3
|
Break-Up
Fee
|
|
8.17
|
Business
Employee
|
|
5.11(a)
|
Buyer
|
|
Preamble
|
Buyer
Applications
|
|
8.9(a)
|
Chosen
Courts
|
|
12.12
|
Claim
Notice
|
|
9.4(a)
|
Closing
Date Payment
|
|
3.2(a)(i)
|
Continuing
Employees
|
|
8.1(i)
|
Customer
|
|
8.2(b)
|
Data
Converter
|
|
8.3(a)
|
Employee
Data Schedule
|
|
5.11(a)
|
Employee
Plans
|
|
5.11(b)
|
End
Date
|
|
11.1(e)
|
Excluded
Assets
|
|
2.2
|
Excluded
Contracts
|
|
2.2(b)
|
Excluded
Liabilities
|
|
2.4
|
Expense
Reimbursement
|
|
8.17
|
Financial
Statements
|
|
6.8
|
IOU
Prescriptions
|
|
8.4
|
Incentive
Plan
|
|
8.1(f)
|
Indemnified
Person
|
|
9.4(a)
|
Indemnitor
|
|
9.4(a)
|
Independent
Valuator
|
|
3.3
|
Inventory
|
|
2.1(c)
|
Inventory
Amount
|
|
3.3
|
Inventory
Audit
|
|
3.3
|
Landlord
Estoppel Certificates
|
|
8.14
|
Negative
Inventory Adjustment Amount
|
|
3.1
|
Non-Operate
Location Pharmacies
|
|
Preamble
|
Nyer
|
|
Preamble
|
Nyer
Fundamental Representations
|
|
9.2(a)
|
Nyer
Parties
|
|
8.2(a)
|
Nyer
Shareholder Approval
|
|
6.4
|
Operate
Location Pharmacies
|
|
Preamble
|
Operations
Data
|
|
5.5
|
Other
Financial Data
|
|
6.8
|
Parata
Equipment
|
|
5.9
|
Payment
Programs
|
|
5.14(c)(i)
|
Permits
|
|
5.14(a)
|
Personal
Property
|
|
2.1(a)
|
Pharmacies
|
|
Preamble
|
PHI
|
|
8.3(c)
|
Power
of Attorney
|
|
8.9(c)
|
Prepaid
Rent Amount
|
|
3.4
|
Prorated
Charges
|
|
12.7
|
Purchase
Price
|
|
3.1
|
Purchased
Assets
|
|
2.1
|
Record
Data
|
|
8.3(a)
|
Records
|
|
2.1(b)
|
Seller
|
|
Preamble
|
Seller
Fundamental Representations
|
|
9.1(a)
|
Tenant
Estoppel Certificates
|
|
8.14
|
Third
Party Distributor
|
|
8.3(d)
|
Third
Person Claim
|
|
9.4(a)
|
Transferable
Permits
|
|
8.9(a)
|
Transferred
Employees
|
|
8.1(b)
|
Transfer
Taxes
|
|
8.6
|
Transition
Services
|
|
8.12(c)
|
Transition
Services Period
|
|
8.12(c)
|
WARN
Act
|
|
2.4(c)
|
1.3.
Interpretation
. Article
titles and headings to sections herein are inserted for convenience of reference
only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement. The Schedules and Exhibits referred
to herein shall be construed with and as an integral part of this Agreement to
the same extent as if they were set forth verbatim herein. Any
agreement referred to herein shall mean such agreement as amended, supplemented
and modified from time to time to the extent permitted by the applicable
provisions thereof and by this Agreement. As used herein, the word
“including” means “including without limitation.”
ARTICLE
II
PURCHASE
AND SALE
2.1.
Purchased
Assets
. Upon the terms and subject to the conditions of this
Agreement, on the Closing Date, Seller shall sell, transfer, assign, convey and
deliver to Buyer, and Buyer shall purchase from Seller, free and clear of all
Encumbrances (except Permitted Encumbrances), all right, title and interest of
Seller in, to and under substantially all of the assets and properties of Seller
(other than the Excluded Assets), used in the ownership or operation of the
Pharmacies, as the same shall exist on the Closing Date, including the following
(collectively, the “
Purchased
Assets
”):
(a) Any
and all Seller owned personal property located at the Operate Location
Pharmacies, including all furniture, fixtures, equipment, leasehold improvements
and signage (collectively, the “
Personal
Property
”);
(b) Any
and all prescriptions, prescription files and records, customer lists and
patient profiles, including refill status reports and insurance coverages, any
files or records maintained electronically, any files or records added between
the date of this Agreement and the Closing Date, in each case related to the
Pharmacies (collectively, the “
Records
”);
(c) Except
for the Excluded Inventory, all inventory located at the Pharmacies (the “
Inventory
”);
(d) All
improvements, fixtures, and fittings thereon, and other appurtenants located at
any Operate Location Pharmacies (such as appurtenant rights in and to public
streets) including prepaid rent, rent credits and tenant improvement credits and
allowances paid or made with respect to the Premises;
(e) Except
as expressly set forth in
Section 2.2
, all
papers, documents, computerized databases and records of Seller relating to the
Purchased Assets, including, without limitation, personnel, labor relations and
workers’ compensation records relating to employees hired by Buyer, DEA records,
environmental control records and plans and specifications relating to the
buildings, fixtures and other improvements located at the
Pharmacies;
(f) Any
guarantees, warranties, indemnities and similar rights relating to Purchased
Assets;
(g) All
rights in, to and under the Assumed Contracts (including any Security Deposits
adjusted for pursuant to
Section
3.4
);
(h) The
Parata Equipment; and
(i) Any
other mutually agreeable assets related to the Pharmacies.
2.2.
Excluded
Assets
. Notwithstanding the provisions of
Section 2.1
the
Purchased Assets shall not include the following (collectively, the “
Excluded
Assets
”):
(a) All
security deposits, cash and cash deposits and accounts receivable, including
insurance receivables, of Seller or the Business;
(b) All
agreements, leases, contracts and understandings of Seller other than the
Assumed Contracts (collectively, the “
Excluded
Contracts
”);
(c) All
employee benefit plans, programs or arrangements and all contracts of insurance
of Seller;
(d) All
of Seller’s software and any web sites, including the URL addresses and related
domain names;
(e) All
corporate minute books and the corporate seal of Seller;
(f) All
assets primarily used in the ownership or operation of the Excluded
Business;
(g) All
real estate leases other than those included in Assumed Contracts;
(h) The
Excluded Inventory;
(i) All
causes of action, rights, choses in action and claims of Seller against third
parties;
(j) All
refunds of any Tax for which Seller or Nyer is liable pursuant to
Section
8.6
;
(k) All
of Seller’s Intellectual Property; and
(l) All
vehicles.
2.3.
Assumed
Liabilities
. Buyer shall assume the obligations of Seller
under the Assumed Contracts (i) arising after the Closing Date, except to the
extent such obligations, but for a breach or default by Seller, which would have
been paid, performed or otherwise discharged on or prior to the Closing Date or
to the extent the same arise out of any such breach or default and (ii) arising
prior to the Closing Date if, but only if, Buyer shall have received a credit
therefore pursuant to
Sections 3.4
or
12.7
hereof
(collectively, the “
Assumed
Liabilities
”).
2.4.
Excluded
Liabilities
. Notwithstanding anything contained in this
Agreement to the contrary and except as otherwise provided in
Section 2.3
hereof,
Buyer shall not assume or be obligated to pay, perform or otherwise discharge
any other liability of Seller whatsoever or any liabilities or obligations
constituting an Encumbrance upon the Purchased Assets, regardless of whether any
such liabilities or obligations are absolute or contingent, liquidated or
unliquidated, or otherwise. Seller shall remain liable for all
liabilities other than the Assumed Liabilities (collectively, the “
Excluded
Liabilities
”), including any obligations arising on and/or before the
Closing Date, any liabilities and obligations arising on and/or before the
Closing Date under any Assumed Contracts, any liabilities related to any
Excluded Assets, any liabilities arising under the Excluded Contracts and all
liabilities in respect of Taxes for which each of Seller and Nyer is liable
pursuant to
Section
8.6
. Without limiting the generality of the foregoing, in no
event shall Buyer assume any of the following liabilities or
obligations:
(a) any
liabilities arising from the ownership or operation of the Purchased Assets or
the Business on and/or prior to the Closing Date;
(b) any
liabilities with respect to any Persons at any time employed by Seller or its
Affiliates in connection with the operation or ownership of the Business or the
Purchased Assets, including, without limitation, all liabilities for severance
pay, accrued vacation, personal time off and sick pay, overtime pay and
associated back pay, whether known or unknown, fixed or contingent, which arise
out of events occurring prior to employment of any of such Persons, if at all,
by Buyer;
(c) any
liabilities arising under the Worker Adjustment and Retraining Notification Act
(the “
WARN
Act
”) in connection with Seller’s termination of any employees;
or
(d) any
legal obligations of Seller under HIPAA or other applicable laws or regulations,
including the HIPAA privacy standard requiring accounting of certain disclosures
of Protected Health Information (“
PHI
”) made by Seller
on and/or prior to the Closing Date.
ARTICLE
III
PURCHASE
PRICE
3.1.
Purchase
Price
. In consideration for the sale of the Purchased Assets
described in this Agreement, the aggregate purchase price (the “
Purchase Price
”)
shall be equal to $17,750,000.00,
plus
the sum of (a)
the Prepaid Rent Amount and (b) the Parata Equipment Amount, and
minus
the amount, if
any, by which the Targeted Inventory Amount exceeds the Inventory Amount (a
“
Negative Inventory
Adjustment Amount
”).
3.2.
Payments
.
(a) On
the Closing Date:
(i) Buyer
shall pay to Seller $12,000,000.00,
plus
the sum of (a)
the Prepaid Rent Amount and (b) the Parata Equipment Amount (such payment, the
“
Closing Date
Payment
”).
(ii)
On the Closing Date or the later date on which Buyer has
received all of the Inventory Audits signed by representatives of Buyer, Seller
and the Independent Valuator (such date not to exceed three business days from
date of Buyer’s receipt), (A) if the Inventory Amount exceeds the Targeted
Inventory Amount, Buyer shall pay Seller an amount equal to (i) the Targeted
Inventory Amount,
less
(ii) one-half of
the Shared Expenses (Buyer and Seller agree to negotiate in good faith all
amounts in excess of the Targeted Inventory Amount); and (B) if the Targeted
Inventory Amount exceeds the Inventory Amount, Buyer shall pay Seller an amount
equal to (i) the Targeted Inventory Amount,
less
(ii) the
Negative Inventory Adjustment Amount, and
less
(iii) one-half
of the Shared Expenses.
(b) All
payments made by Buyer or Seller hereunder shall be by wire transfer of
immediately funds to an account specified by Seller or Buyer, as
applicable.
3.3.
Inventory
Amount
. The parties shall commission RGIS or another
independent valuator (the “
Independent
Valuator
”) to conduct a full review and valuation of the Inventory, to be
valued in tenths, at each of the Pharmacies on the Closing Date (each, an “
Inventory
Audit
”). Each of Seller and Buyer shall be permitted to have
representatives present to observe each Inventory Audit. The costs
and expenses of the Independent Valuators are to be shared equally by Buyer and
Seller as provided in
Section
12.7
. The Independent Valuators will determine the aggregate
value of the Inventory at each of the Pharmacies as of the required date (such
aggregate value, the “
Inventory Amount
”) in
accordance with the procedures set forth on
Exhibit
F
. Unless otherwise agreed by the parties, the Inventory
Amount as determined by the Independent Valuator in conducting the Inventory
Audit shall be binding upon Seller and Buyer.
3.4.
Prepaid
Rent; Security Deposits
. At least two business days prior to
the Closing Date, Seller shall provide to Buyer a certificate duly executed by
Seller’s chief financial officer setting forth the amount of rent paid under any
Assumed Contract relating to periods after the Closing Date, including, without
limitation, unapplied Security Deposits under the Assumed Contract (such amount
that Buyer shall have the opportunity to confirm or otherwise agree to, the
“
Prepaid Rent
Amount
”). The certificate shall be in form and substance reasonably
satisfactory to Buyer and shall contain such detail as Buyer reasonably
requests. Buyer shall be afforded an opportunity to review and confirm all
amounts set in the certificate prior to Closing.
3.5.
Allocation of Purchase
Price
. The Purchase Price shall be allocated among the
Purchased Assets in the manner set forth on
Schedule 3.5
hereto. Purchaser and Seller shall agree on the final purchase price
allocation prior to the Closing subject to the completion of the Inventory
Audit. Seller and Buyer agree to file all their respective federal,
state and local tax returns in accordance with that allocation.
3.6
UCC
Searches
. Buyer may conduct Uniform Commercial Code searches
of state and county records. Any Encumbrances on the Purchased Assets
disclosed by any such searches shall be satisfied in full by Seller or released
in full by the holder of such lien prior to the Closing Date. Buyer
may, at the option of Seller, deduct the amount of all Encumbrances on the
Purchased Assets from the Purchase Price to satisfy such
Encumbrances.
ARTICLE
IV
CLOSING
4.1.
Closing
Date
. The Closing shall be consummated as promptly as
practicable following satisfaction of the conditions precedent contained herein,
at a date and time mutually agreed upon by the parties.
4.2.
Closing Date Payment;
Buyer’s Closing Deliveries
. At Closing, Buyer shall deliver to
Seller (or to Seller’s designee) each of the following:
(a) An
amount equal to the Closing Date Payment, by wire transfer of immediately
available funds to an account specified by Seller;
(b) A
certificate, dated as of the Closing Date, signed by an officer of Buyer to the
effect set forth in clauses (a) and (b) of
Section 10.1
;
(c) The
Power of Attorney as contemplated by
Section 8.9(c)
duly
executed by an authorized officer of Buyer;
(d) The
Assignment and Assumption of Real Estate Leases, in the forms attached hereto as
Exhibit J-1
through
J-8
,
duly executed by Buyer, pursuant to which Seller shall assign each Operate
Location Pharmacy lease as set forth on
Exhibit C
, hereof and
Buyer shall assume all obligations thereunder; and
(e) Such
other instruments or documents as may be reasonably necessary or appropriate to
carry out the transactions contemplated hereby.
4.3.
Seller’s Closing Date
Deliveries
. At or prior to Closing, Seller shall deliver to
Buyer each of the following:
(a) Possession
of the Purchased Assets;
(b) All
Record Data, in accordance with
Section
8.3
;
(c) A
certificate, dated as of the Closing Date, signed by an officer of Seller to the
effect set forth in clauses (a) and (b) of
Section 10.2
;
(d) A
certificate of the secretary or an assistant secretary of Seller and Nyer, dated
as of the Closing Date, in form and substance reasonably satisfactory to Buyer,
as to the certificate or articles of incorporation of Seller and Nyer; (ii) the
by-laws (or similar document) of Seller and Nyer; (iii) the authority of Seller
and Nyer regarding the due execution and performance of this Agreement and the
contemplated transactions; (iv) the good standing of Seller and Nyer in the
Commonwealth of Massachusetts and the State of Florida, respectively; and (v)
the incumbency and signatures of the officers of Seller and Nyer executing this
Agreement and any document or agreement required to be delivered
hereunder;
(e) The
Bill of Sale, in the form attached hereto as
Exhibit D
, duly
executed by an authorized officer of Seller;
(f) The
Power of Attorney as contemplated by
Section 8.9(c)
, duly
executed by authorized officers of Seller;
(g) Completed
and executed Landlord Estoppel Certificates and Tenant Estoppel Certificates
substantially in the forms attached hereto as
Exhibit H
and
Exhibit I
,
respectively, from each of the tenants and landlords of the leases identified on
Exhibit C
hereto, it being expressly understood and agreed, however, that Seller shall use
commercially reasonable efforts to obtain, but shall not be obligated to
provide, Landlord Estoppel Certificates for those leases identified on
Exhibit C
hereto,
where the landlords thereunder are not required to provide the same, and
provided further, that Seller shall be obligated to provide Landlord Estoppel
Certificates for those leases identified on
Exhibit C
hereto,
where the landlords thereunder are required to provide the same;
(h) True
and complete files for all Assumed Contracts, including, to the extent in
Seller’s possession, originally signed copies of each Assumed Contract and all
correspondence, amendments, modifications and waivers related
thereto;
(i) The
Assignment and Assumption of Real Estate Leases, in the forms attached hereto as
Exhibit J-1
through
J-8
,
duly executed by Seller, pursuant to which Seller shall assign each real estate
lease identified on
Exhibit C
hereto and
Buyer shall assume all obligations thereunder (it being expressly acknowledged
and agreed that the consent contained in
Section J
of the form
of Landlord’s Estoppel Certificate attached as
Exhibit H
shall be
deemed to be acceptable to Buyer for such purposes);
(j) With
respect to the Assumed Contracts identified on
Exhibit C
that
require consent for assignment from the landlord, Seller shall deliver to Buyer
copies of duly executed consents for assignment for such Assumed Contracts,
executed by the landlord for each such Assumed Contract, in a form reasonably
acceptable to Buyer;
(k) For
any real estate lease identified on
Exhibit C
hereto that
shall by its terms expire on or before the date that is ten (10) years following
the Closing Date, Seller shall obtain and deliver to Buyer prior to the Closing
Date, lease extensions for every such lease identified on
Exhibit C
hereto in
the form reasonably acceptable to Buyer (which extensions may include terms
providing for increased rent and related charges, provided, however, such terms
shall reflect reasonable market conditions);
(l) Bills
of Sale evidencing the purchase by Seller of the Parata Equipment;
(m) Such
other instruments or documents as may be reasonably necessary or appropriate to
carry out the transactions contemplated hereby; and
(n) Tax
clearance certificate from the Massachusetts Department of Revenue or applicable
authority providing no Taxes are due and owing from Seller.
ARTICLE
V
REPRESENTATIONS
AND WARRANTIES OF SELLER
As an
inducement to Buyer to enter into this Agreement and to consummate the
transactions contemplated hereby, Seller represents and warrants to Buyer and
agrees as follows:
5.1.
Organization and
Authority
. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Massachusetts and has the corporate power and other authority to execute,
deliver and perform this Agreement and all other documents and agreements
required to be delivered by it hereunder. This Agreement and the
transactions contemplated hereby have been approved by the Board of Directors
(or other governing body) and the shareholders of Seller. This
Agreement has been duly authorized, executed and delivered by Seller and is the
legal, valid and binding obligation of Seller enforceable in accordance with its
terms, and all other documents and agreements required to be delivered
hereunder, have been duly authorized by Seller and upon execution and delivery
thereof by Seller will be a legal, valid and binding obligation of Seller
enforceable in accordance with their terms, in each case subject to bankruptcy,
insolvency, reorganization, moratorium and similar laws of general application
relating to or affecting creditors’ rights and to general equity
principles.
5.2.
No
Conflicts
. Neither the execution and delivery of this
Agreement or the consummation of any of the transactions contemplated hereby or
thereby nor compliance or compliance with or fulfillment of the terms,
conditions and provisions hereof or thereof, by Seller will conflict with,
result in a material breach of the terms, conditions or provisions of, or
constitute a material default, a material event of default or an event creating
rights of acceleration, termination or cancellation or a loss of rights under,
or result in the creation or imposition of any Encumbrance upon any of the
Purchased Assets, under (i) the certificate of incorporation or bylaws of
Seller, (ii) any Assumed Contract (other than the Assumed Contract with respect
to the Operate Location Pharmacy located in Wellesley, Massachusetts) or
material contract, agreement or understanding to which Seller is a party, or
(iii) conflict with any order from a Governmental Body or any Requirements of
Law to which any of the Purchased Assets is subject or by which Seller is bound,
or (b) require the approval, consent, authorization or act of, or the making by
Seller of any declaration, filing or registration with, any Person.
5.3.
Taxes
.
(a) (i)
Seller has, in respect of the Business and the Purchased Assets, filed all Tax
Returns which are required to be filed and has paid all Taxes which have become
due pursuant to such Tax Returns or pursuant to any assessment which has become
payable; (ii) all such Tax Returns are complete and accurate and disclose all
Taxes required to be paid in respect of the Business and the Purchased Assets;
(iii) all such Tax Returns have been filed with the relevant taxing authority or
the period for assessment of the Taxes in respect of which such Tax Returns were
required to be filed has expired; (iv) Seller is not currently the beneficiary
of any extension of time within which to file any Tax Return; (v) Seller has not
waived or been requested to waive any statute of limitations in respect of Taxes
associated with the Business and the Purchased Assets which waiver is currently
in effect; (vi) all monies required to be withheld by Seller (including from
employees of the Business for income Taxes and social security and other payroll
Taxes) have been collected or withheld, and either paid to the respective taxing
authorities, set aside in accounts for such purpose, or accrued, reserved
against and entered upon the books of the Business; (vii) none of the Purchased
Assets is properly treated as owned by persons other than Seller for income Tax
purposes; and (viii) none of the Purchased Assets is “tax-exempt use property”
within the meaning of Section 168(h) of the Code.
(b) No
transaction contemplated by this Agreement is subject to withholding under
Section 1445 of the Code and no sales Taxes, use Taxes, real estate transfer
Taxes or other similar Taxes will be imposed on the transfer of the Purchased
Assets or the assumption of the Assumed Liabilities pursuant to this
Agreement.
5.4.
Title and
Sufficiency
. Seller has good and marketable title to all of
the Purchased Assets (except Permitted Encumbrances). At Closing,
Seller will transfer to Buyer good and marketable title to all of the Purchased
Assets subject to no Encumbrances (except Permitted Encumbrances).
5.5.
Financial
Schedules
. Set forth on
Schedule 5.5
are
selected unaudited prescription operations data (the “
Operations Data
”) for
each of the Pharmacies, in each case, for the period commencing August 1, 2008
and ending on July 31, 2009. The Operations Data have been compiled from source
books, records, pharmacy system and financial reports of Seller. The Operations
Data fairly reflects in the aggregate, in all material respects, the
prescription operating data, revenues and the selling, general and
administrative expenses, in each case, for the locations specified on
Schedule 5.5
and for
the periods set forth therein.
5.6.
Suppliers; Distributors and
Third Party Payors
. To Seller’s knowledge, no distribution,
payor, wholesaler, customer, supplier or other Person with a material business
relationship with Seller has provided written notice of its intention to cease
or substantially reduce the use or supply of products, goods or services of or
to the Business or return any products of the Business, whether as a result of
the Closing or otherwise.
5.7.
Prescription
Volume
. The prescription count information set forth on
Schedule 5.7
was
derived from the ordinary business records of Seller and, to the best knowledge
of Seller, accurately reflects such records in all material respects. The
prescriptions filled at each Pharmacy have arisen from bona fide, legal
transactions and the information included in the Records is, to Seller’s
knowledge, accurate in all material respects.
5.8.
Leased
Real Property
.
(a) The
Assumed Contracts identified on
Exhibit C
comprise
all leasehold interests and amendments and other modifications thereto in the
Premises. Seller has not pledged, encumbered or hypothecated its
right, title or interest in any real estate lease or Premises. Seller
has provided Buyer with true and correct copies of each Assumed Contract and all
amendments, addendums and attachments thereto. Seller enjoys peaceful
and undisturbed possession of all the Premises. Each Assumed Contract
identified on
Exhibit
C
will be in full force and effect in accordance with its terms on the
Closing Date.
(b) Seller
is not in, or, to the knowledge of Seller, alleged to be in, material breach or
default under any Assumed Contract, and there is no event that, but for the
passage of time or the giving of notice or both would constitute or result in
any such material breach or default. To the knowledge of Seller, no third party
to any Assumed Contracts is in, or alleged to be in, material breach or default
of any Assumed Contracts, and there is no event that, but for the passage of
time or the giving of notice or both would constitute or result in any such
material breach or default.
(c) Seller
had not received any written notice nor has any actual knowledge that any of the
Premises are subject to any pending suit for condemnation or other taking by any
Governmental Body, and, to the knowledge of Seller, no such condemnation or
other taking is threatened or contemplated
5.9.
Personal
Property
. To the Seller’s knowledge, all machinery, equipment,
vehicles, furniture and other tangible personal property owned by Seller and
used at the Operate Store Locations is and shall be as of the Closing Date in
good working order and condition, free of defect or damage, ordinary wear and
tear excepted. Between the date hereof and Closing, there will not be
a material reduction in the property referenced above. Except for
leases of computers, photocopiers, pharmacy robotics, postage machines and other
similar office equipment, there is no personal property leased to Seller located
at any of the Operate Location Pharmacies. Set forth on
Schedule 5.9
is a
correct and complete list identifying all leased personal property from Parata
Systems LLC located and utilized at the Pharmacies (the “
Parata
Equipment
”).
5.10.
Inventory
. The
Inventory is in good, merchantable and useable condition, and consists only of
items of quality and quantity commercially usable and salable in the ordinary
course of the Business, except for any items of obsolete material or material
below standard quality.
5.11.
Employee
Matters
.
(a) On
the date hereof, Seller delivered to Buyer (i) a list of all employees of the
Business on the date hereof whose discharge of duties is primarily performed in
the Pharmacies (each, a “
Business Employee
”),
including their full legal name and position and (ii) a true and complete
schedule of the salary, bonus and other compensation information for each
Business Employee and, in the case of pharmacists, nurses or other licensed
Persons, their relevant license numbers (the “
Employee Data
Schedule
”). The Employee Data Schedule shall be updated as
necessary to reflect new hires or other personnel changes occurring between the
date hereof and Closing. Seller is not bound by any oral or written
employment agreement, consulting agreement, or deferred compensation agreement
with any of the Business Employees. No Business Employee is a party
to any collective bargaining agreement. As related to the Business
Employees, Seller is not and has never been subject to any affirmative action
obligations under any Requirements of Law with respect to any current or former
Business Employees, including Executive Order 11246, or is or has been a
government contractor for purposes of any Requirements of Law with respect to
the terms and conditions of employment of any current or former Business
Employees.
(b)
Set forth on
Schedule 5.11(b)
is a
correct and complete list identifying each material “employee benefit plan,” as
defined in Section 3(3) of ERISA, each material employment, retention, severance
or similar contract, plan, arrangement or policy and each other material plan or
arrangement (written or oral) providing for compensation, bonuses,
profit-sharing, stock option or other stock-related rights or other forms of
incentive or deferred compensation, vacation benefits, insurance (including any
self-insured arrangements), health or medical benefits, employee assistance
program, disability or sick leave benefits, workers’ compensation, supplemental
unemployment benefits, severance or retention benefits and post-employment or
retirement benefits (including compensation, pension, health, medical or life
insurance benefits) which is maintained, administered or contributed to by
Seller or any of its Affiliates or by which any of them are bound, and which
covers any Business Employee as of the date hereof (all of the foregoing
collectively referred to as the “
Employee
Plans
”). Copies of such Employee Plans (and, if applicable,
related trust or funding agreements or insurance policies) and all amendments
thereto that Buyer has requested copies of have been made available to Buyer
together with, if applicable, the most recently filed annual report (Form 5500
including, if applicable, Schedule B thereto) in connection with any such plan
or trust. Each Employee Plan that is intended to be qualified under
Section 401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service that it is so qualified, and no fact or event has
occurred since the date of such determination letter that would reasonably be
expected to adversely affect such qualification. Each Employee Plan
is now and has been operated in all material respects in accordance with its
terms and the Requirements of Law, including ERISA and the
Code. Seller has made all required contributions to the Employee
Plans, except for any contribution which is not yet due and
payable. None of the Purchased Assets is the subject of any lien
arising under Section 302(f) of ERISA or Section 412(n) of the
Code.
5.12.
Employee
Relations
. There are no claims, actions, suits or proceedings
pending or, to the Seller’s knowledge, threatened by or against any of Seller’s
employees. Seller is not a party to, and Seller with respect to the
Business is not affected by or threatened with, any dispute or controversy with
a union or with respect to unionization or collective bargaining involving the
employees of Seller with respect to the Business. Seller, with
respect to the Business, is not adversely affected by any dispute or controversy
with a union or with respect to unionization or collective bargaining involving
any supplier or customer of Seller with respect to the
Business. Seller represents and warrants that there are no union
organizing or election activities involving any non-union employees of Seller
with respect to the Business which have occurred since January 1, 2005 or, to
the knowledge of Seller, are threatened as of the date hereof.
5.13.
Legal
Proceedings
.
(a)
There are no material claims, actions, suits, proceedings or
investigations pending or, to the best of Seller’s knowledge, threatened by or
against Seller relating to or affecting the Business or the Purchased
Assets.
(b)
There are no material judgments, decrees, orders, writs, injunctions, rulings,
decisions or awards of any court or Governmental Body to which Seller is a party
or is subject with respect to the Business or to which any of the Purchased
Assets is subject. Seller has received no notice of complaints filed
against Seller under HIPAA or applicable patient privacy and data protection
laws and, to Seller’s knowledge, no such violation exists.
5.14.
Compliance
With Law; Permits; Medicare and Medicaid
.
(a)
Seller has obtained all material licenses, franchises, permits, approvals and
other authorizations from a Governmental Body that are necessary to entitle
Seller to own or lease, and operate and use the Purchased Assets and to carry on
the Business as currently conducted.
Schedule 5.14(a)
sets
forth a list of all such material licenses, franchises, permits, approvals and
other authorizations and a list of all NCPDP, Medicare, Medicaid or other
billing or similar numbers used in the Business (collectively, the “
Permits
”).
(b)
Seller is not in violation, and has not been in violation in the
preceding three years, in any material respects of any Requirements of Laws with
respect to the Business or the Purchased Assets. Seller has timely
filed all material reports, registrations and statements required to be filed by
it with any Governmental Body, and has paid all related fees and assessments due
and payable. Neither Seller nor, to the knowledge of Seller, anyone
acting on behalf of Seller has, to the knowledge of Seller, received or filed
for
any
Medicare or Medicaid overpayments. To Seller’s knowledge, all Medicare, Medicaid
and third-party reports and claims filed or required to be filed by or on behalf
of Seller have been timely filed and are complete and accurate in all material
respects. Neither Seller, nor, to the knowledge of Seller, any
director, officer or employee of Seller nor any Affiliate of Seller has been
excluded from participation in any government healthcare payment program,
including Medicare or Medicaid, nor, to Seller’s knowledge, are any of the
foregoing Persons aware of any pending or threatened investigation or government
action that may lead to such exclusion, fine or other remedy.
(c)
Without limiting the generality of the
foregoing,
(i) there
is no pending or, to the knowledge of Seller, threatened, lawsuits, claims,
suits, or other proceedings relating to Seller’s participation in any payment
program, including Medicare, TRICARE, Medicaid, worker’s compensation, Blue
Cross/Blue Shield programs, and all other health maintenance organizations,
preferred provider organizations, health benefit plans, health insurance plans,
and other third party reimbursement and payment programs (the “
Payment
Programs
”).
(ii) to
the knowledge of Seller, (x) no Payment Program has requested or threatened any
recoupment, refund, or set-off from Seller except in the ordinary course of the
Business consistent with past practice; and (y) since January 1, 2004, no
Payment Program has imposed a fine, penalty or other sanction on Seller and
Seller has not been excluded or suspended from participation in any material
Payment Program.
(iii) Since
January 1, 2004, neither Seller, nor, to the knowledge of Seller, any employee,
with respect to actions taken in connection with their employment by Seller, (A)
has been assessed a civil money penalty under Section 1128A of the Social
Security Act or any regulations promulgated thereunder, (B) has been excluded
from participation in any federal health care program or state health care
program (as such terms are defined by the Social Security Act), including
Medicare or Medicaid, nor, to the knowledge of Seller, are any of the foregoing
Persons aware of any pending or threatened investigation or government action
that may lead to such an exclusion, (C) has been convicted of any criminal
offense relating to the delivery of any item or service under a federal health
care program relating to the unlawful manufacture, distribution, prescription,
or dispensing of a prescription drug or a controlled substance, (D) has failed
to comply with the requirements of Section 340B of the Public Health Service
Act, (E) is now or has ever been listed on the office of the Inspector General’s
excluded persons list, or (F) has been a party to or subject to any action
concerning any of the matters described above in clauses (A) through
(E).
(d)
The Business is in compliance in all material respects with all
Environmental, Health and Safety Requirements in connection with the ownership,
use, maintenance or operation of the Business. To Seller’s knowledge,
each Premises is in compliance in all material respects with all Environmental,
Health and Safety Requirements. There are no pending or, to the
knowledge of Seller, any threatened allegations by any Person that any of the
Purchased Assets are not, or that the Business has not been conducted, in
compliance with all Environmental, Health and Safety Requirements and Seller has
not received any written notice (or, to the knowledge of Seller, any other
notice), report, or information (including information that litigation,
investigation or administrative action are pending or threatened) regarding any
actual or potential liabilities or any corrective, investigatory, or remedial
obligations, arising under Environmental, Health and Safety Requirements
relating to the Business or the use of any of the Purchased
Assets. To the knowledge of Seller, no Hazardous Substances have been
or are currently located at, in, under, or about, either the Purchased Assets or
the Premises in a manner that: (i) violates in any material
respect any applicable Environmental, Health and Safety Requirements; or
(ii) requires response, remedial, corrective action or cleanup under any
applicable Environmental, Health and Safety Requirements.
5.15.
Broker
. Seller
nor any Person acting on Seller’s behalf has paid or become obligated to pay any
fee or commission to any broker, finder or intermediary for or on account of the
transactions contemplated by this Agreement.
5.16.
Warranties
. To
Seller’s knowledge, all pharmaceuticals and other products marketed, sold,
distributed, delivered or licensed by Seller or its Affiliates with respect to
the Business at any time since January 1, 2004 have been in conformity, in all
material respects, with all applicable contractual commitments and express or
implied warranties.
5.17.
Affiliate
Transactions.
Except as set forth on
Schedule 5.17
, no
Affiliate of Seller and no employee, officer or director of Seller or any of its
Affiliates (a) owns, directly or indirectly, in whole or in part, any Permits,
real property, leasehold interests or other property, the use of which is
necessary for the operation of the Business, (b) has any claim or cause of
action or any other action, suit or proceeding against, or owes any amount to
Seller related to the Business, or (c) is a party to any contract related to the
Business pursuant to which Seller provides to, or receives services from, any
such Person, except as to any such individual in his or her capacity as a
Business Employee.
5.18.
Intellectual
Property
.
Schedule 5.18
contains a full list of all Intellectual Property owned by, licensed to or used
by Seller. Seller represents and warrants that none of the
Intellectual Property is the subject of any pending litigation or, to the
knowledge of Seller, the subject of any threatened claim of
infringement. Seller represents and warrants that it has not received
any notice contesting its right to use, or asserting infringement with respect
to, any of the Intellectual Property. To Seller’s knowledge, the use
of the Intellectual Property does not infringe upon the intellectual property
rights of any third party in Massachusetts.
ARTICLE
VI
REPRESENTATIONS
AND WARRANTIES OF NYER
As an
inducement to Buyer to enter into this Agreement and to consummate the
transactions hereby, Nyer hereby represents and warrants to Buyer as
follows:
6.1.
Organization and
Authority
. Nyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Florida and has the
corporate power and other authority to execute, deliver and perform this
Agreement and all other documents and agreements required to be delivered
hereunder. This Agreement and the transactions contemplated hereby have been
approved by Nyer’s Board of Directors (or other governing body), as
applicable. This Agreement has been duly authorized, executed and
delivered by Nyer and is the legal, valid and binding obligation of Nyer
enforceable in accordance with its terms, and all other documents and agreements
required to be delivered hereunder, have been duly authorized by Nyer and upon
execution and delivery thereof by Nyer will be a legal, valid and binding
obligation of Nyer enforceable in accordance with their terms, in each case
subject to bankruptcy, insolvency, reorganization, moratorium and similar laws
of general application relating to or affecting creditors’ rights and to general
equity principles.
6.2.
No
Conflicts
. Neither the execution and delivery of this
Agreement or the consummation of any of the transactions contemplated hereby or
thereby nor compliance with or fulfillment of the terms, conditions and
provisions hereof or thereof, by Nyer will conflict with, result in a material
breach of the terms, conditions or provisions of, or constitute a material
default, a material event of default or an event creating rights of
acceleration, termination or cancellation or a loss of rights under, or result
in the creation or imposition of any Encumbrance upon any of the Purchased
Assets, under (i) the certificate of incorporation or bylaws of Nyer, as
applicable, or (ii) conflict with any order from a Governmental Body or any
Requirements of Law to which Nyer is bound, or (b) require the approval,
consent, authorization or act of, or the making by Nyer of any declaration,
filing or registration with, any Person.
6.3.
Anti-Takeover
Statutes
. Sections 607.0901 and 607.0902 of the FBCA do
not and shall not apply to this Agreement or the transactions contemplated
thereby, nor will any shares directly or indirectly beneficially owned by Nyer
or its Affiliates as of the date hereof be subject to Section 607.0902 of
the FBCA. No other “fair price,” “moratorium,” “control share
acquisition,” or other similar anti-takeover law enacted under state or federal
laws in the United States applicable to Nyer is applicable to this Agreement or
the transactions contemplated thereby. Nyer has taken all necessary
action so that none of Sections 607.0901 and 607.0902 of the FBCA or, to
the knowledge of Nyer, any other “fair price,” “moratorium,” “control share
acquisition,” or other similar anti-takeover law shall apply to the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby.
6.4.
Vote Required
.
The only vote of
the holders of any class or series of capital stock or other securities of Nyer
necessary to approve this Agreement and consummate the transactions contemplated
hereby is the affirmative vote, whether at a meeting of Nyer’s shareholders or
by written consent, of the holders of a majority of the then outstanding shares
of Nyer’s common stock and preferred stock, voting separately, in favor of the
approval of this Agreement (the “
Nyer Shareholder
Approval
”).
6.5.
Broker
. Neither
Nyer nor any Person acting on Nyer’s behalf has paid or become obligated to pay
any fee or commission to any broker, finder or intermediary for or on account of
the transactions contemplated by this Agreement.
6.6.
Information
Provided
. The proxy statement to be sent to the stockholders
of Nyer (the “
Proxy
Statement
”) in connection with the meeting of the stockholders shall
not, at the relevant times, contain any statement which, at such time and in
light of the circumstances under which it shall be made, is false or misleading
with respect to any material fact, in light of the circumstances under which
they were or shall be made; or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for meeting of the stockholders which has become false
or misleading. If at any time prior to meeting of the stockholders
any fact or event relating to Seller or any of its Affiliates which should be
set forth in a supplement to the Proxy Statement should be discovered by Nyer or
should occur, Nyer shall, promptly, after becoming aware thereof, inform Buyer
of such fact or event and shall provide Nyer’s stockholders with such
supplement.
6.7
Taxes
(
a) (i)
Nyer has, in respect of the Business and the Purchased Assets, filed all Tax
Returns which are required to be filed and has paid all Taxes which have become
due pursuant to such Tax Returns or pursuant to any assessment which has become
payable; (ii) all such Tax Returns are complete and accurate and disclose all
Taxes required to be paid in respect of the Business and the Purchased Assets;
(iii) all such Tax Returns have been filed by the relevant taxing authority or
the period for assessment of the Taxes in respect of which such Tax Returns were
required to be filed has expired; (iv) except as set forth in
Schedule 6.7(a)(iv)
,
Nyer is not currently the beneficiary of any extension of time within which to
file any Tax Return; (v) Nyer has not waived or been requested to waive any
statute of limitations in respect of Taxes associated with the Business and the
Purchased Assets which waiver is currently in effect; and (vi) all monies
required to be withheld by Nyer (including from employees of the Business for
income Taxes and social security and other payroll Taxes) have been collected or
withheld, and either paid to the respective taxing authorities, set aside in
accounts for such purpose, or accrued, reserved against and entered upon the
books of the Business.
(b) No
transaction contemplated by this Agreement is subject to withholding under
Section 1445 of the Code and no sales Taxes, use Taxes, real estate transfer
Taxes or other similar Taxes will be imposed on the transfer of the Purchased
Assets or the assumption of the Assumed Liabilities pursuant to this
Agreement.
6.8
Financial
Schedules
. Set forth on
Schedule 6.8
are (a)
the audited consolidated financial statements of Nyer as of June 30, 2008 and
2009, consisting of the balance sheet of Nyer as of June 30, 2008 and 2009 and
the related statements of operations changes in shareholders’ equity and cash
flows of Nyer for each of the years ended June 30, 2008 and 2009 (the “
Financial
Statements
”); and (b) certain other selected financial information (the
“
Other Financial
Data
”). The Financial Statements and the Other Financial Data have been
compiled from source books, records, pharmacy system and financial reports of
Nyer. The Financial Statements and the Other Financial Data fairly reflects in
the aggregate, in all material respects, the prescription operating data,
revenues and the selling, general and administrative expenses, in each case, for
the locations specified on
Schedule 5.5
and for
the periods set forth therein.
6.9
Legal
Proceedings
.
(a) There
are no material claims, actions, suits, proceedings or investigations pending
or, to the best of Nyer’s knowledge, threatened by or against Nyer relating to
or affecting the Business or the Purchased Assets.
(b) There
are no material judgments, decrees, orders, writs, injunctions, rulings,
decisions or awards of any court or Governmental Body to which Nyer is a party
or is subject with respect to the Business or to which any of the Purchased
Assets is subject. Nyer has received no notice of complaints filed
against Nyer under HIPAA or applicable patient privacy and data protection laws
and, to Nyer’s knowledge, no such violation exists.
6.10
Employees
. Nyer
does not have any employees. Nyer is not bound by any oral or written
employment agreement, consulting agreement, or deferred compensation agreement
with any Person. Set forth on
Schedule 6.10
is a
correct and complete list identifying each material “employee benefit plan,” as
defined in Section 3(3) of ERISA, each material employment, retention, severance
or similar contract, plan, arrangement or policy and each other material plan or
arrangement (written or oral) providing for compensation, bonuses,
profit-sharing, stock option or other stock-related rights or other forms of
incentive or deferred compensation, vacation benefits, insurance (including any
self-insured arrangements), health or medical benefits, employee assistance
program, disability or sick leave benefits, workers’ compensation, supplemental
unemployment benefits, severance or retention benefits and post-employment or
retirement benefits (including compensation, pension, health, medical or life
insurance benefits) which is maintained, administered or contributed to by Nyer
or any of its Affiliates or by which any of them are bound, and which covers any
Business Employee as of the date hereof (all of the foregoing collectively
referred to as the “
Nyer Employee
Plans
”). Nyer is not a party to, and Nyer with respect to the
Business is not affected by or threatened with, any dispute or controversy with
a union or with respect to unionization or collective bargaining involving the
employees of Seller with respect to the Business. Nyer, with respect
to the Business, is not adversely affected by any dispute or controversy with a
union or with respect to unionization or collective bargaining involving any
supplier or customer of Seller with respect to the Business.
6.11
Intellectual
Property
. Nyer does not own, license or control any
Intellectual Property.
ARTICLE
VII
REPRESENTATIONS
AND WARRANTIES OF BUYER
As an
inducement to Seller to enter into this Agreement and to consummate the
transactions contemplated hereby, Buyer hereby represents and warrants to Seller
and Nyer and agrees as follows:
7.1.
Organization of
Buyer
. Buyer is a corporation duly organized, validly existing
and in good standing under the laws of the State of New York and has full
corporate power and authority to carry on its business as now
conducted.
7.2.
Authorization
.
Buyer has full corporate
power and authority to enter into this Agreement and all documents and
agreements required to be delivered hereunder, to consummate the transactions
contemplated hereby and thereby and to comply with the terms, conditions and
provisions hereof and thereof. The execution, delivery and
performance by Buyer of this Agreement and the actions contemplated hereby and
thereby have been duly and validly authorized by the Board of Directors of Buyer
and no other corporate proceedings on the part of Buyer are necessary with
respect hereto or thereto. This Agreement has been duly authorized, executed and
delivered by Buyer and is the legal, valid and binding obligation of Buyer
enforceable in accordance with its terms, and all other documents and agreements
required to be delivered hereunder have been duly authorized by Buyer and upon
execution and delivery by Buyer will be a legal, valid and binding obligation of
Buyer enforceable in accordance with their terms, in each case subject to
bankruptcy, insolvency, reorganization, moratorium and similar laws of general
application relating to or affecting creditors’ rights and to general equity
principles.
7.3.
Non-Contravention
. Neither
the execution and delivery of this Agreement or the consummation of any of the
transactions contemplated hereby or thereby nor compliance with or fulfillment
of the terms, conditions and provisions hereof or thereof, in each case by Buyer
will:
(a)
conflict with, result in a breach of the terms, conditions or provisions of, or
constitute a default, an event of default or an event creating rights of
acceleration, termination or cancellation or a loss of rights under, or result
in the creation or imposition of any Encumbrance upon, any of the assets of
Buyer, under (i) the certificate of incorporation or by-laws of Buyer, (ii) any
material agreement, note, instrument, mortgage, lease, license, franchise,
permit or other authorization, right, restriction or obligation to which Buyer
is a party or any of their respective assets or business is subject or by which
Buyer is bound, (iii) any order, writ, injection or decree to which Buyer is a
party or any of their respective assets or business is subject or by which Buyer
is bound or (iv) any Government Body or Requirements of Laws affecting Buyer or
its assets or business; or
(b)
require the approval, consent, authorization or act of, or the
making by Buyer of any declaration, filing or registration with, any
Person, and such other approvals, consents, authorizations or acts
the failure of which to be obtained or made would not materially impair the
ability of Buyer to perform its obligations hereunder or prevent the
consummation of any of the transactions contemplated hereby.
7.4.
Sufficient
Funds
.
Buyer
has, and on the Closing Date will have, sufficient funds available to enable
Buyer to pay the Purchase Price pursuant to the terms of this
Agreement. Buyer will not require any third-party financing to
consummate the transactions contemplated by this Agreement.
ARTICLE
VIII
ADDITIONAL
AGREEMENTS
8.1.
Employees
.
(a) Unless
otherwise agreed to by Buyer, between the date hereof and Closing, Seller shall
use (i) its commercially reasonable efforts to continue to employ all of the
Business Employees, subject to normal workplace practices and discipline, and
(ii) not transfer the Business Employees or offer the Business Employees an
employment position outside of the Pharmacies. In addition, between
the date hereof and Closing, Seller shall inform Buyer if any such Business
Employee has terminated or given notice of their termination of employment at
the Pharmacies.
(b) Between
the date hereof and Closing, Buyer may interview some or all of Seller’s
employees to determine whether to offer employment to any of
them. Except for those Business Employees identified on
Schedule 8.1(b)
,
Buyer shall use its reasonable best efforts to hire any Business Employee, which
may include certain of Seller’s office personnel, subject, however, to such
employee’s completion of and compliance with Buyer’s screening and interview
processes in a timely manner, including, but not limited to, drug screens,
background checks, and verification of applicable licensure prior to
Closing. Any employees who accept Buyer’s offer of employment (each,
a “
Transferred
Employee
”) shall be employed on substantially similar terms as currently
available to similarly situated employees of Buyer. Any Transferred
Employee will be deemed terminated by Seller and hired by Buyer, effective upon
the hiring of such employee by Buyer. Any Business Employee who is
not a Transferred Employee will be terminated or retained by Seller, in its
discretion. Prior to Closing, Seller agrees to allow Buyer access to
all employees for purposes of providing information regarding Buyer’s hiring
process.
(c) Nothing
herein contained shall be considered or construed as an agreement to employ any
Business Employee for any period of time. Except as specifically
provided for herein, Buyer assumes no obligation with respect to any of Seller’s
employees, whether hired by Buyer or not, for any benefit, perquisite or
remuneration accrued or earned while under Seller’s employ. Without
limiting the generality of the foregoing, Buyer shall have no obligation or
liability for such employees’ accrued vacation time, bonuses, awards,
commissions, salaries, reimbursements of any kind, health or disability benefit,
insurance, severance pay, pension or profit sharing interests or any other
benefits, compensation or remuneration of any nature whatsoever.
(d) The
benefits of Transferred Employees under the Employee Plans (if and to the extent
applicable) will be determined as of Closing in accordance with the terms of the
applicable Employee Plans. Except as expressly set forth herein, no
assets or liabilities of any Employee Plan shall be transferred to Buyer or any
of its Affiliates or to any plan of Buyer or any of its Affiliates.
(e) Buyer
will make available to Transferred Employees such benefits as Buyer currently
makes available to its similarly situated employees. Buyer will cause
all employee benefit plans and programs of Buyer and its Affiliates to recognize
all service of Transferred Employees with Seller or any of its Affiliates (to
the extent such service was recognized under the comparable Employee Plans as of
Closing) for purposes of vesting and eligibility under Buyer’s employee benefit
plans (other than the frozen retiree health benefit plan) and for purposes of
determining the length of annual vacation, number of sick days and amount of
severance benefits.
(f) Promptly
after the date of this Agreement, Buyer and Seller shall mutually agree upon the
terms of a key employee incentive plan (the “
Incentive Plan
”) for
the purpose of Buyer’s retention of certain employees for the one year period
following the Closing Date. Thereafter, Buyer and Seller shall
jointly communicate the terms of the Incentive Plan to mutually selected
employees. At Closing, Buyer and shall contribute up to $75,000.00
and Seller shall contribute $30,000.00 toward the Incentive Plan; provided that
Buyer shall be permitted to fund Seller's portion thereof, in which case the
Purchase Price shall be reduced by the same amount.
(g) No
provision of this
Section 8.1
shall
create any third party beneficiary or other rights in any Business Employee
(including any beneficiary or dependent thereof, and further including the
Transferred Employees) of Seller or of any of its Affiliates in respect of
employment with Buyer or any of its Affiliates and no provision of this
Section 8.1
shall
create any rights in any such Persons in respect of any benefits that may be
provided, directly or indirectly, under any Employee Plan or any plan or
arrangement which may be established by Buyer or any of its
Affiliates. No provision of this Agreement shall constitute a
limitation on rights to amend, modify or terminate after Closing any such plans
or arrangements of Buyer or any of its Affiliates.
(h) With
respect to all employees of Seller who are employed at any Pharmacies, Seller
shall comply with, and be responsible for performing and discharging, all
requirements under the WARN Act, and any similar applicable state or local law,
and for the timely notification to its employees, or any other required
individuals or entities, of any “employment loss” within the meaning of the WARN
Act which occurs prior to, or as of the Closing Date as a result of or to the
extent otherwise related to the transactions contemplated by this
Agreement. Seller shall be responsible for, and shall indemnify Buyer
and its Affiliates for, all costs and liabilities associated with any failure by
Seller to comply with the requirements of the WARN Act or any similar applicable
state or local laws.
(i) Following
the Closing Date, Buyer will, with respect to each employee of Buyer who shall
have been an employee of Seller or any of its Affiliates immediately prior to
the Closing Date and becomes an employee of Buyer (the “
Continuing
Employees
”), waive, or cause to be waived, any limitations on benefits
relating to pre-existing conditions to the same extent such limitations are
waived under any comparable plan of Seller and shall use its commercially
reasonable efforts to recognize for purposes of annual deductibles under its
medical and dental plans, paid by Continuing Employees into the Seller’s plan in
the calendar year in which the Closing Date occurs. Buyer will also
provide Continuing Employees with full credit for prior service with Seller or
its Affiliates for purposes of eligibility under any medical and dental plans of
Buyer.
8.2.
Non-competition
.
(a) In
furtherance of the sale of the Purchased Assets to Buyer hereunder by virtue of
the transactions contemplated hereby and more effectively to protect the value
and goodwill of the Purchased Assets so sold, for a period of three (3) years
after the Closing Date, each of Seller and Nyer (collectively, the “
Nyer Parties
”) agree
not to (and shall cause Affiliates within its control not to), in any manner
whatsoever, directly or indirectly operate, own, lease, engage or participate in
as an owner, landlord, partner, employee, joint venturer, shareholder, director,
assignor, seller, transferor, or as a sales or marketing agent or otherwise, in,
for, or in connection with any retail drug store or pharmacy business as
conducted by Buyer after the date hereof within a radius of five (5) miles from
any Pharmacy, specifically excluding clinic pharmacies or those pharmacies
operated pursuant to a written contractual agreement with a clinic, hospital or
healthcare center and located within a 1/4 mile from such clinic, hospital or
healthcare center properties and for use primarily by patients of such clinics,
hospitals or healthcare centers, and further excluding certain premises located
at the addresses identified on
Schedule 8.2(a)
,
which shall not be subject to the terms and conditions of this
Section
8.2(a)
.
(b) The
Nyer Parties also agree that, for a period of three (3) years after the Closing
Date they shall not (and shall cause their controlled Affiliates not to),
directly or indirectly, call upon, solicit or divert business from any Person
who filled a prescription in the twelve (12) month period prior to the Closing
Date at any Pharmacy (a “
Customer
”).
(c)
For a period of three (3) years after the Closing
Date, the Nyer Parties shall not (and shall cause their controlled Affiliates
not to solicit, recruit or hire any employee of the Business at the date of this
Agreement who becomes a Transferred Employee and shall not encourage any such
employee to leave the employment of Buyer;
provided
that the
foregoing provision will not prevent the Nyer Parties from employing any such
employee who contacts the Nyer Parties on his or her own initiative without any
direct or indirect solicitation by, or encouragement from the Nyer
Parties.
(d)
The Nyer Parties covenant and agree that they shall not (and shall cause
their controlled Affiliates not to) divulge to any Person any Confidential
Information of Buyer or the Business.
(e)
The parties hereby recognize, acknowledge and agree that the territorial
and time limitations contained in this Agreement are reasonable and properly
required for the adequate protection of the business to be conducted by Buyer
with the Purchased Assets. The parties further agree that the
geographical and temporal restrictions referred to in this
Section 8.2
are
divisible and severable. The parties acknowledge that inclusion of
this
Section
8.2
in the Agreement is a material inducement to Buyer to enter into this
Agreement and pay the Purchase Price.
(f)
Notwithstanding the foregoing, nothing in this
Section 8.2
shall
prevent any of the Nyer Parties from (i) owning and operating the Excluded
Business in their current locations or (ii) purchasing or otherwise acquiring,
up to a non-controlling interest, of any class of securities of any enterprise
that may be competitive with Buyer and the Pharmacies (but without other
participation in the activities of such enterprise) as long as such securities
are listed on any national or regional securities exchange or have been
registered under Section 12(g) of the Securities Exchange Act of 1934, as
amended; (iii) selling, disposing, liquidating or otherwise
transferring any Excluded Assets or Excluded Business in connection with a
liquidation process; or (iv) continuing to provide service to Customers who are
also customers at other pharmacy locations owned or operated by any of the Nyer
Parties other than the Pharmacies. For the avoidance of doubt,
“controlled Affiliates” of the Nyer Parties, as used herein, shall not include
any holder of debt or equity interests or securities of the Nyer Parties or its
Affiliates or any officer, director, member or partner of any such equity or
debt holder.
8.3.
Records
and Data
.
(a) The
parties agree that Buyer will engage Infowerks (the “
Data Converter
”) to
convert Seller’s prescription file and record data in electronic form that are
included in the Purchased Assets (the “
Record Data
”) to a
format specified by Buyer. Seller agrees, on or prior to Closing, to
provide, during regular business hours, such access, information and cooperation
to the Data Converter as may be reasonably required to enable the Data Converter
to deliver the Record Data to Buyer at least two business days prior to the
Closing Date. In the event that the Record Data is not or cannot be
delivered to Buyer as of the date of Closing, Buyer, at Buyer’ sole discretion,
may delay the Closing Date until the Record Data is delivered to
Buyer.
(b) Seller
will retain a complete copy of all Record Data in accordance with applicable
Requirements of Law regarding retention of records.
(c) Seller
has, with respect to each of the Pharmacies, maintained (i) an accurate log of
all disclosures, to the extent any have been made, as of January 1, 2004, of
Protected Health Information (“
PHI
”), as that term
is defined in HIPAA.
(d) Buyer
will engage Tribune Direct or another distributor selected by Buyer (the “
Third Party
Distributor
”) to notify each customer of a Non-Operate Location Pharmacy
who has had a prescription filled or refilled at such Pharmacy within the two
years prior to the Closing Date by mailing each of them a letter in the form
attached as
Exhibit
G
or such other form as may be mutually acceptable to Buyer and
Seller. The parties agree that, promptly after its receipt of the
applicable Record Data, the Data Converter will provide the applicable Record
Data to the Third Party Distributor in order to enable the Third Party
Distributor to assemble and distribute these letters. Buyer agrees to
instruct the Third Party Distributor not to release such letters until after the
Closing and shall be responsible for and shall satisfy any legal obligations
under HIPPA, including the HIPPA privacy standards in connection with such
letters.
8.4.
Matters Related to
Prescriptions
. Prior to the Closing, Seller shall use
reasonable efforts to fill and deliver to customers of the Pharmacies any
partial-fill prescriptions with a remaining quantity balance (“
IOU
Prescriptions
”). For any IOU Prescriptions remaining on the
Closing Date, Seller shall credit the prescription to the customer or to the
third-party payor, as appropriate, on the Closing Date. Buyer assumes
no liability for IOU Prescriptions. In addition, prior to the
Closing, Seller shall reverse and return to stock any filled prescriptions that
have not been picked up, providing all necessary notice to any third-party
payors, and shall provide Buyer with a list of such prescriptions so that Buyer
is prepared to fill such prescriptions on or after the Closing
Date.
8.5.
Interim
Operations
.
(a)
Between the date hereof and the Closing Date, the Seller shall operate and carry
on the Business in the ordinary course and substantially as presently
operated. Consistent with the foregoing, the Seller shall use
reasonable efforts to keep and maintain the Purchased Assets in good operating
condition and repair, ordinary wear and tear excepted. In furtherance
of the foregoing, the Seller shall maintain normal operating hours, staffing
levels, inventory levels and merchandise mix. Buyer shall have the
right, at any time before the sale contemplated hereunder is announced to the
public upon reasonable notice and at Buyer’s expense, and with minimum
interference to the business operations to audit Seller’s prescription records
to verify the then-current average daily prescription counts.
(b) Except
as expressly contemplated by this Agreement or except with the express written
approval of Buyer, neither Seller nor Nyer shall: (i) take any action that is
intended or may reasonably be expected to result in (x) any of the
representations and warranties set forth in this Agreement being or becoming
untrue in any material respect, (y) any of the conditions to the Closing
set forth in this Agreement not being satisfied or (z) any violation of any
provision of this Agreement, except, in each case, as may be required by
applicable law; (ii) enter into any lease or material agreement, contract or
commitment of any nature (or amendment, supplement or modification of any
existing lease, agreement, contract or commitment), oral or written, nor make
any material capital investment or expenditures, primarily related to the
ownership or operation of the Pharmacies; (iii) enter into any material contract
with respect to, or make any material increase in (or commitment to increase)
the compensation payable to any of its employees or agents primarily related to
the Pharmacies; (iv) sell, lease, transfer or otherwise dispose of (including
any transfers from Nyer or Seller to any of their Affiliates), or impose or
suffer to be imposed any Encumbrance on, any of the Purchased Assets, other than
inventory and minor amounts of personal property sold or otherwise disposed of
for fair value in the ordinary course of the Business consistent with past
practice; or (v) take any other action that a reasonable person would consider
material to any of the Pharmacies or the Business Employees.
(c) Seller
shall remove, at Seller’s sole cost and expense, any and all items of property
(other than the Purchased Assets) located at the Operate Location Pharmacies no
later than thirty (30) days after the Closing Date.
8.6.
Taxes
.
(a) Each
of Seller and Nyer shall be liable for and covenant to pay, and pursuant to
Article IX
shall indemnify and hold harmless each Buyer Group Member from and against any
and all Losses and Expenses incurred by any of them in connection with or
arising from, (i) all Taxes (whether assessed or unassessed or is subject to any
extension) applicable to the Business or the Purchased Assets, in each case
attributable to taxable years or periods (or portions thereof) ending on and
prior to the Closing Date and, with respect to any Straddle Period, the portion
of such Straddle Period ending on and including the Closing Date and (ii) all
excise, sales, use, transfer (including real property transfer or gains), stamp,
registration, documentary, filing, recordation and other similar Taxes which may
be imposed or assessed as a result of the transactions effected pursuant to this
Agreement (the “
Transfer Taxes
”),
together with any interest, additions or penalties with respect thereto and any
interest in respect of such additions or penalties. Buyer shall be
liable for and covenants to pay, and pursuant to
Article IX
shall
indemnify and hold harmless Seller/Nyer Group, its Affiliates, directors,
officers, employees and agents from and against any and all Loss and Expense
incurred by any of them in connection with or arising from, all Taxes (whether
assessed or unassessed) applicable to the Business or the Purchased Assets, in
each case attributable to periods (or portions thereof) after the Closing Date
and, with respect to any Straddle Period, the portion of such Straddle Period
beginning after the Closing Date;
provided
,
however
, that neither
Buyer, Seller nor Nyer shall be liable for or pay, and shall not indemnify or
hold harmless the other party, its Affiliates, directors, officers, employees or
agents from and against, any Taxes for which it is liable under this Agreement,
including without limitation, each of Seller and Nyer pursuant to the preceding
sentence or
Sections
5.3
and
6.7
. For
purposes of this
Section 8.6
, any
Straddle Period shall be treated on a “closing of the books” basis as two
partial periods, one ending at the close of the Closing Date and the other
beginning on the day after the Closing Date, except that Taxes (such as property
Taxes) imposed on a periodic basis shall be allocated on a daily
basis.
(b) Each
of Seller and Nyer or Buyer, as the case may be, shall provide reimbursement for
any Tax paid by one party all or a portion of which is the responsibility of the
other party in accordance with the terms of this
Section
8.6
. Within a reasonable time prior to the payment of any such
Tax, the party paying such Tax shall give notice to the other party of the Tax
payable and the portion which is the liability of each party, although failure
to do so will not relieve the other party from its liability
hereunder.
(c) After
the Closing Date, each of Seller, Nyer and Buyer shall (and cause their
respective Affiliates to): (i) assist the other party in preparing any Tax
Returns which such other party is responsible for preparing and filing; (ii)
cooperate fully in preparing for any audits of, or disputes with taxing
authorities regarding, any Tax Returns of the Business or the Purchased Assets;
(iii) make available to the other and to any taxing authority as reasonably
requested all information, records, and documents relating to Taxes of the
Business or the Purchased Assets; (iv) provide timely notice to the other in
writing of any pending or threatened Tax audits or assessments relating to Taxes
of the Business or the Purchased Assets for taxable periods for which the other
may have a liability under this
Section 8.6
; and (v)
furnish the other with copies of all correspondence received from any taxing
authority in connection with any Tax audit or information request with respect
to any such taxable period. Any returns or reports with respect to
Transfer Taxes that are required to be filed shall be prepared and, to the
extent each of Seller and Nyer, as applicable, is permitted by law or
administrative practice, filed by each of Seller and Nyer, as applicable, when
due.
(d) Each
of Seller, Nyer and Buyer shall each comply with all of its respective
requirements and obligations under state tax bulk sales or similar laws that
apply when a person sells some or all of its assets, including, in particular,
the requirements and obligations under applicable law.
(e) Notwithstanding
anything to the contrary in this Agreement, except as provided in
Article IX
the
obligations of the parties set forth in this
Section 8.6
shall be
unconditional and absolute and shall remain in effect without limitation as to
time.
8.7.
Access
.
(a) Upon
reasonable notice, Seller, each of its directors, officers, agents and employees
shall afford Buyer and its representatives reasonable access during regular
business hours from the date hereof through the Closing to the Premises and any
and all properties, contracts, books, records, data and personnel of Seller
relating to the Business, not provided to date and of reasonable import to the
operation of the Business. Seller shall afford to Buyer and its
representatives reasonable access to and an opportunity to speak with any third
parties to the Assumed Contracts. Seller, its directors, officers,
agents and employees shall cooperate in connection with the
foregoing. Seller shall provide to Buyer such information and
documents concerning the Business as reasonably may be requested by
Buyer. In exercising its rights under this
Section 8.7(a)
, Buyer
shall not unreasonably interfere with Seller’s Business and shall coordinate the
exercise of such rights through Seller.
(b) Upon
reasonable notice and as may otherwise be permitted under, but subject to the
terms of the applicable lease, Seller shall permit Buyer access to all of the
Premises in order to install wiring and equipment for communication devices and
other store systems and to prepare for the integration of the Business with
Buyer’s own business, all at Buyer’s cost and without causing material damage to
such Premise. Buyer agrees to repair any damage which may be caused
due to the exercise of its rights pursuant to this
Section 8.7(b)
and to
indemnify, defend and hold harmless Seller from any and all Losses arising out
of or in any way connected with Buyer’s exercise of its rights pursuant to this
Section
8.7(b)
. In exercising its rights under this
Section 8.7(b)
, Buyer
shall not unreasonably interfere with Seller’s Business and shall coordinate the
exercise of such rights through Seller.
8.8.
Consent of Third Parties;
Regulatory and Other Authorizations
. During the period prior
to the Closing Date, Seller and Buyer shall use commercially reasonable efforts,
and shall cooperate with each other, to (1) secure any consents and approvals of
any Governmental Body to be obtained by them in order to permit the consummation
of the transactions contemplated hereby, (2) secure the written consent of each
landlord to each Assumed Contract identified on
Exhibit C
in the form
and substance reasonably satisfactory to Buyer required to be obtained by them
in order to permit the consummation of the transactions contemplated hereby (as
provided in
Section
4.3(j
)), (3) secure the termination of the leases for and release of the
Parata Equipment by the duly authorized agent of Parata Systems, LLC (the “
Parata Releases
”), or
(4) otherwise satisfy the conditions set forth in
Sections 10.1
and
10.2
; provided,
that Seller shall not make any agreement or understanding affecting, in any
material respect, the Business or the Purchased Assets as a condition for
obtaining any such consents or waivers except with the prior written consent of
Buyer, which consent shall not be unreasonably withheld.
8.9.
Avoiding
Abandonment.
(a) Seller
hereby authorizes Buyer to operate under each Permit related to the Business
after the Closing, to the extent permitted by applicable law, rule or regulation
and to the extent necessary to enable Buyer to conduct the Business while Buyer
seeks to replace such Permit with its own license, authorization, permit or
waiver (such Permits, the “
Transferable
Permits
”). Buyer shall promptly after execution of this
Agreement prepare and submit the necessary applications (the “
Buyer Applications
”)
to the applicable regulatory agencies, to obtain the licenses
required to operate the Business. Seller will take all
steps reasonably necessary to maintain its authorizations under the Transferable
Permits that Buyer operates under during the period between Closing and the
issuance of Buyer’s own licenses, authorizations, permits or waivers and Seller
will cooperate with Buyer in preparing and submitting the Buyer Applications.
Buyer shall indemnify and hold Seller and its Affiliates harmless for any and
all Loss and Expense incurred or suffered as a result of or relating to Buyer’s
operation under the Transferable Permits.
(b) Prior
to the Closing, Seller agrees to use commercially reasonable efforts as may be
reasonably requested by Buyer to assist Buyer to and Buyer shall take all
commercially reasonable efforts to, as soon as practicable after the date
hereof, to (i) obtain all licenses, authorizations, permits or waivers as may be
necessary for Buyer to conduct the Business at the Operate Location Pharmacies
(including, on the part of Seller taking all steps reasonably necessary to
relinquish the Permits as applicable, as of Closing) and (ii) obtain such
licenses, authorizations, permits or waivers effective as of the Closing Date or
as promptly thereafter as is practicable. Buyer shall reimburse Seller for all
out-of-pocket expenses incurred in connection therewith. Seller
further agrees that, prior to the Closing, it will cooperate as may be
reasonably necessary to enable Buyer to, and Buyer shall take all commercially
reasonable efforts to, as soon as practicable after the date hereof, to (x)
obtain either a new license or the approval of the transfer of Buyer’s existing
license issued by the pharmacy boards of the states in which the Operate
Location Pharmacies are located, and (y) obtain any required Medicare or
Medicaid authorizations or numbers, NCPDP numbers and Drug Enforcement Agency
authorizations, permits or licenses.
(c) Seller
shall execute a power of attorney, in form attached hereto as
Exhibit E
,
authorizing Buyer to operate the Business under the Transferable Permits (the
“
Power of
Attorney
”) and such other powers of attorney, pharmacy management and
other agreements; assignments, amendments, addenda and other documents as may be
necessary to enable Buyer to conduct the Business, in each case as are
reasonably requested by Buyer.
8.10.
License of Intellectual
Property
.
(a) After
the Closing Date, Buyer shall have the right to use on a royalty free basis the
Intellectual Property associated with the Pharmacies in connection with store
signage, advertisements, solicitations, announcements and similar matters
related to any Pharmacies, for a period of twelve (12) months following the
Closing Date. Buyer has no right to sublicense any Intellectual
Property to any third party.
(b) After
the Closing Date, Buyer shall have the right to use existing packaging,
labeling, containers, supplies, advertising materials and any similar materials
including the Intellectual Property. Buyer shall have the right to
use the Intellectual Property in advertising that cannot be changed by Buyer or
its Affiliates or resellers using commercially reasonable efforts after the
Closing Date subject to Seller’s approval of the advertising which shall not be
unreasonably withheld. Buyer shall comply with all applicable laws or
regulations in any use of packaging or labeling containing the Intellectual
Property primarily used in or related to the ownership or operation of the
Pharmacies. Buyer shall not be obligated to alter or remove the
Intellectual Property primarily used in or related to the ownership or operation
of the Pharmacies on goods in the hands of dealers, distributors and customers
at the time of the expiration of the time period set forth
herein.
8.11.
Remittance
. The
parties agree that (a) in the event Buyer receives payment from any parties for
services rendered by Seller on or before the Closing Date (including payment
from Medicare, Medicaid and insurance programs), Buyer will remit such payment
to Seller as soon as reasonably practicable after receipt thereof (but in no
event later than fifteen (15) days) and (b) in the event Seller receives payment
from any parties for services rendered by Buyer after the Closing Date
(including payment from Medicare, Medicaid and insurance programs), Seller will
remit such payment to Buyer as soon as reasonably practicable after receipt
thereof (but in no event later than fifteen (15) days).
8.12.
Further Assurances;
Transition Services
.
(a) At
any time and from time to time at or after the Closing, Buyer and Seller agree
to cooperate with each other to execute and deliver such other documents,
instruments of transfer or assignment, files, books and records and do all such
further acts and things as may be reasonably required in order to carry out the
purposes of this Agreement.
(b) Promptly
after the execution of this Agreement, Buyer and Seller will cooperate with each
other to develop a detailed transition plan reflecting, among other things, the
agreements regarding Transition Services included in
Section 8.12(c)
below.
(c) Buyer
and Seller agree that for a period of sixty (60) days following the Closing (the
“
Transition Services
Period
”), Seller shall provide to Buyer human resources, accounting,
information technology (including access to any data readily available related
to the Purchased Assets) or other services reasonably requested by Buyer that
are comparable to and consistent with the human resources, accounting,
information technology and other services provided by Seller to the Business
prior to the Closing and that are reasonably necessary to facilitate a smooth
transition of the ownership and operation of the Purchased Assets from Seller to
Buyer (the “
Transition
Services
”). Notwithstanding the foregoing, Seller shall be
required to provide the Transition Services only to the extent and in the manner
such Transition Services were being provided in connection with Seller’s owning
and operating of the Purchased Assets as of, or within the six (6) month period
ending on, the Closing Date and only to the extent Seller’s personnel at such
time have the expertise and available working time to provide such
services. To the extent Seller intends to terminate personnel
necessary to provide the Transition Services or Seller’s personnel at such time
do not have the expertise and available working time to provide such services,
Seller will give Buyer reasonable advance notice thereof and Buyer may, in its
sole discretion, pay the salaries of the necessary personnel in order to
maintain their employment, hire or pay for the costs of hiring the required
personnel, or use its own employees in order to ensure the availability of the
Transition Services, and Seller will afford such personnel with all access
necessary to do so. Buyer shall reimburse Seller for all expenses
incurred in connection therewith. Buyer and Seller shall use good
faith efforts to cooperate with each other in all matters relating to the
provision and receipt of the Transition Services.
8.13.
Access to Records
.
From the Closing Date through the third anniversary of the Closing Date, Seller
shall afford to Buyer and, upon request, Buyer’s counsel, accountants and other
representatives, reasonable access at reasonable times and occasions to access
and inspect information not included in the Purchased Assets but relating to the
Purchased Assets, the Business, any Transferred Employee, or a claim by Buyer
for indemnification pursuant to
Section 9.1
if and to
the extent Seller is legally required to maintain records relating to such
information. In the event that Seller is not legally required
to maintain such records or information through the third anniversary of the
Closing Date and determines to dispose of such records or information, Seller
shall provide Buyer with reasonably advanced notice of such disposal and an
opportunity to copy or take possession of such records or
information.
8.14.
Estoppels
. Within
two (2) business days after the date hereof, Seller shall deliver a Landlord
Estoppel Certificate to each of the landlords of the leases identified on
Exhibit C
hereto in
the form attached hereto as
Exhibit H
or
otherwise reasonably acceptable to Buyer (the “
Landlord Estoppel
Certificates
”) and shall use commercially reasonable efforts to cause
each of the landlords of the leases identified on
Exhibit C
hereto to
complete and execute an estoppel certificate substantially in the form of the
Landlord Estoppel Certificate or otherwise reasonably acceptable to Buyer and
return them to Seller as may be required under the leases. Seller
shall deliver each signed Landlord Estoppel Certificate to Buyer promptly after
Seller receives it. Within five (5) days after the date this
Agreement has been fully executed, Seller shall deliver to Buyer completed
Tenant/Seller Estoppel Certificates for each of the leases identified on
Exhibit C
hereto in
the form attached hereto as
Exhibit I
(the “
Tenant Estoppel
Certificates
”).
8.15.
Approval; Consent and
Meeting of Shareholders
. The Board of Directors of Nyer, at a
meeting duly called and held, has unanimously adopted resolutions: (a)
determining that the terms of this Agreement and the transactions contemplated
hereby are fair and in the best interests of Nyer and its stockholders, and
declaring it advisable to, to enter into this Agreement; (b) approving the
execution, delivery and performance of this Agreement and the consummation of
transactions contemplated hereby and any related matters involving Seller, and
(c) recommending that the stockholders of Nyer approve the adoption of this
Agreement.
8.16.
Public
Disclosures
. The parties and their respective Affiliates will
consult with each other and agree on the contents and timing of issuance, before
issuing any press release or otherwise making any public statement with respect
to this Agreement or any of the transactions contemplated hereby and will not
issue any such press release or make any such public statement prior to such
agreement, except as may be required by any listing agreement with a stock
exchange, rules/regulations of the SEC or, in the good faith judgment of a party
based on advice of counsel, by applicable law, in which case reasonable efforts
to consult with the other party will be made prior to such release or public
statement.
8.17.
Break-Up Fee and Expense
Reimbursement
.
(a) In
the event that after the date hereof and prior to the receipt of Nyer
Shareholder Approval, Seller or Nyer receives an unsolicited bona fide written
proposal for a transaction by a third party or a tender offer initiated by a
third party, in each case, pursuant to which the economic consideration shall be
at least $350,000.00 greater than the sum of (i) $17,750,000.00,
plus
(ii) the Prepaid
Rent Amount and
plus
(iii) the Parata
Equipment Amount (an “
Alternate
Transaction
”), Seller or Nyer may furnish non-public information to, and
negotiate with, such third party;
provided
however
, that Seller
or Nyer provide Buyer with written notice as provided below and shall pay to
Buyer (i) a break-up fee (the “
Break-Up Fee
”) in the
amount of $300,000.00 and (ii) an amount equal to all of the actual
out-of-pocket expenses, up to a total of $200,000.00, incurred by Buyer or its
Affiliates in connection with the transactions contemplated by this Agreement
(the “
Expense
Reimbursement
”), which such amounts shall be paid to Buyer in accordance
with
Section
11.2(b)
. Nothing in this
Section 8.17
shall
prohibit the Board of Directors of Nyer from refusing to make, withdrawing,
qualifying, conditioning, or modifying its recommendation of the transactions
contemplated by this Agreement if, prior to the Closing Date, there exists an
Alternate Transaction and the Board of Directors of Nyer determines in good
faith that any failure to do so would be inconsistent with the best interests of
the shareholders of Nyer; provided, however, that the Board of Directors of Nyer
has provided Buyer with five business days prior written notice of its intent to
effect such withdrawal, modification, qualification, conditioning or refusal to
recommend (which such notice shall include reasonable details regarding the
cause for, and the nature of, such withdrawal, modification, qualification,
conditioning or refusal to recommend). If Seller or its Affiliate
enters into such Alternate Transaction, this Agreement shall terminate but for
the confidentiality obligations and the obligation of Seller to pay the Break-Up
Fee and Expense Reimbursement as provided herein. The Break-Up Fee
and Expense Reimbursement are intended to compensate Buyer and its Affiliates
for the time and expense dedicated to this transaction.
(b) Seller
and Nyer shall as promptly as practicable after, and in any event not later than
five days after the date hereof, request and thereafter use its reasonable best
efforts to obtain the return or destruction (and certification thereof) of all
confidential material provided to other persons interested in pursuing a
transaction with Seller or Nyer or who otherwise expressed interest as a
potential bidder or as an advisor or representative to a potential bidder during
the six months preceding the date hereof.
8.18.
Proxy
Statement
. If the adoption of this Agreement by the
stockholders of Nyer is required under applicable law in order to consummate
this transaction and the transactions contemplated thereby, Nyer shall, as
promptly as practicable, and in any event within thirty (30) days following the
date hereof, prepare and file with the SEC the Proxy Statement. Nyer
shall respond to any comments of the SEC or its staff and shall cause the Proxy
Statement to be mailed to its stockholders as promptly as reasonably practicable
after the resolution of any such comments. Nyer shall notify Buyer
promptly upon the receipt of any comments from the SEC or its staff or any other
government officials and of any request by the SEC or its staff or any other
government officials for amendments or supplements to the Proxy Statement and
shall supply Buyer with copies of all correspondence between Nyer or any of its
representatives, on the one hand, and the SEC, or its staff or any other
government officials, on the other hand, with respect to the Proxy
Statement. Nyer shall cooperate and provide Buyer with a reasonable
opportunity to review and comment on the draft of the Proxy Statement (including
each amendment or supplement thereto). Nyer shall use commercially
reasonable efforts to cause all documents that Nyer is responsible for filing
with the SEC or other regulatory authorities under this
Section 8.18
to
comply in all material respects with all applicable requirements of law and the
rules and regulations promulgated thereunder. If at any time prior to
the Closing Date, any information should be discovered by any party hereto which
should be set forth in an amendment or supplement to the Proxy Statement so that
the Proxy Statement would not include any misstatement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, the party which discovers such information shall
promptly notify the other parties hereto and, to the extent required by
applicable law, an appropriate amendment or supplement describing such
information shall be promptly filed by Nyer with the SEC and disseminated by
Nyer to the stockholders of Nyer. If at any time prior to the Closing Date, any
information relating to Seller, Nyer, Buyer or any of their respective
Affiliates or any of their respective officers or directors should be discovered
by Seller, Nyer or Buyer which should be set forth in an amendment or supplement
to the Proxy Statement, so that the Proxy Statement shall not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading, the party that
discovers such information shall promptly notify the other parties and an
appropriate amendment or supplement describing such information shall be filed
with the SEC and, to the extent required by applicable law, disseminated to the
shareholders of Nyer. Notwithstanding anything to the contrary stated
above, prior to filing or mailing the Proxy Statement (or, in each case, any
amendment or supplement thereto) or responding to any comments of the SEC with
respect thereto, Nyer shall provide Buyer with a reasonable opportunity to
review and comment on such document or response and shall include in such
document or response comments reasonably proposed by or on behalf of
Buyer.
8.19.
Takeover
Statute
. If Section 607.0901 or 607.0902 of the FBCA or any
other “fair price,” “moratorium,” “control share acquisition” or other form of
antitakeover statute, regulation or law is or becomes applicable to this
Agreement or the transactions contemplated hereby, Nyer and the Board of
Directors of Nyer or an authorized special committee shall grant such approvals
and take such other actions as may be required or reasonably necessary, to the
extent permitted under such law, so that the transactions contemplated hereby
may be consummated as promptly as practicable, and in any event by the End Date,
on the terms and conditions set forth in this Agreement and to eliminate or
minimize the effects of such statute, regulation or law on the transactions
contemplated hereby.
8.20.
Shareholder
Litigation
. Nyer shall provide Buyer with prompt notice of and copies of
all proceedings and correspondence relating to any action against Nyer, any of
its subsidiaries or any of their respective directors or officers by any
shareholder of Nyer arising out of or relating to this Agreement or the
transactions contemplated by this Agreement. Nyer shall give Buyer the
opportunity to consult with Nyer regarding the defense or settlement of any such
shareholder action, and shall give due consideration to Buyer’s advice with
respect to such shareholder action.
8.21.
Parata
Equipment
. The parties acknowledge and agree that, prior to
the Closing Date, Seller shall purchase from Parata Systems LLC the Parata
Equipment, and concurrently with such purchase, Seller shall terminate the
leases related to such leased personal property.
8.22
Nyer Available
Cash
. Nyer must, for a period of ninety (90) days following
the Closing Date, or such longer period during which a claim made by Buyer
pursuant to
Section
9.1
or
9.2
remains open,
retain at least $1,200,000 in available cash or cash
equivalents.
ARTICLE
IX
INDEMNIFICATION
9.1.
Indemnification by
Seller
.
(a) Seller
agrees to indemnify and hold harmless each Buyer Group Member from and against
any and all Losses and Expenses incurred by such Buyer Group Member in
connection with or arising from:
(i) any
breach of any warranty or the inaccuracy of any representation of Seller
contained in this Agreement or in any agreement or document required to be
delivered by Seller hereunder or any certificate delivered by or on behalf of
Seller pursuant hereto;
(ii) any
breach by Seller of any of its covenants or agreements, or any failure of Seller
to perform any of its obligations, in this Agreement or in any agreement or
document required to be delivered by Seller hereunder after timely
noticed;
(iii) the
failure of Seller to pay, perform or discharge any Excluded Liability;
and
(iv) any
and all claims from or on behalf of any former, current or future (A) holder of
capital stock of, or other rights or interests in Seller or (B) creditor of
Seller, in either case, arising from or relating to the execution, delivery and
performance of this Agreement and/or the transactions contemplated
hereby;
provided
,
however
, that Seller
shall not be required to indemnify and hold harmless under clause (i) of this
Section 9.1(a)
with respect to Losses and Expenses incurred by Buyer Group Members (other than
Losses and Expenses incurred as a result of inaccuracies of the representations
and warranties contained in
Sections 5.1 (Organization
and Authority), 5.4 (Title and Sufficiency) and 5.15 (Broker)
(the
“Seller Fundamental
Representations),
as to which this proviso shall have no effect) unless
the aggregate amount of such Losses and Expenses subject to indemnification by
Seller exceeds $50,000.00, and once such amount is exceeded, Seller shall
indemnify the Buyer Group Members only for the amount in excess of such amount;
and
provided
further,
however,
that the aggregate amount that Seller shall be required
to indemnify and hold harmless pursuant to
Section 9.1(a)
(other than the Seller
Fundamental Representations which shall not exceed $4,000,000.00) shall not
exceed $1,200,000.00.
(b) The
indemnifications provided for in
Section 9.1(a)
shall
terminate on the date that is ninety (90) days following the Closing Date (and
no claims shall be made by any Buyer Group Member under
Section 9.1(a)
thereafter, other than claims made under
Section 5.18
(Intellectual Property) and
Section 8.10
(License
of Intellectual Property) which shall terminate on the date that is twelve
months following the Closing Date, but only if any current director or officer
of Seller has a beneficial ownership interest in Seller’s capital stock and,
other than claims made under
Section 8.2
(Non-Competition) which shall terminate on the date that is three years
following the Closing Date, except that the indemnifications shall continue as
to any Loss or Expense arising under or related to a claim pursuant to
Section 9.1(a)
of
which any Buyer Group Member has notified Seller in accordance with the
requirements of
Section 9.3
on or
prior to the date such indemnification would otherwise terminate in accordance
with this
Section
9.1(b)
, as to which the obligation of Seller shall continue until the
liability of Seller shall have been determined pursuant to this
Article IX
, and
Seller shall have reimbursed all Buyer Group Members for the full amount of such
Loss and Expense in accordance with this
Article IX
.
9.2.
Indemnification by
Nyer
.
(a) Nyer
agrees to indemnify and hold harmless each Buyer Group Member from and against
any and all Losses and Expenses incurred by such Buyer Group Member in
connection with or arising from:
(i)
any breach of any warranty or the inaccuracy of any representation of Nyer
contained in this Agreement or in any agreement or document required to be
delivered by Nyer hereunder or any certificate delivered by or on behalf of Nyer
pursuant hereto;
(ii)
any breach by Nyer of any of its covenants or agreements, or any
failure of Nyer to perform any of its obligations, in this Agreement or in any
agreement or document required to be delivered by Nyer hereunder after timely
noticed;
(iii) the
failure of Nyer to pay, perform or discharge any Excluded Liability for which
Nyer is the responsible party; and
(iv) any
and all claims from or on behalf of any former, current or future (A) holder of
capital stock of, or other rights or interests in Nyer or (B) creditor of Nyer,
in either case, arising from or relating to the execution, delivery and
performance of this Agreement and/or the transactions contemplated
hereby;
provided
,
however
, that Nyer
shall not be required to indemnify and hold harmless under clause (i) of this
Section 9.2(a)
with respect to Losses and Expenses incurred by Buyer Group Members (other than
Losses and Expenses incurred as a result of inaccuracies of the representations
and warranties contained in
Sections 6.1 (Organization
and Authority), 6.4 (Vote Required) and 6.5 (Broker)
(the
“Nyer Fundamental
Representations),
as to which this proviso shall have no effect) unless
the aggregate amount of such Losses and Expenses subject to indemnification by
Nyer exceeds $50,000.00, and once such amount is exceeded, Nyer shall indemnify
the Buyer Group Members only for the amount in excess of such amount;
and
provided
further
,
however
, that
the aggregate amount that Nyer shall be required to indemnify and hold harmless
pursuant to
Section 9.2(a)
(other than the Nyer Fundamental Representations which shall not exceed
$4,000,000.00) shall not exceed $1,200,000.00.
(b) Nyer
hereby guarantees to Buyer payment of Seller’s obligations under
Section 9.1
as
limited therein for the periods as provided in
Section
9.2(c)
.
(c) The
indemnifications provided for in
Section 9.2(a)
shall
terminate on the date that is the later of (i) ninety (90) days following the
Closing Date or (ii) the filing of articles of dissolution of Nyer with the
Secretary of State of the State of Florida (and no claims shall be made by any
Buyer Group Member under
Section 9.2(a)
thereafter), except that the indemnifications shall continue as to any Loss or
Expense arising under or related to a claim pursuant to
Section 9.2(a)
of
which any Buyer Group Member has notified Nyer in accordance with the
requirements of
Section 9.4
on or
prior to the date such indemnification would otherwise terminate in accordance
with this
Section
9.2(c)
, as to which the obligation of Nyer shall continue until the
liability of Nyer shall have been determined pursuant to this
Article IX
, and Nyer
shall have reimbursed all Buyer Group Members for the full amount of such Loss
and Expense in accordance with this
Article IX
.
9.3.
Indemnification by
Buyer
. Buyer agrees to indemnify and hold harmless Seller/Nyer
Group from and against any and all Loss and Expense incurred by any of them in
connection with or arising from: (i) any breach of any of any warranty or the
inaccuracy of any representation of Buyer contained in this Agreement or in any
agreement or document required to be delivered by Buyer hereunder or any
certificate delivered by or on behalf of Buyer pursuant hereto; (ii) any breach
by Buyer of any of its covenants or agreements or any failure of Buyer to
perform any of its obligations, in this Agreement or in any agreement or
document required to be delivered by Buyer hereunder after timely notice, and
(iii) any Assumed Liability. The indemnification provided for in this
Section 9.3(i)
shall terminate on the date that is twelve months after the Closing Date (and no
claims shall be made by Seller/Nyer Group under this
Section 9.3(i)
thereafter, other than claims arising under
Sections 7.1 (Organization
of Buyer), 7.2 (Authorization) and Section 7.3 (Non-Contravention)
which
shall terminate on the date that is ninety days following the Closing Date),
except that the indemnification by Buyer shall continue as to any Loss or
Expense arising under or related to a claim pursuant to
Section 9.3
of which
Seller/Nyer Group has notified Buyer in accordance with the requirements of
Section 9.4
on
or prior to the date such indemnification would otherwise terminate in
accordance with this
Section 9.3
, as to
which the obligation of Buyer shall continue until the liability of Buyer shall
have been determined pursuant to this
Article IX
, and Buyer
shall have reimbursed Seller/Nyer Group for the full amount of such Loss and
Expense in accordance with this
Article IX.
9.4.
Notice and Determination of
Claims
.
(a) The
party which is entitled to indemnification hereunder (for purposes of this
Section 9.4
, the
“
Indemnified
Person
”) may make claims for indemnification hereunder by promptly giving
written notice thereof to the party required to indemnify (for purposes of this
Section 9.4
,
the “
Indemnitor
”) within
the period in which indemnification claims can be made hereunder. If
indemnification is sought for a claim or liability asserted by a third party
(the “
Third Person
Claim
”), the Indemnified Person shall also give written notice thereof to
the Indemnitor promptly after it receives notice of the claim or liability being
asserted, but the failure to do so, or any delay in doing so, shall not relieve
the Indemnitor of its indemnification obligation under this
Article IX
,
unless, and then only to the extent that, the rights and remedies of the
Indemnitor are materially prejudiced as a result of the failure to give, or
delay in giving, such notice. Such notice shall in good faith
summarize the bases for the claim for indemnification (the “
Claim Notice
”)
describing such Loss or Expense, the amount thereof, if known, and the method of
computation of such Loss or Expense, all with reasonable particularity and
containing a reference to the provisions of this Agreement, any certificate or
other agreement delivered pursuant hereto in respect of which such Loss or
Expense shall have occurred.
(b) Within
fourteen (14) days after receiving such notice (or sooner as is reasonably
necessary, in the case of a Third Person Claim), the Indemnitor shall give
written notice to the Indemnified Person stating whether it in good faith
disputes the claim for indemnification and whether it will defend against any
Third Person Claim at its own cost and expense. If the Indemnitor
fails to give notice that it disputes an indemnification claim within 14 days
after receipt of notice thereof (or sooner as is reasonably necessary, in the
case of a Third Person Claim), it shall be deemed to have accepted and agreed to
the claim, and the amount of indemnification to which an Indemnified Person
shall be entitled under this
Article IX
shall
be determined: (i) by the written agreement between the Indemnified Person
and the Indemnitor; (ii) by a final, non-appealable judgment or decree of
any court of competent jurisdiction; or (iii) by any other means to which
the Indemnified Person and the Indemnitor shall agree. The judgment
or decree of a court shall be deemed final when the time for appeal, if any,
shall have expired and no appeal shall have been taken or when all appeals taken
shall have been finally determined.
9.5.
Indemnification as Sole
Remedy
. Except as permitted under
Section 12.9
, and
except with respect to claims for Losses and Expenses which cannot be waived as
a matter of law (including fraud), the indemnity provided herein will be the
sole and exclusive remedy of the Buyer Group Members and Nyer, Seller and their
respective Affiliates, directors, officers, employees, attorneys and agents with
respect to any and all claims for Losses and Expenses sustained, incurred or
suffered, directly or indirectly, relating to or arising out of this
Agreement.
ARTICLE
X
CONDITIONS
TO CLOSING
10.1.
Seller’s
Condition to
Closing
. The obligations of Seller under this Agreement are
subject to the satisfaction at or prior to the Closing of each of the following
conditions, but compliance with any or all of such conditions may be waived, in
writing, by Seller:
(a) The
representations and warranties of Buyer contained in this Agreement that are
qualified as to materiality shall be true and correct in all respects and those
representations and warranties not so qualified shall be true and correct in all
material respects, in each case, on the date hereof and on the Closing Date
(except to the extent that they expressly relate to an earlier
date);
(b) Buyer
shall have performed and complied in all material respects with all of the
covenants and agreements contained in this Agreement and satisfied all of the
conditions required by this Agreement to be performed or complied with or
satisfied by Buyer at or prior to the Closing;
(c) On
the Closing Date, there shall be no injunction, restraining order or decree of
any nature of any court or Governmental Body in effect that restrains or
prohibits the consummation of the transactions contemplated by this Agreement
and no action, suit or proceeding shall have been instituted by any Person or
entity, or threatened by any Governmental Body, before a court or Governmental
Body, to restrain or prevent the carrying out of the transactions contemplated
by this Agreement;
(d) Buyer
shall have delivered all documents required to be delivered under
Section
4.2
;
(e) On
the Closing Date, Buyer shall have paid to Seller the Closing Date
Payment;
(f) To
the extent required under applicable law, rules and regulations, stock exchange
rules and Nyer Board of Director resolutions a sufficient number of Nyer’s
shareholders of each class of its stock shall have voted in favor of the
transactions contemplated by the Agreement; and
(g) Seller
shall have received the Parata Releases executed by a duly authorized agent of
Parata Systems, LLC relating to the Parata Equipment.
10.2.
Buyer’s Conditions to
Closing
. The obligations of Buyer under this Agreement are
subject to the satisfaction at or prior to the Closing of each of the following
conditions, but compliance with any or all of any such conditions may be waived,
in writing, by Buyer:
(a) The
representations and warranties of Seller contained in this Agreement that are
qualified as to materiality shall be true and correct in all respects and those
representations and warranties not so qualified shall be true and correct in all
material respects, in each case, on the date hereof and on the Closing Date
(except to the extent that they expressly relate to an earlier
date);
(b) Seller
shall have performed and complied in all material respects with all the
covenants and agreements contained in this Agreement and satisfied all the
conditions required by this Agreement to be performed or complied with or
satisfied by it or them at or prior to the Closing Date;
(c) On
the Closing Date, there shall be no injunction, restraining order or decree of
any nature of any court or Governmental Body in effect that restrains or
prohibits the consummation of the transactions contemplated by this Agreement
and no action, suit or proceeding shall have been instituted by any Person or
entity, or threatened by any Governmental Body, before a court or Governmental
Body, to restrain or prevent the carrying out of the transactions contemplated
by this Agreement;
(d) Seller
shall have delivered all documents required to be delivered under
Section
4.3
;
(e) Buyer
shall have obtained all licenses, permits, NCPDP numbers, Medicaid or Medicare
numbers, or similar items required to operate the Business (either by transfer
of Seller’s Transferable Permits to the extent permitted by law or its receipt
of new licenses, permits or numbers), provided, however that as soon as
practicable after the date hereof Buyer will file its application for
all required licenses, numbers, or similar items required to operate the
Business and thereafter shall use all commercially reasonable efforts to obtain
such licenses, numbers or similar items as soon as possible; and
(f) To
the extent required under applicable law, rules and regulations, stock exchange
rules and Nyer Board of Director resolutions a sufficient number of Nyer’s
shareholders of each class of its stock shall have voted in favor of the
transactions contemplated by the Agreement.
ARTICLE
XI
TERMINATION
11.1.
Termination
. Notwithstanding
anything contained in this Agreement to the contrary, this Agreement may be
terminated at any time prior to the Closing Date:
(a) by
the mutual written consent of Buyer and Seller;
(b) by
Buyer in the event of any material breach by Seller of any of Seller’s
agreements, covenants, representations or warranties contained herein and such
material breach is incapable of being cured or, if capable of being cured, shall
not have been cured within thirty (30) days following receipt by Seller of
notice of such material breach from Buyer;
(c) by
Seller in the event of any material breach by Buyer of any of Buyer’s
agreements, covenants, representations or warranties contained herein and such
material breach is incapable of being cured or, if capable of being cured, shall
not have been cured within thirty (30) days following receipt by Buyer of notice
of such material breach from Seller;
(d) by
either Buyer or Seller if any Governmental Body shall have issued a final and
non-appealable order, decree or ruling permanently restraining, enjoining or
otherwise prohibiting the consummation of the transactions contemplated
hereby;
(e) by
either Buyer or Seller if the Closing shall not have occurred on or before one
hundred thirty-five (135) days after the date hereof (or such later date as may
be mutually agreed to in writing by Buyer and Seller) (the “
End Date
”); provided
that the party seeking to exercise such right of termination has not breached
its obligations hereunder in any material respect;
(f) by
either Buyer or Seller in the event Seller enters into a definitive agreement
for an Alternate Transaction in compliance with
Section 8.17
;
or
(g) by
either Buyer or Seller if the Nyer Shareholder Approval shall not have been
obtained at the Nyer shareholders’ meeting, or any adjournments
thereof.
11.2.
Effect of
Termination
.
(a) In
the event of the termination of this Agreement pursuant to
Section 11.1
hereof,
all further obligations of the parties under this Agreement shall be terminated
without further liability of any party or its stockholders, directors or
officers to the other parties, except that (i) the parties shall perform their
obligations contained in this
Section 11.2
and
Sections 12.7
and
12.12
and
the Mutual Confidentiality and Non-Disclosure Agreement, as amended to provide
at Paragraph 17 for an eighteen (18) month period prior to termination; provided
that nothing in this
Article XI
shall
relieve any party of its liability for a breach of its obligations under this
Agreement, and (ii) Buyer’s right to the Break-Up Fee and Expense Reimbursement
under
Section
8.17
shall remain in effect notwithstanding a termination of this
Agreement under
Section
11.1(f)
.
(b) If
Buyer or Seller shall terminate this Agreement pursuant to
Section 11.1(b)
or
(f)
, then
Seller shall, on the date of such termination, pay to Buyer the Break-Up Fee and
Expense Reimbursement.
(c) All
payments under
Section
11.2(b)
shall be made by wire transfer of immediately available funds to
an account designated in writing by Buyer.
(d) If
Seller shall fail to pay the Break-Up Fee or Expense Reimbursement, then Seller
shall reimburse Buyer for all reasonable costs and expenses actually incurred or
accrued by Buyer (including reasonable attorneys’ fees) in connection with
collection under and enforcement of
Section 11.2(b)
from
the date such payment was required to be made until the date of payment at the
prime lending rate prevailing during such period as published in
The Wall Street
Journal.
ARTICLE
XII
GENERAL
PROVISIONS
12.1.
Survival of
Obligations
. Subject to
Sections 9.1
,
9.2
,
9.3
,
9.4
and
9.5
, all
representations, warranties, covenants and obligations contained in this
Agreement shall survive the consummation of the transactions contemplated by
this Agreement.
12.2. [Reserved].
12.3.
Notices
. All
notices or other communications required or permitted under this Agreement shall
be in writing, shall be deemed to have been given when delivered in person, by
telex or telecopier, when delivered to a recognized next business day courier,
or, if mailed, when deposited in the United States mail, first class, registered
or certified, return receipt requested, with proper postage prepaid, addressed
as follows or to such other address as notice shall have been given pursuant
hereto:
If to
Seller:
D.A.W.,
Inc.
13 Water
Street
Holliston,
MA 01746
Attn: Mark
Dumouchel
Fax: 508-429-8237
If to
Nyer:
Nyer
Medical Group, Inc.
13 Water
Street
Holliston,
MA 01746
Attn: Mark
Dumouchel
Fax: 508-429-8237
with a copy to:
Sullivan
& Worcester LLP
One Post
Office Square
Boston,
MA 02109
Attn: Gayle
Ehrlich
Fax: 617-338-2880
If to
Buyer, to:
Walgreen
Co.
106
Wilmot Rd., 4th Floor, MS#1655
Deerfield,
Illinois 60015
Attention:
Michael Cairo
Fax:
(847) 368-6577
with a
copy to:
Walgreen
Co.
104
Wilmot Road, 2nd Floor, MS#1425
Deerfield,
Illinois 60015
Attention:
John Curtin
Fax:
(847) 315-4464
12.4.
Successors and Assigns; No
Third Party Beneficiaries
. Either party may assign any of its
rights hereunder, but no such assignment shall relieve it of its obligations
hereunder. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their successors and permitted assigns. Except as
set forth in
Article
IX
, nothing in this Agreement, expressed or implied, is intended or shall
be construed to confer upon any Person other than the parties and successors and
assigns permitted by this
Section 12.4
any
right, remedy or claim under or by reason of this Agreement.
12.5.
Entire Agreement;
Amendments
. This Agreement and the Exhibits and Schedules
referred to herein and the documents delivered pursuant hereto contain the
entire understanding of the parties hereto with regard to the subject matter
contained herein or therein, and supersede all prior agreements, understandings
or letters of intent between or among any of the parties hereto, including any
confidentiality agreement between the parties or their
Affiliates. This Agreement shall not be amended, modified or
supplemented except by a written instrument signed by an authorized
representative of each of the parties hereto.
12.6.
Waivers
. Any
term or provision of this Agreement may be waived, or the time for its
performance may be extended, by the party or parties entitled to the benefit
thereof. Any such waiver shall be validly and sufficiently authorized
for the purposes of this Agreement if, as to any party, it is authorized in
writing by an authorized representative of such party. The failure of
any party hereto to enforce at any time any provision of this Agreement shall
not be construed to be a waiver of such provision, nor in any way to affect the
validity of this Agreement or any part hereof or the right of any party
thereafter to enforce each and every such provision. No waiver of any
breach of this Agreement shall be held to constitute a waiver of any other or
subsequent breach.
12.7.
Expenses
. Except
for the Shared Expenses, each party hereto will pay all costs and expenses
incident to its negotiation and preparation of this Agreement and to its
performance and compliance with all agreements and conditions contained herein
on its part to be performed or complied with, including the fees, expenses and
disbursements of its counsel and accountants. For
administrative convenience, Buyer agrees to pay and be liable for the Shared
Expenses. In consideration therefore, the parties agree that Buyer
will be reimbursed, through a credit against the Purchase Price, equal to
one-half of the Shared Expenses. On or before the tenth (10
th
)
business day after the Closing Date or such other date as mutually agreed by the
parties but as soon thereafter as practicable, all rent (including without
limitation percentage rent), real estate taxes, common area charges, utility
charges, and other obligations due and payable by Seller under the leases
identified on
Exhibit
C
hereto, shall be prorated as of the Closing Date with respect to each
lease identified on
Exhibit C
hereto
(collectively the “
Prorated
Charges
”). Whenever possible, such prorations shall be based
on actual, current payments by Seller and to the extent such actual amounts are
not available, such prorations shall be estimated as of the Closing Date based
on actual amounts for the most recent comparable billing period. When
the actual amounts become known, such prorations shall be recalculated by Buyer
and Seller, and Buyer or Seller shall make any additional payment or refund, as
the case may be, so that the correct prorated amount is paid by each of Buyer
and Seller.
12.8.
Partial
Invalidity
. Wherever possible, each provision hereof shall be
interpreted in such manner as to be effective and valid under applicable law,
but in case any one or more of the provisions contained herein shall, for any
reason, be held to be invalid, illegal or unenforceable in any respect, such
provision shall be ineffective to the extent, but only to the extent, of such
invalidity, illegality or unenforceability without invalidating the remainder of
such invalid, illegal or unenforceable provision or provisions or any other
provisions hereof, unless such a construction would be
unreasonable.
12.9.
Injunctive Relief;
Remedies
.
(a) The
parties agree that any breach or threatened breach by Seller of or its
Affiliates of this Agreement, including
Section 8.2
, would
result in substantial and irreparable damage to Buyer, the amount of which would
be difficult, if not impossible, to ascertain. Therefore, Seller
agrees that in the event of any such breach or threatened breach thereof, Buyer
shall have the right to enforce this Agreement by preliminary or permanent
injunctive or other relief in equity, without the necessity of proving any
actual damages or providing any bond or other security. The right of
Buyer to obtain injunctive or other equitable relief to enforce the terms hereof
shall be in addition to all other rights and remedies it may otherwise have at
law, in equity, or otherwise. Such right to obtain injunctive or
other equitable relief may be exercised, at the option of Buyer, concurrently
with, prior to, after, or in lieu of the exercise of any other rights or
remedies which Buyer may have as a result of any breach or threatened breach of
any of the terms hereof.
(b) The
prevailing party or parties in any action brought to enforce any provision of
this Agreement shall be entitled to recover all reasonable attorneys’ fees and
disbursements and other out-of-pocket costs incurred in connection
therewith.
12.10.
Compliance with
Law
. Seller acknowledges that Buyer intends to (a) comply with
applicable law in its exercise of all rights under this Agreement, including its
rights under
Sections
8.5
and
8.7
and (b) restrict
competitively sensitive information to Buyer’s employees who are not involved in
sales, marketing or pricing of business operations that compete with Seller.
If provided with reasonable notice of procedures being implemented by
Buyer to facilitate such compliance, Seller agrees to use commercially
reasonable efforts to observe such procedures. Buyer acknowledges
that it intends to comply with all applicable privacy laws and any applicable
privacy policies of Seller relating to the handling of customer information and
data.
12.11.
Counterparts
. This
Agreement may be executed in one or more counterparts, each of which shall be
considered an original instrument, but all of which shall be considered one and
the same agreement.
12.12.
GOVERNING
LAW;
SUBMISSION TO JURISDICTION; SELECTION OF FORUM
.
THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE
, WITHOUT GIVING EFFECT TO ANY CHOICE
OR CONFLICT OF LAW PROVISION OR RULE, EXCEPT TO THE EXTENT THAT THE LAWS OF THE
STATE OF FLORIDA MANDATORILY APPLY
. EACH PARTY HERETO AGREES
THAT IT SHALL BRING ANY ACTION OR PROCEEDING IN RESPECT OF ANY CLAIM ARISING OUT
OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTAINED IN OR CONTEMPLATED
BY THIS AGREEMENT, WHETHER IN TORT OR CONTRACT OR AT LAW OR IN EQUITY,
EXCLUSIVELY IN A UNITED STATES DISTRICT COURT FOR THE STATE OF DELAWARE
(THE “
CHOSEN
COURTS
”) AND (I)
IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE CHOSEN COURTS, (II)
WAIVES ANY OBJECTION TO LAYING VENUE IN ANY SUCH ACTION OR PROCEEDING IN THE
CHOSEN COURTS, (III) WAIVES ANY OBJECTION THAT THE CHOSEN COURTS ARE AN
INCONVENIENT FORUM OR DO NOT HAVE JURISDICTION OVER ANY PARTY HERETO, (IV)
AGREES THAT SERVICE OF PROCESS UPON SUCH PARTY IN ANY SUCH ACTION OR PROCEEDING
SHALL BE EFFECTIVE IF NOTICE IS GIVEN IN ACCORDANCE WITH
SECTION
12.3
OF THIS AGREEMENT
AND (V) ACKNOWLEDGES THAT THE OTHER PARTIES WOULD BE IRREPARABLY DAMAGED IF ANY
OF THE PROVISIONS OF THIS AGREEMENT ARE NOT PERFORMED IN ACCORDANCE WITH THEIR
SPECIFIC TERMS AND THAT ANY BREACH OF THIS AGREEMENT COULD NOT BE ADEQUATELY
COMPENSATED IN ALL CASES BY MONETARY DAMAGES ALONE AND THAT, IN ADDITION TO ANY
OTHER RIGHT OR REMEDY TO WHICH A PARTY MAY BE ENTITLED, AT LAW OR IN EQUITY, IT
SHALL BE ENTITLED TO ENFORCE ANY PROVISION OF THIS AGREEMENT BY A DECREE OF
SPECIFIC PERFORMANCE AND TO TEMPORARY, PRELIMINARY AND PERMANENT INJUNCTIVE
RELIEF TO PREVENT BREACHES OR THREATENED BREACHES OF ANY OF THE PROVISIONS OF
THIS AGREEMENT, WITHOUT POSTING ANY BOND OR OTHER
UNDERTAKING.
12.13.
Nyer
Sections
. Nyer shall be bound to this Agreement as and to the
extent provided in each of the following sections: 4.3(d), 6.1 through 6.11,
8.2, 8.5(b), 8.6, 8.15 through 8.20, 8.22, 9.2, 9.4, 9.5, 12.1, 12.3, 12.12 and
12.13.
[Signature
Page Follows]
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
the day and year first above written.
BUYER:
|
|
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WALGREEN
EASTERN CO., INC.
|
|
|
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By:
|
/s/ Robert M. Silverman
|
|
Name:
Robert M. Silverman
|
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Title:
Vice President
|
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SELLER:
|
|
|
|
D.A.W.,
INC.
|
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By:
|
/s/ Mark A. Dumouchel
|
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Name:
Mark A. Dumouchel
|
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Title:
President
|
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Solely
with respect to those sections specifically identified
herein:
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NYER
MEDICAL GROUP, INC.
|
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By:
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/s/ Mark A. Dumouchel
|
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Name:
Mark A. Dumouchel
|
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Title:
President and Chief Executive
Officer
|
Signature
Page to Asset Purchase Agreement
EXHIBIT
INDEX
Exhibits
|
|
|
|
Exhibit
A
|
Operate
Location Pharmacies
|
|
|
Exhibit
B
|
Non-Operate
Location Pharmacies
|
|
|
Exhibit
C
|
List
of Assumed Real Estate Leases
|
|
|
Exhibit
D
|
Bill
of Sale
|
|
|
Exhibit
E
|
Power
of Attorney
|
|
|
Exhibit
F
|
Inventory
Procedures
|
|
|
Exhibit
G
|
Customer
Notification Letter
|
|
|
Exhibit
H
|
Form
of Landlord Estoppel Certificate
|
|
|
Exhibit
I
|
Form
of Tenant Estoppel Certificate
|
|
|
Exhibits
J-1 through J-8
|
Assignment
and Assumption of Real Estate Lease
|
|
|
Exhibits
K
|
Real
Estate Security
Deposits
|
EXHIBIT
A
OPERATE
LOCATION PHARMACIES
Store
|
|
Store Address
|
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City and State
|
1
|
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47
Elm Street
|
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Danvers,
MA
|
2
|
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89
Pleasant Street
|
|
Marblehead,
MA
|
3
|
|
416
Watertown Street
|
|
Newton,
MA
|
4
|
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533
Columbia Road
|
|
Dorchester,
MA
|
5
|
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266
Washington Street
|
|
Wellesley,
MA
|
6
|
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397
Boston Post Road
|
|
Weston,
MA
|
7
|
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683
High Street
|
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Westwood,
MA
|
8
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675
Main Street
|
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Woburn,
MA
|
EXHIBIT
B
NON-OPERATE
LOCATION PHARMACIES
Store
|
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Store Address
|
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City and State
|
1
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111
Canal Street
|
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Salem,
MA
|
2
|
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76
Prospect Street
|
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Gloucester,
MA
|
3
|
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19
N. Main Street
|
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Sherborn,
MA
|
4
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415
Columbia Road
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Dorchester,
MA
|
ANNEX
B – DAW PURCHASE AGREEMENT
The
DAW Purchase Agreement has been included to provide you with information
regarding its terms. It is not intended to provide any other factual information
about the Management Team, DAW or Nyer. The terms and other information in the
DAW Purchase Agreement should not be relied upon as disclosure about the
Management Team, DAW or Nyer without consideration of the entirety of Nyer’s
public disclosure as set forth in its public filings with the
SEC. Nyer’s other public disclosure can be found elsewhere in this
proxy statement and in the other public filings that Nyer makes with the SEC,
which are available without charge at www.sec.gov.
The
DAW Purchase Agreement contains representations and warranties the Management
Team, DAW and Nyer made to each other for purposes of allocating contractual
risk among the parties to the agreement. The assertions embodied in those
representations and warranties are qualified by information in confidential
disclosure schedules that the Management Team, DAW and Nyer have exchanged in
connection with signing the DAW Purchase Agreement. The disclosure schedules
contain information that modifies, qualifies and creates exceptions to the
representations and warranties set forth in the attached DAW Purchase Agreement.
Accordingly, you should not rely on the representations and warranties as
characterizations of the actual state of facts, since they are modified by the
underlying disclosure schedules and may be subject to standards of materiality
that differ from those applicable to investors. None of the Management Team, DAW
nor Nyer believes that the disclosure schedules contain information that the
securities laws require either or both of them to publicly disclose. Moreover,
information concerning the subject matter of the representations and warranties
may have changed since the date of the agreement, which subsequent information
may or may not be fully reflected in Nyer’s public disclosures.
TRANSACTION
AGREEMENT
by and
among
D.A.W.,
INC.,
NYER
MEDICAL GROUP, INC.
and
THE
MANAGEMENT INVESTORS LISTED ON SCHEDULE I HERETO
Dated as
of October 23, 2009
SCHEDULES
Schedule
I
|
Schedule
of Management Investors
|
Schedule
II
|
Closing
Date Balance Sheet with Certificate of
Liabilities
|
EXHIBITS
Exhibit
A
|
Asset
Purchase Agreement between D.A.W., Inc. and Walgreen Eastern Co.,
Inc.
|
Exhibit
B
|
Form
of Note Assumption, Release and
Consent
|
TRANSACTION
AGREEMENT
TRANSACTION
AGREEMENT, dated as of October 23, 2009 (the “
Agreement
”), by and
among D.A.W., Inc., a corporation organized under the laws of the Commonwealth
of Massachusetts (the “
Company
” or “
DAW
”), Nyer Medical
Group, Inc., a corporation organized under the laws of the State of Florida
(“
Nyer
”), and
certain members of management of the Company who are purchasing shares of common
stock of DAW, no par value (“
Common Stock
”), at
the Closing (as defined below) and listed on
Schedule I
hereto
(the “
Management
Investors
”). DAW, Nyer and the Management Investors are
sometimes hereinafter referred to separately as a “
Party
” and
collectively as the “
Parties
”.
RECITALS
WHEREAS,
the DAW is a wholly-owned subsidiary of Nyer:
WHEREAS,
the Parties wish to set forth in this Agreement the terms and conditions by
which the Management Investors will acquire DAW’s Common Stock held by Nyer and,
at Closing, Nyer will receive a benefit of $1,500,000 through the sale of all of
DAW’s Common Stock to the Management Investors and DAW’s retention of
liabilities described below;
WHEREAS,
DAW has entered into an Asset Purchase Agreement of even date herewith, in the
form attached hereto as
Exhibit A
(the “
WAG Agreement
”), with
Walgreen Eastern Co., Inc. (“
WAG
”) for the
acquisition by WAG of certain assets of DAW (the “
WAG Transaction
”);
and
WHEREAS,
the Parties wish to set forth in this Agreement the terms and conditions of a
series of related transactions, which will close concurrently with the
Management Investors’ acquisition of Common Stock as described above, whereby
cash proceeds of the WAG Transaction will be used to discharge DAW’s
liabilities, other than those expressly retained by DAW, and then the net
proceeds, together with DAW’s operating cash and liquidated accounts receivable,
will be distributed to Nyer.
NOW,
THEREFORE, in consideration of the foregoing, and the premises, representations,
warranties, covenants and agreements herein contained, and other good and
valuable consideration, the adequacy and receipt of which are hereby
acknowledged, intending to be legally bound, the Parties hereby agree as
follows:
ARTICLE
I
Definitions
As used
in this Agreement, the following terms have the respective meanings set forth
below:
“
Accounting Referee
”
shall have the meaning assigned to such term in Section 9.3.
“
Agreement
” shall have
the meaning assigned to such term in the Preamble.
“
Alternate
Transaction
” shall have the meaning assigned to such term in Section
9.2.
“
Business Day
” shall
mean a day, other than a Saturday or Sunday, on which commercial banks in
Boston, Massachusetts are open for the general transaction of
business.
“
Cash Shortfall
” shall
have the meaning assigned to such term in Section 3.3.
“
Certificate of
Liabilities
” shall have the meaning assigned to such term in Section
3.1.
“
Closing
” shall have
the meaning assigned to such term in Section 4.1.
“
Closing Date
” shall
have the meaning assigned to such term in Section 4.1.
“
Closing Date Balance
Sheet
” shall mean the pro forma balance sheet of the Company as described
in Section 2.1.
“
Closing Date Liability
Balance
” shall have the meaning assigned to such term in Section
3.1.
“
Code
” shall mean the
Internal Revenue Code of 1986, as amended, and any successor Law.
“
Company
” shall have
the meaning assigned to such term in the Preamble.
“
Common Stock
” shall
have the meaning assigned to such term in the Preamble.
“
Contract
” shall mean
any agreement, lease, commitment, franchise, purchase order, statement of work,
license, contract, note, mortgage, bond, indenture, lease, arrangement or other
obligation, whether written or oral.
“
Employment Agreement
”
shall have the meaning assigned to such term in Section 2.2.
“
Encumbrances
” shall
mean any mortgage, pledge, lien, encumbrance, claim, charge, security interest
or other restriction, option, deed of trust, hypothecation, conditional sale or
restriction on transfer of title or voting, whether imposed by agreement, law,
equity or otherwise.
“
Expense
Reimbursement
” shall have the meaning assigned to such term in Section
9.2.
“
Final Balance Sheet
”
shall have the meaning assigned to such term in Section 9.3.
“
Final Payment Date
”
shall have the meaning assigned to such term in Section 9.4.
“
Final WAG
Distribution
” shall have the meaning assigned to such term in Section
9.3.
“
GAAP
” shall mean
United States generally accepted accounting principles.
“
Governmental Entity
”
or “
Governmental
Entities
” shall mean the government of the United States of America and
any political subdivision thereof, whether state or local, and any agency,
authority, instrumentality, regulatory body, court or other entity exercising
executive, legislative, judicial, taxing, regulatory or administrative powers or
functions of government or any self-regulatory authority with similar
powers.
“
Income Tax
” or “
Income Taxes
” shall
mean all (i) federal, state, local and foreign taxes, or similar charges, that
are on, or measured by, net income or gain, including state and local franchise
or excise taxes, whether computed on a separate, consolidated, unitary, combined
or any other basis and (ii) all interest, penalties and additions imposed with
respect to any such amounts described in (i) and any interest in respect of such
penalties and additions, whether disputed or not and regardless of whether such
items are incurred, accrued, assessed or similarly charged on, before or after
the Closing Date and (iii) any liability as a transferee or successor of any
amount in clause (i) that is payable by reason of contract, assumption,
transferee liability, operation of state or local tax Law or
otherwise.
“
Income Tax Return
”
shall mean all returns and reports (including elections, declarations,
disclosures, schedules or other attachments, estimates and information returns),
including any amended return, required to be supplied to a Tax Authority
relating to Income Taxes.
“
IRS
” shall mean the
United States Internal Revenue Service.
“
Law
” or “
Laws
” shall mean any
federal, state or local law, statute or ordinance, common law or any rule,
regulation, standard, judgment, order, writ, injunction, decree, arbitration
award, agency requirement, license or permit of any Governmental
Entity.
“
Liability
” shall mean
any debt, obligation or liability, of any nature whatsoever, disclosed on a
balance sheet prepared in accordance with GAAP and regardless of whether such
debt, obligation or liability is immediately due and payable.
“
Management Investors
”
shall have the meaning set forth in the Preamble.
“
Management
Representatives
” shall mean Mark Dumouchel and David
Dumouchel.
“
Nyer Group Return
”
shall mean any consolidated, unitary, combined or similar Income Tax Return that
includes both Nyer and the Company.
“
Order
” shall mean any
Law, order, injunction, judgment, decree or ruling of any Governmental
Entity.
“
Party
” and “
Parties
” shall have
the meaning assigned to such terms in the Preamble.
“
Person
” shall mean an
individual, a partnership, a corporation, a limited liability company, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization or other entity, including a Governmental Entity.
“
Pre-Closing Date Income
Taxes
” shall mean all liability for Income Taxes of the Company,
calculated in the case of any such taxes related to any Nyer Group Return on a
separate return basis for the Company, for Pre-Closing Date Income Tax
Periods. For the avoidance of doubt, Pre-Closing Date Income Taxes
shall include Income Taxes of the Company resulting from or imposed in
connection with the WAG Transaction, calculated on the basis of the agreed upon
allocation of the aggregate purchase price pursuant to the WAG
Agreement.
“
Pre-Closing Date Income Tax
Period
” shall mean, for any Income Tax, any taxable year or period ending
on or prior to the Closing Date.
“
Residual Accounts
”
shall mean the Company’s accounts receivable as of the Closing Date which are
related to the assets and operations of the Company that are excluded from the
WAG Transaction as the same shall be reflected on the Closing Date Balance
Sheet.
“
Sale Transaction
”
shall have the meaning assigned to such term in Section 9.2.
“
Samuel Nyer Note
”
shall mean, collectively, that certain Promissory Note dated February 4, 2008,
in the original principal amount of $400,000, made by Nyer and payable to the
order of Samuel Nyer, and that certain Promissory Note dated February 4, 2008,
in the original principal amount of $350,000, made by Nyer and payable to the
order of the Management Representatives and others and assigned initially to
Nyle International Corp. and then to Samuel Nyer.
“
Securities Act
” shall
mean the Securities Act of 1933, as amended.
“
Severance Payments
”
shall have the meaning assigned to such term in Section
2.2. Severance Payments shall be included as Company Liabilities to
be satisfied under Section 3.1 at Closing.
“
Tax Authority
” shall
mean the IRS and any similar state or local Governmental Entity.
“
Tax Law
” shall mean
the Code, the Treasury Regulations, judicial decisions and IRS rulings,
procedures, announcements and notices of general application and analogous
statutory, regulatory, judicial or administrative provisions, decisions and
rulings under state or local law.
“
Tax Reserve
” shall
have the meaning assigned to such term in Section 2.1.
“
Transaction Expenses
”
shall mean any fees and expenses of the Company incurred in connection with the
negotiation and consummation of, or which become due and payable as a result of
the transactions contemplated by this Agreement and/or the WAG Agreement,
including, but not limited to, the fees and expenses payable to Newbury, Piret
& Company and all legal fees of the Company related to the transactions
contemplated by this Agreement and/or the WAG
Transaction. Transaction Expenses shall be included as Company
Liabilities to be satisfied under Section 3.1 at Closing.
“
Transfer Tax
” shall
mean all transfer, real property transfer, stock transfer, documentary, sales,
use, stamp, registration and other similar taxes (including penalties and
interest). For the avoidance of doubt, Transfer Tax does not include
Income Taxes.
“
Treasury Regulations
”
shall mean the regulations (including temporary and proposed regulations)
promulgated under the Code by the United States Department of
Treasury.
“
WAG Agreement
” shall
have the meaning assigned to such term in the Preamble.
“
WAG Distribution
”
shall mean a cash distribution equal to the aggregate cash purchase price
received by the Company under the WAG Transaction, less the Closing Date
Liability Balance. The WAG Distribution shall be subject to
adjustment under Section 3.3 and Section 9.3.
“
WAG Transaction
”
shall have the meaning assigned to such term in the Preamble.
ARTICLE
II
Pre-Closing Date
Transactions
2.1.
Closing Date Balance
Sheet
. Prior to Closing, the Parties shall cooperate in good
faith, with the assistance of the Company’s senior financial staff and Wolf
& Company, P.C., to prepare in accordance with GAAP, on a basis consistent
with the preparation of prior interim, unaudited balance sheets of the Company,
a pro forma balance sheet of the Company as of the Closing Date (the “
Closing Date Balance
Sheet
”). The Closing Date Balance Sheet shall reflect the
closing of the WAG Transaction, receipt of the aggregate cash purchase price
thereunder, the remaining assets of the Company, including without limitation,
its operating cash on hand, its Residual Accounts and other accounts receivable,
and inventory, the WAG Distribution, a Tax Reserve (as defined below), an
additional accrual for any applicable taxes, duties and assessments other than
Pre-Closing Date Income Taxes, Severance Payments, Transaction Expenses and all
other Liabilities of the Company. The Closing Date Balance Sheet
shall include an agreed upon estimate for an accrual for Pre-Closing Date Income
Taxes related to any Nyer Group Return required to be filed after the Closing
Date (collectively, “
Tax
Reserve
”). At Closing, the Closing Date Balance Sheet shall be
attached hereto as
Schedule II
and the
Certificate of Liabilities (as defined in Section 3.1) shall be attached to and
become part of the Closing Date Balance Sheet.
2.2.
No Change in
Management
.
(a) Between
the date hereof and the Closing, Nyer shall not make, cause or permit any change
in the management of the Company, unless approved in writing by the Management
Representatives. Without limiting the generality of the foregoing,
Nyer agrees there shall be no change in the Board of Directors of the Company or
its senior management without the written consent of the Management
Representatives.
(b) The
Parties agree that, upon closing the WAG Transaction and notwithstanding
anything to the contrary in their respective employment agreements (each, an
“
Employment
Agreement
”) with Nyer and the Company, each Management Investor shall be
entitled to the severance payments set forth in Sections 7(a) and 7(b) (the
“
Severance
Payments
”) of his Employment Agreement, and the Company shall pay the
Severance Payments in full to such Management Investor at closing of the WAG
Transaction.
2.3.
Authorize WAG
Distribution
. Prior to Closing, the Company’s Board of
Directors shall take all actions necessary to authorize and approve the payment
to Nyer of the WAG Distribution as provided in this Agreement, subject to
closing the WAG Transaction and provisions of applicable law. Without
limiting the foregoing, nothing in this Section 2.3 or this Agreement shall
require the Company to authorize or make a distribution to Nyer that would be
prohibited by Section 6.40 of the Massachusetts Business Corporation
Act.
ARTICLE
III
The Closing Date
Transactions
3.1.
Payment and Retention of
Liabilities; Benefit to Nyer
.
(a) The
Company shall set forth in a certificate (“
Certificate of
Liabilities
”) delivered at the Closing the sum of its Liabilities as
reflected on the Closing Date Balance Sheet. The Management
Representatives shall specify in the Certificate of Liabilities $1,200,000 of
the Company’s Liabilities (other than the Tax Reserve and applicable Transfer
Taxes to which Section 9.1(c) applies) that the Company will retain after the
Closing. The sum of Liabilities set forth in the Certificate of
Liabilities, other than the foregoing Liabilities specified by the Management
Representatives, the Tax Reserve and applicable Transfer Taxes to which Section
9.1(c) applies, is herein referred to as the “
Closing Date Liability
Balance
”.
(b) At
Closing, the Company shall, with proceeds of the WAG Transaction, pay or
establish reserves for the payment of all Liabilities included in the Closing
Date Liability Balance.
3.2.
Purchase of Common
Stock
. At the Closing, pursuant to the terms of this
Agreement, each Management Investor hereby agrees to purchase from Nyer the
number of shares of Common Stock set forth opposite such Management Investor’s
name on
Schedule
I
, and Nyer hereby agrees to sell to each Management Investor such shares
of Common Stock. At the Closing, each Management Investor hereby
agrees to pay in cash the amount set forth opposite such Management Investor’s
name on
Schedule
I
.
3.3.
Adjustment and Payment of
WAG Distribution
. At the Closing, the Company shall pay to
Nyer the WAG Distribution;
provided
,
however
, the WAG
Distribution shall be:
(a) reduced
by:
(i) the
amount, if any, by which the sum of the Tax Reserve and Cash Shortfall (as
defined below) exceeds the Company’s accounts receivable, less the Residual
Accounts (in each case as reflected on the Closing Date Balance Sheet);
and
(b)
increased by:
(i)
an amount equal to the Company’s operating cash on hand and its accounts
receivable (in each case as reflected on the Closing Date Balance Sheet),
reduced by the Tax Reserve and Residual Accounts (in each case as reflected on
the Closing Date Balance Sheet);
provided
,
however
, if the
adjustment to the WAG Distribution anticipated by the foregoing language of this
Section 3.3(b) exceeds the Company’s operating cash on hand on the Closing Date,
such adjustment shall be limited to the amount of its operating cash on hand on
the Closing Date and such excess, for purposes of Section 9.4, shall be referred
to as the “
Cash
Shortfall
”. For avoidance of doubt, cash recorded on the
Company’s books (including the Closing Date Balance Sheet and the Final Balance
Sheet) resulting from the adjustments in Section 3.3(a) shall not be considered
operating cash on hand under Section 3.3(b).
3.4.
Samuel Nyer
Note
. If Samuel Nyer consents in writing to the assignment of
the Samuel Nyer Note as hereinafter provided, at the Closing, pursuant to the
Note Assumption, Release and Consent (the “
Note Assumption
”) in
the form attached hereto as
Exhibit B
, the
Company shall assume all of Nyer’s obligations under the Samuel Nyer Note first
arising after the Closing Date and Nyer shall be released from such further
obligations thereunder.
ARTICLE
IV
Closing
4.1.
Closing
. Subject
to the provisions of Article VIII, the closing of the transactions contemplated
by this Agreement (the “
Closing
”) and all
actions specified in this Agreement to occur at the Closing shall take place at
the offices of Sullivan & Worcester LLP, One Post Office Square, Boston,
Massachusetts at 10:00 a.m. Boston time, on the same Business Day on which the
last of the conditions set forth in Article VIII (other than those conditions
that by their nature are to be satisfied at the Closing, but subject to the
satisfaction or waiver of those conditions) are satisfied or waived in
accordance with this Agreement or on such other date as the Company, Nyer and
the Management Representatives shall agree in writing (the date on which the
Closing takes place, the “
Closing
Date
”). Each of the transactions contemplated by this
Agreement shall be deemed to be effective at 12:01 a.m. Boston time, on the
Closing Date.
4.2.
Closing
Deliverables
.
(a)
Deliveries by the
Company
. At the Closing, the Company shall deliver or cause to
be delivered the following:
(i) Cash
by wire transfer of immediately available funds to Nyer equal to the WAG
Distribution.
(b)
Deliveries by each
Management Investor
. At the Closing, each Management Investor
shall deliver or cause to be delivered the following:
(i) Cash
by wire transfer of immediately available funds to Nyer in the amount determined
for such Management Investor under Section 3.2.
(c)
Deliveries by
Nyer
. At the Closing, Nyer shall deliver the
following:
(i) Stock
Certificate to each Management Investor representing the shares of Common Stock
purchased by such Management Investor pursuant to Section 3.2, accompanied by
stock powers duly executed in blank and otherwise in the form necessary to
transfer to such Management Investor good title to such shares.
4.3.
Further
Assurances
. At any time and from time to time after the
Closing Date, at the request of any Party and without further consideration, the
Parties will execute and deliver such instruments, certificates, reports and
other documents as any other Party may reasonably request to more effectively
carry out or confirm the transactions contemplated hereby or to report the
transactions, or the results of the transactions, contemplated hereby to any
Governmental Entity or as otherwise required by law.
ARTICLE
V
Representations and
Warranties of Nyer
Nyer
hereby represents and warrants to the Company and the Management Investors as
follows:
5.1.
Title to
Shares
. Nyer holds of record and owns beneficially 2,500
shares of the Common Stock, free and clear of all Encumbrances. There
is no restriction affecting the ability of Nyer to transfer the title and
ownership of such shares owned by it to the Management Investors and, upon
delivery of the certificate for such shares to each Management Investor pursuant
to the terms of this Agreement and payment of the purchase price therefor at
Closing, each Management Investor will acquire record and legal title, free and
clear of all Encumbrances, to such shares.
5.2.
Authorization of Transaction
by Nyer
. Subject to receipt of requisite shareholder approval,
Nyer has all requisite corporate power and authority to execute, deliver and
perform its obligations under this Agreement, and to consummate the transactions
contemplated by this Agreement. The execution, delivery and
performance by Nyer and the consummation by Nyer of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of Nyer and no other corporate action or
proceedings on the part of Nyer are necessary to authorize the execution,
delivery and performance by Nyer of this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly
executed and delivered by Nyer and constitutes the valid and binding obligation
of Nyer, enforceable against Nyer in accordance with its terms, except that such
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar Laws now or hereafter in effect relating to or affecting the
rights and remedies of creditors and general principles of equity (whether
considered in a proceeding at law or in equity) and the discretion of a court
before which any proceeding therefor may be brought.
5.3.
Governmental Filings; No
Conflicts
.
(a) No
notices, reports or other filings are required to be made by Nyer with, nor are
any consents, registrations, approvals, permits or authorizations required to be
obtained by Nyer from, any Governmental Entity in connection with the execution,
delivery and performance of this Agreement by Nyer and the consummation by Nyer
of the transactions contemplated hereby.
(b) The
execution, delivery and performance of this Agreement by Nyer does not, and the
consummation of the transactions contemplated hereby by Nyer will not (i)
constitute or result in a breach or violation of, or a default under the
governing documents of Nyer, (ii) constitute or result in a breach or violation
of, or a default under any Law to which Nyer is subject, (iii) require a consent
or approval under, conflict with, result in a violation or breach of, or
constitute a default under, result in the acceleration of, or create in any
Person the right to accelerate, terminate or cancel or modify any material
obligation or result in the loss of any material right under any Contract to
which Nyer is a party or otherwise bound.
5.4.
Offering
. Assuming
the accuracy of the representations of each Management Investor as set forth
herein, the offer and sale of such shares of Common Stock as contemplated by
this Agreement are exempt from the registration requirements of the Securities
Act, and all applicable state securities laws, and neither the Company nor any
authorized agent acting on its behalf will take any action that would cause the
loss of such exemption. The offer and sale of such shares are not
part of a public distribution and are not part of any distribution of any other
securities by the Company.
5.5.
Brokers and
Finders
. No broker, investment banker, financial advisor or
other Person is entitled to any broker’s, finder’s, financial advisor’s or other
similar fee or commission in connection with this Agreement or the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Nyer for which the Company has or will have any liability.
ARTICLE
VI
Representations and
Warranties of the Company
The
Company hereby represents and warrants to Nyer and the Management Investors as
follows:
6.1
Authorization of Transaction
by the Company
. Subject to receipt of requisite Nyer
shareholder approval, the Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under this Agreement
and to consummate the transactions contemplated by this
Agreement. The execution, delivery and performance by the Company of
this Agreement and the consummation by the Company of the transactions
contemplated hereby will or have been duly and validly authorized by all
necessary corporate action on the part of the Company and no other corporate
actions or proceedings on the part of the Company are necessary to authorize the
execution, delivery and performance by the Company of this Agreement or to
consummate the transactions contemplated hereby. This Agreement has
been duly executed and delivered by the Company and constitutes the valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except that such enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar Laws now or hereafter in
effect relating to or affecting the rights and remedies of creditors and general
principles of equity (whether considered in a proceeding at law or in equity)
and the discretion of a court before which any proceeding therefor may be
brought.
6.2.
Governmental Filings; No
Conflicts
.
(a) No
notices, reports or other filings are required to be made by the Company with,
nor are any consents, registrations, approvals, permits or authorizations
required to be obtained by the Company from any Governmental Entity in
connection with the execution, delivery and performance of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby.
(b) The
execution, delivery and performance of this Agreement by the Company does not,
and the consummation of the transactions contemplated hereby by the Company will
not (i) constitute or result in a breach or violation of, or a default under the
governing documents of the Company, (ii) constitute or result in a breach or
violation of, or a default under any Law to which the Company is subject, (iii)
require a consent or approval under, conflict with, result in a violation or
breach of, or constitute a default under, result in the acceleration of, or
create in any Person the right to accelerate, terminate or cancel or modify any
material obligation or result in the loss of any material right under any
Contract to which the Company is a party or otherwise bound.
6.3.
Brokers and
Finders
. No broker, investment banker, financial advisor or
other Person is entitled to any broker’s, finder’s, financial advisor’s or other
similar fee or commission in connection with this Agreement or the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company for which Nyer has or will have any liability.
ARTICLE
VII
Representations and
Warranties of Management Investors
Each
Management Investor, severally and not jointly, for such Management Investor
alone, hereby represents and warrants to the Company and Nyer as
follows:
7.1.
Authorization
. Such
Management Investor is of legal age and has full capacity to execute and deliver
this Agreement and to perform his or her obligations hereunder. This
Agreement has been duly executed and delivered by such Management Investor and
constitutes the valid and binding obligation of the Management Investor,
enforceable against such Management Investor in accordance with its terms,
except as limited by bankruptcy, insolvency, reorganization, moratorium or other
similar Laws now or hereafter in effect relating to or affecting the rights and
remedies of creditors and general principles of equity (whether considered in a
proceeding at law or in equity) and the discretion of a court before which any
proceeding therefor may be brought.
7.2.
Investment
Representations
.
(a) Such
Management Investor confirms and acknowledges that he or she understands that
the opportunity to purchase the Common Stock offered to such Management Investor
under this Agreement is offered in his or her capacity as an employee,
consultant, officer or director of the Company and such Management Investor is
an “accredited investor” as that term is defined in Regulation D under the
Securities Act.
(b) The
Common Stock offered to such Management Investor under this Agreement is being
purchased by such Management Investor hereunder for investment, and not with a
view to any distribution thereof that would violate the Securities Act or the
applicable state securities laws of any state. Such Management
Investor will not distribute the Common Stock offered to such Management
Investor under this Agreement in violation of the Securities Act or the
applicable securities laws of any state.
(c) Such
Management Investor understands that the shares of Common Stock offered to such
Management Investor under this Agreement have not been registered under the
Securities Act or the securities laws of any state and must be held indefinitely
unless subsequently registered under the Securities Act and any applicable state
securities laws or unless an exemption from such registration becomes or is
available.
(d) In
formulating a decision to purchase the Common Stock offered to such Management
Investor under this Agreement, such Management Investor has relied solely upon
(i) the provisions of this Agreement, (ii) an independent investigation of the
Company’s business, and (iii) consultations with his or her legal and financial
advisors with respect to this Agreement and the nature of his or her investment;
and that in entering into this Agreement no reliance was placed by the
Management Investor upon any representations or warranties other than those
contained in this Agreement.
(e) Such
Management Investor is financially able to hold the Common Stock offered to such
Management Investor under this Agreement for long-term investment, believes that
the nature and amount of the Common Stock being purchased by he or she is
consistent with his or her overall investment program and financial position,
and recognizes that there are substantial risks involved in the purchase of the
Common Stock. Such Management Investor understands that the
investment in the Common Stock is illiquid and risky, and such Management
Investor may lose his or her entire investment.
(f) Such
Management Investor confirms that (i) he or she is familiar with the business of
the Company, (ii) he or she has had the opportunity to ask questions of the
officers and directors of the Company and to obtain (and that such Management
Investor has received to his or her satisfaction) such information about the
business and financial condition of the Company as he or she has reasonably
requested, and (iii) such Management Investor has such knowledge and experience
in financial and business matters that such Management Investor is capable of
evaluating the merits and risks of the prospective investment in the Common
Stock.
7.3.
Brokers and
Finders
. No broker, investment banker, financial advisor or
other Person is entitled to any broker’s, finder’s, financial advisor’s or other
similar fee or commission in connection with this Agreement or the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
such Management Investor.
ARTICLE
VIII
Conditions to
Closing
8.1.
Conditions to Obligations of
Nyer, the Management Investors and the Company
. The respective
obligations of Nyer, the Management Investors and the Company to consummate the
transactions contemplated by this Agreement are subject to the satisfaction or,
to the extent permitted by applicable Law, the waiver at or prior to the Closing
of each of the following conditions:
(a)
Litigation
. No
Governmental Entity of competent jurisdiction shall have enacted, issued,
promulgated, enforced, sought to enforce or entered any Law or Order (whether
temporary, preliminary or permanent) that is in effect and restrains, enjoins or
otherwise prohibits or threatens to restrain, enjoin or otherwise prohibit
consummation of the transactions contemplated by this Agreement.
(b)
WAG
Transaction
. The WAG Transaction shall have closed in
accordance with the WAG Agreement and the Company shall have received at least
$17,750,000 in cash proceeds from WAG, subject to an adjustment based on the
Negative Inventory Adjustment Amount (as defined in the WAG Agreement) and such
other adjustments under the WAG Agreement.
(c)
Shareholder
Approval
. The transactions proposed in this Agreement
shall have received the affirmative vote, whether at a meeting of Nyer’s
shareholders or by written consent, of the holders of a majority of then
outstanding shares of Nyer’s common stock and preferred stock, voting
separately.
(d)
Closing Date Balance
Sheet
. The Company, Nyer and the Management Representatives
shall have completed to their reasonable satisfaction the Closing Date Balance
Sheet as provided in Section 2.1.
8.2.
Conditions to the
Obligations of Nyer
. The obligations of Nyer to consummate the
transactions contemplated by this Agreement are further subject to the
satisfaction or, to the extent permitted by applicable Law, the waiver by Nyer
at or prior to the Closing of each of the following conditions:
(a)
Performance of Obligations
by the Management Investors and the Company
. The Management
Investors and the Company shall have performed in all material respects all
obligations required to be performed by them under this Agreement at or prior to
the Closing.
(b)
Representations and
Warranties
. The representations and warranties of the Company
set forth in Article VI and of the Management Investors set forth in Article VII
shall be true and correct in all material respects as of the date of this
Agreement and as of the Closing.
(c)
Closing
Deliverables
.
(i) Each
Management Investor shall have delivered all of the items set forth in Section
4.2(b).
(ii) The
Company shall have delivered all the items set forth in Section
4.2(a).
8.3.
Conditions to the
Obligations of Management Investors
. The obligations of the
Management Investors to consummate the transactions contemplated by this
Agreement are further subject to the satisfaction or, to the extent permitted by
applicable Law, the waiver by each Management Investor at or prior to the
Closing of each of the following conditions:
(a)
Performance of Obligations
of the Company and Nyer
. The Company and Nyer shall have
performed in all material respects all obligations required to be performed by
them under this Agreement at or prior to the Closing.
(b)
Representations and
Warranties
. The representations and warranties of Nyer set
forth in Article V and of the Company set forth in Article VI shall be true and
correct in all material respects as of the date of this Agreement and as of the
Closing.
(c)
Closing
Deliverables
.
(i) The
Company shall have delivered all of the items set forth in Section
4.2(a).
(ii) Nyer
shall have delivered all of the items set forth in Section
4.2(c).
(d)
Severance
Payments
. The Severance Payments shall have been paid in full
to the Management Investors as provided in Section 2.2.
8.4.
Conditions to the
Obligations of the Company
. The obligations of the Company to
consummate the transactions contemplated by this Agreement are further subject
to the satisfaction or, to the extent permitted by applicable Law, the waiver by
the Company at or prior to the Closing of each of the following
conditions:
(a)
Performance of Obligations
by Nyer and the Management Investors
. Nyer and the Management
Investors shall have performed in all material respects all obligations required
to be performed by them under this Agreement at or prior to the
Closing.
(b)
Representations and
Warranties
. The representations and warranties of Nyer set
forth in Article V and of the Management Investors in Article VII shall be true
and correct in all material respects as of the date of this Agreement and as of
the Closing.
(c)
Closing
Deliverables
.
(i) Nyer
shall have delivered all of the items set forth in Section 4.2(c).
(ii) The
Management Investors shall have delivered all of the items set forth in Section
4.2(b).
ARTICLE
IX
Additional
Agreements
9.1.
Tax
Matters
.
(a) Nyer
shall be responsible for, and shall pay or cause to be paid, all Pre-Closing
Date Income Taxes related to any Nyer Group Return required to be filed after
the Closing Date.
(b) Nyer
shall prepare or cause to be prepared, and timely file or cause to be timely
filed (including valid extensions), all Nyer Group Returns required to be filed
after the Closing Date with respect to any Pre-Closing Date Income Tax
Period. All such Income Tax Returns shall be prepared and filed in a
manner that is consistent, in all material respects, with the prior custom and
practice of the Company and Nyer, unless otherwise required by Tax Law (as
reasonably determined by Nyer). Nyer shall use its commercially
reasonable efforts to provide such Income Tax Returns to the Company at least
five (5) Business Days prior to the date on which such Income Tax Returns are
due to be filed (taking into account any valid extensions) for the Company’s
review and comment.
(c) All
Transfer Taxes incurred with respect to the transactions contemplated by this
Agreement shall be borne by the Company.
9.2
Exclusivity;
Exception
.
(a) Neither
Company nor Nyer shall (and neither Party shall cause or authorize any partner,
director, officer, trustee, employee, or agent of it to, and shall not cause any
equity holder of it to), directly or indirectly:
(i) solicit,
initiate or encourage any inquiries or the submission of any proposal or offer
from any Person relating to any (A) liquidation, dissolution or recapitalization
of the Company, (B) merger or consolidation with or into the Company, (C)
acquisition or purchase of any material asset (or any material portion of the
assets) of, or any equity interest in, the Company, or (D) similar transaction
or business combination involving the Company, other than with respect to the
WAG Transaction ((A), (B), (C) and (D) being a “
Sale
Transaction
”);
(ii) participate
in any discussions or negotiations regarding, or furnish any information (other
than information which is traditionally provided in the ordinary course of the
business as conducted by the Company) with respect to, assist or participate in,
or facilitate in any other manner, any effort or attempt by any other Person to
do or seek, a Sale Transaction; or
(iii) accept
any offer or proposal for or enter into any Sale Transaction.
Nyer shall promptly notify the
Management Representatives if any Person makes an unsolicited proposal or offer
with respect to any of the foregoing and will provide the Management
Representatives with reasonable detail regarding such proposal or offer
including a summary of the terms, conditions and price of any oral proposal or
offer and a copy of any written proposal or offer and the identity of the
offeror.
(b) Notwithstanding
the foregoing, if Nyer receives an unsolicited bona fide written proposal for a
Sale Transaction from a third party (“
Alternate
Transaction
”), Nyer may furnish non-public information to, and negotiate
with such third party;
provided
,
however
, such
Alternate Transaction’s economic consideration for Nyer shall be at least
$100,000 or greater than the consideration (cash and assumption of Liabilities)
offered by the Management Investors and the Company under this Agreement, and
provided
,
further
, that Nyer
provide Management Representatives with written notice as provided below and
Nyer and the Company, jointly and severally, shall owe to the Management
Investors an amount equal to all of their reasonable actual out of pocket
expenses, including without limitation attorneys’ fees, incurred by the
Management Investors in connection with the transactions contemplated by this
Agreement (“
Expense
Reimbursement
”), which such amount shall be paid to Management Investors
prior to consummation of such Alternate Transaction. Nothing in this
Section 9.2 shall prohibit the Board of Directors of Nyer from refusing to make,
withdrawing, qualifying, conditioning or modifying its recommendation of the
transactions contemplated by this Agreement if there exists an Alternate
Transaction and the Board of Directors of Nyer determines in good faith that any
failure to do so would be inconsistent with the best interests of the
shareholders of Nyer,
provided
,
however
, that the
Board of Directors of Nyer has provided Management Representatives with five (5)
Business Days prior written notice of its intent to effect such withdrawal,
modification, qualification, conditioning or refusal to recommend (which such
notice shall include reasonable details regarding the cause for, and the nature
of, such withdrawal, modification, qualification, conditioning or refusal to
recommend). If Nyer or the Company enters into such Alternate
Transaction, this Agreement shall terminate but for the obligations of Nyer and
the Company to pay the Expense Reimbursement and the Severance Payments and to
pay the Income Taxes as provided herein.
9.3.
Final Balance
Sheet
.
(a) The
Company and Nyer shall confirm the Closing Date Balance Sheet (together with the
Certificate of Liabilities) and the items set forth therein (“
Final Balance
Sheet
”), with the assistance of the Company’s senior financial staff and
Wolf & Company, P.C., within thirty (30) days after the Closing
Date. If the Company and Nyer are unable to agree upon a Final
Balance Sheet within such period, the Company and Nyer agree to retain the
Boston office of a regionally recognized accounting firm acceptable to Nyer and
the Company (the “
Accounting Referee
”)
to promptly review those items or amounts in the calculations of the Final
Balance Sheet as to which Nyer and the Company disagree. Nyer and the
Company shall have five (5) Business Days following the expiration of such
thirty (30) day period to select the Accounting Referee, and if they are unable
to agree on an Accounting Referee in that period then instead within the same
period each shall select its own regionally recognized accounting firm to
represent it in selecting an Accounting Referee and shall notify the other in
writing of such appointment. The regionally recognized accounting
firms timely chosen by Nyer and the Company shall then in turn select one
regionally recognized accounting firm not then acting as the accounting firm or
the principal outside accountant for either Nyer or the Company, and their
selection shall then be designated as the Accounting Referee. If Nyer
or the Company does not select a firm within the allotted time, the other
party’s choice shall then be designated as the sole Accounting
Referee. Once selected as set out above, the Accounting Referee shall
consider only those items or amounts in the calculation of the Final Balance
Sheet that are the subject of dispute. The Accounting Referee shall
deliver to Nyer and the Company, as promptly as practicable and in any case
within thirty (30) days of being referred the matter, a report setting forth its
determination of the proper outcome of the dispute and the adjustments, if any,
it believes should be made to the Final Balance Sheet and the calculations
supporting such adjustments. Such report shall be final and binding
upon the Parties and the Final Balance Sheet, as adjusted pursuant to such
report, shall be final and binding on the Parties. The cost of the
Accounting Referee’s review and report shall be borne equally by Nyer and the
Company.
(b) Upon
delivery of the Final Balance Sheet, Nyer and the Company shall recalculate the
WAG Distribution, and make any adjustments thereto as may be required by Section
3.3, based on the items set forth in the Final Balance Sheet (the “
Final WAG
Distribution
”). If the WAG Distribution paid at Closing
exceeds the Final WAG Distribution (as adjusted by the determination of an
Accounting Referee, if applicable), Nyer shall pay to the Company, no later than
the Final Payment Date, in cash and by wire transfer of immediately available
funds, as an adjustment to the WAG Distribution, an amount equal to the amount
of such excess. If the Final WAG Distribution (as adjusted by the
determination of an Accounting Referee, if applicable) exceeds the WAG
Distribution paid at Closing, the Company shall pay to Nyer, no later than the
Final Payment Date, in cash and by wire transfer of immediately available funds,
as an adjustment to the WAG Distribution, an amount equal to the amount of such
excess.
9.4.
Payment of Tax Reserve and
Cash Shortfall
. The Company shall pay an amount equal to the
sum of the Cash Shortfall, if any, and the Tax Reserve (in each case as
reflected on or determined by items on the Final Balance Sheet) to Nyer no later
than the sixtieth (60
th
) day
after the Closing or if later upon delivery by the Accounting Referee of the
Final Balance Sheet under Section 9.3 (the “
Final Payment Date
”);
provided
,
however
, the Final
Payment Date shall be extended by mutual agreement of Nyer and the Company if
any of the Company’s accounts receivable as reflected on the Final Balance Sheet
remain uncollected on such date.
9.5.
Cooperation.
The
Company shall make available to Nyer, in a manner and to the extent mutually
acceptable to Nyer and the Company, personnel (including the Management
Representatives), accounting, information technology and other services
reasonably requested by Nyer for the purpose of completing Nyer’s orderly
liquidation. Nyer shall reimburse the Company for all expenses
incurred in connection therewith and compensate each Management Representative
for his services at the hourly rate of $150.
9.6
WAG
Agreement
. Following the Closing, the Company agrees to
satisfy its obligations under the WAG Agreement in accordance with the terms
thereof.
ARTICLE
X
Miscellaneous
10.1.
Entire
Agreement
. This Agreement constitutes the entire agreement
among the Parties and supersedes any prior understandings or agreements by or
among the Parties, written or oral, to the extent they are related in any way to
the subject matter hereof.
10.2.
Succession and
Assignment
. Except as otherwise provided herein, this
Agreement may not, without the prior written consent of Nyer, the Company and
the Management Representatives, be assigned by any Party by operation of Law or
otherwise, and any attempted assignment shall be null and
void. Subject to the foregoing, this Agreement shall be binding upon
and inure to the benefit of the Parties and their respective heirs, successors,
permitted assigns and legal representatives. The Management Investors
(collectively and not individually) may, without such consent, assign their
rights under this Agreement unless such assignment, in the sole discretion of
Nyer, would have an adverse effect on Nyer.
10.3.
Expenses
. Except
as otherwise provided in this Agreement, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
borne by the Party incurring such cost or expense.
10.4.
Certain Interpretive
Matters; Construction
. The captions of Articles and Sections
of this Agreement are for convenience only and shall not control or affect the
meaning or construction of any of the provisions of this
Agreement. As used herein: (a) words in the singular shall be
held to include the plural and vice versa and words of one gender (or neuter)
shall be held to include the other gender (or the neuter) as the context
requires; and (b) the terms “hereof,” “herein,” and “herewith” and words of
similar import shall, unless otherwise stated, be construed to refer to this
Agreement as a whole (including all of the Exhibits and Schedules) and not to
any particular provision of this Agreement.
10.5.
Notices
. All
notices, requests, demands, claims and other communications hereunder shall be
in writing and shall be given (and shall be deemed to have been duly given upon
receipt) by personal delivery, electronic facsimile transmission, overnight
courier or registered or certified mail, postage prepaid and addressed to the
intended recipient as set forth below (or at such other address as shall be
specified in a notice given in accordance with this Section 10.5):
If to the
Company:
13 Water
Street
Holliston,
MA 01746
Attention: President
Fax: (508)
429-8237
with a
copy (which shall not constitute notice) to:
Sullivan
& Worcester LLP
One Post
Office Square
Boston,
MA 02109
Attention: Attorney
Gayle P. Ehrlich
Fax: (617)
338-2880
If to
Nyer:
13 Water
Street
Holliston,
MA 01746
Attention: President
Fax: (508)
429-8237
with a
copy (which shall not constitute notice) to:
Sullivan
& Worcester LLP
One Post
Office Square
Boston,
MA 02109
Attention: Attorney
Gayle P. Ehrlich
Fax: (617)
338-2880
If to a
Management Investor:
13 Water
Street
Holliston,
MA 01746
Fax: (508)
429-8237
With a
copy (which shall not constitute notice to:
Burns
& Levinson LLP
125
Summer Street
Boston,
MA 02110
Attention: Robert
C. Rives, Jr., Esq.
Fax: (617)
345-3299
All such
notices shall be deemed to have been duly given: (i) when delivered personally
to the recipient, (ii) one (1) Business Day after being sent to the recipient by
reputable overnight courier service (charges prepaid), (iii) upon transmission
by facsimile if a customary confirmation of transmission is received during
normal business hours and, if not, the next Business Day after transmission, or
(iv) four (4) Business Days after being mailed to the recipient by certified or
registered mail, return receipt requested and postage prepaid.
10.6.
Governing
Law
. This Agreement shall be governed by and construed in
accordance with the Laws of the Commonwealth of Massachusetts without giving
effect to the principles of conflicts of law.
10.7.
Amendments and
Waivers
. No amendment or waiver of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Management Representatives, the Company and Nyer. No waiver by any
Party of any default or any breach of any representation, warranty, covenant or
agreement hereunder shall be deemed to extend to any prior or subsequent default
or breach or affect in any way any rights arising by virtue of any such prior or
subsequent occurrence.
10.8.
Severability
. If
any provision of this Agreement for any reason shall be held to be illegal,
invalid or unenforceable, such illegality shall not affect any other provision
of this Agreement, this Agreement shall be amended so as to enforce the illegal,
invalid or unenforceable provision to the maximum extent permitted by applicable
Law, and the Parties shall cooperate in good faith to further modify this
Agreement so as to preserve to the maximum extent possible the intended benefits
to be received by the Parties.
10.9.
Remedies; Specific
Performance
. Any and all remedies herein expressly conferred
upon a Party will be deemed cumulative with and not exclusive of any other
remedy conferred hereby, or by law or equity upon such Party, and the exercise
by a Party of any one remedy will not preclude the exercise of any other
remedy. Each of the Parties acknowledges and agrees that each of the
other Parties would be damaged irreparably in the event any of the provisions of
this Agreement is not performed in accordance with its specific terms or
otherwise is breached by any of the Parties. Accordingly, each of the
Parties agrees that each other Party shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement, and the terms and provisions hereof and
thereof, in addition to any other rights to which such Party may be entitled at
law or in equity. Any such remedy shall be in addition to any other
remedy that such Party may have hereunder.
10.10.
Jurisdiction
. The
Parties agree that jurisdiction and venue for any action arising out of, related
to or concerning this Agreement shall be exclusively in the Business Litigation
Session of the Superior Court for the Commonwealth of
Massachusetts.
10.11.
Attorneys’
Fees
. In the event that any action or proceeding is brought
for the purpose of determining or enforcing the right of any Party or Parties
hereunder, the Party or Parties prevailing in such action or proceeding shall be
entitled to recover from the other Party or Parties all reasonable costs and
expenses incurred by the prevailing Party or Parties, including reasonable
attorneys’ fees.
10.12.
No Third Party
Beneficiaries
. This Agreement shall not confer any rights or
remedies upon any Person, other than the Parties and their respective successors
and permitted assigns.
10.13.
No Presumption Against
Drafting Party
. Each Party acknowledges that each Party has
been represented by counsel in connection with this Agreement and the
transactions contemplated herein. Accordingly, any rule of Law or any
legal decision that would require interpretation of any claimed ambiguities in
this Agreement against the drafting Party has no application and is expressly
waived.
10.14.
Signatures
. This
Agreement shall be effective upon delivery of original signature pages or “PDF”
or facsimile copies thereof executed by each of the Parties. This
Agreement may be executed in any number of counterparts, each such counterpart
being deemed to be an original instrument, and all such counterparts shall
together constitute the same agreement.
10.15.
Management
Representatives
.
(a) The
Management Representatives are hereby appointed and granted the full power and
authority, on behalf of each Management Investor and his or her successors and
assigns, to (i) interpret the terms and provisions of this Agreement and the
documents to be executed and delivered in connection herewith, (ii) execute
and deliver and receive deliveries of all agreements, certificates, statements,
notices, consents, approvals, assignments, extensions, waivers, undertakings,
amendments and other documents required or permitted to be given in connection
with this Agreement and the consummation of the transactions contemplated by
this Agreement, (iii) give and receive notices and communications, and (iv) take
all actions permitted, necessary or appropriate in the judgment of the
Management Representatives on behalf of the Management Investors in connection
with this Agreement, including without limitation, any assignment permitted
under Section 10.2. Company and Nyer shall be entitled to rely
exclusively upon the actions and communications of the Management
Representatives relating to the foregoing as the actions and communications of
the Management Investors.
(b) The
Management Representatives shall not be liable for any act done or omitted under
this Agreement as Management Representatives while acting in good faith, and any
act taken or omitted to be taken pursuant to the advice of counsel will be
conclusive evidence of such good faith.
(c) The
Management Investors shall bear full responsibility for any and all obligations
arising pursuant to this Section 10.15.
[Signature
Page to Follow]
IN
WITNESS WHEREOF, the Parties have executed this Agreement as of the date first
above written.
|
D.A.W.,
INC.
|
|
|
|
By:
|
/
s/ Mark A. Dumouchel
|
|
|
Name:
Mark A. Dumouchel
|
|
|
Title:
President
|
|
|
|
|
NYER
MEDICAL GROUP, INC.
|
|
|
|
By:
|
/s/ Mark A. Dumouchel
|
|
|
Name:
Mark A. Dumouchel
|
|
|
Title:
President and Chief Executive
Officer
|
|
MANAGEMENT
INVESTORS:
|
|
|
|
/s/ Mark Dumouchel
|
|
Mark
Dumouchel
|
|
|
|
/s/ David Dumouchel
|
|
David
Dumouchel
|
|
|
|
/s/ Michael Curry
|
|
Michael
Curry
|
|
|
|
/s/ Wayne Gunter
|
|
Wayne
Gunter
|
|
|
|
/s/ Donato Mazzola
|
|
Donato
Mazzola
|
SCHEDULE
I
Schedule
of Management Investors
and
Shares of
Common Stock Purchased by
Each
Management Investor
Name
|
|
Shares of Common Stock
|
|
|
Purchase Price
|
|
|
|
|
|
|
|
|
Mark
Dumonchel
|
|
|
500
|
|
|
$
|
60,000
|
|
|
|
|
|
|
|
|
|
|
David
Dumonchel
|
|
|
500
|
|
|
$
|
60,000
|
|
|
|
|
|
|
|
|
|
|
Michael
Curry
|
|
|
500
|
|
|
$
|
60,000
|
|
|
|
|
|
|
|
|
|
|
Wayne
Gunter
|
|
|
500
|
|
|
$
|
60,000
|
|
|
|
|
|
|
|
|
|
|
Donato
Mazzola
|
|
|
500
|
|
|
$
|
60,000
|
|
|
|
|
|
|
|
|
|
|
TOTAL:
|
|
|
2,500
|
|
|
$
|
300,000
|
|
ANNEX
C – PLAN OF DISSOLUTION
PLAN OF
COMPLETE LIQUIDATION AND DISSOLUTION
OF
NYER
MEDICAL GROUP, INC.
The
following Plan of Complete Liquidation and Dissolution (the “
Plan of Dissolution
”)
shall effect the dissolution and complete liquidation of Nyer Medical Group,
Inc., a Florida corporation (the “
Company
”), in
accordance with Section 607.1402 and other applicable provisions of the Florida
Business Corporation Act (the “
FBCA
”) and Sections
331 and 336 of the Internal Revenue Code of 1986, as amended (the “
Code
”).
1.
Adoption of
Plan.
The board of directors of the
Company (the “
Board of
Directors
”) has adopted resolutions deeming it advisable and in the best
interest of the stockholders of the Company to dissolve and liquidate the
Company, adopt the Plan of Dissolution, and call a special meeting (the “
Meeting
”) of the
Company’s shareholders to approve the dissolution and liquidation of the Company
(including the sale of all or substantially all of the Company’s assets), adopt
the Plan of Dissolution and ratify the Company’s actions taken to date on the
Plan of Dissolution. If stockholders holding a majority of all of the
votes entitled to be cast on the proposal vote in favor of the proposed
dissolution and liquidation of the Company (including sale of all or
substantially all of the Company’s assets) and the adoption of the Plan of
Dissolution at the Meeting, the Plan of Dissolution shall constitute the adopted
Plan of Dissolution of the Company as of the date of the Meeting, or such later
date on which the stockholders may approve the Plan of Dissolution if the
Meeting is adjourned to a later date (the “
Meeting
Date
”).
2.
Cessation of Business
Activities.
After the Effective Date (as defined below) and in
accordance with Section 607.1405 of the FBCA, the Company shall not engage in
any business activities except for the purpose of winding up and liquidating its
business and affairs, including, but not limited to, prosecuting and defending
suits, whether civil, criminal or administrative, by or against the Company,
collecting its assets, converting its assets into cash or cash equivalents,
discharging or making provision for discharging its liabilities, withdrawing
from all jurisdictions in which it is qualified to do business, distributing its
remaining property among its stockholders according to their interests, and
doing every other act necessary to wind up and liquidate its business and
affairs, but not for the purpose of continuing the business for which the
Company was organized.
3.
Articles of
Dissolution
. After the Meeting Date, the officers of the
Company shall, at such time as the Board of Directors, in its absolute
discretion, deems necessary, appropriate or desirable, obtain any certificates
required from the Florida tax authorities and, upon obtaining such certificates
and paying such taxes as may be owing, and securing the necessary stockholder
approvals, the Company shall file with the Secretary of State of the State of
Florida articles of dissolution (the “
Articles of
Dissolution
”) specifying the date upon which the Certificate of
Dissolution will become effective (the “
Effective
Date
”).
4.
Liquidation
Process
. From and after the Effective Date and subject to the
provisions hereof, the Company shall complete the following corporate
actions:
a.
Sale of All or Substantially All of
the Non-Cash Assets
. DAW, Inc. shall have closed its sales to
Walgreen Eastern Co., Inc. pursuant to an Asset Purchase Agreement dated October
22, 2009 and the Company shall have closed its sale of the stock of DAW to
certain members of management pursuant to the Stock Purchase Agreement dated
October 23, 2009. To the extent there remains any non-cash property
and assets, including but not limited to all tangible assets, intellectual
property and other intangible assets, the Company shall determine whether to
collect, sell, exchange or otherwise dispose of all or substantially all of the
assets in one or more transactions upon such terms and conditions as the Board
of Directors, in its absolute discretion, deems expedient and in the Company’s
best interests and the best interests of its stockholders, without any further
vote or action by the Company’s stockholders. The Company’s non-cash
assets and properties may be sold in one transaction or in several transactions
to one or more buyers. The Company shall not be required to obtain
appraisals, fairness opinions or other third-party opinions as to the value of
its properties and assets in connection with the liquidation. In
connection with such collection, sale, exchange and other disposition, the
Company shall collect or make provisions for the collection of all accounts
receivable, debts and claims owing to the Company.
b.
Liquidation of
Assets
. The Company shall determine whether and when to
transfer the Company’s property and assets to a liquidating trust (established
pursuant to Section 6 hereof).
c.
Payment
Obligations
. The Company shall, as determined by the Board of
Directors, (i) pay or make reasonable provision to pay all claims and
obligations, including all contingent, conditional or unmatured contractual
claims known to the Company, (ii) make such provisions as will be reasonably
likely to be sufficient to provide compensation for any claim against the
Company which is the subject of a pending action, suit or proceeding to which
the Company is a party and (iii) make such provision as will be reasonably
likely to be sufficient to provide compensation for claims that have not been
made known to the Company or that have not arisen but that, based on facts known
to the Company or successor entity, are likely to arise or to become known to
the Company or successor entity within 10 years after the Effective
Date. Such claims shall be paid as required by applicable
law. If there are insufficient assets of the Company, such claims and
obligations of the Company shall be paid or provided for in accordance with
their priority and, among claims of equal priority, ratably to the extent of
assets of the Company legally available therefor. If and to the
extent deemed necessary, appropriate or desirable by the Board of Directors or
the Trustees (as defined in Section 6 below), in their absolute discretion, the
Company may establish and set aside a reasonable amount of cash and/or property
(the “
Contingency
Reserve
”)
to satisfy such claims
and obligations against the Company, including, without limitation, tax
obligations, and all expenses related to the sale of the Company’s property and
assets, all expenses related to the collection and defense of the Company’s
property and assets, and the liquidation and dissolution provided for in this
Plan.
d.
Distribution to
Stockholders
. Any assets of the Company remaining after the
payment of claims or the provision for payment of claims and obligations of the
Company as provided in subsection (c) above shall be distributed by the Company
pro rata to its stockholders. Such distribution may occur all at once
or in a series of distributions and shall be in cash or assets, in such amounts,
and at such time or times, as the Board of Directors or the Trustees, in their
absolute discretion, may determine.
5.
Cancellation of Common
Stock
. The distributions to stockholders pursuant to Sections
4 and 8 (the “
Liquidating
Distribution
”) shall be in complete redemption and cancellation of all of
the outstanding shares of Common Stock. As a condition to receipt of
the Liquidating Distribution, the Board of Directors or the Trustees, in their
absolute discretion, may require the stockholders to (i) surrender their
certificates evidencing the Common Stock to the Company or its agents for
recording of such distributions thereon, or (ii) furnish the Company with
evidence satisfactory to the Board of Directors or the Trustees of the loss,
theft or destruction of their certificates evidencing the Common Stock, together
with such surety bond or other security or indemnity as may be required by and
satisfactory to the Board of Directors or the Trustees. The Board of
Directors, in its absolute discretion, may direct that the Company’s stock
transfer books be closed and recording of transfers of Common Stock discontinued
as of the earliest of (x) the close of business on the record date fixed by the
Board of Directors for the first or any subsequent installment of any
Liquidating Distribution, (y) the close of business on the date on which the
remaining assets of the Company are transferred to the Trust, or (z) the date on
which the Company files its Articles of Dissolution under the FBCA(such date,
the “
Record
Date
”), and thereafter certificates representing shares of Common Stock
will not be assignable or transferable on the books of the Company except by
will, intestate succession or operation of law.
6.
Liquidating
Trust
. If deemed necessary, appropriate or desirable by the
Board of Directors, in its absolute discretion, in furtherance of the
liquidation and distribution of the Company’s assets to the stockholders in
accordance with the provisions hereof, as a final Liquidating Distribution or
from time to time, the Company may transfer to one or more liquidating trustees,
for the benefit of its stockholders (the “
Trustees
”) under a
liquidating trust (the “
Trust
”),
any assets of the
Company, including cash, intended for distribution to creditors and stockholders
not disposed of at the time of dissolution of the Company, including the
Contingency Reserve. The Board of Directors is hereby authorized to
appoint one or more individuals, corporations, partnerships or other persons, or
any combination thereof, including, without limitation, any one or more
officers, directors, employees, agents or representatives of the Company, to act
as the initial Trustee or Trustees for the benefit of the stockholders and to
receive any assets of the Company. Any Trustees appointed as provided
in the preceding sentence shall succeed to all right, title and interest of the
Company of any kind and character with respect to such transferred assets and,
to the extent of the assets so transferred and solely in their capacity as
Trustees, shall assume all of the claims and obligations of the Company as
provided in Section 4(b) hereof, including, without limitation, any unsatisfied
claims and unknown or contingent liabilities. Further, any conveyance
of assets to the Trustees shall be deemed to be a distribution of property and
assets by the Company to the stockholders for the purposes of Section 4(d) of
this Plan. The Company, subject to this Section 6
and as authorized by
the Board of Directors, in its absolute discretion, may enter into a liquidating
trust agreement with the Trustees, on such terms and conditions as the Board of
Directors, in its absolute discretion, may deem necessary, appropriate or
desirable. Adoption of the Plan of Dissolution by holders of a
majority of the votes entitled to be cast shall constitute the approval of the
stockholders of any such appointment, any such liquidating trust agreement and
any transfer of assets by the Company to the Trust as their act and as a part
hereof as if herein written.
7.
Abandoned
Property
. If any Liquidating Distribution to a stockholder
cannot be made, whether because the stockholder cannot be located, has not
surrendered its certificates evidencing the shareholder interest as required
hereunder or for any other reason, then the distribution to which such
stockholder is entitled (unless transferred to the Trust established pursuant to
Section 6) shall be transferred, at such time as the final Liquidating
Distribution is made by the Company, to the extent permitted by law, to the
official of such state or other jurisdiction authorized by applicable law to
receive the proceeds of such distribution. The proceeds of such
distribution shall thereafter be held solely for the benefit of and for ultimate
distribution to such stockholder as the sole equitable owner thereof and shall
be treated as abandoned property and escheat to the applicable state or other
jurisdiction in accordance with applicable law. In no event shall the
proceeds of any such distribution revert to or become the property of the
Company.
8.
Final Liquidating
Distribution
. Whether or not a Trust shall have been
previously established pursuant to Section 6, if it should not be feasible for
the Company to make the final Liquidating Distribution to its stockholders of
all assets and all properties of the Company prior to the second anniversary of
the filing of its Certificate of Dissolution, then, on or before such date, the
Company shall be required to establish a Trust and transfer any remaining assets
and properties (including, without limitation, any uncollected claims,
contingent assets and the Contingency Reserve) to the Trustees as set forth in
Section 6. Not more than two years from the date of its creation, the
liquidating trust shall make a final distribution of any remaining assets to the
holders of the beneficial interests of the Trust. Any such
distribution shall be only in the form of cash.
9.
Stockholder Consent to Sale of
Assets
. Approval of the proposed dissolution and adoption of
the Plan of Dissolution by holders of a majority of the votes entitled to be
cast shall constitute the approval of the stockholders of the Company of the
dissolution of the Company and the sale, exchange or other disposition in
liquidation of all or substantially all of the property and assets of the
Company pursuant to the terms hereof, whether such sale, exchange or other
disposition occurs in one transaction or a series of transactions, and shall
constitute ratification of all contracts for sale, exchange or other disposition
which are conditioned on adoption of the Plan of Dissolution.
10.
Expenses of
Dissolution.
In connection with and for the purposes of
implementing and assuring completion of the Plan of Dissolution, the Company
may, in the absolute discretion of the Board of Directors, pay any brokerage,
agency, professional, legal and other fees and expenses of persons rendering
services to the Company in connection with the collection, sale, exchange or
other disposition of the Company’s property and assets and the implementation of
the Plan of Dissolution. Adoption of the Plan of Dissolution shall
constitute approval of such payments by the stockholders of the
Company.
11.
Employees and Independent
Contractors.
In connection with effecting the dissolution of
the Company and for the purpose of implementing and assuring completion of the
Plan of Dissolution, the Company may, in the absolute discretion of the Board of
Directors, hire employees and retain independent contractors and agents as the
Board of Directors deems necessary or desirable to supervise the dissolution and
liquidation. The Company may, in the absolute discretion of the Board
of Directors, but subject to applicable legal and regulatory requirements, pay
the Company’s officers, directors, employees, independent contractors, agents
and representatives, or any of them, compensation or additional compensation
above their regular compensation, in money or other property, as severance,
bonus, or in any other form, in recognition of the extraordinary efforts they,
or any of them, will be required to undertake, or actually undertake, or
otherwise necessary retain the services of any of them, in connection with the
implementation of the Plan of Dissolution. Adoption of the Plan of
Dissolution shall constitute approval of any such compensation by the
stockholders of the Company.
12.
Indemnification.
The
Company shall continue to indemnify its officers, directors, employees,
independent contractors and agents to the maximum extent permitted in accordance
with applicable law, its certificate of incorporation and bylaws and any
contractual arrangements, for actions taken in connection with the Plan of
Dissolution and the winding up of the affairs of the Company and shall indemnify
the Trustees and its agents on similar terms. The Company’s
obligation to indemnify such persons may also be satisfied out of the assets of
the Trust. The Board of Directors and the Trustees, in their absolute
discretion, are authorized to obtain and maintain insurance for the benefit of
such officers, directors, employees, independent contractors, agents and
Trustees to the extent permitted by law and as may be necessary or appropriate
to cover the Company’s obligations hereunder, including seeking an extension in
time and coverage of the Company’s insurance policies currently in
effect.
13.
Amendment, Modification or
Abandonment of Plan.
If for any reason the Board of Directors
determines that such action would be in the best interest of the Company, the
Board of Directors may, in its sole discretion and without requiring further
stockholder approval, revoke the Plan of Dissolution and all action contemplated
thereunder, to the extent permitted by the FBCA. The Board of
Directors may not amend or modify the Plan of Dissolution under circumstances
that would require additional stockholder approval under the FBCA and the
federal securities laws without complying with the FBCA and the federal
securities laws. Upon the revocation or abandonment of the Plan of
Dissolution, the Plan of Dissolution shall be void.
14.
Tax Matters.
It is
intended that this Plan of Dissolution shall be a plan of complete liquidation
of the Company in accordance with the terms of Sections 331 and 336 of the
Code. The Plan of Dissolution shall be deemed to authorize the taking
of such action as, in the opinion of counsel for the Company, may be necessary
to conform with the provisions of said Sections 331 and 336 and the regulations
promulgated thereunder. The Company’s officers shall be authorized to
cause the Company make such elections for tax purposes as are deemed appropriate
and in the best interest of the Company including, without limitation, the
making of an election under Code Section 336(e), if
applicable. Within thirty (30) days after the Effective Date, the
Company shall file with the Internal Revenue Service an appropriate statement of
corporate dissolution on IRS Form 966, as required by Section 6043 of the
Code. The Company shall also file such additional forms and reports
with the Internal Revenue Service as may be necessary or appropriate in
connection with the Plan of Dissolution and the carrying out
thereof. The Company shall notify all jurisdictions of any
withdrawals related to qualification to do business. The Company
shall make arrangements authorizing one or more representatives or agents to
maintain such Company records as may be appropriate for purposes of any tax
audit of the Company occurring during the process of dissolution or after
liquidation.
15.
Power of Board of Directors and
Officers.
The Board of Directors is hereby authorized, without
further action by the Company’s stockholders, to do and perform, or cause the
officers of the Company, subject to approval of the Board of Directors, to do
and perform, any and all acts, and to make, execute, deliver or adopt any and
all agreements, resolutions, conveyances, certificates and other documents of
every kind that are deemed necessary, appropriate or desirable, in the absolute
discretion of the Board of Directors, to implement the Plan of Dissolution and
the transactions contemplated hereby, including, without limitation, all filings
or acts required by any state or Federal law or regulation to wind up its
affairs.
ANNEX
D-1 – OPINION OF NEWBURY PIRET AS TO THE WAG PURCHASE
September
1, 2009
The Board
of Directors
Nyer
Medical Group, Inc.
13 Water
Street
Holliston,
MA 01746
Members
of the Board of Directors:
We
understand that D.A.W., Inc., a subsidiary of Nyer Medical Group, Inc. (“Nyer
Medical” or the “Company”), and Walgreen Eastern Co., Inc. (“Walgreen”) are
proposing to enter into an Asset Purchase Agreement (the "Agreement") (a draft
of which has been provided to us on August 25, 2009), pursuant to which Walgreen
Eastern Co., Inc., a wholly-owned subsidiary of Walgreen Co., will purchase
certain of the assets of D.A.W., Inc. As more fully described in the Agreement,
we understand that the assets used in the operation of eight pharmacy locations
identified as “Operate Location Pharmacies” and the assets related to four
pharmacy locations identified as “Non-Operate Pharmacies” and together with the
Operate Location Pharmacies, (the “Pharmacies”) will be acquired (the
“Purchase”) for the aggregate purchase price of $17.75 million in cash at
closing, subject to certain adjustments. The Agreement further
provides that the sum of (a) the Prepaid Rent Amount minus the sum of (b) the
amount, if any, by which the Targeted Inventory Amount exceeds the Inventory
Amount, is to be paid in cash at closing, subject to certain adjustments. The
terms and conditions of the Purchase are set forth in detail in the Agreement.
Capitalized terms not otherwise defined herein shall have the meanings ascribed
thereto in the Agreement.
You have
requested our opinion as to whether the consideration to be received pursuant to
the Purchase is fair, from a financial point of view, to the shareholders of
Nyer Medical Group, Inc., excluding Mark Dumouchel, David Dumouchel, Michael
Curry, Donato Mazzola and Wayne Gunter (the “Shareholders”), as of the date
hereof.
Newbury,
Piret Companies, Inc. (“Newbury Piret”), as part of its investment banking
business, is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, private placements, and
valuations for strategic advisory, corporate and other purposes.
In
conducting our investigation and analysis and in arriving at our opinion herein,
we have reviewed such information and taken into account such financial and
economic factors as we have deemed relevant under the
circumstances. In that connection, we have, among other things:
reviewed certain financial estimates and other financial and operating data
concerning the business and operations of Nyer Medical including the
consolidated audited financial statements for 2007 and 2008, as well as draft
audited finacial statements for the period ended June 30, 2009 and certain other
relevant financial and operating data relating to the Company made available to
us from the internal records of the Company, certain business and financial
information prepared by the management of Nyer Medical; reviewed the draft
Agreement in the form presented to the Board of Directors of Nyer Medical Group,
Inc.; evaluated market valuation multiples of certain publicly traded companies
that we deemed relevant; compared the financial position and operating results
of Nyer Medical with those of publicly traded companies that we deemed relevant;
reviewed the financial terms of certain recent completed business combinations
in the retail pharmacy industry specifically and in other industries generally;
held discussions with members of the senior management of Nyer Medical regarding
the rationale for, and potential benefits of, the contemplated Purchase as well
as the past and current business operations, financial conditions, and future
prospects of Nyer Medical; and considered such other information, financial
studies, analysis and investigations and financial, economic and market criteria
which we deemed relevant for the preparation of this opinion.
In
preparing our opinion, we have relied without independent verification upon the
accuracy and completeness of all of the financial, accounting, legal, tax,
operating and other information provided to us by Nyer Medical and have relied
upon the assurances of Nyer Medical that all such information provided is
complete and accurate in all material respects and that there is no additional
material information known to them that would make any of the information made
available to us either incomplete or misleading. In addition, we have not
assumed responsibility for reviewing or making an independent evaluation,
appraisal, or physical inspection of any of the assets or liabilities
(contingent or otherwise) or technology of Nyer Medical, nor have we been
furnished with any such appraisals. We have also assumed that there have been no
material changes in Nyer Medical’s assets, financial condition, results of
operations, business, or prospects since the respective dates of their last
financial statements made available to us.
We have
performed no investigation relating to the representations and warranties made
by Nyer Medical in the draft Agreement, including the representations and
warranties made with respect to intellectual property or the status of any
litigation pending or threatened against Nyer Medical.
We were
not asked to, and did not, conduct a market survey to determine the interest of
other potential investors or otherwise solicit, or assist Nyer Medical in
soliciting, any third party indications of interest in investing in Nyer
Medical. Furthermore, this opinion addresses only the financial fairness to the
Shareholders of Nyer Medical of the Purchase and does not address the relative
merits of the Purchase to any alternative business strategies to the Purchase,
the effect of any other transaction in which Nyer Medical might engage, Nyer
Medical’s underlying decision to proceed with or effect the Purchase or any
other aspect of the Purchase.
For
purposes of this opinion, we have assumed that Nyer Medical is not a party to
any other pending transactions, including external financings,
recapitalizations, or material purchase discussions, other than the Purchase and
those activities undertaken in the ordinary course of conducting its business.
We have further assumed that the Purchase will be consummated substantially in
accordance with the terms described in the draft Agreement. In rendering this
opinion, we have assumed, with the Company's consent, that the Purchase as
consummated will not differ in any material respect from that described in the
documents we have examined. We have relied on advice of counsel and
independent accountants to Nyer Medical as to all legal, tax and financial
reporting matters with respect to Nyer Medical, the Purchase, and the draft
Agreement. We are expressing no opinion on such matters.
We have
acted as financial advisor to the Board in connection with the Purchase and will
receive a fee for rendering this opinion and for other services rendered in
connection with the Purchase, no portion of which is contingent on the
consummation of the Purchase. We may in the future provide investment banking or
other financial advisory services to Nyer Medical. In addition, Nyer Medical has
agreed to indemnify us for certain liabilities that may arise out of our
engagement.
We are
expressing no opinion with respect to the amount or nature of any compensation
to any officers, directors, or employees of any party to the Purchase, or any
class of such persons relative to the consideration to be received by the
Shareholders of Nyer Medical in the Purchase or with respect to the fairness of
any such compensation.
We are
expressing no opinion herein as to the actual value of Nyer Medical’s common
stock at the consummation of the Purchase.
We are
not expressing an opinion as to the fairness of the Purchase or of the
consideration to be received by the Shareholders of Nyer Medical, from a
financial point of view, to Walgreen.
Our
opinion is based on financial, economic, monetary and market and other
conditions in effect on, and the information made available to us as of, the
date hereof. Accordingly, although subsequent developments may affect this
opinion, we have not assumed any obligation to update, revise, or reaffirm this
opinion, and any change in such conditions would require a reevaluation of this
opinion.
The
preparation of a fairness opinion involves various judgments as to appropriate
and relevant quantitative and qualitative methods of financial analyses and the
application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to summary description. Accordingly,
we believe our analyses and the factors utilized in such analyses must be
considered as a whole and that considering any portion of such analyses or
factors, without considering all analyses and factors, could create a misleading
or incomplete view of the process underlying our opinion. In our analyses, we
made numerous assumptions with respect to industry performance, general business
and other conditions and matters, many of which are beyond Nyer Medical’s
control and are not susceptible to accurate prediction.
In
furnishing this opinion, we are not "experts" within the meaning of that term as
used in the Securities Act of 1933, as amended (the "Securities Act"), and the
rules and regulations promulgated thereunder, nor do we admit that this opinion
constitutes a report or valuation within the meaning of Section 11 of the
Securities Act.
This
opinion is directed to the Board of Directors of Nyer Medical Group, Inc. in its
consideration of the Purchase and is not a recommendation to any Shareholder of
Nyer Medical as to how such Shareholder should vote with respect to the
transaction. This opinion may not be used or referred to by Nyer Medical, or
quoted or disclosed to any person in any manner, without our prior written
consent, which consent is hereby given to the provision of a copy of this
opinion to Walgreen, and the inclusion of this opinion in any Shareholder
solicitation letter to be distributed in connection with the Purchase as well as
the inclusion of reference to this opinion in the Agreement, provided that this
opinion is reproduced therein in full and any description of, or reference to,
us or any summary of this opinion included therein is in form and substance
acceptable to us and our legal counsel.
Based
upon the foregoing and in reliance thereon, it is our opinion that the
consideration to be received pursuant to the Agreement is fair to the
Shareholders of Nyer Medical, from a financial point of view, as of the date
hereof.
Very
truly yours,
/s/
Newbury, Piret Companies, Inc.
ANNEX
D-2 – OPINION OF NEWBURY PIRET AS TO THE DAW STOCK PURCHASE
October
17, 2009
The
Special Committee of The Board of Directors
Nyer
Medical Group, Inc.
13 Water
Street
Holliston,
MA 01746
Members
of the Special Committee:
We
understand that Nyer Medical Group, Inc. (“Nyer Medical” or the “Company”) and
D.A.W., Inc. (“DAW”) and certain members of management of DAW are proposing to
enter into a stock purchase agreement, the "DAW Purchase Agreement") (a draft of
which has been provided to us on October 14, 2009), pursuant to which certain
members of management of DAW will purchase shares of common stock of DAW (the
“DAW Transaction”). As more fully described in the DAW Purchase
Agreement, we understand that immediately prior to the DAW Transaction, DAW will
own the assets used in the operation of 12 pharmacy locations and the Holliston
office location (collectively the “Residual Locations”). DAW will own seven
pharmacies and will have contracts to manage five pharmacies owned by the
Federally Qualified Health Centers within the meaning of Section 340B of the
Public Health Services Act. The Management Investors, as defined in
the DAW Purchase Agreement, will acquire the common stock of DAW for an
aggregate purchase price of $1.5 million, consisting of the payment of cash
and/or assumption of liabilities, subject to certain adjustments. The terms and
conditions of the DAW Transaction are set forth in detail in the DAW Purchase
Agreement. Capitalized terms not otherwise defined herein shall have the
meanings ascribed thereto in the DAW Purchase Agreement.
You have
requested our opinion as to whether the consideration to be received pursuant to
the DAW Transaction is fair, from a financial point of view, to the shareholders
of Nyer Medical Group, Inc., excluding Mark Dumouchel, David Dumouchel, Michael
Curry, Donato Mazzola and Wayne Gunter (the “Shareholders”), as of the date
hereof.
Newbury,
Piret Companies, Inc. (“Newbury Piret”), as part of its investment banking
business, is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, private placements, and
valuations for strategic advisory, corporate and other purposes.
In
conducting our investigation and analysis and in arriving at our opinion herein,
we have reviewed such information and taken into account such financial and
economic factors as we have deemed relevant under the
circumstances. In that connection, we have, among other things:
reviewed certain financial estimates and other financial and operating data
concerning the business and operations of Nyer Medical including the
consolidated audited financial statements for 2007, 2008 and 2009, as well as
certain other relevant financial and operating data relating to the Company made
available to us from the internal records of the Company; certain business and
financial information prepared by the management of DAW; reviewed the draft DAW
Purchase Agreement in the form presented to the Special Committee; reviewed the
fair market valuation and orderly liquidation report performed by Trenwith
Group, LLC (“Trenwith”); held discussions with members of the senior management
of Nyer Medical regarding the rationale for, and potential benefits of, the
contemplated DAW Transaction as well as the past and current business
operations, financial conditions, and future prospects of Nyer Medical and the
Residual Locations; and considered such other information, financial studies,
analysis and investigations and financial, economic and market criteria which we
deemed relevant for the preparation of this opinion.
Among the
factors that we considered in reaching our conclusion, and subject to the
various limitations and assumptions described in the Opinion, were: (i) our
understanding, based on discussions with Nyer management, that no bidders in the
process that resulted in the transaction with Walgreens expressed an interest in
acquiring the Residual Locations in part or in whole for anything other than
zero value for the assets and with all related liabilities remaining with Nyer;
(ii) the consideration to be received by Nyer in the DAW Transaction; (iii) the
liquidation value ascribed to certain assets of the Residual Locations, as set
forth in estimates provided to us by Trenwith; (iv) the recent financial
performance of the Residual Locations and the possibility of ongoing losses in
the near-term; (v) and the value of certain liabilities related to the Residual
Locations, including non-cancellable equipment leases and pharmacy property
leases.
We have
assumed, based on our discussions with Nyer’s management and with your advisors,
that the Company is not aware of any other potential partners, purchasers or
acquirers that have proposed an alternative, or a serious credible interest in
developing an alternative, to the DAW Transaction.
We have
reviewed a liquidation analysis concerning the Residual Locations prepared by
Trenwith with the support of the management of Nyer which we relied upon for
purposes of the Opinion. We have also assumed, with your consent,
that the intangible assets of the Residual Locations, including prescription
lists and contracts, have no material value in liquidation due to the
contractual relationships between the Residual Locations and the Federally
Qualified Health Centers, PACE (Program of All-Inclusive Care for the Elderly)
Organizations and Assisted Living Facilities.
In
preparing our opinion, we have relied without independent verification upon the
accuracy and completeness of all of the financial, accounting, legal, tax,
operating and other information provided to us by Nyer Medical and have relied
upon the assurances of Nyer Medical that all such information provided is
complete and accurate in all material respects and that there is no additional
material information known to them that would make any of the information made
available to us either incomplete or misleading. In addition, we have not
assumed responsibility for reviewing or making an independent evaluation,
appraisal, or physical inspection of any of the assets or liabilities
(contingent or otherwise) or technology of Nyer Medical, nor have we been
furnished with any such appraisals other than the Trenwith report dated
September 28, 2009. We have also assumed that there have been no material
changes in the assets, financial condition, results of operations, business, or
prospects of the Residual Locations since the respective dates of their last
financial statements made available to us.
We have
performed no investigation relating to the representations and warranties made
by Nyer Medical in the draft DAW Purchase Agreement, including the
representations and warranties made with respect to intellectual property or the
status of any litigation pending or threatened against Nyer
Medical.
We were
not asked to, and did not, conduct a market survey to determine the interest of
other potential investors or otherwise solicit, or assist Nyer Medical in
soliciting, any third party indications of interest in investing in the Residual
Locations. Furthermore, this opinion addresses only the financial fairness to
the Shareholders of Nyer Medical of the DAW Transaction and does not address the
relative merits of the DAW Transaction to any alternative business strategies to
the DAW Transaction, the effect of any other transaction in which Nyer Medical
might engage, Nyer Medical’s underlying decision to proceed with or effect the
DAW Transaction or any other aspect of the DAW Transaction.
For
purposes of this opinion, we have assumed that Nyer Medical is not a party to
any pending transactions, including external financings, recapitalizations, or
material purchase discussions, other than the DAW Transaction and the
transaction with Walgreens, and those activities undertaken in the ordinary
course of conducting its business. We have further assumed that the DAW
Transaction will be consummated substantially in accordance with the terms
described in the draft DAW Purchase Agreement. In rendering this
opinion, we have assumed, with the Company's consent, that the DAW Transaction
as consummated will not differ in any material respect from that described in
the documents we have examined. We have relied on advice of counsel and
independent accountants to Nyer Medical as to all legal, tax and financial
reporting matters with respect to Nyer Medical, the DAW Transaction, and the
draft DAW Purchase Agreement. We are expressing no opinion on such
matters.
We have
not acted as financial advisor to the Special Committee in connection with the
DAW Transaction. We will receive a fee for rendering this opinion, no
portion of which is contingent on the consummation of the DAW Transaction. We
may in the future provide investment banking or other financial advisory
services to Nyer Medical. In addition, Nyer Medical has agreed to indemnify us
for certain liabilities that may arise out of our engagement.
We are
expressing no opinion with respect to the amount or nature of any compensation
to any officers, directors, or employees of any party to the DAW Transaction, or
any class of such persons relative to the consideration to be received by the
Shareholders of Nyer Medical in the DAW Transaction or with respect to the
fairness of any such compensation.
We are
expressing no opinion herein as to the actual value of Nyer Medical’s common
stock at the consummation of the DAW Transaction.
We are
not expressing an opinion as to the fairness of the DAW Transaction or of the
consideration to be received by the Shareholders of Nyer Medical, from a
financial point of view, to DAW.
Our
opinion is based on financial, economic, monetary and market and other
conditions in effect on, and the information made available to us as of, the
date hereof. Accordingly, although subsequent developments may affect this
opinion, we have not assumed any obligation to update, revise, or reaffirm this
opinion, and any change in such conditions would require a reevaluation of this
opinion.
The
preparation of a fairness opinion involves various judgments as to appropriate
and relevant quantitative and qualitative methods of financial analyses and the
application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to summary description. Accordingly,
we believe our analyses and the factors utilized in such analyses must be
considered as a whole and that considering any portion of such analyses or
factors, without considering all analyses and factors, could create a misleading
or incomplete view of the process underlying our opinion. In our analyses, we
made numerous assumptions with respect to industry performance, general business
and other conditions and matters, many of which are beyond Nyer Medical’s
control and are not susceptible to accurate prediction.
In
furnishing this opinion, we are not "experts" within the meaning of that term as
used in the Securities Act of 1933, as amended (the "Securities Act"), and the
rules and regulations promulgated thereunder, nor do we admit that this opinion
constitutes a report or valuation within the meaning of Section 11 of the
Securities Act.
This
opinion is directed to the Special Committee of the Board of Directors of Nyer
Medical Group, Inc. in its consideration of the DAW Transaction and is not a
recommendation to any Shareholder of Nyer Medical as to how such Shareholder
should vote with respect to the DAW Transaction. This opinion may not be used or
referred to by Nyer Medical, or quoted or disclosed to any person in any manner,
without our prior written consent, which consent is hereby given to the
provision of a copy of this opinion to DAW, and the inclusion of this opinion in
any Shareholder solicitation letter to be distributed in connection with the DAW
Transaction as well as the inclusion of reference to this opinion in the DAW
Purchase Agreement, provided that this opinion is reproduced therein in full and
any description of, or reference to, us or any summary of this opinion included
therein is in form and substance acceptable to us and our legal
counsel.
Based
upon the foregoing and in reliance thereon, it is our opinion that the
consideration to be received pursuant to the DAW Purchase Agreement is fair to
the Shareholders of Nyer Medical, from a financial point of view, as of the date
hereof.
Very
truly yours,
/s/
Newbury, Piret Companies, Inc.
ANNEX
E – ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JUNE 30, 2009
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-K
x
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the fiscal year ended June 30, 2009
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For
the transition period from ___________
Commission
file number: 000-20175
Nyer
Medical Group, Inc.
|
(Exact
Name of Registrant as Specified in Its
Charter)
|
FLORIDA
|
|
01-0469607
|
(State
or Other Jurisdiction of
Incorporation
or Organization)
|
|
(I.R.S.
Employer Identification
No.)
|
13 Water Street, Holliston,
MA
|
01746
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
|
|
Registrant’s
telephone number, including area code:
|
(508)
429-8506
|
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class
|
Name
of each exchange
on which registered
|
|
|
Common
Stock, Par Value $.0001
|
NASDAQ
Capital Market
|
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes
¨
No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes
¨
No
x
Indicate
by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes
x
No
¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes
¨
No
¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act. (Check one):
Large
accelerated filer
¨
|
Accelerated
filer
¨
|
|
|
Non-accelerated
filer
¨
(Do
not check if a smaller reporting company)
|
Smaller
reporting company
x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
¨
No
x
The
aggregate market value of the voting and non-voting shares of the registrant
held by non-affiliates as of December 31, 2008, was $3,040,986 based on the
closing price on NASDAQ Capital Market on such date.
The
number of the registrant’s shares of common stock outstanding as of September
21, 2009: 3,978,199.
Documents
incorporated by reference: None
In this
annual report, the terms the “Company,” “Nyer,” “we,” “us,” or “our” refers to
Nyer Medical Group, Inc., unless the context indicates otherwise.
EXPLANATORY
NOTE
The
consolidated financial statements of the Company and its subsidiaries at and for
the fiscal year ended June 30, 2008, and related financial information have been
restated to correct errors in the accounting for direct costs associated with
the purchase of the minority interest in DAW, Inc., now a wholly owned
subsidiary of the Company, in February 2008. These costs were
expensed, rather than considered part of the cost of the acquisition in
accordance with generally accepted accounting principles
(“GAAP”). For further details on the nature of the corrections and
the related effects on the Company's previously issued consolidated financial
statements, see Note 3, Restatements of Consolidated Financial Statements,
included in Part II, Item 8, Financial Statements and Supplementary
Data. Restated balances have been identified with the notation
"restated" where appropriate. Throughout this Annual Report, the term
"as previously reported" will be used to refer to balances from the 2008
consolidated financial statements as reported prior to restatement for the
correction of these errors.
In
accordance with the relief granted to the Company by the staff of the Division
of Corporation Finance of the Securities and Exchange Commission (“SEC”), we are
filing this comprehensive Annual Report on Form 10-K for the year ended June 30,
2009, with expanded financial and other disclosures in lieu of filing a separate
amended Annual Report on Form 10-K for the year ended June 30, 2008, and
separate amended Quarterly Reports on Form 10-Q for the periods ended December
31, 2007, and March 31, 2008. This comprehensive report is being
filed to facilitate the dissemination of current financial and other information
to investors. The Company does not intend to file a separate amended
Annual Report on Form 10-K for the year ended June 30, 2008, or amended
Quarterly Reports on 10-Q for the periods ended December 31, 2007, or March 31,
2008, September 30, 2008, December 31, 2008, and March 31, 2009, to reflect
restated financial information. The financial information that has
been previously filed or otherwise reported for these periods is superseded by
the information in this Annual Report on Form 10-K, and the financial
statements and related financial information contained in those previously filed
reports should no longer be relied upon.
WARNING CONCERNING FORWARD
LOOKING STATEMENTS
This
Annual Report contains statements which constitute forward looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 and
other federal securities laws. Forward looking information includes
statements concerning pharmacy sales trends, prescription margins, the sale of
discontinued operations, and demographic trends as well as those that include or
are preceded by the words “expects,” “estimates,” “believes,” “plans,”
“anticipates,” or similar language.
Forward
looking statements may involve risks and uncertainties known or unknown to us
that could cause results to differ materially from management’s expectations as
projected in such forward-looking statements. These risks and
uncertainties are discussed in Item 1A below.
Other
risks may adversely impact us, as described more fully in this Annual Report
under “Item 1A. Risk Factors.”
You
should not place undue reliance upon forward looking statements.
Unless
otherwise required by applicable securities laws, we assume no obligation to
update our forward-looking statements to reflect subsequent events or
circumstances.
TABLE OF
CONTENTS
|
|
Page
|
PART
I
|
|
|
|
|
|
Item
1.
|
Business
|
5
|
|
|
|
Item
1A.
|
Risk
Factors
|
9
|
|
|
|
Item
l B.
|
Unresolved
Staff Comments
|
12
|
|
|
|
Item
2.
|
Properties
|
12
|
|
|
|
Item
3.
|
Legal
Proceedings
|
13
|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
13
|
|
|
|
PART
II
|
|
|
|
|
|
Item
5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters, and Issuer
Purchases of Equity Securities
|
13
|
|
|
|
Item
6.
|
Selected
Financial Data
|
14
|
|
|
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
15
|
|
|
|
Item
7a.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
31
|
|
|
|
Item
8.
|
Financial
Statements and Supplementary Data
|
32
|
|
|
|
Item
9.
|
Changes
In and Disagreements with Accountants on Accounting and Financial
Disclosure
|
80
|
|
|
|
Item
9A (T).
|
Controls
and Procedures
|
80
|
|
|
|
Item
9B.
|
Other
Information
|
81
|
|
|
|
PART
III
|
|
|
|
|
|
Item
10.
|
Directors,
Executive Officers, and Corporate Governance
|
81
|
|
|
|
Item
11.
|
Executive
Compensation
|
84
|
|
|
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
89
|
|
|
|
Item
13.
|
Certain
Relationships and Related Transactions and Director
Independence
|
93
|
|
|
|
Item
14.
|
Principal
Accountant Fees and Services
|
93
|
|
|
|
PART
IV
|
|
|
|
|
|
Item
15.
|
Exhibits
and Financial Statement Schedules
|
95
|
|
|
|
Signatures
|
|
98
|
PART I
ITEM
1. Business
We were
incorporated in Florida on December 10, 1988. In August 1996, we
acquired 80% of D.A.W., Inc., (“DAW”) d/b/a Eaton Apothecary. In
February 2008, we acquired the remaining 20%. DAW owns and operates a
chain of retail pharmacies in the suburban Boston, Massachusetts, area and
provides comprehensive pharmacy management services to various not-for-profit
entities.
Retail Pharmacies Business
DAW’s
strategy is to seek out and capitalize on existing and developing niches within
the expanding market for prescription medications and pharmacy
services. Toward that end, DAW has established four distinct and
diverse operating platforms.
The first
platform is comprised of DAW’s original core retail stores. These
core stores are exclusively traditional neighborhood community pharmacies
ranging in size from 2,000 to 5,000 square feet. They are mostly
located in geographically favorable locations and are able to compete with
larger chain competitors by offering free delivery and providing superior
customer service. DAW operates 11 pharmacies consistent with this
platform.
The
second platform is a service platform whereby DAW leverages its infrastructure
and core competence of managing pharmacy operations. DAW partners
with health centers classified as Federally Qualified Health Centers (“FQHC”)
under Section 340B of the Public Health Services Act (“340B”) to provide
comprehensive pharmacy management services to pharmacies operating within the
health center. In addition to operating a pharmacy within an area of
very dense medical activity, it is only through these 340B pharmacies that
uninsured Massachusetts residents are able to obtain prescription
medications. DAW operates five pharmacies consistent with this
platform.
The third
platform is a hybrid platform whereby DAW augments its dispensing activity at
some of its community pharmacies through a contractual relationship with a FQHC
with insufficient critical mass to support a stand-alone pharmacy within the
health center. DAW maintains a separate inventory on behalf of the
FQHC for the purpose of dispensing medications to uninsured and other 340B
eligible patients. DAW operates seven pharmacies consistent with this
platform.
The
fourth platform is designed to service location insensitive
business. Location insensitive business is almost exclusively
delivery business and is comprised of specialized packaging for assisted living
communities and medication non-adherent patients. The locations are
located in lower rent non-prime industrial areas. As such, the
platform has lower operating costs. DAW operates two pharmacies
consistent with this platform.
DAW
continues to seek acquisition opportunities of profitable independent pharmacies
within contiguous markets whose owners are desirous of selling and entering
either semi-retirement or retirement. DAW is additionally seeking out
strategic health center partners to expand its pharmacy management services and
is simultaneously responding to inquiries from within this group to assume
management and operational responsibility for existing
pharmacies. DAW believes that it will maintain and expand upon its
position as the largest and most significant 340B pharmacy provider in
Massachusetts.
·
|
Customers
and Third Party Payers
|
During
the fiscal year 2009, approximately 89% of pharmacy revenues were to customers
with prescription health insurance coverage that provides payment for all or a
portion of a customer’s eligible prescription purchase. During the
fiscal year 2009, the top five of these third party payers accounted for
approximately 49% of total revenues, the largest of which represented 17% of
total revenues. During the same period, Medicaid agencies accounted
for approximately 9% of total revenues. Any significant loss of third
party payer business could have a material adverse effect on DAW’s business and
results of operations.
DAW’s
business is subject to various federal and state
regulations. Pursuant to the Omnibus Budget Reconciliation Act of
1990 and Massachusetts’s regulations, DAW’s pharmacists are required to offer
counseling without additional charge to their customers about medication,
dosage, delivery systems, common side effects, and other information deemed
significant by the pharmacists and may have a duty to warn customers regarding
any potential adverse effects of a prescription if the warning could reduce or
negate such effect.
The
Massachusetts’ Board of Registration in Pharmacy must license DAW’s pharmacies
and pharmacists. DAW’s pharmacies are also registered with the
Federal Drug Enforcement Administration (“DEA”) and are subject to DEA
regulations relative to operations, purchasing, storing, and dispensing of
controlled substances. Any violations of any applicable statute,
rule, or regulation could result in the suspension or revocation of
licenses.
DAW’s
pharmacies are subject to patient privacy and other obligations, including
corporate pharmacy and associate responsibility imposed by the Health Insurance
Portability and Accountability Act (“HIPAA”). As a covered entity,
DAW is required to implement privacy and data security standards and train its
associates on the permitted uses and disclosures of protected health
information. DAW is additionally required to safeguard against the
loss of protected, private health information. Failure to properly
adhere to these requirements could result in the imposition of civil as well as
criminal penalties.
By virtue
of its contracts with health centers and its participation in the 340B program,
DAW must additionally be familiar with, and operate according to, the
regulations of other regulatory bodies including the Department of Public
Health, the Massachusetts Health Safety Net Organization, and the Joint
Commission on Accreditation of Healthcare Organizations. DAW believes
that its knowledge within this confusing landscape makes it an attractive
partner and serves as a barrier to competition.
In recent
years, an increasing number of legislative proposals have been introduced or
proposed in Congress and in the Massachusetts state legislature that would
affect major changes in the healthcare system, either nationally or at the state
level. Although DAW believes it is well positioned to respond to
these developments, it cannot predict the outcome or effect of legislation
resulting from these reform efforts.
A
significant number of DAW’s pharmacies compete in markets also served by either
CVS Caremark Corporation or Walgreen Co. or both. These two chains
have greater financial resources and economies of scale than DAW but do not
offer services comparable to DAW.
Many of
the largest pharmacy benefit management companies (“PBMs”) have instituted
differential prescription co-payment structures for retail versus mail order
pharmacies whereby patients are offered lower co-payments if mail-order service
is utilized to obtain their chronic or maintenance medications. While
DAW has lost some of its customer base to mail order, its overall unit volume
continues to show a net prescription dispensing increase on a comparable monthly
basis. Furthermore, these mail order differentials have narrowed
recently moving the market toward a more level orientation.
Some
large mass merchant retailers such as Wal-Mart Stores, Inc., and Target Corp.
have instituted one-price prescription programs on select generic medications in
attempts to gain market share. None of these retailers operate stores
in immediate proximity to any of DAW’s pharmacies. Accordingly, DAW
does not believe it has lost market share to these programs.
DAW
purchases in excess of 90% of its pharmaceuticals from McKesson Corporation
(“McKesson”) pursuant to a Supply Agreement, which expires January 31,
2012. Under the terms of the agreement, DAW stores receive delivery
five days per week and receive volume discounts based upon aggregate average
monthly net purchase volume. DAW receives discounts on generic
pharmaceuticals based upon the volume of generic purchases as a percent of total
purchases. DAW purchases pharmaceuticals from generic pharmaceutical
distributors as well as other specialty vendors such as Hallmark Cards, Inc.,
and various distributors of durable medical equipment and surgical supplies on a
significantly lower scale. There are many wholesale competitors of
McKesson, each of whom would be capable of supplying DAW’s purchasing needs on
similar terms and on a comparable scale.
Discontinued
Operations
In
December 2008, we sold the inventory and prescription lists of our Topsfield,
Massachusetts, store (“Topsfield”); in September 2008, we sold certain assets
and liabilities of ADCO Surgical Supply, Inc., (“ADCO”), a wholly owned
subsidiary of the Company; and in June 2008, we sold ADCO South Medical
Supplies, Inc. (“ADCO South”), a wholly owned subsidiary of the
company. As such, Topsfield, ADCO, and ADCO South have been
classified as discontinued operations in our financial statements.
Purchase
of Minority Interest in DAW and Change of Control of the Company
In
February 2008, we completed the acquisition of the remaining 20% of the
outstanding common stock of DAW through a series of transactions (the
“Acquisition”). In consideration for the Acquisition, we paid and
issued the following: (1) a cash payment of $1,750,000 (which we borrowed from
DAW and which was funded by increased credit terms by DAW’s major supplier), (2)
2,000 shares of a newly created series of convertible Series 2 Class B Preferred
Stock (the “Series 2 Stock”) which are initially convertible into 218,000 shares
of our common stock, and have the same aggregate 4,000,000 voting rights as our
then existing Class A Preferred Stock (the “Class A Stock”) and Class B
Preferred Stock (the “Class B Stock”), (3) a promissory note in the aggregate
principal amount of $350,000, and (4) convertible promissory notes in the
aggregate principal amount of $1,500,000, convertible into our common stock at
an initial conversion price of $1.84 per share, subject to
adjustment. We also incurred $458,516 of transaction costs related to
this acquisition.
Also in
February 2008, we purchased from Mr. Samuel Nyer (“Mr. Nyer”), 2,000 shares of
Class A Stock and 1,000 shares of Class B Stock held by Mr. Nyer (which
represented all of the then issued and outstanding shares of such preferred
stock) in exchange for a promissory note in the amount of
$400,000. Further, the former minority shareholders of DAW (the
“Minority Shareholders”) purchased from Nyle International Corp. (“Nyle”), a
corporation controlled by Mr. Nyer, 597,826 shares of our common
stock.
As a
result of the Acquisition, the purchase by the Minority Shareholders from Nyle,
our repurchase of shares from Mr. Nyer, and the appointment of Mark and David
Dumouchel to fill director and officer vacancies, we experienced a change of
control with the Minority Shareholders owning an aggregate of approximately 58%
of the voting power of our outstanding common stock.
Employees
DAW has a
stable and experienced workforce consisting of 190 full-time and 170 part-time
employees. Of these, 69 are pharmacists licensed by the Board of
Registration in Pharmacy. None of our employees are employed pursuant
to a collective bargaining agreement.
Availability
of SEC Filings
We have
not filed amendments to any previously filed Annual Reports on Form 10-K or
Quarterly Reports on Form 10-Q for the periods affected by the restatement
described in Note 3 to the consolidated financial statements included in Part
II, Item 8 of this Annual Report on Form 10-K. The financial
information that has been previously filed or otherwise reported for these
periods is superseded by the information in this Annual Report on
Form 10-K, and the financial statements and related financial information
contained in previously filed reports should no longer be relied
upon.
All our
reports filed with the Securities and Exchange Commission (“SEC”) are available
free of charge via EDGAR through the SEC website at www.sec.gov. In
addition, the public may read and copy materials we filed with the SEC at the
SEC’s public reference room located at 100 F Street N.E., Washington, D.C.
20549. The public may obtain information on the operation of the
public reference room by calling 1-800-732-0330. We also provide
copies of our Forms 8-K, 10-K, 10-Q, Proxy Statement, and Annual Report at no
charge available through our website at www.nyermedicalgroup.com as soon as
reasonably practicable after filing electronically such material with the
SEC. Copies are also available, without charge, from Nyer Medical
Group, Inc., P.O. Box 6880, Holliston, MA 01746.
ITEM
1A. Risk Factors
The
following risk factors, among others, could affect our actual results of
operations and could cause our actual results to differ materially from those
expressed in forward-looking statements made by us. These
forward-looking statements are based on current expectations and we assume no
obligation to update this information. You should carefully consider
the risks described below and elsewhere in this Annual Report before making an
investment decision. Our business, financial condition or results of
operations could be materially adversely affected by any of these
risks. The trading prices of our common stock could decline due to
any of these risks, and you may lose all or part of your
investment. The following risk factors are not the only risk factors
facing our company. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also affect our
business.
Nyer
is reliant on current management for its success
DAW is a
niche business that relies on the unique qualifications of Nyer’s president and
chief executive officer as well as the management team of the
pharmacies. The healthcare landscape has become increasingly
intricate with the addition of government programs and regulations such as
Medicare Part D and the Medicare Modernization Act of
2003. Management’s knowledge of this landscape and its ability to
operate within it is critical to Nyer’s success. As Nyer continues to
grow, it may require the services of additional executives. The loss
of certain other key employees could have a material effect upon the business of
Nyer. At the present time, we have key-man term life insurance on the
lives of our president and chief executive officer and the management team of
the pharmacies.
Control
of Nyer is held by a few shareholders
Nyer’s
controlling shareholders are Michael and Lucille Curry, David Dumouchel, Mark
Dumouchel (President and Chief Executive Officer), Wayne Gunter, and Donato
Mazzola, all management of DAW. They each own 400 shares of Series 2
Stock which each has voting rights equal to 2,000 votes per share on any matter
put to a vote of the Common Stock (equivalent to 800,000 votes of common
stock). They also each own 119,565 shares of common stock, with the
exception of Mark Dumouchel who owns 119,566 shares of common stock and Donato
Mazzola who owns 119,965 shares of common stock.
These
holdings collectively represent approximately 58% of the outstanding voting
securities of Nyer. As a result, although they are not part of a
group nor subject to any voting agreements, if they vote the same way, they
would effectively control the voting power of Nyer. Accordingly, they
are in a position to elect a majority of Nyer’s directors and control the
policies and operations of Nyer. Accordingly, they are in a position to elect a
majority of Nyer’s directors and control the policies and operation of
Nyer.
Many
of our competitors have advantages over us
All
aspects of our business are subject to significant competition. Many
of our competitors generally have substantially greater financial resources and
other competitive advantages. Such greater resources and advantages
may reduce our chance for economic success.
Volatility
in the trading volume and ability to remain listed on NASDAQ may negatively
affect our stock price
Because
of the small volume of trading in our common stock, the market price of our
common stock can be affected by increases in trading volume. In
addition, our common stock is listed on the NASDAQ Capital Market or
NASDAQ. NASDAQ rules provide that if the market price of a share of
common stock is less than $1 for 30 consecutive trading days, it can be delisted
upon the happening of certain events. On September 15, 2009, NASDAQ
notified us that we were not in compliance with this rule and that our common
stock would be delisted if we did not regain compliance by March 15,
2010. If our common stock is delisted by NASDAQ, the market price of
the common stock may be negatively impacted.
The
exercise of our outstanding stock options could adversely affect our outstanding
common stock
Our stock
option plans are an important component of our compensation program for our
employees, directors and consultants. As of June 30, 2009, we have
outstanding options to purchase approximately 1,435,000 shares of common stock
with exercise prices ranging from $0.88 to $6.44 per share, which represents
approximately 27% of our outstanding common stock on a fully diluted
basis. As of June 30, 2009, we also have investors who hold warrants
to purchase 53,320 shares of common stock at an exercise price of $2.60 per
share which expire in April 2010. The existence of such rights to
acquire common stock at fixed prices may prove a hindrance to our efforts to
raise future funding by the sale of equity. The exercise of such
options or warrants will dilute the percentage ownership interest of our
existing stockholders and may dilute the value of their
ownership. The possible future sale of shares issuable on the
exercise of outstanding options could adversely affect the prevailing market
price for our common stock. Further, the holders of the outstanding
rights may exercise them at a time when we would otherwise be able to obtain
additional equity capital on terms more favorable to us.
Investors
should not expect dividends
Nyer
intends to retain future earnings, if any, to finance its growth.
Certain
risks are inherent with operating pharmacies; our liability insurance may not be
adequate to cover potential claims
Our
pharmacies are exposed to risks inherent in dispensing of prescription
medications. These include the potential for dispensing errors and
the providing of inadequate counseling or warning. Although we
maintain professional liability insurance, claims may result in significant
liability which may be beyond the limits of coverage. We can offer no
assurance that coverage limits under our insurance policies will be adequate to
protect against future claims, or that we will maintain adequate insurance on
acceptable terms in the future. Our results of operations, financial
condition or cash flows may adversely be affected if in the future our insurance
coverage proves to be inadequate.
Our
success may vary with regulation of and changes in the delivery of
healthcare
The
health care industry is subject to extensive government regulation, licensure
and operating procedures. Management cannot predict the impact that
present or future regulations may have on operations of DAW. DAW’s
pharmacists also may have a duty to warn customers regarding potential negative
effects of a prescription drug if the warning could reduce or negate these
effects. Additionally, DAW is subject to federal DEA and state
regulations relating to pharmacy operations, purchasing, storing and dispensing
of controlled substances. DAW is also subject to other federal
regulations such as HIPAA. Moreover, as consolidation among physician
provider groups, long-term care facilities and other alternate-site providers
continues and provider networks are created, purchasing decisions may shift to
individuals with whom DAW has not had prior selling
relationships. There can be no assurance that DAW will be able to
maintain its customer relationships in such circumstances or that such provider
consolidation will not result in reduced operating margins. Also,
national health care reform has been the subject of a number of legislative
initiatives by Congress. Due to uncertainties regarding the ultimate
features of health care reform initiatives and their enactment and
implementation, DAW cannot predict which, if any, of such reform proposals will
be adopted, when it may be adopted or what impact they may have on DAW or its
customers. The actual announcement of reform proposals and the
investment community’s reaction to such proposals, announcements by competitors
of their strategies to respond to reform initiatives and general industry
conditions could produce volatility in the trading and market price of Nyer’s
common stock.
We
are experiencing pricing pressures from health care providers and third party
payers
A
significant portion of the costs for prescription medication in the United
States is funded by government and private insurance programs, such as Medicare,
Medicaid and corporate health insurance plans. In recent years,
private third party reimbursement plans have developed increasingly
sophisticated methods of controlling prescription benefit costs through benefit
redesign and the exploration of more cost-effective
methods. Accordingly, there can be no assurance that reimbursement
for the dispensing of prescription medications will not be limited or reduced
and thereby adversely affect future sales by DAW. In addition, any
substantial delays in reimbursement, significant reduction in coverage or
payment rates from third party payers can have a material adverse effect on the
financial results of the pharmacies.
DAW
is dependent on relationships with vendors
DAW is
dependent on vendors to supply inventory. Currently, DAW relies on
its vendors to provide: (i) agreeable purchasing and delivery terms; (ii) sales
performance incentives; (iii) financial support of sales and marketing programs;
and (iv) promotional materials. There can be no assurance that DAW
will maintain good relations with its vendors. During the year ended
June 30, 2009, DAW had one vendor whose relationship accounts for over 90% of
our inventory purchases. DAW believes that, if necessary, it can
replace the vendor with no adverse cost effect; but DAW’s ability to maintain
good relations with vendors will affect the profitability of its
business.
DAW
is dependent on employees
DAW
depends on the continued service of, and on the ability to attract, motivate and
retain a sufficient number of pharmacists for our stores. Management
believes that DAW’s success is dependent, in part, on its continued ability to
attract and retain qualified and skilled pharmacists. Over the years,
a significant shortage of pharmacists has developed due to industry competition
as well as competition from other industries. This has resulted in
continued upward pressure on pharmacist compensation packages. There
can be no assurance that we will be able to attract, hire and retain sufficient
numbers of pharmacists necessary to continue to develop and grow its
business. The inability to attract and retain a sufficient number of
pharmacists could limit our ability to increase revenue and impact our ability
to deliver high levels of customer service.
We
may fail to maintain effective internal control in accordance with Section 404
of the Sarbanes-Oxley Act of 2002
The
Sarbanes-Oxley Act of 2002 imposes certain duties on us and our executives and
directors. Our efforts to comply with the requirements of the
Sarbanes-Oxley Act of 2002, and in particular with Section 404, have resulted in
increased general and administrative expenses and a diversion of management time
and attention, and we expect these efforts to require the continued commitment
of resources. If we fail to maintain the adequacy of our internal
controls, we may not be able to ensure that we can conclude on an ongoing basis
that we have effective internal control over financial
reporting. Although our management has determined that we had
effective internal control over financial reporting as of June 30, 2009, we may
identify material weaknesses or significant deficiencies in our future internal
control over financial reporting. In addition, our internal control
over financial reporting has not yet been audited by our independent registered
public accounting firm. Failure to maintain effective internal
control over financial reporting could result in investigation or sanctions by
regulatory authorities and could have a material adverse effect on our operating
results, investor confidence in our reported financial information, and the
market price of our common stock.
ITEM
1B. Unresolved Staff Comments
None.
ITEM
2. Properties
We have
non-cancelable leases for 20 pharmacies throughout the suburban Boston,
Massachusetts, area. Stores range in size from 325 to 5,100 square
feet and monthly lease payments range from $730 to $11,900. In
addition to minimum lease payments, which are set at competitive market rates,
certain leases require additional payments for reimbursement of taxes,
maintenance, and insurance. Most locations have renewable lease
options. Our executive and administrative offices are located
at 13 Water Street, Holliston, Massachusetts, where we lease 3,251 square
feet. We believe our current premises are adequate for our current
foreseeable needs.
In
addition, ADCO, currently classified as a discontinued operation, owned a 23,000
square foot facility in Bangor, Maine, which was sold on September 21,
2009.
ITEM
3. Legal Proceedings
In the
ordinary course of business, we may become involved in litigation incidental to
our business; however, we are not aware of any pending legal proceeding that
would have a material effect on operating results.
ITEM
4. Submission of Matters to a Vote of Security Holders
None.
PART II
ITEM
5. Market For Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
Market
and Stockholder Information
Our
shares of common stock are listed and traded on NASDAQ under the symbol
“NYER.”
The
continuation of quotations on NASDAQ is subject to certain
conditions. The failure to meet these conditions may prevent our
common stock from continuing to be quoted on NASDAQ and may have an adverse
effect on the market for our common stock. We have received
notice that we are not currently in compliance with NASDAQ’s minimum price
listing standard and that our common stock will be delisted if we do not regain
compliance by March 15, 2010. The high and low sales prices for our
common shares for the eight quarters ending June 30, 2009, are as
follows:
|
|
High
|
|
|
Low
|
|
Year ended June 30, 2009:
|
|
|
|
|
|
|
First
quarter ended September 30, 2008
|
|
$
|
1.49
|
|
|
$
|
1.11
|
|
Second
quarter ended December 31, 2008
|
|
$
|
1.22
|
|
|
$
|
0.52
|
|
Third
quarter ended March 31, 2009
|
|
$
|
1.11
|
|
|
$
|
0.76
|
|
Fourth
quarter ended June 30, 2009
|
|
$
|
1.14
|
|
|
$
|
0.77
|
|
|
|
|
|
|
|
|
|
|
Year ended June 30, 2008:
|
|
|
|
|
|
|
|
|
First
quarter ended September 30, 2007
|
|
$
|
2.08
|
|
|
$
|
1.75
|
|
Second
quarter ended December 31, 2007
|
|
$
|
1.82
|
|
|
$
|
0.99
|
|
Third
quarter ended March 31, 2008
|
|
$
|
1.70
|
|
|
$
|
1.06
|
|
Fourth
quarter ended June 30, 2008
|
|
$
|
1.65
|
|
|
$
|
1.13
|
|
Such
prices reflect inter-dealer prices and do not reflect retail mark-ups,
markdowns, or commissions. Our shares are traded sporadically, which
may affect the prices.
Holders
of Record
As of
September 21, 2009, there were approximately 46 holders of record of our shares
of common stock.
Dividends
Although
there are no restrictions on our ability to pay dividends, to date we have not
declared any cash dividends on any class of security nor do we anticipate doing
so in the foreseeable future.
Issuer
Purchases of Equity Securities
On May
12, 2003, we announced that our Board of Directors had authorized the repurchase
of up to 150,000 shares of our outstanding common stock from time-to-time in
open market transactions at prevailing market prices. There was no
expiration date established for this repurchase plan. As of the date
of this report, the plan has not been terminated, of which there remains 148,000
shares authorized for repurchase. There was no common stock
repurchased or sales of unregistered securities for the fourth quarter ended
June 30, 2009.
ITEM
6. Selected Financial Data.
This Item
is not required to be completed by smaller reporting companies.
ITEM
7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
The
following discussion should be read in conjunction with the audited consolidated
financial statements included in Item 8 of this Annual Report and the related
notes thereto included elsewhere in this Annual Report. This
discussion and analysis of our financial condition and results of operations
contains forward looking statements that involve risks and
uncertainties. We have based these forward looking statements on our
current expectations and projections of future events. Such
statements reflect our current views with respect to future events and are
subject to unknown risks, uncertainty, and other factors that may cause results
to differ materially from those contemplated in such forward looking
statements.
Overview
We
operate a chain of pharmacies and provide pharmacy management services to
various not-for-profit entities. The majority of DAW’s business
is conducted pursuant to contracts with pharmacy benefit management companies
and the Commonwealth of Massachusetts Medicaid Department, and each applies
consistent downward pressure on our margins.
The
current recessionary economic environment has not significantly adversely
affected the number of prescriptions dispensed at our pharmacies, as our
business is generally recession resistant. We continue to target
market niches not occupied by our larger competitors. While the
long-term outlook for prescription utilization is strong due in part to the
aging population and the continued development of innovative drugs that improve
the quality of life and control health care costs, the pharmacy industry is
highly competitive.
During
the fiscal year 2009 and 2008, our results also included discontinued operations
that consisted of the wholesale and retail sales of medical equipment and
supplies of ADCO, ADCO South, and the pharmacy revenues of our Topsfield
store.
Recent
Developments
In March 2009, we began operating
at the Dimock Community Health Center in Roxbury, Massachusetts, increasing our
number of locations with 340B affiliations to 14 and our total pharmacy
locations to 25.
In
December 2008, we sold the inventory and prescription lists of Topsfield to CVS
Pharmacy LLC (“CVS”). A gain of $507,000 was recognized on the
sale.
In
October 2008, we entered into a contract with the East Boston Neighborhood
Health Center to assume management of the Health Center’s pharmacy already in
operation. The pharmacy immediately became our highest volume
location in terms of prescriptions dispensed. As of December 31,
2008, we had successfully integrated the pharmacy dispensing software platform,
the robotic dispensing unit, the work-flow software, and the point of purchase
software. While the process was taxing on operational resources, we
believe the changes were necessary in order to maximize the long-term profit
potential of the pharmacy.
In
September 2008, we sold certain assets and liabilities of ADCO and a loss of
$193,260 was recognized on the sale. In connection with the
sale, we recorded a note receivable of $50,000. We and the buyer are
currently in dispute over certain assets and liabilities that were included in
the ADCO sale, and the note receivable has not been paid. As of June
30, 2009, we are unable to determine the final outcome of this dispute, but it
may result in an additional loss on the disposal of discontinued
operations.
In July
2008, we coordinated the relocation of the pharmacy that we manage for the
Boston Health Care for the Homeless Program (“BHCHP”) from the Barbara McInnis
House to BHCHP’s new, state of the art location within the Jean Yawkey Center
across from Boston Medical Center. At the new pharmacy, we began
dispensing patient prescriptions for patients visiting the new walk-in clinic in
addition to dispensing prescriptions for the program’s respite
patients.
In July
2008, we opened a pharmacy in Dorchester, Massachusetts, as a mirror operation
to our Peabody, Massachusetts, location to manage dispensing for a different
geographical area. Significant “location insensitive” business was
transferred from our other Dorchester pharmacy to gain efficiencies in the
dispensing process. The new pharmacy increased dispensing capacity
for the rapidly growing assisted living and adherence packaging market
segment.
Summary of Financial Impacts
of Restatements
The
consolidated financial statements of Nyer and our subsidiaries at and for the
fiscal year ended June 30, 2008, and related financial information have been
restated to correct errors in the accounting for direct costs associated with
the purchase of the minority interest in DAW now a wholly owned subsidiary of
the Company in February 2008. These costs were expensed, rather than
considered part of the cost of the acquisition in accordance with Statement of
Financial Accounting Standard (“SFAS”) No. 141,
Business
Combinations
. In addition, our consolidated financial
statements reflect the presentation of the discontinued operations for ADCO,
ADCO South, and Topsfield as of and for the years ended June 30, 2009 and 2008,
and certain other classifications made to conform the fiscal year 2008
consolidated financial statements to the presentation of the fiscal year 2009
consolidated financial statements. For further details on the nature
of the corrections and reclassifications and the related effects on the
Company's previously issued consolidated financial statements, see Note 3,
Restatements of Consolidated Financial Statements, included in Part II,
Item 8, Financial Statements and Supplementary Data. Restated
balances have been identified with the notation "restated" where
appropriate. The remainder of this management’s discussion and
analysis is based on amounts as restated.
Comparison of the year ended
June 30, 2009, to the year ended June 30, 2008
Results of
Operations
Net
revenues
. We recognize revenue both from the sale of
prescription medications and other products as well as through dispensing fee
revenue derived through dispensing of prescriptions with inventory owned by
Federally Qualified Health centers (“FQHCs”) pursuant to pharmacy management
services contracts entered into between us and various FQHCs. The
following table sets forth for the periods indicated pharmacy and dispensing
fees revenues from continuing operations and changes between the specified
periods expressed as a percentage increase or decrease:
|
|
Year
ended June 30
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
|
$
|
|
|
%
|
|
Sales
|
|
$
|
68,907,483
|
|
|
$
|
65,394,219
|
|
|
$
|
3,513,264
|
|
|
|
5.4
|
%
|
Dispensing
fees
|
|
|
5,815,361
|
|
|
|
3,200,795
|
|
|
|
2,614,566
|
|
|
|
81.7
|
%
|
Total
net revenues
|
|
$
|
74,722,844
|
|
|
$
|
68,595,014
|
|
|
$
|
6,127,830
|
|
|
|
8.9
|
%
|
Total net
revenues increased $6,127,830 to $74,722,844 or 8.9% for fiscal year 2009, as
compared to $68,595,014 for fiscal year 2008. The primary reason for
the increase in revenues was due to the addition of five new locations in April,
July, and October 2008, and March 2009. We operated 25 locations as
of June 30, 2009, compared to 23 locations in the prior
year. Net revenues decreased 2% at stores open more than
one year due to our decision to transfer accounts representing approximately
$5,300,000 in net revenues to two of the newly opened pharmacies. The
transfer was done to group certain specialized accounts together in order to
achieve efficiencies in the dispensing process. If the effect of the
business transfer is taken into effect, comparable revenue increased
approximately 5% for fiscal year 2009.
The
pharmacy sales (revenues other than dispensing fees) increased $3,513,264 to
$68,907,483 or 5.4% for fiscal year 2009 as compared to $65,394,219 for fiscal
year 2008. Sales decreased 4% at stores open more than one year due
to our decision to transfer accounts representing approximately $4,500,000 in
fiscal 2009 to two of the newly opened pharmacies. If the effect of
the business transfers is in taken into account, comparable sales increased
approximately 3% for fiscal year 2009.
The total
number of prescriptions dispensed increased 34% for the fiscal year
2009. The number of prescriptions dispensed did not correlate to a
commensurate growth in revenue due to an increased number of generic medications
as a percentage of total number of prescriptions dispensed. Generic
medications typically have a lower selling price than brand name
medications. We attribute the increase in prescription dispensing to
greater drug utilization on the part of an aging population, an overall increase
in market share within certain communities, and an increased utilization of
pharmacy services by patients of FQHCs with whom the pharmacies have contracts
to provide services. The pharmacies manage two pharmacies owned by
FQHCs and additionally have contracts to provide pharmacy services to patients
of five other FQHCs. The pharmacies maintain a segregated inventory owned by the
FQHCs for the purpose of dispensing prescriptions to health center
patients.
Dispensing
fee revenue increased $2,614,566 to $5,815,361 or 81.7% for fiscal year 2009 as
compared to $3,200,795 for fiscal year 2008. This increase is
primarily attributable to our new pharmacy contract with the East Boston
Neighborhood Health Center in East Boston, as well as the expanded number and
increased demand for covered medications effectuated during the fiscal year by
the Massachusetts Health Safety Net Office, an increased number of prescription
benefit management contracts entered into by the FQHCs contracted with us, and
marketing initiatives targeting the patients of the FQHCs.
Cost of sales.
The
following table sets forth for the periods indicated cost of sales from
continuing operations and changes between the specified periods expressed as a
percentage increase or decrease:
|
|
Year ended June 30
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
|
$
|
|
|
%
|
|
Cost
of sales
|
|
$
|
54,560,932
|
|
|
$
|
51,019,594
|
|
|
$
|
3,541,338
|
|
|
|
6.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
margin rate
|
|
|
20.8
|
%
|
|
|
22.0
|
%
|
|
|
|
|
|
|
(1.2
|
)%
|
Cost of
sales increased $3,541,338 to $54,560,932 or 6.9% for fiscal year 2009, as
compared to $51,019,594 for fiscal year 2008 due to increased sales and
declining insurance reimbursement rates. Cost of goods sold includes
the following: the cost of inventory sold during the period, net of
related vendor rebates, allowances and purchase discounts, costs incurred to
return merchandise to vendors, inventory shrinkage costs, and inbound freight
charges.
Gross profit
margins
. Pharmacy gross profit margins decreased by 1.2% to
20.8% for fiscal year 2009 as compared to 22.0% for fiscal year 2008 primarily
due to declining insurance reimbursement rates. Dispensing fee
revenue is excluded from the calculation as there is no correlating inventory
cost associated with the services provided.
Selling, general, and administrative
expenses
. The following table sets forth for the periods
indicated selling, general, and administrative expenses (“SG&A”) from
continuing operations and changes between the specified periods expressed as a
percentage increase or decrease:
|
|
Year ended June 30
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
(restated)
|
|
|
|
|
|
|
|
SG&A
expenses
|
|
$
|
19,815,584
|
|
|
$
|
16,775,376
|
|
|
$
|
3,040,208
|
|
|
|
18.1
|
%
|
SG&A
increased $3,040,208 to $19,815,584 or 18.1% for fiscal year 2009, as compared
to $16,775,376 for fiscal year 2008. The increase was primarily due
to increases in payroll costs of approximately $3,165,000, facility rent of
approximately $109,000, and equipment rent of approximately $146,000, partially
offset by a decrease in advertising expense of approximately
$402,000. The increases in payroll costs were primarily due to
$2,364,000 related to six newly opened locations plus $801,000 at stores open
more than one year and are predominately the result of market pressures on
salary and benefit packages for pharmacists. The additional
pharmacies also added approximately $197,000 in additional
overhead.
Other income (expense),
net.
The following table sets forth for the periods indicated
the breakdown of other income (expense):
|
|
Year ended June 30
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
2009
|
|
|
2008
|
|
|
$
|
|
|
%
|
|
Interest
expense
|
|
$
|
(185,247
|
)
|
|
$
|
(98,188
|
)
|
|
$
|
(87,059
|
)
|
|
|
88.7
|
%
|
Interest
income
|
|
|
11,104
|
|
|
|
11,631
|
|
|
|
(527
|
)
|
|
|
(4.5
|
)%
|
Other
income
|
|
|
18,112
|
|
|
|
25,977
|
|
|
|
(7,865
|
)
|
|
|
(30.3
|
)%
|
Total
other income (expense), net
|
|
$
|
(156,031
|
)
|
|
$
|
(60,580
|
)
|
|
$
|
(95,451
|
)
|
|
|
157.6
|
%
|
Total
other income (expense), net, increased $95,451 primarily due to the interest
expense on the related party notes issued in connection with the purchase of the
remaining 20% of DAW.
Income taxes
. We
recorded an income tax benefit from continuing operations of $182,087 for fiscal
year 2009 primarily due to the losses from operations, offset by changes in
deferred tax assets. In addition, for fiscal year 2009, we recorded
income tax benefit from discontinued operations of $2,394 and income tax expense
of $142,176 due to the disposal of the discontinued operations of ADCO and
Topsfield. We recorded income tax expense from continuing operations
of $12,132 for fiscal year 2008 primarily due to the income from operations and
changes in deferred taxes. We also recorded income tax expense from
discontinued operations of $93,407 and income tax benefit of $1,270 due to the
disposal of discontinued operations.
Discontinued
operations.
In December 2008, we sold the inventory and
prescription lists of Topsfield to CVS. In conjunction with this
sale, we also entered into a non-compete agreement with CVS, whereby we agreed
not to compete for three years within a 10-mile radius of the CVS store located
in Danvers, Massachusetts, excluding two currently operating Eaton Apothecary
pharmacies. A gain of $507,000 was recognized on the sale of
Topsfield.
In
September 2008, we sold certain assets and liabilities of ADCO, a medical and
surgical equipment and supplies company engaged in both the wholesale and retail
selling of medical equipment and surgical supplies throughout New England and
the internet. A loss on disposal of $193,260 was recognized on the
sale of ADCO’s certain assets and liabilities. In connection with
this sale, we received a $50,000 note receivable that was payable January 31,
2009. We and the buyer are currently in dispute over certain assets
and liabilities that were included in the ADCO sale, and the note
receivable has not been paid. We are unable to determine the final
outcome of this dispute, but it may result in an additional charge to the
disposal of discontinued operations.
We
retained ADCO’s building and land and its line of credit of $300,000, which has
been fully utilized. The buyer of ADCO’s assets had an option to
purchase the building and land that was not exercised and expired on January 31,
2009. On September 21, 2009, we sold the building to Dovesco,
LLC, an assignee of Doane, for $830,000 and recognized a gain on the sale of
$519,199. A portion of the proceeds from the sale was
used to pay the existing line of credit. No balance remains
outstanding against the line; and as of September 21, 2009, the line of credit
was terminated.
In June
2008, we sold ADCO South, a medical and surgical equipment and supplies company
engaged in the wholesale selling of medical equipment and surgical supplies
throughout Florida. We recognized a loss on the sale of
$5,112.
In
December 2007, we reevaluated the outstanding liabilities related to our fire
and police segment (discontinued in 2004) and concluded there were no remaining
liabilities. The liabilities were reversed and a $298,628 gain has
been reflected in discontinued operations.
Deemed dividend on redemption of
preferred stock
. In February 2008, we redeemed the then
outstanding Series A and B Preferred Stock for $400,000. The excess
over the carrying value of $3 was recorded as a deemed dividend and increased
the net loss applicable to common shareholders. For the year
ended June 30, 2008, this resulted in $399,997 being subtracted from net
earnings. Financial Accounting Standards Board (“FASB”) Emerging
Issue Task Force Topic D-42,
The Effect on the Calculation of
Earnings Per Share for the Redemption or Induced Conversion of Preferred
Stock
, provides among other things, that any excess of
(1) the fair value of the consideration transferred to the holders of
preferred stock redeemed over (2) the carrying amount of preferred stock,
should be subtracted from net earnings to determine net (loss) income available
to common shareholders in the calculation of earnings per share.
Comparison of the year ended
June 30, 2008, to the year ended June 30, 2007
Results of
Operations
Net
revenues
. The following table sets forth for the periods
indicated pharmacy and dispensing fees revenues from continuing operations and
changes between the specified periods expressed as a percentage increase or
decrease:
|
|
Year ended June 30
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
%
|
|
Sales
|
|
$
|
65,394,219
|
|
|
$
|
59,605,468
|
|
|
$
|
5,788,751
|
|
|
|
9.7
|
%
|
Dispensing
fees
|
|
|
3,200,795
|
|
|
|
2,335,674
|
|
|
|
865,121
|
|
|
|
37.0
|
%
|
Total
net revenues
|
|
$
|
68,595,014
|
|
|
$
|
61,941,142
|
|
|
$
|
6,653,872
|
|
|
|
10.7
|
%
|
Total
revenues increased $6,653,872 to $68,595,014 or 10.7% for fiscal year 2008, as
compared $61,941,142 for fiscal year 2007. The primary reason for the
increase in revenues was due to a 4.75% increase in the number of prescriptions
dispensed at stores open more than one year, the acquisition of a pharmacy in
July 2007, and the addition of three new pharmacies in April and December 2007,
and February 2008. Stores open more than one year experienced a 2.4%
growth in revenue. The growth in the number of prescriptions
dispensed did not correlate to a commensurate growth in revenue due to an
increased number of generic medications as a percentage of the total number of
prescriptions dispensed. Generic medications typically have a lower
selling price than brand name medications.
The
pharmacy sales (revenues other than dispensing fees) increased $5,788,751 to
$65,394,219 or 9.7% for fiscal year 2008 as compared to $59,605,468 for fiscal
year 2007. The increase was attributable to the acquired pharmacy,
the opening of three new pharmacies, and a 2.0% increase in sales at locations
open more than one year. The increase in prescription dispensing at
stores open more than one year can be attributed to greater drug utilization on
the part of an aging population, an overall increase in market share within
certain communities, and an increased utilization of pharmacy services by
patients of FQHCs with whom the pharmacies have contracts to provide
services. The pharmacies manage two pharmacies owned by FQHCs and
additionally have contracts to provide services. The pharmacies
manage two pharmacies owned by FQHCs and additionally have contracts to provide
pharmacy services to patients of five other FQHCs. The pharmacies
maintain a segregated inventory owned by the FQHCs for the purpose of dispensing
prescriptions to health center patients.
Dispensing
fee revenue increased $865,121 to $3,200,795 or 37.0% for fiscal year 2008 as
compared to $2,335,674 for fiscal year 2008. Two locations which
opened in February and April 2007, accounted for $513,013 of the
increase. The remainder of the increase can be attributed to an
expanded number of and increased demand for covered medications effectuated
during the fiscal year by the Massachusetts Health Safety Net Office, an
increased number of prescription benefit management contracts entered into by
the FQHCs contracted with DAW, and marketing initiatives targeting the patients
of the FQHCs.
Cost of sales.
The
following table sets forth for the periods indicated cost of sales from
continuing operations and changes between the specified periods expressed as a
percentage increase or decrease:
|
|
Year ended June 30
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
%
|
|
Cost
of sales
|
|
$
|
51,019,594
|
|
|
$
|
46,874,820
|
|
|
$
|
4,144,774
|
|
|
|
8.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
margin rate
|
|
|
22.0
|
%
|
|
|
21.4
|
%
|
|
|
|
|
|
|
0.6
|
%
|
Cost of
sales increased $4,144,774 to $51,019,594 or 8.8% for fiscal year 2008, as
compared to $46,874,820 for fiscal year 2007 primarily due to increased
sales. Cost of goods sold includes the following: the cost
of inventory sold during the period, net of related vendor rebates, allowances
and purchase discounts, costs incurred to return merchandise to vendors,
inventory shrinkage costs, and inbound freight charges.
Gross profit
margins
. Pharmacy gross profit margins slightly increased to
22.0% for fiscal year 2008 as compared to 21.4% for fiscal year 2007 primarily
due to increased purchase volume discounts as well as increased dispensing of
generic medications which carry higher gross profit margins. Each
helped to offset lower insurance reimbursements. Dispensing fee
revenue is excluded from the calculation as there is no correlating inventory
cost associated with the services provided.
Selling, general, and administrative
expenses
. The following table sets forth for the periods
indicated SG&A from continuing operations and changes between the specified
periods expressed as a percentage increase or decrease:
|
|
Year ended June 30
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
%
|
|
|
|
(restated)
|
|
|
|
|
|
|
|
|
|
|
SG&A
expenses
|
|
$
|
16,775,376
|
|
|
$
|
14,030,223
|
|
|
$
|
2,745,153
|
|
|
|
19.6
|
%
|
SG&A
increased $2,745,155 to $16,775,378 or 19.6% for fiscal year 2008, as compared
to $114,030,223 for fiscal year 2007. The increase was primarily due
to increases in payroll costs of approximately $2,200,000, rent expense and
administrative expenses. Increased labor costs consisted of the
following: $1,000,000 of the increase occurred at stores open more
than one year and is predominately the result of market pressures on salary and
benefit packages for pharmacists. The balance of the increase in
payroll is attributable to the pharmacy acquired in July 2007, as well as the
four pharmacies opened between February 2007 and February 2008. The
additional pharmacies also added approximately $300,000 in additional
overhead.
Other income (expense),
net.
The following table sets forth for the periods indicated
the breakdown of other income (expense):
|
|
Year ended June 30
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
2008
|
|
|
2007
|
|
|
$
|
|
|
%
|
|
Interest
expense
|
|
$
|
(98,188
|
)
|
|
$
|
(25,769
|
)
|
|
$
|
(72,419
|
)
|
|
|
281.0
|
%
|
Interest
income
|
|
|
11,631
|
|
|
|
14,077
|
|
|
|
(2,446
|
)
|
|
|
(17.4
|
)%
|
Other
income
|
|
|
25,977
|
|
|
|
16,040
|
|
|
|
9,937
|
|
|
|
62.0
|
%
|
Total
other income (expense), net
|
|
$
|
(60,580
|
)
|
|
$
|
4,348
|
|
|
$
|
(64,928
|
)
|
|
|
(1493.3
|
)%
|
Total
other income (expense), net, increased $72,419 primarily due to the interest
expense on the related party notes issued in connection with purchase of the
remaining 20% of DAW.
Income taxes
. We
determined that in fiscal year 2009, we would be able to utilize a portion of
the tax benefits from intangible assets previously written-off for book purposes
and we most likely would not be able to utilize the benefit from the increase in
the Florida net operating loss. The net tax effect of these changes
is a decrease of $19,000 in the valuation allowance for fiscal year
2008.
Discontinued
operations.
In December 2008, we sold the
inventory and prescription lists of Topsfield to CVS. In conjunction
with this sale, we also entered into a non-compete agreement with CVS, whereby
we agreed not to compete for three years within a 10-mile radius of the CVS
store located in Danvers, Massachusetts, excluding two currently operating Eaton
Apothecary pharmacies. A gain of $507,000 was recognized on the sale
of Topsfield.
In
September 2008, we sold certain assets and liabilities of ADCO and recognized a
loss on disposal of $193,260.
In June
2008, we sold ADCO South and recognized a loss on the sale of
$5,118.
In
December 2007, we reevaluated the outstanding liabilities related to our fire
and police segment (discontinued in 2004) and concluded there were no remaining
liabilities. The liabilities were reversed and a $298,628 gain has
been reflected in discontinued operations.
Deemed dividend on redemption of
preferred stock
. In February 2008, we redeemed the then
outstanding Series A and B Preferred Stock for $400,000. The excess
over the carrying value of $3 was recorded as a deemed dividend and increased
the net loss applicable to common shareholders. For fiscal year
2008, this resulted in $399,997 being subtracted from net
earnings. FASB Emerging Issue Task Force Topic D-42,
The Effect on the Calculation of
Earnings Per Share for the Redemption or Induced Conversion of Preferred
Stock
, provides among other things, that any excess of (1) the fair
value of the consideration transferred to the holders of preferred stock
redeemed over (2) the carrying amount of preferred stock, should be
subtracted from net earnings to determine net income available to common
shareholders in the calculation of earnings per share.
Liquidity and Capital
Resources
As of
June 30, 2009, we had $62,752 of cash as compared to $140,688 at June 30, 2008,
as cash was used to fund current operations. Our primary source of
liquidity is cash provided by operations, and our principal uses of cash are
operating expenses, acquisitions, capital expenditures, and repayments of
debt.
Net cash used by operating activities
from continuing operations
. Net cash used by operating
activities from continuing operations was $549,931 for fiscal year 2009 and
consisted of our net loss of $256,076 adjusted for non-cash items of $600,053
(including depreciation of $539,398, and amortization, provision for losses in
accounts receivable, and stock-based compensation expenses of $136,575, offset
by a decrease deferred income taxes of $76,500) and net cash used from changes
in working capital of $893,908. The net cash used from changes in
working capital, net of effects of acquisitions and disposals, was principally
the result of an increase in inventories, accounts receivable, and prepaid
expenses and other current assets partially offset by an increase in accounts
payable. The increase in inventories was primarily the
result of new pharmacy locations and the increase in accounts receivable and
accounts payable was due to the increase in sales.
Net cash used in investing activities
from continuing operations.
Net cash used in investing
activities from continuing operations was $592,767 for fiscal year 2009 and
consisted of the purchase of equipment primarily due to the new pharmacy
locations, the purchase of three new delivery trucks to meet the requirements of
an increased delivery radius necessitated by one of our assisted living facility
contracts, and the upgrade of some of our existing information technology
equipment.
Net cash used in financing activities
from continuing operations.
Net cash used in financing
activities from continuing operations was $98,691 for fiscal year 2009 and
consisted of long-term debt repayments of $263,959 and principal payments on the
capital lease obligation of $15,024 partially offset by the proceeds from the
capital lease equipment financing of $180,292.
We
recognized a net operating loss of $282,142 for fiscal year
2009. Although it is our intention is to generate an operating profit
in the future, there can be no assurance that we will not generate a net
operating loss. We believe the cash provided from operations,
including favorable payment terms with our largest vendor and timely cash
receipts due from accounts receivable from third party payers, along with the
remaining proceeds from the sale of the ADCO building, will be adequate to fund
our operations for at least the next 12 months.
Contractual
Obligations
Asset security
interest
. DAW has an agreement with its major supplier to
purchase pharmaceuticals. This agreement terminates January 31,
2012. Payment for merchandise delivered is secured by a first primary
interest in all assets of DAW.
Line of
Credit.
ADCO had a $300,000 line of credit (the “line”), which
was collateralized by the building and land owned by ADCO and guaranteed by
us. The interest rate for the line was 2% above the Wall Street
Journal Prime rate; and repayment of the line was in monthly payments of
interest only, with the principal being due at maturity, unless
renewed. The line was scheduled to expire on October 31,
2009. As of June 30, 2009, we had $300,000 of outstanding borrowings
on the line. The building that was used as collateral for the line of
credit was sold on September 21, 2009. A portion of the proceeds were
used to pay off the line, and it was terminated effective September 21,
2009.
Our
principal contractual obligations consist of operating leases, capital leases,
and long-term debt and are as follows at June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
years
|
|
|
|
|
|
|
Less
than
|
|
|
1
to 3
|
|
|
3
to 5
|
|
|
and
|
|
|
|
Total
|
|
|
one year
|
|
|
years
|
|
|
years
|
|
|
beyond
|
|
Operating
leases
|
|
$
|
5,763,352
|
|
|
$
|
1,779,462
|
|
|
$
|
2,645,476
|
|
|
$
|
768,564
|
|
|
$
|
569,850
|
|
Capital
leases
|
|
|
196,350
|
|
|
|
42,840
|
|
|
|
85,680
|
|
|
|
67,830
|
|
|
|
-
|
|
Long-term
debt
|
|
|
2,050,015
|
|
|
|
143,222
|
|
|
|
1,786,416
|
|
|
|
120,377
|
|
|
|
-
|
|
Total
contractual obligations
|
|
$
|
8,009,717
|
|
|
$
|
1,965,524
|
|
|
$
|
4,517,572
|
|
|
$
|
956,771
|
|
|
$
|
569,850
|
|
The
commitments under our operating leases consist of building and equipment
rents.
Purchase of minority interest in
DAW
. On February 4, 2008, in consideration for the
Acquisition, we paid and issued to the Minority Shareholders the following: (i)
a payment of $1,750,000 (which was funded by a promissory note in connection
with a certain loan from DAW (the “DAW Note”); (ii) 2,000 shares of Series 2
Stock, a newly-created series of convertible Class B Stock, which shares are
initially convertible into 218,000 shares of our common stock, based upon an
initial conversion price of $1.84 (which is subject to adjustment), and which
have 2,000 votes per share of Series 2 Stock (for an aggregate of 4,000,000
votes); (iii) the $350,000 promissory note (the “Purchase Note”); and (iv) the
$1,500,000 of convertible notes (the “Convertible Notes”), which are convertible
into an aggregate of approximately 815,217 shares of common stock, based upon an
initial conversion price of $1.84. We also incurred $458,516 of
transaction costs related to this acquisition.
On
February 4, 2008, we also purchased from Mr. Nyer 2,000 shares of our Class A
Stock and 1,000 shares of Class B Stock held by Mr. Nyer (the “Samuel Nyer
Purchase”), which represented all of the issued and outstanding shares of such
preferred stock, in exchange for a $400,000 promissory note (the “Nyer
Promissory Note”). In accordance with the terms of the Amended
Agreement, we cancelled the Class A Stock and the Class B Stock.
As a
result of the Acquisition, the issuance of the Series 2 Stock to the Minority
Shareholders, the Samuel Nyer Purchase (and subsequent cancellation of the Class
A Stock and the Class B Stock), and the appointment of certain Minority
Shareholders to fill director and officer vacancies, there has been a change of
our control with the Minority Shareholders owning approximately 58% of the
voting power of our outstanding common stock and certain Minority Shareholders
holding office as director and/or executive officer of us.
Terms of notes issued in connection
with purchase of minority interest in DAW.
The $350,000 Purchase Note
bears interest at the rate of 7% per annum and has a five-year
term. We will make 60 monthly payments of principal of $5,833.33 plus
interest under the Purchase Note. The Purchase Note was assigned to
Nyle on February 4, 2008, by the Minority Shareholders as consideration for
their purchase of our common stock that was owned by Nyle.
The
$1,500,000 Convertible Notes bear interest at the rate of 8% per annum and
mature on February 4, 2011. Interest on the Convertible Notes is paid
in arrears on the 15
th
day of
each month and on maturity, commencing on March 15, 2008. The
principal amount, with any interest owed and not yet paid, is due at
maturity.
Prior to
February 4, 2009, interest on the Convertible Notes may only be paid in
cash. After February 4, 2009, the holders of the Convertible Notes
have the option of having interest paid in cash or in shares of common stock
(based on the conversion rate then in effect, which is initially $1.84, but
subject to adjustment). If any amount of principal or other amounts
due under the Convertible Notes, other than interest, is not paid when due, we
will pay a late charge equal to 15% per annum on such amount from the date such
amount was due until it is paid in full.
On and
after February 4, 2009, the holders of the Convertible Notes may elect to
convert any portion of the outstanding and unpaid interest and principal of the
Convertible Notes into shares of common stock at a conversion price of $1.84 (as
appropriately adjusted for any stock split, stock dividend, stock combination,
spin-off, split-up, reclassification, recapitalization, combination of shares or
other similar transaction that proportionately decreases or increases the common
stock outstanding).
Subject
to exceptions, the conversion price of the Convertible Notes will also be
adjusted in the event that (i) we sell shares of common stock or a security
convertible or exchange into or exercisable for shares of common stock at a
price per share less than the conversion price then in effect, or (ii) there is
a stock split, stock dividend, reverse stock split or other subdivision of the
common stock.
After
February 4, 2009, we, at our option, may redeem a portion or the entire
outstanding principal of the Convertible Notes. Upon our notice to
redeem, the holders of the Convertible Notes may elect to convert their notes
prior to their receipt of the redemption payment from us. The
redemption price is 100% of the face amount of the Convertible Notes being
redeemed plus accrued and unpaid interest. The former minority
shareholders have indicated that they do not intend to redeem the Convertible
Notes until after July 1, 2010.
The DAW
Note bears interest at the applicable federal rate in effect on February 4,
2008, and we must repay it on or before February 4, 2013. In order to
have the funds available to finance the loan by DAW to us, DAW and its major
supplier agreed to amend the supplier’s payment terms by extending the time
period for which DAW has to pay the supplier’s invoices, which, as a result,
increased DAW’s available cash. The increased available cash
was used for the loan by DAW to us.
The
$400,000 Nyer Promissory Note bears interest at the rate of 7% per annum, has a
five-year term with 60 monthly payments of principal of $6,666.67 plus
interest.
Series 2 Class B Preferred
Stock.
At any time, the holders of the Series 2 Stock may
convert their shares into common stock upon our (i) consolidation with or merger
into any other person, or (ii) transfer of all or substantially all of its
properties or assets to any other person under any plan or arrangement
contemplating our dissolution. The holders of at least a majority of
the Series 2 Stock then outstanding may waive any of the conditions to mandatory
conversion and may convert their shares of Series 2 Stock at any time after
February 4, 2011.
On
February 4, 2011, or such later date as the following conditions are met in
their entirety, all of the shares of Series 2 Stock will be converted into
common stock: (i) no event of default has occurred and is continuing
beyond any applicable cure periods under the promissory notes issued by us to
any of the Minority Shareholders pursuant to the Amended Agreement and (ii) the
resale of common stock issuable upon conversion of the Series 2 Stock is covered
by an effective registration statement.
If we
issue or sell any shares of common stock by means of options, convertible
securities, or otherwise for a price per share (the “New Issuance Price”) less
than the Conversion Price then in effect, then immediately after such dilutive
issuance, the Conversion Price then in effect will be reduced to the New
Issuance Price. The adjustment to the Conversion Price made in regard
to an option or convertible security will be made at the time such option or
convertible security is issued (and not when such option or convertible security
is exercised or converted).
Critical Accounting
Policies
Our
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with generally accepted accounting principles in the United States
(“GAAP”). The preparation of these financial statements requires us
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues, and expenses and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates,
including those related to revenue recognition, inventory shrinkage, impairment,
and income taxes. We base our estimates on historical experience,
current and anticipated business conditions, the condition of the financial
markets, and various other assumptions that are believed to be reasonable under
existing conditions. Actual results may differ from these
estimates.
We
believe that the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements:
Revenue
recognition.
For all pharmacy sales other than third party
pharmacy sales and those described below, we recognize revenue from the sale of
merchandise at the time of the sale. For third party pharmacy sales,
revenue is recognized at the time the prescription is dispensed. We
record third party revenues and related receivables net of provisions for
contractual and other adjustments.
We also
recognize revenues from transactions wherein the pharmacy dispenses
pharmaceuticals from its inventory provided to non-profit organizations through
certain governmental programs treating needy patients. We receive a
dispensing fee, a percentage of the cost of the medication, and the replacement
of the pharmaceutical. Replacement of the pharmaceuticals does not
result in revenue. The dispensing fee and the percentage of the
prescription cost are recorded as revenue. We recognize dispensing
fee revenue when we dispense prescriptions for non-profit agencies on a per
prescription basis and receive a dispensing fee for each prescription
dispensed. In one contract, we also receive a stipulated monthly
amount per patient.
Our
estimate of uncollectible amounts is based on our historical collection
experience and current economic and credit conditions.
Inventories.
Included
in our valuation of inventory are estimates of the losses related to shrinkage,
which occurs during periods between physical inventory counts. When
estimating these losses, we considered historical loss results at specific
locations as well as overall loss trends. Should actual shrink losses
differ from the estimates upon which our reserves were based, our operating
results will be impacted.
Impairment
. We
evaluate long-lived assets, excluding goodwill, for impairment when events or
changes in circumstances indicate that the assets may not be
recoverable. The impairment is measured by estimating the expected
future cash flow expected to be generated by the assets and comparing this
amount to the carrying value.
Goodwill
impairment.
In connection with the provisions of FASB
Statement of Financial Accounting Standards (“SFAS”) No. 142,
Goodwill and Other Intangible
Assets
, we perform an annual impairment test of goodwill. Our
tests during the fourth quarter of fiscal years 2009 and 2008 resulted in no
impairment being identified. However, the process of evaluating
goodwill for impairment involves the determination of the fair value of our
companies. Inherent in such fair value determinations are certain
judgments and estimates, including the interpretation of economic indicators and
market valuations and assumptions about our strategic plans. To the
extent that our strategic plans change or that economic and market conditions
worsen, it is possible that our conclusion regarding goodwill impairment could
change and result in a material effect on our financial position or results of
operations.
On June
30, 2009, the carrying value of the Company’s net assets was $8,789,702; and the
market capitalization of the Company’s outstanding shares, assuming conversion
of outstanding preferred shares, was $3,231,073. The Company
calculated the estimated fair value of the Company as of June 30, 2009, as that
amount that would be received to sell the Company as a whole on that
date. It arrived at the estimated fair value by using the December
2008 selling price of the Company’s Topsfield store and other comparable
data. The Company has concluded that the Company’s fair value exceeds
its carrying value as of June 30, 2009, and that goodwill is not
impaired.
The
Company has concluded that the market value of the Company’s common stock as of
June 30, 2009, is not an indication of the Company’s market value due to the
fact that it is very thinly traded and that the implied fair value test is a
more accurate indication of whether or not there has been an impairment of
goodwill. Inherent in such fair value determinations are certain
judgment and estimates, including the interpretation of economic indicators and
market valuations and assumptions about the Company’s strategic
plans. To the extent that its strategic plans change or that economic
and market conditions worsen, it is possible that its conclusion regarding
goodwill impairment could change and result in a material effect on financial
position and results of operations of the Company.
Income taxes.
We
have significant deferred tax assets. We regularly review deferred
tax assets for recoverability considering our historical profitability,
projected taxable income, the expected timing of the reversals of existing
temporary differences, and tax planning strategies. We will establish
a valuation allowance against deferred tax assets when we determine that it is
more likely than not that some portion of our deferred tax assets will not be
realized. Changes in valuation allowances from period to period are
included in the tax provision in the period of change. Significant
judgment is required in making these assessments.
Recent Accounting
Pronouncements
In
June 2009, the FASB issued SFAS No. 168,
The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles
)
,
which establishes the
FASB Accounting Standards Codification as the single source of authoritative
GAAP. The Codification will supersede all existing non-SEC accounting
and reporting standards. As a result, upon adoption, all references to
accounting literature in our SEC filings will conform to the appropriate
reference within the Codification. This statement is effective for
financial statements issued for interim and annual periods ending after
September 15, 2009. We do not expect the adoption of this standard to
have an impact on our financial position or results of operations.
In April
2009, the FASB issued Staff Position No. FAS 107-1 and APB 28-1,
Interim Disclosures About Fair Value
of Financial Instruments,
(“FSP 107-1 and APB 28-1”), which amends FASB
SFAS No.107,
Disclosures about
Fair Value of Financial Instruments
, to require disclosures about fair
value of financial instruments for interim reporting periods of publicly traded
companies as well as in annual financial statements. This FSP also
amends APB Opinion No. 28,
Interim Financial Reporting
,
to require these disclosures in summarized financial information for interim
reporting periods. This FSP was effective for interim and annual periods ending
after June 15, 2009. The adoption of FSP FAS 107-1 and APB 28-1 did
not have a material impact on our consolidated financial
statements.
In June
2008, the FASB ratified Emerging Issues Task Force (“EITF”) Issue No. 07-5
(“EITF 07-5”),
Determining
Whether an Instrument (or an Embedded Feature) Is Indexed to an Entity's Own
Stock
. EITF 07-5 provides that an entity should use a two-step
approach to evaluate whether an equity-linked financial instrument (or embedded
feature) is indexed to its own stock, including evaluating the instrument's
contingent exercise and settlement provisions. EITF 07-5 is
effective for fiscal years beginning after December 15, 2008. The
consensus must be applied to outstanding instruments as of the beginning of the
fiscal year in which the consensus is adopted and should be treated as a
cumulative-effect adjustment to the opening balance of retained
earnings. Early adoption is not permitted. We are in the
process of evaluating the impacts, if any, of adopting this EITF.
In
April 2008, the FASB issued FSP FAS 142-3,
Determination of the Useful Life of
Intangible Assets
. FSP FAS 142-3 amends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS
No. 142,
Goodwill and
Other Intangible Assets
. The intent of this FSP is to improve
the consistency between the useful life of a recognized intangible asset under
SFAS 142 and the period of expected cash flows used to measure the fair value of
the asset under FSAS No. 141 (revised 2007),
Business Combinations
, and
other GAAP. This statement is effective for fiscal years beginning on
or after December 15, 2008, and interim periods within those
years. Early application is not permitted. We do not
expect the adoption of this standard to have an impact on our financial
position or results of operations.
In April
2008, the FASB issued FSP Accounting Principles Board 14-1 (“FSP APB 14-1”),
Accounting for Convertible
Debt Instruments That May be Settled in Cash upon Conversion (Including Partial
Settlement)
. FSP APB 14-1 requires the issuer of certain
convertible debt instruments that may be settled in cash (or other assets) on
conversion to separately account for the liability (debt) and equity (conversion
option) components of the instrument in a manner that reflects the issuer’s
nonconvertible debt borrowing rate. FSP APB 14-1 is effective for
fiscal years beginning after December 15, 2008, and on a retroactive
basis. We are evaluating the potential impact, if any, of the
adoption of FSP APB 14-1 on our consolidated results of operations and financial
condition.
In March
2008, the FASB issued SFAS No. 161,
Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB statement
No.
133 (SFAS No.
161).
SFAS
No. 161 requires enhanced disclosures regarding an entity’s derivative
instruments and related hedging activities. These enhanced disclosures
include information regarding how and why an entity uses derivative instruments;
how derivative instruments and related hedge items are accounted for under SFAS
No. 133,
Accounting for
Derivative Instruments and Hedging Activities,
and its related
interpretations; and how derivative instruments and related hedge items affect
an entity’s financial position, financial performance, and cash flows.
SFAS No. 161 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008. The
adoption of SFAS No. 161 will not have a material impact on our
consolidated results of operations and financial condition.
In
December 2007, the FASB issued SFAS No. 141(R),
Business Combinations
, which
replaces SFAS No. 141,
Business
Combinations
. The statement retains the purchase method of
accounting for acquisitions but requires a number of changes, including changes
in the way assets and liabilities are recognized in the purchase
accounting. It also changes the recognition of assets acquired and
liabilities assumed arising from contingencies, requires the capitalization of
in-process research and development at fair value, and requires the expensing of
acquisition-related costs as incurred. SFAS No. 141(R) is effective for the
Company beginning July 1, 2009, and will apply prospectively to business
combinations completed on or after that date. We do not expect the
adoption of this standard to have an impact on our financial position or results
of operations.
In February 2007,
the FASB issued SFAS No. 159,
The
Fair Value Option for Financial Assets and Financial Liabilities
. SFAS 159
provides companies with an option to report selected financial assets and
liabilities at fair value. The standard’s objective is to reduce both
the complexity in accounting for financial
instruments and the volatility
in earnings caused by measuring related assets and liabilities
differently. SFAS 159 also establishes presentation and disclosure
requirements designed to facilitate comparisons between companies that choose
different measurement attributes for similar types of assets and
liabilities. We adopted SFAS 159 effective July 1, 2008, but have not
elected to measure any permissible items at fair value. As a result,
the adoption of this statement did not have a material impact on our
consolidated financial statements.
In
September 2006, the FASB issued SFAS No. 157,
Fair Value
Measurements.
This Statement defines fair value, establishes a
framework for measuring fair value in accordance with GAAP, and expands
disclosures about fair value measurements. The definition of fair value
retains the exchange price notion in earlier definitions of fair value.
This Statement clarifies that the exchange price is the price in an
orderly transaction between market participants to sell the asset or transfer
the liability in the market in which the reporting entity would transact for the
asset or liability, that is, the principal or most advantageous market for the
asset or liability. Emphasis is placed on fair value being a market-based
measurement, not an entity-specific measurement; and therefore, a fair value
measurement should be determined based on the assumptions that market
participants would use in pricing the asset or liability. As a basis for
considering these market participant assumptions, a fair value hierarchy has
been established to distinguish between (1) market participant assumptions
developed based on market data obtained from sources independent of the
reporting entity (observable inputs) and (2) the reporting entity’s own
assumptions about market participant assumptions developed based on the best
information available in the circumstances (unobservable inputs). In
February 2008, the FASB issued a Staff Position which delays the effective date
of SFAS No. 157 for non-financial assets and non-financial liabilities,
except for items that are recognized or disclosed at fair value in the financial
statements on a recurring basis, to fiscal years beginning after
November 15, 2008. We adopted this statement, except for items
covered by the Staff Position, as of July 1, 2008; and the adoption did not
have a material impact on our consolidated results of operations and financial
condition.
ITEM
7A. Quantitative and Qualitative Disclosures About Market
Risk
This Item
is not required to be completed by smaller reporting companies.
ITEM
8. Financial Statements and Supplementary Data
NYER
MEDICAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
Table of
Contents
Reports
of Independent Registered Public Accounting Firms
|
33
|
|
|
Consolidated
Financial Statements:
|
|
|
|
Consolidated
Balance Sheets as of June 30, 2009 and June 30, 2008
|
35
|
|
|
Consolidated
Statements of Operations for the years ended June 30, 2009 and
2008
|
36
|
|
|
Consolidated
Statements of Changes in Shareholders’ Equity for the years ended June 30,
2009 and 2008
|
37
|
|
|
Consolidated
Statements of Cash Flows for the years ended June 30, 2009 and
2008
|
38
|
|
|
Notes
to Consolidated Financial Statements
|
39
|
|
|
Schedule
II Valuation and Qualifying Accounts and Reserves
|
79
|
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors
Nyer
Medical Group, Inc.
We have
audited the accompanying consolidated balance sheet of Nyer Medical Group, Inc.
and subsidiaries as of June 30, 2009, and the related consolidated statements of
operations, shareholders' equity, and cash flow for the year then
ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Nyer Medical Group, Inc. and
subsidiaries as of June 30, 2009, and the results of their operations and their
cash flows for the year then ended in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the related
financial statement schedule listed under Item 15(a)(2) for the year ended June
30, 2009, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Wolf
& Company, P.C.
Boston,
Massachusetts
September
28, 2009
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors
Nyer
Medical Group, Inc.
We have
audited the accompanying consolidated balance sheet of Nyer Medical Group, Inc.
and subsidiaries (the “Company”) as of June 30, 2008 and the related
consolidated statements of operations, changes in shareholders’ equity and cash
flows for the year ended June 30, 2008. These consolidated financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audit provide a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company, as of June 30,
2008 and the results of its operations and its cash flows for the year ended
June 30, 2008, in conformity with accounting principles generally accepted in
the United States.
As
discussed in Note 3 to the consolidated financial statements, the consolidated
balance sheet as of June 30, 2008 and the related consolidated statement of
operations, changes in shareholder’s equity and cash flows have been restated to
correct a misstatement.
Our audit
referred to above includes the audit of the financial statement schedule listed
under Item 15(a) (2) of the Form 10-K report of Nyer Medical Group, Inc. for the
year ended June 30, 2008. In our opinion, the financial
statement schedule presents fairly, in all material respects, in relation to the
financial statements taken as a whole, the information required to be stated
therein.
/s/
Sweeney, Matz & Co.
Pompano
Beach, Florida
September
16, 2008, except for Note 3 which is dated September 25, 2009
PART
I—Financial Information
Item
1. Financial Statements
NYER
MEDICAL GROUP, INC.
Consolidated
Balance Sheets
|
|
June
30
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(restated)
|
|
Assets
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
|
|
$
|
62,752
|
|
|
$
|
140,688
|
|
Accounts
receivable, net of allowance for doubtful accounts of $18,200 at June 30,
2009, and $24,552 at June 30, 2008
|
|
|
5,348,256
|
|
|
|
4,445,265
|
|
Inventories,
net
|
|
|
6,966,107
|
|
|
|
6,976,703
|
|
Prepaid
expenses and other current assets
|
|
|
979,226
|
|
|
|
664,849
|
|
Current
portion of deferred tax assets
|
|
|
361,300
|
|
|
|
194,000
|
|
Assets
to be disposed of from discontinued operations
|
|
|
219,476
|
|
|
|
1,428,027
|
|
Total
current assets
|
|
|
13,937,117
|
|
|
|
13,849,532
|
|
Property
and equipment, net
|
|
|
1,393,844
|
|
|
|
1,341,055
|
|
Goodwill
|
|
|
2,593,616
|
|
|
|
2,611,616
|
|
Other
intangible assets, net
|
|
|
625,959
|
|
|
|
725,118
|
|
Long-term
portion of deferred tax assets
|
|
|
353,200
|
|
|
|
444,000
|
|
Other
assets
|
|
|
36,067
|
|
|
|
36,068
|
|
Total
assets
|
|
$
|
18,939,803
|
|
|
$
|
19,007,389
|
|
Liabilities
and shareholders' equity
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt and lease financing obligations
|
|
$
|
106,058
|
|
|
$
|
183,958
|
|
Current
portion of long-term debt due related parties
|
|
|
80,004
|
|
|
|
80,004
|
|
Accounts
payable
|
|
|
6,495,687
|
|
|
|
5,726,821
|
|
Accrued
expenses and other current liabilities
|
|
|
1,128,376
|
|
|
|
1,215,433
|
|
Liabilities
to be disposed of from discontinued operations
|
|
|
310,771
|
|
|
|
922,051
|
|
Total
current liabilities
|
|
|
8,120,896
|
|
|
|
8,128,267
|
|
Long-term
debt and lease financing obligations, net of current
portion
|
|
|
315,876
|
|
|
|
256,667
|
|
Long-term
debt, net of current portion, due related parties
|
|
|
1,713,329
|
|
|
|
1,793,329
|
|
Total
liabilities
|
|
|
10,150,101
|
|
|
|
10,178,263
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, Class A, $0.001 par value, 5,000 shares; none
outstanding
|
|
|
-
|
|
|
|
-
|
|
Preferred
stock, Class B, $0.001 par value, 2,500,000 shares
authorized;
|
|
|
|
|
|
|
|
|
2,500
shares designated Series 1 Class B; none outstanding
|
|
|
-
|
|
|
|
-
|
|
2,000
shares designated convertible Series 2 Class B; 2,000 shares issued and
outstanding at June 30, 2009 and 2008
|
|
|
400,000
|
|
|
|
400,000
|
|
Common
stock, $0.0001 par value, 25,000,000 shares authorized; 3,978,199 shares
issued and outstanding at June 30, 2009 and 2008
|
|
|
398
|
|
|
|
398
|
|
Additional
paid-in capital
|
|
|
17,824,763
|
|
|
|
17,770,328
|
|
Accumulated
deficit
|
|
|
(9,435,459
|
)
|
|
|
(9,341,600
|
)
|
Total
shareholders' equity
|
|
|
8,789,702
|
|
|
|
8,829,126
|
|
Total
liabilities and shareholders' equity
|
|
$
|
18,939,803
|
|
|
$
|
19,007,389
|
|
See
accompanying notes to consolidated financial statements.
NYER
MEDICAL GROUP, INC.
Consolidated
Statements of Operations
|
|
Year
ended June 30
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(restated)
|
|
Net
revenues:
|
|
|
|
|
|
|
Sales
|
|
$
|
68,907,483
|
|
|
$
|
65,394,219
|
|
Dispensing
fees
|
|
|
5,815,361
|
|
|
|
3,200,795
|
|
Total
net revenues
|
|
|
74,722,844
|
|
|
|
68,595,014
|
|
Cost
and expenses:
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
54,560,932
|
|
|
|
51,019,594
|
|
Selling,
general, and administrative expenses
|
|
|
19,815,584
|
|
|
|
16,775,376
|
|
Depreciation
and amortization
|
|
|
628,470
|
|
|
|
545,378
|
|
Total
costs and expenses
|
|
|
75,004,986
|
|
|
|
68,340,348
|
|
(Loss)
income from operations
|
|
|
(282,142
|
)
|
|
|
254,666
|
|
Other
income (expense), net:
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(185,247
|
)
|
|
|
(98,188
|
)
|
Interest
income
|
|
|
11,104
|
|
|
|
11,631
|
|
Other
income
|
|
|
18,112
|
|
|
|
25,977
|
|
Total
other income (expense), net
|
|
|
(156,031
|
)
|
|
|
(60,580
|
)
|
(Loss)
income from continuing operations before provision for income taxes and
minority interest
|
|
|
(438,173
|
)
|
|
|
194,086
|
|
(Benefit)
provision for income taxes
|
|
|
(182,097
|
)
|
|
|
12,132
|
|
Minority
interest expense, net of income taxes
|
|
|
-
|
|
|
|
(37,039
|
)
|
(Loss)
income from continuing operations
|
|
|
(256,076
|
)
|
|
|
144,915
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
Gain
(loss) from discontinued operations, net of ($2,394) and
$93,407, income tax (benefit), for 2009 and 2008,
respectively
|
|
|
(9,347
|
)
|
|
|
149,458
|
|
Gain
(loss) on disposal, net of $142,176 and ($1,270) income taxes (benefit)
for 2009 and 2008, respectively
|
|
|
171,564
|
|
|
|
(3,848
|
)
|
Net
gain from discontinued operations
|
|
|
162,217
|
|
|
|
145,610
|
|
Net
(loss) income
|
|
|
(93,859
|
)
|
|
|
290,525
|
|
Deemed
dividend on redemption of preferred stock
|
|
|
-
|
|
|
|
(399,997
|
)
|
Net
loss attributable to common shareholders
|
|
$
|
(93,859
|
)
|
|
$
|
(109,472
|
)
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share:
|
|
|
|
|
|
|
|
|
Loss
per share, continuing operations, net of deemed dividend on redemption of
preferred stock
|
|
$
|
(0.06
|
)
|
|
$
|
(0.06
|
)
|
Earnings
per share, discontinued operations
|
|
|
0.04
|
|
|
|
0.03
|
|
Loss
per share attributable to common shareholders
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
Shares
used in computing loss per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,978,199
|
|
|
|
3,978,199
|
|
Diluted
|
|
|
3,978,199
|
|
|
|
3,978,199
|
|
See
accompanying notes to consolidated financial statements.
NYER
MEDICAL GROUP, INC.
Consolidated
Statements of Changes in Shareholders' Equity
|
|
Class
A
|
|
|
Series
1, Class B
|
|
|
Series
2, Class B
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
|
Preferred
Stock
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Shareholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2007
|
|
|
2,000
|
|
|
$
|
2
|
|
|
|
1,000
|
|
|
$
|
1
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
3,978,199
|
|
|
$
|
398
|
|
|
$
|
18,096,037
|
|
|
$
|
(9,632,125
|
)
|
|
$
|
8,464,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
74,288
|
|
|
|
-
|
|
|
|
74,288
|
|
Redemption
of preferred stock and deemed dividend
|
|
|
(2,000
|
)
|
|
|
(2
|
)
|
|
|
(1,000
|
)
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(399,997
|
)
|
|
|
-
|
|
|
|
(400,000
|
)
|
Issurance
of Series 2, Class B, preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,000
|
|
|
|
400,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
400,000
|
|
Net
income, restated
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
290,525
|
|
|
|
290,525
|
|
Balance
at June 30, 2008, restated
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,000
|
|
|
|
400,000
|
|
|
|
3,978,199
|
|
|
|
398
|
|
|
|
17,770,328
|
|
|
|
(9,341,600
|
)
|
|
|
8,829,126
|
|
Stock-based
compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
54,435
|
|
|
|
-
|
|
|
|
54,435
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(93,859
|
)
|
|
|
(93,859
|
)
|
Balance
at June 30, 2009
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
2,000
|
|
|
$
|
400,000
|
|
|
|
3,978,199
|
|
|
$
|
398
|
|
|
$
|
17,824,763
|
|
|
$
|
(9,435,459
|
)
|
|
$
|
8,789,702
|
|
See
accompanying notes to consolidated financial statements.
NYER
MEDICAL GROUP, INC. AND SUBSIDIARIES
Consolidated
Statements of Cash Flows
|
|
Year
ended June 30
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(restated)
|
|
Operating
activities:
|
|
|
|
|
|
|
Net
(loss) income
|
|
$
|
(93,859
|
)
|
|
$
|
290,525
|
|
Gain
from discontinued operations
|
|
|
(162,217
|
)
|
|
|
(145,610
|
)
|
(Loss)
income from continuing operations
|
|
|
(256,076
|
)
|
|
|
144,915
|
|
Adjustments
to reconcile (loss) income from continuing operations to cash
(used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
539,978
|
|
|
|
420,888
|
|
Amortization
|
|
|
88,492
|
|
|
|
124,490
|
|
Recovery
of losses in accounts receivable
|
|
|
(6,352
|
)
|
|
|
-
|
|
Stock-based
compensation expense
|
|
|
54,435
|
|
|
|
74,288
|
|
Deferred
income taxes
|
|
|
(76,500
|
)
|
|
|
(182,000
|
)
|
Minority
interest
|
|
|
-
|
|
|
|
37,039
|
|
Changes
in operating assets and liabilities, net of effects of acqusitions and
disposals:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(896,639
|
)
|
|
|
(403,526
|
)
|
Inventories
|
|
|
(415,764
|
)
|
|
|
(813,154
|
)
|
Prepaid
expenses and other current assets
|
|
|
(314,376
|
)
|
|
|
283,947
|
|
Accounts
payable
|
|
|
768,866
|
|
|
|
2,380,755
|
|
Accrued
expenses and other current liabililties
|
|
|
(87,057
|
)
|
|
|
151,850
|
|
Cash
(used in) provided by operating activities, continuing
operations
|
|
|
(600,993
|
)
|
|
|
2,219,492
|
|
Cash
provided by operating activities, discontinued operations
|
|
|
281,155
|
|
|
|
92,826
|
|
Cash
(used in) provided by operating activities
|
|
|
(319,838
|
)
|
|
|
2,312,318
|
|
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
Acquisition
of 20% of subsidiary
|
|
|
-
|
|
|
|
(2,208,516
|
)
|
Acquisition
of pharmacy, net of cash
|
|
|
-
|
|
|
|
(552,115
|
)
|
Purchase
of property and equipment
|
|
|
(592,767
|
)
|
|
|
(488,230
|
)
|
Other
|
|
|
-
|
|
|
|
(6,101
|
)
|
Cash
used in investing activities, continuing operations
|
|
|
(592,767
|
)
|
|
|
(3,254,962
|
)
|
Cash
provided by (used in) investing activities, discontinued
operations
|
|
|
933,360
|
|
|
|
(596
|
)
|
Cash
provided by (used in) investing activities
|
|
|
340,593
|
|
|
|
(3,255,558
|
)
|
|
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
|
Proceeds
from capital lease financing
|
|
|
180,292
|
|
|
|
-
|
|
Principal
payments on capital lease obligations
|
|
|
(15,024
|
)
|
|
|
-
|
|
Payments
on long-term debt
|
|
|
(263,959
|
)
|
|
|
(226,749
|
)
|
Cash
used in financing activities, continuing operations
|
|
|
(98,691
|
)
|
|
|
(226,749
|
)
|
Cash
provided by financing activities, discontinued operations
|
|
|
-
|
|
|
|
175,000
|
|
Cash
used in financing activities
|
|
|
(98,691
|
)
|
|
|
(51,749
|
)
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash
|
|
|
(77,936
|
)
|
|
|
(994,989
|
)
|
Cash
at beginning of period
|
|
|
140,688
|
|
|
|
1,135,677
|
|
Cash
at end of period
|
|
$
|
62,752
|
|
|
$
|
140,688
|
|
See
accompanying notes to consolidated financial statements.
NYER
MEDICAL GROUP, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Restatement
The
consolidated financial statements of Nyer Medical Group, Inc., (the “Company” or
“Nyer”) as of and for the fiscal year ended June 30, 2008, and related financial
information have been restated to correct errors in the application of generally
accepted accounting principles (“GAAP”). The nature of the
corrections and the related effects on the Company's previously issued
consolidated financial statements are described in Note 3, Restatements of
Consolidated Financial Statements. Restated balances have been
identified with the notation “restated" where appropriate. Throughout
these notes, the term "as previously reported" will be used to refer to balances
from the 2008 consolidated financial statements as reported prior to restatement
for the correction of these errors.
The
Company is the parent company of DAW, Inc. (“DAW”), a wholly owned
subsidiary. DAW owns and operates a chain of retail pharmacies in the
suburban Boston, Massachusetts, area and also provides comprehensive pharmacy
management services to various not-for-profit
entities.
2.
|
Summary of significant
accounting policies
|
Principles
of consolidation
The consolidated financial statements
include the accounts of the Company and its majority owned and controlled
subsidiaries, DAW, ADCO (discontinued 2009), ADCO South (sold in 2008), and
Anton Investments and Conway Associates, Inc. (“fire and police segment”)
(discontinued in 2004). All intercompany accounts and transactions
have been eliminated in consolidation.
Use
of estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (“GAAP”) requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and to disclose contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
Inventories
Inventories
are stated at the lower of cost or fair value. The Company used the
last-in, first-out method (“LIFO”) of accounting for all of its
inventories.
Property,
plant and equipment
Property
and equipment are recorded at cost and depreciated over the estimated useful
live of the related assets using the straight-line method as
follows:
Asset Category
|
|
Useful life
|
Fixtures
and equipment
|
|
2
to 10 years
|
Transportation
equipment
|
|
3
to 5 years
|
Leasehold
improvements
|
|
the
shorter of its useful life or remaining non-cancelable lease
term
|
Capital
lease assets are recorded at the lesser of the present value of minimum lease
payments or fair value and amortized over the estimated useful life of the
related property.
Goodwill
and other intangible assets
Goodwill
represents the amount of consideration paid in connection with business
acquisitions in excess of the fair value of assets acquired and liabilities
assumed. In accordance with SFAS No. 142,
Goodwill and Other Intangible
Asset
s
, the
Company evaluates the balance of the carrying value of goodwill based on a
single reporting unit annually during the fourth quarter and more frequently if
certain indicators are present or changes in circumstances suggest that
impairment may exist.
The first
step of its goodwill impairment test, used to identify potential impairment,
compares the fair value of our reporting unit with its carrying amount,
including goodwill. If the fair value of its reporting unit exceeds
its carrying amount, the goodwill of the reporting unit is considered not
impaired, and the second step of the impairment test, used to measure the amount
of the impairment loss, is unnecessary. If the carrying amount of its
reporting unit exceeds its fair value, the second step of the goodwill
impairment test is performed to measure the amount of impairment loss, if
any.
The
second step of the goodwill impairment test, used to measure the amount of
impairment loss, compares the implied fair value of the reporting unit goodwill
as of the date of the impairment review with the carrying amount of that
goodwill. The implied fair value of goodwill is determined on the
same basis as the amount of goodwill recognized in connection with a business
combination. Specifically, the fair value of a reporting unit is
allocated to all of the assets and liabilities (including any unrecognized
intangible assets) as if the reporting unit had been acquired in a business
combination as of the date of the impairment review and as if the fair value of
the reporting unit was the price paid to acquire the reporting
unit. The excess of the fair value of a reporting unit over the
amounts assigned to its assets and liabilities is the implied fair value of
goodwill. If the carrying amount of the reporting unit goodwill
exceeds the implied fair value of that goodwill, an impairment loss is
recognized in an amount equal to that excess.
On June
30, 2009, the carrying value of the Company’s net assets was $8,789,702; and the
market capitalization of the Company’s outstanding shares, assuming conversion
of outstanding preferred shares, was $3,231,073. The Company
calculated the estimated fair value of the Company as of June 30, 2009, as that
amount that would be received to sell the Company as a whole on that
date. It arrived at the estimated fair value by using the December
2008 selling price of the Company’s Topsfield store and other comparable sales
data. The Company has concluded that the Company’s fair value exceeds
its carrying value as of June 30, 2009, and that goodwill is not
impaired.
The
Company has concluded that the market value of the Company’s common stock as of
June 30, 2009, is not an indication of the Company’s market value due to the
fact that it is very thinly traded and that the implied fair value test is a
more accurate indication of whether or not there has been an impairment of
goodwill. Inherent in such fair value determinations are certain
judgment and estimates, including the interpretation of economic indicators and
market valuations and assumptions about the Company’s strategic
plans. To the extent that its strategic plans change or that economic
and market conditions worsen, it is possible that its conclusion regarding
goodwill impairment could change and result in a material effect on financial
position and results of operations of the Company. The Company has
determined that no goodwill impairment charges were required for the years ended
June 30, 2009, and June 30, 2008.
Other
Intangible Assets
Other
intangible assets consist primarily of prescription lists acquired in connection
with business acquisitions and are amortized on a straight-line basis over their
estimated useful lives, ranging from 4 to 15 years.
Impairment
of long-lived assets
Long-lived
assets held and used are reviewed for impairment when events or circumstances
indicate the carrying amount may not be recoverable. If the sum of
the expected undiscounted cash flows is less than the carrying value of the
related assets or group of assets, a loss is recognized for the difference
between the fair value and the carrying value of the related asset or group of
assets. No impairments were recognized in fiscal years 2009 and
2008.
Fair
value of financial instruments
The
carrying values of accounts receivable, accounts payables, and debt approximate
their fair values. The carrying values and estimated fair values for
long-term debt, based upon comparison to market rates of similar financial
instruments, were approximately the same.
Revenue
recognition
For all
pharmacy sales other than third-party pharmacy sales and those described below,
the Company recognizes revenue from the sale of merchandise at the time of the
sale. For third party pharmacy sales, revenue is recognized at the
time the prescription is dispensed. The Company records third party
revenues and related receivables net of provisions for contractual and other
adjustments.
The
Company also recognizes sales from transactions wherein the pharmacy dispenses
pharmaceuticals from the inventory provided to non-profit organizations through
certain governmental programs that treat needy patients. The Company
receives a dispensing fee, a percentage of the costs of the medication, and the
replacement of the pharmaceuticals. The replacement of the
pharmaceuticals does not result in revenue. The dispensing fee and
the percentage of the prescription cost are recorded as sales. The
Company recognizes dispensing fee revenue when it dispenses prescriptions for
non-profit agencies on a per prescription basis and receives a dispensing fee
for each prescription dispensed. In one contract, the Company also
receives a stipulated monthly amount per patient, which is recorded monthly when
earned.
The
Company’s estimates of uncollectible accounts receivable are based on its
historical collection experience and current economic and credit
conditions.
Cost
of goods sold
Cost of
goods sold includes the following: The cost of inventory sold during
the period net of related vendor rebates, allowances and purchase discounts,
costs incurred to return merchandise to vendors, inventory shrinkage costs, and
inbound freight charges.
Vendor
Rebates and Allowances
Rebates
and allowances received from vendors relate to either purchasing and
merchandising or promoting a product and are recorded as a reduction of cost of
goods sold as the product is sold. Purchasing and merchandising
rebates and allowances include vendor programs such as purchase discounts,
volume purchase allowances, and price reduction allowances.
Delivery
costs
The cost
of delivery to customers by the Company is classified as selling, general, and
administrative expenses. The cost of delivery expense was $1,114,688
and $982,800 for fiscal year 2009 and 2008, respectively.
Advertising
Advertising
costs are expensed as incurred. Advertising expenses, net of
reimbursements, were $155,525 and $548,851 for fiscal year 2009 and 2008,
respectively.
New
store openings
Costs
incurred prior to opening of a new location and costs associated with remodeling
a location are charged against earnings as incurred as general and
administrative expenses.
Income
taxes
The
Company accounts for income taxes using the asset and liability
method. Under this method, deferred tax assets and liabilities are
recognized based upon the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured pursuant to tax laws using rates expected to apply
to taxable income in the years that those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rate is recognized in income in the period that
includes the rate change enactment date. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts more
likely than not to be realized.
The
Company adopted the provisions of Financial Accounting Standards Board (“FASB”)
Interpretation No. 48 (“FIN No. 48”),
Accounting for Uncertainty in Income
Taxes—an Interpretation of FASB Statement No. 109
,
effective July 1,
2007. FIN No. 48 provides guidance regarding the recognition,
measurement, presentation, and disclosure in the financial statements of tax
positions taken or expected to be taken on a tax return. FIN 48 also
provides guidance related to the recognition, de-recognition, or change in
measurement of a tax position as a result of new tax positions, changes in
management’s judgment about the level of uncertainty of existing tax positions,
expiration of open income tax returns due to the statutes of limitation, status
of examinations, and litigation and legislative activity. The initial adoption
of FIN 48 had no impact on the Company’s financial statements; and the Company
has no material uncertain tax positions as of June 30, 2009. Future
interest and penalties related to unrecognized tax benefits, if any, will be
reported as income tax expense in the Company’s consolidated statements of
operations.
Earnings
(loss) per share
The
calculation of basic earnings (loss) per share is computed by dividing income
(loss) available to common shareholders by the weighted-average number of common
shares outstanding for the period. Diluted earnings per share
considers the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that shared in the earnings of the
entity.
The
calculation of weighted average diluted shares includes additional shares
related to the Convertible Notes when the average market price is above the
current conversion price. The number of additional shares that will
be included in the weighted average diluted shares is equal to the number of
shares that would be issued upon the settlement of the $1,500,000 of convertible
notes (the “Convertible Notes”) assuming the settlement occurred at the end of
the reporting period.
The
dilutive effect of the Series 2 Class B Preferred Stock (the “Series 2 Stock”)
is reflected in diluted earnings per share by application of the “if-converted”
method in accordance with SFAS No. 128. The weighted average common stock
equivalents related to the Series 2 Stock is excluded from diluted weighted
average shares of common stock when the impact on diluted earnings per share is
anti-dilutive.
FASB
Emerging Issue Task Force Topic D-42,
The Effect on the Calculation of
Earnings Per Share for the Redemption or Induced Conversion of Preferred
Stock
, provides among other things, that any excess of (1) the fair
value of the consideration transferred to the holders of preferred stock
redeemed over (2) the carrying amount of preferred stock, should be
subtracted from net earnings to determine net income available to common
stockholders in the calculation of earnings per share. For the year
ended June 30, 2008, this resulted in $399,997 being subtracted from net
earnings.
Stock-based
compensation
The
Company accounts for stock-based payments at the fair value on the date of grant
and recognizes compensation expense over the requisite service period of the
award on a straight-line basis. Fair value is determined on the date
of grant using a Black-Scholes valuation model.
Segment
and enterprise-wide disclosures
SFAS
No. 131,
Disclosures
about Segments of an Enterprise and Related Information
, establishes
standards for reporting information regarding operating segments in annual
financial statements. Operating segments are identified as components of an
enterprise about which separate, discrete financial information is available for
evaluation by the chief operating decision-maker in making decisions on how to
allocate resources and assess performance. The Company views its operations and
manages its business as one operating segment. No discrete operating
information other than revenues is prepared by the Company.
Recent
Accounting Pronouncements
In
June 2009, the FASB issued SFAS No. 168,
The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles,
which establishes the FASB Accounting Standards
Codification as the single source of authoritative GAAP. The Codification will
supersede all existing non-SEC accounting and reporting standards. As a
result, upon adoption, all references to accounting literature in our SEC
filings will conform to the appropriate reference within the Codification. This
statement is effective for financial statements issued for interim and annual
periods ending after September 15, 2009. The Company is required to
adopt SFAS No. 168 on September 30, 2009, and it does not expect the adoption of
this standard to have an impact on its financial position or results of
operations.
In April
2009, the FASB issued Staff Position No. FAS 107-1 and APB 28-1,
Interim Disclosures About Fair Value
of Financial Instruments,
(“FSP 107-1 and APB 28-1”), which amends FASB
SFAS No.107,
Disclosures about
Fair Value of Financial Instruments
, to require disclosures about fair
value of financial instruments for interim reporting periods of publicly traded
companies as well as in annual financial statements. This FSP also
amends APB Opinion No. 28,
Interim Financial Reporting
,
to require these disclosures in summarized financial information for interim
reporting periods. This FSP was effective for interim and annual periods ending
after June 15, 2009. The adoption of FSP FAS 107-1 and APB 28-1 did
not have a material impact on the Company’s consolidated financial
statements.
In June
2008, the FASB ratified Emerging Issues Task Force (“EITF”) Issue No. 07-5
(“EITF 07-5”),
Determining
Whether an Instrument (or an Embedded Feature) Is Indexed to an Entity's Own
Stock
. EITF 07-5 provides that an entity should use a two-step
approach to evaluate whether an equity-linked financial instrument (or embedded
feature) is indexed to its own stock, including evaluating the instrument's
contingent exercise and settlement provisions. EITF 07-5 is effective for
fiscal years beginning after December 15, 2008. The consensus must be
applied to outstanding instruments as of the beginning of the fiscal year in
which the consensus is adopted and should be treated as a cumulative-effect
adjustment to the opening balance of retained earnings. Early
adoption is not permitted. The Company is in the process of
evaluating the impacts, if any, of adopting this EITF.
In
April 2008, the FASB issued FASB Staff Position Financial Accounting
Standard 142-3 (“FSP FAS 142-3”),
Determination of the Useful Life of
Intangible Assets
. FSP FAS 142-3 amends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS
No. 142,
Goodwill and
Other Intangible Assets
. The intent of this FSP is to improve
the consistency between the useful life of a recognized intangible asset under
SFAS No. 142 and the period of expected cash flows used to measure the fair
value of the asset under SFAS No. 141 (revised 2007),
Business Combinations
, and
other GAAP. This statement is effective for fiscal years beginning on
or after December 15, 2008, and interim periods within those
years. Early application is not permitted. The Company
does not expect the adoption of this standard to have a material impact on its
consolidated results of operations and financial condition.
In April
2008, the FASB issued FSP Accounting Principles Board 14-1 (“FSP APB 14-1”),
Accounting for Convertible
Debt Instruments That May be Settled in Cash upon Conversion (Including Partial
Settlement)
. FSP APB 14-1 requires the issuer of certain
convertible debt instruments that may be settled in cash (or other assets) on
conversion to separately account for the liability (debt) and equity (conversion
option) components of the instrument in a manner that reflects the issuer’s
nonconvertible debt borrowing rate. FSP APB 14-1 is effective for
fiscal years beginning after December 15, 2008, and on a retroactive
basis. The Company is evaluating the potential impact, if any, of the
adoption of FSP APB 14-1 on its consolidated results of operations and financial
condition.
In March
2008, the FASB issued SFAS No. 161,
Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB statement No. 133
(SFAS No. 161).
SFAS No. 161 requires enhanced
disclosures regarding an entity’s derivative instruments and related hedging
activities. These enhanced disclosures include information regarding how
and why an entity uses derivative instruments; how derivative instruments and
related hedge items are accounted for under SFAS No. 133,
Accounting for Derivative
Instruments and Hedging Activities,
and its related interpretations;
and how derivative instruments and related hedge items affect an entity’s
financial position, financial performance, and cash flows. SFAS
No. 161 is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008. The adoption of
SFAS No. 161 will not have a material impact on the Company’s consolidated
results of operations and financial condition.
In
December 2007, the FASB issued SFAS No. 141(R),
Business Combinations
, which
replaces SFAS No. 141,
Business
Combinations
. The statement retains the purchase method of
accounting for acquisitions but requires a number of changes, including changes
in the way assets and liabilities are recognized in the purchase
accounting. It also changes the recognition of assets acquired and
liabilities assumed arising from contingencies, requires the capitalization of
in-process research and development at fair value, and requires the expensing of
acquisition-related costs as incurred. SFAS No. 141(R) is effective for the
Company beginning July 1, 2009, and will apply prospectively to business
combinations completed on or after that date. The Company does not
expect the adoption of this standard to have a material impact on the Company’s
consolidated results of operations and financial condition.
In February 2007, the FASB
issued SFAS No. 159,
The
Fair Value Option for Financial Assets and Financial Liabilities
. SFAS 159
provides companies with an option to report selected financial assets and
liabilities at fair value. The standard’s objective is to reduce both
the complexity in accounting for financial
instruments and the volatility
in earnings caused by measuring related assets and liabilities
differently. SFAS 159 also establishes presentation and disclosure
requirements designed to facilitate comparisons between companies that choose
different measurement attributes for similar types of assets and
liabilities. The Company adopted SFAS 159 effective July 1, 2008, but
has not elected to measure any permissible items at fair value. As a
result, the adoption of this statement did not have a material impact on its
consolidated financial statements.
In
September 2006, the FASB issued SFAS No. 157,
Fair Value
Measurements.
This Statement defines fair value, establishes a
framework for measuring fair value in accordance with GAAP, and expands
disclosures about fair value measurements. The definition of fair value
retains the exchange price notion in earlier definitions of fair value.
This Statement clarifies that the exchange price is the price in an
orderly transaction between market participants to sell the asset or transfer
the liability in the market in which the reporting entity would transact for the
asset or liability, that is, the principal or most advantageous market for the
asset or liability. Emphasis is placed on fair value being a market-based
measurement, not an entity-specific measurement; and therefore, a fair value
measurement should be determined based on the assumptions that market
participants would use in pricing the asset or liability. As a basis for
considering these market participant assumptions, a fair value hierarchy has
been established to distinguish between (1) market participant assumptions
developed based on market data obtained from sources independent of the
reporting entity (observable inputs) and (2) the reporting entity’s own
assumptions about market participant assumptions developed based on the best
information available in the circumstances (unobservable inputs). In
February 2008, the FASB issued a Staff Position which delays the effective date
of SFAS No. 157 for non-financial assets and non-financial liabilities,
except for items that are recognized or disclosed at fair value in the financial
statements on a recurring basis, to fiscal years beginning after
November 15, 2008. The Company adopted this statement, except
for items covered by the Staff Position, as of July 1, 2008; and the
adoption did not have a material impact on its consolidated results of
operations and financial condition.
Reclassifications
Prior
year information is reclassified whenever necessary to conform to the current
year’s presentation.
3.
Restatements of consolidated
financial statements
The
Company has restated its consolidated balance sheet at June 30, 2008, and the
consolidated statements of operations, changes in stockholders' equity, and cash
flows for the year then ended. The impact of the restatement
adjustment on the Company’s previously reported consolidated net loss of $3,523
for fiscal year 2008 was an increase in net income of $294,048 resulting in
restated net income of $290,525 for fiscal year 2008.
The
Company determined that direct costs associated with the acquisition of the
remaining 20% of the outstanding common stock of DAW in February 2008 were
expensed rather than considered part of the cost of the acquisition in
accordance with SFAS No. 141,
Business
Combinations
. The purchase price allocation was corrected
accordingly. The following table reflects the impact of the revised
purchase price allocation on the consolidated statement of operations for the
periods indicated:
|
|
Quarter ended
|
|
|
Year ended
|
|
|
|
December
31,
|
|
|
March
31,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
Decrease
in operating costs
|
|
$
|
316,430
|
|
|
$
|
142,086
|
|
|
$
|
458,516
|
|
Increase
in tax provision
|
|
|
113,502
|
|
|
|
50,966
|
|
|
|
164,468
|
|
Increase
in net income
|
|
|
202,928
|
|
|
|
91,120
|
|
|
|
294,048
|
|
Net
loss previously reported
|
|
|
(98,023
|
)
|
|
|
(215,895
|
)
|
|
|
(3,523
|
)
|
Net
income, as restated
|
|
$
|
104,905
|
|
|
$
|
(124,775
|
)
|
|
$
|
290,525
|
|
The 2008 financial
statements have also been adjusted to reflect reclassifications for discontinued
operations and certain other reclassifications required to conform to the 2009
presentation.
The Company’s Topsfield store has been
reflected as discontinued operations in the restated consolidated financial
statements for fiscal year 2008. See Note 11, Discontinued
operations, for further information. Reclassifications included the
following: On the balance sheet, (a) vendor rebates receivable was
reclassified from accounts receivable trade to prepaid expenses and other
current assets and (b) security deposits from prepaid expenses and other current
assets to other assets. On the income statement, the LIFO charge was
reclassified from selling, general, and administrative expense to cost of
sales.
The
following table presents the impact of the restatement adjustment on the
Company's previously reported consolidated balance sheet at June 30, 2008,
and also presents the
discontinued operations and the reclassifications made to the restated
consolidated financial statements for fiscal year 2008 to conform to the fiscal
year 2009 presentation
. As a result of the adjustments,
goodwill increased $458,516, income taxes payable increased $164,468, and
accumulated deficit decreased by $294,048. These balance sheet
corrections are included in the adjustments columns below:
|
|
Consolidated
Balance Sheet
|
|
|
|
June 30, 2008
|
|
|
|
As
Previously
|
|
|
Discontinued
|
|
|
|
|
|
Restatement
|
|
|
|
|
|
|
Reported
|
|
|
Operations
(1)
|
|
|
Reclasses
(2)
|
|
|
Adjustments
(3)
|
|
|
Restated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
140,688
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
140,688
|
|
Accounts
receivable, net
|
|
|
4,963,542
|
|
|
|
(125,821
|
)
|
|
|
(392,456
|
)
|
|
|
-
|
|
|
|
4,445,265
|
|
Inventories,
net
|
|
|
7,405,315
|
|
|
|
(428,612
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
6,976,703
|
|
Prepaid
expenses and other current assets
|
|
|
308,461
|
|
|
|
-
|
|
|
|
356,388
|
|
|
|
-
|
|
|
|
664,849
|
|
Refundable
income taxes
|
|
|
36,000
|
|
|
|
-
|
|
|
|
(36,000
|
)
|
|
|
-
|
|
|
|
-
|
|
Current
portion of deferred tax assets
|
|
|
194,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
194,000
|
|
Assets
to be disposed of, discontinued operations
|
|
|
803,594
|
|
|
|
624,433
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,428,027
|
|
Total
current assets
|
|
|
13,851,600
|
|
|
|
70,000
|
|
|
|
(72,068
|
)
|
|
|
-
|
|
|
|
13,849,532
|
|
Property
and equipment, net
|
|
|
1,341,055
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,341,055
|
|
Goodwill
|
|
|
2,153,100
|
|
|
|
-
|
|
|
|
-
|
|
|
|
458,516
|
|
|
|
2,611,616
|
|
Other
intangible assets, net
|
|
|
725,118
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
725,118
|
|
Long-term
portion of deferred tax assets
|
|
|
444,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
444,000
|
|
Long-term
portion of deferred tax assets,
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
discontinued
operations
|
|
|
70,000
|
|
|
|
(70,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other
assets
|
|
|
-
|
|
|
|
-
|
|
|
|
36,068
|
|
|
|
-
|
|
|
|
36,068
|
|
Total
assets
|
|
$
|
18,584,873
|
|
|
$
|
-
|
|
|
$
|
(36,000
|
)
|
|
$
|
458,516
|
|
|
$
|
19,007,389
|
|
Liabilities
and shareholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt and lease financing obligations
|
|
$
|
183,958
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
183,958
|
|
Current
portion of long-term debt, related parties
|
|
|
230,000
|
|
|
|
-
|
|
|
|
(149,996
|
)
|
|
|
-
|
|
|
|
80,004
|
|
Accounts
payable
|
|
|
5,871,081
|
|
|
|
(144,260
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
5,726,821
|
|
Accrued
payroll and related taxes
|
|
|
615,483
|
|
|
|
-
|
|
|
|
(615,483
|
)
|
|
|
-
|
|
|
|
-
|
|
Accrued
expenses and other current liabilities
|
|
|
442,802
|
|
|
|
(7,274
|
)
|
|
|
615,438
|
|
|
|
164,468
|
|
|
|
1,215,434
|
|
Income
taxes payable
|
|
|
35,955
|
|
|
|
-
|
|
|
|
(35,955
|
)
|
|
|
-
|
|
|
|
-
|
|
Liabilities
to be disposed of, discontinued operations
|
|
|
770,516
|
|
|
|
151,535
|
|
|
|
-
|
|
|
|
-
|
|
|
|
922,051
|
|
Total
current liabilities
|
|
|
8,149,795
|
|
|
|
-
|
|
|
|
(185,996
|
)
|
|
|
164,468
|
|
|
|
8,128,267
|
|
Long-term
debt and lease financing obligations, net of current
portion
|
|
|
256,667
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
256,667
|
|
Long-term
debt, net of current portion, related parties
|
|
|
1,643,333
|
|
|
|
-
|
|
|
|
149,996
|
|
|
|
-
|
|
|
|
1,793,329
|
|
Total
liabilities
|
|
|
10,049,795
|
|
|
|
-
|
|
|
|
(36,000
|
)
|
|
|
164,468
|
|
|
|
10,178,263
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
400,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
400,000
|
|
Common
stock
|
|
|
398
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
398
|
|
Additional
paid-in capital
|
|
|
17,770,328
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17,770,328
|
|
Accumulated
deficit
|
|
|
(9,635,648
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
294,048
|
|
|
|
(9,341,600
|
)
|
Total
shareholders' equity
|
|
|
8,535,078
|
|
|
|
-
|
|
|
|
-
|
|
|
|
294,048
|
|
|
|
8,829,126
|
|
Total
liabilities and shareholders' equity
|
|
$
|
18,584,873
|
|
|
$
|
-
|
|
|
$
|
(36,000
|
)
|
|
$
|
458,516
|
|
|
$
|
19,007,389
|
|
|
(1)
|
Topsfield
has been reclassified as discontinued operations in the Company’s
financial statements. See Note 11, Discontinued operations, for
further information.
|
|
(2)
|
Vendor rebates receivable of
$392,456 was reclassified from accounts receivable trade to prepaid
expenses and other current assets and security deposits of $36,068 were
reclassified from prepaid expenses and other current assets to other
assets in order to conform to the presentation in the June 30, 2009,
consolidated balance sheet; and refundable income taxes of $36,000 were
reclassified to accrued federal income taxes due to the additional taxes
due as a result of the restatement
error.
|
|
(3)
|
The
impact of the restatement adjustment on the Company’s previously reported
consolidated balance sheet as of June 30, 2008, was goodwill
increased $458,516,
income taxes payable increased $164,468, and accumulated deficit decreased
by $294,048.
|
The
following table presents the impact of the restatement adjustments on the
Company's previously reported consolidated statement of operations for fiscal
year 2008 and also presents the discontinued operations and the other
reclassifications made to conform to the fiscal year 2009
presentation:
|
|
Consolidated
Statement of Operations
|
|
|
|
Year ended June 30, 2008
|
|
|
|
As
Previously
|
|
|
Discontinued
|
|
|
|
|
|
Restatement
|
|
|
|
|
|
|
Reported
|
|
|
Operations
(1)
|
|
|
Reclasses
(2)
|
|
|
Adjustments
(3)
|
|
|
Restated
|
|
Net
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
68,039,194
|
|
|
$
|
(2,644,975
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
65,394,219
|
|
Dispensing
fees
|
|
|
3,200,795
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,200,795
|
|
Total
net revenues
|
|
|
71,239,989
|
|
|
|
(2,644,975
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
68,595,014
|
|
Cost
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
53,024,106
|
|
|
|
(2,182,201
|
)
|
|
|
177,689
|
|
|
|
-
|
|
|
|
51,019,594
|
|
Selling,
general, and administrative expenses
|
|
|
17,771,045
|
|
|
|
(359,464
|
)
|
|
|
(177,689
|
)
|
|
|
(458,516
|
)
|
|
|
16,775,376
|
|
Depreciation
and amortization
|
|
|
546,044
|
|
|
|
(666
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
545,378
|
|
Total
costs and expenses
|
|
|
71,341,195
|
|
|
|
(2,542,331
|
)
|
|
|
-
|
|
|
|
(458,516
|
)
|
|
|
68,340,348
|
|
(Loss)
income from operations
|
|
|
(101,206
|
)
|
|
|
(102,644
|
)
|
|
|
-
|
|
|
|
458,516
|
|
|
|
254,666
|
|
Other
income (expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(98,188
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(98,188
|
)
|
Interest
income
|
|
|
11,631
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,631
|
|
Other
income
|
|
|
25,977
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,977
|
|
Total
other income (expense), net
|
|
|
(60,580
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(60,580
|
)
|
(Loss)
income from continuing operations before provision for income taxes and
minority interest
|
|
|
(161,786
|
)
|
|
|
(102,644
|
)
|
|
|
-
|
|
|
|
458,516
|
|
|
|
194,086
|
|
(Benefit)
provision for income taxes
|
|
|
(108,200
|
)
|
|
|
(44,136
|
)
|
|
|
-
|
|
|
|
164,468
|
|
|
|
12,132
|
|
Minority
interest expense, net
|
|
|
(37,039
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(37,039
|
)
|
(Loss)
income from continuing operations
|
|
|
(90,625
|
)
|
|
|
(58,508
|
)
|
|
|
-
|
|
|
|
294,048
|
|
|
|
144,915
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
from discontinued operations, net
(1)
|
|
|
90,950
|
|
|
|
58,508
|
|
|
|
-
|
|
|
|
-
|
|
|
|
149,458
|
|
Loss
on disposal, net
(1)
|
|
|
(3,848
|
)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,848
|
)
|
Net
gain from discontinued operations
|
|
|
87,102
|
|
|
|
58,508
|
|
|
|
-
|
|
|
|
-
|
|
|
|
145,610
|
|
Net
(loss) income
|
|
|
(3,523
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
294,048
|
|
|
|
290,525
|
|
Deemed
dividend on redemption of preferred stock
|
|
|
(399,997
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(399,997
|
)
|
Net
loss attributable to common
|
|
$
|
(403,520
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
294,048
|
|
|
$
|
(109,472
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share, continuing operations, net of deemed dividend on redemption of
preferred stock
|
|
$
|
(0.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.06
|
)
|
Earnings
per share, discontinued operations
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.03
|
|
Loss
per share attributable to common
|
|
$
|
(0.10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.03
|
)
|
Shares
used in computing loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,978,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,978,199
|
|
Diluted
|
|
|
3,978,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,978,199
|
|
|
(1)
|
Topsfield
has been reclassified as discontinued operations in the Company’s
financial statements. See Note 11, Discontinued operations, for
further information.
|
|
(2)
|
The
LIFO charge has been reclassified from selling, general, and
administrative expenses to cost of sales in order to conform to the
presentation in the fiscal year 2009 consolidated statement of
operations.
|
|
(3)
|
The
impact of the restatement adjustment on the Company’s previously reported
consolidated net loss of $3,523 for fiscal year 2008 was a decrease in
selling, general, and administrative expenses of $458,516, an increase in
the provision for income taxes of $164,468, and an increase in net income
of $294,048. Net loss per share attributable to common
shareholders as previously stated was $0.10 per share and as restated is
$0.03 per share.
|
The following table
presents the impact of the restatement adjustments on the Company's previously
reported consolidated statement of cash flows at June 30, 2008,
and also
presents the discontinued operations and the reclassifications made to conform
to the fiscal year 2008 consolidated financial statements to the presentation in
the fiscal year 2009 consolidated financial statements
:
|
|
Consolidated
Statement of Cash Flows
|
|
|
|
Year ended June 30, 2008
|
|
|
|
As
Previously
|
|
|
Discontinued
|
|
|
Restatement
|
|
|
|
|
|
|
Reported
|
|
|
Operations
(1)
|
|
|
Adjustments
(2)
|
|
|
Restated
|
|
Operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$
|
(3,523
|
)
|
|
$
|
-
|
|
|
$
|
294,048
|
|
|
$
|
290,525
|
|
Gain
from discontinued operations
|
|
|
-
|
|
|
|
(145,610
|
)
|
|
|
-
|
|
|
|
(145,610
|
)
|
(Loss)
income from continuing operations
|
|
|
(3,523
|
)
|
|
|
(145,610
|
)
|
|
|
294,048
|
|
|
|
144,915
|
|
Adjustments
to reconcile (loss) income from continuing operations to cash (used in)
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
420,888
|
|
|
|
-
|
|
|
|
-
|
|
|
|
420,888
|
|
Amortization
|
|
|
125,156
|
|
|
|
(666
|
)
|
|
|
-
|
|
|
|
124,490
|
|
Stock-based
compensation expense
|
|
|
74,288
|
|
|
|
-
|
|
|
|
-
|
|
|
|
74,288
|
|
Deferred
income taxes
|
|
|
(188,000
|
)
|
|
|
6,000
|
|
|
|
-
|
|
|
|
(182,000
|
)
|
Minority
interest
|
|
|
37,039
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37,039
|
|
Changes
in operating assets and liabilities, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(129,479
|
)
|
|
|
(274,047
|
)
|
|
|
-
|
|
|
|
(403,526
|
)
|
Inventories
|
|
|
(856,132
|
)
|
|
|
42,978
|
|
|
|
-
|
|
|
|
(813,154
|
)
|
Prepaid
expenses and other current assets
|
|
|
(16,780
|
)
|
|
|
300,727
|
|
|
|
-
|
|
|
|
283,947
|
|
Accounts
payable
|
|
|
2,362,355
|
|
|
|
18,400
|
|
|
|
-
|
|
|
|
2,380,755
|
|
Accrued
expenses and other current liabililties
|
|
|
22,174
|
|
|
|
(34,792
|
)
|
|
|
164,468
|
|
|
|
151,850
|
|
Cash
(used in) provided by operating activities, continuing
operations
|
|
|
1,847,986
|
|
|
|
(87,010
|
)
|
|
|
458,516
|
|
|
|
2,219,492
|
|
Cash
provided by operating activities, discontinued
|
|
|
(285
|
)
|
|
|
93,111
|
|
|
|
-
|
|
|
|
92,826
|
|
Cash
provided by operating activities
|
|
|
1,847,701
|
|
|
|
6,101
|
|
|
|
458,516
|
|
|
|
2,312,318
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of 20% of subsidiary
|
|
|
(1,750,000
|
)
|
|
|
-
|
|
|
|
(458,516
|
)
|
|
|
(2,208,516
|
)
|
Acquisition
of pharmacy, net of cash
|
|
|
(552,115
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(552,115
|
)
|
Purchase
of property and equipment
|
|
|
(488,230
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(488,230
|
)
|
Other
|
|
|
-
|
|
|
|
(6,101
|
)
|
|
|
-
|
|
|
|
(6,101
|
)
|
Cash
used in investing activities, continuing operations
|
|
|
(2,790,345
|
)
|
|
|
(6,101
|
)
|
|
|
(458,516
|
)
|
|
|
(3,254,962
|
)
|
Cash
used in investing activities, discontinued
|
|
|
(596
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(596
|
)
|
Cash
used in investing activities
|
|
|
(2,790,941
|
)
|
|
|
(6,101
|
)
|
|
|
(458,516
|
)
|
|
|
(3,255,558
|
)
|
Financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
on long-term debt
|
|
|
(226,749
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(226,749
|
)
|
Cash
used in financing activities, continuing operations
|
|
|
(226,749
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(226,749
|
)
|
Cash
provided by financing activities, discontinued
|
|
|
175,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
175,000
|
|
Cash
used in financing activities
|
|
|
(51,749
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(51,749
|
)
|
Net
decrease in cash
|
|
|
(994,989
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(994,989
|
)
|
Cash
at beginning of period
|
|
|
1,135,677
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,135,677
|
|
Cash
at end of period
|
|
$
|
140,688
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
140,688
|
|
|
(1)
|
Topsfield
has been reclassified as discontinued operations in the Company’s
financial statements. See Note 11, Discontinued operations, for
further information.
|
|
(2)
|
The impact of the restatement
adjustment on the Company’s previously reported consolidated cash flows
for the year ended June 30, 2008, was cash provided by operating
activities from continuing operations increased $458,516 due to an
increase in net income from continuing operations of $294,048 and an
increase in accrued expenses and other current liabilities of
$164,468. Cash used in investing activities from continuing
operations increased
$458,516.
|
The
following tables present the impact of the restatement adjustments described
above on the Company's previously reported consolidated balance sheet as of
December 31, 2007, the consolidated statements of operations for the three and
six months ended December 31, 2007, and consolidated statement of cash flows for
the six months ended December 31, 2007. They also present the
discontinued operations and the reclassifications made to conform the fiscal
year 2008 consolidated financial statements to the presentation in the fiscal
year 2009 consolidated financial statements:
|
|
Consolidated
Balance Sheet
|
|
|
|
December 31, 2007
|
|
|
|
As
Previously
|
|
|
Discontinued
|
|
|
|
|
|
Restatement
|
|
|
|
|
|
|
Reported
|
|
|
Operations
(1)
|
|
|
Reclasses
(2)
|
|
|
Adjustments
(3)
|
|
|
Restated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
2,022,703
|
|
|
$
|
(359,055
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,663,648
|
|
Accounts
receivable, net
|
|
|
5,079,348
|
|
|
|
(99,747
|
)
|
|
|
(477,063
|
)
|
|
|
-
|
|
|
|
4,502,538
|
|
Inventories,
net
|
|
|
7,577,049
|
|
|
|
(426,786
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
7,150,263
|
|
Prepaid
expenses and other current assets
|
|
|
162,145
|
|
|
|
(2,080
|
)
|
|
|
440,995
|
|
|
|
-
|
|
|
|
601,060
|
|
Refundable
income taxes
|
|
|
119,695
|
|
|
|
-
|
|
|
|
(119,695
|
)
|
|
|
-
|
|
|
|
-
|
|
Current
portion of deferred tax assets
|
|
|
169,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
169,000
|
|
Assets
to be disposed of, discontinued operations
|
|
|
-
|
|
|
|
1,109,117
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,109,117
|
|
Total
current assets
|
|
|
15,129,940
|
|
|
|
221,449
|
|
|
|
(155,763
|
)
|
|
|
-
|
|
|
|
15,195,626
|
|
Property
and equipment, net
|
|
|
1,409,474
|
|
|
|
(134,986
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,274,488
|
|
Goodwill
|
|
|
104,463
|
|
|
|
(86,463
|
)
|
|
|
-
|
|
|
|
316,430
|
|
|
|
334,430
|
|
Other
intangible assets, net
|
|
|
781,696
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
781,696
|
|
Long-term
portion of deferred tax assets
|
|
|
431,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
431,000
|
|
Other
assets
|
|
|
-
|
|
|
|
-
|
|
|
|
36,068
|
|
|
|
-
|
|
|
|
36,068
|
|
Total
assets
|
|
$
|
17,856,573
|
|
|
$
|
-
|
|
|
$
|
(119,695
|
)
|
|
$
|
316,430
|
|
|
$
|
18,053,308
|
|
Liabilities
and shareholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line
of credit
|
|
$
|
265,000
|
|
|
$
|
(265,000
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Current
portion of long-term debt
|
|
|
152,750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
152,750
|
|
Accounts
payable
|
|
|
6,328,565
|
|
|
|
(722,394
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
5,606,171
|
|
Accrued
payroll and related taxes
|
|
|
474,964
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
474,964
|
|
Accrued
expenses and other current liabilities
|
|
|
367,024
|
|
|
|
(61,590
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
305,434
|
|
Income
taxes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
(119,695
|
)
|
|
|
113,502
|
|
|
|
(6,193
|
)
|
Liabilities
to be disposed of, discontinued operations
|
|
|
-
|
|
|
|
1,048,984
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,048,984
|
|
Total
current liabilities
|
|
|
7,588,303
|
|
|
|
-
|
|
|
|
(119,695
|
)
|
|
|
113,502
|
|
|
|
7,582,110
|
|
Long-term
debt, net of current portion
|
|
|
45,584
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
45,584
|
|
Total
liabilities
|
|
|
7,633,887
|
|
|
|
-
|
|
|
|
(119,695
|
)
|
|
|
113,502
|
|
|
|
7,627,694
|
|
Minority
interest
|
|
|
1,865,995
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,865,995
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
Common
stock
|
|
|
398
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
398
|
|
Additional
paid-in capital
|
|
|
18,121,227
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,121,227
|
|
Accumulated
deficit
|
|
|
(9,764,937
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
202,928
|
|
|
|
(9,562,009
|
)
|
Total
shareholders' equity
|
|
|
8,356,691
|
|
|
|
-
|
|
|
|
-
|
|
|
|
202,928
|
|
|
|
8,559,619
|
|
Total
liabilities and shareholders' equity
|
|
$
|
17,856,573
|
|
|
$
|
-
|
|
|
$
|
(119,695
|
)
|
|
$
|
316,430
|
|
|
$
|
18,053,308
|
|
|
(1)
|
Topsfield,
ADCO, and ADCO South have been reclassified as discontinued operations in
the Company’s financial statements. See Note 11, Discontinued
operations, for further
information.
|
|
(2)
|
Vendor
rebates receivable of $477,063 was reclassified from accounts receivable
trade to prepaid expenses and other current assets and security deposits
of $36,068 were reclassified from prepaid expenses and other current
assets to other assets in order to conform to the presentation in the June
30, 2009, consolidated balance sheet; and refundable income taxes of
$119,695 was reclassified to accrued federal income taxes due to the
additional taxes due as a result of the restatement
error.
|
|
(3)
|
The
impact of the restatement adjustment on the Company’s previously reported
consolidated balance sheet as of December 31, 2007, was
goodwill
increased $316,430,
income taxes payable increased $113,502, and accumulated deficit decreased
by $202,928.
|
|
|
Consolidated Statement of Operations
|
|
|
|
Three months ended December 31, 2007
|
|
|
|
As Previously
|
|
|
Discontinued
|
|
|
|
|
|
Restatement
|
|
|
|
|
|
|
Reported
|
|
|
Operations
(1)
|
|
|
Reclasses
(2)
|
|
|
Adjustments
(3)
|
|
|
Restated
|
|
Net
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
18,145,792
|
|
|
$
|
(1,776,410
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
16,369,382
|
|
Dispensing
fees
|
|
|
759,300
|
|
|
|
17,528
|
|
|
|
-
|
|
|
|
-
|
|
|
|
776,828
|
|
Total
net revenues
|
|
|
18,905,092
|
|
|
|
(1,758,882
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
17,146,210
|
|
Cost
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
14,121,112
|
|
|
|
(1,463,745
|
)
|
|
|
87,192
|
|
|
|
-
|
|
|
|
12,744,559
|
|
Selling,
general, and administrative expenses
|
|
|
5,056,979
|
|
|
|
(369,516
|
)
|
|
|
(87,192
|
)
|
|
|
(316,430
|
)
|
|
|
4,283,841
|
|
Depreciation
and amortization
|
|
|
146,887
|
|
|
|
(12,052
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
134,835
|
|
Total
costs and expenses
|
|
|
19,324,978
|
|
|
|
(1,845,313
|
)
|
|
|
-
|
|
|
|
(316,430
|
)
|
|
|
17,163,235
|
|
(Loss)
income from operations
|
|
|
(419,886
|
)
|
|
|
86,431
|
|
|
|
-
|
|
|
|
316,430
|
|
|
|
(17,025
|
)
|
Other
income (expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(8,715
|
)
|
|
|
193
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,522
|
)
|
Interest
income
|
|
|
4,725
|
|
|
|
(723
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
4,002
|
|
Other
income
|
|
|
32,898
|
|
|
|
(17,528
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
15,370
|
|
Total
other income (expense), net
|
|
|
28,908
|
|
|
|
(18,058
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
10,850
|
|
(Loss)
income from continuing operations before provision for income taxes and
minority interest
|
|
|
(390,978
|
)
|
|
|
68,373
|
|
|
|
-
|
|
|
|
316,430
|
|
|
|
(6,175
|
)
|
(Benefit)
provision for income taxes
|
|
|
(120,580
|
)
|
|
|
22,850
|
|
|
|
-
|
|
|
|
113,502
|
|
|
|
15,772
|
|
Minority
interest expense, net of income taxes
|
|
|
(10,253
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,253
|
)
|
(Loss)
income from continuing operations
|
|
|
(280,651
|
)
|
|
|
45,523
|
|
|
|
-
|
|
|
|
202,928
|
|
|
|
(32,200
|
)
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
from discontinued operations, net (1)
|
|
|
-
|
|
|
|
(45,523
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(45,523
|
)
|
Gain
on disposal, net (1)
|
|
|
182,628
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
182,628
|
|
Net
gain from discontinued operations
|
|
|
182,628
|
|
|
|
(45,523
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
137,105
|
|
Net
(loss) income
|
|
$
|
(98,023
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
202,928
|
|
|
$
|
104,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share, continuing operations
|
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.01
|
)
|
Earnings
per share, discontinued operations
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.04
|
|
Basic
earnings (loss) per share
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.03
|
|
Diluted
earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share, continuing operations
|
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.01
|
)
|
Earnings
per share, discontinued operations
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.03
|
|
Diluted
earnings (loss) per share
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used in computing earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,978,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,978,199
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
shares
|
|
|
3,978,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,978,199
|
|
Common
stock equivalents, stock options
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,000
|
|
Diluted
shares
|
|
|
3,978,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,990,199
|
|
|
(1)
|
Topsfield,
ADCO, and ADCO South have been reclassified as discontinued operations in
the Company’s financial statements. See Note 11, Discontinued
operations, for further
information.
|
|
(2)
|
The
LIFO charge has been reclassified from selling, general, and
administrative expenses to cost of sales in order to conform to the
presentation in the fiscal year 2009 consolidated statement of
operations.
|
|
(3)
|
The
impact of the restatement adjustment on the Company’s previously reported
consolidated net loss of $98,023 for the three months ended December 31,
2007, was a decrease in selling, general, and administrative expenses of
$316,430, an increase in the provision for income taxes of $113,502, and
an increase in net income of $202,928. Net loss per share as
previously stated was $0.02 per share and as restated is $0.03 per
share.
|
|
|
Consolidated Statement of Operations
|
|
|
|
Six months ended December 31, 2007
|
|
|
|
As Previously
|
|
|
Discontinued
|
|
|
|
|
|
Restatement
|
|
|
|
|
|
|
Reported
|
|
|
Operations
(1)
|
|
|
Reclasses
(2)
|
|
|
Adjustments
(3)
|
|
|
Restated
|
|
Net
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
35,527,538
|
|
|
$
|
(3,602,036
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
31,925,502
|
|
Dispensing
fees
|
|
|
1,462,703
|
|
|
|
-
|
|
|
|
35,057
|
|
|
|
-
|
|
|
|
1,497,760
|
|
Total
net revenues
|
|
|
36,990,241
|
|
|
|
(3,602,036
|
)
|
|
|
35,057
|
|
|
|
-
|
|
|
|
33,423,262
|
|
Cost
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
27,777,998
|
|
|
|
(2,835,795
|
)
|
|
|
112,192
|
|
|
|
-
|
|
|
|
25,054,395
|
|
Selling,
general, and administrative expenses
|
|
|
9,333,553
|
|
|
|
(795,461
|
)
|
|
|
(112,192
|
)
|
|
|
(316,430
|
)
|
|
|
8,109,470
|
|
Depreciation
and amortization
|
|
|
297,769
|
|
|
|
(25,143
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
272,626
|
|
Total
costs and expenses
|
|
|
37,409,320
|
|
|
|
(3,656,399
|
)
|
|
|
-
|
|
|
|
(316,430
|
)
|
|
|
33,436,491
|
|
(Loss)
income from operations
|
|
|
(419,079
|
)
|
|
|
54,363
|
|
|
|
35,057
|
|
|
|
316,430
|
|
|
|
(13,229
|
)
|
Other
income (expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(16,120
|
)
|
|
|
193
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(15,927
|
)
|
Interest
income
|
|
|
8,695
|
|
|
|
(1,860
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
6,835
|
|
Other
income
|
|
|
51,948
|
|
|
|
-
|
|
|
|
(35,057
|
)
|
|
|
-
|
|
|
|
16,891
|
|
Total
other income (expense), net
|
|
|
44,523
|
|
|
|
(1,667
|
)
|
|
|
(35,057
|
)
|
|
|
-
|
|
|
|
7,799
|
|
(Loss)
income from continuing operations before provision for income taxes and
minority interest
|
|
|
(374,556
|
)
|
|
|
52,696
|
|
|
|
-
|
|
|
|
316,430
|
|
|
|
(5,430
|
)
|
(Benefit)
provision for income taxes
|
|
|
(97,250
|
)
|
|
|
13,053
|
|
|
|
-
|
|
|
|
113,502
|
|
|
|
29,305
|
|
Minority
interest expense, net of income taxes
|
|
|
(38,134
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(38,134
|
)
|
(Loss)
income from continuing operations
|
|
|
(315,440
|
)
|
|
|
39,643
|
|
|
|
-
|
|
|
|
202,928
|
|
|
|
(72,869
|
)
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
from discontinued operations, net (1)
|
|
|
-
|
|
|
|
(39,643
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(39,643
|
)
|
Gain on
disposal, net of tax (1)
|
|
|
182,628
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
182,628
|
|
Net
gain from discontinued operations
|
|
|
182,628
|
|
|
|
(39,643
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
142,985
|
|
Net
(loss) income
|
|
$
|
(132,812
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
202,928
|
|
|
$
|
70,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share, continuing operations
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.02
|
)
|
Earnings
per share, discontinued operations
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.04
|
|
Basic
loss per share
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share, continuing operations
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.02
|
)
|
Earnings per
share, discontinued operations
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.04
|
|
Diluted
earnings (loss) per share:
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used in computing earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,978,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,978,199
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
shares
|
|
|
3,978,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,978,199
|
|
Common
stock equivalents, stock options
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
Diluted
shares
|
|
|
3,978,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,984,199
|
|
|
(1)
|
Topsfield,
ADCO, and ADCO South have been reclassified as discontinued operations in
the Company’s financial statements. See Note 11, Discontinued
operations, for further
information.
|
|
(2)
|
The
LIFO charge has been reclassified from selling, general, and
administrative expenses to cost of sales in order to conform to the
presentation in the fiscal year 2009 consolidated statement of
operations.
|
|
(3)
|
The
impact of the restatement adjustment on the Company’s previously reported
consolidated net loss of $132,812 for six months ended December 31, 2007,
was a decrease in selling, general, and administrative expenses of
$316,430, an increase in the provision for income taxes of $113,502, and
an increase in net income of $202,928. Net loss per share as
previously stated was $0.03 per share and as restated is net earnings per
share $0.02 per share.
|
|
|
Consolidated Statement of Cash Flows
|
|
|
|
Six months ended December 31, 2007
|
|
|
|
As Previously
|
|
|
Discontinued
|
|
|
Restatement
|
|
|
|
|
|
|
Reported
|
|
|
Operations
(1)
|
|
|
Adjustments
(2)
|
|
|
Restated
|
|
Operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$
|
(132,812
|
)
|
|
$
|
-
|
|
|
$
|
202,928
|
|
|
$
|
70,116
|
|
(Gain)
loss from discontinued operations
|
|
|
(182,628
|
)
|
|
|
39,643
|
|
|
|
-
|
|
|
|
(142,985
|
)
|
(Loss)
income from continuing operations
|
|
|
(315,440
|
)
|
|
|
39,643
|
|
|
|
202,928
|
|
|
|
(72,869
|
)
|
Adjustments
to reconcile (loss) income from continuing operations to cash (used in)
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
229,191
|
|
|
|
(25,143
|
)
|
|
|
-
|
|
|
|
204,048
|
|
Amortization
|
|
|
68,578
|
|
|
|
-
|
|
|
|
-
|
|
|
|
68,578
|
|
Stock-based
compensation expense
|
|
|
25,190
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,190
|
|
Deferred
income taxes
|
|
|
(7,000
|
)
|
|
|
(137,000
|
)
|
|
|
-
|
|
|
|
(144,000
|
)
|
Minority
interest
|
|
|
38,134
|
|
|
|
-
|
|
|
|
-
|
|
|
|
38,134
|
|
Changes
in operating assets and liabilities, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
101,345
|
|
|
|
(562,144
|
)
|
|
|
-
|
|
|
|
(460,799
|
)
|
Inventories
|
|
|
(494,345
|
)
|
|
|
(492,419
|
)
|
|
|
-
|
|
|
|
(986,764
|
)
|
Prepaid
expenses and other current assets
|
|
|
98,066
|
|
|
|
165,672
|
|
|
|
-
|
|
|
|
263,738
|
|
Refundable
income taxes
|
|
|
(35,695
|
)
|
|
|
119,695
|
|
|
|
-
|
|
|
|
84,000
|
|
Accounts
payable
|
|
|
2,291,072
|
|
|
|
(30,967
|
)
|
|
|
-
|
|
|
|
2,260,105
|
|
Accrued
payroll and related taxes
|
|
|
(276,948
|
)
|
|
|
5,784
|
|
|
|
-
|
|
|
|
(271,164
|
)
|
Accrued
expenses and other current liabililties
|
|
|
21,827
|
|
|
|
33,596
|
|
|
|
-
|
|
|
|
55,423
|
|
Income
tax payable
|
|
|
(67,445
|
)
|
|
|
(119,695
|
)
|
|
|
113,502
|
|
|
|
(73,638
|
)
|
Cash
(used in) provided by operating activities, continuing
operations
|
|
|
1,676,530
|
|
|
|
(1,002,978
|
)
|
|
|
316,430
|
|
|
|
989,982
|
|
Cash
provided by operating activities, discontinued
|
|
|
-
|
|
|
|
594,976
|
|
|
|
-
|
|
|
|
594,976
|
|
Cash
provided by operating activities
|
|
|
1,676,530
|
|
|
|
(408,002
|
)
|
|
|
316,430
|
|
|
|
1,584,958
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of 20% of subsidiary
|
|
|
-
|
|
|
|
-
|
|
|
|
(316,430
|
)
|
|
|
(316,430
|
)
|
Acquisition
of pharmacy, net of cash
|
|
|
(552,115
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(552,115
|
)
|
Purchase
of property and equipment
|
|
|
(321,420
|
)
|
|
|
92,050
|
|
|
|
-
|
|
|
|
(229,370
|
)
|
Other
|
|
|
-
|
|
|
|
(6,103
|
)
|
|
|
-
|
|
|
|
(6,103
|
)
|
Cash
used in investing activities, continuing operations
|
|
|
(873,535
|
)
|
|
|
85,947
|
|
|
|
(316,430
|
)
|
|
|
(1,104,018
|
)
|
Cash
used in investing activities, discontinued
|
|
|
-
|
|
|
|
(596
|
)
|
|
|
-
|
|
|
|
(596
|
)
|
Cash
used in investing activities
|
|
|
(873,535
|
)
|
|
|
85,351
|
|
|
|
(316,430
|
)
|
|
|
(1,104,614
|
)
|
Financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from line of credit
|
|
|
140,000
|
|
|
|
(140,000
|
)
|
|
|
-
|
|
|
|
-
|
|
Payments
on long-term debt
|
|
|
(92,373
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(92,373
|
)
|
Cash
used in financing activities, continuing operations
|
|
|
47,627
|
|
|
|
(140,000
|
)
|
|
|
-
|
|
|
|
(92,373
|
)
|
Cash
provided by financing activities, discontinued
|
|
|
-
|
|
|
|
140,000
|
|
|
|
-
|
|
|
|
140,000
|
|
Cash
used in financing activities
|
|
|
47,627
|
|
|
|
-
|
|
|
|
-
|
|
|
|
47,627
|
|
Net
decrease in cash
|
|
|
850,622
|
|
|
|
(322,651
|
)
|
|
|
-
|
|
|
|
527,971
|
|
Cash
at beginning of period
|
|
|
1,172,081
|
|
|
|
(36,404
|
)
|
|
|
-
|
|
|
|
1,135,677
|
|
Cash
at end of period
|
|
$
|
2,022,703
|
|
|
$
|
(359,055
|
)
|
|
$
|
-
|
|
|
$
|
1,663,648
|
|
|
(1)
|
Topsfield,
ADCO, and ADCO South have been reclassified as discontinued operations in
the Company’s financial statements. See Note 11, Discontinued
operations, for further
information.
|
|
(2)
|
The
impact of the restatement adjustment on the Company’s previously reported
consolidated cash flows for the six months ended December 31, 2007, was
cash provided by operating activities from continuing operations increased
$316,430 due to an increase in net income from continuing operations of
$202,928 and a increase in accrued expenses and other current liabilities
of $113,502. Cash used in investing activities from continuing
operations increased
$316,430.
|
The
following tables present the impact of the restatement adjustments described
above on the Company's previously reported consolidated balance sheet as of
March 31, 2008, the consolidated statements of operations for the three and nine
months ended March 31, 2008, and the consolidated statement of cash flows for
the nine months ended March 31, 2008. It also presents the
discontinued operations and the reclassifications made to conform the fiscal
year 2008 consolidated financial statements to the presentation in the fiscal
year 2009 consolidated financial statements:
|
|
Consolidated Balance Sheet
|
|
|
|
March 31, 2008
|
|
|
|
As Previously
|
|
|
Discontinued
|
|
|
|
|
|
Restatement
|
|
|
|
|
|
|
Reported
|
|
|
Operations
(1)
|
|
|
Reclasses
(2)
|
|
|
Adjustments
(3)
|
|
|
Restated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
458,232
|
|
|
$
|
(2,716
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
455,516
|
|
Accounts
receivable, net
|
|
|
4,804,545
|
|
|
|
(443,395
|
)
|
|
|
(463,540
|
)
|
|
|
-
|
|
|
|
3,897,610
|
|
Inventories,
net
|
|
|
7,259,928
|
|
|
|
(410,941
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
6,848,987
|
|
Prepaid
expenses and other current assets
|
|
|
171,104
|
|
|
|
(14,898
|
)
|
|
|
427,472
|
|
|
|
-
|
|
|
|
583,678
|
|
Refundable
income taxes
|
|
|
139,000
|
|
|
|
-
|
|
|
|
(139,000
|
)
|
|
|
-
|
|
|
|
-
|
|
Current
portion of deferred tax assets
|
|
|
265,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
265,000
|
|
Assets
to be disposed of, discontinued operations
|
|
|
-
|
|
|
|
1,084,447
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,084,447
|
|
Total
current assets
|
|
|
13,097,809
|
|
|
|
212,497
|
|
|
|
(175,068
|
)
|
|
|
-
|
|
|
|
13,135,238
|
|
Property
and equipment, net
|
|
|
1,450,043
|
|
|
|
(126,034
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,324,009
|
|
Goodwill
|
|
|
2,239,563
|
|
|
|
(86,463
|
)
|
|
|
-
|
|
|
|
458,516
|
|
|
|
2,611,616
|
|
Other
intangible assets, net
|
|
|
747,406
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
747,406
|
|
Long-term
portion of deferred tax assets
|
|
|
448,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
448,000
|
|
Other
assets
|
|
|
-
|
|
|
|
-
|
|
|
|
36,068
|
|
|
|
-
|
|
|
|
36,068
|
|
Total
assets
|
|
$
|
17,982,821
|
|
|
$
|
-
|
|
|
$
|
(139,000
|
)
|
|
$
|
458,516
|
|
|
$
|
18,302,337
|
|
Liabilities
and shareholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Line
of credit
|
|
$
|
300,000
|
|
|
$
|
(300,000
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Current
portion of long-term debt
|
|
|
210,750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
210,750
|
|
Current
portion of long-term debt, related parties
|
|
|
1,580,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,580,000
|
|
Accounts
payable
|
|
|
5,936,758
|
|
|
|
(730,002
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
5,206,756
|
|
Accrued
payroll and related taxes
|
|
|
480,165
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
480,165
|
|
Accrued
expenses and other current liabilities
|
|
|
633,930
|
|
|
|
(73,671
|
)
|
|
|
-
|
|
|
|
|
|
|
|
560,259
|
|
Income
taxes payable
|
|
|
69,533
|
|
|
|
-
|
|
|
|
(139,000
|
)
|
|
|
164,468
|
|
|
|
95,001
|
|
Liabilities
to be disposed of, discontinued operations
|
|
|
-
|
|
|
|
1,103,673
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,103,673
|
|
Total
current liabilities
|
|
|
9,211,136
|
|
|
|
-
|
|
|
|
(139,000
|
)
|
|
|
164,468
|
|
|
|
9,236,604
|
|
Long-term
debt, net of current portion
|
|
|
285,563
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
285,563
|
|
Long-term
debt, net of current, due related parties
|
|
|
313,333
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
313,333
|
|
Total
liabilities
|
|
|
9,810,032
|
|
|
|
-
|
|
|
|
(139,000
|
)
|
|
|
164,468
|
|
|
|
9,835,500
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
400,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
400,000
|
|
Common
stock
|
|
|
398
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
398
|
|
Additional
paid-in capital
|
|
|
17,753,223
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17,753,223
|
|
Accumulated
deficit
|
|
|
(9,980,832
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
294,048
|
|
|
|
(9,686,784
|
)
|
Total
shareholders' equity
|
|
|
8,172,789
|
|
|
|
-
|
|
|
|
-
|
|
|
|
294,048
|
|
|
|
8,466,837
|
|
Total
liabilities and shareholders' equity
|
|
$
|
17,982,821
|
|
|
$
|
-
|
|
|
$
|
(139,000
|
)
|
|
$
|
458,516
|
|
|
$
|
18,302,337
|
|
|
(1)
|
Topsfield,
ADCO, and ADCO South have been reclassified as discontinued operations in
the Company’s financial statements. See Note 11, Discontinued
operations, for further
information.
|
|
(2)
|
Vendor
rebates receivable of $463,540 was reclassified from accounts receivable
trade to prepaid expenses and other current assets and security deposits
of $36,068 were reclassified from prepaid expenses and other current
assets to other assets in order to conform to the presentation in the June
30, 2009, consolidated balance sheet; and refundable income taxes of
$139,000 were reclassified to accrued federal income taxes due to the
additional taxes due as a result of the restatement
error.
|
|
(3)
|
The
impact of the restatement adjustment on the Company’s previously reported
consolidated balance sheet as of March 31, 2008, was goodwill
increased $458,516,
income taxes payable increased $164,468, and accumulated deficit decreased
by $294,048.
|
|
|
Consolidated Statement of Operations
|
|
|
|
Three months ended March 31, 2008
|
|
|
|
As Previously
|
|
|
Discontinued
|
|
|
|
|
|
Restatement
|
|
|
|
|
|
|
Reported
|
|
|
Operations
(1)
|
|
|
Reclasses
(2)
|
|
|
Adjustments
(3)
|
|
|
Restated
|
|
Net
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
18,098,491
|
|
|
$
|
(1,628,763
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
16,469,728
|
|
Dispensing
fees
|
|
|
825,380
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
825,380
|
|
Total
net revenues
|
|
|
18,923,871
|
|
|
|
(1,628,763
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
17,295,108
|
|
Cost
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
14,114,180
|
|
|
|
(1,119,823
|
)
|
|
|
(60,000
|
)
|
|
|
-
|
|
|
|
12,934,357
|
|
Selling,
general, and administrative expenses
|
|
|
4,936,086
|
|
|
|
(510,117
|
)
|
|
|
60,000
|
|
|
|
(142,086
|
)
|
|
|
4,343,883
|
|
Depreciation
and amortization
|
|
|
149,472
|
|
|
|
(9,284
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
140,188
|
|
Total
costs and expenses
|
|
|
19,199,738
|
|
|
|
(1,639,224
|
)
|
|
|
-
|
|
|
|
(142,086
|
)
|
|
|
17,418,428
|
|
(Loss)
income from operations
|
|
|
(275,867
|
)
|
|
|
10,461
|
|
|
|
-
|
|
|
|
142,086
|
|
|
|
(123,320
|
)
|
Other
income (expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(36,469
|
)
|
|
|
258
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(36,211
|
)
|
Interest
income
|
|
|
2,653
|
|
|
|
(913
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,740
|
|
Other
income
|
|
|
2,566
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,566
|
|
Total
other income (expense), net
|
|
|
(31,250
|
)
|
|
|
(655
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(31,905
|
)
|
(Loss)
income from continuing operations before provision for income taxes and
minority interest
|
|
|
(307,117
|
)
|
|
|
9,806
|
|
|
|
-
|
|
|
|
142,086
|
|
|
|
(155,225
|
)
|
(Benefit)
provision for income taxes
|
|
|
(90,127
|
)
|
|
|
972
|
|
|
|
-
|
|
|
|
50,966
|
|
|
|
(38,189
|
)
|
Minority
interest expense, net of income taxes
|
|
|
1,095
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,095
|
|
(Loss)
income from continuing operations
|
|
|
(215,895
|
)
|
|
|
8,834
|
|
|
|
-
|
|
|
|
91,120
|
|
|
|
(115,941
|
)
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
from discontinued operations, net (1)
|
|
|
-
|
|
|
|
(8,834
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,834
|
)
|
Gain
of disposal of discontinued operations, net (1)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net
gain from discontinued operations
|
|
|
-
|
|
|
|
(8,834
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,834
|
)
|
Net
(loss) income
|
|
|
(215,895
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
91,120
|
|
|
|
(124,775
|
)
|
Deemed
dividend on redemption of preferred stock
|
|
|
(399,997
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(399,997
|
)
|
Net
loss attributable to common shareholders
|
|
$
|
(615,892
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
91,120
|
|
|
$
|
(524,772
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share, continuing operations, net of deemed dividend on redemption of
preferred stock
|
|
$
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.13
|
)
|
Earnings
(loss) per share, discontinued operations
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.00
|
|
Loss
per share attributable to common shareholders
|
|
$
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used in computing loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,978,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,978,199
|
|
Diluted
|
|
|
3,978,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,978,199
|
|
|
(1)
|
Topsfield,
ADCO, and ADCO South have been reclassified as discontinued operations in
the Company’s financial statements. See Note 11, Discontinued
operations, for further
information.
|
|
(2)
|
The
LIFO charge has been reclassified from selling, general, and
administrative expenses to cost of sales in order to conform to the
presentation in the fiscal year 2009 consolidated statement of
operations.
|
|
(3)
|
The
impact of the restatement adjustment on the Company’s previously reported
consolidated net loss of $215,895 for the three months ended March 31,
2008, was a decrease in selling, general, and administrative expenses of
$142,086, an increase in the provision for income taxes of $50,966, and an
increase in net income of $91,120. Net loss per share
attributable to common shareholders as previously stated was $0.16 per
share and as restated is $0.13 per
share.
|
|
|
Consolidated Statement of Operations
|
|
|
|
Nine months ended March 31, 2008
|
|
|
|
As Previously
|
|
|
Discontinued
|
|
|
|
|
|
Restatement
|
|
|
|
|
|
|
Reported
|
|
|
Operations
(1)
|
|
|
Reclasses
(2)
|
|
|
Adjustments
(3)
|
|
|
Restated
|
|
Net
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
53,626,029
|
|
|
$
|
(5,230,799
|
)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
48,395,230
|
|
Dispensing
fees
|
|
|
2,323,140
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,323,140
|
|
Total
net revenues
|
|
|
55,949,169
|
|
|
|
(5,230,799
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
50,718,370
|
|
Cost
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
41,892,178
|
|
|
|
(3,731,234
|
)
|
|
|
(172,192
|
)
|
|
|
|
|
|
|
37,988,752
|
|
Selling,
general, and administrative expenses
|
|
|
14,269,639
|
|
|
|
(1,529,963
|
)
|
|
|
172,192
|
|
|
|
(458,516
|
)
|
|
|
12,453,352
|
|
Depreciation
and amortization
|
|
|
447,241
|
|
|
|
(34,427
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
412,814
|
|
Total
costs and expenses
|
|
|
56,609,058
|
|
|
|
(5,295,624
|
)
|
|
|
-
|
|
|
|
(458,516
|
)
|
|
|
50,854,918
|
|
(Loss)
income from operations
|
|
|
(659,889
|
)
|
|
|
64,825
|
|
|
|
-
|
|
|
|
458,516
|
|
|
|
(136,548
|
)
|
Other
income (expense), net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(52,589
|
)
|
|
|
451
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(52,138
|
)
|
Interest
income
|
|
|
11,348
|
|
|
|
(2,773
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
8,575
|
|
Other
income
|
|
|
19,457
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,457
|
|
Total
other income (expense), net
|
|
|
(21,784
|
)
|
|
|
(2,322
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(24,106
|
)
|
(Loss)
income from continuing operations before provision for income taxes and
minority interest
|
|
|
(681,673
|
)
|
|
|
62,503
|
|
|
|
-
|
|
|
|
458,516
|
|
|
|
(160,654
|
)
|
(Benefit)
provision for income taxes
|
|
|
(187,377
|
)
|
|
|
14,025
|
|
|
|
-
|
|
|
|
164,468
|
|
|
|
(8,884
|
)
|
Minority
interest expense, net of income taxes
|
|
|
(37,039
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(37,039
|
)
|
(Loss)
income from continuing operations
|
|
|
(531,335
|
)
|
|
|
48,478
|
|
|
|
-
|
|
|
|
294,048
|
|
|
|
(188,809
|
)
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
(loss) from discontinued operations, net
|
|
|
-
|
|
|
|
(48,477
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(48,477
|
)
|
Gain
of disposal of discontinued operations, net
|
|
|
182,628
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
182,628
|
|
Net
gain from discontinued operations
|
|
|
182,628
|
|
|
|
(48,477
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
134,151
|
|
Net
(loss) income
|
|
|
(348,707
|
)
|
|
|
1
|
|
|
|
-
|
|
|
|
294,048
|
|
|
|
(54,658
|
)
|
Deemed
dividend on redemption of preferred stock
|
|
|
(399,997
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(399,997
|
)
|
Net
loss attributable to common shareholders
|
|
$
|
(748,704
|
)
|
|
$
|
1
|
|
|
$
|
-
|
|
|
$
|
294,048
|
|
|
$
|
(454,655
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share, continuing operations, net of deemed dividend on redemption of
preferred stock
|
|
$
|
(0.24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.15
|
)
|
Earnings
(loss) per share, discontinued operations
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.04
|
|
Loss
per share attributable to common shareholders
|
|
$
|
(0.19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used in computing loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,978,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,978,199
|
|
Diluted
|
|
|
3,978,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,978,199
|
|
|
(1)
|
Topsfield,
ADCO, and ADCO South have been reclassified as discontinued operations in
the Company’s financial statements. See Note 11, Discontinued
operations, for further
information.
|
|
(2)
|
The
LIFO charge has been reclassified from selling, general, and
administrative expenses to cost of sales in order to conform to the
presentation in the fiscal year 2009 consolidated statement of
operations.
|
|
(3)
|
The
impact of the restatement adjustment on the Company’s previously reported
consolidated net loss of $748,704 for the nine months ended March 31,
2008, was a decrease in selling, general, and administrative expenses of
$458,516, an increase in the provision for income taxes of $164,468, and
an increase in net income of $294,048. Net loss per share
attributable to common shareholders as previously stated was $0.19 per
share and as restated is net loss per share $0.11 per
share.
|
|
|
Consolidated
Statement of Cash Flows
|
|
|
|
Nine months ended March 31,
2008
|
|
|
|
As Previously
|
|
|
Discontinued
|
|
|
Restatement
|
|
|
|
|
|
|
Reported
|
|
|
Operations
(1)
|
|
|
Adjustments
(2)
|
|
|
Restated
|
|
Operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$
|
(531,335
|
)
|
|
$
|
182,628
|
|
|
$
|
294,048
|
|
|
$
|
(54,659
|
)
|
Gain
from discontinued operations
|
|
|
-
|
|
|
|
(134,151
|
)
|
|
|
-
|
|
|
|
(134,151
|
)
|
(Loss)
income from continuing operations
|
|
|
(531,335
|
)
|
|
|
48,477
|
|
|
|
294,048
|
|
|
|
(188,810
|
)
|
Adjustments
to reconcile (loss) income from continuing operations to cash (used in)
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
344,373
|
|
|
|
(34,094
|
)
|
|
|
-
|
|
|
|
310,279
|
|
Amortization
|
|
|
102,868
|
|
|
|
(333
|
)
|
|
|
-
|
|
|
|
102,535
|
|
Stock-based
compensation expense
|
|
|
57,183
|
|
|
|
-
|
|
|
|
-
|
|
|
|
57,183
|
|
Deferred
income taxes
|
|
|
(120,000
|
)
|
|
|
(42,900
|
)
|
|
|
-
|
|
|
|
(162,900
|
)
|
Minority
interest
|
|
|
37,039
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37,039
|
|
Changes
in operating assets and liabilities, net of effects of acqusitions and
disposals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
376,148
|
|
|
|
(232,019
|
)
|
|
|
-
|
|
|
|
144,129
|
|
Inventories
|
|
|
(177,224
|
)
|
|
|
(508,214
|
)
|
|
|
-
|
|
|
|
(685,438
|
)
|
Prepaid
expenses and other current assets
|
|
|
89,107
|
|
|
|
192,013
|
|
|
|
-
|
|
|
|
281,120
|
|
Refundable
income taxes
|
|
|
(55,000
|
)
|
|
|
139,000
|
|
|
|
-
|
|
|
|
84,000
|
|
Accounts
payable
|
|
|
1,899,265
|
|
|
|
(38,575
|
)
|
|
|
-
|
|
|
|
1,860,690
|
|
Accrued
payroll and related taxes
|
|
|
(271,747
|
)
|
|
|
9,743
|
|
|
|
-
|
|
|
|
(262,004
|
)
|
Accrued
expenses and other current liabililties
|
|
|
288,731
|
|
|
|
17,558
|
|
|
|
-
|
|
|
|
306,289
|
|
Income
taxes payable
|
|
|
2,088
|
|
|
|
(139,000
|
)
|
|
|
164,468
|
|
|
|
27,556
|
|
Cash
(used in) provided by operating activities, continuing
operations
|
|
|
2,041,496
|
|
|
|
(588,344
|
)
|
|
|
458,516
|
|
|
|
1,911,668
|
|
Cash
provided by operating activities, discontinued operations
|
|
|
-
|
|
|
|
512,135
|
|
|
|
-
|
|
|
|
512,135
|
|
Cash
(used in) provided by operating activities
|
|
|
2,041,496
|
|
|
|
(76,209
|
)
|
|
|
458,516
|
|
|
|
2,423,803
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of 20% of subsidiary
|
|
|
(1,750,000
|
)
|
|
|
-
|
|
|
|
(458,516
|
)
|
|
|
(2,208,516
|
)
|
Acquisition
of pharmacy, net of cash
|
|
|
(552,115
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(552,115
|
)
|
Purchase
of property and equipment
|
|
|
(361,170
|
)
|
|
|
595
|
|
|
|
-
|
|
|
|
(360,575
|
)
|
Other
|
|
|
-
|
|
|
|
(6,103
|
)
|
|
|
-
|
|
|
|
(6,103
|
)
|
Cash
used in investing activities, continuing operations
|
|
|
(2,663,285
|
)
|
|
|
(5,508
|
)
|
|
|
(458,516
|
)
|
|
|
(3,127,309
|
)
|
Cash
provided by (used in) investing activities, discontinued
operations
|
|
|
-
|
|
|
|
(595
|
)
|
|
|
-
|
|
|
|
(595
|
)
|
Cash
provided by (used in) investing activities
|
|
|
(2,663,285
|
)
|
|
|
(6,103
|
)
|
|
|
(458,516
|
)
|
|
|
(3,127,904
|
)
|
Financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from line of credit
|
|
|
175,000
|
|
|
|
(175,000
|
)
|
|
|
-
|
|
|
|
-
|
|
Payments
on long-term debt
|
|
|
(151,060
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(151,060
|
)
|
Cash
used in financing activities, continuing operations
|
|
|
23,940
|
|
|
|
(175,000
|
)
|
|
|
-
|
|
|
|
(151,060
|
)
|
Cash
provided by financing activities, discontinued operations
|
|
|
(116,000
|
)
|
|
|
291,000
|
|
|
|
-
|
|
|
|
175,000
|
|
Cash
used in financing activities
|
|
|
(92,060
|
)
|
|
|
116,000
|
|
|
|
-
|
|
|
|
23,940
|
|
Net
decrease in cash
|
|
|
(713,849
|
)
|
|
|
33,688
|
|
|
|
-
|
|
|
|
(680,161
|
)
|
Cash
at beginning of period
|
|
|
1,172,081
|
|
|
|
(36,404
|
)
|
|
|
-
|
|
|
|
1,135,677
|
|
Cash
at end of period
|
|
$
|
458,232
|
|
|
$
|
(2,716
|
)
|
|
$
|
-
|
|
|
$
|
455,516
|
|
|
(1)
|
Topsfield,
ADCO, and ADCO South have been reclassified as discontinued operations in
the Company’s financial statements. See Note 11, Discontinued
operations, for further
information.
|
|
(2)
|
The impact of the restatement
adjustment on the Company’s previously reported consolidated cash flows
for the nine months ended March 31, 2008, was cash provided by operating
activities from continuing operations increased $458,516 due to an
increase in net income from continuing operations of $294,048 and a
increase in accrued expenses and other current liabilities of
$164,468. Cash used in investing activities from continuing
operations increased
$458,516.
|
The
impact of the restatement adjustments on the consolidated balance sheet as of
September 30, 2008, December 31, 2008, and March 31, 2009, were as
follows: goodwill increased $458,516, income taxes payable increased
$164,468, and accumulated deficit decreased by $294,048. In addition,
refundable income taxes as of September 30, 2008, and December 31, 2008, of
$62,824 were reclassified to accrued federal income taxes due to the additional
taxes due as a result of the restatement error.
The restatement
adjustments did not have an impact on the consolidated statement of operations
or the consolidated statement of cash flows for fiscal year 2009. The
following table reflects the restated consolidated balance sheet for the periods
impacted in fiscal 2009:
|
|
Consolidated Balance Sheets
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
|
(restated)
|
|
|
(restated)
|
|
|
(restated)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
407,707
|
|
|
$
|
474,874
|
|
|
$
|
42,317
|
|
Accounts
receivable, net
|
|
|
5,082,956
|
|
|
|
5,592,505
|
|
|
|
5,268,027
|
|
Inventories,
net
|
|
|
7,757,827
|
|
|
|
7,305,770
|
|
|
|
7,416,931
|
|
Prepaid
expenses and other current assets
|
|
|
218,235
|
|
|
|
127,507
|
|
|
|
171,122
|
|
Current
portion of deferred tax assets
|
|
|
199,000
|
|
|
|
199,000
|
|
|
|
195,000
|
|
Assets
to be disposed of, discontinued operations
|
|
|
263,607
|
|
|
|
380,363
|
|
|
|
221,001
|
|
Total
current assets
|
|
|
13,929,332
|
|
|
|
14,080,019
|
|
|
|
13,314,398
|
|
Property
and equipment, net
|
|
|
1,379,457
|
|
|
|
1,351,436
|
|
|
|
1,374,398
|
|
Goodwill
|
|
|
2,611,616
|
|
|
|
2,611,616
|
|
|
|
2,611,616
|
|
Other
intangible assets, net
|
|
|
702,229
|
|
|
|
669,872
|
|
|
|
647,915
|
|
Long-term
portion of deferred tax assets
|
|
|
379,000
|
|
|
|
379,000
|
|
|
|
406,000
|
|
Long-term
portion of deferred tax assets, discontinued operations
|
|
|
70,000
|
|
|
|
70,000
|
|
|
|
-
|
|
Total
assets
|
|
$
|
19,071,634
|
|
|
$
|
19,161,943
|
|
|
$
|
18,354,327
|
|
Liabilities
and shareholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt and lease financing obligations
|
|
$
|
149,771
|
|
|
$
|
115,583
|
|
|
$
|
81,396
|
|
Current
portion of long-term debt, related parties
|
|
|
230,000
|
|
|
|
230,000
|
|
|
|
80,004
|
|
Accounts
payable
|
|
|
6,514,130
|
|
|
|
6,363,309
|
|
|
|
6,144,766
|
|
Accrued
payroll and related taxes
|
|
|
668,867
|
|
|
|
627,261
|
|
|
|
674,928
|
|
Accrued
expenses and other current liabilities
|
|
|
352,968
|
|
|
|
240,243
|
|
|
|
142,007
|
|
Income
taxes payable
|
|
|
139,824
|
|
|
|
292,498
|
|
|
|
164,468
|
|
Liabilities
to be disposed of, discontinued operations
|
|
|
312,852
|
|
|
|
381,530
|
|
|
|
309,414
|
|
Total
current liabilities
|
|
|
8,368,412
|
|
|
|
8,250,424
|
|
|
|
7,596,983
|
|
Long-term
debt and lease financing obligations, net of current
portion
|
|
|
239,167
|
|
|
|
221,667
|
|
|
|
204,167
|
|
Long-term
debt, net of current portion, related parties
|
|
|
1,623,333
|
|
|
|
1,603,333
|
|
|
|
1,733,329
|
|
Total
liabilities
|
|
|
10,230,912
|
|
|
|
10,075,424
|
|
|
|
9,534,479
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
400,000
|
|
|
|
400,000
|
|
|
|
400,000
|
|
Common
stock
|
|
|
398
|
|
|
|
398
|
|
|
|
398
|
|
Additional
paid-in capital
|
|
|
17,792,362
|
|
|
|
17,813,450
|
|
|
|
17,821,572
|
|
Accumulated
deficit
|
|
|
(9,352,038
|
)
|
|
|
(9,127,329
|
)
|
|
|
(9,402,122
|
)
|
Total
shareholders' equity
|
|
|
8,840,722
|
|
|
|
9,086,519
|
|
|
|
8,819,848
|
|
Total
liabilities and shareholders' equity
|
|
$
|
19,071,634
|
|
|
$
|
19,161,943
|
|
|
$
|
18,354,327
|
|
4.
Change in control and
purchase of 20% of subsidiary
In
February 2008, the Company completed its acquisition of the remaining 20% of the
outstanding common stock of its pharmacies’ subsidiary, DAW through a series of
transactions (the “Acquisition”). In consideration for the
Acquisition, the Company paid and issued the following: (i) a cash payment of
$1,750,000, (ii) 2,000 shares of a newly created Series 2 Class B Convertible
Preferred Stock that would initially be convertible into 218,000 shares of the
Company’s common stock. The conversion rate of the shares would be
adjusted, if at the time of the conversion, the Company has issued additional
shares of common stock below $1.84 per share. The shares have the
same aggregate 4,000,000 voting rights as the Company’s then existing Class A
Preferred Stock (the “Class A Stock”) and Class B Preferred Stock (the “Class B
Stock”), (iii) promissory notes in the aggregate principal amount of $350,000,
and (iv) convertible promissory notes in the aggregate principal amount of
$1,500,000 which would be convertible into common stock of the Company at an
initial conversion price of $1.84 per share, subject to adjustment (collectively
(i) through (iv), the “Consideration”). The Company also incurred
transactions costs of $458,516.
The
following table summarizes the final purchase accounting based on the fair value
of the assets acquired and the carrying value of the minority interest at the
date of the acquisition:
|
|
Allocation of
|
|
|
|
Purchase Price
|
|
Purchase
price allocation:
|
|
|
|
Goodwill
|
|
$
|
2,593,616
|
|
Minority
interest
|
|
|
1,864,900
|
|
Total
purchase price
|
|
$
|
4,458,516
|
|
The
Company entered into a registration rights agreement with the Minority
Shareholders (i.e., Messrs. Mark Dumouchel, David Dumouchel, Wayne Gunter,
Donato Mazzola, and Ms. Lucille Curry). The Company entered into an
amendment with Karen Wright to amend Ms. Wright’s employment agreement to
reflect her resignation as President and Vice President of Operations of the
Company. Ms. Wright was reappointed as Vice President of Finance,
Treasurer and Secretary. Messrs. Mark and David Dumouchel were
elected to the Company’s Board of Directors; Mr. Mark Dumouchel was appointed
President and Chief Executive Officer; and three-year employment agreements were
entered into with DAW and each of Messrs. Mark Dumouchel, David Dumouchel, Wayne
Gunter, Donato Mazzola, and Michael Curry. Certain of the Minority
Shareholders purchased from Nyle International Corp. (“Nyle”) 597,826 shares of
the Company’s common stock (the “Nyle Purchase”) for $1.84 per
share. Prior to the Acquisition, Mr. Nyer, through his ownership of
the Class A Stock and the Class B Stock, which carried 4,000,000 votes in the
aggregate, controlled a majority of the Company’s voting
securities.
In
February 2008, the Company purchased from Samuel Nyer (Mr. Nyer), 2,000 shares
of the Company’s Class A Stock and 1,000 shares of the Company’s Class B Stock
held by Mr. Nyer (which represented all of the then issued and outstanding
shares of such preferred stock) in exchange for a promissory note in the amount
of $400,000 (the “Samuel Nyer Purchase”).
As a
result of the Acquisition including the issuance of the newly issued Series 2
Preferred Stock to the minority shareholders of DAW (the “Minority
Shareholders”), the Nyle Purchase, the Samuel Nyer Purchase and the appointment
of Mark and David Dumouchel to fill director and officer vacancies, there has
been a change of control of the Company with the former Minority Shareholders
owning approximately 57.6% of the voting power of the Company’s outstanding
common stock.
5.
Inventories
Inventories
consisted of the following at June 30:
|
|
June 30
|
|
|
|
2009
|
|
|
2008
|
|
Pharmacies
|
|
$
|
8,371,689
|
|
|
$
|
8,260,293
|
|
LIFO
reserves
|
|
|
(1,405,582
|
)
|
|
|
(1,283,590
|
)
|
Inventory,
net
|
|
$
|
6,966,107
|
|
|
$
|
6,976,703
|
|
The
pharmacies use the LIFO method of accounting for their
inventories. At June 30, 2009 and 2008, inventories were $1,405,582
and $1,283,590, respectively, lower than the amounts that would have been
reported using the first-in, first-out (“FIFO”) method. The LIFO
charge was $121,992 and $177,689 for the year ended June 30, 2009 and 2008,
respectively.
In July
2006, DAW executed an agreement with its major supplier to purchase
pharmaceuticals and amended such agreement in February 2008. This
amended agreement extended the termination date from January 2009 to January 31,
2012, and allowed for a two-week rolling extension of payment
terms. Payment for merchandise delivered is secured by a first
priority interest in all of DAW’S assets of approximately $17
million. DAW has committed to maintain a $200,000 store monthly
purchase average from this supplier. If the relationship with this
supplier was disrupted, management believes it has other competitive suppliers
who could fulfill their inventory needs at no additional expense.
6.
Prepaid expenses and other
current assets
Prepaid
expenses and other current assets consisted of the following:
|
|
June 30
|
|
|
|
2009
|
|
|
2008
|
|
Vendor
rebates receivable
|
|
$
|
906,372
|
|
|
$
|
392,456
|
|
Prepaid
other
|
|
|
72,854
|
|
|
|
272,393
|
|
Total
prepaid expenses and other current assets
|
|
$
|
979,226
|
|
|
$
|
664,849
|
|
7.
Property, plant, and
equipment
The
following is a summary of property, plant, and equipment, including capital
lease assets:
|
|
June 30
|
|
|
|
2009
|
|
|
2008
|
|
Fixtures
and equipment
|
|
$
|
2,135,639
|
|
|
$
|
1,682,475
|
|
Transportation
equipment
|
|
|
343,117
|
|
|
|
273,991
|
|
Leasehold
improvements
|
|
|
1,788,058
|
|
|
|
1,754,921
|
|
|
|
|
4,266,814
|
|
|
|
3,711,387
|
|
Accumulated
depreciation
|
|
|
(2,872,970
|
)
|
|
|
(2,370,332
|
)
|
|
|
$
|
1,393,844
|
|
|
$
|
1,341,055
|
|
Depreciation
expense, which included amortization of assets recorded under capital leases,
was $539,978 and $420,888 for fiscal year 2009 and 2008,
respectively.
8.
Goodwill and other
intangible assets
The
following is a summary of the changes in the carrying amount of
goodwill:
|
|
June 30
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(restated)
|
|
Balance,
beginning of year
|
|
$
|
2,611,616
|
|
|
$
|
18,000
|
|
Goodwill
recorded on acquisition
|
|
|
-
|
|
|
|
2,593,616
|
|
Goodwill
written off on disposition of discontinued
operations
|
|
|
(18,000
|
)
|
|
|
-
|
|
|
|
$
|
2,593,616
|
|
|
$
|
2,611,616
|
|
The
following is a summary of other intangible assets, which consist of prescription
lists:
June 30, 2009
|
|
|
June 30, 2008
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
|
Value
|
|
|
Amortization
|
|
|
Value
|
|
$
|
1,011,555
|
|
|
$
|
(385,596
|
)
|
|
$
|
625,959
|
|
|
$
|
1,371,555
|
|
|
$
|
(646,437
|
)
|
|
$
|
725,118
|
|
Amortization
expense of other intangible assets was $88,492 and $124,490 for fiscal year 2009
and 2008, respectively.
Based on
the balance of other intangible assets at June 30, 2009, the annual amortization
expense for each of the succeeding five years is estimated to be as
follows:
|
|
Amortization
|
|
Year
|
|
Amount
|
|
2010
|
|
|
87,822
|
|
2011
|
|
|
87,822
|
|
2012
|
|
|
85,716
|
|
2013
|
|
|
81,156
|
|
2014
|
|
|
81,156
|
|
Thereafter
|
|
|
202,287
|
|
Total
|
|
$
|
625,959
|
|
9.
Notes payable and other
related party transactions
Notes
payable
The
following is a summary on notes payable:
|
|
June 30
|
|
|
|
2009
|
|
|
2008
|
|
Related
parties:
|
|
|
|
|
|
|
Convertible
notes
|
|
$
|
1,500,000
|
|
|
$
|
1,500,000
|
|
Note
payable, shareholder
|
|
|
293,333
|
|
|
|
373,333
|
|
|
|
|
1,793,333
|
|
|
|
1,873,333
|
|
Less
current portion of debt due related parties
|
|
|
80,004
|
|
|
|
80,004
|
|
Long-term
portion of debt due related parties
|
|
$
|
1,713,329
|
|
|
$
|
1,793,329
|
|
|
|
|
|
|
|
|
|
|
Other
debt:
|
|
|
|
|
|
|
|
|
Note
payable, former shareholder
|
|
$
|
256,668
|
|
|
$
|
326,667
|
|
Obligations
under capital leases
|
|
|
165,266
|
|
|
|
-
|
|
Note
payable, pharmacy acquisition
|
|
|
-
|
|
|
|
113,958
|
|
|
|
|
421,934
|
|
|
|
440,625
|
|
Less
current portion of debt
|
|
|
106,058
|
|
|
|
183,958
|
|
Long-term
portion of debt
|
|
$
|
315,876
|
|
|
$
|
256,667
|
|
At June
30, 2009, the following were the maturities of debt:
Year
|
|
Maturities
|
|
2010
|
|
$
|
186,062
|
|
2011
|
|
|
1,686,048
|
|
2012
|
|
|
186,048
|
|
2013
|
|
|
136,048
|
|
2014
|
|
|
21,061
|
|
|
|
$
|
2,215,267
|
|
In
February 2008, Convertible Notes were issued to the former Minority
Shareholders, in the aggregate amount of $1,500,000. The Convertible
Notes bear interest at the rate of 8% per annum, and are due on February 4,
2011. After February 4, 2009 (the first anniversary of the
transaction), any of the former Minority Shareholders can convert all or any
portion of their allocable payment of such notes into shares of the Company’s
common stock at an initial conversion price of $1.84 per share. They
can also redeem for cash. The former minority shareholders have
indicated that they do not intend to redeem the Convertible Notes until after
July 1, 2010.
In
February 2008, an unsecured a promissory note, maturing in February 2013, was
issued to Mr. Nyer in the amount of $400,000 for the purchase of the Company’s
2,000 shares of Class A Stock and 1,000 shares of Class B Stock. The
note is payable in equal monthly installments of $6,667 plus interest on the
unpaid balance at 7%.
In
February 2008, an unsecured promissory note, maturing in February 2013, was
issued to the former Minority Shareholders in the amount of
$350,000. The note is payable in equal monthly installments of $5,833
plus 7% interest on the unpaid balance. The note was assigned to Nyle
on February 4, 2008, by the Minority Shareholders as consideration for their
purchase of common stock of the Company owned by Nyle.
The
Company also had a note payable for an acquisition of a pharmacy, collateralized
by pharmacy inventory, payable in equal monthly installments of $4,000 plus
interest on the unpaid balance at 5%. The note matured and was paid
in full in April 2008.
In
addition, the Company had a note payable for an acquisition of a pharmacy,
payable in equal monthly installments of $11,396 plus interest on the unpaid
balance at 6%. The note matured and was paid in full in March
2009.
The
Company’s discontinued operations, ADCO Surgical Supply, Inc., (“ADCO”) had a
line of credit (“line”), which was secured by land and a building owned by ADCO
(not sold with the rest of ADCO’s assets) and guaranteed by the
Company. Repayment of the line was in monthly payments of interest
only, with the principal being due at maturity, unless
renewed. Prior to the maturity date, ADCO would have had to
repay the amounts outstanding under the line upon the demand of the
Bank. The interest rate was two percentage points over the
Wall Street Journal
Prime
Rate. As of June 30, 2009, borrowings outstanding against the line
were $300,000 and were included in the liabilities to be disposed of from
discontinued operations on the Company’s balance sheet. The building
that was used as collateral for the line of credit was sold on September 21,
2009. A portion of the proceeds from the sale were used to pay off
the line, and the line was terminated as of September 21,
2009.
Other related party
transactions
The
Company leases a drug store facility owned by the mother of the Company’s
president, chief executive officer, and director and another
director. The Company paid $81,500 for fiscal year 2009 and
2008. The lease expires July 31, 2011.
10.
Accrued expenses and
other current liabilities
Accrued
expenses and other current liabilities consisted of the following:
|
|
June 30
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(restated)
|
|
Accrued
salaries and wages
|
|
$
|
732,989
|
|
|
$
|
608,208
|
|
Accrued
income taxes
|
|
|
198,139
|
|
|
|
164,423
|
|
Accrued
other
|
|
|
197,248
|
|
|
|
442,802
|
|
Total
accrued expenses and other current liabilities
|
|
$
|
1,128,376
|
|
|
$
|
1,215,433
|
|
11.
Discontinued
operations
In December 2008, the Company sold the
inventory and prescription lists of its Topsfield pharmacy to CVS Pharmacy
L.L.C. (“CVS”). In conjunction with this sale, the Company also
entered into a non-compete agreement with CVS, whereby it has agreed not to
compete for three years within a 10-mile radius of the CVS store located in
Danvers, Massachusetts, excluding two currently operating Eaton Apothecary
pharmacies. A gain of $507,000 was recognized on the sale of
Topsfield.
In
September 2008, the Company sold certain assets and liabilities of ADCO, a
medical and surgical equipment and supplies company engaged in both the
wholesale and retail selling of medical equipment and surgical supplies
throughout New England and the internet. A loss on disposal of
$193,260 was recognized on the sale of ADCO’s certain assets and
liabilities. The Company retained ADCO’s building and land and its
line of credit of $300,000, which has been fully utilized. The buyer
of ADCO’s assets had an option to purchase the building and land that was not
exercised and expired on January 31, 2009. In connection with
this sale, the Company received a $50,000 note receivable that was payable
January 31, 2009. The Company and the buyer are currently in dispute
over certain assets and liabilities that were included in the ADCO
sale, and the note receivable has not been paid. The Company is
unable to determine the final outcome of this dispute, but it may result in an
additional charge to the disposal of discontinued operations.
During
the fiscal year ended June 30, 2008, the Company operated ADCO South, a medical
and surgical equipment and supplies company engaged in the wholesale selling of
medical equipment and surgical supplies throughout Florida. In June
2008, the Company sold ADCO South and recognized a loss on the sale of
$3,848.
In
December 2007, the Company reevaluated the outstanding liabilities related to
its fire and police segment (discontinued in 2004) and concluded there were no
remaining liabilities. The liabilities were reversed and a $298,628
gain has been reflected in loss of discontinued operations.
The
following is a summary of the assets and liabilities for discontinued
operations:
|
|
June 30
|
|
|
|
2009
|
|
|
2008
|
|
Cash
|
|
$
|
2,275
|
|
|
$
|
33,293
|
|
Accounts
receivable, net
|
|
|
-
|
|
|
|
323,681
|
|
Inventories
|
|
|
-
|
|
|
|
707,820
|
|
Prepaid
expenses and other current assets
|
|
|
-
|
|
|
|
12,828
|
|
Property
and equipment, net
|
|
|
112,001
|
|
|
|
120,942
|
|
Current
portion of deferred tax assets
|
|
|
105,200
|
|
|
|
73,000
|
|
Goodwill
|
|
|
-
|
|
|
|
86,463
|
|
Long-term
portion of deferred tax assets
|
|
|
-
|
|
|
|
70,000
|
|
Total
assets
|
|
$
|
219,476
|
|
|
$
|
1,428,027
|
|
|
|
|
|
|
|
|
|
|
Line
of credit
|
|
$
|
300,000
|
|
|
$
|
300,000
|
|
Accounts
payable
|
|
|
-
|
|
|
|
566,833
|
|
Accrued
payroll and related taxes
|
|
|
-
|
|
|
|
28,187
|
|
Accrued
expenses and other liabilities
|
|
|
10,771
|
|
|
|
27,031
|
|
Total
current liabilities
|
|
$
|
310,771
|
|
|
$
|
922,051
|
|
A summary
of revenues and pre-tax operating results from the discontinued operations for
fiscal year 2009 and 2008 is as follows:
|
|
Year ended June 30
|
|
|
|
2009
|
|
|
2008
|
|
Sales
|
|
$
|
1,664,872
|
|
|
$
|
6,636,572
|
|
Pre-tax
(loss) income from discontinued operations
|
|
|
(11,741
|
)
|
|
|
242,865
|
|
12.
Employee benefit
plan
The
Company has a deferred salary arrangement under Section 401(k) (“Employee Plan”)
of the Internal Revenue Code. Participants may elect to contribute up
to 20% of their eligible compensation, as defined. Also, the Company
will make certain matching contributions. The Company’s matching
contributions to the Employee Plan were $287,744 and $242,520 for fiscal years
2009 and 2008, respectively.
13.
Income
taxes
The
provision for income taxes from continuing operations consists of the
following:
|
|
Year ended June 30
|
|
|
|
2009
|
|
|
2008
|
|
Current
tax expense (benefit):
|
|
|
|
|
(restated)
|
|
Federal
|
|
$
|
(69,781
|
)
|
|
$
|
182,021
|
|
State
|
|
|
(24,555
|
)
|
|
|
52,311
|
|
|
|
|
(94,336
|
)
|
|
|
234,332
|
|
Deferred
tax expense (benefit):
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(76,615
|
)
|
|
|
(210,700
|
)
|
State
|
|
|
(11,146
|
)
|
|
|
(11,500
|
)
|
|
|
|
(87,761
|
)
|
|
|
(222,200
|
)
|
Total
income tax expense (benefit)
|
|
$
|
(182,097
|
)
|
|
$
|
12,132
|
|
A
reconciliation of the statutory federal income tax rate and the effective income
tax rate for continuing operations is as follows:
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(restated)
|
|
Federal
statutory rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State
income taxes, net of federal benefit
|
|
|
(6.1
|
)%
|
|
|
17.8
|
%
|
Permanent
differences
|
|
|
(4.8
|
)%
|
|
|
0.0
|
%
|
Other
|
|
|
18.5
|
%
|
|
|
(45.5
|
)%
|
|
|
|
41.6
|
%
|
|
|
6.3
|
%
|
The tax
effect of temporary differences that gave rise to significant components of
deferred tax assets consists of the following:
|
|
2009
|
|
|
2008
|
|
Continuing
operations:
|
|
|
|
|
(restated)
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
Depreciation
|
|
$
|
214,500
|
|
|
$
|
241,000
|
|
Intangible
assets
|
|
|
133,900
|
|
|
|
145,000
|
|
Inventory
|
|
|
127,700
|
|
|
|
109,000
|
|
Accounts
receivable
|
|
|
7,300
|
|
|
|
10,000
|
|
Stock-based
compensation
|
|
|
76,000
|
|
|
|
58,000
|
|
Net
operating losses
|
|
|
108,300
|
|
|
|
-
|
|
Other
|
|
|
46,800
|
|
|
|
75,000
|
|
Total
deferred tax assets, continuing operations
|
|
|
714,500
|
|
|
|
638,000
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
105,200
|
|
|
$
|
101,000
|
|
Intangible
assets
|
|
|
-
|
|
|
|
55,000
|
|
Inventory
|
|
|
-
|
|
|
|
56,000
|
|
Accounts
receivable
|
|
|
-
|
|
|
|
13,000
|
|
Net
operating losses
|
|
|
37,800
|
|
|
|
37,000
|
|
Other
|
|
|
-
|
|
|
|
3,000
|
|
Total
gross deferred taxes
|
|
|
143,000
|
|
|
|
265,000
|
|
Valuation
allowance
|
|
|
(37,800
|
)
|
|
|
(122,000
|
)
|
Total
deferred tax assets, discontinued operations
|
|
|
105,200
|
|
|
|
143,000
|
|
Total
deferred taxes
|
|
$
|
819,700
|
|
|
$
|
781,000
|
|
Property,
plant and equipment and intangibles are generally depreciated or amortized for
longer periods for tax purposes than for financial reporting purposes, thereby
creating deferred tax assets. It is more likely than not that our
deferred asset tax balances will be recovered from reversal of the timing
differences and utilization of net operating loss
carrybacks. In fiscal year 2009, the Company utilized the
tax benefits from intangible assets previously written-off for book purposes,
and the valuation allowance was reduced by $84,200. The valuation
allowance includes certain state tax net operating losses that may not be
realizable.
We file a
consolidated U.S. federal income tax return as well as income tax returns in
various states. The following years are open for examination by
either the federal or state tax authorities: fiscal years ended June
30, 2009, 2008, 2007, and 2006.
14.
Shareholders’
equity
Class A preferred
stock
Total
authorized shares are 5,000, par value $.001; no shares are
outstanding. Each share has voting rights equal to 1,000 shares of
common stock.
Class B preferred
stock
Total
authorized shares are 2,500,000, par value $.001; 2,500 shares have been
designated as Series 1 Class B Preferred Stock of which none are
outstanding. Each share has voting rights equal to 2,000 shares of
common stock.
Series 2 Class B Preferred
Stock
In
February 2008, 2,000 shares of Series 2 Stock, a newly-created series of
convertible preferred stock of the Company were issued to the former Minority
Shareholders. Each share has voting rights equal to 2,000 shares of
common stock for an aggregate of 4,000,000 votes. The shares are
initially convertible into 218,000 shares of the Company’s common stock, based
upon an initial conversion price of $1.84, which is subject to adjustment (“the
“Conversion Price”).
At any
time, the holders of the Series 2 Stock may convert their shares into common
stock upon the Company’s (i) consolidation with or merger into any other person
or (ii) transfer of all or substantially all of its properties or assets to any
other person under any plan or arrangement contemplating the dissolution of the
Company subject to certain conditions described below, which may be waived by
the holders of at least a majority of the Series 2 Stock then
outstanding.
On
February 4, 2011, or such later date as the following conditions are met in
their entirety, all of the shares of Series 2 Stock will be converted into
common stock: (i) no event of default has occurred and is continuing
beyond any applicable cure periods under the promissory notes issued by the
Company to any of the former Minority Shareholders and (ii) the resale of common
stock issuable upon conversion of the Series 2 Stock is covered by an effective
registration statement.
Subject
to certain exceptions, if the Company issues or sells any shares of common stock
by means of options, convertible securities, or otherwise for a price per share
(the “New Issuance Price”) less than the Conversion Price then in effect, then
immediately after such dilutive issuance, the Conversion Price then in effect
will be reduced to the New Issuance Price. The adjustment to the
Conversion Price made in regard to an option or convertible security will be
made at the time such option or convertible security is issued (and not when
such option or convertible security is exercised or converted). The
Conversion Price is also subject to additional anti-dilution adjustments in the
event of stock splits, dividends, recapitalization, and other
events. In the event of certain mergers, asset sales or
reorganization, the holders of the Series 2 Stock will be entitled to receive
the securities and property they would have received for the shares of common
stock that should have been issued to such holders had they fully converted
their shares of Series 2 Stock prior to such event.
15.
Warrants and stock options
plans
The
Company has two stock option plans under which employees, consultants, and
directors have been granted options to purchase shares of the Company’s common
stock. The 1993 Stock Option Plan (the “1993 Plan”) was amended in
fiscal year 2003 to, among other things, (a) cease grants under such plan upon
the effectiveness of the 2002 Stock Option Plan of the Company (the “2002 Plan”)
and (b) increase the maximum aggregate number of shares available for award
under such plan to 1,000,000. The maximum aggregate number of shares
of common stock available for award under the 2002 Plan is 3,000,000, and is
subject to adjustment as set forth therein. Under the 2002 Plan, automatic
options vest semi-annually to all directors and certain officers and expire 10
years from the date of grant. Except with respect to certain
incentive stock options (“ISOs”), options under the 1993 Plan expire 10 years
from the date of grant. Under the 1993 Plan, except for ISOs and
non-qualified options, which are not non-discretionary options (as such term is
used in the 1993 Plan), the exercise price for options is the fair market value
of the common stock of the Company at the date of grant, as such fair market
value is determined under the 1993 Plan. Under the 2002 Plan, except
for certain ISOs and certain non-qualified options, the exercise price is not to
be less than the Market Price (as defined in the 2002 Plan) of the common stock
of the Company on the date of the grant.
The
Company granted 24,000 and 104,000 stock options in fiscal year 2009 and 2008,
respectively. The Company determines the fair value of stock
options issued on the date of grant using a Black-Scholes valuation
model. The following assumptions were used for options granted in
fiscal years 2009 and 2008:
|
|
2009
|
|
|
2008
|
|
Expected
stock price volatility
|
|
|
89
|
%
|
|
|
91
|
%
|
Expected
dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Risk-free
interest rate
|
|
|
1.9
|
%
|
|
|
3.6
|
%
|
Expected
option life
|
|
5
years
|
|
|
5
years
|
|
Weighted-average
fair value of options granted
|
|
$
|
0.61
|
|
|
$
|
0.95
|
|
Expected
volatility is based on historical volatilities of the Company’s common stock;
the expected option life represents the weighted-average period of time that
options granted are expected to be outstanding giving consideration to vesting
schedules and our historical exercise patterns; and the risk-free interest rate
is based on the U.S. Treasury yield curve in effect at the time of grant for
periods corresponding with the expected life of the option.
The
Company recorded stock-based compensation expense of $54,435 and $74,288 for
fiscal year 2009 and 2008, respectively. Unrecognized compensation
cost to be recognized in the future for stock option grants is $25,484 at June
30, 2009. These costs are expected to be recognized over a weighted
average period of 1.8 years. There were no options exercised in
either 2009 or 2008, and there was no income tax benefit from stock options
exercised for fiscal years 2009 and 2008.
The
following is a summary of stock option activity:
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Weighted Average
|
|
|
Aggregage
|
|
|
Remaining
|
|
|
|
|
|
|
Exercise Price
|
|
|
Intrinsic
|
|
|
Contractual
|
|
|
|
Shares
|
|
|
Per Share
|
|
|
Value (a)
|
|
|
Life (in years)
|
|
Outstanding
at June 30, 2008
|
|
|
1,488,000
|
|
|
$
|
3.54
|
|
|
$
|
-
|
|
|
|
|
Granted
|
|
|
24,000
|
|
|
$
|
0.88
|
|
|
|
-
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
|
Canceled
|
|
|
(77,000
|
)
|
|
$
|
1.87
|
|
|
|
-
|
|
|
|
|
Outstanding
at June 30, 2009
|
|
|
1,435,000
|
|
|
$
|
3.57
|
|
|
|
-
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at June 30, 2009
|
|
|
1,379,000
|
|
|
$
|
3.67
|
|
|
|
-
|
|
|
|
1.6
|
|
(a) The
aggregate intrinsic value represents the difference between the exercise price
and $0.77, the closing price of the Company’s stock on June 30,
2009. None of the options outstanding at June 30, 2009, were in
the money.
In April
2005, the Company granted to investors warrants to purchase 53,320 common shares
over a five-year period at an exercise price of $2.60 per
share. The exercise price of the warrants is subject to
adjustment for standard anti-dilution relating to stock splits, combinations and
the like, and for subsequent equity sales at a price less than the exercise
price of the warrants. None of these have been exercised as of
June 30, 2009. The warrants will expire April 15,
2010. In addition, The Company had 150,000 stock options that
were granted in 1999 to a third party in connection with consulting services
that were not exercised and expired in January 2009.
16.
Earnings per
share
Net loss
per share is based on the following:
|
|
Year ended June 30
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(restated)
|
|
Numerator
for basic and diluted earnings per common share
calculation:
|
|
|
|
|
|
|
(Loss)
income from continuing operations
|
|
$
|
(256,076
|
)
|
|
$
|
144,915
|
|
Deemed
dividend on redemption of preferred stock applicable to common
shareholders
|
|
|
-
|
|
|
|
(399,997
|
)
|
Loss
from continuing operations, net of deemed dividend on redemption of
preferred stock
|
|
|
(256,076
|
)
|
|
|
(255,082
|
)
|
Income
from discontinued operations, net of income tax
|
|
|
162,217
|
|
|
|
145,610
|
|
Net
loss
|
|
$
|
(93,859
|
)
|
|
$
|
(109,472
|
)
|
|
|
|
|
|
|
|
|
|
Denominator
for basic and diluted earnings per common share
calculation:
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
3,978,199
|
|
|
|
3,978,199
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share:
|
|
|
|
|
|
|
|
|
Loss
per share, continuing operations, net of deemed dividend on redemption of
preferred stock
|
|
$
|
(0.06
|
)
|
|
$
|
(0.06
|
)
|
Earnings
per share, discontinued operations
|
|
|
0.04
|
|
|
|
0.03
|
|
Loss
per share attributable to common shareholders
|
|
$
|
(0.02
|
)
|
|
$
|
(0.03
|
)
|
In
February 2008, the Company redeemed the Series A Stock and Series B Stock for a
promissory note of $400,000. The excess over the carry value of $3
was recorded as a deemed dividend and increased the net loss to arrive at the
net loss applicable to common stockholders.
Due to
their anti-dilutive effect, the following potential common shares have been
excluded from the computation of diluted loss per share at June 30:
|
|
June 30
|
|
|
|
2009
|
|
|
2008
|
|
Stock
options
|
|
|
1,435,000
|
|
|
|
1,638,000
|
|
Warrants
|
|
|
53,320
|
|
|
|
53,320
|
|
Convertible
notes
|
|
|
815,217
|
|
|
|
815,217
|
|
Convertible
preferred stock
|
|
|
218,000
|
|
|
|
218,000
|
|
|
|
|
2,521,537
|
|
|
|
2,724,537
|
|
17.
Significant
concentrations
The
Company’s pharmacy sales were primarily to customers with a prescription benefit
as part of a health insurance plan. Health insurance plans typically
contract with a Pharmacy Benefit Management Company (“PBM”) that in turn
negotiates reimbursement rates with networks of pharmacies for customer’s
eligible prescription purchases. Any significant loss of PBM business
would have a material adverse effect on the Company’s business and results of
operations. During fiscal years 2009 and 2008, the top five PBMs
accounted for approximately 49% and 51%, respectively, of the Company’s total
sales. Two PBMs accounted for more than 10% of our overall revenues
for the year. One represented 17% of total sales in both fiscal years
2009 and 2008 and the other represented 13% and 11% of total sales in fiscal
year 2009 and 2008, respectively.
During
fiscal year 2009, the pharmacies purchased inventory from a single supplier,
amounting to $50.4 million or 91% of total inventory purchased, under a new
contract expiring January 31, 2012 (See Note 5). During fiscal year
2008, the pharmacies purchased $49.4 million of inventory, or 92% of total
inventory, from a single supplier. With limited exceptions, the
pharmacies have contracted to purchase substantially all of their pharmaceutical
products from this supplier. If the relationship with this supplier
was disrupted, management believes it has at least three competitive suppliers
who could fulfill their inventory needs at no additional
expense.
18.
Supplemental cash flow
information
|
|
Year ended June 30
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(restated)
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
185,605
|
|
|
$
|
91,972
|
|
Cash
(received) paid for (tax refunds) income taxes
|
|
$
|
(20,120
|
)
|
|
$
|
130,892
|
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Acquisition
of pharmacy is summarized as follows:
|
|
|
|
|
|
|
|
|
Inventory
|
|
$
|
-
|
|
|
$
|
(252,115
|
)
|
Property
and equipment
|
|
|
-
|
|
|
|
(19,945
|
)
|
Prescription
lists
|
|
|
-
|
|
|
|
(280,055
|
)
|
Cash
paid for acquisition
|
|
$
|
-
|
|
|
$
|
(552,115
|
)
|
|
|
|
|
|
|
|
|
|
Reversal
of discontinued operations accounts payable, accrued expenses, and other
liabilities
|
|
$
|
-
|
|
|
$
|
298,628
|
|
|
|
|
|
|
|
|
|
|
The
purchase of 20% of subsidiary, D.A.W. in February 2008 is summarized as
follows:
|
|
|
|
|
|
|
|
|
Purchase
price allocation:
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
-
|
|
|
$
|
2,593,616
|
|
Minority
interest
|
|
|
-
|
|
|
|
1,864,900
|
|
Total
purchase price
|
|
$
|
-
|
|
|
$
|
4,458,516
|
|
|
|
|
|
|
|
|
|
|
Consideration
for the acquisition:
|
|
|
|
|
|
|
|
|
Preferred
stock, Series 2 Class B
|
|
$
|
-
|
|
|
$
|
400,000
|
|
Convertible
notes
|
|
|
-
|
|
|
|
1,500,000
|
|
Note
payable
|
|
|
-
|
|
|
|
350,000
|
|
Cash,
including transaction costs of $458,516
|
|
|
-
|
|
|
|
2,208,516
|
|
Total
consideration
|
|
$
|
-
|
|
|
$
|
4,458,516
|
|
19.
Commitments and
contingencies
Lease
commitments
The
Company rents office and store space with varying lease expiration dates through
November 2017 that are accounted for as operating leases. Fourteen of
the locations have renewable lease options, certain of which involve rent
increases. In addition, we lease capital equipment under both
operating and capital leases. Assets held under capital leases
amounted to $180,292, with accumulated amortization of $7,512, at June 30,
2009. There were no assets held under capital leases at June 30,
2008. Lease expense was $1,856,957 and $1,661,588 for fiscal
year 2009 and 2008, respectively.
At June
30, 2009, the minimum rental commitments for all non-cancelable leases with
initial or remaining lease terms of more than one year were as
follows:
|
|
Capital
|
|
|
Operating
|
|
Year
|
|
Lease
|
|
|
Lease
|
|
2010
|
|
$
|
42,840
|
|
|
$
|
1,563,057
|
|
2011
|
|
|
42,840
|
|
|
|
1,522,188
|
|
2012
|
|
|
42,840
|
|
|
|
1,123,288
|
|
2013
|
|
|
42,840
|
|
|
|
564,180
|
|
2014
|
|
|
24,990
|
|
|
|
204,384
|
|
Thereafter
|
|
|
-
|
|
|
|
569,850
|
|
Total
minimum lease payments
|
|
|
196,350
|
|
|
$
|
5,546,947
|
|
Amount
representing interest
|
|
|
(31,084
|
)
|
|
|
|
|
Present
value of minimum lease payments
|
|
$
|
165,266
|
|
|
|
|
|
Legal
proceedings
The
Company and the buyer of ADCO are currently in dispute over certain assets and
liabilities that were included in the ADCO sale. The Company is
unable to determine the final outcome of this dispute, but it may result in an
additional charge to the disposal of discontinued operations.
In the
ordinary course of business, the Company may become involved in litigation
incidental to its business; however, management is not aware of any pending
legal proceeding that would have a material effect on operating
results.
20.
Subsequent
Events
Management
has evaluated subsequent events through September 28, 2009, which is the date
the financial statements were issued. On September 21, 2009, ADCO sold its
building in Bangor, Maine, to Dovesco, LLC, for $830,000 and a gain of $668,199
was recognized on the sale. A portion of the proceeds were used
to pay off the line of credit that had been secured by the building, and the
line was terminated effective September 21, 2009.
21.
Selected quarterly data,
(unaudited)
Selected
unaudited quarterly consolidated financial information is presented in the
tables below. The quarters ended December 31, 2007, and March 31,
2008, have been restated for the adjustments described in Note 3 of Notes
to Consolidated Financial Statements
and also to reflect the
discontinued operations and the reclassifications made to conform to the fiscal
year 2008 consolidated financial statements to the presentation in the fiscal
year 2009 consolidated financial statements
.
2009
|
|
First Quarter
|
|
|
Second Quarter
|
|
|
Third Quarter
|
|
|
Fourth Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net revenues
|
|
$
|
17,624,508
|
|
|
$
|
18,986,769
|
|
|
$
|
18,599,485
|
|
|
$
|
19,512,082
|
|
Gross
profit
|
|
|
4,650,468
|
|
|
|
4,996,065
|
|
|
|
5,114,304
|
|
|
|
5,401,075
|
|
Income
(loss) from continuing operations
|
|
|
41,168
|
|
|
|
(52,540
|
)
|
|
|
(208,679
|
)
|
|
|
(36,025
|
)
|
Income
(loss) from discontinued operations
|
|
|
(51,606
|
)
|
|
|
277,249
|
|
|
|
(66,113
|
)
|
|
|
2,687
|
|
Net
(loss) income
|
|
|
(10,438
|
)
|
|
|
224,709
|
|
|
|
(274,792
|
)
|
|
|
(33,338
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
0.01
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.01
|
)
|
Discontinued
operations
|
|
|
(0.02
|
)
|
|
|
0.07
|
|
|
|
(0.02
|
)
|
|
|
0.00
|
|
Net
earnings (loss) per share
|
|
$
|
(0.01
|
)
|
|
$
|
0.06
|
|
|
$
|
(0.07
|
)
|
|
$
|
(0.01
|
)
|
2008
|
|
First Quarter
|
|
|
Second Quarter
|
|
|
Third Quarter
|
|
|
Fourth Quarter
|
|
|
|
|
|
|
(restated)
|
|
|
(restated)
|
|
|
|
|
Total
net revenues
|
|
$
|
16,277,052
|
|
|
$
|
17,146,210
|
|
|
$
|
17,295,108
|
|
|
$
|
17,876,644
|
|
Gross
profit
|
|
|
3,967,216
|
|
|
|
4,401,651
|
|
|
|
4,360,751
|
|
|
|
4,845,802
|
|
Income
(loss) from continuing operations
|
|
|
(40,670
|
)
|
|
|
(32,200
|
)
|
|
|
(115,941
|
)
|
|
|
333,726
|
|
Income
(loss) from discontinued operations
|
|
|
5,881
|
|
|
|
137,105
|
|
|
|
(8,834
|
)
|
|
|
11,458
|
|
Deemed
dividend on redemption of preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
(399,997
|
)
|
|
|
-
|
|
Net
income (loss) attributable to common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shareholders
|
|
|
(34,789
|
)
|
|
|
104,905
|
|
|
|
(524,772
|
)
|
|
|
345,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
0.08
|
|
Discontinued
operations
|
|
|
0.00
|
|
|
|
0.04
|
|
|
|
(0.00
|
)
|
|
|
0.01
|
|
Net
earnings (loss) per share attributable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
shareholders
|
|
$
|
(0.01
|
)
|
|
$
|
0.03
|
|
|
$
|
(0.13
|
)
|
|
$
|
0.09
|
|
NYER
MEDICAL GROUP, INC.
SCHEDULE
II – VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
|
|
|
|
|
Additions
|
|
|
|
|
|
Deductions
|
|
|
|
|
|
|
|
|
|
Charged
|
|
|
Additions
|
|
|
for
|
|
|
|
|
|
|
Balance at
|
|
|
to Costs
|
|
|
Charged
|
|
|
Payments
|
|
|
Balance
at
|
|
|
|
Beginning
|
|
|
and
|
|
|
to
Other
|
|
|
or
|
|
|
End
of
|
|
|
|
of Year
|
|
|
Expenses
|
|
|
Accounts
|
|
|
Write-offs
|
|
|
Year
|
|
Year
ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
$
|
24,552
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(6,352
|
)
|
|
$
|
18,200
|
|
Allowance
for doubtful accounts, discontinued operations
|
|
$
|
43,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(43,000
|
)
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for inventory obsolescence, discontinued operations
|
|
$
|
100,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(100,000
|
)
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
$
|
33,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(8,448
|
)
|
|
$
|
24,552
|
|
Allowance
for doubtful accounts, discontinued operations
|
|
$
|
52,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(9,000
|
)
|
|
$
|
43,000
|
|
Allowance
for inventory obsolescence, discontinued operations
|
|
$
|
142,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
(42,000
|
)
|
|
$
|
100,000
|
|
ITEM
9. Changes In and Disagreements With Accountants On Accounting
and Financial Disclosure.
There
were no disagreements with the Company’s accountants.
ITEM
9A (T). Controls and Procedures.
Evaluation
of Disclosure Controls and Procedures.
We
maintain a system of disclosure controls and procedures that are designed for
the purposes of ensuring that information required to be disclosed in our SEC
reports is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer as appropriate to allow timely decisions regarding
required disclosures.
As of the
end of the period covered by this report, we carried out an evaluation, under
the supervision and with the participation of our Chief Executive Officer and
Chief Financial Officer, of the effectiveness of our disclosure controls and
procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”). Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective.
Changes
in Internal Control Over Financial Reporting.
There has
been no change in our internal control over financial reporting during the
quarter ended June 30, 2009, that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
Impact of
Restatements
.
On
September 2, 2009, the Audit Committee of our Board of Directors concluded that
our financial statements and related audit reports thereon for the year ended
June 30, 2008, in our
Annual
Report on Form 10-K for the year ended June 30, 2008, and the interim financial
statements for the quarters ended December 31, 2007, March 31, 2008, September
30, 2008, December 30, 2008, and March 31, 2009, in our Quarterly Reports on
Form 10-Q for the quarters ended December 31, 2007, March 31, 2008, September
30, 2008, December 31, 2008, and March 31, 2009, should no longer be relied upon
due to errors in our accounting for transaction costs associated with the
purchase of the minority interest in DAW in February 2008. Management
had discovered these errors during its preparation of our financial statements
for the year ended June 30, 2009. Despite these errors in the
application of generally accepted accounting principles, management did not
identify any material weaknesses in our internal control over financial
reporting for year 2008. In particular, management concluded that although a
restatement was necessary, our underlying processes nonetheless provided
reasonable
assurance
regarding the reliability of our financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles.
Management
Report on Assessment of Internal Control Over Financial Reporting
We are
responsible for establishing and maintaining adequate internal control over
financial reporting. Our internal control system is designed to
provide reasonable assurance to our management and board of directors regarding
the preparation and fair presentation of published financial
statements. All internal control systems, no matter how well
designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation.
Our
management assessed the effectiveness of our internal control over financial
reporting as of June 30, 2009. In making this assessment, it used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission in
Internal Control
Integrated Framework
. Based on our assessment, we believe
that, as of June 30, 2009, our internal control over financial reporting is
effective.
This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our
registered public accounting firm pursuant to temporary rules of the SEC that
permit us to provide only management’s report in this annual
report.
ITEM
9B. Other Information.
None.
PART III
ITEM
10. Directors, Executive Officers and Corporate
Governance
Our
present directors and executive officers, their ages and positions held
as of September
28, 2009, are as follows:
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
Mark
Dumouchel
|
|
49
|
|
CEO,
President, Director and President of DAW
|
|
|
|
|
|
David
Dumouchel
|
|
48
|
|
Vice
President of DAW and Director
|
|
|
|
|
|
Michael
Curry
|
|
52
|
|
Vice
President of DAW
|
|
|
|
|
|
Wayne
Gunter
|
|
57
|
|
Vice
President of DAW
|
|
|
|
|
|
Robert
Landis
|
|
50
|
|
Director
|
|
|
|
|
|
Donato
Mazzola
|
|
50
|
|
Vice
President of DAW
|
|
|
|
|
|
James
Schweiger
|
|
74
|
|
Director
|
|
|
|
|
|
Gerald
Weston
|
|
67
|
|
Director
|
|
|
|
|
|
Sandra
M. Zimmerman
|
|
58
|
|
CFO
|
Messrs.
David Dumouchel and Mark Dumouchel, who are brothers are directors and also
serve as officers of DAW. The three remaining directors, Messrs.
Robert Landis, James Schweiger, and Gerald Weston qualify as independent under
NASDAQ rules. Other than as stockholders and serving as directors on
Board of Director committees, none of Messrs. Landis, Schweiger, or Weston has
any relationship with us. Mr. Curry is the brother-in-law to Messrs.
David Dumouchel and Mark Dumouchel.
Our Board
of Directors is divided into three classes of directors. Messrs.
Landis’ and Mark Dumouchel’s terms expire in 2011, Messrs. Schweiger’s and
Weston’s terms expire in 2012, and Mr. David Dumouchel’s term expires in
2010. There are no vacancies. In each case, a director
whose term expires will remain in office until his successor is elected and
qualified (assuming he does not otherwise resign or retire or is not otherwise
removed).
Mark Dumouchel
has been our
Chief Executive Officer and President and a Class B director since February
2008. He was one of our directors from 2004 to 2005. He
has been president and director of DAW since 1990. He is a registered
pharmacist in the State of Massachusetts and has over 32 years experience
working in and running pharmacies. Mr. Dumouchel serves as a director
of Northeast Pharmacy Services Corporation. He received his Bachelors
of Science degree in Pharmacy from Massachusetts College in 1982 and his Masters
of Business Administration from Babson College in 1984.
David Dumouchel
has been one
of our Class A directors since February 2008. He was one of our
directors from 1996 to 2000. Mr. Dumouchel has been a director of DAW
since August 1996. Additionally, Mr. Dumouchel has been a Vice
President of DAW since 1988. Mr. Dumouchel is a registered pharmacist
in the State of Massachusetts. Mr. Dumouchel received his Bachelors
of Science degree in Pharmacy from Purdue University in 1983, and his Masters of
Business Administration from Amos Tuck School at Dartmouth College in
1986.
Michael Curry
has been a Vice
President and Secretary of DAW since 1995. Mr. Curry is a registered
pharmacist in the state of Massachusetts. He has been a manager of
various pharmacies since 1980. Mr. Curry received his Bachelors of
Science degree in Pharmacy from the Massachusetts College of Pharmacy in
1980.
Wayne Gunter
has been a Vice
President of DAW since 1995. Mr. Gunter is a registered pharmacist in
the State of Massachusetts. Mr. Gunter has managed and operated pharmacies for
32 years. Mr. Gunter is a former treasurer of the Massachusetts Pharmacist
Association and currently sits on the board at Stoneham Savings
Bank. Mr. Gunter received his Bachelors of Science degree in Pharmacy
from the Massachusetts College of Pharmacy in 1975.
Robert J. Landis
has been one
of our Class B directors since December 2004. Mr. Landis is also a
member of our Audit Committee and Chairman of our Compensation
Committee. Mr. Landis has been the chief accounting officer of
Comprehensive Care Corporation since March 2009. From July 1998 to
March 2009, he was the chief financial officer and treasurer of Comprehensive
Care Corporation. Mr. Landis also serves on the board of
directors and on the audit committee of Global Axcess
Corporation. Mr. Landis served as treasurer of Maxicare Health
Plans, Inc., from November 1988 to
July 1998. Mr. Landis is a Certified Public
Accountant. He received a Bachelors of Science in Business
Administration from the University of Southern California in 1981 and a Masters
of Business Administration from California State University at Northridge in
1990.
Donato Mazzola
has been a Vice
President of DAW since 1995. Mr. Mazzola is a registered pharmacist
in the state of Massachusetts. He currently serves as an area
pharmacy manager. Mr. Mazzola has served as chairman of the trustees
for the Lodge of Elks Newton since 2004. He received his Bachelors of
Science degree in Pharmacy from the Massachusetts College of Pharmacy in
1981.
James J. Schweiger
has been
one of our Class C directors since January 2002. Mr. Schweiger is
also Chairman of our Audit Committee and Chairman of our Stock Option Committee
and a member of our Compensation Committee. Since 1986, Mr. Schweiger
has been the president and chief executive officer of James J. Schweiger
Financial Consultants, located in Orlando, Florida. From 1978 to
1986, Mr. Schweiger was an area managing partner in the firm of KPMG Main
Hurdman in charge of the Ft. Lauderdale/Miami office, Northeastern Regional
Managing Partner, and later served as the Southern Area
Director. From 1980 to 1985 he served on their Policy Board and
Management Committee. He was previously a board member of AICPA on
accounting for real estate transactions. From 1989 to 1992, Mr.
Schweiger served as treasurer and director on the EASE Foundation board of
directors (a charitable foundation in Davie Florida). Mr. Schweiger graduated
from Duquesne University, Pittsburgh, Pennsylvania, in 1961 with a Bachelors of
Science degree in Business Administration.
Gerald Weston
has been one of
our Class C directors since December 2004. Mr. Weston is also a
member of our Audit Committee, Compensation Committee, and Stock Option
Committee. Mr. Weston is a Certified Public Accountant and is an
owner of the accounting firm, Gerald Weston Accounting, where he has worked
since 1985. From 1982 to 1985, Mr. Weston was an audit manager in the
firm Kern, DeWenter, Viere, CPA’s in St. Cloud, Minnesota. Prior to
1982, he had various positions and served in the United States Air
Force. Mr. Weston received a Bachelors of Science degree in
Accounting from St. Cloud State University, St. Cloud, Minnesota, in
1979.
Sandra M. Zimmerman
has been
our chief financial officer since February 2009. Ms. Zimmerman has
her own financial consulting business where she has provided financial
management services to various companies since 1997. From 1988 to
1997 Ms. Zimmerman worked in various financial management roles for Digital
Equipment Corporation. From 1984 to 1988, she was the director
of corporate accounting at Computervision. Prior to that time, she
held financial management roles at Lexidata and Data Printer. From
1978 to 1982, she worked in public accounting for Coopers &
Lybrand. Ms. Zimmerman received a Bachelors of Science Degree in
Accounting from Bentley University, Waltham, Massachusetts, in 1978 and is a
certified public accountant.
·
|
Section
16(a) Beneficial Ownership Reporting
Compliance
|
Section
16(a) of the Exchange Act requires our executive officers and directors, and
persons who own more than 10% of a registered class of our equity securities to
file reports of ownership and changes in ownership with the
SEC. These persons are also required by SEC regulation to furnish us
with copies of all Section 16(a) forms they file. Based solely on our review of
such forms or written representations from reporting persons, we believe that
during fiscal year ended June 30, 2008, our executive officers and directors and
other reporting persons filed on a timely basis all of the reports required by
Section 16(a).
·
|
Audit
Committee; Audit Committee Financial
Experts
|
We have a
separately designated standing Audit Committee established in accordance with
Section 3(a) (58) (A) of the Exchange Act and NASDAQ requirements. The Members
of the Audit Committee are Messrs. James Schweiger, Chairman, Robert Landis, and
Gerald Weston.
The Board
of Directors has determined that although more than one member of the Audit
Committee may qualify as an “audit committee financial expert” under Item 407
(d) (5) of Regulation S-K, based on his experience described above, Mr.
Schweiger, the Audit Committee Chairman, is designated Audit Committee financial
expert. All of the members of the Audit Committee, including Mr. Schweiger, are
considered “independent” under applicable NASDAQ rules.
We have
adopted a code of ethics that applies to our principal executive officer,
principal financial officer, principal accounting officer and controller, as
well as all other employees and the directors. The code of ethics,
which we call our Code of Conduct and Ethics Policy, is filed as an exhibit to
this annual report. If we make any substantive amendments to, or
grants a waiver (including an implicit waiver) from, a provision of our code of
ethics that applies to our principal executive officer, principal financial
officer, principal accounting officer or controller, and that relates to any
element of the code of ethics definition enumerated in Item 406(b) of Regulation
S-K, we will disclose the nature of such amendment or waiver in a current report
on Form 8-K.
ITEM
11. Executive Compensation
SEC rules
require disclosure regarding executive compensation for anyone serving as our
principal executive officer during the last fiscal year and the two most highly
compensated executive officers, other than the principal executive officer, who
were serving as executive officers at the end of the last completed fiscal
year. For fiscal year 2009, the following individuals are referred to
as our “named executive officers” throughout this annual report: (a) Mark
Dumouchel; (b) David Dumouchel; and (c) Wayne Gunter.
The
following table shows compensation earned by our named executive officers during
the fiscal year 2009 and 2008:
Summary Compensation Table
|
|
|
|
|
|
|
|
|
|
Non-equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
All
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
Plan
|
|
|
other
|
|
|
|
|
Name
and
|
|
|
|
|
|
|
Awards
|
|
|
Compensation
|
|
|
Compensation
|
|
|
Total
|
|
Principal
Position
|
|
Year
|
|
Salary
($)
|
|
|
($)
(1)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
Mark
Dumouchel
|
|
2009
|
|
$
|
175,000
|
|
|
$
|
9,460
|
|
|
$
|
24,304
|
|
|
$
|
19,476
|
(2)
|
|
$
|
228,240
|
|
President
and
|
|
2008
|
|
|
158,405
|
(2)
|
|
|
7,680
|
|
|
|
18,111
|
|
|
|
16,118
|
(2)
|
|
|
200,314
|
|
Chief
Executive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
President
of DAW
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Dumouchel
|
|
2009
|
|
|
150,000
|
|
|
|
9,460
|
|
|
|
8,263
|
|
|
|
17,813
|
(3)
|
|
|
185,536
|
|
Vice
President of DAW
|
|
2008
|
|
|
148,789
|
(3)
|
|
|
7,689
|
|
|
|
18,111
|
|
|
|
15,794
|
(3)
|
|
|
190,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wayne
Gunter
|
|
2009
|
|
|
150,000
|
|
|
|
5,676
|
|
|
|
4,010
|
|
|
|
21,191
|
(4)
|
|
|
180,877
|
|
Vice
President of DAW
|
|
2008
|
|
|
148,789
|
(4)
|
|
|
5,760
|
|
|
|
18,111
|
|
|
|
16,334
|
(4)
|
|
|
188,994
|
|
(1) The option awards are for serving on our
Board of Directors, serving as one of our Officers, and pursuant to employment
agreements of executive officers of DAW. The values in the table reflect the
dollar amount recognized for financial statement reporting purposes in
accordance with SFAS 123(R),
Share-based
Payment
, during fiscal years 2009 and 2008, using the Black-Scholes
option pricing model, which incorporates various assumptions about volatility,
expected dividend yield, expected life, and applicable interest rates, as
detailed in Note 15 to our audited consolidated financial statements for the
fiscal year ended June 30, 2009, included in Item 8 in this Annual Report.
(2) For fiscal year 2009, Mr. Mark Dumouchel’s
other compensation includes $7,725 matching contributions from our 401(k) plan,
a vehicle allowance of $6,732, and officer’s life insurance of $5,019. For
fiscal year 2008, Mr. Dumouchel’s salary was $149,588 until February 4, 2008,
when his salary was increased to $175,000 pursuant to a new employment
agreement. For fiscal year 2008 Mr. Dumouchel’s other compensation includes
$8,018 in matching contributions from our 401(k) plan, a vehicle allowance of
$6,700, and officer’s life insurance of $1,400.
(3) For fiscal year 2009, Mr. David Dumouchel’s
other compensation includes $6,724 matching contributions from our 401(k) plan,
a vehicle allowance of $7,204, and officer’s life insurance of $3,885. For
fiscal year 2008, Mr. Dumouchel’s salary was $143,788 until February 4, 2008,
when his salary was increased to $150,000 pursuant to a new employment
agreement. For fiscal year 2008 Mr. Dumouchel’s other compensation includes
$7,634 in matching contributions from our 401(k) plan, a vehicle allowance of
$7,130, and officer’s life insurance of $1,030.
(4) For fiscal year 2009, Mr. Wayne Gunter’s
other compensation includes $6,724 matching contributions from our 401(k) plan,
a vehicle allowance of $7,717, and officer’s life insurance of $6,750. For
fiscal year 2008, Mr. Gunter’s salary was $143,788 until February 4, 2008, when
his salary was increased to $150,000 pursuant to a new employment agreement. Mr.
Gunter’s other compensation includes $7,634 in matching contributions from our
401(k) plan, a vehicle allowance of $7,180, and officer’s life insurance of
$1,520.
2009
Executive Compensation Components
·
|
Executive
Employment Agreements; Arrangements
|
Effective
February 4, 2008, Mr. Mark Dumouchel entered into a new three-year employment
agreement which may be renewed upon agreement of the
parties. Pursuant to his employment agreement, Mr. Mark Dumouchel
will be employed as our Chief Executive Officer and President of DAW and will
receive a base salary of $175,000 per year of which we will pay him $43,750 and
DAW will pay him $131,250. The salary shall be increased on each
anniversary date of the employment agreement in an amount equal to the
percentage change over the past 12 months in the average hourly rate paid to
pharmacists employed by DAW. Pursuant to his employment agreement,
DAW will also pay Mr. Mark Dumouchel an annual lump sum payment equal to five
percent of the total amount royalties and licensing fees collected by DAW during
the prior fiscal year (the “Franchise Payment”).
Effective
February 4, 2008, Messrs. David Dumouchel and Wayne Gunter each entered into a
new three-year employment agreement with DAW which may be renewed upon agreement
of the parties, as a pharmacy manager at annual base salary of
$150,000. The annual base salary will be adjusted each anniversary
date of the employment agreement in an amount equal to the percentage change
over the past 12 months in the average hourly rate paid to pharmacists employed
by DAW.
Under
their employment agreements, Messrs. Mark and David Dumouchel and Wayne Gunter
will each be entitled to (a) medical, dental, disability, and life insurance
coverage consistent with DAW’s policies and plans in existence on the date of
the signing of their respective employment agreements and (b) additional term
life insurance coverage in the amount of $1,000,000 with beneficiaries designed
by each such officer.
Under the
employment agreements, DAW will establish a bonus pool (the “DAW Bonus Pool”),
which will be equal to a percentage of income (before deductions for income
taxes and management fees paid to us). The percentage of income paid
into the DAW Bonus Pool is as follows: (i) ten percent (10%) of income between
$450,000 and $900,000; (ii) fifteen percent (15%) of income between $900,001 and
$1,350,000; and (iii) twenty percent (20%) of income in excess of
$1,350,000. Fifty percent (50%) of the DAW Bonus Pool will be used
for bonuses to be paid to the officers under their respective employment
agreements as follows: (i) Mr. Mark Dumouchel will receive seventeen percent
(17%), and (ii) Messrs. David Dumouchel and Wayne Gunter will share the
remaining thirty-three percent (33%) in equal lots with two other executive
officers (8.25% each).
Under the
employment agreements, we granted to each of the officers non-qualified options
to purchase 12,000 shares of common stock at an exercise price equal to the
Market Price (as defined in our 2002 Plan) on the date of grant, which was $1.49
on February 4, 2008. Under the Plan, the Market Price on any day is,
in the sole discretion of the stock option committee administering the Plan,
either (x) the average of the high and low reported consolidated trading sales
prices, or if no such sale is made on such day, the average of the closing bid
and asked prices reported on the consolidated trading listing for such day or
(y) the closing price reported on the consolidated trading listing for such
day. Our Stock Option Committee determined the Market Price based
upon the closing price. The options granted under the employment
agreements became exercisable in their entirety on February 4,
2009.
Pursuant
to the employment agreements, each of the officers will be entitled to a cash
severance payment in the event that we or DAW terminate the particular agreement
without Cause (as defined in the employment agreement) or the employment
agreement is terminated by the officer for Good Reason (as defined in the
employment agreement) which severance will be equal to the total of (i) one year
of base salary at the salary rate then in effect to the extent allocable as to
DAW and us, as the case may be, but not to exceed the aggregate base salary then
in effect; (ii) the last annual bonus paid to the officer (or, in the event that
the termination occurs before any bonus has been paid, the annualized bonus for
the year in which the termination occurs); and (iii) in the case of Mr. Mark
Dumouchel only, the last Franchise Payment paid to Mr. Mark Dumouchel (or, in
the event that the termination occurs before any Franchise Payment has been
paid, the annualized Franchise Payment for the year in which the termination
occurs). Additionally, in the event of any termination under an employment
agreement, the officer will be entitled to COBRA continuation coverage for six
months after any such termination. The executives each would be entitled to
unused vacation time.
Under the
employment agreements, each of the officers is subject to non-compete and
non-solicitation provisions and a non-disclosure provision. The
non-compete and non-solicitation provisions survive for six months after the
termination of the employment agreements and the non-disclosure provision has no
termination date.
·
|
Non-Equity
Incentive Payments and Bonuses
|
The
non-equity incentive payments of Messrs. Mark and David Dumouchel and Wayne
Gunter are determined based on the formulas in their employment agreements as
described above. Income for purposes of the DAW Bonus Pool is
calculated before income taxes and the management fees paid to us by
DAW.
The named
executive officers may also receive a bonus as may be determined from time to
time by our Board of Directors in its sole discretion, which bonus would be
based upon specific achievement within the year in which such compensation would
be provided. No discretionary bonuses were paid to any named
executive officer for the year ended June 30, 2009 or 2008.
We have
two stock option plans under which employees, consultants, and directors may be
granted options to purchase shares of our common stock. During the
year ended June 30, 2009, each of Messrs. Schweiger and Weston received options
to acquire 12,000 shares of our common stock for their service as our
directors. Those options are exercisable at $0.88 per share and vest
in six equal installments on each of June 30, 2009, December 31, 2009, June 30,
2010, December 31, 2010, June 30, 2011, and December 31, 2011.
We do not
have any severance agreements with our named executive officers other than those
described above pursuant to the employment agreements with each such
officer.
We
sponsored 401(k) plan is a deferred salary arrangement under Section 401(k) of
the Internal Revenue Code for eligible employees. Participants may elect to
contribute up to 20 percent of their eligible compensation, as
defined. We match at the rate of 100 percent of the first 5 percent
and 50 percent of the next 2 percent.
Outstanding
Equity Awards at Fiscal Year End:
The
following table shows information of all outstanding equity awards held by our
named executive officers at June 30, 2009:
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
securities
|
|
|
securities
|
|
|
|
|
|
|
|
underlying
|
|
|
underlying
|
|
|
|
|
|
|
|
unexercised
|
|
|
unexercised
|
|
|
Option
|
|
Options
|
|
|
options (#)
|
|
|
options (#)
|
|
|
exercise
|
|
expiration
|
Name
|
|
exercisable
|
|
|
unexercisable
|
|
|
price
($)
|
|
date
|
Mark
Dumouchel
|
|
|
4,000
|
|
|
|
-
|
|
|
$
|
2.44
|
|
03/21/14
|
|
|
|
2,000
|
|
|
|
-
|
|
|
$
|
2.91
|
|
03/29/15
|
|
|
|
18,000
|
|
|
|
6,000
|
(1)
|
|
$
|
1.49
|
|
02/03/18
|
|
|
|
24,000
|
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Dumouchel
|
|
|
18,000
|
|
|
|
2,000
|
(2)
|
|
$
|
1.49
|
|
02/03/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wayne
Gunter
|
|
|
12,000
|
|
|
|
-
|
|
|
$
|
1.49
|
|
02/03/18
|
1) These
options are exercisable for 2,000 shares on each of 12/31/09, 06/30/10 and
12/31/10.
2) These
options are exercisable on 12/31/09.
Director
Compensation*
The
following table shows information regarding compensation paid to directors who
are not named executive officers for fiscal year 2009:
|
|
Fees Earned
|
|
|
|
|
|
|
|
|
|
or Paid in
|
|
|
Option
|
|
|
|
|
Name
|
|
Cash
|
|
|
Awards (1)
|
|
|
Total
|
|
Robert
J. Landis
|
|
$
|
6,600
|
|
|
$
|
3,784
|
|
|
$
|
10,384
|
|
James
J. Schweiger
|
|
$
|
7,800
|
|
|
$
|
7,314
|
|
|
$
|
15,114
|
|
Gerald
Weston
|
|
$
|
6,600
|
|
|
$
|
7,314
|
|
|
`
|
|
*Compensation
paid to Messrs. David Dumouchel and Mark Dumouchel, who are current directors,
is included in the Summary Compensation Table above and, accordingly is not
included in this table.
(1) The
value in the table reflects the dollar amount recognized for financial statement
reporting purposes in accordance with SFAS 123(R),
Share-based
Payments
. The options were granted in accordance with our
Stock Option Plan with the fair value calculated using the Black-Scholes option
pricing model, which incorporates various assumptions including expected
volatility, expected life of the options and applicable interest rates as
detailed in Note 15 to our audited financial statements for the fiscal year
ended June 30, 2009, included in Item 8 in this annual report.
Our
non-employee directors receive (a) $600 each per telephone meeting of the Board
of Directors or of a committee of the Board of Directors and (b) $1,000 each per
in-person meeting of the Board of Directors or in-person meeting of a committee
of the Board of Directors, with each Chairman receiving an additional 50% of the
sum which he is to receive under (a) and (b) above with respect to each
meeting. With the exception of these amounts, we do not intend to
compensate non-employee directors for serving as directors except to reimburse
them for expenses incurred in connection with their service as directors and to
issue automatic grants of non-qualified stock options pursuant to the 2002
Plan. Directors who are employees receive no cash compensation for
serving as directors; however, they are reimbursed for out-of-pocket expenses
incurred in connection with their service as directors and are issued stock
options. Pursuant to the 2002 Plan, our directors receive automatic
grants of options for 4,000 shares of our common stock for each year served as a
director, with 2,000 of such options vesting semi-annually each June 30th and
December 31st, provided that the optionee is still serving as a director, as
applicable, on such date.
ITEM
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
Beneficial
Ownership
The
following table sets forth the number of shares of our voting stock that is
beneficially owned as of September 21, 2009, by (i) owners of more than 5% of
our voting stock, (ii) each director and named executive officer, identified in
Item 11 of this annual report, and (iii) all our executive officers and
directors as a group:
|
|
Amount and
|
|
|
|
|
|
|
nature of
(1)
|
|
|
Percentage
|
|
Name and address
|
|
beneficial
|
|
|
of Voting
|
|
of beneficial owner
|
|
ownership
|
|
|
Power (%)
(3)
|
|
Samuel
Nyer
|
|
|
1,320,774
|
(2)
|
|
|
14.4
|
%
|
698
Essex Street
|
|
|
|
|
|
|
|
|
Bangor,
ME 04401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
and Lucille Curry
|
|
|
931,565
|
(3)
|
|
|
10.1
|
%
|
13
Water Street
|
|
|
|
|
|
|
|
|
Holliston,
MA 01746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Dumouchel
|
|
|
937,565
|
(4)
|
|
|
10.2
|
%
|
13
Water Street
|
|
|
|
|
|
|
|
|
Holliston,
MA 01746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark
Dumouchel
|
|
|
943,566
|
(5)
|
|
|
10.3
|
%
|
13
Water Street
|
|
|
|
|
|
|
|
|
Holliston,
MA 01746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wayne
Gunter
|
|
|
931,565
|
(6)
|
|
|
10.1
|
%
|
13
Water Street
|
|
|
|
|
|
|
|
|
Holliston,
MA 01746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donato
Mazzola
|
|
|
937,565
|
(7)
|
|
|
10.2
|
%
|
13
Water Street
|
|
|
|
|
|
|
|
|
Holliston,
MA 01746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
J. Landis
|
|
|
18,000
|
(8)
|
|
|
0.2
|
%
|
13
Water Street
|
|
|
|
|
|
|
|
|
Holliston,
MA 01746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
J. Schweiger
|
|
|
38,000
|
(9)
|
|
|
0.4
|
%
|
13
Water Street
|
|
|
|
|
|
|
|
|
Holliston,
MA 01746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gerald
Weston
|
|
|
18,000
|
(10)
|
|
|
0.2
|
%
|
13
Water Street
|
|
|
|
|
|
|
|
|
Holliston,
MA 01746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
our directors and executive
|
|
|
|
|
|
|
|
|
officers
as a group (8 persons)
|
|
|
4,755,826
|
(3,4,5,6,7,8,9,10)
|
|
|
51.8
|
%
|
1. Beneficial
ownership has been determined in accordance with Rule 13d-3 under the Exchange
Act, and includes any options and warrants which vest within 60 days of
September 21, 2009, i.e., by November 20, 2009. Unless otherwise
noted, we believe that all persons named in the table have sole voting and
investment power with respect to all voting securities beneficially owned by
them.
2. Includes
272,774 shares of common stock (of which 183,174 shares are held by an affiliate
of Mr. Nyer), 548,000 shares of common stock underlying options granted to Mr.
Nyer pursuant to the 1993 Plan and the 2002 Plan. Also includes
500,000 vested non-qualified options granted pursuant to Mr. Nyer’s 1999
employment agreement, as amended. All of Mr. Nyer’s 1,048,000 granted stock
options are vested and currently exercisable.
3. Includes
400 shares of Series 2 Stock, which carry the right to 2,000 votes per share on
any matter put to a vote of the common stock (equivalent to an aggregate of
800,000 votes of common stock), 119,565 shares of common stock, and 12,000
shares on common stock underlying options pursuant to the Plans. The
Curry’s are married to one another and thus beneficially own, with the shared
power to vote and shared power to dispose of, these securities. Does
not include 163,043 shares of common stock issuable upon conversion of
convertible promissory notes that Ms. Curry does not intend to convert until
after June 30, 2010.
4. Includes
400 shares of Series 2 Stock which carry the right to 2,000 votes per share on
any matter put to a vote of the common stock (equivalent to an aggregate of
800,000 votes of common stock), 119,565 shares of common stock, and 18,000
shares of common stock underlying options pursuant to the Plans. Does
not include 163,043 shares of common stock issuable upon conversion of
convertible promissory notes that Mr. Dumouchel does not intend to convert until
after June 30, 2010.
5. Includes
400 shares of Series 2 Stock which carry the right to 2,000 votes per share on
any matter put to a vote of the common stock (equivalent to an aggregate of
800,000 votes of common stock); 119,566 shares of common stock, and 24,000
shares of common stock underlying options pursuant to the Plans. Does
not include 163,043 shares of common stock issuable upon conversion of
convertible promissory notes that Mr. Dumouchel does not intend to convert until
after June 30, 2010.
6. Includes
400 shares of Series 2 Stock which carry the right to 2,000 votes per share on
any matter put to a vote of the common stock (equivalent to an aggregate of
800,000 votes of common stock), 119,565 shares of common stock, and 12,000
shares of common stock underlying options pursuant to the Plans. Does
not include 163,043 shares of common stock issuable upon conversion of
convertible promissory notes that Mr. Gunter does not intend to convert until
after June 30, 2010.
7. Includes
400 shares of Series 2 Stock which carry the right to 2,000 votes per share on
any matter put to a vote of the common stock (equivalent to an aggregate of
800,000 votes of common stock), 119,965 shares of common stock, and 18,000
shares of common stock underlying options pursuant to the Plans. Does
not include 163,043 shares of common stock issuable upon conversion of
convertible promissory notes that Mr. Mazola does not intend to convert until
after June 30, 2010.
8. Consists
of 18,000 shares of common stock underlying vested options granted pursuant to
the Plans.
9. Consists
of 38,000 shares of common stock underlying vested options granted pursuant to
the Plans.
10. Consists
of 18,000 shares of common stock underlying vested options granted pursuant to
the Plans.
Change
of Control
There are
no arrangements, known to us, including any pledge by any person of our
securities, the operation of which may at a subsequent date result in a change
in our control.
Securities
Authorized for Issuance Under Equity Compensation Plans
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
Number of securities
|
|
|
|
|
|
remaining available for
|
|
|
|
to be issued upon
|
|
|
Weighted average
|
|
|
future issuance under
|
|
|
|
exercise of
|
|
|
exercise of
|
|
|
equity compensation
|
|
|
|
outstanding options,
|
|
|
outstanding options,
|
|
|
plans (excluding securities
|
|
Plan
Category
|
|
warrants,
and rights
|
|
|
warrants, and rights
|
|
|
reflected
in first column)
|
|
Equity compensation
plans approved by security holders
(1)
|
|
|
935,000
|
|
|
$
|
2.04
|
|
|
|
2,305,000
|
|
Equity compensation
plans not approved by security holders
(2)
|
|
|
553,320
|
|
|
$
|
6.08
|
|
|
|
-
|
|
Total
|
|
|
1,488,320
|
|
|
$
|
3.54
|
|
|
|
2,305,000
|
|
(1)
Represents stock options granted under the Company’s 1993 Plan and 2002
Plan.
(2)
Represents:
·
|
Non-qualifed
stock options to purchase 500,000 shares our common stock at an exercise
price of $6.437 per share, granted under the Employment Agreement dated as
of October 25, 1999, between us and Mr. Samuel Nyer, our former president,
as amended by the Stock Option Agreement, dated as of December 6, 2002,
between the parties to the original document (collectively, the
“Employment Agreement of Samuel Nyer”). All of which are
currently vested. As of the date hereof, none of the options
have been exercised. The options expire in December
2012;
|
·
|
Warrants
issued under the Common Stock Purchase Warrant, dated April 15, 2005, by
us in favor of Around the Clock Partners, LP, (the “Around the Clock
Warrants”) to purchase 36,791 shares of our common stock at an exercise
price of $2.60; and
|
Warrants
issued under the Common Stock Purchase Warrant, dated April 15, 2005, by us in
favor of High Yield Orange, Inc., (the “High Yield Orange Warrants,” together
with the Around the Clock Warrants, collectively the “Third Party Warrants”), to
purchase 16,529 shares of our common stock at an exercise price of $2.60 per
share. The exercise price of the third party warrants are subject to
adjustment for standard anti-dilution relating to stock splits, combinations and
the like, and for subsequent equity sales at a price less than the exercise
price of the Third Party Warrants. As of the date hereof, none of
these warrants have been exercised.
ITEM
13. Certain Relationships and Related Transactions, and Director
Independence.
Transactions
with Related Persons.
Except as
set forth below, we did not have transactions with related persons during fiscal
year ended June 30, 2009, nor any currently proposed transactions with related
persons exceeding the amounts set forth in Item 404(d)(1) of Regulation
S-K.
In
February 2008, Convertible Notes were issued to the former Minority
Shareholders, in the aggregate amount of $1,500,000. The Convertible
Notes bear interest at the rate of 8% per annum, and are due on February 4,
2011. After February 4, 2009 (the first anniversary of the
transaction), any of the former Minority Shareholders can convert all or any
portion of their allocable payment of such notes into shares of the Company’s
common stock at an initial conversion price of $1.84 per share. They
can also redeem for cash. The former minority shareholders have
indicated that they do not intend to redeem the Convertible Notes until after
July 1, 2010. We paid $120,000 in interest on the Convertible Notes
for the former Minority Shareholders in fiscal year 2009.
In February 2008, an unsecured a promissory note, maturing in
February 2013, was issued to Mr. Nyer in the amount of $400,000 for the purchase
of the Company
’
s 2,000 shares of
Class A Stock and 1,000 shares of Class B Stock. The note is payable in equal
monthly installments of $6,667 plus interest on the unpaid balance at 7%. We
paid $23,567 in interest on the promissory note to Mr. Nyer in fiscal year
2009.
Director
Independence
Applying
the definition of independence provided under all applicable NASDAQ rules, each
of Robert Landis, James Schweiger and Gerald Weston are independent members of
our Board of Directors. Such persons, who serve as the members of our
Audit Committee, would also be independent for purposes of the Audit Committee
rules of NASDAQ. The following persons who are directors are not
independent under NASDAQ rules for the following reasons: (a) Mark Dumouchel is
one of our executive officers and an executive officer of DAW and (b) David
Dumouchel is an executive officer of DAW.
ITEM
14. Principal Accountant Fees and Services
Our Audit Committee appointed Sweeney,
Gates & Co. as our independent registered public accounting firm for our
fiscal years 2008 and 2009. Effective March 17, 2009, our Audit
Committee elected to replace Sweeney, Gates & Co. with Wolf & Company,
P.C., as our independent registered public accounting firm. The fees
for services provided by Sweeney, Gates & Co. to us for fiscal year 2008 and
provided by Sweeney, Gates & Co. and Wolf & Company, P.C., for fiscal
year 2009 were as follows:
|
|
2009
|
|
|
|
|
|
|
Wolf &
|
|
|
Sweeney,
|
|
|
|
|
|
|
|
|
|
Company, P.C.
|
|
|
Gates & Co.
|
|
|
Total
|
|
|
2008
|
|
Audit
Fees (1)
|
|
$
|
90,000
|
|
|
$
|
20,611
|
|
|
$
|
110,611
|
|
|
$
|
143,145
|
|
Audit
Related Fees (2)
|
|
|
15,000
|
|
|
|
1,200
|
|
|
|
16,200
|
|
|
|
3,550
|
|
Tax
Fees (3)
|
|
|
-
|
|
|
|
29,589
|
|
|
|
29,589
|
|
|
|
21,789
|
|
Subtotal
|
|
|
105,000
|
|
|
|
51,400
|
|
|
|
156,400
|
|
|
|
168,484
|
|
All
Other Fees (4)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
Fees
|
|
$
|
105,000
|
|
|
$
|
51,400
|
|
|
$
|
156,400
|
|
|
$
|
168,484
|
|
(1) Audit
Fees include professional services rendered for the audits of our annual
financial statements and for review of the financial statements included in our
quarterly reports on Form 10-Q for fiscal years 2009 and 2008.
(2) Audit
Related Fees include professional services rendered for services that are
reasonably related to the performance of the audit and reviews of our financial
statements. Such services in fiscal year 2009 for Wolf & Company
related to the resolution of financial reporting matters related to the
restatements of the 2008 financial statements and for Sweeney Gates & Co.
for attendance at an audit committee meeting and in fiscal year 2008 for
research of accounting treatments.
(3) Tax
Fees include professional services rendered for tax compliance work, tax
planning, and tax advice.
(4)
Neither Sweeney, Gates & Co. nor Wolf & Company, P.C., provided us or
our subsidiaries with any other services during the fiscal years 2008 and
2009.
The
charter of the Audit Committee requires that the Committee review and
pre-approve all audit, review or attest engagements of, and non-audit services
to be provided by, the independent registered public accounting firm (other than
with respect to the de minimis exception permitted by the Sarbanes-Oxley Act of
2002 and the SEC rules promulgated thereunder). The Audit Committee
pre-approved all audit services and permitted non-audit services rendered by
Sweeney, Gates & Co. and Wolf & Co., P.C., in fiscal years 2008 and
2009. The pre-approval duty may be delegated to one or more
designated members of the Audit Committee, with any such pre-approval reported
to the Committee at its next regularly scheduled meeting. Any such
designated member(s) of the Committee shall also have the authority to approve
non-audit services already commenced by the independent registered public
accounting firm if (i) the aggregate amount of all such services provided
constitutes no more than 5% of the total amount of revenues paid by us to the
independent registered public accounting firm during the fiscal year in which
the services are provided, (ii) such services were not recognized by us at the
time of the engagement to be non-audit services, and (iii) such services are
promptly brought to the attention of the Committee and approved by such
designated member(s) prior to the completion of the audit.
PART IV
ITEM 15. Exhibits and
Financial Statement Schedules
.
(a)
|
Financial
Statements and Exhibits
|
(1)
FINANCIAL STATEMENTS
The
following consolidated financial statements are included herein:
Reports
of Independent Registered Public Accounting Firms
|
33
|
|
|
Consolidated
Balance Sheets as of June 30, 2009 and 2008
|
35
|
Consolidated
Statements of Operations for the years ended June 30, 2009 and
2008
|
36
|
Consolidated
Statements of Changes in Shareholders' Equity for the years
ended June 30, 2009 and 2008
|
37
|
Consolidated
Statements of Cash Flows for the years ended June 30, 2009 and
2008
|
38
|
Notes
to Consolidated Financial Statements
|
39
|
(2)
FINANCIAL STATEMENT SCHEDULES
Schedule
II, Valuation and Qualifying Accounts and Reserves.
Such
schedule should be read in conjunction with the consolidated financial
statements. All other schedules are omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
(3)
EXHIBITS
3.1
|
Composite
copy of Articles of Incorporation of the Company. (
Incorporated by reference to
the Company’s Annual Report on Form 10-K filed October 10,
2008.
)
|
3.2
|
Composite
copy of Bylaws of the Company. (
Incorporated by reference to
the Company’s Annual Report on Form 10-K filed October 10,
2008.
)
|
4.1
|
Form
of Common Stock Purchase Warrant, dated April 15, 2005, by the Company in
favor of Around the Clock Partners, LP. (
Incorporated by reference to
the Company’s Current Report on Form 8-K
filed
April 18,
2005.)
|
4.2
|
Form
of Common Stock Purchase Warrant, dated April 15, 2005, by the Company in
favor of High Yield Orange, Inc. (
Incorporated by reference to
the Company’s Current Report on Form 8-K filed April 18,
2005.)
|
4.3
|
Registration
Rights Agreement, dated as of April 15, 2005, by and between the Company
and the Purchasers thereto with attached schedules. (
Incorporated by reference to
the Company’s Current Report on Form 8-K filed April 18,
2005.)
|
10.1
|
1993
Stock Option Plan. (
Incorporated by reference to
the Company’s Annual Report on Form 10-KSB filed April 15, 1996.
)
*
|
10.2
|
Amendment
to 1993 Stock Option Plan.
(Incorporated by reference to
the Company’s Annual Report on Form 10-K filed October 15, 2002.)
*
|
10.3
|
Second
Amendment to 1993 Stock Option Plan.
(Incorporated by reference to
the Company’s Annual Report on Form 10-K filed October 15, 2002.)
*
|
10.4
|
Third
Amendment to 1993 Stock Option Plan.
(Incorporated by reference to
the Company’s Annual Report on Form 10-K filed September 29, 2003.)
*
|
10.5
|
2002
Stock Option Plan.
(Incorporated by reference to
the Company’s Annual Report on Form 10-K filed September 29, 2003.)
*
|
10.6
|
Representative
Form of 2002 Stock Option Plan Agreement. (
Incorporated by reference to
the Company’s Annual Report on Form 10-K filed October 10, 2008.
)
*
|
10.7
|
Stock
Option Agreement, effective as of December 6, 2002, between the Company
and Mr. Samuel Nyer.
(Incorporated by reference to
the Company’s Annual Report on Form 10-K filed September 29, 2003.)
*
|
10.8
|
Supply
Agreement, dated July 1, 2006, between McKesson Corporation and D.A.W.,
Inc.
(Incorporated by
reference to the Company’s Current Report on Form 8-K filed November 14,
2006.)
(Confidential treatment has been granted with respect to
certain portions of this exhibit. Omitted portions have been filed
separately with the Securities and Exchange
Commission.)
|
10.9
|
First
Amendment to Supply Agreement, dated February 3, 2008, between McKesson
Corporation and D.A.W., Inc.
(Incorporated by reference to
the Company’s Quarterly Report on Form 10-Q filed May 20, 2008.)
(Confidential treatment has been granted with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.)
|
10.10
|
First
Amended and Restated Agreement, dated as of December 20, 2007, by and
among the Company, D.A.W., Inc, certain stockholders of D.A.W., Inc. and a
stockholder of F.M.T.
(Incorporated by reference to
the Company’s Current Report on Form 8-K filed December 17,
2007.)
|
10.11
|
Preferred
Stock Purchase and Sale Agreement, dated as of December 20, 2007, by and
among the Company, D.A.W., Inc. and the sellers named therein.
(Incorporated by reference to
the Company’s Current Report on Form 8-K filed December 17,
2007.)
|
10.12
|
Purchase
Agreement among ADCO Surgical Supply, Inc., ADCO South Medical Supplies,
Inc. and Anand Patel entered into on September 25, 2008. (
Incorporated by reference to
the Company’s Current Report on Form 8-K filed on October 1,
2008.)
|
10.13
|
Asset
Purchase and Sale Agreement, dated December 9, 2008, between D.A.W., Inc.,
and CVS Pharmacy LLC.
(Incorporated by reference to
the Company’s Current Report on Form 8-K filed on December 15,
2008.)
|
10.14
|
Form
of Stockholder Guaranty by Nyer Medical Group, Inc., to CVS Pharmacy LLC.
(Incorporated by
reference to the Company’s Current Report on Form 8-K filed on December
15, 2008.)
|
10.15
|
Contract
for Sale of Real Estate dated August 7, 2009 by and between ADCO Surgical
Supply, Inc. and GH Doane Inc.
(Incorporated by reference to
the Company’s Current Report on Form 8-K filed August 11,
2009.)
|
10.16
|
Employment
Agreement, dated as of February 4, 2008, by and among the Company, D.A.W.,
Inc. and Mark Dumouchel.
(Incorporated by reference to
the Company’s Current Report on Form 8-K filed February 15, 2008.)
*
|
10.17
|
Amendment
to Employment Agreement, effective as of February 4, 2008, by and among
the Company, D.A.W., Inc. and Mark Dumouchel.
(Incorporated by reference to
the Company’s Quarterly Report on Form 10-Q filed May 20, 2008.)
*
|
10.18
|
Employment
Agreement, dated as of February 4, 2008, by and among the Company, D.A.W.,
Inc. and David Dumouchel.
(Incorporated by reference to
the Company’s Current Report on Form 8-K filed February 15, 2008.)
*
|
10.19
|
Employment
Agreement, dated as of February 4, 2008, by and among the Company, D.A.W.,
Inc. and Wayne Gunter.
(Incorporated by reference to
the Company’s Current Report on Form 8-K filed February 15, 2008.)
*
|
10.20
|
Employment
Agreement, dated as of February 4, 2008, by and among the Company, D.A.W.,
Inc. and Donato Mazzola.
(Incorporated by reference to
the Company’s Current Report on Form 8-K filed February 15, 2008.)
*
|
10.21
|
Employment
Agreement, dated as of February 4, 2008, by and among the Company, D.A.W.,
Inc. and Michael Curry.
(Incorporated by reference to
the Company’s Current Report on Form 8-K filed February 15, 2008.)
*
|
10.22
|
Negotiable
Promissory Note, dated February 4, 2008, made by the Company in favor of
each of Mark Dumouchel, David Dumouchel, Wayne Gunter, Donato Mazzola and
Lucille Curry.
(Incorporated by reference to
the Company’s Current Report on Form 8-K filed February 15,
2008.)
|
10.23
|
Negotiable
Promissory Note, dated February 4, 2008, made by the Company in favor of
Samuel Nyer.
(Incorporated by reference to
the Company’s Current Report on Form 8-K filed February 15,
2008.)
|
10.24
|
Representative
Convertible Promissory Note. (
Incorporated by reference to
the Company’s Annual Report on Form 10-K filed October 10,
2008.
)
|
10.25
|
Summary
of Director Compensation.*, **
|
14.1
|
The
Company’s Code of Conduct and Ethics Policy.
(Incorporated by reference to
the Company’s Annual Report on Form 10-K filed October 18,
2004.)
|
21.1
|
Subsidiaries
of the Company. (
Incorporated by reference to
the Company’s Annual Report on Form 10-K filed October 10,
2008.
)
|
23.1
|
Consent
of Sweeney, Gates and Co. **
|
23.2
|
Consent
of Wolf & Company, P.C. **
|
31.1
|
Rule 13a-14(a) Certification
of Chief Executive Officer.
**
|
31.2
|
Rule 13a-14(a) Certification
of Chief Financial Officer.
**
|
32.1
|
Section 1350
Certification of Chief Executive Officer. ***
|
32.2
|
Section
1350 Certifications of Chief Financial Officer.
***
|
*
|
This
exhibit includes a management contract, compensatory plan or arrangement
required to be noted herein.
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on September 28, 2009.
NYER
MEDICAL GROUP, INC.
|
|
By:
|
/s/ Mark A. Dumouchel
|
|
Mark
A. Dumouchel
|
|
President
and Chief Executive
Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant, in the
capacities and on the dates indicated.
|
|
|
|
|
|
|
|
|
|
/s/ Mark A. Dumouchel
|
|
|
|
|
Mark
A. Dumouchel
|
|
President
and Chief Executive Officer, Director
|
|
September
28, 2009
|
|
|
(principal
executive officer)
|
|
|
/s/ Sandra M. Zimmerman
|
|
|
|
|
Sandra
M. Zimmerman
|
|
Chief
Financial Officer
(principal
financial officer and principal
accounting
officer)
|
|
September
28, 2009
|
/s/ David Dumouchel
|
|
|
|
|
David
Dumouchel
|
|
Director
|
|
September
28, 2009
|
|
|
|
|
|
/s/ Robert J. Landis
|
|
|
|
|
Robert
J. Landis
|
|
Director
|
|
September
28, 2009
|
|
|
|
|
|
/s/ James Schweiger
|
|
|
|
|
James
Schweiger
|
|
Director
|
|
September
28, 2009
|
|
|
|
|
|
/s/ Gerald Weston
|
|
|
|
|
Gerald
Weston
|
|
Director
|
|
September
28, 2009
|
ANNEX
F – QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30,
2009
Important
Notice Regarding Internet Availability of Proxy Materials for the Special
Meeting:
The
proxy statement is available at
www.nyermedicalgroup.com/nyerweb/specialmeetingproxystatement.pdf
———————————————————————————————————————
PROXY
– COMMON STOCK
NYER
MEDICAL GROUP, INC.
SPECIAL
MEETING OF SHAREHOLDERS
______
, ___________, 2009
___
a.m.
13
Water Street
Holliston,
Massachusetts 07149
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The
undersigned hereby appoints MARK DUMOUCHEL and DAVID DUMOUCHEL, and each of
them, as proxies of the undersigned, each with the power to appoint his
substitute, and hereby authorizes both of them, or either one if only one be
present, to represent and to vote, as designated on the reverse hereof, all the
common stock, $0.0001 par value per share, of Nyer Medical Group, Inc. held of
record by the undersigned or with respect to which the undersigned is entitled
to vote or act at the Special Meeting of Shareholders to be held on ___________,
2009 at ___ a.m., local time, or any adjournment or postponement
thereof.
This
proxy when properly executed will be voted in the manner directed herein by the
undersigned shareholder. If no direction is made, this proxy will be voted FOR
Items 1, 2, 3 and 4. Additionally, the votes entitled to be cast by the
undersigned will be cast in the discretion of the proxy holders on any other
business as may properly come before the Special Meeting.
PLEASE
MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED REPLY
ENVELOPE.
CONTINUED
AND TO BE SIGNED ON REVERSE SIDE
SEE
REVERSE SIDE
|
SEE
REVERSE SIDE
|
TO VOTE,
MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
THIS
PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED
NYER
MEDICAL GROUP, INC
|
|
For
|
|
Against
|
|
Abstain
|
|
|
|
|
|
|
|
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ITEMS 1, 2, 3 and 4 (WITH MARK
AND DAVID DUMOUCHEL ABSTANING WITH RESPECT TO ITEM 2)
|
|
¨
|
|
¨
|
|
¨
|
|
|
|
|
|
|
|
1.
|
|
The
approval the Asset Purchase Agreement, dated as of October 22, 2009, among
Walgreen Eastern Co., Inc., D.A.W., Inc. and Nyer Medical Group, Inc., and
the transactions contemplated thereby.
|
|
¨
|
|
¨
|
|
¨
|
|
|
|
|
|
|
|
|
|
2.
|
|
The
approval of the Transaction Agreement, dated as of October 23, 2009,
among, D.A.W., Inc., certain members of management of D.A.W., Inc. and
Nyer Medical Group, Inc., and the transactions contemplated
thereby.
|
|
¨
|
|
¨
|
|
¨
|
|
|
|
|
|
|
|
|
|
3.
|
|
The
approval of the Plan of Dissolution for Nyer Medical Group, Inc., and the
transactions contemplated thereby.
|
|
¨
|
|
¨
|
|
¨
|
|
|
|
|
|
|
|
|
|
4.
|
|
The
approval of the proposal to permit the Board of Directors of Nyer Medical
Group, Inc. or its chairman, in its or his discretion, to adjourn or
postpone the Special Meeting if necessary for further solicitation of
proxies if there are not sufficient votes at the originally scheduled time
of the Special Meeting to approve the proposals
|
|
¨
|
|
¨
|
|
¨
|
|
|
|
|
|
|
|
|
|
5.
|
|
In
their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Special Meeting or any
adjournment or postponement thereof.
|
|
|
|
|
|
|
THIS
PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
Note:
Please sign exactly as your name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such. If a corporation, please sign in full corporate name by
an authorized officer or if a partnership, please sign in full partnership
name an by an authorized person.
|
|
|
Signature
[PLEASE SIGN WITHIN BOX] Date
|
|
Signature
[PLEASE SIGN WITHIN
BOX] Date
|
Important
Notice Regarding Internet Availability of Proxy Materials for the Special
Meeting:
The
proxy statement is available at
www.nyermedicalgroup.com/nyerweb/specialmeetingproxystatement.pdf
———————————————————————————————————————
PROXY
– PREFERRED STOCK
NYER
MEDICAL GROUP, INC.
SPECIAL
MEETING OF SHAREHOLDERS
______
, ___________, 2009
___
a.m.
13
Water Street
Holliston,
Massachusetts 07149
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The
undersigned hereby appoints MARK DUMOUCHEL and DAVID DUMOUCHEL, and each of
them, as proxies of the undersigned, each with the power to appoint his
substitute, and hereby authorizes both of them, or either one if only one be
present, to represent and to vote, as designated on the reverse hereof, all the
preferred stock of Nyer Medical Group, Inc. held of record by the undersigned or
with respect to which the undersigned is entitled to vote or act at the Special
Meeting of Shareholders to be held on ___________, 2009 at ___ a.m., local time,
or any adjournment or postponement thereof.
This
proxy when properly executed will be voted in the manner directed herein by the
undersigned shareholder. If no direction is made, this proxy will be voted FOR
Items 1, 2, 3 and 4. Additionally, the votes entitled to be cast by the
undersigned will be cast in the discretion of the proxy holders on any other
business as may properly come before the Special Meeting.
PLEASE
MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED REPLY
ENVELOPE.
CONTINUED
AND TO BE SIGNED ON REVERSE SIDE
SEE
REVERSE SIDE
|
SEE
REVERSE SIDE
|
TO VOTE,
MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
THIS
PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED
NYER
MEDICAL GROUP, INC
|
|
For
|
|
Against
|
|
Abstain
|
|
|
|
|
|
|
|
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ITEMS 1, 2, 3 and 4 (WITH MARK
AND DAVID DUMOUCHEL ABSTANING WITH RESPECT TO ITEM 2)
|
|
¨
|
|
¨
|
|
¨
|
|
|
|
|
|
|
|
1.
|
|
The
approval the Asset Purchase Agreement, dated as of October 22, 2009, among
Walgreen Eastern Co., Inc., D.A.W., Inc. and Nyer Medical Group, Inc., and
the transactions contemplated thereby.
|
|
¨
|
|
¨
|
|
¨
|
|
|
|
|
|
|
|
|
|
2.
|
|
The
approval of the Transaction Agreement, dated as of October 23, 2009,
among, D.A.W., Inc., certain members of management of D.A.W., Inc. and
Nyer Medical Group, Inc., and the transactions contemplated
thereby.
|
|
¨
|
|
¨
|
|
¨
|
|
|
|
|
|
|
|
|
|
3.
|
|
The
approval of the Plan of Dissolution for Nyer Medical Group, Inc., and the
transactions contemplated thereby.
|
|
¨
|
|
¨
|
|
¨
|
|
|
|
|
|
|
|
|
|
4.
|
|
The
approval of the proposal to permit the Board of Directors of Nyer Medical
Group, Inc. or its chairman, in its or his discretion, to adjourn or
postpone the Special Meeting if necessary for further solicitation of
proxies if there are not sufficient votes at the originally scheduled time
of the Special Meeting to approve the proposals
|
|
¨
|
|
¨
|
|
¨
|
|
|
|
|
|
|
|
|
|
5.
|
|
In
their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Special Meeting or any
adjournment or postponement thereof.
|
|
|
|
|
|
|
THIS
PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
Note:
Please sign exactly as your name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such. If a corporation, please sign in full corporate name by
an authorized officer or if a partnership, please sign in full partnership
name an by an authorized person.
|
|
|
Signature
[PLEASE SIGN WITHIN BOX] Date
|
|
Signature
[PLEASE SIGN WITHIN
BOX] Date
|
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