UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14F-1
INFORMATION STATEMENT PURSUANT TO SECTION 14(f) OF THE SECURITIES EXCHANGE ACT
OF 1934 AND RULE 14f-1 UNDER THE SECURITIES EXCHANGE ACT OF 1934
ASSURED PHARMACY, INC.
----------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 000-33165 98-0233878
------ --------- ----------
(STATE OR OTHER JURISDICTION (COMMISSION FILE NO.) (IRS EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
17935 SKY PARK CIRCLE, SUITE F
IRVINE, CA 92614
TELEPHONE: (949) 222-9971
(Address, Including Zip Code, and Telephone Number, including Area Code,
of Registrant's Principal Executive Offices)
------------------
ASSURED PHARMACY, INC.
17935 SKY PARK CIRCLE, SUITE F
IRVINE, CA 92614
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14f-1
THEREUNDER
THIS INFORMATION STATEMENT IS BEING PROVIDED SOLELY FOR
INFORMATIONAL PURPOSES AND NOT IN CONNECTION WITH ANY VOTE OF THE
STOCKHOLDERS OF ASSURED PHARMACY, INC. WE ARE NOT SOLICITING YOUR PROXY.
-----------------------------
This Information Statement is being mailed to holders of record of
shares of common stock of Assured Pharmacy, Inc. (the "REGISTRANT", the
"COMPANY", "WE", "US" or "OUR"), a Nevada corporation, on or about October 10,
2008, pursuant to the requirements of Section 14(f) of the Securities Exchange
Act of 1934, as amended (the "EXCHANGE ACT"), and Rule 14f-1 promulgated
thereunder.
BACKGROUND
As of September 30, 2008, we had 56,606,113 issued and outstanding
shares of common stock, par value $0.001 per share ("COMMON STOCK"), which,
prior to the consummation of the transactions described in this Information
Statement, is our only class of voting securities that would be entitled to vote
for directors at a stockholders' meeting if one were to be held. Each share of
Common Stock entitles the holder thereof to one vote.
CHANGE IN CONTROL
Upon the consummation of the transactions described below, there will
be a change in control of the Company.
SALE OF SECURITIES
On October 7, 2008, we entered into a Securities Purchase Agreement
(the "SECURITIES PURCHASE AGREEMENT") with APHY Holdings LLC ("APHY HOLDINGS"),
a Delaware limited liability company, pursuant to which we agreed to sell, and
APHY agreed to purchase, 11,235 shares of Series A Convertible Preferred Stock,
par value $0.001 per share (the "SERIES A PREFERRED STOCK"), and 75,000,001
shares of Common Stock, par value $0.001 per share, at a purchase price of
$0.0102 per share, for an aggregate purchase price of $12,000,000.01. The Series
A Preferred Stock is convertible into shares of Common Stock at the initial
conversion price of $0.0102. If APHY Holdings were to convert all the shares of
Series A Preferred Stock into shares of Common Stock at the initial conversion
ratio, we would have approximately 2 billion shares of Common Stock issued and
outstanding on a fully diluted basis (after giving effect to the debt exchanges
discussed below), and APHY Holdings would be the holder of approximately
1,175,000,000 shares of Common Stock, or approximately 60% of the aggregate
number of shares of Common Stock issued and outstanding on a fully diluted
basis.
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DEBT EXCHANGES AND REPAYMENTS
In connection with the issuance and sale of the Series A Preferred
Stock to APHY Holdings, we will issue approximately 3,634 shares of our Series B
Convertible Stock, par value $0.001 per share (the "SERIES B PREFERRED STOCK"),
and 2,000 shares of our Series C Convertible Stock, par value $0.001 per share
(the "SERIES C PREFERRED STOCK" and, together with the Series A Preferred Stock
and the Series B Preferred Stock, the "PREFERRED STOCK"), to certain of our
affiliates, including our chief executive and chief financial officers, in
exchange for certain of our debt, and certain holders of our debt will exchange
indebtedness for new debentures, among other transactions. It is currently
anticipated that the Company will use approximately $1.9 million of the proceeds
from the sale of the Series A Preferred Stock to repay existing debt of the
Company, and the Company will exchange indebtedness of other holders for the
issuance of approximately $1,476,000 10% Debentures due 2010. More information
about such debt exchanges and issuances are described in the Current Report on
Form 8-K, filed with the Securities and Exchange Commission on October 8, 2008.
The closing of the issuance of securities, exchanges of debt and other
transactions described above (the "CLOSING") is expected to occur on or before
October 31, 2008, subject to certain closing conditions, including the end of
the ten day period after the mailing and dissemination of this Information
Statement on Schedule 14F-1 to the stockholders of the Company (the "TEN DAY
PERIOD").
VOTING RIGHTS; STOCKHOLDERS' AGREEMENT
The Certificate of Designations, Preferences and Rights of Series A
Convertible Preferred Stock, Series B Convertible Preferred Stock and Series C
Convertible Preferred Stock of the Company (the "CERTIFICATE OF DESIGNATIONS"),
which will be filed with the Secretary of State of the State of Nevada on or
prior to the Closing pursuant to the Securities Purchase Agreement, provides the
following rights and preferences to holders of Preferred Stock:
o DIVIDEND - The Preferred Stock will pay a cumulative cash dividend of
10% per annum, which will accrue and accumulate daily until paid.
o LIQUIDATION - The holders of Series A Preferred Stock will, upon
certain liquidation events, receive preference in the distribution of
the Company's assets equal to the greater of (i) $12 million or (ii)
the amount such holder would have received if the Series A Preferred
Stock were converted into Common Stock; provided that, if the holders
of Series A Preferred Stock receive the distribution described in
clause (i), such holders may not receive distributions with respect to
any shares of Common Stock that were held by such holders as of the
Closing. Next, the holders of Series B Preferred Stock and Series C
Preferred Stock shall be entitled to the greater of $1,000 per share
or the amount such holder would have received if the Series B or C
Preferred Stock were converted into Common Stock. Next, the holders of
Preferred Stock will be entitled to accrued and unpaid dividends.
Finally, the remaining assets of the Company, if any, will be
available for distribution to the holders of Common Stock on a pro
rata basis.
o CONVERSION - The Series A Preferred Stock is initially convertible
into shares of Common Stock at a conversion price of $0.0102 per
share; the Series B Preferred Stock is initially convertible into
shares of Common Stock at a conversion price of $0.022 per share; and
the Series C Preferred Stock is initially convertible into shares of
Common Stock at a conversion price of $0.038 per share. Such
conversion prices will be adjusted for any subsequent stock splits,
dividends, reorganizations, mergers, exchanges or other
reclassification events. The holders of a
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majority of Series A Preferred Stock can force the conversion of all
Preferred Stock under certain circumstances. At the initial conversion
rates, approximately 1.3 billion shares of Common Stock are issuable
upon conversion of the Preferred Stock.
o VOTING RIGHTS - Each share of Preferred Stock will be voted on an
as-converted basis together with the shares of Common Stock, at any
annual or special meeting of stockholders of the Company and holders
of Preferred Stock and may act by written consent in the same manner
as the Common Stock. In addition, there is not currently a sufficient
number of authorized shares of Common Stock under the Company's
Articles of Incorporation to convert the Preferred Stock that will be
issued at Closing. At Closing, APHY Holdings will acquire a majority
of the authorized shares of Common Stock and will be able to approve
an amendment to the Company's Articles of Incorporation necessary to
increase the number of authorized shares of Common Stock without the
approval of any of the Company's other stockholders.
o BOARD SEATS - So long as 35% of the shares of Series A Preferred Stock
remain issued and outstanding, the holders of outstanding shares of
Series A Preferred Stock will, voting together as a separate class, be
entitled to elect five directors to the seven-member Board (each, a
"SERIES A REPRESENTATIVE"). So long as 35% of the shares of Series C
Preferred Stock remain issued and outstanding, the holders of
outstanding shares of Series C Preferred Stock will, voting together
as a separate class, be entitled to elect one Director to the Board (a
"SERIES C REPRESENTATIVE"). Upon the Closing, one member of the Board
will be required to meet the definition of "independent director"
under the rules of the American Stock Exchange.
o COVENANTS - So long as 35% of the shares of Series A Preferred Stock
remain issued and outstanding, the approval of the holders of a
majority of the shares of Series A Preferred Stock then outstanding is
required for certain corporate actions by the Company. These actions
include, among others, approving annual business plans and operating
budgets, incurring indebtedness (other than certain permitted
indebtedness), entering into any transaction or arrangement with any
officer, director or shareholder of the Company (other than certain
employee compensation arrangements), making any loans or advances to
any other person, incurring any liens (other than certain permitted
liens) on any assets of the Company and any sale or transfer of any
assets of the Company other than in the ordinary course of business.
Due to its ownership of Series A Preferred Stock, without the approval
of the Company's other stockholders, APHY Holdings will be able to
effect corporate transactions requiring stockholder approval, such as
a merger, sale of substantially all the assets of the Company or a
"going private" transaction.
As a condition to the Closing, APHY Holdings will enter into a
Stockholders' Agreement (the "STOCKHOLDERS' AGREEMENT") with Mosaic Capital
Advisors, LLC, and its affiliates (collectively, "MOSAIC"), Robert DelVecchio
and Haresh Sheth. Under the terms of the Stockholders' Agreement, among other
things, each of APHY Holdings, Mosaic, Robert DelVecchio and Haresh Sheth
(collectively, the "HOLDERS") will agree to vote their shares as necessary to
ensure that the size of the Board of Directors of the Company (the "Board")
shall consist of seven directors.
RESTRUCTURING OF BOARD OF DIRECTORS AND MANAGEMENT
As a closing condition of the Securities Purchase Agreement, the Board
must increase the number of directors constituting the Board from five directors
to seven directors. In connection with the Closing, James Manfredonia and Haresh
Sheth will resign from the Board. We have been informed that pursuant to their
rights under the Certificate of Designations, APHY Holdings intends to appoint
Thomas Auth,
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Robert DelVecchio, Navid Farzad and David Lowenberg as directors, and the holder
of Series C Preferred Stock, Mosaic, intends to appoint Ameet Shah as a director
effective upon the Closing, which shall in no case be earlier than the end of
the Ten Day Period. The Company expects that Richard Falcone will remain on the
Board as an independent director.
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth certain information with respect to our
beneficial ownership of our Common Stock as of September 30, 2008 by (i) each
stockholder beneficially owning more than 5% of the outstanding shares of our
Common Stock, (ii) each director, (iii) each named executive officer, and (iv)
all executive officers and directors as a group.
As used in the table below, the term BENEFICIAL OWNERSHIP with respect
to a security consists of sole or shared voting power, including the power to
vote or direct the vote and/or sole or shared investment power, including the
power to dispose or direct the disposition, with respect to the security through
any contract, arrangement, understanding, relationship, or otherwise, including
a right to acquire such power(s) during the next 60 days following September 30,
2008. Except as otherwise indicated, the stockholders listed in the table have
sole voting and investment powers with respect to the shares indicated.
Percentage ownership is based on 56,606,113 shares of Common Stock outstanding
on September 30, 2008.
Except as otherwise noted below, the address of each of the persons in
the table is c/o Assured Pharmacy, Inc., 17935 Sky Park Circle, Suite F, Irvine,
California 92614.
NAME AND ADDRESS AMOUNT OF PERCENT
TITLE OF CLASS OF BENEFICIAL OWNER BENEFICIAL OF CLASS*
OWNERSHIP
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EXECUTIVE OFFICERS & DIRECTORS:
- ----------------------------------------------------------------------------------------------------------
Common Robert DelVecchio 8,191,878(1) 12.8%
- ----------------------------------------------------------------------------------------------------------
Common James Manfredonia 800,000 1.4%
- ----------------------------------------------------------------------------------------------------------
Common Haresh Sheth 6,377,780(2) 9.8%
- ----------------------------------------------------------------------------------------------------------
Common Ameet Shah 27,671,314(3) 35.6%
- ----------------------------------------------------------------------------------------------------------
Common Richard Falcone 800,000 1.4%
- ----------------------------------------------------------------------------------------------------------
Common John Eric Mutter 1,075,000(4) 1.9%
- ----------------------------------------------------------------------------------------------------------
TOTAL OF ALL DIRECTORS AND EXECUTIVE OFFICERS: 44,915,972 49.3%
MORE THAN 5% BENEFICIAL OWNERS:
- ----------------------------------------------------------------------------------------------------------
Common Mosaic Capital Advisors, LLC 27,671,314(3) 35.6%
400 Madison Avenue, Suite 6B
New York, NY 10017
- ----------------------------------------------------------------------------------------------------------
Common Weil Consulting Corporation 3,000,000 5.3%
234 South Hamilton Drive
Beverly Hills, CA 90211
- ----------------------------------------------------------------------------------------------------------
- ---------------
* Less than 1%.
(1) Represents (i) 5,000,000 shares issuable upon exercise of options held by
Mr. DelVecchio, (ii) 770,123 shares held by Brockington Securities, Inc.
("BROCKINGTON"), (iii) 464,255 shares issuable in lieu of debenture
interest to Brockington, (iv) 975,000 shares issuable upon exercise of
warrants held by Brockington and (v) 982,500 shares issuable upon
conversion of debentures and short-term notes held by Brockington. Mr.
DelVecchio is the President and Chief Executive Officer of Brockington.
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(2) Represents (i) 1,180,298 shares held (of which 750,849 are held by
Woodfield Capital Services, Inc. ("WOODFIELD"), 375,000 are held by Janus
Finance Corporation LLC ("JANUS") and 54,449 are held by Janus Financial
Services, Inc. ("JANUS SERVICES")), (ii) 1,375,000 shares issuable upon
exercise of warrants (of which 1,062,500 are issuable to Woodfield, and
312,500 are issuable to Janus), (iii) 1,375,000 shares issuable upon the
conversion of debentures and short-term notes (of which 125,000 are
issuable to Janus Services, 875,000 are issuable to Mr. Sheth and 375,000
are issuable to Woodfield), (iv) 1,700,000 shares issuable upon exercise of
options (of which 566,666 are held by Janus Services and 1,133,334 are held
by Mr. Sheth), (iv) 747,482 shares issuable in lieu of debenture interest
(of which 99,351 are issuable to Janus Services and 648,131 are issuable to
Woodfield).
(3) Represents (i) 6,441,814 shares held by Mosaic (of which 2,500,000 are held
by Mosaic Financial Services LLC, a wholly-owned subsidiary of Mosaic
Capital Advisors, LLC ("MCA"), and the remainder are held by other Mosaic
entities, including funds for which MCA is the financial advisor and MPE
General Partner, LLC ("GP") is the general partner and funds managed by
Mosaic Capital Management, Ltd.), (ii) 11,427,250 shares issuable upon the
exercise of warrants held by Mosaic entities and (iii) 9,802,250 issuable
upon the conversion of convertible debentures held by Mosaic entities. Mr.
Shah and Mr. Sadowsky own MCA and GP and their power to vote or direct the
vote of the aforementioned shares is indirect. Mr. Shah disclaims
beneficial ownership of these shares except to the extent of his pecuniary
interest in the shares.
(4) Includes 325,000 shares held by Mr. Mutter and 750,000 shares issuable upon
exercise of options held by Mr. Mutter.
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DIRECTORS, EXECUTIVE OFFICERS, AND KEY EMPLOYEES
Set forth below is certain information with respect to the individuals
who are our current directors, officers and key employees and the individuals
who are proposed to become our directors.
NAME AGE POSITION
Thomas Auth* 40 Director
Robert Delvecchio** 43 Director and Chief Executive Officer
James Manfredonia*** 46 Director
Richard Falcone** 54 Director
Navid Farzad* 31 Director
David A. Lowenberg* 58 Director
John Eric Mutter 49 Chief Technology Officer
Ameet Shah** 35 Director
Haresh Sheth*** 58 Director and Chief Financial Officer
* Proposed Directors
** Continuing Directors
*** Departing Directors
Set forth below is biographical information with respect to each of the
aforementioned individuals.
PROPOSED DIRECTORS:
THOMAS AUTH. Mr. Auth is expected to be appointed to the Board at
Closing. He is a General Partner of Enhanced Equity Fund, L.P. ("EEF"), which
formed APHY Holdings for the purpose of purchasing the Series A Stock and the
Common Stock. Prior to joining EEF in January 2008, Mr. Auth was a member of ACI
Capital Co., LLC, a generalist middle market private equity fund focused on
value-oriented buyouts and growth investments across industries. From 2002 to
2005, Mr. Auth was a member of One Equity Partners ("OEP"), the private equity
arm of JPMorgan Chase & Co. While at OEP, Mr. Auth focused on buyouts and growth
investments in the business services and healthcare industries. Prior to OEP,
Mr. Auth was an associate at Cravath, Swaine & Moore LLP in the mergers and
acquisitions practice group. In 1999, Mr. Auth co-founded Concordant Rater
Systems, a services company focused on improving efficiencies in clinical
trials. Mr. Auth graduated from Columbia University and Harvard Law School.
NAVID FARZAD. Mr. Farzad is expected to be appointed to the Board at
Closing. Mr. Farzad is an Associate of EEF. Mr. Farzad joined EEF in July 2008.
Mr. Farzad most recently served as a Summer Associate in the Healthcare
Investment Banking Division of Lehman Brothers focusing on mergers and
acquisitions. From 2002 to 2006, Mr. Farzad was a member of Ernst & Young LLP's
Transaction Advisory Services group where he focused on financial due diligence
on acquisition targets for private equity sponsors. Prior to Ernst & Young, Mr.
Farzad worked in the healthcare audit practice of Arthur Andersen LLP. Mr.
Farzad received a Bachelor of Business Administration from Loyola College and an
MBA from New York University's Stern School of Business. Mr. Farzad is a
Certified Public Accountant.
DAVID A. LOWENBERG. Mr. Lowenberg is expected to be appointed to the
Board as Chairman and named as the Company's chief executive officer at Closing.
Since March 2008, Mr. Lowenberg has served as an advisor to several healthcare
companies. From June 2006 to February 2008, Mr. Lowenberg was the president and
chief executive officer of CuraScript, Inc., a specialty pharmaceutical
business. From September 1999 to May 2006, Mr. Lowenberg was the chief operating
officer of Express Scripts,
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Inc., a Fortune 500 pharmacy benefits manager. Prior to Express Scripts, Mr.
Lowenberg served in high level positions with the Arizona Department of Welfare
Programs and Department of Medicaid. Mr. Lowenberg received a Bachelor of Public
Administration from the University of Arizona and a Master's in Government
Management from Harvard University.
CONTINUING DIRECTORS:
ROBERT DELVECCHIO. Mr. DelVecchio has served as our Chief Executive
Officer since February 2005. Mr. DelVecchio was appointed as a member of the
Board on March 31, 2005. Since 1995, Mr. DelVecchio has acted as Chief Executive
Officer and President of Brockington Securities, a broker-dealer that is a
member of the FINRA.
RICHARD FALCONE. Mr. Falcone was appointed to the Board in July 2004.
From February 2006 to December 2006, Mr. Falcone served as President and Chief
Executive Officer of Tasker Capital Corp. Mr. Falcone also served as Chairman of
the Board of Tasker Capital Corp. from May 2006 to December 2006. From 2001 to
February 2006, Mr. Falcone served as Chief Financial Officer of The A Consulting
Team, Inc., an IT service company. Mr. Falcone has served as Chief Financial
Officer of Netgrocer.com. In 1990, Mr. Falcone joined Bed Bath & Beyond, Inc. as
its Chief Financial Officer. In 1983, Mr. Falcone joined Tiffany & Co. and
served as Manager of Audit, Director of Financial Control, and Director of
International Finance and Operations. Mr. Falcone has also worked at
PriceWaterhouseCoopers & Co., an international public accounting firm.
AMEET SHAH. Mr. Shah was appointed to the Board in February 2008. Mr.
Shah is currently the Managing Partner of Mosaic and the Mosaic Private Equity
family of funds. Prior to starting Mosaic Capital, a principal investment firm
about 10 years ago, Mr. Shah worked with HSBC Asset Management Limited in
various roles in Hong Kong, London and New York. He subsequently moved to
Salomon Brothers in Hong Kong and joined the investment team that oversaw the
Salomon Brothers Asia Growth Fund in 1997-1998. Mr. Shah serves on the boards of
three emerging US companies - Advanced Financial Applications, Real Time
Radiography and Invalt Inc; and he also serves as a Conflict Review Board Member
for the Sigma Opportunity Fund in New York. In 2006, Mr. Shah founded the
Astonfield Group of Companies. Astonfield Renewable Resources Limited was set up
to develop clean energy projects in India. It currently builds, operates and
owns a portfolio of solar, biomass and biogas projects in India. Mr. Shah is an
Economics graduate of Fitzwilliam College, University of Cambridge.
DEPARTING DIRECTORS:
JAMES MANFREDONIA. Mr. Manfredonia was appointed to the Board in June
2004. From 2002 until 2008, Mr. Manfredonia served as manager of listed equity
trading and New York Stock Exchange operations at Bear Stearns. Mr. Manfredonia
currently serves as the Chairman of the New York Stock Exchange Upstairs Traders
Advisory Committee and as a member of the Market Performance Committee of the
New York Stock Exchange. Prior to joining Bear Stearns, Mr. Manfredonia worked
for ten years at Merrill Lynch where he managed the listed trading desk with
additional responsibilities for NASDAQ, portfolio trading, sales trading, and
NYSE staff. Mr. Manfredonia was the founding general partner of Blair
Manfredonia Limited Partners, a hedge fund/broker-dealer. Mr. Manfredonia has
also worked at Lehman Brothers, Salomon Brothers, and Drexel Burnham.
HARESH SHETH. Mr. Sheth was appointed to serve as our Chief Operating
Officer on May 1, 2006 and served in this capacity until December 15, 2006 when
Mr. Sheth was appointed our Chief Financial Officer. Mr. Sheth was appointed to
the Board in September 2005. Since 1991, Mr. Sheth has acted as President of
Janus Finance Corporation, an asset based finance company and since 2005 Mr.
Sheth has acted as President of Woodfield Capital Services Inc., an investment
company. From 2004 until 2006,
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Mr. Sheth served as group financial officer and director of Mosaic. Mr. Sheth is
a graduate of West Virginia University where he earned an engineering degree.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS:
JOHN ERIC MUTTER. Mr. Mutter was appointed to serve as Chief Operating
Officer on May 11, 2005 and served in this capacity until May 1, 2006 when Mr.
Mutter was appointed Chief Technology Officer. Since January 2004, Mr. Mutter
has acted as a consultant to Assured Pharmacy, Inc. providing technology and
information systems support. From 2000 to 2003, Mr. Mutter performed similar
responsibilities for the MedEx Systems Inc. designing, implementing and managing
a digital prescribing infrastructure for Pegasus Pharmacies. Prior to these
positions, Mr. Mutter has held numerous field engineering and technology
positions with Alpha Microsystems, Tomba Communications, Neosoft Inc.,
Checkpoint Systems, and Southwest Communications.
LEGAL PROCEEDINGS
To the best of our knowledge, during the past five years, none of the
following occurred with respect to a present or former director, executive
officer, or employee of the Company: (1) any bankruptcy petition filed by or
against any business of which such person was a general partner or executive
officer either at the time of the bankruptcy or within two years prior to that
time; (2) any conviction in a criminal proceeding or being subject to a pending
criminal proceeding (excluding traffic violations and other minor offenses); (3)
being subject to any order, judgment or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently or
temporarily enjoining, barring, suspending or otherwise limiting his or her
involvement in any type of business, securities or banking activities; and (4)
being found by a court of competent jurisdiction (in a civil action), the
Securities and Exchange Commission or the Commodities Futures Trading Commission
to have violated a federal or state securities or commodities law, and the
judgment has not been reversed, suspended or vacated.
CORPORATE GOVERNANCE
Our directors are appointed for a one-year term to hold office until
the next annual meeting of our stockholders or until removed from office in
accordance with our bylaws.
DIRECTOR INDEPENDENCE
Our Common Stock is quoted on the Financial Industry Regulatory
Authority's OTC Bulletin Board, which does not have director independence
requirements. Pursuant to the independence standards of NASDAQ Marketplace Rule
4200(a)(15), the Board has determined that James Manfredonia and Richard Falcone
were independent directors as of December 31, 2007 and are independent directors
as of the date of this Information Statement. Our other directors do not meet
the independence standards of the NASDAQ Marketplace Rules.
BOARD MEETINGS AND ATTENDANCE AT ANNUAL MEETING OF SHAREHOLDERS
Our Board held two meetings during fiscal year 2007. Each director
attended at least seventy-five percent of the Board meetings. We do not have a
policy regarding director attendance at the meetings of stockholders.
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AUDIT COMMITTEE
We do not have a separately-designated standing audit committee. The
entire Board performs the functions of an audit committee, but no written
charter governs the actions of the Board when performing the functions that
would generally be performed by an audit committee. The Board approves the
selection of our independent accountants and meets and interacts with the
independent accountants to discuss issues related to financial reporting. In
addition, the Board reviews the scope and results of the audit with the
independent accountants, reviews with management and the independent accountants
our annual operating results, considers the adequacy of our internal accounting
procedures and considers other auditing and accounting matters including fees to
be paid to the independent auditor and the performance of the independent
auditor.
DIRECTOR NOMINATING PROCESS
We do not have a separately-designated standing nominating committee.
As a result, no written charter governs the director nomination process. The
Board has determined that our size and the size of our Board, at this time, do
not require a separate nominating committee.
Our independent directors annually review all director performance over
the past year and make recommendations to the Board for future nominations. When
evaluating director nominees, our independent directors consider the following
factors:
- the appropriate size of the Board;
- the needs of the Company with respect to the particular talents
and experience of its directors;
- the knowledge, skills and experience of nominees, including
experience in finance, administration or public service, in light
of prevailing business conditions and the knowledge, skills and
experience already possessed by other members of the Board;
- experience in political affairs;
- experience with accounting rules and practices; and
- the desire to balance the benefit of continuity with the periodic
injection of the fresh perspective provided by new Board members.
Our goal is to assemble a Board that brings together a variety of
perspectives and skills derived from high quality business and professional
experience. In doing so, the Board will also consider candidates with
appropriate non-business backgrounds.
Other than the foregoing, there are no stated minimum criteria for
director nominees, although the Board may also consider such other factors as it
may deem are in the best interests of us and our stockholders. In addition, the
Board identifies nominees by first evaluating the current members of the Board
willing to continue in service. Current members of the Board with skills and
experience that are relevant to our business and who are willing to continue in
service are considered for re-nomination. If any member of the Board does not
wish to continue in service or if the Board decides not to re-nominate a member
for re-election, the Board then identifies the desired skills and experience of
a new nominee in light of the criteria above. Current members of the Board are
polled for suggestions as to individuals meeting the criteria described above.
The Board may also engage in research to identify qualified
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individuals. To date, the Board has not engaged third parties to identify or
evaluate or assist in identifying potential nominees, although the Board
reserves the right in the future to retain a third party search firm, if
necessary. The Board does not typically consider shareholder nominees because it
believes that its current nomination process is sufficient to identify directors
who serve our best interests.
PROCESSES AND PROCEDURES FOR DETERMINATION OF EXECUTIVE AND DIRECTOR
COMPENSATION
We do not have a separately-designated standing compensation committee.
The Board has determined that our size and the size of our Board, at this time,
do not require a separate compensation committee. Executive officer and director
compensation is determined by the entire Board. In setting executive officer and
director compensation, the Board considers the Company's performance and
relative shareholder return, compensation of similar directors and officers at
comparable companies, and compensation of such directors and officers in past
years.
SHAREHOLDER COMMUNICATION
The Board has not provided a separate process for security holders to
communicate with the Board. Communications to the Board may be sent to the
address and telephone number set forth on the cover page to this Information
Statement.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The table below summarizes all compensation awarded to, earned by, or
paid to our named executive officers for the fiscal years ended 2007 and 2006.
SUMMARY COMPENSATION TABLE
- ---------------------------------------------------------------------------------------------------------------------------------
Non-Equity
Stock Option Incentive Nonqualified
Awards Plan Deferred All Other
Name and Principal Salary Bonus Awards (4) Compensation Compensation Compensation Total
Position Year ($) ($) ($) ($) ($) Earnings ($) ($) ($)
- ---------------------------------------------------------------------------------------------------------------------------------
Robert DelVecchio (1) 2007 165,224(5) 5,000 - - - - - 170,224
CEO & Former CFO 2006 150,000 128,860 - - - - - 278,860
Haresh Sheth (2) 2007 165,224(6) 5,000 - - - - - 170,224
CFO & Former COO 2006 110,577 - - 283,333 - - - 393,910
John Eric Mutter (3) 2007 193,000(7) - - - - - - 193,000
CTO & Former COO 2006 185,000 - - - - - - 185,000
- ---------------------------------------------------------------------------------------------------------------------------------
- --------------
(1) Mr. DelVecchio resigned as our Chief Financial Officer on December 15,
2006.
(2) Mr. Sheth was appointed as our Chief Operating Officer on May 1, 2006 and
served in this capacity until his appointment as Chief Financial Officer on
December 15, 2006. The information in the summary compensation table
includes all compensation paid to Mr. Sheth for the full fiscal year ended
December 31, 2006.
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(3) Mr. Mutter was appointed as our Chief Operating Officer on May 11, 2005 and
served in this capacity until his appointment as Chief Technology Officer
on December 15, 2006. The information in the summary compensation table
includes all compensation paid to Mr. Mutter for the full fiscal years
ended December 31, 2007 and 2006.
(4) The amounts reflect the compensation expense in accordance with FAS 123(R)
of these option awards. The assumptions used to determine the fair value of
the option awards for fiscal years ended December 31, 2006 and 2007 are set
forth in Note 6 of our audited consolidated financial statements included
in the Annual Report of the Company on Form 10-KSB filed with the SEC on
March 31, 2008. Our named executive officers will not realize the value of
these awards in cash unless and until these awards are exercised and the
underlying shares subsequently sold.
(5) The amount includes salary adjustments during the year ended December 31,
2007. Mr. DelVecchio's current salary is $175,000 per annum.
(6) The amount includes salary adjustments during the year ended December 31,
2007. Mr. Sheth's current salary is $175,000 per annum.
(7) The amount includes a salary increase during the year ended December 31,
2007. Mr. Mutter's current salary is $209,000 per annum.
NEW MANAGEMENT COMPENSATION ARRANGEMENTS AND INDEMNIFICATION AGREEMENTS
In order to encourage the current members of the Company's senior
management to remain employed by the Company following the Closing, the Company
has agreed to enter into the following employment arrangements.
As a condition to Closing, options to purchase 5 million shares of
Common Stock held by Mr. DelVecchio must be cancelled and the Board must approve
an employment agreement (the "DELVECCHIO EMPLOYMENT AGREEMENT") with Mr.
DelVecchio to serve as Director of Sales. Pursuant to the DelVecchio Employment
Agreement, Mr. DelVecchio's base salary will be $175,000 and he will be eligible
for an annual performance bonus. At Closing, Mr. DelVecchio will be granted an
option to purchase up to approximately 8.0% of the Company's fully diluted
shares of Common Stock as of Closing that will vest and become exercisable as
follows:
The option to purchase approximately 4.7% of the Company's fully
diluted shares of Common Stock as of Closing (the "FIRST YEAR OPTIONS")
will vest and become exercisable on the first anniversary of the date
of the grant if Mr. DelVecchio continues to be employed by the Company
as of such date; PROVIDED, HOWEVER, that the First Year Options will
vest on an accelerated basis (effective as of the date of termination)
if Mr. DelVecchio is terminated without Cause (as defined in the
DelVecchio Employment Agreement) or he voluntarily resigns for Good
Reason (as defined in the DelVecchio Employment Agreement). Mr.
DelVecchio will be entitled to exercise all vested First Year Options
for a period of up to five years after his cessation from service with
the Company provided that he does not engage in any conduct that would
be deemed a termination for Cause if he were still employed at such
time.
The option to purchase approximately 3.3% of the Company's fully
diluted shares of Common Stock as of Closing will vest and become
exercisable in approximately equal installments on each of the first
three anniversaries of the date of grant.
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The exercise price of the options will be the fair market value of
Common Stock (as determined by the Board on the date of grant). Vesting will be
accelerated upon a Change of Control (as defined in the DelVecchio Employment
Agreement).
As a condition to Closing, options to purchase 1,133,334 shares of
Common Stock held by Mr. Sheth must be cancelled and the Board must approve an
employment agreement with Mr. Sheth (the "SHETH EMPLOYMENT AGREEMENT") to serve
as Director of Finance. Pursuant to the Sheth Employment Agreement, Mr. Sheth's
base salary will be $125,000 and he will be eligible for an annual performance
bonus. At Closing, Mr. Sheth will be granted an option to purchase up to 1.0% of
the Company's fully diluted shares of Common Stock as of Closing that will vest
and become exercisable in approximately equal installments on each of the first
three anniversaries of the date of grant.
The exercise price of the options will be the fair market value of the
Common Stock (as determined by the Board on the date of grant). Vesting will be
accelerated upon a Change of Control (as defined in the Sheth Employment
Agreement). Following Closing, Mr. Sheth will also receive a grant of
approximately 1.5% of the Company's fully diluted shares of Common Stock as of
Closing, which will be fully vested at the time of grant.
In addition, as a condition to Closing, options to purchase 750,000
shares of Common Stock held by John Eric Mutter, the Company's chief technology
officer, must be cancelled. It is anticipated that Mr. Mutter will be granted an
option to purchase approximately 20 million shares of Common Stock at Closing.
Half of such options will vest ratably over a four year period with an exercise
price equal to the fair market value of the Common Stock as determined by the
Board on the date of grant and the remaining half will vest ratably over a four
year period with an exercise price equal to two times the fair market value of
the Common Stock as determined by the Board on the date of grant.
STOCK OPTIONS
During the year ended November 30, 2003, the Company's Board of
Directors approved an Incentive Stock Option Plan ("ISOP") to grant options to
its key personnel. There are two types of options that can be granted under the
ISOP: (i) options intended to qualify as incentive stock options under Section
422 of the Internal Revenue Code ("QUALIFIED STOCK OPTIONS"), and ii) options
not specifically qualified for favorable income tax treatment under the Internal
Revenue Code ("NON-QUALIFIED STOCK OPTIONS"). The ISOP is administered by the
Company's board of directors or the compensation committee (the
"ADMINISTRATOR"). The Company is authorized to grant qualified stock options to
any of its employees or directors.
The purchase price for the shares subject to any option shall be
determined by the Administrator at the time of the grant, but shall not be less
than 85% of the fair market value per share of the Company's Common Stock on the
grant date. Except as described below, the purchase price for the shares subject
to any Qualified Stock Option shall not be less than 100% of fair market value
per share of Common Stock on the grant date. In the case of any Qualified Stock
Option granted to an employee who owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company or any of its
subsidiaries, the option price shall not be less than 110% of the fair market
value per share of the Company's Common Stock on the grant date.
No option is exercisable after the expiration of the earliest of: (a)
ten years after the option is granted, (b) three months after the optionee's
employment with the Company and its subsidiaries terminates, or a non-employee
director or consultant ceases to provide services to the Company, if such
termination or cessation is for any reason other than disability or death, or
(c) one year after the
13
optionee's employment with the Company and its subsidiaries terminates, or a
non-employee director or consultant ceases to provide services to the Company,
if such termination or cessation is a result of death or disability; provided,
however, that the agreement for any option may provide for shorter periods in
each of the foregoing instances.
The Administrator has a right to set the period within which each
option shall vest or be exercisable and to accelerate such time frames; however;
each option shall be exercisable at the rate of at least 20% per year from the
grant date. Unless otherwise provided by the Administrator, options will not be
subject to any vesting requirements.
Additional information relating to stock options and other compensation
arrangements is found above under "New Management Compensation Arrangements and
Indemnification Agreements."
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
- ------------------------------------------------------------------------------------------------------------------------------------
OPTION AWARDS STOCK AWARDS
- ------------------------------------------------------------------------------------------------------------------------------------
Equity
Equity Incentive
Incentive Plan
Market Plan Awards:
Value Awards: Market or
Equity of Number Payout
Incentive Number Shares of Value of
Plan of or Unearned Unearned
Awards: Shares Units Shares, Shares,
Number of Number of Number of or Units of Units or Units or
Securities Securities Securities of Stock Other Other
Underlying Underlying Underlying Stock That That Rights Rights
Unexercised Unexercised Unexercised Option Option Have Have That Have That
Options Options Unearned Exercise Expiration Not Not Not Have Not
(#) (#) Options Price Date Vested Vested Vested Vested
Name Exercisable Unexercisable (#) ($) (#) ($) (#) (#)
- ------------------------------------------------------------------------------------------------------------------------------------
Robert DelVecchio 5,000,000(1) - - 0.60 09/19/2015 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Haresh Sheth 1,133,334(2) - - 0.60 05/01/2016 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
John Eric Mutter 250,000(3) - - 0.60 08/29/2008 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
500,000(4) 250,000(5) - 0.60 01/31/2010 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
- -----------
(1) These options were fully vested upon issuance.
(2) Half of these options vested on September 29, 2006 and the other half
vested on September 29, 2007.
(3) These options vested in three equal tranches over three years, with the
first tranche vesting on the date of grant.
(4) Half these options vested on February 20, 2007 and the other half vested on
February 20, 2008.
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(5) These options are scheduled to vest on February 20, 2009.
COMPENSATION OF DIRECTORS
The table below summarizes all compensation of our directors as of
December 31, 2007.
DIRECTOR COMPENSATION
- --------------------------------------------------------------------------------------------------------------------
Fees Non-Equity Non-Qualified
Earned or Incentive Deferred All
Paid in Stock Option Plan Compensation Other
Name Cash Awards(2) Awards Compensation Earnings Compensation Total
($) ($) ($) ($) ($) ($) ($)
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Robert DelVecchio (1) - - - - - - -
- --------------------------------------------------------------------------------------------------------------------
Haresh Sheth (1) - - - - - - -
- --------------------------------------------------------------------------------------------------------------------
Richard Falcone - $60,000 - - - - -
- --------------------------------------------------------------------------------------------------------------------
James Manfredonia - $60,000 - - - - -
- --------------------------------------------------------------------------------------------------------------------
- ------------
(1) Please refer to the summary compensation table for executive compensation
with respect to the named individual. All fees earned or paid in cash and
stock options awards granted to the named individuals were earned in
connection with their employment agreement as executive officers. The named
individuals received no compensation for their service as members of the
Board.
(2) The amounts reflect the estimated fair value of the 150,000 shares of Common
Stock issued to each director based on the trading price on the date of
issuance.
We only compensate outside directors for their service as members of
the Board. Outside directors are entitled to a flat fee of $1,500 for each Board
meeting attended in person and we make discretionary grants of stock awards in
consideration for their services from time to time. During fiscal year ended
December 31, 2007, we did not pay our outside directors any flat fees and issued
a total of 300,000 shares of our Common Stock to our outside directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our policy is to enter into transactions with related parties on terms
that, on the whole, are no more favorable, or no less favorable, than those
available from unaffiliated third parties. Based on our experience in the
business sectors in which we operate and the terms of our transactions with
unaffiliated third parties, we believe that all of the transactions described
below met this policy standard at the time they occurred.
Except as disclosed below, none of our directors or executive officers,
nor any proposed nominee for election as a director, nor any person who
beneficially owns, directly or indirectly, more than 5% of any class of our
voting securities, nor any members of the immediate family (including spouse,
parents, children, siblings, and in-laws) of any of the foregoing persons has
any material interest, direct or indirect, in any transaction during fiscal
years 2006 and 2007 or in any presently proposed transaction in which we are a
participant and the amount involved exceeds the lesser of $120,000 or one
percent of the average of our total assets at December 31, 2006 and 2007.
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In January 2007, we completed a private offering of unsecured
convertible debentures ("DEBENTURES") carrying an interest rate of 18% per
annum. Each Debenture matures on the first anniversary of the date of its
issuance. The Debenture provides that all the interest is payable solely in the
shares of our Common Stock on the issuance date. The number of shares issued as
interest was calculated based upon average closing price for our Common Stock on
the OTCBB for the five (5) consecutive trading days preceding the issuance date.
Each Debenture holder has the right to convert its Debenture into fully paid
non-assessable shares of our Common Stock at $0.40 per share. For every two (2)
shares of common stock a Debenture holder receives upon conversion, the holder
will also receive a warrant to purchase one (1) share of Common Stock at an
exercise price of $0.60 exercisable for 12 months after the conversion date and
one (1) share of Common Stock at an exercise price of $0.80 exercisable for 24
months. The total proceeds raised from the issuance of the Debenture through
January 2007 was $2,458,500. Subsequent to January 2007, we have sold additional
Debentures in the aggregate principal amount of $425,000.
Woodfield purchased $350,000 in Debentures and was issued 195,652
restricted shares of our Common Stock as interest. Mr. Sheth, our Chief
Financial Officer and a member of the Board, is the President of Woodfield.
Woodfield purchased the Debenture on the same terms as was received by all other
investors.
Mosaic Private Equity US LP ("MOSAIC US")-Series E2 purchased
$1,200,000 in Debentures and was issued 306,010 restricted shares of our Common
Stock as interest. Mosaic US-Series E2 purchased the Debentures on the same
terms as was received by all other investors. As described above under
"Background--Debt Exchanges and Repayments", Mosaic has exchanged Debentures for
shares of Series C Preferred Stock.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors and executive
officers and persons who beneficially own more than ten percent of a registered
class of our equity securities to file with the SEC initial reports of ownership
and reports of changes in ownership of our Common Stock and other equity
securities of the Company. Officers, directors and greater than ten percent
beneficial shareholders are required by SEC regulations to furnish us with
copies of all Section 16(a) forms they file.
To the best of our knowledge based solely on a review of Forms 3, 4,
and 5 (and any amendments thereof) received by us during or with respect to our
fiscal year ended December 31, 2007, the following persons have failed to file,
on a timely basis, the identified reports required by Section 16(a) of the
Exchange Act during the fiscal year ended December 31, 2007: Mr. DelVecchio
filed a late Form 4 and Form 5, Mr. Mutter filed a late Form 4 and Mosaic
Capital failed to file a Form 4.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ASSURED PHARMACY, INC.
Date: October 9, 2008
/S/ Robert DelVecchio
---------------------
Robert DelVecchio
Chief Executive Officer
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