SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
CURRENT REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): August 11, 2015
DS HEALTHCARE GROUP, INC.
(Exact name of registrant as specified in its charter)
(State or Other Jurisdiction
of Incorporation or Organization)
1601 Green Road, Pompano Beach, Florida 33064
(Address of Principal Executive Office) (Zip Code)
(Registrants telephone number, including area code)
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Entry into a Material Definitive Agreement.
WRG Stock Purchase Agreement.
Effective as of August 11, 2015, we entered into a stock purchase agreement with Carey Williams and Stefan Russell, the owners of all of the capital stock of W/R Group, Inc., an Arizona corporation (WRG).
Under the terms of the stock purchase agreement, we agreed to purchase 100% of the capital stock of WRG for total consideration of $42.25 million. Of such amount, $30.0 million is payable at closing in cash to the WRG stockholders and up to $12.25 million is payable as earn-out payments over the five consecutive fiscal years of WRG commencing January 1, 2016 and ending December 31, 2020, subject to extension as provided below. The earn-out payments can be as much as 50% of the accumulated net income of WGR and its affiliate WR Group-IC DISC, Inc., as surviving corporation of the merger described below (collectively, the WR Group), before deduction for income taxes, interest paid on financing obtained by the Company to pay the cash portion of the purchase price for WRG, depreciation and amortization of intangibles, and payments of any performance bonus or profit participation to the WRG stockholders (EBITDA or Pre-Tax Profits) that is earned by the WR Group during the earn-out period, until the WRG stockholders have received a maximum aggregate amount not to exceed $12.25 million.
In the event and to the extent that the Pre-Tax Profits of the WR Group in any one of the fiscal years during the earn-out period equals or exceeds $8.5 million, the WRG stockholders will be entitled to receive an earn-out payment in the amount of $2.45 million, which annual earn-out payment will be allocated $2.2 million in cash and $250,000 in shares of our common stock. In the event the pre-tax profits during any one fiscal year during the earn-out period is less than $8.5 million, then the annual earn-out payment that the WRG stockholders will receive for that fiscal year will be 25% of the actual Pre-Tax Profits earned by WR Group during the year in question.
In the event that the WRG stockholders have not received $12.5 million of earn-out payments as of the end of the initial five years ending December 31, 2020, the earn-out period will be extended to include each of the next immediately succeeding fiscal years thereafter until all $12.5 million of earn-out payments have been received by the WRG stockholders. In no event will the annual earn-out payments exceed $2.45 million during any one fiscal year. We have agreed to secure the payment of the earn-out payments by a letter of credit issued by a bank in the favor of the WRG stockholders.
During the earn-out period, the earn-out payments will be paid quarterly in an amount equal to the lower of (i) 25% of the Pre-Tax Profits earned during the fiscal quarters in question, or (ii) $550,000. Such quarterly earn-out payments are subject to adjustment in the event the actual annual Pre-Tax Profits earned for the full fiscal year in question are adjusted during the preparation and audit of our annual financial statements.
The foregoing summary of certain terms of the WRG stock purchase agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the stock purchase agreement, a copy of which is attached hereto as Exhibit 10.1 and is hereby incorporated by reference into this Form 8-K.
WR Group IC-DISC, Inc. Merger Agreement
Effective as of August 11, 2015, we entered into a merger agreement with WRG Acquisition Corp., our newly formed Nevada acquisition subsidiary, WR Group IC-Disc, Inc., a Nevada corporation (DiscCo) and Stefan Russell, the sole stockholder of DiscCo. Under the terms of the merger agreement, DiscCo will merge with and into our merger subsidiary, with our merger subsidiary as the surviving corporation of the merger. Prior to the closing of the merger, our merger subsidiary will qualify as a domestic international sales corporation.
Under the terms of the merger agreement, Russell, as the sole stockholder of DiscCo, will receive merger consideration consisting of the sum of (a) 677,966 shares of our common stock, valued at $2,000,000 (the Closing Merger Consideration), and (b)169,492 additional shares of our common stock valued at $500,000 (the Additional Merger Shares); with such shares of common stock, in each case, valued based on the closing price of our common stock, as quoted on the Nasdaq Capital Market on August 10, 2015. The Additional Merger Shares are to be held in escrow and will be released to Russell in three equal annual increments, subject to the WR Group achieving not less than $8.5 million of Pre-Tax Profits in each of the three fiscal years ending December 31, 2018.
The merger agreement also provides that if, by the close of business on December 31, 2018, the total Closing Merger Consideration issued to Russell does not have a market value, based on the volume weighted average price of our common stock (as quoted on the Nasdaq Capital Market) for the ten consecutive trading days immediately prior to December 31, 2018 (the 2018 Market Price) of at least $12.0 million, then we must issue additional shares of our common stock to Russell (the Make Whole Shares) at the then per share 2018 Market Price (subject to a $5.00 floor) to make up any full or partial shortfall in value. The make-whole provisions of the merger agreement will terminate if Russell elects to sell any shares of our common stock during the three-year period ending December 31, 2018 (other than with limited exceptions, including a qualifying sale of our company).
On the closing date of the Merger, we will cause the surviving corporation of the merger to retire and pay a $4.0 million note payable by DiscCo to Mr. Williams.
Consummation of the merger will occur immediately following the acquisition of the WRG capital stock under the stock purchase agreement, and a consummation of both our purchase of the WRG capital stock and the merger with DiscCo are co-dependent upon each other and conditions to consummation of each of the stock purchase agreement and merger agreement, including the entry into employment agreements with each of Messrs. Williams and Russell.
The foregoing summary of certain terms of the merger agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the merger agreement, a copy of which is attached hereto as Exhibit 10.2 and is hereby incorporated into this Form 8-K by reference.
On the Closing Date of the stock purchase agreement and the merger agreement, we will enter into a stockholders agreement with Williams and Russell as it relates to the management and operation of WR Group. Under the terms of the stockholders agreement, the boards of directors of each of WRG and our merger subsidiary will consist of five persons, three of whom shall be nominated by our company and two of whom shall be Russell and Williams or their designees. In addition, Russell shall be invited to serve on the board of directors of our company. The businesses of WR Group will be managed by the board of directors, except that certain specified major decisions related to WR Group and generally involving major capital or financial matters and related party transactions, will also require the approval or consent of Russell and Williams.
The foregoing summary of certain terms of the stockholders agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the stockholders agreement, a copy of which is attached hereto as Exhibit 10.3 and is hereby incorporated into this Form 8-K by reference.
Conditions to Consummation of the Transactions.
Consummation of the transactions contemplated by the stock purchase agreement and the merger agreement is subject to a number of conditions including the following:
Completion of the audit of the financial statements of both WRG and DiscCo for the two fiscal years ended December 31, 2013 and December 31, 2014 by Marcum LLP, our independent public accountants, and review of the unaudited financial statements of WR Group as of June 30, 2015 and for the six-month periods ended June 30, 2014 and June 30, 2015;
Completion by October 9, 2015 of a satisfactory due diligence investigation of the business and financial condition of WR Group;
Our entry into five year employment agreements with each of Carey Williams and Stefan Russell and a stockholders agreement with such persons relating to the ongoing operations of the WR Group;
Our obtaining from one or more investors any combination of secured or unsecured debt or equity financing aggregating not less than $35.0 million to enable us to pay the cash portion of the purchase price under the stock purchase agreement and other financial obligations owed pursuant to the merger agreement, and all transaction expenses; all upon such terms and conditions as shall be reasonably acceptable to our Board of Directors and the WRG stockholders; and
Our delivery to the WRG stockholders on or before October 15, 2015 a term sheet or commitment letter from one or more financially credible financing sources demonstrating the availability of the required financing, the terms and conditions of which shall be reasonably acceptable to the Board of Directors of the Company and reasonably acceptable to the WRG stockholders.
We cannot assure you that any or all of the foregoing conditions to closing will be satisfied on a timely basis, if at all. Even if we are able to obtain the required financing on terms satisfactory to the parties, we cannot assure you that the required financing will not materially burden our company with excessive debt, or if equity is issued in connection therewith, that the terms of such equity financing will not substantially dilute the equity interests of our existing stockholders. If the transactions are consummated, we cannot assure you that we will be successful in integrating the business of WR Group with our existing business or that such acquisitions will prove to be profitable to us and beneficial to our stockholders.
Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
The information set forth in Item 1.01 of this Form 8-K is incorporated herein by reference in response to this Item 2.03.
Unregistered Sales of Equity Securities.
The information set forth in Item 1.01 of this Form 8-K is incorporated herein by reference in response to this Item 3.02.
The issuance of the Companys common stock will be undertaken in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended (the Securities Act), afforded by Section 4(2) thereof. The issuance of such common stock will not involve a public offering and will be made without general solicitation or advertising. Each of the WRG stockholders represented that, among other things, he is an accredited investor, as such term is defined under the securities laws.
Regulation FD Disclosure.
On August 17, 2015, the Company issued a press release announcing the entering into the proposed transactions with the WR Group and the WRG Stockholders. A copy of the press release is furnished, not filed, for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and pursuant to Item 7.01 of Form 8-K shall not be incorporated by reference into any filing under the Securities Act of 1933, as amended, unless specifically identified therein as being incorporated therein by reference. A copy of the press release is attached as Exhibit 99.1 to this Form 8-K.
Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
The financial information required by this Item 9.01 is not being filed herewith. It shall be filed not later than four business days after the date on which the acquisitions of the WR Group contemplated by this Current Report on Form 8-K is consummated.
(b) Pro Forma Financial Information.
The pro forma financial information required by this Item 9.01 is not being filed herewith. It shall be filed not later than four business days after the date on which the acquisitions of the WR Group contemplated by this Current Report on Form 8-K is consummated.
Stock Purchase Agreement dated as of July 31, 2015 and effective as of August 11, 2015 among DS Healthcare Group, Inc., Stefan Russell, Carey Williams and W/R Group, Inc.
Agreement and Plan of Merger and Reorganization dated as of July 31, 2015 and effective as of August 11, 2015 among DS Healthcare Group, Inc., WR Group Acquisition Corp., Stefan Russell and WR Group IC-Disc, Inc.
Form of Stockholders Agreement among Stefan Russell, Carey Williams and DS Healthcare Group, Inc.
Press Release dated August 17, 2015
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
DS HEALTHCARE GROUP, INC.
Date: August 17, 2015
/s/ Daniel Khesin
Chief Executive Officer