UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
SCHEDULE 14D-9
(Rule 14d-101)
Solicitation/Recommendation
Statement under Section 14(d)(4)
of the Securities Exchange Act of
1934
NATIONAL MEDICAL HEALTH CARD
SYSTEMS, INC.
(Name of Subject
Company)
NATIONAL MEDICAL HEALTH CARD
SYSTEMS, INC.
(Names of Person(s) Filing
Statement)
Common Stock, par value $0.001 per share
(Title of Class of
Securities)
636918302
(CUSIP Number of Class of
Securities)
George McGinn
General Counsel
National Medical Health Card Systems, Inc.
26 Harbor Park Drive
Port Washington, New York 11050
(516) 605-6758
(Name, address and telephone
number of person authorized to receive
notices and communications on
behalf of the person(s) filing statement)
With copies to:
J. Allen Overby, Esq.
Jennnifer H. Noonan, Esq.
Bass, Berry & Sims PLC
315 Deaderick Street
Suite 2700
Nashville, Tennessee 37238
(615) 742-6200
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Check the box if the filing relates solely to preliminary
communications made before the commencement of a tender offer.
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Item 1.
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Subject
Company Information.
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Name and
Address
The name of the subject company is National Medical Health Card
Systems, Inc., a Delaware corporation (
NMHC
).
The principal executive offices of NMHC are located at 26 Harbor
Park Drive, Port Washington, New York 11050, and the telephone
number is
(800) 251-3883.
Securities
The title of the class of equity securities to which this
Solicitation/Recommendation Statement on
Schedule 14D-9
(together with the Exhibits and Annexes hereto, and as it may be
amended or supplemented from time to time, this
Schedule 14D-9
)
relates is NMHCs common stock, $0.001 par value per
share (
NMHC Common Stock
). As of
March 26, 2008, there were 5,560,059 shares of NMHC
Common Stock outstanding.
There are also 6,956,522 shares of NMHCs
Series A 7% Convertible Preferred Stock, par value
$0.10 per share (
NMHC Convertible Preferred
Stock
and, together with NMHC Common Stock,
NMHC Stock
), outstanding, which are owned by
New Mountain Partners, L.P. and New Mountain Affiliated
Investors, L.P. (collectively,
New Mountain
).
As discussed in this
Schedule 14D-9
under the heading Agreements Related to the Offer and the
Merger Stockholder Agreements, New Mountain
has agreed to convert their shares of NMHC Convertible Preferred
Stock into shares of NMHC Common Stock in connection with the
Offer (as such term is defined below).
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Item 2.
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Identity
and Background of Filing Person.
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Name and
Address
The name, business address and business telephone number of
NMHC, which is the person filing this
Schedule 14D-9,
are set forth in Item 1 above, which information is
incorporated herein by reference.
Tender
Offer
This
Schedule 14D-9
relates to an offer (the
Offer
) by SXC Health
Solutions Corp., a corporation organized under the laws of Yukon
Territory, Canada (
SXC
), through its
indirect, wholly-owned subsidiary, Comet Merger Corporation, a
Delaware corporation (
Offeror
), disclosed in
a Tender Offer Statement on Schedule TO, dated as of
March 31, 2008, to exchange each outstanding share of NMHC
Common Stock for (i) $7.70 in cash, without interest, and
(ii) 0.217 (the
Exchange Ratio
) of a
validly issued, fully paid and nonassessable common share of SXC
(
SXC Common Stock
) (the
Offer
Price
), upon the terms and subject to the conditions
set forth in the Merger Agreement (as such term is defined
below), the preliminary prospectus, dated as of March 31,
2008 (the
Prospectus
), contained in the
registration statement on
Form S-4
filed by SXC with the Securities and Exchange Commission (the
SEC
) on March 31, 2008 (the
Registration Statement
) and the related
letter of transmittal (the
Letter of
Transmittal
). The closing sale price of SXC Common
Stock on the Nasdaq Market (including any successor exchange,
Nasdaq
) on February 25, 2008, the last
trading day before the Offer was announced, was $15.95.
The Offer is being made pursuant to an Agreement and Plan of
Merger, dated as of February 25, 2008, by and among SXC,
SXC Health Solutions, Inc., a Texas corporation and wholly-owned
subsidiary of SXC (
US Corp.
), Offeror and
NMHC (the
Merger Agreement
). The Merger
Agreement provides that, following the acquisition of at least
9,600,000 shares of NMHC Common Stock pursuant to the
Offer, upon the terms contained in the Merger Agreement and in
accordance with the Delaware General Corporation Law (the
DGCL
), Offeror will merge with and into NMHC
(the
Second Step Merger
), the separate
corporate existence of Offeror will cease, and NMHC will
continue as the surviving corporation (the
Surviving
Corporation
) and as an indirect, wholly-owned
subsidiary of SXC.
As discussed in this
Schedule 14D-9
under the heading Item 8. Additional
Information One Step Merger, under certain
circumstances Offeror may terminate the Offer and the parties
will instead, in
2
accordance with the terms of the Merger Agreement, seek to
consummate the acquisition of NMHC by SXC by means of a one-step
merger of Offeror with and into NMHC following the adoption of
the Merger Agreement by NMHCs stockholders at a special
stockholders meeting (the
One Step Merger
),
in which case the merger consideration would be the same as the
Offer Price. The One Step Merger and the Second Step Merger are
each sometimes referred to herein as the
Merger
.
Under the terms of the Merger Agreement, at the effective time
of the Merger (the
Effective Time
), each
outstanding share of NMHC Stock (other than NMHC Stock owned by
NMHC or any subsidiary of NMHC and any NMHC Common Stock owned
by SXC, Offeror, or any subsidiary of SXC or held in the
treasury of NMHC, all of which will be cancelled for no
consideration, and other than NMHC Stock, where applicable, held
by stockholders who are entitled to and who have properly
perfected appraisal rights for such NMHC Common Stock in respect
of the Merger under the DGCL) will be converted into the right
to receive the Offer Price.
The Prospectus states that the principal executive offices of
SXC, US Corp. and Offeror are located at 2441 Warrenville Road,
Suite 610, Lisle, Illinois
60532-3642,
and that the telephone number at such principal executive
offices is
(800) 282-3232.
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Item 3.
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Past
Contacts, Transactions, Negotiations and
Agreements.
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Except as set forth in this
Schedule 14D-9
or in the Information Statement of NMHC, attached hereto as
Annex A and incorporated herein by reference, as of the
date hereof, there are no material agreements, arrangements or
understandings or any actual or potential conflicts of interest
between NMHC or its affiliates and: (i) NMHCs
executive officers, directors or affiliates; or (ii) SXC,
US Corp., Offeror or their respective executive officers,
directors or affiliates. The Information Statement is being
furnished to the stockholders of NMHC pursuant to
Section 14(f) of the Securities and Exchange Act of 1934,
as amended (the
Exchange Act
), and
Rule 14f-1
promulgated under the Exchange Act in connection with SXCs
right (following acceptance for exchange by Offeror pursuant to
the Offer of shares of NMHC Common Stock) to designate persons
for election to the Board of Directors of NMHC (the
Board
) without election of such persons at a
meeting of NMHCs stockholders.
Interests
of Certain Persons in the Offer and the Merger
Certain of NMHCs directors, executive officers and
affiliates may be deemed to have interests in the Merger that
are different from or in addition to the interests of
NMHCs stockholders generally. The Board was aware of these
interests and considered them, among other matters, in approving
the Offer and the Merger.
Information
Statement
Certain agreements, arrangements or understandings between NMHC
and certain of its directors, executive officers and affiliates
are described in the Information Statement, which is attached
hereto as Annex A and incorporated herein by reference.
Treatment
of Equity Awards
Pursuant to the Merger Agreement, immediately prior to the
Effective Time, each outstanding option to acquire NMHC Common
Stock granted under NMHCs 1999 Stock Option Plan, as
amended, and Amended and Restated 2000 Restricted Stock Grant
Plan, as amended (collectively, the
Equity Incentive
Plans
) will become fully vested and exercisable, and
all such options not theretofore exercised will automatically be
terminated as of the Effective Time and, in exchange therefor,
converted into the right to receive a payment calculated as
follows: The excess, if any, of (A) the sum of
(x) $7.70 in cash and (y) an amount equal to 0.217
multiplied by the closing price of a share of SXC Common Stock,
as reported on the Nasdaq on the last trading day immediately
prior to the Effective Time (such sum, the
NMHC Share
Value
), over (B) the exercise price of an option
will be multiplied by the number of shares subject to such
option and such product will be divided by NMHC Share Value
(such quotient, rounded to the nearest whole number, the
Option Share Equivalent
) and each such Option
Share Equivalent shall be entitled to receive the Offer Price.
Any
3
option with an exercise price equal to or greater than the NMHC
Share Value will not receive any consideration. Additionally,
restrictions applicable to all shares of restricted stock
granted under the Equity Incentive Plans will, in connection
with the Merger, lapse and those shares will be cancelled and
converted into the right to receive the Offer Price.
The table below sets forth, as of March 14, 2008, for each
of NMHCs directors and executive officers (before any
deduction for applicable withholding taxes and disregarding
fractional shares):
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the aggregate number of options held by each director and
executive officer of NMHC, including those that will vest upon
the completion of the Merger;
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the cash and stock payment that will be made in respect of the
foregoing Options upon the completion of the Merger based on an
assumed NMHC Share Value of $11.00 (with any option having an
exercise price equal to or greater than the Company Share Value
being canceled for no consideration);
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the aggregate number of restricted shares held by each director
and executive officer that have restrictions that will lapse
upon completion of the Merger; and
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the aggregate cash and stock payment that will be made in
respect of the foregoing restricted shares upon the completion
of the Merger, which consists of the Offer Price.
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Stock Options
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Restricted Shares
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SXC
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SXC
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Cash
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Stock
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Cash
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Stock
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Name
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Number
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Payment
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Payment(1)
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Number
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Payment
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Payment(1)
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Directors
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Thomas W. Erickson(2)
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100,000
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Michael B. Ajouz
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Gerald Angowitz
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37,634
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$
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18,403
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518
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3,000
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$
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23,100
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651
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G. Harry Durity
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21,634
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$
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0
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0
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Michael T. Flaherman
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Robert R. Grusky
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Daniel B. Hébert
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10,000
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$
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0
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0
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3,000
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$
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23,100
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651
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Steven B. Klinsky
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Paul J. Konigsberg
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37,634
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$
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18,403
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518
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3,000
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$
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23,100
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651
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Executive Officers
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Stuart Diamond
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107,694
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$
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0
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0
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54,600
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$
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420,420
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11,848
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Mark Adkison
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72,780
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$
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0
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0
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41,020
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$
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315,854
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8,901
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Martin Magill
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50,000
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$
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0
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0
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30,000
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$
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231,000
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6,510
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George McGinn
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55,000
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$
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423,500
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11,935
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(1)
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This column shows the number of shares of SXC Common Stock that
will be issued. On March 27, 2008, the closing price of SXC
Common Stock on the Nasdaq was $11.88.
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(2)
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Mr. Erickson also serves as NMHCs interim Chief
Executive Officer and President.
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The foregoing summary is qualified in its entirety by reference
to the Equity Incentive Plans, which are attached hereto as
Exhibits (e)(2) and (e)(3), respectively, and are incorporated
herein by reference.
Bonus
Payments
Subject to the availability of cash, NMHC and SXC have agreed
that NMHC will pay bonuses immediately prior to the closing of
the Merger in an aggregate amount not to exceed $1,200,000, of
which no less than $700,000 will be paid to non-executive
officers. Of the $500,000 that may be paid to executive
officers, the Compensation Committee of the Board has discretion
to pay such bonuses in the amounts it determines to one or more
of the executive officers. NMHC is permitted to pay these
amounts only if NMHCs
4
available cash is sufficient to pay in full the bonuses as well
as all accrued and unpaid dividends to the holders of NMHC
Convertible Preferred Stock and all costs and expenses incurred
as a result of the transactions contemplated by the Merger
Agreement.
Key
Employee Retention Arrangements
In March 2008, NMHC issued 170,500 restricted stock units to
certain of NMHCs non-executive employees. The restricted
stock units are subject to the terms of individual award
agreements and vest according to the following schedule: 33% on
November 13, 2008, 33% on November 13, 2009 and 34% on
November 13, 2010. If SXC does not assume NMHCs
restricted stock units, they will vest in full prior to the
Effective Time. If SXC assumes NMHCs obligations pursuant
to the terms of the restricted stock units, then following the
Effective Time, each outstanding restricted stock unit will
continue to have, and be subject to, generally the same terms
and conditions, except (i) the restricted stock units will be
substituted with restricted stock units of SXC that will be
settled in shares of SXC Common Stock equal to (A) the
product of the number of shares of NMHC Common Stock subject to
the restricted stock units multiplied by the closing price of a
share of NMHC Common Stock on the Nasdaq on the first trading
day prior to the closing date of the Merger, divided by
(B) the closing price of a share of SXC Common Stock on
Nasdaq on the first trading day prior to the closing date of the
Merger, and (ii) if following a change in control of NMHC the
employees employment is terminated by NMHC for any reason
other than cause or by the employee for good reason, all
restricted stock units that have not vested shall vest upon the
date of such termination. SXC has indicated that, subject to the
terms described above, it intends to assume the restricted stock
units in connection with the Merger.
In March 2008, NMHC also entered into severance agreements with
these non-executive employees. The severance agreements expire
upon the expiration of the employees employment with NMHC,
or upon the first anniversary of a change in control of NMHC,
whichever occurs first. The severance agreements provide that if
the employees employment with NMHC or its affiliates is
terminated other than for cause or by the employee for good
reason, NMHC will pay to the employee an amount ranging from 25%
to 75% of the employees then current annual salary.
Employment
Arrangement of Thomas W. Erickson, Chairman of the Board and
Interim Chief Executive Officer and President and Consulting
Arrangement with New Mountain Capital
Thomas W. Erickson is currently serving as Chairman of the Board
and interim Chief Executive Officer and President of NMHC in
accordance with the terms of a chairman agreement, entered into
by NMHC and Mr. Erickson on February 23, 2007 and
subsequently amended on January 28, 2008. As amended, the
agreement expires on February 22, 2009 (unless earlier
terminated in accordance with its terms) and provides for the
payment by NMHC to Mr. Erickson of annual fees in the
amount of $250,000. Upon the request of Mr. Erickson at any
time during the term of the agreement, NMHC will provide or
reimburse Mr. Erickson for health, life and disability
insurance and other benefits having terms and benefits
commensurate with those generally made available to NMHCs
most senior employees. Acting upon written resolution, a
majority of the Board may request Mr. Erickson to resign as
member of the Board at any time for any reason and
Mr. Erickson will be required to so resign.
The foregoing summary is qualified in its entirety by reference
to Mr. Ericksons chairman agreement, which is
attached hereto as Exhibit (e)(4) and is incorporated herein by
reference.
On March 12, 2007, the Compensation Committee of the Board
made a grant of an option to purchase 100,000 shares of
NMHC Common Stock at an exercise price of $14.02 (the closing
price of NMHC Common Stock on the date of the grant) to
Mr. Erickson in connection with his appointment as Chairman
of the Board. Mr. Ericksons option vests and becomes
exercisable, except as specifically provided for in the option
agreement, upon the satisfaction of the following two
conditions: (i) Mr. Erickson serves as a director of
NMHC through at least February 23, 2008, or
Mr. Erickson resigns at the request of the Board, or is
involuntarily terminated on or prior to February 23, 2008;
and (ii) a change in control of NMHC shall have occurred.
The option immediately vests upon a change in control prior to
February 23, 2008. This option expires on March 12,
2017. Mr. Erickson has indicated that he does not intend to
exercise the option and,
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thus, it is expected to be cancelled in connection with the
Merger (and therefore has not been included in the above chart).
The foregoing summary is qualified in its entirety by reference
to Mr. Ericksons option award agreement, dated as of
March 12, 2007, which is attached hereto as Exhibit (e)(5)
and is incorporated herein by reference.
Since January 2007, Mr. Erickson has also been providing
consulting services to New Mountain Capital, L.L.C., through ECG
Ventures, Inc., of which Mr. Erickson is President and
Chief Executive Officer and which is controlled by
Mr. Erickson. New Mountain Capital is paying ECG Ventures,
Inc. $500,000 per year for those consulting services. New
Mountain Capital, L.L.C. is the investment manager of New
Mountain Partners, L.P., NMHCs largest stockholder. As
disclosed by NMHC in previous filings with the SEC,
Mr. Erickson and New Mountain Capital, L.L.C. were also
expected to enter into a consulting agreement pursuant to which
Mr. Erickson would provide, through ECG Ventures, Inc.,
strategic management services to New Mountain Capital, L.L.C.
with respect to its current and prospective investment
activities, including with respect to NMHC. This agreement was
never entered into and it is no longer anticipated that New
Mountain Capital, L.L.C. and Mr. Erickson will enter into
such an agreement.
Employment
Agreements of other Executive Officers
Under the terms of various offer letters in effect with
NMHCs executive officers during fiscal 2007, the executive
officers were provided limited severance benefits in connection
with termination of their employment without cause and for
certain other reasons. In November 2007, NMHC entered into
employment agreements with its executive officers (excluding
Mr. Erickson). Pursuant to the employment agreements,
Stuart Diamond, Mark Adkison, Martin Magill and George McGinn
are entitled to receive severance compensation in the event
their employment is terminated:
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without cause;
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as a result of NMHCs refusal to extend the one-year,
automatically-renewing term of the agreements;
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due to incapacity; or
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due to death.
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Under the employment agreements, severance compensation means:
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an amount equal to 100% of the executive officers highest
base salary in effect during the six month period immediately
prior to the executive officers date of
termination; and
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payments by NMHC to continue health benefits for the executive
officer, the executive officers spouse, and the executive
officers children until the end of the period of time
commencing on the executive officers date of termination
and ending on the earlier of (i) the first anniversary of
the termination of the employment agreement or (ii) the
date the executive officer is eligible to be covered under a
comparable or more favorable health plan of another person.
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In the event of termination by reason of death, the executive
officers estate shall be paid severance compensation minus
the product of any payments under any life insurance policy
multiplied by the percentage of premiums of such policy that
were paid by NMHC. In the event of a termination due to
incapacity, the executive officers estate shall be paid
severance compensation minus the product of any payments for
12 months after the termination under any long-term
disability policy multiplied by the percentage of premiums of
such policy that were paid by NMHC.
If there is a change in control and the executive officers
employment is terminated within two years following the change
in control:
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without cause;
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as a result of NMHCs refusal to extend the one-year,
automatically-renewing term of the agreements;
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due to incapacity; or
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due to death,
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then the executive officer is entitled to receive change in
control compensation instead of severance compensation.
Under the employment agreements, change in control compensation
means:
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an amount equal to 150% of the executive officers highest
base salary in effect during the six month period immediately
prior to the executive officers date of
termination; and
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payments by NMHC to continue health benefits for the executive,
the executive officers spouse, and the executive
officers children until the end of the period of time
commencing on the executive officers date of termination
and ending on the earlier of (i) the first anniversary of
the termination of the employment agreement or (ii) the
date the executive officer is eligible to be covered under a
comparable or more favorable health plan of another person.
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Under the employment agreements, termination without cause means:
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termination by the executive upon constructive termination of
the executives employment with NMHC by reason of:
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a reduction in the executives base salary;
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a material diminution in the duties, powers, authority,
functions or responsibilities without executives consent,
such that executive is left with duties, powers, authority,
functions and responsibilities (when viewed in the aggregate)
that are materially diminished;
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a requirement by NMHC that the executive change the office to
which the executive is primarily assigned to a location that is
outside the 25 mile radius of the executives primary
residence as of the date of the employment agreement;
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a change by NMHC of its reimbursement policy for travel and
living expenses (compared to such policy as in effect on the
date of the employment agreement) that would have a material
negative impact on reimbursement payments to the executive in
respect of the travel obligations required of the executive by
NMHC; or
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NMHCs continued material breach of the employment
agreement after, in each case, receipt of written notice from
the executive specifying the basis for such constructive
termination and failure by NMHC to cure within 15 days from
receipt of such notice; or
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termination by NMHC of the executives employment with NMHC
other than as a result of death, incapacity or for cause, which
is defined to mean the following:
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the failure of the executive substantially to perform the
executives duties under the employment agreement;
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the executives engaging in misconduct that has caused or
is reasonably expected by the Board to cause material injury to
NMHC;
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the executives violation of any material policy of NMHC,
including without limitation insider trading, harassment and
discrimination policies;
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the executives indictment or conviction of, or entering a
plea of guilty or nolo contendere to, a crime that constitutes a
felony; or
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the material breach by the executive of any of the
executives obligations under the employment agreement or
under any other written agreement or covenant with NMHC.
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The employment agreements also provide for payment to the
executive officer of an amount necessary to reimburse the
executive on an after-tax basis for any excise tax payable under
Section 4999 of the Internal Revenue Code in connection
with the change in control. Executive officers of NMHC entitled
to change in control compensation are required to remain in the
employment of NMHC for at least six months after the change in
control as requested by NMHC. Following a change in control, if
the executive officer terminates
7
employment for any reason other than death, incapacity, a
refusal by NMHC to extend the term of the agreement, good reason
or without cause, then the executive officer will be required to
make certain payments to NMHC that are based on the amount of
harm suffered by NMHC due to the executive officers
termination.
The executive officers are not eligible to collect severance
compensation in addition to change in control compensation.
Moreover, severance compensation, or change in control
compensation if applicable, is the exclusive remedy of the
executive officer in connection with a termination without
cause, due to NMHCs refusal to extend the employment term,
due to incapacity, or due to death.
To be eligible for any severance or change in control
compensation, the executive officer must execute and deliver to
NMHC a general release and a written resignation. Moreover, NMHC
is entitled to discontinue any severance compensation if the
executive officer breaches certain restrictive covenants,
including those related to non-competition, non-solicitation and
confidentiality.
The foregoing summary is qualified in its entirety by reference
to the executive employment agreements, which are attached
hereto as Exhibits (e)(6), (e)(7), (e)(8) and (e)(9) and are
incorporated herein by reference.
Employee
Benefits
The Merger Agreement provides that, until the first anniversary
of the Effective Time, each continuing employee of NMHC and its
subsidiaries (the
Continuing Employees
) shall
be eligible to receive compensation and benefits which are at
least comparable in the aggregate to those provided by SXC to
similarly situated employees of SXC immediately prior to the
Effective Time. The Surviving Corporation shall also use
reasonable best efforts (i) to waive any applicable
pre-existing condition exclusions and waiting periods with
respect to participation and coverage requirements in any
replacement or successor welfare benefit plan of the Surviving
Corporation that a Continuing Employee is eligible to
participate in following the Effective Time to the extent such
exclusions or waiting periods were inapplicable to, or had been
satisfied by, such Continuing Employee immediately prior to the
Effective Time, (ii) to provide each such Continuing
Employee with credit for any co-payments and deductibles paid
prior to the Effective Time in satisfying any applicable
deductibles or out-of-pocket requirements, and (iii) to the
extent that any Continuing Employee is allowed to participate in
any employee benefit plan of SXC, the Surviving Corporation or
any of their subsidiaries following the Effective Time, to cause
such plan to recognize the service of such Continuing Employee
with NMHC and its subsidiaries prior to the Effective Time for
purposes of eligibility to participate, vesting and benefit
accrual (but not for benefit accrual under any defined benefit,
retiree welfare or similar plan) to the extent of such service.
The foregoing summary is qualified in its entirety by reference
to the Merger Agreement, which is attached hereto as Exhibit
(e)(1) and is incorporated herein by reference.
Directors
and Officers Indemnification and Insurance
NMHCs bylaws contain provisions requiring NMHC to
indemnify its directors and officers in certain instances, as
permitted by the DGCL. NMHCs certificate of incorporation
also provides that NMHC shall have the power to provide
indemnification to the fullest extent permitted by
Section 145 of the DGCL. NMHC has entered into
indemnification agreements with its directors and executive
officers under which NMHC has agreed to provide for
indemnification of these individuals to the maximum extent
permitted by applicable law (including the DGCL) and the payment
of certain types of expenses, including attorneys fees,
incurred in defending any proceeding upon the receipt of an
undertaking by such officer or director to repay all amounts
advanced if it is ultimately determined that such officer or
director is not entitled to be indemnified. The above
description of the indemnification agreements entered into with
the Companys directors and executive officers is qualified
in its entirety by reference to the form of indemnification
agreement attached hereto as Exhibit (e)(10), which is
incorporated herein by reference.
Pursuant to, and subject to the terms and conditions of, the
Merger Agreement, SXC has also agreed:
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that for a period of six years following completion of the
Merger, the certificate of incorporation
and/or
bylaws of the Surviving Corporation will contain provisions with
respect to indemnification,
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advancement of expenses and exculpation not less favorable than
those set forth in NMHCs certificate of incorporation and
bylaws as of the date of the Merger Agreement;
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to, and to cause NMHC and the Surviving Corporation to, honor
and fulfill in all respects the obligations of (i) NMHC and
the Surviving Corporation under their respective certificates of
incorporation and bylaws and (ii) NMHC pursuant to
indemnification agreements with NMHCs directors, officers,
employees or agents existing at or prior to the Effective Time
to the extent permitted under applicable law;
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that NMHC will, to the fullest extent permitted under applicable
law, indemnify, defend and hold harmless, and, from and after
the earlier of the date Offeror first accepts NMHC Common Stock
for payment pursuant to the offer (the
Acceptance
Date
) or the Effective Time, indemnify, defend and
hold harmless, to the fullest extent permitted under applicable
law, each present and former director or officer of NMHC or any
of its subsidiaries against any costs or expenses (including
attorneys fees) arising out of or pertaining to the fact
that such person is or was an officer, director, employee, agent
or other fiduciary of NMHC or any subsidiary of NMHC;
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that NMHC or the Surviving Corporation (as applicable) will also
advance to such person his or her reasonable legal expenses
within 20 days following a request for such
advancement; and
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SXC will provide and maintain in effect, or cause the Surviving
Corporation to provide and maintain in effect, for the benefit
of the current and former directors and officers of NMHC and its
subsidiaries, an insurance policy that provides directors
and officers liability coverage for at least six years
following the Effective Time that is at least as favorable as
NMHCs existing policy, subject to certain limitations.
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The foregoing summary is qualified in its entirety by reference
to the Merger Agreement, which is attached hereto as Exhibit
(e)(1) and is incorporated herein by reference.
Agreements
Related to the Offer and the Merger
The
Merger Agreement
A summary of the material terms of the Merger Agreement in the
section The Merger Agreement in the Prospectus is
incorporated herein by reference. The description is qualified
in its entirety by reference to the complete text of the Merger
Agreement, which is attached hereto as Exhibit (e)(1) and is
incorporated herein by reference.
Stockholder
Agreements
As an inducement to enter into the Merger Agreement, and in
consideration thereof, SXC entered into Stockholder Agreements
with New Mountain and NMHC. Pursuant to the Stockholder
Agreements, New Mountain has agreed (i) to deposit its
shares of NMHC Convertible Preferred Stock with the exchange
agent and depositary within five business days after
commencement of the Offer, (ii) to convert its NMHC
Convertible Preferred Stock into NMHC Common Stock immediately
prior to Offerors acceptance of NMHC Common Stock for
payment pursuant to the Offer and (iii) upon such
conversion, to tender its shares of NMHC Common Stock in the
Offer, subject to certain conditions. New Mountain also has
agreed, if a stockholder vote is required by applicable law, to
vote all of its shares of NMHC Stock in favor of the Merger. In
the event that the Merger Agreement is terminated by NMHC in
order to accept a superior proposal, New
Mountains tender and voting obligations will terminate. In
the event that the Board makes a change in
recommendation with respect to the Merger Agreement or the
transactions contemplated thereby, other than in connection with
a superior proposal, New Mountain will be obligated to tender in
the Offer only shares representing 30% of the outstanding shares
of NMHC Stock at that time and to vote in favor of the Merger
only shares representing 30% of the total vote of the shares of
NMHC Stock entitled to vote on such matter.
Pursuant to the Stockholder Agreements, New Mountain has also
agreed that, for a period of one year following the Acceptance
Date (if the transaction is effected by means of the Offer
followed by the Second Step Merger) or the Effective Time (if
the transaction is effected as a One Step Merger), it will not
sell or
9
otherwise transfer any shares of SXC Common Stock acquired
pursuant to the Merger Agreement, except to participate in a
transaction that has been approved by the board of directors of
SXC.
New Mountain has further agreed, except in the circumstances
specified in the Stockholder Agreements, that it will not
solicit third-party proposals, provide information or engage in
discussions with third parties relating to alternative business
combination transactions. In the event the Merger Agreement is
terminated under circumstances in which a termination fee is
payable by NMHC to SXC, New Mountain has agreed to pay SXC 50%
of New Mountains profit (determined in accordance with the
valuation provisions set forth in the Stockholder Agreements) in
excess of $11.50 per share from the sale of its shares of NMHC
Stock pursuant to another acquisition proposal that is
consummated within 12 months of the termination of the
Stockholder Agreements.
The Stockholder Agreements will terminate upon the termination
of the Merger Agreement. Additionally, New Mountain may
terminate the Stockholder Agreements in the event that the
amount of the Offer Price or the merger consideration is
reduced, or the form of such price or consideration is changed,
or the proportion of cash to SXC Common Stock is reduced, in
each case, without New Mountains consent.
The summary of the Stockholder Agreements that can be found in
the Prospectus as well as the summary set forth above are
qualified in their entirety by reference to the complete text of
the Stockholder Agreements, which are attached hereto as
Exhibits (e)(11) and (e)(12), respectively, and are incorporated
herein by reference.
Registration
Rights Agreement
SXC also entered into a Registration Rights Agreement with New
Mountain concurrently with the execution of the Merger Agreement
and the Stockholder Agreements (the
Registration Rights
Agreement
). The Registration Rights Agreement grants
New Mountain one demand registration right with respect to the
SXC Common Stock issued to New Mountain in connection with the
Offer or the One Step Merger, exercisable after the first
anniversary of the date of the Registration Rights Agreement if
the trading volume of SXC Common Stock is below
100,000 shares in the aggregate on certain specified
exchanges during
agreed-upon
measurement periods. Moreover, New Mountain has
piggyback registration rights with respect to such
SXC Common Stock during the period beginning 12 months
after the earlier to occur of the Acceptance Date and the
closing of the One Step Merger (the
Operative
Date
) and ending 18 months after the Operative
Date, subject to the terms and conditions set forth in the
Registration Rights Agreement.
The foregoing summary is qualified in its entirety by reference
to the Registration Rights Agreement, which is attached hereto
as Exhibit (e)(13) and is incorporated herein by reference.
Non-Disclosure
Agreement
NMHC and SXC entered into a non-disclosure agreement on
October 18, 2007 and a supplement thereto on
November 26, 2007 (collectively, the
Non-Disclosure Agreement
). As a condition to
being furnished Evaluation Material (as defined in the
Non-Disclosure Agreement), SXC agreed, among other things, that
it will hold the Evaluation Material in confidence, and will not
use the Evaluation Material for any purpose except to evaluate a
potential negotiated transaction between SXC and NMHC.
SXCs obligations under the Non-Disclosure Agreement do not
apply to the extent the Evaluation Material (i) was in
SXCs possession as of the date of the Non-Disclosure
Agreement, provided that such information is not known by SXC,
after due inquiry, to be subject to another confidentiality
agreement with or other obligation of secrecy to NMHC or another
party, (ii) becomes generally available to the public other
than as a result of a disclosure by SXC or its affiliates or
representatives, or (iii) becomes available to SXC on a
non-confidential basis from a source other than NMHC or its
advisors, provided that such source is not known by SXC, after
due inquiry, to be bound by a confidentiality agreement with or
other obligation of secrecy to NMHC or another party.
SXC has also agreed, until the earliest of (i) the
consummation of a transaction between SXC and NMHC, or
(ii) 24 months from the date on which SXC and NMHC
have terminated discussions concerning the possibility of a
transaction, that it will not, and will cause its
representatives and affiliates not to, (x) solicit
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any customer of NMHC or its subsidiaries for providing services
that compete with those currently provided by NMHC or its
subsidiaries, (y) induce or attempt to induce any person
introduced or identified in the due diligence process who is
employed with NMHC or any of its subsidiaries or affiliates to
leave the employ of NMHC or applicable subsidiary or affiliate
or in any way interfere with such relationship, or
(z) solicit for employment or hire any person introduced or
identified in the due diligence process who is employed with
NMHC or any of its subsidiaries or affiliates (excluding general
solicitations made to the public or the industry generally
through advertising or electronic listing).
SXC has further agreed that for a period of two years from the
date on which NMHC and SXC have terminated discussions
concerning the possibility of a transaction, SXC will not, and
will cause its representatives and affiliates not to (unless
requested in writing in advance by the Board or Chief Executive
Officer of NMHC): (i) acquire or agree, offer, seek or
propose to acquire (or request permission to do so) ownership of
any assets, indebtedness or businesses of NMHC or any of its
subsidiaries or any securities of NMHC or any of its
subsidiaries or affiliates, including by means of a tender or
exchange offer; (ii) offer, seek or propose a merger,
business combination or similar transaction, or any other
extraordinary transaction, with or involving NMHC or any of its
subsidiaries or affiliates, or any successor entities thereto;
(iii) seek or propose to influence or control the
management, the Board or policies of NMHC or any of its
subsidiaries or affiliates or to obtain representation on the
Board, or solicit any proxies or contests with respect to any
securities of NMHC or any of its subsidiaries or affiliates;
(iv) enter into any discussions or understandings with any
third party with respect to any of the foregoing; or
(v) seek permission to do any to the foregoing, request to
amend any of the foregoing provisions, or make or seek
permission to make any public announcement with respect to any
of the foregoing or otherwise take any action that may require
NMHC or any of its subsidiaries or affiliates to make a public
announcement regarding any of the foregoing.
No
Solicitation Agreement
NMHC and SXC entered into a no solicitation agreement on
January 18, 2008, which was later extended through
February 15, 2008 (collectively, the
No
Solicitation Agreement
). Pursuant to the No
Solicitation Agreement, NMHC agreed in particular, during the
period of time between January 18, 2008 and February 15
2008, that NMHC and its subsidiaries would not, and would
instruct its representatives not to, (i) initiate, solicit
or encourage or facilitate any inquiries or the making or
submission of any proposal or offer relating to a possible
acquisition transaction involving NMHC; or (ii) participate
in any discussions or negotiations, accept, enter into or commit
to enter into a possible acquisition transaction involving NMHC.
NMHC also agreed to discontinue any discussions or negotiations
(other than any ongoing discussions with SXC or its
representatives) relating to a possible acquisition transaction
involving NMHC.
NMHCRX,
Inc. Consulting and Software License and Maintenance
Agreements
SXC and one of NMHCs subsidiaries, NMHCRX, Inc., are
currently parties to a consulting agreement and software license
and maintenance agreements pursuant to which SXC licenses, and
provides consulting and support services in connection with,
certain computer software for one of NMHCRX, Inc.s claims
adjudication systems. For NMHCs fiscal year ended
June 30, 2007, NMHCRX, Inc. paid to SXC a total of
$981,274.70 in fees pursuant to these agreements.
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Item 4.
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The
Solicitation or Recommendation.
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Recommendation
On February 24, 2008, the Board unanimously:
(1) determined that the Merger Agreement is advisable and
fair to, and in the best interests of, NMHC and its
stockholders, (2) determined that the Merger Agreement and
the transactions contemplated thereby, including the Offer and
the Merger, taken together, are at a price and on terms that are
in the best interests of NMHC and its stockholders, and
(3) approved the Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger.
The
Board recommends that NMHCs stockholders accept the Offer,
tender their shares of NMHC Common Stock pursuant to the Offer
and, if required, adopt the Merger Agreement.
A letter to NMHCs stockholders communicating the
Boards recommendation is attached hereto as Exhibit (a)(7)
and is incorporated herein by reference.
Background
and Reasons for the Recommendation
Background
of the Offer and Merger
From time to time over the last two years, SXC and NMHC have
discussed the possibility of a strategic transaction in light of
the complementary nature of their respective businesses.
During NMHCs 2007 fiscal year, NMHC experienced a
significant loss of clients and a corresponding loss of revenue
and net income. The Board determined to add a non-executive
Chairman of the Board to help NMHCs senior management team
identify and address operational and other challenges that
contributed to the loss of clients. On February 23, 2007,
NMHC entered into an agreement with Thomas Erickson for
Mr. Erickson to serve as NMHCs non-executive Chairman
of the Board. During the first part of 2007, Mr. Erickson
worked closely with NMHCs management team to address a
number of NMHCs operational challenges. In May 2007, the
Board determined that significant changes in NMHCs
management team were necessary to effect required changes in
operations.
Accordingly, in May 2007, NMHC terminated the employment of
NMHCs Chief Executive Officer, Chief Marketing Officer,
General Counsel, Chief Information Officer, and Controller, and
in June 2007 NMHCs Chief Services Officer resigned from
his employment with NMHC. Mr. Erickson became NMHCs
interim Chief Executive Officer and NMHC hired a new General
Counsel. NMHC also engaged L.E.K. Consulting LLC
(LEK), an international consulting firm specializing
in corporate strategy development, to assist NMHC in analyzing
NMHCs business and its client relationships and in
formulating a strategy to improve NMHCs operations. From
June to September of 2007, NMHCs senior management team
and representatives of LEK met to discuss analyses prepared by
LEK and to formulate plans to improve NMHCs operations.
During these meetings, NMHC established several strategic goals,
including (i) migrating NMHCs claim adjudication
processes to a common technology platform; (ii) improving
client satisfaction; (iii) increasing sales;
(iv) improving NMHCs reputation; and
(v) reducing general and administrative expenses.
In August 2007, Mr. Klinsky, a principal of New Mountain
and a member of the Board, received a letter from one of
NMHCs competitors, which we will refer to as Party Y,
expressing an interest in acquiring NMHC, which Mr. Klinsky
referred to Mr. Erickson as NMHCs non-executive
Chairman. In early September 2007, Mr. Erickson received a
letter from SXC expressing an interest in acquiring NMHC. Both
of these letters were unsolicited.
On September 17, 2007, the Board met to discuss NMHCs
strategic alternatives. At this meeting, Mr. Erickson
discussed with the Board the challenges and opportunities facing
NMHC and actions that could be taken in an effort to improve
NMHCs operating results. Mr. Erickson summarized
strategic goals developed by NMHC with the assistance of LEK.
Mr. Erickson discussed with the Board some of the potential
benefits, risks and costs associated with implementing steps to
achieve these goals. Mr. Erickson also summarized the two
letters received by NMHC concerning the possible acquisition of
NMHC. At this meeting, the Board determined that NMHC should
retain a financial advisor to assist NMHC in exploring its
strategic alternatives, including a potential strategic
transaction, and authorized the Boards Executive Committee
to
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select a financial advisor. Subsequent to the September 17,
2007 Board meeting, members of the Executive Committee and
senior management of NMHC met with potential financial advisors
and on October 10, 2007 retained J.P. Morgan Securities
Inc. (
JPMorgan
) to act as NMHCs
financial advisor. Shortly thereafter, JPMorgan began contacting
likely potential acquirers of NMHC to determine if they might be
interested in a strategic transaction with NMHC. Over the course
of several weeks, JPMorgan contacted ten companies concerning a
possible strategic transaction with NMHC, and NMHC entered into
confidentiality agreements with five of the companies contacted
by JPMorgan. The confidentiality agreement with SXC was dated
October 18, 2007. Each party that executed a
confidentiality agreement was provided an executive summary of
NMHCs operations and prospects.
On October 23, 2007, the Board met with representatives of
JPMorgan and senior management to discuss strategic alternatives
available to NMHC. JPMorgan discussed with the Board the process
of exploring a sale of NMHC. The Board also discussed with
JPMorgan the possibility of NMHC remaining independent. The
Board directed JPMorgan to continue to explore NMHCs
strategic alternatives, which included soliciting indications of
interest concerning a purchase of NMHC. In early November 2007,
NMHC received indications of interest to acquire NMHC from SXC,
Party Y and a strategic party we will refer to as Party Z. The
SXC indication of interest reflected a merger consideration
range of $10.75 to $11.75 per share, payable 75% in cash and 25%
in SXC Common Stock. The Party Y indication of interest
reflected a merger consideration range of $10.00 to $13.00 per
share, payable in cash. The Party Z indication of interest
reflected a merger consideration range of $12.02 to $13.23 per
share, payable in cash. On November 13, 2007, these
indications of interest were presented by JPMorgan to the Board.
After discussing the terms of the indications of interest, the
Board instructed JPMorgan and NMHCs senior management team
to continue exploring NMHCs strategic alternatives,
including a potential sale of NMHC.
On November 7, 2007, the SXC board of directors held a
meeting at which the directors discussed a possible acquisition
of NMHC. Prior to this meeting, the SXC board of directors had
from time to time discussed various acquisition opportunities,
including an acquisition of NMHC. At the November 7, 2007
meeting the SXC board of directors authorized management to
explore a possible acquisition of NMHC. The SXC board of
directors also established a committee of Messrs. Terry
Burke, Philip Reddon and Steve Cosler to oversee the proposed
acquisition process. This acquisition committee of the SXC board
of directors met eight times over the next ten weeks to review
and discuss the acquisition of NHMC.
Beginning November 13, 2007, NMHC provided the three
potential acquirers, including SXC, access to an online data
room containing detailed financial, operating, and other
non-public information about NMHC. From November 28 through
November 30, 2007, members of NMHCs senior management
met with members of each potential acquirers management to
present an overview of NMHCs operations. JPMorgan advised
each potential acquirer that final bids should be presented on
or before December 11, 2007.
From early November until the execution of the merger agreement,
SXC performed due diligence on NMHC.
On December 7, 2007, the board of directors of SXC held a
meeting. Also present at the meeting were members of SXC
management and representatives of Houlihan Lokey, SXCs
financial advisor. Houlihan Lokey discussed with the SXC board
of directors preliminary financial matters regarding a potential
acquisition of NMHC. The SXC board of directors authorized
management to continue to explore an acquisition of NMHC and a
definitive proposal, subject to approval by the SXC board of
directors.
On December 11, 2007, SXC presented a nonbinding proposal
to purchase NMHC for $10.25 per share in cash. The proposal
contained numerous conditions, including (i) satisfactory
completion of due diligence; (ii) SXC obtaining financing;
and (iii) New Mountain entering into a stockholder
agreement on terms reasonably satisfactory to SXC. No proposals
to purchase NMHC were received from the other participants.
On December 11 and 12, 2007, JPMorgan and Houlihan
Lokey had several discussions. During these discussions,
JPMorgan emphasized the need for more consideration and
certainty in the transaction. On December 12, 2007,
following these discussions, SXC increased the proposed
consideration to $11.00 per share, payable 70% in cash and 30%
in shares of SXC Common Stock in the aggregate at the election
of NMHCs stockholders (other than New Mountain), subject
to a cap on the amount of SXC Common Stock to be issued.
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On December 14, 2007, the SXC board of directors held a
meeting. Management of SXC and representatives of Houlihan Lokey
were also present at this meeting. During the meeting, Houlihan
Lokey discussed with the SXC board of directors the proposed
acquisition, including preliminary financial matters regarding
the proposed acquisition.
On December 20, 2007, representatives of NMHC and SXC met
in Chicago to discuss the terms of the proposal submitted by
SXC. SXC stated at the meeting that it did not have committed
financing at that time but expressed confidence in its ability
to obtain a financing commitment for a transaction at the price
proposed by SXC.
On December 28, 2007, the SXC acquisition committee met to
discuss the proposed acquisition of NMHC. Also participating in
the meeting were members of management of SXC, representatives
of Sidley Austin LLP, SXCs U.S. outside legal
counsel, and Houlihan Lokey. During the meeting, representatives
of Sidley Austin reviewed with the committee the significant
terms of the proposed draft merger agreement and stockholder
agreement.
Later on December 28, 2007, Houlihan Lokey delivered to
JPMorgan SXCs comments on the draft merger agreement, a
form of proposed stockholders agreement to be entered into by
New Mountain and a draft of a no solicitation agreement.
On January 8, 2008, the Board met to discuss the status of
negotiations with SXC. At this meeting, the Board instructed
NMHCs management and JPMorgan to continue to explore all
strategic alternatives available to NMHC, including a potential
transaction with SXC. On January 9, 2008, representatives
of NMHC and SXC met in San Francisco to further refine the
terms of the SXC proposal. On January 23, 2008, NMHC and SXC
entered into a confidentiality agreement to facilitate NMHC
performing due diligence on SXC. From that date until the
execution of the Merger Agreement, NMHC performed due diligence
on SXC.
On January 17, 2008, the Board met to review with JPMorgan
and management the process undertaken to consider NMHCs
strategic alternatives. At this meeting, the Board approved
entering into a no solicitation agreement with SXC through
February 8, 2008. On January 18, 2008, NMHC entered
into the no solicitation agreement with SXC, which was later
extended to February 15, 2008. On January 25, 2008,
representatives of NMHC and SXC met in Chicago for SXC to
present to NMHC and JPMorgan a review of SXCs operations.
On January 26 and 27, 2008, SXC and NMHC and their respective
legal advisors met to negotiate the terms of a potential
transaction between SXC and NMHC.
On January 28, 2008, the SXC board of directors held a
meeting. Also participating in the meeting were members of
management of SXC, representatives of Houlihan Lokey and
representatives of Sidley Austin and representatives of Heenan
Blaikie LLP, SXCs Canadian outside counsel. At this
meeting the SXC board of directors received an update of the
process on, and discussed, the proposed acquisition of NMHC,
including the proposed debt financing.
On February 6 and 13, 2008, the SXC board of directors held
meetings. Also present at these meetings were members of
management of SXC, representatives of Houlihan Lokey and
representatives of Sidley Austin. At these meetings, the SXC
board of directors discussed the proposed acquisition of NMHC,
including the proposed debt financing.
On February 14, 2008, the Board met for the primary purpose
of considering NMHCs strategic alternatives, which had
been narrowed to either remaining independent or accepting
SXCs proposal. Representatives of JPMorgan and NMHCs
outside counsel attended this meeting, as did certain members of
senior management. Mr. Erickson presented managements
view of the proposed transaction with SXC. Mr. Erickson
also presented managements view of the prospects of NMHC
remaining independent, including the risks and opportunities
associated with remaining independent. The representatives of
JPMorgan presented a summary of the process conducted by NMHC in
connection with considering NMHCs strategic alternatives.
JPMorgan reviewed with the Board a stand-alone valuation
analysis of NMHC based on managements assumptions as to
the potential future financial performance of NMHC under a
stabilized scenario and under an aggressive growth scenario.
JPMorgan also reviewed the significant economic terms of the
proposal from SXC and certain information relating to SXC.
JPMorgan also discussed the terms of SXCs commitment
letter from GE Capital Corporation and its view of the
likelihood that SXC would be able to obtain the necessary
financing given the current state of the credit markets and
SXCs financial condition. A representative of
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NMHCs outside counsel then reviewed with the Board its
applicable fiduciary duties and responsibilities and described
for the Board in detail the terms of the merger agreement, the
financing commitment received by SXC, the stockholder agreements
and related transaction documents. Following further discussion,
the Board requested JPMorgan to provide its view regarding the
fairness, from a financial point of view, of the consideration
to be received by holders of NMHC Common Stock pursuant to the
proposed merger agreement. Representatives of JPMorgan then
rendered an oral opinion (subsequently reaffirmed at the meeting
of the Board on February 24, 2008 and confirmed by delivery
of a written opinion dated February 25, 2008) that, as
of that date, and subject to the matters and assumptions set
forth in the opinion, the consideration to be received by the
holders of outstanding shares of NMHC Common Stock pursuant to
the merger agreement was fair, from a financial point of view,
to such holders. The full text of the written opinion of
JPMorgan is attached as Annex B to this
Schedule 14D-9.
Following discussion, the Board approved the merger agreement,
subject to satisfactory resolution of identified issues in
respect of the financing commitment letter and various other
outstanding matters.
From February 15, 2008 until February 25, 2008, SXC
and NMHC and their respective legal and financial advisors met
periodically to address remaining outstanding items in the
proposed transaction between SXC and NMHC.
On February 24, 2008, the Board met for the primary purpose
of considering a merger agreement presented by SXC and several
open items. Following discussion, the Board instructed JPMorgan
to contact SXCs financial advisor in an effort to resolve
the remaining open items. The Board adjourned the meeting to be
reconvened later in the day. JPMorgan provided updates, and
representatives of NMHCs outside counsel summarized
changes in the terms of the merger agreement and other
transaction documents negotiated since February 14, 2008.
The Board discussed these changes with representatives of
management. Following further discussion, the Board requested
JPMorgan to provide its view regarding the fairness, from a
financial point of view, of the consideration to be received by
holders of NMHC Common Stock pursuant to the proposed merger
agreement. Representatives of JPMorgan then reaffirmed its
opinion as to the fairness, from a financial point of view, of
the merger consideration to such holders. The full text of the
written opinion of JPMorgan is attached as Annex B to this
Schedule 14D-9.
Following JPMorgans presentation, the directors discussed
the transaction, the recommendation of management that the
transaction be approved and the fairness opinion of JPMorgan.
The Board then unanimously approved the merger agreement, the
stockholder agreements and the transactions contemplated by the
merger agreement and the stockholder agreements, and unanimously
determined that the merger agreement and the transactions
contemplated by the merger agreement are advisable and in the
best interests of NMHC and its stockholders.
On February 25, 2008, the SXC board of directors held a
meeting. Also present at the meeting were members of SXC
management, representatives of Houlihan Lokey and
representatives of Sidley Austin. Houlihan Lokey discussed with
the SXC board of directors the financial aspects of the proposed
acquisition. The SXC board of directors then unanimously
approved the merger agreement, the stockholder agreements, the
debt commitment letter and the transaction contemplated by each
of them.
The merger agreement was executed by the parties on
February 25, 2008 following the board meetings and final
negotiation of the merger agreement and disclosure schedules.
Before the stock market opened on February 26, 2008, SXC
and NMHC issued a joint press release announcing the transaction.
Reasons
for the Recommendation
In reaching its decision to approve the Offer and the Merger
Agreement and to recommend that NMHCs stockholders tender
their shares of NMHC Common Stock pursuant to the Offer, the
Board consulted with management, JPMorgan and NMHCs
outside legal counsel. The Board considered a number of factors,
including, without limitation, the following potentially
positive factors in support of the Offer and the Merger:
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the current and recent prices of NMHC Common Stock, and the fact
that the estimated $11.00 per share to be paid for each share of
NMHC Common Stock pursuant to the Offer represents a premium of
13% over the average closing share price of NMHC Common Stock
for the 20 trading days ended
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February 25, 2008, the last trading day before NMHC
announced the execution of the Merger Agreement;
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the fact that the combination of NMHC and SXC presents a
significant opportunity to combine complementary products,
increase the companies customer base and realize
operational synergies;
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the fact that NMHCs stockholders may participate in the
future growth of the combined companies and will benefit from
any future appreciation in value of NMHC in combination with SXC;
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its belief that the Offer and the Merger were more favorable to
NMHCs stockholders than any other alternative reasonably
available to NMHC and its stockholders. The Board considered
possible alternatives to the sale of NMHC, including continuing
to operate NMHC on a stand-alone basis and the execution risks
related to achieving NMHCs strategic plan particularly in
light of current issues facing the business, including migrating
NMHCs claims adjudication process to a single platform,
reducing overhead, raising capital and recent significant
management changes. The Board also considered the risks and
uncertain returns associated with the alternatives, each of
which the Board determined not to pursue when compared to the
opportunity of NMHCs stockholders to realize the offer
consideration for their investment in connection with the Offer;
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the results of the process conducted by NMHC, with the
assistance of JPMorgan and NMHCs legal advisors over a
period of six months, which involved engaging in discussions
with approximately ten parties to determine their potential
interest in a business combination transaction with NMHC and
entering into confidentiality agreements with five of those
parties;
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the volatility and trading information for NMHC and various
factors that might affect the market value of NMHC Common Stock
in the future, including a limited trading market;
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the presentation of JPMorgan and its opinion, given orally to
the Board on February 24, 2008, to the effect that, as of
the date of the Merger Agreement and based upon and subject to
the factors and assumptions set forth in the opinion, the per
share consideration of $7.70 in cash and 0.217 shares of
SXC Common Stock to be received by the holders of shares of NMHC
Common Stock pursuant to the Merger Agreement was fair, from a
financial point of view, to such holders (see Opinion of
J.P. Morgan Securities Inc., included as Annex B
to this
Schedule 14D-9);
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the terms of the Merger Agreement, including without limitation:
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the conditions to the obligations of Offeror to consummate the
Offer and the Merger and the limited risk of non-satisfaction of
the conditions, including that for purposes of the Merger
Agreement a material adverse effect on NMHC does not
include the events, circumstances, changes or effects resulting
from the events, circumstances, changes or effects described
under Merger Agreement Representations and
Warranties in the Prospectus;
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the ability of the Board, under certain circumstances, to change
its recommendation that NMHCs stockholders tender their
shares of NMHC Common Stock or vote in favor of the approval of
the Merger Agreement, if required (including if NMHC receives a
superior proposal);
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NMHCs right, under certain circumstances, to engage in
negotiations with, and provide information to, a third party
that makes an unsolicited written acquisition proposal if the
Board determines in good faith, after consultation with a
financial advisor and outside legal counsel, that such
acquisition proposal constitutes or could reasonably be expected
to lead to a superior proposal, and after consultation with
outside legal counsel, that failure to take such action could
reasonably be expected to result in a breach of its fiduciary
duties under applicable law;
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the ability of the Board, under certain circumstances and upon
the payment to SXC of a termination fee of $5,000,000, to
terminate the Merger Agreement in order to accept a financially
superior proposal;
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the conclusion of the Board that both the requirement to pay SXC
a $5,000,000 termination fee and the circumstances when such fee
is payable and the requirement to reimburse SXC for certain
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expenses (up to a limit of $2,000,000 and without duplication of
the termination fee) in the event that the Merger Agreement is
terminated because NMHCs stockholders fail to approve the
Merger Agreement, if required, or because of NMHCs breach
of the Merger Agreement, were reasonable in light of the
benefits of the Offer and the Merger, the sale process conducted
by NMHC, with the assistance of JPMorgan, and the termination
fees that were payable in other comparable transactions; and
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the favorable commitment letter obtained by SXC and the
favorable structure of the financing, together with SXCs
obligation to use reasonable best efforts to take, or cause to
be taken, all actions and do, or cause to be done, all things
necessary, proper or advisable to arrange and obtain the
financing on the terms and conditions set forth in the
commitment letter.
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The Board also considered and balanced against the potentially
positive factors the following potentially negative factors
concerning the Merger:
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the risk that the Offer and the Merger might not be completed,
including the risk that consummation of the Offer
and/or
the
Merger is likely not to occur (and SXC is not obligated to
consummate the Offer or the Merger) if the financing
contemplated by the commitment letter or the alternate financing
as contemplated by the Merger Agreement is not obtained;
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the fact that a portion of the consideration is based on a fixed
exchange ratio means that the aggregate value of the transaction
will fluctuate subject to changes in the trading price of SXC
Common Stock;
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the actual and potential interests of NMHCs executive
officers and directors in the Merger that may be different than
or in addition to those of NMHCs stockholders generally
(see Interests of Certain Persons in the Merger in
this
Schedule 14D-9
and The Offer Interests of NMHCs
Directors and Executive Officers in the Offer and the
Merger in the Prospectus);
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the restrictions in the Merger Agreement on NMHCs ability
to solicit or engage in discussions or negotiations with a third
party regarding other proposals and the requirement in the
Merger Agreement that NMHC pay SXC a $5,000,000 termination fee
in order for the Board to accept a superior proposal;
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the requirement in the Merger Agreement that NMHC reimburse SXC
for up to $2,000,000 of its reasonably documented out-of-pocket
fees and expenses incurred in connection with the proposed Offer
and Merger if the Merger Agreement is terminated under certain
circumstances, including if NMHCs stockholders do not
approve the Merger Agreement, if required;
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the fact that gains will be taxable to certain of NMHCs
stockholders for U.S. federal income tax purposes;
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the fact that, because a portion of the consideration is payable
in SXC Common Stock, NMHC stockholders will be subject to the
risks of being an SXC stockholder, including the possibility
that the trading price or value of SXC Common Stock may decrease
in the future;
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the risk of diverting management focus and resources from other
strategic opportunities and from operational matters while
working to implement the Merger; and
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the possibility of employee, customer and supplier disruption
associated with the Offer and Merger.
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After taking into account all of the factors set forth above, as
well as others, the Board determined that the potentially
positive factors outweighed the potentially negative factors and
that the Offer, the Merger Agreement and the Merger are
advisable and fair and in the best interests of NMHC and
NMHCs stockholders.
This discussion of the information and factors considered by the
Board is not intended to be exhaustive, however, it is believed
to address the material information and factors considered by
the Board. In view of the number and variety of these factors,
the Board did not find it practicable to make specific
assessments of, or otherwise assign relative weights to, the
specific factors and analyses considered in reaching its
determination. The determination to approve the Merger Agreement
and the transactions contemplated thereby, including the
17
Offer and the Merger, was made after consideration of all of the
factors and analyses as a whole. In deciding to approve the
Offer, the Merger Agreement and the Merger, individual members
of the Board may have given different weights to the different
factors considered by the Board.
Intent to
Tender
To NMHCs knowledge after reasonable inquiry, NMHC and all
of NMHCs executive officers, directors, affiliates and
subsidiaries currently intend to tender all shares of NMHC
Common Stock held of record or beneficially (other than shares
of NMHC Common Stock held directly or indirectly by other public
companies, as to which NMHC has no knowledge) by them pursuant
to the Offer and to vote such shares in favor of the Merger
(including the adoption of the Merger Agreement, if necessary).
The foregoing does not include any shares over which, or with
respect to which, any such executive officer, director,
affiliate or subsidiary acts in a fiduciary or representative
capacity or is subject to the instructions of a third party with
respect to such tender.
Opinion
of NMHCs Financial Advisor
Pursuant to an engagement letter dated October 10, 2007,
NMHC retained JPMorgan to act as its financial advisor in
connection with its analysis and consideration of various
strategic alternatives, including the Merger, and for the
purpose of rendering to the Board an opinion as to the fairness,
from a financial point of view, of the consideration to be
received by the holders of NMHC Common Stock in the Merger. At
the meeting of the Board on February 14, 2008, JPMorgan
rendered its oral opinion, subsequently reaffirmed at the
meeting of the Board on February 24, 2008 and thereafter
confirmed in writing, to the Board to the effect that, as of
that date and based upon and subject to the matters set forth in
JPMorgans opinion, the consideration to be received by
holders of NMHC Common Stock in the Merger was fair, from a
financial point of view, to those holders. No limitations were
imposed by the Board upon JPMorgan with respect to the
investigations made or procedures followed by it in rendering
its opinion.
The full text of the written opinion of JPMorgan, dated
February 25, 2008, which sets forth the assumptions made,
matters considered and limits on the review undertaken by
JPMorgan in rendering its opinion, is attached as Annex B
to this
Schedule 14D-9.
NMHC encourages its stockholders to read the opinion carefully
in its entirety. JPMorgans written opinion was addressed
to the Board, was directed only to the fairness, from a
financial point of view, of the consideration to be received by
holders of NMHC Common Stock in the Merger, and does not
constitute a recommendation to any NMHC stockholder to tender
its shares or as to how such stockholder should vote with
respect to the Merger or any other matter. The summary of the
opinion of JPMorgan set forth in this
Schedule 14D-9
is qualified in its entirety by reference to the full text of
the opinion.
In arriving at its opinion, JPMorgan, among other things:
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reviewed the Merger Agreement;
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reviewed certain publicly available business and financial
information concerning NMHC and SXC and the industries in which
they operate;
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compared the proposed financial terms of the Merger with the
publicly available financial terms of certain transactions
involving companies JPMorgan deemed relevant and the
consideration received for such companies;
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compared the financial and operating performance of NMHC and SXC
with publicly available information concerning certain other
companies JPMorgan deemed relevant and reviewed the current and
historical market prices of NMHC Common Stock and SXC Common
Stock and certain publicly traded securities of such other
companies;
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reviewed certain internal financial analyses and forecasts
prepared by the managements of NMHC and SXC relating to the
businesses of NMHC and SXC, as well as the estimated amount and
timing of the cost savings and related expenses and synergies
expected to result from the Merger, which are referred to below
as the synergies; and
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performed other financial studies and analyses and considered
other information as JPMorgan deemed appropriate for the
purposes of its opinion.
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JPMorgan also held discussions with certain members of NMHC
management and SXC management with respect to certain aspects of
the Merger, the past and current business operations of NMHC and
SXC, the financial condition and future prospects and operations
of NMHC and SXC, the effects of the Merger on the financial
condition and future prospects of NMHC and SXC, and certain
other matters that JPMorgan believed necessary or appropriate to
its inquiry.
In giving its opinion, JPMorgan relied upon and assumed, without
assuming responsibility or liability for independent
verification, the accuracy and completeness of all information
that was publicly available or was furnished to or discussed
with JPMorgan by NMHC and SXC or otherwise reviewed by or for
JPMorgan. JPMorgan did not conduct and was not provided with any
valuation or appraisal of any assets or liabilities, nor did
JPMorgan evaluate the solvency of NMHC or SXC under any state or
federal laws relating to bankruptcy, insolvency or similar
matters. In relying on financial analyses and forecasts provided
to JPMorgan, including the synergies, JPMorgan assumed that they
were reasonably prepared based on assumptions reflecting the
best currently available estimates and judgments by NMHC and SXC
management as to the expected future results of operations and
financial condition of NMHC and SXC to which those analyses or
forecasts relate. JPMorgan expressed no view as to those
analyses or forecasts, including the synergies, or the
assumptions on which they were based. JPMorgan also assumed that
the Merger and the other transactions contemplated by the Merger
Agreement will have the tax consequences described in
discussions with, and materials furnished to JPMorgan by,
representatives of NMHC, and will be completed as described in
the Merger Agreement. JPMorgan also assumed that the
representations and warranties made by NMHC and SXC in the
Merger Agreement and the related agreements were and will be
true and correct in all respects material to JPMorgans
analysis. JPMorgan relied on the assessments made by advisors to
NMHC with respect to all legal, regulatory and tax matters.
JPMorgan further assumed that all material governmental,
regulatory or other consents and approvals necessary for the
consummation of the Merger will be obtained without any adverse
effect on NMHC or SXC or on the contemplated benefits of the
Merger.
JPMorgans opinion was necessarily based on economic,
market and other conditions as in effect on, and the information
made available to JPMorgan as of, the date of its opinion.
Subsequent developments may affect the opinion, and JPMorgan
does not have any obligation to update, revise or reaffirm its
opinion. JPMorgans opinion was limited to the fairness,
from a financial point of view, of the consideration to be
received by holders of NMHC Common Stock in the Merger, and
JPMorgan expressed no opinion as to the fairness of the Merger
to, or any consideration received in connection therewith by,
the holders of any other class of securities, creditors or other
constituencies of NMHC or as to the underlying decision by NMHC
to engage in the Merger. JPMorgan expressed no opinion as to the
amount or nature of any compensation to any officers, directors,
or employees of any party to the Merger, or any class of such
persons relative to the consideration to be received by the
holders of NMHC Common Stock in the Merger or with respect to
the fairness of any such compensation. JPMorgan expressed no
opinion as to the price at which NMHC Common Stock or SXC Common
Stock will trade at any future time.
In accordance with customary investment banking practice,
JPMorgan employed generally accepted valuation methods in
reaching its opinion. The following is a summary of the material
financial analyses utilized by JPMorgan in connection with
providing its opinion. The financial analyses summarized below
include information presented in tabular format. In order to
fully understand JPMorgans financial analyses, 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. Considering the data described below without
considering the full narrative description of the financial
analyses, including the methodologies and assumptions underlying
the analyses, could create a misleading or incomplete view of
JPMorgans financial analyses.
Transaction
Overview
Based upon the average closing price per share of SXC Common
Stock of $14.90 for the 20 trading days ending February 11,
2008, a proposed exchange ratio yielding an implied value of the
stock consideration of
19
$3.30 per share of NMHC Common Stock, and the cash consideration
of $7.70 per share of NMHC Common Stock, JPMorgan noted that the
implied value of the merger consideration pursuant to the Merger
as of February 11, 2008 was $11.00 per share of NMHC Common
Stock. JPMorgan also noted that the implied merger consideration
of $11.00 per share of NMHC Common Stock represented:
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a premium of 10.6% over the closing price per share of NMHC
Common Stock on February 11, 2008 of $9.95;
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a discount of 38.1% from the highest closing price per share of
NMHC Common Stock for the 52-week period ending
February 11, 2008;
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a premium of 18.4% over the average closing price per share of
NMHC Common Stock for the
1-month
period ending February 11, 2008;
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a premium of 18.6% over the average closing price per share of
NMHC Common Stock for the
3-month
period ending February 11, 2008;
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a premium of 13.0% over the average closing price per share of
NMHC Common Stock for the
6-month
period ending February 11, 2008; and
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a discount of 20.6% from the average closing price per share of
NMHC Common Stock for the
1-year
period ending February 11, 2008.
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NMHC
Analysis
Historical Share Price Analysis.
JPMorgan
reviewed the price performance of NMHC Common Stock during
various periods ending on February 11, 2008, on a
stand-alone basis and also in relation to SXC Common Stock, the
S&P 500 and a composite index of selected publicly traded
companies engaged in businesses which JPMorgan judged to be
analogous to that of NMHC, including the following companies:
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CVS Caremark Corporation;
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Express Scripts, Inc.;
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HealthExtras, Inc.; and
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Medco Health Solutions Inc.
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Selected Companies Analysis.
Using publicly
available information and information provided by NMHC
management, JPMorgan compared selected financial data of NMHC
with similar data for the group of companies listed above under
Historical Share Price Analysis. In its analysis,
JPMorgan derived and compared multiples for NMHC and the
selected companies, calculated by dividing the firm value by
estimated earnings before interest, taxes, depreciation and
amortization, or EBITDA, for calendar year 2008, which is
referred to below as FV/2008E EBITDA.
This analysis indicated the following:
Selected
Companies Analysis
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Benchmark
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High
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Low
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Median
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FV/2008E EBITDA
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13.6
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9.5
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12.8x
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Using a reference range of 12.0x to 14.0x NMHCs 2008
estimated EBITDA, JPMorgan determined a range of implied equity
values for NMHC. This analysis indicated a range of implied
values per share of NMHC Common Stock of approximately $9.75 to
$11.50 using NMHCs 2008 estimated EBITDA under a scenario
assuming a stabilization of NMHCs operations and $10.75 to
$12.50 using NMHCs 2008 estimated EBITDA under a scenario
assuming aggressive growth and improved NMHC operational
performance, compared in each case to the implied merger
consideration of $11.00 per share of NMHC Common Stock.
It should be noted that no company utilized in the analysis
above is identical to NMHC.
20
Selected Transactions Analysis.
Using publicly
available information, JPMorgan reviewed the following
transactions involving companies in the pharmacy benefit
management and specialty pharmacy industries. The transactions
considered and the month and year each transaction was announced
were as follows:
Pharmacy
Benefit Management Transactions
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Acquiror
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Target
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Month and Year Announced
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CVS Corporation
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Caremark Rx, Inc.
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November 2006
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Express Scripts, Inc.
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Caremark Rx, Inc.
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December 2006
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Caremark Rx, Inc.
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AdvancePCS
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September 2003
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Express Scripts, Inc.
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National Prescription Administrators, Inc.
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February 2002
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Advance Paradigm, Inc.
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PCS Health Systems, Inc.
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July 2000
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Express Scripts, Inc.
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Diversified Pharmaceutical Services, Inc.
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February 1999
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Rite Aid Corp.
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PCS Health Systems, Inc.
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November 1998
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Express Scripts, Inc.
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ValueRx
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February 1998
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Specialty
Pharmacy Transactions
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Acquiror
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Target
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Month and Year Announced
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Walgreen Co.
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Option Care, Inc.
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July 2007
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Express Scripts, Inc.
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Priority Healthcare Corporation
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July 2005
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Medco Health Solutions, Inc.
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Accredo Health, Inc.
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February 2005
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Using publicly available estimates, JPMorgan reviewed the
transaction value as a multiple of the target companys
latest twelve months, or LTM, EBITDA, immediately preceding
announcement of the transaction, which is referred to below as
FV/LTM EBITDA.
This analysis indicated the following:
Selected
Transactions Analysis (Pharmacy Benefit Management
Industry)
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Benchmark
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High
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Low
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Median
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FV/LTM EBITDA
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20.7
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x
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7.1
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x
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12.9x
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Selected
Transactions Analysis (Specialty Pharmacy Industry)
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Benchmark
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High
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Low
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Median
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FV/LTM EBITDA
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16.4
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x
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15.5
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x
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16.0x
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Using a reference range of 13.0x to 15.0x NMHCs LTM
run-rate EBITDA, JPMorgan determined a range of implied
enterprise values for NMHC, which were then adjusted for
NMHCs cash and total debt as of December 31, 2007 to
determine a range of implied equity values. This analysis
indicated a range of implied values per share of NMHC Common
Stock of approximately $10.50 to $12.00, compared to the implied
merger consideration of $11.00 per share of NMHC Common Stock.
It should be noted that no company utilized in the analysis
above is identical to NMHC and no transaction is identical to
the Merger.
Discounted Cash Flow Analysis.
JPMorgan
conducted a discounted cash flow analysis for the purpose of
determining the implied fully diluted equity value per share for
NMHC Common Stock on a standalone basis without giving effect to
the proposed Merger or any potential synergies, using financial
forecasts prepared by NMHC management for the fiscal years 2008
through 2015. JPMorgan calculated the unlevered free cash flows
that NMHC is expected to generate during fiscal years 2008
through 2015. JPMorgan then calculated an implied range of
terminal values for NMHC using a range of perpetuity growth
rates for free
21
cash flows from 3.25% to 3.75% and a range of discount rates
from 10.0% to 11.0%. The unlevered free cash flows and the range
of terminal values were then discounted to present value using a
range of discount rates from 10.0% to 11.0%. The present value
of the unlevered free cash flows and the range of terminal
values were then adjusted for NMHCs cash and total debt as
of December 31, 2007. This analysis indicated a range of
implied values per share of NMHC Common Stock of approximately
$9.50 to $12.00 under a scenario assuming a stabilization of
NMHCs operations and $13.25 to $16.50 under a scenario
assuming aggressive growth and improved NMHC operational
performance, compared to the implied merger consideration of
$11.00 per share of NMHC Common Stock.
SXC
Analysis
Historical Share Price Analysis.
JPMorgan
reviewed the price performance of SXC Common Stock during the
52-week period ending on February 11, 2008. JPMorgan noted
that the low and high trading prices per share of SXC Common
Stock during this period were approximately $31.48 and $11.35,
compared to the closing price per share of SXC Common Stock of
$15.40 on February 11, 2008.
Analyst Price Targets.
JPMorgan reviewed price
targets for SXC Common Stock published by Wall Street equity
research analysts from November 6, 2007 through
January 22, 2008. These price targets for SXC Common Stock
ranged from $13.50 to $21.50, compared to the closing price per
share of SXC Common Stock of $15.40 on February 11, 2008.
Selected Companies Analysis.
Using publicly
available information and information provided by SXC
management, JPMorgan compared selected financial data of SXC
with similar data for the group of companies listed above under
Historical Share Price Analysis. In its analysis,
JPMorgan derived and compared FV/2008E EBITDA multiples for SXC
and the selected companies.
This analysis indicated the following:
Selected
Companies Analysis (Healthcare Information Technology
Industry)
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|
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Benchmark
|
|
High
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|
|
Low
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|
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Median
|
|
|
FV/2008E EBITDA
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17.9
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x
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8.9
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x
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10.6x
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Selected
Companies Analysis (Pharmacy Benefit Management
Industry)
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Benchmark
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High
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Low
|
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Median
|
|
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FV/2008E EBITDA
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13.6
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x
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9.5
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x
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12.8x
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Using a reference range of 10.0x to 13.0x SXCs 2008
estimated EBITDA, JPMorgan determined a range of implied equity
values for SXC. This analysis indicated a range of implied
values per share of SXC Common Stock of approximately $14.75 to
$18.00 using SXCs 2008 estimated EBITDA.
It should be noted that no company utilized in the analysis
above is identical to SXC.
Discounted Cash Flow Analysis.
JPMorgan
conducted a discounted cash flow analysis for the purpose of
determining the implied fully diluted equity value per share for
SXC Common Stock on a standalone basis without giving effect to
the proposed Merger or any potential synergies, using financial
forecasts prepared by SXC management as adjusted by NMHC
management for the fiscal years 2008 through 2015.
JPMorgan calculated the unlevered free cash flows that SXC is
expected to generate during fiscal years 2008 through 2015.
JPMorgan calculated an implied range of terminal values for SXC
using a range of terminal growth rates for free cash flows from
3.25% to 3.75% and a range of discount rates from 10.0% to
11.0%. The unlevered free cash flows and the range of terminal
values were then discounted to present value using a range of
discount rates from 10.0% to 11.0%. The present value of the
unlevered free cash flows and the range of terminal values were
then adjusted for SXCs cash and total debt as of
December 31, 2007. This analysis indicated a range of
implied values per share of SXC Common Stock of approximately
$14.50 to $16.50.
22
Pro Forma Analysis.
JPMorgan analyzed the
potential pro forma impact of the Merger on SXCs pro forma
earnings per share from continuing operations, including
synergies and excluding restructuring charges. In this analysis,
2008 and 2009 earnings projections for SXC were based on
earnings projections prepared by SXC management as adjusted by
NMHC management, and earnings projections for NMHC were prepared
by NMHC management. JPMorgan assumed for purposes of this
analysis that the Merger would close on March 31, 2008.
Based on this analysis, JPMorgan observed that, under a scenario
assuming a stabilization of NMHCs operations, the Merger
would result in earnings per share dilution for SXC
stockholders, including synergies and excluding restructuring
charges, of 25.3% for 2008, and earnings per share accretion for
SXC stockholders, including synergies and excluding
restructuring charges, of 16.4% for 2009. JPMorgan also observed
that, under an aggressive growth scenario assuming improved NMHC
operational performance, the Merger would result in earnings per
share dilution for SXC stockholders, including synergies and
excluding restructuring charges, of 20.5% for 2008, and earnings
per share accretion for SXC stockholders, including synergies
and excluding restructuring charges, of 27.8% for 2009.
The summary set forth above does not purport to be a complete
description of the analyses or data utilized by JPMorgan. The
preparation of a fairness opinion is a complex process and is
not necessarily susceptible to partial analysis or summary
description. JPMorgan believes that the summary set forth above
and its analyses must be considered as a whole and that
selecting portions thereof, without considering all of its
analyses, could create an incomplete view of the processes
underlying its analyses and opinion. JPMorgan based its analyses
on assumptions that it deemed reasonable, including assumptions
concerning general business and economic conditions and
industry-specific factors. The other principal assumptions upon
which JPMorgan based its analyses are set forth above under the
description of each analysis. JPMorgans analyses are not
necessarily indicative of actual values or actual future results
that might be achieved, which values may be higher or lower than
those indicated. Moreover, JPMorgans analyses are not and
do not purport to be appraisals or otherwise reflective of the
prices at which businesses actually could be bought or sold.
As a part of its investment banking business, JPMorgan and its
affiliates are continually engaged in the valuation of
businesses and their securities in connection with mergers and
acquisitions, investments for passive and control purposes,
negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements and valuations for
estate, corporate and other purposes. JPMorgan was selected as
advisor to the Board with respect to the Merger on the basis of
JPMorgans experience and its familiarity with NMHC.
Pursuant to its engagement letter, JPMorgan has acted as
financial advisor to NMHC with respect to the Merger and NMHC
has agreed to pay JPMorgan a customary transaction fee. The
transaction fee shall be payable upon consummation of the
Merger. In addition, NMHC has agreed to reimburse JPMorgan for
its reasonable expenses incurred in connection with its
services, including reasonable fees of outside counsel, and will
indemnify JPMorgan against certain liabilities, including
liabilities arising under federal securities laws.
JPMorgan and its affiliates maintain commercial and investment
banking and other business relationships with NMHC, SXC and
their respective affiliates, for which it receives customary
compensation. In particular, JPMorgan acted as co-manager of
SXCs NASDAQ initial public offering in June 2006. In
addition, JPMorgan and its affiliates provide various financial
services to NMHC and SXC and JPMorgans commercial banking
affiliate is an agent bank and a lender under outstanding credit
facilities of NMHC, for which JPMorgan and its affiliates
receive customary compensation or other financial benefits.
JPMorgan and its affiliates have also been engaged on behalf of
the portfolio companies of New Mountain, and JPMorgan and its
affiliates have received customary fees for such engagements. In
the ordinary course of their businesses, JPMorgan and its
affiliates may actively trade the debt and equity securities of
NMHC or SXC for their own accounts or for the accounts of
customers and, accordingly, they may at any time hold long or
short positions in such securities.
23
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Item 5.
|
Person/Assets
Retained, Employed, Compensated or Used.
|
J.P.
Morgan Securities Inc.
Effective October 10, 2007, NMHC engaged JPMorgan to act as
its financial advisor in connection with NMHCs exploration
of strategic alternatives, including the possible sale of all or
a portion of NMHC. NMHC selected JPMorgan as its financial
advisor because it is an internationally recognized banking firm
that has substantial experience in transactions similar to the
Offer and the Merger. Pursuant to the terms of a letter
agreement dated October 10, 2007, NMHC has agreed to pay
JPMorgan a fee based on the transaction value, which fee,
calculated as of the date of the merger agreement, would have
been approximately $2.1 million. In addition, NMHC has agreed to
reimburse JPMorgan for its reasonable expenses, including
attorney fees and disbursements, and to indemnify JPMorgan
and related persons against any liabilities relating to or
arising out of activities performed or services furnished
pursuant to the Merger Agreement, the Offer or the Merger or
JPMorgans role in connection with the Offer or the Merger.
Exchange
Agent
Mellon Investor Services LLC (
Mellon
) is the
exchange agent and depositary for the Offer and will be
responsible for the operation of the tender and exchange with
holders of shares of NMHC Common Stock. A summary of the fee
arrangement between SXC and Mellon is included in the Prospectus
under the heading The Offer Fees and
Expenses and is incorporated herein by reference.
Information with respect to a description of the exchange agent
and its role in the Offer is included in the Prospectus under
the headings The Offer Procedure for
Tendering and The Offer Exchange of
Share of NMHC Common Stock; Delivery of Cash and Shares of SXC
Common Shares and is incorporated herein by reference.
Information
Agent
SXC has also retained Kingsdale Shareholder Services, Inc.
(
Kingsdale
) as the information agent for the
Offer. Information with respect to Kingsdale is included in the
Prospectus under the headings References to Additional
Information and The Offer Fees and
Expenses and is incorporated herein by reference.
Except as described above, neither NMHC nor any person acting on
its behalf, has employed, retained, or agreed to compensate any
person or class of persons to make solicitations or
recommendations in connection with the Offer or the Merger,
except that such solicitations or recommendations may be made by
directors, officers or employees of NMHC, for which services no
additional compensation will be paid.
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Item 6.
|
Interest
in Securities of the Subject Company.
|
No transactions in shares of NMHC Common Stock have been
effected during the past 60 days by NMHC or by any
executive officer, director, affiliate or subsidiary of NMHC.
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Item 7.
|
Purposes
of the Transaction and Plans or Proposals.
|
Except as set forth in this
Schedule 14D-9,
no negotiations are being undertaken or are in process by NMHC
in response to the Offer which relate to a tender offer or other
acquisition of NMHCs securities by NMHC, any subsidiary of
NMHC or any other person.
Except as set forth in this
Schedule 14D-9,
no negotiations are being undertaken or are in process by NMHC
in response to the Offer which relate to, or would result in,
(i) any extraordinary transaction, such as a merger,
reorganization or liquidation, involving NMHC or any subsidiary
of NMHC, (ii) any purchase, sale or transfer of a material
amount of assets of NMHC or any subsidiary of NMHC, or
(iii) any material change in the present dividend rate or
policy, or indebtedness or capitalization, of NMHC.
24
Except as set forth in this
Schedule 14D-9,
there are no transactions, Board resolutions, agreements in
principle or signed contracts in response to the Offer that
relate to or would result in one or more of the matters referred
to in this Item 7.
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Item 8.
|
Additional
Information.
|
Information
Statement
The Information Statement attached as Annex A hereto is
being furnished in connection with the possible designation by
SXC following the Acceptance Date of certain persons to be
appointed to the Board, other than through election of such
persons to the Board at a meeting of NMHCs stockholders as
described in Item 3 above and in the Information Statement,
and is incorporated herein by reference.
Registration
and Listing of SXC Common Shares
On March 31, 2008, SXC filed the Registration Statement
with the SEC to register the offer and sale of SXC Common Stock
pursuant to the Offer and the Merger. Among other things, the
parties obligations to consummate the Offer and the Merger
are subject to the condition that the Registration Statement has
become effective in accordance with the Securities Act of 1933,
as amended (together with the rules and regulations promulgated
thereunder, the
Securities Act
).
Additionally, the SXC Common Stock issuable in connection with
the Offer and the Merger must have been authorized for listing
on both the Nasdaq and the Toronto Stock Exchange, subject to
official notice of issuance.
Top Up
Option
If (i) more than 9,600,000 shares of NMHC Common Stock
(including shares of NMHC Common Stock issuable upon conversion
of outstanding shares of NMHC Convertible Preferred Stock) have
been validly tendered and not withdrawn pursuant to the Offer,
(ii) Offeror is able to effect a short-form merger pursuant to
the DGCL promptly following the Acceptance Date without
acquiring any additional shares of NMHC Common Stock other than
the shares of NMHC Common Stock that may be issued pursuant to
the Top-Up Option described below or any reduction in the number
of shares of NMHC Common Stock then outstanding and (iii) the
other conditions to the Offer have been satisfied or waived,
Offeror will be required to accept the shares of NMHC Common
Stock validly tendered in the Offer and not withdrawn. In
addition, following the expiration of the Offer, Offeror may
elect to provide for one or more subsequent offer periods.
Subject to certain terms and conditions, NMHC has granted to
Offeror an irrevocable option (the
Top-Up
Option
), exercisable only on or following the
Acceptance Date and prior to the tenth
(10
th
)
business day after the later of (i) the Acceptance Date or
(ii) the expiration of a subsequent offering period
conducted in accordance with the terms of the Merger Agreement,
to purchase that number of shares of NMHC Common Stock (the
Top-Up Option Shares
) equal to the lowest
number of shares that, when added to the number of shares owned
by Offeror at the time of such exercise, shall constitute one
share more than a number of shares equal to 90% of the then
outstanding shares of NMHC Common Stock immediately prior to the
filing of the certificate of ownership and merger to effect the
Second Step Merger (giving effect to the issuance of the
Top-Up
Option Shares) at a price per share equal to $11.00. If Offeror
exercises the
Top-Up
Option, it will deliver to NMHC by wire transfer of same day
funds an amount equal to the aggregate par value of the
Top-Up
Option Shares and a promissory note, bearing interest at a rate
of 5% per annum, for the balance of the purchase price. Offeror
must exercise the
Top-Up
Option if doing so would enable it to effect a short-form merger
pursuant to Section 253 of the DGCL.
One Step
Merger
If (i) the parties agree in writing or (ii) within ten
business days after the end of the initial scheduled expiration
of the Offer (or such later date as the parties may agree),
unless the Board of NMHC has changed, among other things, its
approval of, or recommendation to NMHC stockholders to accept,
the Offer, either less than 9,600,000 shares of NMHC Common
Stock are validly tendered and not withdrawn pursuant to the
Offer or Offeror would not be able to effect a short-form merger
pursuant to Section 253 of the DGCL without the
25
acquisition of additional shares of NMHC Common Stock (other
than through the exercise of the
Top-Up
Option) or any reduction in the number of shares of NMHC Common
Stock outstanding, Offeror will terminate the Offer and the
parties will instead, in accordance with the terms of the Merger
Agreement, seek to consummate the acquisition of NMHC by SXC by
means of the One Step Merger following the adoption of the
Merger Agreement by NMHCs stockholders at a special
stockholders meeting, in which case the merger consideration
would be the same as the Offer Price.
Amendment
to Certificate of Incorporation
In connection with the execution of the Merger Agreement, NMHC
amended its Certificate of Designations, Preferences and Rights
of Series A 7% Convertible Preferred Stock (the
Amendment
). The Amendment excludes the
transactions contemplated by the Merger Agreement and the
Stockholder Agreements from the definitions of change in
control and liquidation and provides that
shares of NMHC Convertible Preferred Stock will have the right
only to receive the Offer Price per share upon their conversion
into shares of NMHC Common Stock in connection with the
consummation of the Offer or, if the transaction is effected as
a One Step Merger, to receive only the merger consideration per
share. The Amendment also provides that shares of NMHC
Convertible Preferred Stock will convert into shares of NMHC
Common Stock on a one to one basis in connection with the Merger
Agreement.
The foregoing summary is qualified in its entirety by reference
to the Amendment, which is attached hereto as Exhibit (e)(14)
hereto and is incorporated herein by reference.
Dividends
Under the Merger Agreement, NMHC is permitted to pay New
Mountain all unpaid dividends on NMHC Convertible Preferred
Stock. The Board has declared a dividend on NMHC Convertible
Preferred Stock equal to all unpaid dividends to the date of
payment, payable in cash immediately prior to the earlier of the
Acceptance Date or the Effective Time.
Vote
Required to Approve the Merger and DGCL
Section 253
The Board has approved the Merger Agreement in accordance with
the DGCL. Under Section 253 of the DGCL, if SXC acquires,
pursuant to the Offer or otherwise, at least 90% of the then
outstanding shares of NMHC Common Stock, SXC will be able to
effect the Merger after consummation of the Offer without a vote
by NMHCs stockholders. If SXC acquires, pursuant to the
Offer or otherwise, less than 90% of the then outstanding shares
of NMHC Common Stock, NMHCs certificate of incorporation
(including the Certificate of Designations, Preferences and
Rights of NMHC Convertible Preferred Stock (the
Certificate of Designations
)) requires the
Merger Agreement to be adopted by the affirmative vote of a
majority of outstanding NMHC Common Stock and NMHC Convertible
Preferred Stock (with each share of NMHC Convertible Preferred
Stock having a number of votes per share equal to 83.64% of the
number of votes of a share of NMHC Common Stock) voting together
as a single class. The Merger Agreement provides that, if the
adoption of the Merger Agreement by NMHCs stockholders is
required, NMHC will (i) duly call, give notice of, convene
and hold a meeting of NMHCs stockholders for the purpose
of seeking approval of the stockholders of the adoption of the
Merger Agreement, provided that, following the Acceptance Date,
NMHC will seek stockholder approval by written consent in lieu
of a meeting in accordance with the DGCL if SXC so requests,
(ii) prepare and file with the SEC and mail to NMHCs
stockholders, a proxy statement or information statement, as
applicable and include in such statement the recommendation of
the Board that NMHCs stockholders vote in favor of the
adoption of the Merger Agreement in accordance with the DGCL,
and (iii) use its reasonable best efforts to solicit any
approval of NMHCs stockholders that is required by the
DGCL to effect the Merger.
State
Takeover Laws
NMHC is incorporated under the laws of the State of Delaware. In
general, Section 203 of the DGCL prevents a Delaware
corporation from engaging in a business combination
(defined to include mergers and
26
certain other actions) with an interested
stockholder (including a person who owns or has the right
to acquire 15% or more of a corporations outstanding
voting stock) for a period of three years following the date
such person became an interested stockholder unless,
among other things, the business combination is
approved by the board of directors of such corporation before
such person became an interested stockholder. As the
Board approved the Offer and the Merger, Section 203 of the
DGCL is not applicable to the Offer and the Merger and the other
transactions contemplated by the Merger Agreement.
A number of states have adopted laws and regulations applicable
to attempts to acquire securities of corporations that are
incorporated, or have substantial assets, stockholders,
principal executive offices or principal places of business, or
whose business operations otherwise have substantial economic
effects, in such states. In 1982, in
Edgar v. MITE
Corp.
, the Supreme Court of the United States invalidated on
constitutional grounds the Illinois Business Takeover Statute
which, as a matter of state securities law, made takeovers of
corporations meeting certain requirements more difficult.
However, in 1987 in
CTS Corp. v. Dynamics Corp. of
America
, the Supreme Court held that the State of Indiana
could, as a matter of corporate law, constitutionally disqualify
a potential acquiror from voting shares of a target corporation
without the prior approval of the remaining stockholders where,
among other things, the corporation is incorporated, and has a
substantial number of stockholders, in the state. Subsequently,
in
TLX Acquisition Corp. v. Telex Corp.
, a
U.S. federal district court in Oklahoma ruled that the
Oklahoma statutes were unconstitutional as applied to
corporations incorporated outside Oklahoma in that they would
subject such corporations to inconsistent regulations.
Similarly, in
Tyson Foods, Inc. v. McReynolds
, a
U.S. federal district court in Tennessee ruled that four
Tennessee takeover statutes were unconstitutional as applied to
corporations incorporated outside Tennessee. This decision was
affirmed by the United States Court of Appeals for the Sixth
Circuit. In December 1988, a U.S. federal district court in
Florida held in
Grand Metropolitan PLC v. Butterworth
that the provisions of the Florida Affiliated Transactions
Act and the Florida Control Share Acquisition Act were
unconstitutional as applied to corporations incorporated outside
of Florida. The state law before the Supreme Court was by its
terms applicable only to corporations that had a substantial
number of stockholders in the state and were incorporated there.
NMHC, directly or through subsidiaries, conducts business in a
number of states throughout the United States, some of which
have enacted takeover laws. Neither SXC nor NMHC has analyzed
whether any of these laws will, by their terms, apply to the
Offer or the Merger or has attempted to comply with any such
laws. Should any person seek to apply any state takeover law, we
will take such action as then appears desirable, which may
include challenging the validity or applicability of any such
statute in appropriate court proceedings. In the event any
person asserts that the takeover laws of any state are
applicable to the Offer or the Merger, and an appropriate court
does not determine that it is inapplicable or invalid as applied
to the Offer or the Merger, SXC, US Corp., Offeror
and/or
NMHC
may be required to file certain information with, or receive
approvals from, the relevant state authorities. In addition, if
enjoined, Offeror may be unable to accept for payment any shares
tendered pursuant to the Offer, or be delayed in continuing or
consummating the Offer and the Merger. In such case, Offeror
would not be obligated to accept for payment any shares of NMHC
Common Stock tendered in the Offer.
Antitrust
Under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the
HSR
Act
), Offerors acquisition of NMHC Common Stock
in the Offer may not be consummated unless certain information
has been furnished to the Antitrust Division of the
U.S. Department of Justice (the
Division
) and the Federal Trade Commission
(the
FTC
) and a required waiting period has
expired or otherwise terminated. The rules promulgated under the
HSR Act require SXC and New Mountain to file a Notification and
Report Form (the
Form
) with the Division and
the FTC. The rules also provide that the acquisition of NMHC
Common Stock in the Offer may not be consummated earlier than
30 days after receipt of SXCs Form by the Division
and the FTC, unless such period is earlier terminated, provided
that New Mountains Form is filed no later than
15 days after the receipt by the Division and the FTC of
SXCs Form. Within such 30 day period, the Division or
the FTC may request additional information or documentary
material from SXC
and/or
New
Mountain. In the event of such request, the acquisition of NMHC
Common Stock in the Offer
27
may not be consummated until 30 days after receipt of such
additional information or documentary material by the Division
or the FTC from SXC. If any waiting period would expire on a
Saturday, Sunday, or legal public holiday, the waiting period
will be extended to 11:59 p.m., Eastern Time, of the next
regular business day. SXC filed its Form with the Division and
the FTC on March 21, 2008, and New Mountain filed its Form
with the Division and the FTC on March 24, 2008.
Accordingly, unless the Division or FTC determines that
SXCs or New Mountains filing is deficient, the
waiting period under the HSR Act with respect to the Offer will
expire at 11:59 p.m., Eastern Time, on April 21, 2008,
unless such period is terminated earlier or extended.
Insurance
Approvals
NMHC owns NMHC Group Solutions Insurance, Inc., which holds an
insurance license in Delaware. Delaware insurance law generally
requires that before a person can acquire direct or indirect
control of a domestic insurer, such person must file a statement
of acquisition of control (generally known as a
Form A
) with the Delaware Department of
Insurance (the
Department
) and receive
approval of the Form A by order of the Delaware
Commissioner of Insurance (the
Commissioner
)
prior to the change of control. Delaware insurance law provides
an exception to the Form A prior approval requirement if
the domestic insurer, which is defined to include NMHC, obtains
a determination by the Commissioner prior to the closing of the
transactions contemplated by the Merger Agreement that NMHC is
either directly or through its affiliates primarily engaged in
business other than the business of insurance (the
Determination
). NMHC has filed a request with
the Department for a Determination. In the event NMHC does not
receive the Determination, SXC will be required to file a
Form A with the Department and receive approval of the
Form A by order of the Commissioner. In addition to receipt
of the Determination, SXC
and/or
NMHC
are required to file a pre-acquisition notification with the
Commissioner (generally known as a
Form E
) not less than 30 days prior
to the proposed effective date of the acquisition of the
domestic insurer. The closing of the transactions contemplated
by the Merger Agreement can occur only upon (i) receipt of
the Determination or, if required, receipt of approval of the
Form A and (ii) the filing of the Form E and the
expiration of the 30 day waiting period. On March 17,
2008, the required Form E was filed with the Commissioner.
In the event that NMHC Group Solutions Insurance, Inc. is a
commercially domiciled insurer in any state outside
of Delaware, SXC may be required to make additional Form A
filings. Additional Form E filings may also be required.
Appraisal
Rights
The holders of NMHC Common Stock do not have appraisal rights as
a result of the Offer. However, if the Merger is consummated,
holders of NMHC Common Stock that did not tender their shares in
the Offer and did not vote in favor of the Merger or consent to
the Merger in writing, that comply with the applicable statutory
procedures under Section 262 of the DGCL (the
Appraisal Provisions
) and that satisfy the
requirements in the Appraisal Provisions with respect to holding
their shares of NMHC Common Stock, are entitled to demand
appraisal of their shares. Under the Appraisal Provisions,
dissenting stockholders who comply with the Appraisal Provisions
will be entitled to demand fair value for their shares of NMHC
Common Stock. If a stockholder and the Surviving Corporation do
not agree on such fair value, the stockholder will have the
right to a judicial determination of the fair value of the
holders shares (exclusive of any element of value arising
from the accomplishment or expectation of the Merger) and to
receive payment of such fair value, together with any interest
as determined by the court. Any such judicial determination of
the fair value of the shares could be based upon factors other
than or in addition to the price per share paid in the Merger
and the market value of the shares. Stockholders should
recognize that the value so determined could be higher or lower
than the price per share of NMHC Common Stock paid pursuant to
the Offer. Moreover, NMHC may argue in an appraisal proceeding
that, for purposes of such a proceeding, the fair value of the
shares is less than the price paid in the Offer. The foregoing
discussion is not a complete statement of law pertaining to
appraisal rights under Delaware law and is qualified in its
entirety by reference to Delaware law.
If any holder of NMHC Common Stock who demands appraisal under
Section 262 of the DGCL fails to perfect, or effectively
withdraws or loses his, her, or its rights to appraisal as
provided in the DGCL, the shares of NMHC Common Stock owned by
such stockholder will be converted into the right to receive the
28
Offer Price in accordance with the Merger Agreement. A
stockholder may withdraw a demand for appraisal by delivering to
NMHC a written withdrawal of the demand for appraisal and
acceptance of the Merger.
Failure to follow the steps required by Section 262 of the
DGCL for perfecting appraisal rights may result in the loss of
such rights.
The following exhibits are filed with this
Schedule 14D-9
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Exhibit
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No.
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Description
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(a)(1)
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Prospectus, dated March 31, 2008 (incorporated by reference
from the Registration Statement on
Form S-4,
filed by SXC with the SEC on March 31, 2008).
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(a)(2)
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Form of Letter of Transmittal (incorporated by reference to
Exhibit 99.1 to the Registration Statement on
Form S-4,
filed by SXC with the SEC on March 31, 2008).
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(a)(3)
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Form of Guidelines for Certification of Taxpayer Identification
Number on Substitute
Form W-9
(incorporated by reference to Exhibit 99.2 to the
Registration Statement on
Form S-4,
filed by SXC with the SEC on March 31, 2008).
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(a)(4)
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Form of Letter to Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees (incorporated by
reference to Exhibit 99.3 to the Registration Statement on
Form S-4,
filed by SXC with the SEC on March 31, 2008).
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(a)(5)
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Form of Letter to Clients for Use by Brokers, Dealers,
Commercial Banks, Trust Companies and Other Nominees
(incorporated by reference to Exhibit 99.4 to the
Registration Statement on
Form S-4,
filed by SXC with the SEC on March 31, 2008).
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(a)(6)
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|
Information Statement of NMHC, dated as of March 31, 2008
(included as Annex A to this
Schedule 14D-9).
|
|
(a)(7)
|
|
|
Letter to holders of NMHC Common Stock, dated as of
March 31, 2008.
|
|
(a)(8)
|
|
|
Opinion of JPMorgan, dated as of February 25, 2008
(included as Annex B to this
Schedule 14D-9).
|
|
(a)(9)
|
|
|
Joint press release issued by NMHC and SXC on March 31,
2008 (incorporated by reference to Exhibit 99.1 to the
Current Report on
Form 8-K
filed by NMHC with the SEC on March 31, 2008).
|
|
(a)(10)
|
|
|
Joint press release issued by NMHC and SXC on February 26,
2008 (incorporated by reference to Exhibit 99.1 to the
Current Report on
Form 8-K
filed by NMHC with the SEC on February 26, 2008).
|
|
(a)(11)
|
|
|
PowerPoint presentation referenced and made available in
connection with the conference call held on February 26,
2008 (incorporated by reference to Exhibit 99.2 to the
Current Report on
Form 8-K
filed by NMHC with the SEC on February 26, 2008).
|
|
(a)(12)
|
|
|
SXC-NMHC Fact Sheet, made available February 27, 2008
(incorporated by reference to Exhibit 99.1 to the Current
Report on
Form 8-K
filed by SXC with the SEC on February 27, 2008).
|
|
(a)(13)
|
|
|
Commitment Letter, dated as of February 25, 2008, from
General Electric Capital Corporation to SXC (incorporated by
reference to Exhibit 10.3 to the Current Report on
Form 8-K
filed by SXC with the SEC on February 27, 2008).
|
|
(a)(14)
|
|
|
Transcript of the conference call and simultaneous webcast held
on February 26, 2008 (incorporated by reference to
Exhibit 99.2 to the Current Report on
Form 8-K
filed by SXC with the SEC on February 27, 2008).
|
|
(a)(15)
|
|
|
Excerpts from the transcript of the conference call and
simultaneous webcast held on March 6, 2008 (incorporated by
reference to filing pursuant to Rule 425 under the
Securities Act of 1933, as amended, as made by SXC with the SEC
on March 7, 2008).
|
|
(a)(16)
|
|
|
SXC Investor Questions and Answers, made available
February 26, 2008 (incorporated by reference to
Exhibit 99.3 to the Current Report on
Form 8-K
filed by SXC with the SEC on February 26, 2008).
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29
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
(e)(1)
|
|
|
Agreement and Plan of Merger, dated as of February 25,
2008, by and among SXC, US Corp., Offeror and NMHC (incorporated
by reference to Exhibit 2.1 to Registration Statement on
Form S-4,
filed by SXC with the SEC on March 31, 2008).
|
|
(e)(2)
|
|
|
NMHCs Amended and Restated 2000 Restricted Stock Grant
Plan (incorporated by reference to Appendix D to the
Definitive Proxy Statement on
Schedule 14-A
filed by NMHC with the SEC on October 28, 2004).
|
|
(e)(3)
|
|
|
NMHCs 1999 Stock Option Plan, as amended on March 18,
2004 (incorporated by reference to Exhibit 10.4 to
NMHCs
Form 10-Q
for the fiscal quarter ended March 31, 2004).
|
|
(e)(4)
|
|
|
Chairman Agreement by and between NMHC and Mr. Thomas W.
Erickson, dated February 23, 2007(incorporated by reference
to Exhibit 10.1 to the Current Report on
Form 8-K
filed by NMHC with the SEC on February 28, 2007).
|
|
(e)(5)
|
|
|
Stock Option Agreement by and between NMHC and Mr. Thomas
W. Erickson, dated March 12, 2007 (incorporated by
reference to Exhibit 10.10 to NMHCs
Form 10-Q
for the fiscal quarter ended March 31, 2007).
|
|
(e)(6)
|
|
|
Employment Agreement between NMHC and Stuart Diamond, dated as
of November 13, 2007 (incorporated by reference to
Exhibit 10.1 to the Current Report on
Form 8-K
filed by NMHC with the SEC on November 19, 2007).
|
|
(e)(7)
|
|
|
Employment Agreement between NMHC and Mark Adkison, dated as of
November 13, 2007 (incorporated by reference to
Exhibit 10.2 to the Current Report on
Form 8-K
filed by NMHC with the SEC on November 19, 2007).
|
|
(e)(8)
|
|
|
Employment Agreement between NMHC and Marty Magill, dated as of
November 13, 2007 (incorporated by reference to
Exhibit 10.3 to the Current Report on
Form 8-K
filed by NMHC with the SEC on November 19, 2007).
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|
(e)(9)
|
|
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Employment Agreement between NMHC and George P. McGinn, Jr.,
dated as of November 13, 2007 (incorporated by reference to
Exhibit 10.4 to the Current Report on
Form 8-K
filed by NMHC with the SEC on November 19, 2007).
|
|
(e)(10)
|
|
|
Form of Indemnification Agreement (incorporated by reference to
Exhibit 4.6 to the
Form S-8
filed by NMHC with the SEC on February 3, 2006).
|
|
(e)(11)
|
|
|
Stockholder Agreement, dated as of February 25, 2008, by
and among SXC, New Mountain Partners, L.P. and NMHC
(incorporated by reference to Exhibit 10.1 to the Current
Report on
Form 8-K,
filed by SXC with the SEC on February 27, 2008).
|
|
(e)(12)
|
|
|
Stockholder Agreement, dated as of February 25, 2008, by
and among SXC, New Mountain Affiliated Investors, L.P. and NMHC
(incorporated by reference to Exhibit 10.2 to the Current
Report on
Form 8-K
filed by SXC with the SEC on February 27, 2008).
|
|
(e)(13)
|
|
|
Registration Rights Agreement, dated as of February 25,
2008, between SXC and New Mountain (incorporated by reference to
Exhibit 4.1 to the Current Report on
Form 8-K
filed by SXC with the SEC on February 27, 2008).
|
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(e)(14)
|
|
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Certificate of Amendment of Certificate of Designations,
Preferences and Rights of Series A 7% Convertible
Preferred Stock of NMHC (incorporated by reference to
Exhibit 3.1 to the Current Report on
Form 8-K
filed by NMHC with the SEC on February 27, 2008).
|
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Annex A
|
|
|
Information Statement of NMHC, dated as of March 31, 2008
|
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Annex B
|
|
|
Opinion of J.P. Morgan Securities Inc., dated as of
February 25, 2008.
|
30
SIGNATURE
After due inquiry and to the best of its knowledge and belief,
the undersigned certifies that the information set forth in this
statement is true, complete and correct.
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.
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|
|
|
By:
|
/s/ Thomas
W. Erickson
|
Name: Thomas W. Erickson
|
|
|
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Title:
|
Chairman of the Board, Interim Chief Executive Officer and
President
|
Dated: March 31, 2008
31
Annex A
Information
Statement Pursuant to Section 14(f) of the Exchange
Act
NATIONAL
MEDICAL HEALTH CARD SYSTEMS, INC.
26 Harbor Park Drive
Port Washington, New York 11050
Information Statement Pursuant to
Section 14(f) of the Securities Exchange Act of 1934
And
Rule 14f-1
Thereunder
This Information Statement is being mailed on or about
March 31, 2008, as a part of the
Solicitation/Recommendation
Statement on
Schedule 14D-9
(the
Schedule 14D-9
)
of National Medical Health Card Systems, Inc.
(
NMHC
) with respect to the exchange offer by
Comet Merger Corporation (
Offeror
), a
newly-formed Delaware corporation and indirect, wholly-owned
subsidiary of SXC Health Solutions Corp., a corporation
organized under the laws of the Yukon Territory, Canada
(
SXC
), to the holders of record of shares of
common stock, par value $0.001 per share, of NMHC (
NMHC
Common Stock
). Capitalized terms used and not
otherwise defined herein shall have the meaning set forth in the
Schedule 14D-9.
Unless the context indicates otherwise, in this Information
Statement, we use the terms us, we and
our to refer to NMHC. You are receiving this
Information Statement in connection with the possible election
of persons designated by SXC to a majority of the seats on the
board of directors of NMHC (the
Board
or the
Board of Directors
). Such designation is to
be made pursuant to the Agreement and Plan of Merger, dated as
of February 25, 2008 (the
Merger
Agreement
), by and among NMHC, SXC, SXC Health
Solutions, Inc., a Texas corporation and wholly-owned subsidiary
of SXC (
US Corp.
) and Offeror.
Pursuant to the Merger Agreement, Offeror commenced an exchange
offer (the
Offer
) on March 31, 2008 to
purchase all outstanding shares of NMHC Common Stock for
consideration per share equal to (i) $7.70 in cash, without
interest, and (ii) 0.217 of a validly issued, fully paid
nonassessable common share of SXC, without interest and less any
applicable withholding taxes, upon the terms and conditions set
forth in the Merger Agreement, the preliminary prospectus, dated
as of March 31, 2008 (the
Prospectus
)
and the related letter of transmittal (the
Letter of
Transmittal
). Unless extended in accordance with the
terms and conditions of the Merger Agreement, the Offer is
scheduled to expire at 10:00 a.m., New York City time, on
April 29, 2008; at which time if all conditions to the
Offer have been satisfied or waived, Offeror will be obligated
to promptly accept for payment and exchange all shares of NMHC
Common Stock validly tendered pursuant to the Offer and not
properly withdrawn. Copies of the Prospectus and the
accompanying Letter of Transmittal have been mailed to
NMHCs stockholders and are filed as exhibits to the
Registration Statement on
Form S-4
filed by SXC and Offeror with the Securities and Exchange
Commission (the
SEC
) on March 31, 2008
(the
Registration Statement
).
The Merger Agreement provides that after such time as Offeror
accepts for payment the shares of NMHC Common Stock pursuant to
the Offer (the
Appointment Time
) and subject
to compliance with Section 14(f) of the Securities Exchange
Act of 1934, as amended (the
Exchange Act
),
and
Rule 14f-1
thereunder, SXC will be entitled to designate for election that
number of directors (rounded up to the next whole number) of the
Board equal to the product obtained by multiplying (x) the
total number of directors on the Board (giving effect to the
election of any additional directors pursuant to SXCs
exercise of its right under the Merger Agreement to designate
directors) and (y) a fraction, the numerator of which is
the number of shares of
A-1
NMHC Common Stock beneficially owned by Offeror (after giving
effect to the number of shares of NMHC Common Stock purchased in
the Offer) and the denominator of which is the total number of
then outstanding shares of NMHC Common Stock. The effect of
SXCs exercise of this right under the Merger Agreement is
the ability to designate a majority of the members of the Board.
In connection with the foregoing, NMHC will, at the request of
SXC, either increase the size of the Board
and/or
obtain the resignation of such number of our current directors
as is necessary to enable SXCs designees to be elected or
appointed to the Board. Furthermore, at SXCs request, NMHC
will cause the individuals so designated by SXC to constitute
the number of members (rounded up to the next whole number) that
represents the same percentage as such individuals represent on
the Board of Directors on (i) each committee of the Board,
(ii) each board of directors of each subsidiary of NMHC,
and (iii) each board committee of each subsidiary of NMHC.
After appointment or election of SXCs directors and prior
to the effective time of the Merger pursuant to the Merger
Agreement (the
Effective Time
), NMHC will
cause the Board to maintain three directors who were also
directors as of February 25, 2008 and who are neither
officers of NMHC nor stockholders, affiliates or associates of
SXC (
Continuing Directors
); if no Continuing
Directors remain, the other directors then in office will
designate persons to serve as Continuing Directors. Following
the election or appointment of SXCs designees and until
the Effective Time, the approval of a majority of the Continuing
Directors (or of the sole Continuing Director if there shall
only be one Continuing Director) shall be required to authorize
(and such authorization shall constitute the authorization of
the Board and no other action on the part of NMHC, including any
action by any other director of NMHC, shall be required to
authorize) (i) any termination of the Merger Agreement by
NMHC, (ii) any amendment of the Merger Agreement,
(iii) any extension of time for performance of any
obligation or action pursuant to the Merger Agreement by SXC or
Offeror, (iv) any waiver of compliance with any of the
agreements or conditions contained in the Merger Agreement for
the benefit of NMHC or its stockholders (other than SXC, Offeror
or their affiliates) officers, directors or employees or of any
right of NMHC under the Merger Agreement, (v) any amendment
of NMHCs certificate of incorporation or bylaws,
(vi) any amendment or change to the Merger Agreement, the
Offer or the Merger or any other transaction contemplated
thereby or in connection therewith or (vii) any other
consent or action by NMHC or the Board with respect to the
Merger Agreement, the Offer or the Merger or any other
transaction contemplated thereby or in connection therewith.
Following the election or appointment of SXCs designees
and until the Effective Time, any actions with respect to the
enforcement of the Merger Agreement by NMHC shall be effected by
the action of the Continuing Directors.
This Information Statement is required by Section 14(f) of
the Exchange Act and
Rule 14f-1
thereunder in connection with the appointment of SXCs
designees to the Board.
You are urged to read this Information Statement carefully. You
are not, however, required to take any action in connection with
the information contained in this Information Statement.
The information contained in this Information Statement
(including information herein incorporated by reference)
concerning SXC, US Corp., Offeror and SXCs designees has
been furnished to NMHC by SXC, and NMHC assumes no
responsibility for the accuracy or completeness of such
information.
DIRECTORS
DESIGNATED BY SXC
SXC has informed NMHC that it will choose its designees for the
Board at the Appointment Time from the list of persons set forth
below. In the event that additional designees of SXC are
required in order to constitute a majority of the Board, such
additional designees will be selected by SXC from among the
directors and executive officers of SXC and Offeror contained in
Annex C of the Prospectus, which is incorporated herein by
reference. Set forth below is the name, age as of the date of
this Information Statement, present principal occupation and
employment history during the past five years for each
individual who may be designated by SXC as one of its designees
for the Board. Such information has been furnished to NMHC by
SXC. SXC has informed NMHC that each such individual is a
U.S. citizen and has consented to act as a director of
NMHC, if so appointed or elected. Unless otherwise indicated
below, the business address of each such person is 2441
Warrenville Road, Suite 610, Lisle, Illinois 60532.
A-2
None of the individuals listed below has, during the past five
years, (i) been convicted in a criminal proceeding or
(ii) been a party to any judicial or administrative
proceeding that resulted in a judgment, decree or final order
enjoining the person from future violations of, or prohibiting
activities subject to, U.S. federal or state securities
laws, or a finding of any violation of U.S. federal or
state securities laws.
Terrence C. Burke.
Mr. Burke, 66, has
been a director for SXC since August, 1999. Mr. Burke is a
director and consultant of Chinook Wind Development since 1995,
which serves emerging healthcare companies and a strategic
advisor to healthcare organizations. He currently holds
directorships with two healthcare-related technology companies.
Mr. Burke has served on the boards of several healthcare
industry associations, including Federation of American Health
Care Systems, Group Health Association of America and the
National Association of Employers on Health Care. Mr. Burke
brings to SXC a wealth of experience and contacts in the managed
care and indemnity insurance industries in the
U.S. Mr. Burke has a B.A. in History from the
University of Washington.
Mr. Burke has extensive experience in the managed care and
indemnity insurance industry in the U.S. and for the past
several years has been an industry consultant. He was a pioneer
in managed care with a long track record of strategically
introducing and managing new, innovative and profitable products
for the employee benefits and group health industry. He has held
executive positions with a number of leading managed care
companies, which positions include Senior Executive
Vice-President of Metrahealth Corporation, Senior
Vice-President, Field Operations, Specialty Companies (including
pharmacy management) & Planning and Development of Aetna
Corporation and President of CIGNA Health Plans as well as
Senior Vice-President, National Operations of Cigna Corporation.
William J. Davis.
Mr. Davis, 40, has been
a director for SXC since January, 2007. Mr. Davis is
currently the Chief Financial Officer of Chicago-based
healthcare information technology provider Allscripts Healthcare
Solutions, Inc. Mr. Davis joined Allscripts as CFO in
October, 2002 and is responsible for all of its financial
operations, as well as its human resource and management
information system operations. Prior to joining Allscripts,
Mr. Davis was the CFO of Lante Corporation, a leading
technology consulting firm. Mr. Davis helped lead that
companys initial public offering in February 2000 and its
subsequent sale to SBI and Company in September, 2002. From 1991
through 1999, Mr. Davis was in the Technology Group of
PricewaterhouseCoopers LLP. Mr. Davis earned his Bachelors
degree in Accounting from the University of Cincinnati and his
Masters of Business Administration from Northwestern University.
Mr. Davis is also a Certified Public Accountant.
Gordon S. Glenn.
Mr. Glenn, 59, has been
a director for SXC since August, 1999. Mr. Glenn joined SXC
in June, 1998 as President and Chief Operating Officer and was
promoted to Chief Executive Officer on September 1, 1998.
On November 2, 2006, Mr. Glenn resigned as President
of SXC and was appointed Chairman of SXCs board of
directors. Prior to joining SXC, Mr. Glenn enjoyed a
24-year
career with Computer Data Systems Inc. (
CDSI
)
in Rockville, MD, of which the last eight years he served as
President and CEO. A graduate of the University of Kentucky,
Mr. Glenn earned his Bachelor of Science degree in
Mechanical Engineering. He received a full scholarship from the
Union Carbide Corporation and graduated cum laude.
Philip R. Reddon.
Mr. Reddon, 42, has
been a director for SXC since March, 2006. Mr. Reddon
joined Covington Capital Corporation in 2002, as Managing
Director, his responsibilities include analysis of new
investment opportunities for Covington and assisting in the
management and monitoring of Covingtons existing
investments.
Prior to joining Covington, Mr. Reddon spent six years at
Bank of Montreal Capital Corporation (
BMO
Capital
) as Managing Director for a private equity
fund. He was head of the Technology Investment team, and sat on
the investment committee, which was involved in the investment
and approval process for over 60 companies. In his role at
BMO Capital, he sat on the boards of eight investee companies.
Prior to BMO Capital, Mr. Reddon spent six years with the
Business Development Bank of Canada.
Mark A. Thierer.
Mr. Thierer, 48, has
been a director for SXC since January, 2006. On
September 5, 2006, Mr. Thierer was appointed President
and Chief Operating Officer of SXC. Prior thereto,
Mr. Thierer was
A-3
the President of Physicians Interactive, a division of
Allscripts, Inc. (NASDAQ: MDRX), the leading provider of
Electronic Health Records, ePrescribing, and information
solutions for physicians. Physicians Interactive provides
clinical information and education to physicians and patients
through on-line, interactive programs. Their client base
includes leading pharmaceutical, biotechnology, and medical
device companies worldwide.
Prior to Allscripts, Mr. Thierer spent ten years with
CaremarkRx (NYSE: CMX), where he was a corporate officer and key
executive in helping to build Caremark into a pharmacy benefits
manager and specialty pharmacy company. In his most recent
capacity, Mr. Thierer served as the Senior Vice President,
New Ventures, responsible for developing Caremarks growth
strategy. Prior to that role, Mr. Thierer managed
Caremarks retail network operations, trade relations,
specialty pharmacy, marketing, field operations, and corporate
account functions. Prior to Caremark, Mr. Thierer spent ten
years with IBM, managing sales of healthcare information
management (HIT) solutions. Mr. Thierer holds a B.S. in
Finance from the University of Minnesota and an M.B.A. in
Marketing from Nova Southeastern University in Florida. He also
holds the designation of Certified Employee Benefits Specialist
from The Wharton School.
Steven Cosler.
Mr. Cosler, 52, has been a
director for SXC since August, 2007. Mr. Cosler is
currently an Operating Partner at Water Street Healthcare
Partners (Water Street), a Chicago-based
private-equity firm focused exclusively on the healthcare
industry. Mr. Cosler joined Water Street in 2006 and prior
to that was President and Chief Executive Officer of Priority
Healthcare Corporation (
Priority
), a publicly
held specialty pharmacy and distributor that was acquired by
Express Scripts in October, 2005. Mr. Cosler was employed
by Priority from 1996 to 2005, where he held a number of
increasingly senior roles, culminating in his appointment as
President and Chief Operating Officer in 2001, and President and
CEO in 2002, a position he retained until 2005.
Before joining Priority, Mr. Cosler held leadership
positions at Coresource, Inc., a Third Party Administrator
managing healthcare services, and at IBM. Mr. Cosler sits
on the board of several privately held healthcare companies
including CCS Medical, Inc., Access Mediquip, Inc., Cydex
Pharmaceutical, Inc. and Claymore Securities. He is a graduate
of Purdue University with a Bachelor of Science degree in
Industrial Management.
Curtis Thorne.
Mr. Thorne, 48, has been a
director for SXC since August, 2007. Mr. Thorne is
currently the President and Chief Executive Officer of
MedSolutions, Inc., a company focused on management of medical
imaging services. From 1998 to 2000, Mr. Thorne was its
President and Chief Operating Officer. Prior to joining
MedSolutions, Mr. Thorne was President and COO of Adesso
Specialty Services, a California-based specialty physician
management company. Mr. Thorne earned his masters in
business administration from the Babcock School of Management at
Wake Forest University and a bachelors degree in chemistry
from the University of North Carolina.
Anthony Masso.
Mr. Masso, 66, has been a
director for SXC since August, 2007. Mr. Masso is currently
the President and Chief Executive Officer of Consortium Health
Plans, Inc., a national coalition of 19 Blue Cross Blue Shield
plans that is focused on building market share of its members
amongst major employers and benefits consultants. Prior to
Consortium, Mr. Masso was President of StrongCastle LLC, an
implementation of strategic business plans for corporate clients
from 2000 to 2003. Mr. Masso was also previously President
of Litho Group, Inc., and Executive Vice President of Integrated
Health Services, Inc from 1994 to 2000. Mr. Masso spent
four years as Senior Vice President of the Health Insurance
Association of America, where he planned and implemented a
transformation of indemnity insurers into managed care networks.
As Senior Vice President of Aetna Health Plans, Mr. Masso
was responsible for East Coast operations for all HMOs and POS
health plans.
Jeffrey Park.
Mr. Park, 36, has served as
SXCs Chief Financial Officer since March, 2006. Prior to
his appointment, Mr. Park was a member of SXCs board
of directors and was Senior Vice President of Covington Capital
Corporation, a private equity venture capital firm.
Mr. Park, a Chartered Accountant, joined Covington in 1998.
Prior to Covington, Mr. Park worked for IBM in several
areas of their Global Services Organization.
John Romza.
Mr. Romza, 52, has served as
SXCs Executive Vice President of Product Development and
Chief Technology Officer since June 2007. Mr. Romza is
responsible for the software development,
A-4
technical infrastructure, and operation activities of SXCs
processing centers. Mr. Romza has over 25 years of
overall software development experience and 20 years of
experience in developing software products for the pharmacy
industry. Mr. Romza joined SXC as a result of its
acquisition of ComCoTec in 2001, where he was Vice President,
Research and Development.
Mike Bennof.
Mr. Bennof, 44, has served
as SXCs Executive Vice President of Healthcare Technology
since June, 2007. Mr. Bennof is responsible for executive
management and growth of SXCs systems integration and
consulting business areas. He is responsible for operations of
major accounts including government programs such as Medicare,
Medicaid and provincial drug plans in Canada. Mr. Bennof
has 18 years in the software and high-technology industries
including prior positions with Computer Data Systems Inc. and
Decision Systems Technologies, Inc. Mr. Bennof joined SXC
in March, 1999.
Michael Meyer.
Mr. Meyer, 52, has served
as SXCs Senior Vice President of Sales &
Marketing since May, 2004. Mr. Meyer is responsible for
directing the sales and marketing activities for SXCs
entire portfolio of products and services. Mr. Meyer has
over 20 years of experience in the pharmacy benefit
management industry. Before joining SXC, he was the Vice
President of Managed Care Sales for CaremarkRx. Prior to his
tenure at CaremarkRx, Mr. Meyer served in executive sales
roles at Premier Purchasing Partners LP, PCS Health Systems,
Inc. and Allscripts, LLC, where he was responsible for various
sales and sales management components.
B. Greg Buscetto.
46, has served as
SXCs Senior Vice President and General Manager of
informedRx since November, 2007. Mr. Buscetto is
responsible for the day-to-day operations and expansion of
SXCs PBM business. Greg has more than twenty years of PBM
and technology industry experience and joined SXC from ProCareRx
where he was Executive Vice President and Chief Operating
Officer. Greg helped lead ProCareRxs transition from a
claims processor to a full service PBM. He held management
responsibility for 125 employees and was a key driver of
ProCareRxs revenue growth and increase in its number of
lives under management. Prior to ProCareRx, Mr. Buscetto
was Vice President of Sales and Marketing, Domestic and
International, at Magnitude Information Systems, Inc. At
Magnitude he developed and implemented a multi-channel marketing
plan and amongst other achievements, held oversight
responsibilities for product development, branding and contract
negotiations.
None of SXCs designees is a director of, or holds any
position with, NMHC. SXC has advised NMHC that, to its
knowledge, except as disclosed in the Prospectus, none of its
designees beneficially owns any securities (or rights to acquire
any securities) of NMHC or has been involved in any transactions
with NMHC or any of its directors, executive officers or
affiliates that are required to be disclosed pursuant to the
rules of the SEC. SXC has advised NMHC that to its knowledge,
none of its designees has any family relationship with any
director, executive officer or key employee of NMHC.
It is expected that SXCs designees may assume office at
any time following the Appointment Time and that, upon assuming
office, SXCs designees will thereafter constitute at least
a majority of the Board. This step will be accomplished at a
meeting or by written consent of the Board providing that the
size of the Board will be increased
and/or
a
sufficient number of current directors will resign such that,
immediately following such action, the number of vacancies to be
filled by SXCs designees will constitute at least a
majority of the available positions on the Board. It is
currently not known which of the current directors of NMHC will
resign.
None of SXCs designees is involved in a material legal
proceeding where any such designee is a party adverse to NMHC or
any of its subsidiaries.
CERTAIN
INFORMATION CONCERNING NMHC
The authorized capital stock of NMHC consists of
50,000,000 shares, consisting of 35,000,000 shares of
common stock, par value $0.001 per share, and
15,000,000 shares of preferred stock, par value $0.10 per
share, 6,956,522 shares of which have been designated as
shares of 7% series A redeemable convertible preferred
stock (
NMHC Convertible Preferred Stock
). The
shares of NMHC Common Stock and the NMHC Convertible Preferred
Stock are the only outstanding securities entitled to vote at a
meeting of the stockholders
A-5
of NMHC. For matters that may properly come before a meeting of
stockholders of NMHC, subject to certain exceptions as set forth
in NMHCs certificate of incorporation (as amended), the
holders of the NMHC Common Stock have one vote for each share
held and the holders of the NMHC Convertible Preferred Stock
have a vote for each share held equal to 83.64% of the number of
whole shares of NMHC Common Stock into which all of such
holders shares of NMHC Convertible Preferred Stock are
convertible. As of March 14, 2008, there were
5,863,713 shares of NMHC Common Stock outstanding and
6,956,522 shares of NMHC Convertible Preferred Stock
outstanding.
DIRECTORS
AND EXECUTIVE OFFICERS OF NMHC
National Association of Securities Dealers, Inc.
(
NASD
) rules require most companies whose
stock is quoted on the Nasdaq Stock Exchange to have a board of
directors composed of a majority of independent directors, as
determined and defined under NASD Rule 4350(c), and to
comply with certain other requirements for committees and
independent directors. Companies that are controlled by a single
stockholder or a group of stockholders acting together are
eligible to utilize an exemption from certain of the
requirements under NASD Rule 4350(c)(5), including the
requirement that a majority of directors be independent. We are
a controlled company, as defined in Nasdaqs
rules, because New Mountain Partners, L.P. and its affiliate
(collectively,
New Mountain Partners
)
beneficially own more than 50% of our stock and, as the holders
of all of our outstanding series A redeemable convertible
preferred stock, are entitled to elect 60% of the members of our
Board of Directors. Accordingly, we have availed ourselves of
the exemption from the rule requiring a majority of the
directors to be independent.
Our Board of Directors currently consists of nine members. As
described above, New Mountain Partners is entitled to elect at
least 60% of the members of our Board of Directors. Our common
stockholders are entitled to elect the remaining members of our
Board of Directors.
The following text presents certain information concerning our
directors:
Directors
Thomas W. Erickson.
Mr. Erickson, 57, has
served as a director and our Chairman of the Board of Directors
since February 23, 2007 and as our interim President and
Chief Executive Officer since May 2007. Mr. Erickson has
been a consultant to New Mountain Capital, L.L.C. (
New
Mountain Capital
), since January 2007. New Mountain
Capital serves as the investment manager to New Mountain
Partners. In addition, Mr. Erickson serves as a member of
our Executive Committee. Mr. Erickson also currently serves
as Chairman of the board of directors of PATHCare, Inc., an
operator of long term care facilities, a position he has held
since March 2006. From June 2004 until June 2006,
Mr. Erickson served as Chairman of the board of directors
of Trans Healthcare, Inc., an operator of long term care
facilities. From December 2002 until August 2005,
Mr. Erickson served as Chairman of the board of directors,
and, from February 2003 until August 2005, as Interim President
and Chief Executive Officer of LifeCare Holdings, Inc., the
parent company of long term acute care hospitals. From September
2002 until May 2004, Mr. Erickson served as interim
President and Chief Executive Officer of Luminex Corporation, a
publicly traded biological testing technologies company.
Mr. Erickson is currently a member of Luminexs board
of directors and serves as Chairman of its Executive Committee,
a position he has held since May 2004. From July 2000 until
March 2004, Mr. Erickson served as a member of the board of
directors of Omega Healthcare Investors, Inc., a publicly traded
healthcare real estate investment trust. From October 2000 until
June 2001, Mr. Erickson was interim President and Chief
Executive Officer of Omega Healthcare Investors and from June
2001 until January 2002 served as a management consultant to
Omega Healthcare Investors.
Michael B. Ajouz.
Mr. Ajouz, 34, has
served as a director for us since March 19, 2004. He is
appointed by New Mountain Partners. Mr. Ajouz also serves
as a member of our Executive Committee. Mr. Ajouz,
currently a Managing Director of New Mountain Capital, joined
New Mountain Capital as a Principal in September 2000. From July
1998 until September 2000, Mr. Ajouz was an executive in
the New York office of Kohlberg Kravis Roberts & Co.,
where he worked on transactions in a variety of industries. From
August 1996 until July 1998, Mr. Ajouz was an investment
banking professional in the Mergers and Acquisitions
A-6
Department of Goldman, Sachs & Co., where he evaluated
and executed numerous strategic transactions. From August 1995
until May 1996, he was a professional at the economic consulting
firm Cornerstone Research. Mr. Ajouz serves on the board of
directors of Apptis Holdings, Inc., Deltek Systems, Inc., Inmar,
Inc. and Connextions, Inc.
Gerald Angowitz.
Mr. Angowitz, 58, has
served as a director for us since June 26, 1998.
Mr. Angowitz presently works as a management consultant
through the Angowitz Company, which provides consulting
services. Mr. Angowitz had served as Senior Vice President
of Human Resources and Administration for RJR Nabisco, Inc.
(
RJR
), a consumer products manufacturer, from
March 1995 until December 1999. Mr. Angowitz previously
served as Vice President of Human Resources for RJR from
February 1994 until March 1995 and Vice President of Employee
Benefits at RJR from January 1992 until February 1994.
Mr. Angowitz also serves as the Chairman of our
Compensation Committee and a member of our Audit Committee and
Nominating and Corporate Governance Committee.
G. Harry Durity.
Mr. Durity, 61, has
served as a director for us since March 19, 2004 and served
as our Chairman of the Board of Directors from June 14,
2004 until February 23, 2007. He is appointed by New
Mountain Partners. Mr. Durity also serves as a member of
our Executive Committee. Mr. Durity has been a Senior
Advisor to New Mountain Capital since May 2005 and currently
serves as Chairman of our Executive Committee. Previously,
Mr. Durity was a Corporate Vice President of Worldwide
Business Development for Automatic Data Processing, Inc., or
ADP, which he joined in August 1994. Mr. Durity headed
ADPs mergers and acquisitions group and was a member of
ADPs Executive Committee. From February 1993 until August
1994, Mr. Durity worked for Revlon Consumer Products
Company as a Senior Vice President of Corporate Development and
also served on Revlons Executive Committee. From January
1990 until January 1993, Mr. Durity was President of the
Highlands Group, a boutique merger and acquisition advisory
firm. From October 1980 until December 1989, Mr. Durity
served as a Vice President of Corporate Development for
RJRNabisco.
Michael T. Flaherman.
Mr. Flaherman, 42,
has served as a director for us since March 19, 2004. He is
appointed by New Mountain Partners. Mr. Flaherman currently
is a Managing Director of New Mountain Capital, joined New
Mountain Capital as a Senior Advisor in January 2003 and became
a Managing Director in January 2004. From January 1995 until
January 2003, Mr. Flaherman served as a member of the Board
of Administration of the California Public Employees
Retirement System, or CalPERS, the largest pension system in the
United States. From March 2000 until January 2003,
Mr. Flaherman served as Chairman of the Investment
Committee of the CalPERS Board. From August 1993 until
March 2000, Mr. Flaherman worked as an economist for the
San Francisco Bay Area Rapid Transit District.
Robert R. Grusky.
Mr. Grusky, 50, has
served as a director for us since March 19, 2004. He is
appointed by New Mountain Partners. Mr. Grusky has served
as the Managing Member of Hope Capital Management, LLC, the
investment manager of Hope Capital Partners, L.P., an investment
partnership, since its inception in 2000. Mr. Grusky was a
co-founder of New Mountain Capital and served as a Principal and
Managing Director from January 2000 until December 2004. In
January 2005, he became a Senior Advisor to New Mountain
Capital. From April 1997 until December 1999, Mr. Grusky
served in a number of roles at RSL Management, including
President of RSL Investments Corporation. From July 1985 until
April 1997, with the exception of 1990 and 1991 when he was on a
leave of absence to serve as a White House Fellow and Assistant
for Special Projects to the Secretary of Defense,
Mr. Grusky worked at Goldman, Sachs & Co., first
in its Mergers & Acquisitions Department and then in
its Principal Investment Area. Mr. Grusky is also a member
of the board of directors of AutoNation, Inc. and Strayer
Education, Inc.
Daniel B. Hébert.
Mr. Hébert,
52, has served as a director for us since December 7, 2005
and is a member of our Audit Committee. Mr. Hébert has
served as a Managing Director and Partner of Tri-Artisan
Partners, a privately-held merchant bank, since March 2005.
Prior to joining Tri-Artisan Partners, he spent approximately
five years as head of Merger & Acquisitions at
Rabobank International, a large Dutch bank specializing in the
food and beverage industry. From September 1991 through March
1999, Mr. Hébert was a Managing Director in the
corporate finance department of BT Alex Brown. Prior to joining
BT Alex Brown, Mr. Hébert formed Dakota Capital in
February 1991 to acquire a leading Canadian wine distributor and
from
A-7
1985 until 1991, he worked as a Director in the corporate
finance department of Salomon Brothers. Mr. Hébert
serves on the board of directors of Prosys Tech Corporation,
Groupe Smithfield, S.L., Jersey Dairy Products, Inc., and sits
on the Executive Committee of Continuum Health Partners, a
nonprofit hospital system in New York City.
Steven B. Klinsky.
Mr. Klinsky, 51,
served as our Chairman of the Board of Directors from
March 19, 2004 until June 14, 2004 and currently
serves as a director for us. He is appointed by New Mountain
Partners. Mr. Klinsky is the Founder and has been the
Managing Member and Chief Executive Officer of New Mountain
Capital since January 2000. From 1986 until June 1999,
Mr. Klinsky was a General Partner of Forstmann
Little & Co., a private equity firm. He was formerly a
director of Strayer Education, Inc., where he served as
non-executive Chairman from March 2001 until February 2003.
Mr. Klinsky also serves on the board of directors of
Overland Solutions, Inc., Apptis Holdings, Inc., MailSouth Inc.,
Deltek Systems Inc., Connextions, Inc., Inmar, Inc. and Oakleaf
Global Holdings, Inc. In addition, Mr. Klinsky serves as
the Chairman of our Nominating and Corporate Governance
Committee and a member of our Compensation Committee.
Paul J. Konigsberg.
Mr. Konigsberg, 71,
has served as a director for us since November 2000.
Mr. Konigsberg is a certified public accountant and has
been a senior partner in the accounting firm of Konigsberg
Wolf & Co., P.C. since 1970. Mr. Konigsberg
also serves as the Chairman of our Audit Committee and a member
of our Compensation Committee and Nominating and Corporate
Governance Committee. He is also on the board of directors, and
serves as Chairman of the Audit Committee of, Gramercy Capital
Corporation.
Executive
Officers
Our executive officers, their ages and positions are:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Office and Position Held
|
|
Thomas W. Erickson
|
|
|
57
|
|
|
Chairman of the Board, Interim Chief Executive Officer and
President
|
Stuart Diamond
|
|
|
47
|
|
|
Chief Financial Officer
|
Mark Adkison
|
|
|
45
|
|
|
Chief Specialty Officer
|
Martin Magill
|
|
|
47
|
|
|
Chief Marketing Officer
|
George McGinn
|
|
|
52
|
|
|
General Counsel
|
Thomas W. Erickson.
Mr. Erickson, 57, has
served as our President and Chief Executive Officer on an
interim basis since May 2007. Information about
Mr. Ericksons tenure with us and his business
experience is presented above under Directors.
Stuart Diamond.
Mr. Diamond, 47, has
served as our Chief Financial Officer since January 2006. He
served as worldwide Chief Financial Officer for Ogilvy
Healthworld (formerly Healthworld Corporation), a division of
Ogilvy & Mather, a division of WPP Group Plc, a London
Stock Exchange-listed company, from January 2005 until January
2006, and he served as Chief Financial Officer of Healthworld
Communications Group, a division of WPP Group Plc, from August
2003 until January 2005. He served as Chief Financial Officer of
the Americas Region of the Bates Group and of Healthworld
Corporation, divisions of Cordiant Communications, a London
Stock Exchange-listed company, from October 2002 until August
2003. He served as Chief Financial Officer of Healthworld
Corporation, a division of Cordiant Communications Group plc
from March 2000 until October 2002. He served as Executive Vice
President, Chief Financial Officer, Secretary and Treasurer of
Healthworld Corporation, a publicly-owned pharmaceutical
advertising agency, from August 1997 until March 2000.
Mr. Diamond was the Vice President-Controller of the
Licensing Division of Calvin Klein, Inc., an apparel company,
from April 1996 until August 1997. Mr. Diamond served as
Chief Financial Officer of Medicis Pharmaceutical, Inc., a
publicly traded pharmaceutical company, from 1990 until 1995.
Mr. Diamond has been a director of Medicis Pharmaceutical,
a publicly-traded pharmaceutical company, since November 2002.
Mark Adkison.
Mr. Adkison, 45, has served
as our Chief Specialty Officer since November 2005 and prior to
that as our President of Specialty Pharmacy from October 2003
until November 2005. From December
A-8
2002 until September 2003, Mr. Adkison was the General
Manager for Option Care. Mr. Adkison served as the Vice
President/General Manager for MIM Corporation where he managed
the Mail Service and Specialty Pharmacy Operation from January
2001 until March 2002.
Martin Magill.
Mr. Magill, 47, joined us
in April of 2006 as our Senior Vice President of Sales and was
named Chief Marketing Officer in May 2007. Prior to joining
NMHC, he served as Senior Vice President, Sales and Marketing at
Catalyst Rx a HealthExtras Company from March 2004
until March 2006. From 1996 until 2004, Mr. Magill was Vice
President of Sales at Merck & Co., Inc. where he was
responsible for management of sales.
George McGinn.
Mr. McGinn, 52, joined us
in May of 2007 as our General Counsel. Prior to joining us,
Mr. McGinn was an Executive Vice President and General
Counsel at Surgis, Inc., a private company managing ambulatory
surgery centers, until 2006 when Surgis, Inc. was acquired by
United Surgical Partners Inc. Prior to joining Surgis in 2002,
Mr. McGinn was a Partner at Bass, Berry & Sims,
PLC, a Nashville-based law firm, where he specialized in
corporate finance transactions and regulatory matters in the
healthcare industry. Previously, he was Executive Vice President
and General Counsel at Physician Reliance Network, Inc., a
publicly-traded company that developed and managed cancer
centers, imaging centers and physician networks. It was acquired
in 1999 and is now known as U.S. Oncology.
Familial
Relationships
There are no familial relationships among any of our executive
officers or directors.
CORPORATE
GOVERNANCE PRINCIPLES AND BOARD MATTERS
Meetings
and Committees of Our Board of Directors
Our Board of Directors held seven meetings during the fiscal
year ended June 30, 2007 and at least a majority of our
directors attended each meeting. Our Board of Directors also
acted four times during the last fiscal year by unanimous
written consent in lieu of a meeting.
Our Board of Directors has a standing Audit Committee, a
Nominating and Corporate Governance Committee, a Compensation
Committee and an Executive Committee. The responsibilities of
the Audit Committee, Nominating and Corporate Governance
Committee and the Executive Committee are summarized below. The
responsibilities of the Compensation Committee are summarized
beginning on
page A-15.
In addition, on March 24, 2004, our Board of Directors
approved the creation of two series A redeemable preferred
stock dividend committees and on October 28, 2005 our Board
of Directors approved a change in the name and responsibilities
of the nominating committee to the Nominating and Corporate
Governance Committee. We are a controlled company under NASD
Rule 4350(c)(5) and are exempt from NASD
Rule 4350(c)(4) relating to independent director oversight
of director nominations because New Mountain Partners owns more
than 50% of the voting power of our stock.
Each of our directors attended at least 75% of the meetings of
our Board of Directors or committee meetings thereof during the
fiscal year ended June 30, 2007. Our policy is that all
directors are invited and encouraged to attend our annual
meeting of stockholders. At our 2007 annual meeting held on
April 17, 2007, none of our current directors attended the
annual meeting in person.
Communications
by Stockholders and Others with the Board of Directors
We have a formal process for stockholders to send communications
to our Board of Directors. Stockholders and other parties
interested in communicating directly with the Board of Directors
or with non-employee directors as a group may do so by sending
written communications addressed to the Corporate Secretary of
National Medical Health Card Systems, Inc., Attention: Board of
Directors, 26 Harbor Park Drive, Port Washington, NY 11050. Our
corporate secretary will review the communications and report
them to the Board of Directors or the individual directors to
whom they are addressed, unless they are deemed frivolous,
inappropriate, solicitations of services or solicitations of our
funds, or otherwise inappropriate for the Board of
A-9
Directors consideration. Examples include spam, junk mail
and mass mailings, product inquiries and complaints, resumes and
other forms of job inquiries, and business solicitations. In
such cases, that correspondence may be forwarded elsewhere
within NMHC for review and possible response. Communications
that are unduly hostile, threatening, illegal or similarly
unsuitable likewise will not be forwarded to the Board of
Directors or any member thereof, although such communications
will be made available to any director or the full Board of
Directors upon request.
Audit
Committee
The Audit Committee assists the Board of Directors in its
oversight of our compliance with applicable laws and
regulations, which includes oversight of the quality and
integrity of our financial reporting, internal controls and
audit functions, and is directly and solely responsible for the
appointment, retention, compensation and monitoring of the
performance of our independent registered public accounting
firm, including the services and scope of their audit. The Audit
Committee is currently composed of Paul J. Konigsberg (chairman
of the committee), Gerald Angowitz and Daniel Hébert. The
Board of Directors has determined that Messrs. Konigsberg,
Angowitz and Hébert are independent directors, and that
each of them will be independent for the purposes of the
Nasdaqs amended governance listing standards
(specifically, Rule 4200(a)(15) of the listing standards of
the NASD (the
Listing Standards
)), and the
requirements of the SEC and the Nasdaq.
In addition, as required by the rules of the SEC and the Nasdaq,
our Board of Directors has determined that Mr. Konigsberg,
the chairman of the Audit Committee, qualifies as an audit
committee financial expert as defined in
Item 407(d)(5) of
Regulation S-K
promulgated by the SEC under the Securities Exchange Act of
1934, as amended. Stockholders should understand that this
designation is an SEC disclosure requirement relating to
Mr. Konigsbergs experience and understanding of
certain accounting and auditing matters, which the SEC has
stated does not impose on the director so designated any
additional duty, obligation or liability than otherwise is
imposed generally by virtue of serving on the Audit Committee
and/or
the
Board of Directors. The Audit Committee met on 18 occasions
during the fiscal year ended June 30, 2007.
Nominating
and Corporate Governance Committee
On October 18, 2005, our Board of Directors renamed and
broadened the role of the Nominating and Corporate Governance
Committee. The Nominating and Corporate Governance Committee is
currently composed of Steven B. Klinsky (chairman of the
committee), Gerald Angowitz and Paul J. Konigsberg. The
Nominating and Corporate Governance Committee did not hold any
meetings during the fiscal year ended June 30, 2007.
The Nominating and Corporate Governance Committee is responsible
for the identification and selection of the non-employee
independent director nominees to stand for election as directors
at any meeting of stockholders and to fill any such independent
director vacancy, however created, in the Board of Directors.
The Nominating and Corporate Governance Committee will consider
candidates for nomination as a director recommended by
stockholders, current directors, officers, third-party search
firms and other sources. The Nominating and Corporate Governance
Committee considers stockholder recommendations for candidates
in the same manner as those received from others. In order for
the Nominating and Corporate Governance Committee to consider a
stockholder nominee, the stockholder must submit nominee
information to the Nominating and Corporate Governance Committee
in accordance with the procedures for submitting stockholder
proposals in our bylaws described below.
In evaluating candidates, the Nominating and Corporate
Governance Committee shall consider that the objective of the
Board of Directors is to maintain a balance of business
experience and interpersonal skills, thereby maximizing the
effectiveness of the Board of Directors and each of its
committees. The Nominating and Corporate Governance Committee
shall review and assess outside director remuneration for
sufficiency to attract and retain members of the Board of
Directors of a quality needed for the successful accomplishment
of the goals of the Board of Directors and recommend changes, if
any, in the composition of the Board of Directors.
A-10
Although the Board of Directors received no stockholder
nominations in the fiscal year ended June 30, 2007, the
Board of Directors will consider director candidates recommended
by stockholders if properly submitted in accordance with the
applicable procedures set forth in our bylaws.
In addition, the Nominating and Corporate Governance Committee
will develop and recommend to the Board of Directors a set of
corporate governance principles applicable to us, adopt
appropriate processes to ensure management succession and
development plans for our principal officers, and otherwise take
a leadership role in shaping our corporate governance.
Executive
Committee
On February 28, 2007, our Board of Directors formed an
Executive Committee. The Executive Committee is currently
composed of G. Harry Durity (chairman of the committee), Thomas
W. Erickson and Michael B. Ajouz. The Executive Committee did
not hold any meetings during the fiscal year ended June 30,
2007. The Executive Committees purpose is to advise and
aid our officers in all matters concerning our interests and the
management of our business, and is intended to speed operational
decision making between Board meetings. The Executive Committee
has the power to act in the name of our full Board of Directors
and transact our business during the period between the meetings
of our Board of Directors, but only with respect to business,
actions or responsibilities specifically delegated to the
Executive Committee by written resolution of our Board of
Directors. In the absence of such specific delegation, the
Executive Committee does not have the power to act in the name
of our full Board of Directors. The power of the Executive
Committee is also subject to the limitations imposed by our
bylaws and by statute.
Committee
Charters
Each committee of the Board of Directors operates in accordance
with a written charter. The charters for our Audit Committee,
Compensation Committee and Nominating and Corporate Governance
Committee can be found on our website at www.nmhc.com, by
clicking on Investors, then Corporate
Governance. The charter for our Executive Committee was
included as Appendix B to NMHCs 2007 proxy statement.
Director
Independence
The Board of Directors has determined that
Messrs. Angowitz, Konigsberg and Hébert are
independent directors, and that each of them will be independent
for the purposes of Nasdaqs governance listing standards.
The remaining members of the Board of Directors do not satisfy
the SEC and the Nasdaq independence definitions and
therefore our Board does not have a majority of independent
directors. This is permissible under applicable Nasdaq listing
standards because New Mountain Partners owns more than 50% of
the voting power of our stock. As a controlled
company within the meaning of relevant Nasdaq listing
standards (Rule 4350(c)), we are not required to comply
with certain provisions that would require us to have a majority
of independent directors serving on our Board of Directors, or
our standing Nominating and Corporate Governance and
Compensation Committees, all of whose members must be
independent under Nasdaq standards. In creating this
exception, the Nasdaq has recognized that majority shareholders,
including parent companies, have the right to select directors
and control certain key decisions, such as executive officer
compensation, by virtue of their stock ownership rights. To
summarize, because we are a controlled company, we are exempt
from certain of the requirements of the Nasdaq listing
standards, including those relating to having:
(1) a majority of independent directors on the board of
directors; as noted, the Board of Directors has determined that
only three of the nine directors will be
independent under applicable Nasdaq and SEC
requirements because the remaining directors are either our
executive officers or are affiliated with our controlling
stockholder, New Mountain Partners, L.P.;
(2) a standing nominating and corporate governance
committee composed entirely of independent
directors; and
A-11
(3) a standing compensation committee composed entirely of
independent directors as defined by the Nasdaq
listing standards. Our Compensation Committee, which makes
decisions on annual salary, cash bonus and option awards to our
executive officers, has a member that is not independent.
Indebtedness
of Management
For the fiscal year ended June 30, 2007, our officers,
directors and affiliates had no indebtedness to us.
Related
Party Transactions
It is our policy to have the Audit Committee review and approve
all related party transactions. For the fiscal year ended
June 30, 2007, we had the following two related party
transactions, which were both reviewed and approved by our Audit
Committee:
Consulting
Agreement with James Bigl
NMHC received certain services from a former Chairman of the
Board, James Bigl, pursuant to a consulting agreement signed at
the end of his employment with NMHC. James Bigl resigned as
chairman of the Board on March 13, 2006 but the consulting
agreement continued until August 31, 2006. During the
fiscal years ended June 30, 2007, 2006 and 2005,
approximately $21,000, $125,000 and $125,000 were paid under
this agreement, respectively. During the fiscal year ended
June 30, 2007, NMHC also paid approximately $5,000 of legal
fees on behalf of James Bigl.
Real
Estate
We rented two houses from Living In Style, LLC, an entity owned
partially by Tery Baskin, a former executive officer, and James
Bigl, a former Chairman and Chief Executive Officer, which were
used for out-of-town employees when they were visiting our Port
Washington, New York headquarters. Pursuant to leases dated
May 1, 2002, which expired April 30, 2007, we paid an
aggregate of $128,000 in rent for these two facilities during
the fiscal year ended June 30, 2007. Upon their expiration,
we did not renew the leases for these two houses. We believe
these transactions described were negotiated on terms as
favorable in the aggregate as could have been obtained from
unrelated third parties.
Compensation
Committee Interlocks and Insider Participation
The Compensation Committees current members are Gerald
Angowitz, Paul J. Konigsberg and Steven B. Klinsky. None of the
members of the Compensation Committee is or has been an officer
or employee of us or any of our subsidiaries. No other
interlocking relationships exist between our Board of Directors
or Compensation Committee and the board of directors or
compensation committee of any other company. None of our
executive officers serve on the board of directors or
compensation committee of any entity which has one or more
executive officers serving as a member of our Board of Directors
or Compensation Committee.
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as
amended, requires our executive officers and directors, and
persons who beneficially own more than ten percent of any of our
equity securities, to file initial reports of ownership and
reports of changes in ownership with the SEC. Based upon a
review of the filings with the SEC, we believe that the
reporting requirements of Section 16 applicable to
executive officers and directors, and persons who beneficially
own more than ten percent of any of our equity securities during
the fiscal year ended June 30, 2007 were complied with on a
timely basis except for a late Form 3 filing and a late
Form 4 filing for Mark Adkison resulting from
administrative errors.
Code of
Business Conduct and Ethics
As of October 15, 2004, we adopted a Code of Business
Conduct and Ethics (the
Code
) which amended
and restated our prior Code of Ethics. The Code promotes the
legal and ethical conduct of our
A-12
business. The Chief Executive Officer, Chief Financial Officer,
and other senior officers are required to abide by the Code,
which provides the foundation for compliance with all corporate
policies and procedures, and best business practices. The
policies and procedures address a wide array of professional
conduct, including the establishment of sound employment
policies, methods for avoiding and resolving conflicts of
interest, safeguarding intellectual property, protecting
confidential information, and a strict adherence to all laws and
regulations applicable to the conduct of our business. We have
satisfied our obligations, imposed under the Sarbanes-Oxley Act
of 2002, to disclose promptly on our website amendments to, or
waivers from, the Code, if any. A copy of our Code is available
on our website, www.nmhc.com, by clicking on
Investors, then Corporate Governance.
A-13
AUDIT
COMMITTEE REPORT
The following Report of the Audit Committee does not
constitute soliciting material and should not be deemed filed or
incorporated by reference into any other filing by us under the
Securities Act of 1933, as amended, or the Securities Exchange
Act of 1934, as amended, except to the extent we specifically
incorporate this Report by reference therein.
The Audit Committee of our Board of Directors is comprised of
all independent directors and acts under a written charter
approved and adopted by our Board of Directors and is reviewed
and reassessed annually by the Audit Committee. The members of
the committee are Messrs. Konigsberg, Angowitz and
Hébert, each of whom is independent, as determined under
Rule 4200(a)(15) of Nasdaqs listing standards and
Rule 10A-3(b)(1)
of the Securities Exchange Act of 1934, as amended. The Audit
Committee held 18 meetings during the fiscal year ended
June 30, 2007.
Management has primary responsibility for our internal controls
and financial reporting process. The independent auditors are
responsible for performing an independent audit of our
consolidated financial statements in accordance with auditing
standards generally accepted in the U.S., and to issue a report
thereon. The Audit Committee oversees our financial reporting
process on behalf of our Board of Directors.
In fulfilling its oversight responsibilities, the Audit
Committee has met and held discussions with management and the
independent auditors. Management represented to the Audit
Committee that our consolidated financial statements were
prepared in accordance with generally accepted accounting
principles in the United States. The Audit Committee has
reviewed and discussed the consolidated financial statements set
forth in our
Form 10-K
for the fiscal year ended June 30, 2007, with management
and the independent auditors. The Audit Committee also discussed
with Ernst & Young LLP, our registered public
accounting firm (who are responsible for expressing an opinion
on the conformity of those audited financial statements with
generally accepted accounting principles), the matters required
to be discussed by the Statement on Auditing Standards
No. 61, Communication with Audit Committees, as
amended. In addition, the Audit Committee also received and
reviewed the written disclosures and the letter from the
independent auditors required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit
Committees), and discussed with the independent auditors their
independence.
In reliance on the review and discussions referred to above, the
Audit Committee recommended to our Board of Directors, and our
Board of Directors has approved, the inclusion of the audited
consolidated financial statements in our Annual Report on
Form 10-K
for the fiscal year ended June 30, 2007, filed with the SEC.
This report was approved by the current members of the Audit
Committee on March 25, 2008.
The Audit Committee
Paul J. Konigsberg, Chairman
Gerald Angowitz
Daniel Hébert
A-14
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
Overview
of Compensation Process and Role of the Compensation
Committee.
The Compensation Committee of the Board of Directors (the
Compensation Committee
) is responsible for
reviewing the performance and establishing the compensation of
NMHCs executive officers, including the named executive
officers (which term refers to the individuals identified in the
Summary Compensation Table beginning on
page A-25).
The Compensation Committee administers the 1999 Stock Option
Plan, as amended, and the Amended and Restated 2000 Restricted
Stock Plan under which options, restricted shares, restricted
share units and other awards may be made to key employees and
directors. The Compensation Committees charter is
available on NMHCs web site, www.nmhc.com, by clicking on
Investors, then Corporate Governance.
The Compensation Committee is composed of Gerald Angowitz
(Chairman), Paul J. Konigsberg and Steven B. Klinsky. In fiscal
2007, the Compensation Committee met five times.
Goals
of NMHCs Compensation Policies.
A fundamental objective of the Compensation Committees
executive compensation policies is to ensure that executives are
provided incentives and compensated in ways that advance
long-term stockholder value. The compensation policies of NMHC
further this objective by combining a base salary with a
combination of short-term and long-term incentives designed to
recognize outstanding contributions and provide incentives for
the executives to perform at or above established goals. In part
due to extensive recent management changes, the Compensation
Committee has also focused on ensuring that NMHC is able to
attract and retain executive management talent in a competitive
recruiting environment. The Compensation Committee attempts to
maintain an effective balance between cash and equity awards to
increase executive loyalty, align the executives interests
with those of the stockholders, and create incentives for the
executives to optimize their contributions to NMHC.
Role
of Executive Officers in Compensation Decisions.
The Compensation Committee makes all final compensation
decisions with respect to NMHCs executive officers,
including the named executive officers. The Chief Executive
Officer is reviewed annually by the Compensation Committee, and
this review is discussed in detail with the Chief Executive
Officer at a Compensation Committee meeting. The Chief Executive
Officer is responsible for reviewing the performance of the
other executive officers and has conversations with the
Compensation Committee and its chairman regarding such reviews
and suggested cash incentive awards, equity awards, and base
salary changes.
The Chief Executive Officer generally attends Compensation
Committee meetings. The Compensation Committee also solicits the
views of other Board members with particular insight into
relevant matters, who may, upon request, attend committee
meetings in an observer capacity.
Establishing
Compensation for Executive Officers.
In furtherance of its objectives, the Compensation Committee has
designed a compensation program consisting of three components:
(i) base salary, (ii) an annual performance-based cash
incentive award and (iii) equity awards. Previously, the
Compensation Committee directly engaged Watson Wyatt, a human
resources consulting firm, to analyze NMHCs executive
compensation programs. Watson Wyatt last reviewed NMHCs
executive compensation programs in August 2005 and provided a
detailed analysis to the Compensation Committee. This analysis
included benchmarking of salary, total cash and total direct
compensation for NMHCs executive officers. The analysis
also included a review of the then current long-term incentive
award program and the award mix granted thereunder. The
benchmarking entailed a review of eight companies with similar
types of businesses and similar revenues when there was
available proxy data for an equivalent position in these
companies. The benchmarking also involved a review of the Watson
Wyatt Data Services survey for companies in the healthcare and
business services industries with gross revenue of approximately
$450 million. When benchmarking data was not available for
a position because of the unique aspects of the position,
A-15
internal value was weighed along with internal peer group
compensation. No compensation consultant was retained to review
fiscal 2007 compensation. Nonetheless, NMHC continued to use
substantially the same methodology to review executive
compensation. The analysis was done by NMHCs human
resources department. The initial eight comparison companies
used by Watson Wyatt were:
Accredo
Health, Incorporated
Curative Health Services Co.
drugstore.com, inc.
HealthExtras, Inc.
LabOne, Inc. (acquired by Quest Diagnostics Incorporated)
BioScrip, Inc.
Nektar Therapeutics
Priority Healthcare Corporation
For fiscal 2007, the following five comparison companies were
used:
drugstore.com,
inc.
Nektar Therapeutics
The Trizetto Group, Inc.
HealthExtras, Inc.
Bioscrip, Inc.
In fiscal 2007, NMHC utilized a more recent version of the
Watson Wyatt Data Services survey for companies in the
healthcare and business services industries with gross revenue
of approximately $450 million.
The Compensation Committee has attempted to maintain total
compensation and each of the three individual elements of
compensation at levels competitive with median
(50th percentile) compensation levels. While we believe
benchmarks are necessary to be competitive in our recruitment
and retention efforts, the Compensation Committee will
subjectively determine appropriate levels of compensation for
executive officers based on various factors consistent with our
compensation goals and philosophy.
In designing and implementing the performance-based cash
incentive plan and the equity grants, the Compensation Committee
also attempted to put a significant portion of each
executives compensation at risk, with the degree of risk
positively correlating with the level of the executive
officers responsibility.
A-16
Components
of Fiscal 2007 Compensation for Executive
Officers.
For the fiscal year ended June 30, 2007 (
fiscal
2007
), there are seven named executive officers for
NMHC, three of whom terminated service with NMHC during the
fiscal year. The seven named executive officers are:
|
|
|
|
|
Name and Title
|
|
Hire/Promotion Date
|
|
Termination Date
|
|
Thomas Erickson
Chairman/Interim President and Chief Executive Officer
|
|
February 23, 2007 (assumed interim President and CEO
position May 21, 2007)
|
|
N/A
|
Stuart Diamond
Chief Financial Officer
|
|
January 20, 2006
|
|
N/A
|
Martin Magill
Senior Vice President, Sales
|
|
April 24, 2006 (promoted May 21, 2007)
|
|
N/A
|
James Smith
Chief Executive Officer
|
|
August 30, 2004
|
|
May 21, 2007
|
Tery Baskin
Chief Marketing Officer
|
|
July 20, 2000
|
|
May 21, 2007
|
Bill Masters
Chief Information Officer
|
|
October 4, 2004
|
|
May 21, 2007
|
Mark Adkison
Chief Specialty Officer
|
|
October 20, 2003
|
|
N/A
|
For fiscal 2007, the principal components of compensation for
executive officers were:
1.
Base Salary.
NMHC provides all
employees with a base salary to compensate the employee for
services provided during the year. Generally, base salary
adjustments for the executive officers are made when warranted
at a Compensation Committee meeting during the first quarter of
the fiscal year. The Compensation Committee may also make base
salary adjustments throughout the fiscal year as warranted, such
as when an executive officer is promoted or takes on additional
responsibilities. As discussed above, base salaries generally
are targeted to be near the 50th percentile of the survey
and proxy data, where applicable, to maintain a market
competitive compensation structure. The Compensation Committee
may also consider other factors in determining base salary,
including an executives exceptional performance during the
previous fiscal year and recent changes in responsibility. Base
salaries for the newly hired named executive officers generally
were based upon market competitive compensation and the
compensation provided to the executives predecessor. The
Compensation Committee set the following base salaries for the
named executive officers:
|
|
|
|
|
|
|
|
|
|
|
Base Salary
|
|
Name
|
|
FY 2007
|
|
|
FY 2006
|
|
|
Thomas Erickson
|
|
$
|
250,000
|
|
|
|
N/A
|
|
Stuart Diamond
|
|
$
|
300,000
|
|
|
$
|
275,000
|
|
Martin Magill
|
|
$
|
275,000
|
(1)
|
|
$
|
275,000
|
|
James Smith
|
|
$
|
375,000
|
|
|
$
|
375,000
|
|
Tery Baskin
|
|
$
|
230,000
|
|
|
$
|
230,000
|
|
Mark Adkison
|
|
$
|
220,000
|
|
|
$
|
207,000
|
|
|
|
|
(1)
|
|
Martin Magill was promoted to Chief Marketing Officer from
Senior Vice President of Sales on May 21, 2007. He did not
receive a base salary increase in connection with this promotion.
|
2.
Annual performance-based cash incentive
compensation
. In order to align the executive
officers interests with those of the stockholders, the
Compensation Committee has determined that a significant amount
of an executives compensation should be at-risk,
incentive-based compensation. To this end, for fiscal year 2007,
the Compensation Committee implemented an annual
performance-based cash incentive compensation program. The
current Chief Executive Officer did not participate in this
annual performance-based cash incentive compensation program.
The three components of an executives compensation under
this program
A-17
were: (i) achieving individual performance (30%);
(ii) NMHC achieving a net income target (50%); and
(iii) NMHC achieving a gross profit target (20%). For
fiscal 2007, the following threshold, target and maximum levels
were determined):
|
|
|
|
|
|
|
|
|
|
|
Measures
|
|
Weight
|
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Individual Performance
|
|
|
30
|
%
|
|
0%
|
|
100%
|
|
150%
|
Net Income
|
|
|
50
|
%
|
|
$9,957,000 (50% payout)
|
|
$12,447,000
|
|
$14,936,000 (150% payout)
|
Gross Profit
|
|
|
20
|
%
|
|
$77,712,000 (50% payout)
|
|
$97,141,000
|
|
$116,569,000 (150% payout)
|
Award payouts were made as a percentage of base salary. The
Compensation Committee determined the target percentage of base
salary during the first fiscal quarter, largely based upon the
benchmarking discussed above, as well as additional
discretionary factors, including a desire to put more of an
executives compensation at risk. After consideration of
these factors, the Compensation Committee set the following
target percentages of base salaries for the named executive
officers for fiscal 2007:
|
|
|
|
|
Name
|
|
FY 2007 % of Base Salary
|
|
Thomas Erickson
|
|
|
N/A
|
|
Stuart Diamond
|
|
|
50
|
%
|
Martin Magill
|
|
|
20
|
%
|
James Smith
|
|
|
75
|
%
|
Tery Baskin
|
|
|
50
|
%
|
Mark Adkison
|
|
|
50
|
%
|
Individual performance measures and the related performance
outcome measures for each of the executive officers were
initially drafted during annual review sessions between the
Chief Executive Officer and the executive officer. Each
executive officer had criteria that were specific to that
executive officer and the decision to award incentive
compensation based upon individual performance is a subjective
matter left to the discretion of the Compensation Committee.
Net income and gross profit performance targets were determined
by the Compensation Committee after consulting with NMHCs
executives regarding NMHCs expected performance and
operating goals for 2007. These targets were chosen as the
financial measure components of the program because they were
considered by the Compensation Committee as the best measures of
NMHCs financial performance and the creation of
stockholder value. Net income and gross profit were determined
in accordance with generally accepted accounting principles.
Award payments have been typically determined in the first
fiscal quarter following the fiscal year-end (September 2007 for
fiscal 2007) after the Compensation Committee reviews the
Chief Executive Officers analysis of an executive
officers performance with respect to individual
performance measures and following the determination of net
income and gross profit levels. Due to extensive recent
management changes, the Compensation Committee did not determine
awards for fiscal 2007 until November 13, 2007.
In fiscal 2007, NMHC did not achieve the threshold net income
for bonuses to be paid based on that component. NMHC achieved
the gross profit threshold level for named executive officers to
receive a bonus based on that component. Following the end of
the fiscal year, the Chief Executive Officer reported to the
Compensation Committee regarding individual executive
performance. Based on this report, an analysis of NMHCs
performance in fiscal 2007, and such other factors as the
Compensation Committee deemed relevant
A-18
in its discretion, the Compensation Committee approved payment
of the following performance-based cash incentive compensation
to the named executive officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
FY 2007 Bonus as % of
|
Name
|
|
FY 2007 Bonus
|
|
Base Salary
|
|
Thomas Erickson
|
|
|
N/A
|
|
|
|
N/A
|
|
Stuart Diamond
|
|
$
|
60,000
|
|
|
|
20
|
%
|
Martin Magill
|
|
$
|
22,000
|
|
|
|
8
|
%
|
James Smith
|
|
$
|
0
|
|
|
|
0
|
%
|
Tery Baskin
|
|
$
|
0
|
|
|
|
0
|
%
|
Mark Adkison
|
|
$
|
44,120
|
|
|
|
20
|
%
|
3.
Equity Incentive Grants.
The
Compensation Committee believes that equity awards encourage
executive officers to focus on long-term NMHC performance and
align the interests of executive officers with stockholders by
increasing their ownership of NMHC. All equity awards are made
pursuant to the provisions of incentive plans approved by
NMHCs stockholders. NMHC values stock options by
calculating their binomial value at the date of grant and values
restricted stock awards by calculating their aggregate market
value at the date of grant. The Compensation Committee has in
the recent past utilized a four-year, cliff-vesting period for
restricted stock awards and a vesting schedule of one-quarter
annually for stock options. Existing ownership is not a factor
in award determination, because we do not want to discourage
executive officers from holding significant amounts of NMHC
Stock. Currently, NMHC does not have ownership guidelines for
executive officers.
For fiscal 2005 and fiscal 2006, the Compensation Committee
administered a long-term incentive award program (the
LTIA
). Target awards as a percentage of base
salary were established during the first fiscal quarter and
grants were made during the first fiscal quarter following the
end of the fiscal year based upon the target awards, with the
potential for the Compensation Committee to exercise downward
discretion based upon an individual executives
performance. Based upon the analysis done by Watson Wyatt and a
consideration of the various attributes of different potential
equity components of the LTIA, payments were made 50% in stock
options and 30% in restricted stock. Some of the factors
considered in making this determination were: the resiliency of
restricted stock, the accounting treatment of options and
restricted stock, and the greater leverage attained by
executives with options. The Compensation Committee also
considered other forms of awards, including performance shares
and performance-vesting options, before deciding on the option
and restricted stock mix. The remaining 20% of the award was
intended to be used to match cash incentive award deferrals that
could be rolled pre-tax into restricted stock under a Management
Stock Purchase Plan, but this plan was never implemented and the
remaining 20% was never granted in any form. Pursuant to the
LTIA, during September of 2006, the following non-qualified
stock options for the purchase of NMHC Common Stock and
restricted shares of NMHC Common Stock were granted to our named
executive officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Subject to Time-
|
|
|
|
|
|
|
Based Vesting Option
|
|
Exercise
|
|
Number of Time-Based
|
Name
|
|
Grant
|
|
Price(1)
|
|
Vesting Restricted Shares
|
|
Stuart Diamond
|
|
|
21,560
|
|
|
$
|
15.20
|
|
|
|
5,930
|
|
James Smith
|
|
|
43,110
|
|
|
$
|
15.20
|
|
|
|
11,850
|
|
Tery Baskin
|
|
|
9,920
|
|
|
$
|
15.20
|
|
|
|
2,730
|
|
|
|
|
(1)
|
|
The exercise price per share equals the fair market value of the
NMHC Common Stock on the date of grant.
|
During the first quarter of fiscal 2007, the Compensation
Committee established targets for the LTIA for fiscal 2007. The
Compensation Committee later decided not to implement the LTIA
and instead to grant discretionary equity awards following the
end of the fiscal year, based upon the Compensation
Committees assessment of an individual executive
officers performance and NMHCs performance as a
whole. This decision was based on the Compensation
Committees consideration of the value intended to be
delivered by the LTIA and desire to create a vehicle for
retention of the named executive officers. A portion of the
awards
A-19
were also intended to compensate the named executive officers
for the fact that the Management Stock Purchase Plan was never
implemented. These awards consisted entirely of restricted stock
because the Compensation Committee believes that restricted
stock awards reduce the dilutive impact of equity grants to
management as compared to equity grants consisting of stock
options. The following restricted shares of NMHC Common Stock
were granted to our named executive officers:
|
|
|
|
|
|
|
Number of Time-Based
|
Name
|
|
Vesting Restricted Shares
|
|
Thomas Erickson
|
|
|
0
|
|
Stuart Diamond
|
|
|
46,000
|
|
Martin Magill
|
|
|
30,000
|
|
Mark Adkison
|
|
|
37,000
|
|
New Hire Option Grant to Chairman.
In
the past, the Compensation Committee has also made one-time
grants to executives following an executives hire,
promotion, or as a reward for exceptional performance. On
March 12, 2007, the Compensation Committee made a new-hire
grant of an option to purchase 100,000 shares of NMHC
Common Stock at an exercise price of $14.02 per share (the
closing price of NMHC Common Stock on the date of the grant) to
Mr. Erickson in connection with his appointment as
NMHCs Chairman of the Board of Directors.
Mr. Ericksons option grant vests and becomes
exercisable, except as specifically provided for in the stock
option agreement, upon the satisfaction of the following two
conditions: (i) Mr. Erickson serves as a director of
NMHC through at least February 23, 2008 (the
First
Anniversary
), or Mr. Erickson resigns at the
request of the Board of Directors, or is involuntarily
terminated on or prior to the First Anniversary; and (ii) a
change in control (as defined in the Mr. Ericksons
Chairman Agreement with NMHC, dated February 23, 2007 (the
Chairman Agreement
)) shall have occurred. The
option immediately vests upon a change in control prior to the
First Anniversary. This option expires on March 12, 2017.
As discussed below in the section titled Employment
Agreement with Thomas W. Erickson, Chairman of the Board and
Chief Executive Officer, Mr. Ericksons
arrangement with NMHC and NMHCs controlling stockholder is
unique for several reasons.
Retirement Plans.
The only retirement
plan that NMHC has established for its executive officers is
NMHCs 401(k) plan. NMHCs executive officers
generally participate on the same terms as all other eligible
NMHC employees. NMHC matches 100% of the first 2.5% of eligible
earnings contributed by employees, including NMHCs
executive officers.
Perquisites and Other Benefits.
The
Compensation Committee believes that compensation should not
take the form of perquisites and has traditionally not provided
executives with benefits that are not integral and directly
related to the executives duties. Due in part to his
historical arrangement with Pharmacy Associates Inc., a company
that was acquired by NMHC, Mr. Baskin received a car
allowance, which will not continue during the term of
Mr. Baskins severance arrangement.
Mr. Smiths employment arrangement with NMHC also
included a car allowance, which will continue during the term of
his severance arrangement.
Separation, Consulting, & General Release
Agreements.
Three of the named executive
officers departed NMHC during fiscal 2007. NMHC entered into
departure and general release agreements with these executives
(and additionally with respect to Mr. Masters, a consulting
agreement) in order to clarify the parties obligations
going forward. NMHCs obligations under these new
agreements were in lieu of the severance obligations owed to the
executives under their existing employment agreements. Certain
of the payments disclosed in the Summary Compensation Table
below relate to the new agreements.
On May 21, 2007, NMHC announced that James F. Smiths
employment with NMHC as President and Chief Executive Officer
had terminated, effective immediately. On August 17, 2007,
NMHC and Mr. Smith entered into a Departure Agreement and
General Release (the
Smith Departure
Agreement
). Pursuant to the terms of the Smith
Departure Agreement, NMHC agreed, subject to certain
limitations, to pay Mr. Smith (from the termination date)
his prior salary ($375,000 per year) for a period not to exceed
two years in an amount not to exceed a total of $750,000, as
well as payments of $600 per month in connection with
Mr. Smiths former car allowance. In addition, NMHC
agreed to pay Mr. Smiths COBRA premiums for his
entire eligibility period but not past the end of the severance
period. NMHC also agreed to pay Mr. Smith
A-20
$19,750 in lieu of any remaining benefits for health, dental and
pharmaceutical coverage for the portion of the severance period
for which benefits under COBRA are not available to
Mr. Smith. Mr. Smith also agreed to completely release
any and all past, present and future statutory, contract, tort
and all other claims against NMHC and its affiliates, subject to
certain limitations.
On May 21, 2007, NMHC announced that Tery Baskins
employment with NMHC as Chief Marketing Officer/EVP of Business
Development had terminated, effective immediately. On
August 1, 2007, NMHC and Mr. Baskin entered into a
Departure Agreement and General Release (the
Baskin
Departure Agreement
). Pursuant to the terms of the
Baskin Departure Agreement, NMHC agreed to pay Mr. Baskin
$8,846.15 per bi-weekly pay period for a twelve month period,
subject to certain limitations. NMHC will also pay
Mr. Baskin a commission equal to three cents per net paid
claim for the Arkansas State Employees account and the State of
Arkansas Public School account, submitted during the period
commencing on the 2007 renewal dates of each such account and
ending on the third anniversary of the 2007 renewal dates,
provided that Mr. Baskin provides any assistance reasonably
requested by NMHC in connection with the renewal of such
contracts. Such commission payments shall not exceed a total of
$83,333 per calendar year, and shall be no greater than $250,000
in the aggregate. Mr. Baskin also agreed to completely
release any and all past, present and future statutory,
contract, tort and all other claims against NMHC and its
affiliates, subject to certain limitations.
On May 21, 2007, NMHC announced that Bill Masters
employment with NMHC as Chief Information Officer had
terminated, effective immediately. On June 4, 2007, NMHC
and Mr. Masters entered into a Consulting Agreement and
Departure Agreement and General Release (the
Masters
Departure Agreement
). Pursuant to the terms of the
Masters Departure Agreement, after the termination of his
employment as Chief Information Officer as of May 21, 2007,
Mr. Masters continued to provide consulting services to
NMHC through June 28, 2007, consisting of various duties as
were reasonably requested by NMHC. During this time, NMHC
continued to pay Mr. Masters his regular base salary in the
amount of $8,750 per bi-weekly pay period. For purposes of
NMHCs 1999 Stock Option Plan and Amended and Restated 2000
Restricted Stock Grant Plan, Mr. Masters credited
service continued until June 28, 2007. NMHC also agreed to
pay Mr. Masters present salary for a period not to
exceed one year, beginning on June 28, 2007, subject to
certain limitations. Mr. Masters also agreed to completely
release any and all past, present and future statutory,
contract, tort and all other claims against NMHC and its
affiliates, subject to certain limitations.
Employment
Arrangement of Thomas W. Erickson, Chairman of the Board and
Chief Executive Officer.
On May 21, 2007, the Board of Directors of NMHC appointed
Thomas W. Erickson, the Chairman of the Board, to serve as the
interim Chief Executive Officer and President. During his tenure
as interim Chief Executive Officer, Mr. Erickson will
continue to serve as Chairman of the Board and receive the
compensation provided for under the Chairman Agreement.
As amended, the Chairman Agreement expires on February 22,
2009 and provides for a payment by NMHC of $250,000 for each
year of service. Upon the request of Mr. Erickson at any
time during the term of the Chairman Agreement, NMHC will
provide or reimburse Mr. Erickson for health, life and
disability insurance and other benefits having terms and
benefits commensurate with those generally made available to
NMHCs most senior employees. Mr. Erickson received a
new hire stock option grant to acquire 100,000 shares of
NMHC Common Stock pursuant to NMHCs 1999 Stock Option Plan
(see New Hire Option Grant to Chairman on
page A-20
for the details of the grant).
Since January 2007, Mr. Erickson has been providing
consulting services to New Mountain Capital, through ECG
Ventures, Inc. (
ECG
), of which
Mr. Erickson is President and Chief Executive Officer and
which is controlled by Mr. Erickson. New Mountain Capital
is paying ECG $500,000 per year. New Mountain Capital is the
investment manager of New Mountain Partners. As disclosed by
NMHC in previous filings with the SEC, Mr. Erickson and New
Mountain Capital were also expected to enter into a consulting
agreement (the
New Mountain Agreement
)
pursuant to which Mr. Erickson would provide, through ECG,
strategic management services to New Mountain Capital with
respect to its current and prospective investment activities,
including with respect to NMHC. The New Mountain Agreement was
never entered into and it is no longer anticipated that New
Mountain Capital and Mr. Erickson will enter into such
agreement.
A-21
Employment
Agreement and Certain Payments to Named Executive Officers upon
Termination of Employment.
Under the terms of various offer letters in effect with the
executive officers during fiscal 2007, the executive officers
were provided severance benefits in connection with termination
of their employment without cause and for certain other reasons.
The Compensation Committee determined in late fiscal 2007 that
it was in the best interests of NMHC to begin negotiating new
employment agreements with all of the executive officers,
excluding Mr. Erickson. The Compensation Committees
determination was based, in part, on the desire to have a
consistent agreement with each of NMHCs executive officers
and, in part, on the desire to clarify the terms of each
executive officers employment with NMHC. The basic terms
of these employment agreements were approved by the Compensation
Committee on August 8, 2007 and Mr. Erickson was
authorized to negotiate the specific terms of the employment
agreements with each executive officer. The definitive
employment agreements were entered into in November 2007 after
the Compensation Committee approved the final terms of the
employment agreements and the actions taken by Mr. Erickson
in connection with negotiating the employment agreements.
To enhance NMHCs chance of retaining executive officers,
the agreements offer severance compensation to executive
officers whose employment is terminated pursuant to one of the
following permitted termination events: (i) termination
without cause; (ii) termination due to NMHCs refusal
to extend the one-year, automatically-renewing term of the
agreement; (iii) termination due to incapacity; or
(iv) termination due to death. If there is a change in
control
and
an executive officers employment is
terminated pursuant to one of the permitted termination events
within two years of the change in control, then the executive
officer is entitled to receive change in control compensation
instead of severance compensation.
Severance compensation and change in control compensation ensure
that executive officers, or their estates, will receive adequate
consideration if they are terminated through no fault of their
own. This assurance encourages executive officers to remain with
NMHC and refrain from seeking employment elsewhere. Moreover, by
providing change in control compensation, the new employment
agreements allow executive officers to concentrate on making
decisions in the best interests of NMHCs stockholders and
offer an incentive for executives to remain employed with NMHC
for a certain amount of time following a change in control.
Severance compensation includes 100% of the executive
officers highest base salary in effect during the six
month period immediately prior to the executive officers
date of termination, as well as certain health and dental
benefits for the executive, the executive officers spouse,
and the executive officers children. In the event of
termination by reason of death, the executive officers
estate shall be paid severance compensation minus the product of
any payments under any life insurance policy multiplied by the
percentage of premiums of such policy that were paid by NMHC. In
the event of a termination due to incapacity, the executive
officers estate shall be paid severance compensation minus
the product of any payments for 12 months after the
termination under any long-term disability policy multiplied by
the percentage of premiums of such policy that were paid by NMHC.
Change in control compensation includes a payment of up to 150%
of the executive officers highest base salary in effect
during the period beginning six months immediately prior to the
effective date of the change in control through the date of
termination, as well as certain health and dental benefits for
the executive, the executives spouse, and the executive
officers children. The agreements also provide for payment
to the executive officer of an amount necessary to reimburse the
executive on an after-tax basis for any excise tax payable under
Section 4999 of the Internal Revenue Code in connection
with the change in control. This
gross-up
is
provided to ensure that the agreements are market competitive
and to allow executive officers to concentrate on making
decisions in the best interests of NMHCs stockholders.
Executive officers entitled to change in control compensation
are required to remain in the employment of NMHC for at least
six months after the change in control as requested by NMHC.
Following a change in control, if the executive officer
terminates employment for any reason other than death,
incapacity, a refusal by NMHC to extend the term of the
agreement or a termination other than for cause, then the
executive officer will be required to make certain payments to
NMHC that are based on the amount of harm suffered by NMHC due
to the executive officers termination.
A-22
Executive officers are not eligible to collect severance
compensation in addition to change in control compensation.
Moreover, severance compensation, or change in control
compensation if applicable, is the exclusive remedy of an
executive in connection with a termination without cause, due to
NMHCs refusal to extend the employment term, due to
incapacity, or due to death.
To be eligible for any severance or change in control
compensation, the executive officer must execute and deliver to
NMHC a general release and a written resignation. Moreover, NMHC
is entitled to discontinue any severance compensation if the
executive officer breaches certain restrictive covenants,
including those related to non-competition, non-solicitation,
confidentiality and preservation.
Tax
and Accounting Implications.
Deductibility of Executive
Compensation.
Part of the Compensation
Committees role is to review and consider the
deductibility of executive compensation under
Section 162(m) of the Internal Revenue Code, which provides
that NMHC may not deduct compensation of more than $1,000,000
that is paid to certain individuals. To date the Compensation
Committee has not considered Section 162(m) when making
compensation decisions because of the current and historical
levels of compensation. The compensation paid to our executive
officers in fiscal 2007 did not exceed the limit for
deductibility.
Accounting for Stock-Based
Compensation.
Beginning on July 1, 2005,
NMHC began accounting for stock-based payments in accordance
with the requirements of FASB Statement 123(R).
Compensation
Decisions for Fiscal 2008.
In October 2007, the Compensation Committee established base
salaries for the year ending June 30, 2008 (
fiscal
2008
) for the named executive officers that remain
with NMHC. The Compensation Committee set the following base
salaries for the named executive officers:
|
|
|
|
|
|
|
|
|
|
|
Base Salary
|
|
Name
|
|
FY 2008
|
|
|
FY 2007
|
|
|
Thomas Erickson
|
|
$
|
250,000
|
|
|
$
|
250,000
|
|
Stuart Diamond
|
|
$
|
300,000
|
|
|
$
|
300,000
|
|
Martin Magill
|
|
$
|
275,000
|
|
|
$
|
275,000
|
|
Mark Adkison
|
|
$
|
220,000
|
|
|
$
|
220,000
|
|
The new employment agreements set target bonuses for each of the
executive officers at 50% of the executives base salary
with the actual amount of any such bonus determined in the sole
discretion of the Compensation Committee.
The Compensation Committee also determined that it would
continue to award equity grants on an entirely discretionary
basis as discussed above. As described above, NMHC granted
restricted shares of NMHC Common Stock to certain of our named
executive officers in connection with entering into their
employment agreements and in lieu of grants under the previous
LTIA upon approval of the Compensation Committee.
A-23
Compensation
Committee Report
The following report of the Compensation Committee does not
constitute soliciting material and should not be deemed filed or
incorporated by reference into any other NMHC filing under the
Securities Act of 1933 or the Securities Exchange Act of 1934,
except to the extent NMHC specifically incorporates this report
by reference therein.
The Compensation Committee has reviewed and discussed the
Compensation Discussion and Analysis with management and, based
on such review and discussions, recommended to the Board of
Directors that the Compensation Discussion and Analysis be
included in NMHCs Information Statement.
Respectfully submitted,
Gerald Angowitz (Chairman)
Paul J. Konigsberg
Steven B. Klinsky
A-24
Summary
Compensation Table
The following table summarizes the compensation paid to
NMHCs named executive officers for fiscal 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
Nonqualified
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Option
|
|
Incentive Plan
|
|
Deferred
|
|
|
|
|
Name and Principal
|
|
|
|
Salary
|
|
Bonus
|
|
Awards
|
|
Awards
|
|
Compensation
|
|
Compensation
|
|
All Other
|
|
|
Position
|
|
Year
|
|
($)
|
|
($)
|
|
($)(1)
|
|
($)(1)
|
|
($)
|
|
Earnings ($)
|
|
Comp. ($)
|
|
Total ($)
|
|
Thomas W. Erickson
Chief Executive Officer*
|
|
|
2007
|
|
|
|
83,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500,000
|
(3)
|
|
|
83,333
|
|
James F. Smith
Former Chief Executive Officer**
|
|
|
2007
|
|
|
|
347,596
|
|
|
|
|
|
|
|
86,677
|
|
|
|
570,534
|
(2)
|
|
|
45,000
|
|
|
|
|
|
|
|
4,077
|
|
|
|
1,047,885
|
|
Stuart Diamond
Chief Financial Officer
|
|
|
2007
|
|
|
|
295,192
|
|
|
|
60,000
|
|
|
|
39,774
|
|
|
|
429,631
|
|
|
|
55,000
|
|
|
|
|
|
|
|
6,250
|
|
|
|
885,847
|
|
Tery Baskin
Former Chief Marketing and Sales Officer**
|
|
|
2007
|
|
|
|
213,192
|
|
|
|
|
|
|
|
21,986
|
|
|
|
215,167
|
|
|
|
16,675
|
|
|
|
|
|
|
|
3,817
|
|
|
|
470,837
|
|
Marty Magill
Chief Sales Officer
|
|
|
2007
|
|
|
|
275,000
|
|
|
|
22,000
|
|
|
|
|
|
|
|
162,164
|
|
|
|
4,563
|
|
|
|
|
|
|
|
87,434
|
(4)
|
|
|
551,161
|
|
Bill Masters
Former Chief Information Officer**
|
|
|
2007
|
|
|
|
226,154
|
|
|
|
|
|
|
|
21,333
|
|
|
|
245,655
|
(2)
|
|
|
34,178
|
|
|
|
|
|
|
|
881
|
|
|
|
528,201
|
|
Mark Adkison
Chief Specialty Officer
|
|
|
2007
|
|
|
|
218,561
|
|
|
|
44,120
|
|
|
|
17,344
|
|
|
|
112,881
|
|
|
|
42,000
|
|
|
|
|
|
|
|
6,012
|
|
|
|
440,918
|
|
|
|
|
*
|
|
Mr. Erickson was elected to our Board of Directors as
Chairman on February 23, 2007 and appointed as interim
Chief Executive Officer on May 21, 2007.
|
|
**
|
|
As of May 21, 2007, Mr. Smiths and
Mr. Baskins employment with NMHC was terminated.
|
|
***
|
|
As of May 21, 2007, Mr. Masters employment
relationship as NMHCs Chief Information Officer was
terminated. However, Mr. Masters provided consulting
services to NMHC through June 28, 2007.
|
|
(1)
|
|
The amounts shown represent the dollar amounts recognized for
financial statement reporting purposes for the fiscal year ended
June 30, 2007 in accordance with FAS 123(R) and
include amounts from awards granted during and prior to fiscal
2007. Assumptions used in the calculation of these amounts are
described in Note 11 to NMHCs consolidated financial
statements for the fiscal year ended June 30, 2007,
included in NMHCs Annual Report on
Form 10-K
that was filed with the SEC on September 13, 2007. All
awards were made under NMHCs 1999 Stock Option Plan and
Amended and Restated 2000 Restricted Stock Grant Plan and are
subject to individual award agreements, the forms of which were
previously filed with the SEC.
|
|
(2)
|
|
These options were forfeited in connection with termination of
employment.
|
|
(3)
|
|
The amount shown represents the fees paid by New Mountain
Capital to ECG Ventures, Inc., of which Mr. Erickson is
President and Chief Executive Officer and which is controlled by
Mr. Erickson, for consulting services provided to New
Mountain Capital.
|
|
(4)
|
|
Includes $80,030 paid for legal fees incurred by Mr. Magill
and $7,404 related to matching 401(k) plan contributions.
|
A-25
Grants of
Plan-Based Awards in Fiscal 2007
The following table sets forth the grants of plan-based awards
that were made to the Named Executive Officers during the fiscal
year ended June 30, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
Option
|
|
Exercise
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Payouts
|
|
Number
|
|
Awards:
|
|
or Base
|
|
Grant Date
|
|
|
|
|
Estimated Possible Payouts Under
|
|
Under Equity Incentive Plan
|
|
of Shares
|
|
Number of
|
|
Price of
|
|
Fair Value
|
|
|
|
|
Non-Equity Incentive Plan Awards(1)
|
|
Awards(2)
|
|
of Stock
|
|
Securities
|
|
Option
|
|
of Stock and
|
|
|
Grant
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
or Units
|
|
Underlying
|
|
Awards
|
|
Option
|
Name
|
|
Date
|
|
($)
|
|
($)
|
|
($)
|
|
(#)
|
|
(#)
|
|
(#)
|
|
(#)
|
|
Options (#)(3)
|
|
($/sh)(4)
|
|
Awards ($)
|
|
Thomas W. Erickson*
|
|
|
3/12/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
14.02
|
|
|
|
|
|
James Smith**
|
|
|
9/7/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,850
|
|
|
|
43,110
|
|
|
|
15.20
|
|
|
|
8.52
|
|
Stuart Diamond
|
|
|
9/7/2006
|
|
|
|
|
|
|
|
149,999.98
|
|
|
|
211,499.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,930
|
|
|
|
21,560
|
|
|
|
15.20
|
|
|
|
8.52
|
|
Tery Baskin**
|
|
|
9/7/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,730
|
|
|
|
9,920
|
|
|
|
15.20
|
|
|
|
8.52
|
|
Marty Magill
|
|
|
9/7/2006
|
|
|
|
|
|
|
|
54,999.98
|
|
|
|
77,549.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bill Masters***
|
|
|
9/7/2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,690
|
|
|
|
9,790
|
|
|
|
15.20
|
|
|
|
8.52
|
|
Mark Adkison
|
|
|
9/7/2006
|
|
|
|
|
|
|
|
110,299.93
|
|
|
|
155,522.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,690
|
|
|
|
9,510
|
|
|
|
15.20
|
|
|
|
8.52
|
|
|
|
|
*
|
|
Mr. Erickson was elected to our Board of Directors as
Chairman on February 23, 2007 and appointed as interim
Chief Executive Officer on May 21, 2007.
|
|
**
|
|
As of May 21, 2007, Mr. Smiths and
Mr. Baskins employment with NMHC was terminated.
|
|
***
|
|
As of May 21, 2007, Mr. Masters employment
relationship as NMHCs Chief Information Officer was
terminated. However, Mr. Masters provided consulting
services to NMHC through June 28, 2007.
|
During fiscal 2007, NMHC was party to various offer letters with
certain of our executive officers which included customary terms
such as salary and benefit information, as well as provisions
related to severance pay and benefits. The Compensation
Committee determined in late fiscal 2007 to begin negotiating
new employment agreements with all executive officers, excluding
Mr. Erickson. The basic terms of these agreements were
approved by the Compensation Committee on August 8, 2007
and Mr. Erickson was authorized to negotiate the specific terms
of the employment agreements with each executive officer. The
definitive employment agreements were entered into in November
2007 after the Compensation Committee approved the final terms
of the employment agreements and the actions taken by
Mr. Erickson in connection with negotiating the employment
agreements. Please see the section titled Employment
Agreements and Certain Payments to Named Executive Officers Upon
Termination of Employment beginning on
page A-22
for additional information regarding these employment agreements.
A-26
Outstanding
Equity Awards at 2007 Fiscal Year-End
The following table sets forth information concerning
(1) unexercised options, (2) stock that has not
vested, and (3) equity incentive plan awards for each of
the Named Executive Officers that remained outstanding as of
June 30, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards(1)
|
|
Stock Awards(2)
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
Equity
|
|
Equity
|
|
|
|
|
|
|
Incentive
|
|
|
|
|
|
|
|
|
|
Incentive Plan
|
|
Incentive Plan
|
|
|
|
|
|
|
Plan
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
Awards:
|
|
|
|
|
|
|
Awards:
|
|
|
|
|
|
|
|
Market
|
|
Number of
|
|
Market or
|
|
|
Number of
|
|
Number of
|
|
Number of
|
|
|
|
|
|
Number of
|
|
Value of
|
|
Unearned
|
|
Payout Value of
|
|
|
Securities
|
|
Securities
|
|
Securities
|
|
|
|
|
|
Shares or
|
|
Shares or
|
|
Shares, Units
|
|
Unearned
|
|
|
Underlying
|
|
Underlying
|
|
Underlying
|
|
Option
|
|
|
|
Units of
|
|
Units of
|
|
or Other
|
|
Shares, Units or
|
|
|
Unexercised
|
|
Unexercised
|
|
Unexercised
|
|
Exercise
|
|
Option
|
|
Stock That
|
|
Stock That
|
|
Rights That
|
|
Other Rights
|
|
|
Options (#)
|
|
Options (#)
|
|
Unearned
|
|
Price
|
|
Expiration
|
|
Have Not
|
|
Have Not
|
|
Have Not
|
|
That Have Not
|
Name
|
|
Exercisable
|
|
Unexercisable
|
|
Options (#)
|
|
($)
|
|
Date
|
|
Vested (#)
|
|
Vested (#)
|
|
Vested (#)
|
|
Vested ($)
|
|
Thomas W. Erickson
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
14.02
|
|
|
|
3/12/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James Smith*
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
24.51
|
|
|
|
8/30/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,068
|
|
|
|
|
|
|
|
|
|
|
|
27.50
|
|
|
|
12/2/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stuart Diamond
|
|
|
18,750
|
|
|
|
56,250
|
|
|
|
|
|
|
|
31.00
|
|
|
|
1/27/2016
|
|
|
|
2,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,782
|
|
|
|
8,352
|
|
|
|
|
|
|
|
30.16
|
|
|
|
1/20/2016
|
|
|
|
5,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,560
|
|
|
|
|
|
|
|
15.20
|
|
|
|
9/7/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tery Baskin*
|
|
|
7,500
|
|
|
|
|
|
|
|
|
|
|
|
25.10
|
|
|
|
9/17/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,500
|
|
|
|
|
|
|
|
|
|
|
|
22.22
|
|
|
|
1/3/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,863
|
|
|
|
|
|
|
|
|
|
|
|
27.50
|
|
|
|
12/2/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marty Magill
|
|
|
12,500
|
|
|
|
37,500
|
|
|
|
|
|
|
|
22.31
|
|
|
|
4/28/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bill Masters**
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
19.90
|
|
|
|
10/4/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,790
|
|
|
|
|
|
|
|
|
|
|
|
27.50
|
|
|
|
12/2/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark Adkison
|
|
|
|
|
|
|
8,170
|
|
|
|
|
|
|
|
22.45
|
|
|
|
12/20/2014
|
|
|
|
2,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,275
|
|
|
|
3,825
|
|
|
|
|
|
|
|
27.50
|
|
|
|
12/2/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,510
|
|
|
|
|
|
|
|
15.20
|
|
|
|
9/7/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
As of May 21, 2007, Mr. Smiths and
Mr. Baskins employment with NMHC was terminated.
|
|
**
|
|
As of May 21, 2007, Mr. Masters employment
relationship as NMHCs Chief Information Officer was
terminated. However, Mr. Masters provided consulting
services to NMHC through June 28, 2007.
|
|
(1)
|
|
The options granted to the executive officers vest in equal
annual installments over a period of four years except the
following: (i) the option to purchase 100,000 shares
granted to Mr. Erickson vests upon a change of control;
(ii) the option to purchase 40,000 shares granted to
Mr. Smith vests in equal annual installments over a period
of five years; (iii) the option to purchase
50,000 shares granted to Mr. Adkison vests in equal
annual installments over a period of three years; and
(iv) the option to purchase 8,170 shares granted to
Mr. Adkison is subject to four year-cliff vesting.
|
|
(2)
|
|
Subject to four year cliff-vesting.
|
A-27
Director
Compensation in Fiscal 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
Fees
|
|
|
|
|
|
|
|
Nonqualified
|
|
|
|
|
|
|
Earned or
|
|
Stock
|
|
|
|
Non-Equity
|
|
Deferred
|
|
|
|
|
|
|
Paid in
|
|
Awards
|
|
Option
|
|
Incentive Plan
|
|
Compensation
|
|
All Other
|
|
|
Name
|
|
Cash ($)(1)
|
|
($)
|
|
Awards ($)
|
|
Compensation ($)
|
|
Earnings ($)
|
|
Compensation ($)
|
|
Total ($)
|
|
Michael B. Ajouz(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gerald Angowtiz
|
|
|
92,500
|
|
|
|
2,990
|
|
|
|
100,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
195,695
|
|
Harry G. Durity
|
|
|
|
|
|
|
|
|
|
|
102,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102,873
|
|
Michael T. Flaherman(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert R. Grusky(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel B. Hébert
|
|
|
71,250
|
|
|
|
2,990
|
|
|
|
21,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95,851
|
|
Steven B. Klinksy(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul Konigsberg
|
|
|
88,750
|
|
|
|
2,990
|
|
|
|
100,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
191,945
|
|
James F. Smith(2)
|
|
|
347,596
|
|
|
|
80,677
|
|
|
|
570,534
|
|
|
|
45,000
|
|
|
|
|
|
|
|
4,077
|
|
|
|
1,047,885
|
|
David E. Shaw(3)(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Mr. Erickson, our Chairman of the Board of Directors, is
also a named executive officer of NMHC and his compensation is
reflected in the Summary Compensation Table. He is not included
in this table
|
|
(2)
|
|
Mr. Smith resigned as a member of the Board of Directors,
effective August 17, 2007. See the Summary Compensation
Table for compensation information.
|
|
(3)
|
|
Mr. Shaw resigned from our Board of Directors effective
February 23, 2007.
|
|
(4)
|
|
Messrs. Ajouz, Durity, Flaherman, Grusky and Klinsky (and
Shaw until his resignation) are appointed by New Mountain
Partners and chose not to receive any compensation for serving
as Directors.
|
Potential
Payments Upon Termination or Change in Control
Mr. Smith, Mr. Baskin and Mr. Masters departed
NMHC during fiscal 2007. NMHC entered into departure and general
release agreements with these named executive officers (and
additionally with respect to Mr. Masters, a consulting
agreement) in order to clarify the parties obligations
going forward. NMHCs obligations under these new
agreements were in lieu of the severance obligations owed to the
executives under their existing employment agreements. Please
see the section titled Separation, Consulting, &
General Release Agreements beginning on
page A-20
for additional information regarding the terms of these
agreements.
On March 12, 2007, Mr. Erickson was granted an option
to purchase 100,000 shares of NMHC Common Stock at an
exercise price of $14.02 per share in connection with his
appointment as NMHCs Chairman of the Board of Directors
(see
page A-20
for the details of the grant). In the event Mr. Erickson
(i) resigns at the request of the Board of Directors or is
otherwise involuntarily terminated (in either case other than
for cause) and (ii) a change of control has occurred,
Mr. Ericksons option shall vest and become fully
exercisable. Mr. Ericksons option also vests and
becomes fully exercisable in the event of a change of control
prior to February 23, 2008. Assuming
Mr. Ericksons option vested and became fully
exercisable, the intrinsic value of such option award as of the
end of NMHCs most recent fiscal year based on the closing
price of NMHC Common Stock on June 29, 2007 was $198,000.
A-28
The following table shows the approximate, potential payments
upon termination or a change of control of NMHC on June 29,
2007 for Mr. Erickson:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary
|
|
|
|
Termination
|
|
|
|
|
Resignation or
|
|
|
|
without Cause and
|
|
|
|
|
Termination
|
|
|
|
a Change in
|
|
Disability or
|
|
|
with Cause
|
|
Termination
|
|
Control
|
|
Death
|
Name Executive Benefits and Payments
|
|
on
|
|
without Cause on
|
|
on
|
|
on
|
Upon Termination ($)
|
|
6/29/2007
|
|
6/29/2007
|
|
6/29/2007
|
|
6/29/2007
|
|
Thomas W. Erickson
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance Payments(1)
|
|
|
|
|
|
|
163,000
|
|
|
|
163,000
|
|
|
|
163,000
|
|
Accelerated Vesting of Options(2)
|
|
|
|
|
|
|
|
|
|
|
198,000
|
|
|
|
68,894
|
(3)
|
Total:
|
|
|
|
|
|
|
163,000
|
|
|
|
361,000
|
|
|
|
231,894
|
|
|
|
|
(1)
|
|
Mr. Ericksons chairman agreement provides that, if
during the first year of the term Mr. Ericksons
service on the Board ends for any reason (other than the
voluntary resignation of Mr. Erickson or
Mr. Ericksons termination for cause (generally
defined to include the termination of Mr. Erickson by NMHC
for the commission by Mr. Erickson of a felony or the
commission by Mr. Erickson of a fraudulent or dishonest act
that has had or could reasonably be expected to have a material
adverse effect on NMHC or a material breach by Mr. Erickson
of his obligations under the chairman agreement), NMHC shall
continue to pay Mr. Erickson the base compensation for the
remainder of the first year of the term as if
Mr. Ericksons service had continued for the full year.
|
|
(2)
|
|
Accelerated vesting of stock options is triggered upon a change
of control (whether or not Mr. Ericksons service is
terminated). Accelerated vesting of stock option amounts are
calculated as the difference between the market price of NMHC
Common Stock on June 29, 2007 ($16.00 per share) and the
respective exercise prices of in-the-money unvested stock
options.
|
|
(3)
|
|
If Mr. Ericksons service as a director terminates
during the first year of the term as a result of his death or
disability, and a change of control should later occur during
the term of the option, then a portion of the option to purchase
100,000 shares (proportionate to the number of days of service
Erickson completed prior to his death or permanent and total
disability compared to 365) shall vest immediately upon and
be exercisable by Mr. Erickson (or his estate or personal
representative) in connection with the change in control.
|
During fiscal 2007, NMHCs employment of each of
Mr. Diamond, Mr. Magill and Mr. Adkison was
subject to the terms of an offer letter, which provided
severance benefits for the executive in connection with the
termination of his employment without cause and for certain
other reasons. The Compensation Committee determined in late
fiscal 2007 that it was in the best interests of NMHC to begin
negotiating new employment agreements with all of the executive
officers, excluding Mr. Erickson. The Compensation
Committees determination was based in part, on the desire
to have a consistent agreement with each of NMHCs
executive officers and, in part, on the desire to clarify the
terms of each executive officers employment with NMHC. The
basic terms of these agreements were approved by the
Compensation Committee on August 8, 2007 and
Mr. Erickson was authorized to negotiate the specific terms
of the employment agreements with each executive officer.
The definitive employment agreements were entered into in
November 2007 after the Compensation Committee approved the
final terms of the employment agreements and the actions taken
by Mr. Erickson in connection with negotiating the
employment agreements. Please see the section titled
Employment Agreements and Certain Payments to Named
Executive Officers Upon Termination of Employment
beginning on
page A-22
for additional information regarding these employment
agreements. Had the new employment agreements been in effect as
of the end of fiscal 2007, in the event of a termination of
employment without cause as of June 29, 2007,
Mr. Diamond would have received a severance payment of
$300,000, plus certain benefits (estimated to be worth $10,203);
Mr. Magill would have received a severance payment of
$275,000, plus certain benefits (estimated to be worth $10,203);
and Mr. Adkison would have received a severance payment of
$220,000, plus certain benefits (estimated to be worth $10,203).
Cause is generally defined to include termination of
the executive as a result of (i) the failure of the
executive to substantially perform their duties, (ii) the
executive engaging in misconduct that has caused or is
reasonably expected by the Board to cause material injury to
NMHC, (iii) executives violation of any material NMHC
policy, (iv) executives
A-29
indictment or conviction of, or entering a plea of guilty or
nolo contendere to, a crime that constitutes a felony or
(v) the material breach by the executive of any of
executives obligations under his employment agreement or
any other agreement with NMHC. In the event such termination of
employment followed a change of control, Mr. Diamond would
have received a severance payment of $450,000, plus certain
benefits (estimated to be worth $10,203); Mr. Magill would
have received a severance payment of $412,500, plus certain
benefits (estimated to be worth $10,203); and Mr. Adkison
would have received a severance payment of $330,000, plus
certain benefits (estimated to be worth $10,203). Subject to
certain exceptions, a change of control will
generally be deemed to take place if (A) any person becomes
the beneficial owner of a majority of the outstanding equity of
NMHC, (B) NMHC merges or consolidates with any other entity
(other than a merger or consolidation which results in the
voting equity of NMHC outstanding immediately prior thereto
continuing to represent at least a majority of the combined
voting power of the voting securities of NMHC or such surviving
entity outstanding immediately after such merger or
consolidation), (C) NMHC sells or disposes of all or
substantially all of NMHCs assets in one transaction or a
series of related transactions or NMHC files a periodic or
current report or proxy statement with the SEC disclosing that a
change in control of NMHC has occurred; or (D) if, as a
result of nominations made by a person or group other than the
Board, individuals who prior to such nominations constitute the
directors of NMHC cease for any reason to constitute at least a
majority thereof within the two year period following such
nominations.
The following table shows the approximate, potential payments
upon termination or a change of control of NMHC on June 29,
2007 for Messrs. Diamond, Magill and Adkison:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary
|
|
|
|
|
|
|
|
|
|
|
Resignation or
|
|
|
|
Termination
|
|
|
|
|
|
|
Termination
|
|
|
|
following a Change
|
|
|
|
|
|
|
with Cause
|
|
Termination
|
|
in Control
|
|
Disability
|
|
Death
|
Name Executive Benefits and Payments
|
|
on
|
|
without Cause on
|
|
on
|
|
on
|
|
on
|
Upon Termination ($)
|
|
6/29/2007
|
|
6/29/2007
|
|
6/29/2007
|
|
6/29/2007
|
|
6/29/2007
|
|
Stuart Diamond
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance Compensation(1)
|
|
|
|
|
|
|
300,000
|
|
|
|
|
|
|
|
300,000
|
|
|
|
299,883
|
|
Change in Control Compensation(2)
|
|
|
|
|
|
|
|
|
|
|
450,000
|
|
|
|
|
|
|
|
|
|
Accelerated Vesting of Options(3)
|
|
|
|
|
|
|
|
|
|
|
17,248
|
|
|
|
|
|
|
|
|
|
Accelerated Vesting of Restricted Stock
|
|
|
|
|
|
|
|
|
|
|
137,600
|
|
|
|
|
|
|
|
|
|
Insurance Benefit Payments(4)
|
|
|
|
|
|
|
10,203
|
|
|
|
10,203
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
310,203
|
|
|
|
615,051
|
|
|
|
300,000
|
|
|
|
299,883
|
|
Marty Magill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance Compensation(1)
|
|
|
|
|
|
|
275,000
|
|
|
|
|
|
|
|
275,000
|
|
|
|
274,883
|
|
Change in Control Compensation(2)
|
|
|
|
|
|
|
|
|
|
|
412,500
|
|
|
|
|
|
|
|
|
|
Accelerated Vesting of Options(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated Vesting of Restricted Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance Benefit Payments(4)
|
|
|
|
|
|
|
10,203
|
|
|
|
10,203
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
285,203
|
|
|
|
422,703
|
|
|
|
275,000
|
|
|
|
274,883
|
|
Mark Adkison
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance Compensation(1)
|
|
|
|
|
|
|
220,000
|
|
|
|
|
|
|
|
220,600
|
|
|
|
220,483
|
|
Change in Control Compensation(2)
|
|
|
|
|
|
|
|
|
|
|
330,000
|
|
|
|
|
|
|
|
|
|
Accelerated Vesting of Options(3)
|
|
|
|
|
|
|
|
|
|
|
7,608
|
|
|
|
|
|
|
|
|
|
Accelerated Vesting of Restricted Stock
|
|
|
|
|
|
|
|
|
|
|
41,920
|
|
|
|
|
|
|
|
|
|
Insurance Benefit Payments(4)
|
|
|
|
|
|
|
10,203
|
|
|
|
10,203
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
230,203
|
|
|
|
389,731
|
|
|
|
220,600
|
|
|
|
240,483
|
|
A-30
|
|
|
(1)
|
|
Each executive is entitled to receive an amount equal to 100% of
the executives annual base salary (at the highest rate in
effect for the six month period immediately prior to the date of
termination) (the
Severance Compensation
) if
they are terminated without cause. In the event of a termination
due to disability, the executive is entitled to receive the
difference between the Severance Compensation and an amount
equal to the product of (i) any payment or payments payable
to the executive during the 12 month period following the
time of termination under any long-term disability policy
multiplied by (ii) the percentage of the premiums under
such policy that were paid by NMHC. In the event of a
termination due to death, the executive is entitled to receive
the difference between the Severance Compensation and an amount
equal to the product of (i) any payment or payments payable
to executives beneficiaries under any life insurance
policy multiplied by (ii) the percentage of the premiums
under such policy that were paid by NMHC.
|
|
(2)
|
|
In the event of a termination within two years following a
change in control, each executive is entitled to receive a lump
sum payment in an amount equal to 150% of the executives
annual base salary (at the highest rate in effect during the
period beginning six months immediately prior to the effective
date of the change in control through the date of termination).
|
|
(3)
|
|
Accelerated vesting of stock options is triggered upon a change
of control (whether or not the executives service is
terminated). Accelerated vesting of stock option amounts are
calculated as the difference between the market price of NMHC
Common Stock on June 29, 2007 ($16.00 per share) and the
respective exercise prices of in-the-money unvested stock
options.
|
|
(4)
|
|
In the event of a termination without cause or a termination
following a change in control, each executive is also entitled
to receive (in periodic installments until the end of the
applicable COBRA period) (i) COBRA payments in respect of
the continuation of health benefits for the executive, the
executives spouse and the executives children and
(ii) payments to fund dental coverage for the executive,
the executives spouse and the executives children
comparable to the dental coverage that they would have received
if the executive had continued as an employee of NMHC.
|
Security
Ownership of Certain Beneficial Owners and Management
The following tables set forth certain information, as of
March 14, 2008, concerning the persons or entities known to
us to be the beneficial owner of more than 5% of the shares of
NMHC Common Stock as well as the number of shares of NMHC Common
Stock that our directors and certain executive officers
beneficially own, and that our directors and executive officers
own as a group. Except as otherwise indicated below, each of the
entities or persons named in the table has sole voting and
investment power with respect to all shares of NMHC Common Stock
beneficially owned. Unless otherwise indicated, the business
address of each stockholder listed below is
c/o National
Medical Health Card Systems, Inc., 26 Harbor Park Drive, Port
Washington, New York 11050.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
Percentage
|
|
Name and Address of Beneficial Owner
|
|
Title of Class
|
|
Beneficially Owned
|
|
|
Owned
|
|
|
Principal Stockholders:
|
|
|
|
|
|
|
|
|
|
|
New Mountain Partners, L.P.
787 Seventh Avenue,
49
th
Floor
New York, NY 10019
|
|
series A convertible
preferred stock
|
|
|
6,790,797
|
(1)(2)
|
|
|
53.7
|
%**
|
New Mountain Affiliated Investors, L.P.
787 Seventh Avenue,
49
th
Floor
New York, NY 10019
|
|
series A convertible
preferred stock
|
|
|
165,725
|
(1)(2)
|
|
|
2.7
|
%**
|
Discovery Group I, LLC(3)
191 North Wacker Drive, Suite 1685
Chicago, IL 60606
|
|
common stock
|
|
|
968,120
|
|
|
|
16.5
|
%
|
Galleon Management, L.P.(4)
|
|
common stock
|
|
|
413,052
|
|
|
|
7.0
|
%
|
T. Rowe Price Associates, Inc.(5)
100 E. Pratt Street
Baltimore, MD 21202
|
|
common stock
|
|
|
342,810
|
|
|
|
5.8
|
%
|
A-31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
|
|
|
Stock Option
|
|
|
|
|
|
|
|
|
|
|
|
Grants
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
within 60
|
|
|
|
|
|
|
|
|
|
|
|
Days of
|
|
|
|
|
|
|
|
|
|
|
|
March 14,
|
|
|
Percentage
|
|
Name of Beneficial Owner
|
|
Title of Class
|
|
Shares Owned
|
|
|
2008
|
|
|
Owned
|
|
|
Directors and Executive Officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven B. Klinsky(6)
|
|
series A convertible
preferred stock
|
|
|
6,956,522
|
(2)
|
|
|
|
|
|
|
53.7
|
%**
|
Michael B. Ajouz(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gerald Angowitz
|
|
common stock
|
|
|
7,100
|
|
|
|
29,480
|
|
|
|
*
|
|
G. Harry Durity
|
|
common stock
|
|
|
|
|
|
|
20,980
|
|
|
|
*
|
|
Thomas W. Erickson(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael T. Flaherman(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert R. Grusky(10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel B. Hébert
|
|
common stock
|
|
|
3,000
|
|
|
|
2,500
|
|
|
|
*
|
|
Paul Konigsberg
|
|
common stock
|
|
|
3,000
|
|
|
|
29,480
|
|
|
|
*
|
|
David E. Shaw(11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James F. Smith
|
|
common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Stuart Diamond
|
|
common stock
|
|
|
54,600
|
|
|
|
48,458
|
|
|
|
1.7
|
%
|
Bill Masters
|
|
common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark Adkison
|
|
common stock
|
|
|
41,020
|
|
|
|
61,054
|
|
|
|
1.7
|
%
|
Tery Baskin
|
|
common stock
|
|
|
100,375
|
|
|
|
|
|
|
|
*
|
|
Martin Magill
|
|
common stock
|
|
|
30,000
|
|
|
|
25,000
|
|
|
|
*
|
|
All executive officers and directors as a group (13 persons)
|
|
common stock
|
|
|
7,150,242
|
|
|
|
216,952
|
|
|
|
56.5
|
%**
|
|
|
|
*
|
|
Less than 1%.
|
|
**
|
|
Assuming the conversion into NMHC Common Stock of the shares of
NMHC Convertible Preferred Stock held by such person.
|
|
(1)
|
|
This information is based upon a Schedule 13D/A filed by
New Mountain Partners, L.P., New Mountain Affiliated Investors,
L.P., New Mountain GP, LLC, New Mountain Investments, L.P. and
Steven B. Klinsky, with the Securities and Exchange Commission
on February 27, 2008, assuming the conversion into NMHC
Common Stock of (a) in the case of New Mountain Partners,
L.P. and New Mountain Affiliated Investors, L.P., the shares of
series A redeemable convertible preferred stock held by
such person and (b) in the case of Mr. Klinsky and all
executive officers and directors as a group, the shares of
series A redeemable convertible preferred stock held by
both New Mountain Partners, L.P. and New Mountain Affiliated
Investors, L.P. See footnote 3 of NMHCs audited financial
statements in NMHCs Annual Report on
Form 10-K
for a full description of the series A redeemable
convertible preferred stock.
|
|
(2)
|
|
As an inducement to enter into the Merger Agreement, and in
consideration thereof, SXC entered into Stockholder Agreements
with New Mountain Partners and NMHC. Pursuant to the Stockholder
Agreements, New Mountain Partners has agreed to tender in the
Offer all shares of NMHC Common Stock issuable upon the
conversion of its shares of NMHC Convertible Preferred Stock.
New Mountain Partners also has agreed, if a stockholder vote is
required by applicable law, to vote all of its shares of NMHC
Stock in favor of the Merger. In the event that the Merger
Agreement is terminated by NMHC in order to accept a superior
proposal, New Mountain Partners tender and voting
obligations will terminate. In the event that the Board makes a
change in recommendation with respect to the Merger
Agreement or the transactions contemplated thereby, other than
in connection with a superior proposal, New Mountain Partners
will be obligated to tender in the Offer only shares
representing 30% of the outstanding shares of NMHC Stock at that
time and to vote in favor of the Merger only shares representing
30% of the total vote of the shares of NMHC Stock entitled to
vote on such matter. On March 6, 2008, SXC filed a
Schedule 13D reporting this interest.
|
A-32
|
|
|
(3)
|
|
This information is based upon a Schedule 13G/A filed by
Discovery Group I, LLC, Discovery Equity Partners, L.P.,
Daniel J. Donoghue and Michael R. Murphy, as a group, with the
Securities and Exchange Commission on February 14, 2008. As
indicated therein, Discovery Group I, LLC, Daniel J.
Donoghue and Michael R. Murphy had the shared voting and
investment power of the 968,120 shares reported as
beneficially owned. As of such date, Discovery Equity Partners,
L.P. was the beneficial owner of 822,710 shares for which
Discovery Group I, LLC, Daniel J. Donoghue and Michael R.
Murphy had the shared voting and investment power. Discovery
Equity Partners, L.P., Mr. Donoghue and Mr. Murphy are
located at: Hyatt Center, 24th Floor, 71 South Wacker Drive,
Chicago, Illinois 60606.
|
|
(4)
|
|
This information is based on a Schedule 13G/A filed by Raj
Rajaratnam, Galleon Management, L.P. and Galleon Healthcare
Offshore, LTD, as a group, with the Securities and Exchange
Commission on February 14, 2008. As indicated thereon, Raj
Rajaratnam and Galleon Management, L.P. had the shared voting
and investment power of the 413,052 shares reported as
beneficially owned. As of such date, Galleon Healthcare
Offshore, LTD was the beneficial owner of 397,202 shares
for which Raj Rajaratnam and Galleon Management, L.P. had the
shared voting and investment power. Raj Rajaratnam, Galleon
Management, L.P. and Galleon Healthcare Offshore, LTD are
located at: 590 Madison Avenue, 34th Floor, New York, NY 10022.
|
|
(5)
|
|
This information is based upon a Schedule 13G/A filed by T.
Rowe Price Associates, Inc. (
T. Rowe Price
)
with the Securities and Exchange Commission on February 13,
2008. T. Rowe Price has reported therein that it has sole
investment discretion over all 342,810 shares and sole
voting authority over 61,100 of such shares.
|
|
(6)
|
|
New Mountain Investments, L.P. (
NMI
) is the
general partner of New Mountain Partners, L.P. New Mountain GP,
LLC (
NM
) is the general partner of each of
NMI and New Mountain Affiliated Investors, L.P. Mr. Klinsky
is the sole member of NM; his address is 787 Seventh Avenue,
49th Floor, New York, NY 10019. Each of Mr. Klinsky and NM
disclaims beneficial ownership of the shares that may be owned
by New Mountain Partners, L.P., New Mountain Affiliated
Investors, L.P. and NMI, except to the extent of his and its
pecuniary interest therein.
|
|
(7)
|
|
Mr. Ajouz is a limited partner in NMI which is the general
partner of New Mountain Partners, L.P. Mr. Ajouz disclaims
beneficial ownership of the shares owned by New Mountain
Partners, L.P., except to his pecuniary interest therein.
|
|
(8)
|
|
Mr. Erickson was appointed by New Mountain Partners, L.P.
and New Mountain Affiliated Investors, L.P. and elected to our
Board of Directors as Chairman on February 23, 2007 to fill
the vacancy created by the resignation of Mr. Shaw.
Mr. Erickson was appointed interim Chief Executive Officer
and President on May 21, 2007. See
pages A-20
and A-21 for a description of his compensation including the
grant of an option to purchase 100,000 shares of NMHC
Common Stock.
|
|
(9)
|
|
Mr. Flaherman is a limited partner in NMI which is the
general partner of New Mountain Partners, L.P.
Mr. Flaherman disclaims beneficial ownership of the shares
owned by New Mountain Partners, L.P., except to his pecuniary
interest therein.
|
|
(10)
|
|
Mr. Grusky is a limited partner in NMI which is the general
partner of New Mountain Partners, L.P. Mr. Grusky disclaims
beneficial ownership of the shares owned by New Mountain
Partners, L.P., except to his pecuniary interest therein.
|
|
(11)
|
|
Mr. Shaw, a director appointed by New Mountain Partners,
L.P. and New Mountain Affiliated Investors, L.P., resigned from
our Board of Directors, effective February 23, 2007.
|
Pursuant to the Merger Agreement, Offeror commenced the Offer on
March 31, 2008, to purchase each outstanding share of NMHC
Common Stock for (i) $7.70 in cash, without interest, and
(ii) 0.217 of a validly issued, fully paid nonassessable
common share of SXC, without interest and less any applicable
withholding taxes, upon the terms and conditions set forth in
the Offer to Purchase. The Merger Agreement provides that,
following the acquisition of NMHC Common Stock pursuant to the
Offer, upon the terms contained in the Merger Agreement and in
accordance with the DGCL, Offeror will merge with and into NMHC,
the separate corporate existence of Offeror will cease, and NMHC
will continue as the surviving corporation and as an indirect,
wholly owned subsidiary of SXC.
A-33
Annex B
Opinion
of J.P. Morgan Securities Inc.
February 25,
2008
The Board of Directors
National Medical Health Card Systems, Inc.
26 Harbor Park Drive
Port Washington, NY 11050
Members of the Board of Directors:
You have requested our opinion as to the fairness, from a
financial point of view, to the holders of common stock, par
value $0.001 per share (the Company Common Stock),
of National Medical Health Card Systems, Inc. (the
Company), of the consideration to be paid to such
holders in the proposed Exchange Offer and Merger (each as
defined below) pursuant to the Agreement and Plan of Merger,
dated as of February 25, 2008 (the Agreement),
among the Company, SXC Health Solutions Corp. (the
Acquiror), SXC Health Solutions, Inc., a
wholly-owned subsidiary of the Acquiror, and its wholly-owned
subsidiary, Comet Merger Corporation (Acquisition
Sub). Pursuant to the Agreement, the Acquiror will cause
Acquisition Sub to commence an exchange offer for all the shares
of the Company Common Stock (the Exchange Offer) for
consideration per share equal to (i) $7.70 in cash (the
Cash Consideration) and (ii) 0.217 of a share
(the Stock Consideration and, together with the Cash
Consideration, the Consideration) of the
Acquirors common stock, without par value (the
Acquiror Common Stock). The Agreement further
provides that, following completion of the Exchange Offer,
Acquisition Sub will be merged with and into the Company (the
Two Step Merger) and each outstanding share of
Company Common Stock, other than shares of Company Common Stock
held in treasury or owned by the Acquiror and its affiliates and
Dissenting Shares (as defined in the Agreement), will be
converted into the right to receive the Consideration.
The Agreement also provides that under certain conditions,
Acquisition Sub would terminate the Exchange Offer and seek to
consummate the acquisition of the Company by Acquiror by a
merger of Acquisition Sub with and into the Company (the
One Step Merger) whereby each issued and outstanding
share of Company Common Stock as of the effective time of the
One Step Merger would be converted into the right to receive the
Consideration following adoption of the Agreement by the
stockholders of the Company. The One Step Merger and the Two
Step Merger are referred to collectively herein as the
Merger. The Exchange Offer and the Merger, together
and not separately, are referred to herein as the
Transaction.
In arriving at our opinion, we have (i) reviewed the
Agreement; (ii) reviewed certain publicly available
business and financial information concerning the Company and
the Acquiror and the industries in which they operate;
(iii) compared the proposed financial terms of the
Transaction with the publicly available financial terms of
certain transactions involving companies we deemed relevant and
the consideration received for such companies;
(iv) compared the financial and operating performance of
the Company and the Acquiror with publicly available information
concerning certain other companies we deemed relevant and
reviewed the current and historical market prices of the Company
Common Stock and the Acquiror Common Stock and certain publicly
traded securities of such other companies; (v) reviewed
certain internal financial analyses and forecasts prepared by or
at the direction of the managements of the Company and the
Acquiror relating to their respective businesses, as well as the
estimated amount and timing of the cost savings and related
expenses and synergies expected to result from the Transaction
(the Synergies); and (vi) performed such other
financial studies and analyses and considered such other
information as we deemed appropriate for the purposes of this
opinion.
In addition, we have held discussions with certain members of
the management of the Company and the Acquiror with respect to
certain aspects of the Transaction, and the past and current
business operations of the Company and the Acquiror, the
financial condition and future prospects and operations of the
Company and the Acquiror, the effects of the Transaction on the
financial condition and future prospects of the Company and the
Acquiror, and certain other matters we believed necessary or
appropriate to our inquiry.
B-1
In giving our opinion, we have relied upon and assumed the
accuracy and completeness of all information that was publicly
available or was furnished to or discussed with us by the
Company and the Acquiror or otherwise reviewed by or for us, and
we have not independently verified (nor have we assumed
responsibility or liability for independently verifying) any
such information or its accuracy or completeness. We have not
conducted or been provided with any valuation or appraisal of
any assets or liabilities, nor have we evaluated the solvency of
the Company or the Acquiror under any state or federal laws
relating to bankruptcy, insolvency or similar matters. In
relying on financial analyses and forecasts provided to us or
derived therefrom, including the Synergies, we have assumed that
they have been reasonably prepared based on assumptions
reflecting the best currently available estimates and judgments
by management as to the expected future results of operations
and financial condition of the Company and the Acquiror to which
such analyses or forecasts relate. We express no view as to such
analyses or forecasts (including the Synergies) or the
assumptions on which they were based. We have also assumed that
the Transaction and the other transactions contemplated by the
Agreement will have the tax consequences described in
discussions with, and materials furnished to us by,
representatives of the Company, and will be consummated as
described in the Agreement, and that the definitive Agreement
will not differ in any material respects from the draft thereof
furnished to us. We have also assumed that the representations
and warranties made by the Company and the Acquiror in the
Agreement and the related agreements are and will be true and
correct in all respects material to our analysis. We are not
legal, regulatory or tax experts and have relied on the
assessments made by advisors to the Company with respect to such
issues. We have further assumed that all material governmental,
regulatory or other consents and approvals necessary for the
consummation of the Transaction will be obtained without any
adverse effect on the Company or the Acquiror or on the
contemplated benefits of the Transaction.
Our opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available
to us as of, the date hereof. It should be understood that
subsequent developments may affect this opinion and that we do
not have any obligation to update, revise, or reaffirm this
opinion. Our opinion is limited to the fairness, from a
financial point of view, of the Consideration to be received by
the holders of the Company Common Stock in the proposed
Transaction and we express no opinion as to the fairness of the
Transaction to, or any consideration received in connection
therewith by, the holders of any other class of securities,
creditors or other constituencies of the Company or as to the
underlying decision by the Company to engage in the Transaction.
Furthermore, we express no opinion with respect to the amount or
nature of any compensation to any officers, directors, or
employees of any party to the Transaction, or any class of such
persons relative to the Consideration to be received by the
holders of the Company Common Stock in the Transaction or with
respect to the fairness of any such compensation. We are
expressing no opinion herein as to the price at which the
Company Common Stock or the Acquiror Common Stock will trade at
any future time.
We have acted as financial advisor to the Company with respect
to the proposed Transaction and will receive a fee from the
Company for our services, which fee will become payable only if
the proposed Transaction is consummated. In addition, the
Company has agreed to indemnify us for certain liabilities
arising out of our engagement. During the two years preceding
the date of this letter, we and our affiliates have had
commercial or investment banking relationships with the Company
and the Acquiror, for which we and our affiliates have received
customary compensation. Such services during such period have
included acting as co-manager of the Acquirors NASDAQ
initial public offering in June 2006. In addition, we and our
affiliates provide various financial services to the Company and
the Acquiror and our commercial banking affiliate is an agent
bank and a lender under outstanding credit facilities of the
Company, for which we and our affiliates receive customary
compensation or other financial benefits. We and our affiliates
have also been engaged on behalf of the portfolio companies of
the private investment firm whose affiliates own a majority of
the voting power of the Companys stock, and we and our
affiliates have received customary fees for such engagements. In
the ordinary course of our businesses, we and our affiliates may
actively trade the debt and equity securities of the Company or
the Acquiror for our own account or for the accounts of
customers and, accordingly, we may at any time hold long or
short positions in such securities.
B-2
On the basis of and subject to the foregoing, it is our opinion
as of the date hereof that the Consideration to be received by
the holders of the Company Common Stock in the proposed
Transaction is fair, from a financial point of view, to such
holders.
The issuance of this opinion has been approved by a fairness
opinion committee of J.P. Morgan Securities Inc. This
letter is provided to the Board of Directors of the Company in
connection with and for the purposes of its evaluation of the
Transaction. This opinion does not constitute a recommendation
to any stockholder of the Company as to how such stockholder
should vote with respect to the Transaction or any other matter.
This opinion may not be disclosed, referred to, or communicated
(in whole or in part) to any third party for any purpose
whatsoever except with our prior written approval. This opinion
may be reproduced in full in any tender offer materials or proxy
or information statement mailed to stockholders of the Company
in connection with the Transaction but may not otherwise be
disclosed publicly in any manner without our prior written
approval.
Very truly yours,
J.P. MORGAN SECURITIES INC.
B-3
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