UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
Form
8-K
Current
Report
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date
of Report (Date of earliest event reported): November 18,
2006
Netsmart
Technologies, Inc.
(Exact
name of Registrant as Specified in its Charter)
|
Delaware
|
000-21177
|
13-3680154
|
|
(State
or other jurisdiction
|
(Commission
|
(IRS
Employer
|
|
of
incorporation
|
File
No.)
|
Identification
No.)
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3500
Sunrise Highway, Great River, New York 11739
(Address
of Principal Executive Office)
Registrant’s
telephone number, including area code: (631) 968-2000.
Item
1.01 Entry Into a Material Definitive Agreement.
On
November 18, 2006, Netsmart Technologies, Inc., a Delaware corporation (the
“Company”), entered into an Agreement and Plan of Merger (the “Agreement”) with
NT Acquisition, Inc., a Delaware corporation (“Buyer”) and NT Merger Sub, Inc.,
a Delaware corporation (“MergerSub”), and NT Acquisition, Inc., a Delaware
corporation (“Buyer”). Under the terms of the Agreement, Merger Sub will be
merged with and into the Company (the “Merger”), the separate corporate
existence of Merger Sub will cease with the Company continuing as the surviving
corporation (the “Surviving Corporation”). Merger Sub and Buyer
are controlled by funds which are affiliated with Insight Venture Partners,
a private equity firm. Such affiliated funds and certain affiliated funds of
Bessemer Venture Partners, a private equity firm (collectively, the
“Sponsors”), have entered into equity commitment letters to finance the
equity portion of the purchase price with participation by members of the
Company’s existing management.
At
the
effective time of the Merger, each outstanding share of common stock of the
Company (the “Common Stock”), other than any shares owned by Merger Sub, its
affiliates, the Company or any shareholders who are entitled to and who properly
exercise appraisal rights under Delaware law, will be cancelled and converted
into the right to receive $16.50 in cash, without interest. Warrant holders
and
option holders will be entitled to receive the difference between the exercise
price of such security and $16.50 per share in cash.
The
Board
of Directors of the Company (with James L. Conway, the Company’s Chairman and
Chief Executive Officer abstaining) approved the Merger Agreement on the
unanimous recommendation of a Special Committee comprised entirely of
independent directors (the “Special Committee”).
Mr.
Conway and certain other members of the Company’s existing management have
agreed to reinvest a portion of their Company equity or options into the
Surviving Corporation or an affiliate thereof. Mr. Conway and each of the
Company’s other directors and members of senior management who hold an aggregate
approximately 14.7% of the Company’s outstanding common stock (including 549,878
shares issuable currently or within 60 days upon exercise of outstanding
options), have also agreed to vote their shares in favor of the Merger and
to
refrain from granting any proxies or entering into any other voting arrangements
with respect to, or assigning, encumbering or otherwise disposing of any of,
their Company shares.
The
Company has made customary representations, warranties and covenants in the
Agreement, which generally expire at the effective time of the Merger. The
Company may not solicit competing proposals or, subject to exceptions that
permit the Company’s Board of Directors (or the Special Committee) to take
actions required by their fiduciary duties, participate in any discussions
or
negotiations regarding alternative business combination transactions.
Merger
Sub and Buyer have obtained conditional equity and debt financing commitments
for the transactions contemplated by the Agreement, the aggregate proceeds
of
which will be sufficient for Merger Sub and Buyer to pay the aggregate merger
consideration and all related fees and expenses. Consummation of the Merger
is
subject to a financing condition, as well as various other conditions, including
approval of the Merger by the Company’s shareholders as described above,
expiration or termination of applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, if applicable, and other
customary closing conditions. The parties expect to close the transaction in
early 2007.
The
Agreement contains termination rights, including if the Company’s Board of
Directors (or the Special Committee) changes its recommendation to the
shareholders as required by its fiduciary duties under applicable law and
provides that, upon the termination of the Agreement, under specified
circumstances, the Company will be required to reimburse Merger Sub, Buyer
and
their affiliates for their transaction expenses up to $ 1,157,463 and that,
under specified circumstances, the Company will be required to pay Buyer a
termination fee of $3,472,388, reduced by the amount paid in respect of
transaction expenses. Additionally, under specified circumstances, Merger Sub
will be required to pay the Company a termination fee of $1,157,463. The
foregoing amounts assume no exercise of options and warrants through the closing
of the merger transaction.
The
foregoing summaries of the Agreement and the transactions contemplated thereby
do not purport to be complete and are subject to, and qualified in their
entirety by, the full text of the Agreement attached as Exhibit 2.1 incorporated
herein by reference.
William
Blair & Company, LLC (“William Blair”) was engaged to serve as financial
advisor to the Special Committee. On November 18, 2006, William Blair delivered
an opinion to the Special Committee that, as of the date of the opinion, the
merger consideration was fair, from a financial point of view, to the
stockholders of the Company (other than Merger Sub and its affiliates and
stockholders who invest in Buyer or Merger Sub).
Other
than the Agreement, there is no material relationship between the Company and
Merger Sub or Buyer.
The
Agreement has been included to provide investors and security holders with
information regarding its terms. It is not intended to provide any other factual
information about the Company. The representations, warranties and covenants
contained in the Agreement were made only for purposes of such agreement and
as
of specific dates, were solely for the benefit of the parties to such agreement,
and may be subject to limitations agreed upon by the contracting parties,
including being qualified by confidential disclosures exchanged between the
parties in connection with the execution of the Agreement. The representations
and warranties may have been made for the purposes of allocating contractual
risk between the parties to the agreement instead of establishing these matters
as facts, and may be subject to standards of materiality applicable to the
contracting parties that differ from those applicable to investors. Investors
are not third-party beneficiaries under the Agreement and should not rely on
the
representations, warranties and covenants or any descriptions thereof as
characterizations of the actual state of facts or condition of the Company,
Merger Sub or Buyer or any of their respective subsidiaries or affiliates.
Moreover, information concerning the subject matter of the representations
and
warranties may change after the date of the Agreement, which subsequent
information may or may not be fully reflected in the Company’s public
disclosures.
Important
Additional Information Regarding the Merger will be filed with the SEC
In
connection with the proposed merger, the Company will file a proxy statement
with the Securities and Exchange Commission (the “SEC”). INVESTORS AND SECURITY
HOLDERS ARE ADVISED TO READ THE PROXY STATEMENT WHEN IT BECOMES AVAILABLE
BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION ABOUT THE MERGER AND THE PARTIES
TO THE MERGER. Investors and security holders may obtain a free copy of the
proxy statement (when available) and other documents filed by the Company at
the
SEC website at http:// www.sec.gov. The proxy statement and other documents
also
may be obtained for free from the Company by directing such request to Netsmart
Technologies, Inc., 3500 Sunrise Highway, Great River, New York 11739, Attn.
Anthony F. Grisanti, telephone (631) 968-2000.
The
Company and its directors, executive officers and other members of its
management and employees may be deemed participants in the solicitation of
proxies from its stockholders in connection with the Merger. Information
concerning the interests of the Company’s participants in the solicitation,
which may be different than those of Company stockholders generally, is set
forth in the Company’s proxy statements and Annual Reports on Form 10-K,
previously filed with the SEC, and will be set forth in the proxy statement
relating to the Merger when it becomes available.
Item
5.02 Departure of Directors or Principal Officers; Election of Directors;
Appointment of Principal Officer; Compensatory Arrangements of Certain
Officers
In
connection with the Merger, each of James L. Conway, the Company’s Chairman and
Chief Executive Officer, and Anthony G. Grisanti, the Company’s Chief Financial
Officer, entered into an Employment Agreement, dated as of November 18, 2006,
with NT Investor Holdings, Inc. (the “Parent”) and the Company (the “Conway
Agreement” and the “Grisanti Agreement,” respectively). These agreements
supersede each executive’s prior employment agreement and any rights he had
under the Company’s Executive Retirement Plan Netsmart
Technologies, Inc. Executive Retirement, Non-Competition and Consulting Plan
effective August 5, 2004 (as amended).
Conway
Agreement. Under
the
terms of the Conway Agreement, Mr. Conway will continue to act as the Chief
Executive Officer of the Company for a term of two years commencing on the
date
of the closing of the Merger, such term to be automatically renewed for
successive one year terms thereafter unless the agreement is terminated pursuant
to its terms. During such time, Mr. Conway will also be the Chief Executive
Officer of the Parent.
On
the
closing of the Merger, Mr. Conway will make an investment in the Parent in
the
form of Company common stock or options to purchase Company common stock,
which
will be exchanged for Parent stock or options to purchase Parent common stock.
During the term of his agreement, Mr. Conway will receive a base salary of
$367,500, which amount may be reviewed periodically for increase (but not
decrease). Mr. Conway will be entitled to receive an annual bonus related
to his
performance beginning with fiscal year 2007. For the 2006 fiscal year, Mr.
Conway is entitled to receive a bonus in the amount of $140,000. Thereafter,
Mr.
Conway is entitled to receive an annual bonus of $225,000 if Company performance
targets are met.
Within
thirty days of the closing of the Merger, upon approval by the compensation
committee, Mr. Conway will be granted an option to purchase shares of Parent
common stock, a portion of which shall be subject to time based vesting and
a
portion of which shall be subject to performance based vesting, which options
shall be memorialized in a stock option agreement pursuant to a stock option
plan to be established by Parent.
In
addition, no later than the tenth day following the closing of the Merger,
Mr.
Conway will receive a special one-time cash bonus in the amount of $1,000,000,
provided that he executes an effective release in favor of the Company and
Parent and certain of their respective affiliates.
If
Mr.
Conway is terminated for cause (as such term is defined in his agreement),
he
will receive his accrued but unpaid salary, and lifetime medical insurance
at a
cost to the Company not to exceed $600 per month. If Mr. Conway terminates
his
employment without good reason (as such term is defined in his agreement),
Mr.
Conway will receive accrued but unpaid salary, any accrued but unpaid bonus
and
his lifetime medical insurance as described in the immediately preceding
sentence. If Mr. Conway is terminated without cause or he terminates for
good
reason, he will receive an amount equal to one year of his then current annual
salary, a bonus prorated for the number of days worked during the year of
termination (assuming that any personal performance criteria applicable to
the
bonus are maximally obtained), the payment of any accrued but unpaid bonus
earned during the year prior to the year in which the termination occurs,
the
lifetime medical insurance described above, and retirement benefits (in a
series
of retirement payments not to exceed $684,465 in the aggregate). In the event
of
Mr. Conway’s death during the employment term, he shall receive the bonus earned
during the year of his death, calculated on a pro-rata basis for the number
of
days worked, any bonus earned but unpaid in the year prior to the year of
his
death, any earned but unpaid salary, and the retirement benefits described
above. If Mr. Conway is terminated due to his disability, he shall receive
the
same benefits as he would upon his death, with the addition of the lifetime
medical insurance described above. Upon any employment termination (other
than a
termination for cause), a portion of the benefits for which the executive
shall
be eligible shall be subject to his (or his representative’s) effective
execution of a release.
If
Mr.
Conway is terminated by the Company without cause or he terminates his
employment for good reason within two years after the closing date of the
Merger, he shall also be eligible to receive an additional payment to negate
the
after-tax effect of a portion of the excise tax he incurs (if any) as a result
of the Merger under the so-called “golden parachute” rules of Internal Revenue
Code Section 280G.
Grisanti
Agreement. Under
the
terms of the Grisanti Agreement, Mr. Grisanti will continue to act as the
Chief
Financial Officer of the Company for a term of two years commencing on the
date
of the closing of the Merger, such term to be automatically renewed for
successive one year terms thereafter unless the agreement is terminated pursuant
to its terms. During such time, Mr. Grisanti will also serve as the Chief
Financial Officer of the Parent.
On
the
closing of the Merger, Mr. Grisanti will make an investment in the Parent
in the
form of Company common stock or options to purchase Company common stock,
which
will be exchanged for Parent common stock or options to purchase Parent common
stock. During the term of his agreement, Mr. Grisanti will receive a base
salary
of $204,750, which amount may be reviewed periodically for increase (but
not
decrease). Mr. Grisanti will be entitled to receive an annual bonus related
to
his performance beginning with fiscal year 2007. For the 2006 fiscal year,
Mr.
Grisanti is entitled to receive a bonus in the amount of $96,000. Thereafter,
Mr. Grisanti will be entitled to receive an annual bonus of $96,000 if certain
performance targets are met.
Within
thirty days of the closing of the Merger, upon approval by the compensation
committee, Mr. Grisanti will be granted an option to purchase shares of Parent
common stock, a portion of which shall be subject to time based vesting and
a
portion of which shall be subject to performance based vesting, which options
shall be memorialized in a stock option agreement pursuant to a stock option
plan to be established by Parent.
In
addition, no later than the tenth day after the closing of the Merger, Mr.
Grisanti will receive a special one-time cash bonus in the amount of $601,500,
provided that he executes an effective release in favor of the Company and
Parent and certain of their affiliates.
If
Mr.
Grisanti is terminated for cause (as such term is defined in his agreement),
he
will receive his accrued but unpaid salary, and lifetime medical insurance
at a
cost to the Company not to exceed $600 per month. If Mr. Grisanti terminates
his
employment without good reason (as such term is defined in his agreement),
Mr.
Grisanti will receive accrued but unpaid salary, any accrued but unpaid bonus
and his lifetime medical insurance as described in the immediately preceding
sentence. If Mr. Grisanti is terminated without cause or he terminates for
good
reason, he will receive an amount equal to one year of his then current annual
salary, a bonus prorated for the number of days worked during the year of
termination (assuming that any personal performance criteria applicable to
the
bonus are maximally obtained), the payment of any accrued but unpaid bonus
earned during the year prior to the year in which the termination occurs,
the
lifetime medical insurance described above, and retirement benefits (in a
series
of retirement payments not to exceed $452,450 in the aggregate). In the event
of
Mr. Grisanti’s death during the employment term, he shall receive the bonus
earned during the year of his death, calculated on a pro-rata basis for the
number of days worked, any bonus earned but unpaid in the year prior to the
year
of the executive’s death, any earned but unpaid salary, and the retirement
benefits described above. If Mr. Grisanti is terminated due to his disability,
he shall receive the same benefits as he would upon his death, with the addition
of the lifetime medical insurance described above. Upon any employment
termination (other than a termination for cause), a portion of the benefits
for
which the executive shall be eligible shall be subject to his (or his
representative’s) effective execution of a release.
To
the
extent that Mr. Grisanti would be subject to the so-called “golden parachute”
rules of Code Section 280G, the payments to which he would be entitled upon
a
termination of employment would be reduced below the threshold at which the
golden parachute exise tax is imposed to the extent such reduction would
enable
him to retain a greater portion of the payments from the Company after
remittance of tax than he would have had he received the unreduced payments.
Additional
Terms Common to the Conway Agreement and Grisanti
Agreement. During
the term of their respective employment agreements, each of Mr. Conway and
Mr.
Grisanti shall be entitled to medical insurance for his dependents and
beneficiaries, disability insurance (including long-term care), accidental
death
and dismemberment insurance and life insurance in accordance with the Company’s
benefit plans. In addition, each executive will receive a monthly car allowance,
five weeks of vacation per calendar year, and reimbursement of reasonable
business expenses.
Mr.
Conway and Mr. Grisanti are each bound by restrictive covenants under his
employment agreement, in partial consideration for certain payments to be
made
under the agreement. Each of the executives is bound to confidentiality in
the
maintenance of trade secrets and proprietary information. Furthermore, each
is
bound to non-compete and non-solicitation covenants during employment and
until
two years after any payments from the Company have ceased following employment.
In addition, each executive agrees not to disparage the Company and agrees
to
take certain actions with respect to inventions and discoveries.
If
the
Merger Agreement is terminated, the closing of the merger does not occur,
or the
executive fails to make an investment in options or shares of the Parent
consistent with the terms of his employment agreement, the agreement shall
become null and void from its inception.
Item
9.01 Financial Statements and Exhibits.
2.1
Agreement and Plan of Merger by and among Netsmart Technologies, Inc., NT
Acquisition, Inc. and NT Merger Sub, Inc. dated as of November 18,
2006
99.1
Press Release
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
|
Netsmart
Technologies, Inc.
/s/James
L. Conway
James
L. Conway
Chief
Executive Officer and Director
(Principal
Executive Officer)
|
November
20, 2006