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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
NOVACARE EMPLOYEE SERVICES, INC.
(NAME OF SUBJECT COMPANY)
NOVACARE EMPLOYEE SERVICES, INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
66986 Q 10
(CUSIP NUMBER OF CLASS OF SECURITIES)
LOREN J. HULBER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NOVACARE EMPLOYEE SERVICES, INC.
VALLEY FORGE CORPORATE CENTER
2621 VAN BUREN AVENUE
NORRISTOWN, PENNSYLVANIA 19403
TELEPHONE: (610) 650-4700
FACSIMILE: (610) 650-4705
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS ON
BEHALF OF THE PERSON(S) FILING STATEMENT)
COPY TO:
ANDREW J. BECK, ESQ.
HAYTHE & CURLEY
237 PARK AVENUE
NEW YORK, NEW YORK 10017
TELEPHONE: (212) 880-6000
FACSIMILE: (212) 682-0200
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is NovaCare Employee Services, Inc., a
Delaware corporation (the "Company"), and the address of the principal executive
offices of the Company is Valley Forge Corporate Center, 2621 Van Buren Avenue,
Norristown, Pennsylvania 19403. The title of the class of equity securities to
which this statement relates is the common stock, par value $.01 per share, of
the Company (the "Company Common Stock" or the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER
This statement relates to a tender offer by New Plato Acquisition, Inc., a
Delaware corporation ("Purchaser") and a wholly owned subsidiary of Plato
Holdings, Inc., a Delaware corporation ("Parent"), disclosed in a Tender Offer
Statement on Schedule 14D-1 (the "Schedule 14D-1") dated September 15, 1999, to
purchase all outstanding Shares at $2.50 per Share, net to the seller in cash
(the "Offer Price"), upon the terms and subject to the conditions set forth in
the Offer to Purchase dated September 15, 1999 (the "Offer to Purchase") and the
related Letter of Transmittal (which together constitute the "Offer"). As set
forth in the Schedule 14D-1, the principal executive offices of each of
Purchaser and Parent are located at c/o Patricof & Co. Ventures, Inc., 455 South
Gulph Road, Suite 410, King of Prussia, Pennsylvania 19406.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of September 8, 1999 (the "Merger Agreement"), among the Company, Purchaser
and Parent. The Merger Agreement provides, among other things, that as soon as
practicable after the consummation of the Offer and satisfaction or waiver of
all conditions to the Merger, Purchaser will be merged with and into the Company
(the "Merger"), with the Company as the surviving corporation (the "Surviving
Corporation"). The Merger Agreement is incorporated herein by reference and is
summarized in Item 3 of this Schedule 14D-9.
ITEM 3. IDENTITY AND BACKGROUND
(a) Name and Address of the Company.
The name and business address of the Company, which is the person filing
this statement, are set forth in Item 1 above.
(b) Arrangements with the Company's Executive Officers, Directors and
Affiliates.
Except as set forth in this Item 3(b), to the knowledge of the Company, as
of the date hereof, there are no material contracts, agreements or arrangements
or understandings and actual or potential conflicts of interest between the
Company and its affiliates and: (i) the Company, its executive officers,
directors or affiliates or (ii) Parent, its executive officers, directors and
affiliates.
(1) Certain contracts, agreements, arrangements, or understandings between
the Company or its affiliates and certain of its directors, executive officers
and affiliates are described under the captions "Compensation of Directors of
the Company," "Compensation of Executive Officers of the Company," "Aggregated
Option Exercises in Fiscal Year 1998 and Fiscal Year-End Option Values,"
"Compensation Committee Report," "Employment Agreements," "Certain
Transactions," and "Approval of Increase in Number of Shares Issuable Under
Stock Option Plan" on pages 6-21 of the Company's Proxy Statement, dated October
28, 1998, for the Company's 1998 Annual Meeting of Stockholders (the "1998 Proxy
Statement"), a copy of which was previously furnished to stockholders. A copy of
such portions of the 1998 Proxy Statement is incorporated herein by reference.
In addition, each other material contract, agreement, arrangement and
understanding between the Company or its affiliates and its executive officers,
directors or affiliates is described below.
Stock Option Grants. Officers and directors of the Company hold
outstanding stock options under the Company's stock option plans. The
consummation of the Merger will be deemed to be a "change in control" under such
plans, which will result in the acceleration of the vesting of such options.
Since June 30, 1998, the Company has granted to its employees, directors and
officers options to purchase an aggregate of 1,156,000 Shares, including options
to purchase an aggregate of 775,000 Shares granted to executive officers and
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directors of the Company (the "Fiscal 1999 Option Grants"). All of the Fiscal
1999 Option Grants have exercise prices which are greater than the Offer Price.
Pursuant to the Merger Agreement, the Company has agreed to obtain the
cancellation of all of the "underwater" options which are held by executive
officers, directors or other affiliates of the Company or any of its affiliates.
Change of Control. Loren J. Hulber, President and Chief Executive Officer
of the Company and a director, is entitled to terminate his employment with the
Company and receive certain severance benefits in the event of a "Change of
Control" of the Company, as that term is defined in the employment agreement, as
amended, between the Company and Mr. Hulber. The satisfaction of the Minimum
Condition (as hereinafter defined) as described in this Schedule 14D-9 would
constitute a "Change of Control" as defined in Mr. Hulber's employment
agreement.
Transaction Bonuses. Each of Loren J. Hulber, Aven A. Kerr, Executive Vice
President and Chief Operating Officer of the Company, Daniel R. Rishavy, Senior
Vice President of Marketing and Sales, Christina D. Harris, Esq., Senior Vice
President and General Counsel of the Company, and James E. Boyd, Region
President -- Southeast, have Transaction Bonus Agreements which entitle them
upon the consummation of the Merger, to receive Transaction Bonus Payments of
$250,000, $125,000, $90,000, $67,500 and $71,577, respectively, based on the
Offer Price. A copy of these Transaction Bonus Agreements are filed as Exhibits
(c)(9) through (c)(13) hereto, respectively, and are incorporated herein by
reference. Each such transaction bonus arrangement was established by the
Company Board to provide the Company's officers with a financial incentive to
maximize shareholder value in connection with any proposed sale of the Company.
Management Changes. Concurrently with the execution of the Merger
Agreement, the Company and Parent agreed that following the Merger, Loren J.
Hulber will be elected Chairman of the Board of the Company and Craig P. Coy
will be appointed Chief Executive Officer. Mr. Coy has been Chief Executive
Officer of HR, Logic, Inc., a portfolio company jointly owned by Patricof & Co.
Ventures, Inc. ("Patricof") and Fidelity Ventures Limited.
Relationships with NovaCare. The Company was established by NovaCare,
Inc., a Delaware corporation ("NovaCare"), in September 1996 and completed its
initial public offering of 5,750,000 Shares in November 1997. As of the date of
this Schedule 14D-9, NovaCare owned approximately 64% of the issued and
outstanding Shares. In February 1997, the Company and NovaCare entered into a
services contract with the Company ("NovaCare Contract"), whereby principally
all of NovaCare's employees were co-employed by the Company. Under the NovaCare
Contract, the Company provides traditional professional employer organization
("PEO") services such as payroll and benefits management, worksite safety
evaluation, employment-related risk management and compensation and benefits
consultation. In January 1998, NovaCare initiated a restructuring plan to
favorably position one of its operating divisions for recent changes in the
Medicare reimbursement system as mandated by the Balanced Budget Act of 1997.
The intent of the plan was to reduce substantially the cost of its workforce by
transitioning to a lower cost operating model for providing quality therapy
services. In support of this transition and to address NovaCare's increased
demand for additional human resource services, the Company and NovaCare
renegotiated the NovaCare Contract, effective July 1, 1998.
On March 31, 1999, NovaCare announced that due primarily to lower
reimbursement rates and to declines in rehabilitation caseloads at long-term
care customer facilities, resulting from the new reimbursement structure for
therapy under the Medicare program, NovaCare would be forced to exit selected
long-term care markets and facilities, and would continue to lower expenses by
reducing labor costs. On June 1, 1999, NovaCare sold its remaining long-term
care services business to Chance Murphy, Inc., an independent company managed by
a subsidiary of Integrated Health Services, Inc. The Company entered into a
one-month transition services agreement with Chance Murphy, Inc. In addition, on
July 1, 1999, NovaCare sold its orthotics and prosthetics services business. The
Company entered into a six-month transition agreement with the buyer which was
subsequently extended for an additional six-month term on August 30, 1999. Based
on
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these announcements, the Company and NovaCare negotiated new contract terms to
reflect changes in NovaCare's ongoing service needs. Effective July 1, 1999, the
Company and NovaCare replaced the NovaCare Contract with two agreements: (i) a
four-year agreement relating to NovaCare's PROH Division (the "PROH Contract"),
and (ii) an agreement relating to NovaCare's corporate support personnel (the
"Corporate Support Services Agreement"). A copy of these agreements are filed as
Exhibits (c)(14) and (c)(15) hereto, respectively, and are incorporated herein
by reference.
Pursuant to the Merger Agreement, Parent and Purchaser have the right to
terminate the Merger Agreement and require the Company to pay to Parent a
break-up fee of $4,500,000 or have all of Parent's and Purchaser's reasonable
out-of-pocket expenses reimbursed as a result of the failure of NovaCare to
satisfy certain conditions as set forth in Item 3(b)(2) below in the description
of the termination provisions of the Merger Agreement. NovaCare on September 8,
1999 executed a letter (the "NovaCare Indemnification Letter") addressed to the
Company agreeing to pay or reimburse the Company for any break-up fees or
expenses incurred by the Company in the event that Parent and Purchaser
terminate the Merger Agreement pursuant to Sections 7.1(d)(i)(D), 7.1(d)(iii),
7.1(d)(iv), 7.1(d)(v) or 7.1(d)(vii) of the Merger Agreement. A copy of the
NovaCare Indemnification Letter is filed as Exhibit (c)(16) hereto and is
incorporated herein by reference.
On September 8, 1999, the Company and NovaCare entered into a Transfer and
Licensing Agreement (the "Transfer and Licensing Agreement") whereby NovaCare
irrevocably transferred to the Company the name "NovaSource" and granted the
Company a license to use the name "NovaCare" for a period of six months
following the effective time of the Merger. A copy of the Transfer and Licensing
Agreement is filed as Exhibit (c)(17) hereto and is incorporated herein by
reference.
In order to induce the Company to enter into the Merger Agreement, NovaCare
has agreed to deliver to the Company as promptly as practicable after the date
of the Merger Agreement, and in any event prior to the purchase of any Shares
pursuant to the Offer, (i) a guaranty from NovaCare in form and substance
reasonably satisfactory to Parent, pursuant to which NovaCare shall guaranty to
Parent the earnings before interest, taxes, depreciation and amortization
("EBITDA") projected to be received by the Company under the PROH Contract which
such EBITDA amounts are set forth in Schedule 5.12 of the Merger Agreement and
(ii) an irrevocable letter of credit or surety bond from a reputable and
financially sound financial institution or insurance company, or such other
security, in each case in form and substance reasonably satisfactory to Parent
securing the EBITDA payable with respect to the PROH Contract and the EBITDA set
forth in Schedule 5.12 to the Merger Agreement projected to be received by the
Company under the Corporate Support Services Agreement.
In addition, to further induce the Company to enter into the Merger
Agreement, NovaCare and the Company executed a letter agreement dated September
8, 1999 (the "Unified/Surety Bond Indemnification Letter") in which NovaCare
agreed to indemnify the Company and the Equity Investors (as hereinafter
defined) from and against any and all losses, claims, assessments, demands,
damages, liabilities, obligations, costs and/or expenses whatsoever sustained or
incurred by the Company or the Equity Investors as a result of any action or
claim brought by Unified Management Corporation, an Illinois corporation, or its
related corporations (collectively, "Unified"), and/or the shareholders of
Unified, as a result of the termination of the Agreement of Purchase and Sale
dated as of June 16, 1999 (the "Unified Agreement") by and among the Company,
Unified and the shareholders of Unified. In addition, the Unified/Surety Bond
Indemnification Letter provided that NovaCare would cash collateralize and take
all action necessary to cause the Company to be removed as a co-indemnitor with
respect to the obligations secured by a $4,580,446 surety bond in which NovaCare
and the Company are co-indemnitors of the issuer of such bond. The Company
agreed to take all action necessary to cause NovaCare to be removed as
co-indemnitor with respect to all other surety bonds that NovaCare and the
Company are co-indemnitors of the issuers of such surety bonds. A copy of the
Unified/ Surety Bond Indemnification Letter is incorporated herein by reference.
(2) Arrangements with the Bidder, its Executive Officers, Directors and
Affiliates.
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The following describes material contracts, agreements, arrangements or
understandings and any actual or potential conflicts of interest between the
Company or its affiliates and Parent and/or Purchaser and their respective
executive officers, directors or affiliates:
THE OFFER -- OVERVIEW
In connection with the Offer, the Company has entered into (i) the Merger
Agreement, (ii) a Stockholder Agreement, (iii) a Short-Form Merger Option
Agreement, (iv) an Exclusivity Agreement, and (iv) Confidentiality Agreements.
Set forth below is a description of the Offer and the agreements that are being
entered into in connection therewith. The purpose of the Offer and the Merger is
to enable Parent to acquire control of, and the entire equity interest in, the
Company. The Offer is being made pursuant to the Merger Agreement and is
intended to increase the likelihood that the Merger will be effected. The
purpose of the Merger is to acquire all of the outstanding Shares not purchased
pursuant to the Offer. The transaction is structured as a merger in order to
ensure the acquisition by Parent of all the outstanding Shares.
If the Merger is consummated, Parent's common equity interest in the
Company would increase to 100% and Parent would be entitled to all benefits
resulting from that interest. These benefits include complete management and
control with regard to the future conduct of the Company's business and the
right to any increase in its value. Similarly, Parent will also bear the risk of
any losses incurred in the operation of the Company and any decrease in the
value of the Company.
Stockholders of the Company who sell their Shares in the Offer will cease
to have any equity interest in the Company and any right to participate in its
earnings and any future growth. If the Merger is consummated, non-tendering
stockholders will no longer have an equity interest in the Company and instead
will have only the right to receive the Offer Price pursuant to the Merger
Agreement. Similarly, after selling their Shares in the Offer or the subsequent
Merger, stockholders of the Company will not bear the risk of any decrease in
the value of the Company.
The following is a summary of certain provisions of various agreements.
This summary is not a complete description of the terms and conditions of the
agreements and is qualified in its entirety by reference to the full text of the
agreements filed with the Commission as exhibits to this Schedule 14D-9 or to
the Schedule 14D-1 filed by Parent and Purchaser and they are incorporated
herein by reference.
MERGER AGREEMENT
The Offer. The Merger Agreement provides for the making of the Offer as
set forth in this Schedule 14D-9 and as described in the Offer to Purchase which
is incorporated herein by reference.
The Company Board. The Merger Agreement provides that Parent, upon the
purchase of Shares by Parent or any of its subsidiaries which represent at least
a majority of the then outstanding Shares of the Company (the "Minimum
Condition"), shall be entitled to designate such number of directors, rounded up
to the next whole number, on the Board of Directors of the Company (the "Company
Board") as is equal to the product of the total number of directors on the
Company Board (giving effect to the directors designated by Parent) multiplied
by the percentage that the aggregate number of Shares beneficially owned by
Purchaser, Parent and any of their affiliates bears to the total number of
shares of Company Common Stock then outstanding (on a fully diluted basis). The
Company shall take all action necessary to cause Parent's designees to be
elected or appointed to the Company Board and to secure the resignations of such
number of its incumbent directors as is necessary to enable Parent's designees
to be so elected or appointed.
The Merger Agreement provides that in the event that Parent's designees are
elected or appointed to the Company Board, until the Effective Time, the Company
shall use its best efforts to retain as members of the Company Board at least
two directors who were directors as of the date of the Merger Agreement
("Independent Directors"), provided that if the number of Independent Directors
shall be reduced below two for any reason whatsoever, the remaining Independent
Director, if any, shall be entitled to designate a person to fill such vacancy
who shall be deemed to be an Independent Director. If no Independent Director
remains,
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the other directors shall designate two persons to fill such vacancies who shall
not be stockholders, affiliates or associates of Parent or Purchaser, and such
persons shall be deemed to be Independent Directors. In the event that Parent's
designees constitute a majority of the directors on the Company Board, the
affirmative vote of a majority of the Independent Directors shall be required
after the acceptance for payment of Shares pursuant to the Offer and prior to
the Effective Time, to (a) amend or terminate the Merger Agreement by the
Company, (b) exercise or waive any of the Company's rights, benefits or remedies
under the Merger Agreement if such exercise or waiver materially and adversely
affects holders of Shares other than Parent or Purchaser, (c) take action with
respect to the retention of counsel and other advisors in connection with the
transactions contemplated by the Merger Agreement, or (d) take any other action
under or in connection with the Merger Agreement if such action materially and
adversely affects holders of Shares other than Parent or Purchaser; provided
that if there shall be no such directors, such actions may be effected by
unanimous vote of the entire Company Board.
The Merger. The Merger Agreement provides that Purchaser will be merged
with and into the Company and the separate corporate existence of Purchaser will
thereupon cease, and the Company will be the surviving corporation in the Merger
and shall continue to be governed by the laws of the State of Delaware. At the
effective time of the Merger, each Share then outstanding, other than Shares
held by (i) the Company as treasury stock, (ii) Parent or any of its wholly
owned subsidiaries including Purchaser, and (iii) stockholders who properly
perfect their dissenters' rights under the General Corporation Law of the State
of Delaware (the "DGCL"), will be converted into the right to receive the Offer
Price.
Options. The Merger Agreement provides that in consideration for the
cancellation of outstanding "in-the-money" options to purchase Shares
("Options"), the Company shall pay to the holders of such Options an amount, in
cash, equal to the product of (A) the difference between the Offer Price and the
per Share exercise price of such Options multiplied by (B) the number of Shares
covered by such Options. Purchaser has been advised by the Company that there
are no in-the-money Options. The Company has agreed that with respect to all
outstanding "underwater" Options, the Company shall, prior to completion of the
Offer, obtain agreements from the holders of Options who are senior management,
executive officers, and/or directors of the Company and the officers and
directors of NovaCare deemed to have been founders of the Company, to cancel
their Options and shall use its best efforts to obtain agreements from all other
holders of Options to cancel their Options, and, after such cancellation, there
shall be outstanding no more than an aggregate of underwater Options to purchase
75,000 shares held by such other holders of Options. If the Company shall not
have obtained the consents of holders of outstanding Options to cancel such
Options in accordance with the preceding sentence, Purchaser shall not be
required to accept for payment or, subject to any applicable rules and
regulations of the Securities and Exchange Commission (the "Commission"), pay
for, and may delay the acceptance for payment of or, subject to certain
restrictions, the payment for, any tendered Shares, and may terminate the Offer.
Representations and Warranties. In the Merger Agreement, the Company has
made customary representations and warranties to Parent and Purchaser with
respect to, among other things:
- corporate organization, good standing and capitalization, the absence of
conflicts with its certificate of incorporation, by-laws, or any
agreements to which the Company is a party, filings with the Commission,
and financial statements, no undisclosed liabilities, absence of certain
changes, taxes, owned and leased real property, title to assets,
contractual and other obligations, employee benefit plans and
compensation agreements, litigation,
- compliance with legal requirements,
- intellectual property,
- the authorization, execution, delivery, performance and enforceability of
the Merger Agreement and related matters, and receipt of a fairness
opinion from CIBC World Markets Corp.
("CIBC World Markets").
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In the Merger Agreement, each of Parent and Purchaser has made customary
representations and warranties to the Company with respect to, among other
things:
- corporate organization and good standing,
- the authorization, execution, delivery, performance and enforceability of
the Merger Agreement and related matters,
- consents and approvals,
- the absence of conflicts with their respective certificates of
incorporation, by-laws, or any agreements to which Parent or Purchaser is
a party,
- financing,
- share ownership, and
- brokers and finders.
Operation of the Business. The Merger Agreement contains customary
restrictions relating to the operation of the business prior to the Effective
Time including obligations to:
- conduct the business of the Company according to its ordinary and usual
course of business; and
- use its reasonable best efforts to preserve intact the current business
organization of the Company, keep available the services of the current
officers and employees of the Company and preserve its relationships with
customers, suppliers and others having business dealings with the
Company.
Stockholders' Meeting. In the event that Purchaser does not acquire 90% of
the outstanding Shares pursuant to the Offer or otherwise, a stockholder vote
will be required to approve the Merger. Pursuant to the Merger Agreement, if
required by applicable law in order to consummate the Merger, the Company will
duly hold a special meeting of its stockholders as soon as practicable following
the acceptance for payment and purchase of Shares by Purchaser pursuant to the
Offer for the purpose of considering and taking action upon the approval of the
Merger and the adoption of the Merger Agreement and will use its best efforts to
solicit from holders of Shares proxies in favor of the Merger and take all other
action necessary or, in the reasonable opinion of Parent, advisable to secure
any vote or consent of stockholders required by the DGCL to effect the Merger.
Parent has agreed that it will vote, or cause to be voted, all of the
shares then owned by Parent, Purchaser or any of its other subsidiaries or
Affiliates in favor of approval of the Merger and the adoption of the Merger
Agreement.
No Solicitation. The Company has agreed that it will not directly or
indirectly, solicit, initiate or encourage any inquiry, proposal or offer, or
participate in or initiate discussions or negotiations with, or provide any
information to, any person or group (other than Parent, any of its affiliates or
representatives,) concerning any proposal or offer for a merger, share exchange,
consolidation, recapitalization, asset acquisition or other business combination
or similar transaction involving the Company or any Company subsidiary, or any
proposal or offer to acquire an equity interest representing 20% or more of the
outstanding Company Common Stock or voting power in, or 20% or more of the fair
market value of the assets of, the Company or any Company subsidiary other than
the transactions contemplated by the Merger Agreement (an "Alternative
Proposal"). However, nothing shall prohibit the Company or the Company Board
from (i) taking and disclosing to the Company's stockholders a position with
respect to a tender or exchange offer by a third party pursuant to Rules 14d-9
and 14e-2 promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or (ii) making such disclosure to the Company's stockholders
as, in the good faith judgment of the Company Board, after receiving advice from
outside counsel, is required under applicable law, provided that the Company may
not, except as detailed below, withdraw or modify, or propose to withdraw or
modify, its position with respect to the Offer or the Merger or approve or
recommend, or propose to approve or recommend, any Alternative Proposal, or
enter into any letter of intent or agreement with respect to any Alternative
Proposal. Notwithstanding the foregoing, prior to the time of acceptance of
Shares for payment
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pursuant to the Offer, the Company may after providing written notice to Parent,
furnish information concerning its business, properties or assets to any
corporation, partnership, person or other entity or group in response to a
Superior Proposal (as defined below) and may, after providing written notice to
Parent, negotiate and participate in discussions and negotiations with such
entity or group concerning a Superior Proposal if: (A) such entity or group has
on an unsolicited basis submitted a Superior Proposal, (B) the Company Board
believes in good faith, based on the advice of its outside legal counsel, that
such action is reasonably necessary in order for the Company Board to comply
with its fiduciary obligations to the Company's stockholders under applicable
law, (C) the Company furnishes such information to such entity or group pursuant
to an appropriate confidentiality agreement on terms no less favorable to the
Company than the Confidentiality Agreements between the Equity Investors of
Parent and the Company and (D) neither the Company nor any Company subsidiary or
affiliate, nor any of their respective officers, directors, employees,
representatives or agents, shall have violated any of the restrictions set forth
above. The term "Superior Proposal" means an unsolicited bona fide written
proposal by a person to acquire more than a majority of the Shares then
outstanding on a fully diluted basis or all or substantially all of the assets
of the Company, which the Company Board determines in good faith, based on the
written advice of the Company's financial advisors, to be more favorable from a
financial point of view to the Company's stockholders than the Offer and the
Merger, and which is neither subject to the receipt of any necessary financing
nor otherwise on terms less favorable than the terms of the Merger Agreement and
which in the opinion of the Company Board, based on the written advice of the
Company's financial advisors, such entity or group has the financial capacity to
consummate.
The Company has further agreed to immediately notify Parent of the
existence of any proposal, discussion, negotiation or inquiry received by the
Company, and the Company will immediately communicate to Parent the terms of any
proposal, discussion or inquiry which it may receive (and will immediately
provide to Parent copies of any written materials received by the Company in
connection with such proposal, discussion or inquiry) and the identity of the
party making such proposal or inquiry or engaging in such discussion or
negotiation. The Company will promptly provide to Parent any non-public
information concerning the Company provided to any other party which was not
previously provided to Parent.
Except as set forth below, neither the Company Board nor any committee
thereof will (i) withdraw or modify, or propose to withdraw or modify, in a
manner adverse to Parent or Purchaser, the approval or recommendation by the
Company Board or any such committee of the Offer, the Merger Agreement or the
Merger, (ii) approve or recommend or propose to approve or recommend, any
Alternative Proposal or (iii) cause the Company to enter into any letter of
intent or agreement with respect to any Alternative Proposal. Notwithstanding
the foregoing, prior to the time of acceptance for payment of Shares pursuant to
the Offer, the Company Board may withdraw or modify its approval or
recommendation of the Offer, the Merger Agreement or the Merger, if (A) the
Company has received a Superior Proposal which is then pending and which the
Company Board has determined to recommend to the Company's stockholders, (B) the
Company Board concludes, in good faith, based on the advice of its outside
counsel, that in light of such Superior Proposal, the withdrawal or modification
of such approval or recommendation is reasonably necessary in order for the
Company Board to comply with its fiduciary obligations to the Company's
stockholders under applicable law, (C) the Company notifies Parent at least five
(5) business days prior to taking any action with respect to such Superior
Proposal, or the withdrawal or modification of its approval or recommendation
and (D) the Company gives Parent at least five (5) business days after the
Company gives notice to Parent pursuant to clause (C) to match or better such
Superior Proposal and Parent fails to or decides not to do so within such five
(5) day period.
Indemnification and Insurance. The Merger Agreement provides that the
Company and the Surviving Corporation, as applicable, will indemnify and hold
harmless each present and former director, officer or employee of the Company or
any Company Subsidiary against any cost or expenses incurred in connection with,
and amounts paid in settlement of, any claim based on such person's status as a
director, officer or employee of the Company or any Company Subsidiary and (i)
arising out of or pertaining to the transactions contemplated by the Merger
Agreement or (ii) otherwise with respect to any act or omission occurring at or
prior to the Effective Time, in each case for a period of six (6) years after
the Effective Time.
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The Merger Agreement further provides that the Surviving Corporation will
purchase directors' and officers' liability tail insurance covering the persons
who are currently covered by the Company's directors' and officers' liability
insurance policy for a period of six (6) years on terms that are no less
favorable to the covered persons than the terms now applicable to them under the
Company's current policy; provided, however, that in no event will Parent or the
Surviving Corporation be required to expend more than $125,000; and provided
further, that, if the premium for such coverage exceeds such amount, the
Surviving Corporation shall purchase a policy with the greatest coverage
available for such amount.
Conditions to the Merger. The respective obligations of each party to
effect the Merger will be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any and all of which may be
waived in whole or in part by the Company, Parent or Purchaser, as the case may
be, to the extent permitted by applicable law: (i) the Merger Agreement shall
have been approved and adopted by the requisite vote of the stockholders of the
Company, if required by applicable law, in order to consummate the Merger; (ii)
the receipt of any stockholder approval of NovaCare required by the DGCL
approving NovaCare's agreement to tender, the grant of the irrevocable proxy and
the agreement to sell the Shares owned by NC Resources, Inc., the wholly owned
Delaware corporation through which NovaCare controls its Shares ("NC
Resources"), to Parent contained in the Stockholder Agreement (the "NovaCare
Stockholder Approval"); (iii) (A) no statute, rule, regulation, executive order,
decree, ruling or injunction or other order of any governmental entity shall be
in effect which prohibits the consummation of the transactions contemplated by
the Merger Agreement or which materially limits or restricts the ownership or
operation of the business of the Surviving Corporation; and (B) no suit, action
or proceeding shall be pending by any governmental entity, the subject matter of
which involves the transactions contemplated by the Merger Agreement, which is
reasonably likely to materially adversely affect Parent, Purchaser or the
Company; (iv) any consents, orders and approvals required of governmental
entities for the consummation of the Merger and the other transactions
contemplated by the Merger Agreement shall have been obtained and be in effect
at the Effective Time; and (v) the purchase of Shares pursuant to the Offer
shall have occurred.
Termination. The Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after
stockholder approval:
(a) By the mutual consent of Parent, Purchaser and the Company.
(b) By either of Parent, Purchaser or the Company if: (i) the
Effective Time shall not have occurred on or prior to December 31, 1999;
provided, however, that the right to terminate the Merger Agreement under
this clause shall not be available to any party whose failure to fulfill
any obligation under the Merger Agreement has been the cause of, or
resulted in, the failure of Parent or Purchaser, as the case may be, to
purchase the Shares pursuant to the Offer on or prior to such date; (ii)
any governmental entity shall have issued an order, or taken any other
action, which permanently restrains or otherwise prohibits the acceptance
for payment of, or payment for, Shares pursuant to the Offer, the Merger or
the other transactions contemplated by the Merger Agreement and such order
or other action shall have become final and non-appealable; or (iii) the
NovaCare Stockholder Approval has not been obtained.
(c) By the Company: (i) if Parent, Purchaser or any of their
affiliates shall have failed to commence the Offer on or prior to five (5)
business days following the date of the initial public announcement of the
Offer; provided, that the Company may not terminate the Merger Agreement
pursuant to this clause if the Company is at such time in material breach
of its obligations under the Merger Agreement; (ii) if the Company Board
shall have withdrawn or modified in a manner adverse to Parent or Purchaser
its approval or recommendation of the Offer, the Merger Agreement or the
Merger in connection with entering into a definitive agreement with respect
to a Superior Offer which is then pending, provided that the Company has
complied with the provisions of the Merger Agreement, including the notice
provisions, described above under the heading "No Solicitation" or (iii) if
Parent or Purchaser shall have breached in any material respect any of
their respective representations, warranties, covenants or other agreements
contained in the Merger Agreement or the Short-Form Merger Option
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Agreement, which breach cannot be or has not been cured within 30 days
after the giving of written notice by the Company to Parent or Purchaser,
as applicable.
(d) By Parent or Purchaser: (i) if, prior to the purchase of Shares by
Purchaser pursuant to the Offer, (A) the Company shall have notified
Parent, in accordance with the terms of the Merger Agreement, of its
decision to furnish information to, or shall have negotiated or
participated in negotiations or discussions with, a person or entity other
than Parent, Purchaser or their affiliates concerning a Superior Proposal,
(B) the Company Board shall have withdrawn, modified or changed in a manner
adverse to Parent or Purchaser its approval or recommendation of the Offer,
the Merger Agreement or the Merger or shall have recommended an Alternative
Proposal, (C) the Company shall have executed a letter of intent or
agreement relating to an Alternative Proposal or similar business
combination with a person or entity other than Parent, Purchaser or their
Affiliates, or (D) the board of directors of NovaCare shall have withdrawn,
modified or changed in a manner adverse to Parent or Purchaser its approval
of the transactions contemplated by the Stockholder Agreement or its
recommendation of the NCES Sale (as defined in NovaCare's proxy statement
dated August 13, 1999); (ii) if, prior to the purchase of Shares pursuant
to the Offer, the Company shall have breached any representation, warranty,
covenant or other agreement contained in the Merger Agreement or the Short-
Form Merger Option Agreement which would give rise to the failure of a
condition set forth in paragraph (c) of Annex A to the Merger Agreement,
and such breach cannot be or has not been cured within 30 days after the
giving of written notice by Parent or Purchaser to the Company; (iii) if
NovaCare or NC Resources shall have breached any representation, warranty,
covenant or other agreement contained in the Stockholder Agreement, which
breach has not been cured within 30 days after the giving of written notice
by Parent or Purchaser, (iv) if NovaCare has not received all consents and
approvals from its lenders necessary to consummate the transactions
contemplated by the Merger Agreement and the Stockholder Agreement,
including the unconditional release of all liens on the Shares held by NC
Resources and has not delivered evidence of such consents and approvals to
Parent; (v) if the Company shall not have obtained and delivered to Parent
the guaranty and letter of credit or surety bond or other security in
accordance with the terms of the Merger Agreement; (vi) if the Company and
the subsidiaries of the Company shall incur or assume indebtedness in
excess of the amounts set forth in Section 5.1(xi) of the Merger Agreement;
or (vii) if the Company shall not be removed as a co-indemnitor with
respect to the Liberty Bond (as defined in the Stockholder Agreement) in
accordance with the terms of the Stockholder Agreement.
Termination Fee; Expenses. Pursuant to the Merger Agreement, if (x) the
Company terminates the Merger Agreement pursuant to clause (c)(ii) under the
heading "Termination" above; (y) the Company enters into an agreement which
accepts or implements a Superior Proposal; or (z) Parent or Purchaser terminates
the Merger Agreement pursuant to clauses (d)(i)(B), (d)(i)(C), (d)(i)(D),
(d)(iii), (d)(iv) or (d)(vii) under the heading "Termination" above, then the
Company will pay to Parent an amount equal to $4.5 million (the "Termination
Fee"). If the Merger Agreement is terminated by Parent or Purchaser pursuant to
clauses (d)(i)(A), (d)(ii), (d)(v) or (d)(vi) under the heading "Termination"
above or the Company, Parent or Purchaser terminate the Merger Agreement
pursuant to clause (b)(iii) under the heading "Termination" above, then the
Company will pay to Parent an amount equal to Parent's and Purchaser's
reasonable out-of-pocket expenses and fees actually incurred by Parent and
Purchaser in connection with the transactions contemplated by the Merger
Agreement, the Offer, the Merger and the Stockholder Agreement (the "Expenses").
In addition, if the Merger Agreement is terminated by the Company, Parent or
Purchaser pursuant to clauses (b)(iii) or (d)(v) under the heading
"Termination," but within one year after such termination the Company shall have
executed a letter of intent or agreement relating to an Alternative Proposal or
similar business combination with a person or entity other than Parent,
Purchaser or their affiliates, then the Company will pay to Parent an amount
equal to the difference between the Termination Fee and the Expenses.
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STOCKHOLDER AGREEMENT
Concurrently with the execution and delivery of the Merger Agreement,
Parent, Purchaser, NovaCare and NC Resources entered into a Stockholder
Agreement. In that agreement, NC Resources (i) agreed to tender all of the
Shares of the Company which it owns (the "Covered Shares") to Purchaser and (ii)
granted to Purchaser an irrevocable proxy to vote the Covered Shares at any
meeting of the stockholders of the Company called for the purpose of voting on
the Merger and the Merger Agreement and/or to vote against any Alternative
Proposal. The Stockholder Agreement also gives Parent the right, at its
election, to purchase the Covered Shares at a price per share equal to $2.50,
which is the price offered to all stockholders in the Offer. The Stockholder
Agreement is incorporated herein by reference.
The obligations of NovaCare and NC Resources described above are contingent
on receiving any approval of the stockholders of NovaCare which is required by
Delaware law. NovaCare is committed to duly call a meeting of its stockholders
and to use its best efforts to solicit proxies in favor of approval of the
matters described above.
NovaCare and NC Resources have agreed not to solicit, initiate or encourage
any inquiry, proposal or offer from a third party to acquire the assets or stock
of the Company, NC Resources, or any subsidiary thereof, and to refrain from
participating in any discussions or negotiations regarding or furnishing
information to any third party in connection with any such inquiry, proposal or
offer.
NovaCare has scheduled a special meeting of its stockholders to be held on
September 21, 1999 to vote on matters including those described above. In
connection with its special meeting of stockholders, NovaCare circulated a proxy
statement and related supplements on or about August 13, 1999, August 26, 1999,
September 3, 1999 and September 10, 1999. The Board of Directors of NovaCare
recommends a vote for the sale of the NovaCare interest in the Company and
agrees to tender the Covered Shares as required by the Stockholder Agreement. If
the NovaCare stockholders vote to approve the sale of NovaCare's interest in the
Company, the Minimum Condition for the Offer will be satisfied.
SHORT-FORM MERGER OPTION AGREEMENT
Concurrently with the execution and delivery of the Merger Agreement,
Parent, Purchaser and the Company entered into a Short Form Merger Option
Agreement. That agreement gives Purchaser an option to purchase up to that
number of newly issued Shares (the "Option Shares") equal to the number of
Shares that, when added to the number of Shares owned by Purchaser and its
affiliates immediately following consummation of the Offer, shall constitute 90%
of the Shares then outstanding on a fully diluted basis (after giving effect to
the issuance of the Option Shares) for a price per Option Share equal to the
Offer Price. The number of Option Shares shall not exceed 19.9% of the Shares
outstanding on the date of the agreement. The Short-Form Merger Option Agreement
is incorporated herein by reference.
The option may be exercised at any time after the acceptance for payment by
Purchaser of Shares pursuant to the Offer.
CONFIDENTIALITY AGREEMENTS
Each of Fidelity Capital Associates, Inc. ("FCA"), Patricof and AFLAC
Incorporated ("AFLAC") executed Confidentiality Agreements, in favor of NovaCare
and the Company, dated as of March 26, 1999, March 25, 1999 and February 12,
1999, respectively. The Confidentiality Agreements contain customary provisions
pursuant to which, among other matters, the parties agreed, subject to certain
exceptions, to keep confidential all nonpublic, confidential or proprietary
information concerning the other parties which is furnished to any party in
connection with its evaluation of a possible transaction involving Purchaser and
the Company (the "Confidential Information"), and to use the Confidential
Information solely for the purpose of evaluating a possible transaction
involving the Company and Purchaser. The parties also agreed, for a period of
one year, in the case of FCA and Patricof, and two years, in the case of AFLAC,
not to solicit for employment or hire any employee of the Company. The parties
further agreed, for a period of three years in
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the case of FCA, and one year, in the case of Patricof and AFLAC, unless
requested in writing by the Company, not to seek, offer or propose to effect or
participate in (i) any acquisition of securities or assets of the Company, (ii)
any tender offer, merger, or other business combination involving the Company,
(iii) any recapitalization, liquidation or other extraordinary transaction with
respect to the Company or (iv) any solicitation of proxies or consents to vote
any securities of the Company; provided, however, that these restrictions do not
apply, in the case of FCA, to an account over which FCA or its affiliates have
investment management or advisory responsibilities and which consists solely of
customer client accounts. The Confidentiality Agreements are incorporated herein
by reference.
EXCLUSIVITY AGREEMENT
The Company, NovaCare and the Equity Investors executed an Exclusivity
Agreement dated as of August 16, 1999. Under the terms of the Exclusivity
Agreement, which expired upon the execution of the Merger Agreement on September
8, 1999, the Company and NovaCare agreed that neither they nor any of their
subsidiaries or affiliates would, directly or indirectly, solicit or initiate
any inquiry, proposal or offer, or participate in or initiate discussions or
negotiations with, or provide any information to, any person or group other than
the Equity Investors concerning (i) any proposal or offer for a merger, share
exchange, consolidation or similar transaction involving the Company or any
subsidiary of the Company or (ii) any proposal or offer to acquire any equity
interest in, or outside the ordinary course of business consistent with past
practice, any of the assets of, the Company or any subsidiary of the Company
other than the transactions contemplated by the Merger Agreement. During the
term of the Exclusivity Agreement, the Company and NovaCare also agreed to
notify immediately the Equity Investors of the existence of any such proposal,
discussion, negotiation or inquiry received by either of them and to provide the
Equity Investors with the relevant terms thereof. The Exclusivity Agreement is
incorporated herein by reference.
PLANS FOR THE COMPANY; OTHER MATTERS
Plans for the Company. The Merger Agreement provides that, promptly after
the purchase by Purchaser of at least a majority of the Shares pursuant to the
Offer, Purchaser has the right to cause the Company to elect to the Company
Board directors designated by Purchaser equal in number to the number of
directors, rounded up to the next whole number, as is equal to the product of
the total number of directors on the Company Board (after giving effect to the
directors designated by Parent) multiplied by the percentage that the number of
Shares beneficially owned by Purchaser or any affiliate of Purchaser (including
such Shares as are accepted for payment pursuant to the Offer) bears to the
total number of Shares then outstanding. The Merger Agreement provides that the
directors of Purchaser and the officers of the Company at the Effective Time of
the Merger will, from and after the Effective Time, be the initial directors and
officers, respectively, of the Surviving Corporation.
Purchaser or an affiliate of Purchaser may, following the consummation or
termination of the Offer, seek to acquire additional Shares through open market
purchases, privately negotiated transactions, a tender offer or exchange offer
or otherwise, upon such terms and at such prices as it shall determine, which
may be more or less than the price to be paid pursuant to the Offer. Purchaser
and its affiliates also reserve the right to dispose of any or all Shares
acquired by them, subject to the terms of the Merger Agreement.
Except as disclosed herein or in the Offer to Purchase, and except as may
be effected in connection with the integration of operations referred to in the
Offer to Purchase, neither Parent nor Purchaser has any present plans or
proposals that would result in an extraordinary corporate transaction, such as a
merger, reorganization, liquidation, relocation of operations or sale or
transfer of a material amount of assets, involving the Company or its
Subsidiaries, or any material changes in the Company's capitalization, corporate
structure, business or composition of its management or the Company Board.
Stockholder Approval. Under the DGCL, the approval of the Company Board
and the affirmative vote of the holders of a majority of the outstanding Shares
are required to adopt and approve the Merger Agreement and the transactions
contemplated thereby. The Company has represented in the Merger
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Agreement that the execution and delivery of the Merger Agreement by the Company
and the consummation by the Company of the transactions contemplated by the
Merger Agreement have been duly authorized by all necessary corporate action on
the part of the Company, subject to the approval of the Merger by the Company's
stockholders in accordance with the DGCL. In addition, the Company has
represented that the affirmative vote of the holders of a majority of the
outstanding Shares is the only vote of the holders of any class or series of the
Company's capital stock which is necessary to approve the Merger Agreement and
the transactions contemplated thereby, including the Merger. Therefore, unless
the Merger is consummated pursuant to the short-form merger provisions under the
DGCL described below (in which case no further corporate action by the
stockholders of the Company will be required to complete the Merger), the only
remaining required corporate action of the Company will be the approval of the
Merger Agreement and the transactions contemplated thereby by the affirmative
vote of the holders of a majority of the Shares. The Merger Agreement provides
that Parent will vote, or cause to be voted, all of the Shares then owned by
Parent, Purchaser or any of Parent's other subsidiaries and affiliates in favor
of the approval of the Merger and the adoption of the Merger Agreement. In the
event that Parent, Purchaser and Parent's other subsidiaries and affiliates
become entitled to vote on the approval of the Merger and the Merger Agreement
(which would be the case if the Minimum Condition is satisfied and Purchaser
were to accept for payment Shares tendered in the Offer), they would have the
ability to effect the Merger without the affirmative votes of any other
stockholders.
Short-Form Merger. Section 253 of the DGCL provides that, if a corporation
owns at least 90% of the outstanding shares of each class of another
corporation, the corporation holding such stock may merge itself into such
corporation without any action or vote on the part of the board of directors or
the stockholders of such other corporation (a "short-form merger"). In the event
that Parent, Purchaser and any other subsidiaries of Parent acquire in the
aggregate at least 90% of the outstanding Shares, pursuant to the Offer or
otherwise, then, at the election of Parent, a short-form merger could be
effected without any approval of the Company Board or the stockholders of the
Company, subject to compliance with the provisions of Section 253 of the DGCL.
Even if Parent and Purchaser do not own 90% of the outstanding Shares following
consummation of the Offer, Parent and Purchaser could seek to purchase
additional shares in the open market or otherwise in order to reach the 90%
threshold and employ a short-form merger. The per share consideration paid for
any Shares so acquired may be greater or less than that paid in the Offer.
Alternatively, Purchaser could exercise options pursuant to the Short-Form
Merger Option Agreement to obtain 90% of the outstanding shares. Parent
presently intends to effect a short-form merger if permitted to do so under the
DGCL.
Appraisal Rights. Holders of the Shares do not have appraisal rights in
connection with the Offer. However, if the Merger is consummated, holders of the
Shares at the Effective Time will have certain rights pursuant to the provisions
of Section 262 of the DGCL, including the right to dissent and demand appraisal
of, and to receive payment in cash of the fair value of their Shares. Dissenting
stockholders of the Company who comply with the applicable statutory procedures
will be entitled to receive a judicial determination of the fair value of their
Shares (exclusive of any element of value arising from the accomplishment or
expectation of the Merger) and to receive payment of such fair value in cash,
together with a fair rate of interest thereon, if any. 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 to be paid in the Merger or the
market value of the Shares. The value so determined could be more or less than
the price per Share to be paid in the Merger.
The foregoing summary of the rights of dissenting stockholders under the
DGCL does not purport to be a complete statement of the procedures to be
followed by stockholders desiring to exercise any appraisal rights available
under the DGCL. The preservation and exercise of appraisal rights require strict
adherence to the applicable provisions of the DGCL.
Rule 13e-3. The Commission has adopted Rule 13e-3 under the Exchange Act
which is applicable to certain "going private" transactions and which may, under
certain circumstances, be applicable to the Merger or another business
combination following the purchase of Shares pursuant to the Offer in which
Purchaser seeks to acquire the remaining Shares not held by it. Purchaser
believes, however, that Rule l3e-3 will not be applicable to the Merger because
it is anticipated that the Merger would be effected within one year following
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consummation of the Offer and in the Merger stockholders would receive the same
price per Share as paid in the Offer. If Rule l3e-3 were applicable to the
Merger, it would require, among other things, that certain financial information
concerning the Company, and certain information relating to the fairness of the
proposed transaction and the consideration offered to minority stockholders in
such a transaction, be filed with the Commission and disclosed to minority
stockholders prior to consummation of the transaction.
Dividends and Distributions. The Merger Agreement provides that from the
date thereof until the Effective Time, without the prior written consent of
Parent, the Company shall not and shall not permit any of its subsidiaries to
(i) declare, set aside or pay any dividend or other distribution payable in
cash, stock or property with respect to its capital stock, except that a wholly
owned subsidiary of the Company may declare and pay a dividend or make an
advance to its parent or the Company; (ii) issue, sell, transfer, pledge,
dispose of or encumber any shares of any class or series of its capital stock or
voting debt, or securities convertible into or exchangeable for, or options,
warrants, calls, commitments or rights of any kind to acquire any shares of,
capital stock of any class or voting debt of the Company or any of its
subsidiaries, other than Shares issued upon the exercise of Options outstanding
on the date of the Merger Agreement; (iii) split, combine or reclassify the
outstanding Shares or any outstanding capital stock of the Company or any of the
subsidiaries of the Company; or (iv) redeem, purchase or otherwise acquire
directly or indirectly any shares of any class or series of its capital stock or
any instrument or security which consists of or includes a right to acquire such
shares.
CONDITIONS TO THE OFFER
The Offer is subject to the condition that there shall have been validly
tendered and not withdrawn prior to the expiration of the Offer, such number of
Shares which, when added to the Shares beneficially owned by Parent and
Purchaser, would constitute a majority of the Shares outstanding on a fully
diluted basis.
Notwithstanding any other provisions of the Offer, and in addition to (and
not in limitation of) Purchaser's rights to extend and amend the Offer as
provided in the Merger Agreement, Purchaser shall not be required to accept for
payment or, subject to any applicable rules and regulations of the Commission,
including Rule 14e-l(c) under the Exchange Act (relating to Purchaser's
obligation to pay for or return tendered Shares promptly after termination or
withdrawal of the Offer), pay for, and may delay the acceptance for payment of
or, subject to the restriction referred to above, the payment for, any tendered
Shares, and may terminate or amend the Offer as to any Shares not then paid for,
if in the reasonable judgment of Purchaser, (i) any applicable waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, has
not expired or terminated prior to the expiration of the Offer, (ii) the Minimum
Condition has not been satisfied, (iii) the NovaCare Stockholder Approval shall
not have been obtained, or (iv) at any time on or after the date of the Merger
Agreement, and before the time of payment for any Shares (whether or not any
Shares have theretofore been accepted for payment pursuant to the Offer)
pursuant to the Offer any of the following events shall occur:
(a) there shall be pending or threatened by a governmental entity, or
the Parent, Purchaser or Company shall have received notice from an
attorney representing any other person of its intent to commence a suit or
proceeding which (i) seeks to prohibit or delay the making or consummation
of the Offer or the Merger, (ii) seeks to prohibit or delay or make
materially more costly the acquisition by Purchaser or Parent of the Shares
or the consummation of the Merger or seeks to prohibit or delay the
transactions contemplated by the Stockholder Agreement or the Short-Form
Merger Option Agreement, (iii) seeks to require divestiture by Parent or
any of its subsidiaries or affiliates of any Shares or seeks to limit their
ability to exercise full rights of ownership of the Shares, including
voting rights, (iv) seeks to prohibit or impose any material limitations on
Parent's or Purchaser's ownership or operation of all or a material portion
of their or the Company's businesses or assets, or to compel Parent or
Purchaser to dispose of or hold separate any material portion of the
business or assets of the Company, Parent or Purchaser or their respective
subsidiaries or (v) would reasonably be expected to have a material adverse
effect on the Company;
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(b) there shall be any statute, rule, regulation, judgment, order or
injunction promulgated, entered, enforced, enacted, issued or made
applicable, in each case after the date of the Merger Agreement, to the
Offer or the Merger or any other action shall be taken by any governmental
entity that is reasonably likely, directly or indirectly, to result in any
of the consequences referred to in clauses (i) through (v) of paragraph (a)
above;
(c) the representations and warranties of the Company set forth in the
Merger Agreement or the Short-Form Merger Option Agreement (without giving
effect to any qualification regarding materiality) shall not be true and
accurate as of the date of this Agreement and as of the date of
consummation of the Offer as though made on or as of such date except those
representations and warranties that address matters only as of a particular
date or only with respect to a specified period of time which need only be
true and accurate as of such date or with respect to such period, all of
which failures to be true and accurate in the aggregate has had or would
reasonably be expected to have a Company Material Adverse Effect (as
defined in the Merger Agreement); or the Company shall have breached or
failed in any material respect to perform or comply with any material
obligation, agreement or covenant required by the Merger Agreement or the
Short-Form Merger Option Agreement to be performed or complied with by it;
(d) the Merger Agreement shall have been terminated in accordance with
its terms;
(e) the Company shall have entered into a definitive agreement, letter
of intent or agreement in principle with any person with respect to an
Alternative Proposal;
(f) the Company shall have notified or been required by Section 5.2 of
the Merger Agreement to notify Parent of its decision to furnish
information concerning its business, properties or assets to or shall have
negotiated or participated in negotiations or discussions with a person or
entity other than Parent, Sub or their affiliates concerning a Superior
Proposal, withdrawn, or modified or changed in a manner adverse to Parent
or Sub (including by amendment of the Schedule 14D-9) its recommendation of
the Offer, the Merger Agreement, or the Merger, or recommended an
Alternative Proposal, or shall have resolved to do any of the foregoing;
(g) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on the New York Stock Exchange,
the American Stock Exchange or in the Nasdaq National Market System, for a
period in excess of three hours (excluding suspensions or limitations
resulting solely from physical damage or interference with such exchanges
not related to market conditions), (ii) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States (whether or not mandatory), (iii) any limitations or proposed
limitations (whether or not mandatory) by any United States governmental
authority or agency on the extension of credit by financial institutions,
(iv) any decline in the Dow Jones Industrial Average or the Standard &
Poor's 500 Index in excess of 25% measured from the close of business on
the date of the Merger Agreement or (v) in the case of any of the
situations in clauses (i) through (iv) inclusive, existing at the time of
the commencement of the Offer, a material acceleration or worsening
thereof;
(h) the Company, NovaCare or NC Resources pursuant to or within the
meaning of Title 11 of the U.S. Code or any similar federal or state law
for the relief of debtors ("Bankruptcy Law"): (i) commences a voluntary
case, (ii) consents to the entry of an order for relief against it in an
involuntary case, (iii) consents to the appointment of a receiver, trustee,
assignee, liquidator or similar official under any Bankruptcy Law (a
"Custodian") of it or for all or substantially all of its property, (iv)
makes a general assignment for the benefit of its creditors or (v)
generally is not paying its debts as they become due;
(i) a court of competent jurisdiction enters an order or decree under
a Bankruptcy Law that: (i) is for relief against the Company in an
involuntary case, (ii) appoints a Custodian of the Company, NovaCare or NC
Resources for all or substantially all of the property of the Company,
NovaCare or NC Resources or (iii) orders the liquidation of the Company,
NovaCare or NC Resources, and the order or decree remains unstayed and in
effect for 60 days;
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(j) there shall have occurred any change, condition, event or
development that has, or is reasonably likely to have, individually or in
the aggregate, a material adverse effect on the Company;
(k) either NovaCare or NC Resources shall be in breach of the
Stockholder Agreement;
(l) the Company shall not have obtained the consents of holders of
outstanding Options to purchase Shares to cancel such Options in accordance
with Section 2.1(d) of the Merger Agreement;
(m) the Company shall not have delivered to Parent and Purchaser an
opinion from a reputable firm to the effect that NovaCare and the Company
are solvent as of the time any Shares are accepted for payment;
(n) NovaCare shall not have obtained all consents of, and approvals
to, the transactions contemplated pursuant to the Stockholder Agreement and
the Merger Agreement from its lenders in accordance with the provisions of
the Stockholder Agreement and delivered evidence of such consents and
approvals to Parent and Purchaser;
(o) the Company shall not have obtained and delivered to Parent a
guaranty and letter of credit or surety bond or other security guaranteeing
and securing the EBITDA projected to be received by the Company under the
PROH Contract and the Corporate Support Services Agreement;
(p) the Company and the Company's subsidiaries shall have incurred or
assumed indebtedness in excess of $3,300,000; or
(q) the Company shall not have been removed as co-indemnitor with
respect to the obligations secured by a $4,580,446 bond in favor of Liberty
Mutual Insurance Company.
which in the reasonable judgment of Parent or Purchaser, in any such case, and
regardless of the circumstances giving rise to such condition, makes it
inadvisable to proceed with the Offer and/or with such acceptance for payment or
payments.
The foregoing conditions are for the sole benefit of Purchaser and Parent
and may be waived by Parent or Purchaser in their sole discretion.
Certain Legal Matters. Except as described herein, none of the Company,
Purchaser or Parent is aware of any license or regulatory permit that appears to
be material to the business of the Company that might be adversely affected by
Purchaser's acquisition of Shares pursuant to the Offer and the Merger or of any
approval or other action by a domestic or foreign governmental, administrative
or regulatory agency or authority that would be required prior to the
acquisition of the Shares by Purchaser as contemplated herein. Should any such
approval or other action be required, Purchaser and Parent presently contemplate
that such approval or other action will be sought. While, except as otherwise
described in this Offer to Purchase, Purchaser does not presently intend to
delay the acceptance for payment of, or payment for, Shares tendered pursuant to
the Offer pending the outcome of any such matter, there can be no assurance that
any such approval or other action, if needed, would be obtained or would be
obtained without substantial conditions or that failure to obtain any such
approval or other action might not result in consequences adverse to the
Company's business or that certain parts of the Company's business might not
have to be disposed of, or other substantial conditions complied with, in the
event that such approvals were not obtained or such other actions were not taken
or in order to obtain any such approval or other action. If certain types of
adverse action are taken with respect to the matters discussed below, Purchaser
could decline to accept for payment, or pay for, any Shares tendered.
State Antitakeover Statutes. A number of states have adopted laws and
regulations that purport to apply to attempts to acquire corporations that are
incorporated in such states, or whose business operations have substantial
economic effects in such states, or which have substantial assets, security
holders, employees, principal executive offices or principal places of business
in such states. In Edgar v. MITE Corp., the Supreme Court of the United States
(the "Supreme Court") 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
15
<PAGE> 17
Court held that the State of Indiana may, as a matter of corporate law and, in
particular, with respect to those aspects of corporate law concerning corporate
governance, constitutionally disqualify a potential acquiror from voting on the
affairs of a target corporation without the prior approval of the remaining
stockholders. 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.
Section 203 of the DGCL, in general, prohibits a Delaware corporation that
does not opt out of its provisions from engaging in a "Business Combination"
(defined as a variety of transactions, including mergers) with an "Interested
Stockholder" (defined generally as a person that is the beneficial owner of 15%
or more of the outstanding voting stock of the subject corporation) for a period
of three years following the date that such person became an Interested
Stockholder unless (i) prior to such time, the board of directors of the
corporation approved either the Business Combination or the transaction that
resulted in the stockholder becoming an Interested Stockholder; (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
Interested Stockholder, the Interested Stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (a) by persons who are directors and officers and
(b) employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender offer or exchange offer; or (iii) at or subsequent to such
time, the Business Combination is approved by the board of directors and
authorized at an annual or special meeting of the stockholders, and not by
written consent, by the affirmative vote of at least two-thirds ( 2/3) of the
outstanding voting stock which is not owned by the Interested Stockholder. The
Company Board has taken the action necessary to render the restrictions
contained in Section 203 inapplicable to the Merger or the other transactions
contemplated by the Merger Agreement.
Although the Company is organized under the laws of the State of Delaware,
since it has its principal place of business in Pennsylvania, it may be subject
to the Pennsylvania Takeover Disclosure Law (the "PTDL"). The PTDL purports to
regulate certain attempts to acquire a corporation which (i) is organized under
the laws of Pennsylvania or (ii) has its principal place of business and
substantial assets located in Pennsylvania. In Crane Co. v. Lam, 509 F. Supp.
782 (E.D. Pa. 1981), the United States District Court for the Eastern District
of Pennsylvania preliminarily enjoined, on grounds arising under the United
States constitution, enforcement of at least the portion of the PTDL involving
the pre-offer waiting period thereunder. Section 8(a) of the PTDL provides an
exemption for any offer to purchase securities as to which the board of
directors of the target company recommends acceptance to its stockholders, if at
the time such recommendation is first communicated to stockholders the offeror
files with the Pennsylvania Securities Commission ("PSC") a copy of the Schedule
14D-1 and certain other information and materials, including an undertaking to
notify security holders of the target company that a notice has been filed with
the PSC which contains substantial additional information about the offering and
which is available for inspection at the PSC's principal office during business
hours. The Company Board by unanimous vote has approved the transactions
contemplated by the Merger Agreement and recommended acceptance of the Offer and
the Merger to the Company's stockholders. While reserving and not waiving its
right to challenge the validity of the PTDL or its applicability to the Offer,
Purchaser is making a Section 8(a) filing with the PSC in order to qualify for
the exemption from the PTDL. Pursuant to Section 10 of the PTDL, Purchaser will
submit the appropriate $100 notice filing fee along with the Section 8(a)
filing. Additional information about the Offer has been filed with the PSC
pursuant to the PTDL and is available for inspection at the PSC office at
Eastgate Office Building, 1010 North 7th Street, Harrisburg, PA 17102-1410
during business hours.
Antitrust. The Offer and the Merger are not subject to the
Hart-Scott-Rodino Antitrust Improvements Act.
Federal Reserve Board Regulations. Regulations G, U and X (the "Margin
Regulations") of the Federal Reserve Board restrict the extension or maintenance
of credit for the purpose of buying or carrying margin stock, including the
Shares, if the credit is secured directly or indirectly by margin stock. Such
secured credit may not be extended or maintained in an amount that exceeds the
maximum loan value of all the direct and indirect collateral securing the
credit, including margin stock and other collateral. As described in Section 10
of the Offer to Purchase, the financing of the Offer will not be directly or
indirectly secured by the
16
<PAGE> 18
Shares or other securities which constitute margin stock. Accordingly, all
financing for the Offer will be in full compliance with the Margin Regulations.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) Recommendation of the Company Board
On September 8, 1999, the Company Board, based upon the recommendation of a
special committee of disinterested directors comprised of E. Martin Gibson,
Harvey V. Fineberg, M.D., Ph.D. and William F. Weld (the "Special Committee") by
a unanimous vote of all directors at a special telephonic meeting of the Company
Board on such date, determined that the Merger Agreement and the transactions
contemplated thereby, including without limitation the Offer and the Merger, are
fair to, and in the best interests of, the stockholders of the Company and
approved the Merger Agreement, the purchase of Shares pursuant to the Offer, and
the Merger in accordance with Section 203 of the DGCL and the other transactions
contemplated thereby, and recommended that the Company's stockholders accept the
Offer and tender their Shares pursuant to the Offer and approve and adopt the
Merger Agreement, if required.
(b) Background; Reasons for the Company Board's Recommendation
In the fall of 1998, the Company and AFLAC commenced discussions concerning
a joint marketing alliance pursuant to which the Company would market AFLAC
products to the Company's customers and AFLAC would refer potential new
customers to the Company. Interaction between AFLAC and the Company as a result
of these discussions resulted in discussions between AFLAC and the Company with
respect to the possible acquisition by AFLAC of 100% of the outstanding Shares
of the Company.
On January 29, 1999, AFLAC engaged Merrill Lynch & Co. ("Merrill Lynch") to
provide financial advice regarding AFLAC's possible acquisition of 100% of the
outstanding stock of the Company. AFLAC and its legal and financial advisors
began preliminary due diligence on the Company and engaged in discussions with
senior management of the Company, NovaCare, as the largest shareholder, and
their advisors regarding the potential acquisition of the Company. As a result
of the discussions, AFLAC entered into a confidentiality agreement with the
Company on February 12, 1999. AFLAC conducted further due diligence on the
Company, and AFLAC, the Company, NovaCare and their respective counsel,
investment bankers and advisors engaged in negotiations regarding the terms and
conditions of the proposed acquisition. The parties were, however, unable to
reach agreement with respect to the proposed acquisition, and the discussions
were terminated during the first week of March 1999.
In March 1999, management of the Company began considering pursuing
strategic alternatives. This decision was in response to the announcement by
NovaCare that it would be forced to exit selected long-term care markets and
would continue to lower expenses by reducing labor costs. In addition, NovaCare
announced a definitive agreement to sell its orthotics and prosthetics services
business. NovaCare had previously engaged Wasserstein Perella & Co., Inc.
("Wasserstein Perella"), effective June 30, 1998, to assist NovaCare in
exploring strategic alternatives. Based on these announcements, the Company and
NovaCare determined that they would need to renegotiate the NovaCare Contract to
reflect these changes in NovaCare's ongoing service needs. The Company
anticipated that the events described above would have an adverse impact on the
future operating results of the NovaCare Contract and the Company's
rehabilitation temporary staffing services business. The NovaCare Contract was
subsequently renegotiated, effective July 1, 1999, and replaced with the PROH
Contract and the Corporate Support Services Agreement.
In addition to the sale of its orthotics and prosthetics services business,
NovaCare continued to evaluate its strategic alternatives for obtaining capital
to fund its ongoing working capital needs, satisfying its remaining debt
obligations and maximizing NovaCare's shareholder value. Such alternatives
included the evaluation of NovaCare's long-term care services segment, which was
subsequently divested effective June 1, 1999, replacing NovaCare's current debt
with long-term financing through a high-yield debt offering or private placement
or the sale of one or more of NovaCare's remaining businesses.
In March 1999, in connection with these developments, NovaCare directed
Wasserstein Perella to assist NovaCare in exploring strategic alternatives,
which would possibly include the sale of NovaCare's interest in
17
<PAGE> 19
the Company, and the Company engaged the investment banking firm of BancBoston
Robertson Stephens, Inc. ("BancBoston") to assist the Company in exploring
strategic alternatives, which would possibly include the sale of the Company.
During the week of March 23, 1999, Wasserstein Perella, with the Company's
assistance, prepared a confidential information memorandum and a financial
model, and identified at that time 22 potential strategic buyers and 14
potential financial buyers. Each of the potential buyers was then contacted to
determine interest in pursuing a transaction with the Company.
In late March, Patricof and Fidelity Ventures Limited ("Fidelity") were
contacted by Wasserstein Perella to determine their interest in pursuing a
transaction with the Company. Patricof and an affiliate of Fidelity decided to
explore jointly the possibility of acquiring the Company. Patricof and an
affiliate of Fidelity entered into confidentiality agreements, dated March 25,
1999 and March 26, 1999, respectively, with the Company.
On April 12, 1999, Wasserstein Perella, on behalf of the Company, sent
letters to potential acquirers of the Company, including Patricof and Fidelity,
soliciting non-binding indications of interest in the acquisition of the Company
in connection with an auction process to sell the Company.
On April 19, 1999, Patricof and Fidelity submitted a non-binding indication
of interest in purchasing the Company, and subsequently were invited to
participate in the next stage of the process.
Between March 30, 1999 and April 20, 1999, initial meetings and preliminary
due diligence was conducted with eight potential buyers. On or about April 19,
1999, Patricof and Fidelity were among five groups that presented initial
indications of interest. Patricof and Fidelity were included in the group of
three of the five groups that were selected by the Company to proceed with
further due diligence leading to definitive proposals being received on May 28,
1999.
From April 20, 1999, through May 27, 1999, Patricof and Fidelity conducted
extensive due diligence activities including various meetings with senior
management of the Company.
On May 4, 1999, Wasserstein Perella, on behalf of the Company, sent letters
to potential acquirers of the Company (including AFLAC, Fidelity and Patricof)
who expressed a continued interest in the purchase of the Company in which
Wasserstein Perella set forth the timing and procedure for submitting final,
definitive proposals for the acquisition of the Company. The letters indicated
that the proposals should be received by Wasserstein Perella no later than May
17, 1999. Thereafter, the deadline for the submission of final proposals was
extended by Wasserstein Perella to May 28, 1999.
On May 18, 1999, AFLAC submitted an initial, non-binding indication of
interest in acquiring the Company. AFLAC was informed at that time by
Wasserstein Perella that their bid price was not competitive and AFLAC's
participation as a bidder in that auction process ceased.
On May 25, 1999, Patricof and Fidelity contacted AFLAC to determine whether
AFLAC would be interested in joining Patricof and Fidelity in their bid for the
Company. AFLAC decided at that point not to join Patricof and Fidelity in their
bid for the Company. However, senior management of AFLAC and Fidelity continued
to have discussions in June 1999 regarding whether there were other potential
opportunities for the two companies to work together in the PEO industry.
On May 28, 1999, Patricof and Fidelity submitted a formal bid to
Wasserstein Perella for the acquisition of the Company. Shortly thereafter
Patricof and Fidelity were advised that they were not the high bidder and given
the opportunity to increase their bid. Patricof and Fidelity advised Wasserstein
Perella that they would not be willing to materially adjust the bid price. Based
on these discussions, Wasserstein Perella decided to focus its efforts on
another bidder.
On or about June 2, 1999, the Company informed the bidders (including
Patricof and Fidelity) that it would need to revise its financial model due to
recent changes in the Company's financial performance and earnings outlook.
18
<PAGE> 20
On June 16, 1999, the Company entered into the Unified Agreement by and
among the Company, Unified, and the shareholders of Unified (the "Unified
Shareholders"). The executed Unified Agreement provided for the acquisition of
all of the capital stock of Unified (the "Unified Transaction") by the Company
subject (i) to the expiration of the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, (ii) the delivery of certain closing
documents by Unified and the Unified Shareholders, and (iii) the absence of any
material adverse change in the condition of Unified.
On or before June 29, 1999, the Company received oral expressions of bid
valuations from interested bidders. The Company selected the preferred bidder
and proceeded to engage in negotiations to attempt to reach a definitive
agreement with that bidder. During the first week of July 1999, the Company
terminated its discussions with the bidder due to its insistence on NovaCare's
receipt of marketable mezzanine financing in conjunction with the bidder's
proposed financing structure.
On July 9, 1999, Wasserstein Perella informed Patricof and Fidelity that
the bid process was being reopened because the Company had been unable to reach
a definitive agreement with the preferred bidder with respect to the sale of the
Company. Thereafter, Patricof and Fidelity had a conference call with senior
management of the Company and were informed that the Company had changed its
earnings outlook. On July 13, 1999, Patricof and Fidelity notified Wasserstein
Perella that additional due diligence, including diligence on the United
Transaction, would be required in order for Patricof and Fidelity to formulate a
new bid.
During July, after receiving the approval of the Company and NovaCare,
there were several discussions between Patricof, Fidelity and AFLAC about
AFLAC's interest in joining with Patricof and Fidelity in a potential new bid
for the Company, with the result that on July 23, 1999, AFLAC, Patricof and
Fidelity sought and received permission from Wasserstein Perella to allow AFLAC
to cooperate and participate with Patricof and Fidelity in any new bid for the
Company. (Patricof, Fidelity and AFLAC are collectively referred to as the
"Equity Investors.")
On July 29, 1999, the Equity Investors received a letter from Wasserstein
Perella outlining the timetable and requirements for a revised bid proposal. The
letter indicated that revised proposals were due by August 4, 1999.
On August 2, 1999, a meeting was held between the Equity Investors and
senior management of the Company for the purpose of updating the Equity
Investors on the performance of the Company and the outstanding issues affecting
completion of the Unified Transaction.
On August 4, 1999, the Equity Investors delivered a bid proposal letter to
Wasserstein Perella providing for the Equity Investors to make a cash tender
offer for the Shares at a price of $2.86 per Share. The Equity Investors'
proposal was contingent, among other things, on the execution of definitive
agreements, the completion of due diligence and the consummation of the
Company's acquisition of Unified.
During August 12 through 15, 1999, there were additional due diligence
activities and negotiations between the Company and the Equity Investors
concerning the potential transaction.
Based on the negotiations between the Equity Investors and the Company over
the course of several days, the Equity Investors on August 14, 1999 increased
their bid proposal to $2.89 per Share and agreed to the modification of certain
provisions of the draft Merger Agreement.
On August 16, 1999, the Company and the Equity Investors executed an
Exclusivity Agreement pursuant to which the Company agreed not to solicit or
participate in discussions with any other person concerning the sale of the
Company. The agreement stated that it would expire upon the earlier of September
9, 1999 or the execution of the Merger Agreement. The agreement set forth that
the parties were negotiating to consummate a transaction whereby the Equity
Investors would acquire the Company at a price of $2.89 per Share for all the
outstanding Shares of the Company.
The Company Board held a special telephonic board meeting on August 17,
1999 and, subject to completion of certain language revisions to the Merger
Agreement, approved the execution of the Merger Agreement and the Offer at a
price of $2.89 per Share. BancBoston delivered its opinion dated August 17,
19
<PAGE> 21
1999 that the $2.89 bid price was fair, from a financial point of view, to the
stockholders (other than NovaCare) of the Company.
On August 25, 1999, the Company informed the Equity Investors that the
chief financial officer and chief information officer of the Company had
submitted their resignations. In addition, on August 31, 1999, the Company
informed the Equity Investors that it was highly likely that the Unified
Transaction would not be closing. Over the course of the next few days, the
Equity Investors conducted on-site due diligence interviews with Company
management and orally discussed with the Company submitting a revised proposal
that took into account the exclusion of the Unified Transaction.
On September 1, 1999, the Company approached BancBoston about obtaining a
new fairness opinion in connection with the exclusion of Unified and a possible
revised offer by the Equity Investors. BancBoston and the Company discussed
timing and expense issues in light of the fact that BancBoston would have to
conduct a new analysis excluding Unified. The Company and BancBoston were not
able to reach agreement on the terms for engaging BancBoston in connection with
rendering a new fairness opinion.
On September 3, 1999, the Company executed an engagement letter with CIBC
World Markets Corp. ("CIBC World Markets") whereby CIBC World Markets agreed,
subject to its evaluation and analysis processes, to render a fairness opinion
to the Special Committee in connection with a new offer to purchase all of the
outstanding Shares of the Company.
On September 5, 1999, the Equity Investors discussed with representatives
of NovaCare a range of prices that would be acceptable to NovaCare.
On September 7, 1999, the Equity Investors delivered a revised bid proposal
letter to Wasserstein Perella providing for the Equity Investors to make a cash
tender offer for the Shares at a price of $2.50 per Share. The Equity Investors'
revised proposal reflected the exclusion of the Unified Transaction.
Negotiations continued over the next few days including final negotiations
with respect to the Merger Agreement, Stockholder Agreement and Short-Form
Merger Option Agreement. Definitive agreements dated as of September 8, 1999
were executed, and on September 9, 1999, the Company issued a press release
announcing the Equity Investors offer to purchase all of the outstanding Shares
of the Company for a price of $2.50 per Share. Pursuant to the terms of the
Merger Agreement, the Offer was commenced on September 15, 1999.
REASONS FOR THE COMPANY'S RECOMMENDATION
The Company's Board of Directors, based upon the recommendation of the
Special Committee, believes that the Merger Agreement and the Merger are
advisable and fair to and in the best interests of the Company and its
stockholders and has unanimously approved the Merger Agreement, the Offer and
the Merger.
In reaching it unanimous determination that the Merger Agreement, the Offer
and the Merger are fair to and in the best interests of the Company and its
stockholders, the Company Board discussed the proposed transactions at several
Company Board meetings and consulted with the Company's legal and financial
advisors as well as with the Company's management. The following are the
material factors considered by the Company Board:
(i) that approximately 64% of the outstanding Shares are held, through
NC Resources, by NovaCare and, hence, there is not an active trading market
for the Company's Common Stock and, consequently, there is generally a lack
of liquidity for the Company's stockholders;
(ii) the stockholders of the Company are being afforded an opportunity
to sell all of their Shares for cash at a price which represents a premium
of approximately 25% over the closing market price of the Shares on
September 8, 1999, the date of the Company Board's meeting;
(iii) the opinion of CIBC World Markets, dated September 8, 1999 (the
"CIBC Opinion"), to the effect that, as of such date and based upon and
subject to certain matters and conditions set forth in such opinion, the
offer price of $2.50 per Share, net to the seller in cash, to be received
in the Offer and the
20
<PAGE> 22
Merger by holders of Company Common Stock other than Parent and Purchaser,
any affiliates of Parent or Purchaser, NovaCare, any affiliates of NovaCare
and any Company stockholders properly perfecting dissenters' rights was
fair to such holders from a financial point of view. The full text of the
CIBC Opinion which sets forth the assumptions made, the matters considered
and the limitations on the review undertaken, is attached hereto as Annex A
hereto and is incorporated herein by reference. The CIBC Opinion is
directed only to the fairness, from a financial point of view, of the offer
price of $2.50 per Share, net to the seller in cash, to be received by
holders of Company Common Stock other than Parent and Purchaser, any
affiliates of Parent or Purchaser, NovaCare, any affiliates of NovaCare and
any Company stockholders properly perfecting dissenters' rights and is not
intended to constitute a recommendation to any stockholder as to whether or
not such stockholder should tender Shares pursuant to the Offer or how such
stockholder should vote on any matters relating to the Merger. Holders of
Shares are urged to read the CIBC Opinion in its entirety;
(iv) the risks associated with the business of the Company;
(v) the Company Board's view that the terms of the Merger Agreement,
as reviewed by the Company Board with its legal advisors, are advisable and
fair to the Company and its stockholders;
(vi) the terms and conditions of the Offer and the Merger Agreement;
(vii) the representation of Parent and the Purchaser that they will
have sufficient funds available to them to consummate the Offer and the
Merger and the fact that the Offer is not subject to a financing condition;
(viii) the scope and detail of the negotiating process that led to the
finalization of the Merger Agreement; and
(ix) the fact, in management's view, that an extensive auction process
for the Company had been conducted prior to a decision to sell the Company.
The main negative factor considered by the Company Board was that the
stockholders of the Company would not have a continuing interest in the Company
and thus would not be able to participate in any future growth or financial
success of the Company.
The foregoing discussion of the information and factors discussed by the
Company Board is not meant to be exhaustive, but includes material factors
considered by the Company Board. The Company Board did not quantify or attach
any particular weight to the various factors that it considered in reaching its
determination that the Merger and the Offer are in the best interests of the
Company and its stockholders.
Alternatives. It is expected that, if the Shares were not to be purchased
by Purchaser in accordance with the terms of the Offer or if the Merger were not
to be consummated, the Company's current management, under the general direction
of the Company Board, will continue to manage the Company as an ongoing business
in accordance with the Company's current long-term strategic plan.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
Pursuant to an engagement letter (the "Engagement Letter") dated September
3, 1999 by and between CIBC World Markets and the Company, CIBC World Markets
agreed to render a fairness opinion to the Special Committee in connection with
the $2.50 per Share offer to purchase all of the outstanding Shares. In exchange
for CIBC World Markets' services, the Company agreed to pay CIBC World Markets
an engagement fee of $75,000 payable in cash upon the execution of the
Engagement Letter and an opinion fee of $250,000, payable in cash upon the
earlier of the delivery of the oral or written CIBC Opinion. The engagement fee
was credited against the opinion fee. In addition, whether or not the Offer or
the Merger is completed, the Company has agreed to reimburse CIBC World Markets
periodically for reasonable out-of-pocket expenses, including the fees and
disbursements of its counsel, regardless of whether an Offer or Merger occurs or
an opinion is rendered, and to indemnify CIBC World Markets against certain
expenses and liabilities incurred in connection with its engagement, including,
but not limited to, liabilities under federal securities laws.
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<PAGE> 23
CIBC World Markets and its affiliates, in the ordinary course of business,
may from time to time actively trade securities, including derivative securities
of the Company or Parent for their own account and for the accounts of customers
and, accordingly, may at any time hold a long or short position in such
securities.
Except as set forth above, neither the Company nor any person acting on its
behalf has or currently intends to employ, retain or compensate any person to
make solicitations or recommendations to the stockholders of the Company on its
behalf with respect to the Offer or the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) To the best of the knowledge of the Company, no transactions in the
Shares have been effected during the past 60 days by the Company or, to the best
of the Company's knowledge, by any executive officer, director, affiliate or
subsidiary of the Company.
(b) To the best of the Company's knowledge, each executive officer and
director of the Company currently intends to tender all Shares over which he or
she has sole dispositive power to the Purchaser. NovaCare has signed the
Stockholder Agreement, obligating it to tender its Shares, subject to the terms
of such agreement and applicable law. In addition, the Company has agreed to
grant Parent an irrevocable option to purchase up to 19.9% of its Shares
pursuant to the Short-Form Merger Option Agreement, exerciseable in certain
circumstances.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY SUBJECT COMPANY
(a) Except as set forth in this Schedule 14D-9, the Company is not engaged
in any negotiation in response to the Offer which relates to or would result in
(i) an extraordinary transaction, such as a merger or reorganization, involving
the Company or any subsidiary of the Company; (ii) a purchase, sale or transfer
of a material amount of assets by the Company or any subsidiary of the Company;
(iii) a tender offer for or other acquisition of securities by or of the
Company; or (iv) any material change in the present capitalization or dividend
policy of the Company.
(b) Except as described above or in Item 3(b) or 4(b) above, there are no
transactions, Board of Directors' resolutions, agreements in principle or signed
contracts in response to the Offer that relate to or would result in one or more
of the events referred to in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
None.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ------------------------------------------------------------
<S> <C> <C>
(a)(1) -- Offer to Purchase, dated September 15, 1999 (Incorporated by
reference to Exhibit (a)(1) to Schedule 14D-1 filed by
Purchaser and Parent with the Commission on September 15,
1999).*
(a)(2) -- Letter of Transmittal (Incorporated by reference to Exhibit
(a)(2) to Schedule 14D-1 filed by Purchaser and Parent with
the Commission on September 15, 1999).*
(a)(3) -- Notice of Guaranteed Delivery (Incorporated by reference to
Exhibit (a)(3) to Schedule 14D-1 filed by Purchaser and
Parent with the Commission on September 15, 1999).*
(a)(4) -- Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees (Incorporated by reference to
Exhibit (a)(4) to Schedule 14D-1 filed by Purchaser and
Parent with the Commission on September 15, 1999).*
(a)(5) -- Letter to Clients for use by Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees (Incorporated by
reference to Exhibit (a)(5) to Schedule 14D-1 filed by
Purchaser and Parent with the Commission on September 15,
1999).*
</TABLE>
22
<PAGE> 24
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ------------------------------------------------------------
<S> <C> <C>
(a)(6) -- Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 (Incorporated by reference to
Exhibit (a)(6) to Schedule 14D-1 filed by Purchaser and
Parent with the Commission on September 15, 1999).*
(a)(7) -- Summary Advertisement (Incorporated by reference to Exhibit
(a)(7) to Schedule 14D-1 filed by Purchaser and Parent with
the Commission on September 15, 1999).*
(a)(8) -- Opinion of CIBC World Markets Corp. dated September 8, 1999
(Included as Annex A to the Company's
Solicitation/Recommendation Statement on Schedule 14D-9).*
(a)(9) -- Press Release of the Company dated September 9, 1999.
(a)(10) -- Letter to Stockholders dated September 15, 1999.*
(c)(1) -- Agreement and Plan of Merger, dated as of September 8, 1999,
by and among Parent, Purchaser and the Company (Incorporated
by reference to Exhibit (c)(1) to Schedule 14D-1 filed by
Purchaser and Parent with the Commission on September 15,
1999).
(c)(2) -- Stockholder Agreement, dated as of September 8, 1999, by and
between Parent, the Company, NC Resources, Inc. and
NovaCare, Inc. (Incorporated by reference to Exhibit (c)(2)
to Schedule 14D-1 filed by Purchaser and Parent with the
Commission on September 15, 1999).
(c)(3) -- Short-Form Merger Option Agreement, dated as of September 8,
1999, among Parent, Purchaser and the Company (Incorporated
by reference to Exhibit (c)(3) to Schedule 14D-1 filed by
Purchaser and Parent with the Commission on September 15,
1999).
(c)(4) -- Confidentiality Agreement, dated as of March 25, 1999, by
and between NovaCare, Inc., the Company and Fidelity Capital
Associates, Inc. (Incorporated by reference to Exhibit
(c)(4) to Schedule 14D-1 filed by Purchaser and Parent with
the Commission on September 15, 1999).
(c)(5) -- Confidentiality Agreement, dated as of March 26, 1999, by
and between NovaCare, Inc., the Company and Patricof & Co.
Ventures, Inc. (Incorporated by reference to Exhibit (c)(5)
to Schedule 14D-1 filed by Purchaser and Parent with the
Commission on September 15, 1999).
(c)(6) -- Confidentiality Agreement, dated as of February 12, 1999, by
and between NovaCare, Inc., the Company and AFLAC
Incorporated (Incorporated by reference to Exhibit (c)(6) to
Schedule 14D-1 filed by Purchaser and Parent with the
Commission on September 15, 1999).
(c)(7) -- Exclusivity Agreement, dated as of August 16, 1999, by and
among the Company, NovaCare, Inc. and the Equity Investors
(Incorporated by reference to Exhibit (c)(5) to Schedule
14D-1 filed by Purchaser and Parent with the Commission on
September 15, 1999).
(c)(8) -- Excerpts from the Company's 1998 Annual Proxy Statement
dated October 28, 1998 (Incorporated by reference to the
Company's definitive 1998 Annual Proxy Statement (filed with
the Commission on October 27, 1998).
(c)(9) -- Loren Hulber Transaction Bonus Agreement.
(c)(10) -- Aven Kerr Transaction Bonus Agreement.
(c)(11) -- Christina Harris Transaction Bonus Agreement.
(c)(12) -- James E. Boyd Transaction Bonus Agreement.
(c)(13) -- Daniel R. Rishavy Transaction Bonus Agreement.
(c)(14) -- PROH Contract dated as of July 1, 1999, by and between the
Company and NovaCare, Inc.
(c)(15) -- Corporate Support Services Agreement dated as of July 1,
1999 by and between the Company and NovaCare, Inc.
(c)(16) -- NovaCare Indemnification Letter dated September 8, 1999.
(c)(17) -- Transfer and Licensing Agreement dated September 8, 1999.
(c)(18) -- Unified/Surety Bond Indemnification Letter dated September
8, 1999 (Incorporated by reference to Exhibit (c)(8) to
Schedule 14D-1 filed by Purchaser and Parent with the
Commission on September 5, 1999).
</TABLE>
- ---------------
* Included in copies mailed to Stockholders.
23
<PAGE> 25
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
NOVACARE EMPLOYEE SERVICES, INC.
By /s/ LOREN J. HULBER
------------------------------------
Loren J. Hulber
President and Chief Executive
Officer
Dated: September 15, 1999
24
<PAGE> 26
Annex A
CIBC CIBC WORLD MARKETS CORP.
World Markets One World Financial Center
200 Liberty Street
New York, NY 10281
Tel: 212-667-7000
Fax: 800-999-6726
The Special Committee of the Board of Directors September 8, 1999
NovaCare Employee Services, Inc.
Valley Forge Corporate Center
2621 Van Buren Avenue
Norristown, PA 19403
Members of the Board
You have asked CIBC World Markets Corp. ("CIBC World Markets")
to render a written opinion ("Opinion") to the Special Committee of the Board of
Directors as to the fairness to the Holders of the Common Stock (as defined
herein) of NovaCare Employee Services, Inc. ("NCES"), from a financial point of
view, of the consideration to be received pursuant to the draft Merger
Agreement, dated as of August 30, 1999 (the "Merger Agreement"), by and among
Plato Holdings, LLC ("Acquiror"), New Plato Acquisition, Inc. ("Acquisition
Sub"), and NCES if such draft is executed by each of the parties thereto on the
date hereof in the form presented to us. The Merger Agreement provides for,
among other things, the commencement by Acquisition Sub of a tender offer to
purchase all outstanding shares of common stock, par value $0.01 per share, of
NCES (the "NCES Stock" and, such tender offer, the "Tender Offer"). The offer
price provided in the Merger Agreement is $2.50 per share for each share of
common stock net to the seller in cash (the "Cash Consideration"). Subsequent to
the Tender Offer, Acquisition Sub will merge with and into NCES (the "Merger").
Pursuant to the Merger each outstanding share of NCES Stock not previously
tendered will be converted into the right to receive the applicable Cash
Consideration (the "Conversion"). NCES will also enter into a Short Form Merger
Option Agreement with the Acquiror and the Acquisition Sub (the "Stock Option
Agreement"). The Tender Offer, Merger, Conversion and Stock Option Agreement
shall be collectively referred to as the "Transaction." Holders of the Common
Stock shall be defined as all holders of NCES stock other than Acquiror,
Acquisition Sub, any affiliates of Acquiror or Acquisition Sub, NovaCare, Inc.,
any affiliates of NovaCare, Inc. and any NCES stockholders properly exercising
dissenters' rights.
In arriving at our Opinion, we:
(a) reviewed the Merger Agreement and Stock Option Agreement;
(b) reviewed NCES's audited financial statements and certain
unaudited financial statements and other information;
(c) reviewed financial projections of NCES prepared by NCES's
management and held discussions with the senior management with respect to the
business and prospects for
A-1
<PAGE> 27
The Special Committee of the Board of Directors CIBC WORLD MARKETS CORP.
NovaCare Employee Services, Inc.
September 8, 1999
Page 2
future growth of NCES, including senior management's views as to the alternative
business strategies available to NCES;
(d) reviewed public information concerning NCES;
(e) reviewed the historical market prices and trading volume
for NCES common stock;
(f) reviewed and analyzed certain publicly available financial
data and historical trading price information for certain public companies we
deemed comparable to NCES;
(g) reviewed and analyzed certain publicly available
information for transactions that we deemed comparable to the Transaction; and
(h) performed such analyses and investigations and reviewed
such other information as we deemed appropriate.
In rendering our Opinion, we relied upon and assumed, without
independent verification or investigation, the accuracy and completeness of all
of the financial and other information provided to or discussed with us by NCES
and its employees, representatives and affiliates or which was publicly
available. With respect to forecasts of future financial condition and operating
results of NCES provided to or discussed with us, we assumed, at the direction
of NCES's management, without independent verification or investigation, that
such forecasts were reasonably prepared on bases reflecting the best available
information, estimates and judgments of NCES's management. We have neither made
nor obtained any independent evaluations or appraisals of the assets or the
liabilities of NCES. The Opinion rendered herein does not constitute a
recommendation of the Transaction over any other alternative transaction which
may be available to the Company. We are not expressing any opinion as to the
underlying valuation, future performance or long-term viability of NCES, or the
price at which NCES Stock will trade subsequent to announcement of the
Transaction. We do not express any opinion as to (i) the value of any employee
agreement or any other agreement or arrangement entered into by parties in
connection with the Transaction, or (ii) any tax or other consequence that may
result from the Transaction. Our Opinion is necessarily based on the information
available to us and general economic, financial and stock market conditions and
circumstances as they exist and can be evaluated by us on the date hereof. It
should be understood that, although subsequent developments may affect this
Opinion, we do not have any obligation to update, revise or reaffirm the
Opinion.
As part of our investment banking business, we are regularly
engaged in valuations of businesses and securities in connection with
acquisitions and mergers, underwritings, secondary distributions of securities,
private placements and valuations for other purposes.
A-2
<PAGE> 28
The Special Committee of the Board of Directors CIBC WORLD MARKETS CORP.
NovaCare Employee Services, Inc.
September 8, 1999
Page 3
In rendering this Opinion to the Special Committee of the
Board of Directors of NCES, we will receive a fee upon the delivery of this
Opinion. In the ordinary course of business, CIBC World Markets and its
affiliates may actively trade securities of NCES for their own account and for
the accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
Our Opinion does not address, nor were we asked to address,
the relative merits of the Tender Offer and the Merger, the Transaction
structure, fairness of the structure (other than the Cash Consideration), or
terms of the Transaction, nor the other business strategies that the Company's
Board of Directors considered or may be considering.
We were not authorized, nor were we requested, to solicit and
did not solicit third parties regarding alternatives to the Tender Offer and
Merger, nor were we involved, or requested to be involved, in the sale process.
Based upon and subject to the foregoing, and such other
factors as we deemed relevant, it is our opinion that, as of the date hereof,
the Cash Consideration to be received by the Holders of the Common Stock in the
Transaction is fair to such holders from a financial point of view. This Opinion
is for the use of the Special Committee of the Board of Directors of NCES and
does not constitute a recommendation to any stockholder as to whether or not
such stockholder should tender shares of NCES Stock in the Tender Offer or how
such stockholder should vote on any matters relating to the Merger.
Neither this Opinion nor the services provided by CIBC World
Markets in connection herewith may be publicly disclosed or referred to in any
manner by NCES without the prior written approval of CIBC World Markets. This
Opinion is rendered to you and solely for your benefit only in connection with
the subject matter referred to. This Opinion may not be relied upon by you for
any other purpose or furnished to, quoted or relied upon by any other person,
firm or company for any purpose without our prior written consent.
Notwithstanding the foregoing, this Opinion may be included in its entirety and
references to this Opinion may be included in any prospectus, proxy statement or
solicitation/recommendation statement required to be distributed to the
Company's stockholders in connection with the Transaction so long as such
inclusion or reference is in form and substance acceptable to CIBC World Markets
and our counsel.
Very truly yours,
CIBC WORLD MARKETS CORP.
A-3
<PAGE> 29
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ------------------------------------------------------------ ----
<S> <C> <C> <C>
(a)(1) -- Offer to Purchase, dated September 15, 1999 (Incorporated by
reference to Exhibit (a)(1) to Schedule 14D-1 filed by
Purchaser and Parent with the Commission on September 15,
1999).*.....................................................
(a)(2) -- Letter of Transmittal (Incorporated by reference to Exhibit
(a)(2) to Schedule 14D-1 filed by Purchaser and Parent with
the Commission on September 15, 1999).*.....................
(a)(3) -- Notice of Guaranteed Delivery (Incorporated by reference to
Exhibit (a)(3) to Schedule 14D-1 filed by Purchaser and
Parent with the Commission on September 15, 1999).*.........
(a)(4) -- Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees (Incorporated by reference to
Exhibit (a)(4) to Schedule 14D-1 filed by Purchaser and
Parent with the Commission on September 15, 1999).*.........
(a)(5) -- Letter to Clients for use by Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees (Incorporated by
reference to Exhibit (a)(5) to Schedule 14D-1 filed by
Purchaser and Parent with the Commission on September 15,
1999).*.....................................................
(a)(6) -- Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 (Incorporated by reference to
Exhibit (a)(6) to Schedule 14D-1 filed by Purchaser and
Parent with the Commission on September 15, 1999).*.........
(a)(7) -- Summary Advertisement (Incorporated by reference to Exhibit
(a)(7) to Schedule 14D-1 filed by Purchaser and Parent with
the Commission on September 15, 1999).*.....................
(a)(8) -- Opinion of CIBC World Markets Corp. dated September 8, 1999
(Included as Annex A to the Company's
Solicitation/Recommendation Statement on Schedule
14D-9).*....................................................
(a)(9) -- Press Release of the Company dated September 9, 1999........
(a)(10) -- Letter to Stockholders dated September 15, 1999.*...........
(c)(1) -- Agreement and Plan of Merger, dated as of September 8, 1999,
by and among Parent, Purchaser and the Company (Incorporated
by reference to Exhibit (c)(1) to Schedule 14D-1 filed by
Purchaser and Parent with the Commission on September 15,
1999). .....................................................
(c)(2) -- Stockholder Agreement, dated as of September 8, 1999, by and
between Parent, the Company, NC Resources, Inc. and
NovaCare, Inc. (Incorporated by reference to Exhibit (c)(2)
to Schedule 14D-1 filed by Purchaser and Parent with the
Commission on September 15, 1999). .........................
(c)(3) -- Short-Form Merger Option Agreement, dated as of September 8,
1999, among Parent, Purchaser and the Company (Incorporated
by reference to Exhibit (c)(3) to Schedule 14D-1 filed by
Purchaser and Parent with the Commission on September 15,
1999). .....................................................
(c)(4) -- Confidentiality Agreement, dated as of March 25, 1999, by
and between NovaCare, Inc., the Company and Fidelity Capital
Associates, Inc. (Incorporated by reference to Exhibit
(c)(4) to Schedule 14D-1 filed by Purchaser and Parent with
the Commission on September 15, 1999). .....................
(c)(5) -- Confidentiality Agreement, dated as of March 26, 1999, by
and between NovaCare, Inc., the Company and Patricof & Co.
Ventures, Inc. (Incorporated by reference to Exhibit (c)(5)
to Schedule 14D-1 filed by Purchaser and Parent with the
Commission on September 15, 1999). .........................
(c)(6) -- Confidentiality Agreement, dated as of February 12, 1999, by
and between NovaCare, Inc., the Company and AFLAC
Incorporated (Incorporated by reference to Exhibit (c)(6) to
Schedule 14D-1 filed by Purchaser and Parent with the
Commission on September 15, 1999). .........................
(c)(7) -- Exclusivity Agreement, dated as of August 16, 1999, by and
among the Company, NovaCare, Inc. and the Equity Investors
(Incorporated by reference to Exhibit (c)(5) to Schedule
14D-1 filed by Purchaser and Parent with the Commission on
September 15, 1999). .......................................
</TABLE>
<PAGE> 30
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ------------------------------------------------------------ ----
<S> <C> <C> <C>
(c)(8) -- Excerpts from the Company's 1998 Annual Proxy Statement
dated October 28, 1998 (Incorporated by reference to the
Company's definitive 1998 Annual Proxy Statement (filed with
the Commission on October 27, 1998). .......................
(c)(9) -- Loren Hulber Transaction Bonus Agreement. ..................
(c)(10) -- Aven Kerr Transaction Bonus Agreement. .....................
(c)(11) -- Christina Harris Transaction Bonus Agreement. ..............
(c)(12) -- James E. Boyd Transaction Bonus Agreement. .................
(c)(13) -- Daniel R. Rishavy Transaction Bonus Agreement. .............
(c)(14) -- PROH Contract dated as of July 1, 1999, by and between the
Company and NovaCare, Inc. .................................
(c)(15) -- Corporate Support Services Agreement dated as of July 1,
1999 by and between the Company and NovaCare, Inc. .........
(c)(16) -- NovaCare Indemnification Letter dated September 8, 1999. ...
(c)(17) -- Transfer and Licensing Agreement dated September 8,
1999. ......................................................
(c)(18) -- Unified/Surety Bond Indemnification Letter dated September
8, 1999 (Incorporated by reference to Exhibit (c)(8) to
Schedule 14D-1 filed by Purchaser and Parent with the
Commission on September 5, 1999). ..........................
</TABLE>
- ---------------
* Included in copies mailed to Stockholders.
<PAGE> 1
EXHIBIT (a)(9)
NOVACARE EMPLOYEE SERVICES ANNOUNCES SALE OF COMPANY
September 9, 1999 10:32 AM
NORRISTOWN,Pa., Sept. 9/PRNewswire/ -- NovaCare Employee Services, Inc. NCES,
a premier national employee services company, or professional employer
organization (PEO), announced today a definitive agreement to sell the company
to an investment group comprising Patricof & Co. Ventures, Inc., Fidelity
Ventures Limited and AFLAC Incorporated (the Investors). Under the terms of the
agreement, a new private company established by the Investors will acquire all
the stock of NovaCare Employee Services at a price of $2.50 per share of common
stock.
The purchase will be effected through a cash tender offer to NovaCare Employee
Services stockholders and subsequent merger of NovaCare Employee Services into
a new private company managed by the Investors. The tender offer will commence
on or about September 15, 1999. NovaCare Employee Services has 30,273,782 fully
diluted shares of common stock outstanding.
"After several months of careful review of our strategic alternatives, we are
pleased with this transaction, which partners NovaCare Employee Services with
three firms with extensive understanding of the PEO industry and the resources
and synergies to support our future growth," said Loren J. Hulber, president
and chief executive officer.
Following the merger, Loren J. Hulber will be elected Chairman of the Board and
Craig P. Coy will be elected Chief Executive Officer. Mr. Coy has been Chief
Executive Officer of HR Logic, Inc., a portfolio company jointly owned by
Patricof & Co. Ventures, Inc. and Fidelity Ventures Limited, headquartered in
Newton, Massachusetts. Operations of NovaCare Employee Services will remain
intact and the company will, over a six month period, change its name to
NovaSource, Inc.
NovaCare, Inc., NOV holder of approximately 64% of NovaCare Employee Services'
outstanding common stock, also executed a definitive agreement, subject to
certain conditions, to tender its shares in the tender offer at the price of
$2.50 per share.
The tender offer is subject to the approval of the NovaCare, Inc. stockholders
and the satisfaction of customary closing conditions. The tender offer is
expected to close during October 1999. NovaCare Employee Services' previously
announced agreement to acquire Unified Management Corporation has terminated
and that transaction will not occur.
NovaCare Employee Services engaged CIBC World Markets to render a fairness
opinion on this transaction.
NovaCare Employee Services, Inc. is a premier national professional employer
organization. The company is an employee services company that provides
small- to medium-sized businesses with comprehensive, fully integrated
outsourcing solutions to human resource needs, including payroll management,
risk management, benefits procurement and management, unemployment insurance
services and human resource consulting services. As of June 30, 1999, NovaCare
Employee Services had 4,084 clients with more than 54,300 worksite employees
under contract located in 46 states.
<PAGE> 2
Cautionary Statement
Except for historical information, matters discussed above including, but not
limited to, statements concerning future growth, are forward-looking statements
that are based on management's estimates, assumptions and projections.
Important factors that could cause results to differ materially from those
expected by management include management retention and development,
management's success in integrating acquired businesses, in developing and
introducing new products and lines of business and in entering new geographic
markets, maintaining material customer contracts, material changes in the
economics of the contracts with NovaCare, Inc., the ability of the company, its
customers and its suppliers to complete assessment, testing and remediation of
Year 2000 issues, adverse Internal Revenue Service rulings and state
regulations with respect to the employer status of employee services businesses
and the company's ability to implement the employee services business model.
SOURCE NovaCare Employee Services, Inc.
<PAGE> 1
EXHIBIT (a)(10)
[Logo of NovaCare Employee Services, Inc.]
September 15, 1999
Dear Stockholder:
As you may be aware, on September 8, 1999, NovaCare Employee Services, Inc.
(the "Company") entered into an Agreement and Plan of Merger (the "Merger
Agreement") with Plato Holdings, Inc., a Delaware corporation ("Parent"), and
its wholly owned subsidiary, New Plato Acquisition, Inc. ("Purchaser"), pursuant
to which Purchaser has agreed to commence a tender offer (the "Offer") for all
of the issued and outstanding shares of the common stock, $.01 par value (the
"Shares"), of the Company for a cash price of $2.50 per Share (the "Offer
Price"). The Merger Agreement provides that, following completion of the Offer,
Parent will cause Purchaser to merge (the "Merger") with and into the Company
and any Shares that are not acquired through the Offer will be converted in the
Merger into the right to receive the same consideration as is paid in the Offer.
THE BOARD OF DIRECTORS UNANIMOUSLY HAS DETERMINED THAT THE OFFER AND THE
MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY AND ITS
STOCKHOLDERS, HAS APPROVED THE OFFER, THE MERGER AGREEMENT AND THE MERGER AND
RECOMMENDS THAT YOU ACCEPT THE OFFER AND TENDER YOUR SHARES PURSUANT TO THE
OFFER.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors as described in the enclosed Schedule
14D-9, including the opinion of CIBC World Markets Corp. to the effect that, as
of the date thereof and based upon and subject to certain matters and conditions
set forth in such opinion, the Offer Price of $2.50 per Share, net to the seller
in cash, to be received by the Company's stockholders (other than Parent and
Purchaser, any affiliates of Parent or Purchaser, NovaCare, Inc. and its
affiliates and Company stockholders properly perfecting dissenters' rights) in
the Offer and the Merger, is fair, from a financial point of view, to such
holders. We urge you to read the enclosed Schedule 14D-9 and the related offer
materials carefully.
On behalf of the Company's Board of Directors, I thank you for the support
you have given to the Company over the years.
Sincerely,
/s/Loren J. Hulber
Loren J. Hulber
President and Chief
Executive Officer
<PAGE> 1
NOVACARE
EMPLOYEE SERVICES
HELPING MAKE LIFE A LITTLE BETTER.
THOMAS D. SCHUBERT
Senior Vice President and Chief Financial Officer
PERSONAL AND CONFIDENTIAL
April 21, 1999
Mr. Loren J. Hulber
Fieldstone Farm
7250 Saint Peter's Road
Macungie, PA 18062
Dear Loren:
I am pleased to offer you the following transaction-related special incentive
compensation opportunity in conjunction with the sale of NCES. The purpose of
this incentive opportunity is to provide you with a significant incentive to
maximize shareholder value by facilitating the transaction process, cooperating
in due diligence, providing stability during the transaction period, and
focusing on the successful completion of the transaction. This incentive
opportunity is meant to recognize you for developing shareholder value.
The incentive opportunity provides a lump sum payout based upon the final
transaction price per share of NCES common stock.
<TABLE>
<CAPTION>
TARGET TRANSACTION PRICE PER SHARE PAYOUT
- ---------------------------------- ------
<S> <C>
Transaction Completion 100% of Base Salary
$3.25 100% of Base Salary
$3.26 to 3.85 125% of Base Salary
$3.86 to 4.45 150% of Base Salary
$4.45 to 4.99 175% of Base Salary
$5.00 200% of Base Salary
Greater Than $5.00 Pro rata participation
(based on relative salary
levels) with team members in
1% of the incremental value
over $5.00 per share
</TABLE>
NOVACARE EMPLOYEE SERVICES, INC.
2621 Van Buren Avenue Norristown, PA 19403 610 650 4810 Fax 610 650 4705
<PAGE> 2
Mr. Loren J. Hulber
April 21, 1999
This incentive opportunity is contingent upon your best efforts to reach an
employment agreement with our acquirer that has a minimum employment term of two
years. An additional condition is that total confidentiality must be maintained
regarding this agreement, and no disclosure can be made of it. Incentive payment
will be made within ten (10) business days after the transaction closing.
Loren, thanks for the many contributions you have made toward NovaCare Employee
Services developing into the premier professional employer organization. I look
forward to our continued success as we pursue a new chapter in our growth.
Please indicate your acceptance of this agreement by signing and returning one
of the two copies to me.
Sincerely,
Thomas D. Shubert
Senior Vice President & Chief Financial Officer
This Agreement has been approved by the Compensation Committee of the Board of
Directors:
<TABLE>
<CAPTION>
<S> <C>
/s/ John H. Foster 4/21/99
- -------------------------------------------- ------------------
John H. Foster Date
Chairman of the Compensation Committee
Acceptance of this Agreement:
/s/ Loren J. Hulber 4/21/99
- -------------------------------------------- ------------------
Loren J. Hulber Date
</TABLE>
<PAGE> 1
NOVACARE
EMPLOYEE SERVICES
HELPING MAKE LIFE A LITTLE BETTER.
LOREN J. HULBER
President and Chief Executive Officer
August 30, 1999
Aven A. Kerr
1533 Sunneytown Pike
Ambler, PA 19002
Dear Aven:
I am pleased to advise you of a change in the transaction-related special
incentive compensation opportunity in conjunction with the sale of NCES, which
was described in my letter to you of April 12, 1999.
The first level of payment, an award of 50% of base salary, will now trigger
based on completion of a transaction and your signing of an employment agreement
that has a minimum term of two years under terms consistent with those discussed
with our executive team.
I hope you are as pleased with this change as I am for you. Please indicate your
acceptance of this change by signing and returning one of the two copies to me.
Sincerely,
/s/ Loren J. Hulber
- -----------------------
Loren J. Hulber
President and CEO
/s/ Aven A. Kerr 8/30/99
- ----------------------- ------------------------
Aven A. Kerr Date
NOVACARE EMPLOYEE SERVICES, INC.
2621 Van Buren Avenue Norristown, PA 19403 610 650 4810 Fax 610 650 4705
<PAGE> 1
NOVACARE
EMPLOYEE SERVICES
HELPING MAKE LIFE A LITTLE BETTER.
LOREN J. HULBER
President and Chief Executive Officer
August 30, 1999
Christina D. Harris
1770 Ben Franklin Drive, #203
Sarasota, FL 34236
Dear Christina:
I am pleased to advise you of a change in the transaction-related special
incentive compensation opportunity in conjunction with the sale of NCES, which
was described in my letter to you of April 12, 1999.
The first level of payment, an award of 50% of base salary, will now trigger
based on completion of a transaction and your signing of an employment agreement
that has a minimum term of two years under terms consistent with those discussed
with our executive team.
I hope you are as pleased with this change as I am for you. Please indicate your
acceptance of this change by signing and returning one of the two copies to me.
Sincerely,
/s/ Loren J. Hulber
Loren J. Hulber
President and CEO
/s/ Christina D. Harris 8/31/99
- ----------------------- ---------------------
Christina D. Harris Date
NOVACARE EMPLOYEE SERVICES, INC.
2621 Van Buren Avenue Norristown, PA 19403 610 650 4810 Fax 610 650 4705
<PAGE> 1
NOVACARE
EMPLOYEE SERVICES
HELPING MAKE LIFE A LITTLE BETTER.
LOREN J. HULBER
President and Chief Executive Officer
August 30, 1999
Mr. James E. Boyd
4807 Riverview Boulevard
Bradenton, FL 34209
Dear Jim:
I am pleased to advise you of a change in the transaction-related special
incentive compensation opportunity in conjunction with the sale of NCES, which
was described in my letter to you of April 12, 1999.
The first level of payment, an award of 50% of base salary, will now trigger
based on completion of a transaction and your signing of an employment agreement
that has a minimum term of two years under terms consistent with those discussed
with our executive team.
I hope you are as pleased with this change as I am for you. Please indicate your
acceptance of this change by signing and returning one of the two copies to me.
Sincerely,
/s/ Loren J. Hulber
Loren J. Hulber
President and CEO
/s/ James E. Boyd 8/31/99
- ------------------- ----------------------
James E. Boyd Date
NOVACARE EMPLOYEE SERVICES, INC.
2621 Van Buren Avenue Norristown, PA 19403 610 650 4810 Fax 610 650 4705
<PAGE> 1
NOVACARE
EMPLOYEE SERVICES
HELPING MAKE LIFE A LITTLE BETTER.
LOREN J. HULBER
President and Chief Executive Officer
August 30, 1999
Daniel R. Rishavy
4103 SW 11th St., Court, #204
Palmetto, FL 34221
Dear Dan:
I am pleased to advise you of a change in the transaction-related special
incentive compensation opportunity in conjunction with the sale of NCES, which
was described in my letter to you of April 12, 1999.
The first level of payment, an award of 50% of base salary, will now trigger
based on completion of a transaction and your signing of an employment agreement
that has a minimum term of two years under terms consistent with those discussed
with our executive team.
I hope you are as pleased with this change as I am for you. Please indicate your
acceptance of this change by signing and returning one of the two copies to me.
Sincerely,
/s/ Loren J. Hulber
Loren J. Hulber
President and CEO
/s/ Daniel R. Rishavy 8/31/99
- ----------------------------- -------------------------
Daniel R. Rishavy Date
NovaCare Employee Services, Inc.
2621 Van Buren Avenue Norristown, PA 19403 610 650 4810 FAX 610 650 4705
<PAGE> 1
SUBSCRIBER SERVICE AGREEMENT
This Subscriber Service Agreement (the "Agreement") is made as of 1st
day of July, 1999 (the "Effective Date") by and between NovaCare, Inc., a
Delaware corporation with its principal place of business at 1016 W. Ninth
Avenue, King of Prussia, Pennsylvania 19406 ("Subscriber"), and NovaCare
Employee Services, Inc. ("NovaCare"), a Delaware corporation with its principal
place of business at the Valley Forge Corporate Center, 2621 Van Buren Avenue,
Norristown, Pennsylvania 19403. This Agreement modifies and supersedes all prior
agreements between Subscriber and NovaCare with respect to Worksite Employees
(as that term is defined in Section 1 of this Agreement).
W I T N E S S E T H:
WHEREAS, NovaCare has expertise in employment relations matters,
including payroll, benefits procurement and management, workers' compensation
insurance management (including risk assessment, injury prevention and claims
management), recruiting, human resources management (including consulting and
intervention to resolve employment-related issues) and training and development;
WHEREAS, Subscriber has outsourced certain human resource functions to
NovaCare in order to improve service and reduce costs by taking advantage of the
expertise of a focused human resources business;
WHEREAS, Subscriber and NovaCare wish to supersede their existing
subscriber service agreement and enter into this agreement for the provision of
services to Subscriber's Physical Rehabilitation and Occupational Health
Division (the "PROH Division"); and
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and promises herein contained, and intending legally to be bound, the
parties have agreed as follows:
1. Parties' Intent
Subscriber and NovaCare understand and intend that, under this
Agreement, NovaCare will assume certain rights and duties of a co-employer with
respect to employees located at Subscriber worksites or at worksites at which
Subscriber provides services as part of the PROH Division (an employee of the
PROH Division, as determined by Subscriber, shall hereinafter be referred to as
a "Worksite Employee").
2. Term and Termination.
2.1 Initial Term. The initial term (the "Initial Term") of
this Agreement shall be from July 1, 1999 through June 30, 2003 unless sooner
terminated pursuant to Section 2.3 below.
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2.1.2 Renewal Term. This Agreement shall automatically renew
for an additional one-year term (a "Renewal Term") upon the expiration of the
Initial Term and each subsequent Renewal Term, unless written notice of
non-renewal is given by either party at least nine (9) months prior to the
expiration of the Initial or any Renewal Term.
2.1.3 Termination.
2.1.3.1 By NovaCare. NovaCare may terminate this
Agreement upon notice to Subscriber, in the event that:
(a) Subscriber fails to pay any sums due
hereunder, and such failure continues for three (3) business days after written
notice thereof is sent to Subscriber, certified or registered mail, return
receipt requested;
(b) Subscriber fails at any time to procure or
maintain any insurance coverage required by this Agreement;
(c) Subscriber fails to perform or observe any
duty, obligation or covenant contained in this Agreement other than those set
forth in subparagraph (a) or subparagraph (b) above, and such failure continues
for ten (10) days after written notice thereof is sent to Subscriber, certified
or registered mail, return receipt requested;
(d) Subscriber becomes insolvent (that is,
unable to pay its debts as they mature or in accordance with customary business
practice) or commits an act of bankruptcy, or applies for, consents to, or
acquiesces in the appointment of a trustee or a receiver for it or any of its
property, or, in the absence of such application, consent or acquiescence, a
trustee or receiver is appointed for Subscriber or for a substantial part of its
property and is not discharged within thirty days thereof, or if any bankruptcy
or insolvency proceeding, or, except as otherwise contemplated in Section 12.14
herein, any dissolution or liquidation proceeding, is instituted by or against
Subscriber and is consented to or acquiesced in by Subscriber or remains for
thirty (30) days undismissed;
(e) except as otherwise contemplated in \
Section 12.14, there occurs the termination, cessation or liquidation of the
Subscriber's business;
(f) any representation, warranty or statement
of material fact made or furnished to NovaCare or NovaCare's representatives by
or on behalf of the Subscriber, or any document, instrument or other paper
submitted to NovaCare or NovaCare's representatives by or on behalf of
Subscriber, is false or misleading in any material respect;
(g) NovaCare determines, and obtains an
opinion of counsel to the effect, that all or a substantial portion of its
receipts hereunder are or will become subject to a sales, value added, gross
receipts or similar tax in a particular jurisdiction as to which it exercises
its right to terminate;
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(h) changes in federal, state or local law,
regulation or controlling legal interpretation occur that make it legally
impossible or economically impractical for NovaCare to carry out its obligations
hereunder in the jurisdiction(s) as to which it exercises its right to
terminate;
(i) Subscriber fails to comply with any
reasonable directive regarding health and safety from NovaCare, NovaCare's
workers' compensation carrier, or any government agency with jurisdiction over a
health or safety matter; or
(j) Subscriber misrepresents workers'
compensation or Fair Labor Standards Act classification or inaccurately reports
employee payroll hours, pay rate or salary.
2.1.3.2 By Subscriber. Subscriber may terminate this
Agreement upon notice to NovaCare in the event that:
(a) NovaCare fails to pay any sums required to
be paid hereunder by NovaCare as co-employer of the Worksite Employees
(i) to or on behalf of a Worksite Employee
or
(ii) to a governmental agency, insurance
carrier, third party administrator or other third party, and such failure
continues for seven (7) business days after written notice thereof is sent to
NovaCare, certified or registered mail, return receipt requested;
(b) NovaCare fails at any time to procure or
maintain insurance coverage required by this Agreement;
(c) NovaCare fails to meet the following
service performance standards, and such failure continues for a period of sixty
(60) days after written notice thereof is sent to NovaCare, certified or
registered mail, return receipt requested:
(i) employee status change transactions
(new hires, wage and salary actions, changes in status from full-time to
part-time or on or off leave and terminations) (hereinafter referred to as
"Status Transactions") received in a form acceptable to NovaCare by the
established payroll cut-off date and time (the "Payroll Cut-off") for a payroll
will be processed for that payroll;
(ii) payroll data received by NovaCare's
designated representative by the Payroll Cut-off will be processed to deliver
payroll on time ninety-eight percent (98%) of the time, except for natural
disasters, errors caused by Subscriber personnel or other circumstances beyond
NovaCare's control, and ninety-eight percent (98%) of paychecks will correctly
reflect information transmitted from the Subscriber;
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(iii) new hire and status change benefit
forms ("Benefit Forms") will be submitted to the third party administrator
responsible for the applicable benefit plan within one (1) week of receipt by
NovaCare's designated representative. If NovaCare acts as the plan
administrator, it will update its file and provide confirmation;
(iv) seventy-five percent (75%) of
incoming calls to the employee service center 1-800 phone number, during
established business hours, will be answered immediately and incoming calls
reaching voice mail will be returned by the end of the following business day;
and for open enrollment periods, the calls will be returned within three
business days.
(v) NovaCare will conduct quarterly
feedback sessions with Subscriber's designees and provide client training
regarding how to properly process payroll inputs. Significant service issues
reasonably raised in writing by Subscriber in such quarterly feedback sessions
shall be addressed to Subscriber's reasonable satisfaction within sixty days
after the feedback session in which such service issues are raised; provided,
that, to the extent that the service issues relate to and/or are caused by
Subscriber's policies, procedures and/or processes, NovaCare's responsibility
shall consist of addressing the suggested actions to cure the service issue and
the related cost and time frame to implement the cure.
(d) NovaCare becomes insolvent (that is,
unable to pay its debts as they mature or in accordance with customary business
practice) or commits an act of bankruptcy, or applies for, consents to, or
acquiesces in the appointment of a trustee or a receiver for it or any of its
property, or, in the absence of such application, consent or acquiescence, a
trustee or receiver is appointed for NovaCare or for a substantial part of its
property and is not discharged within thirty days thereof, or if any bankruptcy
or insolvency proceeding, or any dissolution or liquidation proceeding, is
instituted by or against NovaCare and is consented to or acquiesced in by
NovaCare or remains or thirty (30) days undismissed;
(e) there occurs the termination, cessation or
liquidation of NovaCare's business;
(f) NovaCare fails to perform or observe any
material duty, obligation or covenant contained in this Agreement other than
those set forth in subparagraph (a), subparagraph (b) or subparagraph (c) above,
and such failure continues for ten (10) days after written notice thereof is
sent to NovaCare, certified or registered mail, return receipt requested, unless
such cure cannot reasonably be achieved within such timeframe, using
commercially reasonable efforts, in which case the applicable cure period shall
be as is reasonable under the circumstances;
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3. Fees.
3.1 Calculation of Fees
For each twelve month period under this Agreement, commencing July 1 of
each year and ending June 30 of each year during the term, the fees shall be
determined in accordance with this Section 3.1.
3.1.1 Payroll Fees. The following Subscriber
payments will be processed by NovaCare and billed to Subscriber:
(a) gross earnings, including salary, wages, bonus,
vacation time, paid time off, sick time, commissions and severance pay (before
deductions, whether before tax or after tax) paid to Worksite Employees;
(b) the employer's portion of FICA and FUTA
attributable to gross earnings in accordance with such regulations;
(c) the employer's portion of contributions to the
NCES/NovaCare, Inc. 401(k) Retirement Savings Plan ("the 401(k) Plan"); and
(d) the net amount of expense reimbursement and any
other cash payment to a Worksite Employee that is included in a paycheck at the
request of Subscriber but is not includable in gross earnings for federal or
state tax purposes.
3.1.2 Benefits/Risk Management Fees. For Benefits/Risk
Management Responsibilities assumed hereunder, which are more specifically
described in Section 4.2 herein, Subscriber shall pay Benefits/Risk Management
Fees to NovaCare equal to the estimated costs of procuring and managing such
responsibilities (the "Section 3.1.2 Estimated Costs"), plus an annual fixed fee
(the "Section 3.1.2 Fixed Fee"), which shall be equal to twenty-five percent
(25%) of such costs. At least 60 days before the beginning of each Subscriber
fiscal year beginning with the fiscal year ending June 30, 2000, Subscriber and
NovaCare shall meet to mutually determine the scope and anticipated costs of the
Benefits/Risk Management Responsibilities for the next succeeding fiscal year
and the Section 3.1.2 Estimated Costs for such fiscal year based on the increase
or decrease, as the case may be, in the scope of such responsibilities as
compared with the prior fiscal year. Any costs in excess of the Section 3.1.2
Estimated Costs for a fiscal year shall be added to and be deemed part of the
Section 3.1.2 Estimated Costs (for purposes of payment of such costs and for
purposes of the calculation of the Section 3.1.2 Fixed Fee) for such period only
if such additional costs are approved, in advance, by Subscriber. NovaCare shall
calculate, on a semi-annual basis, the actual costs incurred by NovaCare in
performing the Benefits/Risk Management Responsibilities for such semi-annual
period (the "Actual Section 3.1.2 Costs"). To the extent that the Actual Section
3.1.2 Costs for such semi-annual period are less than the Section 3.1.2
Estimated Costs for such period, NovaCare shall pay to Subscriber, as a "Section
3.1.2 Rebate," an amount equal to 50% of such difference. The Section 3.1.2
Rebate shall be paid, if applicable, within 60 days after each semi-annual
period and, in connection therewith, each party shall have the opportunity to
review the
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work papers relating to the calculation thereof. The Section 3.1.2 Estimated
Costs and the Section 3.1.2 Fixed Fee, as determined by the parties pursuant
hereto, shall be attached to this Agreement each year as Schedule 3.1.2.
3.1.3 Administrative Fees. For Administrative Responsibilities assumed
hereunder, which are more specifically described in Section 4.3 herein,
Subscriber shall pay Administrative Fees to NovaCare equal to the estimated
costs of handling such responsibilities (the "Section 3.1.3 Estimated Costs"),
plus an annual fixed fee (the "Section 3.1.3 Fixed Fee"), which shall be equal
to thirty percent (30%) of the Section 3.1.3 Net Estimated Costs (as defined
below); provided that the total number of Worksite Employees employed during
each calendar month (derived by adding the number of Worksite Employees who
start employment as new hires during the month and the number of Worksite
Employees terminated during the month, to the number of Worksite Employees
actually employed on the first day of the month) is within the "Worksite
Employee Range." If the number of Worksite Employees falls beneath the Worksite
Employee Range during any given calendar month, the Section 3.1.3 Estimated
Costs for that month shall be reduced by a monthly dollar amount (the "Section
3.1.3 Adjustment Amount") for each incremental change between 1 and 1,000
Worksite Employees. If the number of Worksite Employees exceeds the Worksite
Employee Range during any given calendar month, the Section 3.1.3 Estimated
Costs for that month shall be increased by the Section 3.1.3 Adjustment Amount
for each incremental change between one (1) and one thousand (1,000) Worksite
Employees. (For example, if the number of Worksite Employees in a month falls to
a level that is 950 employees below the Worksite Employee Range, the Section
3.1.3 Estimated Costs for that month would be reduced by the Section 3.1.3
Adjustment Amount; on the other hand, if the number of Worksite Employees in a
month reached a level that is 1,100 employees above the Worksite Employee Range,
the Section 3.1.3 Estimated Costs for that month would be increased by twice the
Section 3.1.3 Adjustment Amount.) The Section 3.1.3 Estimated Costs as adjusted,
upward or downward, based on the foregoing provisions, shall be referred to as
the "Section 3.1.3 Net Estimated Costs." At least 60 days before the beginning
of each Subscriber fiscal year beginning with the fiscal year ending June 30,
2000, Subscriber and NovaCare shall meet to mutually determine the scope and
anticipated costs of the Administrative Responsibilities for the next succeeding
fiscal year, the Section 3.1.3 Estimated Costs for such fiscal year based on the
increase or decrease, as the case may be, in the scope of such responsibilities
as compared with the prior fiscal year, the Worksite Employee Range and the
Section 3.1.3 Adjustment Amount. Any costs in excess of the Section 3.1.3
Estimated Costs for a fiscal year shall be added to and be deemed part of the
Section 3.1.3 Net Estimated Costs (for purposes of payment of such costs and for
purposes of the calculation of the Section 3.1.3 Fixed Fee) for such period only
if such additional costs are approved, in advance, by Subscriber. NovaCare shall
calculate, on a semi-annual basis, the actual costs incurred by NovaCare in
performing the Administrative Responsibilities for such semi-annual period (the
"Actual Section 3.1.3 Costs"). To the extent that the Actual Section 3.1.3 Costs
for any semi-annual period are less than the Section 3.1.3 Net Estimated Costs
(as adjusted based on number of Worksite Employees) for such period, NovaCare
shall pay to Subscriber, as a "Section 3.1.3 Rebate," an amount equal to 50% of
such difference. The Section 3.1.3 Rebate shall be paid, if applicable, within
60 days after each semi-annual period and, in connection therewith, each party
shall have the opportunity to review the work papers relating to the calculation
thereof. The Section 3.1.3 Estimated Costs, the Section 3.1.3 Fixed Fee, the
Worksite Employee Range and the Section
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3.1.3 Adjustment Amount as determined by the parties pursuant hereto, shall be
attached to this Agreement each year as Schedule 3.1.3.
3.1.4 Additional Fees. Subscriber may request
NovaCare to assume additional responsibilities pursuant to Section 4.4 below
(hereinafter referred to as "Additional Responsibilities"). The fee for such
Additional Responsibilities shall be set forth in a schedule to this Agreement
(Schedule 3.1.4).
3.1.5 Fees Not Included. Fees set forth above do
not include Subscriber special requests, potential transition set-up activities
or potential wind down costs. Fees for these services, as well as Recruiting and
HR consulting are not included herein, but will be negotiated once the scope of
such services are defined.
3.1.6 Minimum Fee Guarantee. During each of the
consecutive twelve-month periods under this Agreement ending June 30, 2000, June
30, 2001, June 30, 2002 and June 30, 2003, the parties agree that, if the
aggregate of the Fixed Fees paid to NovaCare pursuant to Sections 3.1.2 through
3.1.4 for any such period (without regard to any Rebates) is less than the
guaranteed fee applicable to such period, as described on Schedule 3.1.6,
Subscriber shall pay to NovaCare an amount equal to such shortfall (in such
case, a "Section 3.1.6 Shortfall Payment"). Any such Section 3.1.6 Shortfall
Payment shall be paid, if applicable, within 60 days after the end of each of
the aforementioned fiscal years. Each party shall have the opportunity to review
the work papers relating to the calculation of any such Section 3.1.6 Shortfall
Payment.
3.2 Payment of Fees.
3.2.1 Administrative and Benefits/Risk Management
Fees. On or before each payroll date, Subscriber shall fund an account with the
amount of the Administrative Fees and Benefits/Risk Management Fees (the
"Payroll Account") in advance of each payroll payment date. NovaCare shall have
the right to draw against the Payroll Account an amount equal to the Payroll
Fees and Benefits/Management Fees for the applicable payroll payment date.
Subscriber agrees to collect, verify and transmit to NovaCare's administrative
office, no less than seven (7) business days before each NovaCare payroll date,
any information required to determine correctly and accurately the amount of the
payment due NovaCare. If Subscriber defaults in paying the amounts due NovaCare
and NovaCare continues to pay wages for Worksite Employees at a rate not below
the statutory minimum wage, Subscriber shall fully indemnify and hold NovaCare
harmless from any and all claims made by employees for wages in excess of the
amount paid by NovaCare and any and all legal fees and expenses incurred in
defense of such claims. Additionally, Subscriber must immediately inform
NovaCare of any situation in which payment will not be immediately forthcoming
and thereafter, at the request of NovaCare, Subscriber shall terminate the
employment of persons for whom payment by Subscriber to NovaCare will not be
made.
3.2.2 Subscriber is responsible for all sales,
franchise and use taxes applicable to the states in which business is being
conducted.
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4. NovaCare's Responsibilities.
4.1 Payroll Responsibilities. NovaCare shall be
responsible for and shall perform the following functions ("Payroll
Responsibilities") with respect to Worksite Employees in consideration of the
payment of Payroll Fees:
(i) Payment of wages based on hours, wage and
salary rates and other information supplied by Subscriber, including application
of set-offs owed to Subscriber and implementation of garnishment orders;
(ii) Calculation of Paid Time Off (in accordance
with Subscriber's policies);
(iii) Payment of sign-on, relocation and other
bonuses;
(iv) Collection, reporting and payment of
applicable federal, state and local payroll taxes (exclusive of state
unemployment insurance);
(v) Payment of the employer's portion of
contributions to the 401(k); and
(vi) Payment of expense reimbursement and any
other non-wage payments to Worksite Employees, as requested by Subscriber.
4.2 Benefits Responsibilities. NovaCare shall be
responsible for and shall perform the following functions with respect to
Worksite Employees in consideration of the payment of Benefits/Risk Management
Fees:
(i) Collection of employee contributions,
payment of premiums and administration under the benefit plans;
(ii) Funding of benefit plans that require
funding within the time required by law;
(iii) Reporting and payment of applicable state
unemployment insurance;
(iv) Administration of unemployment compensation
claims; and
(v) Payment of workers' compensation insurance
premiums and administration and management of workers' compensation claims,
including payment of claims not paid by an insurance carrier or other third
party.
4.3 Administrative Responsibilities. NovaCare shall be
responsible for and shall perform the following functions with respect to
Worksite Employees in consideration of the payment of Administrative Fees:
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(i) Completion, reporting and maintenance of
payroll and Plan records, with the exception of records of hours worked, which
shall be collected, verified and maintained by Subscriber, provided that
Subscriber shall make available to NovaCare copies of such records of hours
worked as NovaCare may require for the purpose of maintaining the Plans;
(ii) Analysis, transfer and integration of
payroll and benefits for (a) Worksite Employees newly employed as a result of
Subscriber's acquisitions of businesses employing those individuals, and(b)
Worksite Employees whose employment is terminated;
(iii) Operation of an employee service center
providing Worksite Employees with access for the purpose of making changes and
resolving questions relating to Plans and paychecks;
(iv) Provision of reports within fifteen (15)
days after the last day of each calendar month showing its performance compared
to the performance standards established in Section 2.1.3.2 c (i) - (v), in form
reasonably satisfactory to Subscriber.
(v) Provision of standardized reports, on a
mutually determined basis, as reasonably requested by Subscriber, including,
without limitation, reports regarding payroll, turnover, employee rosters; and
provision of specialized forms, in form and content reasonably requested by
Subscriber, subject to the capacity of the mutually determined systems to
produce requested formats, prepared and delivered in a reasonably prompt
timeframe;
(vi) Record Maintenance - maintain accurate and
complete personnel files for active and terminated employees to the extent such
information is provided by Subscriber, including all information required by
state and federal law and by the policies and procedures of Subscriber,
including, but not limited to, information relating to performance appraisals,
I-9 forms, records of disciplinary action, staff certification and licensure;
ensure compliance with applicable records retention requirements; respond to
Subscriber's requests for copies of such records in a reasonably prompt
timeframe and/or as reasonably requested by Subscriber;
(vii) Database Management - maintain accurate and
complete employee information and history on human resource information system,
based on information provided by Subscriber.
4.4 Additional Responsibilities. NovaCare may assume
additional responsibilities not covered by Sections 4.1-4.3 above. Any such
additional responsibilities shall be provided pursuant to a written addendum to
this Agreement, executed by both parties, setting forth the services to be
provided and the fee for such services.
5. Rights, Duties and Obligations of Subscriber.
5.1 Supervision of Employees. Subscriber will be
responsible for supervision and direction of Worksite Employees in carrying out
the work of Subscriber's business, and shall
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provide all instrumentalities (including uniforms, tools, equipment and other
supplies) necessary to the performance of job functions.
5.2 Reports of Hours Worked. Subscriber shall (i)
maintain accurate records of actual time worked, (ii) make accurate reports of
time worked by Worksite Employees to NovaCare in accordance with the
requirements of the Fair Labor Standards Act and any applicable similar state
law, (iii) submit actual time worked in a mutually determined format and (iv)
verify the accuracy of such reports. Subscriber shall maintain the records
required to be kept under this Section 5.2 for seven (7) years.
5.3 Employment Decisions. Any common-law employee of
Subscriber shall be deemed a Worksite Employee hereunder. Subscriber shall
determine employment eligibility of all Worksite Employees. If a Worksite
Employee is required to possess or maintain a license, or to be supervised by a
supervisor who is required to possess or maintain a license, Subscriber shall be
responsible for verifying such licensure or providing such required supervision.
In taking any adverse action with respect to the pay, conditions of employment
or employment status of a Worksite Employee (an "Adverse Action"), Subscriber
shall comply with applicable law governing employment. Worksite Employees who
are supervisory employees shall act in that capacity in compliance with
applicable law. Supervisors' actions alleged to be in violation of law are
outside the scope of their responsibility as NovaCare employees and supervisory
employees acting in violation of law shall be deemed to be acting solely as
agents of Subscriber.
5.4 Employee Benefit Plans. Subscriber shall not adopt,
establish, maintain, operate or contribute to any "employee benefit plan" as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended, without the express written consent of NovaCare.
5.5 Financial Controls. Subscriber accepts sole
responsibility for accounting and other financial control policies (and fidelity
bonding requirements) applicable to Worksite Employees or their conduct.
5.6 Compliance With Law. Subscriber accepts sole
responsibility for compliance with the following provisions of law applicable to
Worksite Employees:
(i) the Occupational Safety and Health Act
(OSHA) and related or similar federal, state or local regulations and the
employer's common law duty to supervise the worksite and provide a safe working
environment;
(ii) government contracting requirements under a)
Executive Order 11246, b) the Vocational Rehabilitation Act of 1973, c) the
Vietnam Era Veterans' Readjustment Assistance Act of 1974, d) the Walsh-Healy
Public Contracts Act, e) the Davis-Bacon Act, f) the Service Contract Act of
1965, and g) any and all similar, related, or like federal, state, or local
laws, regulations, ordinances, and statutes;
(iii) Worker Adjustment and Retraining
Notification Act ("WARN");
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(iv) laws affecting assignment of and ownership
of intellectual property rights including, but not limited to, inventions,
whether patentable or not, and patents resulting therefrom, copyrights and trade
secrets;
(v) the Immigration Reform and Control Act of
1986, except as otherwise provided in Section 6.1 (iv); and
(vi) the Fair Labor Standards Act, Title VII of
the Civil Rights Act of 1964, as amended, the Family and Medical Leave Act, the
Age Discrimination in Employment Act, as amended, the Americans With
Disabilities Act (including provisions thereunder relating to Subscriber's
premises), the National Labor Relations Act and any other federal, state, county
or local laws, regulations, ordinances, and statutes which govern the
employer/employee relationship.
5.7 Safety. Subscriber shall report all accidents in
which Worksite Employees are injured immediately (by telephone within one
working day of Subscriber's knowledge of an injury, and in writing by fax within
forty-eight (48) hours) to NovaCare or NovaCare's designee. Subscriber shall
cooperate in any safety inspection or investigation of a worksite injury
conducted by or on behalf of NovaCare. Subscriber shall reasonably cooperate
with NovaCare in returning injured Worksite Employees to work in available
modified-duty positions and in making reasonable accommodations under applicable
disability laws, subject to receipt of an appropriate medical release.
Where required by applicable state law, NovaCare
shall retain a right of direction and control over the management of safety,
risk and hazard control involving Worksite Employees. However, liability for
employee safety is a responsibility of Subscriber, who controls the worksites
and their business operations. Subscriber acknowledges that it is responsible
for maintaining a safe working environment, providing proper training in
compliance with federal or state law or regulation, and establishing and
maintaining such safety programs, safety policies, and safety committees as may
be required by law. NovaCare, NovaCare's workers' compensation and liability
insurance carriers or their assignees have the right to survey the Subscriber's
worksites to look for unsafe conditions or unsafe acts which may lead to
accidents. However, the retention of such right by NovaCare does not relieve
Subscriber of any obligations that it has pursuant to the federal Occupational
Safety and Health Act (OSHA) or any other federal, state or local law intended
to provide employees at Subscriber's worksites with a safe work environment.
5.8 COBRA. NovaCare shall be responsible for
administering continued health care coverage required under the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA Coverage") to each
employee and former employee (and their dependents) of the Subscriber who is
eligible for such COBRA Coverage on the effective date hereof. Subject to
Section 7.1 and Subscriber's reimbursement obligation (as set forth below), upon
termination of this Agreement, NovaCare shall administer COBRA Coverage for each
Worksite Employee, former Worksite Employee, their dependents and any individual
entitled to COBRA Coverage under the preceding sentence (collectively, the
"COBRA Participants") who are eligible for such coverage.
<PAGE> 12
5.9. Provision of Information. Subscriber shall provide to
NovaCare such true and accurate information as NovaCare may request as necessary
to comply with requirements of law with respect to Subscriber's ownership and
organizational structure and compensation packages of its senior executives and
structure and operation of benefit plans offered to Worksite Employees by
Subscriber.
5.10. Changes in Policies and Procedures.Subscriber shall
negotiate with NovaCare all changes to policies, processes and procedures
affecting all services provided by NovaCare under this Agreement. NovaCare shall
effect such changes on mutually agreed upon time frames, staffing and costs.
6. Rights, Duties and Obligations of NovaCare.
6.1 Compliance With Law. Provided that Subscriber has
given to NovaCare all information required hereunder, NovaCare accepts sole
responsibility for compliance with the following provisions of law applicable to
Worksite Employees:
(i) all rules and regulations governing the
reporting, collecting and payment of federal and state payroll taxes on wages
paid under this Agreement, including, but not limited to, a) federal income tax
withholding provisions of the Internal Revenue Code, b) state and/or local
income tax withholding provisions, if applicable, c) Federal Insurance
Contributions Act (FICA), d) Federal Unemployment Tax Act (FUTA), and e)
applicable state unemployment tax provisions;
(ii) except as provided below, applicable
workers' compensation laws including, but not limited to, a) procuring workers'
compensation insurance, b) completing and filing all required reports, and c)
administering, managing, and otherwise processing claims and related procedures
provided that Subscriber agrees to reimburse NovaCare for any monies found due,
whether by audit or otherwise as a result of any workers' compensation
classification information provided by Subscriber to NovaCare;
(iii) Internal Revenue Code Section 4980B, subject
to the provisions of Section 5.8;
(iv) Section 1324A(b) of the Immigration Reform
and Control Act of 1986, assuming that Subscriber has provided to NovaCare all
necessary and accurate documentation required by such law;
(v) the Consumer Credit Protection Act, Title
III; and
(vi) the Fair Labor Standards Act, 29 U.S.C.
Sections 201 et seq., based solely on information provided by Subscriber
pursuant to Section 5.2 hereof.
<PAGE> 13
7. Effect of Termination.
7.1 COBRA. In the event of termination of this Agreement,
the Subscriber shall immediately provide coverage under a "group health plan"
(as defined in Section 4980B(g)(2) of the Code) to all Worksite Employees,
former Worksite Employees, and their dependents who were eligible for coverage
under any NovaCare group health plan immediately before such event. The
Subscriber's group health plan provided under the preceding sentence shall not
contain any exclusion or limitation with respect to any pre-existing condition
applicable to any Worksite Employee, former Worksite Employee or their
dependents.
7.2 Accrued Pay. If this Agreement is terminated and if
the affected employees are entitled to the payment of any accrued bonus,
vacation, sick or personal leave, Subscriber shall be liable for the payment
thereof and will make such payments directly to NovaCare. If, however,
Subscriber continues to employ such affected employee(s) after termination of
this Agreement, the Subscriber shall be liable to the employee(s) for same and
NovaCare shall have no obligation therefor.
7.3 Survival. The indemnification, contribution duty to
cooperate and limitation of liability provisions of this Agreement shall survive
the expiration of this Agreement or other termination of this Agreement
indefinitely.
7.4 Duration of Obligations.
7.4.1 Upon the termination of this Agreement for any reason, the
parties shall continue to have the following obligations through and including
the termination date:
(i) NovaCare shall have the obligation for wages
and benefits payable to the employees through and including the termination
date. If NovaCare makes any payment, authorized by Subscriber or otherwise
required by law, to any of the employees after this Agreement has been
terminated, NovaCare shall be entitled to full reimbursement for such
expenditures;
(ii) Except as otherwise provided herein, all
obligations of NovaCare under this Agreement to maintain workers' compensation
insurance coverage and health care coverage on behalf of the Worksite Employees
shall cease, effective as of the termination date. All such employees shall be
immediately informed by Subscriber that they are no longer covered by NovaCare's
workers' compensation policy. Subscriber shall immediately assume all federal,
state and local obligations of an employer to the employees which are not in
conflict with state or federal law, and shall immediately assume full
responsibility for providing workers' compensation coverage. NovaCare shall
immediately be released from such obligations as are permitted by law, except
that NovaCare shall remain responsible for the cost of claims for workers'
compensation incurred prior to the date of termination. It is the intent of the
parties that, to the extent allowed by law, they be placed in their respective
positions immediately before their entry into this Agreement in the event of a
termination or Subscriber's failure to pay NovaCare; and
<PAGE> 14
(iii) Subscriber shall have the obligation to pay
all fees payable in accordance with the provisions of this Agreement, which are
attributable to the period ending on the termination date.
7.4.2 Upon any termination of this Agreement by
Subscriber other than (a) pursuant to the provisions of Section 2.3.2 or (b) in
accordance with Section 12.14 herein, in addition to the obligations set forth
in Section 7.4.1, Subscriber shall have the obligation to pay to NovaCare such
amount as is necessary so that Subscriber fully complies with the Minimum Fee
Guarantee set forth in Section 3.1.6 herein; provided, that any such payment
shall be made in equal monthly installments over the remaining period ending
June 30, 2003.
8. Indemnification.
8.1 Indemnification by Subscriber. Subscriber agrees to
indemnify, hold harmless, protect and defend NovaCare, its subsidiaries and
affiliates and each of their officers, directors, agents, attorneys and
employees from any claims, expenses (including court costs and attorneys' fees),
damages and liabilities (including severance payments to Worksite Employees)
(collectively hereinafter referred to as "Damages"), from claims, actions,
suits, judgments or settlements arising out of negligence, malpractice, tortious
conduct, violation of any statute, law, or regulation, criminal or dishonest
activity by any Worksite Employee, product liability related to products
manufactured or distributed by Subscriber, Subscriber's breach of any of its
obligations or warranties under this Agreement, or any action by Subscriber or
its agents which may result in a violation of any law or regulation, including,
but not limited to, Damages allegedly arising out of an Adverse Action or out of
worksite conditions or actions of any kind. If such indemnification is for any
reason not available or insufficient to hold NovaCare harmless, Subscriber
agrees to contribute to the losses involved in such proportion as is appropriate
to reflect the relative benefits received (or anticipated to be received) by
Subscriber and by NovaCare with respect to the matters contemplated by this
Agreement or, if such allocation is judicially determined to be unavailable, in
such proportion as is appropriate to reflect not only such relative benefits,
but also other equitable considerations such as the relative fault of
Subscriber, on the one hand, and of NovaCare, on the other hand; provided,
however, that Subscriber shall be responsible for all losses which in the
aggregate are in excess of the amount of all Fixed Fees (as adjusted) received
by NovaCare from Subscriber in connection with the services to be provided
hereunder during the term of this Agreement. NovaCare shall give Subscriber
prompt written notice of any claim for which indemnification will be sought
hereunder, shall cooperate in the investigation and defense of any such claim
and shall not settle or compromise any such claim without the approval of
Subscriber unless Subscriber fails to provide evidence of ability to pay a
judgment in excess of the proposed settlement amount.
8.2 Indemnification by NovaCare. NovaCare assumes
responsibility for the payment of wages to the Worksite Employees without regard
to payments by Subscriber to NovaCare, although in doing so NovaCare does not
waive or limit any claim against Subscriber. NovaCare agrees to indemnify, hold
harmless, protect and defend Subscriber, its subsidiaries and affiliates and
each of their officers, directors, agents, attorneys and employees from and
against any claims, expenses (including attorneys' fees and court costs),
damages and liabilities from claims, actions, suits, judgments or settlements
arising out of NovaCare's breach of its
<PAGE> 15
obligations or warranties under this Agreement or any action by NovaCare or its
agents or employees (other than Worksite Employees) which may result in a
violation of any law or regulation, except violations resulting from conduct of
Worksite Employees or worksite conditions. Subscriber shall give NovaCare prompt
written notice of any claim for which indemnification will be sought hereunder,
and shall cooperate in the investigation and defense of any such claim and shall
not settle or compromise any such claim without the approval of NovaCare. Where
Subscriber has followed or complied with a request or recommendation of NovaCare
or otherwise properly relied on information supplied by NovaCare, it shall be
relieved of responsibility for back pay and damages for such actions (unless
Subscriber has failed to comply with its obligations hereunder to provide
accurate information to NovaCare) and NovaCare shall indemnify and hold
Subscriber harmless from and against any and all liabilities arising therefrom.
8.3 Subrogation. Each party hereby waives any claim in
its favor against the other party by way of subrogation or indemnification which
may arise during the term of this Agreement for any and all loss of or damage to
any of its property, or for bodily injury or death, which loss, damage, or
bodily injury or death is covered by insurance to the extent that such loss or
damage is recovered under such policies of insurance as required herein. The
subrogation and indemnification concept set forth in this provision is intended
to apply only to insurance matters, and nothing in this provision is intended to
alter the indemnification rights set forth elsewhere in this Agreement. Each
party shall assure that its insurance policies contain provisions authorizing
waiver of subrogation consistent with this Section 7.3.
9. Representations and Warranties.
9.1 Fair Labor Standards Act. Subscriber agrees not to
withhold a payment to NovaCare absent NovaCare's express permission, or in any
manner, or by any device, act in violation of, cause, or seek to cause a
violation of any applicable federal, state or local law, ordinance, or
regulation pertaining to the terms, conditions, and services of this Agreement.
Subscriber further warrants that it shall not make any taxable payment of any
kind, except profit-sharing or pension plan distributions pursuant to the terms
of a qualified plan, to any employee covered by this Agreement, and that any
such payment shall be a breach of this Agreement, and at the election of
NovaCare, grounds for immediate termination of this Agreement.
9.2 Employment Matters. Subscriber warrants that there
are no collective bargaining agreements binding upon Subscriber or affecting
Worksite Employees, and that there are no pending governmental investigations or
any lawsuit material in nature related to Worksite Employees, the working
conditions of the Worksite Employees, the products or services produced or
provided by Worksite Employees or any other matters affecting the performance of
NovaCare under this Agreement except as otherwise disclosed to NovaCare.
Subscriber warrants that all hazardous materials, if any, on its premises are
maintained, stored and disposed of in accordance with applicable law. Subscriber
agrees to provide any and all protective safety equipment required for safe
performance of job duties or required under local, state or federal law.
<PAGE> 16
9.3 Primary Obligor for Worksite Employee Compensation.
Notwithstanding anything else in this Agreement to the contrary, the parties
agree that Subscriber, and not NovaCare, shall have the primary responsibility
for any and all compensation due to Worksite Employees.
9.4 APB Opinion No. 25. The parties agree, and each
represent and warrant to the other, that only Subscriber may use the rules of
APB Opinion No. 25 to account for the equity compensation paid to a Worksite
Employee.
9.5 Confidentiality. NovaCare and Subscriber each
acknowledge and agree that it may obtain knowledge of "confidential information"
as hereinafter defined concerning the other party. As used herein, "confidential
information" means any information, (including, without limitation, manuals,
trade secrets, protocol, methods, formula, pattern, device, plans, process,
drawings, designs, specifications, schematics, prototypes and other compilation
of information or technical know-how) which is, or is designed to be, used in
the business of such party, and is private or confidential and is not generally
known or available to the public. Subscriber and NovaCare each agree that it
will not, either during the term of this Agreement or thereafter until the
expiration of a period of ten (10) years following the termination of this
Agreement, use or disclose any such confidential information except as otherwise
specifically contemplated in this Agreement.
10. Workers' Compensation. NovaCare shall provide workers'
compensation insurance for Worksite Employees in compliance with applicable law.
Workers performing services for Subscriber not covered by this Agreement and not
on NovaCare's payroll shall not be covered by NovaCare's workers' compensation
insurance. NovaCare will not provide workers' compensation coverage to any
employee for whom Subscriber is not reporting hours of payroll. Subscriber
further agrees to require any independent contractor it utilizes to provide
evidence of workers' compensation coverage before the independent contractor
commences work at the worksite. Subscriber acknowledges that NovaCare's workers'
compensation carrier or NovaCare is entitled to periodically audit the employee
classification lists for each Subscriber location to make sure that employees
are classified properly for workers' compensation purposes. In the event that
during such an audit, or at any other time, NovaCare finds that Worksite
Employees have been misclassified and such misclassification resulted from
information supplied to NovaCare by Subscriber, Subscriber will promptly
reimburse NovaCare, upon invoice, for charges which otherwise would have been
payable by Subscriber had such employee been properly classified. NovaCare
retains the responsibility for the management of workers' compensation claims,
claim filings and related procedures. Subscriber agrees to cooperate with
NovaCare in that regard, including in regard to the notification of injuries
required by this Agreement or by law.
11. Insurance. During the Initial Term of this Agreement
and any Renewal Term, Subscriber shall obtain and maintain the following types
of insurance:
11.1 Automobile. Subscriber shall obtain and maintain
automobile insurance for all owned, non-owned, and hired vehicles used in
connection with the work performed on its premises or in connection with its
business, and will cause its insurance carrier to issue a
<PAGE> 17
Certificate of Insurance evidencing same to NovaCare, naming NovaCare as an
additional named insured and allowing not less than thirty (30) days' notice of
cancellation or material change. The policy shall insure against liability for
bodily injury and property damage, with a minimum combined single limit of Five
Hundred Thousand Dollars ($500,000) and Uninsured Motorist or PIP equivalent
coverage of at least the minimum limits required by the State where a "no fault"
law shall apply.
11.2 General Liability. Subscriber shall obtain and
maintain general liability insurance, and cause its insurance carrier to issue a
Certificate of Insurance evidencing same to NovaCare, naming NovaCare as an
additional named insured and allowing not less than thirty (30) days' notice of
cancellation or material change. The minimum requirement shall be One Million
Dollars ($1,000,000) combined single limit, Three Million Dollars ($3,000,000)
aggregate limit, including, but not limited to, where applicable, premises,
operations, products, completed operations, contract and broad form property
damage, independent contractors, personal injury, host liquor, and full liquor
liability. If Subscriber renders professional services, it shall obtain and
maintain throughout the term, and any succeeding terms of this Agreement,
professional liability coverage as applicable, and will cause its insurance
carrier to issue a Certificate of Insurance evidencing same to NovaCare allowing
not less than thirty (30) days' notice of cancellation or material change.
Unless otherwise agreed to, such policy shall have a combined single limit of
not less than One Million Dollars ($1,000,000), Three Million Dollars
($3,000,000) aggregate limit.
Subscriber agrees that NovaCare shall not provide any
general liability insurance coverage for products liability, completed
operations or professional liability for any Worksite Employee or the
Subscriber. Subscriber shall further agree that NovaCare shall have no
obligation to provide any form of automobile insurance coverage on behalf of any
Worksite Employee or for Subscriber.
12. Miscellaneous.
12.1 Third Party Rights. This Agreement is intended solely
for the mutual benefit of the parties hereto and does not create any rights of
any kind in a third party. Each party hereto reserves the right and from time to
time to assign its rights, duties and obligations hereunder to any affiliate,
provided that the assigning party shall guarantee the performance and liability
of any such affiliate. Any such assignment may be limited to a portion of such
party's obligations arising in one or more jurisdictions.
12.2 Limitation of Liability. NovaCare's liability for
actual damages from any cause whatsoever, shall be limited to the fees (other
than Payroll Fees) paid by Subscriber with respect to the preceding calendar
year under this Agreement (or, if this Agreement shall have been in effect for
less than twelve months, the foregoing limitation shall be based on the fees
paid by Subscriber to NovaCare relating to the previous twelve-month period
pursuant to the predecessor agreement between the parties, as applicable to the
employees of the PROH Division). This limitation will apply, regardless of the
form of action, whether in contract or tort, including negligence. This
limitation will not apply to claims by either party for bodily injury or damage
to real property or tangible personal property for which the other party may be
<PAGE> 18
legally liable. In no event will NovaCare be liable for any lost profits, lost
savings, incidental damages or consequential damages, even if NovaCare has been
advised of the possibility of such damages.
12.3 Integration. This Agreement constitutes the entire
agreement between the parties with regard to the subject matter hereof and
supersedes any and all agreements (including the Initial Agreement), whether
oral or written, between the parties with respect to its subject matter.
12.4 Waiver. Failure by either party at any time to
require performance by the other party or to claim a breach of any provision of
this Agreement will not be construed as a waiver of any subsequent breach nor
affect the effectiveness of this Agreement, nor any part thereof, nor prejudice
either party as regards to any subsequent action.
12.5 Governing Law. This Agreement shall be subject to
the laws of the Commonwealth of Pennsylvania.
12.6 Dispute Resolution.
12.6.1 Arbitration. The parties shall attempt
amicably to resolve disagreements by negotiating with each other. In the event
that the matter is not amicably settled through negotiation, any controversy,
dispute or disagreement arising out of or relating to this Agreement (a
"Controversy") shall be resolved exclusively by binding arbitration, which shall
be conducted by a single arbitrator in the Philadelphia, PA area, in accordance
with the J-A-M-S/ENDISPUTE Streamlined (in the case of a dispute within the
scope of the Streamlined Rules and Procedures) or Comprehensive Arbitration
Rules and Procedures (the "Rules"). The parties agree that notwithstanding
anything to the contrary contained in the Rules, the arbitrator shall not award
consequential, exemplary, incidental, punitive or special damages.
12.6.2 Procedure. It is agreed that if any party
shall desire relief of any nature whatsoever from any other party as a result of
any Controversy, such party will initiate such arbitration proceedings within a
reasonable time, but in no event more than twelve (12) months after the facts
underlying said Controversy first arise or become known to the party seeking
relief (whichever is later). The failure of such party to institute such
proceedings within said period shall be deemed a full waiver of any claim for
such relief. The parties shall bear equally all costs of said arbitration (other
than their own attorney's fees and costs). The parties agree that the decision
and award of the Arbitrator shall be final and conclusive upon the parties, in
lieu of all other legal, equitable (except as provided in 12.5.3. below) or
judicial proceedings between them, and that no appeal or judicial review of the
award or decision of the Arbitrator shall be taken, but that such award or
decision may be entered as a judgment and enforced in any court having
jurisdiction over the party against whom enforcement is sought.
12.6.3. Equitable Relief. The parties recognize that
irreparable injury may result from a breach of this Agreement and that money
damages may be inadequate to fully remedy the injury. Therefore, either party
may, in any such instance, seek and obtain from a court of competent
jurisdiction one or more preliminary or permanent orders designed to
<PAGE> 19
maintain the status quo ante pending arbitration by (i) restraining and
enjoining any act that would constitute a breach or (ii) compelling the
performance of any obligation that, if not performed, would constitute a breach.
Any relief awarded under this paragraph shall be dissolved upon issuance of the
Arbitrator's decision and order.
12.7 Subscriber Intellectual Property Rights. Subscriber
shall own any and all intellectual property rights incident to any and all
process, products, inventions and discoveries that are created or invented by a
Worksite Employee and who was directed by Subscriber to create or develop such
process, product, discovery or invention. Subscriber shall bear any and all
costs associated with any copyrights, trademarks or patents that Subscriber
chooses to obtain to protect Subscriber's intellectual property rights.
12.8 Duty to Cooperate. In the event that an employee or a
government agency or entity files any type of claim, lawsuit or charge against
NovaCare, Subscriber or both, alleging a violation of any law or failure to do
something which was otherwise required by law, Subscriber and NovaCare mutually
agree to cooperate with each other in the defense of any such claim, lawsuit or
charge. NovaCare and Subscriber will make available to each other upon request
any and all documents that either party has in its possession which relate to
any such claim, lawsuit or charge. However, neither party shall have the duty to
cooperate with the other if the dispute is between the parties themselves, nor
shall this provision preclude the raising of cross claims or third party claims
between Subscriber and NovaCare.
12.9 Severability. Should any term, warranty, covenant,
condition, or provision of this Agreement be held to be invalid or
unenforceable, the balance of this Agreement shall remain in force and shall
stand as if the unenforceable part did not exist. The captions in this Agreement
are provided for convenience only and are not part of the terms and conditions
of this Agreement.
12.10 Modification and Implementation. Any modifications to
this Agreement must be in writing and executed by NovaCare and Subscriber to be
enforceable.
12.11 No Partnership. Nothing set forth herein shall be
deemed to create a partnership or joint venture between Subscriber and NovaCare
and no fiduciary duty shall arise from the relationship created herein.
12.12 Notification of Termination to Employees. NovaCare
will notify all Worksite Employees covered by this Agreement of that status
after Subscriber provides the names of such persons to NovaCare. NovaCare will
also provide each Worksite Employee with any required notice pursuant to
applicable state law or such person's status under this Agreement and shall
obtain from such person any required acknowledgment of such status. If for any
reason this Agreement is terminated, NovaCare will notify all Worksite Employees
of whom it is aware of the termination of this Agreement and Subscriber shall
also notify all Worksite Employees of the termination of this Agreement and
shall inform them that they are no longer covered by NovaCare's benefits or
workers' compensation policy.
<PAGE> 20
12.13 Real Property Leases. As soon as reasonably
practicable after the date hereof, Subscriber and NovaCare shall use their best
efforts to cause all "Subscriber Leases" (as defined herein) to be assigned or
replaced, as applicable, so that NovaCare retains the obligations under such
leases, directly with the landlord, and that Subscriber is released therefrom.
For purposes hereof, a "Subscriber Lease" shall mean any and all real estate
leases covering premises used by NovaCare in the operation of its business, for
which Subscriber has a leasehold interest, whether as landlord, tenant,
sublessor or sub-sublessor.
12.14 Assignment. Subscriber shall have the right to assign
its rights and obligations under this Agreement to any successor to all or
substantially all of Subscriber's assets or business. In addition, in the event
that Subscriber conducts a corporate transaction (including, for example, a
sale, merger, liquidation into successor entities, spin-off, split-off,
carve-out or otherwise) in which the PROH Division (or a substantial portion
thereof) is transferred to or into a third party entity, Subscriber shall have
the right to substitute for this Agreement substantially similar agreements with
such third party(s) such that the aggregate of such contracts with NovaCare and
with such third party(s) provide for an annual Minimum Fee Guarantee similar to
that set forth in Section 3.1.6 for each of the twelve month periods ending June
30, 2000, June 30, 2001, June 30, 2002, and June 30, 2003, as set forth in
Schedule 3.1.6. NovaCare may assign its rights and obligations under this
Agreement to any successor to substantially all of its business.
12.15 Intention of the Parties. The intention of the
parties with respect to allocation between them of rights, duties and
obligations is as set forth in this Agreement. To the extent that the law of any
state requires a different form of agreement to effect the intention of the
parties, the parties agree to negotiate in good faith and to execute separate
agreements applicable to such state.
12.16 Counterparts. This Agreement may be signed in one or
more counterparts, each of which when executed shall be deemed an original and
together shall constitute one and the same instrument
NOVACARE, INC., NOVACARE EMPLOYEE
A Delaware corporation SERVICES, INC.
- -------------------------------- ---------------------------------
Signature Date Signature Date
- -------------------------------- ---------------------------------
Printed or Typed Name Printed or Typed Name
- -------------------------------- ---------------------------------
Title Title
<PAGE> 21
Schedule 3.1.2
Benefits/Risk Management Fees
FOR THE FISCAL YEAR ENDING JUNE 30, 2000:
Section 3.1.2 Estimated Costs: $10,750,000
Section 3.1.2 Fixed Fee: $2,690,000
<PAGE> 22
Schedule 3.1.3
Administrative Fees
FOR THE FISCAL YEAR ENDING JUNE 30, 2000:
Section 3.1.3 Estimated Costs: $1,760,000
Section 3.1.3 Fixed Fee: $540,000
Worksite Employee Range: 4,500 to 5,500
Section 3.1.3 Adjustment Amount: $20,000 per month
<PAGE> 23
Schedule 3.1.4
Additional Responsibilities Fee
FOR THE FISCAL YEAR ENDING JUNE 30, 2000:
None
<PAGE> 24
Schedule 3.1.6
Minimum Fee Guarantee
Fiscal year ending June 30, 2000: $3,200,000
Fiscal year ending June 30, 2001: $3,400,000
Fiscal year ending June 30, 2002: $3,500,000
Fiscal year ending June 30, 2003: $3,700,000
<PAGE> 1
SUBSCRIBER SERVICE AGREEMENT
This Subscriber Service Agreement (the "Agreement") is made as of 1st day
of July, 1999 (the "Effective Date") by and between NovaCare, Inc., a Delaware
corporation with its principal place of business at 1016 W. Ninth Avenue, King
of Prussia, Pennsylvania 19406 ("Subscriber"), and NovaCare Employee Services,
Inc. ("NovaCare"), a Delaware corporation with its principal place of business
at the Valley Forge Corporate Center, 2621 Van Buren Avenue, Norristown,
Pennsylvania 19403. This Agreement modifies and supersedes all prior agreements
between Subscriber and NovaCare with respect to Worksite Employees (as that term
is defined in Section 1 of this Agreement).
W I T N E S S E T H:
WHEREAS, NovaCare has expertise in employment relations matters, including
payroll, benefits procurement and management, workers' compensation insurance
management (including risk assessment, injury prevention and claims management),
recruiting, human resources management (including consulting and intervention to
resolve employment-related issues) and training and development;
WHEREAS, Subscriber has outsourced certain human resource functions to
NovaCare in order to improve service and reduce costs by taking advantage of the
expertise of a focused human resources business;
WHEREAS, Subscriber and NovaCare wish to supersede their existing
subscriber service agreement and enter into this agreement for the provision of
services to Subscriber's corporate support services personnel (the "Support
Services Group"); and
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and promises herein contained, and intending legally to be bound, the parties
have agreed as follows:
1. Parties' Intent
Subscriber and NovaCare understand and intend that, under this Agreement,
NovaCare will assume certain rights and duties of a co-employer with respect to
employees principally located at Subscriber's headquarters in King of Prussia,
Pennsylvania and who provide corporate support services on behalf of Subscriber
(an employee in the Support Services Group, as determined by Subscriber, shall
hereinafter be referred to as a "Worksite Employee").
<PAGE> 2
2. Term and Termination.
2.1 Initial Term. The initial term (the "Initial Term") of this
Agreement shall be from July 1, 1999 through December 31, 1999 unless sooner
terminated pursuant to Section 2.3 below.
2.1.2 Renewal Term. Subscriber shall have the right to extend this
Agreement for an additional six-month term if, as of January 1, 2000, the number
of Worksite Employees covered under this Agreement does not exceed 50.
2.1.3 Termination.
2.1.3.1 By NovaCare. NovaCare may terminate this Agreement
upon notice to Subscriber, in the event that:
(a) Subscriber fails to pay any sums due hereunder, and
such failure continues for three (3) business days after written notice thereof
is sent to Subscriber, certified or registered mail, return receipt requested;
(b) Subscriber fails at any time to procure or maintain
any insurance coverage required by this Agreement;
(c) Subscriber fails to perform or observe any duty,
obligation or covenant contained in this Agreement other than those set forth in
subparagraph (a) or subparagraph (b) above, and such failure continues for ten
(10) days after written notice thereof is sent to Subscriber, certified or
registered mail, return receipt requested;
(d) Subscriber becomes insolvent (that is, unable to
pay its debts as they mature or in accordance with customary business practice)
or commits an act of bankruptcy, or if any bankruptcy or insolvency proceeding
is instituted by or against Subscriber and is consented to or acquiesced in by
Subscriber or remains for thirty (30) days undismissed;
(e) Subscriber is dissolved;
(f) any representation, warranty or statement of
material fact made or furnished to NovaCare or NovaCare's representatives by or
on behalf of the Subscriber, or any document, instrument or other paper
submitted to NovaCare or NovaCare's representatives by or on behalf of
Subscriber, is false or misleading in any material respect;
(g) NovaCare determines, and obtains an opinion of
counsel to the effect, that all or a substantial portion of its receipts
hereunder are or will
<PAGE> 3
become subject to a sales, value added, gross receipts or similar tax in a
particular jurisdiction as to which it exercises its right to terminate;
(h) changes in federal, state or local law, regulation
or controlling legal interpretation occur that make it legally impossible or
economically impractical for NovaCare to carry out its obligations hereunder in
the jurisdiction(s) as to which it exercises its right to terminate;
(i) Subscriber fails to comply with any reasonable
directive regarding health and safety from NovaCare, NovaCare's workers'
compensation carrier, or any government agency with jurisdiction over a health
or safety matter; or
(j) Subscriber misrepresents workers' compensation or
Fair Labor Standards Act classification or inaccurately reports employee payroll
hours, pay rate or salary.
2.1.3.2 By Subscriber. Subscriber may terminate this Agreement
upon notice to NovaCare in the event that:
(a) NovaCare fails to pay any sums required to be paid
hereunder by NovaCare as co-employer of the Worksite Employees;
(i) to or on behalf of a Worksite Employee or
(ii) to a governmental agency, insurance carrier, third
party administrator or other third party, and such failure continues for seven
(7) business days after written notice thereof is sent to NovaCare, certified or
registered mail, return receipt requested;
(b) NovaCare fails at any time to procure or maintain
insurance coverage required by this Agreement;
(c) NovaCare fails to meet the following service performance
standards, and such failure continues for a period of sixty (60) days after
written notice thereof is sent to NovaCare, certified or registered mail, return
receipt requested:
(i) employee status change transactions (new hires,
wage and salary actions, changes in status from full-time to part-time or on or
off leave and terminations) (hereinafter referred to as "Status Transactions")
received in a form acceptable to NovaCare by the established payroll cut-off
date and time (the "Payroll Cut-off") for a payroll will be processed for that
payroll;
(ii) payroll data received by NovaCare's designated
representative by the Payroll Cut-off will be processed to deliver payroll on
3
<PAGE> 4
time ninety-eight percent (98%) of the time, except for natural disasters,
errors caused by Subscriber personnel or other circumstances beyond NovaCare's
control, and ninety-eight percent (98%) of paychecks will correctly reflect
information transmitted from the Subscriber;
(iii) new hire and status change benefit forms
("Benefit Forms") will be submitted to the third party administrator responsible
for the applicable benefit plan within one (1) week of receipt by NovaCare's
designated representative. If NovaCare acts as the plan administrator, it will
update its file and provide confirmation;
(iv) seventy-five percent (75%) of incoming calls to
the employee service center 1-800 phone number, during established business
hours, will be answered immediately and incoming calls reaching voice mail will
be returned by the end of the following business day; and for open enrollment
periods, the calls will be returned within three business days.
(v) NovaCare will conduct quarterly feedback sessions
with Subscriber's designees and provide client training regarding how to
properly process payroll inputs. Significant service issues reasonably raised in
writing by Subscriber in such quarterly feedback sessions shall be addressed to
Subscriber's reasonable satisfaction within sixty days after the feedback
session in which such service issues are raised; provided, that, to the extent
that the service issues relate to and/or are caused by Subscriber's policies,
procedures and/or processes, NovaCare's responsibility shall consist of
addressing the suggested actions to cure the service issue and the related cost
and time frame to implement the cure.
(d) NovaCare becomes insolvent (that is, unable to pay its
debts as they mature or in accordance with customary business practice) or
commits an act of bankruptcy, or applies for, consents to, or acquiesces in the
appointment of a trustee or a receiver for it or any of its property, or, in the
absence of such application, consent or acquiescence, a trustee or receiver is
appointed for NovaCare or for a substantial part of its property and is not
discharged within thirty days thereof, or if any bankruptcy or insolvency
proceeding, or any dissolution or liquidation proceeding, is instituted by or
against NovaCare and is consented to or acquiesced in by NovaCare or remains or
thirty (30) days undismissed;
(e) there occurs the termination, cessation or liquidation
of NovaCare's business;
(f) NovaCare fails to perform or observe any material duty,
obligation or covenant contained in this Agreement other than those set forth in
subparagraph (a), subparagraph (b) or subparagraph (c) above, and such failure
continues for ten (10) days after written notice thereof is sent to NovaCare,
certified or registered mail, return receipt requested, unless such cure cannot
reasonably be achieved within
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such timeframe, using commercially reasonable efforts, in which case the
applicable cure period shall be as is reasonable under the circumstances;
3. Fees.
3.1 Calculation of Fees
For the Initial Term, the fees shall be determined in accordance with
this Section 3.1.
3.1.1 Payroll Fees. The following Subscriber payments will be
processed by NovaCare and billed to Subscriber:
a) gross earnings, including salary, wages, bonus, vacation time,
paid time off, sick time, commissions and severance pay (before deductions,
whether before tax or after tax) paid to Worksite Employees;
(b) the employer's portion of FICA and FUTA attributable to gross
earnings in accordance with such regulations;
(c) the employer's portion of contributions to the NCES/NovaCare,
Inc. 401(k) Retirement Savings Plan ("the 401(k) Plan"); and
(d) the net amount of expense reimbursement and any other cash
payment to a Worksite Employee that is included in a paycheck at the request of
Subscriber but is not includable in gross earnings for federal or state tax
purposes.
3.1.2 Benefits/Risk Management Fees. For Benefits/Risk
Management Responsibilities assumed hereunder, which are more specifically
described in Section 4.2 herein, Subscriber shall pay Benefits/Risk Management
Fees to NovaCare equal to the estimated costs of procuring and managing such
responsibilities (the "Section 3.1.2 Estimated Costs"), plus a fixed fee (the
"Section 3.1.2 Fixed Fee"), all of which are more specifically described on
Schedule 3.1.2 attached hereto. If NovaCare's actual costs to perform the
Benefits/Risk Management Responsibilities exceed the Section 3.1.2 Estimated
Costs by more than 15%, Subscriber shall pay to NovaCare an additional amount
equal to the amount by which such actual costs exceed the Section 3.1.2
Estimated Costs; if NovaCare's actual costs to perform the Benefits/Risk
Management Responsibilities are less than the Section 3.1.2 Estimated Costs by
more than 15%, NovaCare shall reimburse Subscriber an amount equal to the
difference between the Section 3.1.2 Estimated Costs and NovaCare's actual
costs.
3.1.3 Administrative Fees. For Administrative
Responsibilities assumed hereunder, which are more specifically described in
Section 4.3 herein, Subscriber shall pay Administrative Fees to NovaCare equal
to the estimated costs of handling such responsibilities (the "Section 3.1.3
Estimated Costs"), plus a fixed fee (the "Section
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3.1.3 Fixed Fee"), all of which are more specifically described on Schedule
3.1.3 attached hereto. If NovaCare's actual costs to perform the Administrative
Responsibilities exceed the Section 3.1.3 Estimated Costs by more than 15%,
Subscriber shall pay to NovaCare an additional amount equal to the amount by
which such actual costs exceed the Section 3.1.3 Estimated Costs; if NovaCare's
actual costs to perform the Administrative Responsibilities are less than the
Section 3.1.3 Estimated Costs by more than 15%, NovaCare shall reimburse
Subscriber an amount equal to the difference between the Section 3.1.3 Estimated
Costs and NovaCare's actual costs.
3.1.4 Additional Fees. Subscriber may request NovaCare to
assume additional responsibilities pursuant to Section 4.4 below (hereinafter
referred to as "Additional Responsibilities"). The fee for such Additional
Responsibilities shall be set forth in a schedule to this Agreement (Schedule
3.1.4).
3.1.5 Fees Not Included. Fees set forth above do not include
Subscriber special requests, potential transition set-up activities or potential
wind down costs. Fees for these services, as well as Recruiting and HR
consulting are not included herein, but will be negotiated once the scope of
such services are defined.
3.1.6 Cancellation Fee. Subscriber shall pay to NovaCare a
fee of $665,000 in consideration for NovaCare's agreement to terminate the
Amended and Restated Subscriber Services Agreement, dated July 1, 1998; such fee
shall be payable at the rate of $110,833 per month for six consecutive months,
on the last business day of each month, beginning with the month of July 1999.
3.2 Fees for Renewal Term. The fees to be paid by Subscriber to NovaCarecc
for services provided hereunder during the Renewal Term, if any, shall be equal
to NovaCare's cost to provide such services, plus a fee equal to one and
one-half percent of such costs.
3.3 Payment of Fees.
3.3.1 Administrative and Benefits/Risk Management Fees. On
or before each payroll date, Subscriber shall fund an account with the amount of
the Administrative Fees and Benefits/Risk Management Fees (the "Payroll
Account") in advance of each payroll payment date. NovaCare shall have the right
to draw against the Payroll Account an amount equal to the Payroll Fees and
Benefits/Management Fees for the applicable payroll payment date. Subscriber
agrees to collect, verify and transmit to NovaCare's administrative office, no
less than seven (7) business days before each NovaCare payroll date, any
information required to determine correctly and accurately the amount of the
payment due NovaCare. If Subscriber defaults in paying the amounts due NovaCare
and NovaCare continues to pay wages for Worksite Employees at a rate not below
the statutory minimum wage, Subscriber shall fully indemnify and hold NovaCare
harmless from any and all claims made by employees for wages in excess of the
amount paid by NovaCare and any and all legal fees and expenses incurred in
defense
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of such claims. Additionally, Subscriber must immediately inform NovaCare of any
situation in which payment will not be immediately forthcoming and thereafter,
at the request of NovaCare, Subscriber shall terminate the employment of persons
for whom payment by Subscriber to NovaCare will not be made.
3.3.2 Subscriber is responsible for all sales, franchise and
use taxes applicable to the states in which business is being conducted.
4. NovaCare's Responsibilities.
4.1 Payroll Responsibilities. NovaCare shall be responsible for and
shall perform the following functions ("Payroll Responsibilities") with respect
to Worksite Employees in consideration of the payment of Payroll Fees:
(i) Payment of wages based on hours, wage and salary rates and
other information supplied by Subscriber, including application of set-offs owed
to Subscriber and implementation of garnishment orders;
(ii) Calculation of Paid Time Off (in accordance with
Subscriber's policies);
(iii) Payment of sign-on, relocation and other bonuses;
(iv) Collection, reporting and payment of applicable federal,
state and local payroll taxes (exclusive of state unemployment insurance);
(v) Payment of the employer's portion of contributions to the
401(k); and
(vi) Payment of expense reimbursement and any other non-wage
payments to Worksite Employees, as requested by Subscriber.
4.2 Benefits Responsibilities. NovaCare shall be responsible for and
shall perform the following functions with respect to Worksite Employees in
consideration of the payment of Benefits/Risk Management Fees:
(i) Collection of employee contributions, payment of premiums and
administration under the benefit plans;
(ii) Funding of benefit plans that require funding within the
time required by law;
(iii) Reporting and payment of applicable state unemployment
insurance;
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(iv) Administration of unemployment compensation claims; and
(v) Payment of workers' compensation insurance premiums and
administration and management of workers' compensation claims, including payment
of claims not paid by an insurance carrier or other third party.
4.3 Administrative Responsibilities. NovaCare shall be responsible for
and shall perform the following functions with respect to Worksite Employees in
consideration of the payment of Administrative Fees:
(i) Completion, reporting and maintenance of payroll and Plan
records, with the exception of records of hours worked, which shall be
collected, verified and maintained by Subscriber, provided that Subscriber shall
make available to NovaCare copies of such records of hours worked as NovaCare
may require for the purpose of maintaining the Plans;
(ii) Analysis, transfer and integration of payroll and benefits
for (a) Worksite Employees newly employed as a result of Subscriber's
acquisitions of businesses employing those individuals, and(b) Worksite
Employees whose employment is terminated;
(iii) Operation of an employee service center providing Worksite
Employees with access for the purpose of making changes and resolving questions
relating to Plans and paychecks;
(iv) Provision of reports within fifteen (15) days after the last
day of each calendar month showing its performance compared to the performance
standards established in Section 2.1.3.2 c(i) - (v), in form reasonably
satisfactory to Subscriber.
(v) Provision of standardized reports, on a mutually determined
basis, as reasonably requested by Subscriber, including, without limitation,
reports regarding payroll, turnover, employee rosters; and provision of
specialized forms, in form and content reasonably requested by Subscriber,
subject to the capacity of the mutually determined systems to produce requested
formats, prepared and delivered in a reasonably prompt timeframe;
(vi) Record Maintenance - maintain accurate and complete
personnel files for active and terminated employees to the extent such
information is provided by Subscriber, including all information required by
state and federal law and by the policies and procedures of Subscriber,
including, but not limited to, information relating to performance appraisals,
I-9 forms, records of disciplinary action, staff certification and licensure;
ensure compliance with applicable records retention
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requirements; respond to Subscriber's requests for copies of such records in a
reasonably prompt timeframe and/or as reasonably requested by Subscriber;
(vii) Database Management - maintain accurate and complete
employee information and history on human resource information system, based on
information provided by Subscriber.
4.4 Additional Responsibilities. NovaCare may assume additional
responsibilities not covered by Sections 4.1-4.3 above. Any such additional
responsibilities shall be provided pursuant to a written addendum to this
Agreement, executed by both parties, setting forth the services to be provided
and the fee for such services.
4.5 Year End Reporting. Notwithstanding an earlier expiration of the
term of this Agreement, NovaCare shall be responsible for all calendar year-end
reporting that is required of Subscriber, consistent with Subscriber's and
NovaCare's past practices.
5. Rights, Duties and Obligations of Subscriber.
5.1 Supervision of Employees. Subscriber will be responsible for
supervision and direction of Worksite Employees in carrying out the work of
Subscriber's business, and shall provide all instrumentalities (including
uniforms, tools, equipment and other supplies) necessary to the performance of
job functions.
5.2 Reports of Hours Worked. Subscriber shall (i) maintain accurate
records of actual time worked, (ii) make accurate reports of time worked by
Worksite Employees to NovaCare in accordance with the requirements of the Fair
Labor Standards Act and any applicable similar state law, (iii) submit actual
time worked in a mutually determined format and (iv) verify the accuracy of such
reports. Subscriber shall maintain the records required to be kept under this
Section 5.2 for seven (7) years.
5.3 Employment Decisions. Any common-law employee of Subscriber shall
be deemed a Worksite Employee hereunder. Subscriber shall determine employment
eligibility of all Worksite Employees. If a Worksite Employee is required to
possess or maintain a license, or to be supervised by a supervisor who is
required to possess or maintain a license, Subscriber shall be responsible for
verifying such licensure or providing such required supervision. In taking any
adverse action with respect to the pay, conditions of employment or employment
status of a Worksite Employee (an "Adverse Action"), Subscriber shall comply
with applicable law governing employment. Worksite Employees who are supervisory
employees shall act in that capacity in compliance with applicable law.
Supervisors' actions alleged to be in violation of law are outside the scope of
their responsibility as NovaCare employees and supervisory employees acting in
violation of law shall be deemed to be acting solely as agents of Subscriber.
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5.4 Employee Benefit Plans. Subscriber shall not adopt, establish,
maintain, operate or contribute to any "employee benefit plan" as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended,
without the express written consent of NovaCare.
5.5 Financial Controls. Subscriber accepts sole responsibility for
accounting and other financial control policies (and fidelity bonding
requirements) applicable to Worksite Employees or their conduct.
5.6 Compliance With Law. Subscriber accepts sole responsibility for
compliance with the following provisions of law applicable to Worksite
Employees:
(i) the Occupational Safety and Health Act (OSHA) and related or
similar federal, state or local regulations and the employer's common law duty
to supervise the worksite and provide a safe working environment;
(ii) government contracting requirements under a) Executive Order
11246, b) the Vocational Rehabilitation Act of 1973, c) the Vietnam Era
Veterans' Readjustment Assistance Act of 1974, d) the Walsh-Healy Public
Contracts Act, e) the Davis-Bacon Act, f) the Service Contract Act of 1965, and
g) any and all similar, related, or like federal, state, or local laws,
regulations, ordinances, and statutes;
(iii) Worker Adjustment and Retraining Notification Act ("WARN");
(iv) laws affecting assignment of and ownership of intellectual
property rights including, but not limited to, inventions, whether patentable or
not, and patents resulting therefrom, copyrights and trade secrets;
(v) the Immigration Reform and Control Act of 1986, except as
otherwise provided in Section 6.1(iv); and
(vi) the Fair Labor Standards Act, Title VII of the Civil Rights
Act of 1964, as amended, the Family and Medical Leave Act, the Age
Discrimination in Employment Act, as amended, the Americans With Disabilities
Act (including provisions thereunder relating to Subscriber's premises), the
National Labor Relations Act and any other federal, state, county or local laws,
regulations, ordinances, and statutes which govern the employer/employee
relationship.
5.7 Safety. Subscriber shall report all accidents in which Worksite
Employees are injured immediately (by telephone within one working day of
Subscriber's knowledge of an injury, and in writing by fax within forty-eight
(48) hours) to NovaCare or NovaCare's designee. Subscriber shall cooperate in
any safety inspection or investigation of a worksite injury conducted by or on
behalf of NovaCare. Subscriber shall reasonably cooperate with NovaCare in
returning injured Worksite Employees to
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work in available modified-duty positions and in making reasonable
accommodations under applicable disability laws, subject to receipt of an
appropriate medical release.
Where required by applicable state law, NovaCare shall retain a right of
direction and control over the management of safety, risk and hazard control
involving Worksite Employees. However, liability for employee safety is a
responsibility of Subscriber, who controls the worksites and their business
operations. Subscriber acknowledges that it is responsible for maintaining a
safe working environment, providing proper training in compliance with federal
or state law or regulation, and establishing and maintaining such safety
programs, safety policies, and safety committees as may be required by law.
NovaCare, NovaCare's workers' compensation and liability insurance carriers or
their assignees have the right to survey the Subscriber's worksites to look for
unsafe conditions or unsafe acts which may lead to accidents. However, the
retention of such right by NovaCare does not relieve Subscriber of any
obligations that it has pursuant to the federal Occupational Safety and Health
Act (OSHA) or any other federal, state or local law intended to provide
employees at Subscriber's worksites with a safe work environment.
5.8 COBRA. NovaCare shall be responsible for administering continued
health care coverage required under the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA Coverage") to each employee and
former employee (and their dependents) of the Subscriber who is eligible for
such COBRA Coverage on the effective date hereof. Subject to Section 7.1 and
Subscriber's reimbursement obligation (as set forth below), upon termination of
this Agreement, NovaCare shall administer COBRA Coverage for each Worksite
Employee, former Worksite Employee, their dependents and any individual entitled
to COBRA Coverage under the preceding sentence (collectively, the "COBRA
Participants") who are eligible for such coverage.
5.9. Provision of Information. Subscriber shall provide to NovaCare
such true and accurate information as NovaCare may request as necessary to
comply with requirements of law with respect to Subscriber's ownership and
organizational structure and compensation packages of its senior executives and
structure and operation of benefit plans offered to Worksite Employees by
Subscriber.
5.10. Changes in Policies and Procedures. Subscriber shall negotiate
with NovaCare all changes to policies, processes and procedures affecting all
services provided by NovaCare under this Agreement. NovaCare shall effect such
changes on mutually agreed upon time frames, staffing and costs.
6. Rights, Duties and Obligations of NovaCare.
6.1 Compliance With Law. Provided that Subscriber has given to
NovaCare all information required hereunder, NovaCare accepts sole
responsibility for compliance with the following provisions of law applicable to
Worksite Employees:
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(i) all rules and regulations governing the reporting, collecting
and payment of federal and state payroll taxes on wages paid under this
Agreement, including, but not limited to, a) federal income tax withholding
provisions of the Internal Revenue Code, b) state and/or local income tax
withholding provisions, if applicable, c) Federal Insurance Contributions Act
(FICA), d) Federal Unemployment Tax Act (FUTA), and e) applicable state
unemployment tax provisions;
(ii) except as provided below, applicable workers' compensation
laws including, but not limited to, a) procuring workers' compensation
insurance, b) completing and filing all required reports, and c) administering,
managing, and otherwise processing claims and related procedures provided that
Subscriber agrees to reimburse NovaCare for any monies found due, whether by
audit or otherwise as a result of any workers' compensation classification
information provided by Subscriber to NovaCare;
(iii) Internal Revenue Code Section 4980B, subject to the
provisions of Section 5.8;
(iv) Section 1324A(b) of the Immigration Reform and Control Act
of 1986, assuming that Subscriber has provided to NovaCare all necessary and
accurate documentation required by such law;
(v) the Consumer Credit Protection Act, Title III; and
(vi) the Fair Labor Standards Act, 29 U.S.C. Sections 201 et
seq., based solely on information provided by Subscriber pursuant to Section 5.2
hereof.
7. Effect of Termination.
7.1 COBRA. In the event of termination of this Agreement, the
Subscriber shall immediately provide coverage under a "group health plan" (as
defined in Section 4980B(g)(2) of the Code) to all Worksite Employees, former
Worksite Employees, and their dependents who were eligible for coverage under
any NovaCare group health plan immediately before such event. The Subscriber's
group health plan provided under the preceding sentence shall not contain any
exclusion or limitation with respect to any pre-existing condition applicable to
any Worksite Employee, former Worksite Employee or their dependents.
7.2 Accrued Pay. If this Agreement is terminated and if the affected
employees are entitled to the payment of any accrued bonus, vacation, sick or
personal leave, Subscriber shall be liable for the payment thereof and will make
such payments directly to NovaCare. If, however, Subscriber continues to employ
such affected employee(s) after termination of this Agreement, the Subscriber
shall be liable to the employee(s) for same and NovaCare shall have no
obligation therefor.
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7.3 Survival. The indemnification, contribution duty to cooperate and
limitation of liability provisions of this Agreement shall survive the
expiration of this Agreement or other termination of this Agreement
indefinitely.
7.4 Duration of Obligations.
7.4.1 Upon the termination of this Agreement for any reason, the
parties shall continue to have the following obligations through and including
the termination date:
(i) NovaCare shall have the obligation for wages and
benefits payable to the employees through and including the termination date. If
NovaCare makes any payment, authorized by Subscriber or otherwise required by
law, to any of the employees after this Agreement has been terminated, NovaCare
shall be entitled to full reimbursement for such expenditures;
(ii) Except as otherwise provided herein, all obligations of
NovaCare under this Agreement to maintain workers' compensation insurance
coverage and health care coverage on behalf of the Worksite Employees shall
cease, effective as of the termination date. All such employees shall be
immediately informed by Subscriber that they are no longer covered by NovaCare's
workers' compensation policy. Subscriber shall immediately assume all federal,
state and local obligations of an employer to the employees which are not in
conflict with state or federal law, and shall immediately assume full
responsibility for providing workers' compensation coverage. NovaCare shall
immediately be released from such obligations as are permitted by law, except
that NovaCare shall remain responsible for the cost of claims for workers'
compensation incurred prior to the date of termination. It is the intent of the
parties that, to the extent allowed by law, they be placed in their respective
positions immediately before their entry into this Agreement in the event of a
termination or Subscriber's failure to pay NovaCare; and
(iii) Subscriber shall have the obligation to pay all fees
payable in accordance with the provisions of this Agreement, which are
attributable to the period ending on the termination date.
7.4.2 Upon any termination of this Agreement by Subscriber other
than (a) pursuant to the provisions of Section 2.3.2 or (b) in accordance with
Section 12.14 herein, in addition to the obligations set forth in Section 7.4.1,
Subscriber shall have the obligation to pay to NovaCare such amount as is
necessary so that Subscriber fully complies with the Minimum Fee Guarantee set
forth in Section 3.1.6 herein; provided, that any such payment shall be made in
equal monthly installments over the remaining period ending June 30, 2003.
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8. Indemnification.
8.1 Indemnification by Subscriber. Subscriber agrees to indemnify,
hold harmless, protect and defend NovaCare, its subsidiaries and affiliates and
each of their officers, directors, agents, attorneys and employees from any
claims, expenses (including court costs and attorneys' fees), damages and
liabilities (including severance payments to Worksite Employees) (collectively
hereinafter referred to as "Damages"), from claims, actions, suits, judgments or
settlements arising out of negligence, malpractice, tortious conduct, violation
of any statute, law, or regulation, criminal or dishonest activity by any
Worksite Employee, product liability related to products manufactured or
distributed by Subscriber, Subscriber's breach of any of its obligations or
warranties under this Agreement, or any action by Subscriber or its agents which
may result in a violation of any law or regulation, including, but not limited
to, Damages allegedly arising out of an Adverse Action or out of worksite
conditions or actions of any kind. If such indemnification is for any reason not
available or insufficient to hold NovaCare harmless, Subscriber agrees to
contribute to the losses involved in such proportion as is appropriate to
reflect the relative benefits received (or anticipated to be received) by
Subscriber and by NovaCare with respect to the matters contemplated by this
Agreement or, if such allocation is judicially determined to be unavailable, in
such proportion as is appropriate to reflect not only such relative benefits,
but also other equitable considerations such as the relative fault of
Subscriber, on the one hand, and of NovaCare, on the other hand; provided,
however, that Subscriber shall be responsible for all losses which in the
aggregate are in excess of the amount of all Fixed Fees (as adjusted) received
by NovaCare from Subscriber in connection with the services to be provided
hereunder during the term of this Agreement. NovaCare shall give Subscriber
prompt written notice of any claim for which indemnification will be sought
hereunder, shall cooperate in the investigation and defense of any such claim
and shall not settle or compromise any such claim without the approval of
Subscriber unless Subscriber fails to provide evidence of ability to pay a
judgment in excess of the proposed settlement amount.
8.2 Indemnification by NovaCare. NovaCare assumes responsibility for
the payment of wages to the Worksite Employees without regard to payments by
Subscriber to NovaCare, although in doing so NovaCare does not waive or limit
any claim against Subscriber. NovaCare agrees to indemnify, hold harmless,
protect and defend Subscriber, its subsidiaries and affiliates and each of their
officers, directors, agents, attorneys and employees from and against any
claims, expenses (including attorneys' fees and court costs), damages and
liabilities from claims, actions, suits, judgments or settlements arising out of
NovaCare's breach of its obligations or warranties under this Agreement or any
action by NovaCare or its agents or employees (other than Worksite Employees)
which may result in a violation of any law or regulation, except violations
resulting from conduct of Worksite Employees or worksite conditions. Subscriber
shall give NovaCare prompt written notice of any claim for which indemnification
will be sought hereunder, and shall cooperate in the investigation and defense
of any such claim and shall not settle or compromise any such claim without the
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approval of NovaCare. Where Subscriber has followed or complied with a request
or recommendation of NovaCare or otherwise properly relied on information
supplied by NovaCare, it shall be relieved of responsibility for back pay and
damages for such actions (unless Subscriber has failed to comply with its
obligations hereunder to provide accurate information to NovaCare) and NovaCare
shall indemnify and hold Subscriber harmless from and against any and all
liabilities arising therefrom.
8.3 Subrogation. Each party hereby waives any claim in its favor
against the other party by way of subrogation or indemnification which may arise
during the term of this Agreement for any and all loss of or damage to any of
its property, or for bodily injury or death, which loss, damage, or bodily
injury or death is covered by insurance to the extent that such loss or damage
is recovered under such policies of insurance as required herein. The
subrogation and indemnification concept set forth in this provision is intended
to apply only to insurance matters, and nothing in this provision is intended to
alter the indemnification rights set forth elsewhere in this Agreement. Each
party shall assure that its insurance policies contain provisions authorizing
waiver of subrogation consistent with this Section 7.3.
9. Representations and Warranties.
9.1 Fair Labor Standards Act. Subscriber agrees not to withhold a
payment to NovaCare absent NovaCare's express permission, or in any manner, or
by any device, act in violation of, cause, or seek to cause a violation of any
applicable federal, state or local law, ordinance, or regulation pertaining to
the terms, conditions, and services of this Agreement. Subscriber further
warrants that it shall not make any taxable payment of any kind, except
profit-sharing or pension plan distributions pursuant to the terms of a
qualified plan, to any employee covered by this Agreement, and that any such
payment shall be a breach of this Agreement, and at the election of NovaCare,
grounds for immediate termination of this Agreement.
9.2 Employment Matters. Subscriber warrants that there are no
collective bargaining agreements binding upon Subscriber or affecting Worksite
Employees, and that there are no pending governmental investigations or any
lawsuit material in nature related to Worksite Employees, the working conditions
of the Worksite Employees, the products or services produced or provided by
Worksite Employees or any other matters affecting the performance of NovaCare
under this Agreement except as otherwise disclosed to NovaCare. Subscriber
warrants that all hazardous materials, if any, on its premises are maintained,
stored and disposed of in accordance with applicable law. Subscriber agrees to
provide any and all protective safety equipment required for safe performance of
job duties or required under local, state or federal law.
9.3 Primary Obligor for Worksite Employee Compensation.
Notwithstanding anything else in this Agreement to the contrary, the parties
agree that Subscriber, and not NovaCare, shall have the primary responsibility
for any and all compensation due to Worksite Employees.
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9.4 APB Opinion No. 25. The parties agree, and each represent and
warrant to the other, that only Subscriber may use the rules of APB Opinion No.
25 to account for the equity compensation paid to a Worksite Employee.
9.5 Confidentiality. NovaCare and Subscriber each acknowledge and
agree that it may obtain knowledge of "confidential information" as hereinafter
defined concerning the other party. As used herein, "confidential information"
means any information, (including, without limitation, manuals, trade secrets,
protocol, methods, formula, pattern, device, plans, process, drawings, designs,
specifications, schematics, prototypes and other compilation of information or
technical know-how) which is, or is designed to be, used in the business of such
party, and is private or confidential and is not generally known or available to
the public. Subscriber and NovaCare each agree that it will not, either during
the term of this Agreement or thereafter until the expiration of a period of ten
(10) years following the termination of this Agreement, use or disclose any such
confidential information except as otherwise specifically contemplated in this
Agreement.
10. Workers' Compensation. NovaCare shall provide workers' compensation
insurance for Worksite Employees in compliance with applicable law. Workers
performing services for Subscriber not covered by this Agreement and not on
NovaCare's payroll shall not be covered by NovaCare's workers' compensation
insurance. NovaCare will not provide workers' compensation coverage to any
employee for whom Subscriber is not reporting hours of payroll. Subscriber
further agrees to require any independent contractor it utilizes to provide
evidence of workers' compensation coverage before the independent contractor
commences work at the worksite. Subscriber acknowledges that NovaCare's workers'
compensation carrier or NovaCare is entitled to periodically audit the employee
classification lists for each Subscriber location to make sure that employees
are classified properly for workers' compensation purposes. In the event that
during such an audit, or at any other time, NovaCare finds that Worksite
Employees have been misclassified and such misclassification resulted from
information supplied to NovaCare by Subscriber, Subscriber will promptly
reimburse NovaCare, upon invoice, for charges which otherwise would have been
payable by Subscriber had such employee been properly classified. NovaCare
retains the responsibility for the management of workers' compensation claims,
claim filings and related procedures. Subscriber agrees to cooperate with
NovaCare in that regard, including in regard to the notification of injuries
required by this Agreement or by law.
11. Insurance. During the Initial Term of this Agreement and any Renewal
Term, Subscriber shall obtain and maintain the following types of insurance:
11.1 Automobile. Subscriber shall obtain and maintain automobile
insurance for all owned, non-owned, and hired vehicles used in connection with
the work performed on its premises or in connection with its business, and will
cause its insurance carrier to issue a Certificate of Insurance evidencing same
to NovaCare, naming
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NovaCare as an additional named insured and allowing not less than thirty (30)
days' notice of cancellation or material change. The policy shall insure against
liability for bodily injury and property damage, with a minimum combined single
limit of Five Hundred Thousand Dollars ($500,000) and Uninsured Motorist or PIP
equivalent coverage of at least the minimum limits required by the State where a
"no fault" law shall apply.
11.2 General Liability. Subscriber shall obtain and maintain general
liability insurance, and cause its insurance carrier to issue a Certificate of
Insurance evidencing same to NovaCare, naming NovaCare as an additional named
insured and allowing not less than thirty (30) days' notice of cancellation or
material change. The minimum requirement shall be One Million Dollars
($1,000,000) combined single limit, Three Million Dollars ($3,000,000) aggregate
limit, including, but not limited to, where applicable, premises, operations,
products, completed operations, contract and broad form property damage,
independent contractors, personal injury, host liquor, and full liquor
liability. If Subscriber renders professional services, it shall obtain and
maintain throughout the term, and any succeeding terms of this Agreement,
professional liability coverage as applicable, and will cause its insurance
carrier to issue a Certificate of Insurance evidencing same to NovaCare allowing
not less than thirty (30) days' notice of cancellation or material change.
Unless otherwise agreed to, such policy shall have a combined single limit of
not less than One Million Dollars ($1,000,000), Three Million Dollars
($3,000,000) aggregate limit.
Subscriber agrees that NovaCare shall not provide any general liability
insurance coverage for products liability, completed operations or professional
liability for any Worksite Employee or the Subscriber. Subscriber shall further
agree that NovaCare shall have no obligation to provide any form of automobile
insurance coverage on behalf of any Worksite Employee or for Subscriber.
12. Miscellaneous.
12.1 Third Party Rights. This Agreement is intended solely for the
mutual benefit of the parties hereto and does not create any rights of any kind
in a third party. Each party hereto reserves the right and from time to time to
assign its rights, duties and obligations hereunder to any affiliate, provided
that the assigning party shall guarantee the performance and liability of any
such affiliate. Any such assignment may be limited to a portion of such party's
obligations arising in one or more jurisdictions.
12.2 Limitation of Liability. NovaCare's liability for actual damages
from any cause whatsoever, shall be limited to the fees (other than Payroll
Fees) paid by Subscriber with respect to the preceding calendar year under this
Agreement (or, if this Agreement shall have been in effect for less than twelve
months, the foregoing limitation shall be based on the fees paid by Subscriber
to NovaCare relating to the previous twelve-month period pursuant to the
predecessor agreement between the parties, as applicable to the employees of the
Support Services Group). This limitation will
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apply, regardless of the form of action, whether in contract or tort, including
negligence. This limitation will not apply to claims by either party for bodily
injury or damage to real property or tangible personal property for which the
other party may be legally liable. In no event will NovaCare be liable for any
lost profits, lost savings, incidental damages or consequential damages, even if
NovaCare has been advised of the possibility of such damages.
12.3 Integration. This Agreement constitutes the entire agreement
between the parties with regard to the subject matter hereof and supersedes any
and all agreements (including the Initial Agreement), whether oral or written,
between the parties with respect to its subject matter.
12.4 Waiver. Failure by either party at any time to require
performance by the other party or to claim a breach of any provision of this
Agreement will not be construed as a waiver of any subsequent breach nor affect
the effectiveness of this Agreement, nor any part thereof, nor prejudice either
party as regards to any subsequent action.
12.5 Governing Law. This Agreement shall be subject to the laws of the
Commonwealth of Pennsylvania.
12.6 Dispute Resolution.
12.6.1 Arbitration. The parties shall attempt amicably to resolve
disagreements by negotiating with each other. In the event that the matter is
not amicably settled through negotiation, any controversy, dispute or
disagreement arising out of or relating to this Agreement (a "Controversy")
shall be resolved exclusively by binding arbitration, which shall be conducted
by a single arbitrator in the Philadelphia, PA area, in accordance with the
J-A-M-S/ENDISPUTE Streamlined (in the case of a dispute within the scope of the
Streamlined Rules and Procedures) or Comprehensive Arbitration Rules and
Procedures (the "Rules"). The parties agree that notwithstanding anything to the
contrary contained in the Rules, the arbitrator shall not award consequential,
exemplary, incidental, punitive or special damages.
12.6.2 Procedure. It is agreed that if any party shall desire
relief of any nature whatsoever from any other party as a result of any
Controversy, such party will initiate such arbitration proceedings within a
reasonable time, but in no event more than twelve (12) months after the facts
underlying said Controversy first arise or become known to the party seeking
relief (whichever is later). The failure of such party to institute such
proceedings within said period shall be deemed a full waiver of any claim for
such relief. The parties shall bear equally all costs of said arbitration (other
than their own attorney's fees and costs). The parties agree that the decision
and award of the Arbitrator shall be final and conclusive upon the parties, in
lieu of all other legal, equitable (except as provided in 12.5.3. below) or
judicial proceedings between them, and that no appeal or judicial review of the
award or decision of the Arbitrator shall be taken,
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<PAGE> 19
but that such award or decision may be entered as a judgment and enforced in any
court having jurisdiction over the party against whom enforcement is sought.
12.6.3. Equitable Relief. The parties recognize that irreparable
injury may result from a breach of this Agreement and that money damages may be
inadequate to fully remedy the injury. Therefore, either party may, in any such
instance, seek and obtain from a court of competent jurisdiction one or more
preliminary or permanent orders designed to maintain the status quo ante pending
arbitration by (i) restraining and enjoining any act that would constitute a
breach or (ii) compelling the performance of any obligation that, if not
performed, would constitute a breach. Any relief awarded under this paragraph
shall be dissolved upon issuance of the Arbitrator's decision and order.
12.7 Subscriber Intellectual Property Rights. Subscriber shall own any
and all intellectual property rights incident to any and all process, products,
inventions and discoveries that are created or invented by a Worksite Employee
and who was directed by Subscriber to create or develop such process, product,
discovery or invention. Subscriber shall bear any and all costs associated with
any copyrights, trademarks or patents that Subscriber chooses to obtain to
protect Subscriber's intellectual property rights.
12.8 Duty to Cooperate. In the event that an employee or a government
agency or entity files any type of claim, lawsuit or charge against NovaCare,
Subscriber or both, alleging a violation of any law or failure to do something
which was otherwise required by law, Subscriber and NovaCare mutually agree to
cooperate with each other in the defense of any such claim, lawsuit or charge.
NovaCare and Subscriber will make available to each other upon request any and
all documents that either party has in its possession which relate to any such
claim, lawsuit or charge. However, neither party shall have the duty to
cooperate with the other if the dispute is between the parties themselves, nor
shall this provision preclude the raising of cross claims or third party claims
between Subscriber and NovaCare.
12.9 Severability. Should any term, warranty, covenant, condition, or
provision of this Agreement be held to be invalid or unenforceable, the balance
of this Agreement shall remain in force and shall stand as if the unenforceable
part did not exist. The captions in this Agreement are provided for convenience
only and are not part of the terms and conditions of this Agreement.
12.10 Modification and Implementation. Any modifications to this
Agreement must be in writing and executed by NovaCare and Subscriber to be
enforceable.
12.11 No Partnership. Nothing set forth herein shall be deemed to
create a partnership or joint venture between Subscriber and NovaCare and no
fiduciary duty shall arise from the relationship created herein.
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12.12 Notification of Termination to Employees. NovaCare will notify
all Worksite Employees covered by this Agreement of that status after Subscriber
provides the names of such persons to NovaCare. NovaCare will also provide each
Worksite Employee with any required notice pursuant to applicable state law or
such person's status under this Agreement and shall obtain from such person any
required acknowledgment of such status. If for any reason this Agreement is
terminated, NovaCare will notify all Worksite Employees of whom it is aware of
the termination of this Agreement and Subscriber shall also notify all Worksite
Employees of the termination of this Agreement and shall inform them that they
are no longer covered by NovaCare's benefits or workers' compensation policy.
12.13 Real Property Leases. As soon as reasonably practicable after
the date hereof, Subscriber and NovaCare shall use their best efforts to cause
all "Subscriber Leases" (as defined herein) to be assigned or replaced, as
applicable, so that NovaCare retains the obligations under such leases, directly
with the landlord, and that Subscriber is released therefrom. For purposes
hereof, a "Subscriber Lease" shall mean any and all real estate leases covering
premises used by NovaCare in the operation of its business, for which Subscriber
has a leasehold interest, whether as landlord, tenant, sublessor or
sub-sublessor.
12.14 Assignment. Each party shall have the right to assign its rights
and obligations under this Agreement to any successor to all or substantially
all of its assets or business.
12.15 Intention of the Parties. The intention of the parties with
respect to allocation between them of rights, duties and obligations is as set
forth in this Agreement. To the extent that the law of any state requires a
different form of agreement to effect the intention of the parties, the parties
agree to negotiate in good faith and to execute separate agreements applicable
to such state.
12.16 Counterparts. This Agreement may be signed in one or more
counterparts, each of which when executed shall be deemed an original and
together shall constitute one and the same instrument
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NOVACARE, INC., NOVACARE EMPLOYEE
A Delaware corporation SERVICES, INC.
- -------------------------------- ---------------------------------
Signature Date Signature Date
- -------------------------------- ---------------------------------
Printed or Typed Name Printed or Typed Name
- -------------------------------- ---------------------------------
Title Title
21
<PAGE> 22
Schedule 3.1.2
Benefits/Risk Management Fees
FOR THE PERIOD ENDING DECEMBER 31, 1999:
- ----------------------------------------
Section 3.1.2 Estimated Costs: $455,000
Section 3.1.2 Fixed Fee: $227,500
22
<PAGE> 23
Schedule 3.1.3
Administrative Fees
FOR THE PERIOD ENDING DECEMBER 31, 1999:
- ----------------------------------------
Section 3.1.3 Estimated Costs: $315,000
Section 3.1.3 Fixed Fee: $157,500
23
<PAGE> 24
Schedule 3.1.4
Additional Responsibilities Fee
FOR THE PERIOD ENDING DECEMBER 31, 1999:
- ----------------------------------------
None
24
<PAGE> 1
EXHIBIT (c)(16)
NovaCare, Inc.
1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406
September 8, 1999
NovaCare Employee Services, Inc.
2621 Van Buren Avenue
Norristown, Pennsylvania 19403
Attention: President
Re: Reimbursement of Break-Up Fee and Break-Up Expenses
----------------------------------------------------
Dear Sirs:
Reference is made to the Agreement and Plan of Merger (the "Merger
Agreement"), dated as of September 8, 1999 to be entered into by and among Plato
Holdings, Inc., a Delaware corporation ("Parent"), New Plato Acquisition, Inc.,
a Delaware corporation and a wholly owned subsidiary of Parent ("Sub"), and
NovaCare Employee Services, Inc., a Delaware corporation ("NCES").
Pursuant to Section 7.2 of the Merger Agreement, NCES will agree to pay
Parent a fee equal to $4,500,000 (the "Break-up Fee") in the event that, among
other things, the Merger Agreement is terminated by Parent or Sub pursuant to
Sections 7.1(d)(i)(D), 7.1(d)(iii), 7.1(d)(iv) or 7.1(d)(vii). In addition,
NCES has agreed to pay Parent all of Parent's and Sub's reasonable out-of-pocket
expenses and fees (the "Break-up Expenses") if the Merger Agreement is
terminated by Parent or Sub pursuant to Section 7.1(d)(v) of the Merger
Agreement.
Both NovaCare and NCES recognize that if the Merger Agreement is terminated
pursuant to Sections 7.1(d)(i)(D), 7.1(d)(iii), 7.1(d)(iv), 7.1(d)(v) or
7.1(d)(vii) it will be as a result of NovaCare's failure to satisfy certain
conditions precedent to the closing of the transactions contemplated by the
Merger Agreement, and therefore, would create liability on the part of NCES. In
order to induce NCES to enter into the Merger Agreement, NovaCare hereby agrees
to pay, or to reimburse NCES for, any Break-up Fee or Break-up Expenses incurred
by NCES as a result of any termination of the Merger Agreement by Parent or Sub
pursuant to Sections 7.1(d)(i)(D), 7.1(d)(iii), 7.1(d)(iv), 7.1(d)(v) or
7.1(d)(vii).
* * *
Very truly yours,
NOVACARE, INC.
By /s/ Timothy E. Foster
---------------------------
Timothy E. Foster
<PAGE> 1
TRANSFER AND LICENSING AGREEMENT
TRANSFER AND LICENSING AGREEMENT dated as of September 8, 1999
by and between NovaCare, Inc., a Delaware corporation ("NovaCare"), and NovaCare
Employee Services, Inc., a Delaware corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Company, Plato Holdings, Inc., a Delaware
corporation ("Parent"), and New Plato Acquisition, Inc., a Delaware corporation
("Sub"), are entering into an Agreement and Plan of Merger (the "Merger
Agreement") dated the date hereof pursuant to which, among other things, Parent
and Sub shall commence a cash tender offer for all of the outstanding shares of
common stock, $.01 par value, of the Company at a price per share of $2.50 net
to the seller in cash; and
WHEREAS, as a condition to the execution of the Merger
Agreement NovaCare has agreed to enter into this Transfer and Licensing
Agreement as hereinafter set forth.
NOW THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Transfer of NovaSource Name. NovaCare hereby irrevocably
transfers to the Company all of NovaCare's right and title to, and interest in,
if any, the use of the name "NovaSource" and any variants thereof for use by the
Company and its successors and assigns. No representation is made as to
NovaCare's rights to such name.
2. License for Use of NovaCare Name. NovaCare hereby agrees
that the Company may use the name "NovaCare" in reference to itself and the
Company Subsidiaries (as defined in the Merger Agreement) for a period of six
months after the Effective Time of the Merger (as those terms are defined in the
Merger Agreement); provided, that, the Company shall not hold itself out to the
public as being affiliated with NovaCare. The Company will indemnify NovaCare
from any and all liabilities arising out of the use of the "NovaCare" name as
provided herein.
3. Miscellaneous.
(a) The parties hereto further agree that all notices,
requests or instructions under this Transfer and Licensing Agreement shall be in
writing and delivered personally, sent by telecopy or sent by registered or
certified mail, postage prepaid, return receipt requested, or by Federal Express
or other recognized overnight courier, to the address set below:
If to NovaCare:
<PAGE> 2
2
NovaCare, Inc.
1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Telephone No.: (610) 992-7200
Telecopier No.: (610) 992-3385
If to the Company:
NovaCare Employee Services, Inc.
2621 Van Buren Avenue
Norristown, Pennsylvania 19403
Telephone No.: (610) 650-4813
Telecopier No.: (610) 650-4706
(b) This Transfer and Licensing Agreement shall be binding
upon the parties hereto and their respective successors and assigns.
(c) This Transfer and Licensing Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
* * *
<PAGE> 3
3
IN WITNESS WHEREOF, the parties hereto have caused this
Transfer and Licensing Agreement to be duly executed on the date first above
written.
NOVACARE EMPLOYEE SERVICES, INC.
By: /s/ Loren J. Hulber
Name: Loren J. Hulber
Title: President
NOVACARE, INC.
By: /s/ Robert E. Healy, Jr.
Name: Robert E. Healy, Jr.
Title: Senior Vice President
