<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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SCHEDULE 14D-1
TENDER OFFER STATEMENT
Pursuant to Section 14(d)(1)
of the Securities Exchange Act of 1934
----------------
NOVACARE EMPLOYEE SERVICES, INC.
(Name of Subject Company)
NEW PLATO ACQUISITION, INC.
PLATO HOLDINGS, INC.
(Bidders)
Common Stock, par value $0.01 per share
(Title of Class of Securities)
66986 Q10
(CUSIP Number of Class of Securities)
----------------
Gregory M. Case
Plato Holdings, Inc.
455 South Gulph Road, Suite 410
King of Prussia, PA 19406
Telephone: (610) 265-0286
Facsimile: (610) 265-4959
(Name, Address and Telephone Number of Person authorized to
Receive Notices and Communications on Behalf of Bidders)
Copy to:
Louis A. Goodman, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
One Beacon Street
Boston, MA 02108
Telephone: (617) 573-4800
Facsimile: (617) 573-4822
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CALCULATION OF FILING FEE
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Transaction Valuation* $75,685,000 Amount of Filing Fee $15,137
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* Estimated for purposes of calculating the amount of the filing fee only.
The filing fee calculation assumes the purchase of 30,274,000 shares of
common stock, $0.01 par value per share (the "Shares"), of NovaCare
Employee Services, Inc. at a price of $2.50 per Share in cash, without
interest. The filing fee calculation is based on the 30,274,000 Shares
outstanding as of September 8, 1999. The amount of the filing fee,
calculated in accordance with Regulation 240.0-11 of the Securities
Exchange Act of 1934, as amended, equals 1/50th of one percent of the
aggregate value of the transaction.
[_]Check box if any part of the fee is offset as provided by Rule 0-11 (a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form
or schedule and the date of its filing.
Amount Previously Paid: Not applicable.
Form or Registration No.: Not applicable.
Filing Party: Not applicable.
Date Filed: Not applicable.
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<PAGE>
CUSIP NO. .66986 Q10 14D-1
1. Names of Reporting Persons
S.S. or I.R.S. Identification Nos. of Above Persons
New Plato Acquisition, Inc. IRS ID No. 23-3014292
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2. Check the Appropriate Box if a Member of a Group
(a) [_]
(b) [_]
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3.SEC Use only
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4. Source of Funds
AF; BK
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5. Check Box if Disclosure of Legal Proceedings is Required Pursuant to [_]
Item 2(e) or 2(f)
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6. Citizenship or Place of Organization
Delaware
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7. Aggregate Amount Beneficially Owned by Each Reporting Person
none
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8. Check Box if the Aggregate Amount in Row (7) Excludes Certain Shares [_]
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9. Percent of Class Represented by Amount in Row (7)
Not applicable
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10. Type of Reporting Person
CO
2
<PAGE>
CUSIP NO. 66986 Q10 14D-1
1. Names of Reporting Persons
S.S. or I.R.S. Identification Nos. of Above Persons
Plato Holdings, Inc. IRS ID No. 23-3014291
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2. Check the Appropriate Box if a Member of a Group
(a) [_]
(b) [_]
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3.SEC Use only
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4. Source of Funds
AF; BK
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5. Check Box if Disclosure of Legal Proceedings is Required Pursuant to [_]
Item 2(e) or 2(f)
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6. Citizenship or Place of Organization
Delaware
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7. Aggregate Amount Beneficially Owned by Each Reporting Person
none
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8. Check Box if the Aggregate Amount in Row (7) Excludes Certain Shares [_]
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9. Percent of Class Represented by Amount in Row (7)
Not applicable.
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10. Type of Reporting Person
CO; HC
3
<PAGE>
TENDER OFFER
This Tender Offer Statement on Schedule 14D-1 (this "Statement") relates to
the offer by New Plato Acquisition, Inc., a Delaware corporation ("Purchaser")
and a wholly owned subsidiary of Plato Holdings, Inc., a Delaware corporation
("Parent"), to purchase all of the outstanding shares of common stock, par
value $0.01 per share (the "Shares"), of NovaCare Employee Services, Inc., a
Delaware corporation (the "Company"), at $2.50 per Share, net to the seller in
cash, without interest, upon the terms and subject to the conditions set forth
in the Offer to Purchase dated September 15, 1999 (the "Offer to Purchase"), a
copy of which is attached hereto as Exhibit (a)(1), and in the related Letter
of Transmittal, a copy of which is attached hereto as Exhibit (a)(2) (which,
as amended or supplemented from time to time, together constitute the
"Offer").
Item 1. Security and Subject Company.
(a) The name of the subject company is NovaCare Employee Services, Inc. and
the address of its principal executive offices is Valley Forge Corporate
Center, 2621 Van Buren Avenue, Norristown, Pennsylvania 19403. The telephone
number of the Company at such location is (610) 650-4700.
(b) The information set forth in the "INTRODUCTION" of the Offer to Purchase
is incorporated herein by reference.
(c) The information set forth in "Price Range of the Shares; Dividends on
the Shares" of the Offer to Purchase is incorporated herein by reference.
Item 2. Identity and Background.
(a)-(d), (g) This Statement is being filed by Purchaser and Parent. The
information set forth in the "INTRODUCTION" and "Certain Information
Concerning Parent and Purchaser" of the Offer to Purchase is incorporated
herein by reference. The name, business address, present principal occupation
or employment, the material occupations, positions, offices or employments for
the past five years and citizenship of each director and executive officer of
Parent and Purchaser and the name, principal business and address of any
corporation or other organization in which such occupations, positions,
offices and employments are or were carried on are set forth in Schedule I to
the Offer to Purchase and are incorporated herein by reference.
(e)-(f) During the last five years neither Purchaser nor Parent nor, to the
best knowledge of Purchaser and Parent, any of the persons listed in Schedule
I to the Offer to Purchase (i) have been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors) or (ii) was a party to
a civil proceeding of a judicial or administrative body of competent
jurisdiction as a result of which any such person was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
activities subject to, federal or state securities laws or finding any
violation of such laws.
Item 3. Past Contacts, Transactions or Negotiations with the Subject Company.
(a)(1) Other than the transactions described in Item 3(b) below, neither
Purchaser nor Parent nor, to the best knowledge of Purchaser and Parent, any
of the persons listed in Schedule I to the Offer to Purchase have entered into
any transaction with the Company, or any of the Company's affiliates which are
corporations, since the commencement of the Company's third full fiscal year
preceding the date of this Statement, the aggregate amount of which was equal
to or greater than one percent of the consolidated revenues of the Company for
(i) the fiscal year in which such transaction occurred or (ii) the portion of
the current fiscal year which has occurred if the transaction occurred in such
year.
(a)(2) Other than the transactions described in Item 3(b) below, neither
Purchaser nor Parent nor, to the best knowledge of Purchaser and Parent, any
of the persons listed in Schedule I of the Offer to Purchase have entered into
any transaction since the commencement of the Company's third full fiscal year
preceding the date of this Statement with the executive officers, directors or
affiliates of the Company which are not corporations,
4
<PAGE>
in which the aggregate amount involved in such transaction or in a series of
similar transactions, including all periodic installments in the case of any
lease or other agreement providing for periodic payments or installments,
exceeded $40,000.
(b) The information set forth in the "INTRODUCTION," "Certain Information
Concerning Parent and Purchaser," "Background of the Offer; Purpose of the
Offer and The Merger; the Merger Agreement and Certain Other Agreements" and
"Plans for the Company; Other Matters" of the Offer to Purchase is
incorporated herein by reference.
Item 4. Source and Amount of Funds or Other Consideration.
(a)-(b) The information set forth in the "INTRODUCTION" and "Source and
Amount of Funds" of the Offer to Purchase is incorporated herein by reference.
(c) Not applicable.
Item 5. Purpose of the Tender Offer and Plans or Proposals of the Bidders.
(a)-(e) The information set forth in the "INTRODUCTION," "Background of the
Offer; Purpose of the Offer and the Merger; The Merger Agreement and Certain
Other Agreements" and "Plans for the Company; Other Matters" of the Offer to
Purchase is incorporated herein by reference.
(f)-(g) The information set forth in the "INTRODUCTION" and "Effect of the
Offer on the Market for the Shares; Stock Listing; Exchange Act Registration;
Margin Regulations" of the Offer to Purchase is incorporated herein by
reference.
Item 6. Interest in Securities of the Subject Company.
(a)-(b) The information set forth in the "INTRODUCTION," "Certain
Information Concerning Parent and Purchaser" and "Background of the Offer;
Purpose of the Offer and the Merger; The Merger Agreement and Certain Other
Agreements" of the Offer to Purchase is incorporated herein by reference.
Item 7. Contracts, Arrangements, Understandings or Relationships with Respect
to the Subject Company's Securities.
The information set forth in the "INTRODUCTION," "Source and Amount of
Funds," "Background of the Offer; Purpose of the Offer and the Merger; The
Merger Agreement and Certain Other Agreements," "Plans for the Company; Other
Matters" and "Fees and Expenses" of the Offer to Purchase is incorporated
herein by reference.
Item 8. Persons Retained, Employed or to be Compensated.
The information set forth in "Fees and Expenses" of the Offer to Purchase is
incorporated herein by reference.
Item 9. Financial Statements of Certain Bidders.
Not applicable.
Item 10. Additional Information.
(a) Except as disclosed in Items 3 and 7 above, there are no present or
proposed material contracts, arrangements, understandings or relationships
between Purchaser or Parent, or to the best knowledge of Purchaser and Parent,
any of the persons listed in Schedule I of the Offer to Purchase, and the
Company, or any of its executive officers, directors, controlling persons or
subsidiaries.
5
<PAGE>
(b)-(c) The information set forth in the "INTRODUCTION," "Conditions to the
Offer" and "Certain Legal Matters" of the Offer to Purchase is incorporated
herein by reference.
(d) The information set forth in "Effect of the Offer on the Market for the
Shares; Stock Listing; Exchange Act Registration; Margin Regulations" and
"Certain Legal Matters" of the Offer to Purchase is incorporated herein by
reference.
(e) None.
(f) The information set forth in the Offer to Purchase and the Letter of
Transmittal, copies of which are attached hereto as Exhibits (a)(1) and
(a)(2), respectively, to the extent not otherwise incorporated herein by
reference, is incorporated herein by reference.
Item 11. Materials to be Filed as Exhibits.
(a)(1) Offer to Purchase dated September 15, 1999.
(a)(2) Letter of Transmittal.
(a)(3) Notice of Guaranteed Delivery.
(a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other
Nominees.
(a)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
(a)(6) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
(a)(7) Summary Advertisement.
(b) BHF (USA) Capital Corporation Loan Term Sheet.
(c)(1) Agreement and Plan of Merger, dated as of September 8, 1999, by and
among Parent, Purchaser and the Company.
(c)(2) Stockholder Agreement, dated as of September 8, 1999, by and between
Parent, the Company, NovaCare, Inc. and NC Resources, Inc.
(c)(3) Short Form Merger Option Agreement, dated as of September 8, 1999,
among Parent, Purchaser and the Company.
(c)(4) Confidentiality Agreement, dated as of March 25, 1999, by and between
NovaCare, Inc., the Company and Fidelity Capital Associates, Inc.
(c)(5) Confidentiality Agreement, dated as of March 26, 1999, by and between
NovaCare, Inc., the Company and Patricot & Co. Ventures, Inc.
(c)(6) Confidentiality Agreement, dated as of February 12, 1999, by and
between NovaCare, Inc., the Company and AFLAC Incorporated.
(c)(7) Exclusivity Agreement, dated as of August 16, 1999, by and among
NovaCare, Inc., the Company and the Equity Investors.
(c)(8) Letter Agreement, dated as of September 8, 1999, by and between
NovaCare, Inc., the Company and the Equity Investors.
(d) None.
(e) Not applicable.
(f) None.
6
<PAGE>
SIGNATURE
After due inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is
true, complete and correct.
Dated: September 15, 1999
New Plato Acquisition, Inc.
/s/ Eric B. Lass
By: _________________________________
Name: Eric B. Lass
Title: Vice President
Plato Holdings, Inc.
/s/ Eric B. Lass
By___________________________________
Name: Eric B. Lass
Title: Vice President
7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
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<C> <S> <C>
(a)(1) --Offer to Purchase, dated September 15, 1999.
(a)(2) --Letter of Transmittal.
(a)(3) --Notice of Guaranteed Delivery.
(a)(4) --Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees.
(a)(5) --Letter to Clients for use by Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees.
(a)(6) --Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9.
(a)(7) --Summary Advertisement.
(b) --BHF (USA) Capital Corporation Loan Term Sheet.
(c)(1) --Agreement and Plan of Merger, dated as of September 8, 1999,
by and among Parent, Purchaser and the Company.
(c)(2) --Stockholder Agreement , dated as of September 8, 1999, by and
between Parent, the Company, NovaCare, Inc. and NC Resources,
Inc.
(c)(3) --Short Form Merger Option Agreement, dated as of September 8,
1999, among Parent, Purchaser and the Company.
(c)(4) --Confidentiality Agreement, dated as of March 25, 1999, by and
between NovaCare, Inc., the Company and Fidelity Capital
Associates, Inc.
(c)(5) --Confidentiality Agreement, dated as of March 26, 1999, by and
between NovaCare, Inc., the Company and Patricot & Co.
Ventures, Inc.
(c)(6) --Confidentiality Agreement, dated as of February 12, 1999, by
and between NovaCare, Inc., the Company and AFLAC Incorporated.
(c)(7) --Exclusivity Agreement, dated as of August 16, 1999, by and
among NovaCare, Inc., the Company and the Equity Investors.
(c)(8) --Letter Agreement, dated as of September 8, 1999, by and
between NovaCare, Inc., the Company and the Equity Investors.
(d) --None.
(e) --Not Applicable.
(f) --None.
</TABLE>
<PAGE>
Offer to Purchase for Cash
All Outstanding Shares of Common Stock
of
NovaCare Employee Services, Inc.
at
$2.50 Net Per Share In Cash
by
New Plato Acquisition, Inc.,
a wholly owned subsidiary of
Plato Holdings, Inc.
The Offer and withdrawal rights will expire at 12:00 midnight, New York
City time, on Wednesday, October 13, 1999, unless the Offer is extended.
Shares which are tendered pursuant to the offer may be withdrawn at any
time prior to the expiration date.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of September 8, 1999 (the "Merger Agreement"), by and among Plato Holdings,
Inc. ("Parent"), New Plato Acquisition, Inc. ("Purchaser") and NovaCare
Employee Services, Inc. (the "Company"). The board of directors of the Company
has unanimously approved the Offer, the Merger Agreement and the Merger and
has determined that the terms of the Offer and the Merger are advisable, fair
to, and in the best interests of, the Company's stockholders, and unanimously
recommends that stockholders accept the Offer and tender their shares pursuant
to the Offer.
The Offer is conditioned upon, among other things, there being validly
tendered and not withdrawn prior to the expiration of the Offer, that number
of shares which, when added to the shares beneficially owned by Parent or
Purchaser, if any, represents at least a majority of the shares outstanding on
a fully diluted basis on the date shares are accepted for payment pursuant to
the Offer. The Offer is also subject to the other conditions set forth in this
Offer to Purchase. See Section 14.
<PAGE>
----------------
IMPORTANT
Any stockholder who desires to tender all or any portion of such
stockholder's Shares (as defined herein) should either (i) complete and sign
the enclosed Letter of Transmittal (or facsimile thereof) in accordance with
the instructions in the Letter of Transmittal, mail or deliver it and any
other required documents to the Depositary (as defined herein) and either
deliver the certificates for such Shares to the Depositary or tender such
Shares pursuant to the procedures for book-entry transfer set forth in Section
3 of this Offer to Purchase or (ii) request such stockholder's broker, dealer,
commercial bank, trust company or other nominee to effect the transaction for
such stockholder. Any stockholder whose Shares are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee must contact
such broker, dealer, commercial bank, trust company or other nominee to tender
such Shares.
Any stockholder who desires to tender Shares and whose certificates
representing such Shares are not immediately available, or who cannot comply
with the procedures for book-entry transfer on a timely basis, may tender such
Shares by following the procedures for guaranteed delivery set forth in
Section 3 of this Offer to Purchase.
Questions and requests for assistance may be directed to the Information
Agent at the address and telephone numbers set forth on the back cover of this
Offer to Purchase. Requests for additional copies of this Offer to Purchase,
the Letter of Transmittal, the Notice of Guaranteed Delivery and the
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9 may be directed to the Information Agent (as defined herein). A
stockholder also may contact brokers, dealers, commercial banks or trust
companies for assistance concerning the Offer.
----------------
The Information Agent for the Offer is:
Innisfree M&A Incorporated
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The date of this Offer to Purchase is September 15, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
INTRODUCTION.............................................................. 1
THE OFFER................................................................. 3
1. Terms of the Offer.................................................... 3
2. Acceptance for Payment and Payment.................................... 4
3. Procedure for Tendering Shares........................................ 5
4. Withdrawal Rights..................................................... 8
5. Certain United States Federal Income Tax Consequences................. 8
6. Price Range of the Shares; Dividends on the Shares.................... 9
7. Effect of the Offer on the Market for the Shares; Stock Listing;
Exchange Act Registration; Margin Regulations......................... 10
8. Certain Information Concerning the Company............................ 11
9. Certain Information Concerning Parent and Purchaser................... 12
10. Source and Amount of Funds............................................ 13
11. Background of the Offer; Purpose of the Offer and the Merger; The
Merger Agreement and Certain Other Agreements......................... 15
12. Plans for the Company; Other Matters.................................. 27
13. Dividends and Distributions........................................... 28
14. Conditions to the Offer............................................... 29
15. Certain Legal Matters................................................. 31
16. Fees and Expenses..................................................... 33
17. Miscellaneous......................................................... 33
Schedule I Information Concerning Directors and
Executive Officers of Purchaser, Parent,
Equity Investors in Parent and Certain Other Parties.......... I-1
</TABLE>
<PAGE>
To the Holders of Common Stock of
NovaCare Employee Services, Inc.:
INTRODUCTION
New Plato Acquisition, Inc., a Delaware corporation ("Purchaser") and a
wholly owned subsidiary of Plato Holdings, Inc., a Delaware corporation
("Parent"), hereby offers to purchase all outstanding shares of common stock,
par value $0.01 per share (the "Shares" or "Company Common Stock"), of
NovaCare Employee Services, Inc., a Delaware corporation (the "Company"), at a
price of $2.50 per Share (the "Offer Price"), net to the seller in cash,
without interest, upon the terms and subject to the conditions set forth in
this Offer to Purchase and in the related Letter of Transmittal (which,
together with any amendments or supplements hereto or thereto, collectively
constitute the "Offer").
Tendering stockholders of record who tender Shares directly will not be
obligated to pay brokerage fees or commissions or, except as set forth in
Instruction 6 of the Letter of Transmittal, stock transfer taxes on the
purchase of Shares by Purchaser pursuant to the Offer. Stockholders who hold
their shares through a bank or broker should check with such institution as to
whether they charge any service fees. Purchaser will not pay such service
fees. Purchaser will pay all fees and expenses of The Bank of New York, as
Depositary (the "Depositary"), and Innisfree M&A Incorporated, as Information
Agent (the "Information Agent"), incurred in connection with the Offer and in
accordance with the terms of the agreements entered into between Purchaser
and/or Parent and each such person. See Section 16.
The board of directors of the Company (the "Company Board") has unanimously
approved the Merger Agreement (as defined herein) and the transactions
contemplated thereby, including the Offer and the Merger, and has unanimously
determined that the Offer and the Merger (as defined herein) are advisable,
fair to, and in the best interests of, the Company's stockholders and
unanimously recommends that the stockholders accept the Offer and tender their
Shares pursuant to the Offer.
CIBC World Markets Corp. ("CIBC World Markets") has delivered to the Special
Committee of the Company Board its opinion, dated as of September 8, 1999 (the
"CIBC Opinion"), to the effect that, as of such date and based upon and
subject to certain assumptions and matters stated therein, the Offer Price,
net to the sellers in cash, to be received by the holders of Shares (other
than Parent, Purchaser, any affiliates of Parent and Purchaser, NovaCare,
Inc., a Delaware corporation, and its affiliates and any Company Stockholders
properly perfecting dissenters rights) in the Offer and the Merger is fair,
from a financial point of view, to such holders. A copy of the CIBC Opinion,
which sets forth the assumptions made, the matters considered and the
limitations on the review undertaken, is attached as an exhibit to the
Company's Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9"), which has been filed by the Company with the Securities and
Exchange Commission (the "Commission") in connection with the Offer and which
is being mailed to holders of Shares herewith. Holders of Shares are urged to
read the CIBC Opinion carefully.
The Offer is conditioned upon, among other things, there being validly
tendered and not withdrawn prior to the Expiration Date (as defined below)
that number of Shares which, when added to the Shares beneficially owned by
Parent or Purchaser (if any), represents a majority of the Shares outstanding
on a fully diluted basis on the date Shares are accepted for payment (the
"Minimum Condition"). The Offer is also subject to the other conditions set
forth in this Offer to Purchase. See Section 14. As used in this Offer to
Purchase, "fully diluted basis" takes into account the exercise of all
outstanding options. The Company has represented and warranted to Parent and
Purchaser that, as of September 8, 1999, there were 30,274,000 Shares issued
and outstanding. Under the Merger Agreement, the Company is obligated to
cancel outstanding in-the-money stock options by paying the option holders the
difference between the Offer Price and the option exercise price, and
Purchaser has been advised by the Company that there are no in-the-money
options. Based on the foregoing, Purchaser believes that the Minimum Condition
will be satisfied if 15,137,001 Shares are validly tendered and not withdrawn
prior to the Expiration Date as defined in Section 1.
Parent and Purchaser have entered into a Stockholder Agreement, dated as of
September 8, 1999 (the "Stockholder Agreement") with NovaCare, Inc. and its
wholly owned subsidiary NC Resources, Inc., a
<PAGE>
Delaware corporation ("NC Resources"), NC Resources owns 19,400,000 Shares of
the common stock of the Company (the "Covered Shares"). The Covered Shares
represent approximately 64.1% of the Company's outstanding Shares. Pursuant to
the Stockholder Agreement, NC Resources has agreed to tender, and NovaCare,
Inc. has agreed to cause NC Resources to tender, the Covered Shares in the
Offer and NC Resources has granted Parent an irrevocable proxy in respect of
the Covered Shares to vote for the Merger and the Merger Agreement and against
any other proposal to acquire the Company, subject to NovaCare, Inc. obtaining
the approval of its stockholders. See Section 11.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of September 8, 1999 (the "Merger Agreement"), by and among Parent,
Purchaser and the Company. Pursuant to the Merger Agreement and subject to the
Delaware General Corporation Law (the "DGCL"), as soon as practicable after
the completion of the Offer and satisfaction or waiver, if permissible, of all
conditions to the Merger, Purchaser will be merged with and into the Company
and the separate corporate existence of Purchaser will thereupon cease. The
merger, as effected pursuant to the immediately preceding sentence, is
referred to herein as the "Merger," and the Company, as the surviving
corporation of the Merger, is sometimes herein referred to as the "Surviving
Corporation." At the effective time of the Merger (the "Effective Time"), each
Share then outstanding (other than Shares held by Parent or Purchaser and
Shares held by stockholders who properly perfect their dissenters' rights
under the DGCL) will be cancelled and extinguished and converted into the
right to receive $2.50 in cash or any higher price per Share paid in the Offer
(the "Merger Consideration"), without interest. The Merger Agreement is more
fully described in Section 11.
The Merger Agreement provides that, upon the purchase by Purchaser or Parent
or any subsidiary of Parent of a majority of the Shares and from time to time
thereafter, Parent will be entitled to designate such number of directors,
rounded up to the next whole number, on the Company Board so that the
percentage of Parent's designees on the Company Board equals the percentage of
outstanding Shares beneficially owned by Purchaser, Parent and their
affiliates. The Company will take all action necessary to cause such persons
designated by Parent to be appointed or elected to the Company Board and to
secure resignations of such number of its incumbent directors as is necessary
to enable Parent's designees to be so elected or appointed.
Consummation of the Merger is conditioned upon, among other things, the
approval and adoption by the requisite vote of stockholders of the Company of
the Merger Agreement, if required by applicable law and the Company's
Certification of Incorporation. See Section 11. Under the DGCL and pursuant to
the Company's Certificate of Incorporation, the affirmative vote of the
holders of a majority of the outstanding Shares is the only vote of any class
or series of the Company's capital stock that would be necessary to approve
the Merger Agreement at a meeting of the Company's stockholders. If Purchaser
purchases a majority of the outstanding Shares in the Offer (which will be the
case if the Minimum Condition is satisfied and the other conditions to the
Offer are satisfied or waived), Purchaser will be able to effect the Merger
without the affirmative vote of any other stockholder. Pursuant to the Merger
Agreement, Parent and Purchaser have agreed to vote the Shares acquired by
them pursuant to the Offer in favor of the Merger. See Section 12.
Under Section 253 of the DGCL, if a corporation owns at least 90% of the
outstanding shares of each class of a subsidiary corporation, the corporation
holding such stock may merge such subsidiary into itself, or itself into such
subsidiary, 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 Purchaser acquires 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 further approval of the
Company Board or the stockholders of the Company.
Even if Purchaser does not own 90% of the outstanding Shares following
consummation of the Offer, Parent or Purchaser could seek to (a) purchase
additional Shares in the open market or otherwise in order to reach the 90%
threshold and employ a short-form merger or (b) exercise its option to
purchase newly issued Shares pursuant to the Short Form Merger Option
Agreement, dated as of September 8, 1999, among Parent, Purchaser and the
Company (the "Short Form Merger Option Agreement"). Parent presently intends
to effect a short-form merger, if permitted to do so under the DGCL, pursuant
to which Purchaser will be merged with and into the Company.
2
<PAGE>
In connection with the Merger Agreement, Parent, Purchaser and the Company
have entered into a Short Form Merger Option Agreement, dated as of September
8, 1999, pursuant to which the Company granted to Purchaser an irrevocable
option to purchase from the Company, at the Offer Price, newly issued Shares
in an amount equal to the number of Shares (up to a maximum of 19.9% of the
number of Shares outstanding) that, when added to the number of Shares owned
by Purchaser and its affiliates immediately following consummation of the
Offer, constitutes 90% of the Shares then outstanding on a fully diluted basis
(giving effect to the issuance of such Shares). The option is exercisable at
any time after the acceptance for payment by Purchaser of Shares pursuant to
the Offer. The Short Form Merger Option Agreement is described more fully in
Section 11.
This Offer to Purchase and the related Letter of Transmittal contain
important information and should be read in their entirety before any decision
is made with respect to the Offer.
THE OFFER
1. Terms of the Offer.
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any such extension
or amendment), Purchaser will accept for payment and pay for all Shares
validly tendered, prior to the Expiration Date and not properly withdrawn in
accordance with Section 4 of this Offer to Purchase. The term "Expiration
Date" shall mean 12:00 Midnight, New York City time, on Wednesday, October 13,
1999, unless and until Purchaser, in accordance with the terms of the Merger
Agreement, shall have extended the period of time for which the Offer is open,
in which event the term "Expiration Date" shall mean the latest time and date
at which the Offer, as so extended by Purchaser, shall expire.
The Offer is conditioned upon the satisfaction of the Minimum Condition and
the other conditions set forth in Section 14. If such conditions are not
satisfied prior to the Expiration Date, Purchaser reserves the right, subject
to the terms of the Merger Agreement and subject to the applicable rules and
regulations of the Commission, to (i) decline to purchase any Shares tendered
in the Offer and terminate the Offer and return all tendered Shares to the
tendering stockholders, (ii) waive any or all conditions to the Offer and, to
the extent permitted by applicable law, purchase all Shares validly tendered
and not withdrawn, (iii) subject to the conditions summarized below, extend
the Offer and, subject to the right of stockholders to withdraw Shares until
the Expiration Date, retain all Shares which have been validly tendered and
not withdrawn during the period or periods for which the Offer is extended or
(iv) subject to the following sentence, modify the terms of the Offer. The
Merger Agreement provides that Purchaser will not reduce the Offer Price,
change the form of consideration to be paid in the Offer, reduce the number of
Shares subject to the Offer, amend any other condition to the Offer in any
manner adverse to the holders of the Shares or impose additional conditions to
the Offer without the written consent of the Company or, except as described
below, extend the Expiration Date of the Offer.
The Expiration Date of the Offer may be extended with the consent of the
Company. The Expiration Date of the Offer may be extended without the consent
of the Company (i) if any of the conditions of the Offer shall not be
satisfied or waived, until such time as such conditions are satisfied or
waived, (ii) for any period required by any rule of the Commission, (iii) for
up to ten business days if there shall not have been validly tendered and not
withdrawn such number of Shares that, together with the Shares, if any,
beneficially owned by Parent and Purchaser, would constitute at least 90% of
the fully diluted Shares as of the date of determination, provided that all
other conditions of the Offer are satisfied or waived or (iv) for up to two
business days for any reason; provided, that no more than three extensions in
the aggregate are permitted under clauses (iii) and (iv) of this sentence.
Any extension, amendment or termination of the Offer will be followed as
promptly as practicable by public announcement thereof, the announcement in
the case of an extension to be issued no later than 9:00 a.m., New York City
time, on the next business day after the previously scheduled Expiration Date
in accordance with the public announcement requirements of Rule 14d-4(c), 14d-
6(d) and 14e-1(d) under the Securities Exchange Act
3
<PAGE>
of 1934, as amended (the "Exchange Act"). As used in this Offer to Purchase,
"business day" has the meaning set forth in Rule 14d-1 under the Exchange Act.
Without limiting the obligation of Purchaser under such Rule or the manner in
which Purchaser may choose to make any public announcement, Purchaser
currently intends to make announcements by issuing a press release to the Dow
Jones News Service.
If Purchaser extends the Offer, or if Purchaser (whether before or after its
acceptance for payment of Shares) is delayed in its purchase of, or payment
for, Shares or is unable to pay for Shares pursuant to the Offer for any
reason, then, without prejudice to Purchaser's rights under the Offer, the
Depositary may retain tendered Shares on behalf of Purchaser, and such Shares
may not be withdrawn except to the extent tendering stockholders are entitled
to withdrawal rights as described in Section 4. However, the ability of
Purchaser to delay the payment for Shares which Purchaser has accepted for
payment is limited by Rule 14e-l(c) under the Exchange Act, which requires
that a bidder pay the consideration offered or return the securities deposited
by, or on behalf of, holders of securities promptly after the termination or
withdrawal of the Offer.
If Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer,
Purchaser will disseminate additional tender offer materials and extend the
Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the
Exchange Act. The minimum period during which the Offer must remain open
following material changes in the terms of the Offer or information concerning
the Offer, other than a change in price or a change in percentage of
securities sought, will depend upon the facts and circumstances then existing,
including the relative materiality of the changed terms or information. In a
public release, the Commission has stated that in its view an offer must
remain open for a minimum period of time following a material change in the
terms of the Offer and that waiver of a material condition, such as the
Minimum Condition, is a material change in the terms of the Offer. The release
states that an offer should remain open for a minimum of five (5) business
days from the date a material change is first published, sent or given to
security holders and that, if material changes are made with respect to
information not materially less significant than the Offer Price and the
number of Shares being sought, a minimum of ten (10) business days may be
required to allow adequate dissemination and investor response. The
requirement to extend the Offer will not apply to the extent that the number
of business days remaining between the occurrence of the change and the then-
scheduled Expiration Date equals or exceeds the minimum extension period that
would be required because of such amendment. If, prior to the Expiration Date,
Purchaser increases the consideration offered to holders of Shares pursuant to
the Offer, such increased consideration will be paid to all holders whose
Shares are purchased in the Offer whether or not such Shares were tendered
prior to such increase.
The Company has provided Purchaser with the Company's stockholder lists and
security position listings for the purpose of disseminating the Offer to
holders of Shares. This Offer to Purchase and the related Letter of
Transmittal will be mailed by Purchaser to record holders of Shares and will
be furnished by Purchaser to brokers, dealers, banks and similar persons whose
names, or the names of whose nominees, appear on the stockholder lists or, if
applicable, who are listed as participants in a clearing agency's security
position listing, for subsequent transmittal to beneficial owners of Shares.
2. Acceptance for Payment and Payment.
Upon the terms and subject to the conditions to the Offer (including, if the
Offer is extended or amended, the terms and conditions of any such extension
or amendment), Purchaser will accept for payment and will pay, promptly after
the Expiration Date, for all Shares validly tendered prior to the Expiration
Date and not properly withdrawn in accordance with Section 4.
In all cases, payment for Shares accepted for payment pursuant to the Offer
will be made only after timely receipt by the Depositary of (i) certificates
for such Shares (or a timely Book-Entry Confirmation (as defined below) with
respect thereto), (ii) a Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, with any required signature guarantees,
or, in the case of a book-entry transfer, an Agent's Message (as defined in
Section 3 below), and (iii) any other documents required by the Letter of
Transmittal. The per Share consideration paid to any holder of Shares pursuant
to the Offer will be the highest per Share consideration paid to any other
holder of such Shares pursuant to the Offer.
4
<PAGE>
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment, and thereby purchased, Shares properly tendered to Purchaser and not
withdrawn, if and when Purchaser gives oral or written notice to the
Depositary of Purchaser's acceptance for payment of such Shares. Payment for
Shares accepted for payment pursuant to the Offer will be made by deposit of
the Offer Price therefor with the Depositary, which will act as agent for
tendering stockholders for the purpose of receiving payment from Purchaser and
transmitting payment to tendering stockholders.
Under no circumstances will interest be paid on the Offer Price to be paid
by Purchaser for the Shares, regardless of any extension of the Offer or any
delay in making such payment.
Purchaser reserves the right, in its sole discretion, to delay acceptance
for payment of, or payment for, Shares in order to comply with any applicable
law. If Purchaser is delayed in its acceptance for payment of, or payment for,
Shares or is unable to accept for payment, or pay for, Shares pursuant to the
Offer for any reason, then, without prejudice to Purchaser's rights under the
Offer (including such rights as are set forth in Sections 1 and 14 but subject
to compliance with Rule 14e-1(c) under the Exchange Act), the Depositary may,
nevertheless, on behalf of Purchaser, retain tendered Shares, and such Shares
may not be withdrawn except to the extent tendering stockholders are entitled
to exercise, and duly exercise, withdrawal rights as described in Section 4.
If any tendered Shares are not purchased pursuant to the Offer for any
reason, or if certificates are submitted representing more Shares than are
tendered, certificates evidencing Shares not tendered or not accepted for
purchase will be returned to the tendering stockholder, or such other person
as the tendering stockholder shall specify in the Letter of Transmittal, as
promptly as practicable following the expiration, termination or withdrawal of
the Offer. In the case of Shares delivered by book-entry transfer into the
Depositary's account at the Book-Entry Transfer Facility (as defined below)
pursuant to the procedures set forth in Section 3, such shares will be
credited to such account maintained at the Book-Entry Transfer Facility as the
tendering stockholder shall specify in the Letter of Transmittal, as promptly
as practicable following the expiration, termination or withdrawal of the
Offer. If no such instructions are given with respect to Shares delivered by
book-entry transfer, any such shares not tendered or not purchased will be
returned by crediting the account at the Book-Entry Transfer Facility
designated in the Letter of Transmittal as the account from which such Shares
were delivered.
Purchaser reserves the right to transfer or assign, in whole or in part, to
Parent or to any direct or indirect wholly owned subsidiary of Parent, the
right to purchase Shares tendered pursuant to the Offer, but any such transfer
or assignment will not relieve Purchaser of its obligations under the Offer
and will in no way prejudice the rights of tendering stockholders to receive
payment for Shares validly tendered and accepted for payment pursuant to the
Offer.
3. Procedure for Tendering Shares.
Valid Tender. For Shares to be validly tendered pursuant to the Offer,
either (i) a properly completed and duly executed Letter of Transmittal (or
facsimile thereof), together with any required signature guarantees, or in the
case of a book-entry transfer, an Agent's Message (as defined below), and any
other required documents, must be received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase prior to the
Expiration Date, and either certificates for tendered Shares must be received
by the Depositary at one of such addresses or such Shares must be delivered
pursuant to the procedures for book-entry transfer set forth below (and a
Book-Entry Confirmation (as defined below) received by the Depositary), in
each case prior to the Expiration Date or (ii) the tendering stockholder must
comply with the guaranteed delivery procedures set forth below.
Book Entry Transfer. The Depositary will establish accounts with respect to
the Shares at The Depository Trust Company (the "Book-Entry Transfer
Facility") for purposes of the Offer within two (2) business days after the
date of this Offer to Purchase. Any financial institution that is a
participant in the Book-Entry Transfer Facility's system may make book-entry
delivery of Shares by causing the Book-Entry Transfer Facility to transfer
such Shares into the Depositary's account in accordance with the Book-Entry
Transfer Facility's procedure for
5
<PAGE>
such transfer. However, although delivery of Shares may be effected through
book-entry transfer into the Depositary's account at the Book-Entry Transfer
Facility, the Letter of Transmittal (or facsimile thereof), properly completed
and duly executed, with any required signature guarantees, or an Agent's
Message, and any other required documents must be transmitted to, and received
by, the Depositary at one of its addresses set forth on the back cover of this
Offer to Purchase prior to the Expiration Date, or the tendering stockholder
must comply with the guaranteed delivery procedures described below. The
confirmation of a book-entry transfer of Shares into the Depositary's account
at the Book-Entry Transfer Facility as described above is referred to herein
as a "Book-Entry Confirmation." Delivery of documents to the Book-Entry
Transfer Facility in accordance with such Book-Entry Transfer Facility's
procedures does not constitute delivery to the Depositary.
The term "Agent's Message" means a message transmitted by the Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that such Book-Entry Transfer Facility
has received an express acknowledgment from the participant in such Book-Entry
Transfer Facility tendering the Shares that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal and that
Purchaser may enforce such agreement against the participant.
The method of delivery of Shares, the Letter of Transmittal and all other
required documents, including delivery through a Book-Entry Transfer Facility,
is at the election and risk of the tendering stockholder. Shares will be
deemed delivered only when actually received by the Depositary (including, in
the case of a book-entry transfer, by Book-Entry Confirmation). If delivery is
by mail, registered mail with return receipt requested, properly insured, is
recommended. In all cases, sufficient time should be allowed to ensure timely
delivery.
Signature Guarantees. No signature guarantee is required on the Letter of
Transmittal (i) if the Letter of Transmittal is signed by the registered
holder(s) (which term, for purposes of this Section, includes any participant
in the Book Entry Transfer Facility's systems whose name appears on a security
position listing as the owner of the Shares) of Shares tendered therewith and
such registered holder has not completed either the box entitled "Special
Delivery Instructions" or the box entitled "Special Payment Instructions" on
the Letter of Transmittal or (ii) if such Shares are tendered for the account
of a financial institution (including most commercial banks, savings and loan
associations and brokerage houses) which is a participant in good standing in
the Security Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Guarantee Program or the Stock Exchange Medallion Program
(each, an "Eligible Institution" and, collectively, "Eligible Institutions").
In all other cases, all signatures on Letters of Transmittal must be
guaranteed by an Eligible Institution. See Instructions 1 and 5 to the Letter
of Transmittal. If the certificates for Shares are registered in the name of a
person other than the signer of the Letter of Transmittal, or if payment is to
be made, or certificates for Shares not tendered or not accepted for payment
are to be returned, to a person other than the registered holder of the
certificates surrendered, then the tendered certificates for such Shares must
be endorsed or accompanied by appropriate stock powers, signed exactly as the
name or names of the registered holders or owners appear on the certificates,
with the signatures on the certificates or stock powers guaranteed as
aforesaid. See Instruction 5 to the Letter of Transmittal.
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's certificates for Shares are not immediately
available or the procedures for book-entry transfer cannot be completed on a
timely basis or time will not permit all required documents to reach the
Depositary prior to the Expiration Date, such stockholder's tender may be
effected if all the following conditions are met:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by Purchaser, is received by
the Depositary, as provided below, prior to the Expiration Date; and
(iii) the certificates for (or a Book-Entry Confirmation with respect to)
such Shares, together with a properly completed and duly executed Letter of
Transmittal (or facsimile thereof), with any required
6
<PAGE>
signature guarantees, or, in the case of a book-entry transfer, an Agent's
Message, and any other required documents, are received by the Depositary
within three trading days after the date of execution of such Notice of
Guaranteed Delivery. A "trading day" is any day on which the Nasdaq
National Market, operated by the National Association of Securities
Dealers, Inc. (the "NASD"), is open for business.
The Notice of Guaranteed Delivery may be delivered by hand to the Depositary
or transmitted by telegram, facsimile transmission or mail to the Depositary
and must include a guarantee by an Eligible Institution in the form set forth
in such Notice of Guaranteed Delivery.
Upon the acceptance of Shares for payment pursuant to the Offer, the valid
tender of Shares pursuant to one of the procedures described above will
constitute a binding agreement between the tendering stockholder and Purchaser
upon the terms and subject to the conditions of the Offer.
Appointment. By executing the Letter of Transmittal as set forth above
(including delivery through an Agent's Message), the tendering stockholder
will irrevocably appoint designees of Purchaser as such stockholder's
attorneys-in-fact and proxies, in the manner set forth in the Letter of
Transmittal, each with full power of substitution, to the full extent of such
stockholder's rights with respect to the Shares tendered by such stockholder
and accepted for payment by Purchaser, and with respect to any and all other
Shares or other securities or rights issued or issuable in respect of such
Shares on or after September 8, 1999. All such powers of attorney and proxies
will be considered coupled with an interest in the tendered Shares. Such
appointment will be effective if, as and when, and only to the extent that,
Purchaser accepts for payment Shares tendered by such stockholder as provided
herein. Upon such appointment, all prior powers of attorney, proxies and
consents given by such stockholder with respect to such Shares or other
securities or rights will, without further action, be revoked and no
subsequent powers of attorney, proxies, consents or revocations may be given
by such stockholder and, if given, will not be deemed effective. The designees
of Purchaser will thereby be empowered to exercise all voting and other rights
with respect to such Shares and other securities or rights, including, without
limitation, in respect of any annual, special or adjourned meeting of the
Company's stockholders, actions by written consent in lieu of any such meeting
or otherwise, as they in their sole discretion deem proper. Purchaser reserves
the right to require that, in order for Shares to be deemed validly tendered,
immediately upon Purchaser's acceptance for payment of such Shares, Purchaser
must be able to exercise full voting, consent and other rights with respect to
such Shares and other related securities or rights, including voting at any
meeting of stockholders.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of any tender of Shares
will be determined by Purchaser, in its sole discretion, which determination
will be final and binding. Purchaser reserves the absolute right to reject any
or all tenders of any Shares determined by it not to be in proper form or the
acceptance for payment of which, or payment for which, may, in the opinion of
Purchaser's counsel, be unlawful. Purchaser also reserves the absolute right,
in its sole discretion, subject to the provisions of the Merger Agreement, to
waive any defect or irregularity in the tender of any Shares of any particular
stockholder, whether or not similar defects or irregularities are waived in
the case of other stockholders. No tender of Shares will be deemed to have
been validly made until all defects or irregularities relating thereto have
been cured or waived. None of Purchaser, Parent, the Depositary, the
Information Agent or any other person will be under any duty to give
notification of any defects or irregularities in tenders or incur any
liability for failure to give any such notification. Subject to the terms of
the Merger Agreement, Purchaser's interpretation of the terms and conditions
of the Offer (including the Letter of Transmittal and the instructions
thereto) will be final and binding.
Backup Withholding. Under the "backup withholding" provisions of United
States federal income tax law, the Depositary may be required to withhold 31%
of the amount of any payments of cash pursuant to the Offer. In order to
prevent backup federal income tax withholding with respect to payment to
certain stockholders of the purchase price of Shares purchased pursuant to the
Offer, each such stockholder must provide the Depositary with such
stockholder's correct taxpayer identification number ("TIN") and certify that
such stockholder is not subject to backup withholding by completing the
Substitute Form W-9 in the Letter of Transmittal. Certain
7
<PAGE>
stockholders (including, among others, all corporations and certain foreign
individuals and entities) are not subject to backup withholding. If a
stockholder does not provide its correct TIN or fails to provide the
certifications described above, the Internal Revenue Service may impose a
penalty on the stockholder and payment of cash to the stockholder pursuant to
the Offer may be subject to backup withholding. All stockholders surrendering
Shares pursuant to the Offer should complete and sign the Substitute Form W-9
included in the Letter of Transmittal to provide the information necessary to
avoid backup withholding (unless an applicable exemption exists and is proved
in a manner satisfactory to the Depositary). Non-corporate foreign
stockholders should complete and sign a Form W-8, Certificate of Foreign
Status (a copy of which may be obtained from the Depositary), in order to
avoid backup withholding. See Instruction 10 of the Letter of Transmittal.
4. Withdrawal Rights.
Except as otherwise provided in this Section 4, or as provided by applicable
law, tenders of Shares are irrevocable. Shares tendered pursuant to the Offer
may be withdrawn pursuant to the procedures set forth below at any time prior
to the Expiration Date and, unless theretofore accepted for payment and paid
for by Purchaser pursuant to the Offer, may also be withdrawn at any time
after November 13, 1999.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover of this Offer to Purchase and
must specify the name of the person having tendered the Shares to be
withdrawn, the number of Shares to be withdrawn and the name of the registered
holder of the Shares to be withdrawn, if different from the name of the person
who tendered the Shares. If certificates for Shares have been delivered or
otherwise identified to the Depositary, then, prior to the physical release of
such certificates, the serial numbers shown on such certificates must be
submitted to the Depositary, and unless such Shares have been tendered by an
Eligible Institution, the signatures on the notice of withdrawal must be
guaranteed by an Eligible Institution. If Shares have been delivered pursuant
to the procedures for book-entry transfer as set forth in Section 3, any
notice of withdrawal must also specify the name and number of the account at
the Book-Entry Transfer Facility to be credited with the withdrawn Shares and
otherwise comply with such Book-Entry Transfer Facility's procedures.
Withdrawals of tenders of Shares may not be rescinded, and any Shares
properly withdrawn will thereafter be deemed not validly tendered for purposes
of the Offer. However, withdrawn Shares may be retendered by again following
one of the procedures described in Section 3 any time prior to the Expiration
Date.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by Purchaser, in its sole discretion,
which determination will be final and binding. None of Purchaser, Parent, the
Depositary, the Information Agent or any other person will be under any duty
to give notification of any defects or irregularities in any notice of
withdrawal or incur any liability for failure to give any such notification.
5. Certain United States Federal Income Tax Consequences.
The following is a summary of certain United States federal income tax
consequences of the Offer and the Merger to stockholders of the Company whose
Shares are tendered and accepted for payment pursuant to the Offer or whose
Shares are converted into cash in the Merger. The discussion is for general
information only and does not purport to consider all aspects of United States
federal income taxation that might be relevant to stockholders of the Company.
The discussion is based on current provisions of the Internal Revenue Code of
1986, as amended (the "Code"), existing, proposed and temporary regulations
promulgated thereunder and administrative and judicial interpretations
thereof, all of which are subject to change, possibly with a retroactive
effect. The discussion applies only to stockholders of the Company in whose
hands Shares are capital assets within the meaning of Section 1221 of the Code
and may not apply to Shares received pursuant to the exercise of employee
stock options or otherwise as compensation, or to certain types of
stockholders (such as insurance companies, tax-exempt organizations, financial
institutions and broker-dealers) who may be subject to special rules. This
discussion does not discuss the United States federal income tax consequences
to any stockholder of the Company who, for United States federal income tax
purposes, is a non-resident alien individual, a foreign corporation, a foreign
partnership or a foreign estate or trust, nor does it consider the effect of
any foreign, state or local tax laws.
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Because individual circumstances may differ, each stockholder should consult
such stockholder's tax advisor to determine the applicability of the rules
discussed below to such stockholder and the particular tax effects to such
beneficial holder of the Offer and the Merger, including the application and
effect of state, local and foreign tax laws.
The receipt of cash for Shares pursuant to the Offer or the Merger will be a
taxable transaction for United States federal income tax purposes and possibly
for state and local income tax purposes as well. In general, a stockholder who
sells Shares pursuant to the Offer or receives cash in exchange for Shares
pursuant to the Merger will recognize gain or loss for United States federal
income tax purposes equal to the difference, if any, between the amount of
cash received and the stockholder's adjusted tax basis in the Shares sold
pursuant to the Offer or surrendered for cash pursuant to the Merger. Gain or
loss will be determined separately for each block of Shares (i.e., Shares
acquired at the same cost in a single transaction) tendered pursuant to the
Offer or surrendered for cash pursuant to the Merger. Such gain or loss will
be long-term capital gain or loss provided that a stockholder's holding period
for such Shares is more than one year at the time of consummation of the Offer
or Merger, as the case may be. Capital gains recognized by an individual (or
an estate or certain trusts) upon a disposition of a Share that has been held
for more than one year generally will be subject to a maximum tax rate of 20%
or, in the case of a Share that has been held for one year or less, will be
subject to tax at ordinary income rates. Certain limitations apply to the tax
treatment of a stockholder's capital losses.
6. Price Range of the Shares; Dividends on the Shares.
The Shares are traded through the Nasdaq National Market under the symbol
NCES. The following table sets forth, for each of the fiscal quarters
indicated, the high and low reported sales price per Share on the Nasdaq
National Market.
NovaCare Employee Services, Inc.
<TABLE>
<CAPTION>
High Low
------ -----
<S> <C> <C>
Fiscal Year Ended June 30, 1998
First Quarter................................................... N/A N/A
Second Quarter.................................................. $10.00 $6.31
Third Quarter................................................... 8.00 5.13
Fourth Quarter.................................................. 10.19 6.94
Fiscal Year Ended June 30, 1999
First Quarter................................................... 10.00 2.56
Second Quarter.................................................. 6.25 2.75
Third Quarter................................................... 8.91 4.88
Fourth Quarter.................................................. 7.56 2.50
Fiscal Year Ended June 30, 2000
First Quarter (through September 14, 1999)...................... 4.22 1.78
</TABLE>
On September 8, 1999, the last full trading day prior to the public
announcement of the execution of the Merger Agreement by the Company, Parent
and Purchaser, the last reported sales price of the Shares on the Nasdaq
National Market was $2.00 per Share. On September 14, 1999, the last full
trading day prior to the commencement of the Offer, the last reported sales
price of the Shares on the Nasdaq National Market was $2.22 per Share.
Stockholders are urged to obtain a current market quotation for the Shares.
The Company did not declare or pay any cash dividends during any of the
periods indicated in the above table. Under the terms of the Merger Agreement,
the Company is not permitted to declare, set aside or pay dividends with
respect to the Shares without the prior written consent of Parent.
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<PAGE>
7. Effect of the Offer on the Market for the Shares; Stock Listing; Exchange
Act Registration; Margin Regulations.
Market for the Shares. The purchase of Shares by Purchaser pursuant to the
Offer will reduce the number of Shares that might otherwise trade publicly and
will reduce the number of holders of Shares, which, depending upon the number
of Shares so purchased, could adversely affect the liquidity and market value
of the remaining Shares held by the public. Purchaser cannot predict whether
the reduction in the number of Shares that might otherwise trade publicly
would have an adverse or beneficial effect on the market price for, or
marketability of, the Shares or whether it would cause future market prices to
be greater or lesser than the Offer Price.
Nasdaq Quotation. Depending upon the number of Shares purchased pursuant to
the Offer, the Shares may no longer meet the requirements for continued
inclusion in the Nasdaq National Market, which requires that there be at least
1,100,000 shares publicly held by at least 400 round lot holders, with a
market value of at least $15,000,000. Shares held directly or indirectly by
directors, officers or beneficial owners of more than 10% of the Shares are
not considered as being publicly held for this purpose. If the Nasdaq National
Market were to cease to publish quotations for the Shares, it is possible that
the Shares would continue to trade in the over-the-counter market and that
prices or other quotations would be reported by other sources. The extent of
the public market for such Shares and the availability of such quotations
would depend upon such factors as the number of stockholders and/or the
aggregate market value of such securities remaining at such time, the interest
in maintaining a market in the Shares on the part of securities firms, the
possible termination of registration under the Exchange Act (as described
below) and other factors.
Exchange Act Registration. The Shares are currently registered under the
Exchange Act. Registration of the Shares under the Exchange Act may be
terminated upon application of the Company to the Commission if the Shares are
neither listed on a national securities exchange nor held by 300 or more
holders of record. Termination of registration of the Shares under the
Exchange Act, assuming there are no other securities of the Company subject to
registration, would substantially reduce the information required to be
furnished by the Company to its stockholders and to the Commission and would
make certain provisions of the Exchange Act, such as the short-swing profit
recovery provisions of Section 16(b), the requirement of furnishing a proxy
statement pursuant to Section 14(a) in connection with stockholders' meetings
and the related requirement of furnishing an annual report to stockholders,
and the requirements of Rule 13e-3 under the Exchange Act with respect to
"going private" transactions, no longer applicable to the Company.
Furthermore, the ability of "affiliates" of the Company and persons holding
"restricted securities" of the Company to dispose of such securities pursuant
to Rule 144 or Rule 144A promulgated under the Securities Act of 1933, as
amended (the "Securities Act"), may be impaired or eliminated.
Purchaser may seek delisting of the Shares from the Nasdaq National Market
and the termination of the registration of the Shares under the Exchange Act
as soon after the completion of the Offer as the requirements for such
delisting and termination are met. If the Nasdaq National Market listing and
the Exchange Act registration of the Shares are not terminated prior to the
Merger, then the Shares will be delisted from the Nasdaq National Market and
the registration of the Shares under the Exchange Act will be terminated
following the consummation of the Merger.
Margin Regulations. The Shares presently are "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), which status has the effect, among other things, of
allowing brokers to extend credit on the collateral of such securities.
Depending upon factors similar to those described above regarding stock
exchange listing and market quotations, it is possible that, following the
Offer, the Shares would no longer constitute "margin securities" for the
purposes of the margin regulations of the Federal Reserve Board and therefore
could no longer be used as collateral for loans made by brokers. In addition,
if registration of the Shares under the Exchange Act were terminated, the
Shares would no longer constitute "margin securities."
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8. Certain Information Concerning the Company.
General. The information concerning the Company contained in this Offer to
Purchase, including that set forth below under the caption "Selected Financial
Information," has been furnished by the Company or has been taken from or
based upon publicly available documents and records on file with the
Commission and other public sources. Neither Parent nor Purchaser assumes
responsibility for the accuracy or completeness of the information concerning
the Company contained in such documents and records or for any failure by the
Company to disclose events which may have occurred or may affect the
significance or accuracy of any such information but which are unknown to
Parent or Purchaser.
The Company provides small-to-medium sized businesses with comprehensive,
fully integrated outsourcing solutions to human resource needs, including
payroll management, workers' compensation risk management, benefits
administration, unemployment insurance services and human resource consulting
services. As of June 30, 1999, the Company had 4,084 clients with more than
54,300 worksite employees under contract located in 46 states. The Company is
a Delaware corporation with its principal executive office at Valley Forge
Corporate Center, 2621 Van Buren Avenue, Norristown, Pennsylvania. The
telephone number of the Company at such location is (610) 650-4700.
Selected Financial Information. Set forth below is certain selected
consolidated financial information with respect to the Company, derived from
the Company's Annual Report on Form 10-K for the fiscal year ended June 30,
1998 and its Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1999, each as filed with the Commission pursuant to the Exchange Act.
More comprehensive financial information is included in the reports and in
other documents filed by the Company with the Commission. The following
summary is qualified in its entirety by reference to such reports and all of
the financial information (including any related notes) contained therein.
Such reports may be inspected and copies may be obtained from the Commission
in the manner set forth below.
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NovaCare Employee Services, Inc.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended For The Period From
-------------------- ------------------------------
July 1, 1997 October 1, 1996,
March 31, March 31, to to
1999 1998 June 30, 1998 June 30, 1997
---------- --------- ------------- ----------------
<S> <C> <C> <C> <C>
Income Statement Data:
Revenues................. $1,170,228 $907,875 $1,271,757 $394,193
Income from Operations... 13,128 7,253 10,898 2,931
Net Income............... 6,944 3,535 5,456 692
Net Income per share
Basic.................. .24 .10 .22 .04
Diluted................ .24 .10 .22 .04
Balance Sheet Data:
Total Assets............. 143,370 133,318 157,421 95,998
Total Liabilities........ 65,811 75,138 95,615 92,966
Mandatorily Redeemable
Common Stock............ -- -- -- 2,731
Total Stockholders'
Equity.................. 77,559 58,180 61,806 301
</TABLE>
Available Information. The Company is subject to the information and
reporting requirements of the Exchange Act and, in accordance therewith, is
obligated to file reports, proxy statements and other information with the
Commission relating to its business, financial condition and other matters.
Information as of particular dates concerning the Company's directors and
officers, their remuneration, stock options granted to them, the principal
holders of the Company's securities and any material interests of such persons
in transactions with the Company is required to be disclosed in proxy
statements distributed to the Company's stockholders and filed with the
Commission. Such reports, proxy statements and other information should be
available for inspection at the public reference facilities of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices
of the Commission located at Seven World Trade Center, Suite 1300, New York,
NY 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, IL
60661. Copies of such information should be obtainable by mail, upon payment
of the Commission's customary charges, by writing to the Commission's
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission also maintains a website at http://www.sec.gov that contains
reports, proxy statements and other information relating to the Company which
has been filed via the EDGAR System.
9. Certain Information Concerning Parent and Purchaser.
Parent and Purchaser. Parent is a newly organized Delaware corporation
formed in connection with the Offer and the Merger and has not carried on any
activities other than in connection with the Offer and the Merger. Parent's
principal office is located at 455 South Gulph Road, King of Prussia, PA 19406
and its telephone number is (610) 265-0286. All of the outstanding capital
stock of Parent is owned by Plato Holdings, LLC, a Delaware limited liability
company ("Plato LLC"). Plato LLC is a newly organized limited liability
company formed in connection with the Offer and the Merger and has not carried
on any activities other than in connection with the Offer and the Merger. Its
principal business address and telephone number are the same as those of
Parent. Its equity interests currently are owned approximately as follows:
. 26.9% by Fidelity Ventures Limited, 82 Devonshire Street, Boston, MA
02109; telephone number: (617) 563-9543;
. 13.5% by Fidelity Investors Limited Partnership II, 82 Devonshire
Street, Boston, MA 02109; telephone number: (617) 563-9543;
. 6.75% by The P/A Fund III, L.P., Executive Terrace Building 455 South
Gulph Road-Suite 410 King of Prussia, PA 19406; telephone number: (610)
265-0286
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. 33.37% by APA Excelsior V, L.P., c/o Patricof & Co. Ventures, Inc., 445
Park Avenue New York, NY 10022; telephone number: (212) 753-6300
. 0.28% by The Patricof Private Investment Club II, L.P., c/o Patricof &
Co. Ventures, Inc., 445 Park Avenue, New York, NY 10022; telephone
number: (212) 753-6300
. 19.2% by AFLAC Incorporated, 1932 Wynnton Road, Columbus, GA 31999;
telephone number: (706) 323-3431.
The above entities are collectively referred to as the "Equity Investors."
The Equity Investors have reserved the right to change the beneficial
ownership of Plato, LLC among themselves.
Purchaser is a newly incorporated Delaware corporation organized in
connection with the Offer and the Merger and has not carried on any activities
other than in connection with the Offer and the Merger. All of the outstanding
capital stock of Purchaser is owned directly by Parent. Until immediately
prior to the time Purchaser acquires Shares pursuant to the Offer, it is not
anticipated that Purchaser will have any significant assets or liabilities or
engage in activities other than those incident to its formation and
capitalization and the transactions contemplated by the Offer and the Merger.
Its principal office and telephone number are the same as those of Parent.
For certain information concerning executive officers, directors, members
and partners of Parent, the Equity Investors and Purchaser and certain
controlling persons, see Schedule I.
Except as set forth in this Offer to Purchase, neither Purchaser, the Equity
Investors nor Parent (collectively, the "Acquirors"), nor, to the best
knowledge of the Acquirors, any of the persons or entities listed on Schedule
I, nor any associate or majority-owned subsidiary of any of the foregoing,
beneficially owns or has a right to acquire any Shares, and no Acquirors nor,
to the best of knowledge of the Acquirors, any of the persons or entities
listed on Schedule I, has effected any transaction in the Shares during the
past sixty (60) days.
Except as set forth in this Offer to Purchase, no Acquiror nor, to the best
knowledge of Acquirors, any of the persons or entities listed on Schedule I,
has any contract, arrangement, understanding or relationship with any other
person with respect to any securities of the Company, including, but not
limited to, any contract, arrangement, understanding or relationship
concerning the transfer or the voting of any securities of the Company, joint
ventures, loan or option arrangements, puts or calls, guarantees of loans,
guarantees against loss, or the giving or withholding of proxies.
Except as set forth in this Offer to Purchase, no Acquiror or any of their
respective subsidiaries, nor, to the best knowledge of the Acquirors, any of
the persons or entities listed on Schedule I, has had, since October 1, 1996,
any business relationships or transactions with the Company or any of its
executive officers, directors or affiliates that would be required to be
reported under the rules of the Commission. Except as set forth in Section 11,
since October 1, 1996 there have been no contacts, negotiations or
transactions between any Acquiror, any of their respective subsidiaries or, to
the best knowledge of the Acquirors, any of the persons or entities listed on
Schedule I, and the Company or its affiliates concerning a merger,
consolidation or acquisition, tender offer or other acquisition of securities,
election of directors or a sale or other transfer of a material amount of
assets.
10. Source and Amount of Funds.
The Offer is not conditioned upon any financing arrangements. The total
amount of funds required by Purchaser to purchase all of the Shares is
estimated to be approximately $76 million. Purchaser will obtain approximately
$74 million as a contribution to capital from Parent and the balance will be
obtained by borrowings from BHF (USA) Capital Corporation ("BHF").
Parent will obtain its funds from Plato LLC. Plato LLC will obtain its funds
from the Equity Investors who will obtain their funds as follows: (i) Fidelity
Ventures Limited and Fidelity Investors Limited Partnership II will
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<PAGE>
obtain their funds from cash on hand, (ii) The P/A Fund III, L.P., APA
Excelsior V.L.P., and The Patricoff Private Investment Club II, L.P. will
obtain their funds from investors in the funds, and (iii) AFLAC Incorporated
will obtain its funds from cash on hand.
The material terms of the loans to be made by BHF are summarized below. The
summary is not a complete description of the terms of the loans, and it is
qualified by reference to the Term Sheet, a copy of which has been filed with
the Commission as an exhibit to the Schedule 14D-1. (Definitive loan
agreements have not been finalized as of the date this Offer has commenced.)
BHF will also make loans for working capital purposes and provide financing
for earn-out payment arrangements.
Senior Term Loan A Facility. The Senior Term Loan A Facility involves up to
$5 million in principal amount with a term of 5.25 years. The interest rate is
(i) LIBOR plus the applicable LIBOR margin ranging from 2.5% to 3.5% depending
on the ratio of funded debt to adjusted earnings before interest, taxes,
depreciation and amortization (the "Debt Ratio") or (ii) the base rate,
defined as the higher of The Chase Manhattan Bank prime rate or the federal
funds rate plus 2%, plus the applicable base rate margin ranging from 1.5% to
2.5% depending on the Debt Ratio. After a 3-month grace period from the
effective date of the Merger, the loan is subject to mandatory quarterly
repayments of $250,000.
Senior Term Loan B Facility. The Senior Term Loan B Facility involves up to
$7 million in principal amount with a term of 6.25 years. The interest rate is
(i) LIBOR, plus the initial LIBOR margin for the Senior Term Loan A facility,
plus 50 basis points or (ii) base rate, as defined above, plus the initial
base rate margin for the Senior Term Loan A facility, plus 50 basis points.
After a 3-month grace period from the effective date of the Merger, the loan
is subject to mandatory quarterly repayments of $125,000 in the first four
years, and $625,000 in the last two years.
Senior Subordinated Notes. The Senior Subordinated Notes involve up to $4.5
million in principal amount with a term of 7.25 years. The interest rate is
12% per annum, payable quarterly, plus 3% per annum in payment-in-kind
securities. The subordinated notes will be sold with warrants for the purchase
of Shares at a nominal price representing up to 1.00% of the fully diluted
common stock of the Company. The notes will be subordinated to current and
future senior debt of the borrower, and they will be secured by a second lien
on all assets and all common stock of the Company and its subsidiaries. Any
proceeds from the sale of securities and assets in connection with payment of
the senior debt described above which remain after paying amounts owed on the
senior debt shall be applied to repayment of the notes. The loan agreement
applicable to the notes will have customary affirmative and negative
covenants.
General Terms and Conditions. In addition to customary conditions for the
funding of the initial loans, including completion of satisfactory
documentation, the closing of the initial funding is subject to the following
conditions: (i) adjusted EBITDA (EBITDA excluding any NovaCare, Inc. contracts
that are scheduled to be canceled within one year of closing) on a proforma,
run-rate basis for the latest three month period shall be at least $4 million,
(ii) there shall be no default on any material contracts and (iii) there shall
be no material litigation.
The loan terms provide that the Offer and Merger shall be funded in the
following order of priority: (i) cash equity investment in Purchaser by Parent
of at least $70 million, (ii) subordinated notes, (iii) Term A loan and (iv)
Term B loan.
It is currently expected that the loans described above will be repaid from
cash generated by the Company's operations.
14
<PAGE>
11. Background of the Offer; Purpose of the Offer and the Merger; The Merger
Agreement and Certain Other Agreements.
Background of the Offer.
In the fall of 1998, the Company and AFLAC Incorporated ("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 at that time and engaged in
discussions with senior management of the Company, NovaCare, Inc., 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, Inc. 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 late March, 1999, Wasserstein Perella & Co., Inc. ("Wasserstein Perella")
contacted Patricof & Co. Ventures, Inc. ("Patricof") and Fidelity Ventures
Limited ("Fidelity") to determine their interest in pursuing a transaction
with the Company. Patricof and Fidelity decided jointly to explore the
possibility of acquiring the Company. Patricof and Fidelity entered into
confidentiality agreements, dated March 25, 1999 and March 26, 1999,
respectively, with the Company.
On April 12, 1999, Wasserstein Perella began to conduct an auction process
to sell the Company and sent letters to potential acquirers of the Company,
including AFLAC, Patricof and Fidelity, soliciting non-binding indications of
interests to acquire the Company. The letter included a proposed form of
Agreement and Plan of Merger.
On April 19, 1999, Patricof and Fidelity submitted a non-binding indication
of interest in purchasing the Company. On April 20, 1999, Patricof and
Fidelity were invited to participate in the next stage of the process.
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.
AFLAC, Fidelity and Patricof received letters dated May 4, 1999 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 Wasserstein Perella should receive the proposals no later than May 17,
1999. Thereafter, the deadline for the submission of final proposals was
extended to May 28, 1999.
On May 18, 1999, AFLAC submitted an initial, non-binding indication of
interest in acquiring the Company. Wasserstein Perella informed AFLAC 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 to not 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.
15
<PAGE>
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 their bid price would not be increased. Based on these
discussions, Wasserstein Perella decided to focus its efforts on another
bidder.
On June 2, 1999, the Company informed Patricof and Fidelity that it would
need to revise its financial model due to changes in the Company's earnings
outlook.
On June 16, 1999 the Company entered into an Agreement of Purchase and Sale
(the "Unified Agreement") by and among the Company, Unified Management
Corporation ("UMC"), which is another professional employee service
corporation, certain affiliated corporations of UMC (together with UMC,
"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 to the
satisfaction of certain conditions.
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 high bidder with respect to the sale of the
Company due to the high bidder's inability to finance the transaction in a
manner acceptable to 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, 1999, after receiving the approval of the Company and NovaCare,
Inc., there were several discussions among 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 advised Wasserstein Perella that AFLAC would be participating 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.
On August 5, 1999, Wasserstein Perella notified the Equity Investors that
their bid would be accepted if the price was increased. During August 12-15,
1999, there were additional due diligence activities and negotiations between
the Company and the Equity Investors concerning the potential transaction.
Based on the discussions concerning certain financial assumptions, the
Equity Investors increased their bid proposal to $2.89 per Share.
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 while negotiations continued. The agreement stated that it would
expire upon the earlier of September 9, 1999 or the execution of the Merger
Agreement. The agreement recited that the parties were negotiating to
consummate a transaction whereby the Equity Investors would acquire the
Company at a price of $2.89 for all the outstanding common stock of the
Company.
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<PAGE>
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, among other things, the exclusion of the Unified Transaction.
On September 5, 1999, the Equity Investors discussed with representatives of
NovaCare, Inc. a range of prices that would be acceptable to NovaCare, Inc.
On September 7, 1999, the Equity Investors advised Wasserstein Perella that,
assuming that the acquisition of Unified would not be completed, and pending
resolution of management transition issues and the completion of appropriate
agreements, they were prepared to acquire all of the Company's outstanding
stock for a price of $2.50 per Share in cash.
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.
Purpose of the Offer and the Merger. 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 Merger Consideration pursuant to the
Merger Agreement. See Section 12. 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 primary benefits of the Offer and the Merger to the stockholders of the
Company are that such stockholders 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 last full trading day prior to the initial public announcement that
the Company, Purchaser and Parent executed the Merger Agreement.
The following is a summary of certain provisions of various agreements. This
summary is not a complete description of the terms and conditions of these
agreements and is qualified in its entirety by reference to the full text of
these agreements filed with the Commission as exhibits to the Schedule 14D-1
and they are incorporated herein by reference. Capitalized terms used but not
otherwise defined herein shall have the meanings set forth in the Merger
Agreement. These agreements may be examined, and copies obtained, as set forth
in Section 8 of this Offer to Purchase.
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<PAGE>
Merger Agreement.
The Offer. The Merger Agreement provides for the making of the Offer as
provided in this Offer to Purchase.
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 common stock, of the
Company, shall be entitled to designate such number of directors, rounded up
to the next whole number, on 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 of the Company 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, 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 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. The Purchaser has been advised by the
Company that there are no "in the money" options outstanding. 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, Inc. 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 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.
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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 authorization, execution, delivery, performance and enforceability
of the Merger Agreement and related matters,
. the absence of conflict with its certificate of incorporation, by-laws,
or any agreements to which the Company is a party,
. filings with the SEC 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, and
. receipt of a fairness opinion from CIBC World Markets.
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 conflict 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.
Interim Operations of the Company. Except as contemplated by the Merger
Agreement, during the period from the date of the Merger Agreement to the
Effective Time or termination of the Merger Agreement (unless Parent otherwise
agrees in writing and except as expressly provided by the Merger Agreement),
the Company will, and will cause each of its subsidiaries to, conduct its
operations according to its ordinary and usual course of business in
substantially the same manner as conducted prior to entering into the Merger
Agreement and use its reasonable best efforts to preserve intact its current
business organization, keep available the services of its current officers and
subject to the prudent management of workforce needs, its employees (including
certain worksite employees of the Company's customers, except to the extent
required by clients of the Company), preserve its relationships with
customers, suppliers and others having business dealings with it, consult with
Parent concerning important business matters affecting the Company and its
subsidiaries and periodically report to Parent concerning the status of the
business, operations and finances of the Company and its subsidiaries. Without
limiting the generality of the foregoing, and except as expressly provided or
contemplated by the Merger Agreement, the Company will not and will not permit
any of its subsidiaries to, without the prior written consent of Parent:
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(i) directly or indirectly amend its Certificate of Incorporation or By-Laws
or similar organizational documents;
(ii) (A) declare, set aside or pay any dividend or other distribution
payable in cash, stock or property with respect to the Company's capital stock
or that of any of its subsidiaries, except that a wholly owned subsidiary may
declare and pay a dividend or make an advance to its parent or the Company,
(B) redeem, purchase or otherwise acquire directly or indirectly any shares of
any class or series of the Company's capital stock or that of any of its
subsidiaries or any instrument or security which consists of or includes a
right to acquire such shares; (C) issue, sell, transfer, pledge, dispose of or
encumber any shares of any class or series of the Company's capital stock or
that of any of its subsidiaries 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 any class or series of the Company's capital
stock or that of any of its subsidiaries or voting debt, other than Shares
issued upon the exercise of Options outstanding on the date of the Merger
Agreement in accordance with the Company's stock option plans and agreements
as in effect on the date of the Merger Agreement; or (D) split, combine or
reclassify the outstanding capital stock of the Company or of any of its
subsidiaries;
(iii) acquire or agree to acquire (A) by merging or consolidating with, or
by purchasing an equity interest in a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, joint
venture, association or other business organization or division thereof, or
(B) any assets, except purchases of assets in the ordinary course of business
consistent with past practices and which individually do not exceed $50,000 or
in the aggregate do not exceed $100,000;
(iv) alter (through merger, liquidation, reorganization, restructuring or in
any other fashion), the corporate structures or ownership of the Company or
any of its subsidiaries;
(v) make any new capital expenditure or expenditures which exceed the
amounts budgeted therefor in the fiscal year ending June 30, 2000 budget for
the Company provided to Parent;
(vi) (A) amend, terminate or transfer any of the Company's material
contracts except in the ordinary course of business consistent with past
practice and provided that any such amendment, termination or transfer does
not have, individually or in the aggregate, a material adverse effect on the
Company, (B) waive, release or assign any material rights or claims, (C) enter
into certain contracts that would be considered to be a material contract
under the Merger Agreement, or (D) enter into any agreement for the provision
of professional employer services except in the ordinary course of business
consistent with past practices;
(vii) transfer, lease, license, sell or dispose of any of their respective
assets other than dispositions in the ordinary course of business and
consistent with past practice; provided that the fair market value of assets
sold does not exceed $50,000 in any single transaction or $100,000 in the
aggregate;
(viii) mortgage, pledge or encumber any of their respective assets;
(ix) enter into or amend any employment or severance agreement or any other
agreement or arrangement that provides for payment upon a change of control
with or grant any severance or termination pay to any officer, director or
employee (including certain worksite employees of the Company's customers,
except to the extent required by clients of the Company) of the Company or any
of its subsidiaries;
(x) except, as required to comply with applicable law or expressly provided
in the Merger Agreement, (A) adopt, enter into, amend or increase the amount
or accelerate the payment or vesting of any benefit or award or amount
payable, under any Benefit Plan or other contract, agreement, commitment,
arrangement, plan, trust, fund or policy maintained by, contributed to or
entered into by the Company or any of its subsidiaries for the current or
future benefit or welfare of any director, officer or current or former
employee, except to the extent necessary to coordinate any such Benefit Plans
with the terms of the Merger Agreement, (B) increase in any manner the
compensation or fringe benefits of, or pay any bonus to, any director, officer
or employee (other than worksite
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employees of the Company's customers) or consultant of the Company or any of
its subsidiaries (other than normal recurring increases in wages to employees
who are not officers or directors or affiliates in the ordinary course of
business consistent with past practice), (C) pay any benefit not provided for
under any Benefit Plan, (D) grant any awards under any bonus, incentive,
performance or other compensation plan or arrangement or Benefit Plan
(including the grant of stock options, stock appreciation rights, stock based
or stock related awards, performance units or restricted stock, or the removal
of existing restrictions in any Benefit Plans or agreements or awards made
thereunder) or (E) take any action to fund or in any other way secure the
payment of compensation or benefits under any employee plan, agreement,
contract or arrangement or Benefit Plan;
(xi) (A) incur or assume any long-term indebtedness for borrowed funds, or
except in the ordinary course of business, incur or assume any short-term
indebtedness for borrowed funds in amounts not consistent with past practice,
provided, that the aggregate of such short-term indebtedness and long-term
indebtedness outstanding does not exceed $3,300,000 at any given time, (B)
modify the terms of any indebtedness or other liability except as contemplated
by the Merger Agreement, (C) assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other person (except for checks endorsed for collection in
the ordinary course of business) or (D) make any loans, advances or capital
contributions to, or investments in any other person (other than to wholly
owned subsidiaries and other than (x) travel advances to employees in the
ordinary course of business consistent with past practices and (y) publicly
traded securities constituting less than 1.0% of the outstanding equity of the
issuing entity);
(xii) change any of the accounting methods used by it unless required by
changes in GAAP;
(xiii) make any material election relating to taxes, change any material
election relating to taxes already made, adopt any material accounting method
relating to taxes, change any material accounting method relating to taxes
unless required by changes in GAAP, enter into any closing agreement relating
to taxes, settle any claim or assessment relating to taxes or consent to any
claim or assessment relating to taxes or any waiver of the statute of
limitations for any such claim or assessment;
(xiv) pay, release, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, release, discharge or satisfaction of (A)
any such claims, liabilities or obligations, in the ordinary course of
business and consistent with past practice, and (B) claims, liabilities or
obligations reflected or reserved against in, or contemplated by, the
consolidated financial statements (or the notes thereto) of the Company and
its consolidated subsidiaries filed with the Commission prior to the date of
the Merger Agreement;
(xv) amend in any material respect, renew, terminate or cause to be extended
any lease, agreement or arrangement relating to any of its leased properties
or enter into any lease, agreement or arrangement with respect to any real
property;
(xvi) permit any insurance policy having the Company or any of its
subsidiaries as a beneficiary or a loss payable payee to be cancelled or
terminated unless comparable replacement coverage is obtained, provided that
written notice has been provided to Parent and the premium therefor is
reasonably acceptable to Parent;
(xvii) take, or agree or commit to take, any action that would or is
reasonably likely to result in any of the conditions to the Offer or to the
consummation of the Merger not being satisfied, or would make any
representation or warranty of the Company contained in the Merger Agreement
inaccurate in any material respect at, or as of any time prior to, the
Effective Time, or that would materially impair the ability of the Company,
Parent, Sub or the holders of Shares to consummate the Offer or the Merger in
accordance with the terms hereof or materially delay such consummation; and
(xviii) enter into an agreement, contract, commitment or arrangement to do
any of the foregoing, or to authorize, recommend, propose or publicly announce
an intention to do any of the foregoing.
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<PAGE>
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
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 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 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
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<PAGE>
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.
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 duly 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, Inc. required by the
DGCL approving NovaCare Inc's agreement to tender, the grant of the
irrevocable proxy and the agreement to sell its Shares 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.
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<PAGE>
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
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, Inc. 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 approval or recommendation of the sale of its interest in the
Company as set forth in the NovaCare, Inc. 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 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, Inc. or NC Resources
shall have breached any representation, warranty, covenant or other
agreement contained in the Stockholder Agreement, which breach cannot be or
has not been cured within 30 days after the giving of written notice by
Parent or Purchaser; (iv) if NovaCare, Inc. 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.
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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 clause (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.
Stockholder Agreement
Concurrently with the execution and delivery of the Merger Agreement,
Parent, Purchaser, NovaCare, Inc. and NC Resources entered into a Stockholder
Agreement. In that agreement, NC Resources, Inc. (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 from NC Resources at a price
per share equal to $2.50, which is the price offered to all stockholders in
the Offer.
The obligations of NovaCare, Inc. and NC Resources described above are
contingent on receiving any approval of the stockholders of NovaCare, Inc.
which is required by Delaware law. NovaCare, Inc. has 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, Inc. 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 therof 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, Inc. 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, Inc.
circulated a proxy statement. In the proxy statement, the Board of Directors
of NovaCare, Inc. recommended that the stockholders vote in favor of the sale
of NovaCare, Inc.'s interest in the Company and the tender of its Shares in
the Offer. If the holders of a majority of the outstanding shares of common
stock of NovaCare, Inc. vote to approve the sale of NovaCare, Inc.'s interest
in the Company and NovaCare Inc. tenders its Shares, as required by the
Stockholder Agreement, 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.
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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 & Co. Ventures,
Inc. ("Patricof") and AFLAC Incorporated ("AFLAC") executed Confidentiality
Agreements, in favor of NovaCare, Inc. 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 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 consists solely of customer client accounts.
Exclusivity Agreement
The Company, NovaCare, Inc. 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, the
Company and NovaCare, Inc. 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, Inc.
also agreed to immediately notify 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.
Letter Agreement
NovaCare, Inc. executed a letter agreement, dated as of September 8, 1999,
in favor of the Company and the Equity Investors. Pursuant to the letter
agreement, NovaCare, Inc. agreed to use commercially reasonable efforts to
obtain a general release from Unified Management Corporation and certain of
its affiliates and shareholders (collectively, "Unified") from any claims or
actions arising from or relating to the termination of the Agreement of
Purchase and Sale, dated as of June 16, 1999, by and among Unified and the
Company (the "Unified Termination"). NovaCare, Inc. further agreed to
indemnify and hold harmless the Company, the Equity Investors and their
respective subsidiaries, affiliates, officers, directors, partners, employees,
representatives, successor or assigns (the "Investors Indemnified Parties")
from and against any and all liabilities sustained or incurred by the Company
or the Investors Indemnified Parties as a result of, or arising from, any
action brought or claim made by or on behalf of Unified against the Company or
any of the Investors Indemnified Parties as a result of the Unified
Termination.
Also pursuant to the letter agreement, prior to the closing of the
transactions contemplated by the Merger Agreement, (1) NovaCare, Inc. has
agreed that it will cash collateralize, and take all action necessary, to
cause
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the Company to be removed as a co-indemnitor with respect to the obligations
secured by the $4,580,446 bond in favor of Liberty Mutual Insurance Company
and (2) the Company has agreed that it will take all action necessary to cause
NovaCare, Inc. to be removed as a co-indemnitor with respect to the surety
bonds identified in the letter agreement.
12. Plans for the Company; Other Matters.
Plans for the Company.
If Purchaser acquires control of the Company, Parent and Purchaser intend to
conduct a detailed review of the Company and its assets, corporate structure,
capitalization, operations, properties, policies, management and personnel and
to consider and determine what, if any, changes would be desirable in light of
the circumstances which then exist. Such changes could include, among others
things, changes in the Company's business, corporate structure, certificate of
incorporation, by-laws, capitalization, management or dividend policy.
The Merger Agreement provides that, promptly after the purchase by Purchaser
of at least a majority of the Shares 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.
See Section 11. 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 in this Offer to Purchase, and except as may be effected
in connection with the integration of operations referred to above, 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 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
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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
acquire in the aggregate at least a majority of the Shares (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 13e-3 will not be applicable to the Merger
because it is anticipated that the Merger would be effected within one year
following consummation of the Offer, and in the Merger stockholders would
receive the same price per share as paid in the Offer. If Rule 13e-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.
13. 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
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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.
14. 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 or
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-1(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 any governmental authority,
or the Company, Parent or Purchaser shall have received notice from an
attorney representing a party of such party's intent to commence any suit,
action or proceeding which (i) seeks to prohibit or delay the making or
consummation of the Offer or the Merger, (ii) seeks to challenge, prohibit,
delay or make illegal or materially more costly the acquisition by Parent
or Purchaser of any Shares pursuant to the Offer, the Stockholder
Agreement, the Short Form Merger Option Agreement or the acceptance for
payment, payment for or purchase of Shares pursuant to, or consummation of,
the Offer or the Merger or seeks to make illegal the transactions
contemplated by the Stockholder Agreement or the Short Form Merger Option
Agreement or otherwise directly or indirectly to restrain, 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 impose
limitations on the ability of Parent or any of its subsidiaries or
affiliates to exercise full rights of ownership of the Shares purchased by
it, including the right to vote on all matters, (iv) seeks to impose
limitations on the ability of Parent or any of its subsidiaries or
affiliates effectively to acquire, hold or operate, or to require Parent,
Purchaser or the Company or any of their respective subsidiaries or
affiliates to dispose of or hold separate, any material portion of the
business or assets of Parent, Purchaser or the Company or any of their
respective subsidiaries, or (v) would reasonably be expected to have a
material adverse effect on the Company;
(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 the Merger 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
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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 material
adverse effect on the Company; 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 the provisions 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, Purchaser or their affiliates concerning a
Superior Proposal, withdrawn, or modified or changed in a manner adverse to
Parent or Purchaser (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 (1) 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), (2) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States (whether or not mandatory), (3) any limitation or proposed
limitation (whether or not mandatory) by any United States Governmental
Authority or agency on the extension of credit by financial institutions,
(4) 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 (5) in the case of any of the
situations in clauses (1) through (4) inclusive, existing at the time of
the commencement of the Offer, a material acceleration or worsening
thereof;
(h) the Company, NC Resources or NovaCare, Inc. pursuant to or within the
meaning of Title 11, U.S. Code or any similar federal or state law for the
relief of debtors ("Bankruptcy Law"): (1) commences a voluntary case, (2)
consents to the entry of an order for relief against it in an involuntary
case, (3) 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, (4) makes a general
assignment for the benefit of its creditors, or (5) generally is not paying
its debts as they become due;
(i) a court of competent jurisdiction enters an order or decree under the
Bankruptcy Law that; (1) is for relief against the Company in an
involuntary case, (2) appoints a Custodian of the Company, NC Resources or
NovaCare, Inc. or for all or substantially all of the property of the
Company, NC Resources or NovaCare, Inc., or (3) orders the liquidation of
the Company, NC Resources or NovaCare, Inc., and the order or decree
remains unstayed and in effect for 60 days;
(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 NC Resources or NovaCare, Inc. 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 the provisions described under the heading "Merger Approval--Options"
in Section 11 of this Offer to Purchase;
(m) the Company shall not have delivered to Parent and Purchaser an
opinion from a reputable firm to the effect that NovaCare, Inc. and the
Company are solvent as of the time any Shares are accepted for payment;
(n) NovaCare, Inc. 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
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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 earnings before interest, taxes, depreciation and
amortization projected to be received by the Company under the Subscriber
Services Agreement, dated as of July 1, 1999, by and between NovaCare, Inc.
and the Company.
(p) if 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.
15. Certain Legal Matters.
Except as described in this Section 15, based on information provided by the
Company, 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. See Section 14
for certain conditions to the Offer, including conditions with respect to
governmental actions.
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 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
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"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 of Directors 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 the 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 for 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.
Other than as set forth above, Parent and Purchaser do not believe that the
antitakeover laws and regulations of any state will by their terms apply to
the Offer and the Merger, and neither Parent nor Purchaser has attempted to
comply with any state antitakeover statute or regulation. Purchaser reserves
the right to challenge the applicability or validity of any state law
purportedly applicable to the Offer and nothing in this Offer to Purchase or
any action taken in connection with the Offer is intended as a waiver of such
right. If it is asserted that any state antitakeover statute is applicable to
the Offer, and an appropriate court does not determine that it is inapplicable
or invalid as applied to the Offer, Purchaser might be required to file
certain information with, or to receive approvals from, the relevant state
authorities, and Purchaser might be unable to accept for payment or pay for
Shares tendered pursuant to the Offer or may be delayed in consummating the
Offer. In such case, Purchaser may not be obligated to accept for payment, or
pay for, any Shares tendered pursuant to the Offer. See Section 14.
Antitrust. The Offer and the Merger are not subject to the Hart-Scott-Rodino
Antitrust Improvements Act.
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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 this Offer to Purchase, the financing of the
Offer will not be directly or indirectly secured by the Shares or other
securities which constitute margin stock. Accordingly, all financing for the
Offer will be in full compliance with the Margin Regulations.
16. Fees and Expenses.
Purchaser has retained Innisfree M&A Incorporated to act as the Information
Agent and The Bank of New York to act as the Depositary in connection with the
Offer. The Information Agent may contact holders of Shares by personal
interview, mail, telephone, telex, telegraph and other methods of electronic
communication and may request brokers, dealers, commercial banks, trust
companies and other nominees to forward the Offer materials to beneficial
holders. The Information Agent and the Depositary will each receive reasonable
and customary compensation for their services. Purchaser has also agreed to
reimburse each such firm for certain reasonable out-of-pocket expenses and to
indemnify each such firm against certain liabilities in connection with their
services, including certain liabilities under federal securities laws.
Neither Parent nor Purchaser will pay any fees or commissions to any broker
or dealer or other person (other than the Information Agent) for making
solicitations or recommendations in connection with the Offer. Brokers,
dealers, banks and trust companies will be reimbursed by Purchaser for
customary mailing and handling expenses incurred by them in forwarding the
Offer materials to their customers.
17. Miscellaneous.
The Offer is being made to all holders of Shares other than the Company.
Purchaser is not aware of any jurisdiction in which the making of the Offer or
the tender of Shares in connection therewith would not be in compliance with
the laws of such jurisdiction. In any jurisdiction where the securities, blue
sky or other laws require the Offer to be made by a licensed broker or dealer,
the Offer shall be deemed to be made on behalf of Purchaser by or one or more
registered brokers or dealers licensed under the laws of such jurisdiction.
No person has been authorized to give any information or to make any
representation on behalf of Parent or Purchaser not contained herein or in the
letter of transmittal and, if given or made, such information or
representation must not be relied upon as having been authorized.
Purchaser and Parent have filed with the Commission the Schedule 14D-1
pursuant to Rule 14d-3 under the Exchange Act furnishing certain additional
information with respect to the Offer. The Schedule 14D-1 and any amendments
thereto, including exhibits, may be examined and copies may be obtained at the
same places and in the same manner as set forth in Section 9 of this Offer to
Purchase (except that they will not be available at the regional offices of
the Commission).
New Plato Acquisition, Inc.
September 15, 1999
33
<PAGE>
SCHEDULE I
1. Directors, Executive Officers and Managers of Purchaser, Parent and Plato
LLC. The following table sets forth the name and present principal occupation
or employment, and material occupations, positions, offices or employment for
the past five years of the directors, executive officers and managers, as
applicable, of Purchaser, Parent and Plato LLC. Each such person is a citizen
of the United States.
<TABLE>
<CAPTION>
Present Principal Occupation or Employment;
Material Positions Held During Past Five
Name Years
---- -------------------------------------------
<C> <S>
Gregory M. Case.................. Mr. Case is president and a director of
Purchaser and Parent and a manager of Plato
LLC. Mr. Case has held these positions
since August 1999. Mr. Case is also a
Managing Director of Patricof & Co.
Ventures, Inc. and has held this position
for the last five years. Mr. Case's
principal business address is 455 South
Gulph Road, King of Prussia, PA 19406.
George Hertz..................... Mr. Hertz is vice president, treasurer,
secretary and a director of Purchaser and
Parent and a manager of Plato LLC. Mr.
Hertz has held these positions since August
1999. Mr. Hertz is a managing director of
Fidelity Ventures, the venture capital arm
of FMR Corp. and has held this position
since June 1997. Mr. Hertz has been vice
president of Fidelity Capital Associates,
Inc. since June 1997. From March, 1996 to
May, 1997, Mr. Hertz was president and
chief executive officer of Boston
Communications Group in Woburn,
Massachusetts. Prior to that time, and
since 1993, Mr. Hertz was president of
Advanced MobileComm, Inc. Mr. Hertz's
principal business address is 82 Devonshire
Street, Boston, MA 02109.
Eric Lass........................ Mr. Lass is vice president and assistant
secretary of Purchaser and Parent and has
held these positions since August 1999.
Since March 1999, Mr. Lass has also been a
vice president of Fidelity Ventures. Prior
to that time, and since 1994, Mr. Lass was
an analyst at Fidelity Management &
Research Company. Mr. Lass' principal
business address is 82 Devonshire Street,
Boston, MA 02109.
Michael Poisel................... Mr. Poisel is vice president and assistant
secretary of Purchaser and Parent and has
held these positions since August 1999.
From 1997 to 1998, Mr. Poisel was employed
by GE Capital Services and from 1994 to
1995, he was employed by Lockheed Martin.
Mr. Poisel's principal business address is
455 South Gulph Road, King of Prussia, PA
19406.
</TABLE>
2. Directors, Executive Officers and Partners of the Equity
Investors. Parent is owned by the Equity Investors. Set forth below is the
name and present principal occupation or employment, and material occupations,
positions, offices or employment for the past five years of the directors,
executive officers and partners, as applicable, of each of the Equity
Investors and certain other related entities.
a. Partners of Fidelity Ventures Limited ("FVL"). FVL, a private equity
concern, is a limited partnership of which Fidelity Capital Associates,
Inc. ("FCA") is the general partner and a wholly owned subsidiary of FMR
Corp., a diversified financial services company. FMR Corp. is the limited
partner of FVL and holds a majority interest in FVL. The following table
sets forth the name and present principal occupation or employment, and
material occupations, positions, offices or employment for the past five
years of the directors and executive officers of FCA and FMR Corp. Each
person is a citizen of the United States (except Mr. Kelly, who is a
citizen of Canada), with a principal business address of 82 Devonshire
Street, Boston, MA 02109.
I-1
<PAGE>
<TABLE>
<CAPTION>
Present Principal Occupation or Employment;
Material Positions Held During Past Five
Name Years
---- -------------------------------------------
<C> <S>
FCA
William R. Elfers................ Mr. Elfers is vice president of FCA and has
held this position since December 1995.
Since 1990, Mr. Elfers has also been a
managing director of Fidelity Ventures and
chairman and chief executive officer of
Community Newspaper Company.
George K. Hertz.................. Mr. Hertz is a managing director of
Fidelity Ventures and has held this
position since June 1997. Mr. Hertz has
been a vice president of FCA since August
1999. From March, 1996 to May, 1997, Mr.
Hertz was president and chief executive
officer of Boston Communications Group.
Prior to that time, and since 1993, Mr.
Hertz was president of Advanced MobileComm,
Inc.
Timothy T. Hilton................ Mr. Hilton is president and a director of
FCA and has held these positions since July
1997. Mr. Hilton served as president of
Fidelity Capital, an arm of FMR Corp., from
July 1997 until January 1999 and has been
president of Fidelity Ventures since
January 1999. Prior to that time, and since
1985, Mr. Hilton was a partner at the law
firm of Sullivan & Worcester in Boston,
Massachusetts.
Robert E. Ketterson Jr........... Mr. Ketterson is vice president of FCA and
has held this position since June 1998.
Since May 1996, Mr. Ketterson has also been
vice president of Fidelity Ventures.
Peter Mann....................... Mr. Mann is vice president of FCA and has
held this position since July 1998. Prior
to that time, and since 1994, Mr. Mann was
employed by Fidelity Ventures.
Stephen G. Manning............... Mr. Manning is chief financial officer and
vice president of FCA and has held these
positions since June 1999. Prior to that
time, and since April 1997, Mr. Manning was
treasurer of FCA. Since March 1996, Mr.
Manning has been a managing director of
Fidelity Ventures. Prior to that time, and
since 1990, Mr. Manning held various
positions with FMR Corp., most recently as
vice president and treasurer.
Paul L. Mucci.................... Mr. Mucci is vice president of FCA and has
held this position since December 1995. He
was also chief financial officer of FCA
from December 1995 until June 1999. Prior
to that time, and since October 1994, Mr.
Mucci has been a managing director of
Fidelity Ventures. From 1991 until October
1994, Mr. Mucci was senior vice president,
finance of General Cinema in Chestnut Hill,
Massachusetts.
John J. Remondi.................. Mr. Remondi is vice president and a
director of FCA and has held these
positions since December 1995. Mr. Remondi
has also been president of Fidelity
Investors Management LLC since May 1998 and
a managing director of Fidelity Ventures
since April 1990.
Laurel M. Watts.................. Ms. Watts has been vice president of FCA
since December 1995 and chief
administrative officer of Fidelity Capital
since May 1998. Prior to that time, and
since 1993, Ms. Watts has been a managing
director of Fidelity Capital.
</TABLE>
I-2
<PAGE>
<TABLE>
<CAPTION>
Present Principal Occupation or Employment;
Material Positions Held During Past Five
Name Years
---- -------------------------------------------
<C> <S>
FMR Corp.
Stephen P. Akin.................. Mr. Akin is president of Fidelity Capital
and has served in this position since
January 1999. Prior to that he was
president of Fidelity Systems Company from
1997 to 1999 and president of Fidelity
Retail Customer Development from 1995 to
1996. Mr. Akin was also president of
Fidelity Retail Investor Services from 1992
to 1995.
J. Gary Burkhead................. Mr. Burkhead is the vice chairman and a
director of FMR Corp. and has held these
positions since April 1997 and February
1990, respectively. From April 1997 until
January 1998, Mr. Burkhead was the
President of Fidelity Investments
Institutional Services Company. From 1986
until April 1997, Mr. Burkhead was
president of Fidelity Management & Research
Company.
William L. Byrnes................ Mr. Byrnes is a director of FMR Corp. and
has held this position since October 1972.
James C. Curvey.................. Mr. Curvey has been president and chief
operating officer of FMR Corp. since
September 1998 and June 1997, respectively.
Mr. Curvey has been a director of FMR Corp.
since February 1990, serving as vice
chairman from April 1997 until April 1999.
Mr. Curvey was senior vice president of FMR
Corp. from December 1986 until June 1997
and president of Fidelity Capital from June
1991 until July 1997. From June 1995 until
July 1997, Mr. Curvey was a director of
FCA.
Steven E. Elterich............... Mr. Elterich has served as president of
Fidelity E-Commerce since August 1999.
Prior to that he was executive vice
president of Fidelity Employer Services
Company from January 1998 to September
1999. He also held various positions at
Fidelity Institutional Retirement Company
from April 1990 to January 1998.
Ilene B. Jacobs.................. Ms. Jacobs is executive vice president,
human resources of FMR Corp. and has held
this position since October, 1998. Prior to
that time, and since 1974, Ms. Jacobs was
employed by Digital Equipment Corporation
in Maynard, Massachusetts, ending her
tenure as senior vice president of human
resources.
Abigail P. Johnson............... Ms. Johnson is a director of FMR Corp. and
has held this position since May, 1994.
Since May, 1997, Ms. Johnson has also been
senior vice president and associate
director of Fidelity Management & Research
Company.
Edward C. Johnson 3d............. Mr. Johnson has been chairman of the board
and chief executive officer of FMR Corp.
since 1977 and a director since 1972.
Mr. Johnson was president of FMR Corp. from
December 1986 until September 1998.
Stephen P. Jonas................. Mr. Jonas is executive vice president and
chief financial officer of FMR Corp. and
has held these positions since May, 1998.
Prior to that time, and since 1993, Mr.
Jonas held various other positions with FMR
Corp.
</TABLE>
I-3
<PAGE>
<TABLE>
<CAPTION>
Present Principal Occupation or Employment;
Material Positions Held During Past Five
Name Years
---- -------------------------------------------
<C> <S>
Timothy T. Hilton................ Mr. Hilton is president of Fidelity
Ventures and has held this position since
January 1999. He served as president of
Fidelity Capital from July 1997 until
January 1999. Prior to that time and since
1985, Mr. Hilton was a partner in the law
firm of Sullivan & Worcester in Boston,
Massachusetts.
Kevin J. Kelly................... Mr. Kelly is president of Fidelity
Investments Institutional Services Company,
Inc. and has served in that position since
1997. Prior to that he was president of
Fidelity Investments Canada, Ltd. from 1995
to 1998 and president and CEO of Bimcor
Incorporated of Canada from 1991 to 1995.
Mark A. Peterson................. Mr. Peterson is president of Fidelity
Corporate Systems and Services. He has held
this position since 1997. Prior to that he
was president of Fidelity Investments
Retail Group from 1993 to 1996.
Robert C. Pozen.................. Mr. Pozen is president of Fidelity
Management & Research Company and has held
this position since April 1997. Prior to
that, he was senior vice president and
general counsel of FMR Corp.
Robert L. Reynolds............... Mr. Reynolds is president of Fidelity
Investments Institutional Retirement Group.
He has held this position since March 1996.
Prior to that he was president of Fidelity
Institutional Retirement Services Company
from January 1990 to September 1996.
Roger T. Servison................ Mr. Servison has been president of Fidelity
Brokerage Services Japan, LLC since October
1996. Prior to that he was president of
Fidelity Investments Retail Marketing
Company from June 1991 to August 1995.
David C. Weinstein............... Mr. Weinstein is executive vice president
and chief of administration and government
affairs of FMR Corp. and has held these
positions since May, 1998. From December,
1995 until May, 1998, Mr. Weinstein was
senior vice president of FMR Corp. Prior to
that time, and since 1987, Mr. Weinstein
was vice president and corporate counsel of
FMR Corp.
George A. Vanderheiden........... Mr. Vanderheiden is a director of FMR Corp.
and has held this position since March,
1997. Since October, 1989, Mr. Vanderheiden
has also been senior vice president of
Fidelity Management & Research Company.
</TABLE>
I-4
<PAGE>
b. Partners of Fidelity Investors II Limited Partnership ("FILP"). FILP, a
private equity fund, is a limited partnership of which Fidelity Investors
Management, LLC ("FIM") is the general partner. The following table sets
forth the name and present principal occupation or employment, and material
occupations, positions, offices or employment for the past five years of
the directors and executive officers of FIM. Each person is a citizen of
the United States with a principal business address of 82 Devonshire
Street, Boston, MA 02109.
<TABLE>
<CAPTION>
Present Principal Occupation or Employment;
Material Positions Held During Past Five
Name Years
---- -------------------------------------------
<C> <S>
James C. Curvey.................. Mr. Curvey is a director of FIM and has
held this position since May 1998. Mr.
Curvey has also been president and chief
operating officer of FMR Corp. since
September 1998 and June 1997, respectively
and a director since February 1990, serving
as vice chairman-from April 1997 until
April 1999. Mr. Curvey was senior vice
president of FMR Corp. from December 1986
until June 1997 and president of Fidelity
Capital from June 1991 until July 1997.
From June 1995 until June 1997, Mr. Curvey
was president of FCA.
Donald S. Heaton................. Mr. Heaton is vice president and treasurer
of FIM and has held these positions since
May 1998. Since February 1999, Mr. Heaton
has also been senior vice president,
finance of Fidelity Ventures. From 1991
through January 1999, Mr. Heaton was the
senior vice president and chief financial
officer of Fidelity Capital
Telecommunications and Technology Group.
Timothy T. Hilton................ Mr. Hilton is a director of FIM and has
held this position since May 1998. Mr.
Hilton is also president and a director of
FCA and has held these positions since July
1997, serving as vice president from April
1997 until July 1997. From 1985 until 1996,
Mr. Hilton was a partner at the law firm of
Sullivan & Worcester in Boston,
Massachusetts.
Edward C. Johnson 3d............. Mr. Johnson is chairman of the board of FIM
and has held this position since May 1998.
Mr. Johnson has also been chairman of the
board and chief executive officer of FMR
Corp. since 1977 and a director since 1972.
Mr. Johnson was president of FMR Corp from
December 1986 until September 1998.
John J. Remondi.................. Mr. Remondi is president of FIM and has
held this positions since May 1998. Mr.
Remondi is also a managing director of
Fidelity Ventures and has held this
position since April 1990. Since December
1995, Mr. Remondi has also been vice
president of FCA.
David C. Weinstein............... Mr. Weinstein is vice president of FIM and
has held this position since May 1998. Mr.
Weinstein is also executive vice president
and chief of administration and government
affairs of FMR Corp. and has held these
positions since May 1998. From December
1995 until May 1998, Mr. Weinstein was
senior vice president of FMR Corp. Prior to
that time, and since 1987, Mr. Weinstein
was vice president and corporate counsel of
FMR Corp.
</TABLE>
I-5
<PAGE>
c. APA Excelsior V, L.P. APA Excelsior V, L.P. is a Delaware limited
partnership and its principal business is acting as a private investment
fund. Its business address is: c/o Patricof & Co. Ventures, Inc., 445 Park
Avenue, New York, NY 10022.
The general partner of APA Excelsior V, L.P. is APA Excelsior V Partners,
L.P., a Delaware limited partnership. Its principal business is acting as
the general partner of private investment funds. Its business address is:
72 Davids Lane, East Hampton, NY 11937.
The general partner of APA Excelsior V Partners, L.P. is Patricof & Co.
Managers, Inc., a New York corporation. Its principal business is acting as
the general partner of general partners of private investment funds. Its
business address is: 445 Park Avenue, New York, NY 10022.
The sole director and executive officers of Patricof & Co. Managers, Inc.
are listed below:
<TABLE>
<CAPTION>
Name Position
---- --------
<S> <C>
Alan J. Patricof................... Sole Director and Chairman of the Board
Gregory M. Case.................... Vice President
Robert M. Chefitz.................. Vice President
Janet G. Effland................... Vice President
Thomas P. Hirschfeld............... Vice President
George M. Jenkins.................. Vice President
David A. Landau.................... Vice President
George D. Phipps................... Vice President
Salem D. Shuchman.................. Vice President
Paul A. Vais....................... Vice President
</TABLE>
All such persons are U.S. citizens. The business address of such persons
is: c/o Patricof & Co., Ventures, Inc., 445 Park Avenue, New York, New
York, 10022. Mr. Patricof founded Patricof & Co., Ventures, Inc., a private
investment firm, in 1969 and its the Co-Chairman. All other persons listed
above have been employed by Patricof & Co. Ventures, Inc., for the last
five years, most recently as Managing Directors except: (i) Mr. Hirschfeld
joined Patricof & Co. Ventures, Inc. in January 1995 and prior to that time
was Assistant to the Mayor of New York City from February 1994 to December
1994 and (ii) Mr. Vais joined Patricof & Co. Ventures, Inc. in March 1997
and prior to that time was employed by Enterprise Partners Venture Capital,
an investment firm, from March 1995 to December 1996, most recently as vice
president, and by Next Inc., a computer software company, from July 1988 to
October 1994, most recently as Executive Director of Worldwide Marketing.
d. The Patricof Private Investment Club II, L.P. The Patricof Private
Investment CLub II, L.P. is a Delaware limited partnership and its
principal business is acting as a private investment fund. Its business
address is: c/o Patricof & Co. Ventures, Inc., 445 Park Avenue, New York,
NY 10022.
The general partner of The Patricof Private Investment Club II, L.P. is
APA Excelsior V Partners, L.P. See Section c above for additional
information.
e. The P/A Fund III, L.P. The P/A Fund III, L.P. is a Pennsylvania limited
partnership and its principal business is acting as a private investment
fund. Its business address is: Executive Terrace Building, 455 South Gulph
Road-Suite 410, King of Prussia, PA 19406.
The general partners of The P/A Fund III, L.P. are APA Pennsylvania
Partners III, L.P. and ACM Capital Partners, L.P.
APA Pennsylvania Partners III, L.P. is a New York limited partnership and
its principal business is acting as a general partners of private
investment funds. Its business address is: 72 Davids Lane, East
I-6
<PAGE>
Hampton, NY 11937. The general partner of APA Pennsylvania Partners III,
L.P. is Patricof & Co. Managers, Inc. See Section c above for additional
information.
ACM Capital Partners, L.P. is a Pennsylvania limited partnership and its
principal business is venture capital investments. Its business address is:
518 Broad Street, Sewickley, PA 15143.
The general partners of ACM Capital Partners, L.P. are: Joel P. Adams,
William C. Hulley, William A. Frezza (special general partner) and Jerry S.
Sullivan (special general partner). All such persons are U.S. citizens and
their business address is 518 Broad Street, Sewickley, PA 15143. Messrs.
Adams and Hulley have been employed by Adams Capital Management, Inc., a
venture capital investment firm, since they founded it in December 1994.
Prior to that time and since at least August 1994, they were general
partners of Fostin Capital Partners II, a venture capital investment firm.
Messrs. Frezza and Sullivan provide consulting services to Adams Capital
Management, Inc. Mr. Frezza has been employed by Wireless Computing
Associates, Inc., a consulting firm, since 1994. Prior to that he was
employed by Ericsson GE Mobile Communications Inc. since 1991, most
recently as Director of Marketing and Business Development. Mr. Sullivan
has been employed by Savantage, Inc., a consulting firm, since 1992, most
recently as President.
f. Directors and Executive Officers of AFLAC Incorporated ("AFLAC"). The
following table sets forth the name and present principal occupation or
employment, and material occupations, positions, offices or employment for
the past five years of the directors and executive officers of AFLAC. Each
person is a citizen of the United States with a principal business address
of 1932 Wynnton Road, Columbus, GA 31999. Unless otherwise indicated, each
person has held the position(s) set forth opposite his or her name for at
least five years.
<TABLE>
<CAPTION>
Present Principal Occupation or Employment;
Material Positions Held During Past Five
Name Years
---- -------------------------------------------
<C> <S>
Paul S. Amos..................... Mr. Amos is Chairman of the Board of AFLAC
and American Family Life Assurance Company
of Columbus.
Daniel P. Amos................... Mr. Amos is Chief Executive Officer and
President of AFLAC and American Family Life
Assurance Company of Columbus. Mr. Amos is
also a Director of The CIT Group, Inc. and
Georgia Power Company.
William J. Bugg, Jr.............. Mr. Bugg is Senior Vice President,
Corporate Actuary of American Family Life
Assurance Company of Columbus.
Monthon Chuaychoo................ Mr. Chuaychoo is Vice President, Financial
Services of AFLAC and American Family Life
Assurance Company of Columbus.
Kriss Cloninger III.............. Mr. Cloninger is Executive Vice President,
Chief Financial Officer of AFLAC and
American Family Life Assurance Company of
Columbus. He is also Treasurer of AFLAC.
Martin A. Durant, III............ Mr. Durant is Senior Vice President,
Corporate Services of AFLAC and American
Family Life Assurance Company of Columbus.
Norman P. Foster................. Mr. Foster is Executive Vice President,
Corporate Finance of AFLAC and American
Family Life Assurance Company of Columbus.
Kenneth S. Janke Jr.............. Mr. Janke is Senior Vice President,
Investor Relations of AFLAC. Mr. Janke is
also president and Chief Executive Officer
of the National Association of Investor
Corp. He is also President and Director of
NAIC Growth Fund.
</TABLE>
I-7
<PAGE>
<TABLE>
<CAPTION>
Present Principal Occupation or Employment;
Material Positions Held During Past Five
Name Years
---- -------------------------------------------
<C> <S>
Akitoshi Kan..................... Mr. Kan has been Executive Vice President
of AFLAC Japan since January 1998. He has
also served as Deputy Chief Financial
Officer of AFLAC and Senior Vice President
of AFLAC Japan, Accounting, Information
Systems, ABC and Legal Affairs since
January 1997. Prior to that, Mr. Kan was
Senior Vice President of AFLAC Japan,
Accounting, Corporate Planning, Audit, and
Legal Affairs until January 1997 and Vice
President of AFLAC Japan Accounting
Department until 1995.
Nobuo Kawamura................... Mr. Kawamura has been Senior Vice President
of AFLAC Japan, ABC Promotion, Policy
Maintenance, Premium Accounting since
January 1999. Prior to that, Mr. Kawamura
was Senior Vice President of AFLAC Japan,
Underwriting, Policy Maintenance, Premium
Accounting, Customer Service,
Administration Support.
Joseph P. Kuechenmeister......... Mr. Kuechenmeister is Senior Vice
President, Director of Marketing of
American Family Life Assurance Company of
Columbus.
Joey M. Loudermilk............... Mr. Loudermilk is Senior Vice President,
General Counsel and Corporate Secretary of
AFLAC and American Family Life Assurance
Company of Columbus. He is also Director,
Legal and Governmental Relations of
American Family Life Assurance Company of
Columbus.
Hidefumi Matsui.................. Mr. Matsui has been President of AFLAC
Japan, since January 1995. Prior to that he
was Executive Vice President of AFLAC
Japan.
Shoichi Matsumoto................ Mr. Matsumoto has been Executive Vice
President and Director of Marketing of
AFLAC Japan, since January 1998. From July
1997 through January 1998, Mr. Matsumoto
was Senior Vice President and Director of
Marketing of AFLAC Japan. He served as
Senior Vice President of AFLAC Japan from
January 1996 through July 1997 and, prior
to that time, as Vice President and
Assistant Director of Marketing of AFLAC
Japan.
Minoru Nakai..................... Mr. Nakai is President of AFLAC
International, Inc.
Yoshiki Otake.................... Mr. Otake has been Chairman of the Board of
AFLAC Japan since January 1995. Prior to
that he served as President of AFLAC Japan.
Mr. Otake also serves as Vice Chairman of
AFLAC International, Inc.
E. Stephen Purdom................ Mr. Purdom has been Executive Vice
President of American Family Life Assurance
Company of Columbus since October 1994. Mr.
Purdom was Medical Director of the Columbus
Clinic until September 1994 and Senior Vice
President and Medical Director of American
Family Life Assurance Company of Columbus
until October 1994. Mr. Purdom is a
Director of Trust Company Bank.
Joseph W. Smith, Jr.............. Mr. Smith is Senior Vice President, Chief
Investment Officer of American Family Life
Assurance Company of Columbus.
</TABLE>
I-8
<PAGE>
<TABLE>
<CAPTION>
Present Principal Occupation or Employment;
Material Positions Held During Past Five
Name Years
---- -------------------------------------------
<C> <S>
Gary L. Stegman.................. Mr. Stegman is Senior Vice President,
Assistant Chief Financial Officer of AFLAC
and American Family Life Assurance Company
of Columbus. He is also Treasurer and
Assistant Secretary of American Family Life
Assurance Company of Columbus.
J. Shelby Amos, II............... Mr. Amos is the Alabama/West Florida State
Sales Coordinator for American Family Life
Assurance Company of Columbus.
Michael H. Armacost.............. Mr. Armacost has been President of The
Brookings Institution since October 1995.
From 1993 through September 1995, Mr.
Armacost was a Professor at the
Asia/Pacific Research Center at Stanford
University. Mr. Armacost is also a Former
United States Ambassador to Japan.
M. Delmar Edwards, M.D........... Dr. Edwards is a Retired Vice President and
Assistant to the Chairman of Columbus
Regional Healthcare System, Inc. Dr.
Edwards is also a Retired Director of First
Union National Bank of Georgia. In
addition, Dr. Edwards serves is a Trustee
of Columbus State University and Morehouse
School of Medicine.
Joe Frank Harris................. Mr. Harris is a Distinguished Executive
Fellow at Georgia State University. He is
also Chairman of the board of directors of
Harris Georgia Corp. and a Director of
Bankhead Enterprises, Inc. Mr. Harris is a
Former Governor of the State of Georgia.
Elizabeth J. Hudson.............. Ms. Hudson has been Director of Spencer
Stuart since January 1998. From May 1996
through December 1997, Ms. Hudson was
Senior Vice President, Corporate
Communications at The Readers Digest
Association, Inc. Prior to that Ms. Hudson
served as Executive Producer of NBC
Productions.
Hisao Kobayashi.................. Mr. Kobayashi is President and Chief
Executive Officer of The Dai-Ichi Kangyo
Bank Ltd. and President and Chief Executive
Officer Hibiya Building Co. Limited. He is
also Chairman of the Board of directors of
The CIT Group, Inc. and a Director of
Nippon Light Metal Co., Ltd.
Barbara K. Rimer................. Ms. Rider has been Director, Cancer Control
and Population Sciences at the National
Cancer Institute since December 1997. Prior
to that, Ms. Rimer served as Director,
Cancer Control Research at Duke
Comprehensive Cancer Center.
Henry C. Schwob.................. Mr. Schwob is President of Schwob Realty
Company. In addition, Mr. Schwob is a
Director of First Union National Bank of
Georgia.
J. Kyle Spencer.................. Mr. Spencer is President of Spencer
Investment Company. Mr. Spencer is also a
Retired Director of First Union National
Bank of Georgia and a Retired Chairman of
the Board of Bank South N.A.
Glenn Vaughn, Jr................. Mr. Vaughn is the Retired Chairman of the
Board of Columbus Ledger-Enquirer.
Robert L. Wright................. Mr. Wright is President and Chief Executive
Officer of Dimensions International and a
Director of Riggs Bank.
</TABLE>
I-9
<PAGE>
The Letter of Transmittal, certificates for Shares and any other required
documents should be sent or delivered by each stockholder of the Company or
his broker, dealer, commercial bank, trust company or other nominee to the
Depositary, at the applicable address set forth below:
The Depositary for the Offer is:
The Bank of New York
<TABLE>
<S> <C>
By Mail: By Hand or Overnight Courier:
Tender & Exchange Tender & Exchange
Department Department
P.O. Box 11248 101 Barclay Street
Church Street Station Receive and Deliver Wiondow
New York, New York 10286 New York, New York 10286
</TABLE>
By Facsimile Transmission
(For Eligible Institutions Only)
(212) 815-6213
For Confirmation Telephone:
(800) 507-9357
Any questions or requests for assistance or additional copies of this Offer
to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and
the other tender offer materials may be directed to the Information Agent at
the address and telephone number set forth below. Stockholders may also
contact their broker, dealer, commercial bank, trust company or other nominee
for assistance concerning the Offer.
The Information Agent for the Offer is:
Innisfree M&A Incorporated
501 Madison Avenue
20th Floor
New York, New York 10022
Banks and Brokers Call Collect: (212) 750-5833
All Others Call Toll Free: (888) 750-5834
<PAGE>
Letter of Transmittal
To Tender Shares of Common Stock
of
NovaCare Employee Services, Inc.
Pursuant to the Offer to Purchase
Dated September 15, 1999
of
New Plato Acquisition, Inc.
a wholly owned subsidiary of
Plato Holdings, Inc.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW
YORK CITY TIME, ON WEDNESDAY, OCTOBER 13, 1999, UNLESS THE OFFER IS EXTENDED.
The Depositary for the Offer is:
The Bank of New York
By Mail: By Hand or Overnight Courier:
Tender & Exchange Department Tender & Exchange Department
P.O. Box 11248 101 Barclay Street
Church Street Station Receive and Deliver Window
New York, New York 10286-1248 New York, New York 10286
By Facsimile Transmission
(For Eligible Institutions Only)
(212) 815-6213
For Confirmation Telephone:
(800) 507-9357
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY TO THE DEPOSITARY.
THE INSTRUCTIONS CONTAINED WITHIN THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be used by stockholders of NovaCare
Employee Services, Inc. if certificates for Shares (as such term is defined
below) are to be forwarded herewith or, unless an Agent's Message (as defined
in Instruction 2 below) is utilized, if delivery of Shares is to be made by
book-entry transfer to an account maintained by the Depositary at a Book-Entry
Transfer Facility (as defined in and pursuant to the procedures set forth in
Section 3 of the Offer to Purchase). Stockholders who deliver Shares by book-
entry transfer are referred to herein as "Book-Entry Stockholders" and other
stockholders who deliver shares are referred to herein as "Certificate
Stockholders."
Stockholders whose certificates for Shares are not immediately available or
who cannot deliver either the certificates for, or a Book-Entry Confirmation
(as defined in Section 3 of the Offer to Purchase) with respect to, their
Shares and all other documents required hereby to the Depositary prior to the
Expiration Date (as defined in Section 1 of the Offer to Purchase) must tender
their Shares pursuant to the guaranteed delivery procedures set forth in
Section 3 of the Offer to Purchase. See Instruction 2. DELIVERY OF DOCUMENTS
TO A BOOK-ENTRY TRANSFER FACILITY WILL NOT CONSTITUTE DELIVERY TO THE
DEPOSITARY.
<PAGE>
[_]CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO
THE DEPOSITARY'S ACCOUNT AT THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE
THE FOLLOWING (ONLY PARTICIPANTS IN A BOOK-ENTRY TRANSFER FACILITY MAY
DELIVER SHARES BY BOOK-ENTRY TRANSFER):
Name of Tendering Institution __________________________________________
Account Number _________________________________________________________
Transaction Code Number ________________________________________________
[_]CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Holder(s) ________________________________________
Window Ticket Number (if any) __________________________________________
Date of Execution of Notice of Guaranteed Delivery _____________________
Name of Institution which Guaranteed Delivery __________________________
If delivered by Book-Entry Transfer, check box: [_]
Account Number _________________________________________________________
Transaction Code Number ________________________________________________
DESCRIPTION OF SHARES TENDERED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Name(s) and Address(es) of Registered Holder(s)
(Please fill in, if blank, exactly as name(s) Shares Tendered
appear(s) on Share certificate(s)) (Attach additional signed list if necessary)
- ---------------------------------------------------------------------------------------------------
Total Number
of Shares
Share Represented by Number of
Certificate Share Shares
Number(s)(1) Certificate(s)(1) Tendered(2)
--------------------------------------------------
<S> <C> <C> <C>
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
Total Shares
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Need not be completed by Book-Entry Stockholders.
(2) Unless otherwise indicated, it will be assumed that all Shares
represented by Share certificates delivered to the Depositary are
being tendered hereby. See Instruction 4.
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE INSTRUCTIONS SET FORTH IN THIS LETTER OF TRANSMITTAL
CAREFULLY.
Ladies and Gentlemen:
The undersigned hereby tenders to New Plato Acquisition, Inc., a Delaware
corporation ("Purchaser") and a wholly owned subsidiary of Plato Holdings,
Inc., a Delaware corporation ("Parent"), the above-described shares of common
stock, par value $0.01 per share (the "Shares"), of NovaCare Employee
Services, Inc., a Delaware corporation (the "Company"), pursuant to
Purchaser's offer to purchase all of the outstanding Shares at a price of
$2.50 per Share, net to the seller in cash, without interest thereon (the
"Offer Price") upon the terms and subject to the conditions set forth in the
Offer to Purchase dated September 15, 1999, and in this Letter of Transmittal
(which, together with any amendments or supplements thereto or hereto,
collectively constitute the "Offer"). The undersigned understands that
Purchaser reserves the right to transfer or assign, in whole at any time, or
in part from time to time, to one or more of its affiliates, the right to
purchase all or any portion of the Shares tendered pursuant to the Offer, but
any such transfer or assignment will not relieve Purchaser of its obligations
under the Offer and will in no way prejudice the rights of tendering
stockholders to receive payment for Shares validly tendered and accepted for
payment pursuant to the Offer. Receipt of the Offer is hereby acknowledged.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of September 8, 1999 (the "Merger Agreement"), by and among Parent,
Purchaser and the Company.
Upon the terms and subject to the conditions of the Offer (and if the Offer
is extended or amended, the terms of any such extension or amendment), subject
to, and effective upon, acceptance for payment of, and payment for, the Shares
tendered herewith in accordance with the terms of the Offer, the undersigned
hereby sells, assigns and transfers to, or upon the order of, Purchaser all
right, title and interest in and to all the Shares that are being tendered
hereby (and any and all non-cash dividends, distributions, rights, other
Shares or other securities issued or issuable in respect thereof on or after
September 8, 1999 (collectively, "Distributions")) and irrevocably constitutes
and appoints the Depositary the true and lawful Agent and attorney-in-fact of
the undersigned with respect to such Shares (and all Distributions), with full
power of substitution (such power of attorney being deemed to be an
irrevocable power coupled with an interest), to (i) deliver certificates for
such Shares (and any and all Distributions), or transfer ownership of such
Shares (and any and all Distributions) on the account books maintained by the
Book-Entry Transfer Facility, together, in any such case, with all
accompanying evidences of transfer and authenticity, to or upon the order of
Purchaser, (ii) present such Shares (and any and all Distributions) for
transfer on the books of the Company, and (iii) receive all benefits and
otherwise exercise all rights of beneficial ownership of such Shares (and any
and all Distributions), all in accordance with the terms of the Offer.
By executing this Letter of Transmittal, the undersigned hereby irrevocably
appoints Gregory M. Case and George Hertz in their respective capacities as
officers of Purchaser, and any individual who shall thereafter succeed to any
such office of Purchaser, and each of them, the attorneys-in-fact and proxies
of the undersigned, each with full power of substitution, to vote at any
annual or special meeting of the Company's stockholders or any adjournment or
postponement thereof or otherwise in such manner as each such attorney-in-fact
and proxy or his substitute shall in his sole discretion deem proper with
respect to, to execute any written consent concerning any matter as each such
attorney-in-fact and proxy or his substitute shall in his sole discretion deem
proper with respect to, and to otherwise act as each such attorney-in-fact and
proxy or his substitute shall in his sole discretion deem proper with respect
to, all of the Shares (and any and all Distributions) tendered hereby and
accepted for payment by Purchaser. This appointment will be effective if and
when, and only to the extent that, Purchaser accepts such Shares for payment
pursuant to the Offer. This power of attorney and proxy are irrevocable and
are granted in consideration of the acceptance for payment of such Shares in
accordance with the terms of the Offer. Such acceptance for payment shall,
without further action, revoke any prior powers of attorney and proxies
granted by the undersigned at any time with respect to such Shares (and any
and all Distributions), and no subsequent powers of attorney, proxies,
consents or revocations may be given by the
<PAGE>
undersigned with respect thereto (and, if given, will not be deemed
effective). Purchaser reserves the right to require that, in order for Shares
or other securities to be deemed validly tendered, immediately upon
Purchaser's acceptance for payment of such Shares, Purchaser must be able to
exercise full voting, consent and other rights with respect to such Shares
(and any and all Distributions), including voting at any meeting of the
Company's stockholders.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Shares tendered
hereby and all Distributions, that the undersigned owns the Shares tendered
hereby within the meaning of Rule 14e-4 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), that the tender of the
tendered Shares complies with Rule 14e-4 under the Exchange Act, and that when
the same are accepted for payment by Purchaser, Purchaser will acquire good,
marketable and unencumbered title thereto and to all Distributions, free and
clear of all liens, restrictions, charges and encumbrances and the same will
not be subject to any adverse claims. The undersigned will, upon request,
execute and deliver any additional documents deemed by the Depositary or
Purchaser to be necessary or desirable to complete the sale, assignment and
transfer of the Shares tendered hereby and all Distributions. In addition, the
undersigned shall remit and transfer promptly to the Depositary for the
account of Purchaser all Distributions in respect of the Shares tendered
hereby, accompanied by appropriate documentation of transfer, and, pending
such remittance and transfer or appropriate assurance thereof, Purchaser shall
be entitled to all rights and privileges as owner of each such Distribution
and may withhold the entire purchase price of the Shares tendered hereby or
deduct from such purchase price the amount or value of such Distribution as
determined by Purchaser in its sole discretion.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned, and any obligation of the undersigned
hereunder shall be binding upon the heirs, executors, administrators, personal
representatives, trustees in bankruptcy, successors and assigns of the
undersigned. Except as stated in the Offer, this tender is irrevocable.
The undersigned understands that the valid tender of Shares pursuant to any
one of the procedures described in Section 3 of the Offer to Purchase and in
the Instructions hereto will constitute a binding agreement between the
undersigned and Purchaser upon the terms and subject to the conditions of the
Offer (and if the Offer is extended or amended, the terms or conditions of any
such extension or amendment). Without limiting the foregoing, if the price to
be paid in the Offer is amended in accordance with the terms of the Merger
Agreement, the price to be paid to the undersigned will be the amended price
notwithstanding the fact that a different price is stated in this Letter of
Transmittal. The undersigned recognizes that under certain circumstances set
forth in the Offer to Purchase, Purchaser may not be required to accept for
payment any of the Shares tendered hereby.
Unless otherwise indicated under "Special Payment Instructions," please
issue the check for the purchase price of all Shares purchased and/or return
any certificates for Shares not tendered or accepted for payment in the
name(s) of the registered holder(s) appearing above under "Description of
Shares Tendered." Similarly, unless otherwise indicated under "Special
Delivery Instructions," please mail the check for the purchase price of all
Shares purchased and/or return any certificates for Shares not tendered or not
accepted for payment (and any accompanying documents, as appropriate) to the
address(es) of the registered holder(s) appearing above under "Description of
Shares Tendered." In the event that the boxes entitled "Special Payment
Instructions" and "Special Delivery Instructions" are both completed, please
issue the check for the purchase price of all Shares purchased and/or return
any certificates evidencing Shares not tendered or not accepted for payment
(and any accompanying documents, as appropriate) in the name(s) of, and
deliver such check and/or return any such certificates (and any accompanying
documents, as appropriate) to, the person(s) so indicated. Unless otherwise
indicated herein in the box entitled "Special Payment Instructions," please
credit any Shares tendered herewith by book-entry transfer that are not
accepted for payment by crediting the account at the Book-Entry Transfer
Facility designated above. The undersigned recognizes that Purchaser has no
obligation, pursuant to the "Special Payment Instructions," to transfer any
Shares from the name of the registered holder thereof if Purchaser does not
accept for payment any of the Shares so tendered.
<PAGE>
[_]CHECK HERE IF ANY OF THE CERTIFICATES REPRESENTING SHARES THAT YOU OWN HAVE
BEEN LOST, DESTROYED OR STOLEN AND SEE INSTRUCTION 11.
Number of Shares represented by lost, destroyed or stolen certificates: _
SPECIAL PAYMENT INSTRUCTIONS (See SPECIAL DELIVERY INSTRUCTIONS
Instructions 1, 5, 6 and 7) (See Instructions 1, 5, 6 and 7)
To be completed ONLY if the To be completed ONLY if
check for the purchase price of certificates for Shares not
Shares accepted for payment is to tendered or not accepted for
be issued in the name of someone payment and/or the check for the
other than the undersigned, if purchase price of Shares accepted
certificates for Shares not for payment is to be sent to
tendered or not accepted for someone other than the
payment are to be issued in the undersigned or to the undersigned
name of someone other than the at an address other than that
undersigned or if Shares tendered shown under "Description of
hereby and delivered by book- Shares Tendered."
entry transfer that are not
accepted for payment are to be Mail check and/or Share certifi-
returned by credit to an account cates to:
maintained at the Book-Entry
Transfer Facility other than the Name _____________________________
account indicated above. (Please Print)
Issue check and/or Share certifi- Address __________________________
cate(s) to:
__________________________________
Name _____________________________ (Include Zip Code)
(Please Print)
__________________________________
Address __________________________ (Taxpayer Identification or
Social Security Number)
__________________________________ (See Substitute Form W-9)
(Include Zip Code)
__________________________________
(Tax Payer Identification or
Social Security Number)
(See Substitute Form W-9)
Credit Shares delivered by book-
entry transfer and not purchased
to the Book-Entry Transfer
Facility account.
__________________________________
(Account Number)
<PAGE>
SIGN HERE
(Also Complete Substitute Form W-9 Below)
___________________________________________________________________________
___________________________________________________________________________
(Signature(s) of Stockholder(s))
Dated: 1999
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
the Share certificate(s) or on a security position listing or by person(s)
authorized to become registered holder(s) by certificates and documents
transmitted herewith. If signature is by trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation or other person
acting in a fiduciary or representative capacity, please provide the
following information and see Instruction 5.)
Name(s) ___________________________________________________________________
(Please Print)
Name of Firm ______________________________________________________________
Capacity (full title) _____________________________________________________
(see Instruction 5)
Address ___________________________________________________________________
_____________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number ____________________________________________
Taxpayer Identification or Social Security Number _________________________
(See Substitute Form W-9)
GUARANTEE OF SIGNATURE(S)
(See Instructions 1 and 5)
Authorized Signature ______________________________________________________
Name(s) ___________________________________________________________________
(Please Print)
Title _____________________________________________________________________
Name of Firm ______________________________________________________________
Address ___________________________________________________________________
_____________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number ____________________________________________
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Offer
1. Guarantee of Signatures. No signature guarantee is required on this
Letter of Transmittal (a) if this Letter of Transmittal is signed by the
registered holder(s) (which term, for purposes of this Section, includes any
participant in any of the Book-Entry Transfer Facilities' systems whose name
appears on a security position listing as the owner of the Shares) of Shares
tendered herewith, unless such registered holder(s) has completed either the
box entitled "Special Payment Instructions" or the box entitled "Special
Delivery Instructions" on the Letter of Transmittal or (b) if such Shares are
tendered for the account of a financial institution (including most commercial
banks, savings and loan associations and brokerage houses) that is a
participant in the Security Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Guarantee Program or the Stock Exchange
Medallion Program (each, an "Eligible Institution"). In all other cases, all
signatures on this Letter of Transmittal must be guaranteed by an Eligible
Institution. See Instruction 5.
2. Delivery of Letter of Transmittal and Shares; Guaranteed Delivery
Procedures. This Letter of Transmittal is to be completed by stockholders of
the Company either if Share certificates are to be forwarded herewith or,
unless an Agent's Message is utilized, if delivery of Shares is to be made by
book-entry transfer pursuant to the procedures set forth herein and in Section
3 of the Offer to Purchase. For a stockholder validly to tender Shares
pursuant to the Offer, either (a) a properly completed and duly executed
Letter of Transmittal (or facsimile thereof), together with any required
signature guarantees or an Agent's Message (in connection with book-entry
transfer) and any other required documents, must be received by the Depositary
at one of its addresses set forth herein prior to the Expiration Date and
either (i) certificates for tendered Shares must be received by the Depositary
at one of such addresses prior to the Expiration Date or (ii) Shares must be
delivered pursuant to the procedures for book-entry transfer set forth herein
and in Section 3 of the Offer to Purchase and a Book-Entry Confirmation must
be received by the Depositary prior to the Expiration Date or (b) the
tendering stockholder must comply with the guaranteed delivery procedures set
forth herein and in Section 3 of the Offer to Purchase.
Stockholders whose certificates for Shares are not immediately available or
who cannot deliver their certificates and all other required documents to the
Depositary prior to the Expiration Date or who cannot comply with the book-
entry transfer procedures on a timely basis may tender their Shares by
properly completing and duly executing the Notice of Guaranteed Delivery
pursuant to the guaranteed delivery procedure set forth herein and in Section
3 of the Offer to Purchase.
Pursuant to such guaranteed delivery procedures, (i) such tender must be
made by or through an Eligible Institution, (ii) a properly completed and duly
executed Notice of Guaranteed Delivery, substantially in the form provided by
Purchaser, must be received by the Depositary prior to the Expiration Date and
(iii) the certificates for all tendered Shares, in proper form for transfer
(or a Book-Entry Confirmation with respect to all tendered Shares), together
with a properly completed and duly executed Letter of Transmittal (or a
facsimile thereof), with any required signature guarantees, or, in the case of
a book-entry transfer, an Agent's Message, and any other required documents
must be received by the Depositary within three trading days after the date of
execution of such Notice of Guaranteed Delivery. A "trading day" is any day on
which the Nasdaq National Market is open for business.
The term "Agent's Message" means a message, transmitted by a Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that such Book-Entry Transfer Facility
has received an express acknowledgment from the participant in such Book-Entry
Transfer Facility tendering the Shares, that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal and that
Purchaser may enforce such agreement against the participant.
The signatures on this Letter of Transmittal cover the Shares tendered
hereby.
THE METHOD OF DELIVERY OF THE SHARES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY
<PAGE>
TRANSFER FACILITY, IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER.
THE SHARES WILL BE DEEMED DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE
DEPOSITARY (INCLUDING, IN THE CASE OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY
CONFIRMATION). IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted, and no
fractional Shares will be purchased. All tendering stockholders, by executing
this Letter of Transmittal (or facsimile thereof), waive any right to receive
any notice of acceptance of their Shares for payment.
3. Inadequate Space. If the space provided herein under "Description of
Shares Tendered" is inadequate, the number of Shares tendered and the Share
certificate numbers with respect to such Shares should be listed on a separate
signed schedule attached hereto.
4. Partial Tenders. (Not applicable to stockholders who tender by book-entry
transfer). If fewer than all the Shares evidenced by any Share certificate
delivered to the Depositary herewith are to be tendered hereby, fill in the
number of Shares that are to be tendered in the box entitled "Number of Shares
Tendered." In any such case, new certificate(s) for the remainder of the
Shares that were evidenced by the old certificates will be sent to the
registered holder, unless otherwise provided in the appropriate box on this
Letter of Transmittal, as soon as practicable after the Expiration Date or the
termination of the Offer. All Shares represented by certificates delivered to
the Depositary will be deemed to have been tendered unless otherwise
indicated.
5. Signatures on Letter of Transmittal; Stock Powers and Endorsements. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond with the name(s) as written
on the face of the certificate(s) without alteration, enlargement or any
change whatsoever.
If any of the Shares tendered hereby are held of record by two or more joint
owners, all such owners must sign this Letter of Transmittal.
If any of the tendered Shares are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal as there are different registrations of
certificates.
If this Letter of Transmittal or any Share certificate or stock power is
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or
representative capacity, such person should so indicate when signing, and
proper evidence satisfactory to Purchaser of the authority of such person so
to act must be submitted.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares listed and transmitted hereby, no endorsements of Share certificates or
separate stock powers are required unless payment or certificates for Shares
not tendered or not accepted for payment are to be issued in the name of a
person other than the registered holder(s). Signatures on any such Share
certificates or stock powers must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares evidenced by certificates listed and
transmitted hereby, the Share certificates must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name(s) of the
registered holder(s) appear(s) on the Share certificates. Signature(s) on any
such Share certificates or stock powers must be guaranteed by an Eligible
Institution.
6. Stock Transfer Taxes. Except as otherwise provided in this Instruction 6,
Purchaser will pay all stock transfer taxes with respect to the transfer and
sale of any Shares to it or its order pursuant to the Offer. If, however,
payment of the purchase price of any Shares purchased is to be made to, or if
certificates for Shares not tendered or not accepted for payment are to be
registered in the name of, any person other than the registered
<PAGE>
holder(s), or if tendered certificates are registered in the name of any
person other than the person(s) signing this Letter of Transmittal, the amount
of any stock transfer taxes (whether imposed on the registered holder(s) or
such other person) payable on account of the transfer to such other person
will be deducted from the purchase price of such Shares purchased unless
evidence satisfactory to Purchaser of the payment of such taxes, or exemption
therefrom, is submitted.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Share certificates evidencing the
Shares tendered hereby.
7. Special Payment and Delivery Instructions; Wire Transfers. If a check for
the purchase price of any Shares accepted for payment is to be issued in the
name of, and/or Share certificates for Shares not accepted for payment or not
tendered are to be issued in the name of and/or returned to, a person other
than the signer of this Letter of Transmittal or if a check is to be sent,
and/or such certificates are to be returned, to a person other than the signer
of this Letter of Transmittal, or to an address other than that shown above,
the appropriate boxes on this Letter of Transmittal should be completed. Any
stockholder(s) delivering Shares by book-entry transfer may request that
Shares not purchased be credited to such account maintained at a Book-Entry
Transfer Facility as such stockholder(s) may designate in the box entitled
"Special Payment Instructions." If no such instructions are given, any such
Shares not purchased will be returned by crediting the account at the Book-
Entry Transfer Facility designated above as the account from which such Shares
were delivered.
8. Requests for Assistance or Additional Copies. Questions and requests for
assistance or additional copies of the Offer to Purchase, this Letter of
Transmittal, the Notice of Guaranteed Delivery and the Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 may be
directed to the Information Agent at its address and phone number set forth
below, or from brokers, dealers, commercial banks or trust companies.
9. Waiver of Conditions. Subject to the Merger Agreement, Purchaser reserves
the absolute right in its sole discretion to waive, at any time or from time
to time, any of the specified conditions of the Offer, in whole or in part, in
the case of any Shares tendered.
10. Substitute Form W-9. Each tendering stockholder is required to provide
the Depositary with a correct Taxpayer Identification Number ("TIN") on the
Substitute Form W-9 which is provided under "Important Tax Information" below,
and to certify whether such stockholder is subject to backup withholding of
United States federal income tax. If a tendering stockholder has been notified
by the Internal Revenue Service that such stockholder is subject to backup
withholding, such stockholder must cross out item (2) of the Certification box
of the Substitute Form W-9, unless such stockholder has since been notified by
the Internal Revenue Service that such stockholder is no longer subject to
backup withholding. Failure to provide the information on the Substitute Form
W-9 may subject the tendering stockholder to 31% United States federal income
tax withholding on the payment of the purchase price of all Shares purchased
from such stockholder. If the tendering stockholder has not been issued a TIN
and has applied for one or intends to apply for one in the near future, such
stockholder should write "Applied For" in the space provided for the TIN in
Part I of the Substitute Form W-9, and sign and date the Substitute Form W-9.
If "Applied For" is written in Part I and the Depositary is not provided
with a TIN within 60 days, the Depositary will withhold 31% on all payments of
the purchase price to such stockholder until a TIN is provided to the
Depositary.
11. Lost, Destroyed or Stolen Share Certificates. If any certificate(s)
representing Shares has been lost, destroyed or stolen, the stockholder should
promptly notify the Depositary by checking the box immediately preceding the
special payment/special delivery instructions and indicating the number of
Shares lost. The stockholder will then be instructed as to the steps that must
be taken in order to replace the Share certificate(s). This Letter of
Transmittal and related documents cannot be processed until the procedures for
replacing lost, destroyed or stolen Share certificates have been followed.
<PAGE>
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF) TOGETHER WITH
ANY REQUIRED SIGNATURE GUARANTEES, OR, IN THE CASE OF A BOOK-ENTRY TRANSFER,
AN AGENT'S MESSAGE, AND ANY OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE
DEPOSITARY PRIOR TO THE EXPIRATION DATE AND EITHER CERTIFICATES FOR TENDERED
SHARES MUST BE RECEIVED BY THE DEPOSITARY OR SHARES MUST BE DELIVERED PURSUANT
TO THE PROCEDURES FOR BOOK-ENTRY TRANSFER, IN EACH CASE PRIOR TO THE
EXPIRATION DATE, OR THE TENDERING STOCKHOLDER MUST COMPLY WITH THE PROCEDURES
FOR GUARANTEED DELIVERY.
IMPORTANT TAX INFORMATION
Under United States Federal income tax law, a stockholder whose tendered
Shares are accepted for payment is required to provide the Depositary (as
payer) with such stockholder's correct TIN on Substitute Form W-9 below. If
such stockholder is an individual, the TIN is his social security number. If a
tendering stockholder is subject to backup withholding, such stockholder must
cross out item (2) of the Certification box on the Substitute Form W-9. If the
Depositary is not provided with the correct TIN, the stockholder may be
subject to a $50 penalty imposed by the Internal Revenue Service. In addition,
payments that are made to such stockholder with respect to Shares purchased
pursuant to the Offer may be subject to backup withholding of 31%.
Certain stockholders (including, among others, all corporations, and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, that stockholder must submit a statement, signed under penalties of
perjury, attesting to that individual's exempt status. Such statements can be
obtained from the Depositary. Exempt stockholders, other than foreign
individuals, should furnish their TIN, write "Exempt" on the face of the
Substitute Form W-9 below, and sign, date and return the Substitute Form W-9
to the Depositary. See the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional instructions.
If backup withholding applies, the Depositary is required to withhold 31% of
any payments made to the stockholder. Backup withholding is not an additional
tax. Rather, the tax liability of persons subject to backup withholding will
be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained from the Internal Revenue
Service.
Purpose of Substitute Form W-9
To prevent backup withholding on payments that are made to a stockholder
with respect to Shares purchased pursuant to the Offer, the stockholder is
required to notify the Depositary of such stockholder's correct TIN by
completing the form contained herein certifying that the TIN provided on
Substitute Form W-9 is correct (or that such stockholder is awaiting a TIN),
and that (i) such stockholder has not been notified by the Internal Revenue
Service that he is subject to back up withholding as a result of a failure to
report all interest or dividends or (ii) the Internal Revenue Service has
notified such stockholder that such stockholder is no longer subject to backup
withholding.
What Number to Give the Depositary
The stockholder is required to give the Depositary the social security
number or employer identification number of the record owner of the Shares. If
the Shares are in more than one name or are not in the name of the actual
owner, consult the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional guidance on which
number to report. If the tendering stockholder has not been issued a TIN and
has applied for a number or intends to apply for a number in the near future,
such stockholder should write "Applied For" in the space provided for in the
TIN in Part 1, and sign and date the Substitute Form W-9. If "Applied For" is
written in Part 1 the Depositary will withhold 31% on all payments of the
purchase price until a TIN is provided to the Depositary. However, such
amounts will be refunded to such stockholders if a TIN is provided to the
Depository within 60 days.
<PAGE>
PAYER'S NAME:
- --------------------------------------------------------------------------------
Part 1--PLEASE PROVIDE YOUR
SUBSTITUTE TIN IN THE BOX AT RIGHT AND ----------------------
Form W-9 CERTIFY BY SIGNING AND Social Security Number
Department of the DATING BELOW (If awaiting TIN write
Treasury Internal "Applied For")
Revenue Service
OR
----------------------
Employer Identification
Number
Payer's Request for
Taxpayer (If awaiting TIN write
Identification "Applied For")
Number ("TIN")
--------------------------------------------------------
Part 2--Certificate--Under penalties of perjury, I
certify that:
(1) The number shown on this form is my correct
Taxpayer Identification Number (or I am waiting
for a number to be issued to me), and
(2) I am not subject to backup withholding because:
(a) I am exempt from backup withholding, or (b)
I have not been notified by the Internal Revenue
Service (the "IRS") that I am subject to backup
withholding as a result of a failure to report
all interest or dividends, or (c) the IRS has
notified me that I am no longer subject to
backup withholding.
CERTIFICATION INSTRUCTIONS--You must cross out item
(2) above if you have been notified by the IRS that
you are currently subject to backup withholding be-
cause of under-reporting interest or dividends on
your tax returns. However, if after being notified
by the IRS that you are subject to backup withhold-
ing, you receive another notification from the IRS
that you are no longer subject to backup withhold-
ing, do not cross out such item (2). (Also see in-
structions in the enclosed Guidelines).
SIGNATURE: _____________ DATE: _______, 1999
--------------------------------------------------------
Part 3--Awaiting TIN [_]
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY CASH PAYMENTS MADE TO YOU PURSUANT TO THE
OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a Taxpayer Identification
Number has not been issued to me, and either (1) I have mailed or delivered
an application to receive a Taxpayer Identification Number to the
appropriate Internal Revenue Service Center or Social Security
Administration Office or (2) I intend to mail or deliver an application in
the near future. I understand that if I do not provide a Taxpayer
Identification Number to the Depositary by the time of payment, 31% of all
reportable payments made to me thereafter will be withheld, but that such
amounts will be refunded to me if I provide a certified Taxpayer
Identification Number to the Depositary within sixty (60) days.
__________________________ ____________________, 1999
Signature Date
<PAGE>
Questions and requests for assistance or additional copies of the Offer to
Purchase, this Letter of Transmittal and other tender offer materials may be
directed to the Information Agent at its address and telephone number set forth
below:
The Information Agent for the Offer is:
Innisfree M&A Incorporated
501 Madison Avenue
20th Floor
New York, New York 10022
Banks and Brokers Call Collect: (212) 750-5833
All Others Call Toll Free: (888) 750-5834
<PAGE>
NOTICE OF GUARANTEED DELIVERY
for
Tender of Shares of Common Stock
of
NovaCare Employee Services, Inc.
to
New Plato Acquisition, Inc.
a wholly owned subsidiary of
Plato Holdings, Inc.
(Not to Be Used for Signature Guarantees)
This Notice of Guaranteed Delivery, or a form substantially equivalent
hereto, must be used to accept the Offer (as defined below) if certificates
representing shares of Common Stock, par value $0.01 per share (the "Shares"),
of NovaCare Employee Services, Inc., a Delaware corporation, are not
immediately available, if the procedure for book-entry transfer cannot be
completed prior to the Expiration Date (as defined in Section 1 of the Offer
to Purchase), or if time will not permit all required documents to reach the
Depositary prior to the Expiration Date. Such form may be delivered by hand or
mailed to the Depositary. See Section 3 of the Offer to Purchase.
The Depositary for the Offer is:
The Bank of New York
By Mail: By Hand or Overnight Courier:
Tender & Exchange Department Tender & Exchange Department
PO Box 11248 101 Barclay Street
Church Street Station Receive and Deliver Window
New York, New York 10286-1248 New York, New York 10286
By Facsimile Transmission
(For Eligible Institutions Only)
(212) 815-6213
For Confirmation Telephone:
(800) 507-9357
Delivery of this Notice of Guaranteed Delivery to an address other than as
set forth above will not constitute a valid delivery.
This form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an "Eligible
Institution" under the instructions thereto, such signature guarantee must
appear in the applicable space provided in the signature box on the Letter of
Transmittal.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to New Plato Acquisition, Inc., a Delaware
corporation ("Purchaser") and a wholly owned subsidiary of Plato Holdings,
Inc., a Delaware corporation, upon the terms and subject to the conditions set
forth in Purchaser's Offer to Purchase dated September 15, 1999 and the
related Letter of Transmittal (which, together with any amendments or
supplements thereto, constitute the "Offer"), receipt of which is hereby
acknowledged, the number of shares set forth below of common stock, par value
$0.01 per share (the "Shares"), of NovaCare Employee Services, Inc., a
Delaware corporation, pursuant to the guaranteed delivery procedures set forth
in Section 3 of the Offer to Purchase.
Name(s) of Record Holder(s):
Number of Shares: ________________
__________________________________
Certificate Nos. (if available):
__________________________________
__________________________________ (Please Print)
__________________________________ Address(es) ______________________
Check box if Shares will be ten- __________________________________
dered by book-entry transfer:
__________________________________
Account Number: __________________ (Zip Code)
Dated: , 1999 Area Code and Tel. No.:
__________________________________
__________________________________
Signature(s): ____________________
__________________________________
GUARANTEE
(Not to Be Used for Signature Guarantees)
The undersigned, a participant in the Security Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Guarantee Program
or the Stock Exchange Medallion Program, guarantees to deliver to the
Depositary either certificates representing the Shares tendered hereby, in
proper form for transfer, or confirmation of book-entry transfer of such
Shares into the Depositary's accounts at The Depository Trust Company, in
each case with delivery of a properly completed and duly executed Letter of
Transmittal (or facsimile thereof), with any required signature guarantees,
or an Agent's Message, and any other documents required by the Letter of
Transmittal, within three trading days (as defined in the Offer to
Purchase) after the date hereof.
The Eligible Institution that completes this form must communicate the
guarantee to the Depositary and must deliver the Letter of Transmittal and
certificates for Shares to the Depositary within the time period shown
herein. Failure to do so could result in a financial loss to such Eligible
Institution.
Name of Firm: ____________________ __________________________________
Authorized Signature
Address: _________________________
Name: ____________________________
__________________________________ Please Print
(Zip Code)
Title: ___________________________
__________________________________
Dated: , 1999
NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE. CERTIFICATES
SHOULD BE SENT ONLY WITH YOUR LETTER OF TRANSMITTAL.
<PAGE>
Offer to Purchase for Cash
All Outstanding Shares of Common Stock
of
NovaCare Employee Services, Inc.
at
$2.50 Net Per Share
By
New Plato Acquisition, Inc.
a wholly owned subsidiary of
Plato Holdings, Inc.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW
YORK CITY TIME, ON WEDNESDAY, OCTOBER 13, 1999, UNLESS THE OFFER IS EXTENDED.
September 15, 1999
To: Brokers, Dealers, Commercial Banks, Trust Companies And Other Nominees:
We have been appointed by New Plato Acquisition, Inc., a Delaware
corporation ("Purchaser") and a wholly owned subsidiary of Plato Holdings,
Inc., a Delaware corporation ("Parent"), to act as Information Agent in
connection with Purchaser's offer to purchase all outstanding shares of common
stock, par value $0.01 per share (the "Shares"), of NovaCare Employee
Services, Inc., a Delaware corporation (the "Company"), at $2.50 per Share,
net to the seller in cash, upon the terms and subject to the conditions set
forth in the Offer to Purchase dated September 15, 1999 (the "Offer to
Purchase") and in the related Letter of Transmittal (which, together with any
amendments or supplements thereto, constitute the "Offer") enclosed herewith.
Please furnish copies of the enclosed materials to those of your clients for
whose accounts you hold Shares registered in your name or in the name of your
nominee.
The Offer is conditioned upon, among other things, there being validly
tendered and not withdrawn prior to the Expiration Date (as defined in the
Offer to Purchase) that number of Shares which, when added to the Shares
beneficially owned by Parent or Purchaser (if any), constitute at least a
majority of the Shares outstanding on a fully diluted basis on the date Shares
are accepted for payment. The Offer is also subject to the other conditions in
the Offer to Purchase. See Section 14 of the Offer to Purchase.
For your information and for forwarding to your clients for whom you hold
Shares registered in your name or in the name of your nominee, we are
enclosing the following documents:
1. Offer to Purchase dated September 15, 1999;
2. Letter of Transmittal for your use in accepting the Offer and
tendering Shares and for the information of your clients;
3. Notice of Guaranteed Delivery to be used to accept the Offer if
certificates for Shares and all other required documents cannot be
delivered to the Depositary, or if the procedures for book-entry transfer
cannot be completed, by the Expiration Date (as defined in the Offer to
Purchase);
4. A letter which may be sent to your clients for whose accounts you hold
Shares registered in your name or in the name of your nominee, with space
provided for obtaining such clients' instructions with regard to the Offer;
<PAGE>
5. A letter to stockholders of the Company from Loren J. Hulber,
President and Chief Executive Officer of the Company, together with a
Solicitation/Recommendation Statement on Schedule 14D-9 dated September 15,
1999, which has been filed by the Company with the Securities and Exchange
Commission;
6. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
7. A return envelope addressed to The Bank of New York (the
"Depositary").
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any such extension
or amendment), Purchaser will accept for payment and pay for Shares which are
validly tendered prior to the Expiration Date and not theretofore properly
withdrawn when, as and if Purchaser gives oral or written notice to the
Depositary of Purchaser's acceptance of such Shares for payment pursuant to
the Offer. Payment for Shares purchased pursuant to the Offer will in all
cases be made only after timely receipt by the Depositary of (i) certificates
for such Shares, or timely confirmation of a book-entry transfer of such
Shares into the Depositary's account at The Depository Trust Company, pursuant
to the procedures described in Section 3 of the Offer to Purchase, (ii) a
properly completed and duly executed Letter of Transmittal (or a properly
completed and manually signed facsimile thereof) or an Agent's Message (as
defined in the Offer to Purchase) in connection with a book-entry transfer and
(iii) all other documents required by the Letter of Transmittal.
Purchaser will not pay any fees or commissions to any broker or dealer or
other person (other than the Dealer Manager and the Information Agent as
described in the Offer to Purchase) for soliciting tenders of Shares pursuant
to the Offer. Purchaser will, however, upon request, reimburse brokers,
dealers, commercial banks and trust companies for customary mailing and
handling costs incurred by them in forwarding the enclosed materials to their
customers.
Purchaser will pay or cause to be paid all stock transfer taxes applicable
to its purchase of Shares pursuant to the Offer, subject to Instruction 6 of
the Letter of Transmittal.
WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE
THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON WEDNESDAY, OCTOBER 13, 1999, UNLESS THE OFFER IS EXTENDED.
In order to take advantage of the Offer, a duly executed and properly
completed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees, or an Agent's Message in connection with a book-entry
transfer of Shares, and any other required documents, should be sent to the
Depositary, and certificates representing the tendered Shares should be
delivered or such Shares should be tendered by book-entry transfer, all in
accordance with the Instructions set forth in the Letter of Transmittal and in
the Offer to Purchase.
If holders of Shares wish to tender, but it is impracticable for them to
forward their certificates or other required documents or to complete the
procedures for delivery by book-entry transfer prior to the expiration of the
Offer, a tender may be effected by following the guaranteed delivery
procedures specified in Section 3 of the Offer to Purchase.
Any inquiries you may have with respect to the Offer should be addressed to,
and additional copies of the enclosed materials may be obtained from the
Information Agent at its address and telephone number set forth on the back
cover of the Offer to Purchase.
Very truly yours,
Innisfree M&A Incorporated
2
<PAGE>
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
THE AGENT OF PARENT, PURCHASER, THE COMPANY, THE INFORMATION AGENT, THE
DEPOSITARY OR ANY AFFILIATE OF ANY OF THE FOREGOING, OR AUTHORIZE YOU OR ANY
OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF ANY OF
THEM IN CONNECTION WITH THE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH
AND THE STATEMENTS CONTAINED THEREIN.
3
<PAGE>
Offer to Purchase for Cash
All Outstanding Shares of Common Stock
of
NovaCare Employee Services, Inc.
at
$2.50 Net Per Share
By
New Plato Acquisition, Inc.
a wholly owned subsidiary of
Plato Holdings, Inc.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW
YORK CITY TIME, ON WEDNESDAY, OCTOBER 13, 1999, UNLESS THE OFFER IS EXTENDED.
September 15, 1999
To: Our Clients:
Enclosed for your consideration are the Offer to Purchase dated September
15, 1999 and the related Letter of Transmittal (which, together with any
amendments or supplements thereto, collectively constitute the "Offer") in
connection with the offer by New Plato Acquisition, Inc., a Delaware
corporation ("Purchaser") and a wholly owned subsidiary of Plato Holdings,
Inc., a Delaware corporation ("Parent"), to purchase for cash all outstanding
shares of common stock, par value $0.01 per share (the "Shares"), of NovaCare
Employee Services, Inc., a Delaware corporation (the "Company"). We are the
holder of record of Shares held for your account. A tender of such Shares can
be made only by us as the holder of record and pursuant to your instructions.
The enclosed Letter of Transmittal is furnished to you for your information
only and cannot be used by you to tender Shares held by us for your account.
We request instructions as to whether you wish us to tender any or all of
the Shares held by us for your account, upon the terms and subject to the
conditions set forth in the Offer.
Your attention is invited to the following:
1. The offer price is $2.50 per Share, net to you in cash without
interest.
2. The Offer is being made for all outstanding Shares.
3. The Board of Directors of the Company, by a unanimous vote of those
present at the meeting, approved the Merger Agreement (as defined in the
Offer to Purchase) and the transactions contemplated thereby, including the
Offer and the Merger (each as defined in the Offer to Purchase), and
determined that the Offer and the Merger are fair to, and in the best
interest of, the Company's stockholders and recommends that the
stockholders accept the Offer and tender their Shares pursuant to the
Offer.
4. The Offer and withdrawal rights expire at 12:00 Midnight, New York
City time, on Wednesday, October 13, 1999, unless the Offer is extended.
5. The Offer is conditioned upon, among other things, there being validly
tendered and not withdrawn prior to the Expiration Date (as defined in the
Offer to Purchase) that number of Shares which, when added to the Shares
beneficially owned by Parent or Purchaser (if any), constitute at least a
majority of the Shares
<PAGE>
outstanding on a fully diluted basis on the date Shares are accepted for
payment. The Offer is also subject to the other conditions in the Offer to
Purchase. See Section 14 of the Offer to Purchase.
6. Any stock transfer taxes applicable to the sale of Shares to Purchaser
pursuant to the Offer will be paid by Purchaser, except as otherwise
provided in Instruction 6 of the Letter of Transmittal.
Except as disclosed in the Offer to Purchase, Purchaser is not aware of any
state in which the making of the Offer is prohibited by administrative or
judicial action pursuant to any valid state statute. In any jurisdiction in
which the securities, blue sky or other laws require the Offer to be made by a
licensed broker or dealer, the Offer will be deemed to be made on behalf of
Purchaser by one or more registered brokers or dealers licensed under the laws
of such jurisdiction.
If you wish to have us tender any or all of your Shares, please so instruct
us by completing, executing and returning to us the instruction form set forth
on the reverse side of this letter. An envelope to return your instructions to
us is enclosed. If you authorize the tender of your Shares, all such Shares
will be tendered unless otherwise specified on the reverse side of this
letter. Your instructions should be forwarded to us in ample time to permit us
to submit a tender on your behalf prior to the expiration of the Offer.
2
<PAGE>
INSTRUCTIONS WITH RESPECT TO THE
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
NovaCare Employee Services, Inc.
The undersigned acknowledge(s) receipt of your letter and the enclosed Offer
to Purchase dated September 15, 1999 and the related Letter of Transmittal in
connection with the Offer by New Plato Acquisition, Inc., a Delaware
corporation and a wholly owned subsidiary of Plato Holdings, Inc., a Delaware
corporation, to purchase all outstanding shares of common stock, par value
$0.01 per share (the "Shares"), of NovaCare Employee Services, Inc., a
Delaware corporation.
This will instruct you to tender the number of Shares indicated below (or if
no number is indicated below, all Shares) held by you for the account of the
undersigned, upon the terms and subject to the conditions set forth in the
Offer.
Number of Shares to be Tendered:*
_____________________________________
Shares
Dated: , 1999 _____________________________________
_____________________________________
Signature(s)
_____________________________________
Print Name(s)
_____________________________________
_____________________________________
Address(es)
_____________________________________
Area Code and Telephone Number
_____________________________________
Tax ID or Social Security Number
- --------
* Unless otherwise indicated, it will be assumed that all Shares held by us
for your account are to be tendered.
3
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number to Give the Payer.
Social Security numbers have nine digits separated by two hyphens: i.e., 000-
00-0000. Employer identification numbers have nine digits separated by only
one hyphen, i.e. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
- --------------------------------------------
Give the
SOCIAL SECURITY
For this type of account number of--
- --------------------------------------------
<S> <C>
1. An individual's account The individual
2. Two or more individuals The actual owner
(joint account) of the account
or, if combined
funds, any one
of the
individuals(2)
3. Husband and wife (joint The actual owner
account) of the account
or, if joint
funds, either
person(2)
4. Custodian account of a The minor(3)
minor (Uniform Gift to
Minors Act)
5. Adult and minor (joint The adult or, if
account) the minor is the
only
contributor, the
minor(1)
6. Account in the name of The ward, minor,
guardian or committee or incompetent
for a designated ward, person(4)
minor, or incompetent
person
7.a. The usual revocable The grantor-
savings trust account trustee(1)
(grantor is also
trustee)
b. So-called trust account The actual
that is not a legal or owner(1)
valid trust under State
law
- --------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------
Give the EMPLOYER
IDENTIFICATION
For this type of account number of--
- ----------------------------------------------
<S> <C>
8. Sole proprietorship The owner(5)
account
9. A valid trust, estate, The legal entity
or pension trust (do not furnish
the identifying
number of the
personal
representative
or trustee
unless the legal
entity itself is
not designated
in the account
title)(1)
10. Corporate account The corporation
11. Religious, charitable, The organization
or educational
organization account
12. Partnership account The partnership
held in the name of the
business
13. Association, club, or The organization
other tax-exempt
organization
14. A broker or registered The broker or
nominee nominee
15. Account with the The public
Department of entity
Agriculture in the name
of a public entity
(such as a State or
local government,
school district, or
prison) that receives
agricultural program
payments
- ----------------------------------------------
</TABLE>
(1) List first and circle the name of the legal trust, estate, or pension
trust.
(2) List first and circle the name of the person whose number you furnish.
(3) Circle the minor's name and furnish the minor's social security number.
(4) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(5) Show the name of the owner.
Note: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Obtaining a Number
If you don't have a TIN or you don't know your number, obtain Internal Revenue
Service Form SS-5, Application for Social Security Number Card or Form SS-4,
Application for Employer Identification Number at your local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
Payees Exempt from Backup Withholding
Payees specifically exempted from backup withholding on ALL payments include
the following:
. A corporation.
. A financial institution.
. An organization exempt from tax under section 501(a), or an individual
retirement plan.
. The United States or any agency or instrumentality thereof.
. A state, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
. A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
. An international organization or any agency, or instrumentality thereof.
. A registered dealer in securities or commodities registered in the U.S. or
a possession of the U.S.
. A real estate investment trust.
. A common trust fund operated by a bank under section 584(a).
. An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
. An entity registered at all times under the Investment Company Act of
1940.
. A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
. Payments of patronage dividends where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals. Note: You may
be subject to backup withholding if this interest is $600 or more and is
paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
. Payments described in section 6049(b)(5) to nonresident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT
TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS,
ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
Privacy Act Notice.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Payers must generally withhold
31% of taxable interest, dividend, and certain other payments to a payee who
does not furnish a taxpayer identification number to a payer. Certain
penalties may also apply.
Penalties
(1) Penalty for Failure to Furnish Taxpayer Identification Number.--If you
fail to furnish your taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due
to reasonable cause and not to willful neglect.
(2) Failure to Report Certain Dividend and Interest Payments.--If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
under-payment attributable to that failure unless there is clear and
convincing evidence to the contrary.
(3) Civil Penalty for False Information With Respect To Withholding.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) Criminal Penalty for Falsifying Information.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<PAGE>
This announcement is neither an offer to purchase nor a solicitation of an offer
to sell Shares (as defined below). The Offer is made solely by the Offer to
Purchase dated September 15, 1999 and the related Letter of Transmittal and is
being made to all holders of Shares. New Plato Acquisition, Inc. is not aware of
any state where the making of the Offer is prohibited by administrative or
judicial action pursuant to any valid state statute. If New Plato Acquisition,
Inc. becomes aware of any valid state statute prohibiting the making of the
Offer or the acceptance of Shares pursuant thereto, New Plato Acquisition, Inc.
will make a good faith effort to comply with such statute or seek to have such
statute declared inapplicable to the Offer. If, after such good faith effort,
New Plato Acquisition, Inc. cannot comply with such state statute, the Offer
will not be made to (nor will tenders be accepted from or on behalf of) holders
of Shares in any such state. In any jurisdiction where securities, blue sky or
other laws require the Offer to be made by a licensed broker or dealer, the
Offer shall be deemed to be made on behalf of New Plato Acquisition, Inc. by one
or more registered brokers or dealers licensed under the laws of such
jurisdiction.
Notice of Offer to Purchase for Cash
All Outstanding Shares of Common Stock
of
NovaCare Employee Services, Inc.
at
$2.50 Net Per Share in Cash
by
New Plato Acquisition, Inc.
a wholly owned subsidiary of
Plato Holdings, Inc.
New Plato Acquisition, Inc., a Delaware corporation ("Purchaser") and a wholly
owned subsidiary of Plato Holdings, Inc., a Delaware corporation ("Parent"), is
offering to purchase all outstanding shares of common stock, par value $0.01 per
share (the "Shares"), of NovaCare Employee Services, Inc., a Delaware
corporation (the "Company"), at a price of $2.50 per share, net to the seller in
cash, without interest (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
with any amendments or supplements thereto, collectively constitute the
"Offer").
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON WEDNESDAY, OCTOBER 13, 1999, UNLESS THE OFFER IS EXTENDED.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of
September 8, 1999 (the "Merger Agreement"), by and among Parent, Purchaser and
the Company. Pursuant to the Merger Agreement and subject to the Delaware
General Corporation Law (the "DGCL"), as soon as practicable after the
completion of the Offer and satisfaction or waiver, if permissible, of all
conditions to the Merger, Purchaser will be merged with and into the Company and
the separate corporate existence of Purchaser will thereupon cease. The merger,
as effected pursuant to the immediately preceding sentence, is referred to
herein as the "Merger," and the Company, as the surviving corporation of the
Merger, is sometimes herein referred to as the "Surviving Corporation." At the
effective time of the Merger (the "Effective Time"), each Share then outstanding
(other than Shares held by Parent or Purchaser and Shares held by stockholders
who properly perfect their dissenters rights under the DGCL) will be cancelled
and extinguished and converted into the right to receive $2.50 in cash or any
higher price per Share paid in the Offer (the "Merger Consideration"), without
interest.
The Board of Directors of the Company has unanimously approved the Merger
Agreement and the transactions contemplated thereby, including the Offer and the
Merger, and has unanimously determined that the terms of the Offer and the
Merger are advisable, fair to, and in the best interests of, the Company's
stockholders and unanimously recommends that the stockholders accept the Offer
and tender their Shares pursuant to the Offer.
The Offer is conditioned upon, among other things, there being validly tendered
and not withdrawn prior to the expiration of the Offer, that number of Shares
which, when added to the Shares beneficially owned by Parent or Purchaser, if
any, represents at least a majority of the Shares outstanding on a fully diluted
basis on the date Shares are accepted for payment pursuant to the Offer.
<PAGE>
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment, and thereby purchased, Shares properly tendered to Purchaser and not
withdrawn, if and when Purchaser gives oral or written notice to The Bank of New
York, as Depositary (the "Depositary") of Purchaser's acceptance for payment of
such Shares. Payment for Shares accepted for payment pursuant to the Offer will
be made by deposit of the purchase price therefor with the Depositary, which
will act as agent for tendering stockholders for the purpose of receiving
payment from Purchaser and transmitting payment to tendering stockholders.
Under no circumstances will interest be paid on the purchase price to be paid by
Purchaser for the Shares, regardless of any extension of the Offer or delay in
making such payment.
In all cases, payment for Shares accepted for payment pursuant to the Offer will
be made only after timely receipt by the Depositary of (i) certificates for such
Shares (or a timely Book-Entry Confirmation (as defined in Section 3 of the
Offer to Purchase) with respect thereto), (ii) a Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, or, in the case of a book-entry transfer, an Agent's
Message (as defined in Section 3 of the Offer to Purchase), and (iii) any other
documents required by the Letter of Transmittal.
Except as otherwise provided in Section 4 of the Offer to Purchase, tenders of
Shares made pursuant to the Offer are irrevocable. Shares tendered pursuant to
the Offer may be withdrawn at any time prior to the Expiration Date and, unless
theretofore accepted for payment by Purchaser pursuant to the Offer, may also be
withdrawn at any time after November 13, 1999. For a withdrawal to be effective,
a written, telegraphic or facsimile transmission notice of withdrawal must be
timely received by the Depositary at one of its addresses set forth on the back
cover of the Offer to Purchase and must specify the name of the person having
tendered the Shares to be withdrawn, the number of Shares to be withdrawn and
the name of the registered holder of the Shares to be withdrawn, if different
from the name of the person who tendered the Shares. If certificates for Shares
have been delivered or otherwise identified to the Depositary, then, prior to
the physical release of such certificates, the serial numbers shown on such
certificates must be submitted to the Depositary, and unless such Shares have
been tendered by an Eligible Institution, as defined in Section 3 of the Offer
to Purchase, the signatures on the notice of withdrawal must be guaranteed by an
Eligible Institution. If Shares have been delivered pursuant to the procedures
for book-entry transfer as set forth in Section 3 of the Offer to Purchase, any
notice of withdrawal must also specify the name and number of the account at the
appropriate Book-Entry Transfer Facility to be credited with the withdrawn
Shares and otherwise comply with such Book-Entry Transfer Facility's procedures.
Withdrawals of tenders of Shares may not be rescinded, and any Shares properly
withdrawn will thereafter be deemed not validly tendered for purposes of the
Offer. However, withdrawn Shares may be retendered by again following one of the
procedures described in Section 3 of the Offer to Purchase any time prior to the
Expiration Date. All questions as to the form and validity (including time of
receipt) of notices of withdrawal will be determined by Purchaser, in its sole
discretion, which determination will be final and binding.
The term "Expiration Date" shall mean 12:00 Midnight, New York City time, on
Wednesday, October 13, 1999, unless and until Purchaser, in accordance with the
terms of the Merger Agreement, shall have extended the period of time for which
the Offer is open, in which event the term "Expiration Date" shall mean the
latest time and date at which the Offer, as so extended by Purchaser, shall
expire. Any such extension will be followed as promptly as practicable by a
public announcement thereof no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date of the Offer.
Subject to the terms of the Merger Agreement and the applicable regulations of
the Securities and Exchange Commission, Purchaser expressly reserves the right,
in its sole discretion, at any time or from time to time, to extend the period
of time during which the Offer is open and thereby delay acceptance for payment
of, and the payment for, any Shares by giving oral or written notice of such
extension to the Depositary. During any such extension, all Shares previously
tendered and not withdrawn will remain subject to the Offer, subject to the
rights of a tendering stockholder to withdraw such Shares.
The information required to be disclosed by Rule 14d-6(e)(1)(vii) of the General
Rules and Regulations under the Securities Exchange Act of 1934, as amended, is
contained in the Offer to Purchase and is incorporated herein by reference.
The Company has provided Purchaser with the Company's stockholder lists and
security position listings for the purpose of disseminating the Offer to holders
of Shares. The Offer to Purchase and the related Letter of Transmittal will be
mailed to record holders of Shares and will be furnished to brokers, dealers,
banks and similar persons whose names, or the names of whose nominees, appear on
the stockholder lists or, if
<PAGE>
applicable, who are listed as participants in a clearing agency's security
position listing, for subsequent transmittal to beneficial owners of Shares.
The Offer to Purchase and the related Letter of Transmittal contain important
information which should be read carefully before any decision is made with
respect to the Offer.
Questions and requests for assistance may be directed to the Information Agent
at its address and telephone numbers set forth below. Requests for copies of the
Offer to Purchase, the Letter of Transmittal and other related materials may be
directed to the Information Agent or to brokers, dealers, commercial banks or
trust companies. No fees or commissions will be payable by Purchaser to any
broker, dealer or other person (other than the Information Agent) for soliciting
tenders of Shares pursuant to the Offer.
The Information Agent for the Offer is:
INNISFREE LOGO
501 Madison Avenue, 20th Floor
New York, New York 10022
Banks and Brokers Call Collect: (212) 750-5833
or
All Others Call Toll-Free: (888) 750-5834
September 15, 1999
<PAGE>
CONFIDENTIAL
BORROWER: NovaCare Employee Services, Inc.
Term Sheet
FOR
NEWCO/NOVACARE EMPLOYEE SERVICES, INC.
Borrower: New Plato Acquisition, Inc., a Delaware corporation
("Newco") owned by the Equity Sponsors, whose obligations
and liabilities will be assumed by NovaCare Employee
Services, Inc. and its controlled affiliates and
subsidiaries ("NCES" or the "Company") upon the consummation
of the Merger.
Equity Sponsors: Patricof & Co. Ventures, Inc., Fidelity Capital, AFLAC
Insurance, and other persons acceptable to BHF (including
any affiliates thereof).
Credit Facilities: Senior Term Loan A Facility (the "Term A") in principal
amount up to US $5,000,000.
Senior Term Loan B Facility (the "Term B") in principal
amount up to US $7,000,000.
Senior Term Loan C Facility (the "Term C") in principal
amount up to US $15,000,000.
Senior Revolving Credit Facility (the "Revolving Credit") in
principal amount up to US $8,500,000.
Subordinated Notes ("Subordinated Notes") in principal
amount up to US $4,500,000.
Agent, Arranger &
Underwriter: BHF (USA) Capital Corporation and/or related entities
("BHF").
Expiration: Unless accepted, this Term Sheet expires the earlier of (1)
5:00 p.m. on September 10, 1999 or (2) the day the Equity
Sponsors sign an agreement and plan of merger with NCES or
its affiliates (the "Agreement and Plan of Merger"). An
extension may be granted by BHF (in its sole discretion) at
the formal written request of the Equity Sponsors.
Closing: The closing of the Acquisition must be completed by December
1, 1999, otherwise, this commitment shall expire on December
1, 1999 (unless otherwise agreed to in writing by BHF in its
sole discretion).
SENIOR TERM LOAN A
FACILITY:
Amount: Up to US $5,000,000 principal amount.
Term: 5.25 years from funding.
Use of Proceeds: To provide financing to the Borrower for (i) the initial
tender or purchase of the shares of common stock of NCES as
described in the Merger Agreement, the Option Agreement and
the Stockholder Agreement (the "Acquisition") and (ii) the
subsequent merger of Newco with and into NCES (the "Merger"
and collectively with the Acquisition, the "Transaction").
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[LOGO APPEARS HERE] BHF (USA) Capital Corporation Page 1
<PAGE>
Mandatory Repayment: After a 3-month grace period from the Merger, the
following schedule:
Year 1: $1,000,000 Year 2: $1,000,000
Year 3: $1,000,000 Year 4: $1,000,000
Year 5: $1,000,000
Quarterly repayments.
Interest Rate: (1) LIBOR plus the LIBOR Level established in the pricing
grid at funding, payable on the last day of each interest
period, which shall be available for 30,60, 90 and 180 day
periods, but no less than every 3 months or (2) Base Rate
plus the Base Rate Level established in the pricing grid at
funding, payable monthly. The pricing grid will adjust the
Interest Rate over time in relation to the ratio of Total
Debt to Adjusted EBITDA on a rolling four quarter basis
("Adjusted EBITDA", defined as EBITDA excluding any
NovaCare, Inc. contracts that are scheduled to be canceled
within one year of the closing). Base Rate means the higher
of: (i) The Chase Manhattan Bank prime rate and (ii) the
federal funds rate plus 2.00%.
SENIOR TERM LOAN B
FACILITY:
Amount: Up to US $7,000,000 principal amount.
Term: 6.25 years from funding.
Use of Proceeds: To provide financing for the Transaction.
Mandatory
Repayment: After a 3-month grace period from the Merger, the following
schedule:
Year 1: $500,000 Year 2: $500,000
Year 3: $500,000 Year 4: $500,000
Year 5: $2,500,000 Year 6: $2,500,000
Quarterly repayments.
Interest Rate: (1) LIBOR plus the initial LIBOR Level set for the Term A
facility plus 50 basis points, payable on the last day of
each interest period, which shall be available for 30,60,
90 and 180 day periods, but no less than every 3 months or
(2) Base Rate plus the initial Base Rate Level set for the
Term A facility plus 50 basis points, payable monthly.
SENIOR TERM LOAN C
FACILITY:
Amount: Up to US $15,000,000 principal amount.
Term: 6.25 years from funding.
Use of Proceeds: To provide financing for the earnout payments under
contract at NCES at closing.
Mandatory
Repayment: After a 3-month grace period from the Merger, the following
schedule:
Year 1: $0 Year 2: $0
Year 3: $250,000 Year 4: $250,000
Year 5: $5,000,000 Year 6: $9,500,000
Quarterly repayments.
Interest Rate: (1) LIBOR plus the initial LIBOR Level set for the Term A
facility plus 75 basis points, payable on the last day of
each interest period, which shall be available for 30,60,
90 and 180 day periods, but no less than every 3
- --------------------------------------------------------------------------------
[LOGO APPEARS HERE] BHF (USA) Capital Corporation Page 2
<PAGE>
months or (2) Base Rate plus the initial Base Rate Level set
for the Term A facility plus 75 basis points, payable
monthly.
Commitment Fee: The per annum fee on the unused portion will be based on the
following schedule which is adjusted for the level of
drawings relative to the total amount of the Term C facility
(the "Usage %"):
-----------------------------------
TERM C COMMITMENT FEE
-----------------------------------
Usage Usage
(lesser than or equal to) 50% (greater than) 50%
-----------------------------------
.75% .50%
-----------------------------------
Availability: Subject to terms outlined below, credit will be made
available under the Term Loan C over a 2.25 year period to
pay earn-out payments on the books at closing and as they
are required to be paid in cash. Credit will not exceed the
amount of the earn-out payments and will only be available
if there are no defaults and on a proforma basis, the ratio
of senior debt to Adjusted EBITDA on a rolling 12 month
basis does not exceed 3.70 times in the first 1.25 years
after closing and at 3.0 times in the subsequent year.
SENIOR REVOLVING
CREDIT FACILITY:
Amount: Up to $8,500,000 principal amount.
Term: 5.25 years from funding.
Use of Proceeds: To provide funds for working capital purposes, with no funds
drawn at closing of the Transaction.
Interest Rate: (1) LIBOR plus the LIBOR Level established in the pricing
grid at funding, payable on the last day of each interest
period, which shall be available for 30,60, 90 and 180 day
periods, but no less than every 3 months or (2) Base Rate
plus the Base Rate Level established in the pricing grid at
funding, payable monthly. The pricing grid will adjust the
Interest Rate over time in relation to the ratio of Total
Debt to Adjusted EBITDA.
Commitment Fee: 0.50% per annum on unused portion, payable quarterly.
SUBORDINATED NOTES:
Amount: Up to $4,500,000 principal amount.
Issue: 12% Senior Subordinated Notes.
Price: Par.
Maturity: 7.25 Years from funding.
Purpose: To provide financing for the Transaction.
Security: The Subordinated Notes will be secured by a second lien on
all assets and all common stock of the Company and its
subsidiaries.
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[LOGO APPEARS HERE] BHF (USA) Capital Corporation Page 3
<PAGE>
Interest Rate: Fixed rate equal to 12% per annum plus 3% per annum in
payment-in-kind securities ("PIK"). Payable quarterly in
arrears, interest calculated on 360 days basis.
Financing and
Arranging Fee: 3.00% flat, one-time, payable at closing of the Acquisition
on the total amount of the Subordinated Notes.
Warrants: The Subordinated Notes will be sold with detachable and
transferable warrants for the purchase of shares at a
nominal price representing up to 1.00% of the fully diluted
common stock. This warrant position assumes that all of the
equity contributed by the Equity Sponsors will be in the
form of common stock, and should the contribution be made in
a form of security which provides for any form of dividend
in cash or payment-in-kind, then the warrant amount shall be
adjusted on or before the closing of the Acquisition to
maintain a return to the Investors as if the equity had been
contributed as common equity. The warrants will expire 10
years from closing, be immediately exercisable, and will
have "piggy-back" registration rights with respect to stock
issued upon exercise, customary anti-dilution provisions
that will include dilution protection in the event of
issuances below the common stock price (or common stock
equivalent) paid by the Equity Sponsors (and will contain
customary exceptions to be agreed upon), and will be
consistent with the anti-dilution protections provided to
the Equity Sponsors and will contain put and call
provisions, preemptive rights and other terms and
conditions, in each case acceptable to BHF. In the event of
a sale of all or substantially all of the stock or assets of
the Borrower, the stock issuable upon the exercise of the
warrants will be subject to "drag-along" and have the
benefit of "tag-along" provisions.
Mandatory
Repayments: Upon repayment of the Senior Debt in full from proceeds
of securities offerings and assets sales as described in the
Senior Debt terms for Mandatory Repayments, any remaining
proceeds will be applied to repay all or a portion of the
Subordinated Notes at 102% within the first two years of the
closing, at 101% in the third year and at par thereafter.
In addition, the Subordinated Notes will be repaid in full
at their maturity date (7.25 years from funding).
Subordination: The Subordinated Notes will be subordinated to current and
future senior debt of the Borrower. Other customary terms
and conditions, as well as provisions will be applied.
Registration
Rights: The warrant holders will have unlimited "piggyback"
registration rights at the Borrower's expense. The warrant
holders will also have a pro rata participation right in the
event of any private disposition of a controlling interest
in the Borrower. The Borrower will have the right to require
the warrant holders to participate on a pro rata basis in
any such liquidity event.
Observer Rights: Investors in the Subordinated Notes will be allowed to send
up to 1 observer to all regular and special meetings of the
full Board of Directors.
Affirmative
Covenants: Customary, including Interest Coverage Ratio, Fixed Charge
Coverage Ratio, Maximum Debt Ratio and customary Reporting
Requirements.
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[LOGO APPEARS HERE] BHF (USA) Capital Corporation Page 4
<PAGE>
Negative Covenants: Customary, including Limitations on Debt Incurrence, Liens,
Mergers, Asset Sales, Restricted Payments, etc.
Governing Law: State of New York
Transaction
Expenses: The Borrower and the Equity Sponsors (to the extent such
expenses exceed the Good Faith Deposit paid to BHF), jointly
and severally, will reimburse BHF for all expenses related
to the Transaction (whether or not the Transaction closes),
including, but not limited to, legal fees and disbursements,
syndication expenses, lien and filing fees, consulting fees
(which consultants shall be agreed upon with the Equity
Sponsors prior to their engagement), and out-of-pocket
expenses (including travel and incidental expenses, etc.);
provided, however, that upon the closing of the Acquisition,
-------- -------
the liabilities and obligations under this provision will be
the liabilities and obligations solely of the Borrower.
Syndication: BHF intends to syndicate a portion of the Subordinated Notes
to other financial institutions. The Borrower and the Equity
Sponsors agree to assist and facilitate the Agent's
syndication process.
Market Conditions: The Borrower acknowledges and agrees that the Financing
Commitment is subject to the absence of a material adverse
change in the condition (whether financial or otherwise) or
results of operations of the Borrower and/or its affiliated
entities since the Quarter ended March 31, 1999.
Furthermore, the Financing Commitment is subject to the
absence of any material disruption of or material adverse
change in current financial, banking or capital market
conditions that, in BHF's judgment, could materially impair
the satisfactory syndication of the Credit Facilities.
Conditions to
Closing: See Conditions to Closing further down in "Other Terms
and Conditions...".
No Shop Clause: See No Shop Clause further down in "Other Terms and
Conditions...".
OTHER TERMS AND CONDITIONS FOR TERM A, TERM B, TERM C, AND REVOLVING CREDIT (THE
"SENIOR CREDIT FACILITIES") AND THE SUBORDINATED NOTES AS NOTED:
Pricing Grid: The interest rate on Term A and the Revolver will be reset
quarterly upon BHF's receipt of NCES's quarterly financial
statements and will be based on consolidated Total Funded
Debt to Adjusted EBITDA on a rolling four quarter basis as
indicated in the Pricing Grid below. At funding, the Term A
and the Revolver will be set according to the schedule below
(but no less than Level II) and will not decline from this
pricing level until December 31, 2000, but otherwise will be
subject to the Pricing Grid below.
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[LOGO APPEARS HERE] BHF (USA) Capital Corporation Page 5
<PAGE>
LEVEL CRITERIA Revolver & Term Loan A
--------------------------------------------------------------
Total Funded Debt/ LIBOR Base Rate
Adjusted EBITDA Margin Margin
--------------------------------------------------------------
I (Greater than) 4.75x 3.50% 2.50%
--------------------------------------------------------------
II 4.50x to 4.75x 3.25% 2.25%
--------------------------------------------------------------
III 4.00x to 4.49x 3.00% 2.00%
--------------------------------------------------------------
IV 3.50x to 3.99x 2.75% 1.75%
--------------------------------------------------------------
V (Lesser than) 3.50x 2.50% 1.50%
--------------------------------------------------------------
Collateral: The Senior Credit Facilities will be secured by a first lien
on all assets and the common stock of the Company and its
subsidiaries.
Guarantee: NCES and its subsidiaries shall provide guarantees of the
Senior Credit Facilities and the Subordinated Notes in form
satisfactory to BHF.
Financing and
Arranging Fee: 2.50% flat, one-time, payable at closing of the Acquisition
on the total amount of the Senior Credit Facilities.
Administrative Fee: $75,000 payable at Closing and $75,000 per annum
thereafter, payable on each anniversary of the Closing.
Transaction
Expenses: The Borrower and the Equity Sponsors (to the extent such
expenses exceed the Good Faith Deposit paid to BHF), jointly
and severally, will reimburse BHF for all fees and expenses
related to the Transaction (whether or not the Transaction
closes), including, but not limited to, legal fees and
disbursements, syndication expenses, lien and filing fees,
consulting fees (which consultants shall be agreed upon with
the Equity Sponsors prior to their engagement), and out-of-
pocket expenses (including travel and incidental expenses,
etc.); provided, however, that upon the closing of the
-------- -------
Acquisition, the liabilities and obligations under this
provision will be the liabilities and obligations solely of
the Borrower.
Default Rate: 2% in excess of then applicable rate.
Syndication: BHF intends to syndicate a portion of the Senior Credit
Facilities to other financial institutions. The Borrower and
the Equity Sponsors agree to assist and facilitate the
Agent's syndication process.
Hedging: Borrowings under the Term A, Term B and Term C Facilities of
50% will be hedged against interest rate risk in a fashion
acceptable to BHF within 90 days of the closing of the
Merger in the case of Term A and Term B or in the case of
Term C, the date of draw.
Reporting
Requirements: Borrower will furnish the following financial reports,
including, but not limited to:
- Audited financial statements of Borrower, its affiliates
and subsidiaries within 120 days of fiscal year end;
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[LOGO APPEARS HERE] BHF (USA) Capital Corporation Page 6
<PAGE>
- Monthly unaudited financial statements of Borrower
including consolidated income statement, balance sheet
and statement of cash flow within 20 days of month end;
- Annual business plan within 45 days of commencement of
each fiscal year;
- Monthly compliance certificates;
- Access to minutes, books and records of the Borrower, and
access to management of the Borrower on a periodic basis
to review information relating to the Borrower's
creditworthiness, with the Agent's cost at the Borrower's
expense.
Covenants: The Senior Credit Facilities will carry customary covenants
(the terms of which will be defined in the credit
agreements) including, but not limited to:
- Limitations on indebtedness, material changes, change of
control, liens, restricted payments and investments,
asset sales, capital expenditures, mergers, acquisitions,
dividends, etc.
- Cross-default provisions;
- Minimum Fixed Charge Coverage;
- Maximum Leverage Ratio;
- Minimum Debt Service Coverage;
- Limitation of Capital Expenditures;
- Recapture of Excess Cash Flow;
- Maintenance of Minimum Tangible Net Worth;
- Certain Affirmative Covenants.
Excess Cash Flow: 75% (until such time as the ratio of senior debt to Adjusted
EBITDA is less than or equal to 3.0 to 1.0, wherein the
applicable rate shall be 50%) excess cash flow recapture (it
being understood that changes in working capital will not be
included in determining excess cash flow) payable in inverse
order of maturity on a pro rata basis to Term Loan A ,Term
Loan B and Term Loan C, although Term B and C may elect to
transfer such repayments to Term A.
Mandatory
Repayments: Customary, including, but not limited to repayment from
proceeds of securities offerings (other than certain equity
offerings, the proceeds of which, will be used in a
reasonable time in connection with a permitted
acquisition(s) or other growth activities to be agreed upon
between the parties) and assets sales in inverse order of
maturity on a pro rata basis to Term A ,Term B and Term C,
although Term B and C may elect to transfer such repayments
to Term A.
Market Conditions: The Borrower acknowledges and agrees that the Financing
Commitment is subject to the absence of a material adverse
change in the condition (whether financial or otherwise) or
results of operations of the Borrower and/or its affiliated
entities from March 31, 1999. Furthermore, the Financing
Commitment is subject to the absence of any material
disruption of or material adverse change in current
financial, banking or capital market conditions that, in
BHF's judgment, could materially impair the satisfactory
syndication of the credit facilities.
Governing Law: State of New York.
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[LOGO APPEARS HERE] BHF (USA) Capital Corporation Page 7
<PAGE>
Conditions to
Initial Loans: The conditions to the funding of the Credit Facilities (the
"Conditions to Closing") shall be those customarily found in
BHF's loan agreements for similar financings and others
deemed by BHF appropriate to the specific transaction, and
in any event including, but not limited to:
. The terms, conditions and structure of the Acquisition and
the Merger (and the documents thereto) shall be in form and
substance satisfactory to BHF and its counsel and the Offer,
the Merger, the Acquisition and all other transactions
contemplated under the Merger Agreement, the Option
Agreement and the Stockholder Agreement shall have been
consummated as set forth therein and no conditions or
material provisions contained therein shall have been waived
or amended unless agreed to by BHF;
. All documentation related to the Credit Facilities shall be
in form and substance satisfactory to BHF and its counsel;
. BHF shall have received independent legal, tax, insurance,
fairness and accounting opinions satisfactory to BHF;
. Completion of background checks on Craig Coy, the intended
CEO of NCES, satisfactory to BHF;
. BHF shall have received satisfactory solvency opinions with
respect to NCES, which opinions shall reflect the financial
condition of NCES and its subsidiaries after giving effect
to the Merger with the financings contemplated hereunder;
. At closing of the Acquisition, which date must be no later
than December 1, 1999, a majority of the common stock of
NCES shall be purchased and BHF shall have received
satisfactory evidence that there are no material issues or
adverse developments that would prevent the Merger from
being consummated within 30 days of the closing of the
Acquisition;
. A minimum Adjusted EBITDA on a proforma, run-rate basis for
the latest three month period of at least $4.00 million on a
basis satisfactory to BHF;
. Calculation of financial covenants for financial projections
of the operations of NCES for the next 8 years (including
the first two years on a quarterly basis) excluding
discontinued contracts with NCES or its subsidiaries and
calculated on a proforma basis after giving effect to the
Merger and the financings described herein;
. Accuracy of representations and warranties under the Merger
Agreement, the Stockholder Agreement, the Option Agreement
and the financing documents, provided that, with respect to
the Merger Agreement, the Option Agreement and the
Stockholder Agreement any inaccuracies shall not have a
material adverse effect on the Borrower or NCES;
. Satisfaction with legal documentation, including purchase
agreement for NCES, ongoing contracts with NovaCare, Inc.
and its subsidiaries (including the Physical Rehabilitation
and Occupational Health business), and other material
contracts and legal documentation;
. Approvals of all requisite parties to the Transaction have
been received by closing;
. No violation of any securities or other regulations;
. Insurance documents in force with Liberty Mutual and other
key insurance providers, with no defaults, lapse of coverage
or material
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<PAGE>
change in rates as of the date of closing and after giving
effect to the Acquisition;
. No default in any material contracts and absence of any
material litigation as of the date of closing and after
giving effect to the Acquisition;
. The Transaction shall be funded in the following order of
priority: (i) The cash equity investment by the Equity
Sponsors of at least $70 million (which shall have been made
on terms and conditions acceptable to BHF)
(ii) Subordinated Notes
(iii) Term Loan A
(iv) Term Loan B;
. BHF shall have received all fees and expenses (including
fees and expenses of its counsel) on or before the date of
the closing of the Acquisition;
. BHF shall have a perfected first priority lien on all of the
capital stock of NCES purchased by the Borrower in
connection with the Acquisition.
Conditions to Subsequent
Fundings:
. Absence of any defaults or event of default under the Credit
Facilities and continued accuracy of all representations and
warranties in the Merger Agreement, the Stockholder
Agreement, the Option Agreement and the financing documents,
provided that, with respect to the Merger Agreement, the
Option Agreement and the Stockholder Agreement any
inaccuracies shall not have a material adverse effect on the
Borrower or NCES.
. The Merger shall have been consummated no later than 45 days
after the closing of the Acquisition in a manner
satisfactory to BHF and in accordance with the terms of the
Merger Agreement, the Option Agreement and the Stockholder
Agreement and no condition or other material provision
therein shall have been waived or amended unless agreed to
by BHF (and the same merger consideration shall have been
paid to all stockholders of NCES).
. BHF shall have a perfected first priority lien on all assets
of NCES and its subsidiaries (including, without limitation,
the capital stock of NCES and its subsidiaries).
. BHF shall have received additional documentation
satisfactory to BHF in connection with the Merger
(including, without limitation, legal opinions and bring
downs on opinions delivered in connection with the closing
of the Acquisition and management contracts with key
executive officers of NCES, including Craig Coy).
. BHF shall have received any additional fees and expenses
(including fees and expenses of its counsel) on or before
the closing of the Merger.
. absence of any material adverse changes to Borrower, NCES or
any of their affiliates or any assets of such person.
. evidence of receipt of additional approvals and consents
required by the parties in connection with the Merger.
Good Faith
Deposit: Upon acceptance of this commitment, the Equity Sponsors will
provide to BHF a $150,000 good faith deposit (in addition to any
other good faith
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[LOGO APPEARS HERE] BHF (USA) Capital Corporation Page 9
<PAGE>
deposits which were previously paid or billed), which upon
closing of the Transaction will be credited toward the
Financing and Arranging Fee. Should BHF fail to provide
financing substantially on the terms and conditions
contained in this Term Sheet, the good faith deposit will be
returned to the Equity Sponsors, less any Transaction
Expenses incurred by BHF. Should the Equity Sponsors decline
to proceed with the financings as described herein for any
reason, BHF shall retain the deposit as compensation for its
time and effort in connection with the requested financing,
unless BHF has failed to provide the financing substantially
on the terms and conditions contained in this Term Sheet, in
which case, the provisions in the prior sentence shall
apply.
Break-up Fee: If the Equity Sponsors accept this financing commitment, but
for any reason finance the senior or subordinated debt for
the Transaction with someone other than BHF, the Equity
Sponsors shall pay to BHF in cash at the closing of the
Transaction a Break-up fee of $250,000 in addition to any
other fees paid by the Equity Sponsors. Should BHF fail to
provide financing substantially on the terms and conditions
contained in this Term Sheet this clause shall be null and
void. This clause shall remain in effect for up to one year
from the date of acceptance of this commitment.
Termination Fee: Additionally, if a termination fee is paid to the Equity
Sponsors or their affiliates pursuant to any agreement or
plan of merger with NCES or its affiliates, then a fee equal
to 15.0% of the amount remaining after the out-of-pocket
expenses of the Equity Sponsors are deducted from the
termination fee received by the Equity Sponsors shall be
payable in cash to BHF within ten business days of the
Equity Sponsors receiving such payment. This fee will be in
addition to any other fees previously paid to BHF.
No Shop Clause: Upon acceptance of this commitment, you agree that until the
earlier of (i) closing of the Transaction and (ii) December
31, 1999 (or such later date coterminous with the commitment
date if the commitment hereunder is extended by BHF), you
will not, and will not permit any of your affiliates to,
syndicate or issue, attempt to syndicate or issue, announce
or authorize the announcement of the syndication or issuance
of, or engage in discussions concerning the syndication or
issuance of, any debt facility other than the Senior Credit
Facilities and Subordinated Notes financing contemplated
hereby (except as reasonably and mutually agreed) or solicit
any proposal or commitment or engage in any discussions or
negotiations concerning the financing of the Transaction by
any person other than BHF as contemplated hereunder, unless
BHF has failed to provide the financing substantially on the
terms and conditions contained in this Term Sheet.
PLEASE NOTE THAT BHF'S WILLINGNESS TO CLOSE AND FUND THE SENIOR CREDIT
FACILITIES AND THE SUBORDINATED NOTES IS SUBJECT TO SATISFACTION OF, AMONG OTHER
THINGS, THE FOLLOWING CONDITIONS AND TERMS AS WELL AS THE TERMS AND CONDITIONS
DESCRIBED ABOVE.
1. SATISFACTORY COMPLETION OF LEGAL DOCUMENTATION ACCEPTABLE TO BHF, AND
2. CONDITIONS TO CLOSING HAVING BEEN SATISFIED AND ACCEPTABLE TO BHF.
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[LOGO APPEARS HERE] BHF (USA) Capital Corporation Page 10
<PAGE>
The Equity Sponsors and the Borrower (each an "indemnifying person"),
jointly and severally, agree to indemnify and hold harmless BHF and any and all
other financial institutions or banks that become a lender under the Credit
Facilities, each affiliate thereof and each director, officer, employee, agent
or representative thereof (each an "indemnified person") in connection with any
losses, claims, damages, liabilities or other reasonable expenses (whether
asserted by you or any third party) to which such indemnified persons may become
subject, insofar as such losses, claims, damages, liabilities (or actions or
other proceedings commenced or threatened in respect thereof) or other expenses
arise out of or in any way relate to or result from the Acquisition, the Merger
or this letter or the extension of the Credit Facilities contemplated by this
letter, or in any way arise from any use or intended use of this letter or the
proceeds of any of the Credit Facilities contemplated by this letter, and you
agree to reimburse each indemnified person for any reasonable legal or other
expenses incurred in connection with investigating, defending or participating
in any such loss, claim, damage, liability or action or other proceeding
(whether or not such indemnified person is a party to any action or proceeding
out of which indemnified expenses arise), provided that you shall have no
obligation hereunder to indemnify any indemnified person for any loss, claim,
damage, liability or expense to the extent that same resulted primarily from the
gross negligence, willful misconduct of such indemnified person or a material
breach by BHF of the Financing Commitment hereunder; provided, however, that
-------- -------
upon the closing of the Merger, the liabilities and obligations under this
provision will be the liabilities and obligations solely of the Borrower.
The indemnifying person shall have the right to control the defense of
any action or proceeding hereunder with counsel chosen by the indemnifying
person, provided that the indemnifying persons and their counsel consult with
the indemnified person; and provided further, that if such indemnified person
-------- -------
determines that a conflict of interest exists or that such indemnified person
has interests adverse to those of the indemnifying person or if the indemnifying
person fails to timely and diligently prosecute any action and proceeding, then
the indemnified person has the right to appoint their own counsel, at the
expense of the indemnifying person.
The indemnified person agrees not to settle any action or proceeding
hereunder without the prior written consent of the indemnifying person and the
indemnifying person agrees not to settle any action or proceeding hereunder
without the consent of the indemnified person, unless such indemnified person is
granted an acceptable unconditional release.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK.
The Equity Sponsors, the Borrower and their affiliates are not
authorized to show or circulate this letter or to disclose the terms hereof to
any other person or entity (other than their legal and financial advisors)
without the prior consent of BHF unless required by law or regulation.
For BHF (USA) Capital Corporation:
/s/ Gordon Muessel /s/ Dan Dobrjanskyj
- -------------------------- -------------------------
Gordon Muessel Dan Dobrjanskyj
Vice President Assistant Vice President
To proceed on the terms outlined above, please return a signed copy of this Term
Sheet to BHF (USA) Capital Corporation, 590 Madison Avenue, New York, NY 10022-
2540, Fax No. 212-756-5536, att. Gordon Muessel, no later than the earlier of
(1) 5:00 p.m. on September 10, 1999 or (2) the day the Equity Sponsors sign the
Agreement and Plan of Merger.
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[LOGO APPEARS HERE] BHF (USA) Capital Corporation Page 11
<PAGE>
Agreed to and accepted:
For Patricof & Co.:
By: /s/ Gregory M. Case
-------------------------------------
Name: Gregory M. Case
--------------------------------
Title: Managing Director
-------------------------------
Date: September 8, 1999
-------------------------------------
Agreed to and accepted:
For Fidelity Ventures Limited
By its general partner Fidelity Capital Associates, Inc.
By: /s/ George Hertz
-------------------------------------
Name: George Hertz
--------------------------------
Title: Vice President
-------------------------------
Date: September 8, 1999
-------------------------------------
For AFLAC Incorporated:
By: /s/ Kriss Cloninger III
-------------------------------------
Name: Kriss Cloninger III
--------------------------------
Title: Exec., V.P., CFO
-------------------------------
Date: September 8, 1999
-------------------------------------
FOR NEW PLATO ACQUISITION, INC.:
By: /s/ Gregory M. Case
-------------------------------------
Name: Gregory M. Case
--------------------------------
Title: President
-------------------------------
Date: September 8, 1999
-------------------------------------
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[LOGO APPEARS HERE] BHF (USA) Capital Corporation Page 12
<PAGE>
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
PLATO HOLDINGS, INC.,
NEW PLATO ACQUISITION, INC.
AND
NOVACARE EMPLOYEE SERVICES, INC.
dated as of
September 8, 1999
<PAGE>
TABLE OF CONTENTS
Page
AGREEMENT AND PLAN OF MERGER............................................... 1
RECITALS................................................................... 1
ARTICLE I THE OFFER AND MERGER............................................. 2
1.1 The Offer; Merger Election...................................... 2
1.2 Company Actions................................................. 4
1.3 Directors....................................................... 5
1.4 The Merger...................................................... 7
1.5 Effective Time.................................................. 7
1.6 Closing......................................................... 7
1.7 Certificate of Incorporation of the Surviving Corporation....... 8
1.8 By-Laws of the Surviving Corporation............................ 8
1.9 Directors and Officers of the Surviving Incorporation........... 8
1.10 Subsequent Actions.............................................. 8
1.11 Stockholders' Meeting........................................... 9
1.12 Merger Without Meeting of Stockholders.......................... 10
ARTICLE II CONVERSION OF SECURITIES........................................ 10
2.1 Conversion of Capital Stock..................................... 10
2.2 Exchange of Certificates........................................ 12
2.3 Withholding Taxes............................................... 14
2.4 Appraisal Rights................................................ 14
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................. 15
3.1 Organization and Qualification; Company Subsidiaries............ 15
3.2 Conflicts....................................................... 16
3.3 Capitalization.................................................. 16
3.4 SEC Reports: Financial Statements; Undisclosed Liabilities...... 18
3.5 Schedule 14D-9; Offer Documents; Proxy Statement................ 19
3.6 Absence of Certain Changes...................................... 20
3.7 Taxes........................................................... 20
3.8 Real Property Owned or Leased................................... 23
3.9 Title to Assets................................................. 23
3.10 Contractual and Other Obligations............................... 23
-ii-
<PAGE>
3.11 Employee Benefit Plans....................................... 25
3.12 Labor Relations.............................................. 26
3.13 Insurance.................................................... 27
3.14 Litigation................................................... 28
3.15 Permits; Compliance with Applicable Law...................... 28
3.16 Bank Accounts................................................ 30
3.17 Intellectual Property........................................ 31
3.18 Consents..................................................... 32
3.19 Foreign Person............................................... 33
3.20 Authority.................................................... 33
3.21 Board Approvals Regarding Transactions ...................... 33
3.22 Vote Required................................................ 34
3.23 Approvals; Antitakeover Provisions........................... 34
3.24 Brokers and Finders.......................................... 34
3.25 Fairness Opinion............................................. 34
3.26 Compensation................................................. 35
3.27 Full Disclosure.............................................. 35
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB............. 35
4.1 Organization and Qualification............................... 35
4.2 Authority.................................................... 35
4.3 Consents and Approvals; No Violation......................... 36
4.4 Interim Operations of Sub.................................... 37
4.5 Financing.................................................... 37
4.6 Share Ownership.............................................. 37
4.7 Information in Proxy Statement and Schedule 14D-9............ 37
4.8 Brokers and Finders.......................................... 38
ARTICLE V ADDITIONAL COVENANTS AND AGREEMENTS........................... 38
5.1 Interim Operations of the Company............................. 38
5.2 Alternative Proposals......................................... 43
5.3 Reasonable Best Efforts....................................... 45
5.4 Access to Information......................................... 47
5.5 Publicity..................................................... 47
5.6 State Takeover Laws........................................... 47
5.7 Directors' and Officers' Insurance and Indemnification........ 48
5.8 Conduct of Business of Sub.................................... 49
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<PAGE>
5.9 Transfer of Stockholder's Shares.............................. 49
5.10 Notification of Certain Matters............................... 49
5.11 Company Employees............................................. 50
5.12 Guaranty...................................................... 50
ARTICLE VI CONDITIONS TO CONSUMMATION OF THE MERGER...................... 51
6.1 Conditions to Each Party's Obligations to Effect the Merger... 51
ARTICLE VII TERMINATION.................................................. 52
7.1 Termination................................................... 52
7.2 Effect of Termination......................................... 55
ARTICLE VIII MISCELLANEOUS AND GENERAL................................... 56
8.1 Payment of Expenses and Other Payments........................ 56
8.2 Survival of Representations and Warranties;
Survival of Confidentiality Agreement......................... 56
8.3 Modification or Amendment..................................... 56
8.4 Waiver of Conditions.......................................... 56
8.5 Counterparts.................................................. 57
8.6 Governing Law................................................. 57
8.7 Notices....................................................... 57
8.8 Entire Agreement, Assignment.................................. 58
8.9 Parties in Interest........................................... 59
8.10 Obligation of Parent.......................................... 59
8.11 Validity...................................................... 59
8.12 Captions...................................................... 59
8.13 Specific Performance.......................................... 59
8.14 "Knowledge" of the Company.................................... 59
8.15 Confidentiality............................................... 60
ARTICLE IX DEFINITIONS................................................... 60
9.1 Certain Definitions........................................... 60
ANNEX A.................................................................. 65
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<PAGE>
CONDITIONS TO THE OFFER................................................... 65
-v-
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of September
8, 1999, 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 (the "Company"). Capitalized terms used herein and not defined in
the specific Section in which they are used shall have the meanings assigned to
such terms in Article IX hereof.
RECITALS
WHEREAS, the Board of Directors of each of Parent, Sub and the Company
has approved, and deems it advisable and in the best interests of its respective
stockholders to consummate, the acquisition of the Company by Parent upon the
terms and subject to the conditions set forth herein;
WHEREAS, in furtherance thereof, it is proposed that Parent make a
cash tender offer (the "Offer") to acquire any and all shares of the issued and
out standing common stock, $0.01 par value, of the Company (referred to herein
as either the "Shares" or "Company Common Stock") for $2.50 per share, net to
the seller in cash or, in the alternative, at Parent's election, to purchase
Shares from NC Resources, Inc., a Delaware corporation and the holder of
record of 19,400,000 Shares of the Company ("Target Parent"), pursuant to the
Stockholder Agreement (as defined below) and thereafter to acquire the remaining
Shares pursuant to the Merger provided for herein; and
WHEREAS, also in furtherance of such acquisition, the Board of
Directors of each of Parent, Sub and the Company has approved this Agreement and
the Merger (as defined in Section 1.4 hereof) following the Offer in accordance
with the General Corporation Law of the State of Delaware (the "DGCL") and upon
the terms and subject to the conditions set forth herein; and
WHEREAS, the Board of Directors of the Company (the "Company Board")
has determined that the consideration to be paid for each Share in the Offer and
the Merger is fair to the holders of such Shares and has resolved to recommend
that the holders of such Shares accept the Offer and approve this Agreement and
each of the transactions contemplated by this Agreement, including the Offer and
the
1
<PAGE>
Merger (the "Transactions"), upon the terms and subject to the conditions set
forth herein; and
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger; and
WHEREAS, as a condition and inducement to Parent's and Sub's entering
into this Agreement and incurring the obligations set forth herein, Target
Parent and NovaCare, Inc., a Delaware corporation and the holder of all of the
issued and outstanding capital stock of Target Parent ("Ultimate Parent"),
concurrently herewith, are executing a stockholder agreement (the "Stockholder
Agreement") dated as of the date hereof, with Parent and Sub, pursuant to which
Target Parent is agreeing, among other things, to grant Parent a proxy with
respect to the voting of such Shares and to tender the Shares held by it in the
Offer or, at Parent's election, to sell such Shares to Sub on the terms and
conditions set forth therein, and Ultimate Parent is agreeing to hold a meeting
of its stockholders to approve certain of the transactions contemplated by the
Stockholder Agreement; and
WHEREAS, as a further condition and inducement to Parent's and Sub's
entering into this Agreement and incurring the obligations set forth herein, the
Company, concurrently herewith, is executing a Short Form Merger Option
Agreement (the "Stock Option Agreement"), dated as of the date hereof, with
Parent and Sub pursuant to which the Company is granting to Sub an option to
purchase Shares on the terms and subject to the conditions set forth therein.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements set forth herein, Parent,
Sub and the Company hereby agree as follows:
ARTICLE I
THE OFFER AND MERGER
1.1 The Offer; Merger Election.
--------------------------
(a) Within five business days following the date hereof, Sub
shall commence (within the meaning of Rule 14d-2 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) a cash tender offer to acquire any
2
<PAGE>
and all Shares at a price of $2.50 per Share, net to the seller in cash (such
price, or such higher price per Share as may be paid in the Offer, being
referred to herein as the "Offer Price") and, subject to there being validly
tendered and not withdrawn prior to the expiration of the Offer such number of
Shares which, when added to the Shares, if any, beneficially owned by Parent or
Sub, would constitute a majority of the Shares outstanding on a fully diluted
basis (the "Minimum Condition") and to the other conditions set forth in Annex A
hereto (any of which may be waived in whole or in part by Sub in its sole
discretion), Sub shall, on the terms and subject to the prior satisfaction or
waiver of the conditions of the Offer, accept for payment and pay for Shares
tendered as soon as it is legally permitted to do so under Applicable Law. The
obligations of Sub to commence the Offer and to accept for payment and to pay
for any Shares validly tendered on or prior to the expiration of the Offer and
not withdrawn shall be subject only to the conditions set forth in Annex A
hereto. The Offer shall be made by means of an offer to purchase (the "Offer to
Purchase") containing the terms set forth in this Agreement, the Minimum
Condition and the conditions set forth in Annex A hereto. Sub expressly reserves
the right to amend any of the terms and conditions of the Offer; provided, that
Sub shall not without the prior written consent of the Company (such consent to
be authorized by the Company Board or a duly authorized committee thereof) (i)
decrease the Offer Price, (ii) decrease the number of Shares sought, (iii)
change the form of consideration to be paid pursuant to the Offer, (iv) impose
conditions to the Offer in addition to those set forth in Annex A hereto, (v)
amend any other term or condition of the Offer in any manner adverse to the
holders of the Shares or (vi) extend the expiration date of the Offer.
Notwithstanding the foregoing, Sub may, without the consent of the Company, (A)
extend the Offer, if at the initial scheduled or any extended expiration date of
the Offer any of the conditions of the Offer shall not be satisfied or waived,
until such time as such conditions are satisfied or waived, (B) extend the Offer
for any period required by any rule, regulation, interpretation or position of
the United States Securities and Exchange Commission (the "SEC") or the staff
thereof applicable to the Offer, (C) extend the Offer for up to ten business
days if there have not been validly tendered and not withdrawn prior to the
expiration of the Offer such number of Shares that, together with Shares, if
any, beneficially owned by Parent or Sub, would constitute at least 90% of the
fully diluted Shares as of the date of determination, provided that all other
conditions to the Offer are satisfied or waived and (D) extend the Offer for any
reason for up to two business days; provided, that no more than three extensions
--------
in the aggregate shall be permitted under clauses (C) and (D) of this sentence.
In addition, the Offer Price may be increased and the Offer may be extended to
the extent required by law, in each case without the consent of the Company.
3
<PAGE>
(b) On the date the Offer is commenced, Parent and Sub shall
file with the SEC a Tender Offer Statement on Schedule 14D-1 with respect to the
Offer (together with all amendments and supplements thereto and including the
exhibits thereto, the "Schedule 14D-1"). The Schedule 14D-1 will include, as
exhibits, the Offer to Purchase and a form of letter of transmittal and summary
advertisement (collectively, together with any amendments and supplements
thereto, the "Offer Documents").
(c) Parent and Sub further agree to take all steps necessary to
cause the Offer Documents to be filed with the SEC and to be disseminated to
holders of Shares, in each case as and to the extent required by applicable
federal securities laws. Each of Parent and Sub, on the one hand, and the
Company, on the other hand, agrees promptly to correct any information provided
by it for use in the Offer Documents if and to the extent that it shall have
become false and misleading in any material respect and Parent and Sub further
agree to take all steps necessary to cause the Offer Documents as so corrected
to be filed with the SEC and to be disseminated to holders of Shares, in each
case as and to the extent required by applicable federal securities laws. The
Company and its counsel shall be given a reasonable opportunity to review the
Schedule 14D-1 and the Offer Documents before they are filed with the SEC. In
addition, Parent and Sub agree to provide the Company and its counsel in writing
with any comments, whether written or oral, that Parent, Sub or their counsel
may receive from time to time from the SEC or its staff with respect to the
Offer Documents promptly after the receipt of such comments or other
communications.
1.2 Company Actions.
----------------
(a) On the date the Offer Documents are filed with the SEC, the
Company shall file with the SEC a Solicitation/Recommendation Statement on
Schedule 14D-9 (together with all amendments and supplements thereto and
including the exhibits thereto, the "Schedule 14D-9") containing the
recommendation described in Section 3.21 hereof. At the time the Offer Documents
are first mailed to the stockholders of the Company, the Company shall mail or
cause to be mailed to the stockholders of the Company such Schedule 14D-9
together with such Offer Documents. The Company further agrees to take all steps
necessary to cause the Schedule 14D-9 to be disseminated to holders of Shares,
in each case as and to the extent required by applicable federal securities
laws. Each of the Company, on the one hand, and Parent and Sub, on the other
hand, agrees promptly to correct any
4
<PAGE>
information provided by it for use in the Schedule 14D-9 if and to the extent
that it shall have become false and misleading in any material respect and the
Company further agrees to take all steps necessary to cause the Schedule 14D-9
as so corrected to be filed with the SEC and to be disseminated to holders of
the Shares, in each case as and to the extent required by applicable federal
securities laws. Parent and its counsel shall be given a reasonable opportunity
to review the Schedule 14D-9 before it is filed with the SEC. In addition, the
Company agrees to provide Parent, Sub and their counsel in writing with any
comments, whether written or oral, that the Company or its counsel may receive
from time to time from the SEC or its staff with respect to the Schedule 14D-9
promptly after the receipt of such comments or other communications.
(b) In connection with the Offer and the Merger, if requested by
Sub, the Company shall promptly furnish or cause to be furnished to Sub mailing
labels, security position listings and any available listing or computer file
containing the names and addresses of the record holders of the Shares as of a
recent date, and shall furnish Sub with such information and assistance as Sub
or its agents may reasonably request in communicating the Offer to the
stockholders of the Company. Except for such steps as are necessary to
disseminate the Offer Documents, Parent and Sub shall hold in confidence the
information contained in any of such labels and lists and the additional
information referred to in the preceding sentence, will use such information
only in connection with the Offer and the Merger, and, if this Agreement is
term-mated, will upon request of the Company deliver or cause to be delivered to
the Company all copies of such information then in its possession or the
possession of its agents or representatives.
1.3 Directors.
---------
(a) Promptly upon the purchase of and payment for Shares by
Parent or any of its subsidiaries which represent at least a majority of the
then outstanding shares of Company Common Stock, Parent shall be entitled to
designate such number of directors, rounded up to the next whole number, on 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 pursuant to
this sentence) multiplied by the percentage that the aggregate number of Shares
beneficially owned by Sub, Parent and any of their Affiliates (including Shares
so accepted for payment) 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
5
<PAGE>
resignations of such number of its incumbent directors as is necessary to enable
Parent's designees to be so elected or appointed. At such times, the Company
will cause individuals designated by Parent to constitute the same percentage
(rounded up to the nearest whole number) as such individuals represent on the
Company Board of (A) each committee of the Company Board and (B) each board of
directors (and committee thereof) of each Company Subsidiary (as defined in
Section 3.1 hereof) in each case to the extent permitted by Applicable Law or
the rules or applicable listing agreement of any stock exchange or over-the-
counter market on which the Company Common Stock is listed or traded.
Notwithstanding the foregoing, until the Effective Time (as defined in Section
1.5 hereof), the Company shall use its best efforts to retain as members of the
Company Board at least two directors that are directors of the Company on the
date hereof (the "Independent Directors"); provided, that subsequent to the
-------- ----
purchase of and payment for Shares pursuant to the Offer, Parent shall always
have its designees represent at least a majority of the entire Company Board.
The Company's obligations under this Section 1.3(a) shall be subject to Section
14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder. The Company
shall promptly take all actions required pursuant to such Section 14(f) and Rule
l4f-1 in order to fulfill its obligations under this Section 1.3(a), including
mailing to stockholders the information required by such Section 14(f) and Rule
14f-1 as is necessary to enable Parent's designees to be elected or appointed to
the Company Board. Parent or Sub shall supply the Company any information with
respect to either of them and their nominees, officers, directors and affiliates
required by such Section 14(f) and Rule 14f-1. The provisions of this Section
1.3 are in addition to and shall not limit any rights which Sub, Parent or any
of their Affiliates may have as a holder or beneficial owner of Shares as a
matter of law with respect to the election of directors or otherwise.
(b) 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 maintain as members of the Company Board at least two
directors who are Independent Directors, provided that, in such event, 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 for purposes of this Agreement or, if no Independent Director then
remains, the other directors shall designate two persons to fill such vacancies
who shall not be stockholders, Affiliates or associates of Parent or Sub, and
each such person shall be deemed to be an Independent Director, for purposes of
this Agreement. Notwithstanding anything in this Agreement to the contrary, in
the event that Parent's designees constitute a
6
<PAGE>
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 termi nate this Agreement by the Company, (b) exercise or waive any of
the Company's rights, benefits or remedies hereunder if such exercise or waiver
materially and adversely affects holders of Shares other than Parent or Sub, (c)
take action with respect to the retention of counsel and other advisors in
connection with the transac tions contemplated hereby or (d) take any other
action under or in connection with this Agreement if such action materially and
adversely affects holders of Shares other than Parent or Sub; provided, that if
-------- ----
there shall be no such directors, such actions may be effected by unanimous vote
of the entire Company Board. The Independent Directors shall have the right to
retain, at the expense of the Company, one separate firm of counsel to represent
them in connection with the Transactions.
1.4 The Merger. Subject to the terms and conditions of this
----------
Agreement, the Company and Sub shall consummate a merger (the "Merger") pursuant
to which (a) Sub shall be merged with and into the Company and the separate
corporate existence of Sub shall thereupon cease, (b) the Company shall be the
successor or surviving corporation in the Merger and shall continue to be
governed by the laws of the State of Delaware and (c) the separate corporate
existence of the Company with all its rights, privileges, immunities, powers
and franchises shall continue unaffected by the Merger. The corporation
surviving the Merger is sometimes hereinafter referred to as the "Surviving
Corporation." The Merger shall have the effects set forth in the DGCL.
1.5 Effective Time. Parent, Sub and the Company will cause a
--------------
Certificate of Merger (the "Certificate of Merger") to be executed and filed on
the date of the Closing (as defined in Section 1.6 hereof) (or on such other
date as Parent and the Company may agree) with the Secretary of State of the
State of Delaware (the "Secretary of State") as provided in the DGCL. The
Merger shall become effective at the time at which the Certificate of Merger has
been duly filed with the Secretary of State or at such time as is agreed upon by
the parties and specified in the Certificate of Merger, and such time is
hereinafter referred to as the "Effective Time."
1.6 Closing. The closing of the Merger (the "Closing") shall take
-------
place at 10:00 a.m., local time, on a date to be specified by Parent or Sub,
which shall be no later than the second business day after the satisfaction or
waiver of all of the conditions set forth in Article VI hereof (the "Closing
Date") at the offices of
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<PAGE>
Blank Rome Comisky & McCauley LLP, One Logan Square, Philadelphia, Pennsylvania
19103, unless another date, time or place is agreed to in writing by the parties
hereto.
1.7 Certificate of Incorporation of the Surviving Corporation. The
---------------------------------------------------------
Certificate of Incorporation of the Company, as in effect immediately prior to
the Effective Time, shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter amended as provided by Applicable Law and such
Certificate of Incorporation.
1.8 By-Laws of the Surviving Corporation. The By-Laws of the
------------------------------------
Company, as in effect immediately prior to the Effective Time, shall be the By-
Laws of the Surviving Corporation until thereafter amended as provided by
Applicable Law, the Certificate of Incorporation of the Surviving Corporation
and such By-Laws.
1.9 Directors and Officers of the Surviving Incorporation. The
-----------------------------------------------------
directors of Sub at the Effective Time and the officers of the Company at the
Effective Time shall be the initial directors and officers, respectively, of the
Surviving Corporation until their respective successors have been duly elected
or appointed and qualified or until their earlier death, resignation or removal
in accordance with the Surviving Corporation's Certificate of Incorporation and
By-Laws.
1.10 Subsequent Actions. If at any time after the Effective Time, the
------------------
Surviving Corporation will consider or be advised that any deeds, bills of sale,
assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of either of the Company or Sub acquired or to be acquired
by the Surviving Corporation as a result of, or in connection with, the Merger
or otherwise to carry out this Agreement, the officers and directors of the
Surviving Corporation shall be authorized to execute and deliver, in the name
and on behalf of either the Company or Sub, all such deeds, bills of sale,
instruments of conveyance, assignments and assurances and to take and do, in the
name and on behalf of each of such corporations or otherwise, all such other
actions and things as may be necessary or desirable to vest, perfect or confirm
any and all right, title and interest in, to and under such rights, properties
or assets in the Surviving Corporation or otherwise to carry out this Agreement.
8
<PAGE>
1.11 Stockholders' Meeting.
---------------------
(a) If required by Applicable Law in order to consummate the
Merger, the Company, acting through the Company Board, shall, in accordance with
Applicable Law:
(i) duly call, give notice of, convene and hold a special
meeting of its stockholders (the "Special Meeting") as soon as practicable
following the acceptance for payment and purchase of Shares by Sub pursuant
to the Offer for the purpose of considering and taking action upon the
approval of the Merger and the adoption of this Agreement;
(ii) prepare and file with the SEC a preliminary proxy or
information statement relating to the Merger and this Agreement and shall
obtain and furnish the information required to be included by the SEC in
the Proxy Statement (as hereinafter defined) and, after consultation with
Parent, to respond promptly to any comments made by the SEC with respect
to the preliminary proxy or information statement and cause a definitive
proxy or information statement, including any amendment or supplement
thereto (the "Proxy Statement"), to be mailed to its stockholders, provided
that no amendment or supplement to the Proxy Statement will be made by the
Company without consultation with Parent and its counsel,
(iii) include in the Proxy Statement the recommendation of
the Company Board that stockholders of the Company vote in favor of the
approval of the Merger and the adoption of this Agreement; and
(iv) use its best efforts to solicit from holders of
Shares proxies in favor of the Merger and shall 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.
(b) Parent agrees that it will provide the Company with the
information concerning Parent and Sub required to be included in the Proxy State
ment and will vote, or cause to be voted, all of the Shares then owned by it,
Sub or
9
<PAGE>
any of its other subsidiaries and Affiliates in favor of the approval of the
Merger and the adoption of this Agreement; provided that this Section 1.11(b)
shall not apply to Shares held in any client or customer accounts over which FMR
Corp. or any of its Affiliates has investment management or advisory
responsibilities, including any of the Fidelity Investments mutual funds.
(c) The Company represents that the Proxy Statement (or any
amendment thereof or supplement thereto) at the date mailed to Company
stockholders and at the time of the Special Meeting, if any, will not contain
any untrue statement of material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading, except that no representation is made by the Company with respect
to statements made therein based on information supplied by Parent or Sub in
writing for inclusion in the Proxy Statement. If at any time prior to the
Effective Time, any event with respect to the Company, Stockholder or any of the
Company Subsidiaries should occur which is required to be described in a
supplement to the Proxy Statement, such event shall be so described, and such
supplement shall be promptly filed with the SEC and, as required by law,
disseminated to the stockholders of the Company. With respect to the information
relating to the Company or Stockholder, the Proxy Statement will comply as to
form and substance in all material respects with the requirements of the
Exchange Act.
1.12 Merger Without Meeting of Stockholders. Notwithstanding Section
--------------------------------------
1.11 hereof, in the event that Parent, Sub or any other subsidiary of Parent
shall acquire in the aggregate a number of the outstanding Shares, pursuant to
the Offer or otherwise, sufficient to enable Sub or the Company to cause the
Merger to become effective under Applicable Law without a meeting of
stockholders of the Company, the parties hereto shall, at the request of Parent
and subject to Article VI hereof, take all necessary and appropriate action to
cause the Merger to become effective as soon as practicable after such
acquisition, without a meeting of stock holders of the Company, in accordance
with Section 253 of the DGCL.
ARTICLE II
CONVERSION OF SECURITIES
2.1 Conversion of Capital Stock. As of the Effective Time, by virtue
---------------------------
of the Merger and without any action on the part of the holders of any shares
10
<PAGE>
of Company Common Stock or common stock, par value $.01 per share, of Sub ("Sub
Common Stock"):
(a) Sub Common Stock. Each issued and outstanding share of Sub
----------------
Common Stock shall be converted into and become one fully paid and nonassessable
share of common stock of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Stock. All
-----------------------------------------------------
shares of Company Common Stock that are owned by the Company as treasury stock
and any shares of Company Common Stock owned by Parent, Sub or any other wholly
owned subsidiary of Parent shall be cancelled and retired and shall cease to
exist and no consideration shall be delivered in exchange therefor.
(c) Conversion of Shares. Each share of Company Common Stock
--------------------
issued and outstanding (other than Shares to be cancelled in accordance with
Section 2.1 (b) hereof and Dissenting Shares (as defined in Section 2.4
hereof)), shall be converted into the right to receive the Offer Price, payable
to the holder thereof, without interest (the "Merger Consideration"), upon
surrender of the certificate formerly representing such share of Company Common
Stock in the manner provided in Section 2.2 hereof. All such shares of Company
Common Stock, when so converted, shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to exist, and each holder
of a certificate representing any such shares shall cease to have any rights
with respect thereto, except the right to receive the Merger Consideration
therefor, without interest, upon the surrender of such certificate in accordance
with Section 2.2 hereof or the right, if any, to receive payment from the
Surviving Corporation of the " fair value" of such Shares in accordance with
Section 262 of the DGCL.
(d) Stock Options. Information concerning outstanding stock
-------------
options to purchase Shares ("Options") granted under the Company's stock option
plans and agreements (the "Option Plans") (including the names of the optionees,
the dates of grant, the number of shares subject to such options and the
exercise prices of such options) is set forth in Section 2.1(d) of the
disclosure schedule delivered to Parent and Sub by the Company concurrently with
the execution hereof (the "Company Disclosure Schedule"). In consideration for
the cancellation of the outstanding "in the money" Options pursuant to this
Section 2.1(d), 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.
11
<PAGE>
The Company agrees 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 Ultimate Parent
deemed to have been founders of the Company, as set forth in Section 2.1(d) of
the Company Disclosure Schedule, 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 pursuant to this Section 2.1(d), there
shall be outstanding no more than an aggregate of underwater Options to purchase
75,000 shares held by such other holders of Options.
2.2 Exchange of Certificates.
-------------------------
(a) Paying Agent. Parent shall designate a bank or trust company
------------
reasonably acceptable to the Company to act as agent for the holders of shares
of Company Common Stock in connection with the Merger (the "Paying Agent") to
receive the funds to which holders of shares of Company Common Stock shall
become entitled pursuant to Section 2.1(c) hereof. Parent shall, from time to
time, make available to the Paying Agent funds in amounts and at times necessary
for the payment of the Merger Consideration as provided herein. Such funds shall
be invested by the Paying Agent as directed by Parent. Earnings from such
investments shall be the sole and exclusive property of Parent, and no part of
such earnings shall accrue to the benefit of holders of Shares.
(b) Exchange Procedures. As soon as reasonably practicable, but
-------------------
in no event more than five business days, after the Effective Time, Parent shall
cause the Paying Agent to mail to each holder of record of a certificate or
certificates, which immediately prior to the Effective Time represented
outstanding shares of Company Common Stock (the "Certificates"), whose shares
were converted pursuant to Section 2.1 hereof into the right to receive the
Merger Consideration (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Paying Agent and shall be in
such form and have such other provisions not inconsistent with this Agreement as
Parent may reasonably specify) and (ii) instructions for use of such letter of
transmittal in effecting the surrender of the Certificates in exchange for
payment of the Merger Consideration. Upon surrender of a Certificate for
cancellation to the Paying Agent or to such other agent or agents as may be
appointed by Parent, together with such letter of transmittal, duly executed,
the holder of such Certificate shall be entitled to receive in exchange therefor
the Merger
12
<PAGE>
Consideration for each share of Company Common Stock formerly represented by
such Certificate and the Certificate so surrendered shall forthwith be
cancelled. If payment of the Merger Consideration is to be made to a person
other than the person in whose name the surrendered Certificate is registered,
it shall be a condition of payment that the Certificate so surrendered shall be
properly endorsed or shall be otherwise in proper form for transfer and that the
person requesting such payment shall have paid any transfer and other taxes
required by reason of the payment of the Merger Consideration to a person other
than the registered holder of the Certificate surrendered or shall have
established to the satisfaction of the Surviving Corporation that such tax
either has been paid or is not applicable. Until surrendered as contemplated by
this Section 2.2, each Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive the Merger Consideration
in cash as contemplated by this Section 2.2. No interest shall be paid or will
accrue on the Merger Consideration payable to holders of Certificates pursuant
to the provisions of this Article II.
(c) Transfer Books; No Further Ownership Rights in Company
------------------------------------------------------
Common Stock. At the Effective Time, the stock transfer books of the Company
- ------------
shall be closed and thereafter there shall be no further registration of
transfers of shares of Company Common Stock on the records of the Company. From
and after the Effective Time, the holders of Certificates evidencing ownership
of shares of Company Common Stock outstanding immediately prior to the Effective
Time shall cease to have any rights with respect to such Shares, except as
otherwise provided for herein or by Applicable Law. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be cancelled and exchanged as provided in this Article II.
(d) Termination of Fund, No Liability. At any time following
---------------------------------
six months after the Effective Time, the Surviving Corporation shall be entitled
to require the Paying Agent to deliver to it any funds (including any interest
received with respect thereto) which had been made available to the Paying Agent
and which have not been disbursed to holders of Certificates, and thereafter
such holders shall be entitled to look to the Surviving Corporation (subject to
abandoned property, escheat or other similar laws) only as general creditors
thereof with respect to the Merger Consideration payable upon due surrender of
their Certificates, without any interest thereon. Notwithstanding the foregoing,
none of Parent, the Surviving Corporation or the Paying Agent shall be liable to
any holder of a Certificate for Merger Consideration delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
13
<PAGE>
(e) Lost Certificates. If any Certificate shall have been lost,
-----------------
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed with such assurances
as the Paying Agent may, in its discretion require, and, if required by the
Surviving Corpo ration, the posting by such person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Paying Agent
shall pay in exchange for such lost, stolen or destroyed Certificates the Merger
Consideration pursuant to this Agreement.
2.3 Withholding Taxes. Parent and Sub shall be entitled to deduct and
-----------------
withhold, or cause the Paying Agent to deduct and withhold, from the Offer Price
or the Merger Consideration payable to a holder of Shares pursuant to the Offer
or the Merger any withholding and stock transfer Taxes (as defined in Section
3.8 hereof) and such amounts as are required under the Code or any applicable
provision of state, local or foreign Tax law. To the extent that amounts are so
withheld by Parent or Sub, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of the Shares in
respect of which such deduction and withholding was made by Parent or Sub.
2.4 Appraisal Rights. Notwithstanding anything in this Agreement to
----------------
the contrary, Shares (the "Dissenting Shares") that are issued and outstanding
immediately prior to the Effective Time and which are held by stockholders who
did not vote in favor of the Merger and who comply with all of the relevant
provisions of Section 262 of the DGCL (the "Dissenting Stockholders") shall not
be converted into or be exchangeable for the right to receive the Merger
Consideration, unless and until such holders shall have failed to perfect or
shall have effectively withdrawn or lost their rights to appraisal under the
DGCL, but the holders thereof shall be entitled to only such rights as are
granted by the DGCL. If any Dissenting Stockholder shall have failed to perfect
or shall have effectively withdrawn or lost such right, such holder's Shares
shall thereupon be converted into and become exchangeable for the right to
receive, as of the Effective Time, the Merger Consideration without any interest
thereon, upon surrender of the Certificate or Certificates representing such
Shares pursuant to Section 2.2 hereof. The Company shall give Parent (i) prompt
notice of any written demands for appraisal of any Shares, attempted withdrawals
of such demands and any other instruments served pursuant to the DGCL and
received by the Company relating to the stockholders' rights of appraisal and
(ii) the opportunity to direct all negotiations and proceedings with respect to
demands for appraisal
14
<PAGE>
under the DGCL. Neither the Company nor the Surviving Corporation shall, except
with the prior written consent of Parent, voluntarily make any payment with
respect to, or settle or offer to settle, any such demand for payment. If any
Dissenting Stockholder shall fail to perfect or shall have effectively withdrawn
or lost the right to dissent, the Shares held by such Dissenting Stockholder
shall thereupon be treated as though such Shares had been converted into the
right to receive the Merger Consideration pursuant to Section 2.1 (c) hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Sub as follows:
3.1 Organization and Qualification; Company Subsidiaries. The
----------------------------------------------------
Company and each of its subsidiaries (each a "Company Subsidiary" and
collectively, the "Company Subsidiaries") is validly existing and in good
standing under the laws of the jurisdiction of its organization, and has all
requisite corporate or partnership (as applicable) power, authority and legal
right to own, operate and lease its assets and properties and to conduct the
businesses in which it is now engaged. The Company and each Company Subsidiary
is duly qualified and in good standing to transact business as a foreign
corporation or limited partnership (as applicable) in all jurisdictions wherein
it is required to be so qualified, except where the failure to be so qualified
would not have, individually or in the aggregate, a Company Material Adverse
Effect. Neither the Company nor any Company Subsidiary conducts business in any
jurisdiction outside of the United States. The Company does not have any
subsidiaries other than the Company Subsidiaries listed in Section 3.1 of the
Company Disclosure Schedule. Except as set forth in Section 3.1 of the Com
pany Disclosure Schedule, the Company, directly or indirectly through a wholly
owned Company Subsidiary, owns of record and beneficially all of the issued and
outstanding shares of capital stock of each Company Subsidiary, free and clear
of all Liens. Other than the Company Subsidiaries and other than as set forth
in Section 3.1 of the Company Disclosure Schedule, the Company does not own any
capital stock or other proprietary interest, directly or indirectly, in any
corporation, association, trust, partnership, joint venture, limited liability
company or other entity nor is the Company bound by any agreement to acquire any
such capital stock or other proprietary interest. Copies of the Certificate of
Incorporation and By-Laws of the Company and each Company Subsidiary which is a
corporation and copies of the Certificate of Limited Partnership and Agreement
of Limited Partnership of each Company Subsidiary which is a limited partnership
have been heretofore made
15
<PAGE>
available to Parent and Sub, which copies are complete and correct and include
all amendments, modifications or supplements thereto.
3.2 Conflicts. Neither the execution, delivery or performance of
---------
this Agreement or the Stock Option Agreement by the Company, nor the
consummation of the Transactions contemplated hereby or thereby to be
consummated by the Company, (a) violates any provision of the Certificate of
Incorporation or By-Laws or other organizational documents of the Company or any
Company Subsidiary or (b) constitutes a violation of any Applicable Law. Except
as set forth in Section 3.2 of the Company Disclosure Schedule, neither the
execution, delivery or performance of this Agreement or the Stock Option
Agreement by the Company nor the consumma tion of the Transactions contemplated
hereby or thereby to be consummated by the Company, with or without notice
and/or lapse of time, (i) violates, conflicts with, results in any breach of any
of the terms of, or results in the termination or modification of, or the
exercise or acceleration of any right or remedy under, any Company Material
Contract (as defined in Section 3.10 hereof), any other contract of the Company
or any Company Subsidiary, or other obligation to which the Company or any
Company Subsidiary is subject, (ii) violates, conflicts with, results in any
breach of any of the terms of, or results in the termination, modification or
revocation of, any Permit held by the Company or any Company Subsidiary, or
(iii) results in the creation of any Lien on any of the assets or properties
owned or used by the Company or any Company Subsidiary, except where such
violation, conflict, breach, termination or Lien would not have, individually or
in the aggregate, a Company Material Adverse Effect.
3.3 Capitalization. The authorized capital stock of the Company
--------------
consists of: (i) 60,000,000 Shares, of which, as of the date hereof, 30,274,000
Shares were issued and outstanding and (ii) 1,000,000 shares of preferred stock,
$0.01 par value per share, none of which, as of the date hereof, were issued and
outstanding. As of the date hereof, 2,271,250 Shares were reserved for issuance
upon exercise of outstanding Options under the 1997 Stock Option Plan, as
amended, with an exercise price range of a minimum exercise price of $2.80 and a
maximum exercise price of $9.13. All outstanding shares of capital stock and
other equity securities of the Company and each Company Subsidiary are, and all
Shares which may be issued pursuant to the exercise of outstanding Options and
as earn-out payments pursuant to the Acquisition Agreements, will be, when so
issued, duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights. There are no bonds, debentures, notes or other
indebtedness or securities of the Company or of any Company Subsidiary issued
and outstanding which have the right to vote (or are
16
<PAGE>
convertible into, or exchangeable for, securities having the right to vote) on
any matters on which stockholders of the Company or any Company Subsidiary may
vote. Except as set forth above or in Section 2.1(d) of the Company Disclosure
Schedule and except for a maximum of 6,124,000 Shares which may be issued
pursuant to earn-out arrangements contained in the Acquisition Agreements (as
defined in Section 3.10 hereof) assuming that the targets set forth in the
projections delivered to Parent by the Company with respect to earn-out
obligations to which the Company or any Company Subsidiary is subject pursuant
to the Acquisition Agreements and assuming that the applicable market price of
the Shares is equal to the Offer Price (it being understood that all earn-out
obligations can be satisfied in cash), as of the date of this Agreement: (i) no
shares of capital stock or other securities of the Company are issued, reserved
for issuance or outstanding, (ii) there are no stock appreciation rights,
phantom stock units, restricted stock grants, contingent stock grants or Benefit
Plans (as defined in Section 3.11 hereof) which grant awards of any of the
foregoing, and there are no other outstanding contractual rights to which the
Company is a party the value of which is based on the value of Shares; and (iii)
except as set forth above, there are no outstanding securities, options,
warrants, calls, rights, commitments, agreements, arrangements or undertakings
of any kind to which the Company or any Company Subsidiary is a party or by
which any of them is bound obligating the Company or any Company Subsidiary to
issue, deliver or sell, or cause to be issued, delivered or sold, shares of
capital stock or other securities of the Company or of any Company Subsidiary or
obligating the Company or any Company Subsidiary to issue, grant, extend or
enter into any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking. Except as set forth in Section 3.3 of the
Company Disclosure Schedule, there are no programs in place, nor any outstanding
contractual obligations of the Company or any Company Subsidiary, to repurchase,
redeem or otherwise acquire any shares of capital stock or other equity
securities of the Company or any Company Subsidiary or to provide funds to make
any investment (in the form of a loan, capital contribution or otherwise) in any
Company Subsidiary or any other entity. There are no voting trusts or other
agreements or understandings to which the Company or any Company Subsidiary is a
party with respect to the voting of the capital stock or other equity securities
of the Company or any Company Subsidiary. Except as set forth in Section 3.3 of
the Company Disclosure Schedule, no indebtedness of the Company or any Company
Subsidiary or as to which the Company or any Company Subsidiary has given a
guarantee or by which any of their respective assets or properties are bound
contains any restriction upon (i) the prepayment of any indebtedness of the
Company or any Company Subsidiary, (ii) the incurrence of indebtedness by the
Company or any Company Subsidiary or (iii) the ability of the Company or any
17
<PAGE>
Company Subsidiary to grant any Lien on the properties or assets of the Company
or any Company Subsidiary. Except as set forth in Section 3.3 of the Company
Disclosure Schedule, each outstanding share of capital stock or other equity
interest of each Company Subsidiary is owned by the Company or a Company
Subsidiary that is wholly owned by the Company, free and clear of all Liens.
3.4 SEC Reports: Financial Statements; Undisclosed Liabilities.
----------------------------------------------------------
(a) The Company has filed all forms, reports, schedules,
statements and other documents required to be filed by it with the SEC since its
inception pursuant to the federal securities laws and the SEC rules and
regulations thereunder, all of which, as of their respective dates, complied in
all material respects with applicable requirements of the Securities Act of
1933, as amended (the "Securities Act"), and the Exchange Act, as the case may
be, and the applicable rules and regulations of the SEC thereunder
(collectively, the "Company SEC Reports"). None of the Company SEC Reports,
including, without limitation, any financial statements or schedules included
therein, as of their respective dates, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(b) The financial statements (including the related notes
thereto) of the Company included in the Company SEC Reports comply in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
conformity with generally accepted accounting principles ("GAAP ") in the United
States applied on a consistent basis during the periods involved (except as
otherwise noted therein), and present fairly the consolidated financial position
of the Company and its consolidated Company Subsidiaries as of their respective
dates, and the consolidated results of their operations and cash flows for the
periods presented therein (subject, in the case of the unaudited interim
financial statements, to normal year-end adjustments).
(c) Except (i) as set forth in Section 3.4(c) of the Company
Disclosure Schedule, (ii) as set forth in the consolidated balance sheet of the
Company as of March 31, 1999 set forth in the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999 (the "Balance Sheet") and (iii)
for current liabilities and obligations incurred in the ordinary course of
business consistent with past practice since March 31, 1999 (and not materially
different in type or amount),
18
<PAGE>
neither the Company nor any Company Subsidiary has any material liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise).
(d) All accounts receivable of the Company and each Company
Subsidiary that are reflected in the Balance Sheet or on the accounting records
of the Company and the Company Subsidiaries as of the date any Shares have been
accepted for payment pursuant to the Offer represent and will represent valid
obligations arising from sales actually made or services actually performed in
the ordinary course of business. Section 3.4(d) of the Company Disclosure
Schedule contains a complete and accurate aged accounts receivable list of the
Company and the Company Subsidiaries as of June 30, 1999. As of the date any
Shares have been accepted for payment pursuant to the Offer, there shall have
been no material increase in the accounts receivable of the Company and the
Company Subsidiaries that are 30 days or more past due. Unless paid prior to the
date any Shares have been accepted for payment pursuant to the Offer, the
accounts receivable of the Company and each Company Subsidiary are or will be as
of the date any Shares have been accepted for payment pursuant to the Offer,
collectible net of the respective reserves shown in Section 3.4(d) of the
Company Disclosure Schedule or on the accounting records of the Company and each
Company Subsidiary as of the date any Shares have been accepted for payment
pursuant to the Offer (which reserves are adequate and calculated consistent
with past practice and, in the case of the reserves as of the date any Shares
have been accepted for payment pursuant to the Offer, will not represent a
greater percentage of the 30 days or more past due accounts receivable as of
such date than the reserves reflected in Section 3.4(d) of the Company
Disclosure Schedule represented of such past due accounts receivable reflected
therein).
3.5 Schedule 14D-9; Offer Documents; Proxy Statement. Neither the
------------------------------------------------
Schedule 14D-9, any other document required to be filed by the Company with the
SEC in connection with the Transactions, nor any information supplied by the
Company for inclusion in the Offer Documents shall, at the respective times the
Schedule 14D-9, any such other filings by the Company, the Offer Documents or
any amendments or supplements thereto are filed with the SEC or are first
published, sent or given to stockholders of the Company, as the case may be,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement, if any, will not, on the date the Proxy
Statement (including any amendment or supplement thereto) is first mailed to
stockholders of the Company and at the time of the Special Meeting, contain any
untrue statement of a material fact, or omit to state any
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material fact required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under which they are
made, not misleading and the Proxy Statement will not, at the time of the
Special Meeting, omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Special Meeting which shall have become false or misleading in
any material respect. The Schedule 14D-9, any other document required to be
filed by the Company with the SEC in connection with the Transactions, and the
Proxy Statement will, when filed by the Company with the SEC, comply as to form
in all material respects with the applicable provisions of the Exchange Act and
the rules and regulations thereunder. Notwithstanding the foregoing, the Company
makes no representation or warranty with respect to the statements made in any
of the foregoing documents based on and in conformity with information supplied
in writing by or on behalf of Parent or Sub specifically for inclusion therein.
3.6 Absence of Certain Changes. Except as set forth in Section 3.6
--------------------------
of the Company Disclosure Schedule or in the Company SEC Reports, since the date
of the Balance Sheet, (i) the Company and each Company Subsidiary has conducted
its respective business in all material respects in the ordinary and usual
course consistent with past practice, (ii) there has not occurred any events or
changes (including the incurrence of any liabilities of any nature, whether or
not accrued, contingent or otherwise) having or reasonably likely to have,
individually or in the aggregate, a Company Material Adverse Effect, and (iii)
neither the Company nor any Company Subsidiary has taken any action that would
have been prohibited by Section 5.1 if such section applied to the period
between the date of the Balance Sheet and the date hereof.
3.7 Taxes. Except as set forth in Section 3.7 of the Company
-----
Disclosure Schedule:
(a) The Company and each Company Subsidiary has filed or caused
to be filed on a timely basis all material returns, reports or other
declarations relating to Taxes required to be filed by it (the "Tax Returns"),
all of which were complete and correct in all material respects and the Company
and each Company Subsidiary has timely paid or caused to be paid all federal
income and all material other federal, state, local and foreign taxes
(including, but not limited to, income, franchise, property (real, tangible and
intangible), sales, use, unemployment, withholding, gross receipts, business
license, transfer, capital, net worth, gains, excise, social security and
workers' compensation taxes and estimated income and franchise
20
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tax payments, and penalties, interest and fines with respect to any thereof)
(collectively, "Taxes") due and payable by it. Since their respective dates of
acquisition, the taxable income of the Company and each Company Subsidiary has
been included in the consolidated federal income Tax Returns of the Company to
the extent required to be included under the Code and in the consolidated,
combined or unitary state income Tax Returns of the Company to the extent
required to be included under applicable state income Tax rules.
(b) With respect to any Taxes of the Company or any Company
Subsidiary not yet due and payable, adequate reserves and accruals for such
Taxes have been made in the Financial Statements or in the books and records of
the Company.
(c) Neither the Company nor any Company Subsidiary has received
written notice from any taxing authority of any material deficiency, claim or
other dispute relating to the payment or assessment of any Taxes for any period
which remains unsettled at the date hereof, and the Company has no reasonable
basis to believe that any such deficiency, claim or other dispute exists
materially in excess of reserves and accruals set forth in the Financial
Statements or in the books and records of the Company or of any Company
Subsidiary.
(d) Neither the Company nor any Company Subsidiary has executed
any waiver of any statute of limitations on the assessment or collection of
Taxes with respect to the Company or any Company Subsidiary or executed any
agreement in each case now in effect extending the period of time to assess or
collect any Taxes with respect to the Company and the Company Subsidiary.
(e) There are no material Liens for Taxes (other than Permitted
Liens) upon or, to the knowledge of the Company, threatened against any assets
of the Company or any Company Subsidiary.
(f) Neither the Company nor any Company Subsidiary has been or
currently is a party to any pending or, to the knowledge of the Company,
threatened action, proceeding or assessment by any taxing authority, foreign or
domestic, relating to the Company or any Company Subsidiary.
(g) No election under Section 341(f) of the Code has been or
will be made to treat the Company or any Company Subsidiary as a "consenting
corporation" as defined in such Section 341(f).
21
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(h) Neither the Company nor any Company Subsidiary is or has
been a United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code.
(i) The Company and each Company Subsidiary has withheld and
paid all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee (including, to the Company's knowledge,
Worksite Employees), independent contractor, creditor, stockholder, or other
third party.
(j) The Company has delivered or caused to be delivered to
Parent correct and complete copies of all federal income Tax Returns,
examination reports, and statements of deficiencies assessed against or agreed
to by the Company or any Company Subsidiary, as the case may be, since the
inception thereof.
(k) Neither the Company nor any Company Subsidiary has made any
payments, is obligated to make any payments, or is a party to any agreement that
under certain circumstances could obligate it to make any payments that will not
be deductible under Code Section 280G.
(l) The Company and each Company Subsidiary (during such time as
it was a Company Subsidiary) has disclosed on its federal income Tax Returns all
positions taken therein that could, in the reasonable judgment of the Company,
give rise to a substantial understatement of federal income Tax within the
meaning of Code Section 6662.
(m) Neither the Company nor any Company Subsidiary is a party to
any Tax allocation or sharing agreement. Neither the Company nor any Company
Subsidiary (A) has been a member of an affiliated group (other than the group of
which they are now a member) filing a consolidated federal income Tax Return or
(B) to the Company's knowledge, has any liability for the Taxes of any person or
entity (other than the Company and the Company Subsidiaries) under Treasury
Regulation Section 1. 1502-6 (or any similar provision of state, local, or
foreign law), as a transferee or successor, by contract, or otherwise.
(n) Section 3.7 of the Company Disclosure Schedule sets forth
the Company's Tax basis in each Company Subsidiary as of the date of this
Agreement.
22
<PAGE>
(o) There have been no changes in tax accounting methods by the
Company or any Company Subsidiary which have resulted or will result in an
adjustment under Code Section 481.
(p) Neither the Company nor any Company Subsidiary has an
"excess loss account" within the meaning of Treasury Regulation Section 1.1502-
19(a) with respect to its investment in any other subsidiary corporation.
3.8 Real Property Owned or Leased. Neither the Company nor any
-----------------------------
Company Subsidiary owns any real property. A list of all real property leased by
the Company and each Company Subsidiary is set forth in Section 3.8 of the
Company Disclosure Schedule. Except as set forth in Section 3.8 of the Company
Disclosure Schedule, all such leased real property is held subject to written
leases under which neither the Company nor any Company Subsidiary has received a
written notice of any existing defaults or events of default or events which
with notice or lapse of time or both would constitute defaults on the part of
the Company or any Company Subsidiary, except for any such default which would
not have, individually or in the aggregate, a Company Material Adverse Effect.
3.9 Title to Assets. Except as set forth in Section 3.9 of the
-----------------
Company Disclosure Schedule, the Company and each Company Subsidiary has (i)
good and valid title to all of the properties and assets which they own, free
and clear of all Liens except for Permitted Liens, and (ii) leases or has the
right to use pursuant to valid and binding contracts (as to which no material
default exists) all of the material properties and assets leased or used by
them. The Company and each Company Subsidiary leases, owns or has the right to
use all material properties and assets necessary for the operation of its
business as currently conducted.
3.10 Contractual and Other Obligations. Section 3.10 of the Company
---------------------------------
Disclosure Schedule sets forth a true and complete list, as of the date hereof,
and the Company has delivered to Parent a complete and correct copy of each of
the following to which the Company or any Company Subsidiary is a party: (i)
each agreement for the provision of professional employer services to the ten
largest subscribers based on the number of covered employees and all other
material agreements and contracts to which the Company or any Company Subsidiary
is a party, (ii) all non-competition agreements or any other agreements or
obligations which purport to limit in any material respect the manner in which,
or the localities in which, the business of the Company or any of the Company
Subsidiaries may be
23
<PAGE>
conducted, (iii) all agreements, arrangements or understandings with any
director, officer or Affiliate that would be required to be disclosed under Item
404 of Regulation S-K under the Securities Act, including all agreements with
Ultimate Parent or any of its other direct or indirect subsidiaries whether or
not required to be disclosed under Item 404, (iv) all voting or other agreements
governing how any Shares shall be voted, (v) all acquisition, merger, asset
purchase or sale agreements pursuant to which the Company acquired any of the
Company Subsidiaries or any other company, operation or business (the
"Acquisition Agreements"), (vi) all contracts or other agreements which would
prohibit or materially delay the consummation of the Merger or any of the
Transactions, (vii) all contracts or other agreements evidencing or relating to
indebtedness for money borrowed by the Company or any Company Subsidiary, (viii)
all contracts or other agreements not entered into in the ordinary course of
business involving an amount in excess of $250,000, (ix) all material licenses,
sublicenses, contracts or other agreements to which the Company or any Company
Subsidiary is a party and pursuant to which any person or entity is authorized
to use any Company Intellectual Property or pursuant to which the Company or any
Company Subsidiary is authorized to use the Intellectual Property of another
person or entity, and (x) all employment or severance contracts or agreements
with officers or key employees of the Company and each Company Subsidiary and
all agreements or arrangements that provide for any payment by the Company or
any Company Subsidiary upon a change of control (all contracts of the type
described in clauses (i) - (x) whether existing as of the date hereof or entered
into at any time between the date hereof and the Closing being referred to
herein as "Company Material Contracts"). Each Company Material Contract is valid
and binding on the Company (or, to the extent a Company Subsidiary is a party,
such Company Subsidiary) and is in full force and effect, and the Company and
Company Subsidiary have performed in all material respects all obligations
required to be performed by them to date under each Company Material Contract.
Neither the Company nor any Company Subsidiary knows of, or has received notice
of, any violation or default under (nor, to the knowledge of the Company, does
there exist any condition which with the passage of time or the giving of notice
or both would result in such a violation or default under) any Company Material
Contract by either the Company or a Company Subsidiary, as the case may be, or
any other party to a Company Material Contract, except for violations or
defaults which would not, individually or in the aggregate, result in a Company
Material Adverse Effect. Originals or true, correct and complete copies of all
Company Material Contracts have been provided or made available to Parent. The
Company has delivered to Parent the standard forms of agreement used by the
Company and the Company Subsidiaries for the provision of professional employer
services, and, except for the agreements entered into with Ultimate Parent,
24
<PAGE>
Hanger Orthopedic Group, Inc., and The Boston Financial Group Limited
Partnership, each agreement entered into by the Company or a Company Subsidiary
(during such time as it was a Company Subsidiary) with a subscriber for the
provision of such services is substantially the same as one of the standard
forms of agreement. The Company has sent a Notice of Termination to the
shareholders of Unified Management Corporation and its affiliated corporations
(collectively, "Unified") notifying Unified and the shareholders of Unified of
the Company's termination of the Agreement of Purchase and Sale dated as of June
16, 1999 by and among Unified, the shareholders of Unified and the Company.
3.11 Employee Benefit Plans.
----------------------
Except as set forth in Section 3.11 of the Company Disclosure Schedule:
(a) Neither the Company nor any Company Subsidiary maintains or
sponsors, nor is required to make contributions to, any pension, profit-sharing,
bonus, incentive, welfare or other employee benefit plan within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") or any other material employee benefit program (such plans and related
trusts, insurance and annuity contracts, funding media and related agreements
and arrangements, other than any "multiemployer plan" (within the meaning of
Section 3(37) or Section 4001(a)(3) of ERISA), being hereinafter referred to as
the "Benefit Plans" and such multiemployer plans being hereinafter referred to
as the "Multiemployer Plans");
(b) Each Benefit Plan complies in all material respects with all
requirements of ERISA and the Code;
(c) Each Benefit Plan that is intended to be qualified under
Section 401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service as to such qualification within the period of time
prescribed by law;
(d) Neither the Company nor any Company Subsidiary maintains,
sponsors or contributes to (nor is required to contribute to) any Multiemployer
Plan;
(e) No Benefit Plan is a "defined benefit plan" (within the
meaning of Section 3(35) of ERISA);
25
<PAGE>
(f) Neither the Company nor any Company Subsidiary has engaged
in, and the Company has no knowledge of any fiduciary or other "disqualified
person or party in interest" of any Benefit Plan of any Company Subsidiary that
has engaged in, any "prohibited transaction" (within the meaning of Section 406
of ERISA or Section 4975(c) of the Code); and
(g) There are no claims, actions, lawsuits, proceedings,
investigations or audits pending or, to the knowledge of the Company, threatened
against any of the Benefit Plans, the assets of any of the trusts under such
plans, the plan sponsor, the plan administrator or any fiduciary of any of the
Benefit Plans (other than routine benefit claims) and, to the knowledge of the
Company, there is no basis for any such claim, action, lawsuit, proceeding,
investigation or audit.
3.12 Labor Relations.
---------------
(a) The Company and each Company Subsidiary and, to the
knowledge of the Company, to the extent that the Company has direct control over
Worksite Employees (as hereinafter defined), the related worksite employers, are
in compliance in all material respects with all Applicable Laws relating to
employment of its employees, including, to the Company's knowledge, Worksite
Employees, including, but not limited to, those governing employment practices,
the terms and conditions of employment, compensation, payment of wages, health
and safety, labor relations and plant closings for its employees, including, to
the Company's knowledge, Worksite Employees. There are no material audits or
investigations pending or, to the knowledge of the Company, threatened by any
Governmental Authority against the Company or any Company Subsidiary for the
enforcement of any such laws.
(b) Except as set forth in Section 3.12 of the Company
Disclosure Schedule, (i) neither the Company nor any Company Subsidiary is
subject to any strike, work stoppage, lockout or other concerted activity or, to
the knowledge of the Company, any threats thereof; (ii) neither the Company nor
any Company Subsidiary is a party to or bound by any collective bargaining
agreement with any labor organization or other representative of any of its
employees or Worksite Employees, and no such contract, collective bargaining
agreement or other agreement is currently being negotiated by or on behalf of
the Company or any Company Subsidiary; (iii) to the knowledge of the Company,
there is no activity or proceeding by any labor organization or other group
seeking to represent employees or to
26
<PAGE>
organize any employees of the Company or any Company Subsidiary, or, to the
knowledge of the Company, to the extent that the Company has direct control over
Worksite Employees, any Worksite Employees, or any questions concerning
representation; and (iv) there is no unfair labor practice, labor dispute (other
than routine individual grievances), demand for arbitration or arbitration
proceeding pending or, to the knowledge of the Company, threatened involving the
Company or any Company Subsidiary or, to the knowledge of the Company, to the
extent that the Company has direct control over Worksite Employees, any related
worksite employer, on the one hand, and any employees of the Company or any
Company Subsidiary including Worksite Employees, on the other.
(c) Except as limited by any employment contracts listed in
Section 3.10 of the Company Disclosure Schedule, and except for any limitations
of general application which may be imposed under Applicable Law, the Company
and each Company Subsidiary has the right to terminate the employment of each of
its employees (excluding Worksite Employees) at will and without incurring any
material penalty or liability.
(d) As of June 30, 1999, the number of worksite employees of the
Company' s customers of whom the Company may be deemed a "co-employer"
("Worksite Employees") was 54,313. As of June 30, 1999, the Company and each
Company Subsidiary had paid all salaries, wages, employer's portion of social
security, Medicare premiums, federal and state employment Taxes, health care and
workers' compensation costs and state unemployment Taxes with respect to all of
its employees, including, to the Company's knowledge, Worksite Employees, due
and payable by such date and since June 30, 1999 the Company has continued and
will continue to pay such amounts as they have become due and payable.
(e) Neither the Company nor any Company Subsidiary is a
contractor or subcontractor of any Governmental Entity.
3.13 Insurance. Set forth in Section 3.13 of the Company Disclosure
----------
Schedule is a list as of the date hereof of the property and casualty insurance
policies maintained by the Company and each of the Company Subsidiaries or by
Ultimate Parent or any of its other direct or indirect subsidiaries on behalf of
the Company or any Company Subsidiary. All such policies are in full force and
effect, all premiums due thereon have been paid and the Company and each of the
Company Subsidiaries has complied in all material respects with the applicable
provisions of such policies. Neither the Company nor any Company Subsidiary has
been advised
27
<PAGE>
of any defense to coverage in connection with any claim asserted or noticed by
the Company or any Company Subsidiary under or in connection with any of its
existing insurance policies. Neither the Company nor any Company Subsidiary has
received any notice from or on behalf of any insurance carrier issuing policies
or binders relating to or covering the Company or any Company Subsidiary that
there will be a cancellation or non-renewal of existing policies or binders or
that the Company or any Company Subsidiary will be required to materially modify
any of their respective methods of doing business. Section 3.13 of the Company
Disclosure Schedule sets forth a list of all states in which the Company or any
Company Subsidiary participates in a worker's compensation self-insured fund.
There are no audits pending or, to the knowledge of the Company, threatened by
any Governmental Authority with respect to any worker's compensation self-
insured fund in which the Company or any Company Subsidiary participates.
3.14 Litigation. Except as described or provided for in the Company
----------
SEC Reports or as set forth in Section 3.14 of the Company Disclosure Schedule,
there is no (i) litigation, arbitration, investigation or other legal proceeding
(collectively, "Actions") pending or, to the knowledge of the Company,
threatened against either the Company or any of the Company Subsidiaries, except
for any such Action which is not reasonably likely to result in liability to the
Company or any Company Subsidiary in excess of $100,000, individually, or
$500,000, in the aggregate, or (ii) outstanding judgment, order, writ,
injunction or decree, or application, request or motion therefor, relating to or
including the Company or any Company Subsidiary or their respective properties,
assets or businesses.
3.15 Permits; Compliance with Applicable Law.
----------------------------------------
(a) General. Except as set forth in Section 3.15(a) of the
-------
Company Disclosure Schedule, the Company and each of the Company Subsidiaries is
in compliance in all material respects with all Applicable Law relating to it
and its respective assets and properties.
(b) Permits. Except as set forth in Section 3.15(b) of the
Company Disclosure Schedule, the permits, licenses, approvals, franchises and
authorizations (collectively, but excluding Environmental Permits, the
"Permits") issued to or held by the Company and the Company Subsidiaries are all
material Permits required for the ownership, operation and use by them of their
properties and assets and for the conduct of the business in which they are
presently engaged. Neither the Company nor any Company Subsidiary is in default
under, or in violation
28
<PAGE>
of, any such Permits, and such Permits are in full force and effect, except
where such default or violation or the failure to be in effect would not have,
individually or in the aggregate, a Company Material Adverse Effect.
(c) Environmental. Except as set forth in Section 3.15 (c) of
-------------
the Company Disclosure Schedule or in the Company SEC Reports:
(i) The Company and each Company Subsidiary and,
to the knowledge of the Company, to the extent the Company has
direct control over Worksite Employees, each related worksite
employer is in compliance in all material respects with the
provisions of all federal, state and local laws, codes and
ordinances relating to the protection of public health, the
environment or natural resources, and all rules and regulations
promulgated thereunder (the "Environmental Laws"), including with
respect to the Company and each Company Subsidiary, the real
property leased by the Company and each Company Subsidiary listed
in Section 3.8 of the Company Disclosure Schedule and the
improvements thereon (all such leased real property and
improvements thereon hereinafter referred to collectively as the
"Premises").
(ii) The Company and each Company Subsidiary and,
to the knowledge of the Company, to the extent the Company has
direct control over Worksite Employees, each related worksite
employer has obtained all required federal, state and local permits,
licenses, certificates and approvals applicable to the Company or
any Company Subsidiary or any such worksite employer, as the case
may be, of their respective businesses (the "Environmental Permits")
including relating to (A) air emissions, (B) discharges to surface
water or ground water, (C) noise emissions, (D) solid or liquid
waste disposal, and (E) the use, generation, storage, transportation
or disposal of toxic or hazardous substances or wastes (intended
hereby and hereafter to include any and all such materials listed
in any Environmental Law, as hazardous or potentially hazardous
(including, without limitation, (1) any chemical, compound, material
or substance that is defined, listed in, or otherwise classified
pursuant to, any of the Environmental Laws as a "hazardous substance",
"hazardous material", "hazardous waste", "toxic substance," "toxic
pollutant," "contaminant" or "pollutant" and (2) petroleum, natural
gas, natural gas
29
<PAGE>
liquids, liquefied natural gas, and synthetic gas) (collectively,
"Hazardous Substances"), except where the failure to have obtained
or maintained any such Environmental Permit would not have,
individually or in the aggregate, a Company Material Adverse Effect.
(iii) Neither the Company, any Company Subsidiary,
nor, to the knowledge of the Company, to the extent the Company has
direct control over Worksite Employees, any related worksite employer
has received any written notice of any material violations of any
Environmental Law which have not been cured, relating to the use,
ownership or occupancy of any of the Premises or relating to the
business of the Company or any Company Subsidiary or any worksite
employer, as the case may be.
(iv) Neither the Company, any Company Subsidiary
nor, to the knowledge of the Company, to the extent the Company
has direct control over Worksite Employees, any related worksite
employer, has engaged in the generation, storage, treatment,
recycling, transportation, release or disposal of any Hazardous
Substance, except in compliance in all material respects with
applicable Environmental Laws.
(v) No Hazardous Substances have been released
or disposed of on the Premises, except in quantities that are not
reasonably likely to have a Company Material Adverse Effect, and
to the Company's knowledge, no real property to which the Company
or any Company Subsidiary has, directly or indirectly, transported
or arranged for the transportation of any Hazardous Substances, is
listed on the National Priorities List promulgated pursuant to the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended ("CERCLA"), on CERCLIS (as defined in
CERCLA) or on any similar federal, state or foreign list of sites
requiring investigation or clean-up.
3.16 Bank Accounts. The Company has delivered to Parent a list as of
--------------
the date hereof of all bank and securities accounts and lockboxes maintained by
the Company or any Company Subsidiary, a list of persons authorized to sign on
behalf of the Company or any Company Subsidiary with respect to each such
account and a list of persons with authorized access to each such lockbox.
30
<PAGE>
3.17 Intellectual Property.
---------------------
(a) The Company and each Company Subsidiary own, free and clear
of all Liens, or are licensed or otherwise possess legally enforceable rights to
use, all Intellectual Property that is used or proposed to be used in and
material to its respective business ("Company Intellectual Property"). The
Company Intellectual Property constitutes all Intellectual Property necessary to
enable the Company and each Company Subsidiary to conduct its respective
business as currently conducted and as proposed to be conducted. The Company and
each Company Subsidiary has taken all commercially reasonable steps to protect
and preserve its rights in the Company Intellectual Property and the
confidentiality of all Company Intellectual Property.
(b) Section 3.17 of the Company Disclosure Schedule lists, for
the Company Intellectual Property owned by the Company or any Company
Subsidiary, all U.S. and foreign (i) patents and patent applications; (ii)
Trademark applications and registrations, and material unregistered Trademarks;
and (iii) copyright registrations and applications. To the knowledge of the
Company, all Company Intellectual Property rights are valid and subsisting and
are not the subject of any challenge and all applications that have been filed
with respect to Company Intellectual Property are still pending in good standing
and have not been abandoned.
(c) To the knowledge of the Company, the conduct of the
Company's and any Company Subsidiary's business as currently conducted or
proposed to be conducted does not infringe upon or conflict with any
Intellectual Property or other proprietary rights of any other person or entity.
Neither the Company nor any Company Subsidiary has received any notice or
otherwise has knowledge of any claim or threatened claim involving actual,
alleged, or potential infringement, misappropriation or unlawful use by the
Company or any Company Subsidiary of any Intellectual Property owned or used by
any other person or entity. To the knowledge of the Company, no other person or
entity is infringing, misappropriating or making any unlawful use of, and no
Intellectual Property owned or used by any other person or entity infringes or
conflicts with, any Company Intellectual Property.
(d) Except as set forth in Section 3.17 of the Company
Disclosure Schedule, neither the Company nor any Company Subsidiary (i) has
licensed any Company Intellectual Property to any person or entity on an
exclusive
31
<PAGE>
basis or is a party to or bound by any agreement limiting its ability to exploit
fully any Company Intellectual Property, other than licenses in the ordinary
course of business, (ii) is obligated to make any payment to any person or
entity for the use of any Company Intellectual Property, other than pursuant to
licenses in the ordinary course of business, or (iii) has developed jointly with
any other person or entity any Company Intellectual Property with respect to
which such other person or entity has any rights.
(e) To the Company's knowledge, all Date Data and Date-Sensitive
Systems are, or as a result of the Company's ongoing remediation efforts will by
September 30, 1999 be, Year 2000 Compliant in all material respects. "Date Data"
means any data of any type that includes date information or which is otherwise
derived from, dependent on or related to date information. "Date-Sensitive
System" means any Software, microcode or hardware system or component, including
any electronic or electronically controlled system or component, that processes
any Date Data and that is installed, in development or on order by the Company
or any Company Subsidiary for its internal use, or which the Company or any
Company Subsidiary sells, leases, licenses, assigns or otherwise provides, or
the provision or operation of which the Company or any Company Subsidiary
provides the benefit to its customers, vendors, suppliers, affiliates or any
other third party. "Year 2000 Compliant" means (i) with respect to Date Data,
that such data is in proper format and accurate for all dates in the twentieth
and twenty-first centuries, and (ii) with respect to Date-Sensitive Systems,
that each such system is able accurately to process date data such that neither
its performance nor its operation will be materially adversely affected by the
passage of any date, including, without limitation, the advent of the year 2000
or the passage from the twentieth century into the twenty-first century. The
Company has obtained written representations or assurances from each entity that
(x) provides Date Data to the Company or any Company Subsidiary, (y) processes
in any way Date Data for the Company or any Company Subsidiary, or (z) otherwise
provides any material product or service to the Company or any Company
Subsidiary that is dependent on Year 2000 Compliant Date Data or a Year 2000
Compliant Date-Sensitive System, that all of such entity's Date Data and Date-
Sensitive Systems that are used for, or on behalf of, the Company or any Company
Subsidiary are Year 2000 Compliant.
3.18 Consents. Except as may be required under The Hart-Scott-Rodino
--------
Antitrust Improvements Act of 1976, as amended ("HSR"), and except as set forth
in Section 3.18 of the Company Disclosure Schedule, no consents, approvals or
authorizations of, or filings with, any Governmental Authority or any other
person or
32
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entity are required in connection with the execution, delivery or performance of
this Agreement or the Stock Option Agreement by the Company and the consummation
of the transactions contemplated hereby or thereby to be consummated by the
Company, except where the failure to obtain such consents, approvals, or
authorizations, or make such filings, would not prevent or delay consummation of
the Transactions in any material respect, or otherwise prevent the Company from
performing its obligations under this Agreement and the Stock Option Agreement,
and would not have, individually or in the aggregate, a Company Material Adverse
Effect.
3.19 Foreign Person. The Company is not a foreign person within the
--------------
meaning of Section 1445(f)(3) of the Code.
3.20 Authority. The Company has the requisite corporate power and
---------
authority to execute and deliver this Agreement and the Stock Option Agreement,
to perform its obligations hereunder and thereunder and to consummate the
Transactions. The execution, delivery and performance of this Agreement and the
Stock Option Agreement and the consummation by the Company of the Transactions
have been duly and validly authorized by the Company Board and no other
corporate action on the part of the Company is necessary to authorize this
Agreement or the Stock Option Agreement or to consummate the Transactions (other
than, with respect to the Merger, the approval of this Agreement by the holders
of a majority of the outstanding Shares in accordance with the DGCL). This
Agreement and the Stock Option Agreement have been duly and validly executed and
delivered by the Company and, assuming this Agreement and the Stock Option
Agreement constitute the valid and binding agreement of Parent and Sub,
constitutes the valid and binding agreements of the Company, enforceable against
the Company in accordance with their respective terms, except that the
enforcement hereof and thereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) general principles of equity
(regardless of whether enforceability is considered in a proceeding in equity or
at law).
3.21 Board Approvals Regarding Transactions. The Company Board, at a
--------------------------------------
meeting duly called and held, has (i) unanimously determined that each of this
Agreement, the Stock Option Agreement, the Offer and the Merger are advisable
and in the best interests of the stockholders of the Company, (ii) approved this
Agreement, the Stock Option Agreement, the Transactions and the Stockholder
Agreement, (iii) resolved to recommend that the stockholders of the Company
accept the Offer, tender their Shares to Sub pursuant to the Offer and approve
and adopt this
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Agreement, the Stock Option Agreement and the Merger, and (iv) consented to the
transfer to Sub of all such Shares, and none of the aforesaid actions by the
Company Board has been amended, rescinded or modified. The action taken by the
Company Board constitutes approval of the Merger, the other Transactions, the
Stock Option Agreement and the Stockholder Agreement by the Company Board under
the provisions of Section 203 of the DGCL such that Section 203 of the DGCL does
not apply to this Agreement, the Transactions, the Stock Option Agreement or the
Stockholder Agreement. No other state takeover statute is applicable to the
Merger, the other Transactions or the Stockholder Agreement.
3.22 Vote Required. The affirmative vote of the holders of a bare
-------------
majority of the outstanding Shares is the only vote of the holders of any class
or series of the Company's capital stock necessary to approve the Merger. No
vote of any class or series of the Company's capital stock is necessary to
approve any of the Transactions other than the Merger.
3.23 Approvals; Antitakeover Provisions. The Company has taken all
----------------------------------
action necessary to approve the Transactions under the DGCL (except for
shareholder approval and the filing of a Certificate of Merger), including, but
not limited to, all actions required to render the provisions of Section 203 of
the DGCL restricting business combinations with "interested stockholders"
inapplicable to the Transactions.
3.24 Brokers and Finders. Other than the fee payable by the Company
-------------------
to CIBC World Markets Corp. ("CIBC World Markets"), no investment banking,
brokerage, finders, advisory or similar fee or commission is payable by the
Company or any Company Subsidiary to any investment banker, broker, finder,
advisor, consultant or intermediary, in connection with this Agreement, the
Stock Option Agreement or the Transactions. The Company has provided Parent true
and correct copies of all agreements with BancBoston as to which the Company
and/or any Company Subsidiary could have any liabilities.
3.25 Fairness Opinion. The Company Board has received the opinion of
----------------
CIBC World Markets dated September 8, 1999, to the effect that, as of such date,
and based upon the assumptions made, matters considered, and limits of review
set forth therein, the applicable Merger Consideration is fair to the
stockholders of the Company, other than to the Ultimate Parent, from a financial
point of view.
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3.26 Compensation. Set forth in Section 3.26 of the Company
------------
Disclosure Schedule is a list as of the date hereof of all material written
agreements, plans or arrangements by which the Company or any Company Subsidiary
is bound with regard to compensation, bonus, incentive, stock option, stock
purchase, severance pay or other benefits or perquisites, other than any
agreements, plans or arrangements listed in Section 3.11 of the Company
Disclosure Schedule or solely with respect to Worksite Employees, and (b) a list
as of the date hereof of all employees of the Company or any Company Subsidiary
(other than Worksite Employees) entitled to receive salary at an annual rate in
excess of $50,000 and their respective positions and annual salaries.
3.27 Full Disclosure. No representation or warranty by the Company in
---------------
this Agreement or in the Stock Option Agreement and no statement by the Company
contained in any exhibit, disclosure schedule, or certificate contemplated by
this Agreement or in the Stock Option Agreement contains or will contain any
untrue statement of material fact or omits or will omit to state any material
fact necessary, in light of the circumstances under which it was made, in order
to make the statements herein or therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Each of Parent and Sub represents and warrants, jointly and severally,
to the Company that:
4.1 Organization and Qualification. Each of Parent and Sub is a
------------------------------
corporation, duly organized, validly existing and in good standing under the
laws of its respective jurisdiction of organization. Each of Parent and Sub is
qualified and in good standing as a foreign corporation, in each jurisdiction
where the properties owned, leased or operated, or the business conducted, by it
require such qualification, except where the failure to so qualify or be in good
standing would not materially impair or delay the ability of Parent or Sub to
consummate the Transactions (a "Parent Material Adverse Effect").
4.2 Authority. Each of Parent and Sub has the requisite corporate
---------
power and authority to execute and deliver this Agreement and the Stock Option
Agreement and to consummate the transactions contemplated hereby and thereby.
The execution, delivery and performance of this Agreement and the Stock Option
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<PAGE>
Agreement and the consummation by Parent and Sub of the Transactions have been
duly and validly authorized by the Board of Directors of each of Parent and Sub
and by Parent as the sole stockholder of Sub, and no other corporate action on
the part of Parent and Sub is necessary to authorize this Agreement or the Stock
Option Agreement or to consummate the Transactions. This Agreement and the Stock
Option Agreement have been duly and validly executed and delivered by each of
Parent and Sub and, assuming this Agreement and the Stock Option Agreement
constitute the valid and binding agreements of the Company, constitute the valid
and binding agreements of each of Parent and Sub, enforceable against each of
them in accordance with its terms, except that the enforcement hereof or thereof
may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect relating to creditors' rights
generally and (b) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity).
4.3 Consents and Approvals; No Violation.
------------------------------------
(a) Except as set forth in Section 4.3(a) of the disclosure
schedule delivered to the Company by Parent concurrently with the execution
hereof (the "Parent Disclosure Schedule"), neither the execution, delivery and
performance of this Agreement or the Stock Option Agreement by Parent or Sub nor
the consummation by Parent or Sub of the Transactions contemplated hereby or
thereby to be consummated by Parent or Sub will require any consent, approval,
authorization or permit of, or filing with or notification to, any Governmental
Entity, other than (A) in connection with the applicable requirements of the HSR
Act, (B) pursuant to the applicable requirements of the Exchange Act, (C) the
filing of the Certificate of Merger pursuant to the DGCL and appropriate
documents with the relevant authorities of other states in which Parent or Sub
is authorized to do business, or (D) as may be required by any applicable state
corporation, securities or "blue sky" laws or state takeover laws. Parent will
use its reasonable best efforts to obtain and deliver to the Company executed
counterpart copies of all consents referred to in the preceding sentence prior
to consummation of the Offer.
(b) Neither the execution, delivery and performance of this
Agreement or the Stock Option Agreement by Parent or Sub nor the consummation by
Parent or Sub of the Transactions will (i) conflict with or result in any breach
of any provision of the Certificate of Incorporation or the By-Laws of either
Parent or Sub; (ii) subject to obtaining the required third party consents set
forth in Section 4.3(a) of the Parent Disclosure Schedule, result in a violation
or breach of, or
36
<PAGE>
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration or Lien or
other charge or encumbrance) under any of the terms, conditions or provisions of
any note, license, agreement or other instrument or obligation to which Parent
or Sub is a party or by which either of them or any of their respective assets
may be bound; or (iii) assuming the consents, approvals, authorizations or
permits and filings or notifications referred to in Section 4.3(a) hereof are
duly and timely obtained or made, violate any order, writ, injunction, decree,
statute, rule or regulation in effect as of the date of this Agreement and
applicable to Parent or Sub or any of their respective assets, excluding from
the foregoing clauses (ii) and (iii) such violations, breaches or defaults (or
rights of termination, cancellation or acceleration or Liens or other charges or
encumbrances) which would not, individually or in the aggregate, have a Parent
Material Adverse Effect.
4.4 Interim Operations of Sub. Sub was formed solely for the purpose
-------------------------
of engaging in the Transactions and has not engaged in any business activities
or conducted any operations other than in connection with the Transactions.
4.5 Financing. As of the date hereof and at the expiration of the
---------
Offer and at the Effective Time, either Parent or Sub has and will have
available all the funds, or has written binding commitments from financial
institutions or other sources to obtain all the funds, necessary to purchase all
of the Shares pursuant to the Offer and the Merger and to pay all fees, expenses
and payments payable by Parent or Sub related to the Transactions.
4.6 Share Ownership. Except for shares owned by Affiliates of FMR
---------------
Corp. in the ordinary course of business, none of Parent, Sub nor any of their
respective "affiliates" or "associates" (as such terms are defined in Rule 12b-2
under the Exchange Act) beneficially owns any Shares.
4.7 Information in Proxy Statement and Schedule 14D-9. None of the
-------------------------------------------------
information supplied by Parent or Sub for inclusion or incorporation by
reference in the Proxy Statement or the Schedule 14D-9 will, at the date mailed
to stockholders and at the time of the Special Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. If at any time
prior to the Effective Time any event with respect to Parent or Sub should occur
which is required to be described in a supple-
37
<PAGE>
ment to the Proxy Statement or the Schedule 14D-9, such event shall be so
described, and such supplement shall be promptly filed with the SEC and, as
required by law, disseminated to the stockholders of the Company. With respect
to information relating to Parent or Sub, the Proxy Statement will comply in all
material respects with the provisions of the Exchange Act and the rules and
regulations thereunder.
4.8 Brokers and Finders. Parent and Sub have not employed any
-------------------
investment banker, broker, finder, advisor, consultant or intermediary in
connection with the Transactions which would be entitled to any investment
banking, brokerage, finder's, advisory or similar fee or commission in
connection with this Agreement, or the Stock Option Agreement or the
Transactions.
ARTICLE V
ADDITIONAL COVENANTS AND AGREEMENTS
5.1 Interim Operations of the Company. Except as set forth in
---------------------------------
Section 5.1 of the Company Disclosure Schedule, during the period from the date
of this Agreement to the Effective Time or termination of this Agreement
pursuant to Section 7.1 hereof (unless Parent shall otherwise agree in writing
and except as expressly provided by this Agreement), the Company shall, and
shall cause each Company Subsidiary to, conduct its operations according to its
ordinary and usual course of business in substantially the same manner as
heretofore conducted and use its reasonable best efforts to preserve intact its
current business organization, keep available the services of its current
officers and subject to the prudent management of workforce needs, its employees
(including all Worksite Employees, except to the extent required by clients of
the Company), preserve its relationships with customers, suppliers and others
having business dealings with it, consult with Parent concerning important
business matters affecting the Company and the Company's Subsidiaries and
periodically report to Parent concerning the status of the business, operations
and finances of the Company and the Company Subsidiaries. Without limiting the
generality of the foregoing, and except as expressly provided by this Agreement
or as set forth in Section 5.1 of the Company Disclosure Schedule, the Company
shall not and shall not permit any Company Subsidiary to, without the prior
written consent of Parent:
(i) directly or indirectly amend its Certificate of
Incorporation or By-Laws or similar organizational documents;
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<PAGE>
(ii) (A) declare, set aside or pay any dividend or other
distribution payable in cash, stock or property with respect to the
Company's capital stock or that of any Company Subsidiary, except that a
wholly owned Company Subsidiary may declare and pay a dividend or make an
advance to its parent or the Company, (B) redeem, purchase or otherwise
acquire directly or indirectly any shares of any class or series of the
Company's capital stock or that of any Company Subsidiary or any instrument
or security which consists of or includes a right to acquire such shares;
(C) issue, sell, transfer, pledge, dispose of or encumber any shares of any
class or series of the Company's capital stock or that of any Company
Subsidiary 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 any class or series of the Company's capital stock
or that of any Company Subsidiary or voting debt, other than Shares issued
upon the exercise of Options outstanding on the date hereof in accordance
with the Option Plans as in effect on the date hereof; or (D) split,
combine or reclassify the outstanding capital stock of the Company or of
any Company Subsidiary;
(iii) acquire or agree to acquire (A) by merging or
consolidating with, or by purchasing an equity interest in a substantial
portion of the assets of, or by any other manner, any business or any
corporation, partnership, joint venture, association or other business
organization or division thereof, or (B) any assets, except purchases of
assets in the ordinary course of business consistent with past practices
and which individually do not exceed $50,000 or in the aggregate do not
exceed $100,000;
(iv) alter (through merger, liquidation, reorganization,
restructuring or in any other fashion), the corporate structures or
ownership of the Company or any Company Subsidiary;
(v) make any new capital expenditure or expenditures which
exceed the amounts budgeted therefor in the fiscal year ending June 30,
2000 budget for the Company provided to Parent;
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<PAGE>
(vi) (A) amend, terminate or transfer any Company Material
Contract except in the ordinary course of business consistent with past
practice and provided that any such amendment, termination or transfer does
--------
not have, individually or in the aggregate, a Company Material Adverse
Effect, (B) waive, release or assign any material rights or claims, (C)
enter into any contract that would be a Company Material Contract pursuant
to clauses (ii) through (viii) of Section 3.10, or (D) enter into any
agreement for the provision of professional employer services except in the
ordinary course of business consistent with past practices;
(vii) transfer, lease, license, sell or dispose of any of
their respective assets other than dispositions in the ordinary course of
business and consistent with past practice; provided that the fair market
--------
value of assets sold does not exceed $50,000 in any single transaction or
$100,000 in the aggregate;
(viii) mortgage, pledge or encumber any of their respective
assets;
(ix) enter into or amend any employment or severance
agreement or any other agreement or arrangement that provides for payment
upon a change of control with or grant any severance or termination pay to
any officer, director or employee (including Worksite Employees, except to
the extent required by clients of the Company) of the Company or any
Company Subsidiary;
(x) except, as required to comply with applicable law or
expressly provided in this Agreement, (A) adopt, enter into, amend or
increase the amount or accelerate the payment or vesting of any benefit or
award or amount payable, under any Benefit Plan or other contract,
agreement, commitment, arrangement, plan, trust, fund or policy maintained
by, contributed to or entered into by the Company or any Company Subsidiary
for the current or future benefit or welfare of any director, officer or
current or former employee, except to the extent necessary to coordinate
any such Benefit Plans with the terms of this Agreement, (B) increase in
any manner the compensation or fringe benefits of, or pay any bonus to, any
director, officer or employee (other than Worksite Employees) or consultant
of the
40
<PAGE>
Company or any Company Subsidiary (other than normal recurring increases in
wages to employees who are not officers or directors or Affiliates in the
ordinary course of business consistent with past practice), (C) pay any
benefit not provided for under any Benefit Plan, (D) grant any awards under
any bonus, incentive, performance or other compensation plan or arrangement
or Benefit Plan (including the grant of stock options, stock appreciation
rights, stock based or stock related awards, performance units or
restricted stock, or the removal of existing restrictions in any Benefit
Plans or agreements or awards made thereunder) or (E) take any action to
fund or in any other way secure the payment of compensation or benefits
under any employee plan, agreement, contract or arrangement or Benefit
Plan;
(xi) (A) incur or assume any long-term indebtedness for
borrowed funds, or except in the ordinary course of business, incur or
assume any short-term indebtedness for borrowed funds in amounts not
consistent with past practice, provided, that the aggregate of such short-
term indebtedness and long-term indebtedness outstanding does not exceed
$3,300,000 at any given time, (B) modify the terms of any indebtedness or
other liability except as set forth in Section 5.1 of the Company
Disclosure Schedule, (C) assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other person (except for checks endorsed for collection
in the ordinary course of business) or (D) make any loans, advances or
capital contributions to, or investments in any other person (other than to
wholly owned Company Subsidiaries and other than (x) travel advances to
employees in the ordinary course of business consistent with past practices
and (y) publicly traded securities constituting less than 1.0% of the
outstanding equity of the issuing entity);
(xii) change any of the accounting methods used by it
unless required by changes in GAAP;
(xiii) make any material election relating to Taxes, change
any material election relating to Taxes already made, adopt any material
accounting method relating to Taxes, change any material accounting method
relating to Taxes unless required by changes in GAAP, enter into any
closing agreement relating to Taxes,
41
<PAGE>
settle any claim or assessment relating to Taxes or consent to any claim or
assessment relating to Taxes or any waiver of the statute of limitations
for any such claim or assessment;
(xiv) pay, release, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, release, discharge or
satisfaction of (A) any such claims, liabilities or obligations, in the
ordinary course of business and consistent with past practice, and (B)
claims, liabilities or obligations reflected or reserved against in, or
contemplated by, the consolidated financial statements (or the notes
thereto) of the Company and its consolidated Company Subsidiaries filed
with the SEC prior to the date hereof;
(xv) amend in any material respect, renew, terminate or
cause to be extended any lease, agreement or arrangement relating to any of
its leased properties or enter into any lease, agreement or arrangement
with respect to any real property;
(xvi) permit any insurance policy having the Company or
any Company Subsidiary as a beneficiary or a loss payable payee to be
cancelled or terminated unless comparable replacement coverage is obtained,
provided that written notice has been provided to Parent and the premium
therefor is reasonably acceptable to Parent ;
(xvii) take, or agree or commit to take, any action that
would or is reasonably likely to result in any of the conditions to the
Offer set forth in Annex A or any of the conditions to the consummation of
the Merger set forth in Article VI hereof not being satisfied, or would
make any representation or warranty of the Company contained herein
inaccurate in any material respect at, or as of any time prior to, the
Effective Time, or that would materially impair the ability of the Company,
Parent, Sub or the holders of Shares to consummate the Offer or the Merger
in accordance with the terms hereof or materially delay such consummation;
and
(xviii) enter into an agreement, contract, commitment or
arrangement to do any of the foregoing, or to authorize,
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<PAGE>
recommend, propose or publicly announce an intention to do any of the
foregoing.
5.2 Alternative Proposals.
---------------------
(a) Neither the Company nor any Company Subsidiary or Affiliate
shall (and neither the Company nor any Company Subsidiary or Affiliate shall
authorize or permit any of their respective officers, directors, employees,
representatives and agents, including, but not limited to, investment bankers,
attorneys and accountants, to), 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
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 (an
''Alternative Proposal"), or otherwise cooperate in any way with, or participate
in, facilitate or actively encourage any effort or attempt by, any person or
group (other than Parent, any of its Affiliates or representatives) to do or
seek any of the foregoing, except that nothing contained in this Section 5.2 or
any other provision hereof shall prior to the time of acceptance of Shares for
payment pursuant to the Offer 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 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 permitted by Section 5.2(b) hereof,
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,
agreement in principle or definitive agreement with respect to any Alternative
Proposal. Upon execution of this Agreement, the Company will immediately cease
any existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing. Notwithstanding the foregoing,
prior to the time of acceptance of Shares for payment pursuant to the Offer, the
Company may, subject to providing prior written notice to Parent of its decision
to take such action, furnish information concerning its business, properties
43
<PAGE>
or assets to any corporation, partnership, person or other entity or group in
response to a Superior Proposal that is submitted by such entity or group, and
may, subject to providing prior written notice to Parent of its decision to take
such action, negotiate and participate in discussions and negotiations with such
entity or group concerning a Superior Proposal (as defined below) if (A) such
entity or group has on an unsolicited basis submitted a bona fide written
proposal to the Company Board 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 hereof 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 (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 Agreement, 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 in this Section 5.2. The Company will 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, negotiation 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,
negotiation 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.
(b) Except as set forth below in this subsection (b), neither
the Company Board nor any committee thereof shall (i) withdraw or modify, or
propose to withdraw or modify, in a manner adverse to Parent or Sub, the
approval or recommendation by the Company Board or any such committee of the
Offer, this 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
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<PAGE>
letter of intent, agreement in principle or definitive 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, this 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 legal 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 business days prior to taking any action with
respect to such Superior Proposal or the withdrawal or modification of its
approval or recommendation, specifying the material terms and conditions of such
Superior Proposal, and identifying the person making such Superior Proposal; and
(D) the Company gives Parent at least five 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-day
period.
5.3 Reasonable Best Efforts.
------------------------
(a) Prior to the Closing, upon the terms and subject to the
conditions of this Agreement, Parent, Sub and the Company agree to use their
respective reasonable best efforts (x) to take, or cause to be taken, all
actions, and (y) to do, or cause to be done, all things necessary, proper or
advisable (subject to any Applicable Laws) to consummate and make effective the
Merger and the other Transactions as promptly as practicable including, but not
limited to (i) the preparation and filing of all forms, registrations and
notices required to be filed to consummate the Merger and the other Transactions
and the taking of such actions as are necessary to obtain any requisite
approvals, consents, orders, exemptions or waivers by any third party or
Governmental Entity, (ii) the preparation of any disclosure documents reasonably
requested by Parent in order to facilitate financing of any of the Transactions
and (iii) the satisfaction of the other parties' conditions to Closing. In
addition, no party hereto shall take any action after the date hereof that would
reasonably be expected to delay materially the obtaining of, or result in not
obtaining, any permission, approval or consent from any Governmental Entity
necessary to be obtained prior to Closing. Notwithstanding the foregoing, or any
other covenant herein contained, in connection with the receipt of any necessary
approvals under the HSR Act, neither the Company nor any Company Subsidiary
shall be entitled to
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<PAGE>
divest or hold separate or otherwise take or commit to take any action that
limits Parent's or Sub's freedom of action with respect to, or their ability to
retain, the Company or any Company Subsidiary or any material portions thereof
or any of the businesses, product lines, properties or assets of the Company or
any Company Subsidiary, without Parent's prior written consent.
(b) Prior to the Closing, subject to Applicable Law, each party
shall promptly consult with the other parties hereto with respect to, provide
any necessary information with respect to, and provide the other parties (or
their respective counsel) with copies of, all filings made by such party with
any Governmental Entity or any other information supplied by such party to a
Governmental Entity in connection with this Agreement, the Merger and the other
Transactions. Each party hereto shall promptly inform the other parties of any
communication from any Governmental Entity regarding any of the Transactions. If
any party hereto or Affiliate thereof receives a request for additional
information or documentary material from any such Governmental Entity with
respect to any of the Transactions, then such party shall endeavor in good faith
to make, or cause to be made, as soon as reasonably practicable and after
consultation with the other parties, an appropriate response in compliance with
such request. To the extent that transfers, amendments or modifications of
Permits (including Environmental Permits) are required as a result of the
execution of this Agreement or consummation of any of the Transactions, the
Company shall use its reasonable best efforts to effect such transfers,
amendments or modifications.
(c) The Company and Parent shall file, as soon as practicable,
notifications under the HSR Act and respond as promptly as practicable to any
inquiries received from the Federal Trade Commission and the Antitrust Division
of the Department of Justice for additional information or documentation and
respond as promptly as practicable to all inquiries and requests received from
any State Attorney General or other Governmental Entity in connection with
antitrust matters. Concurrently with the filing of notifications under the HSR
Act or as soon thereafter as practicable, the Company and Parent shall each
request early termination of the HSR Act waiting period.
(d) Notwithstanding the foregoing, except as provided in Section
7.1(b)(ii), nothing contained in this Agreement shall be deemed to require the
Company, Parent or Sub to commence any litigation against any entity in order to
facilitate the consummation of any of the Transactions or to defend against any
46
<PAGE>
litigation brought by any Governmental Entity seeking to prevent the
consummation of any of the Transactions.
5.4 Access to Information. To the extent permitted by applicable
---------------------
law, upon reasonable notice, the Company shall (and shall cause each Company
Subsidiary to), afford to the officers, employees, accountants, counsel,
financing sources and other representatives of Parent, access, during normal
business hours during the period prior to the Effective Time, to all its
properties, books, contracts, commitments and records and, during such period,
the Company shall (and shall cause each Company Subsidiary to), furnish promptly
to Parent (a) a copy of each report, schedule, registration statement and other
document filed or received by it during such period pursuant to the requirements
of the federal securities laws and (b) all other information concerning its
business, properties and personnel as Parent may reasonably request. Access
shall include the right to conduct such management information systems, risk
management and environmental studies as Parent, in its discretion, shall
reasonably deem appropriate. After the time the persons designated by Parent
have been elected to, and shall constitute a majority of, the Company Board
pursuant to Section 1.3 hereof (the "Appointment Date"), the Company shall
provide Parent and such persons as Parent shall designate with such information,
at any time as Parent shall request. Until the Effective Time, unless otherwise
required by law or in order to comply with disclosure requirements applicable to
the Offer Documents or the Proxy Statement, Parent will hold any such
information which is nonpublic in confidence in accordance with the
Confidentiality Agreements, dated as of May 24, 1999 and May 26, 1999 (the
"Confidentiality Agreements"), entered into by and among the members of Parent
and the Company.
5.5 Publicity. The initial press release with respect to the
---------
execution of this Agreement shall be a joint press release acceptable to Parent
and the Company. Thereafter, until the Appointment Date or the date the
Transactions are terminated or abandoned, neither the Company, Parent nor any of
their respective Affiliates shall issue or cause the publication of any press
release or other announcement with respect to the Merger, this Agreement or the
other Transactions without prior consultation with the other parties, except to
the extent required by law, the rules and regulations of any national securities
exchange or over-the-counter market or by any listing agreement with a national
securities exchange or over-the-counter market.
5.6 State Takeover Laws. Notwithstanding any other provision in this
-------------------
Agreement, in no event shall the approval given by the Company Board with
47
<PAGE>
respect to Section 203 of the DGCL be withdrawn, revoked or modified by the
Company Board. If any state takeover statute other than Section 203 of the DGCL
becomes or is deemed to become applicable to the Company, the Stockholder
Agreement, the Offer, the Share Purchase, the acquisition of Shares pursuant to
the Offer or the Merger, the Company shall take all action necessary to render
such statute inapplicable to all of the foregoing.
5.7 Directors' and Officers' Insurance and Indemnification.
-------------------------------------------------------
(a) The Company shall, to the fullest extent permitted under the
applicable provisions of the DGCL, the terms of the Company's Certificate of
Incorporation or By-Laws and regardless of whether the Merger becomes effective,
indemnify and hold harmless, and, after the Effective Time, the Surviving
Corporation shall, to the fullest extent permitted under the applicable
provisions of the DGCL, indemnify and hold harmless, each present and former
director, officer or employee of the Company or any Company Subsidiary
(collectively, the "Company Indemnified Parties") against any costs or expenses
(including reasonable attorneys' fees), judgments, losses, claims, damages and
liabilities incurred in connection with, and amounts paid in settlement of, any
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative and wherever asserted, brought or filed, based
on the fact that such person is or was a director, officer or employee of the
Company or any Company Subsidiary and (x) arising out of or pertaining to the
Transactions or (y) otherwise with respect to any acts or omissions or alleged
acts or omissions occurring at or prior to the Effective Time, in each case for
a period of six years after the Effective Time. In the event of any such claim,
action, suit, proceeding or investigation (whether arising before or after the
Effective Time), (i) any counsel retained by the Company Indemnified Parties for
any period after the Effective Time must be reasonably satisfactory to the
Surviving Corporation, (ii) after the Effective Time, the Surviving Corporation
shall pay the reasonable fees and expenses of such counsel, promptly after
statements therefor are received, and (iii) the Surviving Corporation will
cooperate in the defense of any such matter; provided, however, that the
--------- -------
Surviving Corporation shall not be liable for any settlement effected without
its written consent (which consent shall not be unreasonably withheld or
delayed); and provided, further, that, in the event that any claim or claims for
-------- -------
indemnification are asserted or made within such six-year period, all rights to
indemnification in respect of any such claim or claims shall continue until the
disposition of any and all such claims. The Company Indemnified Parties as a
group shall be reimbursed for the costs of only one law firm to represent them
with respect to any single action unless there is, under applicable standards of
profes-
48
<PAGE>
sional conduct, a conflict on any significant issue between the positions of any
two or more Company Indemnified Parties. The indemnity agreements of the
Surviving Corporation in this Section 5.7 (a) shall extend, on the same terms
to, and shall inure to the benefit of and shall be enforceable by, each person
or entity who controls, or in the past controlled, any present or former
director, officer or employee of the Company or any Company Subsidiary.
(b) At the Closing, the Surviving Corporation shall purchase
directors' and officers' liability tail insurance covering those persons who are
currently covered by the Company's directors' and officers' liability insurance
policy (a copy of which has been made available to Parent) for a period of six
years on terms (including the amounts of coverage and the amounts of
deductibles, if any) 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 shall 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,
(c) This Section 5.7 shall survive the consummation of the
Merger at the Effective Time, and shall be binding on all successors and assigns
of the Surviving Corporation (including any transferee of all or substantially
all the assets of Parent or the Surviving Corporation).
5.8 Conduct of Business of Sub. During the period of time from the
--------------------------
date of this Agreement to the Effective Time, Sub shall not engage in any
activities of any nature except as provided in or contemplated by this
Agreement.
5.9 Transfer of Stockholder's Shares. The Company hereby waives any
--------------------------------
rights the Company may have under any agreement or otherwise to object to the
transfer to Sub or Parent of any or all Shares held by Stockholder and hereby
covenants not to consent to the transfer of any Shares held by Stockholder to
any other person unless (i) the Company will have obtained the specific, prior
written consent of Parent with respect to any such transfer or (ii) this
Agreement will have been terminated pursuant to Article VII hereof.
5.10 Notification of Certain Matters. The Company shall give prompt
-------------------------------
notice to Parent of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would cause any representation or warranty
49
<PAGE>
contained in this Agreement to be untrue or inaccurate in any material respect
at or prior to the Effective Time and (ii) any material failure of the Company
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder, provided, however, that the delivery of any
notice pursuant to this Section 5.10 shall not limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
5.11 Company Employees. The Surviving Corporation will (i) continue
-----------------
to provide each person (other than Worksite Employees) employed by the Company
or any Company Subsidiary on the Closing Date and who continue to be employed by
the Company or any Company Subsidiary thereafter such benefits and salary
comparable in the aggregate to the benefits and salary previously paid or
provided by the Company or any Company Subsidiary, as applicable (other than
stock options or stock awards), as of the Closing Date for a period ending on
the first anniversary of the Effective Time and (ii) grant to each such person
credit for his/her years of service with the Company or any Company Subsidiary,
as applicable, for purposes of calculating such person's right to participate in
applicable benefit plans and programs and the level of such participation.
5.12 Guaranty. The Company shall as promptly as practicable after the
--------
date hereof, and in any event prior to the purchase of any Shares pursuant to
the Offer, obtain (i) a guaranty from Ultimate Parent in form and substance
reasonably satisfactory to Parent, pursuant to which Ultimate Parent shall
guaranty to Parent the earnings before interest, taxes, depreciation and
amortization (EBITDA) projected to be received by the Company under the
Subscriber Services Agreement, dated as of July 1, 1999, by and between Ultimate
Parent and the Company, relating to Ultimate Parent's PROH Division (the "PROH
Contract"), which such EBITDA amounts are set forth in Schedule 5.12 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 guaranty described in clause (i) or with
respect to the PROH Contract, as the case may be, and the EBITDA set forth in
Schedule 5.12 projected to be received by the Company under the Subscriber
Services Agreement dated as of July 1, 1999 by and between Ultimate Parent and
the Company relating to Ultimate Parent's Support Services Division.
50
<PAGE>
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER
6.1 Conditions to Each Party's Obligations to Effect the Merger. The
-----------------------------------------------------------
respective obligations of each party to effect the Merger are 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 Sub, as the case may be, to the extent permitted by
Applicable Law:
(a) Stockholder Approval. This Agreement shall have been duly
--------------------
approved and adopted by the requisite vote of the stockholders of the Company,
if required by Applicable Law, in order to consummate the Merger.
(b) Stockholder's Stockholder Approval. The Required Stockholder
----------------------------------
Approval (as defined in the Stockholder Agreement) shall have been obtained.
(c) Injunction. There shall not be (i) in effect any statute,
----------
rule, regulation, executive o rder, decree, ruling or injunction or other order
of any Governmental Entity directing that the Transactions contemplated herein
or in the Irrevocable Proxy not be consummated or otherwise materially limiting
or restricting ownership or the operation of the business of the Surviving
Corporation, or (ii) pending by any Governmental Entity any suit, action or
proceeding, the subject matter of which involves the Transactions, which is
reasonably likely to materially adversely affect Parent, Sub or the Company.
(d) Governmental Filings and Consents. Subject to the terms and
---------------------------------
provisions herein provided, all consents, orders and approvals required of all
Governmental Entities for the consummation of the Merger and the other
Transactions shall have been obtained and be in effect at the Effective Time,
other than non-material consents, orders or approvals, and the waiting periods
under the HSR Act shall have expired or been terminated.
(e) Consummation of the Offer. The purchase of Shares pursuant
-------------------------
to the Offer or the Share Purchase shall have occurred.
51
<PAGE>
ARTICLE VII
TERMINATION
7.1 Termination. This Agreement may be terminated and the Merger
-----------
contemplated herein may be abandoned at any time prior to the Effective Time,
whether before or after stockholder approval thereof.
(a) By the mutual consent of Parent, Sub and the Company.
(b) By either the Company or Parent:
(i) if the Effective Time shall not have occurred on or
prior to December 31, 1999; provided, however, that the right to terminate
--------- -------
this Agreement under this Section 7.1 (b)(i) shall not be available to any
party whose failure to fulfill any obligation under this Agreement has been
the cause of, or resulted in, the failure of Parent or Sub, as the case may
be, to purchase shares of Company Common Stock pursuant to the Offer on or
prior to such date;
(ii) if any Governmental Entity shall have issued an order,
decree or ruling or taken any other action (which order, decree, ruling or
other action the parties hereto shall use their respective reasonable best
efforts to lift), in each case permanently restraining, enjoining or
otherwise prohibiting the acceptance for payment of, or payment for, Shares
pursuant to the Offer, the Merger or the other Transactions and such order,
decree, ruling or other action shall have become final and non-appealable;
or
(iii) if the Required Stockholder Approval shall not have
been obtained at the meeting of the stockholders of Ultimate Parent to be
held in accordance with the Stockholder Agreement.
(c) By the Company:
(i) if Parent, Sub or any of their Affiliates shall have
failed to commence the Offer in accordance with Section 1 hereof, provided,
--------
that the Company may not terminate this Agreement
52
<PAGE>
pursuant to this Section 7.1 (c)(i) if the Company is at such time in
material breach of its obligations under this Agreement;
(ii) if, prior to the purchase of Shares by Sub pursuant to
the Offer, the Company Board shall have withdrawn or modified in a manner
adverse to Parent or Sub its approval or recommendation of the Offer, this
Agreement or the Merger in order to permit the Company to enter into a
definitive agreement with respect to a Superior Offer, which is then
pending, provided the Company has complied with all of the provisions of
Section 5.2(b), including the notice provisions therein; or
(iii) if Parent or Sub shall have breached in any material
respect any of their respective representations, warranties, covenants or
other agreements contained in this Agreement or the Stock Option 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 Sub, as applicable.
(d) By Parent or Sub:
(i) if, prior to the purchase of Shares by Sub pursuant to
the Offer, (A) the Company shall have notified or been required by Section
5.2 hereof 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
(B), the Company Board shall have withdrawn, modified or changed in a
manner adverse to Parent or Sub its approval or recommendation of the
Offer, this Agreement or the Merger or shall have recommended an
Alternative Proposal, (C) the Company shall have executed a letter of
intent, agreement in principle or definitive agreement relating to an
Alternative Proposal or similar business combination with a person or
entity other than Parent, Sub or their Affiliates, or (D) the Ultimate
Parent board of directors shall have withdrawn, modified or changed in a
manner adverse to Parent or Sub its approval of the transactions
contemplated by the Stockholder Agreement or its approval or recommendation
of the sale of its
53
<PAGE>
interest in NCES as set forth in Ultimate Parent's Proxy Statement dated
August 13, 1999;
(ii) if, prior to the purchase of Shares by Sub pursuant to
the Offer, the Company shall have breached any of its representations,
warranties, covenants or other agreements contained in this Agreement or
the Stock Option Agreement, which breach would give rise to the failure of
the condition set forth in paragraph (c) of Annex A hereto and cannot be or
has not been cured within 30 days after the giving of written notice by
Parent or Sub to the Company;
(iii) if Target Parent or Ultimate Parent shall have
breached any of its representations, warranties, covenants or other
agreements contained in the Stockholder Agreement, which breach cannot be
or has not been cured within 30 days of the giving of written notice by
Parent or Sub to Target Parent or Ultimate Parent, as applicable;
(iv) if Ultimate Parent has not received all consents and
approvals from its lenders necessary to consummate the Transactions on the
terms and conditions set forth in this Agreement and the Stockholder
Agreement, including the unconditional release of all Liens on the Shares
held by Target Parent, and has not delivered evidence of such consents and
approvals (including release of such Liens) 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 Section 5.12 of this Agreement;
(vi) if the Company and the Company Subsidiaries shall
incur or assume indebtedness in excess of the amounts set forth in Section
5.1(xi) of this 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 Section 4.06 of the Stockholder Agreement.
54
<PAGE>
7.2 Effect of Termination. In the event of the termination of this
---------------------
Agreement as provided in Section 7.1 hereof, written notice thereof shall
forthwith be given to the other party or parties specifying the provision hereof
pursuant to which such termination is made, and this Agreement shall forthwith
become null and void, and there shall be no liability on the part of Parent,
Sub, the Company or their respective directors, officers, employees,
representatives, agents, advisors or stockholders other than the obligations
pursuant to this Section 7.2, except that the agreements contained in Section
5.5 and the provisions of this Section 7.2 and Article VIII hereof shall survive
the termination hereof; provided, however, that if (w) the Company terminates
-------- -------
this Agreement pursuant to Section 7.1(c)(ii) hereof; (x) the Company enters
into an agreement which accepts or implements a Superior Proposal; or (y) Parent
or Sub terminate this Agreement pursuant to Sections 7.1(d)(i)(B), 7.1(d)(i)(C),
7.1(d)(i)(D), 7.1(d)(iii), 7.1(d)(iv) or 7.1(d)(vii) hereof, then within one
business day following such termination the Company shall pay to Parent by wire
transfer of immediately available funds a fee equal to $4,500,000; provided
--------
further that if Parent or Sub terminate this Agreement pursuant to Sections
- -------
7.1(d)(i)(A), 7.1 (d)(ii), 7.1(d)(v) or 7.1(d)(vi) hereof or the Company,
Parent or Sub terminate this Agreement pursuant to Section 7.1(b)(iii) hereof,
the Company shall pay to Parent all of Parent's and Sub's reasonable out-of-
pocket expenses and fees (including without limitation fees and expenses payable
to counsel, accountants, experts and consultants, banks, investment banking
firms and other financial institutions and their respective agents and counsel)
actually incurred by Parent and Sub in connection with the transactions
contemplated by this Agreement, the Offer, the Merger and the Stockholder
Agreement promptly upon receipt of a reasonably itemized statement therefor;
provided further that if the Company, Parent or Sub terminate this Agreement
- ----------------
pursuant to Section 7.1(b)(iii) or 7.1(b)(v), but within one year after the date
of such termination, the Company shall have executed a letter of intent,
agreement in principle or definitive agreement relating to an Alternative
Proposal or similar business combination with a person or entity other than
Parent, Sub or their Affiliates, then within one business day following the
execution of such letter or agreement, the Company shall pay to Parent by wire
transfer of immediately available funds a fee equal to the difference between
$4,500,000, less the amount actually paid by the Company to Parent pursuant to
the immediately preceding proviso of this Section 7.2. Nothing contained in this
Section 7.2 shall relieve any party from liability for fraud or for willful
breach of this Agreement.
55
<PAGE>
ARTICLE VII
MISCELLANEOUS AND GENERAL
8.1 Payment of Expenses and Other Payments. Whether or not the
--------------------------------------
Merger shall be consummated, each party hereto shall pay its own expenses
incident to preparing for, entering into and carrying out this Agreement and the
consummation of the Transactions, except as otherwise provided in Section 7.2
hereof.
8.2 Survival of Representations and Warranties; Survival of
-------------------------------------------------------
Confidentiality Agreement. The representations and warranties made herein shall
- -------------------------
not survive beyond the earlier of termination of this Agreement or the Effective
Time. This Section 8.2 shall not limit any covenant or agreement of the parties
hereto which by its terms contemplates performance after the Effective Time. In
the event of the termination of this Agreement for any reason whatsoever, the
Confidentiality Agreements shall remain in full force and effect, provided,
however, that if this Agreement is terminated by the Company pursuant to Section
7.1(c)(ii) hereof, the first two sentences of paragraph 5 and all of paragraph 6
of the Confidentiality Agreements shall be of no force or effect.
8.3 Modification or Amendment. Subject to the applicable provisions
-------------------------
of the DGCL, at any time prior to the Effective Time, the parties hereto may
modify or amend this Agreement, by written agreement executed and delivered by
duly authorized officers of the respective parties; provided, however, that
-------- -------
after approval of this Agreement by the stockholders of the Company, no
amendment shall be made which reduces or changes the consideration payable in
the Merger or adversely affects the rights of the Company's stockholders
hereunder without the approval of such stockholders.
8.4 Waiver of Conditions. Except as otherwise provided in this
--------------------
Agreement, any failure of any of the parties to comply with any obligation,
covenant, agreement or condition herein may be waived by the party or parties
entitled to the benefits thereof only by a written instrument signed by the
party granting such waiver, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
56
<PAGE>
8.5 Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
8.6 Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of Delaware without giving
effect to the principles of conflicts of law thereof.
8.7 Notices. Any notice, request, instruction or other document to
-------
be given hereunder by any party to the other parties shall be in writing and
delivered personally or sent by registered or certified mail, postage prepaid,
or by facsimile transmission (with a confirming copy sent by overnight courier),
as follows:
(a) If to the Company, to
NovaCare Employee Services, Inc.
2621 Van Buren Avenue
Norristown, Pennsylvania 19403
Telephone no.: (610) 650-4813
Facsimile no.: (610) 650-4706
Attention: President
with copies to:
Haythe & Curley
237 Park Avenue
20th Floor
New York, New York 10017
Telephone no.: (212) 880-6000
Facsimile no.: (212) 682-0200
Attention: Andrew J. Beck, Esq.
(b) If to Parent or Sub, to
Plato Holdings, Inc.
c/o Patricof & Co. Ventures, Inc.
455 South Gulph Road, Suite 410
King of Prussia, Pennsylvania 19406
Telephone no.: (610) 265-0286
Facsimile no.: (610) 265-4959
57
<PAGE>
Attention: Gregory M. Case
with copies to:
Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, Pennsylvania 19103
Telephone no.: (215) 569-5544
Facsimile no.: (215) 569-5628
Attention: Arthur H. Miller, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
One Beacon Street
Boston, Massachusetts 02108
Telephone no.: (617) 573-4800
Facsimile no.: (617) 573-4822
Attention: Louis A. Goodman, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue, N.W.
Washington, DC. 20005
Telephone no.: (202) 371-7000
Facsimile no.: (202) 393-5760
Attention: Marcia R. Nirenstein, Esq.
or to such other persons or addresses as may be designated in writing by the
party to receive such notice.
8.8 Entire Agreement, Assignment. This Agreement and the
----------------------------
Confidentiality Agreements(a) constitute the entire agreement among the parties
with respect to the subject matter hereof and supersede all other prior
agreements and understandings, both written and oral, among the parties or any
of them with respect to the subject matter hereof and (b) shall not be assigned
by operation of law or otherwise without the prior written consent of the other
parties; except that Parent and Sub may assign, in its sole discretion, any or
all of its rights, interests and obligations hereunder to Parent or to any
direct or indirect wholly owned subsidiary of Parent or to any other entity
owned by the same members of Parent. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective permitted successors and assigns.
58
<PAGE>
8.9 Parties in Interest. Nothing in this Agreement, express or
--------------------
implied, other than the right to receive the consideration payable in the Merger
pursuant to Article II hereof and as provided in Section 5.7 hereof, is intended
to or shall confer upon any other person any rights, benefits or remedies of any
nature whatsoever under or by reason of this Agreement.
8.10 Obligation of Parent. Whenever this Agreement requires Sub to
--------------------
take any action, such requirement shall be deemed to include an undertaking on
the part of Parent to cause Sub to take such action and a guarantee of the
performance thereof.
8.11 Validity. If any term, provision, covenant or restriction of
--------
this Agreement is held by a court of competent jurisdiction or other authority
to be invalid, void, unenforceable or against its regulatory policy, the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party.
8.12 Captions. The Article, Section and paragraph captions herein are
--------
for convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
8.13 Specific Performance. Each of the parties hereto acknowledges
--------------------
and agrees that in the event of any breach of this Agreement, each non-breaching
party would be irreparably and immediately harmed and could not be made whole by
monetary damages. It is accordingly agreed that the parties hereto (a) will
waive, in any action for specific performance, the defense of adequacy of a
remedy at law and (b) shall be entitled, in addition to any other remedy to
which they may be entitled at law or in equity, to compel specific performance
of this Agreement in any action instituted in a court of competent jurisdiction.
8.14 "Knowledge" of the Company. For purposes of this Agreement,
-------------------------
unless otherwise expressly provided where the term is used, "knowledge" of the
Company will be deemed to mean (i) the actual knowledge of any director or
executive officer of the Company or any Company Subsidiary and (ii) the
knowledge that any such director or executive officer would have had if he or
she, in connection with the confirmation of the accuracy of the representations
and warranties of the
59
<PAGE>
Company in this Agreement, had made due inquiry of the officers, employees,
advisors, and agents of the Company or any Company Subsidiary who are primarily
responsible for the subject matter of such representations and warranties.
8.15 Confidentiality. During the period from the date of this
---------------
Agreement to the Effective Date, the Company shall, and shall cause each Company
Subsidiary to, maintain the confidentiality of all confidential information
given to them by Parent or Sub or any Affiliate of Parent or Sub, in connection
with this Agreement, in the same manner that the recipient of the information
maintains the confidentiality of its own confidential information. If this
Agreement is terminated in accordance with Article VII, the Company shall, and
shall cause each Company Subsidiary to, promptly return all such confidential
information and materials, and the provisions of the foregoing sentence shall
survive such termination indefinitely. The Company acknowledges that any breach
of this Section 8.15 may cause irreparable injury to Parent or Sub for which
money damages could not adequately compensate. If there is such a breach, the
aggrieved parties shall be entitled, in addition to all other rights or remedies
it may have at law or in equity, to have an injunction issued by any competent
court enjoining and restraining the breaching parties from continuing such
breach. The existence of any claim or cause of action which any of the breaching
parties may have against the aggrieved parties shall not constitute a defense or
bar to the enforcement of this Section 8.15.
ARTICLE IX
DEFINITIONS
9.1 Certain Definitions. The following terms when used herein shall
-------------------
have the meanings assigned to them below (certain other terms are defined
elsewhere herein):
"Actions" shall have the meaning set forth in Section 3.14 hereof.
"Affiliate" means a person or entity who directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, another person.
"Applicable Law" shall mean the collective reference to any law, rule,
regulation, ordinance, writ, judgment, injunction, decree, determination, award
or other order of any Governmental Authority, in each case excluding any and all
Environmental Laws.
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"Benefit Plan" shall have the meaning set forth in Section 3.11
hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company Common Stock" shall have the meaning set forth in the
recitals hereof.
"Company Material Adverse Effect" shall mean a material adverse effect
or any development that, insofar as can be reasonably foreseen, is likely to
have a material adverse effect on the assets, properties, businesses, results of
operations or financial condition of the Company and the Company Subsidiaries,
taken as a whole, and in any case after application of the proceeds of any
insurance or indemnity under any contract or agreement to which the Company,
Parent or Sub (or any Affiliate thereof) is a party; provided that the term
"Company Material Adverse Effect" as used herein shall not include any effect
attributable to changes in the economy generally.
"Company Material Contracts" shall have the meaning set forth in
Section 3.10 hereof.
"Confidentiality Agreement" shall have the meaning set forth in
Section 5.4 hereof.
"Control" (including the terms "controlling", "controlled by" and
"under common control with") means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of the
person, whether through stock ownership, voting rights, governing boards or
otherwise.
"Environmental Laws" shall have the meaning set forth in Section
3.15(c) hereof.
"Environmental Permits" shall have the meaning set forth in Section
3.15(c) hereof.
"ERISA" shall have the meaning set forth in Section 3.11(a) hereof.
"GAAP" shall have the meaning set forth in Section 3.4(b) hereof.
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"Governmental Authority" or "Governmental Entity" shall mean the
collective reference to any court, tribunal, government, or governmental agency,
authority or instrumentality, domestic or foreign.
"Intellectual Property" shall mean trademarks, service marks, trade
names, Internet domain names, designs, logos, slogans, and general intangibles
of like nature, together with all goodwill, registrations and applications
related to the foregoing (collectively, "Trademarks"); patents and industrial
design registrations or applications (including any continuations, divisionals,
continuations-in-part, renewals, reissues, and applications for any of the
foregoing); software; "mask works" (as defined under 17 USC (S)901) and any
registrations and applications for "mask works"; technology, trade secrets and
other confidential information, know-how, proprietary processes, formulae,
algorithms, models, and methodologies (collectively, "Trade Secrets").
"Lien" shall mean any mortgage, pledge, encumbrance, charge or other
security interest of any kind or nature whatsoever.
"Permits" shall have the meaning set forth in Section 3.15(b) hereof.
"Permitted Liens" shall mean:
(a) Liens for Taxes not yet due or which are being contested in
good faith by appropriate proceedings, provided that adequate reserves with
respect to contested Taxes are maintained on the books of the Company;
(b) pledges or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
social security legislation;
(c) easements, rights-of-way, restrictions and other similar
encumbrances previously incurred in the ordinary course of business which, in
respect of properties or assets of the Company or any Company Subsidiary, are
not material, and which, in the case of such encumbrances on the assets or
properties of the Company or any Company Subsidiary, do not materially detract
from the value of any such properties or assets or materially interfere with any
present use of such properties or assets;
(d) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business which
are
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not overdue for a period of more than 90 days or which are being contested in
good faith by appropriate proceedings;
(e) deposits to secure the performance of bids, contracts (other
than for borrowed money), leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature incurred in the
ordinary course of business;
(f) statutory and contractual Liens on the property of the
Company or any Company Subsidiary in favor of landlords securing leases; and
(g) Liens in existence on the date of this Agreement listed in
Section 3.9 to the Company Disclosure Schedule.
"Shares" shall have the meaning set forth in the recitals hereof.
"Taxes" shall have the meaning set forth in Section 3.7 hereof. "Tax
Returns" shall have the meaning set forth in Section 3.7 hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized officers as of the date first
above written.
PLATO HOLDINGS, INC.
By:/s/ Gregory M. Case
---------------------------
Name: Gregory M. Case
Title: President
NEW PLATO ACQUISITION, INC.
By:/s/ Gregory M. Case
---------------------------
Name: Gregory M. Case
Title: President
NOVACARE EMPLOYEE SERVICES, INC.
By:/s/ Loren J. Hulber
---------------------------
Name: Loren J. Hulber
Title: President & CEO
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ANNEX A
-------
CONDITIONS TO THE OFFER
-----------------------
The capitalized terms used in this Annex A shall have the meanings
ascribed to them in the Agreement and Plan of Merger to which it is attached,
except that the term "Merger Agreement" shall be deemed to refer to such
Agreement and Plan of Merger.
Notwithstanding any other provisions of the Offer, and in addition to
(and not in limitation of) Sub's rights to extend and amend the Offer as
provided in the Merger Agreement, Sub shall not be required to accept for
payment or, subject to any applicable rules and regulations of the SEC,
including Rule 14e-1(c) under the Exchange Act (relating to Sub'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 the Offer if in the reasonable judgment of Sub (i) any applicable
waiting period under the HSR Act has not expired or terminated prior to the
expiration of the Offer, (ii) the Minimum Condition has not been satisfied,
(iii) the Required Stockholder Approval (as defined in the Stockholder
Agreement) shall not have been obtained, or (iv) at any time on or after the
date hereof, 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 any Governmental
Authority, or the Company, Parent or Sub shall have received notice from an
attorney representing a party of such party's intent to commence any suit,
action or proceeding which (i) seeks to prohibit or delay the making or
consummation of the Offer or the Merger, (ii) seeks to challenge, prohibit,
delay or make illegal or materially more costly the acquisition by Parent or Sub
of any Shares pursuant to the Offer, the Stockholder Agreement, the Stock Option
Agreement or the acceptance for payment, payment for or purchase of Shares
pursuant to, or consummation of, the Offer or the Merger or seeks to make
illegal the transactions contemplated by the Stockholder Agreement or the Stock
Option Agreement or otherwise directly or indirectly to restrain, prohibit or
delay the transactions contemplated by the Stockholder Agreement or the Stock
Option Agreement, (iii) seeks to require divestiture by Parent or any of its
subsidiaries or Affiliates of any Shares or impose limitations on the ability of
Parent or any of its subsidiaries or Affiliates to exercise full rights of
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ownership of the Shares purchased by it, including the right to vote on all
matters, (iv) seeks to impose limitations on the ability of Parent or any of its
subsidiaries or Affiliates effectively to acquire, hold or operate, or to
require Parent, Sub or the Company or any of their respective subsidiaries or
Affiliates to dispose of or hold separate, any material portion of the business
or assets of Parent, Sub or the Company or any of their respective subsidiaries,
or (v) would reasonably be expected to have a Company Material Adverse Effect;
(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 Stock 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; 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 Stock 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 hereof 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
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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 (1) 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), (2) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States (whether or not
mandatory), (3) any limitation or proposed limitation (whether or not mandatory)
by any United States Governmental Authority or agency on the extension of credit
by financial institutions, (4) 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 this Agreement or (5) in the case of any of the
situations in clauses (1) through (4) inclusive, existing at the time of the
commencement of the Offer, a material acceleration or worsening thereof;
(h) the Company, Target Parent or Ultimate Parent pursuant to or
within the meaning of Title 11, U.S. Code or any similar federal or state law
for the relief of debtors ("Bankruptcy Law"): (1) commences a voluntary case,
(2) consents to the entry of an order for relief against it in an involuntary
case, (3) 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, (4) makes a general assignment for
the benefit of its creditors, or (5) generally is not paying its debts as they
become due;
(i) a court of competent jurisdiction enters an order or decree
under the Bankruptcy Law that; (1) is for relief against the Company in an
involuntary case, (2) appoints a Custodian of the Company, Target Parent or
Ultimate Parent or for all or substantially all of the property of the Company,
Target Parent or Ultimate Parent, or (3) orders the liquidation of the Company,
Target Parent or Ultimate Parent, 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 Company Material Adverse Effect;
(k) either Target Parent or Ultimate Parent 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 Sub an
opinion from a reputable firm to the effect that Ultimate Parent and the Company
are solvent as of the time any Shares are accepted for payment;
(n) Ultimate Parent shall not have obtained all consents of, and
approvals to, the Transactions from its lenders in accordance with Section 4.04
of the Stockholder Agreement and delivered evidence of such consents and
approvals to Parent and Sub;
(o) 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 Section 5.12 of the Merger Agreement;
(p) if the Company and the Company Subsidiaries shall have
incurred or assumed indebtedness in excess of the amounts set forth in Section
5.1(xi) of the Merger Agreement; or
(q) the Company shall not have been removed as co-indemnitor
with respect to the Liberty Bond in accordance with Section 4.06 of the
Stockholder Agreement.
which in the reasonable judgment of Parent or Sub, 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 Sub and Parent
and may be waived by Parent or Sub, in whole or in part at any time and from
time to time in the sole discretion of Parent or Sub. The failure by Parent or
Sub at any time to exercise any of the foregoing rights shall not be deemed a
waiver of any such right and each such right shall be deemed an ongoing right
which may be asserted at any time and
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from time to time. Any determination by Parent or Sub concerning any condition
or event described in this Annex A shall be final and binding upon all parties.
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STOCKHOLDER AGREEMENT
STOCKHOLDER AGREEMENT, dated as of September 8, 1999 among Plato
Holdings, Inc., a Delaware corporation ("Parent"), New Plato Acquisition, Inc.,
a Delaware corporation and a wholly owned subsidiary of Parent ("Sub"), and NC
Resources, Inc., a Delaware corporation ("Target Parent"), and NovaCare, Inc., a
Delaware corporation ("Ultimate Parent").
WHEREAS, Target Parent beneficially owns and is the holder of record,
as of the date hereof, of 19,400,000 shares of common stock, $.01 par value
("Common Stock"), of NovaCare Employee Services, Inc., a Delaware corporation
(the "Company"), which shares ("the Covered Shares") represent a majority of the
issued and outstanding shares (the "Shares") of capital stock of the Company;
WHEREAS, the Board of Directors of each of Parent, Sub and the Company
has approved, and deemed it advisable and in the best interests of its
respective stockholders to consummate the acquisition of the Company by Parent
by means of a merger (the "Merger") of Sub with and into the Company upon the
terms and subject to the conditions set forth in an Agreement and Plan of Merger
(the "Merger Agreement") dated the date hereof by and among Parent, Sub and the
Company;
WHEREAS in furtherance thereof, it is proposed that Parent and Sub
make a cash tender offer (the "Offer") to acquire any and all shares of the
issued and outstanding Common Stock of the Company for $2.50 per share, net to
the seller in cash; and
WHEREAS, as a condition and inducement to each of Parent and Sub to
enter into the Merger Agreement and to make the Offer, Parent and Sub have
requested and Target Parent and Ultimate Parent have agreed, to execute this
Agreement pursuant to which, among other things, Target Parent agrees to tender
the Covered Shares held by it in the Offer and to grant Parent a proxy with
respect of the voting of the Covered Shares or, at Parent's election, to sell
such Covered Shares to Sub.
NOW, THEREFORE, the parties hereto agree as follows:
<PAGE>
ARTICLE I
REPRESENTATIONS AND WARRANTIES
OF ULTIMATE PARENT AND TARGET PARENT
Ultimate Parent and Target Parent, jointly and severally, represent
and warrant to each of Parent and Sub that:
Section 1.1 Organization and Valid Title. Each of Ultimate Parent and Target
- ----------- ----------------------------
Parent is validly existing and in good standing under the laws of the
jurisdiction of its organization. Target Parent is the sole, true, lawful and
direct beneficial owner and holder of record as of the date of this Agreement of
the Covered Shares with no restrictions on the Target Parent's voting rights or
rights of disposition pertaining thereto except for (i) a pledge (the "Pledge")
of the Covered Shares to PNC Bank, National Association ("PNC Bank"), as agent,
pursuant to the Credit Agreement dated as of May 27, 1994, as amended, between
Ultimate Parent and its subsidiaries and PNC Bank, as agent for the banks named
in such Credit Agreement (the "Credit Agreement"), (ii) the agreement made
pursuant to Articles III and IV hereof and (iii) restrictions arising under the
U.S. federal securities laws and state "blue sky" laws. Except for the Pledge,
Target Parent has good and valid title to the Covered Shares, free and clear of
any and all claims, liens, charges, encumbrances and security interests. Upon
tender of the Covered Shares pursuant to Article III or sale of the Covered
Shares pursuant to Article IV, Target Parent shall convey to Sub or Parent, as
the case may be, good and valid title to the Covered Shares, free and clear of
any and all claims, liens, charges, encumbrances and security interests. None
of the Covered Shares are subject to any voting trust or other agreement or
arrangement with respect to the voting of such Covered Shares, other than the
Pledge and the agreement made pursuant to Articles III and IV hereof. When used
herein with respect to any Covered Share, the "beneficial ownership" thereof
means the power to vote or dispose of, or direct the voting or disposition of,
such Covered Share.
Section 1.2 Non-Contravention and Consents. Upon the receipt of any
- ----------- ------------------------------
stockholder approval of Ultimate Parent required by the General Corporation Law
of the State of Delaware (the "DGCL") approving the agreement to tender, the
grant of the irrevocable proxy and the agreement to sell the Covered Shares to
Parent contained in Article III of this Agreement (the "Required Stockholder
Approval"), each of Ultimate Parent and Target Parent has all requisite
corporate right, power and
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authority to execute, deliver and perform this Agreement. The execution,
delivery and performance by each of Ultimate Parent and Target Parent of this
Agreement do not and will not violate any provision of the Certificate of
Incorporation or By-Laws of either Ultimate Parent or Target Parent or
contravene or constitute a default under or give rise to a right of termination,
cancellation or acceleration of any right or obligation of either of Ultimate
Parent and Target Parent or to a loss of any benefit of either Ultimate Parent
or Target Parent under any provision of applicable law or regulation or of any
agreement, judgment, injunction, order, decree, or other instrument binding on
either Ultimate Parent or Target Parent or result in the imposition of any lien
on any asset of either Ultimate Parent or Target Parent. Each of Ultimate Parent
and Target Parent has obtained all consents and approvals required by it in
connection with the execution, delivery and performance of this Agreement, other
than the Required Stockholder Approval and any consents or approvals required
under the Credit Agreement which shall be obtained prior to the date of the
Special Meeting (as hereinafter defined).
Section 1.3 Binding Effect. The execution, delivery and performance of this
- ----------- --------------
Agreement have been duly authorized by the Board of Directors of Ultimate Parent
and Target Parent and the stockholder of Target Parent and no other corporate
action on the part of either Ultimate Parent or Target Parent is necessary in
order to authorize the execution, delivery and performance by Ultimate Parent
and Target Parent of this Agreement other than the Required Stockholder
Approval. This Agreement has been duly executed and delivered by Ultimate
Parent and Target Parent and is the valid and binding agreement of Ultimate
Parent and Target Parent, enforceable against Ultimate Parent and Target Parent
in accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency, moratorium or other similar laws relating to creditors'
rights generally.
Section 1.4 Total Shares. The Covered Shares are the only shares of Common
- ----------- ------------
Stock directly beneficially owned or held of record by Target Parent and Target
Parent does not own any option to purchase or rights to subscribe for or
otherwise acquire any securities of the Company or have any other interest in or
voting rights with respect to any securities of the Company.
Section 1.5 Board Approvals.
- ----------- ---------------
(a) Ultimate Parent's Board, at a meeting duly called and held, has (i)
unanimously determined that this Agreement and the transactions
contemplated hereby are advisable and in the best interests of the
stockholders of
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Ultimate Parent, (ii) approved this Agreement and the transactions
contemplated hereby, and (iii) resolved to recommend that the stockholders
of Ultimate Parent approve the matters requiring the Required Stockholder
Approval, and none of the aforesaid actions by Ultimate Parent's Board has
been or will be amended, rescinded or modified.
(b) Target Parent's Board, at a meeting duly called and held, has (i)
unanimously determined that this Agreement and the transactions
contemplated hereby are advisable and in the best interests of the
stockholder of Target Parent, (ii) approved this Agreement and the
transactions contemplated hereby, and (iii) resolved to recommend that the
stockholder of Target Parent approve this Agreement and the transactions
contemplated hereby and none of the aforesaid actions by Target Parent's
Board has been or will be amended, rescinded or modified. Ultimate Parent,
as the sole stockholder of Target Parent, has, in accordance with
Applicable Law (as defined in the Merger Agreement), authorized this
Agreement and the transactions contemplated hereby and by the Merger
Agreement.
Section 1.6 Vote Required. The affirmative vote of the holders of a bare
- ----------- -------------
majority of the outstanding shares of Common Stock of Ultimate Parent is the
only vote of the holders of any class or series of Ultimate Parent's capital
stock necessary for the Required Stockholder Approval. None of the other
transactions contemplated by this Agreement requires under Applicable Law (as
defined in the Merger Agreement) or Ultimate Parent's organizational documents,
any approval of the stockholders of Ultimate Parent.
Section 1.7 Opinion of Financial Advisors. Ultimate Parent Board has received
- ----------- -----------------------------
the opinion of Wasserstein Perella & Co., Inc. dated September 8, 1999, to the
effect that, as of such date, and based upon the assumptions made, matters
considered, and limits of review set forth therein, the applicable Merger
Consideration (as defined in the Merger Agreement) is fair to Ultimate Parent,
from a financial point of view.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Each of Parent and Sub represents and warrants to Ultimate Parent and
Target Parent that it has all requisite corporate power and authority to execute
and deliver this Agreement and to perform its obligations hereunder. The
execution, delivery and performance by each of Parent and Sub of this Agreement
have been
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duly authorized by the Board of Directors of each of Parent and Sub
and no other corporate action on the part of each of Parent and Sub is necessary
to authorize the execution, delivery or performance by Parent and Sub of this
Agreement. This Agreement has been duly executed and delivered by Parent and
Sub and is a valid and binding agreement of each of Parent and Sub, enforceable
against each of them in accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency, moratorium or other similar laws relating to
creditors' rights generally.
ARTICLE III
AGREEMENT TO TENDER SHARES/
IRREVOCABLE PROXY/SALE OF SHARES
Section 3.1 Agreement to Tender/Proxy. Subject to obtaining the Required
- ----------- -------------------------
Stockholder Approval at the Special Meeting referred to in Section 4.03, during
the time the agreement to tender and the grant of the irrevocable proxy
contained in this Article III is in effect, (x) Target Parent shall, and
Ultimate Parent shall cause Target Parent to, tender the Covered Shares in the
Offer and (y) Target Parent hereby makes, constitutes and appoints Parent, and
each of Parent's officers and employees, its true and lawful attorneys, for it
and in its name, place and stead, to act as its proxy in respect of all of the
Covered Shares, which it now or hereafter may own or hold, to vote for the
transaction of any and all business that may come before 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 (as defined
in the Merger Agreement), or at any adjournment thereof, or in any consent
solicitation related to the foregoing; giving and granting to its said attorneys
full power and authority to do and perform each and every act and thing whether
necessary or desirable to be done in and about the premises, as fully as it
might or could do if personally present with full power of substitution,
appointment and revocation, hereby ratifying and confirming all that its said
attorneys shall do or cause to be done by virtue hereof.
The irrevocable proxy contained in this Article III is coupled with an
interest, namely the right of Parent or Sub to acquire all of the Covered Shares
and is given to Parent and to its officers and employees in consideration of the
agreements of Parent and Sub under the Merger Agreement, and to induce Parent
and Sub to enter into the Merger Agreement, and this irrevocable proxy shall not
be revocable or revoked by Target Parent, and shall be binding upon it, its
successors and assigns until, in accordance with Section 6.5(a), this Article
III is terminated.
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Section 3.2 Sale of Covered Shares.
- ----------- ----------------------
(a) At Parent's election, subject to receipt of the Required Stockholder
Approval, Parent shall purchase from Target Parent and Target Parent shall
sell to Parent the Covered Shares (the "Share Purchase Right") at a price
per share equal to $2.50 (the "Purchase Price"). From and after receipt of
the Required Stockholder Approval, Parent may elect to purchase the Covered
Shares by delivery to Target Parent of a written notice specifying the
place, date and time for the closing of such purchase (the "Share Purchase
Closing" ).
(b) Parent's obligation to purchase the Covered Shares upon any exercise of the
Share Purchase Right shall be subject to (i) each of the representations
and warranties of Ultimate Parent and Target Parent contained in this
Agreement was when made on the date of this Agreement true and correct and
is true and correct as of the time of the Share Purchase Closing as though
made on and as of the time of the Share Purchase Closing, (ii) Ultimate
Parent and Target Parent shall have performed or complied with all
agreements and covenants required by this Agreement to be performed or
complied with by them on or prior to the Share Purchase Closing, and (iii)
the satisfaction of the conditions set forth in Annex A to the Merger
Agreement as if the Share Purchase Right was the Offer. Upon the request
of Parent, Target Parent and Ultimate Parent shall promptly take, or cause
to be taken, after the date hereof, all action required to effect all
necessary filings by Target Parent and Ultimate Parent under the HSR Act
and shall cooperate with the Parent with respect to its filing obligations.
(c) At any Share Purchase Closing, Target Parent will deliver to Parent a
certificate as to the satisfaction of conditions (i) and (ii) of the
penultimate sentence of Section 3.02(b), and Parent will deliver to Target
Parent a certificate of an officer of Parent certifying the truth and
correctness of Parent's representations and warranties contained in this
Agreement as if made on the date of the Share Purchase Closing.
(d) At any Share Purchase Closing, (i) Parent shall pay the aggregate Purchase
Price for the Covered Shares then being purchased from Target Parent by
certified or cashier's check or wire transfer, as determined solely by
Parent, and (ii) Target Parent shall deliver, or cause to be delivered, to
Parent one or more share certificates evidencing the Covered Shares then
being sold, and Target Parent agrees that such Covered Shares shall be
transferred free and clear of all Liens (as defined in the Merger
Agreement). All such share certificates shall be duly endorsed
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in blank, or with appropriate stock powers, duly executed in blank,
attached thereto, in proper form for transfer, with the signature of Target
Parent thereon guaranteed, and with all applicable taxes paid (including
any tax stamps attached).
(e) If Parent shall exercise the Share Purchase Right pursuant to this
Agreement, and without additional consideration, Target Parent shall
execute and deliver such further transfers, assignments, endorsements,
consents and other instruments as Parent may reasonably request for the
purpose of effectively carrying out the transactions contemplated by this
Agreement, including the transfer of any and all of the Target Parent's
Covered Shares sold to Parent and the release of any and all Liens covering
such Covered Shares.
ARTICLE IV
COVENANTS OF ULTIMATE PARENT AND TARGET PARENT
Ultimate Parent and Target Parent hereby, jointly and severally,
covenant and agree that:
Section 4.1 No Proxies for or Disposition of Shares. Except pursuant to the
- ----------- ---------------------------------------
terms of this Agreement or the Pledge, Target Parent shall not, and Ultimate
Parent shall cause Target Parent not to, without the prior written consent of
Parent and Sub, directly or indirectly, (i) grant any proxies or voting rights
or enter into any voting trust or other agreement or arrangement with respect to
the voting of any Covered Shares, (ii) acquire, sell, assign, transfer,
encumber, pledge or otherwise dispose of, or enter into any contract, option or
other arrangement or understanding with respect to the direct or indirect
acquisition or sale, assignment, transfer, encumbrance or other disposition of,
any Shares or interest therein during the term of this Agreement, or (iii) issue
any shares of its capital stock or any securities convertible into or
exchangeable for any shares of its capital stock or enter into any contract,
arrangement or understanding with respect thereto. Ultimate Parent shall not,
without prior written consent of Parent and Sub, directly or indirectly, (i)
grant any proxies or voting rights or enter into any voting trusts or other
agreement or arrangement with respect to the voting of any capital stock of
Target Parent, or (ii) sell, assign, transfer, encumber, pledge or otherwise
dispose of, or enter into any contract, option or other arrangement or
understanding with respect to the direct or indirect sale, assignment, transfer,
encumbrance or other disposition of, any shares of capital stock of Target
Parent or interest therein during the term of this Agreement. Neither Target
Parent nor Ultimate Parent shall seek or solicit any such acquisition or sale,
7
<PAGE>
assignment, transfer, encumbrance or other disposition or any such contract,
option or other arrangement or assignment or understanding and agrees to notify
Parent and Sub immediately and to provide all details requested by Parent and
Sub if either of them shall be approached or solicited, directly or indirectly,
by any person with respect to any of the foregoing.
Section 4.2 No Shopping. Neither Target Parent nor Ultimate Parent shall
- ----------- -----------
directly or indirectly (i) solicit, initiate or encourage (and Target Parent and
Ultimate Parent shall not permit or authorize any person, including advisors, to
solicit, initiate or encourage) any inquiry, proposal or offer from any person
or group to acquire the business, property or capital stock of the Company or
Target Parent or any direct or indirect subsidiary thereof, or any acquisition
of a significant equity interest in, or a significant portion of the assets of,
the Company or Target Parent or any direct or indirect subsidiary thereof,
whether by merger, purchase of assets, tender offer or other transaction or (ii)
participate in any discussion or negotiations regarding, or furnish to any other
person any information with respect to, or otherwise cooperate in any way with,
or participate in, facilitate or encourage any effort or attempt by any other
person to do or seek any of the foregoing; provided, however, that any director
of Target Parent or Ultimate Parent who is also a director of the Company may as
a director of the Company participate in discussions and negotiations concerning
an Alternative Proposal which has been submitted on an unsolicited basis and
which otherwise meets the requirements of the last sentence of the first
paragraph of Section 5.2(a) of the Merger Agreement. Target Parent and Ultimate
Parent shall promptly advise Parent and Sub of the terms of any communications
it may receive relating to any of the foregoing.
Section 4.3 Ultimate Parent's Stockholders' Meeting.
- ----------- ---------------------------------------
(a) Ultimate Parent, acting through Ultimate Parent's Board shall, in
accordance with Applicable Law (as defined in the Merger Agreement):
(i) duly call, give notice of, convene and hold a special meeting of
its stockholders (the "Special Meeting") as soon as practicable
following the date hereof for the purpose of considering and
taking action upon the matters requiring the Required Stockholder
Approval;
(ii) cause a supplement to Ultimate Parent's definitive proxy
statement (the "Proxy Statement") relating to
8
<PAGE>
the Special Meeting, to be mailed to its stockholders, provided
that such supplement to the Proxy Statement, insofar as it
relates to the Required Stockholder Approval, will not be mailed
by Ultimate Parent without consultation with Parent and its
counsel;
(iii) include in the Proxy Statement the recommendation of Ultimate
Parent's Board that stockholders of Ultimate Parent vote in favor
of the approval and adoption of the matters requiring the
Required Stockholder Approval; and
(iv) use its best efforts to solicit from holders of shares of
Ultimate Parent's common stock, $.01 par value, proxies in favor
of the approval and adoption of the matters requiring the
Required Stockholder Approval and shall 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 approval and adoption of the matters requiring the
Required Stockholder Approval.
(b) Parent agrees that it will provide Ultimate Parent with the information
concerning Parent and Sub required to be included in the Proxy Statement,
and hereby agrees to indemnify Ultimate Parent and hold it harmless from
and against any material inaccuracies in such information.
(c) Ultimate Parent represents that the Proxy Statement (or any amendment
thereof or supplement thereto) at the date mailed to Ultimate Parent's
stockholders and at the time of the Special Meeting, if any, will not
contain any untrue statement of material fact or omit to state any material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are
made, not misleading, except that no representation is made by Ultimate
Parent with respect to statements made therein based on information
supplied by Parent or Sub in writing for inclusion in the Proxy Statement.
Ultimate Parent agrees to indemnify Parent and Sub and hold them harmless
from and against any such misstatements or omissions. If at any time prior
to the approval and adoption the matters requiring the Required Stockholder
Approval, any event with respect to Ultimate Parent should occur which is
required to be described in a supplement to the Proxy Statement, such event
shall be so described, and such supplement shall be promptly filed with the
SEC and, as required by law, disseminated to the stockholders of Ultimate
Parent. With respect to the information relating
9
<PAGE>
to Ultimate Parent, the Proxy Statement will comply as to form and
substance in all material respects with the requirements of the Exchange
Act.
(d) Ultimate Parent shall not, until after the Special Meeting, bring before
the stockholders of Ultimate Parent, any proposal inconsistent with the
matters requiring the Required Stockholder Approval; provided, however,
that it is agreed that the proposals that are currently in the Proxy
Statement of Ultimate Parent dated August 13, 1999 are not inconsistent
with the matters requiring the Required Stockholder Approval.
Section 4.4 Consent of Ultimate Parent's Lenders. Ultimate Parent
------------------------------------
shall, as promptly as practicable after the date hereof, and in any event prior
to the purchase of any Shares pursuant to the Offer (as defined in the Merger
Agreement), obtain all consents and approvals from its lenders to the
transactions contemplated pursuant to this Agreement and the Merger Agreement
and deliver evidence of such consents and approvals to Parent and Sub.
Section 4.5 Guaranty. Ultimate Parent shall, as promptly as
--------
practicable after the date hereof, and in any event prior to the purchase of any
Shares pursuant to the Offer (as defined in the Merger Agreement), deliver to
the Company (i) a guaranty from Ultimate Parent in form and substance reasonably
satisfactory to Parent, pursuant to which Ultimate Parent shall guaranty to
Parent the earnings before interest, taxes, depreciation and amortization
(EBITDA), projected to be received by the Company under the Subscriber Services
Agreement, dated as of July 1, 1999, by and between Ultimate Parent and the
Company, relating to Ultimate Parent's PROH Division (the "PROH Contract"),
which such EBITDA amounts are set forth in Schedule 5.12 to 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 guaranty described in clause (i) or with respect to the PROH
Contract, as the case may be, and the EBITDA set forth in Schedule 5.12 of the
Merger Agreement projected to be received by the Company under the Subscriber
Services Agreement dated as of July 1, 1999 by and between Ultimate Parent and
the Company relating to Ultimate Parent's Support Services Division.
Section 4.6 Surety Bond. Prior to the purchase of any Shares
-----------
pursuant to the Offer, Ultimate Parent shall take all action necessary to cause
the Company to be removed as a co-indemnitor (or to have any obligation
thereunder
10
<PAGE>
with respect to the Company terminated) with respect to the obligations secured
by the $4,580,446 bond (Surety ID #21970-01) in favor of Liberty Mutual
Insurance Company (the "Liberty Bond").
ARTICLE V
MISCELLANEOUS
Section 5.1 Expenses. All costs and expenses incurred in connection
--------
with this Agreement shall be paid by the party incurring such cost or expense.
Section 5.2 Further Assurances. Target Parent and Ultimate Parent
------------------
each will execute and deliver or cause to be executed and delivered all further
documents and instruments and use its best efforts to secure such consents and
take all such further action as may be reasonably necessary under applicable
laws and regulations and which may be required under any agreements, contracts,
commitments, instruments, understandings, arrangements or restrictions of any
kind to which it is a party or by which it is governed or bound, to perform its
obligations under this Agreement, to obtain all necessary waivers, consents and
approvals and effect all necessary registrations and filings, responses to
requests for additional information related to such filings and submission of
information requested by governmental authorities and to rectify any event or
circumstances which could impede performance of its obligations under this
Agreement.
Section 5.3 Specific Performance. The parties hereto agree that
--------------------
Parent and Sub would be irreparably damaged if for any reason Target Parent
failed to tender the Covered Shares in the Offer or Target Parent or Ultimate
Parent failed to perform any of their respective other obligations under this
Agreement, and that Parent and Sub would not have an adequate remedy at law for
money damages in such event. Accordingly, Parent and Sub shall be entitled to
specific performance and injunctive and other equitable relief to enforce the
performance of this Agreement by Target Parent or Ultimate Parent. This
provision is without prejudice to any other rights that Parent and Sub may have
against Target Parent and Ultimate Parent for any failure to perform its
obligations under this Agreement.
Section 5.4 Notices. All notices, requests, instructions and other
-------
communications to any party hereunder shall be in writing and delivered
personally or sent by registered or certified mail, postage prepaid, or by
facsimile transmission (with a confirming copy sent by overnight courier), as
follows:
11
<PAGE>
if to Parent or Sub, to:
Plato Holdings, Inc.
c/o Patricof & Co. Ventures, Inc.
455 South Gulph Road, Suite 410
King of Prussia, PA 19406
Telephone: (610) 265-0286
Telecopy: (610) 265-4959
Attention: Gregory M. Case
with copies to:
Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, PA 19103
Telephone: (215) 569-5544
Telecopy: (215) 569-5628
Attention: Arthur H. Miller, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
One Beacon Street
Boston, MA 02108
Telephone: (617) 573-4800
Telecopy: (617) 573-4822
Attention: Louis A. Goodman, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue, N.W.
Washington, DC 20005
Telephone: (202) 371-7000
Telecopy: (202) 393-5760
Attention: Marcia R. Nirenstein, Esq.
if to Target Parent and Ultimate Parent:
NovaCare, Inc.
1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406
12
<PAGE>
Telephone: (610) 992-7200
Telecopy: (610) 992-3385
Attention: President
with a copy to:
Haythe & Curley
237 Park Avenue
20th Floor
New York, New York 10017
Telephone: (212) 880-6000
Telecopy: (212) 682-0200
Attention: Andrew J. Beck, Esq.
or to such other persons or addresses as may be designated in writing by the
party to receive such notice.
Section 5.5 Amendments; Termination. This Agreement may not be
-----------------------
modified, amended, altered or supplemented, except upon the execution and
delivery of a written agreement executed by the parties hereto. This Agreement
shall terminate if the Required Stockholder Approval shall not have been
obtained at the Special Meeting referred to in Section 4.03. In the event of the
termination of this Agreement pursuant to this Section 5.05, the relevant
provisions of this Agreement shall forthwith become void and there shall be no
liability on the part of either Parent or the Stockholder under this Agreement;
provided the foregoing shall not limit the liability of any party for breach of
this Agreement prior to such termination.
Section 5.6 Successors and Assigns. The provisions of this
----------------------
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns; provided, that neither Target
--------
Parent nor Ultimate Parent may assign, delegate or otherwise transfer any of its
rights or obligations under this Agreement without the prior written consent of
the other parties hereto; provided, further, that Parent may assign its rights
-------- -------
(but not its obligations) hereunder to any direct or indirect wholly owned
subsidiary of Parent or any entity owned by, or controlling, controlled by or
under common control with, the same stockholders of Parent.
13
<PAGE>
Section 5.7 Governing Law. This Agreement shall be construed in
-------------
accordance with and governed by the law of the State of Delaware without regard
to its principles of conflict of laws.
Section 5.8 Counterparts; Effectiveness. This Agreement may be
---------------------------
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become effective when each party hereto shall
have received counterparts hereof signed by all of the other parties hereto.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
PLATO HOLDINGS, INC.
By:/s/ Gregory M. Case
------------------------------
Name: Gregory M. Case
Title: President
NEW PLATO ACQUISITION, INC.
By:/s/ Gregory M. Case
------------------------------
Name: Gregory M. Case
Title: President
NC RESOURCES, INC.
By:/s/ Michael Fox
------------------------------
Name: Michael Fox
Title: President
NOVACARE, INC.
By:/s/ Timothy E. Foster
------------------------------
Name: Timothy E. Foster
Title: Chief Executive Officer
15
<PAGE>
SHORT FORM MERGER OPTION AGREEMENT
SHORT FORM MERGER OPTION AGREEMENT, dated as of September 8, 1999 (the
"Agreement"), among Plato Holdings, Inc., a Delaware corporation ("Parent"), New
Plato Acquisition, Inc., a Delaware corporation ("Sub"), and Nova Care Employee
Services, Inc., a Delaware corporation (the "Company"). Capitalized terms used
and not defined in this Agreement shall have the meaning ascribed to them in the
Agreement and Plan of Merger, dated as of the date hereof, (the "Merger
Agreement") by and among Parent, Sub and the Company.
WHEREAS, concurrently with the execution of this Agreement, Parent,
Sub and the Company are entering into the Merger Agreement, providing for the
making of a tender offer (the "Offer") to purchase all of the issued and
outstanding shares of the Company's common stock, par value $0.01 per share
(the "Shares"), at a price per Share equal to the Offer Price and, following the
completion of the Offer, the merger (the "Merger") of Sub and the Company,
whereby each Share not purchased pursuant to the Offer (other than Shares owned
by Parent, Sub or any other wholly owned subsidiary of Parent, Shares held in
the treasury of the Company and Dissenting Shares) will be converted into the
right to receive in cash the Offer Price in accordance with the terms of the
Merger Agreement; and
WHEREAS, the Company desires to induce Parent and Sub to enter into
the Merger Agreement and to facilitate the prompt completion of the Merger
following the purchase of Shares pursuant to the Offer.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto hereby agree as follows:
1. Grant of Option. The Company hereby grants to Sub an irrevocable
----------------
option (the "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 Sub and its affiliates immediately following consummation of
the Offer, shall constitute 90% of the Shares then outstanding on a fully
diluted basis (giving effect to the issuance of the Option Shares) for a
consideration per Option Share equal to the Offer Price; provided, however, that
--------- --------
the number of Option Shares shall not exceed that number equal to 19.9% of the
Shares outstanding on the date of this Agreement.
<PAGE>
2. Exercise of the Option. The Option may be exercised by Sub at any
-----------------------
time after the acceptance for payment by Sub of Shares pursuant to the Offer in
accordance with the terms of the Merger Agreement. In the event Sub wishes to
exercise the Option, Sub shall give written notice (the "Notice") of its
exercise of the Option and specifying the number of Shares owned by Sub and its
affiliates immediately following consummation of the Offer and a place and a
time (which shall not be less than three business days from the date of the
Notice) for the closing of such purchase. The Company shall, within two
business days after receipt of the Notice, deliver written notice to Sub
specifying the number of Option Shares.
3. Payment and Delivery of Certificates. At the closing hereunder:
-------------------------------------
(i) the Company will deliver to Sub a certificate or certificates representing
the number of Option Shares so purchased and (ii) Sub will make payment to the
Company of the aggregate price for the Option Shares being purchased, as stated
in the Notice, by check or wire transfer in an amount equal to the product of
(x) the Offer Price and (y) the total number of Option Shares delivered at the
closing. The Company shall pay all expenses, and any and all United States
Federal, state and local taxes and other charges, that may be payable in
connection with the preparation, issuance and delivery of stock certificates
under this Section 3.
4. Representations and Warranties of the Company. The Company hereby
----------------------------------------------
represents and warrants to Parent and Sub as follows:
4.1. The Company has all requisite corporate power and authority
to enter into and perform all of its obligations under this Agreement. The
execution and delivery of this Agreement and the consummation by the Company of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company. This Agreement has been duly
executed and delivered by the Company.
4.2. The Company has taken all necessary corporate action to
authorize and reserve for issuance, and at all times prior to the termination of
this Agreement shall have reserved, all of the Option Shares issuable pursuant
to this Agreement.
4.3. The Shares to be issued upon exercise of the Option, upon
their issuance and delivery in accordance with this Agreement as provided
herein, will be duly authorized, validly issued, fully paid and non-assessable,
will be delivered free
2
<PAGE>
and clear of all security interests, liens, claims, pledges, options, rights of
first refusal, agreements, limitations on Sub's voting rights, charges, adverse
rights and other encumbrances of any nature whatsoever (other than this
Agreement) and will not be subject to any preemptive rights. Upon the delivery
to Sub by the Company of a certificate or certificates evidencing the Option
Shares, Sub will receive good, valid and marketable title to the Option Shares.
5. Representations and Warranties of Parent and Sub. Each of Parent
-------------------------------------------------
and Sub hereby represents and warrants to the Company that (i) it has all
requisite power and authority to enter into and perform all of its obligations
under this Agreement; (ii) the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary action on the part of Parent and Sub; (iii) this Agreement has
been duly executed and delivered by Parent and Sub and, assuming the due and
valid authorization, execution and delivery by the Company, constitutes a
valid and binding obligation of Parent and Sub, enforceable against each of
Parent and Sub in accordance with its terms, except as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors' rights generally, and by general
equitable principles; and (iv) if and when Sub exercises the Option, it will be
acquiring the Option Shares pursuant to this Agreement for its own account and
not with a view to any public distribution thereof.
6. Adjustment Upon Changes in Capitalization. In the event of any
------------------------------------------
change in the number of issued and outstanding Shares by reason of any stock
dividend, subdivision, merger, recapitalization, combination, conversion or
exchange of shares, or any other change in the corporate or capital structure of
the Company (including, without limitation, the declaration or payment of any
extraordinary dividend of cash or securities) which would have the effect of
diluting or otherwise adversely affecting Sub's rights and privileges under this
Agreement, the number and kind of the Option Shares and the consideration
payable in respect of the Option Shares shall be appropriately and equitably
adjusted to restore to Sub its rights and privileges under this Agreement.
7. Termination. This Agreement will terminate upon the earlier to
------------
occur of (i) termination of the Merger Agreement in accordance with its terms
and (ii) the Effective Time of the Merger.
8. Assignment. Neither this Agreement nor any of the rights,
-----------
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the
3
<PAGE>
other parties, except that Sub may assign, in its sole discretion, any or all of
its rights, interests and obligations hereunder to Parent or to any direct or
indirect wholly owned Subsidiary of Parent or to any other entity owned by, or
controlling, controlled by or under common control with the same equity holders
of Parent. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of and be enforceable by the parties and their
respective successors and permitted assigns.
9. Notices. All notices and other communications hereunder shall be
--------
in writing and shall be deemed to have been duly given (and shall be deemed to
have been duly received if so given) if personally delivered or sent by
registered or certified mail, postage prepaid, or telecopy addressed to the
respective parties at their addresses specified in Section 8.7 of the Merger
Agreement.
10. Specific Performance. Each of the parties hereto acknowledges and
---------------------
agrees that in the event of any breach by the Company of this Agreement, Parent
and Sub would be irreparably and immediately harmed and could not be made whole
by monetary damages. It is accordingly agreed that the Company will waive, in
any action for specific performance, the defense of adequacy of a remedy at law,
and Parent and Sub shall be entitled, in addition to any other remedy to which
they may be entitled at law or in equity, to compel specific performance of this
Agreement in any action instituted in a court of competent jurisdiction.
11. Governing Law. This Agreement shall be governed by and construed
--------------
in accordance with the laws of the State of Delaware, without regard to the
conflict of laws provisions thereof.
12. Amendment. This Agreement may not be amended except by an
---------
instrument in writing signed by the parties hereto.
13. Waiver. Any party hereto may (i) extend the time for or waive
-------
compliance with the performance of any obligation or other act of any other
party hereto or (ii) waive any inaccuracy in the representations and warranties
contained herein or in any document delivered pursuant hereto. Any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed by the party or parties to be bound thereby. The failure of any party to
this Agreement to assert any of its rights under this Agreement or otherwise
shall not constitute a waiver of those rights.
4
<PAGE>
14. Fees and Expenses. Except as otherwise provided herein or in
------------------
Section 8.1 of the Merger Agreement, all costs, fees and expenses incurred in
connection with this Agreement shall be paid by the party incurring such
expenses.
15. Severability. If any term, provision, covenant or restriction of
-------------
this Agreement is held by a court of competent jurisdiction or other authority
to be invalid, void, unenforceable or against its regulatory policy, the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated.
16. Counterparts. This Agreement may be executed in two or more
-------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
5
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by duly
authorized officers of each of the parties hereto all as of the date first above
written.
PLATO HOLDINGS, INC.
By: /s/ Gregory M. Case
---------------------------------------------------
Name: Gregory M. Case
Title: President
NEW PLATO ACQUISITION, INC.
By: /s/ Gregory M. Case
---------------------------------------------------
Name: Gregory M. Case
Title: President
NOVACARE EMPLOYEE SERVICES, INC.
By: /s/ Loren J. Hulber
---------------------------------------------------
Name: Loren J. Hulber
Title: President & CEO
6
<PAGE>
March 25, 1999
Mr. Gregory M. Case
Managing Director
Patricof & Co. Ventures, Inc.
455 South Gulph Road, Suite 410
King of Prussia, PA 19406
Dear Greg:
Wasserstein Perella & Co., Inc. ("WP&Co.") is acting on behalf of NovaCare,
Inc. and its subsidiaries and affiliates, including, without limitation,
NovaCare Employee Services, Inc., (collectively, the "Company") to explore
certain strategic alternatives with respect to the Company (the "Transaction").
In that connection, you have requested certain information concerning the
Company from officers, directors, employees, and/or agents of the Company,
including WP&Co. All such information (whether written or oral) furnished to you
and your Representatives (as defined below), whether prior to, on, or following
the date hereof, together with analyses, compilations, forecasts, studies, or
other documents or records prepared by you or your Representatives which
contain, are based on, or otherwise reflect or are generated in whole or in part
from such information, including that stored on any computer, word processor, or
other similar device, are collectively referred to herein as the "Evaluation
Material."
You hereby agree as follows:
(1) You shall use the Evaluation Material solely for the purpose of evaluating
the Transaction and you shall keep the Evaluation Material confidential,
except that you may disclose the Evaluation Material or portions thereof to
those of your directors, officers, employees, affiliates, representatives
(including, without limitation, financial advisors, attorneys, and
accountants), and your potential sources of financing (if any) for the
Transaction (collectively, the "Representatives") (a) who need to know such
information for the purpose of evaluating the Transaction, (b) who are
informed by you of the confidential nature of the Evaluation Material, and
(c) who agree to be bound by the terms of this agreement as if they were
parties hereto. Notwithstanding the foregoing, without the prior written
consent of the Company or WP&Co., you agree not to disclose the Evaluation
Material or any portion thereof to any directors, officers, employees,
affiliates, or representatives of companies in which you own
<PAGE>
March 25, 1999
Page 2
equity and that operate in the professional employer organization industry.
You shall be responsible for any breach of this agreement by your
Representatives. In the event that you or any of your Representatives are
requested or required (by deposition, interrogatory, request for documents,
subpoena, civil investigative demand, or similar process) to disclose any
of the Evaluation Material, you shall provide the Company with prompt prior
written notice of such requirement, you shall furnish only that portion of
the Evaluation Material which you are advised by written opinion of counsel
is legally required, and you shall exercise your reasonable best efforts to
obtain reliable assurance that confidential treatment will be accorded such
Evaluation Material.
(2) If you determine not to proceed with the Transaction, you will promptly
inform WP&Co. of that decision and, in that case or at any time upon the
request of the Company or WP&Co., you and your Representatives shall
promptly either (i) destroy all copies of the written Evaluation Material
in your or their possession or under your or their custody or control
(including that stored in any computer, word processor, or similar device)
and confirm such destruction to the Company in writing or (ii) return to
WP&Co. all copies of the Evaluation Material furnished to you by or on
behalf of the Company in your possession or in the possession of your
Representatives. Any oral Evaluation Material will continue to be held
subject to the terms of this agreement.
(3) The term "Evaluation Material" does not include any information which (i)
at the time of disclosure is generally available to and known by the public
(other than as a result of a disclosure by you or by any of the
Representatives) or (ii) was or becomes available to you on a non-
confidential basis from a source (other than the Company or its
representatives) that is not and was not prohibited from disclosing such
information to you by a contractual, legal, or fiduciary obligation with or
to the Company.
(4) Without the prior written consent of WP&Co., you and your Representatives
shall not disclose to any person (other than those set forth in Paragraph
1) (a) that any investigations, discussions, or negotiations are taking
place concerning the Transaction or any other possible Transaction
involving the Company and you, (b) that you have requested or received any
Evaluation Material, or (c) any of the terms, conditions, or other facts
with respect to the Transaction or such investigations, discussions, or
negotiations, including the status thereof. The term "person" as used in
this agreement shall be broadly interpreted to include the media and any
corporation, partnership, group, individual, or entity.
<PAGE>
March 25, 1999
Page 3
(5) You agree that (i) all communications regarding the Transaction, (ii)
requests for additional information, facility tours, or management
meetings, and (iii) discussions or questions regarding procedures with
respect to the Transaction, will be first submitted or directed to WP&Co.
and not to the Company. Accordingly, you agree that until the consummation
of the Transaction by you or a third party, you will not, directly or
indirectly, contact or communicate with any officer, director, employee, or
agent of the Company without the express prior consent of the Company or
WP&Co. You further agree that, for a period of one year from the date of
this agreement, you will not solicit for employment or hire any employee of
the Company with whom you have had contact or who became known to you in
connection with your consideration of the Transaction. You acknowledge and
agree that (a) WP&Co. and the Company are free to conduct the process
leading up to a possible Transaction as WP&Co. and the Company, in their
sole discretion, may determine (including, without limitation, by
negotiating with any prospective buyer and entering into a preliminary or
definitive agreement without prior notice to you or any other person), (b)
WP&Co. and the Company reserve the right, in their sole discretion, to
change the procedures relating to your consideration of the Transaction at
any time without prior notice to you or any other person, to reject any and
all proposals made by you or any of your Representatives with regard to the
Transaction, and to terminate discussions and negotiations with you at any
time and for any reason, and (c) unless and until a written definitive
agreement concerning the Transaction has been executed, neither WP&Co. nor
the Company, nor their respective officers, directors, employees,
affiliates, stockholders, agents, or controlling persons will have any
legal obligation to you of any kind whatsoever with respect to the
Transaction, whether by virtue of this agreement, any other written or oral
expression with respect to the Transaction or otherwise. For purposes
hereof, the term "definitive agreement" does not include an executed letter
of intent or any other preliminary written agreement, nor does it include
any written or oral acceptance of an offer or bid on your part.
(6) You agree that, for a period of one year from the date of this agreement,
unless such shall have been specifically invited in writing by the Company,
neither you nor any of your officers, directors, or employees will in any
manner, directly or indirectly, (a) effect or seek, offer, or propose
(whether publicly or otherwise) to effect, or cause or participate in or in
any way assist any other person to effect or seek, offer or propose
(whether publicly or otherwise) to effect or participate in, (i) any
acquisition of any securities (or of beneficial ownership thereof) or
assets of the Company or any of its subsidiaries; (ii) any tender or
exchange offer, merger, or other business combination involving the Company
or any of its subsidiaries; (iii) any recapitalization, restructuring,
liquidation,
<PAGE>
March 25, 1999
Page 4
dissolution, or other extraordinary Transaction with respect to the Company
or any of its subsidiaries; or (iv) any solicitation of proxies or consents
to vote any voting securities of the Company; (b) form, join or in any way
participate in a "group" (as defined under the Securities Exchange Act of
1934, as amended) with respect to the matters set forth in (a) above; or
(c) take any action which would require the Company to make a public
announcement regarding any of the types of matters set forth in (a) above.
(7) You acknowledge that you and your Representatives may receive material non-
public information in connection with your evaluation of the Transaction
and you are aware (and you will so advise your Representatives) that the
United States securities laws impose restrictions on trading in securities
when in possession of such information.
(8) You understand and acknowledge that none of the Company, WP&Co., or any of
their respective officers, directors, employees, affiliates, stockholders,
agents, or controlling persons is making any representation or warranty,
express or implied, as to the accuracy or completeness of the Evaluation
Material, and each of the Company, WP&Co., and such other persons expressly
disclaims any and all liability to you or any other person that may be
based upon or relate to (a) the use of the Evaluation Material by you or
any of the Representatives or (b) any errors therein or omissions
therefrom. You further agree that you are not entitled to rely on the
accuracy and completeness of the Evaluation Material and that you will be
entitled to rely solely on those particular representations and warranties,
if any, that are made to a purchaser in a definitive agreement relating to
the Transaction when, as, and if it is executed, and subject to such
limitations and restrictions as may be specified in such definitive
agreement.
(9) You acknowledge that remedies at law may be inadequate to protect the
Company against any actual or threatened breach of this agreement by you or
your Representatives, and, without prejudice to any other rights and
remedies otherwise available to the Company, you agree to the granting of
equitable relief in the Company's favor without proof of actual damages.
(10) You agree that no failure or delay by the Company in exercising any right,
power or privilege hereunder will operate as a waiver thereof, nor will any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder.
(11) This agreement is for the benefit of the Company and WP&Co. and their
respective successors and assigns. The rights of the Company under this
agreement may be assigned in whole or in part to any purchaser of the
Company, which purchaser shall be entitled to enforce this agreement to
<PAGE>
March 25, 1999
Page 5
the same extent and in the same manner as the Company is entitled to
enforce this agreement.
(12) This agreement and all controversies arising from or relating to
performance under this agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
its conflicts of laws principles.
(13) This agreement contains the entire agreement between you and the Company
concerning the subject matter hereof, and no modification of this agreement
or waiver of the terms and conditions hereof will be binding unless
approved in writing by the Company and you.
Please confirm your agreement to the foregoing by signing both copies of
this agreement and returning one to WP&Co., Attn: Paul G. Adams.
Very truly yours,
WASSERSTEIN PERELLA & CO., INC.
As Financial Advisor to, and as Representative of
NOVACARE, INC. and NOVACARE EMPLOYEE SERVICES, INC.
By: /s/ Paul G. Adams
------------------------------
Name: Paul G. Adams
Title: Managing Director
CONFIRMED AND AGREED AS
OF THE DATE WRITTEN ABOVE:
PATRICOF & CO. VENTURES, INC.
BY: /s/ Gregory M. Case
------------------------------
NAME: Gregory M. Case
TITLE: Managing Director
<PAGE>
March 26, 1999
Fidelity Capital Associates, Inc.
82 Devonshire Street, R25C
Boston, MA 02109
Dear Fidelity Capital Associates, Inc.:
Wasserstein Perella & Co., Inc. ("WP&Co.") is acting on behalf of NovaCare,
Inc. and its subsidiaries and affiliates, including, without limitation,
NovaCare Employee Services, Inc., (collectively, the "Company") to explore
certain strategic alternatives with respect to the Company (the "Transaction").
In that connection, you have requested certain information concerning the
Company from officers, directors, employees, and/or agents of the Company,
including WP&Co. All such information (whether written or oral) furnished to you
and your Representatives (as defined below), whether prior to, on, or following
the date hereof, together with analyses, compilations, forecasts, studies, or
other documents or records prepared by you or your Representatives which
contain, are based on, or otherwise reflect or are generated in whole or in part
from such information, including that stored on any computer, word processor, or
other similar device, are collectively referred to herein as the "Evaluation
Material."
You hereby agree as follows:
(1) You shall use the Evaluation Material solely for the purpose of evaluating
the Transaction and you shall keep the Evaluation Material confidential,
except that you may disclose the Evaluation Material or portions thereof to
those of your directors, officers, employees, affiliates, representatives
(including, without limitation, financial advisors, attorneys, and
accountants), and your potential sources of financing (if any) for the
Transaction (collectively, the "Representatives") (a) who need to know such
information for the purpose of evaluating the Transaction, (b) who are
informed by you of the confidential nature of the Evaluation Material, and
(c) who agree to be bound by the terms of this agreement as if they were
parties hereto. You shall be responsible for any breach of this agreement
by your Representatives. In the event that you or any of your
Representatives are requested or required (by deposition, interrogatory,
request for documents, subpoena, civil investigative demand, or similar
process) to disclose any of the Evaluation Material, you shall provide the
Company with prompt prior written notice of such requirement,
<PAGE>
March 26, 1999
Page 2
you shall furnish only that portion of the Evaluation Material which you
are advised by written opinion of counsel is legally required, and you
shall exercise your best efforts to obtain reliable assurance that
confidential treatment will be accorded such Evaluation Material.
(2) If you determine not to proceed with the Transaction, you will promptly
inform WP&Co. of that decision and, in that case or at any time upon the
request of the Company or WP&Co., you and your Representatives shall
promptly either (i) destroy all copies of the written Evaluation Material
in your or their possession or under your or their custody or control
(including that stored in any computer, word processor, or similar device)
and confirm such destruction to the Company in writing or (ii) return to
WP&Co. all copies of the Evaluation Material furnished to you by or on
behalf of the Company in your possession or in the possession of your
Representatives. Any oral Evaluation Material will continue to be held
subject to the terms of this agreement.
(3) The term "Evaluation Material" does not include any information which (i)
at the time of disclosure is generally available to and known by the public
(other than as a result of a disclosure by you or by any of the
Representatives), (ii) was available to you on a non-confidential basis
from a source (other than the Company or its representatives) that is not
and was not prohibited from disclosing such information to you by a
contractual, legal, or fiduciary obligation, or (iii) already known by you
at the time of its disclosure.
(4) Without the prior written consent of the other party, neither party nor its
respective Representatives shall disclose to any person (a) that any
investigations, discussions, or negotiations are taking place concerning
the Transaction or any other possible Transaction involving the Company and
you, (b) that you have requested or received any Evaluation Material, or
(c) any of the terms, conditions, or other facts with respect to the
Transaction or such investigations, discussions, or negotiations, including
the status thereof. The term "person" as used in this agreement shall be
broadly interpreted to include the media and any corporation, partnership,
group, individual, or entity.
(5) You agree that (i) all communications regarding the Transaction, (ii)
requests for additional information, facility tours, or management
meetings, and (iii) discussions or questions regarding procedures with
respect to the Transaction, will be first submitted or directed to WP&Co.
and not to the Company. Accordingly, you agree that until the consummation
of the Transaction by you or a third party, you will not, directly or
indirectly, contact or communicate with any officer, director, employee, or
agent of the Company without the express prior consent of
<PAGE>
March 26, 1999
Page 3
the Company or WP&Co. You further agree that, for a period of one year from
the date of this agreement, you will not, directly or indirectly, solicit
for employment or hire any employee of the Company with whom you have had
contact or who became known to you in connection with your consideration of
the Transaction other than solicitation pursuant to newspaper
advertisements or other general forms of solicitation. You acknowledge and
agree that (a) WP&Co. and the Company are free to conduct the process
leading up to a possible Transaction as WP&Co. and the Company, in their
sole discretion, may determine (including, without limitation, by
negotiating with any prospective buyer and entering into a preliminary or
definitive agreement without prior notice to you or any other person), (b)
WP&Co. and the Company reserve the right, in their sole discretion, to
change the procedures relating to your consideration of the Transaction at
any time without prior notice to you or any other person, to reject any and
all proposals made by you or any of your Representatives with regard to the
Transaction, and to terminate discussions and negotiations with you at any
time and for any reason, and (c) unless and until a written definitive
agreement concerning the Transaction has been executed, neither WP&Co. nor
the Company, nor their respective officers, directors, employees,
affiliates, stockholders, agents, or controlling persons will have any
legal obligation to you of any kind whatsoever with respect to the
Transaction, whether by virtue of this agreement, any other written or oral
expression with respect to the Transaction or otherwise. For purposes
hereof, the term "definitive agreement" does not include an executed letter
of intent or any other preliminary written agreement, nor does it include
any written or oral acceptance of an offer or bid on your part.
(6) You agree that, for a period of three years from the date of this
agreement, unless such shall have been specifically invited in writing by
the Company, neither you nor any of your affiliates (as such term is
defined under the Securities Exchange Act of 1934, as amended (the "1934
Act")) or Representatives will in any manner, directly or indirectly, (a)
effect or seek, offer, or propose (whether publicly or otherwise) to
effect, or cause or participate in or in any way assist any other person to
effect or seek, offer or propose (whether publicly or otherwise) to effect
or participate in, (i) any acquisition of any securities (or of beneficial
ownership thereof) or assets of the Company or any of its subsidiaries;
(ii) any tender or exchange offer, merger, or other business combination
involving the Company or any of its subsidiaries; (iii) any
recapitalization, restructuring, liquidation, dissolution, or other
extraordinary Transaction with respect to the Company or any of its
subsidiaries; or (iv) any solicitation of proxies or consents to vote any
voting securities of the Company; (b) form, join or in any way participate
in a "group" (as defined under the 1934 Act); (c) take any action which
might force the Company to make a public
<PAGE>
March 26, 1999
Page 4
announcement regarding any of the types of matters set forth in (a) above;
or (d) enter into any discussions or arrangements with any third party with
respect to any of the foregoing. Notwithstanding the foregoing, the
provisions of this Paragraph 6 shall not apply to any account that both (i)
is an account over which your affiliates have investment management or
advisory responsibilities, including any of the Fidelity Investments mutual
funds, and (ii) consists solely of customer or client accounts. You
acknowledge that none of your accounts consists partially or solely of
funds from third party limited partnerships.
(7) You acknowledge that you and your Representatives may receive material non-
public information in connection with your evaluation of the Transaction
and you are aware (and you will so advise your Representatives) that the
United States securities laws impose restrictions on trading in securities
when in possession of such information. The Company and WP&Co. acknowledge
that for United States securities law purposes, you and your affiliates may
establish an information blocking device or "Chinese Wall" between your
Representatives who pursuant to your Chinese Wall are permitted to receive
the Evaluation Material or otherwise participate in discussions concerning
the Transaction and those of your and your affiliates' other employees.
Attached hereto as Exhibit A is a list of the Designated Representatives.
You may at any time add additional Designated Representatives to your
Chinese Wall by providing written notice to WP&Co. The Company and WP&Co.
agree not to breach your Chinese Wall by providing Evaluation Material, or
otherwise discussing any matter concerning or relating to the Transaction,
with any of your or your affiliates' employees who are not a Designated
Representative.
(8) You understand and acknowledge that none of the Company, WP&Co., or any of
their respective officers, directors, employees, affiliates, stockholders,
agents, or controlling persons is making any representation or warranty,
express or implied, as to the accuracy or completeness of the Evaluation
Material, and each of the Company, WP&Co., and such other persons expressly
disclaims any and all liability to you or any other person that may be
based upon or relate to (a) the use of the Evaluation Material by you or
any of the Representatives or (b) any errors therein or omissions
therefrom. You further agree that you are not entitled to rely on the
accuracy and completeness of the Evaluation Material and that you will be
entitled to rely solely on those particular representations and warranties,
if any, that are made to a purchaser in a definitive agreement relating to
the Transaction when, as, and if it is executed, and subject to such
limitations and restrictions as may be specified in such definitive
agreement.
<PAGE>
March 26, 1999
Page 5
(9) You acknowledge that remedies at law may be inadequate to protect the
Company against any actual or threatened breach of this agreement by you or
your Representatives, and, without prejudice to any other rights and
remedies otherwise available to the Company, you agree to the granting of
equitable relief in the Company's favor without proof of actual damages.
You agree to indemnify and hold harmless the Company from any damage, loss,
cost, or liability (including reasonable legal fees and disbursements and
the costs of enforcing this indemnity) arising out of or resulting from any
unauthorized use or disclosure by you or your Representatives of the
Evaluation Material.
(10) You agree that no failure or delay by the Company in exercising any right,
power or privilege hereunder will operate as a waiver thereof, nor will any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder.
(11) This agreement is for the benefit of the Company and WP&Co. and their
respective successors and assigns. The rights of the Company under this
agreement may be assigned in whole or in part to any purchaser of the
Company, which purchaser shall be entitled to enforce this agreement to the
same extent and in the same manner as the Company is entitled to enforce
this agreement.
(12) This agreement and all controversies arising from or relating to
performance under this agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
its conflicts of laws principles.
(13) This agreement contains the entire agreement between you and the Company
concerning the subject matter hereof, and no modification of this agreement
or waiver of the terms and conditions hereof will be binding unless
approved in writing by the Company and you.
Please confirm your agreement to the foregoing by signing both copies of
this agreement and returning one to WP&Co., Attn: Paul G. Adams.
<PAGE>
March 26, 1999
Page 6
Very truly yours,
WASSERSTEIN PERELLA & CO., INC.
As Financial Advisor to, and as Representative of
NOVACARE, INC. and NOVACARE EMPLOYEE SERVICES, INC.
By: /s/ Paul G. Adams
----------------------------
Name: Paul G. Adams
Title: Managing Director
CONFIRMED AND AGREED AS
OF THE DATE WRITTEN ABOVE:
FIDELITY CAPITAL ASSOCIATES, INC.
BY: /s/ George K. Hertz
-----------------------------
NAME: George K. Hertz
TITLE: Managing Director
<PAGE>
EXHIBIT A
DESIGNATED REPRESENTATIVES
--------------------------
GEORGE K. HERTZ
MICHAEL H. SMITH
<PAGE>
February 12, 1999
Mr. Kriss Cloninger, III
AFLAC Incorporated
1392 Wynnton Road
Columbus, GA 31909
Dear Mr. Cloninger:
NovaCare Employee Services, Inc. ("NCES") and NovaCare, Inc. and its
subsidiaries (collectively, the "Company") and you have entered into discussions
to explore certain strategic alternatives with respect to NCES (the
"Transaction"). In that connection, you have requested certain information
concerning the Company from officers, directors, employees and/or agents of the
Company, including any financial advisor. All such information (whether written
or oral) furnished to you and your Representatives (as defined below), whether
prior to, on or following the date hereof, together with analyses, compilations,
forecasts, studies or other documents or records prepared by you or your
Representatives which contain, are based on or otherwise reflect or are
generated in whole or in part from such information, including that stored on
any computer, word processor or other similar device, are collectively referred
to herein as the "Evaluation Material."
You hereby agree as follows:
(1) You shall use the Evaluation Material solely for the purpose of evaluating
the Transaction and you shall keep the Evaluation Material confidential,
except that you may disclose the Evaluation Material or portions thereof to
those of your directors, officers, employees, affiliates, representatives
(including, without limitation, financial advisors, attorneys and
accountants) and your potential sources of financing (if any) for the
Transaction (collectively, the "Representatives") (a) who need to know such
information for the purpose of evaluating the Transaction, (b) who are
informed by you of the confidential nature of the Evaluation Material and
(c) who agree to keep such information confidential in accordance with the
terms of this agreement. You shall be responsible for any breach of this
agreement by your Representatives. In the event that you or any of your
Representatives are requested or required (by deposition, interrogatory,
request for documents, subpoena, civil investigative demand or similar
process) to disclose any of the Evaluation Material, you shall provide the
Company with prompt prior written notice of such requirement, you shall
furnish only that portion of the Evaluation Material which you are advised
by written opinion of counsel is legally required, and you shall exercise
your best efforts to obtain reliable assurance that confidential treatment
will be accorded such Evaluation Material.
<PAGE>
(2) If either party determines not to proceed with the Transaction, such party
will promptly inform the other of that decision and, in that case or at any
time upon the request of the Company, you and your Representatives shall
promptly either (i) destroy all copies of the written Evaluation Material
in your or their possession or under your or their custody or control
(including that stored in any computer, word processor or similar device)
and confirm such destruction to the Company in writing or (ii) return to
the Company all copies of the Evaluation Material furnished to you by or on
behalf of the Company in your possession or in the possession of your
Representatives. Any oral Evaluation Material will continue to be held
subject to the terms of this agreement.
(3) The term "Evaluation Material" does not include any information which (i)
at the time of disclosure is generally available to and known by the public
(other than as a result of a disclosure by you or by any of your
Representatives) or (ii) was available to you on a non-confidential basis
from a source (other than the Company or its representatives) that is not
and was not prohibited from disclosing such information to you by a
contractual, legal or fiduciary obligation.
(4) Without the prior written consent of the Company, you and your
Representatives shall not disclose to any person (a) that any
investigations, discussions or negotiations are taking place concerning the
Transaction or any other possible Transaction involving the Company and
you, (b) that you have requested or received any Evaluation Material or (c)
any of the terms, conditions or other facts with respect to the Transaction
or such investigations, discussions or negotiations, including the status
thereof, except as may be required by law or the rules of the New York
Stock Exchange. The term "person" as used in this agreement shall be
broadly interpreted to include the media and any corporation, partnership,
group, individual or entity.
(5) You agree that (i) all communications regarding the Transaction, (ii)
requests for additional information, facility tours or management meetings,
and (iii) discussions or questions regarding procedures with respect to the
Transaction, will be first submitted or directed to Loren J. Hulber (or
such other representatives of the Company as he shall designate).
Accordingly, you agree that until the consummation of the Transaction by
you or a third party, you will not, directly or indirectly, contact or
communicate with any other officer, director, employee or agent of the
Company without the express prior consent of the Company. You further agree
that, for a period of two years from the date of this agreement, you will
not, directly or indirectly, solicit for employment or hire any employee of
the Company with whom you have had contact or who became known to you in
connection with your consideration of the Transaction; provided, however,
that the foregoing provision shall not prevent you from employing any such
person who contacts you on his or her own initiative or in response to a
general advertisement. We agree that each of you and the Company will
negotiate in good faith with the other in pursuit of a mutually acceptable
business combination transaction between you or one or more of your
subsidiaries and NCES from the date hereof until March 5, 1999, or such
later date as to which we may mutually agree in writing (the "Exclusive
Period"). Any such Transaction will be subject to due diligence,
negotiation, execution and delivery of definitive agreements and the
approval of your board of directors and the boards of directors of the
Company and NCES. Further,
2
<PAGE>
during the Exclusive Period, each of the Company and NCES will either
suspend or terminate any existing, and will not solicit any new,
discussions, negotiations, inquiries or proposals regarding any
Transaction, including without limitation, any merger, consolidation,
material acquisition or disposition or similar transaction involving NCES;
provided that this shall not prevent the Company, NCES or you or your or
our respective boards of directors from considering, discussing or
negotiating unsolicited bona fide superior proposals should any arise
during the Exclusive Period, nor shall this prevent the Company from
engaging in any third party discussions involving Transactions which would
not, directly or indirectly, materially affect NCES.
(6) You agree that, for a period of one year from the date of this agreement,
unless such shall have been specifically invited in writing by the Company,
neither you nor any of your affiliates (as such term is defined under the
Securities Exchange Act of 1934, as amended (the "1934 Act")) will in any
manner, directly or indirectly, (a) effect or seek, offer or propose
(whether publicly or otherwise) to effect, or cause or participate in or in
any way assist any other person to effect or seek, offer or propose
(whether publicly or otherwise) to effect or participate in, (i) any
acquisition of any securities (or of beneficial ownership thereof) or
assets of the Company or any of its subsidiaries; (ii) any tender or
exchange offer, merger or other business combination involving the Company
or any of its subsidiaries; (iii) any recapitalization, restructuring,
liquidation, dissolution or other extraordinary Transaction with respect to
the Company or any of its subsidiaries; or (iv) any solicitation of proxies
or consents to vote any voting securities of the Company; (b) form, join or
in any way participate in a "group" (as defined under the 1934 Act); (c)
take any action which might force the Company to make a public announcement
regarding any of the types of matters set forth in (a) above; or (d) enter
into any discussions or arrangements with any third party with respect to
any of the foregoing.
(7) You acknowledge that you and your Representatives may receive material non-
public information in connection with your evaluation of the Transaction
and you are aware (and you will so advise your Representatives) that the
United States securities laws impose restrictions on trading in securities
when in possession of such information.
(8) Although the Company has endeavored to include in the Evaluation Material
all information known to it which it believes to be relevant for the
purpose of your investigation, you understand and acknowledge that none of
the Company, any financial advisor of the Company or any of their
respective officers, directors, employees, affiliates, stockholders, agents
or controlling persons is making any representation or warranty, express or
implied, as to the accuracy or completeness of the Evaluation Material, and
each of the Company, any financial advisor of the Company and such other
persons expressly disclaims any and all liability to you or any other
person that may be based upon or relate to (a) the use of the Evaluation
Material by you or any of the Representatives or (b) any errors therein or
omissions therefrom. You further agree that you are not entitled to rely on
the accuracy and completeness of the Evaluation Material and that you will
be entitled to rely solely on those particular representations and
warranties, if any, that are made to a purchaser in a definitive agreement
relating to the Transaction when, as, and if it is executed, and subject to
such limitations and restrictions as may be specified in such definitive
agreement.
3
<PAGE>
(9) You acknowledge that remedies at law may be inadequate to protect the
Company against any actual or threatened breach of this agreement by you or
your Representatives, and, without prejudice to any other rights and
remedies otherwise available to the Company, you agree to the granting of
equitable relief in the Company's favor without proof of actual damages.
The prevailing party in any action or proceeding brought to enforce this
agreement shall be entitled to recover its reasonable attorneys' fees from
the non-prevailing party.
(10) You agree that no failure or delay by the Company in exercising any right,
power or privilege hereunder will operate as a waiver thereof, nor will any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder.
(11) This agreement is for the benefit of the Company and its successors and
assigns. The rights of NCES under this agreement may be assigned in whole
or in part to any purchaser of NCES, which purchaser shall be entitled to
enforce this agreement to the same extent and in the same manner as NCES is
entitled to enforce this agreement.
(12) This agreement and all controversies arising from or relating to
performance under this agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania, without
giving effect to its conflicts of laws principles.
(13) This agreement contains the entire agreement between you and the Company
concerning the subject matter hereof, and no modification of this agreement
or waiver of the terms and conditions hereof will be binding unless
approved in writing by the Company and you.
Please confirm your agreement to the foregoing by signing both copies of
this agreement and returning one to NovaCare Employee Services, Attn: Loren J.
Hulber.
Very truly yours,
By: /s/ Thomas D. Shubert
----------------------------
Thomas D. Schubert
Senior Vice President and Chief Financial
Officer
NovaCare Employee Services, Inc.
CONFIRMED AND AGREED AS
OF THE DATE WRITTEN ABOVE:
BY: /s/ Kriss Cloninger III
-----------------------------
MR. KRISS CLONINGER III
AFLAC INCORPORATED
4
<PAGE>
EXCLUSIVITY AGREEMENT
---------------------
EXCLUSIVITY AGREEMENT, dated as of August 16, 1999 (the "Agreement"), by
and among NovaCare Employee Services, Inc. (the "Company"), NovaCare, Inc.
("Company Parent"), Patricof & Co. Ventures, Inc. ("Patricof"), Fidelity
Ventures Limited ("Fidelity") and AFLAC Incorporated ("AFLAC") (Patricof,
Fidelity and AFLAC are referred to collectively as the "Investors").
WHEREAS, the Company, Company Parent and the Investors have entered into
negotiations and discussions regarding the acquisition (the "Acquisition") of
the Company by a company to be formed by the Investors (the "Acquiror") on the
terms and subject to the conditions to be negotiated and incorporated into a
definitive merger agreement (the "Merger Agreement"); and
WHEREAS, Company Parent is, through a wholly owned subsidiary, the
controlling shareholder of the Company; and
WHEREAS, Acquiror desires to acquire all of the outstanding common stock of
the Company, including Company Parent's interest in the Company; and
WHEREAS, the parties have been negotiating to consummate a transaction on
the basis of the Investors acquiring the Company at a price of $2.89 per share
of Company common stock and desire to continue negotiations to expeditiously
execute the Merger Agreement.
NOW THEREFORE, in consideration of the agreements contained in this
Agreement, and intending to be legally bound, the parties agree as follows:
1. TERM. This Agreement shall continue for a period beginning on the date
hereof and ending on the earlier of (i) 9:00 a.m., Philadelphia time, on
Thursday, September 9, 1999 and (ii) the execution and delivery of the Merger
Agreement, unless this Agreement shall be earlier terminated by the written
consent of all of the parties.
2. ACCESS AND INFORMATION. During the term of this Agreement, upon
reasonable notice, the Company shall (and shall cause each of its subsidiaries
to) afford to the officers, employees, accountants, counsel, financing sources
and other representatives of the Investors, access, during normal business
hours, to all of its properties, books, contracts, commitments, records and
personnel, and during such term, the Company shall (and shall cause each of its
subsidiaries to) furnish promptly to the Investors (a) a copy of each report,
schedule, registration statement or other document filed or received by it
during such term pursuant to the requirements of the federal securities laws,
and (b) all other information concerning its business, properties and personnel
as the Investors may reasonably request.
3. NON-SOLICITATION. During the term of this Agreement, neither the
Company, Company Parent nor any subsidiary or affiliate of the Company or
Company Parent shall (and neither the Company, Company Parent nor any subsidiary
or affiliate of the Company or
<PAGE>
Company Parent shall authorize or permit any of their respective officers,
directors, employees, representatives or agents, including, but not limited to,
investment bankers, attorneys and accountants, to), directly or indirectly,
encourage, 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 Investors or any of their 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 subsidiary of the Company,
or 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 Acquisition, or
otherwise cooperate in any way with, participate in, facilitate or encourage any
effort or attempt by, any person or group (other than the Investors or any of
their affiliates or representatives) to do or seek any of the foregoing. Upon
execution of this Agreement, the Company and Company Parent shall immediately
cease any existing activities, discussions or negotiations with any parties
conducted prior to the date of this Agreement with respect to any of the
foregoing. During the terms of this Agreement, the Company and Company Parent
shall immediately notify the Investors of the existence of any proposal,
discussions, negotiation or inquiry received by either of them and shall
immediately communicate to the Investors the terms, of any proposal, discussion,
inquiry or negotiation which either of them may receive (and shall immediately
provide the Investors with copies of any written materials received by either of
them in connection with such proposal, discussions, inquiry or negotiation),
including, but not limited to, the identity of the party making such proposal or
inquiry or engaging in such discussions or negotiation and shall keep the
Investors immediately advised of all developments in such proposal, inquiry,
discussion or negotiation. During the term of this Agreement, neither the
Company nor Company Parent shall release any third party from, or waive any
provisions of, any confidentiality or non- solicitation agreement to which of
them is a party.
4. AMENDMENT AND MODIFICATION. This Agreement may be amended, modified or
supplemented only by a written agreement signed by each of the parties hereto.
5. ASSIGNMENT. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties and their respective
successors and permitted assigns. but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other parties.
6. EXPENSES. Except as otherwise provided in the Letter Agreement, dated
July 29, 1999, among the Company, Patricof and Fidelity or herein, whether or
not the contemplated transaction is consummated, all fees, charges and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such fees, charges or expenses.
7. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA APPLICABLE TO
AGREEMENTS MADE AND TO BE
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PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE CHOICE OF LAW
PRINCIPLES THEREOF.
8. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9. INTERPRETATION. The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not in any way affect the meaning or interpretation of
this Agreement.
10. ENTIRE AGREEMENT. This Agreement, together with the Confidentiality
Agreements between the Company and the Investors, embodies the entire agreement
and understanding of the parties hereto in respect of the subject matter hereof
and thereof and supersedes all prior agreements and understandings, both written
and oral, among the parties, or between any of them, with respect to the subject
matter hereof and thereof.
11. NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to, and
does not, create any rights or benefits of any party other than the parties
hereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective duly authorized officers as of the date first above written.
NOVACARE EMPLOYEE SERVICES, INC.
By /s/ Loren J. Hulber
-----------------------------
Name: Loren J. Hulber
Title: President and CEO
NOVACARE, INC.
By /s/ Robert E. Healy, Jr.
-----------------------------
Name: Robert E. Healy, Jr.
Title: Sr. VP Finance and Administration
and CFO
PATRICOF & CO. VENTURES, INC.
By /s/ G.M. Jenkins
-----------------------------
Name: G.M. Jenkins
Title: Managing Director
FIDELITY VENTURES LIMITED
BY ITS GENERAL PARTNER
FIDELITY CAPITAL ASSOCIATES, INC.
By /s/ George K. Hertz
-----------------------------
Name: George K. Hertz
Title: Vice President
AFLAC INCORPORATED
By /s/ Joseph W. Smith
-----------------------------
Name: Joseph W. Smith
Title: Senior Vice President
and Chief Investment
Officer
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NovaCare, Inc.
1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406
September 8, 1999
NovaCare Employee Services, Inc. Fidelity Ventures Limited
2621 Van Buren Avenue 82 Devonshire Street, R25C
Norristown, Pennsylvania 19403 Boston, Massachusetts 02109-3614
Attention: President Attention: George Hertz
Patricof & Co. Ventures, Inc. AFLAC, Incorporated
455 South Gulph Road, Suite 410 1932 Wynnton Road
King of Prussia, Pennsylvania 19406 Columbus, Georgia 31999
Attention: Gregory M. Case Attention: Kriss Cloninger, III
Re: Indemnification for Unified Damages and Surety Bonds
----------------------------------------------------
Dear Sirs:
Reference is made to the Agreement and Plan of Merger (the "Merger
Agreement"), dated as of September 8, 1999 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").
I. Unified Damages
---------------
Reference is further made to the Agreement of Purchase and Sale (the
"Unified Purchase Agreement"), dated as of June 16, 1999 by and among Unified
Management Corporation, an Illinois corporation ("UMC"), certain affiliated
corporations of UMC (the "Affiliated Corporations", and together with UMC,
collectively, "Unified"), the shareholders of Unified (the "Unified
Shareholders"), and NCES.
NovaCare, Inc. ("NovaCare"), the principal stockholder of NCES,
understands that NCES has informed the Unified Shareholders of its intention to
terminate (the "Unified Termination") the Unified Purchase Agreement and further
understands that Patricof & Co. Ventures, Inc. ("Patricof"), Fidelity Ventures
Limited ("Fidelity"), and AFLAC Incorporated ("AFLAC"), the ultimate equity
holders of Parent (Patricof, Fidelity and AFLAC are collectively referred to as
the "Investors"), are seeking protection against any actions that might be
brought against the Investors or NCES as a result of the Unified Termination.
In order to induce NCES and the Investors to enter into the Merger Agreement,
NovaCare hereby agrees (a) to use commercially reasonable efforts to obtain a
general release from Unified and each of the Unified Shareholders
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from any claims or actions arising from or relating to the Unified Termination
and (b) to indemnify and hold harmless NCES and each of the Investors and their
respective subsidiaries, affiliates, officers, directors, partners, employees,
representatives, successors or assigns (the "Investors Indemnified Parties")
from and against any and all losses, claims, assessments, demands, damages,
liabilities, obligations, costs and/or expenses whatsoever, including, without
limitation, Unified Counsel Expenses (as hereinafter defined), sustained or
incurred by NCES or any of the Investors Indemnified Parties as a result of, or
arising from, directly or indirectly, any action brought or claim made by or on
behalf of Unified and/or any of the Unified Shareholders against NCES or any of
the Investors Indemnified Parties as a result of the Unified Termination,
including any amount paid in settlement with the consent of NovaCare (which
consent shall not be unreasonably withheld). For purposes hereof, "Unified
Counsel Expenses" shall mean reasonable fees and disbursements of counsel
howsoever sustained or incurred by NCES or the Investors.
II. Surety Bonds
------------
Each of NovaCare and NCES acknowledges that, Exhibit A attached hereto
sets forth, as of the date hereof, outstanding surety bonds which guarantee
obligations of NovaCare and NCES and with respect to which NovaCare and NCES are
co-indemnitors of the issuers of such surety bonds. NovaCare hereby agrees
that, prior to the closing of the transactions contemplated by the Merger
Agreement, it will cash collateralize, and shall take all action necessary to
cause NCES to be removed as a co-indemnitor (or to have any other obligation
thereunder with respect to NCES terminated) with respect to, the obligations
secured by the $4,580,446 bond (Surety ID #21970-001) in favor of Liberty Mutual
Insurance Company which secures deductibles under Workers' Compensation
insurance policies. NCES agrees that, prior to the closing of the transactions
contemplated by the Merger Agreement, it will take all action necessary to cause
NovaCare to be removed as a co-indemnitor (or to have any other obligation
thereunder with respect to NovaCare terminated) with respect to, all the other
surety bonds set forth in Exhibit A.
Section I of this Letter shall survive the closing of the transactions
contemplated by the Merger Agreement or the termination of the Merger Agreement.
Section II of this Letter shall survive the closing of the transactions
contemplated by the Merger Agreement.
Section I of this Letter is for the benefit of NCES and the Investors
Indemnified Parties and shall be enforceable by each of them against NovaCare
and its successors and assigns.
* * *
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Very truly yours,
NOVACARE, INC.
By /s/ Timothy E. Foster
--------------------------
Timothy E. Foster
Agreed and Accepted
with respect to Section II
NOVACARE EMPLOYEE SERVICES, INC.
BY /s/ Loren J. Hulber
------------------------
Loren Hulber
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