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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14f-1
INFORMATION STATEMENT
PURSUANT TO SECTION 14(f) OF THE
SECURITIES EXCHANGE ACT OF 1934
AND RULE 14f-1 THEREUNDER
NOVACARE EMPLOYEE SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
000-23343
(COMMISSION FILE NUMBER)
<TABLE>
<S> <C>
DELAWARE 23-2866146
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
VALLEY FORGE CORPORATE CENTER
2621 VAN BUREN AVENUE
NORRISTOWN, PENNSYLVANIA 19403
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(610) 650-4700
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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NOVACARE EMPLOYEE SERVICES, INC.
VALLEY FORGE CORPORATE CENTER
2621 VAN BUREN AVENUE
NORRISTOWN, PENNSYLVANIA 19403
(610) 650-4700
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14f-1 THEREUNDER
This Information Statement, which is being mailed on or about October 4,
1999 to the holders of shares of common stock, $.01 par value ("Common Stock"),
of NovaCare Employee Services, Inc. (the "Company"), is being furnished in
connection with the designation by Plato Holdings, Inc., a Delaware corporation
("Plato"), of persons to the Board of Directors of the Company (the "Board").
Such designation is to be made pursuant to an Agreement and Plan of Merger,
dated as of September 8, 1999 (the "Merger Agreement"), by and among the
Company, Plato and New Plato Acquisition, Inc., a wholly owned Delaware
subsidiary of Plato ("Plato Sub").
Pursuant to the Offer to Purchase, dated September 15, 1999 (the "Offer to
Purchase"), of Plato Sub and Plato, and the related Letters of Transmittal
(which together constitute the "Offer"), Plato Sub is offering to purchase all
of the outstanding shares of Common Stock (the "Shares") of the Company at a
price of $2.50 per Share, net to the seller in cash. Pursuant to the Merger
Agreement, as soon as practicable following the consummation of the Offer and
the satisfaction or waiver of certain conditions, Plato Sub will be merged with
and into the Company (the "Merger"), with the Company continuing as the
surviving corporation. In the Merger, each Share outstanding at the effective
time (the "Effective Time") of the Merger (other than Shares owned by Plato or
Plato Sub, Shares held as treasury shares by the Company and Dissenting Shares
(as defined in the Merger Agreement)) will, by virtue of the Merger and without
any action by the holder thereof, be converted into the right to receive $2.50
per Share, net to the seller in cash, without interest thereon, upon surrender
of the certificates formerly representing such Shares.
The Merger Agreement provides that Plato, upon the purchase of Shares by
Plato or any of its subsidiaries which represent at least a majority of the then
outstanding Shares of the Company, shall be entitled to designate such number of
directors, rounded up to the next whole number, on the Board as is equal to the
product of the total number of directors on the Board (giving effect to the
directors designated by Plato) multiplied by the percentage that the aggregate
number of Shares beneficially owned by Plato Sub, Plato and any of their
affiliates bears to the total number of shares of Common Stock then outstanding
(on a fully diluted basis). The Company shall take all action necessary to cause
Plato's designees to be elected or appointed to the Board and to secure the
resignations of such number of its incumbent directors as is necessary to enable
Plato's designees to be so elected or appointed.
The Merger Agreement provides that in the event Plato's designees are
elected or appointed to the Board, until the Effective Time, the Company shall
use its best efforts to retain as members of the 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 Plato or Plato Sub,
and such persons shall be deemed to be Independent Director. In the event that
Plato's designees constitute a majority of the directors on the 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 Plato or Plato Sub, (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
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action materially and adversely affects holders of Shares other than Plato or
Plato Sub, provided that if there shall be no such directors, such actions may
be effected by unanimous vote of the entire Board.
The terms of the Merger Agreement, a summary of the events leading up to
the Offer and the Merger and other information concerning the Offer are
contained in the Offer to Purchase, the related Letters of Transmittal and the
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9")
of the Company, copies of which have been mailed to holders of Shares. Certain
other documents (including the Merger Agreement) were filed with the Securities
and Exchange Commission (the "Commission") as exhibits to the Tender Offer
Statement on Schedule 14D-1 (as amended from time to time, the "Schedule
14D-1"), of Plato Sub and as exhibits to the Schedule 14D-9. The discussion of
any such document included herein is qualified in its entirety by reference to
the text of such document.
THIS INFORMATION STATEMENT IS REQUIRED BY SECTION 14(f) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, AND RULE 14f-1 THEREUNDER. YOU ARE URGED TO
READ THIS INFORMATION STATEMENT CAREFULLY. YOU ARE NOT, HOWEVER, REQUIRED TO
TAKE ANY ACTION.
The information contained in this Information Statement concerning Plato
and Plato Sub has been furnished to the Company by such persons, and the Company
assumes no responsibility for the accuracy or completeness of such information.
The Schedule 14D-1 indicates that the principal executive offices of Plato and
Plato Sub are located at 455 South Gulph Road, King of Prussia, Pennsylvania
19406.
VOTING SECURITIES OF THE COMPANY
At the close of business on August 31, 1999, there were issued and
outstanding 30,273,782 shares of Common Stock, each of which entitles the holder
to one vote.
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THE PLATO DESIGNEES
Plato has informed the Company that its designees to the Board shall be the
persons listed below (together, the "Plato Designees"). None of the Plato
Designees or their associates is a director of, or holds any position with, the
Company. To the best of the Company's knowledge, none of the Plato Designees or
their associates beneficially owns any equity securities, or rights to acquire
any equity securities, of the Company, or has been involved in any transactions
with the Company or any of its directors or executive officers that are required
to be disclosed pursuant to the rules and regulations of the Commission. Plato
has informed the Company that each of the Plato Designees listed below has
consented to act as a director of the Company. The names, principal employment
or occupation and five year employment history of each of the Plato Designees
are set forth below. Each person listed below is a citizen of the United States.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME AGE MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
- ---- --- --------------------------------------------------
<S> <C> <C>
Gregory M. Case..... 46 Mr. Case is President and a director of Plato Sub and Plato
and a manager of Plato Holdings, LLC., a newly organized
Delaware limited liability company which is the holder of
all of the outstanding capital stock of Plato ("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........ 53 Mr. Hertz is Vice President, Treasurer, Secretary and a
director of Plato Sub and Plato 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 August 1999. 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........... 32 Mr. Lass is Vice President and Assistant Secretary of Plato
Sub and Plato 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...... 31 Mr. Poisel is Vice President and Assistant Secretary of
Plato Sub and Plato 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>
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DIRECTORS AND EXECUTIVE OFFICERS
THE CURRENT MEMBERS OF THE BOARD
The Board currently consists of seven members. The name of the current
directors, their ages as of September 15, 1999, and certain other information
about them are set forth below. As indicated above, some of the current
directors may resign effective immediately following the purchase of Shares by
Plato Sub pursuant to the Offer.
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED A POSITION OF THE COMPANY OR PRINCIPAL
NAME OF DIRECTOR AGE DIRECTOR OCCUPATION DURING THE PAST FIVE YEARS
- ---------------- --- ---------- -------------------------------------
<S> <C> <C> <C>
Harvey V. Fineberg, M.D., Ph.D. ....... 54 1997 Dr. Fineberg was named Provost of Harvard
University in July 1997. Until then, he had
been Dean of the Harvard School of Public
Health since 1984 and has been a Professor
of Health Policy and Management there since
1982. From 1995 to 1996, he served as
President of the Association of Schools of
Public Health. He is also a member of the
Institute of Medicine. Dr. Fineberg is a
director of Integra, Inc., a national
behavioral health services company
incorporated in 1991 ("Integra").
John H. Foster......................... 57 1997 Mr. Foster is a director of Corning
Incorporated, an international corporation
with business interests in specialty
materials and communications. Since March
1991, Mr. Foster also has been Chairman of
the Board of Integra. From March 1991 until
October 1998 Mr. Foster was also Chief
Executive Officer of Integra. He is also
Chairman of the Board of NovaCare, Inc., the
Company's parent corporation ("NovaCare"),
since 1984 and served as NovaCare's Chief
Executive Officer from 1984 through May
1997. Mr. Foster is Chairman of the Board of
XYAN, Inc., an internet-based digital
imaging company. Mr. Foster is founder and
Chairman of Foster Management Company, an
investment advisor, and general partner of
various venture capital investment funds.
Timothy E. Foster...................... 47 1997 Since February 1993, Mr. Timothy Foster has
been a director of Integra. Mr. Foster has
been Chief Executive Officer of NovaCare
since May 1997 and a director of NovaCare
since December 1984. He has been a Managing
Partner of Foster Management Company since
June 1997.
</TABLE>
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<TABLE>
<CAPTION>
YEAR FIRST
ELECTED A POSITION OF THE COMPANY OR PRINCIPAL
NAME OF DIRECTOR AGE DIRECTOR OCCUPATION DURING THE PAST FIVE YEARS
- ---------------- --- ---------- -------------------------------------
<S> <C> <C> <C>
E. Martin Gibson....................... 61 1997 Mr. Gibson has been Chairman of the Board
since March 1997. Mr. Gibson, who is
retired, served as Chairman and Chief
Executive Officer of Corning Lab Services,
Inc., a subsidiary of Corning Incorporated,
from 1990 until December 1994. He currently
serves as a director of IT Group, Inc., an
environmental management company, Hardinge
Brothers, Inc., a manufacturer of machine
tools, and Sensus Corp., a private
biotechnology company. Mr. Gibson has been a
director of NovaCare since March 1992.
Loren J. Hulber........................ 57 1997 Mr. Hulber has been the President and Chief
Executive Officer of the Company since
January 1997. For the previous ten years, he
served in various capacities for Fortune
Brands, Inc., most recently as President and
Chief Executive Officer of Day-Timers, Inc.,
a subsidiary specializing in time management
and personal organization. From 1973 until
1981, Mr. Hulber was President and Chief
Executive Officer of Durand Corporation, an
office products company. Upon Durand
Corporation's acquisition by Jostens, Inc.
in 1981 and until 1987, Mr. Hulber was
President of that company's Business
Products Group, a provider of business
products and services. Mr. Hulber served as
Vice Chairman of the Board of Trustees of
Lehigh Valley Hospital and Health Network.
Stephen E. O'Neil ..................... 66 1997 Mr. O'Neil has been a Principal of The
O'Neil Group, a private investment firm,
since 1981. He is a director of Brown-Forman
Corporation, Castle Convertible Fund, Inc.,
Spectra Fund, Inc., Alger Fund, Inc., Alger
American Funds and NovaCare.
William F. Weld, Esq. ................. 54 1998 Mr. Weld is Counsel to McDermott, Will &
Emery, a national law firm. From 1991
through 1997, Mr. Weld served as Governor of
the Commonwealth of Massachusetts. Mr. Weld
served as Assistant U.S. Attorney General
from 1986 through 1988 and he served as
United States Attorney for Massachusetts
from 1981 through 1986. He is a director of
Affiliated Managers Group, Inc.
</TABLE>
No family relationships exist among any of the directors or executive
officers of the Company.
During the fiscal year ended June 30, 1999, the Board met four times and
convened four times by means of unanimous written consent. Each of the directors
listed above presently serving as a director of the Company attended at least
75% of the meetings of the Board and meetings of any committees of the Board on
which such person served which were held during the time that such person
served.
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The Board has a Compensation Committee and an Audit Committee. The members
of the Compensation Committee are John H. Foster, who serves as Chairman, Harvey
V. Fineberg, M.D., Ph.D. and E. Martin Gibson. The Compensation Committee
determines the compensation of senior management, administers the Company's 1997
Stock Option Plan and determines the persons who are to receive options and the
number of shares subject to each option. The Compensation Committee met two
times and convened two times by unanimous written consent during the fiscal year
ended June 30, 1999.
The members of the Audit Committee are Stephen E. O'Neil, who serves as
Chairman, Timothy E. Foster and William F. Weld, Esq. The Audit Committee acts
as a liaison between the Board and the independent accountants and annually
recommends to the Board the appointment of the independent accountants. The
Audit Committee reviews, with the independent accountants, the planning and
scope of the audits of the financial statements, the results of those audits and
the adequacy of internal accounting controls and monitors the Company's
compliance programs and other corporate and financial policies. The Audit
Committee met two times during the fiscal year ended June 30, 1999.
COMPENSATION OF DIRECTORS OF THE COMPANY
In consideration for each director's services during fiscal year 1999, the
Company granted each director options to purchase 20,000 shares of Common Stock
at a price of $5.81 per share, except for E. Martin Gibson, Chairman of the
Board, who was granted options to purchase 40,000 shares of Common Stock. These
options were granted on December 8, 1998, and vest over three years at the rate
of 33.3% annually.
In consideration for each director's services during fiscal years 1997 and
1998, the Company granted each director options to purchase 20,000 shares of
Common Stock at a price of $2.80 per share, except for E. Martin Gibson,
Chairman of the Board of Directors, who was granted options to purchase 40,000
shares of Common Stock. These options were granted on February 28, 1997, and
vest over three years at the rate of 33% annually.
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COMPENSATION OF EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth information for the fiscal years ended June
30, 1999, 1998 and 1997 concerning the compensation paid or awarded to the Chief
Executive Officer and each of the five other most highly compensated executive
officers of the Company during each such year. The table includes information
for two former executive officers whose employment with the Company terminated
during fiscal 2000 and one executive officer whose employment with the Company
is scheduled to terminate in October 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM
NAME AND --------------------------------------- COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) OTHER($)(1) AWARDS OPTIONS(#)
- ------------------ ---- ----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Loren J. Hulber(2)................................ 1999 $250,000.00 $250,000.00 $35,626.34 150,000
President and Chief Executive 1998 204,878.74 216,999.94 20,222.88 150,000
Officer 1997 69,230.00 31,500.00 1,884.61 --
Aven A. Kerr(3)................................... 1999 230,000.00 125,000.00 40,334.74 125,000
Executive Vice President and Chief 1998 119,947.05 61,424.98 31,762.86 125,000
Operating Officer 1997 -- -- -- 10,000
Thomas D. Schubert(4)............................. 1999 200,000.00 70,000.00 27,436.66 100,000
Formerly Senior Vice President and 1998 155,210.85 63,472.50 8,347.52 75,000
Chief Financial Officer 1997 5,769.23 -- -- 25,000
Andrew W. Stith(5)................................ 1999 180,000.00 63,000.00 9,127.26 100,000
Formerly Senior Vice President of 1998 148,212.33 60,606.00 3,977.22 100,000
Marketing and Sales 1997 18,216.65 -- 1,764.45 30,000
Kenneth J. Jankowski(6)........................... 1999 150,000.00 45,000.00 7,423.38 75,000
Formerly Senior Vice President of 1998 72,115.00 29,484.00 2,492.21 65,000
Client Services and Chief 1997 -- -- -- --
Information Officer
Christina D. Harris, Esq.(7)...................... 1999 135,000.00 40,500.00 2,349.48 75,000
Senior Vice President of Regulatory 1998 110,000.02 41,679.50 1,914.39 60,000
Affairs and Compliance and 1997 -- -- -- --
General Counsel
</TABLE>
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(1) Represents the Company's contributions for various benefit plans, including
401(k) Plan, Supplemental Benefit Plan, Long Term Disability Plan and Life
Insurance Plan.
(2) Mr. Hulber became President and Chief Executive Officer of the Company in
January 1997.
(3) Ms. Kerr became an Executive Vice President and the Chief Operating Officer
of the Company in June 1998. From September 1997 to May 1998, Ms. Kerr was
Senior Vice President of Operations Administration of the Company.
(4) Mr. Schubert's employment with the Company terminated in September 1999.
(5) Mr. Stith's employment with the Company is scheduled to terminate in October
1999.
(6) Mr. Jankowski's employment with the Company terminated in September 1999.
(7) Ms. Harris became the Senior Vice President of Regulatory Affairs and
Compliance of the Company in July 1997. During 1998, Ms. Harris was also
appointed to serve as the Company's General Counsel.
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The following table sets forth the number and value of options exercised by
the executive officers of the Company named in the Summary Compensation Table
during the fiscal year ended June 30, 1999 and the number and value of options
held by such executive officers at June 30, 1999.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1999
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES JUNE 30, 1999(#) JUNE 30, 1998($)(1)
ACQUIRED ----------------- -------------------
UPON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
- ---- -------- -------- ----------------- -------------------
<S> <C> <C> <C> <C>
Loren J. Hulber....................... -- -- 0/300,000 $0/$0
Kenneth J. Jankowski.................. -- -- 0/140,000 0/ 0
Aven A. Kerr.......................... -- -- 4,000/256,000 0/ 0
Thomas D. Schubert.................... -- -- 10,000/190,000 0/ 0
Andrew W. Stith....................... -- -- 12,000/218,000 0/ 0
Christina D. Harris................... -- -- 4,000/131,000 0/ 0
</TABLE>
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(1) In-the-money options are those for which the fair market value of the
underlying Common Stock exceeds the exercise price of the option. The value
of in-the-money options is determined in accordance with regulations of the
Securities and Exchange Commission by subtracting the aggregate exercise
price of the option from the aggregate year-end value of the underlying
Common Stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
John H. Foster, as Chairman, Harvey V. Fineberg, M.D., Ph.D. and E. Martin
Gibson served on the Compensation Committee of the Board of Directors for the
entire 1999 fiscal year. No insider served on the Committee and there were no
interlocks.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board (the "Committee") presently is
composed of three independent non-employee directors. The Committee is
responsible for setting and monitoring the effectiveness of the compensation
provided to the Company's officers, directors and senior management employees.
In its decision-making, the Committee is guided by a compensation
philosophy designed to reward employees for the achievement of organizational
goals and for the maximization of stockholder return. Specific levels of pay and
incentive opportunity are determined by the competitive market for executive
talent and, where appropriate, the need to invest in the future growth of the
business.
The compensation program, which provides incentives for executives to
achieve the short-term and long-term goals of the Company, comprises three
components: base salary, cash incentives and stock option awards.
Base Salary
Executive and management base salaries provide fixed compensation to retain
talent to launch a new business venture.
Incentive Compensation
Based on organizational level and performance, incentive opportunities are
available to a wide range of Company employees. These programs are effective in
reinforcing both the overall values of the Company and the specific operating
goals of the various business units.
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Executive incentive plans are designed to focus executive attention on the
key performance goals of the Company, to identify the expected levels of
performance and to reward individuals who meet or exceed such expectations. The
aggregate amounts available for incentive awards are determined by the overall
financial performance of the Company. The actual awards paid to individual
recipients under the plans are based on the achievement of weighted performance
goals.
For the Chief Executive Officer and other executives and management
employees, including the executives named in this Information Statement,
incentive awards were performance-driven. A minimum of 60% of the incentive
award was based on financial performance, and the remainder was based on
achievement of specific business objectives. To earn incentive awards based on
financial performance, the Company's performance must at a minimum have reached
70% of the financial performance targets established by the Board, at which
level of performance 50% of the targeted incentive opportunity would be earned.
Earned awards increased proportionally and reached 100% at achievement of 100%
of the performance goal. Performance awards over 100% increased on a formula
basis up to 200% of the targeted incentive opportunity at 130% of such
performance goal; awards were capped at 200% of the targeted amount.
Stock Option Awards
The Company's 1997 Stock Option Plan (as amended, the "Plan") was approved
by the Board of Directors and the stockholders of the Company to align
executives' interests with stockholders' interests, to provide incentives for
key employees of the Company and its subsidiaries by encouraging their ownership
of Common Stock and to aid the Company in attracting and retaining such key
employees, upon whose efforts the Company's success and future growth depends.
Options are granted at the discretion of the Committee. Individual grant
sizes are determined based on a variety of factors, which include practices for
similar positions in the market and organizational and individual performance.
At the discretion of the Committee, and based on the recommendation of
management, options may also be used as an incentive for candidates recruited to
fill key positions, or as special retention incentives for employees with
significant future potential.
All options under the Plan are granted at 100% of the fair market value on
date of grant. The term of the option is 10 years from the date of grant and
vested options can be exercised at any time during such period. Options
generally vest and become exercisable in cumulative annual installments of 20%
over five years commencing one year after the date of grant. If an employee
leaves the Company before options are vested, the unexercised options are
forfeited and may be reissued under the Plan. On February 3, 1998, the
Compensation Committee approved the grant of options with an alternate
price-based vesting schedule. Under that vesting schedule options vest in 20%
increments either pursuant to the standard five-year schedule or when the market
price of the Common Stock averages $12, $14, $16, $18 and $20 for 20 consecutive
trading days, whichever first occurs.
On December 8, 1998, the Company repriced all outstanding options with
exercise prices in excess of $6.00 to $5.81 per Share. The new option price was
determined based upon the fair market value per Share at December 8, 1998.
Compensation of Chief Executive Officer
For fiscal year 1999, Loren J. Hulber, President and Chief Executive
Officer of the Company, received $500,000 in aggregate cash compensation
comprising $250,000 in base salary and $250,000 in incentive compensation. His
incentive compensation was targeted at a bonus of 100% of his base salary.
9
<PAGE> 11
The decisions of the Committee depend significantly on quantitative market
data and recommendations of impartial third party consultants. The Committee
believes its decisions are consistent with the Company's business objectives and
performance expectations and have been made in the best interests of the Company
and its stockholders.
THE COMPENSATION COMMITTEE
JOHN H. FOSTER, CHAIRMAN
HARVEY V. FINEBERG, M.D., PH.D.
E. MARTIN GIBSON
TRANSACTION BONUSES
Each of Loren J. Hulber, Aven A. Kerr, Executive Vice President and Chief
Operating Officer of the Company, Daniel R. Rishavy, Senior Vice President of
Marketing and Sales, Christina D. Harris, Esq., Senior Vice President and
General Counsel of the Company, and James E. Boyd, Region
President -- Southeast, have Transaction Bonus Agreements dated August 30, 1999
which entitle them upon the consummation of the Merger, to receive Transaction
Bonus Payments of $250,000, $125,000, $90,000, $67,500 and $71,577,
respectively, based on the Offer Price. Copies of these Transaction Bonus
Agreements were filed as Exhibits (c)(9) through (c)(13) to the Schedule 14D-9
filed with the Commission. Each such transaction bonus arrangement was
established by the Board to provide the Company's officers with a financial
incentive to maximize shareholder value in connection with any proposed sale of
the Company.
CHANGE OF CONTROL
The consummation of the Merger will be deemed to be a "change of control"
under the Company's 1997 Stock Option Plan, which will result in the
acceleration of the vesting of options held by all the directors and executive
officers of the Company. In addition, the Company's executive officers are
entitled to terminate their employment with the Company and receive certain
severance benefits in the event of a "change of control" of the Company. See
Employment Agreements below. The consummation of the Merger would constitute a
change of control under the executive officers' Employment Agreements with the
Company.
MANAGEMENT CHANGES
Concurrently with the execution of the Merger Agreement, the Company and
Plato agreed that following the Merger, Loren J. Hulber will be elected Chairman
of the Board of the Company and Craig P. Coy will be appointed Chief Executive
Officer. Mr. Coy has been Chief Executive Officer of HR, Logic, Inc., a
portfolio company jointly owned by Patricof & Co. Ventures, Inc. and Fidelity
Ventures Limited.
EMPLOYMENT AGREEMENTS
In January 1997, the Company entered into an Employment Agreement with
Loren J. Hulber, the Company's President and Chief Executive Officer. The
agreement provides for a three-year term of employment and provides for
automatic one-year extensions until either party shall give the other notice of
non-extension. The agreement provides for Mr. Hulber to receive an annual base
salary, currently $250,000, subject to increases in accordance with the policies
of the Company, and to be eligible for an annual cash bonus equal to one hundred
percent of his base salary. Under this agreement, Mr. Hulber was given the
opportunity to purchase 375,000 shares of the Company's Common Stock at a price
of $1.92 per share, subject to certain restrictions on resale. The agreement
provides that if Mr. Hulber is terminated by the Company without cause or if Mr.
Hulber resigns subsequent to a change in control of the Company, a material
diminution of his position, authority or compensation or his removal by the
Company as President and Chief Executive Officer, then Mr. Hulber shall be
entitled to his base salary and certain other benefits for a period of one year
from the date of such event in periodic installments (which cease if Mr. Hulber
obtains alternative employment, unless the rate of compensation is less, in
which case the Company shall pay the difference for
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the remainder of the severance period) and bonus compensation in an amount equal
to (a) the lesser of the bonus earned in the preceding fiscal year or one
hundred percent of his salary during the year of termination (the "Final
Bonus"), plus (b) an amount based on the Final Bonus and the number of months in
the severance period provided in Mr. Hulber's employment agreement. In addition,
Mr. Hulber will become fully vested in all options granted and be eligible to
receive benefits during the severance period. In case of a change of control,
Mr. Hulber may terminate employment and receive severance payments in a lump
sum.
In December 1998, the Company entered into an Employment Agreement with
Aven A. Kerr, the Company's Executive Vice President and Chief Operating
Officer. The agreement provides for a two-year term of employment and provides
for automatic one-year extensions. The agreement provides for Ms. Kerr to
receive an annual base salary of $250,000, subject to increases in accordance
with the policies of the Company, and to be eligible for an annual cash bonus
equal to fifty percent of base salary, in accordance with the Company's
incentive compensation plan. The agreement provides that if Ms. Kerr is
terminated without cause, Ms. Kerr will continue to receive base salary for a
period of one year in periodic installments (which cease if Ms. Kerr obtains
alternative employment, unless the rate of compensation is less, in which case
the Company shall pay the difference for the remainder of the severance period)
and bonus compensation in an amount equal to the lesser of the prior fiscal
year's bonus or 50% of current salary. Ms. Kerr will vest in all options and
receive benefits for the severance period. In case of a change of control, Ms.
Kerr may terminate employment and receive severance payments in a lump sum.
In December 1998, the Company entered into an Employment Agreement with
Thomas D. Schubert, formerly the Company's Senior Vice President and Chief
Financial Officer. The agreement provides for a two-year term of employment and
provides for automatic one-year extensions. The agreement provides for Mr.
Schubert to receive an annual base salary of $200,000, subject to increases in
accordance with the policies of the Company, and to be eligible for an annual
cash bonus equal to thirty-five percent of base salary, in accordance with the
Company's incentive compensation plan. The agreement provides that if Mr.
Schubert is terminated without cause, Mr. Schubert will continue to receive base
salary for a period of one year in periodic installments (which cease if Mr.
Schubert obtains alternative employment, unless the rate of compensation is
less, in which case the Company shall pay the difference for the remainder of
the severance period) and a pro rata bonus for the number of months worked to be
paid out concurrent with the Company's annual bonus process. In case of a change
of control, Mr. Schubert may terminate employment and receive severance payments
in a lump sum. Mr. Schubert terminated his employment with the Company in
September 1999.
In December 1998, the Company entered into an Employment Agreement with
Andrew W. Stith, formerly the Company's Senior Vice President of Marketing and
Sales. The agreement provides for a two-year term of employment and provides for
automatic one-year extensions. The agreement provides for Mr. Stith to receive
an annual base salary of $180,000, subject to increases in accordance with the
policies of the Company, and to be eligible for an annual cash bonus equal to
thirty-five percent of base salary, in accordance with the Company's incentive
compensation plan. The agreement provides that if Mr. Stith is terminated
without cause, Mr. Stith will continue to receive base salary for a period of
one year in periodic installments (which cease if Mr. Stith obtains alternative
employment, unless the rate of compensation is less, in which case the Company
shall pay the difference for the remainder of the severance period) and a pro
rata bonus for the number of months worked to be paid out concurrent with the
Company's annual bonus process. In case of a change of control, Mr. Stith may
terminate employment and receive severance payments in a lump sum. Mr. Stith
employment with the Company is scheduled to terminate in October 1999.
In December 1998, the Company entered into an Employment Agreement with
Kenneth J. Jankowski, formerly the Company's Senior Vice President of Client
Services and Chief Information Officer. The agreement provides for a two-year
term of employment and provides for automatic one-year extensions. The agreement
provides for Mr. Jankowski to receive an annual base salary of $150,000, subject
to increases in accordance with the policies of the Company, and to be eligible
for an annual cash bonus equal to thirty-five percent of base salary, in
accordance with the Company's incentive compensation plan. The agreement
provides that if Mr. Jankowski is terminated without cause, Mr. Jankowski will
continue to receive base salary for a period of one year in periodic
installments (which cease if Mr. Jankowski obtains alternative employment,
unless the rate of compensation is less, in which case the Company shall pay the
difference for
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the remainder of the severance period) and a pro rata bonus for the number of
months worked to be paid out concurrent with the Company's annual bonus process.
In case of a change of control, Mr. Jankowski may terminate employment and
receive severance payments in a lump sum. Mr. Jankowski terminated his
employment with the Company in September 1999.
In December 1998, the Company entered into an Employment Agreement with
Christina D. Harris, the Company's Senior Vice President of Regulatory Affairs
and General Counsel. The agreement provides for a two-year term of employment
and provides for automatic one-year extensions. The agreement provides for Ms.
Harris to receive an annual base salary of $135,000, subject to increases in
accordance with the policies of the Company, and to be eligible for an annual
cash bonus equal to thirty percent of base salary, in accordance with the
Company's incentive compensation plan. The agreement provides that if Ms. Harris
is terminated without cause, Ms. Harris will continue to receive base salary for
a period of one year in periodic installments (which cease if Ms. Harris obtains
alternative employment, unless the rate of compensation is less, in which case
the Company shall pay the difference for the remainder of the severance period)
and a pro rata bonus for the number of months worked to be paid out concurrent
with the Company's annual bonus process. In case of a change of control, Ms.
Harris may terminate employment and receive severance payments in a lump sum.
CERTAIN TRANSACTIONS
The Company was established by NovaCare in September 1996 and completed its
initial public offering of 5,750,000 Shares in November 1997. As of the date of
this Information Statement, NovaCare owns approximately 64% of the issued and
outstanding Shares. In February 1997, the Company and NovaCare entered into a
services contract with the Company ("NovaCare Contract"), whereby principally
all of NovaCare's employees were co-employed by the Company. Under the NovaCare
Contract, the Company provides traditional professional employer organization
("PEO") services such as payroll and benefits management, worksite safety
evaluation, employment-related risk management and compensation and benefits
consultation. In January 1998, NovaCare initiated a restructuring plan to
favorably position one of its operating divisions for recent changes in the
Medicare reimbursement system as mandated by the Balanced Budget Act of 1997.
The intent of the plan was to reduce substantially the cost of its workforce by
transitioning to a lower cost operating model for providing quality therapy
services. In support of this transition and to address NovaCare's increased
demand for additional human resource services, the Company and NovaCare
renegotiated the NovaCare Contract, effective July 1, 1998.
On March 31, 1999, NovaCare announced that due primarily to lower
reimbursement rates and to declines in rehabilitation caseloads at long-term
care customer facilities, resulting from the new reimbursement structure for
therapy under the Medicare program, NovaCare would be forced to exit selected
long-term care markets and facilities, and would continue to lower expenses by
reducing labor costs. On June 1, 1999, NovaCare sold its remaining long-term
care services business to Chance Murphy, Inc., an independent company managed by
a subsidiary of Integrated Health Services, Inc. The Company entered into a
one-month transition services agreement with Chance Murphy, Inc. In addition, on
July 1, 1999, NovaCare sold its orthotics and prosthetics services business. The
Company entered into a six-month transition agreement with the buyer which was
subsequently extended for an additional six-month term on August 30, 1999. Based
on these announcements, the Company and NovaCare negotiated new contract terms
to reflect changes in NovaCare's ongoing service needs. Effective July 1, 1999,
the Company and NovaCare replaced the NovaCare Contract with two agreements: (i)
a four-year agreement relating to NovaCare's PROH Division (the "PROH
Contract"), and (ii) an agreement relating to NovaCare's corporate support
personnel (the "Corporate Support Services Agreement"). Copies of these
agreements were filed as Exhibits (c) (14) and (c) (15) to the Schedule 14D-9
filed with the Commission.
Pursuant to the Merger Agreement, Plato and Plato Sub have the right to
terminate the Merger Agreement and require the Company to pay to Plato a
break-up fee of $4,500,000 or have all of Plato's and Plato Sub's reasonable
out-of-pocket expenses reimbursed as a result of the failure of NovaCare to
satisfy certain conditions in the Merger Agreement. NovaCare, on September 8,
1999, executed a letter (the "NovaCare Indemnification Letter") addressed to the
Company agreeing to pay or reimburse the Company for any break-up fees or
expenses incurred by the Company in the event that Plato and Plato Sub terminate
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the Merger Agreement pursuant to Sections 7.1(d)(i)(D), 7.1(d)(iii), 7.1(d)(iv),
7.1(d)(v) or 7.1(d) (vii) of the Merger Agreement. A copy of the NovaCare
Indemnification Letter was filed as Exhibit (c)(16) to the Schedule 14D-9 filed
with the Commission.
On September 8, 1999, the Company and NovaCare entered into a Transfer and
Licensing Agreement (the "Transfer and Licensing Agreement") whereby NovaCare
irrevocably transferred to the Company the name "NovaSource" and granted the
Company a license to use the name "NovaCare" for a period of six months
following the effective time of the Merger. A copy of the Transfer and Licensing
Agreement was filed as Exhibit (c) (17) to the Schedule 14D-9 filed with the
Commission.
In order to induce the Company to enter into the Merger Agreement, NovaCare
has agreed to deliver to the Company as promptly as practicable after the date
of the Merger Agreement, and in any event prior to the purchase of any Shares
pursuant to the Offer, (i) a guaranty from NovaCare in form and substance
reasonably satisfactory to Plato, pursuant to which NovaCare shall guaranty to
Plato the earnings before interest, taxes, depreciation and amortization
("EBITDA") projected to be received by the Company under the PROH Contract which
such EBITDA amounts are set forth in Schedule 5.12 of the Merger Agreement and
(ii) an irrevocable letter of credit or surety bond from a reputable and
financially sound financial institution or insurance company, or such other
security, in each case in form and substance reasonably satisfactory to Plato
securing the EBITDA payable with respect to the PROH Contract and the EBITDA set
forth in Schedule 5.12 to the Merger Agreement projected to be received by the
Company under the Corporate Support Services Agreement.
In addition, to further induce the Company to enter into the Merger
Agreement, NovaCare and the Company executed a letter agreement dated September
8, 1999 (the "Unified/Surety Bond Indemnification Letter") in which NovaCare
agreed to indemnify the Company and certain investors in Plato LLC from and
against any and all losses, claims, assessments, demands, damages, liabilities,
obligations, costs and/or expenses whatsoever sustained or incurred by the
Company or such investors as a result of any action or claim brought by Unified
Management Corporation, an Illinois corporation, or its related corporations
(collectively, "Unified"), and/or the shareholders of Unified, as a result of
the termination of the Agreement of Purchase and Sale dated as of June 16, 1999
(the "Unified Agreement") by and among the Company, Unified and the shareholders
of Unified. In addition, the Unified/Surety Bond Indemnification Letter provided
that NovaCare would cash collateralize and take all action necessary to cause
the Company to be removed as a co-indemnitor with respect to the obligations
secured by a $4,580,446 surety bond in which NovaCare and the Company are
co-indemnitors of the issuer of such bond. The Company agreed to take all action
necessary to cause NovaCare to be removed as co-indemnitor with respect to all
other surety bonds that NovaCare and the Company are co-indemnitors of the
issuers of such surety bonds.
NovaCare also provides information systems, consulting services and general
administrative and financial services to the Company on an as-needed basis at
NovaCare's cost. During fiscal 1999, the Company reimbursed NovaCare for certain
expenses, in the amount of $80,000, based upon estimates of time incurred by
NovaCare's personnel on behalf of the Company.
Effective July 1, 1997, the Company issued 1,200,000 shares of its common
stock, valued at $5,400,000, to acquire the assets and liabilities of NovaPro,
formerly a business of NovaCare.
Timothy E. Foster and Harvey V. Fineberg, M.D., Ph.D., directors of the
Company, serve as directors of Integra, Inc., which is controlled by John H.
Foster.
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS AND CERTAIN STOCKHOLDERS
The following table sets forth, as of August 31, 1999, the total number of
Shares beneficially owned, and the percentage so owned, by (i) each director of
the Company, (ii) each person who has an ownership interest in the stockholder,
(iii) each person known to the Company to be the beneficial owner of more than
5% of the outstanding Shares, (iv) each of the executive officers listed in the
Summary Compensation Table and (v) all directors and officers as a group. The
number of shares owned are those "beneficially owned" as determined
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under the rules of the Commission, and such information is not necessarily
indicative of beneficial ownership for any other purpose.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
NAME OWNED BENEFICIALLY(1) PERCENT OF CLASS
- ---- --------------------- ----------------
<S> <C> <C>
NovaCare........................................... 19,400,000 63.9%
GeoCapital......................................... 1,638,300 5.4%
Harvey V. Fineberg, M.D............................ 13,334(2) *
John H. Foster..................................... 8,000(3) *
Timothy E. Foster.................................. 18,000(4) *
E. Martin Gibson................................... 41,667(5) *
Loren J. Hulber.................................... 375,000(6) 1.24%
Stephen E. O'Neil.................................. 13,334(7) *
William F. Weld, Esq............................... 0(8) *
Kenneth J. Jankowski............................... 3,700 *
Aven A. Kerr....................................... 5,000(9) *
Christina D. Harris................................ 4,800(10) *
Thomas D. Schubert................................. 22,000(11) *
Andrew W. Stith.................................... 22,000(12) *
All Directors and Officers as a Group (12
persons)......................................... 1,602,447(1)(13) 5.3%
</TABLE>
- ---------------
* Less than one percent.
(1) As of August 31, 1999, stockholders had sole voting and investment power
with respect to all shares shown in the table as beneficially owned by such
stockholder, except as indicated below.
(2) Consists of 13,334 shares of Common Stock presently issuable upon exercise
of options.
(3) Consists of 8,000 shares of Common Stock presently issuable upon exercise
of options. In addition, Mr. Foster beneficially owns 4,151,214 shares
(approximately 5.9%) of the common stock (the "NovaCare Common Stock") of
NovaCare, 1,650,001 of such shares presently issuable upon exercise of
options.
(4) Includes 8,000 shares of Common Stock presently issuable upon exercise of
options. In addition, Mr. Foster beneficially owns 900,001 shares
(approximately 1.3%) of NovaCare Common Stock presently issuable upon
exercise of options.
(5) Consists of 26,667 shares of Common Stock presently issuable upon exercise
of options. In addition, Mr. Gibson owns 52,600 shares (less than one
percent) of NovaCare Common Stock, 50,000 of such shares presently issuable
upon exercise of options.
(6) In addition, Mr. Hulber owns 10,000 shares (less than one percent) of
NovaCare Common Stock.
(7) Consists of 13,334 shares of Common Stock presently issuable upon exercise
of options. In addition, Mr. O'Neil owns 50,100 shares (less than one
percent) of NovaCare Common Stock, 50,000 of such shares presently issuable
upon exercise of options.
(8) Mr. Weld does not own any shares of Common Stock or NovaCare Common Stock.
(9) Includes 4,000 shares of Common Stock presently issuable upon exercise of
options. In addition, Ms. Kerr owns 22,000 shares of NovaCare Common Stock.
(10) Includes 2,000 shares of Common Stock presently issuable upon exercise of
options. In addition, Ms. Harris owns 73 shares of NovaCare Common Stock.
(11) Includes 10,000 shares of Common Stock presently issuable upon exercise of
options.
(12) Includes 12,000 shares of Common Stock presently issuable upon exercise of
options.
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(13) Includes 99,335 shares of Common Stock presently issuable upon exercise of
options. In addition, all directors and officers of the Company as a group
beneficially own 5,185,915 shares of NovaCare Common Stock, 2,672,008 of
such shares presently issuable upon exercise of options.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Exchange Act, directors and executive officers
of the Company are required to make certain filings on a timely basis with the
Securities and Exchange Commission. To date all required filings have been made
on a timely basis.
By Order of the Board of Directors
October 4, 1999
Loren J. Hulber
President and Chief Executive Officer
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