UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
Commission file number 1-10875
NovaCare, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3247827
(State of incorporation) (I.R.S. Employer Identification No.)
1016 W. Ninth Avenue, King of Prussia, PA 19406
(Address of principal executive office) (Zip code)
Registrant's telephone number: (610) 992-7200
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of January 31, 1998, NovaCare, Inc. had 61,300,510 shares of common stock,
$.01 par value, outstanding.
<PAGE>
NOVACARE, INC. AND SUBSIDIARIES
FORM 10-Q - QUARTER ENDED DECEMBER 31, 1997
INDEX
Part No. Item No. Description Page No.
I FINANCIAL INFORMATION
1 Financial Statements
- Condensed Consolidated Balance Sheets
as of December 31, 1997 and
June 30, 1997 1
- Condensed Consolidated Statements of
Operations for the Three Months Ended
December 31, 1997 and 1996 2
- Condensed Consolidated Statements of
Operations for the Six Months Ended
December 31, 1997 and 1996 3
- Condensed Consolidated Statements of
Cash Flows for the Six Months Ended
December 31, 1997 and 1996 4
- Notes to Condensed Consolidated
Financial Statements 5-9
2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10-16
II OTHER INFORMATION
6 Exhibits and Reports on Form 8-K 17
Signatures 18
i
<PAGE>
<TABLE>
<CAPTION>
NOVACARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
As of December 31, 1997 and June 30, 1997
(In thousands, except per share data)
December 31, June 30,
1997 1997
------------ ------------
ASSETS (Unaudited) (See Note 1)
Current assets:
<S> <C> <C>
Cash and cash equivalents ...................... $ 38,380 $ 22,716
Accounts receivable, net of allowances at
December 31, 1997 and at June 30, 1997
of $43,400 and $33,263, respectively........... 314,135 256,477
Deferred income taxes .......................... 24,041 13,939
Other current assets ........................... 48,028 36,763
----------- -----------
Total current assets ........................ 424,584 329,895
Property and equipment, net ...................... 75,518 69,740
Excess cost of net assets acquired, net .......... 659,547 568,027
Investments in joint ventures .................... 12,982 12,719
Other assets, net ................................ 38,098 33,923
----------- -----------
$ 1,210,729 $ 1,014,304
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of financing arrangements ...... $ 27,414 $ 15,978
Accounts payable and accrued expenses .......... 173,681 135,272
Income taxes payable ........................... 10,795 5,069
----------- -----------
Total current liabilities ................... 211,890 156,319
Financing arrangements, net of current portion.. 405,946 326,700
Deferred income taxes .......................... 30,411 14,779
Other .......................................... 4,688 4,851
----------- -----------
Total liabilities ........................... 652,935 502,649
----------- -----------
Minority interest in consolidated subsidiaries ... 16,161 3,649
Commitments and contingencies .................... -- --
Shareholders' equity:
Common stock, $.01 par value; authorized
200,000 shares; issued 66,825 shares at
December 31, 1997 and issued 66,630 shares
at June 30, 1997............................... 668 666
Additional paid-in capital ..................... 262,282 259,915
Retained earnings .............................. 323,136 292,340
----------- -----------
586,086 552,921
Less: Common stock in treasury (at cost), 5,552
shares at December 31, 1997 and 5,590 shares
at June 30, 1997............................... (44,453) (44,915)
----------- -----------
Total shareholders' equity .................. 541,633 508,006
----------- -----------
$ 1,210,729 $ 1,014,304
=========== ===========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are
an integral part of these statements.
1
<PAGE>
<TABLE>
<CAPTION>
NOVACARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
For The Three Months Ended
December 31,
--------------------------
1997 1996
--------- ---------
<S> <C> <C>
Net revenues ........................................ $ 398,818 $ 235,012
Cost of services..................................... 312,485 174,101
--------- ---------
Gross profit ..................................... 86,333 60,911
Selling, general and administrative expenses ........ 49,566 33,982
Provision for uncollectible accounts ................ 4,837 5,207
Amortization of excess cost of net assets acquired... 4,799 2,927
Provision for restructure ........................... 23,500 --
--------- ---------
Income from operations ........................... 3,631 18,795
Gain from issuance of subsidiary stock .............. 38,128 --
Investment income ................................... 305 286
Interest expense .................................... (6,695) (3,280)
Minority interest ................................... (345) (48)
--------- ---------
Income before income taxes ....................... 35,024 15,753
Income taxes ........................................ 14,452 6,537
--------- ---------
Net income ....................................... $ 20,572 $ 9,216
========= =========
Net income per share - basic ..................... $ .34 $ .15
========= =========
Net income per share - assuming dilution ......... $ .33 $ .15
========= =========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
2
<PAGE>
<TABLE>
<CAPTION>
NOVACARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
For the Six Months Ended
December 31,
---------------------------
1997 1996
---------- ------------
<S> <C> <C>
Net revenues ..................................... $ 755,516 $ 444,442
Cost of services.................................. 590,786 327,752
--------- -----------
Gross profit .................................. 164,730 116,690
Selling, general and administrative expenses ..... 95,038 66,790
Provision for uncollectible accounts ............. 9,948 10,466
Amortization of excess cost of net assets acquired 9,265 5,621
Provision for restructure ........................ 23,500 --
--------- -----------
Income from operations ........................ 26,979 33,813
Gain from issuance of subsidiary stock ........... 38,128 --
Investment income ................................ 446 1,376
Interest expense ................................. (12,489) (6,448)
Minority interest ................................ (420) (92)
--------- -----------
Income before income taxes .................... 52,644 28,649
Income taxes ..................................... 21,848 11,889
--------- -----------
Net income .................................... $ 30,796 $ 16,760
========= ===========
Net income per share - basic .................. $ .50 $ .27
========= ===========
Net income per share - assuming dilution ...... $ .49 $ .27
========= ===========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
3
<PAGE>
<TABLE>
<CAPTION>
NOVACARE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except per share data)
(Unaudited)
For the Six Months Ended
December 31,
--------------------------
1997 1996
------------ ------------
Cash flows from operating activities:
<S> <C> <C>
Net income ....................................... $ 30,796 $ 16,760
Adjustments to reconcile net income to net cash flows
provided by operating activities:
Provision for restructure ..................... 23,500 --
Gain from issuance of subsidiary stock ........ (38,128) --
Depreciation and amortization ................. 23,932 17,279
Minority interest ............................. 420 92
Provision for uncollectible accounts .......... 9,948 10,466
Deferred income taxes ......................... 5,879 1,100
Changes in assets and liabilities, net of
effects from acquisitions:
Accounts and notes receivable .............. (44,449) (28,861)
Other current assets ....................... (7,347) 828
Accounts payable and accrued expenses ...... 13,863 11,306
Income taxes payable ....................... 5,367 540
Other, net ................................. (132) (903)
---------- ----------
Net cash flows provided by operating
activities................................ 23,649 28,607
---------- ----------
Cash flows from investing activities:
Payments for businesses acquired, net of
cash acquired................................... (91,090) (74,949)
Net additions to property and equipment .......... (13,612) (9,647)
Other, net ....................................... (3,089) (1,318)
---------- ----------
Net cash flows (used in) investing activities (107,791) (85,914)
---------- ----------
Cash flows from financing activities:
Proceeds from financing arrangements ............. 219,033 12,000
Payment of financing arrangements ................ (166,906) (8,973)
Proceeds from the issuance of subsidiary stock ... 45,941 --
Proceeds from common stock issued ................ 1,738 1,847
Payment for purchase of treasury stock ........... -- (23,251)
---------- ----------
Net cash flows provided by (used in)
financing activities....................... 99,806 (18,377)
---------- ----------
Net increase (decrease) in cash and cash
equivalents..................................... 15,664 (75,684)
Cash and cash equivalents, beginning of period ... 22,716 95,724
---------- ----------
Cash and cash equivalents, end of period ......... $ 38,380 $ 20,040
========== ==========
Supplemental disclosures of cash flow information:
Interest paid ............................... $ 6,067 $ 5,760
========== ==========
Income taxes paid ........................... $ 10,199 $ 14,080
========== ==========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial
Statements are an integral part of these statements.
4
<PAGE>
NOVACARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(In thousands, except per share data)
(Unaudited)
1. Basis of Presentation
The accompanying condensed consolidated financial statements of NovaCare,
Inc. (the "Company") are unaudited. The balance sheet as of June 30, 1997 is
condensed from the audited balance sheet of the Company at that date. These
statements have been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission and should be read in conjunction with
the Company's consolidated financial statements and the notes thereto for the
year ended June 30, 1997. Certain information and footnote disclosures
normally in the financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
such rules and regulations. In the opinion of Company management, the
condensed consolidated financial statements for the unaudited interim periods
presented include all adjustments (consisting of only normal recurring
adjustments) necessary to present a fair statement of the results for such
interim periods. Certain amounts in the fiscal 1996 condensed consolidated
financial statements have been reclassified to conform with fiscal 1997
presentation.
Operating results for the three and six-month periods ended December 31,
1997 are not necessarily indicative of the results that may be expected for a
full year or any portion thereof.
2. Provision for Restructure
In the second quarter of fiscal 1998, the Company recorded a provision for
restructure based on an evaluation of changes in the Medicare reimbursement
system recently mandated by the Balanced Budget Act. In response to these
changes, the Company will convert its long-term care contract rehabilitation
model from one characterized by a high concentration of one-on-one therapy,
with licensed professionals treating individual patients, to a model which:
(i) relies more heavily on well-trained therapy assistants and aides closely
supervised by licensed professionals, and (ii) employs simultaneous therapy,
wherein licensed professionals, along with well-trained therapy assistants
and aides, treat multiple patients on a group basis.
The provision of $23,500 ($13,865, net of tax) reflects principally
employee severance costs, which represent the accumulation of termination
benefits set forth in the Company's severance policy, related to changes in
workforce composition dictated by the revised operating model.
3. Gain from Issuance of Subsidiary Stock
In the second quarter of fiscal 1998, a subsidiary of the Company,
NovaCare Employee Services, Inc. ("NCES"), completed an initial public
offering, converted its mandatory redeemable common stock, and issued common
stock to former owners of an acquired company. As a result of these common
stock transactions, the Company's percentage ownership of NCES decreased to
71.5% from 98.7% at June 30, 1997. The initial public offering included 5,750
shares of NCES common stock issued at $9.00 per share. Proceeds received by
NCES, net of underwriting and issuance costs, were $45,941. Mandatory
redeemable common stock was converted into 813 common shares, valued at $4.82
per share. The issuance of common stock to former owners included 723 shares
valued at $8.29 per share.
The Company recorded a gain of $38,128 ($22,495, net of tax) for the
difference between the Company's historical cost of its investment in NCES
and its portion of NCES equity at December 31, 1997. The Company will
continue to record NCES investment adjustments through its statement of
operations as NCES's equity changes as a result of capital transactions.
5
<PAGE>
NOVACARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1997
(In thousands, except per share data)
(Unaudited)
4. Net Income Per Share
Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
became effective for periods ending after December 15, 1997. This statement
revised the calculation of earnings per share from the "primary" and "fully
diluted" methods previously employed, to the "basic" and "assuming dilution"
methods. The Company had not previously presented fully diluted earnings per
share because the result was not materially different than the primary
calculation. Under the new statement, basic earnings per share represents
earnings divided by the weighted average number of shares outstanding during
the period. Earnings per share-assuming dilution represents the basic
weighted average shares outstanding adjusted for the effects of stock options
and contingently issuable shares under certain acquisition agreements. The
calculation of the Company's earnings per share assuming dilution closely
resembles that used in prior calculations of primary earnings per share.
In accordance with this statement, the Company has replaced its disclosure
of primary net income per share with net income per share-basic and net
income per share-assuming dilution.
The following table sets forth the computation and reconciliation of net
income per share-basic and net income per share-assuming dilution:
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended December 31, Ended December 31,
---------------------- --------------------
1997 1996 1997 1996
---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Net income................... $20,572 $ 9,216 $30,796 $16,760
========== ========== ========== ========
Weighted average shares
outstanding:
Weighted average shares
outstanding - basic....... 61,260 60,644 61,186 61,293
Stock options.............. 1,986 958 2,083 851
Contingently issuable shares
- assuming dilution....... 42 279 42 279
---------- ---------- ---------- --------
Weighted average shares
outstanding - assuming
dilution.................. 63,288 61,881 63,311 62,423
========== ========== ========== ========
Net income per share -
basic..................... $ .34 $ .15 $ .50 $ .27
========== ========== ========== ========
Net income per share -
assuming dilution......... $ .33 $ .15 $ .49 $ .27
========== ========== ========== ========
</TABLE>
The Company did not include convertible subordinated debentures,
equivalent to 6,567 shares of common stock, or options to purchase 302 and
361 shares of common stock for the three and six months ended December 31,
1997, respectively, because their effects are antidilutive. There were no
transactions that occurred subsequent to December 31, 1997 that would have
materially changed the number of shares used in computing net income per
share-basic or net income per share-assuming dilution.
6
<PAGE>
NOVACARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1997
(In thousands, except per share data)
(Unaudited)
5. Acquisitions
During the six months ended December 31, 1997 and 1996, the Company
acquired 43 and 21 outpatient businesses, respectively. Also, in each of the
six month periods ended December 31, 1997 and 1996, the Company acquired one
occupational health business and one employee services business. All
acquisitions were accounted for as purchases and, accordingly, the aggregate
purchase price was allocated to assets and liabilities based on their fair
values at the date of acquisition.
The following unaudited pro forma consolidated results of operations of
the Company give effect to each of the acquisitions as if they occurred on
July 1, 1996:
<TABLE>
<CAPTION>
For the Six Months Ended
December 31,
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
Net revenues............................ $ 845,578 $712,297
Net income.............................. 31,179 17,335
Net income per share - basic............ .51 .28
Net income per share - assuming
dilution.............................. $ .49 $ .28
</TABLE>
The above pro forma information is not necessarily indicative of the
results of operations that would have occurred had the acquisitions been made
as of July 1, 1996, or the results that may occur in the future.
Information with respect to businesses acquired in purchase transactions
for the six months ended December 31, 1997 was as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash paid (net of cash acquired)......... $ 69,879
Notes issued............................. 40,716
Other consideration...................... 16,720
------------
127,315
Fair value of assets acquired, principally
accounts receivable and property and
equipment............................. 20,448
------------
Cost in excess of fair value of net
assets acquired........................ $ 106,867
============
</TABLE>
The results of operations of businesses acquired have been included in the
consolidated results of the Company from the effective date of each
acquisition.
7
<PAGE>
NOVACARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1997
(In thousands, except per share data)
(Unaudited)
6. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
------------ ------------
<S> <C> <C>
Accounts payable........................ $ 12,173 $ 13,647
Accrued compensation and benefits....... 86,549 65,564
Accrued restructure costs............... 26,910 5,286
Deferred and contingent purchase price
obligations............................. 14,014 25,624
Accrued workers' compensation and health
claims.................................. 11,060 8,471
Accrued interest........................ 6,933 1,002
Other................................... 16,042 15,678
------------ ------------
$ 173,681 $ 135,272
============ ============
</TABLE>
As of December 31, 1997, accrued restructure costs consists of $23,500
related to a change in the Company's long-term care contract rehabilitation
service delivery model and $3,410 related to cost improvement programs
implemented in prior years.
7. Financing Arrangements
Financing arrangements consisted of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
------------ -----------
<S> <C> <C>
Convertible subordinated debentures (5.5%),
due January 2000.......................... $ 175,000 $ 175,000
$275,000 revolving credit facility
(EuroDollar rate plus 0.5% to 1.125%),
due November 28, 1999..................... 167,500 109,600
Subordinated promissory notes (5% to 10%),
through 2007.............................. 83,314 56,859
$25,000 revolving credit facility (Prime
rate plus 0.125% to 1.125%), due
November 17, 2000......................... 4,000 --
Other........................................ 3,546 1,219
------------ ----------
433,360 342,678
Less: current portion....................... 27,414 15,978
------------ ----------
$ 405,946 $ 326,700
============ ==========
</TABLE>
The Company established a revolving credit facility with a syndicate of
lenders in fiscal 1996, which is collateralized by substantially all of the
Company's subsidiaries' common stock. On September 30, 1997, the credit
agreement was amended to increase the available line of credit from $190,000
to $275,000. As of December 31, 1997, $102,137 of the line of credit was
available after reduction for letters of credit totaling $5,363 and
borrowings.
In November 1997, NCES entered into a $25.0 million three-year revolving
credit facility with a syndicate of lenders. The credit facility provides for
interest to be charged at a variable rate, depending on certain financial
ratios, equal to: (i) the EuroDollar rate plus a range of 1.375% to 2.50% or
(ii) the lead lender's prime rate plus a range of .125% to 1.25%. Loans made
under the credit facility are collaterized by a pledge of all of: (i) NCES's
subsidiaries' common stock, (ii) the assets of NCES and its subsidiaries, and
(iii) the Company's interest in the common stock of NCES. The unused portion
of the line of credit at December 31, 1997 was $21,000.
8
<PAGE>
NOVACARE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 1997
(In thousands, except per share data)
(Unaudited)
8. Minority Interest
Minority interest resulted from investments in the following entities:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
------------ ----------
<S> <C> <C>
NovaCare Employee Services, Inc.............. $ 15,790 $ 3,334
All other entities........................... 371 315
------------ ----------
$ 16,161 $ 3,649
============ ==========
</TABLE>
In the second quarter of fiscal 1997, NCES issued 5,750 shares of its
common stock to third parties through an initial public offering, 813 shares
through the conversion of mandatory redeemable stock and 723 shares in
connection with an acquisition. As a result of these issuances, the Company's
ownership percentage in NCES decreased from approximately 98.7% at June 30,
1997 to 71.5% at December 31, 1997.
The Company recognized a gain on its investment in NCES's equity (Note 3)
and a minority interest liability for the portion of NCES's equity owned by
outside investors. The Company also recognized a minority interest liability
for the portion of NCES's net income attributable to those investors.
9. Commitments and Contingencies
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability, if any, with respect to these actions will not have a
material adverse effect on the financial position or results of operations of
the Company.
Certain purchase agreements require additional payments if specific
financial targets and non-financial conditions are met. Aggregate contingent
payments in connection with these acquisitions at December 31, 1997 of
approximately $45,510 in cash and 73 shares of common stock have not been
included in the initial determination of cost of the businesses acquired
since the amount of such contingent consideration, if any, is not presently
determinable. For the six months ended December 31, 1997 and 1996, the
Company paid $5,486 and $11,392 in cash, respectively, and issued 54 and 129
shares, respectively, of common stock in connection with businesses acquired
in prior years.
9
<PAGE>
NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
In the second quarter of fiscal 1998, the Company experienced significant
growth through strategic acquisitions and internal growth in its existing
businesses. During the six months ended December 31, 1997 and 1996, the
Company purchased 43 and 21 outpatient businesses, respectively. Also, in
each of the six month periods ended December 31, 1997 and 1996, the Company
acquired one occupational health business and one employee services business.
Beginning in the second quarter of fiscal 1997, the Company has operated
in two service industries, rehabilitation services and employee services.
Rehabilitation services include: (i) providing rehabilitation therapy and
rehabilitation program consulting and management services on a contract basis
to health care institutions, primarily long-term care facilities, and (ii)
providing outpatient, orthotic and prosthetic and occupational health
rehabilitation services through a national network of patient care centers.
Employee services are generally provided to small and medium-sized businesses
and are comprehensive, fully integrated outsourcing solutions to human
resource management, including payroll management, workers' compensation,
risk management, benefits administration, unemployment services and human
resource consulting services. Effective January 24, 1997, employee services
were provided to the rehabilitation services segment of the Company.
The following are the results of operations for the three and six month
periods ended December 31, 1997 and 1996. Other operating expenses includes
selling, general and administrative expenses, provision for uncollectible
accounts and amortization of excess cost of net assets acquired.
<TABLE>
<CAPTION>
For The Three Months For The Six Months
Ended Ended
December 31, December 31,
------------------------ ----------------------
(Table in thousands) 1997 1996 1997 1996
----------- ---------- --------- -----------
Net revenues
<S> <C> <C> <C> <C>
Rehabilitation
services............. $290,185 $224,118 $560,292 $433,548
Employee services.... 302,751 10,894 569,508 10,894
Elimination.......... (194,118) -- (374,284) --
----------- ---------- --------- -----------
Total net revenues. 398,818 235,012 755,516 444,442
----------- ---------- --------- -----------
Gross profit
Rehabilitation
services............. 81,595 60,069 155,632 115,848
Employee services.... 9,412 842 17,740 842
Elimination.......... (4,674) -- (8,642) --
----------- ---------- --------- -----------
Total gross profit. 86,333 60,911 164,730 116,690
Other operating
expenses.............. 59,202 42,116 114,251 82,877
Provision for
restructure............. 23,500 -- 23,500 --
----------- ---------- --------- -----------
Income from
operations......... 3,631 18,795 26,979 33,813
Gain from issuance of
subsidiary stock..... 38,128 -- 38,128 --
Interest expense, net... (6,390) (2,994) (12,043) (5,072)
Minority interest
expense................. (345) (48) (420) (92)
----------- ---------- --------- -----------
Income before
income tax........ $ 35,024 $ 15,753 $ 52,644 $ 28,649
=========== ========== ========= ===========
</TABLE>
10
<PAGE>
NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Results of Operations for the Three Months Ended December 31, 1997
Net revenues for the three months ended December 31, 1997 increased from
the prior year by $163.8 million, or 69.7%, to $398.8 million and gross
profit increased $25.4 million, or 41.7%, to $86.3 million, primarily as a
result of acquisitions and internal growth.
Other operating expenses increased $17.1 million from $42.1 million for
the three months ended December 31, 1996 to $59.2 million for the three
months ended December 31, 1997. The increased costs are associated primarily
with businesses acquired in fiscal 1997 and the first quarter of fiscal 1998,
as well as additional selling, general and administrative costs incurred in
the expansion of the Company's employee services business. As a percentage of
net revenues, other operating expenses decreased from 17.9% to 14.8% for the
same periods, respectively, due to an increase in employee services revenue
where operating expenses as a percentage of net revenues is typically lower
than rehabilitation services.
Depreciation expense increased to $7.7 million for the three months ended
December 31, 1997 from $5.7 million for the three months ended December 31,
1996 primarily due to the full year effect of assets acquired in fiscal 1997
and ongoing capital investments. Amortization expense increased $1.9 million
to $4.8 million from $2.9 million for the same periods, respectively, as a
result of businesses acquired subsequent to December 31, 1996.
In the second quarter of fiscal 1998, the Company recorded a provision for
restructure based on an evaluation of changes in the Medicare reimbursement
system recently mandated by the Balanced Budget Act. In response to these
changes, the Company will convert its long-term care contract rehabilitation
model from one characterized by a high concentration of one-on-one therapy,
with licensed professionals treating individual patients, to a model which:
(i) relies more heavily on well-trained therapy assistants and aides closely
supervised by licensed professionals, and (ii) employs simultaneous therapy,
wherein licensed professionals, along with well-trained therapy assistants
and aides, treat multiple patients on a group basis.
The provision of $23.5 million ($13.9 million, net of tax) reflects
principally employee severance costs, which represent the accumulation of
termination benefits set forth in the Company's severance policy, related to
changes in workforce composition dictated by the revised operating model.
Also in the second quarter of fiscal 1998, a subsidiary of the Company,
NovaCare Employee Services, Inc. ("NCES"), completed an initial public
offering, converted its mandatory redeemable common stock, and issued common
stock to former owners of an acquired company. As a result of these common
stock transactions, the Company's percentage ownership of NCES decreased to
71.5% from 98.7% at June 30, 1997. The initial public offering included 5.8
million shares of NCES common stock issued at $9.00 per share. Proceeds
received by NCES, net of underwriting and issuance costs, were $45.9 million.
Mandatory redeemable common stock was converted into 813 common shares,
valued at $4.82 per share. The issuance of common stock to former owners
included 723 shares valued at $8.29 per share.
The Company recorded a gain of $38.1 million ($22.5 million, net of tax)
for the difference between the Company's historical cost of its investment in
NCES and its portion of NCES equity at December 31, 1997. The Company will
continue to record NCES investment adjustments through its statement of
operations as NCES's equity changes as a result of capital transactions.
Interest expense, net of investment income, increased $3.4 million
compared with the prior period principally as a result of increased
borrowings in fiscal 1998 compared with fiscal 1997 as discussed under
"Liquidity and Capital Resources."
11
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NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Results of Operations for the Three Months Ended December 31, 1997
(Continued)
Income tax expense as a percentage of pretax income decreased to 41.3% for
the three months ended December 31, 1997 from 41.5% for the three months
ended December 31, 1996. The decrease in the income tax rate resulted
principally from lower effective state income tax rates.
Operating Results by Business
Rehabilitation Services
Net revenues for the three months ended December 31, 1997 increased from
the prior year by $66.1 million, or 29.5%. Gross profit for the second
quarter of fiscal 1998 increased from the prior year by $21.5 million, or
35.8%. Gross profit as a percentage of net revenues increased to 28.1% for
the three months ended December 31, 1997 from 26.8% for the three months
ended December 31, 1996.
The $66.1 million increase in net revenues resulted principally from: (i)
net revenues from businesses acquired, (ii) an increase in contract
rehabilitation net revenues resulting principally from new contract sales and
price increases, and (iii) an increase in outpatient net revenues
attributable to internal growth.
The $21.5 million increase in gross profit was primarily due to: (i)
acquisitions in fiscal 1997 and fiscal 1998, (ii) contract sales, price
increases and lower labor costs in contract rehabilitation, and (iii) an
increase in productivity in outpatient rehabilitation; partially offset by an
increase in clinical management costs associated with growth in operations.
The increase of 1.3% in gross profit margin resulted principally from: (i) an
increase in contract pricing, (ii) decreased labor costs in contract
rehabilitation, and (iii) productivity improvements and cost reduction
programs in outpatient rehabilitation.
Employee Services
The Company's employee services segment provides human resource management
services to third party clients and the Company's rehabilitation services
segment. Intercompany activity is eliminated in consolidation.
Revenues for the three months ended December 31, 1997 were $302.8 million
representing an increase of $291.9 million from the prior year. Gross profit
for the second quarter of fiscal 1998 increased to $9.4 million from $0.8
million for the second quarter of fiscal 1997.
The increases in both revenue and gross profit were attributable to: (i)
the acquisition of three employee services businesses in the third quarter of
fiscal 1997, (ii) the acquisition of one employee services business in the
second quarter of fiscal 1998, (iii) services provided to the Company's
rehabilitation business, and (iv) internal growth. The acquisitions and
growth in operations increased the weighted average number of worksite
employees to 40,661 at December 31, 1997 from 1,757 at December 31, 1996.
Results of Operations for the Six Months Ended December 31, 1997
Net revenues for the six months ended December 31, 1997 increased from the
prior year by $311.1 million, or 70.0%, to $755.5 million and gross profit
increased $48.0 million, or 41.2%, to $164.7 million, primarily as a result
of acquisitions and internal growth.
12
<PAGE>
NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Results of Operations for the Six Months Ended December 31, 1997 (Continued)
Other operating expenses increased $31.4 million from $82.9 million for
the six months ended December 31, 1996 to $114.3 million for the six months
ended December 31, 1997. The increased costs are associated primarily with
businesses acquired in fiscal 1997 and fiscal 1998, as well as additional
selling, general and administrative costs incurred in the expansion of the
Company's employee services business. As a percentage of net revenues, other
operating expenses decreased from 18.7% to 15.1% for the same periods,
respectively, due to an increase in employee services revenue where operating
expenses as a percentage of net revenues is typically lower than
rehabilitation services.
Depreciation expense increased to $14.7 million for the six months ended
December 31, 1997 from $11.7 million for the six months ended December 31,
1996 primarily due to the full year effect of assets acquired in fiscal 1997
and ongoing capital investments. Amortization expense increased $3.7 million
to $9.3 million from $5.6 million for the same periods, respectively, as a
result of businesses acquired subsequent to December 31, 1996.
In the second quarter of fiscal 1998, the Company recorded a provision for
restructure based on an evaluation of changes in the Medicare reimbursement
system recently mandated by the Balanced Budget Act. In response to these
changes, the Company will convert its long-term care contract rehabilitation
model from one characterized by a high concentration of one-on-one therapy,
with licensed professionals treating individual patients, to a model which:
(i) relies more heavily on well-trained therapy assistants and aides closely
supervised by licensed professionals, and (ii) employs simultaneous therapy,
wherein licensed professionals, along with well-trained therapy assistants
and aides, treat multiple patients on a group basis.
The provision of $23.5 million ($13.9 million net of tax) reflects
principally employee severance costs, which represent the accumulation of
termination benefits set forth in the Company's severance policy, related to
changes in workforce composition dictated by the revised operating model.
Also in the second quarter of fiscal 1998, a subsidiary of the Company,
NovaCare Employee Services, Inc. ("NCES"), completed an initial public
offering, converted its mandatory redeemable common stock, and issued common
stock to former owners of an acquired company. As a result of these common
stock transactions, the Company's percentage ownership of NCES decreased to
71.5% from 98.7% at June 30, 1997. The initial public offering included 5.8
million shares of NCES common stock issued at $9.00 per share. Proceeds
received by NCES, net of underwriting and issuance costs, were $45.9 million.
Mandatory redeemable common stock was converted into 813 common shares,
valued at $4.82 per share. The issuance of common stock to former owners
included 723 shares valued at $8.29 per share.
The Company recorded a gain of $38.1 million ($22.5 million, net of tax)
for the difference between the Company's historical cost of its investment in
NCES and its portion of NCES equity at December 31, 1997. The Company will
continue to record NCES investment adjustments through its statement of
operations as NCES's equity changes as a result of capital transactions.
Interest expense, net of investment income, increased $7.0 million
compared with the prior period principally as a result of increased
borrowings in fiscal 1998 compared with fiscal 1997 as discussed under
"Liquidity and Capital Resources."
Income tax expense as a percentage of pretax income remained constant for
the six months ended December 31, 1997 and December 31, 1996 at 41.5%.
13
<PAGE>
NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Results of Operations for the Six Months Ended December 31, 1997 (Continued)
Operating Results by Business
Rehabilitation Services
Net revenues for the six months ended December 31, 1997 increased from the
prior year by $126.7 million, or 29.2%. Gross profit for the same period
increased from the prior year by $39.8 million, or 34.3%. Gross profit as a
percentage of net revenues increased to 27.8% for the six months ended
December 31, 1997 from 26.7% for the six months ended December 31, 1996.
The $126.7 million increase in net revenues resulted principally from: (i)
net revenues from businesses acquired, (ii) an increase in contract
rehabilitation net revenues resulting principally from new contract sales and
price increases, and (iii) an increase in outpatient net revenues
attributable to internal growth.
The $39.8 million increase in gross profit was primarily due to: (i)
acquisitions in fiscal 1997 and fiscal 1998, (ii) contract sales, price
increases and lower labor costs in contract rehabilitation, and (iii) an
increase in productivity in outpatient rehabilitation; partially offset by an
increase in clinical management costs associated with growth in operations.
The increase of 1.1% in gross profit margin resulted principally from: (i) an
increase in contract pricing, (ii) decreased labor costs in contract
rehabilitation, and (iii) productivity improvements and cost reduction
programs in outpatient rehabilitation.
Employee Services
In the first quarter of fiscal 1998, the Company's temporary therapist
staffing business was sold by rehabilitation services to employee services.
Revenues and gross profit increased to $569.5 million and $17.7 million,
respectively, for the six month period ended December 31, 1997 from $10.9
million and $0.8 million, respectively, for the six month period ended
December 31, 1996. The increase was primarily due to: (i) the acquisition of
three employee services businesses in the third quarter of fiscal 1997, (ii)
the acquisition of one employee services business in the second quarter of
fiscal 1998, (iii) services provided to the Company's rehabilitation
business, effective January 24, 1997, and (iv) internal growth. The increase
was also due to the inclusion of six months of operations in the six month
period ended December 31, 1997 as compared with the inclusion of only three
months of operations, from inception, for the period ended December 31, 1996.
Liquidity and Capital Resources
During the six months ended December 31, 1997, the Company's cash and cash
equivalents increased by $15.7 million from $22.7 million to $38.4 million.
The increase in cash and cash equivalents resulted principally from: (i) a
$52.1 million net increase in the Company's financing arrangements, (ii) the
receipt of proceeds from NCES's initial public offering totaling $45.9
million, and (iii) cash provided by operations of $23.6 million; partially
offset by payments to acquire new businesses of $91.1 million and $13.6
million in payments for additions to property and equipment.
Cash provided by operations decreased to $23.6 million for the six months
ended December 31, 1997 from $28.6 million for the six months ended December
31, 1996. This decrease, excluding the effects of the gain on NCES stock and
provision for restructure, is principally due to an increase in accounts
receivable which resulted from volume increases and an increase in days
services outstanding in the Company's rehabilitation business, partially
offset by increases in net income and depreciation and amortization expense.
14
<PAGE>
NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
The Company used $13.6 million of cash for capital expenditures during the
first six months of fiscal 1998 compared with $9.6 million in the first six
months of fiscal 1997. Capital expenditures generally relate to the costs
incurred in connection with internally developed software, equipment and
leasehold improvements in startup outpatient rehabilitation services,
leasehold renovations and equipment replacement needed for technological
efficiency in clinical and administrative activities in support of clinical
programs and outcomes, cost reduction initiatives and future growth plans.
In November 1997, NCES entered into a $25.0 million three-year revolving
credit facility with a syndicate of lenders. The credit facility provides for
interest to be charged at a variable rate, depending on certain financial
ratios, equal to: (i) the EuroDollar rate plus a range of 1.375% to 2.50% or
(ii) the lead lender's prime rate plus a range of .125% to 1.25%. Loans made
under the credit facility are collaterized by a pledge of all of: (i) the
common stock of NCES's subsidiaries, (ii) the assets of NCES and its
subsidiaries, and (iii) the Company's interest in the common stock of NCES.
In addition to the NCES line of credit, the Company maintains a separate
$275.0 million line of credit. As of December 31, 1997, $21.0 million and
$102.1 million of NCES's and the Company's credit facilities, respectively,
were available after reductions for letters of credit totaling $5.4 million
and borrowings.
NCES, through an initial public offering, sold approximately 5.8 million
shares of common stock to third parties. Total proceeds received by NCES, net
of underwriter's discount and offering costs, totaled $45.9 million.
The Company believes that the cash flows generated by the Company's
operations, together with its existing cash and availability of credit under
the credit facilities, will be sufficient to meet the Company's short-and
long-term cash needs.
Reimbursement/Government Relations
On January 30, 1998 the Health Care Financing Administration ("HCFA"), the
federal agency responsible for the rules governing Medicare and Medicaid,
issued specific salary equivalency reimbursement guidelines for long-term
care contract rehabilitation occupational therapy and speech-language
pathology services and revisions to the existing guidelines for physical
therapy services. The rules specify that effective April 1, 1998,
occupational therapy and speech-language pathology services guidelines become
effective and physical therapy guidelines will be increased in consideration
of the substantial increases in salary and services standards since these
guidelines were last revised.
Until such salary equivalency guidelines are effective, contract
rehabilitation for occupational therapy and speech-language pathology
services will continue to be evaluated based upon the reasonableness of costs
incurred by the provider under a "prudent buyer" standard.
The Balanced Budget Act of 1997 (the "Act") enacted in August 1997, made
several changes in the way Medicare will reimburse nursing homes and other
providers for their services. Commencing July 1, 1998, these changes will
take effect for nursing homes at different times throughout calendar years
1998 and 1999, depending on the starting date for each facility's cost
reporting year. By the middle of 1999, the Act mandates that each
15
<PAGE>
NOVACARE, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Reimbursement/Government Relations (Continued)
facility be reimbursed, in part, under a comprehensive prospective payment
system, which will include payment for therapy services in a single
all-inclusive per diem payment. Therapy services not covered by the
prospective payment system will be covered by a fee schedule with total
charges being subject to an annual cap.
The Act also mandates changes to the payment structure for services
provided through certified rehabilitation agencies. Implementation of these
changes stretches over the next 18 months. As with nursing homes,
rehabilitation agencies will change from the current cost-based system to a
system based on a fee schedule with an annual cap.
The Company is actively involved in trade groups assisting HCFA in
designing the regulations and reimbursement schedules necessary to implement
the Act. By changing Medicare reimbursement to nursing homes from a cost
basis to a fixed fee, the Act will make a fundamental change in the economic
assumptions underlying patient care in nursing homes.
It cannot be predicted at this time what effect the changes that salary
equivalency and the Act will have on the demand for therapy services.
Management is taking steps which it believes will help to mitigate any
adverse economic impact of these changes. There can be no assurance, however,
that these changes will not have a material adverse effect on the future
operations of the Company.
Year 2000 Compliance
The Company is in the process of assessing the effects of Year 2000
software issues on its present information technology structure. As of
December 31, 1997, that assessment, including a determination of the exposure
of the Company's business processes to these issues and the need for and
estimated costs associated with any necessary conversions had not been
completed.
Cautionary Statement
Except for historical information, matters discussed above including, but
not limited to, statements concerning future growth, are forward-looking
statements that are based on management's estimates, assumptions and
projections. Important factors that could cause results to differ materially
from those expected by management include reimbursement system changes,
including customer response to the establishment of salary equivalency
guidelines for certain therapies and the change from cost-based reimbursement
to fee schedules and per diem payments, the number and productivity of
clinicians, pricing of payer contracts, management retention and development,
management's success in integrating acquired business and in developing and
introducing new products and lines of business, adverse Internal Revenue
Service rulings with respect to the employer status of employee services
businesses and the Company's ability to implement the employee services
business model.
16
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NOVACARE, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibit
Number Exhibit Description Page Number
------ ------------------- -----------
10(a) Employment agreement dated as of June 13, 1997
between the Company and Robert E. Healy, Jr.
10(b) Employment agreement dated as of September 29,
1997 between the Company and Peter D. Bewley.
10(c) Employment agreement dated as of September 29,
1997 between the Company and Aven A. Kerr.
10(d) Employment agreement dated as of September 29,
1997 between the Company and
Ronald G. Hiscock.
10(e) Amendment dated October 10, 1997 to the
employment agreement dated as of January 6,
1995 between the Company and Daryl A. Dixon.
27 Financial Data Schedule
17
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NOVACARE, INC.
(Registrant)
February 13, 1998 By/s/ Robert E. Healy, Jr.
--------------------------
Robert E. Healy, Jr.,
Senior Vice President,
Finance & Administration and
Chief Financial Officer
By/s/ Barry E. Smith
--------------------------
Barry E. Smith,
Vice President,
Controller and
Chief Accounting Officer
18
EMPLOYMENT AGREEMENT
AGREEMENT made as of June 13, 1997 by and between NovaCare, Inc., a
Delaware corporation (the "Company") and Robert E. Healy, Jr. (the "Executive").
RECITALS
The Company wishes to retain the services of the Executive in the
capacity of Senior Vice President, Finance and Administration and Chief
Financial Officer, and the Executive wishes to serve in the employ of the
Company in that capacity, upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Employment, Term, Automatic Extension.
1.1 Employment. The Company agrees to employ the Executive,
and the Executive agrees to serve in the employ of the Company, for the term set
forth in Section 1.2, in the position and with the responsibilities, duties and
authority set forth in Section 2 and on the other terms and conditions set forth
in this Agreement.
1.2 Term. The term of the Executive's employment under this
Agreement shall be the period commencing on June 13, 1997 and ending on June 15,
2000, unless sooner terminated in accordance with this Agreement.
1.3 Automatic Extension. As of June 15, 1999, and as of each
subsequent June 15 (each an "Automatic Renewal Date"), unless either party shall
have given a notice of non-extension prior to such Automatic Renewal Date, the
term of this Agreement shall extended automatically for a period of one year to
the anniversary of the expiration date of the then-current term of this
Agreement. Once a notice of non-extension shall have been given by either party,
there shall be no further automatic extension of this Agreement.
2. Position, Duties.
Executive shall serve in the positions of Senior Vice
President, Finance and Administration and Chief Financial Officer of the
Company. The Executive shall perform, faithfully and diligently, such duties,
and shall have such responsibilities appropriate to said positions, as shall be
assigned to him from time to time by the Chief Executive Officer and the Board
of Directors of the Company. The Executive shall report to the Chief Executive
Officer of the Company. The Executive shall devote his full business time and
attention to the performance of his duties and responsibilities hereunder.
3. Compensation.
3.1 Salary. In consideration of the performance by the
Executive of the services set forth in Section 2 and the Executive's observance
of the other covenants set forth herein, the Company shall pay the Executive,
and the Executive shall accept, an annualized base salary of $260,000, payable
on a bi-weekly schedule in accordance with the Company's regular payroll
practices. Effective January 1, 1998, the Company shall pay the Executive, and
the Executive shall accept, an annualized base salary of $300,000, payable on a
bi-weekly schedule in accordance with the Company's regular payroll practices.
The Executive shall be entitled to such increases in base salary during the term
hereof as shall be determined by the Chief Executive Officer of the Company and
approved by the Compensation Committee of the Board of Directors of the Company
in their sole discretion.
3.2 Bonus. In addition to the base salary provided for in
Section 3.1, the Executive shall be eligible for an incentive bonus target of
50% of base salary with respect to each fiscal year of the Company ending during
the term of this Agreement, payable in accordance with the terms of the
Company's Executive Incentive Compensation Plan based on attainment of stated
objectives.
1
<PAGE>
3.3 Stock Options. The Executive shall be eligible to receive
options to purchase the Company's common stock, $.01 par value, and the common
stock of subsidiaries of the Company (such options with respect to the stock of
the Company and its subsidiaries, together with such options heretofore granted
to the Executive, being hereinafter referred to as the "Options") in accordance
with the Company's policies and procedures relating to the grant of options,
subject to the authority of the Board of Directors of the Company and the board
of directors of any subsidiary to make such awards in their sole discretion. The
Options shall have such terms and conditions as the cognizant board of directors
shall determine, provided that all Options shall become exercisable in full upon
a Change in Control of the Company (as defined in Section 6.6), whether or not
the employment of the Executive shall be terminated, and, in such case, shall
remain exercisable for the balance of their stated term.
3.4 Supplemental Benefits Plan. The Executive shall be
entitled to participate in the Company's Supplemental Benefits Plan (the "Plan")
as a Level I Executive with full vesting in the Company's match under the Plan
after five (5) years of participation in the Plan.
4. Expense Reimbursement.
During the term of this Agreement, consistent with the Company's
policies and procedures as in effect from time to time, the Company shall
reimburse the Executive for all reasonable and necessary out-of-pocket expenses
incurred by the Executive in connection with the performance of the Executive's
duties and responsibilities hereunder, upon the presentation of proper accounts
therefor in accordance with the Company's policies.
5. Other Benefits.
During the term of this Agreement, the Executive shall be entitled to
receive such benefits as are from time to time made available to other similarly
situated Executives of the Company on the same terms as are available to such
similarly situated Executives in accordance with the provisions of the Company's
benefit plans in effect from time to time, it being understood that the
Executive shall be required to make the same contributions and payments in order
to receive any of such benefits as may be required of such similarly situated
Executives.
6. Termination of Employment.
6.1 Death. In the event of the death of the Executive during
the term of this Agreement, the Company shall pay to the estate or other legal
representative of the Executive (a) the base salary provided for in Section 3.1
accrued to the Executive's date of death and not previously paid and (b) any
bonus which shall be or become payable pursuant to Section 3.2. Rights and
benefits of the estate or other legal representative or transferee of the
Executive (a) with respect to the Options shall be determined in accordance with
Section 3.3 and (b) under the benefit plans and programs of the Company shall be
determined in accordance with the provisions of such plans and programs. Neither
the estate or other legal representative of the Executive nor the Company shall
have any further rights or obligations under this Agreement, except as provided
in Section 15.
6.2 Disability. If the Executive becomes incapacitated by
reason of sickness, accident or other physical or mental disability and is for a
period of six (6) consecutive months unable to perform the essential functions
of his position hereunder, the employment of the Executive may be terminated by
the Company upon thirty (30) days' prior written notice to the Executive.
Promptly after such termination, the Company shall (a) pay to the Executive the
base salary provided for in Section 3.1 accrued to the date of such termination
and not previously paid and (b) pay to the Executive any bonus which shall be or
become payable under Section 3.2. Rights and benefits of the Executive or his
transferee (a) with respect to the Options shall be determined in accordance
with Section 3.3 and (b) under the benefit plans and programs of the Company
shall be determined in accordance with the provisions of such plans and
programs. Neither the Executive nor the Company shall have any further rights or
obligations under this Agreement, except as provided in Sections 7, 8, 9 and 15.
2
<PAGE>
6.3 Due Cause. The employment of the Executive may be
terminated by the Company at any time during the term of this Agreement for Due
Cause (defined below). In the event of such termination, the Company shall pay
to the Executive the base salary provided for in Section 3.1 accrued to the date
of such termination and not previously paid to the Executive. The Company shall
also pay to the Executive any bonus which shall be or become payable to the
Executive under Section 3.2 with respect to any fiscal year of the Company ended
prior to the date of such termination. For purposes hereof, "Due Cause" means
(a) a material breach of any of the Executive's obligations hereunder (it being
understood that any breach of the provisions of Sections 2, 7 or 8 hereof shall
be considered material); (b) willful failure to carry out his duties hereunder,
or gross misconduct; or (c) that the Executive has been charged with any felony
or with any lesser crime or offense involving moral turpitude, or has been
banned from participation in the Medicare/Medicaid program. Before terminating
Executive for Due Cause, Company shall notify Executive of the grounds for such
termination and, if such grounds are susceptible to cure, shall provide
Executive Thirty (30) days during which to cure any such grounds. If Executive
shall fail during such period to cure the grounds, Executive's termination shall
be effective as of the date of the notice provided hereunder. Rights and
benefits of the Executive or his transferee (a) with respect to the Options
shall be determined in accordance with Section 3.3 and (b) under the benefit
plans and programs of the Company shall be determined in accordance with the
provisions of such plans and programs. After the satisfaction of any claim of
the Company against the Executive arising as a result of such Due Cause, neither
the Executive nor the Company shall have any further rights or obligations under
this Agreement, except as provided in Sections 7, 8 and 9.
6.4 Termination by the Company Without Cause. The Company may
terminate the Executive's employment prior to the expiration of the term of this
Agreement for whatever reason it deems appropriate; provided, however, that in
the event that such termination is not pursuant to Sections 6.1, 6.2 or 6.3:
(i) The Company shall continue to pay to the
Executive (or his estate or other legal representative in the case of the death
of the Executive subsequent to such termination), in the same periodic
installments as his base salary was paid, the base salary provided for in
Section 3.1 (at the annual rate then in effect), until the first to occur of (a)
the then scheduled expiration of the term hereof or (b) the expiration of a
period of one (1) year following such termination (the applicable period
hereinafter being referred to as the "Severance Period"); provided further, that
such periodic installment payments by the Company shall cease as of the date
Executive obtains alternative employment which does not conflict with Section
8.1(a) of this Agreement, except that, if such employment is at a rate of
compensation less than that required hereunder, Company shall continue to pay
the difference between the compensation payable under this section 6.4(i) and
the compensation Executive actually receives in his non-conflicting position for
the remainder of the Severance Period;
(ii) Executive shall become fully vested in the
Options; and
(iii) Executive shall continue to receive during the
Severance Period, to the extent permitted by law, the same health, disability
and life insurance benefits as Executive was receiving on the date of
termination, provided that Executive shall continue to make the same
contributions toward such coverage as Executive was making on the date of
termination, with such adjustments to contributions as are made generally for
all Executives.
6.5 Rights to Benefits. Upon termination of employment under
any provision contained in this Section 6, except section 6.4, rights and
benefits of the Executive, his estate or other legal representative under the
Executive benefit plans and programs of the Company, if any, will be determined
in accordance with the terms and provisions of such plans and programs. Neither
the Executive nor the Company shall have any further rights or obligations under
this Agreement, except as provided in Sections 7, 8 and 9.
6.6 Termination of Employment Following a Change in Control.
Anything herein to the contrary notwithstanding, the Executive may terminate his
employment with the Company during the one (1) year period following a Change in
Control, and such termination shall constitute a termination of the Executive's
employment by the Company pursuant to Section 6.4 (Termination by the Company
3
<PAGE>
Without Cause); provided, however, that the amount referred to in paragraph (i)
of Section 6.4 shall be paid to the Executive in a lump sum on the date of
termination. For purposes of this Agreement, a Change in Control of the Company
shall be deemed to have occurred if:
(i) a "person" (meaning an individual, a
partnership, or other group or association as defined in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, other than the Executive or a
group including the Executive), either (x) acquires twenty percent (20%) or more
of the combined voting power of the outstanding securities of the Company having
a right to vote in elections of directors and such acquisition shall not have
been approved within sixty (60) days following such acquisition by a majority of
the Continuing Directors (as hereinafter defined) then in office or (y) acquires
fifty percent (50%) or more of the combined voting power of the outstanding
securities of the Company having a right to vote in elections of directors; or
(ii) Continuing Directors shall for any reason
cease to constitute a majority of the Board of Directors of the Company; or
(iii) all or substantially all of the business and/or
assets of the Company are disposed of by the Company to a party or parties other
than a subsidiary or other affiliate of the Company, pursuant to a partial or
complete liquidation of the Company, sale of assets (including stock of a
subsidiary of the Company) or otherwise.
For purposes of this Agreement, the term "Continuing Director" shall
mean a member of the Board of Directors of the Company who either was a member
of the Board of Directors on the date hereof or who subsequently became a
Director and whose election, or nomination for election, was approved by a vote
of at least two-thirds of the Continuing Directors then in office.
7. Confidential Information.
7.1 (a) The Executive shall, during the Executive's employment
with the Company and at all times thereafter, treat all confidential material
(as hereinafter defined) of the Company or any other member of the Company Group
(as hereinafter defined) confidentially. The Executive shall not, without the
prior written consent of the Chairman of the Company, disclose such confidential
material, directly or indirectly, to any party, who at the time of such
disclosure is not an employee or agent of any member of the Company Group, or
remove from the premises of the Company or any other member of the Company Group
any notes or records relating thereto, copies or facsimiles thereof (whether
made by electronic, electrical, magnetic, optical, laser, acoustic or other
means), or any other property of any member of the Company Group. The Executive
agrees that all confidential material, together with all notes and records of
the Executive relating thereto, and all copies or facsimiles thereof in the
possession of the Executive (whether made by the foregoing or other means), are
the exclusive property of the Company Group. The Executive shall not in any
manner use any confidential material of the Company Group, or any other property
of any member of the Company Group, outside of the scope of the Executive's
duties and responsibilities under this Agreement or in any way that is
detrimental to any member of the Company Group.
(b) For the purposes hereof, the term
"confidential material" means all information in any way concerning the
activities, business or affairs of any member of the Company Group or any of the
customers or clients of any member of the Company Group, including, without
limitation, information concerning trade secrets, together with all sales and
financial information concerning any member of the Company Group and any and all
information concerning projects in research and development or marketing plans
for any products or projects of the Company Group, and all information in any
way concerning the activities, business or affairs of any of such customers or
clients, which is furnished to the Executive by any member of the Company Group
or any of its agents, customers or clients, or otherwise acquired by the
Executive in the course of the Executive's employment with the Company;
provided, however, that the term "confidential material" shall not include
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information which (i) becomes generally available to the public other than as a
result of a disclosure by the Executive, (ii) was available to the Executive on
a non-confidential basis prior to his employment with any member of the Company
Group or (iii) becomes available to the Executive on a non-confidential basis
from a source other than any member of the Company Group or any of its agents,
customers or clients, provided that such source is not bound by a
confidentiality agreement with any member of the Company Group or any of such
agents, customers or clients.
(c) For purposes hereof, the "Company Group"
means, collectively, the Company and its subsidiaries.
7.2 Promptly upon the request of the Company, the Executive
shall deliver to the Company all confidential material in tangible form relating
to any member of the Company Group in the possession of the Executive, without
retaining a copy thereof, unless, in the opinion of counsel for the Company,
either returning such confidential material or failing to retain a copy thereof
would violate any applicable federal, state, local or foreign law, in which
event such confidential material shall be returned without retaining any copies
thereof as soon as practicable after such counsel advises that the same may be
lawfully done.
7.3 If Executive is required, by deposition, interrogatories,
requests for information or documents, subpoena, civil investigative demand or
similar process, to disclose any confidential material relating to any member of
the Company Group, the Executive shall provide the Company with prompt notice
thereof so that the Company may seek an appropriate protective order and/or
waive compliance by the Executive with the provisions hereof; provided, however,
that if in the absence of a protective order or the receipt of such a waiver,
the Executive is, in the opinion of counsel for the Company, compelled to
disclose confidential material not otherwise disclosable hereunder to any
legislative, judicial or regulatory body, agency or authority, or else be
exposed to liability for contempt, fine or penalty or to other censure, such
confidential material may be so disclosed.
8. Non-Competition.
8.1 The Executive acknowledges that the services to be
rendered by the Executive to the Company are of a special and unique character.
The Executive agrees that, in consideration of (a) his employment hereunder, (b)
the Company's agreement to pay severance hereunder in the event of termination
pursuant to Section 6.4 hereof and (c) the Company's agreement to vest matching
contributions in the Plan after five (5) years of participation in the Plan by
the Executive pursuant to Section 3.4 hereof, Executive shall not, (aa) prior to
one year following the date of termination of the Executive's employment by the
Company or any other member of the Company Group (i) engage, whether as
principal, agent, investor, distributor, representative, stockholder (other than
as the holder of not more than five percent (5%) of the stock or equity of any
corporation the capital stock of which is publicly traded), employee,
consultant, volunteer or otherwise, with or without pay, in any activity or
business venture, anywhere within the United States, which is competitive with
the business of the Company Group on the date of termination, (ii) solicit or
entice or endeavor to solicit or entice away from any member of the Company
Group any person who was a director, officer, employee, agent or consultant of
such member of the Company Group, either on such Executive's own account or for
any person, firm, corporation or other organization, whether or not such person
would commit any breach of such person's contract of employment by reason of
leaving the service of such member of the Company Group, (iii) solicit or entice
or endeavor to solicit or entice away any of the clients or customers of any
member of the Company Group, either on such Executive's own account or for any
other person, firm, corporation or organization, or (iv) employ any person who
was a director, officer or employee of any member of the Company Group or any
person who is or may be likely to be in possession of any confidential
information or trade secrets relating to the business of any member of the
Company Group, or (bb) at any time, take any action or make any statement the
effect of which would be, directly or indirectly, to impair the good will of any
member of the Company Group or the business reputation or good name of any
member of the Company Group, or be otherwise detrimental to the Company,
including any action or statement intended, directly or indirectly, to benefit a
competitor of any member of the Company Group.
8.2 The parties hereto agree that if, in any proceeding, the
court or other authority shall refuse to enforce the covenants herein set forth
because such covenants cover too extensive a geographic area or too long a
period of time, any such covenant shall be deemed appropriately amended and
modified in keeping with the intention of the parties to the maximum extent
permitted by law.
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8.3 The Executive expressly acknowledges and agrees that the
covenants and agreements set forth in this Section 8 are reasonable in all
respects, and necessary in order to protect, maintain and preserve the value and
goodwill of the businesses of the Company Group, as well as the proprietary and
other legitimate business interests of the members of the Company Group. The
Executive acknowledges and agrees that the covenants and agreements of the
Executive set forth in this Section 8 are a material reason for the payment of
the compensation and benefits provided for in this Agreement.
9. Equitable Relief. In the event of a breach or threatened breach by
the Executive of any of the provisions of Section 7 or 8 of this Agreement, the
Executive hereby consents and agrees that the Company shall be entitled to
pre-judgment injunctive relief or similar equitable relief, designed to maintain
the status quo ante pending arbitration under Section 19 of this Agreement, by
restraining the Executive from committing or continuing any such breach or
threatened breach or granting specific performance of any act required to be
performed by the Executive under any of such provisions, without the necessity
of showing any actual damage or that only damages would not afford an adequate
remedy and without the necessity of posting any bond or other security. The
parties hereby consent to the jurisdiction of the federal courts located in the
Eastern District of Pennsylvania and the state courts operating within the
geographical area included in such District for any proceedings under this
Section 9.
10. Successors and Assigns.
10.1 Assignment by the Company. The Company may assign this
Agreement to any affiliate of the Company.
10.2 Assignment by the Executive. The Executive may not assign
this Agreement or any part thereof without the prior written consent of the
Chairman of the Company, and any attempted or purported assignment in the
absence of such consent shall be null and void.
11. Governing Law. This Agreement shall be deemed a contract made
under, and for all purposes shall be construed in accordance with, the laws of
the Commonwealth of Pennsylvania applicable to contracts to be performed
entirely within such Commonwealth.
12. Entire Agreement. This Agreement contains all the understandings
and representations between the parties hereto pertaining to the subject matter
hereof and supersede all undertakings and agreements, whether oral or in
writing, previously entered into by them with respect thereto.
13. Modification and Amendment; Waiver. The provisions of this
Agreement may be modified, amended or waived, but only upon the written consent
of the party against whom enforcement of such modification, amendment or waiver
is sought and then such modification, amendment or waiver shall be effective
only to the extent set forth in such writing. No delay or failure on the part of
any party hereto in exercising any right, power or remedy hereunder shall effect
or operate as a waiver thereof, nor shall any single or partial exercise thereof
or any abandonment or discontinuance of steps to enforce such right, power or
remedy preclude any further exercise thereof or of any other right, power or
remedy.
14. Notices. All notices, requests or instructions hereunder shall be
in writing and delivered personally, sent by telecopier or sent by registered or
certified mail, postage prepaid, as follows:
If to the Executive:
Robert E. Healy, Jr.
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If to the Company:
NovaCare, Inc.
1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: Chief Executive Officer
Telephone: (610) 992-7410
Telecopy: (610) 992-3330
With a copy to:
NovaCare, Inc.
1016 W. Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: General Counsel
Telephone: (610) 992-7404
Telecopy: (610) 992-3396
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered or telecopied, and two business days after the date of
mailing, if mailed.
15. Survivorship. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
16. Expenses. Each of the parties hereto shall bear his or its own
costs and expenses, including attorneys' fees and disbursements, incurred in
connection with this Agreement and the transactions contemplated hereby.
17. Titles. Titles of the sections of this Agreement are intended
solely for convenience and no provision of this Agreement is to be construed by
reference to the title of any section.
18. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
19. Arbitration. The parties shall attempt amicably to resolve
disagreements and disputes hereunder by negotiation. If the matter is not
amicably resolved through negotiation, within thirty (30) days after written
notice from either party, any controversy, dispute or disagreement arising out
of or relating to this Agreement, or the breach thereof, shall be subject to
exclusive, final and binding arbitration, which shall be conducted in
Philadelphia, PA, in accordance with the J.A.M.S./Endispute rules for employment
arbitration. Any party may bring a court action to compel arbitration under this
Agreement or to enforce an arbitration award.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
COMPANY:
By/s/ Timothy E. Foster
------------------------------------
Name: Timothy E. Foster
Title: Chief Executive Officer
EXECUTIVE:
/s/ Robert E. Healy, Jr.
------------------------------------
EMPLOYMENT AGREEMENT
AGREEMENT made as of September 29, 1997 by and between NovaCare, Inc.,
a Delaware corporation (the "Company") and Peter D. Bewley (the "Executive").
RECITALS
The Company wishes to retain the services of the Executive in the
capacity of Senior Vice President, General Counsel and Secretary, and the
Executive wishes to serve in the employ of the Company in that capacity, upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Employment, Term, Automatic Extension.
1.1 Employment. The Company agrees to employ the Executive,
and the Executive agrees to serve in the employ of the Company, for the term set
forth in Section 1.2, in the position and with the responsibilities, duties and
authority set forth in Section 2 and on the other terms and conditions set forth
in this Agreement.
1.2 Term. The term of the Executive's employment under this
Agreement shall be the period commencing on September 29, 1997 and ending on
September 28, 2000, unless sooner terminated in accordance with this Agreement.
1.3 Automatic Extension. As of September 28, 1999, and as of
each subsequent September 28 (each an "Automatic Renewal Date"), unless either
party shall have given a notice of non-extension prior to such Automatic Renewal
Date, the term of this Agreement shall extended automatically for a period of
one year to the anniversary of the expiration date of the then-current term of
this Agreement. Once a notice of non-extension shall have been given by either
party, there shall be no further automatic extension of this Agreement.
2. Position, Duties.
Executive shall serve in the positions of Senior Vice
President, General Counsel and Secretary of the Company. The Executive shall
perform, faithfully and diligently, such duties, and shall have such
responsibilities appropriate to said positions, as shall be assigned to him from
time to time by the Chief Executive Officer and the Board of Directors of the
Company. The Executive shall report to the Chief Executive Officer of the
Company. The Executive shall devote his full business time and attention to the
performance of his duties and responsibilities hereunder.
3. Compensation.
3.1 Salary. In consideration of the performance by the
Executive of the services set forth in Section 2 and the Executive's observance
of the other covenants set forth herein, the Company shall pay the Executive,
and the Executive shall accept, an annualized base salary of $250,000, payable
on a bi-weekly schedule in accordance with the Company's regular payroll
practices. The Executive shall be entitled to such increases in base salary
during the term hereof as shall be determined by the Chief Executive Officer of
the Company and approved by the Compensation Committee of the Board of Directors
of the Company in their sole discretion.
3.2 Bonus. In addition to the base salary provided for in
Section 3.1, the Executive shall be eligible for an incentive bonus target of
45% of base salary with respect to each fiscal year of the Company ending during
the term of this Agreement, payable in accordance with the terms of the
Company's Executive Incentive Compensation Plan based on attainment of stated
objectives.
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3.3 Stock Options. The Executive shall be eligible to receive
options to purchase the Company's common stock, $.01 par value, and the common
stock of subsidiaries of the Company (such options with respect to the stock of
the Company and its subsidiaries, together with such options heretofore granted
to the Executive, being hereinafter referred to as the "Options") in accordance
with the Company's policies and procedures relating to the grant of options,
subject to the authority of the Board of Directors of the Company and the board
of directors of any subsidiary to make such awards in their sole discretion. The
Options shall have such terms and conditions as the cognizant board of directors
shall determine, provided that all Options shall become exercisable in full upon
a Change in Control of the Company (as defined in Section 6.6), whether or not
the employment of the Executive shall be terminated, and, in such case, shall
remain exercisable for the balance of their stated term.
3.4 Supplemental Benefits Plan. The Executive shall be
entitled to participate in the Company's Supplemental Benefits Plan (the "Plan")
as a Level I Executive with full vesting in the Company's match under the Plan
after five (5) years of participation in the Plan.
4. Expense Reimbursement.
During the term of this Agreement, consistent with the Company's
policies and procedures as in effect from time to time, the Company shall
reimburse the Executive for all reasonable and necessary out-of-pocket expenses
incurred by the Executive in connection with the performance of the Executive's
duties and responsibilities hereunder, upon the presentation of proper accounts
therefor in accordance with the Company's policies.
5. Other Benefits.
During the term of this Agreement, the Executive shall be entitled to
receive such benefits as are from time to time made available to other similarly
situated Executives of the Company on the same terms as are available to such
similarly situated Executives in accordance with the provisions of the Company's
benefit plans in effect from time to time, it being understood that the
Executive shall be required to make the same contributions and payments in order
to receive any of such benefits as may be required of such similarly situated
Executives.
6. Termination of Employment.
6.1 Death. In the event of the death of the Executive during
the term of this Agreement, the Company shall pay to the estate or other legal
representative of the Executive (a) the base salary provided for in Section 3.1
accrued to the Executive's date of death and not previously paid and (b) any
bonus which shall be or become payable pursuant to Section 3.2. Neither the
estate or other legal representative of the Executive nor the Company shall have
any further rights or obligations under this Agreement, except as provided in
Section 15.
6.2 Disability. If the Executive becomes incapacitated by
reason of sickness, accident or other physical or mental disability and is for a
period of six (6) consecutive months unable to perform the essential functions
of his position hereunder, the employment of the Executive may be terminated by
the Company upon thirty (30) days' prior written notice to the Executive.
Promptly after such termination, the Company shall (a) pay to the Executive the
base salary provided for in Section 3.1 accrued to the date of such termination
and not previously paid and (b) pay to the Executive any bonus which shall be or
become payable under Section 3.2.
6.3 Due Cause. The employment of the Executive may be
terminated by the Company at any time during the term of this Agreement for Due
Cause (defined below). In the event of such termination, the Company shall pay
to the Executive the base salary provided for in Section 3.1 accrued to the date
of such termination and not previously paid to the Executive. The Company shall
also pay to the Executive any bonus which shall be or become payable to the
Executive under Section 3.2 with respect to any fiscal year of the Company ended
prior to the date of such termination. For purposes hereof, "Due Cause" means
(a) a material breach of any of the Executive's obligations hereunder (it being
understood that any breach of the provisions of Sections 2, 7 or 8 hereof shall
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be considered material); (b) willful failure to carry out his duties hereunder,
or gross misconduct; or (c) that the Executive has been charged with any felony
or with any lesser crime or offense involving moral turpitude, or has been
banned from participation in the Medicare/Medicaid program. Before terminating
Executive for Due Cause, Company shall notify Executive of the grounds for such
termination and, if such grounds are susceptible to cure, shall provide
Executive Thirty (30) days during which to cure any such grounds. If Executive
shall fail during such period to cure the grounds, Executive's termination shall
be effective as of the date of the notice provided hereunder. After the
satisfaction of any claim of the Company against the Executive arising as a
result of such Due Cause, neither the Executive nor the Company shall have any
further rights or obligations under this Agreement, except as provided in
Sections 7, 8, 9 and 15.
6.4 Termination by the Company Without Cause. The Company may
terminate the Executive's employment prior to the expiration of the term of this
Agreement for whatever reason it deems appropriate; provided, however, that in
the event that such termination is not pursuant to Sections 6.1, 6.2 or 6.3:
(i) The Company shall continue to pay to the
Executive (or his estate or other legal representative in the case of the
death of the Executive subsequent to such termination), in the same periodic
installments as his base salary was paid, the base salary provided for in
Section 3.1 (at the annual rate then in effect), until the first to occur of (a)
the then scheduled expiration of the term hereof or (b) the expiration of a
period of one (1) year following such termination (the applicable period
hereinafter being referred to as the "Severance Period"); provided further, that
such periodic installment payments by the Company shall cease as of the date
Executive obtains alternative employment which does not conflict with Section
8.1(a) of this Agreement, except that, if such employment is at a rate of
compensation less than that required hereunder, Company shall continue to pay
the difference between the compensation payable under this section 6.4(i) and
the compensation Executive actually receives in his non-conflicting position for
the remainder of the Severance Period;
(ii) Executive shall become fully vested in the
Options; and
(iii) Executive shall continue to receive during the
Severance Period, to the extent permitted by law, the same health,
disability and life insurance benefits as Executive was receiving on the date of
termination, provided that Executive shall continue to make the same
contributions toward such coverage as Executive was making on the date of
termination, with such adjustments to contributions as are made generally for
all Executives.
6.5 Rights to Benefits. Upon termination of employment under
any provision contained in this Section 6, except section 6.4, rights and
benefits of the Executive, his estate or other legal representative under the
Executive benefit plans and programs of the Company, if any, will be determined
in accordance with the terms and provisions of such plans and programs. Neither
the Executive nor the Company shall have any further rights or obligations under
this Agreement, except as provided in Sections 7, 8, 9 and 15.
6.6 Termination of Employment Following a Change in Control.
Anything herein to the contrary notwithstanding, the Executive may terminate his
employment with the Company during the one (1) year period following a Change in
Control, and such termination shall constitute a termination of the Executive's
employment by the Company pursuant to Section 6.4 (Termination by the Company
Without Cause); provided, however, that the amount referred to in paragraph (i)
of Section 6.4 shall be paid to the Executive in a lump sum on the date of
termination. For purposes of this Agreement, a Change in Control of the Company
shall be deemed to have occurred if:
(i) a "person" (meaning an individual, a
partnership, or other group or association as defined in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, other than the Executive or a
group including the Executive), either (x) acquires twenty percent (20%) or more
of the combined voting power of the outstanding securities of the Company having
a right to vote in elections of directors and such acquisition shall not have
been approved within sixty (60) days following such acquisition by a majority of
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the Continuing Directors (as hereinafter defined) then in office or (y) acquires
fifty percent (50%) or more of the combined voting power of the outstanding
securities of the Company having a right to vote in elections of directors; or
(ii) Continuing Directors shall for any reason
cease to constitute a majority of the Board of Directors of the Company; or
(iii) all or substantially all of the business and/or
assets of the Company are disposed of by the Company to a party or parties
other than a subsidiary or other affiliate of the Company, pursuant to a partial
or complete liquidation of the Company, sale of assets (including stock of a
subsidiary of the Company) or otherwise.
For purposes of this Agreement, the term "Continuing Director" shall
mean a member of the Board of Directors of the Company who either was a member
of the Board of Directors on the date hereof or who subsequently became a
Director and whose election, or nomination for election, was approved by a vote
of at least two-thirds of the Continuing Directors then in office.
7. Confidential Information.
7.1 (a) The Executive shall, during the Executive's employment
with the Company and at all times thereafter, treat all confidential material
(as hereinafter defined) of the Company or any other member of the Company Group
(as hereinafter defined) confidentially. The Executive shall not, without the
prior written consent of the Chairman of the Company, disclose such confidential
material, directly or indirectly, to any party, who at the time of such
disclosure is not an employee or agent of any member of the Company Group, or
remove from the premises of the Company or any other member of the Company Group
any notes or records relating thereto, copies or facsimiles thereof (whether
made by electronic, electrical, magnetic, optical, laser, acoustic or other
means), or any other property of any member of the Company Group. The Executive
agrees that all confidential material, together with all notes and records of
the Executive relating thereto, and all copies or facsimiles thereof in the
possession of the Executive (whether made by the foregoing or other means), are
the exclusive property of the Company Group. The Executive shall not in any
manner use any confidential material of the Company Group, or any other property
of any member of the Company Group, outside of the scope of the Executive's
duties and responsibilities under this Agreement or in any way that is
detrimental to any member of the Company Group.
(b) For the purposes hereof, the term
"confidential material" means all information in any way concerning the
activities, business or affairs of any member of the Company Group or any of the
customers or clients of any member of the Company Group, including, without
limitation, information concerning trade secrets, together with all sales and
financial information concerning any member of the Company Group and any and all
information concerning projects in research and development or marketing plans
for any products or projects of the Company Group, and all information in any
way concerning the activities, business or affairs of any of such customers or
clients, which is furnished to the Executive by any member of the Company Group
or any of its agents, customers or clients, or otherwise acquired by the
Executive in the course of the Executive's employment with the Company;
provided, however, that the term "confidential material" shall not include
information which (i) becomes generally available to the public other than as a
result of a disclosure by the Executive, (ii) was available to the Executive on
a non-confidential basis prior to his employment with any member of the Company
Group or (iii) becomes available to the Executive on a non-confidential basis
from a source other than any member of the Company Group or any of its agents,
customers or clients, provided that such source is not bound by a
confidentiality agreement with any member of the Company Group or any of such
agents, customers or clients.
(c) For purposes hereof, the "Company Group"
means, collectively, the Company and its subsidiaries.
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7.2 Promptly upon the request of the Company, the Executive
shall deliver to the Company all confidential material in tangible form relating
to any member of the Company Group in the possession of the Executive, without
retaining a copy thereof, unless, in the opinion of counsel for the Company,
either returning such confidential material or failing to retain a copy thereof
would violate any applicable federal, state, local or foreign law, in which
event such confidential material shall be returned without retaining any copies
thereof as soon as practicable after such counsel advises that the same may be
lawfully done.
7.3 If Executive is required, by deposition, interrogatories,
requests for information or documents, subpoena, civil investigative demand or
similar process, to disclose any confidential material relating to any member of
the Company Group, the Executive shall provide the Company with prompt notice
thereof so that the Company may seek an appropriate protective order and/or
waive compliance by the Executive with the provisions hereof; provided, however,
that if in the absence of a protective order or the receipt of such a waiver,
the Executive is, in the opinion of counsel for the Company, compelled to
disclose confidential material not otherwise disclosable hereunder to any
legislative, judicial or regulatory body, agency or authority, or else be
exposed to liability for contempt, fine or penalty or to other censure, such
confidential material may be so disclosed.
8. Non-Competition.
8.1 The Executive acknowledges that the services to be
rendered by the Executive to the Company are of a special and unique character.
The Executive agrees that, in consideration of (a) his employment hereunder, (b)
the Company's agreement to pay severance hereunder in the event of termination
pursuant to Section 6.4 hereof and (c) the Company's agreement to vest matching
contributions in the Plan after five (5) years of participation in the Plan by
the Executive pursuant to Section 3.4 hereof, Executive shall not, (aa) prior to
one year following the date of termination of the Executive's employment by the
Company or any other member of the Company Group (i) engage, whether as
principal, agent, investor, distributor, representative, stockholder (other than
as the holder of not more than five percent (5%) of the stock or equity of any
corporation the capital stock of which is publicly traded), employee,
consultant, volunteer or otherwise, with or without pay, in any activity or
business venture, anywhere within the United States, which is competitive with
the business of the Company Group on the date of termination, (ii) solicit or
entice or endeavor to solicit or entice away from any member of the Company
Group any person who was a director, officer, employee, agent or consultant of
such member of the Company Group, either on such Executive's own account or for
any person, firm, corporation or other organization, whether or not such person
would commit any breach of such person's contract of employment by reason of
leaving the service of such member of the Company Group, (iii) solicit or entice
or endeavor to solicit or entice away any of the clients or customers of any
member of the Company Group, either on such Executive's own account or for any
other person, firm, corporation or organization, or (iv) employ any person who
was a director, officer or employee of any member of the Company Group or any
person who is or may be likely to be in possession of any confidential
information or trade secrets relating to the business of any member of the
Company Group, or (bb) at any time, take any action or make any statement the
effect of which would be, directly or indirectly, to impair the good will of any
member of the Company Group or the business reputation or good name of any
member of the Company Group, or be otherwise detrimental to the Company,
including any action or statement intended, directly or indirectly, to benefit a
competitor of any member of the Company Group.
8.2 The parties hereto agree that if, in any proceeding, the
court or other authority shall refuse to enforce the covenants herein set forth
because such covenants cover too extensive a geographic area or too long a
period of time, any such covenant shall be deemed appropriately amended and
modified in keeping with the intention of the parties to the maximum extent
permitted by law.
8.3 The Executive expressly acknowledges and agrees that the
covenants and agreements set forth in this Section 8 are reasonable in all
respects, and necessary in order to protect, maintain and preserve the value and
goodwill of the businesses of the Company Group, as well as the proprietary and
other legitimate business interests of the members of the Company Group. The
Executive acknowledges and agrees that the covenants and agreements of the
Executive set forth in this Section 8 are a material reason for the payment of
the compensation and benefits provided for in this Agreement.
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9. Equitable Relief. In the event of a breach or threatened breach by
the Executive of any of the provisions of Section 7 or 8 of this Agreement, the
Executive hereby consents and agrees that the Company shall be entitled to
pre-judgment injunctive relief or similar equitable relief, designed to maintain
the status quo ante pending arbitration under Section 19 of this Agreement, by
restraining the Executive from committing or continuing any such breach or
threatened breach or granting specific performance of any act required to be
performed by the Executive under any of such provisions, without the necessity
of showing any actual damage or that only damages would not afford an adequate
remedy and without the necessity of posting any bond or other security. The
parties hereby consent to the jurisdiction of the federal courts located in the
Eastern District of Pennsylvania and the state courts operating within the
geographical area included in such District for any proceedings under this
Section 9.
10. Successors and Assigns.
10.1 Assignment by the Company. The Company may assign
this Agreement to any affiliate of the Company.
10.2 Assignment by the Executive. The Executive may not assign
this Agreement or any part thereof without the prior written consent of the
Chairman of the Company, and any attempted or purported assignment in the
absence of such consent shall be null and void.
11. Governing Law. This Agreement shall be deemed a contract made
under, and for all purposes shall be construed in accordance with, the laws of
the Commonwealth of Pennsylvania applicable to contracts to be performed
entirely within such Commonwealth.
12. Entire Agreement. This Agreement contains all the understandings
and representations between the parties hereto pertaining to the subject matter
hereof and supersede all undertakings and agreements, whether oral or in
writing, previously entered into by them with respect thereto.
13. Modification and Amendment; Waiver. The provisions of this
Agreement may be modified, amended or waived, but only upon the written consent
of the party against whom enforcement of such modification, amendment or waiver
is sought and then such modification, amendment or waiver shall be effective
only to the extent set forth in such writing. No delay or failure on the part of
any party hereto in exercising any right, power or remedy hereunder shall effect
or operate as a waiver thereof, nor shall any single or partial exercise thereof
or any abandonment or discontinuance of steps to enforce such right, power or
remedy preclude any further exercise thereof or of any other right, power or
remedy.
14. Notices. All notices, requests or instructions hereunder shall be
in writing and delivered personally, sent by telecopier or sent by registered or
certified mail, postage prepaid, as follows:
If to the Executive:
Peter D. Bewley
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If to the Company:
NovaCare, Inc.
1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: Chief Executive Officer
Telephone: (610) 992-7400
Telecopy: (610) 992-3330
With a copy to:
NovaCare, Inc.
1016 W. Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: General Counsel
Telephone: (610) 992-7404
Telecopy: (610) 992-3396
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered or telecopied, and two business days after the date of
mailing, if mailed.
15. Survivorship. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
16. Expenses. Each of the parties hereto shall bear his or its own
costs and expenses, including attorneys' fees and disbursements, incurred in
connection with this Agreement and the transactions contemplated hereby.
17. Titles. Titles of the sections of this Agreement are intended
solely for convenience and no provision of this Agreement is to be construed by
reference to the title of any section.
18. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
19. Arbitration. The parties shall attempt amicably to resolve
disagreements and disputes hereunder by negotiation. If the matter is not
amicably resolved through negotiation, within thirty (30) days after written
notice from either party, any controversy, dispute or disagreement arising out
of or relating to this Agreement, or the breach thereof, shall be subject to
exclusive, final and binding arbitration, which shall be conducted in
Philadelphia, PA, in accordance with the J.A.M.S./Endispute rules for employment
arbitration. Any party may bring a court action to compel arbitration under this
Agreement or to enforce an arbitration award.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
COMPANY:
By/s/ Timothy E. Foster
------------------------------------
Name: Timothy E. Foster
Title: Chief Executive Officer
EXECUTIVE:
/s/ Peter D. Bewley
------------------------------------
EMPLOYMENT AGREEMENT
AGREEMENT made as of September 29, 1997 by and between NovaCare, Inc.,
a Delaware corporation (the "Company") and Aven A. Kerr (the "Executive").
RECITALS
The Company wishes to retain the services of the Executive in the
capacity of Senior Vice President, Human Resources, and the Executive wishes to
serve in the employ of the Company in that capacity, upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Employment, Term, Automatic Extension.
1.1 Employment. The Company agrees to employ the Executive,
and the Executive agrees to serve in the employ of the Company, for the term set
forth in Section 1.2, in the position and with the responsibilities, duties and
authority set forth in Section 2 and on the other terms and conditions set forth
in this Agreement.
1.2 Term. The term of the Executive's employment under this
Agreement shall be the period commencing on September 29, 1997 and ending on
September 28, 2000, unless sooner terminated in accordance with this Agreement.
1.3 Automatic Extension. As of September 28, 1999, and as of
each subsequent September 28 (each an "Automatic Renewal Date"), unless either
party shall have given a notice of non-extension prior to such Automatic Renewal
Date, the term of this Agreement shall extended automatically for a period of
one year to the anniversary of the expiration date of the then-current term of
this Agreement. Once a notice of non-extension shall have been given by either
party, there shall be no further automatic extension of this Agreement.
2. Position, Duties.
Executive shall serve in the position of Senior Vice
President, Human Resources of the Company. The Executive shall perform,
faithfully and diligently, such duties, and shall have such responsibilities
appropriate to said positions, as shall be assigned to her from time to time by
the Chief Executive Officer and the Board of Directors of the Company. The
Executive shall report to the Chief Executive Officer of the Company. The
Executive shall devote her full business time and attention to the performance
of her duties and responsibilities hereunder.
3. Compensation.
3.1 Salary. In consideration of the performance by the
Executive of the services set forth in Section 2 and the Executive's observance
of the other covenants set forth herein, the Company shall pay the Executive,
and the Executive shall accept, an annualized base salary of $200,000, payable
on a bi-weekly schedule in accordance with the Company's regular payroll
practices. The Executive shall be entitled to such increases in base salary
during the term hereof as shall be determined by the Chief Executive Officer of
the Company and approved by the Compensation Committee of the Board of Directors
of the Company in their sole discretion.
3.2 Bonus. In addition to the base salary provided for in
Section 3.1, the Executive shall be eligible for an incentive bonus target of
50% of base salary with respect to each fiscal year of the Company ending during
the term of this Agreement, payable in accordance with the terms of the
Company's Executive Incentive Compensation Plan based on attainment of stated
objectives.
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3.3 Stock Options. The Executive shall be eligible to receive
options to purchase the Company's common stock, $.01 par value, and the common
stock of subsidiaries of the Company (such options with respect to the stock of
the Company and its subsidiaries, together with such options heretofore granted
to the Executive, being hereinafter referred to as the "Options") in accordance
with the Company's policies and procedures relating to the grant of options,
subject to the authority of the Board of Directors of the Company and the board
of directors of any subsidiary to make such awards in their sole discretion. The
Options shall have such terms and conditions as the cognizant board of directors
shall determine, provided that all Options shall become exercisable in full upon
a Change in Control of the Company (as defined in Section 6.6), whether or not
the employment of the Executive shall be terminated, and, in such case, shall
remain exercisable for the balance of their stated term.
3.4 Supplemental Benefits Plan. The Executive shall be
entitled to participate in the Company's Supplemental Benefits Plan (the "Plan")
as a Level I Executive with full vesting in the Company's match under the Plan
after five (5) years of participation in the Plan.
4. Expense Reimbursement.
During the term of this Agreement, consistent with the Company's
policies and procedures as in effect from time to time, the Company shall
reimburse the Executive for all reasonable and necessary out-of-pocket expenses
incurred by the Executive in connection with the performance of the Executive's
duties and responsibilities hereunder, upon the presentation of proper accounts
therefor in accordance with the Company's policies.
5. Other Benefits.
During the term of this Agreement, the Executive shall be entitled to
receive such benefits as are from time to time made available to other similarly
situated Executives of the Company on the same terms as are available to such
similarly situated Executives in accordance with the provisions of the Company's
benefit plans in effect from time to time, it being understood that the
Executive shall be required to make the same contributions and payments in order
to receive any of such benefits as may be required of such similarly situated
Executives. The Executive shall be eligible for four weeks vacation.
6. Termination of Employment.
6.1 Death. In the event of the death of the Executive during
the term of this Agreement, the Company shall pay to the estate or other legal
representative of the Executive (a) the base salary provided for in Section 3.1
accrued to the Executive's date of death and not previously paid and (b) any
bonus which shall be or become payable pursuant to Section 3.2. Rights and
benefits of the estate or other legal representative or transferee of the
Executive (a) with respect to the Options shall be determined in accordance with
Section 3.3 and (b) under the benefit plans and programs of the Company shall be
determined in accordance with the provisions of such plans and programs. Neither
the estate or other legal representative of the Executive nor the Company shall
have any further rights or obligations under this Agreement, except as provided
in Section 15.
6.2 Disability. If the Executive becomes incapacitated by
reason of sickness, accident or other physical or mental disability and is for a
period of six (6) consecutive months unable to perform the essential functions
of her position hereunder, the employment of the Executive may be terminated by
the Company upon thirty (30) days' prior written notice to the Executive.
Promptly after such termination, the Company shall (a) pay to the Executive the
base salary provided for in Section 3.1 accrued to the date of such termination
and not previously paid and (b) pay to the Executive any bonus which shall be or
become payable under Section 3.2. Rights and benefits of the Executive or her
transferee (a) with respect to the Options shall be determined in accordance
with Section 3.3 and (b) under the benefit plans and programs of the Company
shall be determined in accordance with the provisions of such plans and
programs. Neither the Executive nor the Company shall have any further rights or
obligations under this Agreement, except as provided in Sections 7, 8, 9 and 15.
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6.3 Due Cause. The employment of the Executive may be
terminated by the Company at any time during the term of this Agreement for Due
Cause (defined below). In the event of such termination, the Company shall pay
to the Executive the base salary provided for in Section 3.1 accrued to the date
of such termination and not previously paid to the Executive. The Company shall
also pay to the Executive any bonus which shall be or become payable to the
Executive under Section 3.2 with respect to any fiscal year of the Company ended
prior to the date of such termination. For purposes hereof, "Due Cause" means
(a) a material breach of any of the Executive's obligations hereunder (it being
understood that any breach of the provisions of Sections 2, 7 or 8 hereof shall
be considered material); (b) willful failure to carry out her duties hereunder,
or gross misconduct; or (c) that the Executive has been charged with any felony
or with any lesser crime or offense involving moral turpitude, or has been
banned from participation in the Medicare/Medicaid program. Before terminating
Executive for Due Cause, Company shall notify Executive of the grounds for such
termination and, if such grounds are susceptible to cure, shall provide
Executive Thirty (30) days during which to cure any such grounds. If Executive
shall fail during such period to cure the grounds, Executive's termination shall
be effective as of the date of the notice provided hereunder. Rights and
benefits of the Executive or her transferee (a) with respect to the Options
shall be determined in accordance with Section 3.3 and (b) under the benefit
plans and programs of the Company shall be determined in accordance with the
provisions of such plans and programs. After the satisfaction of any claim of
the Company against the Executive arising as a result of such Due Cause, neither
the Executive nor the Company shall have any further rights or obligations under
this Agreement, except as provided in Sections 7, 8 and 9.
6.4 Termination by the Company Without Cause. The Company may
terminate the Executive's employment prior to the expiration of the term of this
Agreement for whatever reason it deems appropriate; provided, however, that in
the event that such termination is not pursuant to Sections 6.1, 6.2 or 6.3:
(i) The Company shall continue to pay to the
Executive (or her estate or other legal representative in the case of the
death of the Executive subsequent to such termination), in the same periodic
installments as her base salary was paid, the base salary provided for in
Section 3.1 (at the annual rate then in effect), until the first to occur of (a)
the then scheduled expiration of the term hereof or (b) the expiration of a
period of six (6) months following such termination (the applicable period
hereinafter being referred to as the "Severance Period"); provided further, that
such periodic installment payments by the Company shall cease as of the date
Executive obtains alternative employment which does not conflict with Section
8.1(a) of this Agreement, except that, if such employment is at a rate of
compensation less than that required hereunder, Company shall continue to pay
the difference between the compensation payable under this section 6.4(i) and
the compensation Executive actually receives in her non-conflicting position for
the remainder of the Severance Period;
(ii) Executive shall become fully vested in the
Options; and
(iii) Executive shall continue to receive during the
Severance Period, to the extent
permitted by law, the same health, disability and life insurance benefits as
Executive was receiving on the date of termination, provided that Executive
shall continue to make the same contributions toward such coverage as Executive
was making on the date of termination, with such adjustments to contributions as
are made generally for all Executives.
6.5 Rights to Benefits. Upon termination of employment under
any provision contained in this Section 6, except section 6.4, rights and
benefits of the Executive, her estate or other legal representative under the
Executive benefit plans and programs of the Company, if any, will be determined
in accordance with the terms and provisions of such plans and programs. Neither
the Executive nor the Company shall have any further rights or obligations under
this Agreement, except as provided in Sections 7, 8 and 9.
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6.6 Termination of Employment Following a Change in Control.
Anything herein to the contrary notwithstanding, the Executive may terminate her
employment with the Company during the one (1) year period following a Change in
Control, and such termination shall constitute a termination of the Executive's
employment by the Company pursuant to Section 6.4 (Termination by the Company
Without Cause); provided, however, that the amount referred to in paragraph (i)
of Section 6.4 shall be paid to the Executive in a lump sum on the date of
termination. For purposes of this Agreement, a Change in Control of the Company
shall be deemed to have occurred if:
(i) a "person" (meaning an individual, a
partnership, or other group or association as defined in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, other than the Executive or a
group including the Executive), either (x) acquires twenty percent (20%) or more
of the combined voting power of the outstanding securities of the Company having
a right to vote in elections of directors and such acquisition shall not have
been approved within sixty (60) days following such acquisition by a majority of
the Continuing Directors (as hereinafter defined) then in office or (y) acquires
fifty percent (50%) or more of the combined voting power of the outstanding
securities of the Company having a right to vote in elections of directors; or
(ii) Continuing Directors shall for any reason
cease to constitute a majority of the Board of Directors of the Company; or
(iii) all or substantially all of the business and/or
assets of the Company are disposed of by the Company to a party or parties
other than a subsidiary or other affiliate of the Company, pursuant to a partial
or complete liquidation of the Company, sale of assets (including stock of a
subsidiary of the Company) or otherwise.
For purposes of this Agreement, the term "Continuing Director" shall
mean a member of the Board of Directors of the Company who either was a member
of the Board of Directors on the date hereof or who subsequently became a
Director and whose election, or nomination for election, was approved by a vote
of at least two-thirds of the Continuing Directors then in office.
7. Confidential Information.
7.1 (a) The Executive shall, during the Executive's employment
with the Company and at all times thereafter, treat all confidential material
(as hereinafter defined) of the Company or any other member of the Company Group
(as hereinafter defined) confidentially. The Executive shall not, without the
prior written consent of the Chairman of the Company, disclose such confidential
material, directly or indirectly, to any party, who at the time of such
disclosure is not an employee or agent of any member of the Company Group, or
remove from the premises of the Company or any other member of the Company Group
any notes or records relating thereto, copies or facsimiles thereof (whether
made by electronic, electrical, magnetic, optical, laser, acoustic or other
means), or any other property of any member of the Company Group. The Executive
agrees that all confidential material, together with all notes and records of
the Executive relating thereto, and all copies or facsimiles thereof in the
possession of the Executive (whether made by the foregoing or other means), are
the exclusive property of the Company Group. The Executive shall not in any
manner use any confidential material of the Company Group, or any other property
of any member of the Company Group, outside of the scope of the Executive's
duties and responsibilities under this Agreement or in any way that is
detrimental to any member of the Company Group.
(b) For the purposes hereof, the term
"confidential material" means all information in any way concerning the
activities, business or affairs of any member of the Company Group or any of the
customers or clients of any member of the Company Group, including, without
limitation, information concerning trade secrets, together with all sales and
financial information concerning any member of the Company Group and any and all
information concerning projects in research and development or marketing plans
for any products or projects of the Company Group, and all information in any
way concerning the activities, business or affairs of any of such customers or
clients, which is furnished to the Executive by any member of the Company Group
or any of its agents, customers or clients, or otherwise acquired by the
Executive in the course of the Executive's employment with the Company;
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provided, however, that the term "confidential material" shall not include
information which (i) becomes generally available to the public other than as a
result of a disclosure by the Executive, (ii) was available to the Executive on
a non-confidential basis prior to her employment with any member of the Company
Group or (iii) becomes available to the Executive on a non-confidential basis
from a source other than any member of the Company Group or any of its agents,
customers or clients, provided that such source is not bound by a
confidentiality agreement with any member of the Company Group or any of such
agents, customers or clients.
(c) For purposes hereof, the "Company Group"
means, collectively, the Company and its subsidiaries.
7.2 Promptly upon the request of the Company, the Executive
shall deliver to the Company all confidential material in tangible form relating
to any member of the Company Group in the possession of the Executive, without
retaining a copy thereof, unless, in the opinion of counsel for the Company,
either returning such confidential material or failing to retain a copy thereof
would violate any applicable federal, state, local or foreign law, in which
event such confidential material shall be returned without retaining any copies
thereof as soon as practicable after such counsel advises that the same may be
lawfully done.
7.3 If Executive is required, by deposition, interrogatories,
requests for information or documents, subpoena, civil investigative demand or
similar process, to disclose any confidential material relating to any member of
the Company Group, the Executive shall provide the Company with prompt notice
thereof so that the Company may seek an appropriate protective order and/or
waive compliance by the Executive with the provisions hereof; provided, however,
that if in the absence of a protective order or the receipt of such a waiver,
the Executive is, in the opinion of counsel for the Company, compelled to
disclose confidential material not otherwise disclosable hereunder to any
legislative, judicial or regulatory body, agency or authority, or else be
exposed to liability for contempt, fine or penalty or to other censure, such
confidential material may be so disclosed.
8. Non-Competition.
8.1 The Executive acknowledges that the services to be
rendered by the Executive to the Company are of a special and unique character.
The Executive agrees that, in consideration of (a) her employment hereunder, (b)
the Company's agreement to pay severance hereunder in the event of termination
pursuant to Section 6.4 hereof and (c) the Company's agreement to vest matching
contributions in the Plan after five (5) years of participation in the Plan by
the Executive pursuant to Section 3.4 hereof, Executive shall not, (aa) prior to
one year following the date of termination of the Executive's employment by the
Company or any other member of the Company Group (i) engage, whether as
principal, agent, investor, distributor, representative, stockholder (other than
as the holder of not more than five percent (5%) of the stock or equity of any
corporation the capital stock of which is publicly traded), employee,
consultant, volunteer or otherwise, with or without pay, in any activity or
business venture, anywhere within the United States, which is competitive with
the business of the Company Group on the date of termination, (ii) solicit or
entice or endeavor to solicit or entice away from any member of the Company
Group any person who was a director, officer, employee, agent or consultant of
such member of the Company Group, either on such Executive's own account or for
any person, firm, corporation or other organization, whether or not such person
would commit any breach of such person's contract of employment by reason of
leaving the service of such member of the Company Group, (iii) solicit or entice
or endeavor to solicit or entice away any of the clients or customers of any
member of the Company Group, either on such Executive's own account or for any
other person, firm, corporation or organization, or (iv) employ any person who
was a director, officer or employee of any member of the Company Group or any
person who is or may be likely to be in possession of any confidential
information or trade secrets relating to the business of any member of the
Company Group, or (bb) at any time, take any action or make any statement the
5
<PAGE>
effect of which would be, directly or indirectly, to impair the good will of any
member of the Company Group or the business reputation or good name of any
member of the Company Group, or be otherwise detrimental to the Company,
including any action or statement intended, directly or indirectly, to benefit a
competitor of any member of the Company Group.
8.2 The parties hereto agree that if, in any proceeding, the
court or other authority shall refuse to enforce the covenants herein set forth
because such covenants cover too extensive a geographic area or too long a
period of time, any such covenant shall be deemed appropriately amended and
modified in keeping with the intention of the parties to the maximum extent
permitted by law.
8.3 The Executive expressly acknowledges and agrees that the
covenants and agreements set forth in this Section 8 are reasonable in all
respects, and necessary in order to protect, maintain and preserve the value and
goodwill of the businesses of the Company Group, as well as the proprietary and
other legitimate business interests of the members of the Company Group. The
Executive acknowledges and agrees that the covenants and agreements of the
Executive set forth in this Section 8 are a material reason for the payment of
the compensation and benefits provided for in this Agreement.
9. Equitable Relief. In the event of a breach or threatened breach by
the Executive of any of the provisions of Section 7 or 8 of this Agreement, the
Executive hereby consents and agrees that the Company shall be entitled to
pre-judgment injunctive relief or similar equitable relief, designed to maintain
the status quo ante pending arbitration under Section 19 of this Agreement, by
restraining the Executive from committing or continuing any such breach or
threatened breach or granting specific performance of any act required to be
performed by the Executive under any of such provisions, without the necessity
of showing any actual damage or that only damages would not afford an adequate
remedy and without the necessity of posting any bond or other security. The
parties hereby consent to the jurisdiction of the federal courts located in the
Eastern District of Pennsylvania and the state courts operating within the
geographical area included in such District for any proceedings under this
Section 9.
10. Successors and Assigns.
10.1 Assignment by the Company. The Company may assign
this Agreement to any affiliate of the Company.
10.2 Assignment by the Executive. The Executive may not assign
this Agreement or any part thereof without the prior written consent of the
Chairman of the Company, and any attempted or purported assignment in the
absence of such consent shall be null and void.
11. Governing Law. This Agreement shall be deemed a contract made
under, and for all purposes shall be construed in accordance with, the laws of
the Commonwealth of Pennsylvania applicable to contracts to be performed
entirely within such Commonwealth.
12. Entire Agreement. This Agreement contains all the understandings
and representations between the parties hereto pertaining to the subject matter
hereof and supersede all undertakings and agreements, whether oral or in
writing, previously entered into by them with respect thereto.
13. Modification and Amendment; Waiver. The provisions of this
Agreement may be modified, amended or waived, but only upon the written consent
of the party against whom enforcement of such modification, amendment or waiver
is sought and then such modification, amendment or waiver shall be effective
only to the extent set forth in such writing. No delay or failure on the part of
any party hereto in exercising any right, power or remedy hereunder shall effect
or operate as a waiver thereof, nor shall any single or partial exercise thereof
or any abandonment or discontinuance of steps to enforce such right, power or
remedy preclude any further exercise thereof or of any other right, power or
remedy.
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<PAGE>
14. Notices. All notices, requests or instructions hereunder shall be
in writing and delivered personally, sent by telecopier or sent by registered or
certified mail, postage prepaid, as follows:
If to the Executive:
Aven A. Kerr
If to the Company:
NovaCare, Inc.
1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: Chief Executive Officer
Telephone: (610) 992-7400
Telecopy: (610) 992-3330
With a copy to:
NovaCare, Inc.
1016 W. Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: General Counsel
Telephone: (610) 992-7404
Telecopy: (610) 992-3396
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered or telecopied, and two business days after the date of
mailing, if mailed.
15. Survivorship. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
16. Expenses. Each of the parties hereto shall bear her or its own
costs and expenses, including attorneys' fees and disbursements, incurred in
connection with this Agreement and the transactions contemplated hereby.
17. Titles. Titles of the sections of this Agreement are intended
solely for convenience and no provision of this Agreement is to be construed by
reference to the title of any section.
18. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
19. Arbitration. The parties shall attempt amicably to resolve
disagreements and disputes hereunder by negotiation. If the matter is not
amicably resolved through negotiation, within thirty (30) days after written
notice from either party, any controversy, dispute or disagreement arising out
of or relating to this Agreement, or the breach thereof, shall be subject to
exclusive, final and binding arbitration, which shall be conducted in
Philadelphia, PA, in accordance with the J.A.M.S./Endispute rules for employment
arbitration. Any party may bring a court action to compel arbitration under this
Agreement or to enforce an arbitration award.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
COMPANY:
By/s/ Timothy E. Foster
------------------------------------
Name: Timothy E. Foster
Title: Chief Executive Officer
EXECUTIVE:
/s/ Aven A. Kerr
------------------------------------
EMPLOYMENT AGREEMENT
AGREEMENT dated as of the 29th day of September, 1997 by and
between NOVACARE, INC., a Delaware corporation (the "Company"), and RONALD G.
HISCOCK (the "Executive").
W I T N E S S E T H :
WHEREAS, the Executive has heretofore been employed in the
Outpatient Division of the Company, and the Company wishes to continue to retain
the Executive and the Executive wishes to continue to serve the Company, upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements hereinafter set forth, the parties hereto hereby agree as
follows:
1. Employment, Term.
1.1 Employment. The Company agrees to employ the Executive,
and the Executive agrees to serve in the employ of the Company, for the term set
forth in Section 1.2, in the positions and with the responsibilities, duties and
authority set forth in Section 2 and on the other terms and conditions set forth
in this Agreement.
1.2 Term. The term of the Executive's employment under this
Agreement shall commence on the date hereof and shall terminate on the second
anniversary of the date hereof, unless extended or sooner terminated in
accordance with this Agreement.
1.3 Automatic Extension. As of the first anniversary date
hereof, and as of each subsequent anniversary (each, an "Automatic Renewal
Date"), unless either party shall have given a notice of non-extension prior to
such Automatic Renewal Date, the term of this Agreement shall be extended
automatically for a period of one year to the anniversary of the expiration date
of the then current term of this Agreement. Once a notice of non-extension shall
have been given by either party, there shall be no further automatic extension
of this Agreement.
2. Position, Duties.
The Executive shall serve the Company in the position of
President and General Manager of the Outpatient Division. The Executive shall
perform, faithfully and diligently, such duties, and shall have such
responsibilities, appropriate to said position, as shall be assigned to him from
time to time by the Chief Executive Officer, the President and Chief Operating
Officer and the Board of Directors of the Company. The Executive shall report to
the Chief Executive Officer or the President and Chief Operating Officer of the
Company. The Executive shall devote his full business time and attention to the
performance of his duties and responsibilities hereunder.
3. Salary, Incentive Bonus, Stock Options.
3.1 Salary. During the term of this Agreement, in
consideration of the performance by the Executive of the services set forth in
Section 2 and his observance of the other covenants set forth herein, the
Company shall pay to the Executive, and the Executive shall accept, a base
salary at the rate of $280,105 per annum, payable in accordance with the
standard payroll practices of the Company. The Executive shall be entitled to
1
<PAGE>
such increases in base salary during the term hereof, as shall be determined by
the Chief Executive Officer and approved by the Compensation Committee of the
Board of Directors of the Company in their sole discretion, taking account of
the performance of the Outpatient Division, the Company and the Executive, and
other factors generally considered relevant to the salaries of executives
holding similar positions with enterprises comparable to the Company.
3.2 Bonus. (a) In addition to the base salary provided for in
Section 3.1, the Executive shall have the opportunity to participate in the
Company's Executive Incentive Compensation Plan (the "Plan"), as approved by the
Compensation Committee of the Board of Directors, in each fiscal year of the
Company ending during the term of this Agreement. The current target bonus for
Executive is 50% of base salary; however, the determination as to the amount, if
any, of the bonus which the Executive has earned shall be in the sole discretion
of the Company based upon the terms and conditions of the Plan. The bonus shall
be payable upon or within a reasonable period of time after the receipt of the
Company's audited financial statements for the applicable fiscal year in
accordance with the Company's normal practices.
(b) In the event of the termination of employment of
the Executive pursuant to Section 6.1 (Death), Section 6.2 (Disability), or
Section 6.4 (Without Cause) of this Agreement, and provided that all of the
terms and conditions of the Plan are satisfied including, but not limited to,
the attainment of stated objectives, the Executive (or his estate or other legal
representative) shall be entitled to a pro-rated bonus for the fiscal year in
which such termination takes place in an amount equal to the product of (i) the
bonus for such fiscal year determined pursuant to Section 3.2, multiplied by
(ii) a fraction, the numerator of which is the number of days from the beginning
of such fiscal year to the date of termination, and the denominator of which is
365. In the event of the termination of employment of the Executive pursuant to
Section 6.3 (Due Cause) or Section 6.5 (Voluntary Termination) of this
Agreement, the Executive shall not be entitled to a bonus for the fiscal year of
the Company in which such termination takes place. The Executive shall not be
entitled to a bonus for any fiscal year of the Company subsequent to the fiscal
year in which the termination of his employment takes place.
3.3 Stock Options. (a) In the event that a person or "group"
of persons as defined in Section 13(d)(3) of the Securities Exchange Act of
1934, other than the Executive or a group that includes the Executive, either
(i) acquires twenty percent (20%) or more of the combined voting power of the
outstanding securities of the Company having a right to vote in elections of
directors and such acquisition shall not have been approved within sixty (60)
days following such acquisition by a majority of the Continuing Directors (as
hereinafter defined) then in office or (ii) acquires fifty percent (50%) or more
of the combined voting power of the outstanding securities of the Company having
a right to vote in the elections of directors, and in either case, the Executive
is involuntarily terminated, all options to purchase shares of the common stock,
$.01 par value, of the Company (the "Common Stock"), awarded to the Executive
shall become fully vested as of that date. For purposes of this Agreement, the
term "Continuing Director" shall mean a member of the Board of Directors of the
Company who either was a member of the Board of Directors on the date hereof or
who subsequently became a Director and whose election, or nomination for
election, was approved by a vote of at least two-thirds of the Continuing
Directors then in office.
(b) Executive may participate in future awards
of options to purchase Common Stock in a manner consistent with any stock
option plan adopted by the Company. The determination as to the amount of
options, if any, shall be at the sole discretion of the Board of Directors of
the Company.
4. Expense Reimbursement.
During the term of this Agreement, the Company shall reimburse
the Executive for all reasonable and necessary out-of-pocket expenses incurred
by him in connection with the performance of his duties hereunder, upon the
presentation of proper accounts therefor in accordance with the Company's
policies.
2
<PAGE>
5. Benefits.
5.1 Benefit Plans. During the term of this Agreement, the
Executive will be eligible to participate in all employee benefit plans and
programs (including, without limitation Supplemental Benefits Plan, 401(k) Plan,
medical, dental, life, and disability plans of the Company) offered by the
Company from time to time to its senior executives, subject to the provisions of
such plans and programs as in effect from time to time.
5.2 Vacation. The Executive shall be entitled to four (4)
weeks vacation per annum.
6. Termination of Employment.
6.1 Death. In the event of the death of the Executive, the
Company shall pay to the estate or other legal representative of the Executive
the base salary provided for in Section 3.1 (at the annual rate then in effect)
accrued to the date of the Executive's death and not theretofore paid to the
Executive. Rights and benefits of the estate or other legal representative of
the Executive (a) with respect to stock options shall be determined in
accordance with the applicable option grant and (b) under the benefit plans and
programs of the Company, shall be determined in accordance with the provisions
of such plans and programs. Neither the estate or other legal representative of
the Executive nor the Company shall have any further rights or obligations under
this Agreement.
6.2 Disability. If the Executive shall become incapacitated by
reason of sickness, accident or other physical or mental disability and shall be
entitled to payment of benefits under the Company's Supplemental Benefits Plan
disability provision, the employment of the Executive hereunder may be
terminated by the Company or the Executive. Rights and benefits of the Executive
(a) with respect to stock options shall be determined in accordance with the
applicable option grant and (b) under the other benefit plans and programs of
the Company, shall be determined in accordance with the terms and provisions of
such plans and programs. Neither the Executive nor the Company shall have any
further rights or obligations under this Agreement, except as provided in
Section 7.
6.3 Due Cause. The employment of the Executive hereunder may
be terminated by the Company at any time for Due Cause (as hereinafter defined).
In the event of such termination, the Company shall pay to the Executive the
base salary provided for in Section 3.1 (at the annual rate then in effect)
accrued to the date of such termination and not theretofore paid to the
Executive. Rights and benefits of the Executive or his transferee (a) with
respect to stock options shall be determined in accordance with the applicable
option grant and (b) under the benefit plans and programs of the Company, shall
be determined in accordance with the provisions of such plans and programs. For
purposes hereof, "Due Cause" shall include (a) the Executive's willful and
continuing failure to discharge his duties and responsibilities under this
Agreement or (b) any material act of dishonesty involving the Company or (c)
conviction of (i) a felony or (ii) any crime or offense involving moral
turpitude. After the satisfaction of any claim of the Company against the
Executive incidental to such Due Cause, neither the Executive nor the Company
shall have any further rights or obligations under this Agreement, except as
provided in Section 7.
6.4 Termination by the Company Without Cause. The Company may
terminate the Executive's employment at any time for whatever reason it deems
appropriate or without reason; provided, however, that in the event that such
termination is not pursuant to Section 6.1 (Death), 6.2 (Disability), 6.3 (Due
Cause) or 6.5 (Voluntary Termination), the Company shall pay to the Executive
severance pay in the form of salary continuation for a period of twelve (12)
months commencing on the date of termination, at a rate equal to the base salary
provided for in Section 3.1 (at the annual rate then in effect). The Executive
shall be obligated to seek other employment and any amounts earned from such
other employment (whether as an employee, a consultant or otherwise) shall be
4
<PAGE>
offset against the severance payments referred to in this Section 6.4 for the
first twelve (12) months following the termination of Executive's employment.
During the twelve (12) month severance pay period referred to in this Section
6.4, the Company shall continue to provide life, disability, medical, and dental
coverage for the Executive at the levels which were being provided to the
Executive immediately prior to the termination of his employment (or such other
benefits as shall be provided to senior executives of the Company in lieu of
such benefits from time to time during such twelve (12) month period) on the
same basis, including Company payment of premiums and Company contributions, as
such benefits are provided to other senior executives of the Company. In
addition, the Executive will be provided with Outplacement Benefits commensurate
with those provided to other executives of the Company through a vendor selected
by the Company. Rights and benefits of the Executive or his transferee (a) with
respect to stock options shall be determined in accordance with the applicable
option grant and (b) under the other benefit plans and programs of the Company,
shall be determined in accordance with the provisions of such plans and
programs. Neither the Executive nor the Company shall have any further rights or
obligations under this Agreement, except as provided in Section 7.
6.5 Voluntary Termination. The Executive may terminate his
employment with the Company at any time upon thirty (30) days' prior written
notice to the Company. In the event of such termination, the Company shall pay
to the Executive the base salary provided for in Section 3.1 (at the annual rate
then in effect) accrued to the date of such termination and not theretofore paid
to the Executive. Rights and benefits of the Executive or his transferee (a)
with respect to stock options shall be determined in accordance with the
applicable stock option grant and (b) under the benefit plans and programs of
the Company, shall be determined in accordance with the provisions of such plans
and programs. Neither the Executive nor the Company shall have any further
rights or obligations under this Agreement, except as provided in Section 7.
7. Confidential Information.
7.1 Nondisclosure. Unless the Executive secures the Company's
written consent, the Executive will not disclose, use, disseminate, lecture upon
or publish Confidential Information of which he becomes informed during his
employment, whether or not developed by him.
7.2 Confidential Information Defined. "Confidential
Information" means information disclosed to the Executive or known by him as a
result of his employment by the Company, not generally known in the
Rehabilitation Provider or Professional Employer Organization industry, about
the Company's services, products or customers, including, but not limited to,
clinical programs, procedures and protocols, research, operating models,
finance, strategic planning, client retention, data processing, insurance plans,
risk management, marketing, contracting and selling.
5
<PAGE>
8. Interference with the Company.
The Executive will not, (a) for a period of one (1)
year after termination of his employment with the Company, directly or
indirectly, (i) engage, whether as principal, agent, investor, representative,
stockholder (other than as the holder of not more than five percent (5%) of the
stock or equity of any corporation the capital stock of which is publicly
traded), employee, consultant, volunteer or otherwise, with or without pay, in
any activity or business venture, anywhere within the continental United States,
which is competitive with the business of the Company Group on the date of
termination, (ii) solicit or entice or endeavor to solicit or entice away from
the Company any director, officer, employee, agent or consultant, of the
Company, either on his own account or for any person, firm, corporation or other
organization, whether or not the person solicited would commit any breach of
such person's contract of employment by reason of leaving the Company's service,
(iii) solicit or entice or endeavor to solicit or entice away any of the clients
or customers of the Company, either on his own account or for any other person,
firm, corporation or organization, or (iv) employ any person who was a director,
officer or employee of the Company, at any time during the year preceding
termination of his employment with the Company, unless such person's employment
was terminated by the Company, or any person who is or may be likely to be in
possession of any Confidential Information, or (b) at any time take any action
or make any statement the effect of which would be, directly or indirectly, to
impair the good will of the Company or the business reputation or good name of
the Company, or be otherwise detrimental to the Company, including any action or
statement intended, directly or indirectly, to benefit a competitor of the
Company. Because the remedy at law for any breach of the foregoing provisions of
this Section 8 would be inadequate, the Executive hereby consents, in case of
any such breach, to the granting by any court of competent jurisdiction of
specific enforcement, including, but not limited to pre-judgment injunctive
relief, of such provisions, as provided for in Section 8 hereof.
The parties hereto agree that if, in any proceeding, the court
or other authority shall refuse to enforce the covenants set forth in this
Section 8 because such covenants cover too extensive a geographic area or too
long a period of time, any such covenant shall be deemed appropriately amended
and modified in keeping with the intention of the parties to the maximum extent
permitted by law.
9. Injunctive Relief.
Notwithstanding the provisions of Section 8 hereof, in the
event of my breach or threatened breach of the provisions of Section 7 or 8 of
this Agreement, the Executive hereby consents and agrees that the Company shall
be entitled, in order to maintain the status quo ante pending the outcome of
arbitration under Section 14 hereof, to an injunction or similar equitable
relief restraining the Executive from committing or continuing any such breach
or threatened breach or granting specific performance of any act required to be
performed by the Executive under any such provision, without the necessity of
showing any actual damage or that money damages would not afford an adequate
remedy and without the necessity of posting any bond or other security. The
Executive agrees that the Executive shall not use the availability of
arbitration in Section 14 hereof as grounds for the dismissal of any injunctive
actions instituted by the Company pursuant to this Section 9.
10. Successors and Assigns.
10.1 Assignment by the Company. The Company shall require any
successors (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform if no such
6
<PAGE>
succession had taken place. As used in this Section, the "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law and this Agreement shall be
binding upon, and inure to the benefit of, the Company, as so defined.
10.2 Assignment by the Executive. The Executive may not assign
this Agreement or any part thereof without the prior written consent of a
majority of the Board of Directors of the Company; provided, however, that
nothing herein shall preclude one or more beneficiaries of the Executive from
receiving any amount that may be payable following the occurrence of his legal
incompetency or his death and shall not preclude the legal representative of his
estate from receiving such amount or from assigning any right hereunder to the
person or persons entitled thereto under his will or, in the case of intestacy,
to the person or persons entitled thereto under the laws of intestacy applicable
to his estate. The term "beneficiaries", as used in this Agreement, shall mean a
beneficiary or beneficiaries so designated to receive any such amount or, if no
beneficiary has been so designated, the legal representative of the Executive
(in the event of his incompetency) or the Executive's estate.
11. Governing Law.
This Agreement shall be deemed a contract made under, and for
all purposes shall be construed in accordance with, the laws of the Commonwealth
of Pennsylvania applicable to contracts to be performed entirely within such
state. In the event that a court of any jurisdiction shall hold any of the
provisions of this Agreement to be wholly or partially unenforceable for any
reason, such determination shall not bar or in any way affect the Company's
right to relief as provided for herein in the courts of any other jurisdiction.
Such provisions, as they relate to each jurisdiction, are, for this purpose,
severable into diverse and independent covenants. Service of process on the
parties hereto at the addresses set forth herein shall be deemed adequate
service of such process.
12. Entire Agreement.
This Agreement contains all the understandings and
representations between the parties hereto pertaining to the subject matter
hereof and supersedes all undertakings and agreements, whether oral or in
writing, if any there be, previously entered into by them with respect thereto.
13. Amendment, Modification, Waiver.
No provision of this Agreement may be amended or modified
unless such amendment or modification is agreed to in writing and signed by the
Executive and by a duly authorized representative of the Company other than the
Executive. Except as otherwise specifically provided in this Agreement, no
waiver by either party hereto of any breach by the other party hereto of any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of a similar or dissimilar provision or condition at
the same or any prior or subsequent time, nor shall the failure of or delay by
either party hereto in exercising any right, power or privilege hereunder
operate as a waiver thereof to preclude any other or further exercise thereof or
the exercise of any other such right, power or privilege.
14. Arbitration.
The Company and the Executive will attempt amicably to resolve
disagreements and disputes hereunder or in connection with the employment of
Executive by negotiation. If the matter is not amicably resolved through
negotiation, within thirty (30) days after written notice from either party, any
controversy, dispute or disagreement arising out of or relating to this
Agreement, or the breach thereof, will be subject to exclusive, final and
binding arbitration, which will be conducted in Philadelphia, Pennsylvania in
accordance with the J.A.M.S./ENDISPUTE Rules of Procedure for Arbitration.
Either party may bring a court action to compel arbitration under this Agreement
or to enforce an arbitration award.
7
<PAGE>
15. Notices.
Any notice to be given hereunder shall be in writing and
delivered personally or sent by certified mail, postage prepaid, return receipt
requested, addressed to the party concerned at the address indicated below or at
such other address as such party may subsequently designate by like notice:
If to the Company:
NovaCare, Inc.
1016 West Ninth Avenue
King of Prussia, Pennsylvania 19406
Attention: Chief Operating Officer
If to the Executive:
Ronald G. Hiscock
16. Severability.
Should any provision of this Agreement be held by a court or
arbitration panel of competent jurisdiction to be enforceable only if modified,
such holding shall not affect the validity of the remainder of this Agreement,
the balance of which shall continue to be binding upon the parties hereto with
any such modification to become a part hereof and treated as though originally
set forth in this Agreement. The parties further agree that any such court or
arbitration panel is expressly authorized to modify any such unenforceable
provision of this Agreement in lieu of severing such unenforceable provision
from this Agreement in its entirety, whether by rewriting the offending
provision, deleting any or all of the offending provision, adding additional
language to this Agreement, or by making such other modifications as it deems
warranted to carry out the intent and agreement of the parties as embodied
herein to the maximum extent permitted by law. The parties expressly agree that
this Agreement as so modified by the court or arbitration panel shall be binding
upon and enforceable against each of them. In any event, should one or more of
the provisions of this Agreement be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provisions hereof, and if such provision or provisions are not
modified as provided above, this Agreement shall be construed as if such
invalid, illegal or unenforceable provisions had never been set forth herein.
17. Withholding.
Anything to the contrary notwithstanding, all payments
required to be made by the Company hereunder to the Executive or his
beneficiaries, including his estate, shall be subject to withholding of such
amounts relating to taxes as the Company may reasonably determine it should
withhold pursuant to any applicable law or regulation. In lieu of withholding
such amounts, in whole or in part, the Company, may, in its sole discretion,
accept other provision for payment of taxes as permitted by law, provided it is
satisfied in its sole discretion that all requirements of law affecting its
responsibilities to withhold such taxes have been satisfied.
8
<PAGE>
18. Survivorship.
The respective rights and obligations of the parties hereunder
shall survive any termination of this Agreement to the extent necessary to the
intended preservation of such rights and obligations.
19. Titles.
Titles of the sections and paragraphs of this Agreement are
intended solely for convenience and no provision of this Agreement is to be
construed by reference to the title of any section or paragraph.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
NOVACARE, INC.
By/s/ Timothy E. Foster
------------------------------------
Name: Timothy E. Foster
Title: Chief Executive Officer
EXECUTIVE:
/s/ Ronald G. Hiscock
------------------------------------
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (the "Amendment") made this 10th
day of October, 1997, by and between NovaCare, Inc., a Delaware corporation (the
"Company"), and Daryl A. Dixon (the "Executive"),
W I T N E S S E T H:
WHEREAS, the parties have heretofore entered into an Employment
Agreement dated as of January 6, 1995 (the "Employment Agreement"); and
WHEREAS, the parties now wish to amend the Employment Agreement to
provide for accelerated vesting of options to purchase the common stock, $.01
par value, of the Company (the "Stock") heretofore or hereafter granted to
Executive upon certain occurrences;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the parties hereby agree as follows:
The Employment Agreement is hereby amended by adding after the last
paragraph in Section 3.3 [Stock Options] the following language:
"All options, in addition to the Options, to purchase common
stock of the Company, par value $.01 per share, heretofore or hereafter
granted to Executive shall become exercisable in full upon a Change in
Control of the Company."
In all other respects the Employment Agreement shall remain in full
force and effect without change.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
NOVACARE, INC.
By/s/ Timothy E. Foster
------------------------------------
Name: Timothy E. Foster
Title: Chief Executive Officer
EXECUTIVE:
/s/ Daryl A. Dixon
------------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from (a)
the Condensed Consolidated Balance Sheet as of December 31, 1997 and the
Condensed Cnsolidated Statement of Operations for the three months ended
December 31, 1997 and is qualified in its entirety by reference to such (b)
statements in Form 10-Q for the quarterly period ended December 31, 1997.
</LEGEND>
<CIK> 0000802843
<NAME> NovaCare, Inc.
<MULTIPLIER> 1,000
<CURRENCY> US Dollar
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-1-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 38,380
<SECURITIES> 0
<RECEIVABLES> 357,535
<ALLOWANCES> 43,400
<INVENTORY> 22,491
<CURRENT-ASSETS> 424,584
<PP&E> 161,891
<DEPRECIATION> 86,373
<TOTAL-ASSETS> 1,210,729
<CURRENT-LIABILITIES> 211,890
<BONDS> 405,946
0
0
<COMMON> 668
<OTHER-SE> 540,965
<TOTAL-LIABILITY-AND-EQUITY> 1,210,729
<SALES> 0
<TOTAL-REVENUES> 755,516
<CGS> 0
<TOTAL-COSTS> 685,824<F1>
<OTHER-EXPENSES> (5,389)<F2>
<LOSS-PROVISION> 9,948
<INTEREST-EXPENSE> 12,489
<INCOME-PRETAX> 52,644
<INCOME-TAX> 21,848
<INCOME-CONTINUING> 30,796
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,796
<EPS-PRIMARY> .50
<EPS-DILUTED> .49
<FN>
(F1) "Total Costs" consist of cost of services and selling and administrative
expenses.
(F2) "Other Expenses" consist of amortization of goodwill, minority interest and
provision for restructure offset by investment income and a gain from issuance
of subsidiary stock.
</FN>
</TABLE>
