<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
NOVACARE, INC.
(Name of Registrant as Specified In Its Charter)
________________________________________________________________________________
Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
________________________________________________________________________________
1) Title of each class of securities to which transaction
applies:
________________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
________________________________________________________________________________
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
________________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
________________________________________________________________________________
5) Total fee paid:
________________________________________________________________________________
[X] Fee paid previously with preliminary materials.
________________________________________________________________________________
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
________________________________________________________________________________
1) Amount Previously Paid:
________________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
________________________________________________________________________________
3) Filing party:
________________________________________________________________________________
4) Date Filed:
<PAGE> 2
[NOVACARE LOGO]
1016 WEST NINTH AVENUE
KING OF PRUSSIA, PENNSYLVANIA 19406
September 10, 1999
Dear Stockholder:
We previously sent you a Proxy Statement dated August 13, 1999 (the "Proxy
Statement"), relating to a Special Meeting of Stockholders of NovaCare, Inc.
(the "Company") to be held at the Valley Forge Radisson Hotel (formerly operated
as the Sheraton Valley Forge Hotel), 1160 First Avenue, King of Prussia,
Pennsylvania 19406, on September 21, 1999 at 10:00 a.m., local time.
There is enclosed herewith for your information a Supplement dated
September 10, 1999 to the Company's Proxy Statement which contains important
current information concerning the sale of the Company's interest in NovaCare
Employee Services, Inc. ("NCES").
As previously described in the Proxy Statement under "Proposal 2. Approval
of the NCES Sale," the Company is seeking stockholder approval at the Special
Meeting for the sale of its interest in NCES (the "NCES Sale"). At the time the
Proxy Statement was mailed to stockholders, no definitive agreement with a
purchaser had been entered into concerning the NCES Sale. On September 8, 1999,
NCES entered into an Agreement and Plan of Merger, pursuant to which Plato
Holdings, Inc., a Delaware corporation, proposes to make a cash tender offer for
all of the outstanding shares of NCES for $2.50 per share. Consummation of the
transaction is subject to, among other things, approval of Proposal 2 at the
Special Meeting by the Company's stockholders. Information concerning the
proposed transaction is set forth in the accompanying Supplement. You should
study the information included in the Supplement in connection with your review
of the Company's Proxy Statement relating to the Special Meeting.
IT IS IMPORTANT TO NOTE THAT WE ARE SENDING THE ENCLOSED MATERIALS
REGARDING THIS PROPOSED TRANSACTION FOR YOUR INFORMATION ONLY; THE COMPANY IS
NOT ASKING ITS STOCKHOLDERS TO VOTE TO APPROVE THE SPECIFICS OF THE TRANSACTION.
PROPOSAL 2, AS SET FORTH IN THE PROXY STATEMENT, SEEKS STOCKHOLDER APPROVAL OF
ANY SALE OF THE COMPANY'S INTEREST IN NCES WHICH MEETS CERTAIN CONDITIONS, I.E.,
THE RECEIPT BY THE COMPANY OF A MINIMUM SALES PRICE AND RECEIPT OF A FAIRNESS
OPINION FROM A FINANCIAL ADVISOR WITH RESPECT TO THE CONSIDERATION TO BE
RECEIVED BY THE COMPANY IN SUCH A SALE. THE PROPOSED TRANSACTION DESCRIBED IN
THE ACCOMPANYING SUPPLEMENT MEETS THOSE CONDITIONS.
ALSO ENCLOSED ARE A FORM OF PROXY AND A RETURN ENVELOPE. IF YOU HAVE NOT
YET SUBMITTED YOUR SIGNED PROXY, PLEASE VOTE, DATE, SIGN AND RETURN EITHER THE
ENCLOSED PROXY OR THE PROXY PREVIOUSLY DELIVERED TO YOU WITH THE PROXY
STATEMENT. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED AT THE
SPECIAL MEETING.
Sincerely,
/s/ John H. Foster
John H. Foster
Chairman of the Board of Directors
<PAGE> 3
[NOVACARE LOGO]
SUPPLEMENT TO PROXY STATEMENT
-------------------------
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 21, 1999
-------------------------
King of Prussia, Pennsylvania
September 10, 1999
To the Holders of Common Stock
of NOVACARE, INC.
This Supplement to Proxy Statement is provided in connection with the
solicitation of Proxies on behalf of the Board of Directors of NovaCare, Inc.
(the "Company" or "NovaCare") for use at the Special Meeting of Stockholders
(the "Special Meeting") to be held on September 21, 1999, and at any adjournment
or adjournments thereof, for the purposes set forth in the previously delivered
Notice of Special Meeting of Stockholders.
THIS SUPPLEMENT TO PROXY STATEMENT SUPPLEMENTS THE COMPANY'S PROXY
STATEMENT DATED AUGUST 13, 1999 (THE "PROXY STATEMENT") AND SHOULD BE READ IN
CONJUNCTION WITH THE PROXY STATEMENT.
THE NCES TRANSACTION
GENERAL
As previously described in the Proxy Statement under "Proposal 2. Approval
of the NCES Sale," the Company is seeking stockholder approval at the Special
Meeting for the sale of its interest in NCES (the "NCES Sale"). At the time the
Proxy Statement was mailed to stockholders, no definitive agreement with a
purchaser had been entered into concerning the NCES Sale.
On August 5, 1999, as described in the Proxy Statement, the Board of
Directors of the Company unanimously approved the NCES Sale subject to the
conditions that (i) the sale price for the Company's interest in NCES is a
minimum of $2.50 per share, or an aggregate of $48.5 million, and (ii) the
Company's Board of Directors shall have obtained an opinion from a financial
advisor to the effect that, as of the date of such opinion, the consideration to
be received by the Company for the sale of its interest in NCES is fair, from a
financial point of view, to the Company.
NCES has entered into an Agreement and Plan of Merger dated as of September
8, 1999 (the "NCES Merger Agreement") with Plato Holdings, Inc., a Delaware
corporation ("Acquiror"), and New Plato Acquisition, Inc., a Delaware
corporation and wholly owned subsidiary of Acquiror ("Merger Sub"), pursuant to
which Merger Sub will commence a cash tender offer (the "NCES Offer") to acquire
any and all shares of the issued and outstanding common stock, $.01 par value
("NCES Common Stock" or "NCES Shares"), for $2.50 per share, net to the seller
in cash (the "NCES Offer Price"). Acquiror is a newly formed Delaware
corporation whose beneficial owners are AFLAC Incorporated, Patricof & Co.
Ventures, Inc. and Fidelity Ventures Limited. Subsequent to Acquiror or Merger
Sub accepting for payment and paying for that number of NCES Shares which, when
added to any NCES Shares owned beneficially by Acquiror or Merger Sub, would
constitute a majority of the NCES Shares outstanding on a fully diluted basis
(the "Minimum Condition"), in accordance with applicable law and subject to the
terms and conditions of the NCES Merger Agreement, Merger Sub will merge (the
"NCES Merger," and together with the NCES Offer, the "NCES Transaction") with
and into NCES, with NCES becoming a wholly owned subsidiary of Acquiror. Upon
the consummation of the NCES Merger, each share of NCES Common Stock outstanding
immediately prior to
<PAGE> 4
the NCES Merger (other than shares owned by Acquiror or Merger Sub) will be
converted into the right to receive the NCES Offer Price. See "Certain
Provisions of the Agreements with Acquiror" below for a description of the NCES
Merger Agreement.
In connection with the NCES Merger Agreement, the Company has entered into
a Stockholder Agreement pursuant to which the Company has agreed, subject to
NovaCare stockholder approval of Proposal 2 at the Special Meeting, (i) to
tender to Acquiror the NCES Shares held by NovaCare in the NCES Offer and (ii)
to appoint Acquiror to act as its proxy in respect of all NCES Shares owned by
it in order to vote all shares of NCES Common Stock held by it in favor of the
NCES Merger and against any Alternative Proposal (as hereinafter defined). See
"Certain Provisions of the Agreements with Acquiror" below.
The NCES Sale requires the approval of the NovaCare stockholders and the
sale of NCES may require the approval of the NCES stockholders. NovaCare owns
approximately 64% of the outstanding common stock of NCES. (As of August 20,
1999, NovaCare's ownership interest in NCES was reduced to 64% from 67% as a
result of NCES's issuance of additional shares to third parties in accordance
with certain contractual obligations; NovaCare continues to own 19,400,000
shares of the outstanding NCES Common Stock.) In the event that the stockholders
of NovaCare vote in favor of "Proposal 2. Approval of the NCES Sale," NovaCare,
pursuant to the Stockholder Agreement, is obligated to tender its NCES Shares to
Acquiror and will grant its proxy to Acquiror to vote all of its shares of NCES
in favor of the NCES Transaction and the NCES Merger Agreement in any required
NCES stockholder vote.
IT IS IMPORTANT TO NOTE THAT WE ARE SENDING THE ENCLOSED MATERIALS
REGARDING THE NCES TRANSACTION FOR YOUR INFORMATION ONLY; THE COMPANY IS NOT
ASKING ITS STOCKHOLDERS TO VOTE TO APPROVE THE SPECIFICS OF THE NCES
TRANSACTION. PROPOSAL 2, AS SET FORTH IN THE PROXY STATEMENT, SEEKS STOCKHOLDER
APPROVAL OF ANY SALE OF THE COMPANY'S INTEREST IN NCES WHICH MEETS CERTAIN
CONDITIONS, I.E., THE RECEIPT BY THE COMPANY OF A MINIMUM SALES PRICE AND
RECEIPT OF A FAIRNESS OPINION FROM A FINANCIAL ADVISOR WITH RESPECT TO THE
CONSIDERATION TO BE RECEIVED BY THE COMPANY IN SUCH A SALE. THE NCES TRANSACTION
DESCRIBED HEREIN MEETS THOSE CONDITIONS. (SEE "OPINION OF NOVACARE'S FINANCIAL
ADVISOR" BELOW.) IN ADDITION, THE PRO FORMA FINANCIAL INFORMATION CONTAINED IN
THE PROXY STATEMENT CONCERNING THE NCES SALE IS CONSISTENT WITH THE ACTUAL PRICE
TO BE RECEIVED BY THE COMPANY IN THE NCES TRANSACTION.
In the event that the stockholders do not adopt Proposal 2 or in the event
that the stockholders adopt Proposal 2 and if for any other reason the NCES
Transaction is not consummated, the Company will consider its alternatives,
including seeking to negotiate a sale with another buyer or distributing the
NCES Shares to the Company's stockholders.
CERTAIN PROVISIONS OF THE AGREEMENTS WITH ACQUIROR
The NCES Merger Agreement requires that Merger Sub shall, within five
business days following the date of the NCES Merger Agreement, commence the NCES
Offer to acquire any and all NCES Shares at the NCES Offer Price. Subject to
there being validly tendered and not withdrawn prior to the expiration of the
NCES Offer such number of NCES Shares which, when added to the NCES Shares, if
any, beneficially owned by Acquiror or Merger Sub, would satisfy the Minimum
Condition and the other conditions set forth in the NCES Merger Agreement (any
of which may be waived in whole or in part by Merger Sub in its sole
discretion), Merger Sub shall, on the terms and subject to the prior
satisfaction or waiver of the conditions of the NCES Offer, accept for payment
and pay for the NCES Shares tendered as soon as it is legally permitted to do so
under applicable law. The obligations of Merger Sub to commence the NCES Offer
and to accept for payment and to pay for any NCES Shares validly tendered on or
prior to the expiration of the NCES Offer and not withdrawn are subject only to
the conditions set forth in the NCES Merger Agreement. The NCES Offer shall be
made by means of an offer to purchase containing the terms set forth in the NCES
Merger Agreement, the Minimum Condition and the conditions set forth in Annex A
to the NCES Merger Agreement. Merger Sub may, without the consent of NCES, (A)
extend the NCES Offer, if at the initial scheduled or any extended expiration
date of the NCES Offer any of the conditions of the NCES Offer shall not be
satisfied or waived, until such time as such conditions are satisfied or waived,
(B) extend the NCES
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<PAGE> 5
Offer for any period required by any rule, regulation, interpretation or
position of the United States Securities and Exchange Commission or the staff
thereof applicable to the NCES Offer, (C) extend the NCES Offer for up to ten
business days if there have not been validly tendered and not withdrawn prior to
the expiration of the NCES Offer such number of NCES Shares that, together with
NCES Shares, if any, beneficially owned by Acquiror or Merger Sub, would
constitute at least 90% of the fully diluted NCES Shares as of the date of
determination, provided that all other conditions to the NCES Offer are
satisfied or waived, and (D) extend the NCES Offer for any reason for up to two
business days; provided, that no more than three extensions in the aggregate
shall be permitted for the reasons set forth in clauses (C) and (D) of this
sentence. In addition, the NCES Offer Price may be increased and the NCES Offer
may be extended to the extent required by law, in each case without the consent
of NCES.
In addition to the Minimum Condition having been satisfied, the obligations
of Acquiror and Merger Sub to accept for payment or pay for any tendered NCES
Shares in order to consummate the NCES Offer are subject to certain additional
conditions, including, among others, the accuracy of the representations and
warranties of NCES contained in the NCES Merger Agreement (except where such
inaccuracy would not have a material adverse effect on NCES) and the receipt by
Acquiror of a certificate signed by an executive officer of NCES to such effect;
there shall not have occurred any general suspension of trading in, or
limitation on prices for securities on the New York Stock Exchange, the American
Stock Exchange or in the NASDAQ National Market System for a period in excess of
three hours or there shall not have occurred any decline in the Dow Jones
Industrial Average or the Standard & Poor's 500 Index in excess of 25% measured
from the close of business on the date of the NCES Merger Agreement; the Company
shall have obtained all consents and approvals from its lenders to the NCES
Transaction; and no material adverse change (an "NCES Material Adverse Change")
having occurred in the assets, properties, businesses, prospects, results of
operations or financial condition of NCES and its subsidiaries, taken as a
whole, or in the ability of NCES to consummate the transactions contemplated by
the NCES Merger Agreement and the Company shall have obtained and delivered to
Acquiror the PROH Guaranty (as hereinafter defined).
The consummation of the NCES Offer is also subject to the expiration of the
relevant waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, if applicable.
Subject to the terms and conditions of the NCES Merger Agreement,
subsequent to the consummation of the NCES Offer, NCES and Merger Sub shall
consummate the NCES Merger pursuant to which (a) Merger Sub shall be merged with
and into NCES and the separate corporate existence of Merger Sub shall thereupon
cease, (b) NCES shall be the successor or surviving corporation in the NCES
Merger and shall continue to be governed by the laws of the State of Delaware
and (c) the separate corporate existence of NCES with all its rights,
privileges, immunities, powers and franchises shall continue unaffected by the
NCES Merger.
In the NCES Merger Agreement, NCES has agreed, among other things, that:
(i) NCES will conduct business only in the ordinary and usual course and (ii)
NCES will not, nor will NCES permit its officers, directors, employees, agents
and representatives to, initiate, solicit or knowingly encourage, directly or
indirectly, any inquiries or the making or implementation of any proposal or
offer with respect to a merger, acquisition, consolidation or similar
transaction involving, or any purchase of any equity securities of, NCES or all
or any significant portion of the assets of NCES (an "Alternative Proposal");
provided, however, that the Board of Directors of NCES is not prohibited from
(A) furnishing information to, or entering into discussions or negotiations
with, any person or entity that makes an unsolicited, bona fide Alternative
Proposal which would yield to the NCES stockholders greater consideration than
the NCES Offer Price, which is not subject to the arrangement of financing and
that the Board of Directors of NCES determines, in good faith, represents a
financially superior transaction for the stockholders of NCES as compared to the
NCES Merger (a "Superior Proposal"), if, and only to the extent that, (1) the
Board of Directors of NCES, based upon the advice of outside counsel, determines
in good faith that such action is required for the NCES Board to comply with its
fiduciary duties to stockholders imposed by law and (2) prior to furnishing such
information to, or entering into discussions or negotiations with, such person
or entity, NCES provides notice to Acquiror to the effect that it is furnishing
information to, or entering into discussions or negotiations with, such person
or entity.
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<PAGE> 6
The NCES Merger Agreement may be terminated (i) at any time by the mutual
written consent of NCES, Acquiror and Merger Sub; (ii) by either Acquiror or
NCES if the NCES Merger has not been consummated prior to December 31, 1999,
provided that the ability to terminate the NCES Merger Agreement on this basis
will not be available to any party whose failure to fulfill any obligation under
the NCES Merger Agreement caused the failure to consummate the NCES Merger by
such date; (iii) by either Acquiror or NCES if any governmental entity shall
have taken any action prohibiting or enjoining the transactions contemplated by
the NCES Merger Agreement; (iv) if the required approval of the stockholders of
the Company is not obtained at the Special Meeting; (v) by NCES if Acquiror or
Merger Sub shall have failed to commence the NCES Offer; (vi) at any time by
Acquiror if there has been a breach by NCES of any representation or warranty
contained in the NCES Merger Agreement which would result in an NCES Material
Adverse Change or a material breach of any covenant of NCES which is not curable
or, if curable, is not cured within 30 days; (vii) upon the occurrence of
certain other events, including the failure to obtain the requisite stockholder
approvals or the issuance of any final, nonappealable order, judgment or decree
restraining or prohibiting the consummation of the NCES Transaction; and (viii)
at any time by Acquiror or Merger Sub if the NCES Board shall have withdrawn,
modified or changed in a manner adverse to Acquiror or Merger Sub its approval
or recommendation of the NCES Merger Agreement or the NCES Merger or shall have
recommended a competing acquisition proposal.
If the NCES Merger Agreement is terminated pursuant to the terms thereof,
the NCES Merger Agreement shall become void and of no effect with no liability
on the part of any party thereto, subject to certain exceptions. NCES must pay
the Acquiror a fee of $4,500,000 in the event that (a) NCES terminates the NCES
Merger Agreement because the NCES Board has withdrawn or modified, in a manner
adverse to Acquiror, its approval or recommendation of the NCES Offer or the
NCES Merger Agreement in order to permit NCES to enter into a definitive
agreement in connection with a Superior Proposal; (b) NCES enters into an
agreement which accepts or implements a Superior Proposal; or (c) Acquiror
terminates the NCES Merger Agreement because (i) the NCES Board shall have
withdrawn, modified or changed in a manner adverse to Acquiror, its approval or
recommendation of the NCES Offer or the Merger Agreement or shall have
recommended an Alternative Proposal; (ii) NCES shall have executed a letter of
intent, agreement in principle or definitive agreement relating to an
Alternative Proposal; (iii) the NovaCare Board shall have withdrawn, modified or
changed in a manner adverse to Acquiror, its approval of the transactions
contemplated by the Stockholder Agreement (as hereinafter defined) or its
approval or recommendation of the NCES Sale; (iv) if NovaCare or its wholly
owned subsidiary, NC Resources, Inc. ("NC Resources"), shall have breached any
of their representations, warranties, covenants or agreements contained in the
Stockholder Agreement, which breach cannot be or has not been cured within 30
days; (v) if NovaCare has not received all necessary consents and approvals from
its lenders to the NCES Transaction; or (vi) if NCES shall not be removed as a
co-indemnitor with respect to the Liberty Bond (as defined in the Stockholder
Agreement) in accordance with Section 4.06 of the Stockholder Agreement. NCES
must reimburse Acquiror for all of Acquiror's and Merger Sub's reasonable
out-of-pocket expenses and fees in the event that (a) Acquiror terminates the
NCES Merger Agreement because (i) NCES has notified Acquiror of its decision to
furnish information concerning its business, properties or assets to, or shall
have negotiated or participated in negotiations or discussions with, an entity,
concerning a Superior Proposal; (ii) NCES shall have breached any of its
representations, warranties, covenants or other agreements contained in the NCES
Merger Agreement or the NCES Option Agreement, which breach would have a
material adverse effect on NCES and which cannot be or has not been cured within
30 days; (iii) NCES has not obtained and delivered to Acquiror (x) a guaranty
from NovaCare pursuant to which NovaCare shall guaranty (the "PROH Guaranty") to
Acquiror the earnings before interest, taxes, depreciation and amortization
(EBITDA) to be received by NCES under the Subscriber Services Agreement dated as
of July 1, 1999 (the "PROH Contract) by and between NovaCare and NCES, relating
to NovaCare's physical therapy and occupational health rehabilitation services
("PROH") business and (y) an irrevocable letter of credit or surety bond from a
reputable and financially sound financial institution or insurance company, or
such other security, securing the EBITDA payable with respect to the PROH
Contract and the EBITDA to be received by NCES under the Subscriber Services
Agreement dated as of July 1, 1999 by and between NovaCare and NCES, relating to
NovaCare's corporate support services personnel; provided, however that, if
within one year NCES shall have
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<PAGE> 7
executed a letter of intent, agreement in principle or definitive agreement
relating to an Alternative Proposal, NCES must pay Acquiror $4,500,000; (iv) if
NCES and its subsidiaries have outstanding at any given time indebtedness for
borrowed funds in excess of $3,300,000; or (v) if the approval of the NovaCare
stockholders shall not have been obtained at the Special Meeting; provided,
however that, if within one year NCES shall have executed a letter of intent,
agreement in principle or definitive agreement relating to an Alternative
Proposal, NCES must pay Acquiror $4,500,000.
In addition, as a condition to Acquiror and Merger Sub entering into the
NCES Merger Agreement, the Company and NC Resources have entered into a
Stockholder Agreement dated September 8, 1999 (the "Stockholder Agreement") with
Acquiror and Merger Sub pursuant to which NovaCare has agreed, subject to
NovaCare stockholder approval of the NCES Transaction, that (i) it shall cause
NC Resources to tender the NCES Shares it owns in the NCES Offer; and (ii) it
shall cause NC Resources to appoint Acquiror to act as its proxy in respect of
all NCES Shares owned by it in order to vote all shares of NCES Common Stock
held by it in favor of the NCES Merger and against any Alternative Proposal.
OPINION OF NOVACARE'S FINANCIAL ADVISOR
Wasserstein Perella & Co., Inc. ("Wasserstein Perella") has acted as
financial advisor to NovaCare in connection with the possible sale of NCES.
Wasserstein Perella delivered its written opinion to the Board of Directors to
the effect that, as of the date of the opinion and based upon and subject to the
assumptions and limitations stated in the opinion, the consideration to be
received by NovaCare in the NCES Transaction was fair to NovaCare from a
financial point of view. Although Wasserstein Perella provided advice to
NovaCare and NCES from time to time during the course of the negotiations,
NovaCare, NCES and Acquiror determined the amount and form of consideration to
be paid in the NCES Transaction through arm's-length negotiations and did not
base their determination on any recommendation by Wasserstein Perella.
THE FULL TEXT OF WASSERSTEIN PERELLA'S WRITTEN OPINION, DATED SEPTEMBER 8,
1999, WHICH SETS FORTH THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS
CONSIDERED, AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY WASSERSTEIN PERELLA, IS
ATTACHED TO THIS DOCUMENT AS APPENDIX A. STOCKHOLDERS ARE URGED TO READ THE
OPINION CAREFULLY IN ITS ENTIRETY. WASSERSTEIN PERELLA'S OPINION IS DIRECTED
ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE CONSIDERATION TO BE
RECEIVED BY NOVACARE IN THE NCES TRANSACTION, HAS BEEN PROVIDED TO THE NOVACARE
BOARD OF DIRECTORS IN CONNECTION WITH ITS CONSIDERATION OF THE NCES TRANSACTION
AND DOES NOT ADDRESS ANY OTHER ASPECT OF THE PROPOSED NCES TRANSACTION OR THE
NCES SALE. WASSERSTEIN PERELLA'S OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY STOCKHOLDER OF EITHER NOVACARE OR NCES AS TO HOW THE STOCKHOLDER SHOULD VOTE
IN RESPECT OF THE NCES MERGER AGREEMENT, THE TRANSACTIONS CONTEMPLATED BY THE
NCES MERGER AGREEMENT OR THE NCES SALE AND SHOULD NOT BE RELIED UPON BY ANY SUCH
STOCKHOLDER AS SUCH. THE SUMMARY OF WASSERSTEIN PERELLA'S OPINION IN THIS
DOCUMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE
OPINION ATTACHED AS APPENDIX A.
In arriving at its opinion, Wasserstein Perella reviewed, among other
information:
- A draft of the Merger Agreement, dated as of September 8, 1999, and, for
purposes of its opinion, assumed that the final form of the Merger
Agreement would not differ in any material respect from that draft;
- Certain publicly available business and financial information relating to
NCES for recent years and interim periods;
- Certain internal financial and operating information, including financial
forecasts, analyses, and projections prepared by or on behalf of NCES and
provided to Wasserstein Perella for purposes of its analysis;
- Certain financial and stock market data relating to NCES and similar data
for certain other companies, the securities of which are publicly traded,
that Wasserstein Perella believed may be relevant or comparable in
certain respects to NCES or one or more of its businesses or assets;
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<PAGE> 8
- The financial terms of certain recent acquisitions and business
combination transactions in the professional employer organization
industry specifically, and in other industries generally, that
Wasserstein Perella believed to be reasonably comparable to the NCES
Transaction or otherwise relevant to its inquiry; and
- Other financial studies, analyses, investigations, and information as
Wasserstein Perella considered appropriate for purposes of its opinion.
In addition, Wasserstein Perella met with the management of NCES to review
and discuss, among other matters:
- The business, financial, and operating information, forecasts, analyses,
and projections with respect to NCES referred to above; and
- The business, operations, assets, financial condition, and future
prospects of NCES.
In rendering its opinion, Wasserstein Perella assumed and relied without
independent verification upon various matters, including the following:
- The accuracy and completeness of all of the financial and other
information provided to or discussed with Wasserstein Perella or publicly
available;
- The reasonableness and accuracy of the financial projections, forecasts,
and analyses provided to or discussed with Wasserstein Perella, and that
these financial projections, forecasts, and analyses were reasonably
prepared in good faith and on bases reflecting the best currently
available judgments and estimates of the management of NCES; and
- That the transactions described in the Merger Agreement would be
consummated without waiver or modification of any of the material terms
or conditions contained therein by any party thereto.
Wasserstein Perella's analysis and opinion were subject to additional
limitations, including the following:
- Wasserstein Perella expressed no opinion with respect to the projections,
forecasts, analyses, and views or the assumptions upon which they are
based;
- Wasserstein Perella did not review any of the books and records of NCES;
- Wasserstein Perella did not conduct a physical inspection of the
properties or facilities of NCES, or obtain or make an independent
valuation or appraisal of the assets or liabilities of NCES, and no
valuation or appraisal of that type was provided to it; and
- Wasserstein Perella expressed no opinion as to the potential tax
consequences of the NCES Transaction to NovaCare.
Wasserstein Perella's opinion was necessarily based on economic and market
conditions and other circumstances as they existed and could be evaluated by
Wasserstein Perella as of the date of its opinion.
In arriving at its opinion, Wasserstein Perella performed a variety of
financial analyses, the material portions of which are summarized below, and
considered a number of factors. The preparation of a fairness opinion is a
complex analytical process involving various determinations as to the most
appropriate and relevant methods of financial analyses and the application of
these methods to the particular circumstances. Therefore, this type of opinion
is not readily susceptible to partial analysis or summary description.
Furthermore, in arriving at its opinion, Wasserstein Perella did not attribute
any particular weight to any analysis or factor considered by it, but rather
made qualitative judgments as to the significance and relevance of each analysis
and factor. Accordingly, Wasserstein Perella believes that its analyses must be
considered as a whole and that considering any portion of these analyses and
factors, without considering all analyses and factors, could create a misleading
or incomplete view of the process underlying the opinion.
In performing its analysis, Wasserstein Perella used in connection with its
opinion to the NovaCare Board of Directors dated September 8, 1999, the
following three principal valuation methodologies: (1) a selected comparable
company trading multiples analysis, (2) a selected comparable transaction
multiples analysis and
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<PAGE> 9
(3) a discounted cash flow analysis. In applying these valuation methodologies
to the particular businesses, operations, and prospects of NCES, and the
particular circumstances of the potential transaction, Wasserstein Perella made
qualitative judgments as to the significance and the relevance of each analysis.
As described above, Wasserstein Perella also made numerous assumptions as to
potentially important matters and limited its analyses and opinion.
As a result of the foregoing, any information set forth in tabular format
must be considered as a whole and in the context of the narrative description of
the financial analyses, including the assumptions underlying these analyses.
Considering the information set forth in a table without considering the full
narrative description of the financial analyses, including the assumptions
underlying these analyses and limitations on the scope of the analyses, could
create a misleading or incomplete view of the process underlying, and
conclusions represented by, Wasserstein Perella's opinion.
Selected Comparable Company Analysis
Wasserstein Perella compared operating, financial, and stock market data of
NCES to corresponding data of the following publicly traded companies in the
professional employer organization industry:
- Administaff, Inc.
- Employee Solutions, Inc.
- Staff Leasing, Inc.
- TEAM America Corporation
For the selected companies, Wasserstein Perella compared enterprise value
(that is, equity market value plus debt less cash (for NCES, cash not used for
operations)) as a multiple of latest quarter annualized revenue, earnings before
interest, taxes, depreciation, and amortization (commonly referred to as
EBITDA), and the number of worksite employees and equity value as a multiple of
forward twelve months and forward thirteenth through twenty-fourth months and
estimated calendar years 1999 and 2000 earnings per share. In addition,
Wasserstein Perella compared the forward twelve months price to earnings ratio
as a multiple of estimated earnings growth rates for the selected companies.
This analysis indicated the following approximate equity reference ranges for
NCES:
<TABLE>
<CAPTION>
EQUITY REFERENCE RANGES
-----------------------
<S> <C>
INSIDE RANGE:
Without any control premium: $1.25 to $1.50 per share
Assuming a 30% to 35% control premium: $1.63 to $2.03 per share
OUTSIDE RANGE:
Without any control premium: $1.00 to $1.75 per share
Assuming a 30% to 35% control premium: $1.30 to $2.36 per share
</TABLE>
7
<PAGE> 10
Selected Comparable Transactions Analysis
Using publicly available information, Wasserstein Perella reviewed, among
other things, the purchase prices and transaction multiples paid in the
following selected merger and acquisition transactions, which were announced
between June 1996 and December 1998, in the professional employer organization
industry:
<TABLE>
<CAPTION>
ACQUIROR TARGET
- -------- ------
<S> <C>
Paychex, Inc. National Business Solutions, Inc.
The Vincam Group, Inc. Staff Administrators, Inc.
The Vincam Group, Inc. Amstaff, Inc.
The Vincam Group, Inc. Staffing Network, Inc.
American Express Company Administaff, Inc.
Digital Solutions, Inc. The Teamstaff Companies, Inc.
Automatic Data Processing, Inc. The Vincam Group, Inc.
</TABLE>
For each of the selected transactions, Wasserstein Perella compared
enterprise value as a multiple of latest twelve months revenue, EBITDA, EBIT,
and the number of worksite employees, and equity value as a multiple of latest
twelve months and forward twelve months, and forward thirteenth through
twenty-fourth months earnings per share. All multiples were based on financial
information available at the time of the relevant transaction. Wasserstein
Perella applied a range of selected multiples of latest twelve months revenue,
EBITDA, EBIT, and earnings per share, forward twelve months earnings per share,
and the number of worksite employees derived from the selected transactions to
corresponding data of NCES. This analysis indicated an equity reference range
for NCES of approximately $1.50 to $2.75 per share.
Discounted Cash Flow Analysis
Wasserstein Perella estimated the present value of the stand-alone,
after-tax free cash flows that NCES could produce over the second, third, and
fourth quarters of fiscal year 2000 and for all of fiscal years 2001 through
2003, using projections provided to Wasserstein Perella by the management of
NCES. Ranges of terminal values were estimated using multiples of 2003 EBITDA
for NCES of 4.0x to 8.0x. The free cash flow streams and estimated terminal
values were then discounted to present value using discount rates ranging from
15.0% to 25.0%. This analysis indicated an implied equity reference range for
NCES of approximately $2.09 to $5.86 per share.
Aggregate Equity Reference Range
Based on the valuation methodologies described above, Wasserstein Perella
derived an aggregate equity reference range for NCES of approximately $1.75 to
$2.75 per share, as compared to the consideration to be paid in the NCES
Transaction of $2.50.
General Information
No company or transaction used in the selected comparable company trading
multiples analysis or the selected comparable transaction multiples analysis is
identical to NCES or the transactions contemplated by the Merger Agreement. The
analyses described above were performed solely as a part of the analytical
process utilized by Wasserstein Perella in connection with its analysis of the
NCES Transaction and do not purport to be appraisals or to reflect the prices at
which a company might actually be sold. In performing its analyses, Wasserstein
Perella made numerous assumptions with respect to industry performance, general
business and economic conditions, and other matters, many of which are beyond
the control of NCES. Wasserstein Perella's opinion addresses only the fairness
from a financial point of view to NovaCare of the consideration to be received
by NovaCare pursuant to the NCES Transaction, and Wasserstein Perella's opinion
does not address NCES's or NovaCare's respective underlying business decisions
to effect the transactions contemplated by the Merger Agreement.
Wasserstein Perella is an internationally recognized investment banking and
advisory firm. Wasserstein Perella, as part of its investment banking business,
is continuously engaged in the valuation of businesses and
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<PAGE> 11
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements, and valuations for corporate and other
purposes. In the ordinary course of its business, it may actively trade the debt
and equity securities of NovaCare and NCES for its own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in these securities. Wasserstein Perella has performed various
investment banking services for NovaCare from time to time in the past and has
received customary fees for rendering such services, and Wasserstein Perella
expects to continue to provide additional financial advisory services to
NovaCare for which it will receive customary fees.
Wasserstein Perella is acting as financial advisor to NovaCare in
connection with the proposed NCES Transaction, and NovaCare will pay Wasserstein
Perella the following fee for its services: $250,000 upon issuance of
Wasserstein Perella's written opinion; and $500,000 upon the closing of the NCES
Sale. If the proposed NCES Sale and PROH Sale (as defined in the Proxy
Statement) are consummated, it is estimated that Wasserstein Perella will be
paid approximately an aggregate of $1,500,000.
NCES also agreed to reimburse Wasserstein Perella for its travel and other
reasonable out-of-pocket expenses (including all fees, disbursements, and other
charges of counsel to be retained by Wasserstein Perella, and of other
consultants and advisors retained by Wasserstein Perella with NovaCare's
consent) related to its engagement and to indemnify Wasserstein Perella against
liabilities and expenses in connection with its services, including liabilities
under federal securities laws.
LIQUIDATION ANALYSIS AND ESTIMATES
As set forth under "Proposal 3. Adoption of the Restructuring
Proposal -- Liquidation Analysis and Estimates" in the Proxy Statement,
management has estimated the potential realizable values or range of values for
its assets, estimated liabilities and estimated cost of liquidation after the
Company sells PROH and NCES. Based on the NCES Offer Price of $2.50 per share
and assuming that the NCES Transaction is consummated, items (i), (vi) and (vii)
of the table on page 31 of the Proxy Statement would be revised as follows:
<TABLE>
<CAPTION>
($ IN MILLIONS, EXCEPT
PER SHARE AMOUNTS)
-----------------------
<S> <C> <C> <C>
(i) ESTIMATED REALIZABLE VALUE OF
ASSETS OF THE COMPANY
Net proceeds from the sale of NCES.................... $ 46.6
------
Total estimated assets................................ $725.8 - $834.8
-----------------------
(vi) ESTIMATED NET PROCEEDS AVAILABLE FOR DISTRIBUTION TO
STOCKHOLDERS.......................................... $111.0 - $234.6
-----------------------
(vii) ESTIMATED NET PROCEEDS AVAILABLE FOR DISTRIBUTION PER
OUTSTANDING COMMON SHARE.............................. $ 1.76 - $ 3.51
-----------------------
</TABLE>
IF YOU HAVE NOT YET SUBMITTED YOUR SIGNED PROXY, PLEASE VOTE, DATE, SIGN
AND RETURN EITHER THE ENCLOSED PROXY OR THE PROXY PREVIOUSLY DELIVERED TO YOU
WITH THE PROXY STATEMENT. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND
VOTED AT THE SPECIAL MEETING.
This Supplement to Proxy Statement is being mailed to stockholders on or
about September 10, 1999.
9
<PAGE> 12
APPENDIX A
September 8, 1999
Board of Directors
NovaCare, Inc.
1016 West Ninth Avenue
King of Prussia, PA 19406
Members of the Board:
You have asked us to advise you with respect to the fairness, from a
financial point of view, to NovaCare, Inc. ("Stockholder") of the consideration
to be received by Stockholder pursuant to the terms of an Agreement and Plan of
Merger (the "Merger Agreement"), by and among Plato Holdings, Inc. ("Parent"),
New Plato Acquisition, Inc. ("Sub"), and NovaCare Employee Services, Inc. (the
"Company"). The Merger Agreement provides for, among other things, a cash tender
offer by Sub to acquire all shares of the issued and outstanding common stock,
$0.01 par value per share, of the Company (the "Shares") for $2.50 per share
(the "Tender Offer"), and for a subsequent merger of Sub with and into the
Company pursuant to which each remaining outstanding Share not purchased in the
Tender Offer (other than any Shares that are owned by the Company as treasury
stock and any Shares owned by Parent, Sub, or any other wholly owned subsidiary
of Parent (collectively, the "Excluded Shares")) will be converted into the
right to receive $2.50 in cash (the "Merger" and, together with the Tender
Offer, the "Transaction").
In connection with rendering our opinion, we have reviewed a draft of the
Merger Agreement dated September 8, 1999, and for purposes hereof, we have
assumed that the final form thereof will not differ in any material respect from
the draft provided to us. We have also reviewed and analyzed certain publicly
available business and financial information relating to the Company for recent
years and interim periods to date, as well as certain internal financial and
operating information, including financial forecasts, analyses, and projections
prepared by or on behalf of the Company and provided to us for purposes of our
analysis, and we have met with management of the Company to review and discuss
such information and, among other matters, the Company's business, operations,
assets, financial condition, and future prospects. We have also reviewed and
discussed with Stockholder management its views as to the short term liquidity
needs of and capital resources available to Stockholder.
We have reviewed and considered certain financial and stock market data
relating to the Company, and we have compared that data with similar data for
certain other companies, the securities of which are publicly traded, that we
believe may be relevant or comparable in certain respects to the Company or one
or more of its businesses or assets, and we have reviewed and considered the
financial terms of certain recent acquisitions and business combination
transactions in the professional employer organization industry specifically,
and in other industries generally, that we believe to be reasonably comparable
to the Transaction or otherwise relevant to our inquiry. We have also performed
such other financial studies, analyses, and investigations and reviewed such
other information as we considered appropriate for purposes of this opinion.
In our review and analysis and in formulating our opinion, we have assumed
and relied upon the accuracy and completeness of all of the financial and other
information provided to or discussed with us or publicly available, and we have
not assumed any responsibility for independent verification of any of such
information. We have also assumed and relied upon the reasonableness and
accuracy of the financial projections, forecasts, and analyses provided to us,
and we have assumed that such projections, forecasts, and analyses were
reasonably prepared in good faith and on bases reflecting the best currently
available judgments and estimates of the Company's management. We have also
considered and taken into account Stockholder management's views as to the short
term liquidity needs of and capital resources available to Stockholder. We
express no opinion with respect to such projections, forecasts, analyses, and
views or the assumptions upon which they are based. In addition, we have not
reviewed any of the books and records of the Company, or assumed any
responsibility for conducting a physical inspection of the properties or
facilities of the Company, or for making or obtaining an independent valuation
or appraisal of the assets or liabilities of the Company, and no such
independent valuation or appraisal was provided to us. We express no opinion
herein as to the potential tax consequences of the Transaction to Stockholder.
We also have assumed that the transactions described in the Merger Agreement
will be consummated without waiver or modification of any of the material terms
or
<PAGE> 13
Board of Directors
NovaCare, Inc.
September 8, 1999
Page 2
conditions contained therein by any party thereto. Our opinion is necessarily
based on economic and market conditions and other circumstances as they exist
and can be evaluated by us as of the date hereof.
In the ordinary course of our business, we may actively trade the debt and
equity securities of Stockholder and the Company for our own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
We are acting as financial advisor to Stockholder in connection with the
proposed Transaction and will receive a fee for our services, which is
contingent upon the consummation of the Transaction. In addition, we have
performed various investment banking services for Stockholder from time to time
in the past and have received customary fees for rendering such services, and we
expect to continue to provide additional financial advisory services to
Stockholder for which we will receive customary fees.
Our opinion addresses only the fairness from a financial point of view to
Stockholder of the consideration to be received by Stockholder pursuant to the
Transaction, and we do not express any views on any other terms of the
Transaction. Specifically, our opinion does not address the Company's or
Stockholder's respective underlying business decisions to effect the
transactions contemplated by the Merger Agreement.
It is understood that this letter is for the benefit and use of the Board
of Directors of Stockholder in its consideration of the Transaction and, except
for inclusion in its entirety in any proxy statement required to be circulated
to shareholders of Stockholder relating to the Transaction or in any filing
required to be made with the Securities and Exchange Commission as an exhibit to
a report under the Securities Exchange Act of 1934, as amended, may not be
quoted, referred to, or reproduced at any time or in any manner without our
prior written consent. This opinion does not constitute a recommendation to any
shareholder of either Stockholder or the Company as to how any such shareholder
should vote with respect to either the Transaction or the NCES Sale as defined
in the NovaCare, Inc. proxy statement dated August 13, 1999 and should not be
relied upon by any such shareholder as such.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, it is our opinion that as of the date hereof,
the $2.50 per Share cash consideration to be received by Stockholder pursuant to
the Transaction is fair to Stockholder from a financial point of view.
Sincerely,
WASSERSTEIN PERELLA & CO., INC.
<PAGE> 14
[NOVACARE LOGO]
King of Prussia, Pennsylvania
September 10, 1999
To the Participants in the NovaCare
1986 Stock Option Plan, the NovaCare 1998 Stock Option Plan and Related Plans:
In connection with the Special Meeting of Stockholders of NovaCare, Inc.
(the "Company") to be held on September 21, 1999, the Company previously sent to
you a copy of the Proxy Statement, dated August 13, 1999. Attached hereto is the
Supplement to Proxy Statement, dated September 10, 1999, being mailed today to
shareholders of record as of July 30, 1999.
Although holders of options to purchase NovaCare common stock under the
NovaCare 1986 Stock Option Plan, the NovaCare 1998 Stock Option Plan and related
plans are not entitled to vote at the Special Meeting with respect to such
options, pursuant to the rules of the Securities and Exchange Commission,
NovaCare is required to deliver to such holders the enclosed materials, which
are provided herewith for your review and information.
<PAGE> 15
[NOVACARE LOGO]
King of Prussia, Pennsylvania
September 10, 1999
To the Participants in the NovaCare, Inc.
401(k) Retirement Savings Plan:
In connection with the Special Meeting of Stockholders of NovaCare, Inc.
(the "Company") to be held on September 21, 1999, the Company previously sent to
you a copy of the Proxy Statement, dated August 13, 1999. Attached hereto is the
Supplement to Proxy Statement, dated September 10, 1999, being mailed today to
shareholders of record as of July 30, 1999, along with an instruction card.
If you have already completed an instruction card with respect to the
Special Meeting, but wish to change your vote, please execute and return the
accompanying instruction card in the enclosed envelope. Delivery of the enclosed
instruction card will have the effect of revoking any instruction card bearing
an earlier date. If you previously returned your signed instruction card and do
not wish to change your vote, you need not take any further action. If you have
not yet submitted your signed instruction card, please vote, date, sign and
return either the enclosed instruction card or the instruction card previously
delivered to you with the Proxy Statement. It is important that your shares be
represented and voted at the Special Meeting.
