<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 19, 1999
NOVACARE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 1-10875 13-3247827
(State or other jurisdiction of (Commission file number) (I.R.S. Employer Identification No.)
incorporation)
1016 W. NINTH AVENUE, KING OF PRUSSIA, PA 19406
(Address of principal executive office) (Zip code)
</TABLE>
Registrant's telephone number: (610) 992-7200
(Former name, former address and former fiscal year,
if changed since last report.)
Page 1 of 8
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On October 19, 1999, NovaCare, Inc., a Delaware corporation (the
"Registrant") and its wholly-owned subsidiary, NC Resources, Inc., a
Delaware corporation, sold the Registrant's 64% ownership interest in
NovaCare Employee Services, Inc. ("NCES"), a Delaware corporation. The
sale was completed as part of a tender offer for all of NCES's
outstanding common stock dated September 15, 1999 by New Plato
Acquisition, Inc. (the "Purchaser"), a wholly-owned subsidiary of Plato
Holdings, Inc. (the "Transaction").
In conjunction with the tender offer, the Registrant received
$2.50 per share for its 19,400,000 shares of NCES common stock, or $48.5
million. Of this amount, $13.4 million has been placed in escrow with
respect to the Registrant's guarantee of a four-year contract with NCES
to supply services to the Registrant's remaining operating division. The
Registrant is also obligated to pay certain investment banking fees,
management bonuses and other costs associated with the transaction. These
costs are estimated to total $4.1 million.
As a result of this sale, the Company expects to report a gain
in the second quarter of fiscal 2000. Based on information as of June 30,
1999, this gain is estimated to be $6.9 million.
ITEM 7 (b). PRO FORMA FINANCIAL INFORMATION
The following unaudited Pro Forma Condensed Consolidated
Statement of Operations for the year ended June 30, 1999 and unaudited
Pro Forma Consolidated Balance Sheet as of June 30, 1999 ("Pro Forma
Financial Information") are based on the historical consolidated
financial statements of the Registrant adjusted to give effect to the
Transaction. The Pro Forma Condensed Consolidated Statement of Operations
has been prepared assuming the Transaction occurred as of July 1, 1998
and the Pro Forma Condensed Consolidated Balance Sheet has been prepared
assuming the Transaction occurred as of June 30, 1999.
The Pro Forma Financial Information does not purport to present
what the Registrant's results of operations or financial position would
have been had the Transaction occurred as of July 1, 1998 or June 30,
1999, or to project the Registrant's results of operations or financial
position for any future period or date, nor does it give effect to any
matters other than those described in the notes thereto.
The Pro Forma Financial Information should be read in
conjunction with the Registrant's Consolidated Financial Statements
included in its Form 10-K for the fiscal year ended June 30, 1999.
2
<PAGE> 3
NOVACARE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL RESULTS PRO FORMA
FOR THE YEAR ENDED PRO FORMA AS
JUNE 30, 1999 ADJUSTMENTS ADJUSTED
------------- ----------- --------
<S> <C> <C> <C>
NET REVENUES ................................... $ 1,477,917 $ 859,135(a) $ 618,782
COST OF SERVICES ............................... 1,267,491 823,268(a) 444,223
----------- ----------- -----------
GROSS PROFIT ............................. 210,426 35,867 174,559
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES ...................... 162,719 38,434(a) 124,285
PROVISION FOR UNCOLLECTIBLE
ACCOUNTS ..................................... 42,540 733(a) 41,807
AMORTIZATION OF EXCESS COST
OF NET ASSETS ACQUIRED ....................... 22,866 3,571(a) 19,295
PROVISION FOR RESTRUCTURE ...................... 43,395 910(a) 42,485
----------- ----------- -----------
LOSS FROM OPERATIONS ...................... (61,094) (7,781) (53,313)
GAIN FROM ISSUANCE OF
SUBSIDIARY STOCK ............................. 1,506 1,506(a) --
INVESTMENT (LOSS) INCOME ....................... (650) 99(a) (749)
INTEREST EXPENSE ............................... (41,592) (481)(a) (41,111)
MINORITY INTEREST .............................. (3,135) (2,818)(a) (317)
----------- ----------- -----------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES ..................... (104,965) (9,475) (95,490)
INCOME TAXES ................................... (23,129) 7,663(a) (30,792)
----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS .............................. $ (81,836) $ (17,138) $ (64,698)
=========== =========== ===========
LOSS FROM CONTINUING OPERATIONS
PER SHARE:
BASIC ..................................... $ (1.30) $ (1.03)
=========== ===========
ASSUMING DILUTION ......................... $ (1.30) $ (1.03)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
BASIC ..................................... 62,837 62,837
=========== ===========
ASSUMING DILUTION ......................... 62,837 62,837
=========== ===========
</TABLE>
3
<PAGE> 4
NOVACARE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(a) To eliminate results of operations of NCES for the entire period
other than the amounts associated with the provision of payroll
and other employee services to the Registrant. There are no pro
forma adjustments to NCES associated with the provision of
payroll and other employee services to the Company because these
expenses are eliminated upon consolidation of the historical
financial statements.
4
<PAGE> 5
NOVACARE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30,1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
AS OF PRO FORMA PRO FORMA AS
JUNE 30, 1999 ADJUSTMENTS ADJUSTED
------------- ----------- --------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS ....................... $ 23,277 $ (5,394)(a) $ 53,013
35,130 (b)
ACCOUNTS RECEIVABLE ............................. 193,407 (29,771)(a) 163,636
INCOME TAX RECEIVABLE ........................... 23,022 23,022
INVENTORIES ..................................... 44,651 44,651
DEFERRED INCOME TAXES ........................... 37,422 (2,393)(a) 35,029
NET ASSETS OF DISCONTINUED
OPERATIONS ................................... 44,388 44,388
OTHER CURRENT ASSETS .............................. 22,323 (2,853)(a) 32,840
13,370 (b)
---------- -------- ----------
TOTAL CURRENT ASSETS ........................ 388,490 8,089 396,579
PROPERTY AND EQUIPMENT, NET ....................... 59,744 (6,226)(a) 53,518
EXCESS COST OF NET ASSETS ACQUIRED,
NET ............................................... 729,947 (81,971)(a) 647,976
INVESTMENTS IN JOINT VENTURE ...................... 15,120 15,120
OTHER ASSETS, NET ................................. 11,564 (2,288)(a) 9,276
---------- -------- ----------
$1,204,865 $(82,396) $1,122,469
========== ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
CURRENT PORTION OF FINANCING
ARRANGEMENTS ................................. $ 551,320 $ (2,226)(a) $ 549,094
ACCOUNTS PAYABLE AND ACCRUED
EXPENSES ..................................... 131,310 (42,168)(a) 93,242
4,100 (b)
INCOME TAXES PAYABLE .............................. 2,192 (2,192)(a) --
---------- -------- ----------
TOTAL CURRENT LIABILITIES ................... 684,822 (42,486) 642,336
FINANCING ARRANGEMENTS, NET OF
CURRENT PORTION ................................ 54,237 (425)(a) 53,812
DEFERRED INCOME TAXES ............................. 39,091 (14,453)(a) 24,638
OTHER ............................................. 5,031 (3,746)(a) 1,285
---------- -------- ----------
TOTAL LIABILITIES ........................... 783,181 (61,110) 722,071
---------- -------- ----------
MINORITY INTEREST ................................. 28,425 (28,173) 252
COMMITMENTS AND CONTINGENCIES ..................... -- -- --
SHAREHOLDERS' EQUITY:
COMMON STOCK .................................... 686 686
ADDITIONAL PAID-IN CAPITAL ...................... 274,603 274,603
RETAINED EARNINGS ............................... 160,644 6,887 (b) 167,531
---------- -------- ----------
435,933 6,887 442,820
LESS: COMMON STOCK IN TREASURY .............. (42,674) (42,674)
---------- -------- ----------
TOTAL SHAREHOLDERS' EQUITY ......... 393,259 6,887 400,146
---------- -------- ----------
$1,204,865 $(82,396) $1,122,469
========== ======== ==========
</TABLE>
5
<PAGE> 6
NOVACARE, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(a) Adjustments to reflect the elimination of the NCES assets and
liabilities that were transferred to the Purchaser as a result of the
Transaction.
(b) Adjustments reflect: (i) the estimated gain of $6,887 and estimated
transaction costs of $4,100, and (ii) estimated net proceeds from the
Transaction of $48,500, of which $13,370 are assumed to be held in
escrow and $35,130 have been included in cash and cash equivalents.
6
<PAGE> 7
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 hereunto duly authorized.
<TABLE>
<S> <C>
NOVACARE, INC.
-----------------------------------
(Registrant)
November 2, 1999 By /s/ Robert E. Healy, Jr.
-----------------------------------
Robert E. Healy, Jr.,
Senior Vice President,
Finance & Administration and
Chief Financial Officer
November 2, 1999 By /s/ Barry E. Smith
-----------------------------------
Barry E. Smith
Vice President,
Controller and
Chief Accounting Officer
</TABLE>
7
<PAGE> 8
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Page Number
------ ----------- -----------
<S> <C>
2(a) Stockholder Agreement dated as of September
8, 1999 (incorporated by Reference to
Exhibit 2(a) to the Company's Current Report
on Form 8-K dated October 12, 1999)
10(a) Revolving Credit Facility Agreement
Twenty-Second Amendment dated as
of October 18, 1999 by and among NovaCare
and certain of its subsidiaries and PNC
Bank, N.A.
10(b) Subscriber Services Agreement dated as of
July 1, 1999 between NovaCare, Inc. and
NovaCare Employee Services, Inc.
99(a) Press Release dated October 19, 1999
</TABLE>
8
<PAGE> 1
EXHIBIT 10.A
NOVACARE, INC.
1016 WEST NINTH AVENUE
KING OF PRUSSIA, PA 19406
Dated as of October 18, 1999
PNC Bank, National Association,
as Agent
One PNC Plaza
249 Fifth Avenue
Pittsburgh, PA 15222-2707
Attn: Frank Taucher, Senior Vice President
RE: Twenty-Second Amendment to Credit Agreement (the
"Twenty-Second Amendment")
Dear Frank:
We refer to that certain Credit Agreement, dated as of May 27, 1994, as
amended (the "Credit Agreement"), by and among NovaCare, Inc. ("NovaCare") and
certain of its Subsidiaries, the Banks party thereto and PNC Bank, National
Association, as agent for the Banks ("Agent"). Defined terms used herein, not
otherwise defined herein, shall have the meanings given to them under the Credit
Agreement as amended hereby.
The parties hereto in consideration of their mutual covenants and
agreements hereinafter set forth, and intending to be legally bound hereby,
covenant and agree as follows:
AGREEMENT
1. Waiver of Certain Provisions of Credit Agreement.
(a) The Agent on behalf of the Banks hereby waives the compliance with
the provision of Section 2.04 [Voluntary Reduction of Commitment] which requires
five (5) Business Days' prior written notice by the Borrowers to the Agent in
order for the Borrowers to permanently reduce the Revolving Credit Commitments
to $15,621,000 effective on the Twenty-Second Amendment Effective Date.
(b) The Agent on behalf of the Banks hereby waives the compliance with
the provision of clause (ix)[Repayment Plan] of Section 8.01(m) [Certificates of
Borrowers; Other Reports and Information] which requires NovaCare to deliver to
the Agent and the Banks on or before September 15, 1999 a formalized plan
satisfactory to the Required Banks for the repayment of the Revolving Facility
Usage on the Expiration Date.
<PAGE> 2
2. Amendments to Credit Agreement.
The parties hereto do hereby modify and amend the Credit Agreement as
follows:
(a) The cover page of the Credit Agreement is hereby amended by
deleting in the first line the number "$35,000,000" and inserting in lieu
thereof the number "$15,621,000." Recital paragraph 1, page 1, is hereby amended
by deleting the number "$35,000,000" and inserting in lieu thereof the number
"$15,621,000."
(b) Section 1.01 [Certain Definitions] of the Credit Agreement is
hereby amended by the addition of the following new definitions:
"NCES Sale Date shall mean the date of closing of the Tender Offer."
"NCES Sale shall mean that certain transaction pursuant to which
NovaCare and its Subsidiaries have sold all of their ownership interests in
NovaCare Employee Services, Inc., a Delaware corporation in accordance with the
Tender Offer."
"NCES/PROH Letter of Credit shall have the meaning assigned to that
term in Section 2.09(a)."
"Offer to Purchase NCES shall mean that certain Offer to Purchase for
Cash All Outstanding Shares of Common Stock of NovaCare Employee Services, Inc.
at $2.50 Net Per Share In Cash by New Plato Acquisition, Inc., a wholly owned
subsidiary of Plato Holdings, Inc. dated as of September 15, 1999."
"Tender Offer shall mean that certain Tender Offer Statement, Schedule
14D-1, dated as of September 15, 1999, together with the "Offer to Purchase"
dated September 15, 1999, all in connection with the offer referred to therein
by Plato Holdings, Inc. to purchase all of the common stock, par value $0.01 of
NovaCare Employee Services, Inc., a Delaware corporation for $2.50 per share."
"Twenty-Second Amendment Effective Date shall mean as of October 18,
1999 which is the effective date of the Twenty-Second Amendment to this
Agreement."
(c) Subsection (b) of Section 2.01 [Revolving Credit Borrowing;
Limitations on Revolving Facility Usage] is hereby deleted in its entirety and
the following is inserted in lieu thereof;
"(b) During the period commencing on the Twenty-Second
Amendment Effective Date through and including the Expiration Date, the
Borrowers shall not request Revolving Credit Loans or the issuance of
Letters of Credit, other than issuance of the NCES/PROH Letter of
Credit on the terms and conditions otherwise set forth in this
Agreement (including, without limitation, the provisions of Section
2.09) and the Banks shall not be obligated to fund any Revolving Credit
Loans or to issue any Letter of Credit other than issuance of the
-2-
<PAGE> 3
NCES/PROH Letter of Credit on the terms and conditions otherwise set
forth in this Agreement (including, without limitation, the provisions
of Section 2.09)."
(d) Clause (a) of Section 2.09 [Letter of Credit Subfacility] is
amended and restated in its entirety to read as follows:
"(a) Prior to the Twenty-Second Amendment Effective Date
NovaCare as agent for any Borrower may request the issuance of, on the
terms and conditions hereinafter set forth, standby letters of credit
(all letters of credit issued hereunder prior to the Twenty-Second
Amendment Effective Date and the NCES/PROH Letter of Credit are
hereinafter referred to each as a "Letter of Credit" and collectively,
"Letters of Credit") by delivering to the Agent a completed application
and agreement for letters of credit in such form as the Agent may
specify from time to time by no later than 10:00 a.m., Pittsburgh time,
at least three (3) Business Days, or such shorter period as may be
agreed to by the Agent, in advance of the proposed date of issuance.
Subject to the terms and conditions hereof and in reliance on the
agreements of the other Banks set forth in this Section 2.09, the Agent
will issue a Letter of Credit provided that each Letter of Credit shall
(A) have a maximum maturity of twelve (12) months from the date of
issuance, and (B) in no event expire later than ten (10) Business Days
prior to the Expiration Date and providing that in no event shall (i)
the Letters of Credit Outstanding exceed, at any one time, $15,621,000,
or (ii) the Revolving Facility Usage exceed, at any one time, the
Revolving Credit Commitments. Schedule 2.09 hereto lists letters of
credit which PNC Bank issued for the accounts of certain of the Loan
Parties prior to the Closing Date hereof and which shall remain
outstanding after the Closing Date (the "Existing Letters of Credit").
Each Existing Letter of Credit shall be a Letter of Credit hereunder on
and after the Closing Date and the provisions of this Section 2.09
shall apply to such Existing Letter of Credit. Schedule 2.09(B) hereto
lists each Letter of Credit, existing on the Twenty-Second Amendment
Effective Date (the "Collateralized Letters of Credit"). On or before
the Twenty-Second Amendment Effective Date the Loan Parties shall
deposit cash, as cash collateral, to an account owned by the Agent for
the benefit of the Banks from which account the Agent alone shall have
sole power of withdrawal (collectively the "Letter of Credit Cash
Collateral Accounts") in an amount equal to 105% of the maximum amount
available to be drawn under the Collateralized Letters of Credit. Each
Loan Party hereby agrees and directs the Agent to apply, from the
respective Letter of Credit Cash Collateral Accounts, the amount of
each of the Collateralized Letters of Credit upon presentation thereof
for draw, and to also apply from the respective Letter of Credit Cash
Collateral Accounts any other amounts necessary to reimburse the Agent
and the Banks for any other payments made or to be made or costs or
interest incurred (including, without limitation, interest, fees, and
the amount that the Agent estimates will be necessary to cover expenses
and legal fees) in connection with such of the Collateralized Letters
of Credit presented for draw by the Agent under such Collateralized
Letters of Credit. Each of the Loan Parties to
-3-
<PAGE> 4
secure the Reimbursement Obligations and all of the other obligations
of the Loan Parties under the Loan Documents hereby pledges all of its
rights and interests in the Letter of Credit Cash Collateral Accounts
and all proceeds arising therefrom to the Agent for the benefit of the
Banks. On the NCES Sale Date, subject to satisfaction of all of the
terms and conditions of this Agreement, including without limitation
the provisions of Section 2.09, the Agent will issue a Letter of Credit
which, notwithstanding the second sentence of this Section 2.09(a) to
the contrary, has a maximum maturity of forty-eight (48) months from
the date of issuance and which in no event expires later than
forty-eight months after the NCES Sale Date (the "NCES/PROH Letter of
Credit"). On the NCES Sale Date the Loan Parties shall deposit cash, as
cash collateral, to a segregated account owned by the Agent for the
benefit of the Banks from which account the Agent alone shall have sole
power of withdrawal (the "NCES/PROH Letter of Credit Cash Collateral
Account") in an amount equal to 105% of the maximum amount available to
be drawn under the NCES/PROH Letter of Credit. The Agent, in its sole
discretion, may invest the funds in the NCES/PROH Letter of Credit Cash
Collateral Account in an interest bearing account and the interest, if
any, shall accrue in the account. On the first Business Day of each
April, July, October and January after the Twenty-Second Amendment
Effective Date, if, after payment of the Letter of Credit Fee, the
amount of cash in the NCES/PROH Letter of Credit Cash Collateral
Account is equal to or greater than 110% of the maximum amount
available to be drawn under the NCES/PROH Letter of Credit as of such
date, NovaCare, on behalf of the Loan Parties, may request that the
Agent withdraw cash from the NCES/PROH Letter of Credit Cash Collateral
Account in an amount such that the remaining amount of cash in the
NCES/PROH Letter of Credit Cash Collateral Account shall be equal
to 105% of the maximum amount available to be drawn under the NCES/PROH
Letter of Credit and then disburse the amount of such withdrawal to
NovaCare within three (3) Business Days. Notwithstanding any provision
of this Agreement to the contrary, it is expressly agreed that at all
times the amount on deposit in the NCES/PROH Letter of Credit Cash
Collateral Account shall equal at least 105% of the maximum amount
available to be drawn under the NCES/PROH Letter of Credit. Each Loan
Party hereby agrees and directs the Agent to apply, from the NCES/PROH
Letter of Credit Cash Collateral Account, the amount of the NCES/PROH
Letter of Credit upon presentation thereof for draw, and to also apply
from the NCES/PROH Letter of Credit Cash Collateral Account any other
amounts necessary to reimburse the Agent and the Banks for any other
payments made or to be made or costs or interest incurred (including,
without limitation, interest, fees, and the amount that the Agent
estimates will be necessary to cover expenses and legal fees) in
connection with the NCES/PROH Letter of Credit. Each of the Loan
Parties to secure the Reimbursement Obligations and all of the other
obligations of the Loan Parties under the Loan Documents hereby pledges
all of its rights and interests in the NCES/PROH Letter of Credit Cash
Collateral Account and all proceeds arising therefrom to the Agent for
the benefit of the Banks.
-4-
<PAGE> 5
(e) Clause (b) of Section 2.09 [Letter of Credit Subfacility] is
deleted in its entirety and the following is inserted in lieu thereof:
"(b) The Borrowers shall pay to the Agent for the ratable
account of the Banks a fee (the "Letter of Credit Fee") equal to .375%
per annum (computed on the basis of a year of 360 days and actual days
elapsed), which fee shall be computed on the face amount of each Letter
of Credit and shall be payable quarterly in arrears commencing with the
first Business Day of each April, July, October and January following
issuance of each Letter of Credit and on the expiration date for each
Letter of Credit. The Borrowers shall also pay to the Agent the Agent's
then in effect customary fees and administrative expenses payable with
respect to Letters of Credit as the Agent may generally charge or incur
from time to time in connection with the issuance, maintenance,
modification (if any), assignment or transfer (if any), negotiation and
administration of Letters of Credit."
(f) Subsection (c) [Mandatory Commitment Reduction] of Section 5.05
[Mandatory Repayments; Mandatory Commitment Reduction] is hereby deleted in its
entirety and the following is inserted in lieu thereof:
"(c) Mandatory Commitment Reduction. It is acknowledged that
the NCES/PROH Letter of Credit is a reducing Letter of Credit. The
aggregate Commitments shall be automatically and permanently reduced by
the amount of, and simultaneously with, any reduction in the undrawn
face amount of the NCES/PROH Letter of Credit."
(g) Section 8.02 [Negative Covenants] is hereby amended by adding a new
subsection (s) as follows:
"(s) No Waiver of Conditions to Closing of the Tender Offer.
NovaCare represents, warrants, covenants and agrees that neither it nor
any of its Subsidiaries have waived nor following the date hereof none
of them without the prior written consent of the Agent shall waive any
condition to closing of the Tender Offer or the related merger of
NovaCare Employee Services with and into New Plato Acquisition, Inc."
(h) Clause (ix) of subsection (m) of Section 8.01 [Certificates of
Borrowers; Other Reports and Information] is hereby amended by deleting the word
"September" in the first line thereof and inserting the word "November" in lieu
thereof.
3. Other Matters.
(a) Each Loan Party acknowledges that it has no claim, counterclaim,
setoff, action or cause of action of any kind or nature whatsoever against all
or any of the Agent, the Banks or any of the Agent's or the Banks' directors,
officers, employees, agents, attorneys, legal representatives, successors and
assigns (the Agent, the Banks and their directors, officers,
-5-
<PAGE> 6
employees, agents, attorneys, legal representatives, successors and assigns are
collectively referred to as the "Lender Group"), that directly or indirectly
arise out of or are based upon or in any manner connected with any "Prior Event"
(as defined below), and each Loan Party hereby releases the Lender Group from
any liability whatsoever should any nonetheless exist with respect to such
claims. As used herein the term "Prior Event" means any transaction, event,
circumstance, action, failure to act or occurrence of any sort or type, whether
known or unknown, which occurred, existed, was taken, permitted or begun prior
to the execution of this Twenty-Second Amendment and occurred, existed, was
taken, permitted or begun in accordance with, pursuant to or by virtue of any
terms of this Twenty-Second Amendment or any Loan Document or oral or written
agreement relating to any of the foregoing.
(b) Schedule 1.01(B)[List of Banks and Commitments] and Schedule
2.09(B) [Letters of Credit, Existing on the Twenty-Second Amendment Effective
Date] are amended and restated in their entirety to read as attached hereto.
4. Consents.
(a) By the execution and delivery of this Twenty-Second Amendment each
Bank consents to the release of the lien on and security interest in the capital
stock of NovaCare Employee Services, Inc., a Delaware corporation owned by NC
Resources, Inc. in accordance with the terms of the Tender Offer.
(b) The Loan Parties hereby request and the Agent and each of the Banks
by executing this Amendment hereby consents to and agrees to permit NovaCare or
its designated Subsidiary as agent of NovaCare, Inc., a Pennsylvania corporation
and as agent of each other Eastern Subsidiary as defined in that certain Consent
dated May 18, 1999 among NovaCare, certain of its Subsidiaries, the Banks and
the Agent (the "Consent") to make a prepayment, on any date following the NCES
Sale Date, of the remaining scheduled installments of the Guaranteed Amount (as
defined in the Consent) in the aggregate amount of $1,000,000 so long as
simultaneously with the making of such prepayment, Purchaser (as defined in the
Consent) shall have caused the transfer to NovaCare (or designated Subsidiary of
NovaCare) of good and marketable title to all of the outstanding transferable
Designated Accounts Receivable (as defined in the Consent) as of such prepayment
date, free and clear of any Liens, other than Liens in favor of the Agent for
the benefit of the Banks and such Liens of the Agent for the benefit of the
Banks shall continue against such Designated Accounts Receivable as first
priority perfected Liens. NovaCare shall have taken all actions necessary so
that from and after the date hereof, the Lien on the Designated Accounts
Receivable (as defined in the Consent) in favor of the Agent for the benefit of
the Banks shall continue as a first priority perfected lien on and security
interest in all of the designated Accounts Receivable and proceeds thereof.
5. Closing Fees.
The Borrowers jointly and severally agree to reimburse the Agent on
demand for all costs, expenses and disbursements relating to this Twenty-Second
Amendment which are payable by the Borrowers as provided in Section 10.05 of the
Credit Agreement.
-6-
<PAGE> 7
6. Conditions of Effectiveness.
The effectiveness of this Twenty-Second Amendment is expressly
conditioned upon the occurrence and completion of all of the following: (i)
payment by the Borrowers of all costs, expenses and disbursements submitted on
or before the date hereof to the Borrowers pursuant to Section 5 hereof, (ii)
receipt by the Agent on behalf of the Banks of all Commitment Fees and Letter of
Credit Fees accrued through the Twenty-Second Amendment Effective Date, and
(iii) the Agent's receipt of counterparts of this Twenty-Second Amendment duly
executed by the Borrowers, the Guarantors, the Agent and the Banks.
This Twenty-Second Amendment shall be dated as of and shall be
effective as of the date and year first above written subject to satisfaction of
all conditions precedent to effectiveness as set forth in this Section 6, which
date shall be the Twenty-Second Amendment Effective Date.
7. Consent of Banks.
Pursuant to Section 11.01 of the Credit Agreement, this Twenty-Second
Amendment shall require the written consent of all Banks, which shall be
evidenced by the execution and delivery by all Banks to the Agent of
counterparts of this Twenty-Second Amendment.
8. Full Force and Effect.
Each of the following documents, as amended through and including this
Twenty-Second Amendment, shall remain in full force and effect on and after the
date of this Amendment:
(a) the Credit Agreement, except as
expressly modified and amended by this Twenty-Second
Amendment:
(b) each of the Schedules attached to the
Credit Agreement, except as expressly modified and amended by
this Twenty-Second Amendment;
(c) each of the Exhibits attached to the
Credit Agreement; and
the Notes, the Guaranty Agreements, the Security Agreement,
the Pledge Agreements, the Agent's Fee Letter, the Subordination Agreement
(Intercompany), the Borrower Agency Agreement and all other Loan Documents.
On and after the date hereof, each reference in the Credit
Agreement to "this Agreement," "hereunder" or words of like import shall mean
and be a reference to the Credit Agreement, as previously amended and as amended
by this Twenty-Second Amendment, and each reference in each other Loan Document
to the "Credit Agreement" shall mean and be a reference to the Credit Agreement,
as previously amended and as amended by this Twenty-Second Amendment. No
novation is intended by this Twenty-Second Amendment.
-7-
<PAGE> 8
The parties hereto do not amend or waive any provisions of the Credit
Agreement or the other Loan Documents except as expressly set forth herein.
9. Counterparts.
This Twenty-Second Amendment may be executed by different parties
hereto in any number of separate counterparts, each of which, when so executed
and delivered, shall be an original, and all of such counterparts shall together
constitute one and the same instrument.
10. Governing Law.
This Twenty-Second Amendment shall be deemed to be a contract under the
laws of the Commonwealth of Pennsylvania and for all purposes shall be governed
by and construed and enforced in accordance with the internal laws of the
Commonwealth of Pennsylvania without regard to its conflict of laws principles.
-8-
<PAGE> 9
[Signature Page 1 of 2 to Twenty-Second Amendment]
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto
duly authorized, have executed this Amendment as of the day and year first above
written.
<TABLE>
BORROWERS AND GUARANTORS:
<S> <C>
ATTEST: NOVACARE, INC., a Delaware corporation, and each of the
BORROWERS and GUARANTORS listed on Schedule A attached hereto
By: /s/ Richard S. Binstein By:/s/ Richard A. McDonald
----------------------- ---------------------------------------
Richard S. Binstein, Secretary Richard A. McDonald, the Vice President of
each Borrower and Guarantor listed on
Schedule A attached hereto which is a
corporation and of each general partner of
each Guarantor listed on Schedule A attached
hereto which is a partnership
[Seal]
ATTEST: NOVAFUNDS, INC., a Delaware corporation, and each of the
GUARANTORS listed on Schedule B attached hereto
By: /s/ Andrew T. Panaccione By:/s/ Robert C. Campbell
------------------------ ------------------------------------------
Andrew T. Panaccione, Secretary Robert C. Campbell, the Vice President of
each Borrower and Guarantor listed on
Schedule B attached hereto
[Seal]
</TABLE>
<PAGE> 10
[Signature Page 2 of 2 to Twenty-Second Amendment]
AGENT:
PNC BANK, NATIONAL ASSOCIATION, as Agent
----------------------------------------
By: /s/ C. David Cook
------------------------------------
Title: Senior Vice President
----------------------------------
BANKS:
PNC BANK, NATIONAL ASSOCIATION
By: /s/ C. David Cook
------------------------------------
Title: Senior Vice President
----------------------------------
<PAGE> 11
SCHEDULE A
<TABLE>
<CAPTION>
BORROWER ("B")/
ENTITY GUARANTOR ("G")
- -------------------------------------------------------------------------------- --------------------------
<S> <C>
NovaCare, Inc. (a Delaware corporation) B
RehabClinics, Inc. B
Rehab Managed Care of Arizona, Inc. B
Affiliated Physical Therapists, Ltd. G
American Rehabilitation Center, Inc. G
American Rehabilitation Clinic, Inc. G
Athens Sports Medicine Clinic, Inc. G
Ather Sports Injury Clinic, Inc. G
Atlantic Health Group, Inc. G
Atlantic Rehabilitation Services, Inc. G
Boca Rehab Agency, Inc. G
Buendel Physical Therapy, Inc. G
C.E.R. - West, Inc. G
Cenla Physical Therapy & Rehabilitation Agency, Inc. G
Center for Evaluation & Rehabilitation, Inc. G
Center for Physical Therapy and Sports Rehabilitation, Inc. G
CenterTherapy, Inc. G
Central Missouri Rehabilitation Services, Inc. G
Central Missouri Therapy, Inc. G
Champion Physical Therapy, Inc. G
CMC Center Corporation G
Coplin Physical Therapy Associates, Inc. G
Crowley Physical Therapy Clinic, Inc. G
Douglas Avery and Associates, Ltd. G
Douglas C. Claussen, R.P.T., Physical Therapy, Inc. G
Elk County Physical Therapy, Inc. G
Fine, Bryant & Wah, Inc. G
Francis Naselli, Jr. & Stewart Rich Physical Therapists, Inc. G
Gallery Physical Therapy Center, Inc. G
Georgia Health Group, Inc. G
</TABLE>
<PAGE> 12
<TABLE>
<CAPTION>
BORROWER ("B")/
ENTITY GUARANTOR ("G")
- -------------------------------------------------------------------------------- --------------------------
<S> <C>
Georgia Physical Therapy of West Georgia, Inc. G
Georgia Physical Therapy, Inc. G
Greater Sacramento Physical Therapy Associates, Inc. G
Grove City Physical Therapy and Sports Medicine, Inc. G
Gulf Breeze Physical Therapy, Inc. G
Gulf Coast Hand Specialists, Inc. G
Hand Therapy and Rehabilitation Associates, Inc. G
Hand Therapy Associates, Inc. G
Hangtown Physical Therapy, Inc. G
Hawley Physical Therapy, Inc. G
Human Performance and Fitness, Inc. G
Indianapolis Physical Therapy and Sports Medicine, Inc. G
Industrial Health Care Company, Inc. G
JOYNER SPORTS SCIENCE INSTITUTE, Inc. G
JOYNER SPORTSMEDICINE INSTITUTE, INC. G
Kentucky Rehabilitation Services, Inc. G
Kesinger Physical Therapy, Inc. G
Lynn M. Carlson, Inc. G
Marilyn Hawker, Inc. G
Mark Butler Physical Therapy Center, Inc. G
Medical Plaza Physical Therapy, Inc. G
Metro Rehabilitation Services, Inc. G
Michigan Therapy Centre, Inc. G
MidAtlantic Health Group, Inc. G
Mill River Management, Inc. G
Mitchell Tannenbaum I, Inc. G
Mitchell Tannenbaum II, Inc. G
Mitchell Tannenbaum III, Inc. G
Monmouth Rehabilitation, Inc. G
New England Health Group, Inc. G
New Mexico Physical Therapists, Inc. G
Northside Physical Therapy, Inc. G
NovaCare (Arizona), Inc. G
</TABLE>
<PAGE> 13
<TABLE>
<CAPTION>
BORROWER ("B")/
ENTITY GUARANTOR ("G")
- -------------------------------------------------------------------------------- --------------------------
<S> <C>
NovaCare (Colorado), Inc. G
NovaCare (Texas), Inc. G
NovaCare Easton & Moran Physical Therapy, Inc. G
NovaCare Holdings, Inc. G
NovaCare Management Company, Inc. G
NovaCare Management Services, Inc. G
NovaCare Occupational Health Services, Inc. G
NovaCare Outpatient Rehabilitation East, Inc. G
NovaCare Outpatient Rehabilitation I, Inc. G
NovaCare Outpatient Rehabilitation West, Inc. G
NovaCare Outpatient Rehabilitation, Inc. G
NovaCare Rehab Agency of Amarillo, Inc. G
NovaCare Rehab Agency of Beaumont, Inc. G
NovaCare Rehab Agency of El Paso, Inc. G
NovaCare Rehab Agency of Las Vegas, Inc. G
NovaCare Rehab Agency of Lubbock, Inc. G
NovaCare Rehab Agency of Northern California, Inc. G
NovaCare Rehab Agency of Oklahoma, Inc. G
NovaCare Rehab Agency of Oregon, Inc. G
NovaCare Rehab Agency of Reno, Inc. G
NovaCare Rehab Agency of San Antonio, Inc. G
NovaCare Rehab Agency of San Diego, Inc. G
NovaCare Rehab Agency of Southern California, Inc. G
NovaCare Rehab Agency of Washington, Inc. G
NovaCare Rehab Agency of Wyoming, Inc. G
NovaCare Rehabilitation, Inc. G
NovaCare Service Corp. G
Ortho Rehab Associates, Inc. G
Orthopedic and Sports Physical Therapy of Cupertino, Inc. G
Peter Trailov R.P.T. Physical Therapy Clinic, Orthopaedic Rehabilitation & Sports G
Medicine, Ltd.
Peters, Starkey & Todrank Physical Therapy Corporation G
Physical Focus Inc. G
Physical Rehabilitation Partners, Inc. G
</TABLE>
<PAGE> 14
<TABLE>
<CAPTION>
BORROWER ("B")/
ENTITY GUARANTOR ("G")
- -------------------------------------------------------------------------------- --------------------------
<S> <C>
Physical Therapy Clinic of Lee's Summit, Inc. G
Physical Therapy Enterprises, Inc. G
Physical Therapy Institute, Inc. G
Physical Therapy Services of the Jersey Cape, Inc. G
Pro Active Therapy, Inc. G
Professional Therapeutic Services, Inc. G
Quad City Management, Inc. G
RCI (Colorado), Inc. G
RCI (Exertec), Inc. G
RCI (Illinois), Inc. G
RCI (Michigan), Inc. G
RCI (S.P.O.R.T.), Inc. G
RCI (WRS), Inc. G
RCI Nevada, Inc. G
Rebound Oklahoma, Inc. G
Redwood Pacific Therapies, Inc. G
Rehab Provider Network of Florida, Inc. G
Rehab Provider Network - California, Inc. G
Rehab Provider Network - Delaware, Inc. G
Rehab Provider Network - Georgia, Inc. G
Rehab Provider Network - Illinois, Inc. G
Rehab Provider Network - Indiana, Inc. G
Rehab Provider Network - Maryland, Inc. G
Rehab Provider Network - Michigan, Inc. G
Rehab Provider Network - New Jersey, Inc. G
Rehab Provider Network - Ohio, Inc. G
Rehab Provider Network - Oklahoma, Inc. G
Rehab Provider Network - Pennsylvania, Inc. G
Rehab Provider Network - Virginia, Inc. G
Rehab Provider Network - Washington, D.C., Inc. G
Rehab Provider Network of Colorado, Inc. G
Rehab Provider Network of Nevada, Inc. G
Rehab Provider Network of New Mexico, Inc. G
</TABLE>
<PAGE> 15
<TABLE>
<CAPTION>
BORROWER ("B")/
ENTITY GUARANTOR ("G")
- -------------------------------------------------------------------------------- --------------------------
<S> <C>
Rehab Provider Network of North Carolina, Inc. G
Rehab Provider Network of Texas, Inc. G
Rehab Provider Network of Wisconsin, Inc. G
Rehab World, Inc. G
Rehab/Work Hardening Management Associates, Ltd. G
RehabClinics (COAST), Inc. G
RehabClinics (GALAXY), Inc. G
RehabClinics (New Jersey), Inc. G
RehabClinics (PTA), Inc. G
RehabClinics (SPT), Inc. G
RehabClinics Abilene, Inc. G
RehabClinics Dallas, Inc. G
RehabClinics Pennsylvania, Inc. G
Rehabilitation Management, Inc. G
Robert M. Bacci, R.P.T. Physical Therapy, Inc. G
S.T.A.R.T., Inc. G
Scott G. Knoche, Inc. G
SG Rehabilitation Agency, Inc. G
SG Speech Associates, Inc. G
Sierra Nevada Physical Therapy Corporation G
South Jersey Physical Therapy Associates, Inc. G
South Jersey Rehabilitation and Sports Medicine Center, Inc. G
Southpointe Fitness Center, Inc. G
Southwest Emergency Associates, Inc. G
Southwest Medical Supply Company G
Southwest Physical Therapy, Inc. G
Southwest Therapists, Inc. G
Sporthopedics Sports and Physical Therapy Centers, Inc. G
Sports Therapy and Arthritis Rehabilitation, Inc. G
Star Physical Therapy Inc. G
Stephenson-Holtz, Inc. G
The Center for Physical Therapy and Rehabilitation, Inc. G
The Orthopedic Sports and Industrial Rehabilitation Network, Inc. G
</TABLE>
<PAGE> 16
<TABLE>
<CAPTION>
BORROWER ("B")/
ENTITY GUARANTOR ("G")
- -------------------------------------------------------------------------------- --------------------------
<S> <C>
Theodore Dashnaw Physical Therapy, Inc. G
Treister, Inc. G
Union Square Center for Rehabilitation & Sports Medicine, Inc. G
Valley Group Physical Therapists, Inc. G
Vanguard Rehabilitation, Inc. G
Wayzata Physical Therapy Center, Inc. G
West Side Physical Therapy, Inc. G
West Suburban Health Partners, Inc. G
Western Missouri Rehabilitation Services, Inc. G
Worker Rehabilitation Services, Inc. G
Yuma Rehabilitation Center, Inc. G
Advanced Orthopedic Services, Ltd. (RehabClinics Dallas, Inc. is general partner) G
Land Park Physical Therapy (Union Square Center for Rehabilitation & Sports G
Medicine, Inc. is general partner)
</TABLE>
<PAGE> 17
SCHEDULE B
<TABLE>
<CAPTION>
BORROWER ("B")/
ENTITY GUARANTOR ("G")
- -------------------------------------------------------------------------------- --------------------------
<S> <C>
NovaFunds, Inc. B
NC Cash Management, Inc. G
NC Resources, Inc. G
NovaMark, Inc. G
NovaStock, Inc. G
</TABLE>
<PAGE> 1
EXHIBIT 10.B
SUBSCRIBER SERVICE AGREEMENT
This Subscriber Service Agreement (the "Agreement") is made as of 1st
day of July, 1999 (the "Effective Date") by and between NovaCare, Inc., a
Delaware corporation with its principal place of business at 1016 W. Ninth
Avenue, King of Prussia, Pennsylvania 19406 ("Subscriber"), and NovaCare
Employee Services, Inc. ("NovaCare"), a Delaware corporation with its principal
place of business at the Valley Forge Corporate Center, 2621 Van Buren Avenue,
Norristown, Pennsylvania 19403. This Agreement modifies and supersedes all prior
agreements between Subscriber and NovaCare with respect to Worksite Employees
(as that term is defined in Section 1 of this Agreement).
W I T N E S S E T H:
WHEREAS, NovaCare has expertise in employment relations matters,
including payroll, benefits procurement and management, workers' compensation
insurance management (including risk assessment, injury prevention and claims
management), recruiting, human resources management (including consulting and
intervention to resolve employment-related issues) and training and development;
WHEREAS, Subscriber has outsourced certain human resource functions to
NovaCare in order to improve service and reduce costs by taking advantage of the
expertise of a focused human resources business;
WHEREAS, Subscriber and NovaCare wish to supersede their existing
subscriber service agreement and enter into this agreement for the provision of
services to Subscriber's Physical Rehabilitation and Occupational Health
Division (the "PROH Division"); and
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and promises herein contained, and intending legally to be bound, the
parties have agreed as follows:
1. Parties' Intent
Subscriber and NovaCare understand and intend that, under this
Agreement, NovaCare will assume certain rights and duties of a co-employer with
respect to employees located at Subscriber worksites or at worksites at which
Subscriber provides services as part of the PROH Division (an employee of the
PROH Division, as determined by Subscriber, shall hereinafter be referred to as
a "Worksite Employee").
<PAGE> 2
2. Term and Termination.
2.1 Initial Term. The initial term (the "Initial Term") of
this Agreement shall be from July 1, 1999 through June 30, 2003 unless sooner
terminated pursuant to Section 2.3 below.
2.1.2 Renewal Term. This Agreement shall automatically renew
for an additional one-year term (a "Renewal Term") upon the expiration of the
Initial Term and each subsequent Renewal Term, unless written notice of
non-renewal is given by either party at least nine (9) months prior to the
expiration of the Initial or any Renewal Term.
2.1.3 Termination.
2.1.3.1 By NovaCare. NovaCare may terminate this
Agreement upon notice to Subscriber, in the event that:
(a) Subscriber fails to pay any sums due
hereunder, and such failure continues for three (3) business days after written
notice thereof is sent to Subscriber, certified or registered mail, return
receipt requested;
(b) Subscriber fails at any time to procure
or maintain any insurance coverage required by this Agreement;
(c) Subscriber fails to perform or observe
any duty, obligation or covenant contained in this Agreement other than those
set forth in subparagraph (a) or subparagraph (b) above, and such failure
continues for ten (10) days after written notice thereof is sent to Subscriber,
certified or registered mail, return receipt requested;
(d) Subscriber becomes insolvent (that is,
unable to pay its debts as they mature or in accordance with customary business
practice) or commits an act of bankruptcy, or applies for, consents to, or
acquiesces in the appointment of a trustee or a receiver for it or any of its
property, or, in the absence of such application, consent or acquiescence, a
trustee or receiver is appointed for Subscriber or for a substantial part of its
property and is not discharged within thirty days thereof, or if any bankruptcy
or insolvency proceeding, or, except as otherwise contemplated in Section 12.14
herein, any dissolution or liquidation proceeding, is instituted by or against
Subscriber and is consented to or acquiesced in by Subscriber or remains for
thirty (30) days undismissed;
(e) except as otherwise contemplated in
Section 12.14, there occurs the termination, cessation or liquidation of the
Subscriber's business;
2
<PAGE> 3
(f) any representation, warranty or
statement of material fact made or furnished to NovaCare or NovaCare's
representatives by or on behalf of the Subscriber, or any document, instrument
or other paper submitted to NovaCare or NovaCare's representatives by or on
behalf of Subscriber, is false or misleading in any material respect;
(g) NovaCare determines, and obtains an
opinion of counsel to the effect, that all or a substantial portion of its
receipts hereunder are or will become subject to a sales, value added, gross
receipts or similar tax in a particular jurisdiction as to which it exercises
its right to terminate;
(h) changes in federal, state or local law,
regulation or controlling legal interpretation occur that make it legally
impossible or economically impractical for NovaCare to carry out its obligations
hereunder in the jurisdiction(s) as to which it exercises its right to
terminate;
(i) Subscriber fails to comply with any
reasonable directive regarding health and safety from NovaCare, NovaCare's
workers' compensation carrier, or any government agency with jurisdiction over a
health or safety matter; or
(j) Subscriber misrepresents workers'
compensation or Fair Labor Standards Act classification or inaccurately reports
employee payroll hours, pay rate or salary.
2.1.3.2 By Subscriber. Subscriber may terminate this Agreement
upon notice to NovaCare in the event that:
(a) NovaCare fails to pay any sums required
to be paid hereunder by NovaCare as co-employer of the Worksite Employees
(i) to or on behalf of a Worksite
Employee or
(ii) to a governmental agency,
insurance carrier, third party administrator or other third party, and such
failure continues for seven (7) business days after written notice thereof is
sent to NovaCare, certified or registered mail, return receipt requested;
(b) NovaCare fails at any time to procure or
maintain insurance coverage required by this Agreement;
(c) NovaCare fails to meet the following
service performance standards, and such failure continues for a period of sixty
(60) days after written notice thereof is sent to NovaCare, certified or
registered mail, return receipt requested:
3
<PAGE> 4
(i) employee status change transactions (new hires,
wage and salary actions, changes in status from full-time to part-time or on or
off leave and terminations) (hereinafter referred to as "Status Transactions")
received in a form acceptable to NovaCare by the established payroll cut-off
date and time (the "Payroll Cut-off") for a payroll will be processed for that
payroll;
(ii) payroll data received by NovaCare's designated
representative by the Payroll Cut-off will be processed to deliver payroll on
time ninety-eight percent (98%) of the time, except for natural disasters,
errors caused by Subscriber personnel or other circumstances beyond NovaCare's
control, and ninety-eight percent (98%) of paychecks will correctly reflect
information transmitted from the Subscriber;
(iii) new hire and status change benefit forms
("Benefit Forms") will be submitted to the third party administrator responsible
for the applicable benefit plan within one (1) week of receipt by NovaCare's
designated representative. If NovaCare acts as the plan administrator, it will
update its file and provide confirmation;
(iv) seventy-five percent (75%) of incoming calls to
the employee service center 1-800 phone number, during established business
hours, will be answered immediately and incoming calls reaching voice mail will
be returned by the end of the following business day; and for open enrollment
periods, the calls will be returned within three business days.
(v) NovaCare will conduct quarterly feedback sessions
with Subscriber's designees and provide client training regarding how to
properly process payroll inputs. Significant service issues reasonably raised in
writing by Subscriber in such quarterly feedback sessions shall be addressed to
Subscriber's reasonable satisfaction within sixty days after the feedback
session in which such service issues are raised; provided, that, to the extent
that the service issues relate to and/or are caused by Subscriber's policies,
procedures and/or processes, NovaCare's responsibility shall consist of
addressing the suggested actions to cure the service issue and the related cost
and time frame to implement the cure.
(d) NovaCare becomes insolvent (that is, unable to pay its
debts as they mature or in accordance with customary business practice) or
commits an act of bankruptcy, or applies for, consents to, or acquiesces in the
appointment of a trustee or a receiver for it or any of its property, or, in the
absence of such application, consent or acquiescence, a trustee or receiver is
appointed for NovaCare or for a substantial part of its property and is not
discharged within thirty days thereof, or if any bankruptcy or insolvency
proceeding, or any dissolution or liquidation proceeding, is instituted by or
against NovaCare and is consented to or acquiesced in by NovaCare or remains or
thirty (30) days undismissed;
4
<PAGE> 5
(e) there occurs the termination, cessation or liquidation of
NovaCare's business;
(f) NovaCare fails to perform or observe any material duty,
obligation or covenant contained in this Agreement other than those set forth in
subparagraph (a), subparagraph (b) or subparagraph (c) above, and such failure
continues for ten (10) days after written notice thereof is sent to NovaCare,
certified or registered mail, return receipt requested, unless such cure cannot
reasonably be achieved within such timeframe, using commercially reasonable
efforts, in which case the applicable cure period shall be as is reasonable
under the circumstances;
3. Fees.
3.1 Calculation of Fees
For each twelve month period under this Agreement, commencing July 1 of
each year and ending June 30 of each year during the term, the fees shall be
determined in accordance with this Section 3.1.
3.1.1 Payroll Fees. The following Subscriber payments will be
processed by NovaCare and billed to Subscriber:
(a) gross earnings, including salary, wages, bonus, vacation
time, paid time off, sick time, commissions and severance pay (before
deductions, whether before tax or after tax) paid to Worksite Employees;
(b) the employer's portion of FICA and FUTA attributable to
gross earnings in accordance with such regulations;
(c) the employer's portion of contributions to the
NCES/NovaCare, Inc. 401(k) Retirement Savings Plan ("the 401(k) Plan"); and
(d) the net amount of expense reimbursement and any other cash
payment to a Worksite Employee that is included in a paycheck at the request of
Subscriber but is not includable in gross earnings for federal or state tax
purposes.
3.1.2 Benefits/Risk Management Fees. For Benefits/Risk
Management Responsibilities assumed hereunder, which are more specifically
described in Section 4.2 herein, Subscriber shall pay Benefits/Risk Management
Fees to NovaCare equal to the estimated costs of procuring and managing such
responsibilities (the "Section 3.1.2 Estimated Costs"), plus an annual fixed fee
(the "Section 3.1.2 Fixed Fee"), which shall be equal to twenty-five percent
(25%) of such costs. At least 60 days before the beginning of each Subscriber
fiscal year beginning with the fiscal year ending June 30, 2000, Subscriber and
NovaCare shall meet to mutually determine
5
<PAGE> 6
the scope and anticipated costs of the Benefits/Risk Management Responsibilities
for the next succeeding fiscal year and the Section 3.1.2 Estimated Costs for
such fiscal year based on the increase or decrease, as the case may be, in the
scope of such responsibilities as compared with the prior fiscal year. Any costs
in excess of the Section 3.1.2 Estimated Costs for a fiscal year shall be added
to and be deemed part of the Section 3.1.2 Estimated Costs (for purposes of
payment of such costs and for purposes of the calculation of the Section 3.1.2
Fixed Fee) for such period only if such additional costs are approved, in
advance, by Subscriber. NovaCare shall calculate, on a semi-annual basis, the
actual costs incurred by NovaCare in performing the Benefits/Risk Management
Responsibilities for such semi-annual period (the "Actual Section 3.1.2 Costs").
To the extent that the Actual Section 3.1.2 Costs for such semi-annual period
are less than the Section 3.1.2 Estimated Costs for such period, NovaCare shall
pay to Subscriber, as a "Section 3.1.2 Rebate," an amount equal to 50% of such
difference. The Section 3.1.2 Rebate shall be paid, if applicable, within 60
days after each semi-annual period and, in connection therewith, each party
shall have the opportunity to review the work papers relating to the calculation
thereof. The Section 3.1.2 Estimated Costs and the Section 3.1.2 Fixed Fee, as
determined by the parties pursuant hereto, shall be attached to this Agreement
each year as Schedule 3.1.2.
3.1.3 Administrative Fees. For Administrative Responsibilities assumed
hereunder, which are more specifically described in Section 4.3 herein,
Subscriber shall pay Administrative Fees to NovaCare equal to the estimated
costs of handling such responsibilities (the "Section 3.1.3 Estimated Costs"),
plus an annual fixed fee (the "Section 3.1.3 Fixed Fee"), which shall be equal
to thirty percent (30%) of the Section 3.1.3 Net Estimated Costs (as defined
below); provided that the total number of Worksite Employees employed during
each calendar month (derived by adding the number of Worksite Employees who
start employment as new hires during the month and the number of Worksite
Employees terminated during the month, to the number of Worksite Employees
actually employed on the first day of the month) is within the "Worksite
Employee Range." If the number of Worksite Employees falls beneath the Worksite
Employee Range during any given calendar month, the Section 3.1.3 Estimated
Costs for that month shall be reduced by a monthly dollar amount (the "Section
3.1.3 Adjustment Amount") for each incremental change between 1 and 1,000
Worksite Employees. If the number of Worksite Employees exceeds the Worksite
Employee Range during any given calendar month, the Section 3.1.3 Estimated
Costs for that month shall be increased by the Section 3.1.3 Adjustment Amount
for each incremental change between one (1) and one thousand (1,000) Worksite
Employees. (For example, if the number of Worksite Employees in a month falls to
a level that is 950 employees below the Worksite Employee Range, the Section
3.1.3 Estimated Costs for that month would be reduced by the Section 3.1.3
Adjustment Amount; on the other hand, if the number of Worksite Employees in a
month reached a level that is 1,100 employees above the Worksite Employee Range,
the Section 3.1.3 Estimated Costs for that month would be increased by twice the
Section 3.1.3 Adjustment Amount.) The Section 3.1.3 Estimated Costs as adjusted,
upward or downward, based on the
6
<PAGE> 7
foregoing provisions, shall be referred to as the "Section 3.1.3 Net Estimated
Costs." At least 60 days before the beginning of each Subscriber fiscal year
beginning with the fiscal year ending June 30, 2000, Subscriber and NovaCare
shall meet to mutually determine the scope and anticipated costs of the
Administrative Responsibilities for the next succeeding fiscal year, the Section
3.1.3 Estimated Costs for such fiscal year based on the increase or decrease, as
the case may be, in the scope of such responsibilities as compared with the
prior fiscal year, the Worksite Employee Range and the Section 3.1.3 Adjustment
Amount. Any costs in excess of the Section 3.1.3 Estimated Costs for a fiscal
year shall be added to and be deemed part of the Section 3.1.3 Net Estimated
Costs (for purposes of payment of such costs and for purposes of the calculation
of the Section 3.1.3 Fixed Fee) for such period only if such additional costs
are approved, in advance, by Subscriber. NovaCare shall calculate, on a
semi-annual basis, the actual costs incurred by NovaCare in performing the
Administrative Responsibilities for such semi-annual period (the "Actual Section
3.1.3 Costs"). To the extent that the Actual Section 3.1.3 Costs for any
semi-annual period are less than the Section 3.1.3 Net Estimated Costs (as
adjusted based on number of Worksite Employees) for such period, NovaCare shall
pay to Subscriber, as a "Section 3.1.3 Rebate," an amount equal to 50% of such
difference. The Section 3.1.3 Rebate shall be paid, if applicable, within 60
days after each semi-annual period and, in connection therewith, each party
shall have the opportunity to review the work papers relating to the calculation
thereof. The Section 3.1.3 Estimated Costs, the Section 3.1.3 Fixed Fee, the
Worksite Employee Range and the Section 3.1.3 Adjustment Amount as determined by
the parties pursuant hereto, shall be attached to this Agreement each year as
Schedule 3.1.3.
3.1.4 Additional Fees. Subscriber may request NovaCare to
assume additional responsibilities pursuant to Section 4.4 below (hereinafter
referred to as "Additional Responsibilities"). The fee for such Additional
Responsibilities shall be set forth in a schedule to this Agreement (Schedule
3.1.4).
3.1.5 Fees Not Included. Fees set forth above do not include
Subscriber special requests, potential transition set-up activities or potential
wind down costs. Fees for these services, as well as Recruiting and HR
consulting are not included herein, but will be negotiated once the scope of
such services are defined.
3.1.6 Minimum Fee Guarantee. During each of the consecutive
twelve-month periods under this Agreement ending June 30, 2000, June 30, 2001,
June 30, 2002 and June 30, 2003, the parties agree that, if the aggregate of the
Fixed Fees paid to NovaCare pursuant to Sections 3.1.2 through 3.1.4 for any
such period (without regard to any Rebates) is less than the guaranteed fee
applicable to such period, as described on Schedule 3.1.6, Subscriber shall pay
to NovaCare an amount equal to such shortfall (in such case, a "Section 3.1.6
Shortfall Payment"). Any such Section 3.1.6 Shortfall Payment shall be paid, if
applicable, within 60 days after the end of each of the aforementioned fiscal
years. Each party shall have the opportunity to
7
<PAGE> 8
review the work papers relating to the calculation of any such Section 3.1.6
Shortfall Payment.
3.2 Payment of Fees.
3.2.1 Administrative and Benefits/Risk Management Fees. On or
before each payroll date, Subscriber shall fund an account with the amount of
the Administrative Fees and Benefits/Risk Management Fees (the "Payroll
Account") in advance of each payroll payment date. NovaCare shall have the right
to draw against the Payroll Account an amount equal to the Payroll Fees and
Benefits/Management Fees for the applicable payroll payment date. Subscriber
agrees to collect, verify and transmit to NovaCare's administrative office, no
less than seven (7) business days before each NovaCare payroll date, any
information required to determine correctly and accurately the amount of the
payment due NovaCare. If Subscriber defaults in paying the amounts due NovaCare
and NovaCare continues to pay wages for Worksite Employees at a rate not below
the statutory minimum wage, Subscriber shall fully indemnify and hold NovaCare
harmless from any and all claims made by employees for wages in excess of the
amount paid by NovaCare and any and all legal fees and expenses incurred in
defense of such claims. Additionally, Subscriber must immediately inform
NovaCare of any situation in which payment will not be immediately forthcoming
and thereafter, at the request of NovaCare, Subscriber shall terminate the
employment of persons for whom payment by Subscriber to NovaCare will not be
made.
3.2.2 Subscriber is responsible for all sales, franchise and
use taxes applicable to the states in which business is being conducted.
4. NovaCare's Responsibilities.
4.1 Payroll Responsibilities. NovaCare shall be responsible
for and shall perform the following functions ("Payroll Responsibilities") with
respect to Worksite Employees in consideration of the payment of Payroll Fees:
(i) Payment of wages based on hours, wage and salary
rates and other information supplied by Subscriber, including application of
set-offs owed to Subscriber and implementation of garnishment orders;
(ii) Calculation of Paid Time Off (in accordance with
Subscriber's policies);
(iii) Payment of sign-on, relocation and other
bonuses;
(iv) Collection, reporting and payment of applicable
federal, state and local payroll taxes (exclusive of state unemployment
insurance);
8
<PAGE> 9
(v) Payment of the employer's portion of
contributions to the 401(k); and
(vi) Payment of expense reimbursement and any other
non-wage payments to Worksite Employees, as requested by Subscriber.
4.2 Benefits Responsibilities. NovaCare shall be responsible
for and shall perform the following functions with respect to Worksite Employees
in consideration of the payment of Benefits/Risk Management Fees:
(i) Collection of employee contributions, payment of
premiums and administration under the benefit plans;
(ii) Funding of benefit plans that require funding
within the time required by law;
(iii) Reporting and payment of applicable state
unemployment insurance;
(iv) Administration of unemployment compensation
claims; and
(v) Payment of workers' compensation insurance
premiums and administration and management of workers' compensation claims,
including payment of claims not paid by an insurance carrier or other third
party.
4.3 Administrative Responsibilities. NovaCare shall be
responsible for and shall perform the following functions with respect to
Worksite Employees in consideration of the payment of Administrative Fees:
(i) Completion, reporting and maintenance of payroll
and Plan records, with the exception of records of hours worked, which shall be
collected, verified and maintained by Subscriber, provided that Subscriber shall
make available to NovaCare copies of such records of hours worked as NovaCare
may require for the purpose of maintaining the Plans;
(ii) Analysis, transfer and integration of payroll
and benefits for (a) Worksite Employees newly employed as a result of
Subscriber's acquisitions of businesses employing those individuals, and(b)
Worksite Employees whose employment is terminated;
(iii) Operation of an employee service center
providing Worksite Employees with access for the purpose of making changes and
resolving questions relating to Plans and paychecks;
9
<PAGE> 10
(iv) Provision of reports within fifteen (15) days
after the last day of each calendar month showing its performance compared to
the performance standards established in Section 2.1.3.2 c (i) - (v), in form
reasonably satisfactory to Subscriber.
(v) Provision of standardized reports, on a mutually
determined basis, as reasonably requested by Subscriber, including, without
limitation, reports regarding payroll, turnover, employee rosters; and provision
of specialized forms, in form and content reasonably requested by Subscriber,
subject to the capacity of the mutually determined systems to produce requested
formats, prepared and delivered in a reasonably prompt timeframe;
(vi) Record Maintenance - maintain accurate and
complete personnel files for active and terminated employees to the extent such
information is provided by Subscriber, including all information required by
state and federal law and by the policies and procedures of Subscriber,
including, but not limited to, information relating to performance appraisals,
I-9 forms, records of disciplinary action, staff certification and licensure;
ensure compliance with applicable records retention requirements; respond to
Subscriber's requests for copies of such records in a reasonably prompt
timeframe and/or as reasonably requested by Subscriber;
(vii) Database Management - maintain accurate and
complete employee information and history on human resource information system,
based on information provided by Subscriber.
4.4 Additional Responsibilities. NovaCare may assume
additional responsibilities not covered by Sections 4.1-4.3 above. Any such
additional responsibilities shall be provided pursuant to a written addendum to
this Agreement, executed by both parties, setting forth the services to be
provided and the fee for such services.
5. Rights, Duties and Obligations of Subscriber.
5.1 Supervision of Employees. Subscriber will be responsible
for supervision and direction of Worksite Employees in carrying out the work of
Subscriber's business, and shall provide all instrumentalities (including
uniforms, tools, equipment and other supplies) necessary to the performance of
job functions.
5.2 Reports of Hours Worked. Subscriber shall (i) maintain
accurate records of actual time worked, (ii) make accurate reports of time
worked by Worksite Employees to NovaCare in accordance with the requirements of
the Fair Labor Standards Act and any applicable similar state law, (iii) submit
actual time worked in a mutually determined format and (iv) verify the accuracy
of such reports. Subscriber shall maintain the records required to be kept under
this Section 5.2 for seven (7) years.
10
<PAGE> 11
5.3 Employment Decisions. Any common-law employee of
Subscriber shall be deemed a Worksite Employee hereunder. Subscriber shall
determine employment eligibility of all Worksite Employees. If a Worksite
Employee is required to possess or maintain a license, or to be supervised by a
supervisor who is required to possess or maintain a license, Subscriber shall be
responsible for verifying such licensure or providing such required supervision.
In taking any adverse action with respect to the pay, conditions of employment
or employment status of a Worksite Employee (an "Adverse Action"), Subscriber
shall comply with applicable law governing employment. Worksite Employees who
are supervisory employees shall act in that capacity in compliance with
applicable law. Supervisors' actions alleged to be in violation of law are
outside the scope of their responsibility as NovaCare employees and supervisory
employees acting in violation of law shall be deemed to be acting solely as
agents of Subscriber.
5.4 Employee Benefit Plans. Subscriber shall not adopt,
establish, maintain, operate or contribute to any "employee benefit plan" as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended, without the express written consent of NovaCare.
5.5 Financial Controls. Subscriber accepts sole responsibility
for accounting and other financial control policies (and fidelity bonding
requirements) applicable to Worksite Employees or their conduct.
5.6 Compliance With Law. Subscriber accepts sole
responsibility for compliance with the following provisions of law applicable to
Worksite Employees:
(i) the Occupational Safety and Health Act (OSHA) and
related or similar federal, state or local regulations and the employer's common
law duty to supervise the worksite and provide a safe working environment;
(ii) government contracting requirements under a)
Executive Order 11246, b) the Vocational Rehabilitation Act of 1973, c) the
Vietnam Era Veterans' Readjustment Assistance Act of 1974, d) the Walsh-Healy
Public Contracts Act, e) the Davis-Bacon Act, f) the Service Contract Act of
1965, and g) any and all similar, related, or like federal, state, or local
laws, regulations, ordinances, and statutes;
(iii) Worker Adjustment and Retraining Notification
Act ("WARN");
(iv) laws affecting assignment of and ownership of
intellectual property rights including, but not limited to, inventions, whether
patentable or not, and patents resulting therefrom, copyrights and trade
secrets;
11
<PAGE> 12
(v) the Immigration Reform and Control Act of 1986,
except as otherwise provided in Section 6.1(iv); and
(vi) the Fair Labor Standards Act, Title VII of the
Civil Rights Act of 1964, as amended, the Family and Medical Leave Act, the Age
Discrimination in Employment Act, as amended, the Americans With Disabilities
Act (including provisions thereunder relating to Subscriber's premises), the
National Labor Relations Act and any other federal, state, county or local laws,
regulations, ordinances, and statutes which govern the employer/employee
relationship.
5.7 Safety. Subscriber shall report all accidents in which Worksite
Employees are injured immediately (by telephone within one working day of
Subscriber's knowledge of an injury, and in writing by fax within forty-eight
(48) hours) to NovaCare or NovaCare's designee. Subscriber shall cooperate in
any safety inspection or investigation of a worksite injury conducted by or on
behalf of NovaCare. Subscriber shall reasonably cooperate with NovaCare in
returning injured Worksite Employees to work in available modified-duty
positions and in making reasonable accommodations under applicable disability
laws, subject to receipt of an appropriate medical release.
Where required by applicable state law, NovaCare shall retain a right
of direction and control over the management of safety, risk and hazard control
involving Worksite Employees. However, liability for employee safety is a
responsibility of Subscriber, who controls the worksites and their business
operations. Subscriber acknowledges that it is responsible for maintaining a
safe working environment, providing proper training in compliance with federal
or state law or regulation, and establishing and maintaining such safety
programs, safety policies, and safety committees as may be required by law.
NovaCare, NovaCare's workers' compensation and liability insurance carriers or
their assignees have the right to survey the Subscriber's worksites to look for
unsafe conditions or unsafe acts which may lead to accidents. However, the
retention of such right by NovaCare does not relieve Subscriber of any
obligations that it has pursuant to the federal Occupational Safety and Health
Act (OSHA) or any other federal, state or local law intended to provide
employees at Subscriber's worksites with a safe work environment.
5.8 COBRA. NovaCare shall be responsible for administering continued
health care coverage required under the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA Coverage") to each employee and
former employee (and their dependents) of the Subscriber who is eligible for
such COBRA Coverage on the effective date hereof. Subject to Section 7.1 and
Subscriber's reimbursement obligation (as set forth below), upon termination of
this Agreement, NovaCare shall administer COBRA Coverage for each Worksite
Employee, former Worksite Employee, their dependents and any individual entitled
to COBRA Coverage under the preceding sentence (collectively, the "COBRA
Participants") who are eligible for such coverage.
12
<PAGE> 13
5.9. Provision of Information. Subscriber shall provide to
NovaCare such true and accurate information as NovaCare may request as necessary
to comply with requirements of law with respect to Subscriber's ownership and
organizational structure and compensation packages of its senior executives and
structure and operation of benefit plans offered to Worksite Employees by
Subscriber.
5.10. Changes in Policies and Procedures. Subscriber shall
negotiate with NovaCare all changes to policies, processes and procedures
affecting all services provided by NovaCare under this Agreement. NovaCare shall
effect such changes on mutually agreed upon time frames, staffing and costs.
6. Rights, Duties and Obligations of NovaCare.
6.1 Compliance With Law. Provided that Subscriber has given to
NovaCare all information required hereunder, NovaCare accepts sole
responsibility for compliance with the following provisions of law applicable to
Worksite Employees:
(i) all rules and regulations governing the reporting,
collecting and payment of federal and state payroll taxes on wages paid under
this Agreement, including, but not limited to, a) federal income tax withholding
provisions of the Internal Revenue Code, b) state and/or local income tax
withholding provisions, if applicable, c) Federal Insurance Contributions Act
(FICA), d) Federal Unemployment Tax Act (FUTA), and e) applicable state
unemployment tax provisions;
(ii) except as provided below, applicable workers'
compensation laws including, but not limited to, a) procuring workers'
compensation insurance, b) completing and filing all required reports, and c)
administering, managing, and otherwise processing claims and related procedures
provided that Subscriber agrees to reimburse NovaCare for any monies found due,
whether by audit or otherwise as a result of any workers' compensation
classification information provided by Subscriber to NovaCare;
(iii) Internal Revenue Code Section 4980B, subject to the
provisions of Section 5.8;
(iv) Section 1324A(b) of the Immigration Reform and Control
Act of 1986, assuming that Subscriber has provided to NovaCare all necessary and
accurate documentation required by such law;
(v) the Consumer Credit Protection Act, Title III; and
(vi) the Fair Labor Standards Act, 29 U.S.C. Sections 201
et seq., based solely on information provided by Subscriber pursuant to Section
5.2 hereof.
13
<PAGE> 14
7. Effect of Termination.
7.1 COBRA. In the event of termination of this Agreement, the
Subscriber shall immediately provide coverage under a "group health plan" (as
defined in Section 4980B(g)(2) of the Code) to all Worksite Employees, former
Worksite Employees, and their dependents who were eligible for coverage under
any NovaCare group health plan immediately before such event. The Subscriber's
group health plan provided under the preceding sentence shall not contain any
exclusion or limitation with respect to any pre-existing condition applicable to
any Worksite Employee, former Worksite Employee or their dependents.
7.2 Accrued Pay. If this Agreement is terminated and if the
affected employees are entitled to the payment of any accrued bonus, vacation,
sick or personal leave, Subscriber shall be liable for the payment thereof and
will make such payments directly to NovaCare. If, however, Subscriber continues
to employ such affected employee(s) after termination of this Agreement, the
Subscriber shall be liable to the employee(s) for same and NovaCare shall have
no obligation therefor.
7.3 Survival. The indemnification, contribution duty to
cooperate and limitation of liability provisions of this Agreement shall survive
the expiration of this Agreement or other termination of this Agreement
indefinitely.
7.4 Duration of Obligations.
7.4.1 Upon the termination of this Agreement for any reason, the
parties shall continue to have the following obligations through and including
the termination date:
(i) NovaCare shall have the obligation for wages and benefits
payable to the employees through and including the termination date. If NovaCare
makes any payment, authorized by Subscriber or otherwise required by law, to any
of the employees after this Agreement has been terminated, NovaCare shall be
entitled to full reimbursement for such expenditures;
(ii) Except as otherwise provided herein, all obligations of
NovaCare under this Agreement to maintain workers' compensation insurance
coverage and health care coverage on behalf of the Worksite Employees shall
cease, effective as of the termination date. All such employees shall be
immediately informed by Subscriber that they are no longer covered by NovaCare's
workers' compensation policy. Subscriber shall immediately assume all federal,
state and local obligations of an employer to the employees which are not in
conflict with state or federal law, and shall immediately assume full
responsibility for providing workers' compensation coverage. NovaCare shall
immediately be released from such obligations as are permitted by law, except
that NovaCare shall remain responsible for the cost of claims for workers'
compensation incurred prior to the date of termination. It is the intent of the
parties that, to the extent allowed by law, they be placed in their respective
14
<PAGE> 15
positions immediately before their entry into this Agreement in the event of a
termination or Subscriber's failure to pay NovaCare; and
(iii) Subscriber shall have the obligation to pay all fees
payable in accordance with the provisions of this Agreement, which are
attributable to the period ending on the termination date.
7.4.2 Upon any termination of this Agreement by Subscriber
other than (a) pursuant to the provisions of Section 2.3.2 or (b) in accordance
with Section 12.14 herein, in addition to the obligations set forth in Section
7.4.1, Subscriber shall have the obligation to pay to NovaCare such amount as is
necessary so that Subscriber fully complies with the Minimum Fee Guarantee set
forth in Section 3.1.6 herein; provided, that any such payment shall be made in
equal monthly installments over the remaining period ending June 30, 2003.
8. Indemnification.
8.1 Indemnification by Subscriber. Subscriber agrees to
indemnify, hold harmless, protect and defend NovaCare, its subsidiaries and
affiliates and each of their officers, directors, agents, attorneys and
employees from any claims, expenses (including court costs and attorneys' fees),
damages and liabilities (including severance payments to Worksite Employees)
(collectively hereinafter referred to as "Damages"), from claims, actions,
suits, judgments or settlements arising out of negligence, malpractice, tortious
conduct, violation of any statute, law, or regulation, criminal or dishonest
activity by any Worksite Employee, product liability related to products
manufactured or distributed by Subscriber, Subscriber's breach of any of its
obligations or warranties under this Agreement, or any action by Subscriber or
its agents which may result in a violation of any law or regulation, including,
but not limited to, Damages allegedly arising out of an Adverse Action or out of
worksite conditions or actions of any kind. If such indemnification is for any
reason not available or insufficient to hold NovaCare harmless, Subscriber
agrees to contribute to the losses involved in such proportion as is appropriate
to reflect the relative benefits received (or anticipated to be received) by
Subscriber and by NovaCare with respect to the matters contemplated by this
Agreement or, if such allocation is judicially determined to be unavailable, in
such proportion as is appropriate to reflect not only such relative benefits,
but also other equitable considerations such as the relative fault of
Subscriber, on the one hand, and of NovaCare, on the other hand; provided,
however, that Subscriber shall be responsible for all losses which in the
aggregate are in excess of the amount of all Fixed Fees (as adjusted) received
by NovaCare from Subscriber in connection with the services to be provided
hereunder during the term of this Agreement. NovaCare shall give Subscriber
prompt written notice of any claim for which indemnification will be sought
hereunder, shall cooperate in the investigation and defense of any such claim
and shall not settle or compromise any such claim without the approval of
Subscriber unless Subscriber fails to provide evidence of ability to pay a
judgment in excess of the proposed settlement amount.
15
<PAGE> 16
8.2 Indemnification by NovaCare. NovaCare assumes
responsibility for the payment of wages to the Worksite Employees without regard
to payments by Subscriber to NovaCare, although in doing so NovaCare does not
waive or limit any claim against Subscriber. NovaCare agrees to indemnify, hold
harmless, protect and defend Subscriber, its subsidiaries and affiliates and
each of their officers, directors, agents, attorneys and employees from and
against any claims, expenses (including attorneys' fees and court costs),
damages and liabilities from claims, actions, suits, judgments or settlements
arising out of NovaCare's breach of its obligations or warranties under this
Agreement or any action by NovaCare or its agents or employees (other than
Worksite Employees) which may result in a violation of any law or regulation,
except violations resulting from conduct of Worksite Employees or worksite
conditions. Subscriber shall give NovaCare prompt written notice of any claim
for which indemnification will be sought hereunder, and shall cooperate in the
investigation and defense of any such claim and shall not settle or compromise
any such claim without the approval of NovaCare. Where Subscriber has followed
or complied with a request or recommendation of NovaCare or otherwise properly
relied on information supplied by NovaCare, it shall be relieved of
responsibility for back pay and damages for such actions (unless Subscriber has
failed to comply with its obligations hereunder to provide accurate information
to NovaCare) and NovaCare shall indemnify and hold Subscriber harmless from and
against any and all liabilities arising therefrom.
8.3 Subrogation. Each party hereby waives any claim in its
favor against the other party by way of subrogation or indemnification which may
arise during the term of this Agreement for any and all loss of or damage to any
of its property, or for bodily injury or death, which loss, damage, or bodily
injury or death is covered by insurance to the extent that such loss or damage
is recovered under such policies of insurance as required herein. The
subrogation and indemnification concept set forth in this provision is intended
to apply only to insurance matters, and nothing in this provision is intended to
alter the indemnification rights set forth elsewhere in this Agreement. Each
party shall assure that its insurance policies contain provisions authorizing
waiver of subrogation consistent with this Section 7.3.
9. Representations and Warranties.
9.1 Fair Labor Standards Act. Subscriber agrees not to
withhold a payment to NovaCare absent NovaCare's express permission, or in any
manner, or by any device, act in violation of, cause, or seek to cause a
violation of any applicable federal, state or local law, ordinance, or
regulation pertaining to the terms, conditions, and services of this Agreement.
Subscriber further warrants that it shall not make any taxable payment of any
kind, except profit-sharing or pension plan distributions pursuant to the terms
of a qualified plan, to any employee covered by this Agreement, and that any
such payment shall be a breach of this Agreement, and at the election of
NovaCare, grounds for immediate termination of this Agreement.
16
<PAGE> 17
9.2 Employment Matters. Subscriber warrants that there are no
collective bargaining agreements binding upon Subscriber or affecting Worksite
Employees, and that there are no pending governmental investigations or any
lawsuit material in nature related to Worksite Employees, the working conditions
of the Worksite Employees, the products or services produced or provided by
Worksite Employees or any other matters affecting the performance of NovaCare
under this Agreement except as otherwise disclosed to NovaCare. Subscriber
warrants that all hazardous materials, if any, on its premises are maintained,
stored and disposed of in accordance with applicable law. Subscriber agrees to
provide any and all protective safety equipment required for safe performance of
job duties or required under local, state or federal law.
9.3 Primary Obligor for Worksite Employee Compensation.
Notwithstanding anything else in this Agreement to the contrary, the parties
agree that Subscriber, and not NovaCare, shall have the primary responsibility
for any and all compensation due to Worksite Employees.
9.4 APB Opinion No. 25. The parties agree, and each represent
and warrant to the other, that only Subscriber may use the rules of APB Opinion
No. 25 to account for the equity compensation paid to a Worksite Employee.
9.5 Confidentiality. NovaCare and Subscriber each acknowledge
and agree that it may obtain knowledge of "confidential information" as
hereinafter defined concerning the other party. As used herein, "confidential
information" means any information, (including, without limitation, manuals,
trade secrets, protocol, methods, formula, pattern, device, plans, process,
drawings, designs, specifications, schematics, prototypes and other compilation
of information or technical know-how) which is, or is designed to be, used in
the business of such party, and is private or confidential and is not generally
known or available to the public. Subscriber and NovaCare each agree that it
will not, either during the term of this Agreement or thereafter until the
expiration of a period of ten (10) years following the termination of this
Agreement, use or disclose any such confidential information except as otherwise
specifically contemplated in this Agreement.
10. Workers' Compensation. NovaCare shall provide workers' compensation
insurance for Worksite Employees in compliance with applicable law. Workers
performing services for Subscriber not covered by this Agreement and not on
NovaCare's payroll shall not be covered by NovaCare's workers' compensation
insurance. NovaCare will not provide workers' compensation coverage to any
employee for whom Subscriber is not reporting hours of payroll. Subscriber
further agrees to require any independent contractor it utilizes to provide
evidence of workers' compensation coverage before the independent contractor
commences work at the worksite. Subscriber acknowledges that NovaCare's workers'
compensation carrier or NovaCare is entitled to periodically audit the employee
classification lists for each Subscriber location to make sure that employees
are classified properly for workers'
17
<PAGE> 18
compensation purposes. In the event that during such an audit, or at any other
time, NovaCare finds that Worksite Employees have been misclassified and such
misclassification resulted from information supplied to NovaCare by Subscriber,
Subscriber will promptly reimburse NovaCare, upon invoice, for charges which
otherwise would have been payable by Subscriber had such employee been properly
classified. NovaCare retains the responsibility for the management of workers'
compensation claims, claim filings and related procedures. Subscriber agrees to
cooperate with NovaCare in that regard, including in regard to the notification
of injuries required by this Agreement or by law.
11. Insurance. During the Initial Term of this Agreement and any
Renewal Term, Subscriber shall obtain and maintain the following types of
insurance:
11.1 Automobile. Subscriber shall obtain and maintain
automobile insurance for all owned, non-owned, and hired vehicles used in
connection with the work performed on its premises or in connection with its
business, and will cause its insurance carrier to issue a Certificate of
Insurance evidencing same to NovaCare, naming NovaCare as an additional named
insured and allowing not less than thirty (30) days' notice of cancellation or
material change. The policy shall insure against liability for bodily injury and
property damage, with a minimum combined single limit of Five Hundred Thousand
Dollars ($500,000) and Uninsured Motorist or PIP equivalent coverage of at least
the minimum limits required by the State where a "no fault" law shall apply.
11.2 General Liability. Subscriber shall obtain and maintain
general liability insurance, and cause its insurance carrier to issue a
Certificate of Insurance evidencing same to NovaCare, naming NovaCare as an
additional named insured and allowing not less than thirty (30) days' notice of
cancellation or material change. The minimum requirement shall be One Million
Dollars ($1,000,000) combined single limit, Three Million Dollars ($3,000,000)
aggregate limit, including, but not limited to, where applicable, premises,
operations, products, completed operations, contract and broad form property
damage, independent contractors, personal injury, host liquor, and full liquor
liability. If Subscriber renders professional services, it shall obtain and
maintain throughout the term, and any succeeding terms of this Agreement,
professional liability coverage as applicable, and will cause its insurance
carrier to issue a Certificate of Insurance evidencing same to NovaCare allowing
not less than thirty (30) days' notice of cancellation or material change.
Unless otherwise agreed to, such policy shall have a combined single limit of
not less than One Million Dollars ($1,000,000), Three Million Dollars
($3,000,000) aggregate limit.
Subscriber agrees that NovaCare shall not provide any general
liability insurance coverage for products liability, completed operations or
professional liability for any Worksite Employee or the Subscriber. Subscriber
shall further agree that NovaCare shall have no obligation to provide any form
of automobile insurance coverage on behalf of any Worksite Employee or for
Subscriber.
18
<PAGE> 19
12. Miscellaneous.
12.1 Third Party Rights. This Agreement is intended solely for
the mutual benefit of the parties hereto and does not create any rights of any
kind in a third party. Each party hereto reserves the right and from time to
time to assign its rights, duties and obligations hereunder to any affiliate,
provided that the assigning party shall guarantee the performance and liability
of any such affiliate. Any such assignment may be limited to a portion of such
party's obligations arising in one or more jurisdictions.
12.2 Limitation of Liability. NovaCare's liability for actual
damages from any cause whatsoever, shall be limited to the fees (other than
Payroll Fees) paid by Subscriber with respect to the preceding calendar year
under this Agreement (or, if this Agreement shall have been in effect for less
than twelve months, the foregoing limitation shall be based on the fees paid by
Subscriber to NovaCare relating to the previous twelve-month period pursuant to
the predecessor agreement between the parties, as applicable to the employees of
the PROH Division). This limitation will apply, regardless of the form of
action, whether in contract or tort, including negligence. This limitation will
not apply to claims by either party for bodily injury or damage to real property
or tangible personal property for which the other party may be legally liable.
In no event will NovaCare be liable for any lost profits, lost savings,
incidental damages or consequential damages, even if NovaCare has been advised
of the possibility of such damages.
12.3 Integration. This Agreement constitutes the entire
agreement between the parties with regard to the subject matter hereof and
supersedes any and all agreements (including the Initial Agreement), whether
oral or written, between the parties with respect to its subject matter.
12.4 Waiver. Failure by either party at any time to require
performance by the other party or to claim a breach of any provision of this
Agreement will not be construed as a waiver of any subsequent breach nor affect
the effectiveness of this Agreement, nor any part thereof, nor prejudice either
party as regards to any subsequent action.
12.5 Governing Law. This Agreement shall be subject to the
laws of the Commonwealth of Pennsylvania.
12.6 Dispute Resolution.
12.6.1 Arbitration. The parties shall attempt
amicably to resolve disagreements by negotiating with each other. In the event
that the matter is not amicably settled through negotiation, any controversy,
dispute or disagreement arising out of or relating to this Agreement (a
"Controversy") shall be resolved exclusively by binding arbitration, which shall
be conducted by a single arbitrator in the Philadelphia,
19
<PAGE> 20
PA area, in accordance with the J-A-M-S/ENDISPUTE Streamlined (in the case of
a dispute within the scope of the Streamlined Rules and Procedures) or
Comprehensive Arbitration Rules and Procedures (the "Rules"). The parties agree
that notwithstanding anything to the contrary contained in the Rules, the
arbitrator shall not award consequential, exemplary, incidental, punitive or
special damages.
12.6.2 Procedure. It is agreed that if any party
shall desire relief of any nature whatsoever from any other party as a result of
any Controversy, such party will initiate such arbitration proceedings within a
reasonable time, but in no event more than twelve (12) months after the facts
underlying said Controversy first arise or become known to the party seeking
relief (whichever is later). The failure of such party to institute such
proceedings within said period shall be deemed a full waiver of any claim for
such relief. The parties shall bear equally all costs of said arbitration (other
than their own attorney's fees and costs). The parties agree that the decision
and award of the Arbitrator shall be final and conclusive upon the parties, in
lieu of all other legal, equitable (except as provided in 12.5.3. below) or
judicial proceedings between them, and that no appeal or judicial review of the
award or decision of the Arbitrator shall be taken, but that such award or
decision may be entered as a judgment and enforced in any court having
jurisdiction over the party against whom enforcement is sought.
12.6.3. Equitable Relief. The parties recognize that
irreparable injury may result from a breach of this Agreement and that money
damages may be inadequate to fully remedy the injury. Therefore, either party
may, in any such instance, seek and obtain from a court of competent
jurisdiction one or more preliminary or permanent orders designed to maintain
the status quo ante pending arbitration by (i) restraining and enjoining any act
that would constitute a breach or (ii) compelling the performance of any
obligation that, if not performed, would constitute a breach. Any relief awarded
under this paragraph shall be dissolved upon issuance of the Arbitrator's
decision and order.
12.7 Subscriber Intellectual Property Rights. Subscriber shall
own any and all intellectual property rights incident to any and all process,
products, inventions and discoveries that are created or invented by a Worksite
Employee and who was directed by Subscriber to create or develop such process,
product, discovery or invention. Subscriber shall bear any and all costs
associated with any copyrights, trademarks or patents that Subscriber chooses to
obtain to protect Subscriber's intellectual property rights.
12.8 Duty to Cooperate. In the event that an employee or a
government agency or entity files any type of claim, lawsuit or charge against
NovaCare, Subscriber or both, alleging a violation of any law or failure to do
something which was otherwise required by law, Subscriber and NovaCare mutually
agree to cooperate with each other in the defense of any such claim, lawsuit or
charge. NovaCare and Subscriber will make available to each other upon request
any and all
20
<PAGE> 21
documents that either party has in its possession which relate to any such
claim, lawsuit or charge. However, neither party shall have the duty to
cooperate with the other if the dispute is between the parties themselves, nor
shall this provision preclude the raising of cross claims or third party claims
between Subscriber and NovaCare.
12.9 Severability. Should any term, warranty, covenant,
condition, or provision of this Agreement be held to be invalid or
unenforceable, the balance of this Agreement shall remain in force and shall
stand as if the unenforceable part did not exist. The captions in this Agreement
are provided for convenience only and are not part of the terms and conditions
of this Agreement.
12.10 Modification and Implementation. Any modifications to
this Agreement must be in writing and executed by NovaCare and Subscriber to be
enforceable.
12.11 No Partnership. Nothing set forth herein shall be deemed
to create a partnership or joint venture between Subscriber and NovaCare and no
fiduciary duty shall arise from the relationship created herein.
12.12 Notification of Termination to Employees. NovaCare will
notify all Worksite Employees covered by this Agreement of that status after
Subscriber provides the names of such persons to NovaCare. NovaCare will also
provide each Worksite Employee with any required notice pursuant to applicable
state law or such person's status under this Agreement and shall obtain from
such person any required acknowledgment of such status. If for any reason this
Agreement is terminated, NovaCare will notify all Worksite Employees of whom it
is aware of the termination of this Agreement and Subscriber shall also notify
all Worksite Employees of the termination of this Agreement and shall inform
them that they are no longer covered by NovaCare's benefits or workers'
compensation policy.
12.13 Real Property Leases. As soon as reasonably practicable
after the date hereof, Subscriber and NovaCare shall use their best efforts to
cause all "Subscriber Leases" (as defined herein) to be assigned or replaced, as
applicable, so that NovaCare retains the obligations under such leases, directly
with the landlord, and that Subscriber is released therefrom. For purposes
hereof, a "Subscriber Lease" shall mean any and all real estate leases covering
premises used by NovaCare in the operation of its business, for which Subscriber
has a leasehold interest, whether as landlord, tenant, sublessor or
sub-sublessor.
12.14 Assignment. Subscriber shall have the right to assign
its rights and obligations under this Agreement to any successor to all or
substantially all of Subscriber's assets or business. In addition, in the event
that Subscriber conducts a corporate transaction (including, for example, a
sale, merger, liquidation into successor entities, spin-off, split-off,
carve-out or otherwise) in which the PROH Division (or a substantial portion
thereof) is transferred to or into a third party entity, Subscriber shall
21
<PAGE> 22
have the right to substitute for this Agreement substantially similar agreements
with such third party(s) such that the aggregate of such contracts with NovaCare
and with such third party(s) provide for an annual Minimum Fee Guarantee similar
to that set forth in Section 3.1.6 for each of the twelve month periods ending
June 30, 2000, June 30, 2001, June 30, 2002, and June 30, 2003, as set forth in
Schedule 3.1.6. NovaCare may assign its rights and obligations under this
Agreement to any successor to substantially all of its business.
12.15 Intention of the Parties. The intention of the parties
with respect to allocation between them of rights, duties and obligations is as
set forth in this Agreement. To the extent that the law of any state requires a
different form of agreement to effect the intention of the parties, the parties
agree to negotiate in good faith and to execute separate agreements applicable
to such state.
12.16 Counterparts. This Agreement may be signed in one or
more counterparts, each of which when executed shall be deemed an original and
together shall constitute one and the same instrument
<TABLE>
NOVACARE, INC., NOVACARE EMPLOYEE
A Delaware corporation SERVICES, INC.
<S> <C>
/s/ Robert E. Healy, Jr. May 25, 1999 /s/ Loren J. Hulber May 25, 1999
- -------------------------------------- ----------------------------------------
Signature Date Signature Date
Robert E. Healy, Jr. Loren J. Hulber
- -------------------------------------- ----------------------------------------
Printed or Typed Name Printed or Typed Name
Sr. V.P., Finance and Administration President and Chief Executive Officer
- -------------------------------------- ----------------------------------------
Title Title
</TABLE>
22
<PAGE> 23
Schedule 3.1.2
Benefits/Risk Management Fees
FOR THE FISCAL YEAR ENDING JUNE 30, 2000:
- -----------------------------------------
Section 3.1.2 Estimated Costs: $10,750,000
Section 3.1.2 Fixed Fee: $2,690,000
23
<PAGE> 24
Schedule 3.1.3
Administrative Fees
FOR THE FISCAL YEAR ENDING JUNE 30, 2000:
- -----------------------------------------
Section 3.1.3 Estimated Costs: $1,760,000
Section 3.1.3 Fixed Fee: $540,000
Worksite Employee Range: 4,500 to 5,500
Section 3.1.3 Adjustment Amount: $20,000 per month
24
<PAGE> 25
Schedule 3.1.4
Additional Responsibilities Fee
FOR THE FISCAL YEAR ENDING JUNE 30, 2000:
- -----------------------------------------
None
25
<PAGE> 26
Schedule 3.1.6
Minimum Fee Guarantee
Fiscal year ending June 30, 2000: $3,200,000
Fiscal year ending June 30, 2001: $3,400,000
Fiscal year ending June 30, 2002: $3,500,000
Fiscal year ending June 30, 2003: $3,700,000
26
<PAGE> 1
EXHIBIT 99.A
NEWS RELEASE
FOR IMMEDIATE RELEASE Contact: Susan J. Campbell
(AS OF OCTOBER 19, 1999) 610-992-7425
NOVACARE ANNOUNCES COMPLETION OF SALE
OF ITS INTEREST IN
NOVACARE EMPLOYEE SERVICES, INC.
KING OF PRUSSIA, Pa., -- NovaCare, Inc. (NYSE: NOV) announced today
that it has completed the previously announced sale of its approximately 64
percent interest in the outstanding stock of NovaCare Employee Services, Inc.
(Nasdaq: NCES) to an investment group comprising Patricof & Co. Ventures, Inc.,
Fidelity Ventures Limited and AFLAC Incorporated at the price of $2.50 per
share.
Wasserstein, Perella & Company, Inc. and Warburg Dillon Read acted as
NovaCare's advisors on the transaction.
# # #
