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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
NOVACARE, INC.
(Name of Registrant as Specified In Its Charter)
________________________________________________________________________________
Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
________________________________________________________________________________
1) Title of each class of securities to which transaction
applies:
________________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
________________________________________________________________________________
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
________________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
________________________________________________________________________________
5) Total fee paid:
________________________________________________________________________________
[X] Fee paid previously with preliminary materials.
________________________________________________________________________________
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
________________________________________________________________________________
1) Amount Previously Paid:
________________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
________________________________________________________________________________
3) Filing party:
________________________________________________________________________________
4) Date Filed:
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[NOVACARE LOGO]
1016 WEST NINTH AVENUE
KING OF PRUSSIA, PENNSYLVANIA 19406
September 3, 1999
Dear Stockholder:
We previously sent you a Proxy Statement dated August 13, 1999 (the "Proxy
Statement") relating to a Special Meeting of Stockholders of NovaCare, Inc. (the
"Company") to be held at the Sheraton Valley Forge Hotel, 1160 First Avenue,
King of Prussia, Pennsylvania 19406, on September 21, 1999, at 10:00 a.m., local
time.
We are enclosing, for your information, supplemental materials, in question
and answer format, which further explain the three Proposals described in the
Proxy Statement. Please review the attached materials in connection with your
review of the Company's Proxy Statement in view of the importance of the matters
to be acted upon at the Special Meeting.
Your vote is important. To vote in favor of the Proposals you must actually
cast a "FOR" vote. IF YOU ABSTAIN OR DO NOT RETURN YOUR PROXY CARD, IT WILL, IN
EFFECT, COUNT AS A VOTE AGAINST THE PROPOSALS. Keep in mind that you can change
your vote at any time up to the Special Meeting on September 21, 1999.
We have enclosed a proxy card in the event that you have lost your card or
wish to change your vote.
Please join us in voting now on these important issues.
Very truly yours,
/s/ John H. Foster
John H. Foster
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PROXY STATEMENT QUESTIONS AND ANSWERS
SEPTEMBER 3, 1999
This supplement provides answers to some commonly asked questions regarding the
Proxy Statement that was mailed to you on August 13, 1999.
Q: WHAT AM I BEING ASKED TO VOTE ON?
A: You are being asked to consider and vote upon three proposals:
(1) The sale of the Company's outpatient physical therapy and occupational
health rehabilitation services (PROH) business, (2) the sale of the
Company's interest in NovaCare Employee Services (NCES) and (3) the adoption
of a Plan of Restructuring that could result in a liquidation of NovaCare's
remaining assets.
Q: WHAT IS THE BOARD'S RECOMMENDATION?
A: The Board of Directors unanimously recommends a FOR vote on each of the
proposals. The Board believes that the three proposals are integral parts of
an overall plan for maximizing stockholder value in the Company. The Board
of Directors and management believe that by voting FOR each of the
proposals, the Company's stockholders will receive greater value than would
be available to them through their continued ownership of the Common Stock
if all of the proposals were not approved and implemented.
Q: WHAT DO I NEED TO DO NOW?
A: As a NovaCare stockholder as of July 30, 1999, you are being asked to vote
FOR the three proposals. We urge you to read the Proxy Statement that was
mailed to you in mid-August. IF YOU HAVE ALREADY VOTED AND DO NOT WISH TO
CHANGE YOUR VOTE, NO ACTION IS NEEDED. If you have not voted, VOTE YOUR
SHARES by following the instructions on the enclosed proxy card. Note that
to vote in favor of the proposals you must cast a FOR vote. IF YOU ABSTAIN
OR DO NOT RETURN YOUR PROXY CARD, IT WILL COUNT AS A VOTE AGAINST THE
PROPOSALS.
Q: IF I HAVE SOLD MY SHARES SINCE JULY 30, WHY IS IT IMPORTANT TO VOTE?
A: If you received these materials, you are entitled to vote on these important
matters. We need the full participation of our stockholder base as of July
30th, irrespective of the current ownership of NovaCare stock. The
affirmative vote of a majority of the outstanding shares is required to
approve the Board's recommendations to maximize stockholder value in the
Company.
Q: WHAT IS THE RATIONALE BEHIND THE BOARD'S RECOMMENDATIONS?
The decision to sell PROH, the Company's interest in NCES and to adopt a
Restructuring Plan was the result of careful consideration of the options
available to us at this time. The malaise in the long-term care services
industry following implementation of the Balanced Budget Act of 1997 totally
eliminated NovaCare's cash flow from the long-term care services
busines -- our then largest business -- and seriously weakened our capital
structure. Nevertheless, we remain committed to repaying the $175 million of
subordinated convertible debentures maturing in January 2000, while
maximizing stockholder value. After exiting the long-term care services
business in June, selling our orthotics and prosthetics business in July for
an attractive price, substantially improving the cash flow from our PROH
business, and entirely paying down our bank debt, NovaCare remains highly
leveraged due primarily to the outstanding subordinated debentures. While we
believe that cash flow from remaining operations is sufficient to refinance
the maturing debentures, the business would be too highly leveraged to
pursue a growth strategy. With little prospect for growth, the Board
believes that NovaCare's stock value would have minimal upside potential
within a reasonable time frame. Moreover, the cost of such financing would
be very expensive and/or dilutive to existing stockholders, and there is no
assurance that such financing could be obtained.
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The only remaining asset of the Company which would provide sufficient funds
to satisfy the Company's outstanding debt is the PROH business. Once PROH is
sold, the only remaining operating business of the Company would be its 67%
interest in NCES. The Board and management determined that the Company
should also sell NCES because favorable market conditions exist today for
the sale of companies in NCES' industry and, with the downsizing of NovaCare
and the dismantling of its infrastructure, NCES no longer benefits from its
affiliation with NovaCare and would be better positioned as a stand-alone
company.
Q: WHAT WILL STOCKHOLDERS RECEIVE AS A RESULT OF THE RESTRUCTURING?
A: If stockholders approve the sale of PROH and NCES and adopt the
Restructuring Plan, the Company will consider reinvesting the proceeds from
the sales of the businesses in a new business or businesses. (Stockholders
would need to approve any such investment through a subsequent proxy
solicitation.) If the Company does not reinvest in a new business, the Board
of Directors is authorized to liquidate the Company. Liquidation means that
stockholders would be entitled to their share of the Company's distributable
cash assets, estimated on pages 30-32 in the Proxy Statement to be
approximately $111 million to $264 million in liquidation value.
Stockholders would receive cash for their shares, which the Company
estimates in the Proxy Statement to be between $1.76 and $3.94 per share.
Q: WHEN WILL STOCKHOLDERS RECEIVE PAYMENT?
A: According to the Restructuring Plan, if the Company does not reinvest in a
new business with proceeds from the sales of PROH and NCES, the liquidation
is expected to be on or after December 31, 2000, unless the Board chooses to
liquidate at an earlier date.
Q: WHY IS THE RESTRUCTURING PLAN STRUCTURED IN A WAY THAT COULD DELAY PAYMENT
TO STOCKHOLDERS UNTIL ON OR AFTER DECEMBER 31, 2000?
A: The Board believes it is in the stockholders best interest for the Board to
have the flexibility to further consider using the net proceeds of the PROH
and NCES sales (after paying off the subordinated debentures) to invest in a
new business or businesses, if the Board believes that such an investment
would return to stockholders a better value than the alternative of
liquidating the Company.
The Company anticipates that it will have substantial net operating loss
("NOL") carryforwards available to offset future income of the Company
following the sales of PROH and NCES. Use of the NOLs could substantially
enhance the economic return on an investment and create additional value for
stockholders. The Company estimates its NOLs will be in the range of $.41 to
$.55 per share ($75 to $100 million in NOLs at the Federal tax rate of 35%
divided by shares outstanding). The potential value of the NOLs is not
reflected in the liquidation estimates of $1.76 to $3.94 per share.
If the Company identifies such an investment opportunity before December 31,
2000, it will present the idea to stockholders for their approval. If no
appropriate investment is identified or/if stockholders do not approve the
proposed investment, the Board will liquidate the Company. Note that, under
the Restructuring Plan, the Board could determine that no suitable
investment was available and liquidate sooner than December 31, 2000.
Q: WHAT IS THE SOONEST DATE THAT STOCKHOLDERS COULD RECEIVE A LIQUIDATION
PAYMENT IN THE EVENT THAT THE BOARD DECIDES NOT TO PURSUE INVESTMENT IN
OTHER BUSINESSES?
A: The earliest date for a payment would probably be June 2000, because it will
take time for the realization of assets to occur. As outlined on page 31 of
the Proxy Statement, the liquidation value comprises many different assets
and liabilities. For example, accounts receivable must be collected, tax
refunds must be received and operating expenses must be paid. The Company
believes that by June 30, 2000, sufficient cash would be on hand to make an
initial payment, although we cannot estimate at this time what that payment
would be.
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Q: WHAT ARE THE ALTERNATIVES TO SELLING PROH AND NCES?
A: The Company could seek to refinance the subordinated debentures through a
combination of private equity and/or public or private debt, which would be
both very expensive and/or dilutive to existing stockholders. As stated
previously, the Board believes that this alternative is substantially less
attractive than a sale of the two businesses. Moreover, there is no
assurance that such financing could be obtained. In the event that NCES was
not sold, NovaCare's interest in NCES would be distributed to NovaCare
stockholders. However, the Board believes this would create a substantial
"overhang" in the stock market, which would diminish the stock price of NCES
and the value to NovaCare stockholders.
Q: WHAT WILL HAPPEN IF STOCKHOLDERS APPROVE PROPOSALS 1 AND 2, BUT VOTE AGAINST
PROPOSAL 3?
A: Under its fiduciary responsibility, the Board would reconsider its
alternatives, which would include identifying and presenting a new
investment opportunity to stockholders or recommending liquidating the
Company. Given the intervening passage of time and the time required to
liquidate assets, the Board does not believe the liquidation date could be
materially accelerated. The Board urges stockholders to approve Proposal 3,
which enables the Company to pursue the realization of value from the NOLs
before liquidating the Company.
Q: WHY NOT SELL NOVACARE, INC. INSTEAD OF ITS INDIVIDUAL BUSINESSES?
A: The Company believes that a sale of the PROH business as a separate entity
optimizes the net proceeds to the Company (and the stockholders) because the
anticipated pre-tax loss on the PROH sale (estimated to be $183 million to
$282 million) would fully offset the taxes due on the gain from the sale of
the orthotics and prosthetics (O&P) business and NCES. This tax advantage
would not be available to the Company and its stockholders if NovaCare, Inc.
is sold. In addition, the Board believes that the sales price for NovaCare,
Inc. would be discounted for the perceived risks to the buyers related to
contingent liabilities associated with the recent exit from the long-term
care services business and the sale of the O&P business.
NOVACARE'S BOARD OF DIRECTORS AND MANAGEMENT URGE YOU TO VOTE FOR ALL THREE
PROPOSALS.
REMEMBER: YOUR VOTE IS IMPORTANT. IF YOU DO NOT RETURN YOUR PROXY CARD, OR
ABSTAIN, IT HAS THE SAME EFFECT AS VOTING AGAINST THE PROPOSALS.
Please note that this supplemental information contains certain
"forward-looking" statements which, by their nature, are inherently uncertain.
As a result, actual events could cause actual results to materially differ from
management's expectations. Please refer to "Forward-Looking Statements -- Safe
Harbor" on page 4 of the Proxy Statement for a discussion of risk factors such
as the possible inability of the Company to find buyers for PROH or NCES.
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[NOVACARE LOGO]
King of Prussia, Pennsylvania
September 3, 1999
To the Participants in the NovaCare
1986 Stock Option Plan, the NovaCare 1998 Stock Option Plan and Related Plans:
In connection with the Special Meeting of Stockholders of NovaCare, Inc.
(the "Company") to be held on September 21, 1999, the Company previously sent to
you a copy of the Proxy Statement, dated August 13, 1999. Attached hereto are
supplemental materials, in question and answer format, mailed today to
shareholders of record as of July 30, 1999.
Although holders of options to purchase NovaCare common stock under the
NovaCare 1986 Stock Option Plan, the NovaCare 1998 Stock Option Plan and related
plans are not entitled to vote at the Special Meeting with respect to such
options, pursuant to the rules of the Securities and Exchange Commission,
NovaCare is required to deliver to such holders the enclosed materials, which
are provided herewith for your review and information.
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[NOVACARE LOGO]
King of Prussia, Pennsylvania
September 3, 1999
To the Participants in the NovaCare, Inc.
401(k) Retirement Savings Plan:
In connection with the Special Meeting of Stockholders of NovaCare, Inc.
(the "Company") to be held on September 21, 1999, the Company previously sent to
you a copy of the Proxy Statement, dated August 13, 1999. Attached hereto are
supplemental materials, in question and answer format, being mailed today to
shareholders of record as of July 30, 1999, along with an instruction card.
If you have already completed an instruction card with respect to the
Special Meeting, but wish to change your vote, please execute and return the
accompanying instruction card in the enclosed envelope. Delivery of the enclosed
instruction card will have the effect of revoking any instruction card bearing
an earlier date. If you previously returned your signed instruction card and do
not wish to change your vote, you need not take any further action. If you have
not yet submitted your signed instruction card, please vote, date, sign and
return either the enclosed instruction card or the instruction card previously
delivered to you with the Proxy Statement. It is important that your shares be
represented and voted at the Special Meeting.
