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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
NOVACARE EMPLOYEE SERVICES, INC.
(NAME OF SUBJECT COMPANY)
NOVACARE EMPLOYEE SERVICES, INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
66986 Q 10
(CUSIP NUMBER OF CLASS OF SECURITIES)
LOREN J. HULBER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NOVACARE EMPLOYEE SERVICES, INC.
VALLEY FORGE CORPORATE CENTER
2621 VAN BUREN AVENUE
NORRISTOWN, PENNSYLVANIA 19403
TELEPHONE: (610) 650-4700
FACSIMILE: (610) 650-4705
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS ON
BEHALF OF THE PERSON(S) FILING STATEMENT)
COPY TO:
ANDREW J. BECK, ESQ.
HAYTHE & CURLEY
237 PARK AVENUE
NEW YORK, NEW YORK 10017
TELEPHONE: (212) 880-6000
FACSIMILE: (212) 682-0200
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is NovaCare Employee Services, Inc., a
Delaware corporation (the "Company"), and the address of the principal executive
offices of the Company is Valley Forge Corporate Center, 2621 Van Buren Avenue,
Norristown, Pennsylvania 19403. The title of the class of equity securities to
which this statement relates is the common stock, par value $.01 per share, of
the Company (the "Company Common Stock" or the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER
This statement relates to a tender offer by New Plato Acquisition, Inc., a
Delaware corporation ("Purchaser") and a wholly owned subsidiary of Plato
Holdings, Inc., a Delaware corporation ("Parent"), disclosed in a Tender Offer
Statement on Schedule 14D-1 (the "Schedule 14D-1") dated September 15, 1999, to
purchase all outstanding Shares at $2.50 per Share, net to the seller in cash
(the "Offer Price"), upon the terms and subject to the conditions set forth in
the Offer to Purchase dated September 15, 1999 (the "Offer to Purchase") and the
related Letter of Transmittal (which together constitute the "Offer"). As set
forth in the Schedule 14D-1, the principal executive offices of each of
Purchaser and Parent are located at c/o Patricof & Co. Ventures, Inc., 455 South
Gulph Road, Suite 410, King of Prussia, Pennsylvania 19406.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of September 8, 1999 (the "Merger Agreement"), among the Company, Purchaser
and Parent. The Merger Agreement provides, among other things, that as soon as
practicable after the consummation of the Offer and satisfaction or waiver of
all conditions to the Merger, Purchaser will be merged with and into the Company
(the "Merger"), with the Company as the surviving corporation (the "Surviving
Corporation"). The Merger Agreement is incorporated herein by reference and is
summarized in Item 3 of this Schedule 14D-9.
ITEM 3. IDENTITY AND BACKGROUND
(a) Name and Address of the Company.
The name and business address of the Company, which is the person filing
this statement, are set forth in Item 1 above.
(b) Arrangements with the Company's Executive Officers, Directors and
Affiliates.
Except as set forth in this Item 3(b), to the knowledge of the Company, as
of the date hereof, there are no material contracts, agreements or arrangements
or understandings and actual or potential conflicts of interest between the
Company and its affiliates and: (i) the Company, its executive officers,
directors or affiliates or (ii) Parent, its executive officers, directors and
affiliates.
(1) Certain contracts, agreements, arrangements, or understandings between
the Company or its affiliates and certain of its directors, executive officers
and affiliates are described under the captions "Compensation of Directors of
the Company," "Compensation of Executive Officers of the Company," "Aggregated
Option Exercises in Fiscal Year 1998 and Fiscal Year-End Option Values,"
"Compensation Committee Report," "Employment Agreements," "Certain
Transactions," and "Approval of Increase in Number of Shares Issuable Under
Stock Option Plan" on pages 6-21 of the Company's Proxy Statement, dated October
28, 1998, for the Company's 1998 Annual Meeting of Stockholders (the "1998 Proxy
Statement"), a copy of which was previously furnished to stockholders. A copy of
such portions of the 1998 Proxy Statement is incorporated herein by reference.
In addition, each other material contract, agreement, arrangement and
understanding between the Company or its affiliates and its executive officers,
directors or affiliates is described below.
Stock Option Grants. Officers and directors of the Company hold
outstanding stock options under the Company's stock option plans. The
consummation of the Merger will be deemed to be a "change in control" under such
plans, which will result in the acceleration of the vesting of such options.
Since June 30, 1998, the Company has granted to its employees, directors and
officers options to purchase an aggregate of 1,156,000 Shares, including options
to purchase an aggregate of 775,000 Shares granted to executive officers and
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directors of the Company (the "Fiscal 1999 Option Grants"). All of the Fiscal
1999 Option Grants have exercise prices which are greater than the Offer Price.
Pursuant to the Merger Agreement, the Company has agreed to obtain the
cancellation of all of the "underwater" options which are held by executive
officers, directors or other affiliates of the Company or any of its affiliates.
Change of Control. Loren J. Hulber, President and Chief Executive Officer
of the Company and a director, is entitled to terminate his employment with the
Company and receive certain severance benefits in the event of a "Change of
Control" of the Company, as that term is defined in the employment agreement, as
amended, between the Company and Mr. Hulber. The satisfaction of the Minimum
Condition (as hereinafter defined) as described in this Schedule 14D-9 would
constitute a "Change of Control" as defined in Mr. Hulber's employment
agreement.
Transaction Bonuses. Each of Loren J. Hulber, Aven A. Kerr, Executive Vice
President and Chief Operating Officer of the Company, Daniel R. Rishavy, Senior
Vice President of Marketing and Sales, Christina D. Harris, Esq., Senior Vice
President and General Counsel of the Company, and James E. Boyd, Region
President -- Southeast, have Transaction Bonus Agreements which entitle them
upon the consummation of the Merger, to receive Transaction Bonus Payments of
$250,000, $125,000, $90,000, $67,500 and $71,577, respectively, based on the
Offer Price. A copy of these Transaction Bonus Agreements are filed as Exhibits
(c)(9) through (c)(13) hereto, respectively, and are incorporated herein by
reference. Each such transaction bonus arrangement was established by the
Company Board to provide the Company's officers with a financial incentive to
maximize shareholder value in connection with any proposed sale of the Company.
Management Changes. Concurrently with the execution of the Merger
Agreement, the Company and Parent agreed that following the Merger, Loren J.
Hulber will be elected Chairman of the Board of the Company and Craig P. Coy
will be appointed Chief Executive Officer. Mr. Coy has been Chief Executive
Officer of HR, Logic, Inc., a portfolio company jointly owned by Patricof & Co.
Ventures, Inc. ("Patricof") and Fidelity Ventures Limited.
Relationships with NovaCare. The Company was established by NovaCare,
Inc., a Delaware corporation ("NovaCare"), in September 1996 and completed its
initial public offering of 5,750,000 Shares in November 1997. As of the date of
this Schedule 14D-9, NovaCare owned approximately 64% of the issued and
outstanding Shares. In February 1997, the Company and NovaCare entered into a
services contract with the Company ("NovaCare Contract"), whereby principally
all of NovaCare's employees were co-employed by the Company. Under the NovaCare
Contract, the Company provides traditional professional employer organization
("PEO") services such as payroll and benefits management, worksite safety
evaluation, employment-related risk management and compensation and benefits
consultation. In January 1998, NovaCare initiated a restructuring plan to
favorably position one of its operating divisions for recent changes in the
Medicare reimbursement system as mandated by the Balanced Budget Act of 1997.
The intent of the plan was to reduce substantially the cost of its workforce by
transitioning to a lower cost operating model for providing quality therapy
services. In support of this transition and to address NovaCare's increased
demand for additional human resource services, the Company and NovaCare
renegotiated the NovaCare Contract, effective July 1, 1998.
On March 31, 1999, NovaCare announced that due primarily to lower
reimbursement rates and to declines in rehabilitation caseloads at long-term
care customer facilities, resulting from the new reimbursement structure for
therapy under the Medicare program, NovaCare would be forced to exit selected
long-term care markets and facilities, and would continue to lower expenses by
reducing labor costs. On June 1, 1999, NovaCare sold its remaining long-term
care services business to Chance Murphy, Inc., an independent company managed by
a subsidiary of Integrated Health Services, Inc. The Company entered into a
one-month transition services agreement with Chance Murphy, Inc. In addition, on
July 1, 1999, NovaCare sold its orthotics and prosthetics services business. The
Company entered into a six-month transition agreement with the buyer which was
subsequently extended for an additional six-month term on August 30, 1999. Based
on
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these announcements, the Company and NovaCare negotiated new contract terms to
reflect changes in NovaCare's ongoing service needs. Effective July 1, 1999, the
Company and NovaCare replaced the NovaCare Contract with two agreements: (i) a
four-year agreement relating to NovaCare's PROH Division (the "PROH Contract"),
and (ii) an agreement relating to NovaCare's corporate support personnel (the
"Corporate Support Services Agreement"). A copy of these agreements are filed as
Exhibits (c)(14) and (c)(15) hereto, respectively, and are incorporated herein
by reference.
Pursuant to the Merger Agreement, Parent and Purchaser have the right to
terminate the Merger Agreement and require the Company to pay to Parent a
break-up fee of $4,500,000 or have all of Parent's and Purchaser's reasonable
out-of-pocket expenses reimbursed as a result of the failure of NovaCare to
satisfy certain conditions as set forth in Item 3(b)(2) below in the description
of the termination provisions of the Merger Agreement. NovaCare on September 8,
1999 executed a letter (the "NovaCare Indemnification Letter") addressed to the
Company agreeing to pay or reimburse the Company for any break-up fees or
expenses incurred by the Company in the event that Parent and Purchaser
terminate the Merger Agreement pursuant to Sections 7.1(d)(i)(D), 7.1(d)(iii),
7.1(d)(iv), 7.1(d)(v) or 7.1(d)(vii) of the Merger Agreement. A copy of the
NovaCare Indemnification Letter is filed as Exhibit (c)(16) hereto and is
incorporated herein by reference.
On September 8, 1999, the Company and NovaCare entered into a Transfer and
Licensing Agreement (the "Transfer and Licensing Agreement") whereby NovaCare
irrevocably transferred to the Company the name "NovaSource" and granted the
Company a license to use the name "NovaCare" for a period of six months
following the effective time of the Merger. A copy of the Transfer and Licensing
Agreement is filed as Exhibit (c)(17) hereto and is incorporated herein by
reference.
In order to induce the Company to enter into the Merger Agreement, NovaCare
has agreed to deliver to the Company as promptly as practicable after the date
of the Merger Agreement, and in any event prior to the purchase of any Shares
pursuant to the Offer, (i) a guaranty from NovaCare in form and substance
reasonably satisfactory to Parent, pursuant to which NovaCare shall guaranty to
Parent the earnings before interest, taxes, depreciation and amortization
("EBITDA") projected to be received by the Company under the PROH Contract which
such EBITDA amounts are set forth in Schedule 5.12 of the Merger Agreement and
(ii) an irrevocable letter of credit or surety bond from a reputable and
financially sound financial institution or insurance company, or such other
security, in each case in form and substance reasonably satisfactory to Parent
securing the EBITDA payable with respect to the PROH Contract and the EBITDA set
forth in Schedule 5.12 to the Merger Agreement projected to be received by the
Company under the Corporate Support Services Agreement.
In addition, to further induce the Company to enter into the Merger
Agreement, NovaCare and the Company executed a letter agreement dated September
8, 1999 (the "Unified/Surety Bond Indemnification Letter") in which NovaCare
agreed to indemnify the Company and the Equity Investors (as hereinafter
defined) from and against any and all losses, claims, assessments, demands,
damages, liabilities, obligations, costs and/or expenses whatsoever sustained or
incurred by the Company or the Equity Investors as a result of any action or
claim brought by Unified Management Corporation, an Illinois corporation, or its
related corporations (collectively, "Unified"), and/or the shareholders of
Unified, as a result of the termination of the Agreement of Purchase and Sale
dated as of June 16, 1999 (the "Unified Agreement") by and among the Company,
Unified and the shareholders of Unified. In addition, the Unified/Surety Bond
Indemnification Letter provided that NovaCare would cash collateralize and take
all action necessary to cause the Company to be removed as a co-indemnitor with
respect to the obligations secured by a $4,580,446 surety bond in which NovaCare
and the Company are co-indemnitors of the issuer of such bond. The Company
agreed to take all action necessary to cause NovaCare to be removed as
co-indemnitor with respect to all other surety bonds that NovaCare and the
Company are co-indemnitors of the issuers of such surety bonds. A copy of the
Unified/ Surety Bond Indemnification Letter is incorporated herein by reference.
(2) Arrangements with the Bidder, its Executive Officers, Directors and
Affiliates.
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The following describes material contracts, agreements, arrangements or
understandings and any actual or potential conflicts of interest between the
Company or its affiliates and Parent and/or Purchaser and their respective
executive officers, directors or affiliates:
THE OFFER -- OVERVIEW
In connection with the Offer, the Company has entered into (i) the Merger
Agreement, (ii) a Stockholder Agreement, (iii) a Short-Form Merger Option
Agreement, (iv) an Exclusivity Agreement, and (iv) Confidentiality Agreements.
Set forth below is a description of the Offer and the agreements that are being
entered into in connection therewith. The purpose of the Offer and the Merger is
to enable Parent to acquire control of, and the entire equity interest in, the
Company. The Offer is being made pursuant to the Merger Agreement and is
intended to increase the likelihood that the Merger will be effected. The
purpose of the Merger is to acquire all of the outstanding Shares not purchased
pursuant to the Offer. The transaction is structured as a merger in order to
ensure the acquisition by Parent of all the outstanding Shares.
If the Merger is consummated, Parent's common equity interest in the
Company would increase to 100% and Parent would be entitled to all benefits
resulting from that interest. These benefits include complete management and
control with regard to the future conduct of the Company's business and the
right to any increase in its value. Similarly, Parent will also bear the risk of
any losses incurred in the operation of the Company and any decrease in the
value of the Company.
Stockholders of the Company who sell their Shares in the Offer will cease
to have any equity interest in the Company and any right to participate in its
earnings and any future growth. If the Merger is consummated, non-tendering
stockholders will no longer have an equity interest in the Company and instead
will have only the right to receive the Offer Price pursuant to the Merger
Agreement. Similarly, after selling their Shares in the Offer or the subsequent
Merger, stockholders of the Company will not bear the risk of any decrease in
the value of the Company.
The following is a summary of certain provisions of various agreements.
This summary is not a complete description of the terms and conditions of the
agreements and is qualified in its entirety by reference to the full text of the
agreements filed with the Commission as exhibits to this Schedule 14D-9 or to
the Schedule 14D-1 filed by Parent and Purchaser and they are incorporated
herein by reference.
MERGER AGREEMENT
The Offer. The Merger Agreement provides for the making of the Offer as
set forth in this Schedule 14D-9 and as described in the Offer to Purchase which
is incorporated herein by reference.
The Company Board. The Merger Agreement provides that Parent, upon the
purchase of Shares by Parent or any of its subsidiaries which represent at least
a majority of the then outstanding Shares of the Company (the "Minimum
Condition"), shall be entitled to designate such number of directors, rounded up
to the next whole number, on the Board of Directors of the Company (the "Company
Board") as is equal to the product of the total number of directors on the
Company Board (giving effect to the directors designated by Parent) multiplied
by the percentage that the aggregate number of Shares beneficially owned by
Purchaser, Parent and any of their affiliates bears to the total number of
shares of Company Common Stock then outstanding (on a fully diluted basis). The
Company shall take all action necessary to cause Parent's designees to be
elected or appointed to the Company Board and to secure the resignations of such
number of its incumbent directors as is necessary to enable Parent's designees
to be so elected or appointed.
The Merger Agreement provides that in the event that Parent's designees are
elected or appointed to the Company Board, until the Effective Time, the Company
shall use its best efforts to retain as members of the Company Board at least
two directors who were directors as of the date of the Merger Agreement
("Independent Directors"), provided that if the number of Independent Directors
shall be reduced below two for any reason whatsoever, the remaining Independent
Director, if any, shall be entitled to designate a person to fill such vacancy
who shall be deemed to be an Independent Director. If no Independent Director
remains,
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the other directors shall designate two persons to fill such vacancies who shall
not be stockholders, affiliates or associates of Parent or Purchaser, and such
persons shall be deemed to be Independent Directors. In the event that Parent's
designees constitute a majority of the directors on the Company Board, the
affirmative vote of a majority of the Independent Directors shall be required
after the acceptance for payment of Shares pursuant to the Offer and prior to
the Effective Time, to (a) amend or terminate the Merger Agreement by the
Company, (b) exercise or waive any of the Company's rights, benefits or remedies
under the Merger Agreement if such exercise or waiver materially and adversely
affects holders of Shares other than Parent or Purchaser, (c) take action with
respect to the retention of counsel and other advisors in connection with the
transactions contemplated by the Merger Agreement, or (d) take any other action
under or in connection with the Merger Agreement if such action materially and
adversely affects holders of Shares other than Parent or Purchaser; provided
that if there shall be no such directors, such actions may be effected by
unanimous vote of the entire Company Board.
The Merger. The Merger Agreement provides that Purchaser will be merged
with and into the Company and the separate corporate existence of Purchaser will
thereupon cease, and the Company will be the surviving corporation in the Merger
and shall continue to be governed by the laws of the State of Delaware. At the
effective time of the Merger, each Share then outstanding, other than Shares
held by (i) the Company as treasury stock, (ii) Parent or any of its wholly
owned subsidiaries including Purchaser, and (iii) stockholders who properly
perfect their dissenters' rights under the General Corporation Law of the State
of Delaware (the "DGCL"), will be converted into the right to receive the Offer
Price.
Options. The Merger Agreement provides that in consideration for the
cancellation of outstanding "in-the-money" options to purchase Shares
("Options"), the Company shall pay to the holders of such Options an amount, in
cash, equal to the product of (A) the difference between the Offer Price and the
per Share exercise price of such Options multiplied by (B) the number of Shares
covered by such Options. Purchaser has been advised by the Company that there
are no in-the-money Options. The Company has agreed that with respect to all
outstanding "underwater" Options, the Company shall, prior to completion of the
Offer, obtain agreements from the holders of Options who are senior management,
executive officers, and/or directors of the Company and the officers and
directors of NovaCare deemed to have been founders of the Company, to cancel
their Options and shall use its best efforts to obtain agreements from all other
holders of Options to cancel their Options, and, after such cancellation, there
shall be outstanding no more than an aggregate of underwater Options to purchase
75,000 shares held by such other holders of Options. If the Company shall not
have obtained the consents of holders of outstanding Options to cancel such
Options in accordance with the preceding sentence, Purchaser shall not be
required to accept for payment or, subject to any applicable rules and
regulations of the Securities and Exchange Commission (the "Commission"), pay
for, and may delay the acceptance for payment of or, subject to certain
restrictions, the payment for, any tendered Shares, and may terminate the Offer.
Representations and Warranties. In the Merger Agreement, the Company has
made customary representations and warranties to Parent and Purchaser with
respect to, among other things:
- corporate organization, good standing and capitalization, the absence of
conflicts with its certificate of incorporation, by-laws, or any
agreements to which the Company is a party, filings with the Commission,
and financial statements, no undisclosed liabilities, absence of certain
changes, taxes, owned and leased real property, title to assets,
contractual and other obligations, employee benefit plans and
compensation agreements, litigation,
- compliance with legal requirements,
- intellectual property,
- the authorization, execution, delivery, performance and enforceability of
the Merger Agreement and related matters, and receipt of a fairness
opinion from CIBC World Markets Corp.
("CIBC World Markets").
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In the Merger Agreement, each of Parent and Purchaser has made customary
representations and warranties to the Company with respect to, among other
things:
- corporate organization and good standing,
- the authorization, execution, delivery, performance and enforceability of
the Merger Agreement and related matters,
- consents and approvals,
- the absence of conflicts with their respective certificates of
incorporation, by-laws, or any agreements to which Parent or Purchaser is
a party,
- financing,
- share ownership, and
- brokers and finders.
Operation of the Business. The Merger Agreement contains customary
restrictions relating to the operation of the business prior to the Effective
Time including obligations to:
- conduct the business of the Company according to its ordinary and usual
course of business; and
- use its reasonable best efforts to preserve intact the current business
organization of the Company, keep available the services of the current
officers and employees of the Company and preserve its relationships with
customers, suppliers and others having business dealings with the
Company.
Stockholders' Meeting. In the event that Purchaser does not acquire 90% of
the outstanding Shares pursuant to the Offer or otherwise, a stockholder vote
will be required to approve the Merger. Pursuant to the Merger Agreement, if
required by applicable law in order to consummate the Merger, the Company will
duly hold a special meeting of its stockholders as soon as practicable following
the acceptance for payment and purchase of Shares by Purchaser pursuant to the
Offer for the purpose of considering and taking action upon the approval of the
Merger and the adoption of the Merger Agreement and will use its best efforts to
solicit from holders of Shares proxies in favor of the Merger and take all other
action necessary or, in the reasonable opinion of Parent, advisable to secure
any vote or consent of stockholders required by the DGCL to effect the Merger.
Parent has agreed that it will vote, or cause to be voted, all of the
shares then owned by Parent, Purchaser or any of its other subsidiaries or
Affiliates in favor of approval of the Merger and the adoption of the Merger
Agreement.
No Solicitation. The Company has agreed that it will not directly or
indirectly, solicit, initiate or encourage any inquiry, proposal or offer, or
participate in or initiate discussions or negotiations with, or provide any
information to, any person or group (other than Parent, any of its affiliates or
representatives,) concerning any proposal or offer for a merger, share exchange,
consolidation, recapitalization, asset acquisition or other business combination
or similar transaction involving the Company or any Company subsidiary, or any
proposal or offer to acquire an equity interest representing 20% or more of the
outstanding Company Common Stock or voting power in, or 20% or more of the fair
market value of the assets of, the Company or any Company subsidiary other than
the transactions contemplated by the Merger Agreement (an "Alternative
Proposal"). However, nothing shall prohibit the Company or the Company Board
from (i) taking and disclosing to the Company's stockholders a position with
respect to a tender or exchange offer by a third party pursuant to Rules 14d-9
and 14e-2 promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or (ii) making such disclosure to the Company's stockholders
as, in the good faith judgment of the Company Board, after receiving advice from
outside counsel, is required under applicable law, provided that the Company may
not, except as detailed below, withdraw or modify, or propose to withdraw or
modify, its position with respect to the Offer or the Merger or approve or
recommend, or propose to approve or recommend, any Alternative Proposal, or
enter into any letter of intent or agreement with respect to any Alternative
Proposal. Notwithstanding the foregoing, prior to the time of acceptance of
Shares for payment
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pursuant to the Offer, the Company may after providing written notice to Parent,
furnish information concerning its business, properties or assets to any
corporation, partnership, person or other entity or group in response to a
Superior Proposal (as defined below) and may, after providing written notice to
Parent, negotiate and participate in discussions and negotiations with such
entity or group concerning a Superior Proposal if: (A) such entity or group has
on an unsolicited basis submitted a Superior Proposal, (B) the Company Board
believes in good faith, based on the advice of its outside legal counsel, that
such action is reasonably necessary in order for the Company Board to comply
with its fiduciary obligations to the Company's stockholders under applicable
law, (C) the Company furnishes such information to such entity or group pursuant
to an appropriate confidentiality agreement on terms no less favorable to the
Company than the Confidentiality Agreements between the Equity Investors of
Parent and the Company and (D) neither the Company nor any Company subsidiary or
affiliate, nor any of their respective officers, directors, employees,
representatives or agents, shall have violated any of the restrictions set forth
above. The term "Superior Proposal" means an unsolicited bona fide written
proposal by a person to acquire more than a majority of the Shares then
outstanding on a fully diluted basis or all or substantially all of the assets
of the Company, which the Company Board determines in good faith, based on the
written advice of the Company's financial advisors, to be more favorable from a
financial point of view to the Company's stockholders than the Offer and the
Merger, and which is neither subject to the receipt of any necessary financing
nor otherwise on terms less favorable than the terms of the Merger Agreement and
which in the opinion of the Company Board, based on the written advice of the
Company's financial advisors, such entity or group has the financial capacity to
consummate.
The Company has further agreed to immediately notify Parent of the
existence of any proposal, discussion, negotiation or inquiry received by the
Company, and the Company will immediately communicate to Parent the terms of any
proposal, discussion or inquiry which it may receive (and will immediately
provide to Parent copies of any written materials received by the Company in
connection with such proposal, discussion or inquiry) and the identity of the
party making such proposal or inquiry or engaging in such discussion or
negotiation. The Company will promptly provide to Parent any non-public
information concerning the Company provided to any other party which was not
previously provided to Parent.
Except as set forth below, neither the Company Board nor any committee
thereof will (i) withdraw or modify, or propose to withdraw or modify, in a
manner adverse to Parent or Purchaser, the approval or recommendation by the
Company Board or any such committee of the Offer, the Merger Agreement or the
Merger, (ii) approve or recommend or propose to approve or recommend, any
Alternative Proposal or (iii) cause the Company to enter into any letter of
intent or agreement with respect to any Alternative Proposal. Notwithstanding
the foregoing, prior to the time of acceptance for payment of Shares pursuant to
the Offer, the Company Board may withdraw or modify its approval or
recommendation of the Offer, the Merger Agreement or the Merger, if (A) the
Company has received a Superior Proposal which is then pending and which the
Company Board has determined to recommend to the Company's stockholders, (B) the
Company Board concludes, in good faith, based on the advice of its outside
counsel, that in light of such Superior Proposal, the withdrawal or modification
of such approval or recommendation is reasonably necessary in order for the
Company Board to comply with its fiduciary obligations to the Company's
stockholders under applicable law, (C) the Company notifies Parent at least five
(5) business days prior to taking any action with respect to such Superior
Proposal, or the withdrawal or modification of its approval or recommendation
and (D) the Company gives Parent at least five (5) business days after the
Company gives notice to Parent pursuant to clause (C) to match or better such
Superior Proposal and Parent fails to or decides not to do so within such five
(5) day period.
Indemnification and Insurance. The Merger Agreement provides that the
Company and the Surviving Corporation, as applicable, will indemnify and hold
harmless each present and former director, officer or employee of the Company or
any Company Subsidiary against any cost or expenses incurred in connection with,
and amounts paid in settlement of, any claim based on such person's status as a
director, officer or employee of the Company or any Company Subsidiary and (i)
arising out of or pertaining to the transactions contemplated by the Merger
Agreement or (ii) otherwise with respect to any act or omission occurring at or
prior to the Effective Time, in each case for a period of six (6) years after
the Effective Time.
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The Merger Agreement further provides that the Surviving Corporation will
purchase directors' and officers' liability tail insurance covering the persons
who are currently covered by the Company's directors' and officers' liability
insurance policy for a period of six (6) years on terms that are no less
favorable to the covered persons than the terms now applicable to them under the
Company's current policy; provided, however, that in no event will Parent or the
Surviving Corporation be required to expend more than $125,000; and provided
further, that, if the premium for such coverage exceeds such amount, the
Surviving Corporation shall purchase a policy with the greatest coverage
available for such amount.
Conditions to the Merger. The respective obligations of each party to
effect the Merger will be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any and all of which may be
waived in whole or in part by the Company, Parent or Purchaser, as the case may
be, to the extent permitted by applicable law: (i) the Merger Agreement shall
have been approved and adopted by the requisite vote of the stockholders of the
Company, if required by applicable law, in order to consummate the Merger; (ii)
the receipt of any stockholder approval of NovaCare required by the DGCL
approving NovaCare's agreement to tender, the grant of the irrevocable proxy and
the agreement to sell the Shares owned by NC Resources, Inc., the wholly owned
Delaware corporation through which NovaCare controls its Shares ("NC
Resources"), to Parent contained in the Stockholder Agreement (the "NovaCare
Stockholder Approval"); (iii) (A) no statute, rule, regulation, executive order,
decree, ruling or injunction or other order of any governmental entity shall be
in effect which prohibits the consummation of the transactions contemplated by
the Merger Agreement or which materially limits or restricts the ownership or
operation of the business of the Surviving Corporation; and (B) no suit, action
or proceeding shall be pending by any governmental entity, the subject matter of
which involves the transactions contemplated by the Merger Agreement, which is
reasonably likely to materially adversely affect Parent, Purchaser or the
Company; (iv) any consents, orders and approvals required of governmental
entities for the consummation of the Merger and the other transactions
contemplated by the Merger Agreement shall have been obtained and be in effect
at the Effective Time; and (v) the purchase of Shares pursuant to the Offer
shall have occurred.
Termination. The Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, whether before or after
stockholder approval:
(a) By the mutual consent of Parent, Purchaser and the Company.
(b) By either of Parent, Purchaser or the Company if: (i) the
Effective Time shall not have occurred on or prior to December 31, 1999;
provided, however, that the right to terminate the Merger Agreement under
this clause shall not be available to any party whose failure to fulfill
any obligation under the Merger Agreement has been the cause of, or
resulted in, the failure of Parent or Purchaser, as the case may be, to
purchase the Shares pursuant to the Offer on or prior to such date; (ii)
any governmental entity shall have issued an order, or taken any other
action, which permanently restrains or otherwise prohibits the acceptance
for payment of, or payment for, Shares pursuant to the Offer, the Merger or
the other transactions contemplated by the Merger Agreement and such order
or other action shall have become final and non-appealable; or (iii) the
NovaCare Stockholder Approval has not been obtained.
(c) By the Company: (i) if Parent, Purchaser or any of their
affiliates shall have failed to commence the Offer on or prior to five (5)
business days following the date of the initial public announcement of the
Offer; provided, that the Company may not terminate the Merger Agreement
pursuant to this clause if the Company is at such time in material breach
of its obligations under the Merger Agreement; (ii) if the Company Board
shall have withdrawn or modified in a manner adverse to Parent or Purchaser
its approval or recommendation of the Offer, the Merger Agreement or the
Merger in connection with entering into a definitive agreement with respect
to a Superior Offer which is then pending, provided that the Company has
complied with the provisions of the Merger Agreement, including the notice
provisions, described above under the heading "No Solicitation" or (iii) if
Parent or Purchaser shall have breached in any material respect any of
their respective representations, warranties, covenants or other agreements
contained in the Merger Agreement or the Short-Form Merger Option
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Agreement, which breach cannot be or has not been cured within 30 days
after the giving of written notice by the Company to Parent or Purchaser,
as applicable.
(d) By Parent or Purchaser: (i) if, prior to the purchase of Shares by
Purchaser pursuant to the Offer, (A) the Company shall have notified
Parent, in accordance with the terms of the Merger Agreement, of its
decision to furnish information to, or shall have negotiated or
participated in negotiations or discussions with, a person or entity other
than Parent, Purchaser or their affiliates concerning a Superior Proposal,
(B) the Company Board shall have withdrawn, modified or changed in a manner
adverse to Parent or Purchaser its approval or recommendation of the Offer,
the Merger Agreement or the Merger or shall have recommended an Alternative
Proposal, (C) the Company shall have executed a letter of intent or
agreement relating to an Alternative Proposal or similar business
combination with a person or entity other than Parent, Purchaser or their
Affiliates, or (D) the board of directors of NovaCare shall have withdrawn,
modified or changed in a manner adverse to Parent or Purchaser its approval
of the transactions contemplated by the Stockholder Agreement or its
recommendation of the NCES Sale (as defined in NovaCare's proxy statement
dated August 13, 1999); (ii) if, prior to the purchase of Shares pursuant
to the Offer, the Company shall have breached any representation, warranty,
covenant or other agreement contained in the Merger Agreement or the Short-
Form Merger Option Agreement which would give rise to the failure of a
condition set forth in paragraph (c) of Annex A to the Merger Agreement,
and such breach cannot be or has not been cured within 30 days after the
giving of written notice by Parent or Purchaser to the Company; (iii) if
NovaCare or NC Resources shall have breached any representation, warranty,
covenant or other agreement contained in the Stockholder Agreement, which
breach has not been cured within 30 days after the giving of written notice
by Parent or Purchaser, (iv) if NovaCare has not received all consents and
approvals from its lenders necessary to consummate the transactions
contemplated by the Merger Agreement and the Stockholder Agreement,
including the unconditional release of all liens on the Shares held by NC
Resources and has not delivered evidence of such consents and approvals to
Parent; (v) if the Company shall not have obtained and delivered to Parent
the guaranty and letter of credit or surety bond or other security in
accordance with the terms of the Merger Agreement; (vi) if the Company and
the subsidiaries of the Company shall incur or assume indebtedness in
excess of the amounts set forth in Section 5.1(xi) of the Merger Agreement;
or (vii) if the Company shall not be removed as a co-indemnitor with
respect to the Liberty Bond (as defined in the Stockholder Agreement) in
accordance with the terms of the Stockholder Agreement.
Termination Fee; Expenses. Pursuant to the Merger Agreement, if (x) the
Company terminates the Merger Agreement pursuant to clause (c)(ii) under the
heading "Termination" above; (y) the Company enters into an agreement which
accepts or implements a Superior Proposal; or (z) Parent or Purchaser terminates
the Merger Agreement pursuant to clauses (d)(i)(B), (d)(i)(C), (d)(i)(D),
(d)(iii), (d)(iv) or (d)(vii) under the heading "Termination" above, then the
Company will pay to Parent an amount equal to $4.5 million (the "Termination
Fee"). If the Merger Agreement is terminated by Parent or Purchaser pursuant to
clauses (d)(i)(A), (d)(ii), (d)(v) or (d)(vi) under the heading "Termination"
above or the Company, Parent or Purchaser terminate the Merger Agreement
pursuant to clause (b)(iii) under the heading "Termination" above, then the
Company will pay to Parent an amount equal to Parent's and Purchaser's
reasonable out-of-pocket expenses and fees actually incurred by Parent and
Purchaser in connection with the transactions contemplated by the Merger
Agreement, the Offer, the Merger and the Stockholder Agreement (the "Expenses").
In addition, if the Merger Agreement is terminated by the Company, Parent or
Purchaser pursuant to clauses (b)(iii) or (d)(v) under the heading
"Termination," but within one year after such termination the Company shall have
executed a letter of intent or agreement relating to an Alternative Proposal or
similar business combination with a person or entity other than Parent,
Purchaser or their affiliates, then the Company will pay to Parent an amount
equal to the difference between the Termination Fee and the Expenses.
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STOCKHOLDER AGREEMENT
Concurrently with the execution and delivery of the Merger Agreement,
Parent, Purchaser, NovaCare and NC Resources entered into a Stockholder
Agreement. In that agreement, NC Resources (i) agreed to tender all of the
Shares of the Company which it owns (the "Covered Shares") to Purchaser and (ii)
granted to Purchaser an irrevocable proxy to vote the Covered Shares at any
meeting of the stockholders of the Company called for the purpose of voting on
the Merger and the Merger Agreement and/or to vote against any Alternative
Proposal. The Stockholder Agreement also gives Parent the right, at its
election, to purchase the Covered Shares at a price per share equal to $2.50,
which is the price offered to all stockholders in the Offer. The Stockholder
Agreement is incorporated herein by reference.
The obligations of NovaCare and NC Resources described above are contingent
on receiving any approval of the stockholders of NovaCare which is required by
Delaware law. NovaCare is committed to duly call a meeting of its stockholders
and to use its best efforts to solicit proxies in favor of approval of the
matters described above.
NovaCare and NC Resources have agreed not to solicit, initiate or encourage
any inquiry, proposal or offer from a third party to acquire the assets or stock
of the Company, NC Resources, or any subsidiary thereof, and to refrain from
participating in any discussions or negotiations regarding or furnishing
information to any third party in connection with any such inquiry, proposal or
offer.
NovaCare has scheduled a special meeting of its stockholders to be held on
September 21, 1999 to vote on matters including those described above. In
connection with its special meeting of stockholders, NovaCare circulated a proxy
statement and related supplements on or about August 13, 1999, August 26, 1999,
September 3, 1999 and September 10, 1999. The Board of Directors of NovaCare
recommends a vote for the sale of the NovaCare interest in the Company and
agrees to tender the Covered Shares as required by the Stockholder Agreement. If
the NovaCare stockholders vote to approve the sale of NovaCare's interest in the
Company, the Minimum Condition for the Offer will be satisfied.
SHORT-FORM MERGER OPTION AGREEMENT
Concurrently with the execution and delivery of the Merger Agreement,
Parent, Purchaser and the Company entered into a Short Form Merger Option
Agreement. That agreement gives Purchaser an option to purchase up to that
number of newly issued Shares (the "Option Shares") equal to the number of
Shares that, when added to the number of Shares owned by Purchaser and its
affiliates immediately following consummation of the Offer, shall constitute 90%
of the Shares then outstanding on a fully diluted basis (after giving effect to
the issuance of the Option Shares) for a price per Option Share equal to the
Offer Price. The number of Option Shares shall not exceed 19.9% of the Shares
outstanding on the date of the agreement. The Short-Form Merger Option Agreement
is incorporated herein by reference.
The option may be exercised at any time after the acceptance for payment by
Purchaser of Shares pursuant to the Offer.
CONFIDENTIALITY AGREEMENTS
Each of Fidelity Capital Associates, Inc. ("FCA"), Patricof and AFLAC
Incorporated ("AFLAC") executed Confidentiality Agreements, in favor of NovaCare
and the Company, dated as of March 26, 1999, March 25, 1999 and February 12,
1999, respectively. The Confidentiality Agreements contain customary provisions
pursuant to which, among other matters, the parties agreed, subject to certain
exceptions, to keep confidential all nonpublic, confidential or proprietary
information concerning the other parties which is furnished to any party in
connection with its evaluation of a possible transaction involving Purchaser and
the Company (the "Confidential Information"), and to use the Confidential
Information solely for the purpose of evaluating a possible transaction
involving the Company and Purchaser. The parties also agreed, for a period of
one year, in the case of FCA and Patricof, and two years, in the case of AFLAC,
not to solicit for employment or hire any employee of the Company. The parties
further agreed, for a period of three years in
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the case of FCA, and one year, in the case of Patricof and AFLAC, unless
requested in writing by the Company, not to seek, offer or propose to effect or
participate in (i) any acquisition of securities or assets of the Company, (ii)
any tender offer, merger, or other business combination involving the Company,
(iii) any recapitalization, liquidation or other extraordinary transaction with
respect to the Company or (iv) any solicitation of proxies or consents to vote
any securities of the Company; provided, however, that these restrictions do not
apply, in the case of FCA, to an account over which FCA or its affiliates have
investment management or advisory responsibilities and which consists solely of
customer client accounts. The Confidentiality Agreements are incorporated herein
by reference.
EXCLUSIVITY AGREEMENT
The Company, NovaCare and the Equity Investors executed an Exclusivity
Agreement dated as of August 16, 1999. Under the terms of the Exclusivity
Agreement, which expired upon the execution of the Merger Agreement on September
8, 1999, the Company and NovaCare agreed that neither they nor any of their
subsidiaries or affiliates would, directly or indirectly, solicit or initiate
any inquiry, proposal or offer, or participate in or initiate discussions or
negotiations with, or provide any information to, any person or group other than
the Equity Investors concerning (i) any proposal or offer for a merger, share
exchange, consolidation or similar transaction involving the Company or any
subsidiary of the Company or (ii) any proposal or offer to acquire any equity
interest in, or outside the ordinary course of business consistent with past
practice, any of the assets of, the Company or any subsidiary of the Company
other than the transactions contemplated by the Merger Agreement. During the
term of the Exclusivity Agreement, the Company and NovaCare also agreed to
notify immediately the Equity Investors of the existence of any such proposal,
discussion, negotiation or inquiry received by either of them and to provide the
Equity Investors with the relevant terms thereof. The Exclusivity Agreement is
incorporated herein by reference.
PLANS FOR THE COMPANY; OTHER MATTERS
Plans for the Company. The Merger Agreement provides that, promptly after
the purchase by Purchaser of at least a majority of the Shares pursuant to the
Offer, Purchaser has the right to cause the Company to elect to the Company
Board directors designated by Purchaser equal in number to the number of
directors, rounded up to the next whole number, as is equal to the product of
the total number of directors on the Company Board (after giving effect to the
directors designated by Parent) multiplied by the percentage that the number of
Shares beneficially owned by Purchaser or any affiliate of Purchaser (including
such Shares as are accepted for payment pursuant to the Offer) bears to the
total number of Shares then outstanding. The Merger Agreement provides that the
directors of Purchaser and the officers of the Company at the Effective Time of
the Merger will, from and after the Effective Time, be the initial directors and
officers, respectively, of the Surviving Corporation.
Purchaser or an affiliate of Purchaser may, following the consummation or
termination of the Offer, seek to acquire additional Shares through open market
purchases, privately negotiated transactions, a tender offer or exchange offer
or otherwise, upon such terms and at such prices as it shall determine, which
may be more or less than the price to be paid pursuant to the Offer. Purchaser
and its affiliates also reserve the right to dispose of any or all Shares
acquired by them, subject to the terms of the Merger Agreement.
Except as disclosed herein or in the Offer to Purchase, and except as may
be effected in connection with the integration of operations referred to in the
Offer to Purchase, neither Parent nor Purchaser has any present plans or
proposals that would result in an extraordinary corporate transaction, such as a
merger, reorganization, liquidation, relocation of operations or sale or
transfer of a material amount of assets, involving the Company or its
Subsidiaries, or any material changes in the Company's capitalization, corporate
structure, business or composition of its management or the Company Board.
Stockholder Approval. Under the DGCL, the approval of the Company Board
and the affirmative vote of the holders of a majority of the outstanding Shares
are required to adopt and approve the Merger Agreement and the transactions
contemplated thereby. The Company has represented in the Merger
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Agreement that the execution and delivery of the Merger Agreement by the Company
and the consummation by the Company of the transactions contemplated by the
Merger Agreement have been duly authorized by all necessary corporate action on
the part of the Company, subject to the approval of the Merger by the Company's
stockholders in accordance with the DGCL. In addition, the Company has
represented that the affirmative vote of the holders of a majority of the
outstanding Shares is the only vote of the holders of any class or series of the
Company's capital stock which is necessary to approve the Merger Agreement and
the transactions contemplated thereby, including the Merger. Therefore, unless
the Merger is consummated pursuant to the short-form merger provisions under the
DGCL described below (in which case no further corporate action by the
stockholders of the Company will be required to complete the Merger), the only
remaining required corporate action of the Company will be the approval of the
Merger Agreement and the transactions contemplated thereby by the affirmative
vote of the holders of a majority of the Shares. The Merger Agreement provides
that Parent will vote, or cause to be voted, all of the Shares then owned by
Parent, Purchaser or any of Parent's other subsidiaries and affiliates in favor
of the approval of the Merger and the adoption of the Merger Agreement. In the
event that Parent, Purchaser and Parent's other subsidiaries and affiliates
become entitled to vote on the approval of the Merger and the Merger Agreement
(which would be the case if the Minimum Condition is satisfied and Purchaser
were to accept for payment Shares tendered in the Offer), they would have the
ability to effect the Merger without the affirmative votes of any other
stockholders.
Short-Form Merger. Section 253 of the DGCL provides that, if a corporation
owns at least 90% of the outstanding shares of each class of another
corporation, the corporation holding such stock may merge itself into such
corporation without any action or vote on the part of the board of directors or
the stockholders of such other corporation (a "short-form merger"). In the event
that Parent, Purchaser and any other subsidiaries of Parent acquire in the
aggregate at least 90% of the outstanding Shares, pursuant to the Offer or
otherwise, then, at the election of Parent, a short-form merger could be
effected without any approval of the Company Board or the stockholders of the
Company, subject to compliance with the provisions of Section 253 of the DGCL.
Even if Parent and Purchaser do not own 90% of the outstanding Shares following
consummation of the Offer, Parent and Purchaser could seek to purchase
additional shares in the open market or otherwise in order to reach the 90%
threshold and employ a short-form merger. The per share consideration paid for
any Shares so acquired may be greater or less than that paid in the Offer.
Alternatively, Purchaser could exercise options pursuant to the Short-Form
Merger Option Agreement to obtain 90% of the outstanding shares. Parent
presently intends to effect a short-form merger if permitted to do so under the
DGCL.
Appraisal Rights. Holders of the Shares do not have appraisal rights in
connection with the Offer. However, if the Merger is consummated, holders of the
Shares at the Effective Time will have certain rights pursuant to the provisions
of Section 262 of the DGCL, including the right to dissent and demand appraisal
of, and to receive payment in cash of the fair value of their Shares. Dissenting
stockholders of the Company who comply with the applicable statutory procedures
will be entitled to receive a judicial determination of the fair value of their
Shares (exclusive of any element of value arising from the accomplishment or
expectation of the Merger) and to receive payment of such fair value in cash,
together with a fair rate of interest thereon, if any. Any such judicial
determination of the fair value of the Shares could be based upon factors other
than, or in addition to, the price per Share to be paid in the Merger or the
market value of the Shares. The value so determined could be more or less than
the price per Share to be paid in the Merger.
The foregoing summary of the rights of dissenting stockholders under the
DGCL does not purport to be a complete statement of the procedures to be
followed by stockholders desiring to exercise any appraisal rights available
under the DGCL. The preservation and exercise of appraisal rights require strict
adherence to the applicable provisions of the DGCL.
Rule 13e-3. The Commission has adopted Rule 13e-3 under the Exchange Act
which is applicable to certain "going private" transactions and which may, under
certain circumstances, be applicable to the Merger or another business
combination following the purchase of Shares pursuant to the Offer in which
Purchaser seeks to acquire the remaining Shares not held by it. Purchaser
believes, however, that Rule l3e-3 will not be applicable to the Merger because
it is anticipated that the Merger would be effected within one year following
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consummation of the Offer and in the Merger stockholders would receive the same
price per Share as paid in the Offer. If Rule l3e-3 were applicable to the
Merger, it would require, among other things, that certain financial information
concerning the Company, and certain information relating to the fairness of the
proposed transaction and the consideration offered to minority stockholders in
such a transaction, be filed with the Commission and disclosed to minority
stockholders prior to consummation of the transaction.
Dividends and Distributions. The Merger Agreement provides that from the
date thereof until the Effective Time, without the prior written consent of
Parent, the Company shall not and shall not permit any of its subsidiaries to
(i) declare, set aside or pay any dividend or other distribution payable in
cash, stock or property with respect to its capital stock, except that a wholly
owned subsidiary of the Company may declare and pay a dividend or make an
advance to its parent or the Company; (ii) issue, sell, transfer, pledge,
dispose of or encumber any shares of any class or series of its capital stock or
voting debt, or securities convertible into or exchangeable for, or options,
warrants, calls, commitments or rights of any kind to acquire any shares of,
capital stock of any class or voting debt of the Company or any of its
subsidiaries, other than Shares issued upon the exercise of Options outstanding
on the date of the Merger Agreement; (iii) split, combine or reclassify the
outstanding Shares or any outstanding capital stock of the Company or any of the
subsidiaries of the Company; or (iv) redeem, purchase or otherwise acquire
directly or indirectly any shares of any class or series of its capital stock or
any instrument or security which consists of or includes a right to acquire such
shares.
CONDITIONS TO THE OFFER
The Offer is subject to the condition that there shall have been validly
tendered and not withdrawn prior to the expiration of the Offer, such number of
Shares which, when added to the Shares beneficially owned by Parent and
Purchaser, would constitute a majority of the Shares outstanding on a fully
diluted basis.
Notwithstanding any other provisions of the Offer, and in addition to (and
not in limitation of) Purchaser's rights to extend and amend the Offer as
provided in the Merger Agreement, Purchaser shall not be required to accept for
payment or, subject to any applicable rules and regulations of the Commission,
including Rule 14e-l(c) under the Exchange Act (relating to Purchaser's
obligation to pay for or return tendered Shares promptly after termination or
withdrawal of the Offer), pay for, and may delay the acceptance for payment of
or, subject to the restriction referred to above, the payment for, any tendered
Shares, and may terminate or amend the Offer as to any Shares not then paid for,
if in the reasonable judgment of Purchaser, (i) any applicable waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, has
not expired or terminated prior to the expiration of the Offer, (ii) the Minimum
Condition has not been satisfied, (iii) the NovaCare Stockholder Approval shall
not have been obtained, or (iv) at any time on or after the date of the Merger
Agreement, and before the time of payment for any Shares (whether or not any
Shares have theretofore been accepted for payment pursuant to the Offer)
pursuant to the Offer any of the following events shall occur:
(a) there shall be pending or threatened by a governmental entity, or
the Parent, Purchaser or Company shall have received notice from an
attorney representing any other person of its intent to commence a suit or
proceeding which (i) seeks to prohibit or delay the making or consummation
of the Offer or the Merger, (ii) seeks to prohibit or delay or make
materially more costly the acquisition by Purchaser or Parent of the Shares
or the consummation of the Merger or seeks to prohibit or delay the
transactions contemplated by the Stockholder Agreement or the Short-Form
Merger Option Agreement, (iii) seeks to require divestiture by Parent or
any of its subsidiaries or affiliates of any Shares or seeks to limit their
ability to exercise full rights of ownership of the Shares, including
voting rights, (iv) seeks to prohibit or impose any material limitations on
Parent's or Purchaser's ownership or operation of all or a material portion
of their or the Company's businesses or assets, or to compel Parent or
Purchaser to dispose of or hold separate any material portion of the
business or assets of the Company, Parent or Purchaser or their respective
subsidiaries or (v) would reasonably be expected to have a material adverse
effect on the Company;
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(b) there shall be any statute, rule, regulation, judgment, order or
injunction promulgated, entered, enforced, enacted, issued or made
applicable, in each case after the date of the Merger Agreement, to the
Offer or the Merger or any other action shall be taken by any governmental
entity that is reasonably likely, directly or indirectly, to result in any
of the consequences referred to in clauses (i) through (v) of paragraph (a)
above;
(c) the representations and warranties of the Company set forth in the
Merger Agreement or the Short-Form Merger Option Agreement (without giving
effect to any qualification regarding materiality) shall not be true and
accurate as of the date of this Agreement and as of the date of
consummation of the Offer as though made on or as of such date except those
representations and warranties that address matters only as of a particular
date or only with respect to a specified period of time which need only be
true and accurate as of such date or with respect to such period, all of
which failures to be true and accurate in the aggregate has had or would
reasonably be expected to have a Company Material Adverse Effect (as
defined in the Merger Agreement); or the Company shall have breached or
failed in any material respect to perform or comply with any material
obligation, agreement or covenant required by the Merger Agreement or the
Short-Form Merger Option Agreement to be performed or complied with by it;
(d) the Merger Agreement shall have been terminated in accordance with
its terms;
(e) the Company shall have entered into a definitive agreement, letter
of intent or agreement in principle with any person with respect to an
Alternative Proposal;
(f) the Company shall have notified or been required by Section 5.2 of
the Merger Agreement to notify Parent of its decision to furnish
information concerning its business, properties or assets to or shall have
negotiated or participated in negotiations or discussions with a person or
entity other than Parent, Sub or their affiliates concerning a Superior
Proposal, withdrawn, or modified or changed in a manner adverse to Parent
or Sub (including by amendment of the Schedule 14D-9) its recommendation of
the Offer, the Merger Agreement, or the Merger, or recommended an
Alternative Proposal, or shall have resolved to do any of the foregoing;
(g) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on the New York Stock Exchange,
the American Stock Exchange or in the Nasdaq National Market System, for a
period in excess of three hours (excluding suspensions or limitations
resulting solely from physical damage or interference with such exchanges
not related to market conditions), (ii) a declaration of a banking
moratorium or any suspension of payments in respect of banks in the United
States (whether or not mandatory), (iii) any limitations or proposed
limitations (whether or not mandatory) by any United States governmental
authority or agency on the extension of credit by financial institutions,
(iv) any decline in the Dow Jones Industrial Average or the Standard &
Poor's 500 Index in excess of 25% measured from the close of business on
the date of the Merger Agreement or (v) in the case of any of the
situations in clauses (i) through (iv) inclusive, existing at the time of
the commencement of the Offer, a material acceleration or worsening
thereof;
(h) the Company, NovaCare or NC Resources pursuant to or within the
meaning of Title 11 of the U.S. Code or any similar federal or state law
for the relief of debtors ("Bankruptcy Law"): (i) commences a voluntary
case, (ii) consents to the entry of an order for relief against it in an
involuntary case, (iii) consents to the appointment of a receiver, trustee,
assignee, liquidator or similar official under any Bankruptcy Law (a
"Custodian") of it or for all or substantially all of its property, (iv)
makes a general assignment for the benefit of its creditors or (v)
generally is not paying its debts as they become due;
(i) a court of competent jurisdiction enters an order or decree under
a Bankruptcy Law that: (i) is for relief against the Company in an
involuntary case, (ii) appoints a Custodian of the Company, NovaCare or NC
Resources for all or substantially all of the property of the Company,
NovaCare or NC Resources or (iii) orders the liquidation of the Company,
NovaCare or NC Resources, and the order or decree remains unstayed and in
effect for 60 days;
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(j) there shall have occurred any change, condition, event or
development that has, or is reasonably likely to have, individually or in
the aggregate, a material adverse effect on the Company;
(k) either NovaCare or NC Resources shall be in breach of the
Stockholder Agreement;
(l) the Company shall not have obtained the consents of holders of
outstanding Options to purchase Shares to cancel such Options in accordance
with Section 2.1(d) of the Merger Agreement;
(m) the Company shall not have delivered to Parent and Purchaser an
opinion from a reputable firm to the effect that NovaCare and the Company
are solvent as of the time any Shares are accepted for payment;
(n) NovaCare shall not have obtained all consents of, and approvals
to, the transactions contemplated pursuant to the Stockholder Agreement and
the Merger Agreement from its lenders in accordance with the provisions of
the Stockholder Agreement and delivered evidence of such consents and
approvals to Parent and Purchaser;
(o) the Company shall not have obtained and delivered to Parent a
guaranty and letter of credit or surety bond or other security guaranteeing
and securing the EBITDA projected to be received by the Company under the
PROH Contract and the Corporate Support Services Agreement;
(p) the Company and the Company's subsidiaries shall have incurred or
assumed indebtedness in excess of $3,300,000; or
(q) the Company shall not have been removed as co-indemnitor with
respect to the obligations secured by a $4,580,446 bond in favor of Liberty
Mutual Insurance Company.
which in the reasonable judgment of Parent or Purchaser, in any such case, and
regardless of the circumstances giving rise to such condition, makes it
inadvisable to proceed with the Offer and/or with such acceptance for payment or
payments.
The foregoing conditions are for the sole benefit of Purchaser and Parent
and may be waived by Parent or Purchaser in their sole discretion.
Certain Legal Matters. Except as described herein, none of the Company,
Purchaser or Parent is aware of any license or regulatory permit that appears to
be material to the business of the Company that might be adversely affected by
Purchaser's acquisition of Shares pursuant to the Offer and the Merger or of any
approval or other action by a domestic or foreign governmental, administrative
or regulatory agency or authority that would be required prior to the
acquisition of the Shares by Purchaser as contemplated herein. Should any such
approval or other action be required, Purchaser and Parent presently contemplate
that such approval or other action will be sought. While, except as otherwise
described in this Offer to Purchase, Purchaser does not presently intend to
delay the acceptance for payment of, or payment for, Shares tendered pursuant to
the Offer pending the outcome of any such matter, there can be no assurance that
any such approval or other action, if needed, would be obtained or would be
obtained without substantial conditions or that failure to obtain any such
approval or other action might not result in consequences adverse to the
Company's business or that certain parts of the Company's business might not
have to be disposed of, or other substantial conditions complied with, in the
event that such approvals were not obtained or such other actions were not taken
or in order to obtain any such approval or other action. If certain types of
adverse action are taken with respect to the matters discussed below, Purchaser
could decline to accept for payment, or pay for, any Shares tendered.
State Antitakeover Statutes. A number of states have adopted laws and
regulations that purport to apply to attempts to acquire corporations that are
incorporated in such states, or whose business operations have substantial
economic effects in such states, or which have substantial assets, security
holders, employees, principal executive offices or principal places of business
in such states. In Edgar v. MITE Corp., the Supreme Court of the United States
(the "Supreme Court") invalidated on constitutional grounds the Illinois
Business Takeover statute, which, as a matter of state securities law, made
takeovers of corporations meeting certain requirements more difficult. However,
in 1987, in CTS Corp. v. Dynamics Corp. of America, the Supreme
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Court held that the State of Indiana may, as a matter of corporate law and, in
particular, with respect to those aspects of corporate law concerning corporate
governance, constitutionally disqualify a potential acquiror from voting on the
affairs of a target corporation without the prior approval of the remaining
stockholders. The state law before the Supreme Court was by its terms applicable
only to corporations that had a substantial number of stockholders in the state
and were incorporated there.
Section 203 of the DGCL, in general, prohibits a Delaware corporation that
does not opt out of its provisions from engaging in a "Business Combination"
(defined as a variety of transactions, including mergers) with an "Interested
Stockholder" (defined generally as a person that is the beneficial owner of 15%
or more of the outstanding voting stock of the subject corporation) for a period
of three years following the date that such person became an Interested
Stockholder unless (i) prior to such time, the board of directors of the
corporation approved either the Business Combination or the transaction that
resulted in the stockholder becoming an Interested Stockholder; (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
Interested Stockholder, the Interested Stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (a) by persons who are directors and officers and
(b) employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender offer or exchange offer; or (iii) at or subsequent to such
time, the Business Combination is approved by the board of directors and
authorized at an annual or special meeting of the stockholders, and not by
written consent, by the affirmative vote of at least two-thirds ( 2/3) of the
outstanding voting stock which is not owned by the Interested Stockholder. The
Company Board has taken the action necessary to render the restrictions
contained in Section 203 inapplicable to the Merger or the other transactions
contemplated by the Merger Agreement.
Although the Company is organized under the laws of the State of Delaware,
since it has its principal place of business in Pennsylvania, it may be subject
to the Pennsylvania Takeover Disclosure Law (the "PTDL"). The PTDL purports to
regulate certain attempts to acquire a corporation which (i) is organized under
the laws of Pennsylvania or (ii) has its principal place of business and
substantial assets located in Pennsylvania. In Crane Co. v. Lam, 509 F. Supp.
782 (E.D. Pa. 1981), the United States District Court for the Eastern District
of Pennsylvania preliminarily enjoined, on grounds arising under the United
States constitution, enforcement of at least the portion of the PTDL involving
the pre-offer waiting period thereunder. Section 8(a) of the PTDL provides an
exemption for any offer to purchase securities as to which the board of
directors of the target company recommends acceptance to its stockholders, if at
the time such recommendation is first communicated to stockholders the offeror
files with the Pennsylvania Securities Commission ("PSC") a copy of the Schedule
14D-1 and certain other information and materials, including an undertaking to
notify security holders of the target company that a notice has been filed with
the PSC which contains substantial additional information about the offering and
which is available for inspection at the PSC's principal office during business
hours. The Company Board by unanimous vote has approved the transactions
contemplated by the Merger Agreement and recommended acceptance of the Offer and
the Merger to the Company's stockholders. While reserving and not waiving its
right to challenge the validity of the PTDL or its applicability to the Offer,
Purchaser is making a Section 8(a) filing with the PSC in order to qualify for
the exemption from the PTDL. Pursuant to Section 10 of the PTDL, Purchaser will
submit the appropriate $100 notice filing fee along with the Section 8(a)
filing. Additional information about the Offer has been filed with the PSC
pursuant to the PTDL and is available for inspection at the PSC office at
Eastgate Office Building, 1010 North 7th Street, Harrisburg, PA 17102-1410
during business hours.
Antitrust. The Offer and the Merger are not subject to the
Hart-Scott-Rodino Antitrust Improvements Act.
Federal Reserve Board Regulations. Regulations G, U and X (the "Margin
Regulations") of the Federal Reserve Board restrict the extension or maintenance
of credit for the purpose of buying or carrying margin stock, including the
Shares, if the credit is secured directly or indirectly by margin stock. Such
secured credit may not be extended or maintained in an amount that exceeds the
maximum loan value of all the direct and indirect collateral securing the
credit, including margin stock and other collateral. As described in Section 10
of the Offer to Purchase, the financing of the Offer will not be directly or
indirectly secured by the
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Shares or other securities which constitute margin stock. Accordingly, all
financing for the Offer will be in full compliance with the Margin Regulations.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) Recommendation of the Company Board
On September 8, 1999, the Company Board, based upon the recommendation of a
special committee of disinterested directors comprised of E. Martin Gibson,
Harvey V. Fineberg, M.D., Ph.D. and William F. Weld (the "Special Committee") by
a unanimous vote of all directors at a special telephonic meeting of the Company
Board on such date, determined that the Merger Agreement and the transactions
contemplated thereby, including without limitation the Offer and the Merger, are
fair to, and in the best interests of, the stockholders of the Company and
approved the Merger Agreement, the purchase of Shares pursuant to the Offer, and
the Merger in accordance with Section 203 of the DGCL and the other transactions
contemplated thereby, and recommended that the Company's stockholders accept the
Offer and tender their Shares pursuant to the Offer and approve and adopt the
Merger Agreement, if required.
(b) Background; Reasons for the Company Board's Recommendation
In the fall of 1998, the Company and AFLAC commenced discussions concerning
a joint marketing alliance pursuant to which the Company would market AFLAC
products to the Company's customers and AFLAC would refer potential new
customers to the Company. Interaction between AFLAC and the Company as a result
of these discussions resulted in discussions between AFLAC and the Company with
respect to the possible acquisition by AFLAC of 100% of the outstanding Shares
of the Company.
On January 29, 1999, AFLAC engaged Merrill Lynch & Co. ("Merrill Lynch") to
provide financial advice regarding AFLAC's possible acquisition of 100% of the
outstanding stock of the Company. AFLAC and its legal and financial advisors
began preliminary due diligence on the Company and engaged in discussions with
senior management of the Company, NovaCare, as the largest shareholder, and
their advisors regarding the potential acquisition of the Company. As a result
of the discussions, AFLAC entered into a confidentiality agreement with the
Company on February 12, 1999. AFLAC conducted further due diligence on the
Company, and AFLAC, the Company, NovaCare and their respective counsel,
investment bankers and advisors engaged in negotiations regarding the terms and
conditions of the proposed acquisition. The parties were, however, unable to
reach agreement with respect to the proposed acquisition, and the discussions
were terminated during the first week of March 1999.
In March 1999, management of the Company began considering pursuing
strategic alternatives. This decision was in response to the announcement by
NovaCare that it would be forced to exit selected long-term care markets and
would continue to lower expenses by reducing labor costs. In addition, NovaCare
announced a definitive agreement to sell its orthotics and prosthetics services
business. NovaCare had previously engaged Wasserstein Perella & Co., Inc.
("Wasserstein Perella"), effective June 30, 1998, to assist NovaCare in
exploring strategic alternatives. Based on these announcements, the Company and
NovaCare determined that they would need to renegotiate the NovaCare Contract to
reflect these changes in NovaCare's ongoing service needs. The Company
anticipated that the events described above would have an adverse impact on the
future operating results of the NovaCare Contract and the Company's
rehabilitation temporary staffing services business. The NovaCare Contract was
subsequently renegotiated, effective July 1, 1999, and replaced with the PROH
Contract and the Corporate Support Services Agreement.
In addition to the sale of its orthotics and prosthetics services business,
NovaCare continued to evaluate its strategic alternatives for obtaining capital
to fund its ongoing working capital needs, satisfying its remaining debt
obligations and maximizing NovaCare's shareholder value. Such alternatives
included the evaluation of NovaCare's long-term care services segment, which was
subsequently divested effective June 1, 1999, replacing NovaCare's current debt
with long-term financing through a high-yield debt offering or private placement
or the sale of one or more of NovaCare's remaining businesses.
In March 1999, in connection with these developments, NovaCare directed
Wasserstein Perella to assist NovaCare in exploring strategic alternatives,
which would possibly include the sale of NovaCare's interest in
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the Company, and the Company engaged the investment banking firm of BancBoston
Robertson Stephens, Inc. ("BancBoston") to assist the Company in exploring
strategic alternatives, which would possibly include the sale of the Company.
During the week of March 23, 1999, Wasserstein Perella, with the Company's
assistance, prepared a confidential information memorandum and a financial
model, and identified at that time 22 potential strategic buyers and 14
potential financial buyers. Each of the potential buyers was then contacted to
determine interest in pursuing a transaction with the Company.
In late March, Patricof and Fidelity Ventures Limited ("Fidelity") were
contacted by Wasserstein Perella to determine their interest in pursuing a
transaction with the Company. Patricof and an affiliate of Fidelity decided to
explore jointly the possibility of acquiring the Company. Patricof and an
affiliate of Fidelity entered into confidentiality agreements, dated March 25,
1999 and March 26, 1999, respectively, with the Company.
On April 12, 1999, Wasserstein Perella, on behalf of the Company, sent
letters to potential acquirers of the Company, including Patricof and Fidelity,
soliciting non-binding indications of interest in the acquisition of the Company
in connection with an auction process to sell the Company.
On April 19, 1999, Patricof and Fidelity submitted a non-binding indication
of interest in purchasing the Company, and subsequently were invited to
participate in the next stage of the process.
Between March 30, 1999 and April 20, 1999, initial meetings and preliminary
due diligence was conducted with eight potential buyers. On or about April 19,
1999, Patricof and Fidelity were among five groups that presented initial
indications of interest. Patricof and Fidelity were included in the group of
three of the five groups that were selected by the Company to proceed with
further due diligence leading to definitive proposals being received on May 28,
1999.
From April 20, 1999, through May 27, 1999, Patricof and Fidelity conducted
extensive due diligence activities including various meetings with senior
management of the Company.
On May 4, 1999, Wasserstein Perella, on behalf of the Company, sent letters
to potential acquirers of the Company (including AFLAC, Fidelity and Patricof)
who expressed a continued interest in the purchase of the Company in which
Wasserstein Perella set forth the timing and procedure for submitting final,
definitive proposals for the acquisition of the Company. The letters indicated
that the proposals should be received by Wasserstein Perella no later than May
17, 1999. Thereafter, the deadline for the submission of final proposals was
extended by Wasserstein Perella to May 28, 1999.
On May 18, 1999, AFLAC submitted an initial, non-binding indication of
interest in acquiring the Company. AFLAC was informed at that time by
Wasserstein Perella that their bid price was not competitive and AFLAC's
participation as a bidder in that auction process ceased.
On May 25, 1999, Patricof and Fidelity contacted AFLAC to determine whether
AFLAC would be interested in joining Patricof and Fidelity in their bid for the
Company. AFLAC decided at that point not to join Patricof and Fidelity in their
bid for the Company. However, senior management of AFLAC and Fidelity continued
to have discussions in June 1999 regarding whether there were other potential
opportunities for the two companies to work together in the PEO industry.
On May 28, 1999, Patricof and Fidelity submitted a formal bid to
Wasserstein Perella for the acquisition of the Company. Shortly thereafter
Patricof and Fidelity were advised that they were not the high bidder and given
the opportunity to increase their bid. Patricof and Fidelity advised Wasserstein
Perella that they would not be willing to materially adjust the bid price. Based
on these discussions, Wasserstein Perella decided to focus its efforts on
another bidder.
On or about June 2, 1999, the Company informed the bidders (including
Patricof and Fidelity) that it would need to revise its financial model due to
recent changes in the Company's financial performance and earnings outlook.
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On June 16, 1999, the Company entered into the Unified Agreement by and
among the Company, Unified, and the shareholders of Unified (the "Unified
Shareholders"). The executed Unified Agreement provided for the acquisition of
all of the capital stock of Unified (the "Unified Transaction") by the Company
subject (i) to the expiration of the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, (ii) the delivery of certain closing
documents by Unified and the Unified Shareholders, and (iii) the absence of any
material adverse change in the condition of Unified.
On or before June 29, 1999, the Company received oral expressions of bid
valuations from interested bidders. The Company selected the preferred bidder
and proceeded to engage in negotiations to attempt to reach a definitive
agreement with that bidder. During the first week of July 1999, the Company
terminated its discussions with the bidder due to its insistence on NovaCare's
receipt of marketable mezzanine financing in conjunction with the bidder's
proposed financing structure.
On July 9, 1999, Wasserstein Perella informed Patricof and Fidelity that
the bid process was being reopened because the Company had been unable to reach
a definitive agreement with the preferred bidder with respect to the sale of the
Company. Thereafter, Patricof and Fidelity had a conference call with senior
management of the Company and were informed that the Company had changed its
earnings outlook. On July 13, 1999, Patricof and Fidelity notified Wasserstein
Perella that additional due diligence, including diligence on the United
Transaction, would be required in order for Patricof and Fidelity to formulate a
new bid.
During July, after receiving the approval of the Company and NovaCare,
there were several discussions between Patricof, Fidelity and AFLAC about
AFLAC's interest in joining with Patricof and Fidelity in a potential new bid
for the Company, with the result that on July 23, 1999, AFLAC, Patricof and
Fidelity sought and received permission from Wasserstein Perella to allow AFLAC
to cooperate and participate with Patricof and Fidelity in any new bid for the
Company. (Patricof, Fidelity and AFLAC are collectively referred to as the
"Equity Investors.")
On July 29, 1999, the Equity Investors received a letter from Wasserstein
Perella outlining the timetable and requirements for a revised bid proposal. The
letter indicated that revised proposals were due by August 4, 1999.
On August 2, 1999, a meeting was held between the Equity Investors and
senior management of the Company for the purpose of updating the Equity
Investors on the performance of the Company and the outstanding issues affecting
completion of the Unified Transaction.
On August 4, 1999, the Equity Investors delivered a bid proposal letter to
Wasserstein Perella providing for the Equity Investors to make a cash tender
offer for the Shares at a price of $2.86 per Share. The Equity Investors'
proposal was contingent, among other things, on the execution of definitive
agreements, the completion of due diligence and the consummation of the
Company's acquisition of Unified.
During August 12 through 15, 1999, there were additional due diligence
activities and negotiations between the Company and the Equity Investors
concerning the potential transaction.
Based on the negotiations between the Equity Investors and the Company over
the course of several days, the Equity Investors on August 14, 1999 increased
their bid proposal to $2.89 per Share and agreed to the modification of certain
provisions of the draft Merger Agreement.
On August 16, 1999, the Company and the Equity Investors executed an
Exclusivity Agreement pursuant to which the Company agreed not to solicit or
participate in discussions with any other person concerning the sale of the
Company. The agreement stated that it would expire upon the earlier of September
9, 1999 or the execution of the Merger Agreement. The agreement set forth that
the parties were negotiating to consummate a transaction whereby the Equity
Investors would acquire the Company at a price of $2.89 per Share for all the
outstanding Shares of the Company.
The Company Board held a special telephonic board meeting on August 17,
1999 and, subject to completion of certain language revisions to the Merger
Agreement, approved the execution of the Merger Agreement and the Offer at a
price of $2.89 per Share. BancBoston delivered its opinion dated August 17,
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1999 that the $2.89 bid price was fair, from a financial point of view, to the
stockholders (other than NovaCare) of the Company.
On August 25, 1999, the Company informed the Equity Investors that the
chief financial officer and chief information officer of the Company had
submitted their resignations. In addition, on August 31, 1999, the Company
informed the Equity Investors that it was highly likely that the Unified
Transaction would not be closing. Over the course of the next few days, the
Equity Investors conducted on-site due diligence interviews with Company
management and orally discussed with the Company submitting a revised proposal
that took into account the exclusion of the Unified Transaction.
On September 1, 1999, the Company approached BancBoston about obtaining a
new fairness opinion in connection with the exclusion of Unified and a possible
revised offer by the Equity Investors. BancBoston and the Company discussed
timing and expense issues in light of the fact that BancBoston would have to
conduct a new analysis excluding Unified. The Company and BancBoston were not
able to reach agreement on the terms for engaging BancBoston in connection with
rendering a new fairness opinion.
On September 3, 1999, the Company executed an engagement letter with CIBC
World Markets Corp. ("CIBC World Markets") whereby CIBC World Markets agreed,
subject to its evaluation and analysis processes, to render a fairness opinion
to the Special Committee in connection with a new offer to purchase all of the
outstanding Shares of the Company.
On September 5, 1999, the Equity Investors discussed with representatives
of NovaCare a range of prices that would be acceptable to NovaCare.
On September 7, 1999, the Equity Investors delivered a revised bid proposal
letter to Wasserstein Perella providing for the Equity Investors to make a cash
tender offer for the Shares at a price of $2.50 per Share. The Equity Investors'
revised proposal reflected the exclusion of the Unified Transaction.
Negotiations continued over the next few days including final negotiations
with respect to the Merger Agreement, Stockholder Agreement and Short-Form
Merger Option Agreement. Definitive agreements dated as of September 8, 1999
were executed, and on September 9, 1999, the Company issued a press release
announcing the Equity Investors offer to purchase all of the outstanding Shares
of the Company for a price of $2.50 per Share. Pursuant to the terms of the
Merger Agreement, the Offer was commenced on September 15, 1999.
REASONS FOR THE COMPANY'S RECOMMENDATION
The Company's Board of Directors, based upon the recommendation of the
Special Committee, believes that the Merger Agreement and the Merger are
advisable and fair to and in the best interests of the Company and its
stockholders and has unanimously approved the Merger Agreement, the Offer and
the Merger.
In reaching it unanimous determination that the Merger Agreement, the Offer
and the Merger are fair to and in the best interests of the Company and its
stockholders, the Company Board discussed the proposed transactions at several
Company Board meetings and consulted with the Company's legal and financial
advisors as well as with the Company's management. The following are the
material factors considered by the Company Board:
(i) that approximately 64% of the outstanding Shares are held, through
NC Resources, by NovaCare and, hence, there is not an active trading market
for the Company's Common Stock and, consequently, there is generally a lack
of liquidity for the Company's stockholders;
(ii) the stockholders of the Company are being afforded an opportunity
to sell all of their Shares for cash at a price which represents a premium
of approximately 25% over the closing market price of the Shares on
September 8, 1999, the date of the Company Board's meeting;
(iii) the opinion of CIBC World Markets, dated September 8, 1999 (the
"CIBC Opinion"), to the effect that, as of such date and based upon and
subject to certain matters and conditions set forth in such opinion, the
offer price of $2.50 per Share, net to the seller in cash, to be received
in the Offer and the
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Merger by holders of Company Common Stock other than Parent and Purchaser,
any affiliates of Parent or Purchaser, NovaCare, any affiliates of NovaCare
and any Company stockholders properly perfecting dissenters' rights was
fair to such holders from a financial point of view. The full text of the
CIBC Opinion which sets forth the assumptions made, the matters considered
and the limitations on the review undertaken, is attached hereto as Annex A
hereto and is incorporated herein by reference. The CIBC Opinion is
directed only to the fairness, from a financial point of view, of the offer
price of $2.50 per Share, net to the seller in cash, to be received by
holders of Company Common Stock other than Parent and Purchaser, any
affiliates of Parent or Purchaser, NovaCare, any affiliates of NovaCare and
any Company stockholders properly perfecting dissenters' rights and is not
intended to constitute a recommendation to any stockholder as to whether or
not such stockholder should tender Shares pursuant to the Offer or how such
stockholder should vote on any matters relating to the Merger. Holders of
Shares are urged to read the CIBC Opinion in its entirety;
(iv) the risks associated with the business of the Company;
(v) the Company Board's view that the terms of the Merger Agreement,
as reviewed by the Company Board with its legal advisors, are advisable and
fair to the Company and its stockholders;
(vi) the terms and conditions of the Offer and the Merger Agreement;
(vii) the representation of Parent and the Purchaser that they will
have sufficient funds available to them to consummate the Offer and the
Merger and the fact that the Offer is not subject to a financing condition;
(viii) the scope and detail of the negotiating process that led to the
finalization of the Merger Agreement; and
(ix) the fact, in management's view, that an extensive auction process
for the Company had been conducted prior to a decision to sell the Company.
The main negative factor considered by the Company Board was that the
stockholders of the Company would not have a continuing interest in the Company
and thus would not be able to participate in any future growth or financial
success of the Company.
The foregoing discussion of the information and factors discussed by the
Company Board is not meant to be exhaustive, but includes material factors
considered by the Company Board. The Company Board did not quantify or attach
any particular weight to the various factors that it considered in reaching its
determination that the Merger and the Offer are in the best interests of the
Company and its stockholders.
Alternatives. It is expected that, if the Shares were not to be purchased
by Purchaser in accordance with the terms of the Offer or if the Merger were not
to be consummated, the Company's current management, under the general direction
of the Company Board, will continue to manage the Company as an ongoing business
in accordance with the Company's current long-term strategic plan.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
Pursuant to an engagement letter (the "Engagement Letter") dated September
3, 1999 by and between CIBC World Markets and the Company, CIBC World Markets
agreed to render a fairness opinion to the Special Committee in connection with
the $2.50 per Share offer to purchase all of the outstanding Shares. In exchange
for CIBC World Markets' services, the Company agreed to pay CIBC World Markets
an engagement fee of $75,000 payable in cash upon the execution of the
Engagement Letter and an opinion fee of $250,000, payable in cash upon the
earlier of the delivery of the oral or written CIBC Opinion. The engagement fee
was credited against the opinion fee. In addition, whether or not the Offer or
the Merger is completed, the Company has agreed to reimburse CIBC World Markets
periodically for reasonable out-of-pocket expenses, including the fees and
disbursements of its counsel, regardless of whether an Offer or Merger occurs or
an opinion is rendered, and to indemnify CIBC World Markets against certain
expenses and liabilities incurred in connection with its engagement, including,
but not limited to, liabilities under federal securities laws.
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CIBC World Markets and its affiliates, in the ordinary course of business,
may from time to time actively trade securities, including derivative securities
of the Company or Parent for their own account and for the accounts of customers
and, accordingly, may at any time hold a long or short position in such
securities.
Except as set forth above, neither the Company nor any person acting on its
behalf has or currently intends to employ, retain or compensate any person to
make solicitations or recommendations to the stockholders of the Company on its
behalf with respect to the Offer or the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) To the best of the knowledge of the Company, no transactions in the
Shares have been effected during the past 60 days by the Company or, to the best
of the Company's knowledge, by any executive officer, director, affiliate or
subsidiary of the Company.
(b) To the best of the Company's knowledge, each executive officer and
director of the Company currently intends to tender all Shares over which he or
she has sole dispositive power to the Purchaser. NovaCare has signed the
Stockholder Agreement, obligating it to tender its Shares, subject to the terms
of such agreement and applicable law. In addition, the Company has agreed to
grant Parent an irrevocable option to purchase up to 19.9% of its Shares
pursuant to the Short-Form Merger Option Agreement, exerciseable in certain
circumstances.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY SUBJECT COMPANY
(a) Except as set forth in this Schedule 14D-9, the Company is not engaged
in any negotiation in response to the Offer which relates to or would result in
(i) an extraordinary transaction, such as a merger or reorganization, involving
the Company or any subsidiary of the Company; (ii) a purchase, sale or transfer
of a material amount of assets by the Company or any subsidiary of the Company;
(iii) a tender offer for or other acquisition of securities by or of the
Company; or (iv) any material change in the present capitalization or dividend
policy of the Company.
(b) Except as described above or in Item 3(b) or 4(b) above, there are no
transactions, Board of Directors' resolutions, agreements in principle or signed
contracts in response to the Offer that relate to or would result in one or more
of the events referred to in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
None.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- ------------------------------------------------------------
(a)(1) -- Offer to Purchase, dated September 15, 1999 (Incorporated by
reference to Exhibit (a)(1) to Schedule 14D-1 filed by
Purchaser and Parent with the Commission on September 15,
1999).*
(a)(2) -- Letter of Transmittal (Incorporated by reference to Exhibit
(a)(2) to Schedule 14D-1 filed by Purchaser and Parent with
the Commission on September 15, 1999).*
(a)(3) -- Notice of Guaranteed Delivery (Incorporated by reference to
Exhibit (a)(3) to Schedule 14D-1 filed by Purchaser and
Parent with the Commission on September 15, 1999).*
(a)(4) -- Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees (Incorporated by reference to
Exhibit (a)(4) to Schedule 14D-1 filed by Purchaser and
Parent with the Commission on September 15, 1999).*
(a)(5) -- Letter to Clients for use by Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees (Incorporated by
reference to Exhibit (a)(5) to Schedule 14D-1 filed by
Purchaser and Parent with the Commission on September 15,
1999).*
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24
EXHIBIT
NUMBER DESCRIPTION
------- ------------------------------------------------------------
(a)(6) -- Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 (Incorporated by reference to
Exhibit (a)(6) to Schedule 14D-1 filed by Purchaser and
Parent with the Commission on September 15, 1999).*
(a)(7) -- Summary Advertisement (Incorporated by reference to Exhibit
(a)(7) to Schedule 14D-1 filed by Purchaser and Parent with
the Commission on September 15, 1999).*
(a)(8) -- Opinion of CIBC World Markets Corp. dated September 8, 1999
(Included as Annex A to the Company's
Solicitation/Recommendation Statement on Schedule 14D-9).*
(a)(9) -- Press Release of the Company dated September 9, 1999.
(a)(10) -- Letter to Stockholders dated September 15, 1999.*
(c)(1) -- Agreement and Plan of Merger, dated as of September 8, 1999,
by and among Parent, Purchaser and the Company (Incorporated
by reference to Exhibit (c)(1) to Schedule 14D-1 filed by
Purchaser and Parent with the Commission on September 15,
1999).
(c)(2) -- Stockholder Agreement, dated as of September 8, 1999, by and
between Parent, the Company, NC Resources, Inc. and
NovaCare, Inc. (Incorporated by reference to Exhibit (c)(2)
to Schedule 14D-1 filed by Purchaser and Parent with the
Commission on September 15, 1999).
(c)(3) -- Short-Form Merger Option Agreement, dated as of September 8,
1999, among Parent, Purchaser and the Company (Incorporated
by reference to Exhibit (c)(3) to Schedule 14D-1 filed by
Purchaser and Parent with the Commission on September 15,
1999).
(c)(4) -- Confidentiality Agreement, dated as of March 25, 1999, by
and between NovaCare, Inc., the Company and Fidelity Capital
Associates, Inc. (Incorporated by reference to Exhibit
(c)(4) to Schedule 14D-1 filed by Purchaser and Parent with
the Commission on September 15, 1999).
(c)(5) -- Confidentiality Agreement, dated as of March 26, 1999, by
and between NovaCare, Inc., the Company and Patricof & Co.
Ventures, Inc. (Incorporated by reference to Exhibit (c)(5)
to Schedule 14D-1 filed by Purchaser and Parent with the
Commission on September 15, 1999).
(c)(6) -- Confidentiality Agreement, dated as of February 12, 1999, by
and between NovaCare, Inc., the Company and AFLAC
Incorporated (Incorporated by reference to Exhibit (c)(6) to
Schedule 14D-1 filed by Purchaser and Parent with the
Commission on September 15, 1999).
(c)(7) -- Exclusivity Agreement, dated as of August 16, 1999, by and
among the Company, NovaCare, Inc. and the Equity Investors
(Incorporated by reference to Exhibit (c)(5) to Schedule
14D-1 filed by Purchaser and Parent with the Commission on
September 15, 1999).
(c)(8) -- Excerpts from the Company's 1998 Annual Proxy Statement
dated October 28, 1998 (Incorporated by reference to the
Company's definitive 1998 Annual Proxy Statement (filed with
the Commission on October 27, 1998).
(c)(9) -- Loren Hulber Transaction Bonus Agreement.
(c)(10) -- Aven Kerr Transaction Bonus Agreement.
(c)(11) -- Christina Harris Transaction Bonus Agreement.
(c)(12) -- James E. Boyd Transaction Bonus Agreement.
(c)(13) -- Daniel R. Rishavy Transaction Bonus Agreement.
(c)(14) -- PROH Contract dated as of July 1, 1999, by and between the
Company and NovaCare, Inc.
(c)(15) -- Corporate Support Services Agreement dated as of July 1,
1999 by and between the Company and NovaCare, Inc.
(c)(16) -- NovaCare Indemnification Letter dated September 8, 1999.
(c)(17) -- Transfer and Licensing Agreement dated September 8, 1999.
(c)(18) -- Unified/Surety Bond Indemnification Letter dated September
8, 1999 (Incorporated by reference to Exhibit (c)(8) to
Schedule 14D-1 filed by Purchaser and Parent with the
Commission on September 5, 1999).
- ---------------
* Included in copies mailed to Stockholders.
23
25
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
NOVACARE EMPLOYEE SERVICES, INC.
By /s/ LOREN J. HULBER
------------------------------------
Loren J. Hulber
President and Chief Executive
Officer
Dated: September 15, 1999
24
26
Annex A
CIBC CIBC WORLD MARKETS CORP.
World Markets One World Financial Center
200 Liberty Street
New York, NY 10281
Tel: 212-667-7000
Fax: 800-999-6726
The Special Committee of the Board of Directors September 8, 1999
NovaCare Employee Services, Inc.
Valley Forge Corporate Center
2621 Van Buren Avenue
Norristown, PA 19403
Members of the Board
You have asked CIBC World Markets Corp. ("CIBC World Markets")
to render a written opinion ("Opinion") to the Special Committee of the Board of
Directors as to the fairness to the Holders of the Common Stock (as defined
herein) of NovaCare Employee Services, Inc. ("NCES"), from a financial point of
view, of the consideration to be received pursuant to the draft Merger
Agreement, dated as of August 30, 1999 (the "Merger Agreement"), by and among
Plato Holdings, LLC ("Acquiror"), New Plato Acquisition, Inc. ("Acquisition
Sub"), and NCES if such draft is executed by each of the parties thereto on the
date hereof in the form presented to us. The Merger Agreement provides for,
among other things, the commencement by Acquisition Sub of a tender offer to
purchase all outstanding shares of common stock, par value $0.01 per share, of
NCES (the "NCES Stock" and, such tender offer, the "Tender Offer"). The offer
price provided in the Merger Agreement is $2.50 per share for each share of
common stock net to the seller in cash (the "Cash Consideration"). Subsequent to
the Tender Offer, Acquisition Sub will merge with and into NCES (the "Merger").
Pursuant to the Merger each outstanding share of NCES Stock not previously
tendered will be converted into the right to receive the applicable Cash
Consideration (the "Conversion"). NCES will also enter into a Short Form Merger
Option Agreement with the Acquiror and the Acquisition Sub (the "Stock Option
Agreement"). The Tender Offer, Merger, Conversion and Stock Option Agreement
shall be collectively referred to as the "Transaction." Holders of the Common
Stock shall be defined as all holders of NCES stock other than Acquiror,
Acquisition Sub, any affiliates of Acquiror or Acquisition Sub, NovaCare, Inc.,
any affiliates of NovaCare, Inc. and any NCES stockholders properly exercising
dissenters' rights.
In arriving at our Opinion, we:
(a) reviewed the Merger Agreement and Stock Option Agreement;
(b) reviewed NCES's audited financial statements and certain
unaudited financial statements and other information;
(c) reviewed financial projections of NCES prepared by NCES's
management and held discussions with the senior management with respect to the
business and prospects for
A-1
27
The Special Committee of the Board of Directors CIBC WORLD MARKETS CORP.
NovaCare Employee Services, Inc.
September 8, 1999
Page 2
future growth of NCES, including senior management's views as to the alternative
business strategies available to NCES;
(d) reviewed public information concerning NCES;
(e) reviewed the historical market prices and trading volume
for NCES common stock;
(f) reviewed and analyzed certain publicly available financial
data and historical trading price information for certain public companies we
deemed comparable to NCES;
(g) reviewed and analyzed certain publicly available
information for transactions that we deemed comparable to the Transaction; and
(h) performed such analyses and investigations and reviewed
such other information as we deemed appropriate.
In rendering our Opinion, we relied upon and assumed, without
independent verification or investigation, the accuracy and completeness of all
of the financial and other information provided to or discussed with us by NCES
and its employees, representatives and affiliates or which was publicly
available. With respect to forecasts of future financial condition and operating
results of NCES provided to or discussed with us, we assumed, at the direction
of NCES's management, without independent verification or investigation, that
such forecasts were reasonably prepared on bases reflecting the best available
information, estimates and judgments of NCES's management. We have neither made
nor obtained any independent evaluations or appraisals of the assets or the
liabilities of NCES. The Opinion rendered herein does not constitute a
recommendation of the Transaction over any other alternative transaction which
may be available to the Company. We are not expressing any opinion as to the
underlying valuation, future performance or long-term viability of NCES, or the
price at which NCES Stock will trade subsequent to announcement of the
Transaction. We do not express any opinion as to (i) the value of any employee
agreement or any other agreement or arrangement entered into by parties in
connection with the Transaction, or (ii) any tax or other consequence that may
result from the Transaction. Our Opinion is necessarily based on the information
available to us and general economic, financial and stock market conditions and
circumstances as they exist and can be evaluated by us on the date hereof. It
should be understood that, although subsequent developments may affect this
Opinion, we do not have any obligation to update, revise or reaffirm the
Opinion.
As part of our investment banking business, we are regularly
engaged in valuations of businesses and securities in connection with
acquisitions and mergers, underwritings, secondary distributions of securities,
private placements and valuations for other purposes.
A-2
28
The Special Committee of the Board of Directors CIBC WORLD MARKETS CORP.
NovaCare Employee Services, Inc.
September 8, 1999
Page 3
In rendering this Opinion to the Special Committee of the
Board of Directors of NCES, we will receive a fee upon the delivery of this
Opinion. In the ordinary course of business, CIBC World Markets and its
affiliates may actively trade securities of NCES for their own account and for
the accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
Our Opinion does not address, nor were we asked to address,
the relative merits of the Tender Offer and the Merger, the Transaction
structure, fairness of the structure (other than the Cash Consideration), or
terms of the Transaction, nor the other business strategies that the Company's
Board of Directors considered or may be considering.
We were not authorized, nor were we requested, to solicit and
did not solicit third parties regarding alternatives to the Tender Offer and
Merger, nor were we involved, or requested to be involved, in the sale process.
Based upon and subject to the foregoing, and such other
factors as we deemed relevant, it is our opinion that, as of the date hereof,
the Cash Consideration to be received by the Holders of the Common Stock in the
Transaction is fair to such holders from a financial point of view. This Opinion
is for the use of the Special Committee of the Board of Directors of NCES and
does not constitute a recommendation to any stockholder as to whether or not
such stockholder should tender shares of NCES Stock in the Tender Offer or how
such stockholder should vote on any matters relating to the Merger.
Neither this Opinion nor the services provided by CIBC World
Markets in connection herewith may be publicly disclosed or referred to in any
manner by NCES without the prior written approval of CIBC World Markets. This
Opinion is rendered to you and solely for your benefit only in connection with
the subject matter referred to. This Opinion may not be relied upon by you for
any other purpose or furnished to, quoted or relied upon by any other person,
firm or company for any purpose without our prior written consent.
Notwithstanding the foregoing, this Opinion may be included in its entirety and
references to this Opinion may be included in any prospectus, proxy statement or
solicitation/recommendation statement required to be distributed to the
Company's stockholders in connection with the Transaction so long as such
inclusion or reference is in form and substance acceptable to CIBC World Markets
and our counsel.
Very truly yours,
CIBC WORLD MARKETS CORP.
A-3
29
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ------------------------------------------------------------ ----
(a)(1) -- Offer to Purchase, dated September 15, 1999 (Incorporated by
reference to Exhibit (a)(1) to Schedule 14D-1 filed by
Purchaser and Parent with the Commission on September 15,
1999).*.....................................................
(a)(2) -- Letter of Transmittal (Incorporated by reference to Exhibit
(a)(2) to Schedule 14D-1 filed by Purchaser and Parent with
the Commission on September 15, 1999).*.....................
(a)(3) -- Notice of Guaranteed Delivery (Incorporated by reference to
Exhibit (a)(3) to Schedule 14D-1 filed by Purchaser and
Parent with the Commission on September 15, 1999).*.........
(a)(4) -- Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees (Incorporated by reference to
Exhibit (a)(4) to Schedule 14D-1 filed by Purchaser and
Parent with the Commission on September 15, 1999).*.........
(a)(5) -- Letter to Clients for use by Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees (Incorporated by
reference to Exhibit (a)(5) to Schedule 14D-1 filed by
Purchaser and Parent with the Commission on September 15,
1999).*.....................................................
(a)(6) -- Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 (Incorporated by reference to
Exhibit (a)(6) to Schedule 14D-1 filed by Purchaser and
Parent with the Commission on September 15, 1999).*.........
(a)(7) -- Summary Advertisement (Incorporated by reference to Exhibit
(a)(7) to Schedule 14D-1 filed by Purchaser and Parent with
the Commission on September 15, 1999).*.....................
(a)(8) -- Opinion of CIBC World Markets Corp. dated September 8, 1999
(Included as Annex A to the Company's
Solicitation/Recommendation Statement on Schedule
14D-9).*....................................................
(a)(9) -- Press Release of the Company dated September 9, 1999........
(a)(10) -- Letter to Stockholders dated September 15, 1999.*...........
(c)(1) -- Agreement and Plan of Merger, dated as of September 8, 1999,
by and among Parent, Purchaser and the Company (Incorporated
by reference to Exhibit (c)(1) to Schedule 14D-1 filed by
Purchaser and Parent with the Commission on September 15,
1999). .....................................................
(c)(2) -- Stockholder Agreement, dated as of September 8, 1999, by and
between Parent, the Company, NC Resources, Inc. and
NovaCare, Inc. (Incorporated by reference to Exhibit (c)(2)
to Schedule 14D-1 filed by Purchaser and Parent with the
Commission on September 15, 1999). .........................
(c)(3) -- Short-Form Merger Option Agreement, dated as of September 8,
1999, among Parent, Purchaser and the Company (Incorporated
by reference to Exhibit (c)(3) to Schedule 14D-1 filed by
Purchaser and Parent with the Commission on September 15,
1999). .....................................................
(c)(4) -- Confidentiality Agreement, dated as of March 25, 1999, by
and between NovaCare, Inc., the Company and Fidelity Capital
Associates, Inc. (Incorporated by reference to Exhibit
(c)(4) to Schedule 14D-1 filed by Purchaser and Parent with
the Commission on September 15, 1999). .....................
(c)(5) -- Confidentiality Agreement, dated as of March 26, 1999, by
and between NovaCare, Inc., the Company and Patricof & Co.
Ventures, Inc. (Incorporated by reference to Exhibit (c)(5)
to Schedule 14D-1 filed by Purchaser and Parent with the
Commission on September 15, 1999). .........................
(c)(6) -- Confidentiality Agreement, dated as of February 12, 1999, by
and between NovaCare, Inc., the Company and AFLAC
Incorporated (Incorporated by reference to Exhibit (c)(6) to
Schedule 14D-1 filed by Purchaser and Parent with the
Commission on September 15, 1999). .........................
(c)(7) -- Exclusivity Agreement, dated as of August 16, 1999, by and
among the Company, NovaCare, Inc. and the Equity Investors
(Incorporated by reference to Exhibit (c)(5) to Schedule
14D-1 filed by Purchaser and Parent with the Commission on
September 15, 1999). .......................................
30
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ------------------------------------------------------------ ----
(c)(8) -- Excerpts from the Company's 1998 Annual Proxy Statement
dated October 28, 1998 (Incorporated by reference to the
Company's definitive 1998 Annual Proxy Statement (filed with
the Commission on October 27, 1998). .......................
(c)(9) -- Loren Hulber Transaction Bonus Agreement. ..................
(c)(10) -- Aven Kerr Transaction Bonus Agreement. .....................
(c)(11) -- Christina Harris Transaction Bonus Agreement. ..............
(c)(12) -- James E. Boyd Transaction Bonus Agreement. .................
(c)(13) -- Daniel R. Rishavy Transaction Bonus Agreement. .............
(c)(14) -- PROH Contract dated as of July 1, 1999, by and between the
Company and NovaCare, Inc. .................................
(c)(15) -- Corporate Support Services Agreement dated as of July 1,
1999 by and between the Company and NovaCare, Inc. .........
(c)(16) -- NovaCare Indemnification Letter dated September 8, 1999. ...
(c)(17) -- Transfer and Licensing Agreement dated September 8,
1999. ......................................................
(c)(18) -- Unified/Surety Bond Indemnification Letter dated September
8, 1999 (Incorporated by reference to Exhibit (c)(8) to
Schedule 14D-1 filed by Purchaser and Parent with the
Commission on September 5, 1999). ..........................
- ---------------
* Included in copies mailed to Stockholders.