<PAGE>
INTENSIVA HEALTHCARE CORPORATION
7733 FORSYTH BOULEVARD, SUITE 800
ST. LOUIS, MISSOURI 63105
----------------
INFORMATION STATEMENT PURSUANT
TO SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
----------------
NO VOTE OR OTHER ACTION OF THE COMPANY'S STOCKHOLDERS
IS REQUIRED IN CONNECTION WITH THIS INFORMATION STATEMENT.
NO PROXIES ARE BEING SOLICITED AND
YOU ARE REQUESTED NOT TO SEND THE COMPANY A PROXY.
----------------
This information statement (the "Information Statement"), which is being
mailed on or about November 17, 1998 to the holders of shares of the common
stock, par value $0.001 per share (the "Common Stock"), of Intensiva HealthCare
Corporation, a Delaware corporation (the "Company"), is being furnished in
connection with the anticipated designation by Select Medical of Mechanicsburg,
Inc., a Delaware corporation ("Purchaser") and a wholly owned subsidiary of
Select Medical Corporation, a Delaware corporation ("Parent"), of persons (the
"Purchaser Designees") to the Board of Directors of the Company (the "Board").
Such designation is to be made pursuant to an Agreement and Plan of Merger
dated as of November 9, 1998 (the "Merger Agreement") among the Company, Parent
and Purchaser. Terms not defined in this Information Statement shall have the
meaning ascribed to them in the Merger Agreement.
Pursuant to the Merger Agreement, Purchaser commenced a cash tender offer on
November 17, 1998 to purchase all of the issued and outstanding shares (the
"Shares") of Common Stock at a price of $9.625 per Share, net to the seller in
cash, without interest, as described in Purchaser's Offer to Purchase dated
November 17, 1998 and the related Letter of Transmittal (which Offer to
Purchase and related Letter of Transmittal together constitute the "Offer").
The Offer is scheduled to expire at 12:00 Midnight, New York City time, on
Tuesday, December 15, 1998, unless extended (the "Expiration Date"). The Offer
is conditioned upon, among other things, (i) there being validly tendered and
not withdrawn prior to the Expiration Date that number of Shares which, when
added to the Shares beneficially owned by Parent (if any), constitutes at least
ninety percent of the Shares outstanding on a fully diluted basis (the "Minimum
Condition") and (ii) all applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, having expired or been
terminated. The Offer is also subject to the other conditions set forth in the
Offer to Purchase. Purchaser has reserved the right (subject to the terms of
the Merger Agreement and the applicable rules and regulations of the Securities
and Exchange Commission (the "SEC")) to waive or reduce the Minimum Condition
and to elect to purchase, pursuant to the Offer, fewer than the minimum number
of Shares necessary to satisfy the Minimum Condition; provided that, without
the prior written consent of the Company, Purchaser may not waive or reduce the
Minimum Condition to less than two-thirds of the outstanding Shares on a fully
diluted basis.
<PAGE>
The Merger Agreement also provides for the merger (the "Merger") of Purchaser
with and into the Company as promptly as practicable after consummation of the
Offer and satisfaction or waiver, if permissible, of all conditions, including
the purchase of Shares pursuant to the Offer. Following the consummation of the
Merger (the "Effective Time"), the Company will be the surviving corporation
(the "Surviving Corporation") and a wholly owned subsidiary of Parent. In the
Merger, each Share issued and outstanding immediately prior to the Effective
Time (other than Shares held in the treasury of the Company or by Parent,
Purchaser, or any indirect or direct wholly owned subsidiary of the Parent or
the Company, all of which will be cancelled, and other than Shares, if any,
held by stockholders who have perfected rights as dissenting stockholders under
the Delaware General Corporation Law (the "Delaware Law")) will be converted
into the right to receive cash in an amount of $9.625 per Share.
RIGHT TO DESIGNATE DIRECTORS; THE PURCHASER DESIGNEES
The Merger Agreement provides that concurrently with the purchase by
Purchaser of Shares pursuant to the Offer, and from time to time thereafter,
Purchaser shall be entitled to designate up to such number of directors,
rounded up to the next whole number, on the Board to give Purchaser
representation on the Board that equals the product of the total number of
directors on the Board (giving effect to the election of any additional
directors pursuant to the Merger Agreement) multiplied by the percentage that
the aggregate number of Shares purchased by Purchaser in the Offer bears to the
total number of outstanding Shares then outstanding, and the Company shall, at
such time, promptly take all actions necessary to cause Purchaser's designees
to be appointed as directors of the Company, including increasing the size of
the Board or securing the resignations of incumbent directors or both.
Following the election of designees of Purchaser pursuant to the Merger
Agreement and prior to the Effective Time, any amendment of the Merger
Agreement or the Certificate of Incorporation or By-laws of the Company, any
termination of the Merger Agreement by the Company, any extension by the
Company of the time for the performance of any obligations or other acts of
Parent or Purchaser or any waiver of any of the Company's rights thereunder
shall require the concurrence of a majority of the directors of the Company
then in office who neither were designated by Purchaser nor are employees of
the Company (the "Independent Directors"), or if there is only one Independent
Director, the concurrence of such Independent Director. The Company has agreed
to use its best efforts to ensure that at least one Independent Director remain
on the Board until the Effective Time.
The terms of the Merger Agreement, a summary of the events leading up to the
Offer and the execution of the Merger Agreement and other information
concerning the Offer and the Merger are contained in the Offer to Purchase and
in the Solicitation/Recommendation Statement on Schedule 14D-9 of the Company
(the "Schedule 14D-9") with respect to the Offer, copies of which are being
delivered to stockholders of the Company contemporaneously herewith. Certain
other documents (including the Merger Agreement) were filed with the SEC as
exhibits to the Schedule 14D-9 and as exhibits to the Tender Offer Statement on
Schedule 14D-1 of the Purchaser and Parent (the "Schedule 14D-1"). The exhibits
to the Schedule 14D-9 and the Schedule 14D-1 may be examined at, and copies
thereof may be obtained from, the regional offices of, and public and reference
facilities maintained by, the SEC (except that the exhibits thereto cannot be
obtained from the regional offices of the SEC) in the manner set forth in
Sections 8 and 9 of the Offer to Purchase.
2
<PAGE>
The Company has been informed that the Purchaser will obtain all funds
required by Purchaser to consummate the purchase of Shares in the Offer and the
Merger (currently estimated to be $130 million) from Parent in the form of
capital contributions and/or advances. Parent has obtained commitments from
certain of its existing stockholders to invest an amount of up to $130 million
in debt and equity securities of Parent, which commitments are subject to, and
will be funded at the time of, the acquisition by Parent or Purchaser of at
least a 90% interest in the Company at a price per Share not to exceed $9.625
in cash in either a tender offer or merger. Parent plans to obtain a
significant portion of the funds for such capital contributions or advances
required to purchase the Shares from a portion of the aforementioned investment
commitments by its existing shareholders and from borrowings under credit
facilities that Parent will seek to obtain from commercial banks and other
financing sources.
No action is required by the stockholders of the Company in connection with
the election or appointment of the Purchaser Designees to the Board. However,
Section 14(f) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), requires the mailing to the Company's stockholders of the information
set forth in this Information Statement prior to a change in a majority of the
Company's directors otherwise than at a meeting of the Company's stockholders.
The information contained in this Information Statement concerning Parent,
Purchaser and the Purchaser Designees has been furnished to the Company by such
persons, and the Company assumes no responsibility for the accuracy or
completeness of such information. The Schedule 14D-1 indicates that the
principal executive offices of Parent are located at 4718 Old Gettysburg Road,
P.O. Box 2034, Mechanicsburg, Pennsylvania 17055 and that the principal offices
of Purchaser are located at c/o Select Medical Corporation at 4718 Old
Gettysburg, P.O. Box 2034, Mechanicsburg, Pennsylvania 17055.
3
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of shares of the Company's outstanding Common Stock as of November 9,
1998, by (i) each person known by the Company to be the beneficial owner of
more than 5 percent of the outstanding shares of Common Stock, (ii) each
director or executive officer of the Company, and (iii) all directors and
executive officers of the Company as a group. Except as otherwise indicated,
the persons listed below have sole voting and investment power with respect to
all shares of Common Stock owned by them, except to the extent such power may
be shared with a spouse.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
--------------------
BENEFICIAL OWNER NUMBER PERCENT(1)
- ---------------- --------- ----------
<S> <C> <C>
Sierra Ventures(2)......................................... 998,744 9.91%
300 Sand Hill Road
Building Four, Suite 210
Menlo Park, California 94025
James B. Tananbaum, M.D.(3)................................ 1,021,369 10.13%
Schroder(4)................................................ 580,994 5.76%
c/o Collinson Howe & Lennox, L.L.C.
1055 Washington Boulevard
Stamford, Connecticut 06901
Jeffrey J. Collinson(5).................................... 601,017 5.96%
Three Arch(6).............................................. 833,281 8.27%
2800 Sand Hill Road
Suite 270
Menlo Park, California 94025
Wilfred E. Jaeger, M.D.(7)................................. 838,906 8.32%
Mayfield(8)................................................ 1,208,233 11.99%
2800 Sand Hill Road
Menlo Park, California 94025
David L. Steffy(9)......................................... 479,712 4.76%
Michael R. Hogan (10)...................................... 26,494 (15)
Phillip M. Nudelman(11).................................... 32,812 (15)
David W. Cross(12)......................................... 300,587 2.98%
John R. Lewis(13).......................................... 346,087 3.43%
John P. Keefe(14).......................................... 87,659 (15)
All Directors and Executive Officers
(9 persons)............................................... 3,734,643 36.56%
</TABLE>
- --------
(1) Pursuant to rules of the SEC certain shares of Common Stock which a person
has the right to acquire within 60 days pursuant to the exercise of stock
options are deemed to be held and to be outstanding for the purpose of
computing the percentage ownership of such person, but are not deemed
outstanding for the purpose of computing the percentage ownership of any
other person. Each beneficial owner's percentage ownership is based upon
10,078,838 shares of Common Stock issued and outstanding as of November 9,
1998.
(2) Includes 960,319 shares held by Sierra Ventures IV, L.P. and 38,425 shares
held by Sierra Ventures IV International, L.P. (collectively these
entities are referred to as "Sierra Ventures"). James B. Tananbaum, M.D.,
a Director of the Company, shares voting and investment powers with
respect to such shares. Dr. Tananbaum disclaims beneficial ownership of
shares held by Sierra Ventures, except to the extent of his proportionate
interest therein.
4
<PAGE>
(3) Includes 960,319 shares held by Sierra Ventures IV, L.P. and 38,425 shares
held by Sierra Ventures IV International, L.P. James B. Tananbaum, M.D., a
Director of the Company, shares voting and investment powers with respect
to such shares. Dr. Tananbaum disclaims beneficial ownership of shares
held by Sierra Ventures, except to the extent of his proportionate
interest therein. Mr. Tananbaum holds options for 10,000 shares, of which
5,625 are exercisable within 60 days of November 9, 1998 and are included
in the shares beneficially owned. Dr. Tananbaum also holds 2,000 shares in
an IRA of which he is the beneficiary.
(4) Includes 262,400 shares held by Schroders Incorporated, 254,874 shares
held by Schroder Ventures Limited Partnership and 63,720 shares held by
Schroder Ventures U.S. Trust (collectively these entities are referred to
as "Schroder"). Jeffrey J. Collinson, a Director of the Company, shares
voting and investment power with respect to such shares. Mr. Collinson
disclaims beneficial ownership of shares held by the Schroder entities,
except to the extent of his proportionate interest therein.
(5) Includes 262,400 shares held by Schroders Incorporated, 254,874 shares
held by Schroder Ventures Limited Partnership and 63,720 shares held by
Schroder Ventures U.S. Trust. Jeffrey J. Collinson, a Director of the
Company, shares voting and investment power with respect to such shares.
Mr. Collinson disclaims beneficial ownership of shares held by the
Schroder entities, except to the extent of his proportionate interest
therein. Mr. Collinson holds options for 10,000 shares, of which 5,625 are
exercisable within 60 days of November 9, 1998 and are included in the
shares beneficially owned. Mr. Collinson also holds 5,948 shares in an IRA
of which he is the beneficiary, and holds 1,117 shares through other
entities controlled by him.
(6) Includes 680,042 shares held by Three Arch Partners, L.P. and 153,239
shares held by Three Arch Associates, L.P. (collectively these entities
are referred to as "Three Arch"). Wilfred E. Jaeger, M.D. shares voting
and investment power with respect to such shares. Dr. Jaeger disclaims
beneficial ownership of shares held by Three Arch, except to the extent of
his proportionate interest therein. Messrs. Lewis and Steffy are limited
partners of Three Arch Partners, L.P., but do not have voting or
investment power with respect to such shares.
(7) Includes 680,042 shares held by Three Arch Partners, L.P. and 153,239
shares held by Three Arch Associates, L.P. Wilfred E. Jaeger, M.D., a
Director of the Company, shares voting and investment power with respect
to such shares. Dr. Jaeger disclaims beneficial ownership of shares held
by Three Arch, except to the extent of his proportionate interest therein.
Dr. Jaeger holds options for 10,000 shares, of which 5,625 are exercisable
within 60 days of November 9, 1998 and are included in the shares
beneficially owned.
(8) Includes 1,147,821 shares held by Mayfield VIII and 60,412 shares held by
Mayfield Associates Fund II (collectively these entities are referred to
as "Mayfield").
(9) Mr. Steffy holds options for 10,000 shares, of which 5,625 are exercisable
within 60 days of November 9, 1998 and are included in the shares
beneficially owned.
(10) Mr. Hogan holds options for 31,000 shares, of which 16,494 are exercisable
within 60 days of November 9, 1998 and are included in the shares
beneficially owned.
(11) Dr. Nudelman holds options for 37,500 shares, of which 32,812 are
exercisable within 60 days of November 9, 1998 and are included in the
shares beneficially owned.
(12) Amount includes 1,500 shares owned by Mr. Cross' spouse, 250 shares held
by Mr. Cross as custodian for John David Cross, and 250 shares held by Mr.
Cross as custodian for Kathleen Cross. Mr. Cross holds options for 33,000
shares, of which 19,800 are exercisable within 60 days of November 9, 1998
and are included in shares beneficially owned.
(13) Mr. Lewis holds options for 33,000 shares, of which 19,800 are exercisable
within 60 days of November 9, 1998, and are included in the shares
beneficially owned.
(14) Mr. Keefe holds options for 94,917 shares, of which 24,776 are exercisable
within 60 days of November 9, 1998, and are included in the shares
beneficially owned.
(15) Less than one percent.
5
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
THE PURCHASER DESIGNEES
Purchaser has informed the Company that each of the Purchaser Designees
listed below has consented to act as a director of the Company.
None of the Purchaser Designees currently is a director of, or holds any
position with, the Company. To the best knowledge of the Company, none of the
Purchaser Designees or their associates beneficially owns any equity
securities, or rights to acquire any equity securities, of the Company or has
been involved in any transactions with the Company or any of its directors or
executive officers that are required to be disclosed pursuant to the rules and
regulations of the SEC.
It is expected that the Purchaser Designees may assume office at any time
following the purchase by Purchaser of such number of Shares that satisfies the
Minimum Condition, which purchase cannot be earlier than December 15, 1998 and
that, upon assuming office, the Purchaser Designees will thereafter constitute
at least a majority of the Board.
Biographical information concerning each of the Purchaser Designees,
directors and executive officers is presented on the following pages.
PURCHASER DESIGNEES
The following table sets forth the name and present principal occupation or
employment, and material occupations, positions, offices or employments for the
past five years, of each Purchaser Designee. Unless otherwise indicated, each
such person is a citizen of the United States of America and the business
address of each such person is c/o Select Medical Corporation, 4718 Old
Gettysburg Road, P.O. Box 2034, Mechanicsburg, Pennsylvania 17055.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT; MATERIAL POSITIONS
NAME AND ADDRESS HELD DURING THE PAST FIVE YEARS
---------------- -------------------------------
<S> <C>
Rocco A. Ortenzio....... Mr. Ortenzio co-founded Parent and has served as its Chairman and
Chief Executive Officer since February 1997. In 1986, he co-founded
Continental Medical Systems, Inc. ("CMS") and served as its
Chairman and Chief Executive Officer until July 1995, when it
merged with Horizon Healthcare Corporation. He was a consultant to
Horizon/CMS Healthcare from 1995 to 1997. Mr. Ortenzio received a
B.S. from West Chester University in 1955 and graduated from the
University of Pennsylvania School of Physical Therapy in 1956. Mr.
Ortenzio serves as a Director of Quorum Health Group, Inc. and
PHICO Insurance Company. He also serves on the Board of Governors
of the Pennsylvania State System of Higher Education (appointed by
Governor Ridge and confirmed by the Senate in 1996) and a Fund
Advisor to HLM Partners, Inc., a venture capital firm located in
Boston, Massachusetts. Mr. Ortenzio is the father of Robert A.
Ortenzio.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT; MATERIAL POSITIONS
NAME AND ADDRESS HELD DURING THE PAST FIVE YEARS
---------------- -------------------------------
<S> <C>
Robert A. Ortenzio...... Mr. Ortenzio co-founded Parent and has served as its President and
Chief Operating Officer and as a Director since February 1997. He
was an Executive Vice President and a Director of Horizon/CMS
Healthcare Corporation from July 1995 until July 1996. Mr. Ortenzio
co-founded CMS and served as its President and Chief Executive
Officer from May 1989 and July 1995, respectively, until August
1996. He served as Chief Operating Officer of CMS from April 1988
to July 1995. Mr. Ortenzio received a B.A. from Gettysburg College
in 1979 and a J.D. from Dickinson College of Law in 1982. Mr.
Ortenzio is also a Director of American Oncology Resources, Inc.,
Concentra Managed Care, Inc. and Centennial Healthcare Corporation.
Mr. Ortenzio is the son of Rocco A. Ortenzio.
Russell L. Carson....... Mr. Carson has served as a Director of Parent since February 1997.
Since 1979 he has been a general partner of Welsh, Carson, Anderson
& Stowe, an investment firm that specializes in the acquisition of
companies in the information services and health care industries.
Mr. Carson serves on the Board of Directors of American Oncology
Resources, Inc., Quorum Health Group, Inc. and several private
companies.
Bryan C. Cressey........ Mr. Cressey has served as a Director of Parent since February 1997.
For the past seventeen years he has also been a Principal of
Golder, Thoma, Cressey, Rauner, Inc., a private equity investment
firm. Mr. Cressey received a J.D. and an M.B.A. degree from Harvard
University in 1976. He is also a director of Paging Network and
Cable Design Technologies.
Donald J. Edwards....... Mr. Edwards has served as a Director of Parent since February 1997,
Mr. Edwards joined Golder, Thoma, Cressey, Rauner, Inc. in August
1994 and became a Principal in April 1996. From September 1992 to
June 1994, he attended the Harvard Business School and received an
M.B.A. Prior to that time, Mr. Edwards served as an Associate with
Lazard Freres & Co.
Lawrence B. Sorrel...... Mr. Sorrel has served as a Director of Parent since July 1998.
Since June 1998 he has been general partner or managing member of
the sole general partner of several investment funds affiliated
with Welsh, Carson, Anderson & Stowe. Prior thereto, he was a
Managing Director of Morgan Stanley & Co. Incorporated where he was
employed since 1986 as a senior executive in the firm's private
equity investment business, where he served on the board of various
portfolio companies as well as several different funds. He is also
a director of Emmis Communications Corp. and several private
companies.
LeRoy S. Zimmerman...... Mr. Zimmerman has served as a Director of Parent since October
1998. Since April 1989 he has been Chairman of the Board of
Directors of Eckert Seamans Cherin & Mellon, LLC, a law firm. From
1981 to 1989, Mr. Zimmerman was the Attorney General of the
Commonwealth of Pennsylvania. Prior to that, he was the District
Attorney of Dauphin County, Pennsylvania since 1965.
</TABLE>
7
<PAGE>
CURRENT DIRECTORS AND EXECUTIVE OFFICERS
The current directors and executive officers of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE COMPANY
---- --- ----------------------------
<S> <C> <C>
David W. Cross................ 51 President, Chief Executive Officer and
Director
John P. Keefe................. 50 Chief Financial Officer
John R. Lewis................. 52 Executive Vice President and Chief
Operating Officer
Jeffrey J. Collinson.......... 56 Director
Wilfred E. Jaeger, M.D........ 42 Director
David L. Steffy............... 54 Director
Phillip M. Nudelman, Ph.D..... 62 Director
James B. Tanabaum, M.D........ 34 Director
Michael R. Hogan.............. 44 Director
</TABLE>
CLASS I DIRECTORS. The terms of the Class I directors are scheduled to expire
at the 2000 Annual Meeting of Stockholders. The Class I directors are:
Phillip M. Nudelman, Ph.D.
Dr. Nudelman has served as a director of the Company since June 1996. Since
1991, Dr. Nudelman has served as Chairman and President of Kaiser/Group Health,
a not-for-profit managed healthcare system with 10,000 employees that provides
health care services to over 650,000 people. Dr. Nudelman joined Kaiser/Group
Health in 1973, and has served in various senior level positions. Dr. Nudelman
serves on the President's Advisory Commission on Consumer Protection and
Quality in the Health Care Industry, serves on the boards of SpaceLabs Medical,
Inc., Advanced Technology Laboratories, Inc., Cell Therapeutics, Inc., and
Cytran, Inc., and served on the White House Task Force on Healthcare Reform. He
holds degrees in microbiology and pharmacy from the University of Washington
and an M.B.A. and a Ph.D. in Health Systems Management from Pacific Western
University.
James B. Tananbaum, M.D.
Dr. Tananbaum has served as a director of the Company since December 1994.
Since 1993, Dr. Tananbaum has served as a venture partner with Sierra Ventures,
a leading venture capital firm. From 1991 to 1993, Dr. Tananbaum held various
executive positions with Merck, Inc. From 1997 to present, Dr. Tananbaum has
served as President and Chief Executive Officer of Advanced Medicine, Inc. Dr.
Tananbaum is also a co-founder and Director of GelTex Pharmaceuticals, Inc., a
biopolymer pharmaceutical company. Dr. Tananbaum is the founding Chairman of
Orange Coast Managed Care Services, a physician practice management company in
Southern California (acquired by FPA Medical Management, Inc.). Dr. Tananbaum
also serves as a director of NovaMed Eyecare Management, Inc. Dr. Tananbaum
holds a medical degree from Harvard Medical School, an M.B.A. from Harvard
Business School, and a B.S.E.E. and B.S. from Yale University.
8
<PAGE>
Michael R. Hogan
Mr. Hogan was appointed as a director of the Company on May 23, 1997. Since
January 1996, Mr. Hogan has served as Controller of Monsanto Company. Prior to
joining Monsanto, Mr. Hogan served as an Executive Vice President of General
American Life Insurance Company from 1986 until 1996.
CLASS II DIRECTORS. The terms of the Class II directors are scheduled to
expire at the 2001 Annual Meeting of Stockholders. The Class II directors are:
David W. Cross
Mr. Cross is a founder of the Company and has served as President and Chief
Executive Officer and as a director since the Company's inception in 1994.
Prior to founding the Company, Mr. Cross was a founder, the President and Chief
Executive Officer, and a Director of Advanced Rehabilitation Resources, Inc.,
serving in each of these capacities from 1990 to 1993. From 1987 to 1990, he
was Senior Vice President of Business Development for RehabCare Group, Inc., a
publicly traded rehabilitation care company, and in 1993 and 1994 served as
Executive Vice President and Chief Development Officer of RehabCare Group, Inc.
Mr. Cross currently serves on the Board of Directors of Odyssey HealthCare,
Inc., a hospice health care company, and he is a Trustee and President of the
Long Term Acute Care Hospital Association of America, a trade association. Mr.
Cross holds a B.A. from the University of California at Fullerton.
Jeffrey J. Collinson
Mr. Collinson has served as a director of the Company since December 1994.
Since 1990, Mr. Collinson has served as President of Collinson Howe Venture
Partners, Inc. (formerly named Schroder Venture Advisors, Inc.), a venture
capital management firm, and from 1983 to 1990, was President of Schroder
Venture Managers, Inc., a venture capital firm. Mr. Collinson is also a
director of Incyte Pharmaceuticals, Inc., Neurogen Corporation, and Spare,
Kaplan, Bischel & Associates.
Class III Directors. The terms of the Class III directors are scheduled to
expire at the 1999 Annual Meeting of Stockholders. The Class III directors are:
Wilfred E. Jaeger, M.D.
Dr. Jaeger has served as a director of the Company since December 1994. Dr.
Jaeger is a founding General Partner of the lead venture capital investor in
the Company, Three Arch Partners, a venture capital firm that focuses
exclusively on health care investments. Prior to founding Three Arch Partners
in 1993, he was a partner at Schroder Venture Advisors, Inc. from 1992 to 1993.
From 1991 to 1992, Dr. Jaeger was an Associate and then General Partner of The
Phoenix Partners, a venture capital firm. Dr. Jaeger received his medical
degree from the University of British Columbia in Vancouver, Canada. He
practiced medicine for six years before earning an M.B.A. from Stanford
University. Dr. Jaeger is also a director of Cell Therapeutics, Inc., Prolific
Medical, Inc., Spinal Dynamics Corp., Transvascular, Inc., Uros Corporation,
and Radiant Medical, Inc.
9
<PAGE>
David L. Steffy
Mr. Steffy is a founder of the Company and has served as a director since its
inception in 1994. From 1985 to 1996, Mr. Steffy was Vice Chairman and a
director of Community Health Systems, a company he co-founded. From 1979 to
1985, he held management positions and was a co-founder of Republic Health
Corporation as well as a senior manager of Hospital Affiliates International.
Until 1979, Mr. Steffy served as director, Hospital Administration of the Ohio
State University. Mr. Steffy also serves as a director of Province Healthcare,
Inc., Odyssey Healthcare, Inc., and Arcadian Healthcare Management, Inc.
The executive officers of the Company are:
John R. Lewis
Mr. Lewis is a founder of the Company and has served as Executive Vice
President and Chief Operating Officer since its inception in 1994. Prior to
joining the Company, Mr. Lewis was a co-founder of Advanced Rehabilitation
Resources, Inc. and served as its Chief Operating Officer from 1990 to 1993.
From 1984 until 1990, he served as the Chief Operating Officer of RehabCare
Group, Inc. and in 1993 and 1994 served in various senior executive positions
including Chief Operating Officer with RehabCare Group, Inc. Mr. Lewis holds
and M.A. from Ohio University.
John P. Keefe
Mr. Keefe has served as Chief Financial Officer for the Company since June
1995. From 1993 to 1995, Mr. Keefe served as northwestern Region Area Manager
for Sons of Norway, a fraternal insurance company, and from 1988 to 1993, he
served as Chief Financial Officer and Senior Vice President for Safecare Health
Services, a hospital management company. From 1980 until 1988, he held senior
level financial positions with American Medical International, a hospital
management company. He also served as the Chief Financial Officer for the
George Washington University Health Plan. Mr. Keefe is a certified public
accountant and holds a B.A. in business administration from Georgia State
University.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
All of the current Directors attended at least 75 percent of the aggregate of
all Board of Directors meetings and committee meetings (of which such Directors
were members) during the fiscal year ended December 31, 1997, that were held
during the period he served on the Board and/or committee. Michael R. Hogan
became a Director in May 1997 and attended all of the meetings held after his
appointment. There were four Board of Directors meetings held during the fiscal
year ended December 31, 1997.
The Board of Directors has two standing committees: an Audit Committee and a
Compensation Committee. The Audit Committee has general responsibility for
supervision of financial controls as well as accounting and audit activities of
the Company. The Audit Committee annually reviews the qualifications of the
Company's independent certified public accountants, makes recommendations to
the Board of Directors concerning the selection of the accountants, and reviews
the planning, fees, and results of the accountants' audit. The Compensation
Committee has the authority to (i) administer the
10
<PAGE>
Company's stock option plan, including the selection of optionees and the
timing of option grants, and (ii) review and monitor key employee compensation
and benefits policies and administer the Company's management compensation
plans. The current members of the Audit Committee are Jeffrey J. Collinson,
David L. Steffy, and Michael Hogan. The current members of the Compensation
Committee are David L. Steffy, Dr. Wilfred E. Jaeger, and Dr. James B.
Tananbaum.
Compensation of Directors
All non-employee Directors are entitled to elect to receive cash compensation
for their services or to be paid in stock options pursuant to the Intensiva
HealthCare Corporation Directors Stock Option Plan ("Directors Plan").
Directors who elect cash compensation are paid $2,500 for each board meeting
attended. Directors who elect to be compensated under the Directors Plan are
entitled to receive options to acquire 10,000 shares of the Common Stock in
lieu of cash compensation, which vest and become immediately exercisable 25%
after six months' service, and monthly thereafter over the next 24 months. The
exercise price of options granted under the Directors Plan is the fair market
value of shares of the Company's common stock on the date such options were
granted. Notwithstanding the foregoing, if at any time a director who holds
options under the plan ceases to be a member of the Company's Board of
Directors, any options granted to such person which have not become exercisable
prior to the time such person ceases being a director shall immediately
terminate and be null and void. Directors who elect to be compensated under the
Directors Plan must participate in such plan for a period of at least two
years.
11
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth for the years ended December 31, 1997, 1996,
and 1995 the compensation paid by the Company to Mr. Cross, the Company's
President and Chief Executive Officer and each of the other four most highly
compensated executive officers of the Company (collectively, the "Named
Executive Officers") who earned salary and bonuses in excess of $100,000 during
1997 for all services rendered in all capacities in which they served:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
-------------------------------------- -------------------------------------------
RESTRICTED
NAME AND OTHER ANNUAL STOCK OPTIONS LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARD(S) (SHARES) PAYOUTS COMPENSATION(1)
------------------ ---- ------ -------- ------------ ---------- -------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David W. Cross 1997 $182,798 $125,490 -- -- -- -- --
President and Chief
Executive Officer
1996 $178,142 $ 91,740 -- -- -- -- --
1995 $125,000 $ 93,750 $ 7,800 -- 33,000 -- --
John R. Lewis 1997 $147,901 $110,499 -- -- -- -- --
Executive Vice President
and Chief Operating
Officer
1996 $142,775 $ 73,260 -- -- -- -- --
1995 $100,000 $ 75,000 $ 7,800 -- 33,000 -- --
John P. Keefe 1997 $135,000 $ 70,000 -- -- 50,000 -- --
Chief Financial Officer
1996 $138,058 $ 60,000 -- -- -- -- --
1995 $ 70,000 $ 50,765(1) -- -- 107,800 -- --
Anthony J. Torrente 1997 $ 99,985 -- $ 96,065(2) -- -- -- --
Executive Vice
President, Business
Development
1996 $ 93,171 -- $232,000(2) -- -- -- --
1995 $ 90,000 -- $ 46,250(2) -- 100,100 -- --
James D. Pomeroy 1997 $ 90,000 -- $200,500(2) -- -- -- --
Vice President, Business
Development
1996 $ 92,019 -- $100,000(2) -- -- -- --
1995 $ 86,250 -- $ -- -- 80,850 -- --
</TABLE>
- --------
(1) Includes a relocation bonus payment of $36,765. In connection with Mr.
Keefe's relocation to St. Louis, the Company loaned Mr. Keefe $154,000,
without interest, for a bridge loan on his St. Louis home until his prior
home was sold. The loan was secured by deeds of trust on both homes and was
repaid in full upon sale of his prior home which occurred prior to December
31, 1995.
(2) The dollar amount represents commissions earned during the fiscal years
indicated.
12
<PAGE>
OPTION GRANTS DURING 1997
The following tables set forth, with respect to the Company's Chief Executive
Officer and the Named Executive Officers, certain information about option
grants and exercises in the fiscal year ended December 31, 1997. The Company
has not granted any stock appreciation rights.
Option Grants in the Fiscal Year Ended December 31, 1997
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
NUMBER OF OPTIONS GRANTED
SECURITIES UNDERLYING TO EMPLOYEES EXERCISE PRICE EXPIRATION
NAME OPTIONS GRANTED IN FISCAL YEAR (PER SHARE) DATE
- ---- --------------------- ------------------- -------------- ----------
<S> <C> <C> <C> <C>
David W. Cross.......... -- -- -- --
John R. Lewis........... -- -- -- --
John P. Keefe........... 50,000 56.18% $7.00 9/5/07
Anthony J. Torrente..... -- -- -- --
James D. Pomeroy........ -- -- -- --
</TABLE>
Aggregate Option Exercises in the Fiscal Year Ended December 31, 1997
and Fiscal Year End Option Values
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES ACQUIRED AT FISCAL YEAR END AT FISCAL YEAR END
NAME ON EXERCISE VALUE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- --------------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
David W. Cross.......... -- -- 13,200/19,800 $ 97,944/$146,916
John R. Lewis........... -- -- 13,200/19,800 $ 97,944/$146,916
John P. Keefe........... -- -- 52,103/105,697 $386,604/$438,271
Anthony J. Torrente..... -- -- 56,530/43,570 $419,453/$323,289
James D. Pomeroy........ -- -- 51,205/29,645 $379,941/$219,966
</TABLE>
MATERIAL CONTRACTS AND AGREEMENTS WITH EXECUTIVE OFFICERS
The Company has entered into employment agreements with each of Messrs.
Cross, Lewis, and Keefe, all of which expire in 2001. All such agreements
provide for discretionary bonuses. Pursuant to Messrs. Cross' and Lewis'
employment agreements certain notes made by each of them and acquired by the
Company from RehabCare Group, Inc. were forgiven on September 22, 1997. All
such agreements provide for severance benefits if the Company terminates
employment without cause (as defined in the agreements). Such severance
benefits are equal to one year's salary in the case of Messrs. Lewis and Keefe,
and two years' salary in the case of Mr. Cross. All of the agreements provide
that the employee will not compete with the Company for twelve months following
termination of employment.
COMPENSATION COMMITTEE REPORT
The purpose of a compensation committee is to consider the levels and
components of executive compensation relative to those generally available in
its marketplace in the context of the overall long-term objectives of the
Company and its stockholders. By maintaining appropriate balance in these
factors, the Compensation Committee believes that it will be most effective in
attracting and retaining well-qualified executives who will be capable of
contributing to the success of the Company.
13
<PAGE>
The paramount objective of the Company is building the long-term value of the
stockholders' investment within the framework of operating the Company in a
safe and sound manner. This is accomplished by achieving substantial
improvements and consistency in earnings and strengthening the Company's
presence in new markets. Consequently, the compensation of executives should be
structured to attract individuals capable of contributing to the achievement of
these objectives and to align the welfare of those individuals with that of the
stockholders.
The Compensation Committee periodically reviews the various components of the
Company's executive compensation programs as outlined below:
Base Salary. In determining the appropriate base salaries of its executive
officers, the Compensation Committee evaluates the performance of the Company,
considering general business and industry conditions, among other factors, and
the contributions of specific executives toward that performance. The
Compensation Committee also evaluates each officer's areas of responsibility
and the Company's performance in those areas. Finally, the Compensation
Committee considers the level of compensation paid to comparable executives by
other companies of comparable size in its industry and marketplaces.
Bonus. The Compensation Committee may elect to award bonuses to selected
executive officers based largely upon the same criteria as the evaluations of
base salaries, emphasizing the need to maintain competitive compensation
packages and the desire to recognize outstanding performance by the officers.
Stock Option Program. The Compensation Committee recognizes that one way to
align the interests of the Company's senior employees with those of its
stockholders is the encouragement of ownership of Company stock through stock
options granted under its Employee Stock Option Plan. Under this plan, senior
employees are eligible to receive stock options from time to time, giving them
the right to purchase shares of Common Stock at a specified price in the
future.
COMPENSATION COMMITTEE INTERLOCK AND INSIDER PARTICIPATION
There were no Compensation Committee interlocks or insiders participation
during 1997.
SECTION 16(A) REPORTING
Section 16(a) of the Exchange Act ("Section 16(a)") requires the Company's
directors and Executive Officers, and persons who own more than ten percent of
a registered class of the Company's equity securities, to file with the SEC
initial reports of ownership and reports of changes in ownership of Common
Stock and other equity securities of the Company. Executive officers, directors
and greater than ten percent stockholders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) reports they file.
To the Company's knowledge, based solely on the Forms 3 (Initial Statement of
Beneficial Ownership of Securities), Forms 4 (Statement of Changes in
Beneficial Ownership), and Forms 5 (Annual Statement of Changes in Beneficial
Ownership) filed with the Company, no persons failed to file any such form in a
timely manner, except that Mr. Steffy filed a Form 4 for his May 1998
transactions on July 10, 1998.
14
<PAGE>
PERFORMANCE GRAPH
The Company has prepared a table comparing the yearly percentage change in
stockholder return on the Company's Common Stock to the cumulative return on
the S&P 500 and the companies that share the Company's four digit SIC code (the
"Peer Group"). The table assumes a $100 investment in the Company, the S&P 500,
and the Peer Group on October 11, 1996, and that all dividends paid have been
reinvested.
DOLLARS
INTENSIVA SIC S&P
HEALTHCARE CORP. CODE INDEX 500 INDEX
10/11/96 100.0 100.0 100.0
12/31/96 164.6 96.1 106.25
12/31/97 108.6 78.125 139.0
ASSUMES $100 INVESTED ON OCT. 11, 1998
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 1997
---------------------------
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