SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
[Amendment No. _________]
Filed by the Registrant _X_
Filed by a Party other than the Registrant ___
Check the appropriate box:
___ Preliminary Proxy Statement
___ Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
_X_ Definitive Proxy Statement
___ Definitive Additional Materials
___ Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
IN-HOUSE REHAB CORPORATION
(Name of Registrant as Specified in Its Charter)
IN-HOUSE REHAB CORPORATION
(Name of Person(s) Filing Proxy Statement)
<PAGE>
IN-HOUSE REHAB CORPORATION
325 WEST MAIN STREET, SUITE 1400 B
LOUISVILLE, KENTUCKY 40202
(502) 568-8923
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 26, 1998
TO THE SHAREHOLDERS OF IN-HOUSE REHAB CORPORATION:
NOTICE HEREBY IS GIVEN that the Annual Meeting of Shareholders of
In-House Rehab Corporation, a Colorado corporation, will be held at the
Republic Bank Building, 661 South Hurstbourne Parkway, Louisville, Kentucky,
on Monday, January 26, 1998, at 10:00 a.m., Eastern Time, and at any and all
adjournments thereof, for the purpose of considering and acting upon the
following matters:
1. The election of five (5) Directors of the Company to serve until
the next Annual Meeting of Shareholders and until their successors have been
duly elected and qualified.
2. The ratification of the appointment of Strothman & Company PSC as
the Company's independent auditors;
3. The transaction of such other business as may properly come before
the meeting or any adjournment thereof.
Only holders of the Common Stock, no par value, of the Company of record
at the close of business on December 19, 1997, will be entitled to notice of
and to vote at the Meeting or at any adjournment or adjournments thereof. The
proxies are being solicited by the Board of Directors of the Corporation.
All shareholders, whether or not they expect to attend the Annual
Meeting of Shareholders in person, are urged to sign and date the enclosed
Proxy and return it promptly in the enclosed postage-paid envelope which
requires no additional postage if mailed in the United States. The giving of a
proxy will not affect your right to vote in person if you attend the Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
DAVID V. HALL, PRESIDENT
Louisville, Kentucky
December 19, 1997
<PAGE>
IN-HOUSE REHAB CORPORATION
325 WEST MAIN STREET, SUITE 1400 B
LOUISVILLE, KENTUCKY 40202
(502) 568-8923
-------------------------------------
PROXY STATEMENT
-------------------------------------
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 26, 1998
GENERAL INFORMATION
The enclosed Proxy is solicited by and on behalf of the Board of
Directors of In-House Rehab Corporation, a Colorado corporation (the
"Company"), for use at the Company's Annual Meeting of Shareholders to be held
at the Republic Bank Building, 661 South Hurstbourne Parkway, Louisville,
Kentucky, on Monday, January 26, 1998, at 10:00 a.m., Eastern Time, and at any
adjournment thereof. It is anticipated that this Proxy Statement and the
accompanying Proxy will be mailed to the Company's shareholders on or about
December 23, 1997.
Any person signing and returning the enclosed Proxy may revoke it at any
time before it is voted by giving written notice of such revocation to the
Company, or by voting in person at the Meeting. The expense of soliciting
proxies, including the cost of preparing, assembling and mailing this proxy
material to shareholders, will be borne by the Company. It is anticipated that
solicitations of proxies for the Meeting will be made only by use of the
mails; however, the Company may use the services of its Directors, Officers
and employees to solicit proxies personally or by telephone, without
additional salary or compensation to them. Brokerage houses, custodians,
nominees and fiduciaries will be requested to forward the proxy soliciting
materials to the beneficial owners of the Company's shares held of record by
such persons, and the Company will reimburse such persons for their reasonable
out-of-pocket expenses incurred by them in that connection.
All shares represented by valid proxies will be voted in accordance
therewith at the Meeting.
The Company's Annual Report which consists of a Summary Annual Report
and Annual Report on Form 10-KSB for the fiscal year ended May 31, 1997, is
being simultaneously mailed to the Company's shareholders, but does not
constitute part of these proxy soliciting materials.
SHARES OUTSTANDING AND VOTING RIGHTS
All voting rights are vested exclusively in the holders of the Company's
no par value Common Stock. Each share of Common Stock entitles the holder to
one (1) vote. Only shareholders of record at the close of business on December
19, 1997, are entitled to notice of and to vote at the Meeting or any
adjournment thereof. On December 10, 1997, the Company had 13,347,072 shares
of its no par value Common Stock outstanding. Cumulative voting in the
election of Directors is not permitted.
A majority of the Company's outstanding Common Stock represented in
person or by proxy shall constitute a quorum at the Meeting.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number and percentage of shares
entitled to vote owned beneficially, as of December 19, 1997, by any person,
who is known to the Company to be the beneficial owner of 5% or more of the
Company's Common and Preferred Stock, considered as a single class, and, in
addition, by each Executive Officer and Director of the Company and by all
Directors and Executive Officers of the Company as a group. Information as to
beneficial ownership is based upon statements furnished to the Company by such
persons.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT OF BENEFICIAL PERCENT
BENEFICIAL OWNER OWNERSHIP OF CLASS
- ------------------- -------------------- ----------
<S> <C> <C>
David V. Hall 4,513,150<FN1> 33.6%
Suite 1400B
325 West Main Street
Louisville, Kentucky 40202
Robert J. Babine 960,000<FN2> 7.2%
Suite 140OB
325 West Main Street
Louisville, Kentucky 40202
Chris Brogdon 132,500<FN3> 1.0%
c/o Retirement Care Associates,
Inc.
6000 Lake Forrest Drive, Suite 200
Atlanta, Georgia 30323
Mark P. Clein 2,500<FN4> --
3990 Old Town Avenue
San Diego, California 92110
Timothy M. Graven 2,500<FN4> --
163 Totem Road
Louisville, Kentucky 40207
Rebecca H. Krueger 126,500<FN5> 0.9%
Suite 1400B
325 West Main Street
Louisville, Kentucky 40202
Michael J. Kitchen 70,420<FN6> 0.5%
Suite 1400B
325 West Main Street
Louisville, Kentucky 40202
Nicole D. Perry 25,000<FN7> 0.2%
Suite 1400B
325 West Main Street
Louisville, Kentucky 40202
Retirement Care Associates, Inc. 3,661,000<FN8> 27.4%
6000 Lake Forrest Drive, Suite 200
Atlanta, Georgia 30328
-2-
<PAGE>
All Executive Officers and 5,732,570 42.0%
Directors as a Group
(8 Persons)
- ---------------------
<FN>
<FN1>
Includes 4,403,150 shares held directly by Mr. Hall, 10,000 shares held by his
wife as custodian for two minor children, and 100,000 shares underlying stock
options exercisable within 60 days.
<FN2>
Includes 947,000 shares held directly by Mr. Babine and 13,000 shares held by
one
of his children who shares his home.
<FN3>
Includes 85,000 shares held directly by Mr. Brogdon, 25,000 shares held by his
wife, 20,000 shares held by a daughter, and 2,500 shares underlying stock
options exercisable within 60 days. Does not include the shares held by
Retirement Care Associates, Inc., of which Mr. Brogdon is President, Director
and a principal shareholder.
<FN4>
Represents 2,500 shares underlying stock options exercisable within 60 days.
<FN5>
Includes 4,000 shares held directly by Mrs. Krueger and 122,500 shares
underlying stock options held by her which are exercisable within 60 days.
<FN6>
Includes 5,420 shares held directly by Mr. Kitchen and 65,000 shares
underlying stock options held by him which are exercisable within 60 days.
<FN7>
Represents 25,000 shares underlying stock options held by Ms. Perry which are
exercisable within 60 days.
<FN8>
Retirement Care Associates, Inc. ("Retirement Care") is a publicly-held
corporation of which Chris Brogdon is President, Director and a principal
shareholder; Edward E. Lane is Secretary, Director and a principal
shareholder; Darrell C. Tucker is a Director and a President of a subsidiary;
and Michael P. Traba and Julian S. Daley are Directors. In addition, Connie
Brogdon, the wife of Chris Brogdon, is a principal shareholder of Retirement
Care. The following sets forth the approximate percentage ownership
beneficially held by such persons in Retirement Care:
Chris Brogdon 17.7%
Edward E. Lane 16.7%
Darrell C. Tucker 4.3%
Julian S. Daley 0.3%
Harlan Mathews 0.1%
Connie Brogdon 17.7%
</FN>
</TABLE>
ELECTION OF DIRECTORS
The Bylaws currently provide for a Board of Directors of five (5)
members. The Board of Directors recommends the election as Directors of the
five (5) nominees listed below, to hold office until the next Annual Meeting
of Shareholders and until their successors are elected and qualified or until
their earlier death, resignation or removal. Each member of the present Board
of Directors has been nominated for reelection. The persons named as "Proxies"
in the enclosed form of Proxy will vote the shares represented by all valid
returned proxies in accordance with the specifications of the shareholders
returning such
-3-
<PAGE>
proxies. If at the time of the Meeting any of the nominees named below should
be unable to serve, which event is not expected to occur, the discretionary
authority provided in the Proxy will be exercised to vote for such substitute
nominee or nominees, if any, as shall be designated by the Board of Directors.
The following table sets forth the name and age of each nominee for
Director, indicating all positions and offices with the Company presently
held, and the period during which each person has served as a Director:
POSITIONS AND OFFICES
NAME AGE HELD AND TERM AS A DIRECTOR
- --------------- --- --------------------------------------
David V. Hall 54 President and a Director since
September 1995
Robert J. Babine 53 Chief Financial Officer, Treasurer
and a Director since September 1995
Chris Brogdon 47 Director since September 1995
Mark P. Clein 38 Director since August 1997
Timothy M. Graven 46 Director since August 1997
There is no family relationship between any Director or Executive
Officer of the Company.
Effective in August 1997, the Company established a compensation
committee and an audit committee. The members of both of these committees are
Mark P. Clein and Timothy M. Graven. The Company has no nominating committee.
Set forth below are the names of all Directors, Nominees for Director
and Executive Officers of the Company, all positions and offices with the
Company held by each such person, the period during which he has served as
such, and the principal occupations and employment of such persons during at
least the last five years:
DAVID V. HALL - PRESIDENT AND DIRECTOR. Mr. Hall has been President and
Director of the Company since September 1995, and has held these same
positions with In-House Rehab, Inc. ("IHR"), the Company's wholly-owned
subsidiary, since September 1994. From 1986 to 1993, he was President of The
Cardinal Group, a nursing home operator which he founded, which grew to 26
nursing homes. Mr. Hall sold this company in 1993, and he was actively
involved in winding up this sale until the Summer of 1994. During this period
of time and until September 1994, he also worked on plans for starting
In-House Rehab, Inc. Since 1994, Mr. Hall has also served as Chairman of the
Board of Hallmark Communications, a company engaged in selling long distance
telephone service, primarily to businesses. From 1980 to 1985, he was
President, founder and sole owner of Cardinal Medical Corporation which
operated six full service nursing homes in Kentucky, which were sold to
Hillhaven Corp. in 1985 due to a change in Kentucky's Medicaid reimbursement
regulations. From 1977 to 1980, he was President, founder and sole owner of
Clinical Management Associates, a contract respiratory and cardiopulmonary
company which provided professionals and equipment to acute care hospitals. At
the time that Mr. Hall sold this company, it provided services to 22 hospitals
in five states, had annual revenues of $6 million and had approximately 220
employees. He received a B.A. Degree from the University of Louisville in
1964.
-4-
<PAGE>
ROBERT J. BABINE - CHIEF FINANCIAL OFFICER, TREASURER AND DIRECTOR. Mr.
Babine has been Chief Financial Officer, Secretary, Treasurer and a Director
of the Company since September 1995, and has held these same positions with
IHR, the Company's wholly-owned subsidiary, since September 1994. From 1993 to
1994, he was Vice President of Management Alternatives, Inc., a financial
consulting firm specializing in mergers and acquisitions. Since 1990, Mr.
Babine has also been owner of RJB Holdings, Inc., which has investments in
real estate and service related businesses. From 1989 to 1990, Mr. Babine was
Vice President and CFO for Burris Foods, Inc., a wholesale food distributor.
From 1984 to 1989, he was controller for KFC International which handled
international operations for the Kentucky Fried Chicken restaurant chain.
Prior to that time he was Director of Accounting for KFC International from
1982 to 1984. Mr. Babine also has experience as an auditor with Arthur Young
International accounting firm from 1974 to 1978. He received a B.S. Degree in
1972 and a MSBA Degree in Finance/Accounting in 1974 from the University of
Massachusetts. Mr. Babine became a CPA in Connecticut in 1976.
CHRIS BROGDON - DIRECTOR. Mr. Brogdon has been a Director of the Company
since September 1995. He has served as President and a Director of Retirement
Care Associates, Inc. ("Retirement Care"), a New York Stock Exchange listed
company, since October 1991. He also served as Treasurer of Retirement Care
from October 1991 to November 1993. He served as Secretary of Capitol Care
from July 1990 until it was merged into Retirement Care in November 1992, and
now serves in these same capacities with Capitol Care. Mr. Brogdon has been
involved in financing and operating nursing homes and retirement communities
since 1982. From 1969 until 1982, Mr. Brogdon was employed in the securities
business as a retail salesman. Mr. Brogdon attended Georgia State University
in Atlanta, Georgia. Since March 1987, Mr. Brogdon has been
Secretary/Treasurer of Winter Haven Homes, Inc. ("WHH") and since August 1990,
he has been Secretary/Treasurer of National Assistance Bureau, Inc. ("NAB").
Both WHH and NAB are engaged in the business of owning and operating nursing
homes and retirement communities. Mr. Brogdon also serves as Chairman of the
Board of Contour Medical, Inc., a publicly-held company, which is a
manufacturer and distributor of orthopedic care and rehabilitation products
and disposable medical products.
MARK P. CLEIN - DIRECTOR. Mr. Clein has been a Director of the Company
since August 1997. Since 1996 he has been Chief Financial Officer of PMR
Corporation, a NASDAQ National Market System-listed company which develops,
manages and markets psychiatric partial hospitalization programs. From 1982 to
1996, Mr. Clein was employed by several New York based investment banking
firms, including Jefferies & Co., where he held the position of managing
director of investment banking (specializing in the health care industry),
Sprout Group, an affiliate of Donaldson, Lufkin and Jenrette, Inc., and
Merrill Lynch Venture Capital, Inc., where he focuses on early stage investing
in the healthcare industry. Mr. Clein received a Masters of Business
Administration Degree from Columbia University in 1983 and a Bachelor's Degree
from the University of North Carolina in 1981. He is also a Director of
Children's Discovery Centers of America, Inc., which is publicly held.
TIMOTHY M. GRAVEN - DIRECTOR. Mr. Graven has been a Director of the
Company since August 1997, and is the Managing Partner and co-founder of Triad
Investment Company, LLC, a private investment firm founded in 1995. Mr. Graven
previously served as President and Chief Operating Officer of Steel
Technologies, Inc., of Louisville, Kentucky, a steel processing company, from
March 1990 to November 1994, as Chief Financial Officer from May 1985 to March
1990, and as Director from 1982 to 1994. Mr. Graven is currently also a
Director of Performance Food Group Company, a publicly-held company listed on
the Nasdaq Stock Market. Mr. Graven received a B.S. Degree in Accounting from
Murray State University in 1973.
-5-
<PAGE>
REBECCA H. KRUEGER - CHIEF OPERATIONS OFFICER. Mrs. Krueger (age 41)
became employed by the Company in June 1996, and became Chief Operations
Officer in September 1996. From September 1990 to December 1995, she was
employed by Transitional Health Services ("THS") which was acquired by WelCare
International Management Corporation, Atlanta, Georgia ("WelCare") in December
1995, and continued to be employed by WelCare until June 1996. THS and WelCare
operate and manage a large number of nursing home facilities. Initially, Mrs.
Krueger was Director of Nursing of a facility owned by THS where she
supervised a nursing staff of approximately 160 persons, and directed a
rehabilitation program. Beginning in May 1992, she became a Regional Nurse
Consultant/Quality Assurance Specialist for THS, and was responsible for eight
facilities in evaluating staff performance and compliance with federal and
state regulations. In January 1994, Mrs. Krueger became a Regional Director of
Operations for THS where she was responsible for the total operations of three
to SIX long-term care facilities in Indiana, Kentucky and Arkansas. Finally,
from March 1996 to June 1996, she was National Director of Subacute Services
for WelCare, where she was responsible for the development of all subacute and
postacute programs for up to 78 facilities. Mrs. Krueger graduated from the
University of the State of New York in 1989 with an Associate Science and
Nursing Degree.
MICHAEL J. KITCHEN - VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL. Mr.
Kitchen (age 31) has been Secretary of the Company since July 1997, and has
been the general counsel and a Vice President since October 1996. From May
1994 to October 1996, he was an attorney with the J. Bruce Miller Law Group in
Louisville, Kentucky, where he concentrated his practice in commercial
litigation, business law and employment relations. From August 1992 to May
1994, Mr. Kitchen was an attorney with the firm of Segal and Shanks in
Louisville, Kentucky, where his practice was concentrated in the area of
insurance law. From 1991 to 1992, he was an attorney with the firm of Chauvin
& White in Louisville, Kentucky, where he practiced civil litigation/personal
injury law. Mr. Kitchen received a B.A. Degree in Marketing from the
University of Kentucky in 1988 and a J.D. Degree in law from the University of
Louisville in 1991. He is licensed to practice law in Kentucky and Indiana.
NICOLE D. PERRY - VICE PRESIDENT OF FINANCE. Ms. Perry (age 33) has been
Vice President of Finance of the Company since June 1997. From February 1994
to June 1996, she was a Manager for Coopers & Lybrand L.L.P. in Louisville,
Kentucky, where she managed audit engagements for a number of companies. From
March 1993 to February 1994, Ms. Perry was Controller for Atelier
International and Assistant Controller for Vecta, which are subsidiaries of
Steelcase, Inc. in Grand Prairie, Texas. From October 1990 to March 1993, she
was a Senior Accountant with Price Waterhouse L.L.P. in Dallas, Texas, where
she was responsible for planning, performing and supervising financial audits.
From October 1987 to October 1990, she was a Senior Accountant with Deloitte &
Touche, L.L.P. in Dallas, Texas, where she also planned, performed and
supervised financial audits of various private and public entitles. Ms. Perry
received an AA Degree in Liberal Arts from Bakersfield (California) College in
1984, and a BBA Degree in Accounting from the University of Oklahoma in 1987.
She became licensed as a Certified Public Accountant in 1989.
The Company's Board of Directors held four (4) meetings during the
fiscal year ended May 31, 1997. Each Director attended 100% of the aggregate
number of meetings held by the Board of Directors during the time each such
Director was a member of the Board, except for Chris Brogdon who only attended
50% of such meetings. The Company had no committees during the fiscal year
ended May 31, 1997.
The Company's executive officers hold office until the next annual
meeting of directors of the Company, which currently is scheduled for January
26, 1998.
-6-
<PAGE>
There are no known arrangements or understandings between any director or
executive officer and any other person pursuant to which any of the
above-named executive officers or directors was selected as an officer or
director of the Company.
SECTION 16(A) BENEFICIAL REPORTING COMPLIANCE
Based solely on a review of the Forms 3 and 4 and amendments thereto
furnished to the Company during its most recent fiscal year, and Forms 5 and
amendments thereto furnished to the Company with respect to its most recent
fiscal year and certain written representations, no persons who were either a
director, officer or beneficial owner of more than 10% of the Company's common
stock, failed to file on a timely basis reports required by Section 16(a) of
the Exchange Act during the most recent fiscal year, except that David V. Hall
filed one Form 4 reporting two transactions late.
EXECUTIVE COMPENSATION
The following table sets forth information regarding the executive
compensation for the Company's President and each other Executive Officer who
received total salary and bonus in excess of $100,000 for the fiscal years
ended May 31, 1997 and 1996, and the period of September 21, 1994 through May
31, 1995.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------ ------------------- ---------------
SECURI-
TIES
UNDERLY-
OTHER RE- ING ALL
ANNUAL STRICTED OPTIONS/ OTHER
NAME AND PRINCIPAL COMPEN- STOCK SARs LTIP COMPEN-
POSITION YEAR SALARY BONUS SATION AWARD(S) (NUMBER) PAYOUTS SATION
- ------------------ ---- ------ ----- ------ -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David V. Hall, 1997 $192,308 $ 28,803 $11,271 -0- 200,000 -0- $12,215
President <FN1> <FN2>
1996 $ 69,200 $100,522 $14,654 -0- -0- -0- $ 3,881
<FN3> <FN2>
1995 $ 0 $ 0 $ 1,946 -0- -0- -0- $ -0-
<FN4>
Robert J. Babine, 1997 $110,000 $ 15,568 $ 8,347 -0- -0- -0- $ 1,515
Chief Financial <FN5> <FN6>
Officer
- ----------------
<FN>
<FN1>
Represents $11,271 paid for expenses of an automobile provided for Mr. Hall's
use.
<FN2>
Represents the premium paid for a term life insurance policy provided for Mr.
Hall's benefit.
<FN3>
Represents $4,974 paid for medical insurance benefits above those provided to
other full-time employees of the Company, and $9,680 paid for expenses of an
automobile provided for Mr. Hall's use.
-7-
<PAGE>
<FN4>
Represents $1,181 paid for medical insurance benefits above those provided to
other full-time employees of the Company, and $765 paid for expenses of an
automobile provided for Mr. Hall's use.
<FN5>
Represents compensation paid to Mr. Babine for the use of an automobile.
<FN6>
Represents the premium paid for a term life insurance policy provided for Mr.
Babine's benefit.
</FN>
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning individual
grants of stock options made to each of the Executive Officers named above
during the fiscal year ended May 31, 1997.
INDIVIDUAL GRANTS
-----------------------------------------------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARs
UNDERLYING GRANTED TO EXERCISE
OPTION/SARs EMPLOYEES IN OR BASE EXPIRATION
GRANTED (#) FISCAL YEAR PRICE ($/SH) DATE
-----------------------------------------------------------
David V. Hall 200,000* 30.5% $2.00 12/26/99
Robert J. Babine -0- -- -- --
* These options were immediately transferred to two adult children of Mr. Hall
who are also employees of the Company.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
SECURITIES
UNDERLYING VALUE OF UNEXER-
SHARES UNEXERCISED CISED IN-THE
ACQUIRED OPTIONS MONEY OPTIONS/
ON SARs AT FY-END SARs AT FY-END
EXERCISE VALUE EXERCISABLE/ EXERCISABLE/
NAME (NUMBER) REALIZED UNEXERCISABLE UNEXERCISABLE
- ---------------- -------- -------- -------------- ---------------
David V. Hall -0- -0- 0 / 0 0 / 0
Robert J. Babine -0- -0- 0 / 0 0 / 0
Effective February 1, 1996, the Company entered into three year
employment agreements with David V. Hall, President of the Company, and Robert
J. Babine, Chief Financial Officer, Secretary and Treasurer of the Company.
The Employment Agreements provide that each will devote a substantial portion
of their time to the Company, and that Mr. Hall will receive a base salary of
$200,000 per year and Mr. Babine will receive a base salary of $100,000 per
year. Mr. Hall and Mr. Babine will also receive bonuses at the discretion of
the Board of Directors and the use of an automobile at a maximum cost of
$10,000 per year for Mr. Hall and $6,000 per year for Mr. Babine. In addition,
the employment agreements provide that the Company will pay for term life
insurance policies in the amount of $2,000,000 for Mr. Hall and $500,000 for
Mr. Babine. The proceeds of these
-8-
<PAGE>
policies will be payable to the respective estates of Mr. Hall and Mr. Babine.
Effective February 1, 1997, Mr. Babine entered into a new three year
employment agreement replacing his earlier agreement. The new agreement has
substantially the same terms as his prior agreement except that his salary was
increased to $120,000 per year and his automobile allowance was increased to
$7,500 per year.
In the event that the Company terminates either of these employment
agreements without cause, or as a result of a change in control, the Company
will be required to pay the base salary for the remaining initial term of the
agreement, or twelve (12) months, whichever is greater. In addition, the
Company may be required to repurchase up to 50 - of the stock held by the
Officers and provide for family medical insurance until the age of 65.
Effective January 1, 1997, the Company entered into an employment
agreement with Rebecca Krueger, who is Chief Operating Officer of the Company,
pursuant to which Ms. Krueger has agreed to devote a substantial portion of
her time to the business of the Company. The initial term of the agreement is
for one year, but is automatically renewed for one year on a monthly basis.
Ms. Krueger's base salary was $103,500 per year, and her base salary will be
increased each year by at least the increase in the cost of living index. She
will also receive bonuses at the discretion of the Company and an automobile
allowance of $400 per month. In the event that the Company terminates this
employment agreement without cause or as a result of a change in control, the
Company will be required to pay her base salary for twelve (12) months.
Effective August 1, 1997, Ms. Krueger's base salary was increased to $112,500
per year.
Effective January 1, 1997, the Company entered into an employment
agreement with Michael J. Kitchen, who is Vice President, Secretary and
General Counsel to the Company, pursuant to which Mr. Kitchen has agreed to
devote a substantial portion of his time to the business of the Company. The
initial term of the agreement is for one year, is automatically renewed for
one year on a monthly basis. Mr. Kitchen's base salary is $93,375 per year,
and his base salary will be increased each year by at least the increase in
the cost of living index. He will also receive bonuses at the discretion of
the Company and an automobile allowance of $400 per month. In the event that
the Company terminates this employment agreement without cause or as a result
of a change in control, the Company will be required to pay his base salary
for twelve (12) months.
Effective June 9, 1997, the Company entered into an employment agreement
with Nicole Perry, who is Vice President of Finance to the Company, pursuant
to which Ms. Perry has agreed to devote a substantial portion of her time to
the business of the Company. The initial term of the agreement is for one
year. Ms. Perry's base salary is $72,500 per year, and her base salary will be
increased each year by at least the increase in the cost of living index. She
will also receive bonuses at the discretion of the Company and an automobile
allowance of $350 per month. In the event that the Company terminates this
employment agreement without cause or as a result of a change in control, the
Company will be required to pay her base salary for twelve (12) months.
DIRECTOR COMPENSATION
Effective in August 1997, outside Directors of the Company receive a fee
of $500 per month and will receive stock options to purchase 2,500 shares of
Common Stock each year for their services in such capacity. Directors are also
reimbursed for all reasonable and necessary costs and expenses incurred as a
result of being a Director of the Company.
-9-
<PAGE>
STOCK OPTION PLAN
In October 1996, the Company's Board of Directors adopted the Company's
1996 Stock Option Plan (the "1996 Plan"). The 1996 Plan allows the Board to
grant stock options from time to time to employees, officers and directors of
the Company and consultants to the Company. The Board has the power to
determine at the time the option is granted whether the option will be an
Incentive Stock Option (an option which qualifies under Section 422 of the
Internal Revenue Code of 1986) or an option which is not an Incentive Stock
Option. However, Incentive Stock Options will only be granted to persons who
are key employees of the Company. Vesting provisions are determined by the
Board at the time options are granted. As originally adopted, the total number
of shares of Common Stock subject to options under the 1996 Plan was not to
exceed 1,000,000, subject to adjustment in the event of certain
recapitalizations, reorganizations and similar transactions. The option price
cannot be less than the fair market value of a share on the date the option is
granted and it must be satisfied by the payment of cash.
The Board of Directors may amend the 1996 Plan at any time, provided
that the Board may not amend the 1996 Plan to materially increase the number
of shares available under the 1996 Plan, materially increase the benefits
accruing to Participants under the 1996 Plan, or materially change the
eligible class of employees without shareholder approval.
OUTSTANDING OPTIONS UNDER THE PLAN
On December 26, 1996, the Company's Board of Directors granted options
to purchase an aggregate of 112,000 shares of Common Stock at $2.00 per share
under the 1996 Plan. The options are fully vested and expire three years after
the date of grant. Included in these options are non-qualified options to
purchase 100,000 shares granted to Rebecca Krueger, Chief Operations Officer
of the Company.
On March 4, 1997, the Company issued non-qualified options, under the
1996 Plan, to purchase 50,000 shares of Common Stock to an outside consultant
at $2.25 per share which was equal to the fair market value on the date of
grant. The options are exercisable for three years from the date of grant.
On May 19, 1997, the Company's Board of Directors granted options to
purchase an aggregate of 158,000 shares of Common Stock at $3.00 per share
under the 1996 Plan. The options vest over various periods up to three years
and expire three years after the date of grant. Included in these options are
options granted to the following officers of the Company: Rebecca Krueger to
purchase 10,000 shares of Common Stock; Michael Kitchen to purchase 15,000
shares of Common Stock; and Nicole Perry to purchase 25,000 shares of Common
Stock.
On June 9, 1997, the Company's Board of Directors granted options to an
employee to purchase 20,000 shares of Common Stock at $3.31 per share under
the 1996 plan. The options are fully vested and expire three years after the
date of grant.
On June 12, 1997, the Company's Board of Directors granted options to an
employee to purchase 8,000 shares of Common Stock at $3.56 per share under the
1996 Plan. The options vest over a period of one year and expire seven years
after the date of grant.
On August 27, 1997, the Company's Board of Directors granted options to
purchase an aggregate of 35,000 shares of Common Stock at $2.875 per share to
four employees. These options vest immediately and expire three years after
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the date of grant. Included in these options are options granted to Rebecca
Krueger, an Officer, to purchase 12,500 shares of Common Stock.
On November 17, 1997, the Company's Board of Directors granted options
to purchase an aggregate of 7,500 shares to three non-officer employees.
These options are exercisable at $1.094 per share for a period of three years
from the date of grant and are fully vested. In addition, the Board of
Directors granted options to purchase 12,500 shares to Nicole Perry on these
same terms and conditions.
Also on November 17, 1997, the Company's Board of Directors granted
options to purchase 100,000 shares of Common Stock at $1.20313 per share to
David Hall. These options are fully vested and expire three years after the
date of grant.
Also on November 17, 1997, the Company's Board of Directors granted
options to purchase 2,500 shares each to Chris Brogdon, Mark Clein and Timothy
Graven, Directors of the Company. These options are exercisable at $1.094,
are fully vested, and expire three years after the date of grant.
OTHER OUTSTANDING OPTIONS NOT UNDER THE PLAN
On June 1, 1996, the Company granted a non-plan option to an employee to
purchase 50,000 shares of Common Stock at $1.25 per share which was equal to
the fair market value on the date of grant. The option is exercisable for
three years from the date of grant.
On June 21, 1996, the Company granted non-plan options to two stock
brokers to purchase 20,000 shares of Common Stock at $1.25 per share which was
equal to the fair market value on the date of grant. The options are
exercisable for three years from the date of grant.
On August 1, 1996, the Company granted non-plan options to ten employees
to purchase an aggregate of 95,000 shares of Common Stock at $1.75 per share
which was equal to the fair market value on the date of grant. These options
are exercisable for three years from the date of grant.
On October 24, 1996, the Company granted non-plan options to two
employees to purchase an aggregate of 40,000 shares of Common Stock at $2.25
per share which was equal to the fair market value on the date of grant. These
options are exercisable for three years from the date of grant.
On December 5, 1996, the Company issued non-plan options to two
shareholders of Dally Rehabilitation Institute, Inc. in connection with the
acquisition of that company. The options are to purchase an aggregate of
30,000 shares of Common Stock at $2.25 per share which was equal to the fair
market value on the date of grant. Of the 30,000 options, 15,000 options
expire on December 15, 1999 and 15,000 expire on December 31, 2000.
On December 26, 1996, the Company issued non-plan options to purchase
200,000 shares of Common Stock to David V. Hall at $2.00 per share which was
equal to the fair market value on the date of grant. Mr. Hall then transferred
these options to his two adult children who are also employees of the Company.
The options are exercisable for three years from the date of grant.
401(k) PLAN
The Company maintains a 401(k) employee retirement and savings program
(the "401(k) Plan") for its employees. Under the 401(k) Plan, an employee may
con-
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tribute up to 15% of his or her gross annual earnings, subject to a statutory
maximum, for investment in one or more funds identified under the Plan. The
Company may in the future, with the approval of the Board of Directors, make
matching contributions to participants in the 401(k) Plan. During the year
ended May 31, 1996, the Company made no matching contributions to the 401(k)
Plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the acquisition of In-House Rehab, Inc. in September
1995, certain persons who were then Officers and Directors of the Company
agreed to the cancellation of indebtedness owed to them by the Company as
follows:
NAME AMOUNT OF DEBT CANCELLED
----------------- ------------------------
Albert L. Blum $226,655
Theodore Jackson 176,915
Fred B. Blum 18,367
Mark Jackson 177,315
--------
Total $599,252
The indebtedness to these persons was a result of advances made for working
capital and for debt service payments made for which the person was a personal
guarantor, including interest accrued thereon.
At May 31, 1997, the Company had contracts to provide physical, speech
and occupational therapists to approximately 71 nursing homes of which 36 are
either owned, operated or managed by Retirement Care Associates,
Inc.(''Retirement Care"), a principal shareholder of the Company. During the
year ended May 31, 1996, the Company billed approximately $5,129,000 in fees
under agreements with Retirement Care. During the year ended May 31, 1997, the
Company billed approximately $8,900,000 in fees under these agreements. As of
May 31, 1997, there were approximately $4,513,000 in accounts receivable
relating to such services outstanding.
As of May 31, 1997, Retirement Care owed the Company approximately
$58,600 n connection with its original purchase during the fiscal year ended
May 31, 1995, of shares of stock of In-House Rehab, Inc. which shares were
subsequently exchanged for shares of the Company's Common Stock. This stock
subscription receivable was paid in full on September 9, 1997.
In February 1997, Retirement Care announced that lt had entered into a
merger agreement with Sun Healthcare.
David V. Hall and Robert J. Babine, Officers, Directors and principal
shareholders of the Company personally guaranteed a $1,207,000 line of credit
to the Company. As of May 31, 1996, $600,000 had been borrowed under this line
of credit. Subsequently, the bank released these persons from their
guarantees.
As of May 31, 1997, David V. Hall, an Officer, Director and principal
shareholder of the Company, owed the Company $18,000 for advances made to him.
In addition, as of May 31, 1997, Hallmark Communications, a company of which
Mr. Hall is the majority owner, owed the Company $11,000 for advances made to
it by the Company.
On December 26, 1996, the Company's Board of Directors granted
nonqualified options to purchase 100,000 shares of Common Stock at $2.00 per
share to Rebecca
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Krueger, the Company's Chief Operating Officer, under the Company's 1996 Stock
Option Plan. The options are fully vested and expire three years after the
date of grant. On May 19, 1997, the Company's Board of Directors granted
incentive stock options to purchase 10,000 shares of Common Stock at $3.00 per
share to Rebecca Krueger and on August 27, 1997, she was granted additional
options to purchase 12,500 shares at $2.875 per share. These options are fully
vested and expire three years after the date of grant.
On March 1, 1996 and October 24, 1996, the Company's Board of Directors
granted non-qualified options to purchase 20,000 and 30,000 respectively,
shares of Common Stock at $1.75 and $2.25 per share, respectively, to Michael
Kitchen, the Company's Vice President, Secretary and General Counsel. The
options are fully vested and expire three years after the date of grant. On
May 19, 1997, the Company's Board of Directors granted incentive stock options
to purchase 15,000 shares of Common Stock at $3.00 per share to Michael
Kitchen under the Company's 1996 Stock Option Plan. The options are fully
vested and expire three years after the date of grant.
On May 19, 1997, the Company's Board of Directors granted incentive
stock options to purchase 25,000 shares of common stock at $3.00 per share to
Nicole Perry, the Company's Vice President of Finance. The options vest over
one year and expire three years after the date of grant.
INDEPENDENT ACCOUNTANTS
The independent accounting firm of Strothman & Company PSC audited the
financial statements of the Company for the fiscal years ended May 31, 1996
and 1997, and has been selected in such capacity for the current fiscal year.
At the direction of the Board of Directors, this appointment is being
presented to the shareholders for ratification or rejection at the Annual
Meeting of Shareholders. If the Shareholders do not ratify the appointment of
Strothman & Company PSC, the appointment of auditors will be reconsidered by
the Board of Directors.
It is expected that representatives of Strothman & Company PSC will be
present at the meeting and will be given an opportunity to make a statement if
they desire to do so. It is also expected that the representatives will be
available to respond to appropriate questions from shareholders.
On October 1, 1997, Coopers & Lybrand L.L.P. ("C&L"), which served as
the Company's independent accountants for the fiscal years ended May 31, 1995
and 1996, and had been retained for the Company's fiscal year ended May 31,
1997, resigned as the Company's independent accountants. The reports of C&L on
the Company's financial statements for the fiscal years ended May 31, 1995 and
1996 did not contain an adverse opinion or disclaimer of an opinion nor were
they qualified or modified as to uncertainty, audit scope or accounting
principles or practices. The Company filed a report on Form 8-K dated October
1, 1997 reporting the resignation of C&L.
The Company is not aware of any "disagreement" or "reportable event"
within the meaning of Item 304 of Regulation S-B, with C&L during the fiscal
years ended May 31, 1995 and 1996, and from that date to the date of C&L's
resignation on October 1, 1997, on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure,
except as described below.
In its audit of the Company's financial statements for the year ended
May 31, 1997, C&L had completed most of its audit procedures by the end of
July 1997 and had not raised any significant concerns about the Company's
financial statements, other than the following. On Friday, August 1, 1997,
prior to the
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Company's scheduled fourth quarter earnings release on Monday, August 4, 1997,
C&L advised the Company that it had concerns about the collectability of
certain accounts receivable from Retirement Care, a major customer of the
Company and a 27,490 shareholder of the Company's outstanding Common Stock.
Retirement Care had historically been a slow paying customer, but even at this
time continues to make payments on the balances due to the Company for
services rendered.
C&L also served as the independent accountants for Retirement Care until
August 14, 1997, when C&L resigned as the independent accountants of
Retirement Care. In a letter filed with the Securities and Exchange Commission
concerning its resignation, C&L stated that it was unable to rely on
representations of Retirement Care's management, and did not intend to be
associated with any filings which may be made by Retirement Care with the
Securities and Exchange Commission.
During August and September 1997, the Company, Retirement Care and Chris
Brogdon, the President of Retirement Care and a Director of the Company, made
proposals to C&L to alleviate its concerns. Such proposals included Retirement
Care paying down the balance of the accounts receivable and providing
collateral which the Company's management believed would more than adequately
secure the payment of the remaining accounts receivable of Retirement Care.
However, C&L took the position that the collateral was insufficient. C&L noted
that even if such proposals were adopted that it would still render an opinion
with a "going concern" qualification based on what C&L believed was the
uncollectability of the Retirement Care accounts receivables. The Company's
management offered another proposal to provide a letter of credit from an
unaffiliated third party which would more than adequately secure the
Retirement Care accounts receivable, but C&L would not provide a written
commitment to the Company that this would be sufficient collateral.
The Company's management believed that C&L's position with respect to
the Retirement Care accounts receivable was unreasonable and appeared to be a
result of C&L's adverse relationship with Retirement Care. Based on this
concern, the Company asked C&L to evaluate C&L's relationship with the Company
under applicable independence and conflicts of interest rules. In response,
C&L denied that any conflicts of interest or independence rules had been
violated, but stated that it was no longer appropriate for it to serve as the
Company's independent accountants because of a deterioration of the
client-auditor relationship.
The Company's management has fully advised the Audit Committee of the
Board of Directors of all of the above matters, and certain members of the
Board of Directors and the Audit Committee of the Board of Directors discussed
the above matters with C&L. However, neither the full Board of Directors nor
the full Audit Committee have discussed these matters with C&L.
The Company provided a copy of its Report on Form 8-K to C&L and
requested that C&L provide the Company with a letter addressed to the
Commission, as required by Item 304(a)(3) of Regulation S-B.
On October 14, 1997, C&L provided the Company with its response to the
Form 8-K (the "Response Letter"), wherein it disagreed with certain statements
made by the Company therein. The Company's management continues to stand by
the statements it made in the Form 8-K. The Company did not want a change in
accountants during an audit and continued to work with C&L to satisfy them
with respect to the collectability of the Retirement Care receivables during
August and September, until C&L's resignation on October 1, 1997.
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<PAGE>
The Company has authorized C&L to respond fully to the inquiries of the
Company's successor independent accountants.
On October 10, 1997, the Company engaged the firm of Strothman & Company
PSC as its independent accountants for its fiscal year ended May 31, 1997, and
to reaudit its financial statements for the year ended May 31, 1996.
Neither the Company nor any person acting on its behalf consulted with
Strothman & Company PSC with regard to the application of accounting
principles to a specific completed or contemplated transaction, or the type of
audit opinion that might be rendered on the Company's financial statements.
Certain members of the Company's management contacted Strothman &
Company PSC prior to their being engaged as the new auditors for the Company.
The Company's management sought advice from Strothman & Company PSC to address
the implications that the Company was facing given that C&L had advised the
Company that it may want to consider dismissing them as the Company's auditors
prior to the audit being completed.
During the conversation between the Company's management and Strothman &
Company PSC, Strothman & Company PSC inquired as to why C&L would make such a
suggestion. The Company's management advised Strothman & Company PSC that it
was management's opinion that it related to the receivable due from Retirement
Care. Strothman & Company PSC advised the Company to continue to work with C&L
to gain resolution to the Retirement Care receivable issue and to finalize the
audit. The Company continued to work with C&L through August and September of
1997 until C&L's resignation on October 1, 1997.
OTHER BUSINESS
As of the date of this Proxy Statement, management of the Company was
not aware of any other matter to be presented at the Meeting other than as set
forth herein. However, if any other matters are properly brought before the
Meeting, the shares represented by valid proxies will be voted with respect to
such matters in accordance with the judgment of the persons voting them. A
majority vote of the shares represented at the meeting is necessary to approve
any such matters.
ANNUAL REPORT
The Company's Annual Report, which consists of a Summary Annual Report
and Annual Report on Form 10-KSB for the fiscal year ending May 31, 1997,
accompanies this Proxy Statement. The Annual Report is not incorporated into
this Proxy Statement and is not to be considered part of the solicitation
material.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
FOR THE ANNUAL MEETING TO BE HELD IN JANUARY 1999
Any proposal by a shareholder intended to be presented at the Company's
Annual Meeting of Shareholders to be held in January 1999 must be received at
the offices of the Company, 325 West Main Street, Suite 1400B, Louisville,
Kentucky 40202, on or before August 21, 1998, in order to be included in the
Company's proxy statement and proxy relating to that meeting.
DAVID V. HALL, PRESIDENT
Louisville, Kentucky
December 19, 1997
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P R O X Y
IN-HOUSE REHAB CORPORATION
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints David V. Hall with the power to appoint
his substitute, and hereby authorizes him to represent and to vote as
designated below, all the shares of common stock of In-House Rehab Corporation
held of record by the undersigned on December 19, 1997, at the Annual Meeting
of Shareholders to be held on January 26, 1998, or any adjournment thereof.
1. Election of Directors:
___ FOR all nominees listed below
___ FOR all nominees except as crossed out below:
David V. Hall Mark P. Clein
Robert J. Babine Timothy M. Graven
Chris Brogdon
[INSTRUCTION: To withhold authority to vote for any individual nominee, cross
out that nominee's name above.]
2. The ratification of the appointment of Strothman & Company PSC as
the Company's independent auditors; and
____ FOR ____ AGAINST ____ ABSTAIN
3. The transaction of such other business as may properly come before
the meeting or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSALS 1 AND 2.
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AT THE MEETING IN
ACCORDANCE WITH THE SHAREHOLDER'S SPECIFICATIONS ABOVE. THIS PROXY CONFERS
DISCRETIONARY AUTHORITY IN RESPECT TO MATTERS NOT KNOWN OR DETERMINED AT THE
TIME OF THE MAILING OF THE NOTICE OF THE ANNUAL MEETING OF SHAREHOLDERS TO THE
UNDERSIGNED.
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders, Proxy Statement and Annual Report.
Dated: ________________________ __________________________________________
Signature(s) of Shareholder(s)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF IN-HOUSE
REHAB CORPORATION. PLEASE SIGN AND RETURN THIS PROXY IN THE ENCLOSED
PRE-ADDRESSED ENVELOPE. THE GIVING OF A PROXY WILL NOT AFFECT YOUR RIGHT TO
VOTE IN PERSON IF YOU ATTEND THE MEETING.
