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:
_X_ Preliminary Proxy Statement
___ Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
___ 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)
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PRELIMINARY COPY
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 NOVEMBER 16, 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, November 16, 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 four (4) 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 approval of an amendment to the Company's Articles of
Incorporation to change the name of the Company to "Perennial Health Systems,
Inc."
4. 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 October 12, 1998, 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
October 12, 1998
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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 NOVEMBER 16, 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, November 16, 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
October 16, 1998.
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, 1998, 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 October
12, 1998, are entitled to notice of and to vote at the Meeting or any
adjournment thereof. On October 12, 1998, the Company had 13,391,072 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.
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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 October 12, 1998, by any person,
who is known to the Company to be the beneficial owner of 5% or more of the
Company's Common Stock 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 3,648,225<FN1> 27.1%
Suite 1400B
325 West Main Street
Louisville, Kentucky 40202
Robert J. Babine 795,463<FN2> 6.0%
Suite 1400B
325 West Main Street
Louisville, Kentucky 40202
Timothy M. Graven 2,500<FN3> --
168 Totem Road
Louisville, KY 40207
Bert L. Blieden 13,000<FN4> 0.1%
3900 Glen Bluff Road
Louisville, KY 40222
Rebecca H. Krueger 151,500<FN5> 1.1%
Suite 1400B
325 West Main Street
Louisville, Kentucky 40202
Michael J. Kitchen 90,420<FN6> 0.7%
Suite 1400B
325 West Main Street
Louisville, Kentucky 40202
Nicole D. Perry 51,500<FN7> 0.4%
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
All Executive Officers and 4,752,608 34.6%
Directors as a Group
(8 Persons)
2
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_________________
<FN>
<FN1>
Includes 3,538,225 shares held directly by Mr. Hall, 10,000 shares held by his
wife as custodian for two minor children, and 100,000 shares underlying
currently exercisable options held by Mr. Hall.
<FN2>
Includes 782,463 shares held directly by Mr. Babine and 13,000 shares held by
a daughter.
<FN3>
Represents 2,500 shares underlying currently exercisable stock options held by
Mr. Graven.
<FN4>
Includes 10,000 shares held directly by Mr. Blieden and 3,000 shares held by
his wife.
<FN5>
Includes 4,000 shares held directly by Mrs. Krueger and 147,500 shares
underlying currently exercisable stock options held by her.
<FN6>
Includes 5,420 shares held directly by Mr. Kitchen and 85,000 shares
underlying currently exercisable stock options held by him.
<FN7>
Represents 51,500 shares underlying currently exercisable stock options held
by Ms. Perry.
<FN8>
Retirement Care Associates, Inc. is now a wholly-owned subsidiary of Sun
Healthcare Group, Inc, a publicly-held company.
</FN>
</TABLE>
ELECTION OF DIRECTORS
The Bylaws currently provide for a Board of Directors of four (4)
members. The Board of Directors recommends the election as Directors of the
four (4) 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 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 56 President and a Director since
September 1995
Robert J. Babine 54 Chief Financial Officer, Treasurer
and a Director since September 1995
Timothy M. Graven 48 Director since August 1997
Bert L. Blieden 64 Director since July 1998
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There is no family relationship between any Director or Executive Officer
of the Company.
Effective in August 1997, the Company established a compensation
committee which held two (2) meetings during the fiscal year ended May 31,
1998, and an audit committee which did not hold any meetings during the fiscal
year ended May 31, 1998. The members of both of these committees are
currently Timothy M. Graven and Bert L. Blieden. The Company has no
nominating committee.
Set forth below are the names of all Directors 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.
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.
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
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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.
BERT L. BLIEDEN - DIRECTOR. Mr. Blieden has been a Director of the
Company since July 1998. He is President of the Kaden Companies, a position
he has held since that company was formed in 1983. The Kaden Companies are
engaged in commercial real estate development with projects primarily in the
Midwest. Prior to the formation of the Kaden Companies, Mr. Blieden owned and
developed commercial and residential real estate for over twenty years through
his company, Bert L. Blieden Company Realtors. Mr. Blieden attended the
University of Louisville and the University of Louisville School of Law.
REBECCA H. KRUEGER - CHIEF OPERATIONS OFFICER. Mrs. Krueger 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 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 has been Vice
President of Finance of the Company since June 1997. From February 1994 to
June 1997, 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
5
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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 entities. 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, 1998. Each Director attended at least 75% of the
aggregate number of meetings held by the Board of Directors and its committees
during the time each such Director was a member of the Board or any committee,
except for Mark P. Clein, who resigned as a Director in July 1998, who only
attended 50% of such meetings.
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. 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 Nicole D.
Perry and Bert L. Blieden each filed Form 3's late and Rebecca H. Krueger
filed one Form 4 reporting one transaction 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, 1998, 1997 and 1996:
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<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM COMPENSATION
---------------------------
AWARDS PAYOUTS
------------------ -------
ANNUAL COMPENSATION SECURI-
-------------------------------- TIES UN-
OTHER RE- DERLYING 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, 1998 $206,538 $ 4,783 $15,617 -0- 100,000 -0- $10,320
President <FN1> <FN2>
1997 $192,308 $ 28,803 $11,271 -0- 200,000 -0- $12,215
<FN3> <FN2>
1996 $ 69,200 $100,522 $14,654 -0- -0- -0- $ 3,881
<FN4> <FN2>
Robert J. Babine, 1998 $123,923 $ - $14,062 -0- -0- -0- $ 1,774
Chief Financial <FN5> <FN6>
Officer 1997 $110,000 $ 15,568 $ 8,347 -0- -0- -0- $ 1,515
<FN7> <FN6>
Rebecca H. Krueger, 1998 $108,533 $ 12,500 $ 7,300 -0- 37,500 -0- $ -
Chief Operating <FN8>
Officer
- ------------------
<FN>
<FN1>
Represents $5,383 paid for medical insurance benefits above those provided to
other full-time employees of the Company and $10,234 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 $11,271 paid for expenses of an automobile provided for Mr. Hall's
use.
<FN4>
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.
<FN5>
Represents $10,600 paid to Mr. Babine for the use of an automobile and $3,462
paid for medical insurance benefits above those provided and other full time
employees of the Company.
<FN6>
Represents the premium paid for a term life insurance policy provided for Mr.
Babine's benefit.
<FN7>
Represents compensation paid to Mr. Babine for the use of an automobile.
<FN8>
Represents an automobile allowance paid to Ms. Krueger.
</FN>
</TABLE>
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OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning individual
grants of stock options made to each of the Executive Officers named above
during the fiscal year ended May 31, 1998:
INDIVIDUAL GRANTS
----------------------------------------------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARs
UNDERLYING GRANTED TO EXERCISE
OPTION/SARs EMPLOYEES IN OR BASE EXPIRATION
GRANTED (#) FISCAL YEAR PRICE ($/SH) DATE
----------- ---------------- ------------ ----------
David V. Hall 100,000 18.3% $1.20313 11/17/00
Robert J. Babine -0- -- -- --
Rebecca H. Krueger 12,500 2.3% 2.875 8/27/00
Rebecca H. Krueger 25,000 4.6% 1.21875 3/24/01
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
SECURITIES VALUE OF
UNDERLYING EXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTION/SARs OPTION/SARs
ACQUIRED ON AT FY-END AT FY-END
EXERCISE EXERCISABLE/ EXERCISABLE/
(NUMBER) REALIZED UNEXERCISABLE UNEXERCISABLE
----------- -------- ------------- -------------
David V. Hall -0- -0- 100,000 / 0 $129,867 / 0
Robert J. Babine -0- -0- 0 / 0 0 / 0
Rebecca H. Krueger -0- -0- 37,500 / 0 32,031 / 0
Effective February 1, 1998, the Company entered into new three year
employment agreements with David V. Hall, President of the Company, and Robert
J. Babine, Chief Financial Officer and Treasurer of the Company. Each
agreement is for a term of three years, but is automatically renewed for a
three year term on a monthly basis. 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 $220,000 per year and Mr. Babine will
receive a base salary of $132,000 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 $12,000 per year for Mr. Hall and $11,700 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 policies will
be payable to the respective estates of Mr. Hall and Mr. Babine.
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 February 1, 1998, the Company entered into a new employment
agreement with Rebecca Krueger, who is Chief Operating Officer of the Company,
pursuant to which Ms. Krueger agreed to devote a substantial portion of her
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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 is $117,200 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 $675 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 February 1, 1998, the Company entered into a new employment
agreement with Michael J. Kitchen, who is Vice President, Secretary and
General Counsel to the Company, pursuant to which Mr. Kitchen 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 $103,500 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 $650 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 February 1, 1998, the Company entered into a new employment
agreement with Nicole Perry, who is Vice President of Finance to the Company,
pursuant to which Ms. Perry 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 $80,000 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 $600 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 six (6)
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.
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 recapitali
zations, reorganizations and similar transactions. The option price cannot be
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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 42,500 shares of Common Stock at $2.875 per share to
four employees. These options vest immediately and expire three years after
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 100,000 and 20,000 shares of Common Stock at $1.20313
and $1.094 per share, respectively, to five employees under the 1996 Plan.
These options vest immediately and expire three years after the date of grant.
Included in these options are options granted to David V. Hall, an officer, to
purchase 100,000 shares at $1.20313, and to Nicole D. Perry, an officer, to
purchase 12,500 shares of Common Stock at $1.094 per share.
Additionally, on November 17, 1997, the Company's Board of Directors
granted non-qualified options to purchase 2,500 shares of Common Stock at
$1.094 per share to each of Chris Brogdon, Mark Clein and Timothy M. Graven,
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Directors of the Company. These options vest immediately and expire three
years after the date of grant.
On December 1, 1997, the Company's Board of Directors granted non-
qualified options to purchase an aggregate of 99,999 shares of Common Stock at
$1.0934 per share, which was equal to the fair market value on the date of
grant, to three consultants under the 1996 Plan. These options vest
immediately and expire three years after the date of grant.
On December 6, 1997, the Company's Board of Directors granted non-
qualified options to purchase an aggregate of 75,000 shares of Common Stock at
$1.3125 per share, which was equal to the fair market value on the date of
grant, to three consultants under the 1996 Plan. These options vest
immediately and expire three years after the date of grant.
On December 22, 1997, the Company's Board of Directors granted options to
an employee to purchase 10,000 shares of Common Stock at $1.3125 per share
under the 1996 Plan. The options vest over a period of six months and expire
three years from the date of grant.
On March 24, 1998, the Company's Board of Directors granted options to
purchase an aggregate of 170,500 shares of Common Stock at $1.21875 to 21
employees under the 1996 Plan. These options vest immediately and expire
three years after the date of grant. Included in these options are options
granted to Rebecca H. Krueger, Michael J. Kitchen, and Nicole D. Perry,
officers of the Company, to purchase 25,000, 20,000 and 14,000 shares of
Common Stock, respectively.
On July 1, 1998, the Company's Board of Directors granted non-qualified
options to an employee to purchase 160,000 shares of Common Stock at $2.50 per
share under the 1996 Plan. The options vest over a period of one year and
expire three years from 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 Daily 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
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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
contribute 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, 1998, the Company made contributions totaling
$12,144 under 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 CANCELED
---------------- -----------------------
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,
occupational and behavioral health therapists to approximately 71 nursing
homes of which 36 were either owned, operated or managed by Retirement Care
Associates, Inc. ("Retirement Care"), a principal shareholder of the Company.
During the years ended May 31, 1998 and 1997, the Company billed approximately
$6,411,000 and $8,932,000 in fees under these agreements, respectively. As of
May 31, 1998 and 1997, there were approximately $1,287,000 and $4,513,000,
respectively, in accounts receivable relating to such services outstanding.
As of August 27, 1998, all of the accounts receivable had been paid in full.
In February 1997, Retirement Care announced that it had entered into a
merger agreement with Sun Healthcare. See "ITEM 6 - MANAGEMENT'S DISCUSSION
AND ANALYSIS OR PLAN OF OPERATIONS" for additional information concerning this
matter.
As of May 31, 1997, Retirement Care owed the Company approximately
$58,600 in 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
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subsequently exchanged for shares of the Company's Common Stock. This stock
subscription receivable was paid in full on September 9, 1997.
At May 31, 1998, the Company had contracts to provide physical, speech
and occupational therapists to approximately 69 nursing homes of which 5 are
either owned, operated or managed by NewCare Health Corporation ("NC"). A
former director of the Company is also a director and significant shareholder
of NC. During the year ended May 31, 1998, the Company billed approximately
$1,783,000 in fees under agreements with NC. As of May 31, 1998, there were
approximately $990,000 in accounts receivable relating to such services
outstanding.
As of May 31, 1998 and 1997, David V. Hall, an Officer, Director and
principal shareholder of the Company, owed the Company $84,000 and $18,000,
respectively, for advances made to him. In addition, as of May 31, 1998 and
1997, Hallmark Communications, a company of which Mr. Hall is the majority
owner, owed the Company $3,600 and $11,000, respectively, for advances made to
it by the Company.
On December 26, 1996, the Company's Board of Directors granted non-
qualified options to purchase 100,000 shares of Common Stock at $2.00 per
share to Rebecca 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.
On November 17, 1997, the Company's Board of Directors granted options to
purchase 100,000 and 12,500 shares of Common Stock at $1.20313 and $1.094,
respectively, to David V. Hall, President and CEO, and Nicole D. Perry, Vice
President of Finance, respectively. The options vest immediately and expire
three years after the date of grant.
Additionally, on November 17, 1997, the Company's Board of Directors
granted non-qualified options to purchase 2,500 shares of Common Stock at
$1.094, each to Timothy M. Graven, Chris Brogdon, and Mark Clein, Directors.
These options vest immediately and expire three years after the date of grant.
On March 24, 1998, the Company's Board of Directors granted options to
purchase 25,000, 20,000 and 14,000 shares of Common Stock at $1.21875 to
Rebecca H. Krueger, Chief Operating Officer, Michael J. Kitchen, Vice
President, General Counsel and Secretary, and Nicole D. Perry, Vice President
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of Finance, respectively. These options vest immediately 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
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
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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.
The Company has authorized C&L to respond fully to the inquiries of the
Company's successor independent accountants.
AMENDMENT TO ARTICLES OF INCORPORATION
CONCERNING NAME CHANGE
The Board of Directors has approved an amendment to the Articles of
Incorporation to change the name of the Company to "Perennial Health Systems,
Inc." The new name is being proposed to better reflect the current and
proposed business of the Company, since the Company has announced its
intention to expand its business into managing and operating long-term care
facilities.
An affirmative vote of a majority of the shares outstanding will be
required to approve the proposed amendment to the Company's Articles of
Incorporation. The Board of Directors recommends approval of the amendment.
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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, 1998,
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 NOVEMBER 1999
Any proposal by a shareholder intended to be presented at the Company's
Annual Meeting of Shareholders to be held in November 1999 must be received at
the offices of the Company, 325 West Main Street, Suite 1400B, Louisville,
Kentucky 40202, on or before June 16, 1999, in order to be included in the
Company's proxy statement and proxy relating to that meeting.
DAVID V. HALL, PRESIDENT
Louisville, Kentucky
October 12, 1998
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PRELIMINARY COPY
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 October 12, 1998, at the Annual Meeting
of Shareholders to be held on November 16, 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 Timothy M. Graven
Robert J. Babine Bert L. Blieden
[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.
____ FOR ____ AGAINST ____ ABSTAIN
3. The approval of an amendment to the Company's Articles of
Incorporation to change the name of the Company to "Perennial Health Systems,
Inc."
____ FOR ____ AGAINST ____ ABSTAIN
4. 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, 2 AND 3.
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.
