<PAGE>
REHABILICARE INC.
1811 OLD HIGHWAY 8
NEW BRIGHTON, MN 55112-3493
------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
DECEMBER 15, 1998
------------------------------
TO SHAREHOLDERS OF REHABILICARE INC.:
Notice is hereby given that the Annual Meeting of Shareholders of
Rehabilicare Inc. (the "Company") will be held on Tuesday, December 15, 1998
at the Marquette Hotel, 710 Marquette Avenue, Minneapolis, Minnesota, 55402
at 10:00 a.m. CST for the following purposes:
1. To elect a Board of six directors to serve for the following year and
until their successors are elected;
2. To consider and act upon any other matters that may properly come
before the meeting or any adjournment thereof.
Only holders of record of Rehabilicare common stock at the close of business
on October 26, 1998 will be entitled to receive notice of and to vote at the
meeting or any adjournment thereof.
You are cordially invited to attend the meeting. Whether or not you plan to
be personally present at the meeting, however, please complete, date and sign
the enclosed proxy and return it promptly in the enclosed envelope. If you
later desire to revoke your proxy, you may do so at any time before it is
exercised.
BY ORDER OF THE BOARD OF DIRECTORS
Thomas Martin
SECRETARY
Dated: November 2, 1998
<PAGE>
REHABILICARE INC.
1811 OLD HIGHWAY 8
NEW BRIGHTON, MN 55112-3493
------------------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
December 15, 1998
- -------------------------------------------------------------------------------
This Proxy Statement is furnished in connection with the solicitation of the
enclosed proxy by the Board of Directors of Rehabilicare Inc. (the "Company")
for use at the Annual Meeting of Shareholders to be held on December 15, 1998
at 10:00 a.m. CST at the Marquette Hotel, 710 Marquette Avenue, Minneapolis,
Minnesota, 55402, and at any adjournment thereof, for the purposes set forth
in the Notice of Annual Meeting of Shareholders. Shares of the Company's
common stock, $.10 par value (the "Common Stock"), represented by proxies in
the form solicited will be voted in the manner directed by shareholders. If
no direction is made, the proxy will be voted for the election of the
nominees for director named in this Proxy Statement. Proxies may be revoked
at any time before being exercised by delivery to the Secretary of the
Company of a written notice of termination of the proxy's authority or a duly
executed proxy bearing a later date. This Proxy Statement and the form of
proxy enclosed are being mailed to shareholders commencing on or about
November 2, 1998.
Only the holders of the Company's Common Stock whose names appear of record
on the Company's books at the close of business on October 26, 1998 will be
entitled to vote at the Annual Meeting. At the close of business on October
26, 1998 a total of 10,459,605 shares of Common Stock were outstanding, each
share being entitled to one vote.
Shares voted as abstentions on any matter or a "withhold vote for" as to
directors will be counted as shares that are present and entitled to vote for
the purposes of determining the presence of a quorum at the meeting and as
unvoted, although present and entitled to vote, for purposes of determining
the approval of each matter as to which the shareholder has abstained. If a
broker submits a proxy that indicates the broker does not have discretionary
authority as to certain shares to vote on one or more matters, those shares
will be counted as shares that are present and entitled to vote for purposes
of determining the presence of a quorum at the meeting but will not be
considered as present and entitled to vote with respect to such matters.
Expenses in connection with the solicitation of proxies will be paid by the
Company. Proxies are being solicited primarily by mail but, in addition,
officers and regular employees of the Company who will receive no extra
compensation for their services may solicit proxies by telephone, telecopy or
in person.
As far as the management of the Company is aware, no matters other than those
described in this Proxy Statement will be acted upon at the Annual Meeting.
In the event that other matters properly come before the Annual Meeting
calling for a vote of the shareholders, the persons named as proxies in the
enclosed form of proxy will vote in accordance with their best judgment on
such other matters.
A copy of the Company's Annual Report for the year ending June 30, 1998 is
being furnished to each shareholder with this Proxy Statement.
Page 2
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of October 26, 1998, certain information
with respect to beneficial ownership of the Company's Common Stock as to (i)
each person or entity known by the Company to own beneficially more than 5%
of the Company's Common Stock; (ii) each director of the Company; (iii) each
executive officer of the Company named in the Summary Compensation Table; and
(iv) all executive officers and directors as a group. Except as indicated by
footnote, the persons named in the table below have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them.
<TABLE>
<CAPTION>
Name Shares Beneficially Owned (1) Percent Owned
- ---- ----------------------------- -------------
<S> <C> <C>
Beverly Enterprises, Inc. 989,319 9.5%
5111 Rogers Avenue, Ste. 40A
Ft. Smith, Arkansas 72919
Woodland Partners LLC 912,600 (2) 8.7%
60 South Sixth Street
Minneapolis, MN 55402
Robert C. Wingrove 206,684 2.0%
David B. Kaysen 122,831 1.2%
W. Bayne Gibson 102,961 1.0%
W. Glen Winchell 44,392 *
Frederick H. Ayers 36,476 *
William J. Sweeney 29,070 *
John H.P. Maley 20,000 *
Richard E. Jahnke 5,000 *
All Directors and Officers 567,414 5.4%
As a group (8 persons)
</TABLE>
- ------------------------------
* Less than 1%
(1) Includes for Mr. Wingrove, Mr. Kaysen, Mr. Winchell, Mr. Sweeney, Mr.
Maley, Mr. Jahnke and all directors and officers as a group, 29,000 shares,
36,000 shares, 35,000 shares, 28,000 shares, 5,000 shares, 5,000 shares and
138,000, respectively, which can be purchased by exercise of options which
become exercisable within 60 days.
(2) Based on Schedule 13G dated February 6, 1998. Woodland Partners LLP has
sole voting power for 752,800 of these shares.
Page 3
<PAGE>
ELECTION OF DIRECTORS
The Board of Directors has nominated six persons as directors for the
following year. Each director will be elected at the Annual Meeting for a
term of one year and until his successor is elected and qualified. The Board
of Directors recommends that the shareholders elect the nominees named below
as directors of the Company for the following year. It is intended that the
persons named as proxies in the enclosed form of proxy will vote the proxies
received by them for the election as directors of the nominees named below,
unless otherwise directed. Each nominee has indicated a willingness to
serve, but in case any nominee is not a candidate at the meeting, for reasons
not known to the Company, the proxies named in the enclosed form of proxy may
vote for a substitute nominee at their discretion. Information regarding the
nominees is set for the below:
<TABLE>
<CAPTION>
Principal occupation and business
Name Age Director since experience for past five years
- -------------------- ---- -------------- -----------------------------------------------
<S> <C> <C> <C>
Frederick H. Ayers 59 March 1998 President of F.H. Ayers, Inc. (a private
investment company) since 1985; director of
Staodyn, Inc. from 1984 to 1998
W. Bayne Gibson 73 March 1998 Independent business consultant since 1997;
President, Chief Executive Officer and Chairman
of the Board of Staodyn, Inc. from 1984 to 1996
Richard E. Jahnke 49 January 1997 President and Chief Executive Officer of Medical
Graphics Corporation (a manufacturer of non-
invasive medical diagnostic systems) since August
1998; President and Chief Operating Officer of
CNS, Inc. (a manufacturer of consumer products)
from 1993 to 1998
David B. Kaysen 49 March 1992 President and Chief Executive Officer of the
Company since March 1992
John H.P. Maley 63 December 1996 Chairman of Magister Corporation (a developer and
marketer of consumer healthcare products) since
July 1995; Chairman and CEO of Chattanooga Group
(a manufacturer of physical therapy products) from
1976 to 1995
Robert C. Wingrove 66 June 1972 Chairman of the Board of the Company since 1984;
Chief Technical Officer of the Company since 1990
</TABLE>
THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE SHARES OF COMMON
STOCK REPRESENTED AT THE MEETING IS REQUIRED FOR THE ELECTION OF EACH
DIRECTOR. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH NOMINEE.
Page 4
<PAGE>
MEETING OF THE BOARD AND CERTAIN COMMITTEES
The Board of Directors maintains an Audit Committee, comprised of Messrs.
Ayers, Gibson, Jahnke and Maley, and a Compensation Committee, comprised of
Messrs. Ayers, Gibson, Jahnke and Maley. Each of these committees met once
during the year. The Audit Committee reviews and makes recommendations to
the Board of Directors with respect to designated matters. The Compensation
Committee considers and makes recommendations with respect to compensation of
officers of the Company (including salaries and incentive compensation).
There is no standing nominating committee.
During the year ended June 30, 1998, the Board of Directors held eight
meetings. Each incumbent Director attended at least 75% of all meetings of
the Board while he was serving on the Board and all meetings of any committee
of the Board on which he served.
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Name Age Position
- ------------------------ --- -----------------------------------
<S> <C> <C>
Robert C. Wingrove 66 Chief Technical Officer
David B. Kaysen 49 Chief Executive Officer
William J. Sweeney 55 Vice President Sales and Marketing
W. Glen Winchell 51 Vice President of Finance and Chief
Financial Officer
</TABLE>
See the biographical information on Messrs. Wingrove and Kaysen under
Directors.
William J. Sweeney started with the Company as Vice President of Sales and
Marketing in April 1996. From June 1993 to April 1996, he was employed by
CIRCON Corporation and Surgitek, Inc. (a company acquired by CIRCON
Corporation), both manufacturers of surgical products, most recently as
Corporate Business Development Manager.
W. Glen Winchell has been Vice President of Finance and Chief Financial
Officer since September 1993.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires executive
officers and directors and persons who beneficially own more than ten percent
(10%) of the Company's Common Stock to file initial reports of ownership and
reports of changes in ownership with the Securities and Exchange Commission.
Executive officers, directors and greater than ten percent (10%) beneficial
owners are required by Commission regulations to furnish the Company with
copies of all Section 16(a) forms they file.
The Company believes that its executive officers and directors complied with
all applicable Section 16(a) filing requirements during and with respect to
the fiscal year ended June 30, 1998 except that Messrs. Ayers and Gibson
failed to timely file their initial report of beneficial ownership subsequent
to completion of the merger with Staodyn, Inc. pursuant to which they became
directors. Such reports have since been filed.
Page 5
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The table below shows the compensation
awarded or paid to, or earned by, Rehabilicare's chief executive officer and
each of its most highly compensated executive officers who received salary
and bonus of $100,000 or more during each of the years in the three-year
period ended June 30, 1998.
<TABLE>
<CAPTION>
Annual Compensation Long-Term
---------------------------------------- Compensation (1) All Other
Name and Other Annual ---------------- Compensation
Principal Position Year Salary Bonus Compensation Options(2) (3)
- ---------------------- ---- -------- ------- ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
David B. Kaysen 1998 $170,365 $59,670 -- 15,000 $768
PRESIDENT AND CHIEF 1997 163,125 28,260 -- 15,000 750
EXECUTIVE OFFICER 1996 155,531 -- -- 15,000 904
Robert C. Wingrove 1998 $128,788 $15,750 -- 5,000 $768
CHIEF TECHNICAL 1997 125,800 19,042 -- 10,000 753
OFFICER 1996 121,500 -- -- 10,000 842
W. Glen Winchell 1998 $104,291 $26,875 -- 20,000 $795
VICE PRESIDENT OF 1997 97,692 16,302 -- 5,000 759
FINANCE AND CHIEF 1996 91,875 -- -- 10,000 788
FINANCIAL OFFICER
William J. Sweeney 1998 $ 97,007 $ 18,800 -- 15,000 $750
VICE PRESIDENT OF SALES 1997 90,599 16,325 20,000 (4) 10,000 763
AND MARKETING (5) 1996 20,249 -- -- 30,000 --
</TABLE>
- ------------------------------
(1) Rehabilicare did not award any restricted stock or make any long-term
incentive payments to executives.
(2) Represents the number of shares of Rehabilicare common stock that can be
purchased upon the exercise of stock options granted during the year.
(3) Represents Rehabilicare's contributions to a 401(k) plan.
(4) Represents relocation expense allowance.
(5) Mr. Sweeney was employed as Vice President of Sales and Marketing in April
1996.
STOCK BASED COMPENSATION. The following table provides information
regarding options to purchase Rehabilicare Common Stock granted to the named
executive officers pursuant to the 1988 Restated Stock Option Plan or the
1998 Stock Incentive Plan during 1998.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
Number of Percent of Total
Securities Options Granted To
Underlying Employees in Exercise Expiration
Name Options Granted Fiscal Year Price ($/Share) Date
- --------------- --------------- ------------------- --------------- -----------------
<S> <C> <C> <C> <C>
Mr. Kaysen 15,000 10.1% $3.0625 3/16/05
Mr. Wingrove 5,000 3.4% $3.0625 3/16/05
Mr. Winchell 20,000 13.5% $3.0625-$3.25 9/10/02 - 3/16/05
Mr. Sweeney 15,000 10.1% $3.0625-$3.25 9/10/02 - 3/16/05
</TABLE>
Page 6
<PAGE>
The following table summarizes the value of options held at the end
of fiscal 1998 by the named executive officers.
OPTION EXERCISES IN FISCAL 1998 AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Shares Options In-the-Money Options
Acquired At End of Fiscal 1998 At End of Fiscal 1998 (1)
on Value ------------------------------ -----------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------ -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Kaysen -- -- 42,000 33,000 $18,188 $ 2,438
Mr. Wingrove -- -- 32,000 18,000 $15,375 $ 2,438
Mr. Winchell -- -- 56,000 29,000 $29,875 $11,375
Mr. Sweeney -- -- 24,000 31,000 -- --
</TABLE>
- ------------------------------
(1) Represents the difference between $2.6875 (the last sales price at June 30,
1998) and the exercise price multiplied by the number of shares.
COMPENSATION OF DIRECTORS
Directors who are not also officers or employees of the Company receive fees
of $1,000 per quarter; an option to purchase 2,500 shares of the Company's
common stock under its 1998 Stock Incentive Plan on July 1 of each year; and
are reimbursed for their expenses in attending board meetings.
LONG-TERM PLAN INCENTIVE AWARDS
Other than its 1998 Stock Incentive Plan and 1993 Employee Stock Purchase
Plan, the Company does not maintain any long-term incentive plan.
CERTAIN TRANSACTIONS
The Company loaned Mr. Kaysen $162,500 in March 1997 for the acquisition of
100,000 shares of the Company's common stock, pursuant to his exercise of
stock options. The loan was evidenced by a promissory note secured by 85,729
shares of Company common stock owned by Mr. Kaysen and bearing interest at
the prime rate. In March 1998, the Company loaned Mr. Kaysen an additional
$75,000 in connection with his income tax obligation resulting from the stock
option exercise. That loan is secured by the same collateral and subject to
the same terms.
Page 7
<PAGE>
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
The Company has selected PricewaterhouseCoopers LLP as its independent public
accountants for the year ending June 30, 1999. Representatives of
PricewaterhouseCoopers LLP are expected to be present at the Annual Meeting,
will have an opportunity to make a statement if they desire to do so and will
be available to respond to questions from shareholders.
PROPOSALS FOR THE NEXT ANNUAL MEETING
Any proposal by a shareholder to be presented at the next Annual Meeting must
be received at the Company's principal executive offices, 1811 Old Highway 8,
New Brighton, MN 55112-3493, no later than June 30, 1999.
BY ORDER OF THE BOARD OF DIRECTORS
Thomas Martin
SECRETARY
Dated: November 2, 1998
Page 8
<PAGE>
REHABILICARE INC.
Proxy for the December 15, 1998 Annual Meeting of Shareholders
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints David B. Kaysen and W. Glen
Winchell, and each of them, with power to appoint a substitute, to vote all
shares the undersigned is entitled to vote at the Annual Meeting of
Shareholders of Rehabilicare Inc., to be held on December 15, 1998, and at
all adjournments thereof, as specified below on the matters referred to, and,
in their discretion, upon any other matters which may be brought before the
meeting:
1. ELECTION OF DIRECTORS: / / FOR all nominees (EXCEPT / / WITHHOLD AUTHORITY
AS MARKED TO THE TO VOTE FOR ALL
CONTRARY BELOW) NOMINEES
TO WITHHOLD AUTHORITY FOR A SPECIFIC NOMINEE, PLACE A LINE THROUGH HIS
NAME BELOW:
Frederick H. Ayers, W. Bayne Gibson, Richard E. Jahnke, David B. Kaysen,
John H.P. Maley, Robert C. Wingrove,
2. TO VOTE WITH DISCRETIONARY AUTHORITY ON ANY OTHER MATTER THAT MAY PROPERLY
COME BEFORE THE MEETING.
(THIS PROXY MUST BE DATED AND SIGNED ON THE REVERSE SIDE.)
<PAGE>
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 all directors named in Item 1.
When shares are held by joint tenants, both should sign. When signing
as attorney, executor, administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full corporate name by
President or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
Dated: ____________________________, 1998
_______________________________________
Signature
_______________________________________
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THIS
PROXY PROMPTLY.
