<PAGE> 1
================================================================================
SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
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:
<TABLE>
<S> <C>
[ 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 sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
Res-Care, Inc.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Res-Care, Inc.
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
---------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
---------------
(5) Total fee paid:
------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------
(3) Filing Party:
--------------------------------------------------
(4) Date Filed:
----------------------------------------------------
================================================================================
<PAGE> 2
Revised: 3/20/97
10140 LINN STATION ROAD
LOUISVILLE, KENTUCKY 40223
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 13, 1997
The Annual Meeting of Shareholders of Res-Care, Inc. (the "Company")
will be held in the Grand Ballroom of the Sealbach Hotel, 500 4th Avenue,
Louisville, Kentucky 40202, at 11:00 a.m. (EDT), on Tuesday, May 13, 1997,
for the following purposes:
1. To elect six directors for a term of one year and
until their respective successors are elected and
qualified;
2. To amend the Company's Articles of Incorporation to
increase the Company's authorized Common Stock to
40,000,000 shares of Common Stock.
3. To ratify the selection of KPMG Peat Marwick LLP as
the Company's independent auditors for the fiscal
year ending December 31, 1997; and
3. To transact such other business as properly may come
before the meeting or any adjournment or adjournments
thereof.
The Board of Directors has fixed the close of business on March 17,
1997 as the record date for determining shareholders entitled to receive notice
of the Annual Meeting and to vote at such meeting or any adjournment or
adjournments thereof.
The Board of Directors appreciates and welcomes shareholder
participation in the Company's affairs. Whether or not you plan to attend the
Annual Meeting, please vote by completing, signing and dating the enclosed proxy
and returning it promptly to the Company in the enclosed self-addressed, postage
prepaid envelope. If you attend the meeting, you may revoke your proxy and vote
your shares in person.
By Order of the Board of Directors,
SPIRO B. MITSOS
Secretary
- ----------------------
<PAGE> 3
RES-CARE, INC.
10140 LINN STATION ROAD
LOUISVILLE, KENTUCKY 40223
_______________________
PROXY STATEMENT
_______________________
1997 ANNUAL MEETING OF SHAREHOLDERS
GENERAL INFORMATION
This Proxy Statement is furnished to shareholders of Res-Care, Inc., a
Kentucky corporation (the "Company"), in connection with the solicitation of
proxies by the Board of Directors of the Company (the "Board of Directors") for
use at the Annual Meeting of Shareholders of the Company to be held at 11:00
a.m. (EDT) on May 13, 1997 in the Grand Ballroom of the Sealbach Hotel, 500 4th
Avenue, Louisville, Kentucky 40202, and any adjournment or adjournments thereof
(the "Annual Meeting"), for the purposes set forth in the accompanying Notice of
Annual Meeting of Shareholders. This Proxy Statement, the attached Notice of
Annual Meeting of Shareholders, the accompanying form of proxy and the Annual
Report to Shareholders of the Company for the fiscal year ended December 31,
1996 are first being sent to shareholders of the Company on or about April ___,
1997.
The record date for shareholders of the Company entitled to notice of,
and to vote at, the Annual Meeting is the close of business on March 17, 1997
(the "Record Date"). On the Record Date, there were issued and outstanding
10,058,703 shares of the Company's common stock, no par value (the "Common
Stock"). All of such shares are of one class, with equal voting rights, and each
holder thereof is entitled to one vote on all matters voted on at the Annual
Meeting for each share registered in such holder's name, other than the election
of directors. In connection with the election of directors, each holder of
shares is entitled to cumulative voting; that is, the holder is entitled to vote
the number of shares the owner owns multiplied by the number of members of the
Board of Directors, six, and the holder may cast the whole number of votes for
one candidate, or distribute such votes among two or more candidates. Presence
in person or by proxy of holders of 5,029,352 shares of Common Stock will
constitute a quorum at the Annual Meeting. Assuming a quorum is present, the
affirmative vote by the holders of a plurality of the shares represented at the
Annual Meeting and entitled to vote will be required to act on the election of
directors, and the affirmative vote by the holders of a majority of the shares
represented at the Annual Meeting and entitled to vote will be required to act
on all other matters to come before the Annual Meeting, including the
ratification of the selection of KPMG Peat Marwick LLP as independent auditors
for the current fiscal year.
A proxy, in the accompanying form, which is properly executed, duly
returned to the Company and not revoked will be voted in accordance with the
instructions contained thereon. If no specific instructions are indicated on the
proxy, the shares represented will be voted FOR (i) the election of the persons
nominated herein as directors, (ii) the amendment to the Company's Articles of
Incorporation to increase the Company's authorized Common Stock to 40,000,000
shares of Common Stock, and (iii) the ratification of the selection of KPMG Peat
Marwick LLP as the Company's independent auditors for the current fiscal year,
and at the discretion of the persons who are named in the accompanying form of
proxy with respect to such other matters as may properly come before the Annual
Meeting.
Votes cast by proxy or in person at the Annual Meeting will be tabulated
by the inspectors of election appointed for the meeting, who also will determine
whether or not a quorum is present. The inspectors of election will treat
abstentions as shares that are present and entitled to vote for purposes of
determining the
<PAGE> 4
presence of a quorum, but as unvoted for purposes of determining the approval of
any matter submitted to the shareholders for a vote. Thus, an abstention from
voting on a matter has the same legal effect as a vote "against" the matter,
even though the shareholder may interpret such action differently. If a broker
indicates on the proxy that it does not have discretionary authority as to
certain shares to vote on a particular matter, those shares will not be
considered as present and entitled to vote with respect to that matter.
Each proxy granted may be revoked by the person granting it at any time
(i) by giving written notice to such effect to the Secretary of the Company,
(ii) by execution and delivery of a proxy bearing a later date, or (iii) by
attendance and voting in person at the Annual Meeting; except as to any matter
upon which, prior to such revocation, a vote shall have been cast at the Annual
Meeting pursuant to the authority conferred by such proxy. The mere presence at
the Annual Meeting of a person appointing a proxy does not revoke the
appointment.
OWNERSHIP OF EQUITY SECURITIES
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of the Record Date by (i) each
person who is known by the Company to be the beneficial owner of more than 5% of
the outstanding shares of Common Stock of the Company, (ii) each of the
Company's directors, (iii) each of the Company's executive officers named in the
Summary Compensation Table and (iv) all directors and executive officers of the
Company as a group. Unless otherwise indicated, each of the shareholders listed
below has sole voting and investment power with respect to the shares of Common
Stock beneficially owned.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY
NAME AND ADDRESS OWNED PERCENT OF TOTAL
- ---------------- ---------------- ----------------
<S> <C> <C>
James R. Fornear 1,724,932 (1) 17.1
4331 U.S. 60 East, Marion, KY 42064
Margaret H. Fornear 1,354,106 (1) 13.5
4331 U.S. 60 East, Marion, KY 42064
Ronald G. Geary 868,329 (2) 8.4
10140 Linn Station Road, Louisville, Ky 40223
Spiro B. Mitsos, Ph.D. 388,170 (3) 3.8
E. Halsey Sandford 272,050 (4) 2.6
Seymour L. Bryson, Ph.D. 12,375 (5) *
W. Bruce Lunsford 21,750 (6) *
Jeffrey M. Cross 22,150 (7) *
All directors and executive officers as a group (7 persons) 3,309,756 (8) 33.6
<FN>
* Indicates less than 1% of outstanding Common Stock.
(1) As husband and wife, James R. Fornear and Margaret H. Fornear each may
be deemed to be the beneficial owner of the shares of Common Stock
owned by the other pursuant to the applicable rules of the Securities
and Exchange Commission. Such beneficial ownership is disclaimed by
each of Mr. Fornear and Mrs. Fornear. Does not include shares owned by
Mr. and Mrs. Fornear's adult children.
(2) Includes 300,297 shares subject to options that are presently
exercisable, 750 shares held by a family member and 1,232 shares held
as of September 30, 1996 for the benefit of Mr. Geary by the Retirement
Savings Plan over which Mr. Geary has no voting power but does have
investment power.
(3) Represents shares owned jointly by Dr. and Mrs. Mitsos with respect to
which each have shared voting and investment power.
3
<PAGE> 5
(4) Includes 226,350 shares subject to options that are presently
exercisable. Does not include 68,000 shares held in trust for the
benefit of Mrs. Sandford and their children for which Mrs. Sandford is
trustee and over which Mr. Sandford has no voting or investment power
and in which he disclaims beneficial ownership.
(5) Includes 6,750 shares subject to options that are presently
exercisable.
(6) Includes 6,750 shares subject to options that are presently
exercisable.
(7) Represents shares owned jointly by Mr. Cross and Mrs. Cross with
respect to which each has shared voting and investment power. Includes
21,550 shares subject to options that are presently exercisable.
(8) Includes 561,697 shares subject to options that are presently
exercisable.
</TABLE>
ELECTION OF DIRECTORS
(ITEM 1 ON THE PROXY CARD)
NOMINEES
At the Annual Meeting, six persons will be elected to the Board of
Directors to serve until the next annual meeting and until their respective
successors are elected and qualified. The persons named in the accompanying form
of proxy, unless otherwise instructed, intend to vote the shares of Common Stock
covered by valid proxies FOR the election of the six persons named in the
following table to the Board of Directors. In the event that any of such persons
is unable to continue to be available for election, the persons named in the
accompanying form of proxy will have discretionary power to vote for a
substitute and will have discretionary power to vote or withhold their vote for
any additional nominees named by shareholders. There are no circumstances
presently known to the Board of Directors which would render any of the
following persons unavailable to continue to serve as a director, if elected.
<TABLE>
<CAPTION>
DIRECTOR OR
NAME AGE OFFICER SINCE PRINCIPAL OCCUPATION
- -------------------- --- ------------- --------------------------------------------------
<S> <C> <C> <C>
James R. Fornear 66 1974 Chairman of the Board of the Company
Ronald G. Geary 49 1990 President and Chief Executive Officer of the Company
E. Halsey Sandford 64 1984 Executive Vice President of the Company
Spiro B. Mitsos 66 1974 Practicing Psychologist
Seymour L. Bryson 59 1989 Executive Assistant to Chancellor, Southern Illinois University at
Carbondale
W. Bruce Lunsford 49 1992 Chairman of the Board, President and Chief Executive Officer of
Vencor, Inc.
</TABLE>
The business experience of each of the foregoing persons, during the
past five years, is as follows:
James R. Fornear, the founder of the Company, has served as Chairman of
the Board of the Company since 1984. Mr. Fornear was the President of the
Company from 1974 to 1990 and Chief Executive Officer of the Company from 1989
to 1993.
Ronald G. Geary, an attorney and certified public accountant, has
served as a director and President of the Company since 1990 and as Chief
Executive Officer since 1993. Prior to being named Chief Executive Officer, Mr.
Geary was Chief Operating Officer of the Company from 1990 to 1993.
E. Halsey Sandford has been a director of the Company since 1984 and
has been Executive Vice President responsible for development for the Company's
Division for Persons with Disabilities since 1992. From 1965 to 1992, Mr.
Sandford was in charge of corporate finance for J.J.B. Hilliard, W.L. Lyons,
Inc., a New York Stock Exchange member firm based in Louisville, Kentucky
engaged in the investments and stock brokerage business, and from 1972 to 1992
served as a director and Senior Vice President of that company.
4
<PAGE> 6
Spiro B. Mitsos, Ph.D., a psychologist, has been Secretary and
Treasurer of the Company since 1984 and a director of the Company since 1974.
Dr. Mitsos is employed by the Company and provides psychological consultation
services to facilities operated by the Company. Dr. Mitsos has served as an
adjunct faculty member at Southern Illinois University, the University of
Kentucky and the University of Evansville.
Seymour L. Bryson, Ph.D., has served as a director of the Company since
1989. Since 1984, Dr. Bryson has held several positions with Southern Illinois
University at Carbondale, including professor in the University's Rehabilitation
Institute, Dean of the College of Human Resources, Special Assistant to the
Chancellor, Executive Assistant to the President and Executive Assistant to the
Chancellor.
W. Bruce Lunsford, an attorney and certified public accountant, has
served as a director of the Company since 1992 and has served as Chairman of the
Board, President and Chief Executive Officer of Vencor, Inc., a diversified
healthcare provider primarily focusing on the needs of the elderly, since 1985.
Mr. Lunsford is a director of National City Corporation, a bank holding company,
and Churchill Downs, Incorporated.
Directors of the Company are elected annually to serve until the next
annual meeting of shareholders and until their successors have been duly elected
and qualified.
During 1996, there were five meetings of the Board of Directors. During
this period, each director attended at least 80% of all meetings of the Board of
Directors and all of the meetings of the committees on which he served during
the year.
EXECUTIVE OFFICERS OF THE COMPANY
In addition to Messrs. Fornear, Geary and Sandford, Jeffrey M. Cross is
an executive officer of the Company. Mr. Cross, age 43, has been employed by the
Company since 1984 with the exception of the period between 1987 and 1989. He
has served in various administrative positions in the Company's Division for
Persons with Disabilities. In 1991, he was named vice president for operations
in Kentucky and Indiana and was named Executive Vice President of Operations,
Division for Persons with Disabilities effective January 1, 1994.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has an Executive Committee, an Audit
Committee, and an Executive Compensation Committee. The members of each
committee are appointed by the Board of Directors for a term beginning after the
first regular meeting of the Board of Directors following the Annual Meeting of
Shareholders and until their respective successors are elected and qualified.
Executive Committee. The Executive Committee is comprised of the
Chairman of the Board, the Chief Executive Officer and one member of the Board
of Directors of the Company. The Executive Committee's primary responsibility is
to act as an interim board on business matters normally brought before the Board
of Directors. The Executive Committee is responsible for developing and
monitoring the long-range plans of the Company, ascertaining the types and
frequency of reports required by the Board, reviewing all expansion plans for
recommendation to the Board of Directors, assisting in monitoring relationships
with financial institutions and reviewing performance evaluations, salary
increases and bonuses for key staff members. Messrs. Fornear, Geary and Sandford
serve as members of the Executive Committee. During 1996, there were five
meetings of the Executive Committee.
Audit Committee. The Audit Committee recommends to the Board of
Directors the auditing firm to be selected each year as independent auditors of
the Company's financial statements and to perform services related to such
audit. The Audit Committee also has responsibility for (i) reviewing the scope
and results of the audit with the independent auditors, (ii) reviewing the
Company's financial condition and results of
5
<PAGE> 7
operations with management and the independent auditors, (iii) considering the
adequacy of the internal accounting and control procedures of the Company, and
(iv) reviewing any non-audit services and special engagements to be performed by
the independent auditors and considering the effect of such performance on the
auditors' independence. The Audit Committee also reviews, at least once each
year, the terms of all material transactions and arrangements between the
Company and its affiliates. Messrs. Sandford, Bryson and Lunsford serve as
members of the Audit Committee. Three meetings of the Committee were held during
1996.
Executive Compensation Committee. The Executive Compensation Committee
determines the cash and other incentive compensation, if any, to be paid to the
Company's executive officers. Mr. Bryson and Mr. Lunsford, nonemployee directors
of the Company, serve as members of the Executive Compensation Committee and are
"disinterested directors" (within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934). Two meetings of the Committee were held during 1996.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers and persons who own more than 10% of
the Company's Common Stock to file initial stock ownership reports and reports
of changes in ownership with the Securities and Exchange Commission. Based on a
review of these reports Mr. Mitsos filed one Report on Form 4 one day late.
REPORT ON EXECUTIVE COMPENSATION
Compensation for the first five months of 1996 for Mr. Sandford was
determined in accordance with his individually negotiated employment agreement
which was entered into in April 1992 prior to the establishment of the Executive
Compensation Committee. Mr. Sandford's contract was extended as of
March 1, 1996 for one year with the time commitment reduced to 32 hours per
week effective June 1, 1996. At that time, Mr. Sandford's base salary was
reduced to $100,000 to reflect the reduced time commitment. The contract renews
automatically for subsequent one-year terms unless either party gives 60 days
notice of intent not to renew and the contract is in a renewal term. The
Committee believes Mr. Sandford's compensation continues to reflect his
performance with the Company.
Effective September 15, 1995, the Company entered into a new employment
agreement with Mr. Geary (the "1995 Agreement") which agreement is described
below under which Mr. Geary's compensation was adjusted to $300,000 for the
first year of the 1995 Agreement. Mr. Geary's bonuses under the 1995 Agreement
are based on Company performance criteria to be mutually determined between Mr.
Geary and the Committee prior to January 1 for the upcoming year. For 1996, Mr.
Geary was awarded, in lieu of a cash bonus options to purchase 15, 000 shares of
Common Stock based on achieving performance goals that would have generated a
bonus of $75,000 or 25% of his base salary. In addition, the Committee
determined to grant options to purchase 75,000 shares for each year that Mr.
Geary completes under the 1995 Agreement.
On November 15, 1996, the 1995 Agreement was amended to delete the
obligation of the Company to reimburse Mr. Geary for certain federal and state
income taxes associated with his exercise of incentive stock options granted
pursuant to his original 1991 Employment Agreement. In consideration of such
amendment, the Company granted Mr. Geary an additional stock option for 112,797
shares as of the date of the amendment, such shares to be exercisable as of
March 15, 1997.
The Committee believes that Mr. Fornear's current salary continues to
reflect fairly his contributions to the Company. The Committee also concluded
that it was not necessary to provide performance-based incentive compensation to
Mr. Fornear as his substantial ownership of Common Stock already closely aligns
his interests with those of the Company's shareholders.
6
<PAGE> 8
The compensation of Jeffrey M. Cross was increased from $91,875 in 1995
to $114,115 in 1996 to reflect his performance. This increase was within the
range of compensation increases given to other management personnel in the
Company. Mr. Cross also participates in the Company's Compensation/Bonus
Evaluation Plan which provides bonuses to management personnel based upon their
individual and division performance as well as the performance of the Company as
a whole. In lieu of a cash bonus for 1996, Mr. Cross was granted options to
purchase 1,750 of common stock. Mr. Cross was also granted options in 1996 to
purchase 12,000 shares and in 1997 to purchase 12,000 shares of common stock
pursuant to the 1991 Res-Care Incentive Stock Option Plan
In light of his considerable contribution and value to the operations
of the Company and as an inducement to remain in the employ of the Company, the
Company entered into an Employment Agreement with Mr. Cross effective January 1,
1997. Under the Agreement, Mr. Cross' base salary will be $150,000 annually
subject to adjustment for inflation and he will be eligible to receive options
for 25,000 shares of the Company's Common Stock in February of each year of
his Agreement.
Because the Committee does not contemplate that any compensation paid
to the Company's executive officers will be subject to the $1 million limitation
on deductions imposed by Section 162(m) of the Internal Revenue Code, the
Committee has not adopted any policies with respect to limiting executive
compensation to amounts that are deductible.
EXECUTIVE COMPENSATION COMMITTEE
Seymour L. Bryson
W. Bruce Lunsford
7
<PAGE> 9
EXECUTIVE COMPENSATION
Summary of Compensation in 1996
The following summary compensation table sets forth information
concerning compensation for services in all capacities awarded to, earned by or
paid to the executive officers of the Company during the year ended December 31,
1996.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- ------
NAME AND PRINCIPAL POSITION SECURITIES UNDERLYING ALL OTHER
AS OF DECEMBER 31, 1996 YEAR SALARY BONUS (1) OPTIONS/SARS (2) COMPENSATION (3)
- -------------------------------- ---- ------ --------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
James R. Fornear 1996 $ 123,953 $ 0 0 $ 0
Chairman of the Board 1995 123,953 0 0 0
1994 130,685 0 0 0
Ronald G. Geary 1996 308,921 0 202,797 16,965
President and Chief 1995 264,889 48,538 97,500 11,878
Executive Officer 1994 220,074 44,126 0 13,237
E. Halsey Sandford 1996 108,553 0 1,350 9,772
Executive Vice President - 1995 111,987 7,807 0 8,314
Development 1994 105,631 5,918 0 6,326
Jeffrey M. Cross 1996 114,891 0 12,000 10,204
Executive Vice President - 1995 95,187 6,090 6,000 6,498
Operations for Persons 1994 87,971 6,020 7,500 5,144
w/Disabilities
<FN>
_________________
(1) Bonuses paid to Mr. Geary are pursuant to his employment agreement with
the Company. Bonuses paid to Mr. Sandford and Mr. Cross are pursuant to
the Company's Compensation/Evaluation Bonus Plan. For 1996, bonuses
earned were converted to special options granted under the Company's
1991 Incentive Stock Option Plan.
(2) Options for 1994 and 1995 have been adjusted to reflect the 3-for-2
stock split effective June 4, 1996.
(3) All Other Compensation represents amounts contributed by the Company on
behalf of Messrs. Geary, Sandford and Cross to the Res-Care, Inc. Money
Purchase Pension Plan in 1994 and the Company's contributions, as
described below, to the Retirement Savings Plan and to the 401(K)
Restoration Plan in 1995 and 1996.
Under the Company's Retirement Savings Plan, the Company made a "core"
contribution on behalf of each participant equal to 3% of eligible
salary plus an additional 3% of salary in excess of $40,000. In
addition, the Company matched one half of a participant's salary
redirection in the Retirement Savings Plan up to 4% of the
participant's redirected salary.
The Company has also established the 401(K) Restoration Plan to permit
certain members of management to defer compensation pre-tax and to
permit the Company to contribute on behalf of such employees without
the restrictions imposed by the Internal Revenue Code on the
tax-qualified Retirement Savings Plan. The Company's matching
contribution on behalf of each participant is equal to 1) 3% of the
lesser of $23,500 or the amount by which the compensation exceeds
$16,500 plus 2) the excess of (i) the amount the Company would match in
the Retirement Savings Plan if the participant's contribution to the
Retirement Savings Plan equaled his contribution to the Restoration
Plan plus the actual contributions to the Retirement Savings Plan over
(ii) the Company's actual
</TABLE>
8
<PAGE> 10
matching contribution to the Retirement Savings Plan on behalf of the
participant.
1996 Stock Option Grants
The following table provides information on stock options granted to
executive officers of the Company during the year ending December 31, 1996:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (3)
- ------------------------------------------------------------------------------------- ---------------
NUMBER OF
SECURITIES
UNDERLYING % OF TOTAL
OPTIONS/ OPTIONS/SARS EXERCISE
SARS GRANTED TO OR BASE
GRANTED EMPLOYEES PRICE EXPIRATION
NAME (#) IN FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
---- --- -------------- ------ ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Ronald G. Geary (1) 112,797 28.8% $15.25 11-5-2002 $585,417 $1,327,621
Jeffrey M. Cross (2) 12,000 3.1% $10.17 2-21-2001 $33,720 $74,400
<FN>
(1) The option for 112,797 shares was granted to Mr. Geary on November 5,
1996. Of the total shares subject to option, 6,557 shares are incentive
stock options and 106,240 are non-qualified stock options.
(2) The options were granted to Mr. Cross on February 22, 1996 and are
exercisable in increments of 20 percent each year for five years
beginning on February 22, 1996. Of the total shares subject to option,
9,832 shares are incentive stock options and 2,168 shares are
non-qualified stock options.
(3) The dollar amounts in this table represent the potential realizable value
of the stock options granted, assuming that the market price of the
shares appreciates in value from the date of grant to the end of the
option term at annualized rates of 5% and 10%. Therefore, these amounts
are not the actual value of the options granted and are not intended to
forecast possible future appreciation, if any, of Company Common Stock
prices. No assurances can be given that the stock prices will appreciate
at these rates or experience any appreciation at all.
</TABLE>
During the year ending December 31, 1996, Mr. Geary exercised options
for 90,000 shares. The following table indicates the total number of exercisable
and unexercisable stock options on December 31, 1996 held by the executive
officers named in the Summary Compensation Table and the related value of such
options based on the last sales price of the Common Stock on Nasdaq on December
31, 1996 of $17.50 per share.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED OPTIONS VALUE OF UNEXERCISED IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1996 AT DECEMBER 31, 1996
---------------------------------------- ---------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
James R. Fornear 0 shares 0 shares $ 0 $ 0
Ronald G. Geary 97,500 shares 112,797 shares 1,706,250 1,973,947
E. Halsey Sandford 225,000 shares 0 shares 3,937,500 0
Jeffrey M. Cross 13,800 shares 16,200 shares 241,500 283,500
</TABLE>
9
<PAGE> 11
Employment Agreements
Until October 26, 1995, Mr. Geary was employed by the Company pursuant
to an employment agreement entered into on January 1, 1991. On October 26, 1995,
the Company entered into a new Employment Agreement (the "1995 Agreement") with
Mr. Geary for an initial five-year term commencing on September 15, 1995.
Pursuant to the 1995 Agreement, Mr. Geary will receive a base salary of $300,000
plus an annual cost of living increase based on the increase in the Consumer
Price Index for Urban Wage Earners and Clerical Workers. For the year beginning
January 1, 1996 and thereafter during the term of the agreement, Mr. Geary is
eligible for an annual bonus equal to from 0% to 50% of his base salary based on
performance criteria to be mutually agreed upon by Mr. Geary and the
Compensation Committee of the Board on or before January 1 of each year. Under
the 1995 Agreement, Mr. Geary was granted options to purchase 97,500 shares
(adjusted for the 3-for-2 split) of Common Stock at a price of $16.00 per share
which options were exercisable as of the date of the grant. In addition, the
Company agreed to grant options to purchase 75,000 shares (adjusted for the
3-for-2 split) of Common Stock at the then fair market value on the last
Thursday of February during each of the remaining years of the term of the
Agreement beginning with February, 1997. The Company also agreed to reimburse
Mr. Geary for a portion of federal and state income taxes incurred as a result
of Mr. Geary's exercise of unexercised options under the 1991 Agreement under a
formula outlined in the 1995 Agreement. On November 5, 1996, the 1995 Agreement
was amended to delete the Company's obligation to reimburse the taxes and to
grant Mr. Geary options to purchase 112,797 shares of Common Stock at the
closing price on the date of the grant, or $15.25.
In addition, under the 1995 Agreement, the Company provides to Mr.
Geary maximum disability insurance coverage permitted under the Company's
current benefit plan, equips an office in Mr. Geary's home, and pays fees for
personal tax and financial planning and for an annual physical. The 1995
Agreement also contains a clause which provides that in the event Mr. Geary's
employment is terminated following a change in the control of the Company, Mr.
Geary will be entitled to receive an amount equal to the unpaid balance of his
full base salary through the effective termination date of the agreement plus
an amount equal to his full base salary for two years.
Mr. Sandford is employed by the Company pursuant to an employment
agreement dated March 1, 1992 and first amended on April 27, 1992. Mr.
Sandford's agreement provided for a base salary of $100,000 subject to increase
on the first date of each year of the term in proportion to the increase in the
Consumer Price Index "All Items" category. Under the agreement, Mr. Sandford was
granted options on April 27, 1992 to purchase 149,985 shares of Common Stock at
a price of $2.67 per share and options to purchase 75,015 shares of Common
Stock at a price of $1.24 per share. All of the options are currently
exercisable. The initial term of the agreement expired on February 29, 1996 and
the agreement was amended as of March 17, 1996 ("the Second Amendment") and
extended for an additional one-year term from March 1, 1996 on substantially
the same terms and conditions. The Agreement automatically renewed effective
March 1, 1997 for an additional one-year term. Under the Second Amendment Mr.
Sandford's time commitment was reduced to 32 hours per week effective June 1,
1996, at which time his base salary as adjusted returned to $100,000, again
subject to increase based on the CPI.
On January 1, 1997, the Company entered into an Employment Agreement
with Mr. Cross for an initial term of three years commencing on January 1, 1997.
The Agreement provides for an initial base salary of $150,000 subject to
increase in proportion to the increase in the Consumer Price Index "All Items"
category. Mr. Cross also participates in the Company's annual bonus plan and is
eligible beginning January 1, 1997 to receive an annual bonus of up to 25% of
his base salary, as adjusted. The Agreement provides that Mr. Cross will be
granted options to purchase 25,000 shares of Common Stock on the fourth Thursday
of each February commencing in 1998 at the closing price of the stock on the
grant date. Such options shall vest immediately on the grant date.
Mr. Sandford and Mr. Cross participate in the Company's
Compensation/Evaluation Bonus Plan. Bonuses awarded under the
Compensation/Evaluation Bonus Plan are based upon the achievement of various
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<PAGE> 12
individual, department, division and Company goals, including goals that relate
to such matters as budgetary compliance, quality control compliance and
divisional revenue growth. Bonuses are calculated on the basis of the percentage
of goals met during the year. For 1996, the Company granted stock options in
lieu of cash bonuses. Based on 1996 performance, Mr. Sandford received options
for 1,350 shares and Mr. Cross received options for 1,750 shares in lieu of
bonus under the Plan for the year.
Mr. Geary's, Mr. Sandford's and Mr. Cross' employment agreements renew
automatically for one-year periods after the expiration of their respective
terms unless notice of termination is given by either the Company or the
officer. In addition, each agreement may be terminated by the Company with or
without cause at any time. In the event Mr. Sandford's agreement is terminated
by the Company without cause, Mr. Sandford will be entitled to receive a lump
sum severance payment in an amount equal to his base salary for a period of
twelve months. In the event Mr. Cross' agreement is terminated without cause,
Mr. Cross will be entitled to receive his full base salary for six months after
the date of termination, unless such termination is after a change of control in
which case he will be entitled to receive his full base salary for one year
after termination. In the event Mr. Geary's agreement is terminated by the
Company without cause, Mr. Geary will be entitled to continue to receive his
full base salary for the balance of the term. Messrs. Geary, Sandford and Cross
will also be entitled to receive a cash bonus prorated based on the number of
full months that have elapsed from the immediately preceding January 1 until the
date of termination, plus any earned but unpaid cash bonus from a prior period.
In the event of a change in control, or a termination of employment for a reason
other than for cause, the Company will be required to repurchase unexercised
options vested with respect to Messrs. Sandford and Geary for a purchase price
equal to the difference between the fair market value of the Common Stock on the
date such event occurs and the stated option exercise price. In addition, if the
change of control results from a tender offer or other exchange offer, the
repurchase of vested options will be for a price equal to the difference between
the exercise price and the final offer price. In the event that an officer's
employment agreement is terminated by the Company for cause, the officer would
not be entitled to any compensation following the date of such termination other
than the pro rata amount of his then current base salary through such date. Upon
termination of employment for any reason, Mr. Sandford will be prohibited from
competing with the Company for a period of five years and Mr. Geary and Mr.
Cross for a period of one year.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company receive no compensation for
their services as directors. The Company's two nonemployee directors, Seymour L.
Bryson and W. Bruce Lunsford, receive an annual retainer of $6,000 plus $1,000
per Board meeting attended for their services as directors and $500 for each
committee meeting not held in conjunction with a Board meeting. In addition,
Mr. Bryson and Lunsford are entitled to participate in the Res-Care, Inc. 1993
Non-Employee Directors Stock Ownership Incentive Plan adopted by the Board of
Directors on October 28, 1993. The Plan provided for the grant of an initial
option of 3,000 shares to each non-employee director upon adoption of the plan,
with a subsequent grant to each non-employee director of an option for 3,000
shares on the first business day of July of each year thereafter that the
director serves on the Board. The option grants have been adjusted for
the 3-for-2 split effective June 4, 1996.
PERFORMANCE GRAPH
The following graph shows the cumulative total shareholder return
experienced by the Company's shareholders during the period from December 15,
1992, the date on which the Company's Registration Statement for its initial
public offering became effective, through December 31, 1996, as compared to the
Nasdaq Stock Market Index (U.S. Companies) and the Nasdaq Health Services Index,
an index which contained approximately 125 companies as of December 31, 1996.
The Nasdaq Health Services Index is prepared for Nasdaq by the Center for
Research in Security Prices (CRSP) at the University of Chicago using companies
within Standard Industrial Classification code 80 (Health Care). The Company
undertakes to provide to shareholders promptly upon request a list of all
companies included within this Index. The graph assumes the investment of $100
on December 15, 1992 in the Company's Common Stock at the closing
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<PAGE> 13
trading price on that date. Cumulative total shareholder return for a given
period is measured by the dividends paid, assuming dividend reinvestment, and
the change in the share price during that period; the sum of these two factors
is then divided by the per share price at the beginning of that period. Because
the Company has declared no dividends on its Common Stock since it became
publicly traded, cumulative total shareholder return on the Company's Common
Stock since December 15, 1992 is based on its trading price.
<TABLE>
<CAPTION>
12/15/92 13/31/92 12/31/93 12/31/94 12/31/95 12/31/96
<S> <C> <C> <C> <C> <C> <C>
Res-Care 100.00 106.52 139.13 143.48 145.65 228.16
NASDAQ index 100.00 101.81 116.87 114.24 161.43 198.71
NASDAQ
Health Services 100.00 100.49 115.94 124.46 159.03 158.13
Stock Index
</TABLE>
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<PAGE> 14
PROPOSED AMENDMENT TO THE ARTICLES OF INCORPORATION
TO INCREASE AUTHORIZED COMMON STOCK
The Board of Directors of the Company has adopted resolutions declaring
advisable and recommending to the Company's stockholders for their approval an
amendment to the Company's Articles of Incorporation that provides for the
increase of the authorized shares of Common Stock from 20,000,000 shares to
40,000,000 shares. The text of the proposed amendment is included in the form of
Articles of Amendment attached hereto as Exhibit A.
The additional shares of Common Stock could be issued, in many cases
without stockholder approval, for a variety of corporate purposes including the
raising of additional capital to support expansion of the Company's growth
and stock issuances in connection with the acquisition of other business
organizations, employee incentive plans, stock splits and recapitalizations of
the Company's capital structure. The Company from time to time reviews various
acquisition prospects and periodically engages in discussions regarding
possible acquisitions. Currently, the Company is not a party to any agreements
or understandings regarding any material acquisitions that would require
issuance of any shares authorized by the proposed amendment. In addition,
acquisitions involving stock issuances above certain enumerated thresholds
would require stockholder approval under applicable rules of the Nasdaq Stock
Market and in some circumstances Kentucky law.
The Board of Directors is required to make any determination to issue
shares of Common Stock based on its judgment as to the best interests of the
stockholders and the Company. Although the Board of Directors has no present
intention of doing so, it could issue shares of Common Stock that could make
more difficult or discourage an attempt to obtain control of the Company by
means of merger, tender offer, proxy contest or other means. When, in the
judgment of the Board of Directors, this action will be in the best interest of
the stockholders and the Company, such shares could be used to create voting or
other impediments or to discourage persons seeking to gain control of the
Company. Such shares could be privately placed with purchasers favorable to the
Board of Directors in opposing such action. The issuance of new shares could
also be used to dilute the stock ownership of a person or entity seeking to
obtain control of the Company should the Board of Directors consider the action
of such entity or person not to be in the best interests of the stockholders and
the Company. In addition, the additional shares of Common Stock as well as the
shares of Preferred Stock currently authorized by the Company's Articles of
Incorporation could be issued if the Board of Directors were to adopt a
stockholder rights plan in order to protect stockholders in the event of an
unsolicited attempt to acquire the Company which the Board of Directors does not
believe to be in the best interests of the Company's stockholders. The Company
has no present plans to adopt a stockholder rights plan.
RECOMMENDATION OF THE BOARD OF DIRECTORS; VOTE REQUIRED
The Board of Directors believes the increase in the authorized Common
Stock is in the best interest of the Company and its stockholders and has
declared the amendments advisable. The Board of Directors recommends a vote
"FOR" the amendment to the Company's Articles of Incorporation to increase from
20,000,000 to 40,000,000 shares the authorized Common Stock. The affirmative
vote of a majority of the total number of shares of Common Stock outstanding
will be required for adoption of each of the amendments. Abstentions and broker
non-votes will have the effect of a vote against each of the amendments.
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<PAGE> 15
SELECTION OF INDEPENDENT AUDITORS
(ITEM 3 ON THE PROXY CARD)
The Board of Directors has selected, subject to ratification by the
shareholders of the Company at the Annual Meeting, the firm of KPMG Peat Marwick
LLP as the independent auditors for the Company to audit the Company's financial
statements for its fiscal year ending December 31, 1997. KPMG Peat Marwick LLP
has served as the independent auditors for the Company for all fiscal years
beginning with the fiscal year ending December 31, 1989 and is, therefore,
familiar with the affairs and financial procedures of the Company. A
representative of KPMG Peat Marwick LLP is expected to be present at the Annual
Meeting, will have the opportunity to make a statement if such representative
desires to do so, and will be available to respond to appropriate questions.
The Board of Directors recommends that the shareholders vote FOR
ratification of the selection of KPMG Peat Marwick LLP as the Company's
independent auditors.
SHAREHOLDERS' PROPOSALS FOR THE 1998 ANNUAL MEETING
A shareholder who desires to include a proposal in the proxy material
relating to the 1998 Annual Meeting of Shareholders of the Company must submit
the same in writing, so as to be received at the principal executive office of
the Company (to the attention of the Secretary) on or before December 12, 1997
for such proposal to be considered for inclusion in the proxy statement for such
meeting. Such proposal must also meet the other requirements of the Securities
and Exchange Commission relating to shareholder proposals required to be
included in the Company's proxy statement.
OTHER MATTERS
The Board of Directors does not know of any other business to be
presented for consideration at the Annual Meeting. If other matters properly
come before the Annual Meeting, the persons named in the accompanying form of
proxy intend to vote thereon in accordance with their best judgment.
The Company will bear the cost of the Annual Meeting and the cost of
soliciting proxies, including the cost of mailing the proxy materials. In
addition to solicitation by mail, directors, officers and regular employees of
the Company (none of whom will be specifically compensated for such services)
may solicit proxies by telephone or otherwise. Arrangements will be made with
brokerage houses and other custodians, nominees and fiduciaries to forward forms
of proxy and proxy materials to their principals and the Company will reimburse
them for their expenses.
The Company will furnish, upon request and without charge, to each
person whose proxy is being solicited a copy of its Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, as filed with the Securities and
Exchange Commission, including the financial statements, notes to the financial
statements and the financial schedules contained therein. Copies of any
exhibits thereto also will be furnished upon the payment of a reasonable
duplicating charge. Requests for copies of any such materials should be
directed to Ronald G. Geary, President and Chief Executive Officer, Res-Care,
Inc., 10140 Linn Station Road, Louisville, Kentucky 40223.
By Order of the Board of Directors
SPIRO B. MITSOS
Secretary
_____________________________
Please date, sign and return the enclosed proxy at your earliest
convenience in the enclosed envelope. No postage is required for mailing in the
United States.
14
