<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
/X/ Definitive Proxy Statement Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
RehabCare Group, Inc.
---------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
---------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(j)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / 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
REHABCARE(R)
------------
REHABCARE GROUP, INC.
---------------------
7733 FORSYTH BOULEVARD
SUITE 1700
ST. LOUIS, MISSOURI 63105
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 26, 1996
Dear Stockholder:
The Annual Meeting of Stockholders of RehabCare Group,
Inc. ("RehabCare") will be held at the Pierre Laclede Center,
Second Floor, 7733 Forsyth Boulevard, St. Louis, Missouri on June
26, 1996, at 8:00 a.m., local time, for the following purposes:
1. To elect seven directors to hold office until the
next Annual Meeting or until their successors shall
have been duly elected and qualified.
2. To act upon a proposal to adopt the RehabCare
Group, Inc. 1996 Long-Term Performance Plan.
3. To transact any and all other business that may
properly come before the Annual Meeting or any
adjournment thereof.
Only stockholders of record of RehabCare at the close of
business on May 3, 1996 are entitled to notice of, and to vote at,
the Annual Meeting or any adjournment thereof.
WE CORDIALLY INVITE YOU TO ATTEND THE ANNUAL MEETING.
EVEN IF YOU PLAN TO BE PRESENT AT THE MEETING, YOU ARE REQUESTED TO
DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENVELOPE
PROVIDED SO THAT YOUR SHARES WILL BE REPRESENTED. THE MAILING OF
AN EXECUTED PROXY CARD WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON
SHOULD YOU LATER DECIDE TO ATTEND THE ANNUAL MEETING.
James M. Usdan
President and Chief
Executive Officer
May 24, 1996
<PAGE> 3
REHABCARE(R)
------------
REHABCARE GROUP, INC.
---------------------
7733 FORSYTH BOULEVARD
SUITE 1700
ST. LOUIS, MISSOURI 63105
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 26, 1996
-----------------
GENERAL INFORMATION
This Proxy Statement is furnished to the stockholders of
REHABCARE GROUP, INC. ("RehabCare"), in connection with the
solicitation of proxies for use at the Annual Meeting of
Stockholders to be held at the Pierre Laclede Center, Second Floor,
7733 Forsyth Boulevard, St. Louis, Missouri, on Wednesday, June 26,
1996, at 8:00 a.m., local time, and at all adjournments thereof
(the "Annual Meeting"), for the purposes set forth in the preceding
Notice of Annual Meeting of Stockholders.
This Proxy Statement, the Notice of Annual Meeting and
the accompanying Proxy Card were first mailed to the stockholders
of RehabCare on or about May 24, 1996.
The proxy set forth on the accompanying Proxy Card is
being solicited by the Board of Directors of RehabCare. A proxy
may be revoked at any time before it is voted by filing a written
notice of revocation or a later-dated Proxy Card with the Secretary
of RehabCare at the principal offices of RehabCare or by attending
the Annual Meeting and voting the shares in person. Attendance
alone at the Annual Meeting will not of itself revoke a proxy.
Proxy Cards that are properly executed, timely received and not
revoked will be voted in the manner indicated thereon at the Annual
Meeting and any adjournment thereof.
RehabCare will bear the entire expense of soliciting
proxies. Proxies will be solicited by mail initially. The
directors, executive officers and employees of RehabCare may also
solicit proxies personally or by telephone or other means but such
persons will not be specially compensated for such services.
Only stockholders of record at the close of business on
May 3, 1996, are entitled to notice of, and to vote at, the Annual
Meeting. On such date, there were 4,661,384 shares of RehabCare
Common Stock issued and outstanding.
Each outstanding share of RehabCare Common Stock is
entitled to one vote on each matter to be acted upon at the Annual
Meeting. Shares subject to abstentions will be treated as shares
that are present at the Annual Meeting for purposes of determining
the presence of a quorum and as voted for purposes of determining
the base number of shares voting on a particular proposal. If a
broker or other nominee holder indicates on the Proxy Card that it
does not have discretionary authority to vote the shares it holds
of record on a proposal, those shares will not be considered as
present for purposes of determining a quorum (unless they are voted
on another proposal brought before the meeting) or as voted for
purposes
<PAGE> 4
of determining the approval of the stockholders on a particular
proposal. Stockholders do not have the right to cumulate votes in the
election of directors.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following persons were known to management of
RehabCare to be the beneficial owners of five percent or more of
RehabCare Common Stock:
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED COMMON STOCK<F1>
- - ------------------------------------ ------------------ ----------------------
<S> <C> <C>
Connor, Clark & Company Ltd.<F2> 934,345 20.04%
Scotia Plaza,
40 King Street
Suite 5110, Box 125
Toronto, Ontario M5H 3Y2
Cowen & Company<F3> 544,000 11.67%
Financial Square
New York, New York 10005
FMR Corp.<F4> 447,500 9.60%
82 Devonshire Street
Boston, Massachusetts 02109
Richard C. Stoddard<F5> 304,410 6.25%
7733 Forsyth Boulevard
Suite 1700
St. Louis, Missouri 63105
James M. Usdan<F6> 262,270 5.35%
7733 Forsyth Boulevard
Suite 1700
St. Louis, Missouri 63105
<FN>
- - ----------------------
<F1> The percentage calculations are based upon 4,661,384 shares
of RehabCare Common Stock outstanding at May 3, 1996, plus,
with respect to Messrs. Stoddard and Usdan, the number of
shares subject to options or conversion privileges
exercisable by such stockholder on or prior to July 3, 1996.
<F2> Based upon information set forth in Amendment No. 4 to
Schedule 13G dated February 7, 1996, filed by the reporting
person with the Securities and Exchange Commission. Connor,
Clark & Company Ltd., an investment advisor registered under
the Investor Advisors Act of 1940, reported shared voting
and investment power with respect to all 934,345 shares
reported as beneficially owned. Connor, Clark & Company
Ltd. reported that it holds such shares on behalf of many
clients, none of whose interests exceeds five percent or
more of the RehabCare Common Stock, and that it does not
have any economic or pecuniary interest in the securities
held.
- 2 -
<PAGE> 5
<F3> Based upon information set forth in Amendment No. 1 to
Schedule 13G dated February 13, 1996, filed by the reporting
person with the Securities and Exchange Commission. Cowen
& Company, a broker-dealer registered under the Securities
Exchange Act and an investment advisor registered under the
Investment Advisors Act of 1940, reported shared voting
power with respect to 362,000 shares and shared investment
power with respect to all 544,000 shares reported as
beneficially owned. Cowen & Company reported that, as a
broker dealer and an investment advisor, it holds a portion
of the shares on behalf of its clients, none of whose
interests exceeds five percent or more of the outstanding
shares of RehabCare Common Stock, and that it does not have
an economic or pecuniary interest that exceeds five percent
or more in the securities held.
<F4> Based upon information set forth in a Schedule 13G dated
February 14, 1996, filed by the reporting persons with the
Securities and Exchange Commission. The Schedule 13G is a
group filing of FMR Corp., the holding company of Fidelity
Management & Research Company, an investment advisor
registered under the Investment Advisors Act of 1940 and
Fidelity Low-Priced Stock Fund, an investment company
registered under the Investment Company Act of 1940, of
which Edward C. Johnson 3d and Abigail P. Johnson may be
deemed to be controlling persons. This group of persons
reported sole voting power with respect to 21,500 shares and
sole investment power with respect to all of the shares.
The group reported that Fidelity Low-Priced Stock Fund
reported beneficial ownership of 426,000 shares, or 9.14% of
the outstanding shares of RehabCare Common Stock, at May 3,
1996.
<F5> Total includes 4,940 shares held by trusts of which Mr.
Stoddard's children are beneficiaries, as to which shares
Mr. Stoddard has no voting or investment power, 200,470
shares deemed to be beneficially owned by Mr. Stoddard by
virtue of his right to convert into RehabCare Common Stock
RehabCare's Convertible Subordinated Promissory Note and
11,294 shares deemed to be beneficially owned by trusts of
which Mr. Stoddard's children are beneficiaries by virtue of
such trusts' right to convert into RehabCare Common Stock
RehabCare's Convertible Subordinated Promissory Note, as to
which shares Mr. Stoddard has no voting or investment power.
<F6> Total includes 335 shares owned by Mr. Usdan's spouse, as to
which shares Mr. Usdan has no voting or investment power,
3,862 shares held for Mr. Usdan's account under RehabCare's
401(k) Plan and 8,063 shares held for Mr. Usdan's account
under RehabCare's Executive Deferred Compensation Plan.
</TABLE>
ITEM 1. ELECTION OF DIRECTORS
At the Annual Meeting, the holders of RehabCare Common
Stock will vote on the election of seven directors to serve a term
of one year until the 1997 Annual Meeting or until their successors
shall have been duly elected and qualified. The persons named as
proxies on the accompanying Proxy Card intend to vote all duly
executed proxies received by the Board of Directors for the
election of the seven nominees listed below, except as otherwise
directed by the stockholder on the Proxy Card. If for any reason
any nominee becomes unavailable for election, which is not now
anticipated, the persons named in the accompanying Proxy Card will
vote for such substitute nominees as designated by the Board of
Directors. The seven nominees receiving the highest number of
votes will be elected as directors of RehabCare. All nominees are
currently directors of RehabCare. The Board of Directors
recommends a vote "FOR" the election of each of the nominees as a
director.
In connection with RehabCare's acquisition of Healthcare
Staffing Solutions, Inc. and HCH, Inc. (collectively "Health Tour")
on March 1, 1996, RehabCare agreed in the stock purchase agreement
to create as of the closing date of the acquisition an additional
directorship and to appoint Richard C. Stoddard as a director of
RehabCare. RehabCare further agreed to include Mr. Stoddard in
- 3 -
<PAGE> 6
the slate of nominees to be presented for election to the RehabCare
stockholders at the annual stockholders' meetings in 1996 and 1997.
In the event that Mr. Stoddard's employment with RehabCare has been
terminated due to disability, Mr. Stoddard shall be entitled to
designate another individual (with the approval of RehabCare) for
nomination to the stockholders as a director for such annual
meetings. The obligation to nominate Mr. Stoddard or his designee
at such annual meetings shall terminate upon the termination of Mr.
Stoddard's employment with RehabCare for any reason other than Mr.
Stoddard's disability.
The name, age, principal occupation or position and other
directorships with respect to the nominees are set forth below.
Unless otherwise indicated, each of the nominees has held the
position or another executive position with the same entity shown
or an affiliated entity for in excess of five years.
WILLIAM G. ANDERSON, 63 - Director since 1991;
Consultant, Ernst & Young (public accountants).
RICHARD E. RAGSDALE, 52 - Director since 1993; Chairman
of the Board and Director, Community Health Systems, Inc. (hospital
ownership and management); President, CompuCare Auto Diagnostic
Center, Inc. (automobile service); Director, The Minirth Meier New
Life Clinics, Inc. (psychiatric contract units); Chairman and
Director since 1994, ProMedCo, Inc. (physician practice
management).
JOHN H. SHORT, PH.D., 51 - Director since 1991; Managing
Partner, Phase II Consulting (health care and economic consulting).
RICHARD C. STODDARD, 47 - Director since 1996; President
of Health Tour, a wholly owned subsidiary of RehabCare (recruitment
and placement of therapists for temporary assignments).
H. EDWIN TRUSHEIM, 69 - Director since 1992; Retired
Chairman of the Board, General American Life Insurance Company
(life and health insurance); Director, Angelica Corporation,
Laclede Gas Company, Reinsurance Group of America, Incorporated and
Venture Stores, Inc.
JAMES M. USDAN, 46 - Director since 1991; President and
Chief Executive Officer of RehabCare.
THEODORE M. WIGHT, 53 - Director since 1991; a General
Partner of the General Partners of Walden Investors and Pacific
Northwest Partners SBIC, L.P. (venture capital); Director, Eagle
Hardware & Garden, Inc. and Interlinq Software Corp.
BOARD OF DIRECTORS AND COMMITTEES
During the fiscal year ended February 29, 1996, the Board
of Directors of RehabCare met eight times. Each director attended
not less than 75% of the meetings of the Board of Directors and
committees of which such director was a member during fiscal 1996.
The Board of Directors of RehabCare has standing Audit and
Compensation Committees.
The current members of the Audit Committee are Messrs.
Anderson and Short. The Audit Committee met two times during
fiscal 1996. The duties of the Audit Committee include selecting
the independent auditors of RehabCare and negotiating the scope and
cost of the audit and other services rendered to RehabCare by such
auditors; meeting periodically with RehabCare's independent public
accountants and management to review the work of each and to ensure
that each is properly discharging
- 4 -
<PAGE> 7
its responsibilities; and reviewing RehabCare's audit policies and
internal controls to determine whether such policies and controls are
adequate and are being followed.
The Compensation Committee reviews and recommends the
salaries of all executive officers of RehabCare to the Board of
Directors and authorizes all other forms of executive compensation.
The current members of the Compensation Committee are Messrs.
Trusheim, Ragsdale and Wight. The Compensation Committee met four
times during fiscal 1996. The Compensation Committee is also
responsible for the administration of all aspects of RehabCare's
stock-based incentive plans.
DIRECTORS' FEES
Directors who are not also employees of RehabCare receive
a fee of $2,500 for each meeting of the Board of Directors attended
in person. Such directors are also reimbursed for expenses
incurred in connection with their attendance at Board meetings.
Pursuant to the Directors' Stock Option Plan, on January
14 of each year each non-employee director on such date who has
served as a director for at least ten months during the preceding
plan year will be granted an option to acquire 10,000 shares of
RehabCare Common Stock with a per share exercise price equal to the
fair market value of a share of RehabCare Common Stock on the date
of grant. Non-employee directors who do not serve a full ten
months will receive an option for 1,000 shares of RehabCare Common
Stock for each full calendar month of service as a director during
the plan year. During the fiscal year ended February 29, 1996, the
five non-employee directors each received an option for 10,000
shares of RehabCare Common Stock with an exercise price of $16.625
per share.
SECURITY OWNERSHIP BY MANAGEMENT
The following table sets forth, as of May 3, 1996, the
beneficial ownership of RehabCare Common Stock by each director and
each executive officer named in the Summary Compensation Table,
individually, and all directors and executive officers as a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED<F1> PERCENT OF CLASS<F2>
- - ------------------------ ---------------------- --------------------
<S> <C> <C>
William G. Anderson 45,000<F3> <F4>
Richard E. Ragsdale 89,903<F3> 1.91%
John H. Short, Ph.D 40,000<F3> <F4>
Richard C. Stoddard 304,410<F5> 6.25%
H. Edwin Trusheim 36,000<F3> <F4>
James M. Usdan 262,270<F6><F9> 5.35%
Theodore M. Wight 110,000<F7> 2.35%
Alan C. Henderson 101,219<F8><F9> 2.13%
Keith L. Goding 15,250<F9><F10> <F4>
Hickley M. Waguespack 38,460<F9> <F4>
All directors and executive officers as a group (10 persons) 1,042,512<F9> 19.27%
<FN>
- - -----------------------
<F1> Except as otherwise noted, each individual has sole voting
and investment power with respect to the shares listed
beside his name.
- 5 -
<PAGE> 8
<F2> Based upon 4,661,384 shares of RehabCare Common Stock
issued and outstanding as of May 3, 1996 and, for each
director or executive officer or the group, the number of
shares subject to options or conversion rights exercisable
by such director or executive officer or the group on or
prior to July 3, 1996.
<F3> Includes 35,000 shares subject to presently exercisable
stock options.
<F4> Less than one percent.
<F5> Includes 4,940 shares held by trusts of which Mr.
Stoddard's children are beneficiaries, as to which shares
Mr. Stoddard has no voting or investment power, 200,470
shares deemed to be beneficially owned by Mr. Stoddard by
virtue of his right to convert into RehabCare Common Stock
RehabCare's Convertible Subordinated Promissory Note and
11,294 shares deemed to be beneficially owned by trusts of
which Mr. Stoddard's children are beneficiaries by virtue
of such trusts' right to convert into RehabCare Common
Stock RehabCare's Convertible Subordinated Promissory Note,
as to which shares Mr. Stoddard has no voting or investment
power.
<F6> Includes 335 shares owned by Mr. Usdan's spouse, as to
which shares Mr. Usdan has no voting or investment power,
3,862 shares held for Mr. Usdan's account under RehabCare's
401(k) Plan and 8,063 shares held for Mr. Usdan's account
under RehabCare's Executive Deferred Compensation Plan.
<F7> Includes 20,000 shares subject to presently exercisable
stock options. Total also includes 90,000 shares of
RehabCare Common Stock deemed beneficially owned by Walden
Investors, of which Mr. Wight is a general partner, and as
to which shares Mr. Wight may be deemed to have shared
voting and investment power.
<F8> Includes 300 shares owned by Mr. Henderson's spouse as
custodian for Mr. Henderson's children, as to which shares
Mr. Henderson has no voting or investment power, 3,219
shares held for Mr. Henderson's account under RehabCare's
401(k) Plan and 2,000 shares held for Mr. Henderson's
account under RehabCare's Executive Deferred Compensation
Plan.
<F9> Totals include 211,764, 237,500, 87,500, 15,000, 36,250 and
748,014 shares subject to stock options or conversion
rights held by Messrs. Stoddard, Usdan, Henderson, Goding
and Waguespack, and all directors and executive officers as
a group, respectively, that are either presently
exercisable or which are exercisable prior to July 3, 1996.
<F10> Includes 250 shares owned by a trust of which Mr. Goding is
the trustee and the beneficiary.
</TABLE>
REPORT OF COMPENSATION COMMITTEE
REGARDING EXECUTIVE COMPENSATION
GENERAL
RehabCare's executive compensation program is
administered by the Compensation Committee of the Board of
Directors. During fiscal 1996, the Committee was composed of three
non-employee directors, Messrs. Trusheim (Chairman), Ragsdale and
Wight.
RehabCare's executive compensation policy is designed and
administered to provide a competitive compensation program that
will enable RehabCare to attract, motivate, reward and retain
executives who have the skills, education, experience and
capabilities required to discharge their duties in a competent and
efficient manner. The compensation policy is based on the
principle that the financial
- 6 -
<PAGE> 9
rewards to the executive are aligned with the financial interests of
the stockholders of RehabCare. In this manner, RehabCare will meet
its ultimate responsibility to its stockholders by striving to give a
suitable long-term return on their investment through earnings from
operations and prudent management of RehabCare's business and
operations.
RehabCare's executive compensation strategy has three
separate elements consisting of base salary, annual incentive
compensation and long-term incentive compensation. The following
is a summary of the policies underlying each element.
BASE SALARY
The Committee has determined the salary ranges for each
of the executive officer positions of RehabCare based upon the
level and scope of the responsibilities of the office, the pay
levels of similarly positioned executive officers among companies
competing for the services of such executives and a consideration
of the level of experience and performance profile of the
particular executive officer. In considering the competitors in
the market, RehabCare emphasizes publicly traded rehabilitation
services companies with similar service and revenue profiles to
RehabCare. RehabCare also looks at a combination of for-profit
general hospitals and certain outpatient service providers to
define the lower end of the compensation market and the larger
publicly traded rehabilitation services companies (i.e. companies
----
with annual revenues of $500 million or more) to define the upper
limits of such market.
The Committee's recent practice has been to establish a
range of base salaries for particular executive officers within the
range offered by the comparison group of companies so as to be able
to attract and retain high quality people. The data utilized in
determining such ranges is compiled from publicly available
information regarding the comparison group of companies and from
various salary surveys that are made available to the public by
trade and industry associations, accounting firms, compensation
consultants and professional groups.
During fiscal 1996, Messrs. Usdan and Henderson each had
separate employment contracts with RehabCare that were entered into
prior to the 1996 fiscal year. These employment contracts
established an initial base salary for the respective executive
officer, which base salary rate is to be reviewed for adjustment in
May of each subsequent year. The Committee met in May 1995 to
consider a base salary increase for Mr. Henderson based upon the
performance evaluation and recommendation of the Chief Executive
Officer. Base salary increases for Mr. Usdan, as the Chief
Executive Officer, are based upon the performance evaluation
conducted by the Committee and/or the Board of Directors.
In connection with the Committee's annual evaluation of
the base salaries of the executive officers of RehabCare, in May
1995 the Committee increased the respective annual base salary of
Messrs. Usdan and Henderson by between 7% and 13% of such executive
officer's previous annual base salary. Mr. Waguespack received a
substantially larger increase in base salary to bring him to a
level of base salary commensurate with his new responsibilities as
Executive Vice President and Chief Operating Officer.
ANNUAL INCENTIVE COMPENSATION
For services rendered during fiscal 1996, each of
RehabCare's executive officers received cash bonuses upon the
completion of such fiscal year. Depending on the position and
duties of the executive officer, such cash bonuses may be awarded
on performance-based criteria, a combination of performance-based
criteria and a discretionary basis, or solely upon a discretionary
basis. Bonuses based in whole or in part upon discretion are
established through the recommendation of the executive officer's
- 7 -
<PAGE> 10
immediate superior and the Chief Executive Officer. Messrs. Usdan
and Henderson have a performance-based annual cash bonus
compensation component set forth in their respective employment
contracts with RehabCare. Under the contractual provisions, the
cash bonuses of Messrs. Usdan and Henderson for fiscal 1996 were
based upon the achievement of certain targets for the annual growth
in RehabCare's fully diluted pretax earnings per share, excluding
extraordinary items and after deduction of accrued bonuses
(hereinafter referred to as "EPS"). The cash bonuses for each such
officer will range from 4% of such officer's base compensation
during the applicable fiscal year for a 10% annual growth rate in
EPS up to 100% of such officer's then current base salary for a 31%
annual growth rate in EPS. For fiscal 1996, Messrs. Usdan and
Henderson received cash bonuses under their contracts of $99,584
and $77,995, respectively. Messrs. Goding and Waguespack also
received performance-based cash bonuses of $105,194 and $65,387 for
fiscal 1996.
LONG-TERM INCENTIVE COMPENSATION
The Committee believes that long-term incentive
compensation is the most direct way of tying the executive
compensation to increases in stockholder value. RehabCare's long-
term incentive programs are both cash- and stock-based thereby
providing a means through which executive officers will be
incentivized to continue high quality performance with RehabCare
over a long period of time while allowing such executive officers
to build a meaningful investment in RehabCare Common Stock.
Stock options were awarded to all executive officers as
well as other key employees who were employed by RehabCare on the
date of the initial public offering of its Common Stock in June
1991, with the number of shares subject to such options based upon
the level of responsibility of the recipient. Executive officers
and other eligible employees who joined RehabCare after the initial
public offering date were also granted options to purchase shares
of RehabCare Common Stock shortly after their dates of employment
based upon their respective level of duties. Mr. Goding was
granted an option to purchase 60,000 shares of RehabCare Common
Stock upon his commencement of employment with RehabCare in
February 1995 as Executive Vice President and Chief Development
Officer. The Board of Directors, upon the recommendation of the
Committee, has given the Chief Executive Officer the authority to
grant newly hired employees of RehabCare options to purchase up to
10,000 shares of RehabCare Common Stock. Each option has an
exercise price equal to the fair market value of RehabCare Common
Stock on the date of grant and has a term of ten years.
In addition, the Committee from time to time has
evaluated the level of long-term incentives provided to each of the
executive officers of RehabCare and each officer's relative
contributions to corporate performance. Based upon such
evaluation, the Committee has approved grants of additional options
to certain executive officers of RehabCare. In recognition of his
increased authority and responsibility upon being appointed
Executive Vice President and Chief Operating Officer, Mr.
Waguespack was granted an option in March 1995 to purchase 60,000
shares of RehabCare Common Stock.
In October 1992, the Board of Directors, upon the
recommendation of the Committee, entered into supplemental cash
bonus agreements with certain of the executive officers who had
served RehabCare continually since before the initial public
offering. The purpose of the agreements was to reward these
executive officers for their outstanding past performances through
the date of the agreements as well as to establish incentives to
continue in the service of RehabCare for the long-term future. The
Committee viewed this bonus program as a one-time grant to long-
time executives in recognition of their efforts in establishing
RehabCare as a publicly traded company. See "Compensation of
Executive Officers - Employment Arrangements."
- 8 -
<PAGE> 11
The Committee believes that the combination of the two
long-term incentive programs, along with the 1996 Long-Term
Performance Plan being submitted for approval of the stockholders
at the Annual Meeting, gives the participating officers a balance
between cash incentives for continuation of service over a period
of years and equity appreciation incentives from the stock-based
grants.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Mr. Usdan's base salary, annual incentive compensation
and long-term incentive compensation are determined by the
Committee in the same manner as is used by the Committee for
executive officers generally as well as by reference to Mr. Usdan's
employment contract with RehabCare. The total compensation package
of Mr. Usdan is designed to be competitive within the industry
while creating awards for short- and long-term performance in line
with the financial interests of the stockholders. A substantial
portion of Mr. Usdan's cash compensation for the year is incentive-
based and is therefore at risk to the extent that RehabCare does
not meet or exceed the pre-established EPS growth objectives
included in his employment contract.
COMPENSATION COMMITTEE
H. EDWIN TRUSHEIM RICHARD E. RAGSDALE THEODORE M. WIGHT
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the compensation of each
executive officer of RehabCare as of February 29, 1996 for each of
the last three fiscal years:
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
------------------- ------------
Securities
Underlying All Other
Name and Principal Position Year Salary ($) Bonus($)<F1> Options/SARs(#) Compensation($)<F2>
- - --------------------------- ---- ---------- ------------ --------------- -------------------
<S> <C> <C> <C> <C> <C>
James M. Usdan, President 1996 $220,833 $281,584 --/-- $4,739
and Chief Executive Officer 1995 195,000 272,590 --/-- 3,785
1994 166,875 243,198 75,000/-- 2,922
Alan C. Henderson, 1996 172,958 150,995 --/-- 4,627
Executive Vice President 1995 161,458 157,223 10,000/-- 3,730
and Chief Financial Officer 1994 154,158 147,884 10,000/-- 2,725
Keith L. Goding, Executive 1996 145,000 105,194 --/-- 483
Vice President and Chief 1995 12,083 -- 60,000/-- --
Development Officer<F3>
Hickley M. Waguespack, 1996 145,000 83,387 60,000/-- 3,070
Executive Vice President 1995 100,580 56,459 2,500/-- 2,234
and Chief Operating
Officer<F4>
<FN>
- - --------------------
- 9 -
<PAGE> 12
<F1> Totals for fiscal 1996 include $182,000, $73,000 and $18,000
payable to Messrs. Usdan, Henderson and Waguespack,
respectively, pursuant to supplemental cash bonus agreements
between RehabCare and the named executive officer.
<F2> Totals for fiscal 1996 in respect of Messrs. Usdan, Henderson,
Goding and Waguespack include amounts contributed by RehabCare
pursuant to the matching portion of RehabCare's 401(k) Plan.
<F3> Mr. Goding was appointed Executive Vice President and Chief
Development Officer effective February 10, 1995. Prior
thereto, Mr. Goding was employed by a company unaffiliated
with RehabCare and, thus, no disclosure with regard to
executive compensation of Mr. Goding is provided for any
period prior to his employment with RehabCare.
<F4> Mr. Waguespack was appointed Executive Vice President and
Chief Operating Officer effective March 1, 1995. During
fiscal 1995, Mr. Waguespack served as Senior Vice President of
RehabCare. Pursuant to applicable rules of the Securities and
Exchange Commission, no disclosure of executive compensation
of Mr. Waguespack is provided with respect to years prior to
fiscal 1995.
</TABLE>
EMPLOYMENT ARRANGEMENTS
RehabCare currently has separate employment agreements
with each of James M. Usdan, President and Chief Executive Officer,
and Alan C. Henderson, Executive Vice President and Chief Financial
Officer, with terms through April 30, 1996, and automatically
renewable thereafter for successive one-year terms unless
terminated by either party. The agreements provide for minimum
annual base salaries of $150,000 for Mr. Usdan and $135,000 for
Mr. Henderson and annual cash bonuses based upon the achievement of
certain targets for the annual growth in RehabCare's fully diluted
pretax earnings per share, excluding extraordinary items and after
deduction of accrued bonuses. The cash bonuses will range from 4%
of the officer's base compensation for a 10% annual growth rate up
to 100% of base compensation for a 31% annual growth rate. Each
agreement provides for severance pay upon termination by RehabCare
equal to one year's base salary plus the officer's pro rata bonus
for the year of termination, and for a one-year covenant not to
compete on the part of the officer. In addition, upon a change in
control of RehabCare (as defined in the agreements), all unvested
options held by the officer will immediately vest.
Each of Messrs. Usdan, Henderson and Waguespack has a
separate termination agreement with RehabCare under which such
executive officer will be paid severance benefits in the event that
his employment with RehabCare is "terminated" by RehabCare within
three years of a "change in control" of RehabCare but prior to such
executive officer reaching the age of 65. Each agreement is for a
term of three years and, unless there is a prior "change in
control," each agreement will be subject to an automatic extension
each year for an additional year, except if RehabCare gives a 60-
day written notice to the executive officer that the term will not
be so extended.
The termination compensation agreements of Messrs. Usdan
and Henderson would require a lump-sum cash payment in an amount
equal to 2.99 times the executive officer's average annual
compensation for the five full fiscal years preceding the fiscal
year in which the termination occurs. The agreement of Mr.
Waguespack would require a lump-sum cash payment in an amount equal
to such executive officer's then-current annual rate of
compensation. In the case of Messrs. Usdan and Henderson, if
payment of the foregoing amounts and any other benefits received or
receivable upon termination after a "change in control" would
subject such executive officer to the payment of a federal excise
tax, the total amount payable by RehabCare to such executive
officer shall be increased by an amount sufficient to provide such
executive officer (after satisfaction of all excise taxes and
federal and state income taxes
- 10 -
<PAGE> 13
attributable to such increased payment) with a net amount equal to the
federal excise tax owed by the executive officer.
"Change in control" is generally defined as (i) the
acquisition by any person of beneficial ownership of 20% or more of
the outstanding shares of RehabCare Common Stock or of the combined
voting power in the election of directors; (ii) the replacement of
the majority of the existing directors or persons nominated for
election as directors by the incumbent Board of Directors; (iii)
approval by the stockholders of RehabCare of a reorganization,
merger or consolidation unless following such transaction control
of the surviving company does not change through changes in the
beneficial ownership of the securities or membership on the Board
of the surviving corporation; or (iv) approval by the stockholders
of RehabCare of a complete liquidation or dissolution of RehabCare
or the sale of substantially all of the assets of RehabCare.
"Termination" generally includes any event which ends the executive
officer's employment relationship with RehabCare, other than a
termination due to the death, disability or retirement of the
executive officer, a termination by RehabCare for "cause" or a
termination by the executive officer for other than "good reason."
"Cause" is generally defined as (i) the willful and continued
failure (after demand by RehabCare) to substantially perform the
duties of the office other than due to physical or mental
incapacity of the executive officer or (ii) the willful engagement
in misconduct by the executive officer that is materially injurious
to RehabCare. "Good reason" is generally defined as (i) the
assignment of duties inconsistent with the executive officer's
position, duties, responsibilities and status immediately prior to
a "change in control"; (ii) a reduction in the executive officer's
current base salary; (iii) failure to continue the executive
officer's then-current participation level in RehabCare's bonus,
compensation or other benefit plans; (iv) the geographic relocation
of the executive officer; or (v) any breach of the agreement.
In October 1992, the Board of Directors, upon the
recommendation of RehabCare's Compensation Committee, entered into
supplemental cash bonus agreements with each of Messrs. Usdan,
Henderson and Waguespack in the individual amounts of $700,000,
$280,000, and $70,000, respectively, and $1,050,000 in the
aggregate. The purpose of the agreements was to reward these
individual executive officers for their efforts in establishing
RehabCare as a publicly traded company as well as to establish
incentives for them to continue in the service of RehabCare for the
long-term future. The individual agreements assign a cash bonus
amount to the eligible executive officer based upon level of
responsibility. The bonuses vest on a monthly basis beginning in
March 1993 and continuing through February 1997. The full bonus
amounts will vest earlier upon the first to occur of (i) the
executive officer's death or disability; (ii) an involuntary
termination of the executive officer's employment after a "change
in control" (as defined in the agreements); or (iii) one year after
a change in control. The vested portion of the executive officer's
bonus becomes payable within 30 days of the earlier of the
termination of the executive officer's employment with RehabCare or
October 15, 2002.
- 11 -
<PAGE> 14
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning
stock option grants made in the fiscal year ended February 29, 1996
to the individuals named in the Summary Compensation Table:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATE OF
STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS VALUE FOR OPTION TERM
---------------------------------------------------------- --------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL
UNDERLYING OPTIONS
OPTIONS GRANTED EXERCISE OR
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION
NAME (#)<F1> FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- ---------- ------------ ----------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
James M. Usdan -- -- -- -- -- --
Alan C. Henderson -- -- -- -- -- --
Keith L. Goding -- -- -- -- -- --
Hickley M. Waguespack 60,000 50.0% $12.25 3/10/05 $462,238 $1,171,401
<FN>
- - ------------------
<F1> Options become exercisable with respect to 25% of the total number
of shares subject to the option on the first anniversary date of the
date of grant and will become exercisable with respect to an
additional 25% of the total number of shares on each of such
anniversary date in the following three years. The options terminate
on the earlier of: ten years after grant; three months after
termination of employment except in the case of death or total
disability; or twelve months after termination for death or total
disability. Upon a change in control of RehabCare, as described
under "Employment Arrangements" herein, such options become fully
exercisable.
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table sets forth information concerning the number
of exercisable and unexercisable stock options at February 29, 1996 as well
as the value of such stock options having an exercise price lower than the
last reported trading price on February 29, 1996 ("in-the-money" options)
held by the executive officers named in the Summary Compensation Table.
No options were exercised by any of the named executive officers during the
fiscal year ended February 29, 1996.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT FISCAL
SHARES FISCAL YEAR-END (#) YEAR-END($)<F1>
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- ------------ ------------ ------------------- -----------------
<S> <C> <C> <C> <C>
James M. Usdan -- -- 237,500/37,500 $1,020,313/$145,313
Alan C. Henderson -- -- 87,500/12,500 383,906/62,969
Keith L. Goding -- -- 15,000/45,000 61,875/185,625
Hickley M. Waguespack -- -- 36,250/46,250 169,219/235,469
<FN>
- - ---------------------
<F1> Based on a price per share of $17.375, being the last reported
transaction price of RehabCare Common Stock on February 29, 1996.
</TABLE>
- 12 -
<PAGE> 15
STOCKHOLDER RETURN PERFORMANCE GRAPHS
The following graphs compare the cumulative stockholder returns,
including the reinvestment of dividends, of RehabCare Common Stock on an
indexed basis with the NASDAQ Market Index and the Dow Jones Industry Group
Index of Health-Care Providers ("HEA") for the period beginning June 26,
1991, the date that RehabCare became an independent public company, and
ending February 29, 1996, and for the period beginning February 29, 1992,
and ending February 29, 1996:
COMPARISON OF CUMULATIVE TOTAL RETURN<F*>
AMONG REHABCARE GROUP, INC., NASDAQ MARKET INDEX &
DOW JONES INDUSTRY GROUP HEA INDEX
[GRAPH]
ASSUMES $100 INVESTED ON JUNE 26, 1991 IN REHABCARE GROUP, INC. COMMON STOCK,
NASDAQ MARKET INDEX & DOW JONES INDUSTRY GROUP HEA INDEX
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------
JUNE 26, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1991 1992 1993 1994 1995 1996
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
RehabCare Group, Inc. 100.00 77.00 81.00 101.00 103.00 141.00
- - ------------------------------------------------------------------------------------------------------------------
NASDAQ Market Index 100.00 116.48 116.67 148.65 141.92 195.97
- - ------------------------------------------------------------------------------------------------------------------
Dow Jones Industry Group
HEA Index 100.00 121.57 108.32 164.95 172.50 233.17
- - ------------------------------------------------------------------------------------------------------------------
</TABLE>
[GRAPH]
ASSUMES $100 INVESTED ON FEBRUARY 29, 1992 IN REHABCARE GROUP, INC. COMMON
STOCK, NASDAQ MARKET INDEX & DOW JONES INDUSTRY GROUP HEA INDEX
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1992 1993 1994 1995 1996
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RehabCare Group, Inc. 100.00 105.19 131.17 133.77 183.12
- - ------------------------------------------------------------------------------------------------------------------
NASDAQ Market Index 100.00 100.16 127.62 121.84 168.24
- - ------------------------------------------------------------------------------------------------------------------
Dow Jones Industry Group
HEA Index 100.00 89.10 135.68 141.89 191.80
- - ------------------------------------------------------------------------------------------------------------------
<FN>
<F*>TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS
</TABLE>
- 13 -
<PAGE> 16
ITEM 2. PROPOSAL TO ADOPT THE REHABCARE GROUP, INC.
1996 LONG-TERM PERFORMANCE PLAN
The Board of Directors has adopted, subject to approval by the
stockholders of RehabCare, the RehabCare Group, Inc. 1996 Long-Term
Performance Plan (the "Plan"), which provides for the granting of stock
options and other stock-based awards. The Plan is in addition to
RehabCare's 1987 Incentive Stock Option and 1987 Nonstatutory Stock Option
Plans, which authorized the issuance of up to 1,000,000 shares of RehabCare
Common Stock. At February 29, 1996, there were 5,215 shares available for
grant under these prior plans. The total number of shares of RehabCare
Common Stock to be issuable under the Plan is not to exceed 700,000 shares,
subject to adjustment in the event of any change in the outstanding shares
of such stock by reason of a stock dividend, stock split, recapitalization,
merger, consolidation or other similar change generally affecting
stockholders of RehabCare.
The Board of Directors believes that the Plan advances the
interests of RehabCare and its stockholders by encouraging key employees
of RehabCare and its subsidiaries to acquire RehabCare Common Stock or to
receive monetary payments based on the value of the Common Stock upon the
achievement of certain goals that are mutually advantageous to RehabCare
and its stockholders (such as increases in share price and/or growth rate
in earnings per share), on the one hand, and the participating employees,
on the other. The Board believes that the Plan will provide additional
incentives toward the continuation of superior performance by its employees
in the success of RehabCare and will enable RehabCare and its subsidiaries
to attract and retain the services of its key employees. In order to allow
the continuation of stock-based incentive programs at RehabCare, the Board
of Directors recommends that the stockholders approve the Plan.
The Plan is administered by the Compensation Committee of the
Board of Directors (the "Committee"), currently consisting of three
directors of RehabCare, each of whom is a non-employee director of
RehabCare. Members of the Committee are not eligible to receive a benefit
under the Plan for a period of at least one year prior to appointment to
the Committee and during the period that they serve on the Committee. The
Committee, by majority action thereof, is authorized in its sole discretion
to determine the individuals to whom the benefits will be granted, the type
and amount of such benefits and the terms of the benefit grants, as well
as to interpret the Plan, to prescribe, amend and rescind rules and
regulations relating to the Plan, to provide for conditions and assurances
deemed necessary or advisable to protect the interests of RehabCare, and
to make all other determinations necessary or advisable for the
administration of the Plan to the extent not contrary to the express
provisions of the Plan.
DESCRIPTION OF PLAN
Under the terms of the Plan, key employees of RehabCare and its
subsidiaries as determined in the sole discretion of the Committee will be
eligible to receive (a) stock appreciation rights ("SARs"), (b) restricted
shares of RehabCare Common Stock ("Restricted Stock"), (c) performance
awards ("Performance Awards"), and (d) stock options ("Stock Options")
exercisable into shares of RehabCare Common Stock which may or may not
qualify as incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
STOCK APPRECIATION RIGHTS. The Committee may grant SARs giving
the holder thereof a right to receive, at the time of surrender, a payment
equal to the difference between the fair market value of such stock on the
date of surrender of the SAR and the "Base Price" established by the
Committee at the time of grant, subject to any limitation imposed by the
Committee on appreciation. The "Base Price" shall not be less than the
fair market value of RehabCare Common Stock on the date of grant of the
SAR. In the Committee's discretion, the value of a SAR may be paid in cash
or RehabCare Common Stock, or
- 14 -
<PAGE> 17
a combination thereof. A SAR may be granted either independent of, or in
conjunction with, any Stock Option. If granted in conjunction with a Stock
Option, at the discretion of the Committee, a SAR may either be surrendered
(a) in lieu of the exercise of such Stock Option, (b) in conjunction with
the exercise of such Stock Option, or (c) upon expiration of such Stock
Option. The term of any SAR shall be established by the Committee, but in
no event shall a SAR be exercisable earlier than six months nor later than
ten years from the date of grant.
RESTRICTED STOCK. The Committee may issue shares of RehabCare
Common Stock either as a stock bonus or at a purchase price of less than
fair market value, subject to the restrictions or conditions specified by
the Committee at the time of grant. In addition to any other restrictions
or conditions that may be imposed on the Restricted Stock, shares of
Restricted Stock may not be sold or disposed of for a period of six months
after the date of grant. During the period of restriction, holders of
Restricted Stock shall be entitled to receive all dividends and other
distributions made in respect of such stock and to vote such stock without
limitation.
PERFORMANCE AWARDS. The Committee may grant Performance Awards
consisting of shares of RehabCare Common Stock, monetary units payable in
cash or a combination thereof. These grants would result in the issuance,
without payment therefor, of Common Stock or the payment of cash upon the
achievement of certain pre-established performance criteria (such as return
on average total capital employed, earnings per share or increases in share
price) during a specified performance period not to exceed five years. The
participating employee will have no right to receive dividends on or to
vote any shares subject to Performance Awards until the award is actually
earned and the shares are issued. In the event that a person who is
required to file reports under Section 16 of the Securities Exchange Act
of 1934 receives a Performance Award that includes shares of RehabCare
Common Stock, such shares received may not be disposed of by such person
until six months following the date of issuance.
STOCK OPTIONS. Stock Options granted under the Plan shall
entitle the holder to purchase RehabCare Common Stock at a purchase price
established by the Committee, which price shall not be less than the fair
market value of RehabCare Common Stock on the date of grant. The Committee
shall determine the term of such Stock Options and the times at, and
conditions under which, such Stock Options will become exercisable. Stock
Options will generally not be exercisable earlier than six months nor later
than ten years from the date of the grant, except that Stock Options will
become immediately exercisable at any time after grant if more than 20% of
the RehabCare Common Stock, business or assets are acquired by a person or
affiliated group of persons without the approval of RehabCare's Board of
Directors. Stock Options outstanding and unexercised at the time of the
death or disability of the holder shall terminate on the first to occur of
either the expiration date thereof or the expiration of twenty-four months
after the date of such event. In the event of a holder's termination of
employment as a result of retirement, qualifying incentive Stock Options
shall terminate three months after such termination and all other Stock
Options shall terminate twenty-four months after such termination unless,
in each case, the expiration date of the option is an earlier date. In the
event of a holder's termination of employment for reasons not otherwise
referenced above, all outstanding Stock Options held by such person shall
terminate three months after the date of such event or, if earlier, the
expiration date of such options.
There is no maximum or minimum number of shares for which a Stock
Option may be granted; however, for any employee, the aggregate fair market
value of RehabCare Common Stock subject to qualifying incentive Stock
Options that are exercisable for the first time in any calendar year may
not exceed $100,000.
The Plan is to remain in effect until (a) all Common Stock
reserved under the Plan shall have been purchased or acquired, (b) the
Board terminates the Plan, or (c) June 26, 2006, whichever shall
- 15 -
<PAGE> 18
first occur. The Board may terminate the Plan at any time and from time to
time may amend or modify the Plan; provided, however, that no such action
of the Board may, without the approval of the stockholders of RehabCare:
(a) increase the total amount of stock or the amount or type of benefit
that may be issued under the Plan, (b) change the provisions of the Plan
regarding the minimum purchase price of awards, or (c) modify the
requirements as to eligibility for benefits. No amendment, modification
or termination of the Plan shall in any manner adversely affect any award
theretofore granted under the Plan, without the consent of the participant
affected thereby.
FEDERAL INCOME TAX CONSEQUENCES
No income will be realized by a participating officer or employee
on the grant of an incentive Stock Option or a Stock Option which is not
an incentive stock option ("non-qualified option"), the grant of a SAR or
upon the award of Restricted Stock, and RehabCare will not be entitled to
a deduction at such time. If a holder exercises an incentive Stock Option
and does not dispose of the shares acquired within two years from the date
of the grant, or within one year from the date of exercise of the option,
no income will be realized by the holder at the time of exercise.
RehabCare will not be entitled to a deduction by reason of the exercise.
If a holder disposes of the shares acquired pursuant to an
incentive Stock Option within two years from the date of grant of the
option or within one year from the date of exercise of the option, the
holder will realize ordinary income at the time of disposition which will
equal the excess, if any, of the lesser of (a) the amount realized on the
disposition, or (b) the fair market value of the shares on the date of
exercise, over the holder's basis in the shares. RehabCare generally will
be entitled to a deduction in an amount equal to such income in the year
of the disqualifying disposition.
Upon the exercise of a non-qualified Stock Option or the
surrender of a SAR, the excess, if any, of the fair market value of the
stock on the date of exercise over the purchase price or Base Price, as the
case may be, is ordinary income to the holder as of the date of exercise.
RehabCare generally will be entitled to a deduction equal to such excess
amount in the year of exercise.
Subject to a voluntary election by the holder under Section 83(b)
of the Code, a holder will realize income as a result of the award of
Restricted Stock at the time the restrictions expire on such shares. An
election pursuant to Section 83(b) of the Code would have the effect of
causing the holder to realize income in the year in which such award was
granted. The amount of income realized will be the difference between the
fair market value of the shares on the date such restrictions expire (or
on the date of issuance of the shares, in the event of a Section 83(b)
election) over the purchase price, if any, of such shares. RehabCare
generally will be entitled to a deduction equal to the income realized in
the year in which the holder is required to report such income.
An officer or employee will realize income as a result of a
Performance Award at the time the award is issued or paid. The amount of
income realized by the participant will be equal to the fair market value
of the shares on the date of issuance, in the case of a stock award, and
to the amount of the cash paid, in the event of a cash award. RehabCare
will be entitled to a corresponding deduction equal to the income realized
in the year of such issuance or payment.
The complete text of the Plan is set forth in Appendix A to this
Proxy Statement.
The vote required to approve the Plan is a majority of the shares
of RehabCare Common Stock present, in person or by proxy, and voting at the
Annual Meeting. The Board of Directors recommends a vote "FOR" the
approval of the RehabCare Group, Inc. 1996 Long-Term Performance Plan.
- 16 -
<PAGE> 19
COMPLIANCE WITH SECTION 16(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires
RehabCare's directors and executive officers ("Reporting Persons") to file
with the Securities and Exchange Commission initial reports of ownership
and reports of changes in ownership of RehabCare Common Stock. To the
knowledge of management, based solely on its review of the copies of such
reports furnished to RehabCare, during the fiscal year ended February 29,
1996, all Section 16(a) filing requirements were met.
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG Peat Marwick LLP served as RehabCare's independent public
accountants for the fiscal year ended February 29, 1996. Representatives
of KPMG Peat Marwick LLP are expected to be present at the Annual Meeting
to respond to appropriate questions from stockholders and such
representatives will have the opportunity to make statements if they so
desire.
PROPOSALS OF STOCKHOLDERS
Proposals of stockholders intended to be present at the 1997
Annual Meeting of Stockholders must be received by the Secretary of
RehabCare by not later than January 24, 1997 for consideration of inclusion
in the Proxy Statement and Proxy Card for that meeting.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors
of RehabCare does not intend to present, nor has it been informed that
other persons intend to present, any matters for action at the Annual
Meeting, other than those specifically referred to herein. If, however,
any other matters should properly come before the Annual Meeting, it is the
intention of the persons named as proxies to vote the shares represented
by Proxy Cards granting such proxies discretionary authority to vote on
such other matters in accordance with their judgment as to the best
interest of RehabCare on such matters.
James M. Usdan
President and Chief Executive Officer
May 24, 1996
- 17 -
<PAGE> 20
REHABCARE GROUP, INC. APPENDIX A
1996 LONG-TERM PERFORMANCE PLAN ----------
1. PURPOSE. The purpose of this Plan is to encourage certain
employees of the Corporation, and of such subsidiaries of the Corporation
as the Committee administering the Plan designates, to acquire Common Stock
of the Corporation or to receive monetary payments based on the value of
such stock or based upon achieving certain goals on a basis mutually
advantageous to such employees and the Corporation and thus provide an
incentive for continuation of the efforts of employees for the success of
the Corporation and for continuity of employment.
2. ADMINISTRATION. The Plan will be administered by the Compensation
Committee (the "Committee") of the Board of Directors of the Corporation
consisting of three or more Directors as the Board may designate from time
to time, none of whom have been eligible to receive a benefit under this
Plan for a period of at least one year prior to appointment or during the
period of appointment. The determinations of the Committee shall be made
in accordance with their judgment as to the best interests of the
Corporation and its stockholders and in accordance with the purpose of the
Plan. A majority of members of the Committee shall constitute a quorum,
and all determinations of the Committee shall be made by a majority of its
members. Any determination of the Committee under the Plan may be made
without notice or meeting of the Committee, by a writing signed by a
majority of the Committee members.
3. SHARES RESERVED UNDER THE PLAN. There is hereby reserved for
issuance under the Plan an aggregate of 700,000 shares of Common Stock of
the Corporation, which may be authorized but unissued or treasury shares.
As used in this Section 3, the term "Plan Maximum" shall refer to the
number of shares of Common Stock of the Corporation that are available for
grant of awards pursuant to the Plan. Stock underlying outstanding
options, stock appreciation rights, or performance awards will reduce the
Plan Maximum while such options, stock appreciation rights or performance
awards are outstanding. Shares underlying expired, canceled or forfeited
options, stock appreciation rights or performance awards shall be added
back to the Plan Maximum. When the exercise price of stock options is paid
by delivery of shares of Common Stock of the Corporation, or if the
Committee approves the withholding of shares from a distribution in payment
of the exercise price, the Plan Maximum shall be reduced by the net (rather
than the gross) number of shares issued pursuant to such exercise,
regardless of the number of shares surrendered or withheld in payment. If
the Committee approves the payment of cash to an optionee equal to the
difference between the fair market value and the exercise price of stock
subject to an option, or if a stock appreciation right is exercised for
cash or a performance award is paid in cash the Plan Maximum shall be
increased by the number of shares with respect to which such payment is
applicable. Restricted stock issued pursuant to the Plan will reduce the
Plan Maximum while outstanding even while subject to restrictions. Shares
of restricted stock shall be added back to the Plan Maximum if such
restricted stock is forfeited.
4. PARTICIPANTS. Participants will consist of such officers and key
employees of the Corporation or any designated subsidiary as the Committee
in its sole discretion determines have a major impact on the success and
future growth and profitability of the Corporation. Designation of a
participant in any year shall not require the Committee to designate such
person to receive a benefit in any other year or to receive the same type
or amount of benefit as granted to the participant in any other year or as
granted to any other participant in any year. The Committee shall consider
such factors as it deems pertinent in selecting participants and in
determining the type and amount of their respective benefits.
5. TYPES OF BENEFITS. The following benefits may be granted under
the Plan: (a) stock appreciation rights ("SARs"); (b) restricted stock
("Restricted Stock"); (c) performance awards
<PAGE> 21
("Performance Awards"); (d) incentive stock options ("ISOs"); and (e)
nonqualified stock options ("NQSOs"), all as described below.
6. STOCK APPRECIATION RIGHTS. SARs may be granted which, at the
discretion of the Committee, may be exercised (1) in lieu of exercise of
an option, (2) in conjunction with the exercise of an option, (3) upon
lapse of an option, (4) independent of an option or (5) each of the above
in connection with a previously awarded option under the Plan. If the
option referred to in (1), (2) or (3) above qualified as an ISO pursuant
to Section 422 of the Internal Revenue Code of 1986 as amended and in
effect from time to time (the "Code"), the related SAR shall comply with
the applicable provisions of the Code and the regulations issued
thereunder. At the time of grant, the Committee may establish, in its sole
discretion, a maximum amount per share which will be payable upon exercise
of a SAR, and may impose such conditions on exercise of a SAR (including,
without limitation, the right of the Committee to limit the time of
exercise to specified periods) as may be required to satisfy the
requirements of Rule 16b-3 (or any successor rule), under the Securities
Exchange Act of 1934, as amended. At the discretion of the Committee,
payment for SARs may be made in cash or shares of Common Stock of the
Corporation, or in a combination thereof. SARs will be exercisable not
earlier than six months and not later than ten years after the date they
are granted and will expire in accordance with the terms established by the
Committee. The following will apply upon exercise of a SAR:
(a) Exercise of SARs in Lieu of Exercise of Options. SARs
-----------------------------------------------
exercisable in lieu of options may be exercised for all or part
of the shares subject to the related option upon the exercise of
the right to exercise an equivalent number of options. A SAR
may be exercised only with respect to the shares for which its
related option is then exercisable.
(b) Exercise of SARs in Conjunction with Exercise of Options. SARs
--------------------------------------------------------
exercisable in conjunction with the exercise of options shall be
deemed to be exercised upon the exercise of the related options.
(c) Exercise of SARs Upon Lapse of Options. SARs exercisable upon
--------------------------------------
lapse of options shall be deemed to have been exercised upon the
lapse of the related options as to the number of shares subject
to the options.
(d) Exercise of SARs Independent of Options. SARs exercisable
---------------------------------------
independent of options may be exercised upon whatever terms and
conditions the Committee, in its sole discretion, imposes upon
the SARs.
7. RESTRICTED STOCK. Restricted Stock shall consist of Common Stock
of the Corporation issued or transferred under the Plan (other than upon
exercise of stock options or as Performance Awards) at any purchase price
less than the fair market value thereof on the date of issuance or
transfer, or as a bonus. In the case of any Restricted Stock:
(a) The purchase price, if any, will be determined by the
Committee.
(b) Restricted Stock may be subject to (i) restrictions on the
sale or other disposition thereof, provided, however, that Restricted
Stock granted to a person who is subject to Section 16 of the
Securities Exchange Act of 1934 (a "Reporting Person") shall, in
addition to any other restrictions thereon, not be sold or disposed
of for six months following the date of grant; (ii) rights of the
Corporation to reacquire such Restricted Stock at the purchase price,
if any, originally paid therefor upon termination of the employee's
employment within specified periods; (iii) representation by the
employee that he or she intends to acquire Restricted Stock for
A-2
<PAGE> 22
investment and not for resale; and (iv) such other restrictions,
conditions and terms as the Committee deems appropriate.
(c) The participant shall be entitled to all dividends paid with
respect to Restricted Stock during the period of restriction and shall
not be required to return any such dividends to the Corporation in the
event of the forfeiture of the Restricted Stock.
(d) The participant shall be entitled to vote the Restricted
Stock during the period of restriction.
(e) The Committee shall determine whether Restricted Stock is
to be delivered to the participant with an appropriate legend
imprinted on the certificate or if the shares are to be deposited in
escrow pending removal of the restrictions.
8. PERFORMANCE AWARDS. Performance Awards shall consist of Common
Stock of the Corporation, monetary units or some combination thereof, to
be issued without any payment therefor, in the event that certain
performance goals established by the Committee are achieved over a period
of time designated by the Committee, but not in any event more than five
years. The goals established by the Committee may include return on
average total capital employed, earnings per share, increases in share
price or such other goals as may be established by the Committee. In the
event the minimum corporate goal is not achieved at the conclusion of the
period, no payment shall be made to the participant. Actual payment of the
award earned shall be in cash or in Common Stock of the Corporation or in
a combination of both, as the Committee in its sole discretion determines.
If Common Stock of the Corporation is used, the participant shall not have
the right to vote and receive dividends until the goals are achieved and
the actual shares are issued. In the event a Reporting Person receives a
Performance Award which includes Common Stock of the Corporation, such
stock shall not be sold or disposed of for six months following the date
of issuance pursuant to such award.
9. INCENTIVE STOCK OPTIONS. ISOs shall consist of stock options to
purchase shares of Common Stock at purchase prices not less than 100% of
the fair market value of the shares on the date the option is granted.
Said purchase price may be paid (i) by check or, in the discretion of the
Committee, either (ii) by the delivery of shares of Common Stock of the
Corporation then owned by the participant or (iii) by directing the Company
to withhold from the number of shares of Common Stock otherwise issuable
upon exercise of the option that whole number of shares of Common Stock
having an aggregate fair market value on the date of exercise at least
equal to the exercise price for all of the shares of Common Stock subject
to such exercise, or (iv) by a combination of any of the foregoing, in the
manner provided in the option agreement. In lieu of exercising an option
and subject to the approval of the Committee, the optionee may request that
the Company pay in cash the difference between the fair market value of
part or all of the stock which is the subject of the option and the
exercise price thereof. ISOs will be exercisable not earlier than six
months and not later than ten years after the date they are granted and
will terminate not later than three months after termination of employment
for any reason other than death or disability. In the event termination
of employment occurs as a result of death or disability, such an option
will be exercisable for 24 months after such termination. If the optionee
dies within 24 months after termination of employment by disability, then
the period of exercise following death shall be the remainder of the
24-month period or three months, whichever is longer. If the optionee dies
within three months after termination of employment for any other reason,
then the period of exercise following death shall be three months.
However, in no event shall any ISO be exercised more than ten years after
its grant. Leaves of absence granted by the Corporation for military
service, illness, and transfers of employment between the Corporation and
any subsidiary thereof shall not constitute termination of employment. The
aggregate fair market value (determined as of the time an option is
granted) of the
A-3
<PAGE> 23
stock with respect to which ISOs are exercisable for the first time by an
optionee during any calendar year (under all option plans of the
Corporation and its subsidiary corporations) shall not exceed $100,000.
10. NONQUALIFIED STOCK OPTIONS. NQSOs shall consist of nonqualified
stock options to purchase shares of Common Stock at purchase prices not
less than 100% of the fair market value of the shares on the date the
option is granted. Said purchase price may be paid (i) by check or, in the
discretion of the Committee, either (ii) by the delivery of shares of
Common Stock of the Corporation then owned by the participant or (iii) by
directing the Company to withhold from the number of shares of Common Stock
otherwise issuable upon exercise of the option that whole number of shares
of Common Stock having an aggregate fair market value on the date of
exercise at least equal to the exercise price for all of the shares of
Common Stock subject to such exercise, or (iv) by a combination of any of
the foregoing, in the manner provided in the option agreement. In lieu of
exercising an option and subject to the approval of the Committee, the
optionee may request that the Company pay in cash the difference between
the fair market value of part or all of the stock which is the subject of
the option and the exercise price thereof. NQSOs will be exercisable not
earlier than six months and not later than ten years after the date they
are granted and will terminate not later than three months after
termination of employment for any reason other than death, retirement or
disability. In the event termination of employment occurs as a result of
death, retirement or disability, such an option will be exercisable for 24
months after such termination. If the optionee dies within 24 months after
termination of employment by retirement or disability, then the period of
exercise following death shall be the remainder of the 24-month period or
three months, whichever is longer. However, in no event shall any option
be exercised more than ten years after its grant. Leaves of absence
granted by the Corporation for military service, illness, and transfers of
employment between the Corporation and any subsidiary thereof shall not
constitute termination of employment. The Committee shall have the right
to determine at the time the option is granted whether shares issued upon
exercise of a NQSO shall be subject to restrictions, and if so, the nature
of the restrictions.
11. ADJUSTMENT PROVISIONS.
(a) If the Corporation shall at any time change the number of
issued shares of Common Stock without new consideration to the
Corporation (such as by stock dividends or stock splits), the total
number of shares reserved for issuance under this Plan and the number
of shares covered by each outstanding benefit shall be adjusted so
that the aggregate consideration payable to the Corporation, if any,
and the value of each such benefit shall not be changed. Benefits may
also contain provisions for their continuation or for other equitable
adjustments after changes in the Common Stock resulting from
reorganization, sale, merger, consolidation, issuance of stock rights
or warrants, or similar occurrence.
(b) Notwithstanding any other provision of this Plan, and
without affecting the number of shares reserved or available
hereunder, the Board of Directors may authorize the issuance or
assumption of benefits in connection with any merger, consolidation,
acquisition of property or stock, or reorganization upon such terms
and conditions as it may deem appropriate.
(c) The six-month holding periods in Sections 9 and 10 above
shall not apply in the event that more than 20% of the Corporation's
Common Stock, business, or assets are purchased or acquired by any
person, firm, corporation, or group acting in concert and without
agreement of the Corporation's Board of Directors. In such event, any
such option or right shall be deemed exercisable upon grant and with
no waiting period.
A-4
<PAGE> 24
12. NONTRANSFERABILITY. Each benefit granted under the Plan to an
employee shall not be transferable otherwise than by will or the laws of
descent and distribution or pursuant to a Qualified Domestic Relations
Order (as defined in Section 206(d)(3) of the Employee Retirement Income
Security Act of 1974, as amended, and the rules promulgated thereunder);
provided, however, NQSOs granted under the Plan may be transferred, without
consideration, to a Permitted Transferee (as defined below). Benefits
granted under the Plan shall be exercisable, during the participant's
lifetime, only by the participant or a Permitted Transferee. In the event
of the death of a participant, exercise or payment shall be made only:
(a) By or to the Permitted Transferee, executor or administrator
of the estate of the deceased participant or the person or persons to
whom the deceased participant's rights under the benefit shall pass
by will or the laws of descent and distribution; and
(b) To the extent that the deceased participant or the Permitted
Transferee, as the case may be, was entitled thereto at the date of
his death.
For purposes of this Section 12, "Permitted Transferee" shall include (i)
one or more members of the participant's family, (ii) one or more trusts
for the benefit of the participant and/or one or more members of the
participant's family, or (iii) one or more partnerships (general or
limited), corporations, limited liability companies or other entities in
which the aggregate interests of the participant and members of the
participant's family exceed 80% of all interests. For this purpose, the
participant's family shall include only the participant's spouse, children
and grandchildren.
13. TAXES. The Corporation shall be entitled to withhold the amount
of any tax attributable to any amounts payable or shares deliverable under
the Plan after giving the person entitled to receive such payment or
delivery notice as far in advance as practicable, and the Corporation may
defer making payment or delivery as to any benefit if any such tax is
payable until indemnified to its satisfaction. The person entitled to any
such delivery may, by notice to the Corporation at the time the
requirement for such delivery is first established, elect to have such
withholding satisfied by a reduction of the number of shares otherwise so
deliverable, such reduction to be calculated based on a closing market
price on the date of such notice.
14. TENURE. A participant's right, if any, to continue to serve the
Corporation and its subsidiaries as an officer, employee, or otherwise,
shall not be enlarged or otherwise affected by his or her designation as
a participant under the Plan.
15. DURATION, INTERPRETATION, AMENDMENT AND TERMINATION. No benefit
shall be granted more than ten years after the date of adoption of this
Plan; provided, however, that the terms and conditions applicable to any
benefit granted within such period may thereafter be amended or modified
by mutual agreement between the Corporation and the participant or such
other person as may then have an interest therein. Also, by mutual
agreement between the Corporation and a participant hereunder, stock
options or other benefits may be granted to such participant in
substitution and exchange for, and in cancellation of, any benefits
previously granted such participant under this Plan. To the extent that
any stock options or other benefits which may be granted within the terms
of the Plan would qualify under present or future laws for tax treatment
that is beneficial to a recipient, then any such beneficial treatment shall
be considered within the intent, purpose and operational purview of the
Plan and the discretion of the Committee, and to the extent that any such
stock options or other benefits would so qualify within the terms of the
Plan, the Committee shall have full and complete authority to grant stock
options or other benefits that so qualify (including the authority to
grant, simultaneously or otherwise, stock options or other benefits which
do not so qualify) and to prescribe the terms and conditions (which need
not be
A-5
<PAGE> 25
identical as among recipients) in respect to the grant or exercise of any
such stock option or other benefits under the Plan. The Board of Directors
may amend the Plan from time to time or terminate the Plan at any time.
However, no action authorized by this paragraph shall reduce the amount of
any existing benefit or change the terms and conditions thereof without the
participant's consent. No amendment of the Plan shall, without approval of
the stockholders of the Corporation, (a) increase the total number of
shares which may be issued under the Plan or increase the amount or type of
benefits that may be granted under the Plan; (b) change the minimum
purchase price, if any, of shares of Common Stock which may be made subject
to benefits under the Plan; or (c) modify the requirements as to
eligibility for benefits under the Plan.
16. STOCKHOLDER APPROVAL. The Plan was adopted by the Board of
Directors on April 23, 1996, and was approved by the stockholders of the
Company on June 26, 1996.
A-6
<PAGE> 26
REHABCARE GROUP, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
JUNE 26, 1996
The undersigned hereby appoints JAMES M. USDAN and ALAN C. HENDERSON,
and each of them, with or without the other, proxies, with full power
of substitution to vote as designated below, all shares of stock of
RehabCare Group, Inc. (the "Corporation") that the undersigned
signatory hereof is entitled to vote at the Annual Meeting of
Stockholders of the Corporation to be held at the Pierre Laclede
Center, Second Floor, 7733 Forsyth Boulevard, St. Louis, Missouri, on
Wednesday, June 26, 1996, at 8:00 a.m., local time, and all
adjournments thereof, all in accordance with and as more fully
described in the Notice and accompanying Proxy Statement for such
meeting, receipt of which is hereby acknowledged.
1. ELECTION OF DIRECTORS:
Election of seven directors to hold office until the next Annual
Meeting of Stockholders or until their successors shall have been
duly elected and qualified.
/ / FOR all nominees listed below / / WITHHOLD AUTHORITY to vote
(except as written to the for all nominees listed
contrary below) below
William G. Anderson, Richard E. Ragsdale, John H. Short, Richard C. Stoddard,
H. Edwin Trusheim, James M. Usdan and Theodore M. Wight
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE(S),
WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW)
- - ------------------------------------------------------------------------
(continued, and to be signed, on the other side)
<PAGE> 27
2. To act upon a proposal to adopt the RehabCare Group, Inc. 1996 Long-
Term Performance Plan.
/ / FOR / / AGAINST / / ABSTAIN
3. In their discretion, upon any other business which may properly come
before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS
MADE, THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF ALL NOMINEES
LISTED AND "FOR" THE ADOPTION OF THE REHABCARE GROUP, INC. 1996 LONG-
TERM PERFORMANCE PLAN.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SIGN
HERE _____________________________________
(Please sign exactly as name appears
hereon)
SIGN
HERE _____________________________________
Executors, administrators, trustees,
etc. should so indicate when signing
Dated ____________________________________
<PAGE> 28
Appendix
--------
Page 13 of the printed Proxy contains two Stockholder Return Performance
Graphs. The information contained in each graph is depicted in the table that
follows each graph.
