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 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)
(Names of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/x/ No fee required
/ / $125 per the Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1),
14a-6(j)(2)
/ / $500 per each parter 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
1) Title of each class of securities to which transacation 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> 1
REHABCARE GROUP, INC.
7733 FORSYTH BOULEVARD
SUITE 1700
ST. LOUIS, MO 63105
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 5, 1998
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 May 5, 1998, 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 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
March 13, 1998, 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
April 3, 1998
- 1 -
<PAGE> 2
REHABCARE GROUP, INC.
7733 FORSYTH BOULEVARD
SUITE 1700
ST. LOUIS, MO 63105
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 5, 1998
-----------------
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 Tuesday, May 5,
1998, 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 April 3, 1998.
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 March 13,
1998, are entitled to notice of, and to vote at, the Annual Meeting. On such
date, there were 5,969,289 shares of RehabCare Common Stock issued and
outstanding.
-2-
<PAGE> 3
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 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>
FMR Corp.<F2> 734,943 12.31%
82 Devonshire Street
Boston, Massachusetts 02109
RH Capital Associates Number One, L.P.<F3> 445,150 7.46%
Robert Horwitz
55 Harristown Road
Glen Rock, New Jersey 07452
Richard C. Stoddard<F4> 440,891 7.00%
7733 Forsyth Boulevard
Suite 1700
St. Louis, Missouri 63105
James M. Usdan<F5> 423,259 6.68%
7733 Forsyth Boulevard
Suite 1700
St. Louis, Missouri 63105
<FN>
<F1> The percentage calculations are based upon 5,969,289 shares of RehabCare
Common Stock outstanding at March 13, 1998, plus, with respect to Messrs.
Stoddard and Usdan, the number of shares subject to options or conversion
privileges exercisable by each such stockholder on or prior to May 12,
1998.
-3-
<PAGE> 4
<F2> Based upon information set forth in Amendment No. 3 to Schedule 13G dated
February 14, 1998, filed by the reporting persons with the Securities and
Exchange Commission. The Schedule 13G is a joint filing by FMR Corp., the
holding company of Fidelity Management & Research Company, an investment
advisor registered under the Investment Advisors Act of 1940 ("FMRC"),
Fidelity Low-Priced Stock Fund, an investment company registered under the
Investment Company Act of 1940 ("FLSF"), and Fidelity Management Trust
Company, a bank as defined in Section 3(a)(6) of the Securities Exchange
Act of 1934, as amended ("FMTC"), of which Edward C. Johnson 3d and Abigail
P. Johnson may be deemed to be controlling persons. By virtue of its
control of FMRC, FLSF and FMTC, FMR Corp. reported sole voting power with
respect to 212,850 shares and sole investment power with respect to all
734,943 shares reported by FMR Corp. as beneficially owned. By virtue of
their control of FMR Corp., each of Edward C. Johnson 3d and Abigail P.
Johnson reported sole investment power with respect to all 734,943 shares
reported by such person as beneficially owned.
<F3> Based upon information set forth in a Schedule 13G dated March 5, 1998,
filed by the reporting persons with the Securities and Exchange Commission.
The Schedule 13G is a joint filing by RH Capital Associates Number One,
L.P., a Delaware Limited Partnership, and Robert Horwitz. Robert Horwitz
reported sole voting and investment power with respect to 23,000 shares and
shared voting and investment power with respect to 422,150 of the 445,150
shares reported by Mr. Horwitz as beneficially owned. R.H. Capital
Associates Number One, L.P. reported shared voting and investment power
with respect to all of the 356,400 shares reported by R.H. Capital
Associates Number One, L.P. as beneficially owned.
<F4> Total includes (i) 8,436 shares held by trusts of which Mr. Stoddard's
children are beneficiaries, as to which shares Mr. Stoddard has no voting
or investment power, (ii) 300,705 shares deemed to be beneficially owned by
Mr. Stoddard by virtue of his right to convert a Convertible Subordinated
Promissory Note issued by RehabCare into RehabCare Common Stock, and (iii)
16,941 shares deemed to be beneficially owned by trusts of which Mr.
Stoddard's children are beneficiaries by virtue of such trusts' right to
convert Convertible Subordinated Promissory Notes issued by RehabCare into
RehabCare Common Stock, as to which shares Mr. Stoddard has no voting or
investment power.
<F5> Total includes 7,065 shares held for Mr. Usdan's account under RehabCare's
401(k) Plan and 30,682 shares held for Mr. Usdan's account under
RehabCare's Executive Deferred Compensation Plan.
</FN>
</TABLE>
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 1999
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.
-4-
<PAGE> 5
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, 65 - Director since 1991; Consultant and Retired
Vice Chairman, Ernst & Young (public accountants).
Richard E. Ragsdale, 54 - Director since 1993; Co-Chairman of the
Board and Director, Community Health Systems, Inc. (hospital ownership and
management); President, CompuCare Auto Diagnostic Center, Inc. (automobile
service); Director, New Life Treatment Centers, Inc. (psychiatric contract
units); Chairman and Director, ProMedCo Management Company (physician practice
management); Director, Pulmonary Solutions, Inc. (specialized disease
management).
John H. Short, Ph.D., 53 - Director since 1991; Managing Partner,
Phase II Consulting (health care and economic consulting).
Richard C. Stoddard, 49 - Director since 1996; President of Healthcare
Staffing Solutions, Inc., a wholly owned subsidiary of RehabCare (recruitment
and placement of therapists).
H. Edwin Trusheim, 70 - 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, 48 - Director since 1991; President and Chief
Executive Officer of RehabCare; Director, D&K Healthcare Resources, Inc., Metro
One Telecommunications, Inc., Maryville University and The Metropolitan
Employment and Rehabilitation Service.
Theodore M. Wight, 55 - 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.
-5-
<PAGE> 6
BOARD OF DIRECTORS AND COMMITTEES
During the year ended December 31, 1997, the Board of Directors of
RehabCare met six 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 1997. 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 1997. 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
auditors and management to review the work of each and to ensure that each is
properly discharging its responsibilities; and reviewing RehabCare's accounting
policies and internal controls to determine whether such policies and controls
are adequate and are being followed.
The Compensation Committee reviews and recommends to the Board of
Directors the salaries of all executive officers of RehabCare 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 three times during 1997. 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.
-6-
<PAGE> 7
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 year will be granted an option to acquire
15,000 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.
Each non-employee director who does not serve a full ten months will receive an
option to acquire 1,500 shares of RehabCare Common Stock for each full calendar
month of service as a director during the year. On January 14, 1997, options to
acquire 15,000 shares of RehabCare Common Stock were granted to each of Messrs.
Anderson, Ragsdale, Short, Trusheim and Wight.
SECURITY OWNERSHIP BY MANAGEMENT
The following table sets forth, as of March 13, 1998, 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 97,500<F3> 1.62%
Richard E. Ragsdale 150,604<F3><F4> 2.49%
John H. Short, Ph.D 77,000<F3> 1.27%
Richard C. Stoddard 440,891<F3><F5> 7.00%
H. Edwin Trusheim 61,500<F3> 1.02%
James M. Usdan 423,259<F3><F6> 6.68%
Theodore M. Wight 45,000<F3> (7)
Alan C. Henderson 162,469<F3><F8> 2.68%
Keith L. Goding 70,167<F3><F9> 1.16%
Hickley M. Waguespack 97,776<F3><F10> 1.62%
All directors and executive officers as a group (10 persons) 1,626,166<F3> 22.46%
<FN>
<F1> Except as otherwise noted, each individual has sole voting and investment
power with respect to the shares listed beside his name.
-7-
<PAGE> 8
<F2> Based upon 5,969,289 shares of RehabCare Common Stock issued and
outstanding as of March 13, 1998 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 May 12, 1998.
<F3> Totals include 60,000, 82,500, 72,500, 332,646, 60,000, 362,500, 45,000,
104,250, 70,125, 81,078 and 1,270,599 shares subject to stock options or
conversion rights held by Messrs. Anderson, Ragsdale, Short, Stoddard,
Trusheim, Usdan, Wight, Henderson, Goding and Waguespack, and all
directors and executive officers as a group, respectively, that are either
presently exercisable or which are exercisable on or prior to May 12,
1998.
<F4> Includes 68,104 shares of RehabCare Common Stock held by The Ragsdale
Family Foundation, of which Mr. Ragsdale is a trustee, and as to which
shares Mr. Ragsdale has shared voting and investment power.
<F5> Includes (i) 8,436 shares held by trusts of which Mr. Stoddard's children
are beneficiaries, as to which shares Mr. Stoddard has no voting or
investment power, (ii) 300,705 shares deemed to be beneficially owned by
Mr. Stoddard by virtue of his right to convert a Convertible Subordinated
Promissory Note issued by RehabCare into RehabCare Common Stock and (iii)
16,941 shares deemed to be beneficially owned by trusts of which Mr.
Stoddard's children are beneficiaries by virtue of such trusts' right to
convert Convertible Subordinated Promissory Notes issued by RehabCare into
RehabCare Common Stock, as to which shares Mr. Stoddard has no voting or
investment power.
<F6> Includes 7,065 shares held for Mr. Usdan's account under RehabCare's
401(k) Plan and 30,682 shares held for Mr. Usdan's account under
RehabCare's Executive Deferred Compensation Plan.
<F7> Less than one percent.
<F8> Includes 450 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, and 12,469 shares held for Mr. Henderson's account under
RehabCare's Executive Deferred Compensation Plan.
<F9> Includes 42 shares owned by a trust of which Mr. Goding is the trustee and
the beneficiary.
<F10> Includes 3,126 shares held for Mr. Waguespack under RehabCare's Executive
Deferred Compensation Plan.
</FN>
</TABLE>
-8-
<PAGE> 9
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 the year ended December
31, 1997, 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 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.
-9-
<PAGE> 10
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 the year ended December 31, 1997, Messrs. Usdan and Henderson
each had separate employment contracts with RehabCare that were entered into
prior to such period. 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
1997 to consider base salary increases for Messrs. Goding, Henderson and
Waguespack 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 1997 the Committee increased
the respective annual base salary of Messrs. Usdan, Goding, Henderson and
Waguespack, by between 5% and 19% of such executive officer's previous annual
base salary.
Annual Incentive Compensation
For services rendered during the year ended December 31, 1997, each of
RehabCare's executive officers will receive cash bonuses awarded on
performance-based criteria. 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 are 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 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. The Company changed its fiscal year
from the last day of February to December 31, effective December 31, 1996, and
changed its incentive bonus period from the last day of February to December 31,
effective December 31, 1997. The cash bonuses payable for the year ended
December 31, 1997 were based upon annualized growth in earnings per share during
the ten-month period commencing on March 1, 1997, and ending on December 31,
1997, as compared with calendar year 1996. For 1998, cash bonuses will be based
upon growth in earnings per share during the then-current calendar year as
compared with the immediately prior annualized ten-month period to be consistent
with RehabCare's newly established December 31 fiscal year end. For the year
ended December 31, 1997, Messrs. Usdan and Henderson will receive cash bonuses
under their contracts of $279,641 and $197,076, respectively. Messrs. Goding and
Waguespack also will receive performance-based cash bonuses of $157,976 and
$160,085 for the period.
-10-
<PAGE> 11
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. 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, in prior periods, the Committee has approved grants of
additional options to certain executive officers of RehabCare. During the year
ended December 31, 1997, the Committee did not grant any options for the
purchase of shares of RehabCare Common Stock to the executive officers of
RehabCare.
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."
The Committee believes that the combination of the two long-term
incentive programs 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.
-11-
<PAGE> 12
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 named
executive officer of RehabCare for each of the last three fiscal periods:
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
Securities
Underlying All Other
Name and Principal Position Year Salary ($) Bonus($)<F2> Options/SARs(#) Compensation ($)<F3>
- --------------------------- ---- ---------- ----------- --------------- ------------
<S> <C> <C> <C> <C> <C>
James M. Usdan, President 1997 $ 298,333 314,807 --/-- $ 3,200
and Chief Executive Officer 1996 <F1> 214,167 325,138 --/-- 3,150
1996 220,833 281,584 --/-- 4,739
Alan C. Henderson, 1997 211,333 211,076 --/-- 3,200
Executive Vice President 1996 <F1> 162,500 183,183 50,000/-- 3,240
and Chief Financial Officer 1996 172,958 150,995 --/-- 4,627
Keith L. Goding, Executive 1997 184,333 157,976 --/-- 3,200
Vice President and Chief 1996 <F1> 137,500 122,917 7,000/-- 3,317
Development Officer 1996 145,000 105,194 --/-- 483
Hickley M. Waguespack, 1997 172,125 163,585 --/-- 3,200
Executive Vice President, 1996 <F1> 137,500 113,344 6,000/-- 3,329
Customer Service and Retention 1996 145,000 83,387 60,000/-- 3,070
<FN>
<F1> Effective December 31, 1996, RehabCare converted its fiscal year end from
the last day of February to December 31. For purposes of the compensation
table, the second row, designated 1996(1), sets forth the compensation of
each executive officer of RehabCare for the ten-month period ended
December 31, 1996. The first and third rows, designated 1997 and 1996,
respectively, set forth the compensation for each executive officer of
RehabCare for fiscal year 1997, which ended December 31, 1997, and fiscal
year 1996, which ended February 29, 1996.
<F2> Totals for the year ended December 31, 1997 include $35,166, $14,000 and
$3,500 payable to Messrs. Usdan, Henderson and Waguespack, respectively,
pursuant to supplemental cash bonus agreements between RehabCare and the
named executive officer.
<F3> Totals for the year ended December 31, 1997 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.
</FN>
</TABLE>
-12-
<PAGE> 13
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, which terms extended
through April 30, 1997, but which will continue to be automatically renewed
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" 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 years
preceding the 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 attributable to such
increased payment) with a net amount equal to the federal excise tax owed by the
executive officer.
-13-
<PAGE> 14
"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 addition to the termination compensation agreements described
above, Messrs. Goding and Waguespack have been granted additional severance
benefits pursuant an arrangement whereby if the executive officer is terminated
by RehabCare without cause or if a take-over of RehabCare occurs that involves
an involuntary change in the job responsibilities or job location of the
executive officer, the executive officer will receive from RehabCare a severance
payment equal to the executive officer's then-current base salary and benefits
for one year thereafter and any earned but unpaid bonus due and owing to the
executive officer.
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
$1,050,000 in the aggregate. The purpose of the agreements was to reward these
individual executive officers for their efforts in establishing RehabCare as a
publicly traded company as well as to establish incentives for them to continue
in the service of RehabCare for the long-term future. The individual agreements
assigned a cash bonus amount to the eligible executive officer based upon level
of responsibility. The bonuses vested on a monthly basis beginning in March 1993
and ending in February 1997. The bonuses, which became fully vested in February
1997, will become payable within 30 days of the earlier of the termination of
the executive officer's employment with RehabCare or October 15, 2002. Certain
of the executive officers have designated up to 50% of their respective bonuses
for deferral into their respective accounts under RehabCare's Executive Deferred
Compensation Plan. Such deferred amounts have been invested in RehabCare Common
Stock.
-14-
<PAGE> 15
Aggregated Option/SAR Exercises in Last Fiscal Period and Fiscal Period-End
Option/SAR Values
The following table sets forth information concerning the number of
exercisable and unexercisable stock options at December 31, 1997, as well as the
value of such stock options having an exercise price lower than the last
reported trading price on December 31, 1997 ("in-the-money" options) held by the
executive officers named in the Summary Compensation Table. During the year
ended December 31, 1997, options were exercised by Messrs. Henderson and
Waguespack.
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Options at Options at Fiscal
Shares Fiscal Period-End(#) Period-End($)<F1>
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
---- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
James M. Usdan................... -- -- 412,500/0 7,318,750/0
Alan C. Henderson................ 18,750 346,640 146,250/60,000 2,613,906/961,094
Keith L. Goding.................. -- -- 47,625/52,875 836,563/919,688
Hickley M. Waguespack............ 22,422 468,530 57,641/52,688 1,033,774/948,281
<FN>
<F1> Based on a price per share of $26.50, the last reported transaction price
of RehabCare Common Stock on December 31, 1997.
</FN>
</TABLE>
-15-
<PAGE> 16
STOCKHOLDER RETURN PERFORMANCE GRAPH
The following graph compares 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 January 1, 1993, and
ending December 31, 1997:
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURNS<F1> AMONG REHABCARE GROUP, INC.
NASDAQ MARKET INDEX AND DOW JONES INDUSTRIAL GROUP HEA INDEX
[GRAPH]
ASSUMES $100 INVESTED ON JANUARY 1, 1993 IN REHABCARE GROUP, INC. COMMON STOCK,
NASDAQ MARKET INDEX & DOW JONES GROUP HEA INDEX
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
RehabCare Group, Inc. 100 96.77 111.83 165.59 173.12 341.76
NASDAQ Market Index 100 119.95 125.94 163.35 202.99 248.30
Dow Jones Industry Group HEA Index 100 124.10 135.86 178.01 178.97 194.17
<FN>
<F1> Total return assumes reinvestment of dividends
</FN>
</TABLE>
-16-
<PAGE> 17
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, all Section 16(a) filing requirements were met, except one Form 5
filed late by Mr. Stoddard with respect to three transactions.
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG Peat Marwick LLP served as RehabCare's independent public
accountants for the year ended December 31, 1997. 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 1999 Annual
Meeting of Stockholders must be received by the Secretary of RehabCare by not
later than December 4, 1998 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
April 3, 1998
-17-
<PAGE> 18
REHABCARE GROUP, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 5, 1998
THIS PROXY IS SOLITED ON BEHALF OF THE BOARD OF DIRECTORS
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
subsititution 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 Tuesday May 5, 1998, 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 / /WITHHOLD AUTHORITY to vote
(except as written to the for all nominees listed
contrary at right) at right
William G. Anderson, Richard E. Ragsdale, John H. Short, Richard C. Stoddard,
H. Edwin Trusheim, James M. Usdan, and Theodore M. Wight
(INSTRUCTIONS: To withhold authority to vote for any individual nominee(s)
write that nominee's name in the space provided below)
2. 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 IN THE ELECTION OF
DIRECTORS.
SIGN
HERE
(Please sign exactly as name appears
hereon)
SIGN
HERE
Executors, administrators, trustees,
etc. should so indicate when signing
Dated
<PAGE> 19
APPENDIX
The printed Proxy contains the Stockholder Return Performance Graph. The
information contained in the graph is depicted in the table that follows the
graph.
