REHABCARE GROUP INC, DEF 14A, 1999-03-25

REHABCARE GROUP INC
DEF 14A, 1999-03-25
HOSPITALS

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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
(Amendment No. )

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
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12

REHABCARE GROUP, INC.
(Name of Registrant as Specified in its Charter)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

1) Title of each class of securities to which transaction applies: N/A
2) Aggregate number of securities to which transaction applies: N/A
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):
N/A
4) Proposed maximum aggregate value of transaction: N/A
5) Total fee paid: N/A

[ ] 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: N/A
2) Form, Schedule or Registration Statement No.: N/A
3) Filing Party: N/A
4) Date Filed: N/A

<PAGE> 1
REHABCARE GROUP, INC.
7733 FORSYTH BOULEVARD
SUITE 1700
ST. LOUIS, MO 63105

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 30, 1999

Dear Stockholder:

The Annual Meeting of Stockholders of RehabCare Group, Inc. ("RehabCare")
will be held at the offices of StarMed Staffing, Inc., 28100 U.S. 19 North, 4th
Floor, Clearwater, Florida on April 30, 1999, at 9:30 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 consider and act upon a proposal to adopt the RehabCare Group, Inc.
Amended and Restated 1996 Long-Term Performance Plan.

3.To consider and act upon a proposal to adopt the RehabCare Group, Inc.
1999 Non-Employee Director Stock Plan.

4.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
11, 1999, 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.

Alan C. Henderson
President and Chief Executive Officer

March 25, 1999

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<PAGE> 2

REHABCARE GROUP, INC.
7733 FORSYTH BOULEVARD
SUITE 1700
ST. LOUIS, MO 63105

PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 30, 1999
-----------------

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 offices of StarMed Staffing,
Inc. 28100 U.S. 19 North, 4th Floor, Clearwater, Florida, on Friday, April 30,
1999, at 9:30 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 March
25, 1999.

The proxy set forth on the accompanying Proxy Card is being solicited by
the Board of Directors of RehabCare. All proxies will be voted in accordance
with the instructions contained in the proxy. If no direction is specified in
the proxy, executed proxies will be voted in favor of the election of the
nominees for director proposed by the Board of Directors, in favor of the
adoption of the RehabCare Group, Inc. Amended and Restated 1996 Long-Term
Performance Plan, and in favor of the adoption of the RehabCare Group, Inc. 1999
Non-Employee Director Stock Plan. 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 11, 1999, are
entitled to notice of, and to vote at, the Annual Meeting. On such date, there
were 6,527,082 shares of RehabCare Common Stock issued and outstanding.

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<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:

Number of Shares Percent of Outstanding
Name and Address of Beneficial Owner Beneficially Owned Common Stock<F1>
------------------------------------ ------------------ ----------------------
<S> <C> <C>
FMR Corp.<F2> 565,000 8.66%
82 Devonshire Street
Boston, Massachusetts 02109

RH Capital Associates Number One, L.P.<F3> 407,500 6.24%
Robert Horwitz
55 Harristown Road
Glen Rock, New Jersey 07452

Richard C. Stoddard<F4> 454,891 6.62%
7733 Forsyth Boulevard
Suite 1700
St. Louis, Missouri 63105
<FN>
<F1> The percentage calculations are based upon 6,527,082 shares of RehabCare
Common Stock outstanding at March 11, 1999, plus, with respect to Mr.
Stoddard, the number of shares subject to options or conversion privileges
exercisable by Mr. Stoddard on or prior to May 10, 1999.

<F2> Based upon information set forth in Amendment No. 4 to Schedule 13G dated
February 1, 1999, 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"), and
Fidelity Low-Priced Stock Fund, an investment company registered under
the Investment Company Act of 1940 ("FLSF"), of which Edward C. Johnson 3d
and Abigail P. Johnson may be deemed to be controlling persons. By virtue
of its control of FMRC and FLSF, FMR Corp. reported sole investment power
with respect to all 565,000 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 565,000 shares reported by such person as beneficially owned.

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<PAGE> 4
<F3> Based upon information set forth in an Amendment No. 1 to Schedule 13G
dated February 11, 1999, 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 17,750 shares and shared voting and investment power
with respect to 389,750 of the 407,500 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 348,800
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, (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, and (iv) 30,000 shares subject to stock
options held by Mr. Stoddard that are exercisable on or prior to May 10,
1999.

</FN>
</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 2000
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.

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, 66 - Director since 1991; Consultant and Retired Vice
Chairman, Ernst & Young (public accountants).

Alan C. Henderson, 53 - Director since 1998; President and Chief Executive
Officer of RehabCare; Director of General American Capital Corp.

Richard E. Ragsdale, 55 - Director since 1993; President, CompuCare Auto
Diagnostic Center, Inc. (automobile service) and Chairman of the Executive
Committee, ProMedCo Management Company (physician practice management);
Director, New Life Treatment Centers, Inc., ProMedCo Management Company,
American Endoscopy Services, Inc. and Kaleidospace, LLC.

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<PAGE> 5
John H. Short, Ph.D., 54 - Director since 1991; Managing Partner, Phase II
Consulting (health care and economic consulting).

Richard C. Stoddard, 50 - Director since 1996; President of Healthcare
Staffing Solutions, Inc., a wholly owned subsidiary of RehabCare (recruitment
and placement of therapists and nurses).

H. Edwin Trusheim, 71 - Director since 1992; Chairman of the Board of
RehabCare since 1998; Retired Chairman of the Board, General American Life
Insurance Company (life and health insurance); Director, Angelica Corporation,
Laclede Gas Company and Reinsurance Group of America, Incorporated.

Theodore M. Wight, 56 - 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 year ended December 31, 1998, 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 1998. 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 1998. 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 five times during 1998. 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.

Since the adoption of the Directors' Stock Option Plan in 1994 through the
grants in 1998, each non-employee director had received on January 14 of each
year 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. For years after 1998, options granted
pursuant to the Directors' Stock Option Plan will be solely at the discretion of
the Board of Directors up to the maximum number of shares authorized under the

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<PAGE> 6

plan. On January 14, 1998, options to acquire 15,000 shares of RehabCare Common
Stock were granted to each of Messrs. Anderson, Ragsdale, Short, Trusheim and
Wight. Mr. Trusheim received an additional option to acquire 15,000 shares of
RehabCare Common Stock on June 24, 1998, in recognition of his enhanced duties
as Chairman of the Board.

SECURITY OWNERSHIP BY MANAGEMENT

The following table sets forth, as of March 11, 1999, 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:

Number of Shares
Name of Beneficial Owner Beneficially Owned<F1> Percent of Class<F2>
- ------------------------ ------------------ ----------------
<S> <C> <C>
William G. Anderson 112,000<F3> 1.70%
Alan C. Henderson 185,969<F3> <F4> 2.79%
Richard E. Ragsdale 165,604<F3> <F5> 2.50%
John H. Short, Ph.D 96,000<F3> 1.45%
Richard C. Stoddard 454,891<F3> <F6> 6.62%
H. Edwin Trusheim 91,500<F3> 1.38%
Theodore M. Wight 60,000<F3> <F7>
Keith L. Goding 95,292<F3> <F8> 1.44%
Hickley M. Waguespack 83,937<F3> <F9> 1.27%
Tom E. Davis 3,750<F3> <F7>
Alfred J. Howard 23,279<F3> <F7>
All directors and executive
officers as a group (13 persons) 1,414,857<F3> 18.50%

<FN>
<F1> Except as otherwise noted, each individual has sole voting and investment
power with respect to the shares listed beside his name.

<F2> Based upon 6,527,082 shares of RehabCare Common Stock issued and
outstanding as of March 11, 1999 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 10, 1999.

<F3> Totals include 75,000, 126,750, 97,500, 87,500, 347,646, 90,000, 60,000,
95,250, 80,811, 3,750, 22,500 and 1,120,207 shares subject to stock options
or conversion rights held by Messrs. Anderson, Henderson, Ragsdale, Short,
Stoddard, Trusheim, Wight, Goding, Waguespack, Davis and Howard, and all
directors and executive officers as a group, respectively, that are either
presently exercisable or which are exercisable on or prior to May 10, 1999.

<F4> Includes (i) 2,200 shares owned by a trust of which Mr. Henderson is the
trustee and beneficiary, (ii) 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 (iii) 12,469 shares held for Mr.
Henderson's account under RehabCare's Executive Deferred Compensation Plan.
</FN>
</TABLE>
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<PAGE> 7

<F5> 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.

<F6> 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.

<F7> Less than one percent.

<F8> Includes 42 shares owned by a trust of which Mr. Goding is the trustee and
the beneficiary.

<F9> Includes 3,126 shares held for Mr. Waguespack under RehabCare's Executive
Deferred Compensation Plan.

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, 1998, 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,

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<PAGE> 8

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 the year ended December 31, 1998, Mr. Henderson had a separate
employment contract with RehabCare. Mr. Henderson's employment contract
establishes an initial base salary, which base salary rate is to be reviewed for
adjustment at least annually. The Committee met in 1998 to consider base salary
increases for Messrs. Goding, Waguespack, Davis and Howard based upon the
performance evaluation and recommendation of the Chief Executive Officer. Base
salary increases for Mr. Henderson, 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 1998 the Committee increased the
respective annual base salary of Messrs. Henderson, Goding, Waguespack, Davis
and Howard, by between 5% and 15% of such executive officer's previous annual
base salary. Mr. Henderson received an additional increase in his base salary
upon his election as President and Chief Executive Officer on June 1, 1998.

Annual Incentive Compensation

For services rendered during the year ended December 31, 1998, each of
RehabCare's executive officers received cash bonuses awarded on
performance-based criteria. Mr. Henderson has a performance-based annual cash
bonus compensation component set forth in his employment contract with
RehabCare. Under the contractual provisions, the cash bonus for Mr. Henderson is
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 bonus for Mr. Henderson ranges from 4% of his base salary during the
applicable year for a 10% annual growth rate in EPS up to 100% of his then
current base salary for a 31% annual growth rate in EPS. For the year ended
December 31, 1998, Mr. Henderson received a cash bonus under this formula of
$198,445. Messrs. Goding, Waguespack, Davis and Howard also will receive
performance-based cash bonuses of $167,273, $133,582, $133,761 and $141,883,
respectively, for the year.

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 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.

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<PAGE> 9

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, during the year ended December 31, 1998, the Committee has approved
grants of additional options to certain executive officers of RehabCare in
recognition of increases in the authority and responsibility of such officers
and their contributions toward improvements in the operating performance of
RehabCare. In December 1998, the Committee approved a program for the exchange
of certain out-of-the-money stock options for a fewer number of new options
having a lower exercise price equal to the fair market value of RehabCare Common
Stock on the effective date of the exchange. See "Compensation of Executive
Officers--Stock Option Exchange."

The Committee believes that the long-term incentive program gives the
participating officers a meaningful opportunity for equity appreciation
incentives from the stock-based grants.

Compensation of Chief Executive Officer

Mr. Henderson'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. Henderson's employment contract with RehabCare. The total compensation
package of Mr. Henderson 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. Henderson'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
OF THE BOARD OF DIRECTORS

H. EDWIN TRUSHEIM RICHARD E. RAGSDALE THEODORE M. WIGHT

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<PAGE> 10
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>
Alan C. Henderson, 1998 279,500 198,445 121,482/-- 3,200
President and Chief 1997 211,333 211,076 --/-- 3,200
Executive Officer 1996<F1> 162,500 183,183 50,000/-- 3,240

Keith L. Goding, Executive 1998 206,917 167,273 7,758/-- 3,200
Vice President and Chief 1997 184,333 157,976 --/-- 3,200
Development Officer 1996<F1> 137,500 122,917 7,000/-- 3,317

Hickley M. Waguespack, 1998 186,417 133,582 --/-- 3,200
Executive Vice President, 1997 172,125 163,585 --/-- 3,200
Customer Service and Retention 1996<F1> 137,500 113,344 6,000/-- 3,329

Tom E. Davis, President, 1998 186,667 133,761 35,427/-- 3,200
Inpatient Division<F4> 1997 128,833 51,596 --/-- --

Alfred J. Howard, 1998 166,667 141,883 19,395/-- 3,200
President, Outpatient Division<F5> 1997 158,333 46,161 --/-- 1,067
1996<F1> 42,750 25,000 --/-- --

James M. Usdan, 1998 146,250 73,125 --/-- 3,200
Former President and 1997 298,333 314,807 --/-- 3,200
Chief Executive Officer<F6> 1996<F1> 214,167 325,138 --/-- 3,150

<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 row designated 1996<F1> sets forth the compensation of each
executive officer of RehabCare for the ten-month period ended December 31,
1996.

<F2> Totals for the year ended December 31, 1997, include $14,000 and $3,500
payable to Messrs. 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, 1998, in respect of Messrs.
Henderson, Goding, Waguespack, Davis, Howard and Usdan include amounts
contributed by RehabCare pursuant to the matching portion of RehabCare's
401(k) Plan.

<F4> Mr. Davis became an executive officer of RehabCare effective as of January
1, 1998.

<F5> Mr. Howard became an executive officer of RehabCare effective as of August
19, 1996.

<F6> Mr. Usdan was President and Chief Executive Officer of RehabCare until his
resignation effective June 1, 1998.
</FN>
</TABLE>
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<PAGE> 11

Employment Arrangements

RehabCare currently has an employment agreement with Alan C. Henderson,
President and Chief Executive Officer which will continue to be automatically
renewed for successive one-year terms unless terminated by either party. The
agreement provides for a minimum annual base salary 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 Mr. Henderson's base salary for a 10% annual growth rate up to 100% of
base compensation for a 31% annual growth rate. Mr. Henderson's agreement
provides for severance pay upon termination by RehabCare equal to one year's
base salary plus Mr. Henderson's pro rata bonus for the year of termination, and
for a one-year covenant not to compete on the part of Mr. Henderson.

Each of Messrs. 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. Prior to a "change in
control," each agreement is 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 agreement of Mr. Henderson would require a
lump-sum cash payment in an amount equal to 2.99 times his 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 his then-current annual rate of compensation. In each case,
the executive's health and welfare benefits will continue until the earlier of
(i) one year after the date of termination or (ii) the executive's commencement
of full-time employment with another company. If payment of the foregoing
amounts and any other benefits received or receivable upon termination after a
"change in control" would subject the executive to the payment of a federal
excise tax, the total amount payable by RehabCare to such executive shall be
increased by an amount sufficient to provide him (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 him.

"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

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<PAGE> 12

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.

Each of the named executive officers other than Mr. Henderson has a
separate arrangement with RehabCare with regard to severance payments in the
event of certain terminations of employment which will generally continue their
base salary and/or benefits for a period of one year after such termination.

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, 1998, as well as the
value of such stock options having an exercise price lower than the last
reported trading price on December 31, 1998 ("in-the-money" options) held by the
executive officers named in the Summary Compensation Table. During the year
ended December 31, 1998, options were exercised by Messrs. Henderson and Usdan.

Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal In-The-Money Options at
Shares Period-End (#) Fiscal Period-End ($) <F1>
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
---- ----------- ----------- ------------- ----------------
<S> <C> <C> <C> <C>
Alan C. Henderson 42,000 676,773 126,750/158,982 1,244,516/300,781

Keith L. Goding -- -- 72,750/35,508 707,266/263,828

Hickley M. Waguespack -- -- 83,328/27,000 847,305/272,812

Tom E. Davis -- -- 1,875/41,052 8,470/25,411

Alfred J. Howard -- -- 22,500/41,895 169,219/169,219

James M. Usdan 412,500 4,622,004 --/-- --/--

<FN>
<F1> Based on a price per share of $18.6875, the last reported transaction price
of RehabCare Common Stock on December 31, 1998.
</FN>
</TABLE>

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<PAGE> 13

Option Grants In Last Year

The following table sets forth information concerning stock option grants
made in the year ended December 31, 1998 to the executive officers named in the
Summary Compensation Table. No SARs were granted to the named executive officers
in 1998.
<TABLE>
<CAPTION>

Individual Grant Potential Realizable
----------------------------------------------------------------------------------------- Value At Assumed
Annual Rates of Stock
Percent of Total Price Appreciation
Number of Securities Options Granted to for Option Term <F3>
Name Underlying Options Employees in Exercise or Market Price on Expiration ---------------------
Granted (#) <F1> Fiscal Year Base Price ($/Sh) Date of Grant ($) Date <F2> 5% ($) 10% (S)
---- -------------------- ------------------ ----------------- ---------------- ----------- ------ -------

<S> <C> <C> <C> <C> <C> <C> <C>
Alan C. Henderson 121,482 23.9 18.75 18.75 12/15/2008 1,432,273 3,629,882
Keith L. Goding 7,758 1.5 18.75 18.75 12/15/2008 91,467 231,809
Hickley M. Waguespack -- -- -- -- -- -- --
Tom E. Davis 35,427 6.9 18.75 18.75 12/15/2008 417,684 1,058,559
Alfred J. Howard 19,395 3.8 18.75 18.75 12/15/2008 228,667 579,523
James M. Usdan -- -- -- -- -- -- --
- --------------------------
<FN>
<F1> Mr. Henderson's options will become exercisable with respect to 25% of the
total number of shares subject to the option on the date immediately after
the closing price of the Common Stock equals or exceeds each of $21.50,
$25.50, $30.25 and $35.75 for any period of 20 consecutive trading days
during the term of the option. Each other option set forth above will
become exercisable with respect to 25%, 50%, 75% and 100% of the total
number of shares subject to the option on each of the first, second, third
and fourth anniversaries, respectively, of the date of award.

<F2> The options terminate on the earlier of: ten years after grant; three
months after termination of employment except in the case of retirement,
death or total disability; or twenty-four months after termination for
retirement, death or total disability. Mr. Henderson's options become fully
exercisable in certain circumstances upon a change in control of RehabCare.

<F3> The indicated 5% and 10% rates of appreciation are provided to comply with
Securities and Exchange Commission regulations and do not necessarily
reflect the views of RehabCare as to the likely trend in the Common Stock
price. Actual gains, if any, on stock option exercises and Common Stock
holdings will be dependent on, among other things, the future performance
of the Common Stock and overall market conditions. There can be no
assurance that the amounts reflected above will be achieved. Additionally,
these values do not take into consideration the provisions of the options
providing for nontransferability or delayed exercisability.
</FN>
</TABLE>

Stock Option Exchange

In December 1998, the Compensation Committee of the Board of Directors (the
"Committee") approved a program under which each employee holding options to
purchase RehabCare Common Stock granted from June 1997 through July 1998 having
exercise prices above the then-current market price of RehabCare Common Stock
("out-of-the-money options") was given the opportunity to exchange such options
for a fewer number of options having a lower exercise price equal to the fair
market value of RehabCare Common Stock on the effective date of the exchange
(the "Exchange Program"). Under the Exchange Program, an aggregate of 412,625
shares of Common Stock at exercise prices ranging from $19.50 to $31.50 per
share were exchanged for an aggregate of 295,784 new options having an exercise
price of $18.75 per share.

Under the Exchange Program, a Black-Scholes stock option valuation model
was used to value the existing out-of-the-money options (the "Old Options") held
by each holder participating in the Exchange Program. In exchange for such Old
Options, each participating holder then received a newly priced option (a "New
Option") for a reduced number of shares which, using the same Black-Scholes
model used for the valuation of the Old Options, had the same value as the Old

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<PAGE> 14

Options. Each of the Old Options generally vested at the rate of 25% per year
over four years. The New Options granted pursuant to the Exchange Program also
vest at the rate of 25% over four years, however, the vesting history for the
Old Options did not carry over to the New Options, and the new four-year vesting
period for the New Options began on the date of grant, December 15, 1998. The
New Options will expire on December 15, 2008, ten years after the date of grant.
The other substantive terms and conditions of the New Options are identical to
the Old Options.

The Committee believes that the Exchange Program was necessary and
appropriate in light of conditions affecting the valuation of the stock of
healthcare services companies such as RehabCare and the specific terms of the
Exchange Program. In considering the Exchange Program, the Committee noted that
options for approximately 525,000 shares were issued by RehabCare during the
period from June 1997 through June 1998, at exercise prices ranging from $19.50
to $31.50 per share. During such period, RehabCare Common Stock was trading at
multiples well above the high end of normal historical trading ranges in terms
of price/earnings (P/E) multiples. Beginning in May 1998, the stock price of
RehabCare Common Stock and the stock prices of other healthcare service
companies generally were negatively impacted by pessimistic market perception of
the effect that pending regulatory changes in reimbursement policy would have
upon financial performance.

The Committee determined that the disparity between the exercise prices for
grants made at the high end of the valuation range for RehabCare Common Stock
and current and projected valuations for RehabCare Common Stock substantially
diminished the value of such options such that the options were not fulfilling
the intended incentivization and retention objectives on which such grants were
made. In developing the Exchange Program, the Committee determined that, rather
than using a simple one-for-one exchange approach utilized by many public
companies faced with the same issue, the New Options granted under the Exchange
Program would, based upon a Black-Scholes valuation method, have the same value
as the Old Options. In addition, in order to enhance the retention objective of
the New Options, the New Options have new four-year vesting periods, rather than
carrying over the vesting history from the Old Options. In this manner, the
Committee determined that the Exchange Program met the Committee's objective of
providing meaningful incentives to the persons holding the out-of-the-money
options, while at the same time recognizing the interests of the shareholders of
RehabCare.

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<PAGE> 15

The following table contains certain information concerning the exchange of
stock options by the executive officers of the Company pursuant to the Exchange
Program:

Ten-Year Option/SAR Repricings Table
<TABLE>
<CAPTION>
Length of
Number of Number of Original
Securities Securities Market Price Exercise Option Term
Underlying Underlying of Stock at Price at Remaining at
Prior Options/SARs Time of Time of New Date of
Options/SARs Repriced or Repricing or Repricing or Exercise Repricing or
Name Date Surrendered(#)<F1> Amended(#)<F1> Amendment($)<F2> Amendment($) Price($) Amendment
---- ---- ------------------ -------------- ---------------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Alan C. Henderson, 12/15/98 200,000 121,482 18.75 31.50 18.75 9 yrs., 5 mos.
President and Chief
Executive Officer

Keith L. Goding, 12/15/98 10,000 7,758 18.75 25.00 18.75 9 yrs., 6 mos.
Executive Vice
President and Chief
Development Officer

Alfred J. Howard, 12/15/98 25,000 19,395 18.75 25.00 18.75 9 yrs., 6 mos.
President,
Outpatient Division

Tom E. Davis 12/15/98 22,500 19,604 18.75 22.08 18.75 8 yrs., 6 mos.
President, Inpatient 12/15/98 20,000 15,823 18.75 24.50 18.75 9 yrs., 3 mos.
Division

John R. Finkenkeller, 12/15/98 10,000 7,758 18.75 25.00 18.75 9 yrs., 6 mos.
Senior Vice President,
Chief Financial
Officer and Secretary

<FN>
<F1> Pursuant to the Option Exchange, Messrs. Henderson, Goding, Howard, Davis
and Finkenkeller surrendered Old Options to purchase 200,000, 10,000,
25,000, 42,500 and 10,000 shares of Common Stock, respectively, at the
higher exercise prices noted in the table and in exchange such executive
officers were granted New Options to purchase 121,482, 7,758, 19,395,
35,427, and 7,758 shares of Common Stock, respectively, at the exercise
price of $18.75 per share, the fair market value of RehabCare Common Stock
on the effective date of the exchange.

<F2>)Based on the closing price of a share of Common Stock as reported on the
New York Stock Exchange Composite Tape on December 15, 1998, the date of
grant of the New Options.
</FN>
</TABLE>
COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS

H. EDWIN TRUSHEIM RICHARD E. RAGSDALE THEODORE M. WIGHT

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<PAGE>16

ITEM 2--ADOPTION OF THE REHABCARE GROUP, INC.
AMENDED AND RESTATED 1996 LONG-TERM PERFORMANCE PLAN

The RehabCare Group, Inc. 1996 Long-Term Performance Plan (the "Initial
Performance Plan"), approved by the stockholders of RehabCare in May 1996,
provides for the granting of stock options and other stock-based awards. The
Initial Performance Plan is proposed to be amended and restated to advance 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 RehabCare Common Stock upon the
achievement of certain goals that are mutually advantageous to RehabCare and its
stockholders, on the one hand, and the participating employees, on the other.

The maximum number of shares of RehabCare Common Stock which currently may
be issued under the Initial Performance Plan is 1,050,000 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. Grants of
awards under the Initial Performance Plan to date have resulted in the issuance
or reservation for issuance of 932,058 shares, leaving a balance of 117,942
shares for future grant under the Initial Performance Plan. The Board of
Directors has adopted the RehabCare Group, Inc. Amended and Restated 1996
Long-Term Performance Plan (the "Amended Plan"), subject to stockholder
approval, which adds an additional 1,000,000 shares of Common Stock to the
initial 1,050,000 shares of Common Stock reserved for issuance under the Initial
Performance Plan. The Amended Plan does not amend any other substantive terms of
the Initial Performance Plan.

The Amended Plan will continue to be 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. 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 Amended Plan, to prescribe, amend and rescind rules and
regulations relating to the Amended 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 Amended Plan to the extent not contrary to the express
provisions of the Amended Plan.

The complete text of the Amended Plan is set forth in Appendix A to this
Proxy Statement. The following summary of the Amended Plan is qualified by
reference to the complete text of the Amended Plan.

Description of Performance Plan

Under the terms of the Amended 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

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<PAGE> 17

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 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 (except in the
case of a change in control of RehabCare). 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 RehabCare 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
(except in the case of a change in control of RehabCare).

Stock Options. Stock Options granted under the Amended 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. Stock Options outstanding and unexercised at the time of the
retirement, 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 other than retirement, death or
disability, 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.

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<PAGE> 18

The Amended Plan is to remain in effect until (a) all Common Stock reserved
under the Amended Plan shall have been purchased or acquired, (b) the Board of
Directors terminates the Amended Plan, or (c) March 3, 2009, whichever shall
first occur. The Board of Directors may terminate the Amended Plan at any time
and from time to time may amend or modify the Amended Plan; provided, however,
that no such action of the Board of Directors 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 Amended Plan, (b) change the
provisions of the Amended 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 Amended Plan shall in any manner adversely
affect any award theretofore granted under the Amended 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 ("nonqualified 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 nonqualified 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.

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<PAGE> 19

Recommendation of the Board of Directors

The vote required to approve the Amended Performance Plan is a majority of
the shares of RehabCare Common Stock voting in person or by proxy, at the Annual
Meeting. The Board of Directors recommends a vote "FOR" the approval of the
RehabCare Group, Inc. 1996 Amended and Restated Long-Term Performance Plan.

ITEM 3--ADOPTION OF THE REHABCARE GROUP, INC.
1999 NON-EMPLOYEE DIRECTOR STOCK PLAN

In March 1999, the Board of Directors of RehabCare adopted, subject to
stockholder approval, the RehabCare Group, Inc. 1999 Non-Employee Director Stock
Plan (the "Non-Employee Director Stock Plan"), which provides for the granting
of stock options and other stock-based awards to non-employee directors of
RehabCare. The Non-Employee Director Stock Plan seeks to advance the interests
of the Company and its stockholders by (i) compensating non-employee directors
for their services during the preceding year, (ii) inducing non-employee
directors to remain as directors of RehabCare over the long term, (iii) aligning
the non-employee directors' interests in RehabCare's financial performance more
directly with that of the stockholders and (iv) assisting RehabCare in competing
with other enterprises for the services of new non-employee directors, when
necessary.

The maximum number of shares of Common Stock which may be issued under the
Non-Employee Director Stock Plan is 100,000 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 the Company. RehabCare's existing
Directors' Stock Option Plan has only 60,000 shares currently available for
grants under its existing authorization. While future stock option grants may be
made under the Directors' Stock Option Plan (up to the maximum aggregate number
of shares originally authorized), the Board of Directors believes that the
adoption of the proposed Non-Employee Director Stock Option Plan will add
flexibility in the benefits available for the non-employee directors'
compensation program and will allow uninterrupted and availability of authorized
shares to support such program.

The Non-Employee Director Stock Plan will be administered by the Board of
Directors of RehabCare. The Board of Directors, by majority action thereof, is
authorized in its sole discretion to determine the type and amount of such
benefits and the terms of the benefit grants, as well as to interpret the
Non-Employee Director Stock Plan, to prescribe, amend and rescind rules and
regulations relating to the Non-Employee Director Stock Plan and its
administration, and to take whatever action is necessary to carry out the
purposes of the Non-Employee Director Stock Plan.

The complete text of the Non-Employee Director Stock Plan is set forth in
Appendix B to this Proxy Statement. The following summary of the Non-Employee
Director Stock Plan is qualified by reference to the complete text of the
Non-Employee Director Stock Plan.

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<PAGE> 20

Description of Plan

Under the terms of the Non-Employee Director Stock Plan, non-employee
directors will be eligible to receive (a) stock options ("Stock Options")
exercisable into shares of Common Stock which do not qualify as incentive stock
options within the meaning of Section 422 of the Code, (b) restricted shares of
Common Stock ("Restricted Stock"), and (c) stock units ("Stock Units").

Stock Options. Stock Options granted under the Non-Employee Director Stock
Plan shall entitle the holder to purchase RehabCare Common Stock at a purchase
price established by the Board of Directors, which price shall not be less than
the fair market value of RehabCare Common Stock on the date of grant. All Stock
Options granted shall be stock options that are not "incentive stock options"
under Section 422 of the Code. Stock Options 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 the
participant's tenure as a director of RehabCare for any reason other than death,
retirement or disability. In the event termination of the participant's tenure
as a director of RehabCare occurs as a result of death, retirement or
disability, Stock Options will be exercisable for twenty-four months after such
termination. However, in no event shall any option be exercised more than ten
years after its initial grant. The Board of Directors shall have the right to
determine at the time the option is granted whether shares issued upon exercise
of a Stock Option shall be subject to restrictions, and if so, the nature of the
restrictions.

Restricted Stock. The Board of Directors 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 Board
of Directors at the time of grant. The Board of Directors may impose on the
Restricted Stock any restrictions, conditions or terms as they deem appropriate,
including without limitation, restrictions on the sale or disposition thereof
and rights of RehabCare to reaquire the Restricted Stock. 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.

Stock Units. The Board of Directors may issue Stock Units representing the
right to receive shares of RehabCare Common Stock at a designated time in the
future, subject to the terms and conditions as established by the Board of
Directors in its sole discretion. A holder of Stock Units generally does not
have the rights of a stockholder until receipt of the shares, but, in the Board
of Directors' sole discretion, may receive payments in cash or adjustments in
the number of Stock Units equivalent to the dividends the holder would have
received if the holder had been the owner of shares of RehabCare Common Stock
instead of Stock Units.

The Board of Directors may terminate, amend or modify the Non-Employee
Director Stock Plan; provided, however, that no such action of the Board of
Directors may, without the approval of the stockholders of the Company: (a)
increase the total number of shares of RehabCare Common Stock which may be
issued under the Non-Employee Director Stock Plan or increase the amount or type
of benefits that may be granted; (b) change the minimum purchase price, if any,
of shares of RehabCare Common Stock which may be subject to benefits; or (c)
modify the requirements as to eligibility for benefits under the Non-Employee
Director Stock Plan.

Federal Income Tax Consequences

No income will be realized by a non-employee director on the grant of a
Stock Option, the award of Restricted Stock or the award of Stock Units, and
RehabCare will not be entitled to a deduction at such time. Upon the exercise of

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<PAGE> 21

a Stock Option, the excess, if any, of the fair market value of the stock on the
date of exercise over the purchase price 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.

A non-employee director will realize income as a result of an award of
Stock Units at the time shares of Common Stock are issued in an amount equal to
the fair market value of such shares at that time. RehabCare will be entitled to
a corresponding deduction equal to the income realized in the year of such
issuance.

Recommendation of the Board of Directors

The vote required to approve the Non-Employee Director Stock Plan is a
majority of the shares of RehabCare Common Stock voting, in person or by proxy,
at the Annual Meeting. The Board of Directors recommends a vote "FOR" the
approval of the RehabCare Group, Inc. 1999 Non-Employee Director Stock Plan.

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<PAGE> 22

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, 1998:

COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN <F1> AMONG REHABCARE GROUP, INC.,
NASDAQ MARKET INDEX AND DOW JONES INDUSTRY GROUP HEA INDEX

[GRAPH]

ASSUMES $100 INVESTED ON JANUARY 1, 1994 IN REHABCARE GROUP, INC. COMMON STOCK,
NASDAQ MARKET INDEX & DOW JONES GROUP HEA INDEX

DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
REHABCARE GROUP, INC. 100 115.55 171.11 178.89 353.15 249.04
NASDAQ 100 104.99 136.18 169.23 207.00 291.96
DOW JONES INDUSTRY HEA INDEX 100 109.78 146.46 152.32 150.84 138.85

<FN>
<F1> Total return assumes reinvestment of dividends
</FN>
</TABLE>

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.

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<PAGE> 23
INDEPENDENT PUBLIC ACCOUNTANTS

KPMG LLP served as RehabCare's independent public accountants for the year
ended December 31, 1998. A representative of KPMG LLP is expected to be present
at the Annual Meeting to respond to appropriate questions from stockholders and
such representative will have the opportunity to make statements if he or she so
desires.

PROPOSALS OF STOCKHOLDERS

Proposals of stockholders intended to be presented at the 2000 Annual
Meeting of Stockholders must be received by the Secretary of RehabCare by not
later than November 26, 1999 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.

Alan C. Henderson
President and Chief Executive Officer

March 25, 1999

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<PAGE> 24

APPENDIX A

REHABCARE GROUP, INC.
AMENDED AND RESTATED
1996 LONG-TERM PERFORMANCE PLAN

RehabCare Group, Inc. (the "Corporation") adopted the 1996 Long-Term
Performance Plan (the "Plan") effective as of April 23, 1996. The Corporation
now wishes to amend and restate the Plan to increase the number of shares
reserved for issuance under the Plan and to make certain other procedural
changes to its terms.

This amendment shall be effective immediately upon adoption by the Board of
Directors, subject to approval by the stockholders of the Corporation at the
1999 Annual Meeting of Stockholders. In the event the stockholders of the
Corporation do not approve this amended and restated plan at such Annual
Meeting, awards made pursuant to the Plan that cannot be satisfied with shares
reserved for issuance under the Plan without regard to this amendment and
restatement shall be null and void.

Pursuant to the authority reserved in Section 15 of the Plan, the Board of
Directors of the Corporation hereby amends and completely restates the Plan to
read in its entirety as follows:

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 are employees of the Corporation. 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 2,050,000 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 tax withholding obligation of the participant, the Plan Maximum shall be
reduced by the net (rather than the gross) number of shares issued pursuant to

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<PAGE> 25

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 ("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. 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.

A-2
<PAGE> 26

(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
SARs, 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, (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 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.

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 a combination of cash and Common Stock of the
Corporation, 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

A-3
<PAGE> 27

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 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 a combination of cash and Common Stock of
the Corporation, 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.

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<PAGE> 28

connection with any merger, consolidation, acquisition of property or
stock, or reorganization upon such terms and conditions as it may deem
appropriate.

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 domestic relations order issued by a court of
competent jurisdiction, provided, however, SARs, Restricted Stock and NQSOs
granted under the Plan may be transferred 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. If a
benefit award hereunder is issued in the name of a Permissible Transferee, such
Permissible Transferee shall have, with respect to such benefit or award, all of
the rights, privileges and obligations which would have attached thereunder to
the participant if the benefit or award had been issued to such participant. 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' 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

A-5
<PAGE> 29

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 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 Section 15 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 shall be effective on March 3, 1999. The
Plan shall be submitted for the approval of the stockholders of the Corporation
at the 1999 Annual Meeting of Stockholders. If the stockholders do not approve
the Plan, it, and any action taken hereunder, shall be void and of no effect.

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<PAGE> 30
APPENDIX B

REHABCARE GROUP, INC.
1999 NON-EMPLOYEE DIRECTOR STOCK PLAN

1. Purpose. The purpose of the RehabCare Group, Inc. 1999 Non-Employee
Director Stock Plan (the "Plan") is (1) to compensate directors of RehabCare
Group, Inc. (the "Corporation") for their services during the preceding fiscal
year, (2) to induce directors of the Corporation to remain directors of the
Corporation over the long term, (3) to align the directors' interests in the
Corporation's financial performance more directly with those of the stockholders
and (4) to aid the Corporation in competing with other enterprises for the
services of new directors, when necessary.

2. Administration. The Plan will be administered by the Board of Directors
of the Corporation. The determinations of the Board of Directors shall be made
in accordance with its 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 Board of Directors shall constitute a quorum, and all
determinations of the Board of Directors shall be made by a majority of its
members. Any determination of the Board of Directors under the Plan may be made
without notice or meeting of the Board of Directors, by a writing signed by a
majority of the members of the Board of Directors. Determinations,
interpretations or other actions made or taken by the Board of Directors
pursuant to the provisions of the Plan shall be final and binding and conclusive
for all purposes and upon all persons whomsoever. Subject to the express
provisions of the Plan, the Board of Directors shall have plenary authority to
construe and interpret the Plan, to make, amend and rescind rules and
regulations regarding the Plan and its administration, to determine the terms
and provisions of the respective Nonqualified Stock Option, Restricted Stock and
Stock Unit agreements (which need not be identical), and to take whatever action
is necessary to carry out the purposes of the Plan; provided, however, that the
Board of Directors shall take no action which will impair any benefit previously
granted under the Plan or cause the Plan or any individual grant thereunder not
to meet the requirements of Rule 16b-3 of the Securities Exchange Act of 1934,
as amended from time to time (the "Act").

3. Shares Reserved Under the Plan. There is hereby reserved for issuance
under the Plan an aggregate of One Hundred Thousand (100,000) shares of Common
Stock of the Corporation, which may be authorized but unissued or treasury
shares. Shares underlying outstanding Nonqualified Stock Options or Stock Units
will be counted against the Plan maximum while such Nonqualified Stock Options
or Stock Units are outstanding and after the shares underlying the award are
issued. Shares of Restricted Stock issued pursuant to the Plan will be counted
against the Plan maximum while outstanding even while subject to restrictions.
Shares underlying expired, cancelled or forfeited Nonqualified Stock Options or
Stock Units may be added back to the Plan. When the exercise price of
Nonqualified Stock Options is paid by delivery of shares of Common Stock of the
Corporation, the number of shares available for issuance under the Plan shall be
reduced by the gross (rather than the net) number of shares which would have
been issued pursuant to such exercise, regardless of the number of shares
surrendered in payment. Shares of Restricted Stock shall be added back to the
Plan if such Restricted Stock is forfeited.

4. Participants and Permissible Transferees.

(a)Participants will consist of directors of the Corporation who are not
otherwise officers or employees of the Corporation or of any subsidiary
thereof.

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<PAGE> 31

(b)A Permissible Transferee is a person or entity, other than a
participant, to whom Nonqualified Stock Options or Restricted Stock (but
not Stock Units) may be transferred pursuant to this Section 4(b) as
provided in Sections 7 and 8(f). Permissible Transferees are limited to
the following persons or entities: (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 in such entity. For this purpose, the
participant's family includes only the participant's spouse, children
and grandchildren.

5. Types of Benefits. The following benefits may be granted under the Plan:
(a) Nonqualified Stock Options; (b) Restricted Stock; and (c) Stock Units; all
as described below.

6. Date of Granting Benefits. All benefits granted under the Plan shall be
granted as of an award date which shall be designated in the particular award
agreement. If no award date is so specified, the award date shall be the date
that the Board action granting the award is effective. Promptly after each award
date, the Corporation shall notify the participant of the grant of the benefit,
and shall hand deliver or mail to the participant an agreement awarding the
benefit, duly executed by and on behalf of the Corporation.

7. Nonqualified Stock Options. Nonqualified Stock Options shall consist of
stock options to purchase shares of Common Stock of the Corporation that are not
"incentive stock options" under Section 422 of the Internal Revenue Code of
1986, as amended. Nonqualified Stock Options shall be granted 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 Board of Directors, either (ii) by the delivery of shares of Common Stock
of the Corporation then owned by the participant or Permissible Transferee, as
the case may be, which shares must have been owned for at least six months or
(iii) by a combination of the foregoing, in the manner provided in the
Nonqualified Stock Option agreement. Nonqualified Stock Options 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 the participant's tenure as a director of the Corporation for any
reason other than death, retirement or disability. In the event termination of
the participant's tenure as a director of the Corporation occurs as a result of
death, retirement or disability, such option will be exercisable for twenty-four
months after such termination. However, in no event shall any option be
exercised more than ten years after its initial grant. The Board of Directors
shall have the right to determine at the time the option is granted whether
shares issued upon exercise of a Nonqualified Stock Option shall be subject to
restrictions, and if so, the nature of the restrictions. Subject to the
provisions of this Section 7, a participant may, at any time before his or her
death, direct that all or any portion of the option granted or to be granted
pursuant to this Section 7 be granted or regranted in the name of one or more
Permissible Transferees. Such direction shall be effective only to the extent
that the Corporation receives written notice from the participant, before his or
her death, advising of such a direction, the name or other identifying
information concerning the Permissible Transferee or Transferees and the number
of shares to which such direction relates. If an option is issued in the name of
a Permissible Transferee, such Permissible Transferee shall have, with respect
to such option, all of the rights, privileges and obligations which would attach
thereunder to the participant if the option were issued to such participant.

8. Restricted Stock. Restricted Stock shall consist of Common Stock of the
Corporation issued or transferred under the Plan (other than upon exercise of

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<PAGE> 32

Nonqualified Stock Options or as payment for Stock Units) 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 Board of
Directors.

(b)Restricted Stock may be subject to (i) restrictions on the sale or
other disposition thereof; (ii) rights of the Corporation to reacquire
such Restricted Stock at the purchase price, if any, originally paid
therefor upon termination of the participant's tenure as a director of
the Corporation within specified periods; (iii) representation by the
participant or Permissible Transferee that he or she intends to acquire
Restricted Stock for investment and not for resale; and (iv) such other
restrictions, conditions and terms as the Board of Directors deems
appropriate.

(c)The participant or Permissible Transferee 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 or Permissible Transferee shall be entitled to vote the
Restricted Stock during the period of restriction.

(e)The Board of Directors shall determine whether Restricted Stock is to
be delivered to the participant or Permissible Transferee with an
appropriate legend imprinted on the certificate or if the certificates
are to be held by the Corporation pending removal of the restrictions.

(f)Subject to the provisions of this Section 8(f), a participant may at
any time before his or her death, direct that any or all of his or her
shares of Restricted Stock granted or to be granted pursuant to this
Section 8 be granted or regranted in the name of one or more Permissible
Transferees. Such direction shall be effective only to the extent that
the Corporation receives written notice from the participant, before his
or her death, advising of such a direction, the name or other
identifying information concerning the Permissible Transferee or
Transferees and the number of shares of Restricted Stock to which such
direction relates. If Restricted Stock is issued in the name of a
Permissible Transferee, such Permissible Transferee shall have, with
respect to such Restricted Stock, all of the rights, privileges and
obligations which would attach thereunder to the participant if the
Restricted Stock were issued to such participant.

9. Stock Units. Stock Units represent the right to receive shares of Common
Stock of the Corporation at a designated time in the future, subject to such
terms and conditions set forth in a Stock Unit agreement as may be established
by the Board of Directors in its sole discretion. In addition to direct grants
of Stock Unit awards by the Board of Directors to particular participants, the
Board of Directors may also, in its sole discretion, allow a participant from
time to time to elect to defer all or any designated portion of his or her
directors' fees into such number of Stock Units equal in value, determined as of
the deferral date, to the amount of the directors' fees the participant elected
to defer. A participant generally does not have the rights of a stockholder
until receipt of the Common Stock underlying the Stock Units. Payment terms,
including the date or dates of payment and whether such Stock Units will be
payable in Common Stock, cash or a combination thereof, will be as set forth in
the particular Stock Unit agreement evidencing such award. The Board of
Directors may in its discretion provide for a payment in cash, or an adjustment
in the number of Stock Units, equivalent to the dividends the participant would
have received if the participant had been the owner of shares of Common Stock
instead of the Stock Units. Notwithstanding any provision of this Plan to the

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contrary, Stock Units shall not be transferable otherwise than by will or by the
laws of descent and distribution, and the interests of a participant or
beneficiary in such Stock Units are not subject to the claims of creditors and
may not be voluntarily or involuntarily sold, transferred, alienated, assigned,
pledged, anticipated or encumbered. The right to receive a distribution of
Common Stock in payment of Stock Units shall be the unsecured right to receive
payment from the Corporation out of its general assets.

10. 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, stock splits or recapitalization), the total number of
shares reserved for issuance under this Plan, the maximum number of
shares available to a particular participant or Permissible Transferee
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. Upon
the occurrence of such event, the purchase price per share shall also be
adjusted to assure that the aggregate consideration payable to the
Corporation and the value of each such benefit shall not change.
Benefits may also contain provisions for their continuation or for other
equitable adjustments after changes in the Common Stock resulting from
any 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.

11. Nontransferability. Each benefit granted under the Plan to a
participant shall not be transferable, to other than a Permissible Transferee as
allowable hereunder, otherwise than by will or the laws of descent and
distribution or pursuant to a domestic relations order issued by a court of
competent jurisdiction, and shall be exercisable, during the participant's
lifetime, only by the participant or a Permissible Transferee, as the case may
be. In the event of the death of a participant, exercise or payment shall be
made only:

(a)By or to a Permissible Transferee (in the case of Nonqualified Stock
Options or Restricted Stock), the 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 was entitled thereto at the
date of his death.

12. 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.

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13. No Right To Remain a Director. The grant of any award under this Plan
shall not create any right in any person to remain a director of the
Corporation.

14. Duration, Interpretation, Amendment and Termination. No benefit
shall be granted more than ten years after the date of adoption of the 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 or Permissible Transferee hereunder, stock options
or other benefits may be granted to such participant or Permissible Transferee
in substitution and exchange for, and in cancellation of, any benefits
previously granted such participant or Permissible Transferee 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 Section 14 shall reduce
the amount of any existing benefit or change the terms and conditions thereof
without the participant's or Permissible Transferee'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.

15. Stockholder Approval. The Plan shall be effective on March 3, 1999. The
Plan shall be submitted for approval by the stockholders of the Corporation at
the 1999 Annual Meeting of Stockholders. If the stockholders do not approve the
Plan, it, and any action taken hereunder, shall be void and of no effect.

16. Governing Law. Subject to the provisions of applicable federal law, the
Plan shall be administered, construed and enforced according to the internal
laws of the State of Missouri, excluding its conflict of law rules and the
conflict of law rules of any other state.

17. Severability. The invalidity of any particular clause, provision or
covenant herein shall not invalidate all or any part of the remainder of the
Plan, but such remainder shall be and remain valid in all respects as fully as
the law will permit.

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