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(3)(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)
THE BOARD OF DIRECTORS OF REHABCARE GROUP, INC.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
1) Title of each class of securities to which transaction applies: 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: 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 MAY 10, 2000
Dear Stockholder:
The Annual Meeting of Stockholders of RehabCare Group, Inc. ("RehabCare")
will be held at the Pierre Laclede Center, 7733 Forsyth Boulevard, Second Floor,
St. Louis, Missouri on May 10, 2000, at 8:00 a.m., local time, for the following
purposes:
1. To elect six directors to hold office until the next Annual Meeting or
until their successors shall have been duly elected and qualified.
2. To transact any and all other business that may properly come before
the Annual Meeting or any adjournment thereof.
Only stockholders of record of RehabCare at the close of business on
March 14, 2000, 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 in person, 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 30, 2000
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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 MAY 10, 2000
-----------------
GENERAL INFORMATION
This Proxy Statement is furnished to the stockholders of REHABCARE GROUP,
INC. ("RehabCare") in connection with the solicitation of proxies for use at the
Annual Meeting of Stockholders to be held at the Pierre Laclede Center, 7733
Forsyth Boulevard, Second Floor, St. Louis, Missouri, at 8:00 a.m., local time,
and at all adjournments thereof (the "Annual Meeting"), for the purposes set
forth in the preceding Notice of Annual Meeting of Stockholders.
This Proxy Statement, the Notice of Annual Meeting and the accompanying
Proxy Card were first mailed to the stockholders of RehabCare on or about March
30, 2000.
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 re-election of the six
directors nominated by the Board of Directors. 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 14, 2000, are
entitled to notice of, and to vote at, the Annual Meeting. On such date, there
were 7,154,067 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 and one vote for each director to be elected at the
Annual Meeting. Shares subject to abstentions will be treated as shares that are
present at the Annual Meeting for purposes of determining the presence of a
quorum and as voted for purposes of determining the base number of shares voting
on a particular proposal. If a broker or other nominee holder indicates on the
Proxy Card that it does not have discretionary authority to vote the shares it
holds of record on a proposal, those shares will not be considered as present
for purposes of determining a quorum (unless they are voted on another proposal
brought before the meeting) or as voted for purposes of determining the approval
of the stockholders on a particular proposal. Stockholders do not have the right
to cumulate votes in the election of directors.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following persons were known to management of RehabCare to be the
beneficial owners of five percent or more of RehabCare Common Stock:
<TABLE>
<CAPTION>
Number of Shares Percent of Outstanding
Name and Address of Beneficial Owner Beneficially Owned Common Stock(1)
------------------------------------ ------------------ ---------------------
<S> <C> <C>
Bear Stearns Asset Management Inc.(2) 671,000 9.38%
575 Lexington Avenue
New York, New York 10022
FMR Corp.(3) 665,800 9.31
82 Devonshire Street
Boston, Massachusetts 02109
Putnam Investments, Inc.(4) 454,700 6.36
One Post Office Square
Boston, Massachusetts 02109
<FN>
(1) The percentage calculations are based upon 7,154,067 shares of RehabCare
Common Stock issued and outstanding on March 14, 2000.
(2) Based upon information set forth in Schedule 13G dated February 10, 2000,
filed by the reporting person with the Securities and Exchange Commission.
The Schedule 13G is a joint filing by Bear Stearns Asset Management Inc.,
an investment advisor registered under the Investment Advisors Act of 1940,
The Bear Stearns Funds, an open-end management investment company
registered under the Investment Company Act of 1940, and S&P Stars Fund, a
separate portfolio of The Bear Stearns Funds. The Schedule 13G reported
sole voting and investment power with respect to all 671,000 shares
reported as beneficially owned.
(3) Based upon information set forth in Amendment No. 5 to Schedule 13G dated
February 14, 2000, 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 665,800 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
665,800 shares reported by such person as beneficially owned.
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<PAGE> 4
(4) Based upon information set forth in an Amendment No. 1 to Schedule 13G
dated February 17, 2000, filed by the reporting persons with the Securities
and Exchange Commission. The Schedule 13G is a joint filing by Putnam
Investments, Inc., a Massachusetts corporation, Marsh & McLennan Companies,
a Delaware corporation, Putnam Investment Management, Inc., a Massachusetts
corporation, and The Putnam Advisory Company, Inc., a Massachusetts
corporation. Marsh & McLennan Companies is the parent holding company to
Putnam Investments, Inc. and reported no voting or investment power. Putnam
Investments, Inc. is the parent company to each of Putnam Investment
Management, Inc. and The Putnam Advisory Company, Inc. and reported shared
voting power with respect to 212,500 shares and shared investment power
with respect to all of the 454,700 shares reported as beneficially owned.
Putnam Investment Management, Inc. reported no shared voting power and
shared investment power with respect to all of the 169,200 shares reported
by Putnam Investment Management, Inc. as beneficially owned. The Putnam
Advisory Company, Inc. reported shared voting power with respect to 212,500
shares and shared investment power with respect to all of the 285,500
shares reported by The Putnam Advisory Company, Inc. as beneficially owned.
</FN>
</TABLE>
ELECTION OF DIRECTORS
At the Annual Meeting, the holders of RehabCare Common Stock will vote on
the election of six directors to serve a term of one year until the 2001 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 re-election of
the six directors 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 six 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 re-election of
each of the directors.
The name, age, principal occupation or position and other directorships
with respect to the directors are set forth below. Unless otherwise indicated,
each of the directors 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, 67 - Director since 1991; Retired Vice Chairman, Ernst
& Young (public accountants).
Alan C. Henderson, 54 - Director since 1998; President and Chief Executive
Officer of RehabCare since June 1998; prior thereto, Executive Vice President
and Chief Financial Officer and Secretary of RehabCare for in excess of five
years; Director of General American Capital Corp.
Richard E. Ragsdale, 56 - Director since 1993; Director and Chairman of the
Executive Committee, ProMedCo Management Company (physician practice
management); Director, American Endoscopy Services, Inc. and Kaleidospace, LLC;
Chairman, Hospital Authority of Metro Government, Nashville, Tennessee.
John H. Short, Ph.D., 55 - Director since 1991; Managing Partner, Phase 2
Consulting (health care and economic consulting).
H. Edwin Trusheim, 72 - Director since 1992; Chairman of the Board of
RehabCare since 1998; Retired Chairman of the Board and Chief Executive Officer,
General American Life Insurance Company (life and health insurance); Director,
Angelica Corporation, Laclede Gas Company and Reinsurance Group of America,
Incorporated.
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<PAGE> 5
Theodore M. Wight, 57 - Director since 1991; a General Partner of the
General Partners of Walden Investors and Pacific Northwest Partners SBIC, L.P.
(venture capital); Director, Interlinq Software Corp and various privately-held
companies.
BOARD OF DIRECTORS AND COMMITTEES
During the year ended December 31, 1999, the Board of Directors of
RehabCare met six times. Each director attended not less than 75% of the
meetings of the Board of Directors and committees of which such director was a
member during 1999. The Board of Directors of RehabCare has standing Audit,
Compensation and Nominating Committees.
The current members of the Audit Committee are Messrs. Anderson and Short.
The Audit Committee met two times during 1999. 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 four times during 1999. The Compensation Committee is also responsible for
the administration of all aspects of RehabCare's stock-based incentive plans.
In September 1999, the Board of Directors established a Nominating
Committee to recommend to the Board of Directors nominees for directors,
nominees for members of all committees of the Board, and candidates for
appointment as corporate officers. The Nominating Committee is comprised of
Messrs. Ragsdale, Wight and Henderson. The Nominating Committee met one time
during 1999.
DIRECTORS' FEES
Directors who are not also employees of RehabCare received a fee of $3,000
for each meeting of the Board of Directors attended in person. In conjunction
with the reduction in the number of regularly scheduled meetings of the Board of
Directors from five to four, effective in January 2000 each director shall
receive a fee of $4,000 for each meeting of the Board of Directors attended in
person. Directors are also reimbursed for expenses incurred in connection with
their attendance at Board meetings. In addition, each of the directors who is
not also an employee of the Company participates in RehabCare's 1994 Directors'
Stock Option Plan and 1999 Non-Employee Director Stock Plan which provide for
the granting of stock options and other stock-based awards to non-employee
directors of RehabCare. In January 1999, pursuant to RehabCare's 1994 Directors'
Stock Option Plan options to acquire 15,000 shares of RehabCare Common Stock at
an exercise price of $20.4375 per share, the fair market value on the date of
grant, were granted to each of Messrs. Anderson, Ragsdale, Short, Trusheim and
Wight.
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<PAGE> 6
SECURITY OWNERSHIP BY MANAGEMENT
The following table sets forth, as of March 14, 2000 the beneficial
ownership of RehabCare Common Stock by each director and each executive officer
named in the Summary Compensation Table, individually, and all directors and
executive officers as a group:
<TABLE>
<CAPTION>
Number of Shares
Name of Beneficial Owner Beneficially Owned(1) Percent of Class(2)
- ------------------------ -------------------- -------------------
<S> <C> <C>
William G. Anderson 127,000(3) 1.75%
Alan C. Henderson 235,090(3)(4) 3.21
Richard E. Ragsdale 162,654(3)(5) 2.24
John H. Short, Ph.D 111,000(3) 1.53
H. Edwin Trusheim 106,500(3) 1.47
Theodore M. Wight 75,000(3) 1.04
Tom E. Davis 14,482(3) (6)
Hickley M. Waguespack 53,882(3) (6)
Keith L. Goding 82,357(3)(7) 1.14
Alfred J. Howard 16,936(3) (6)
All directors and executive
officers as a group (13 persons) 1,076,019(3) 13.38
<FN>
(1) Except as otherwise noted, each individual has sole voting and investment
power with respect to the shares listed beside his name.
(2) Based upon 7,154,067 shares of RehabCare Common Stock issued and
outstanding as of March 14, 2000 and, for each director or executive
officer or the group, the number of shares subject to options exercisable
by such director or executive officer or the group on or prior to May 13,
2000.
(3) Totals include 90,000, 175,871, 112,500, 102,500, 105,000, 75,000, 14,482,
50,756, 82,314, 16,098 and 889,771 shares subject to stock options held by
Messrs. Anderson, Henderson, Ragsdale, Short, Trusheim, Wight, Davis,
Waguespack, Goding 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 13, 2000.
(4) Includes (i) 45,300 shares owned by a trust of which Mr. Henderson is the
trustee, and (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.
(5) Includes 50,154 shares of RehabCare Common Stock held by The Ragsdale
Family Foundation, of which Mr. Ragsdale is a director, and as to which
shares Mr. Ragsdale has shared voting and investment power.
(6) Less than one percent.
(7) Includes 43 shares owned by a trust of which Mr. Goding is the trustee and
the beneficiary.
</FN>
</TABLE>
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<PAGE> 7
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, 1999, the Committee was composed of three non-employee directors, Messrs.
Trusheim (Chairman), Ragsdale and Wight.
RehabCare's executive compensation policy is designed and administered to
provide a competitive compensation program that will enable RehabCare to
attract, motivate, reward and retain executives who have the skills, education,
experience and capabilities required to discharge their duties in a competent
and efficient manner. The compensation policy is based on the principle that the
financial rewards to the executive are aligned with the financial interests of
the stockholders of RehabCare. In this manner, RehabCare will meet its ultimate
responsibility to its stockholders by striving to give a suitable long-term
return on their investment through earnings from operations and prudent
management of RehabCare's business and operations.
RehabCare's executive compensation strategy has three separate elements
consisting of base salary, annual incentive compensation and long-term incentive
compensation. The following is a summary of the policies underlying each
element.
Base Salary
The Committee has determined the salary ranges for each of the executive
officer positions of RehabCare based upon the level and scope of the
responsibilities of the office, the pay levels of similarly positioned executive
officers among companies competing for the services of such executives and a
consideration of the level of experience and performance profile of the
particular executive officer. In considering the competitors in the market,
RehabCare emphasizes publicly traded rehabilitation and staffing services
companies with similar revenue, earnings and market capitalization profiles to
RehabCare. RehabCare also looks at a combination of for-profit general hospitals
and certain staffing and outpatient service providers to define the lower end of
the compensation market and the larger publicly traded rehabilitation and
staffing 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, 1999, 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 1999 to consider base salary
increases for Messrs. Davis, Waguespack, Goding 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.
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<PAGE> 8
In connection with the Committee's annual evaluation of the base salaries
of the executive officers of RehabCare, in 1999 the Committee increased the
respective annual base salary of Messrs. Henderson, Davis, Waguespack, Goding
and Howard, by between 3% and 13% of such executive officer's previous annual
base salary.
Annual Incentive Compensation
For services rendered during the year ended December 31, 1999, 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, 1999, Mr. Henderson received a cash bonus under this formula of
$223,167. Messrs. Davis, Waguespack, Goding and Howard also received
performance-based cash bonuses of $167,191, $162,695, $132,965 and $159,580,
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.
Executive officers and other eligible employees of RehabCare are granted
options to purchase shares of RehabCare Common Stock from time to time 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.
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, 1999, 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.
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.
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<PAGE> 9
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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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($)(1) Options/SARs(#) Compensation($)(2)
- --------------------------- ---- --------- ---------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
Alan C. Henderson, 1999 343,333 223,167 30,000/-- 3,200
President and Chief 1998 279,500 198,445 121,482/-- 3,200
Executive Officer 1997 211,333 211,076 --/-- 3,200
Tom E. Davis, 1999 198,333 167,191 20,000/-- 3,200
President, Inpatient Division(3) 1998 186,667 133,761 35,427/-- 3,200
1997 128,833 51,596 --/-- --
Hickley M. Waguespack, 1999 193,000 162,695 6,000/-- 3,200
Executive Vice President, 1998 186,417 133,582 --/-- 3,200
Customer Service and Retention 1997 172,125 163,585 --/-- 3,200
Keith L. Goding, 1999 215,000 132,965 8,000/-- 3,200
Executive Vice President 1998 206,917 167,273 7,758/-- 3,200
and Chief Development Officer 1997 184,333 157,976 --/-- 3,200
Alfred J. Howard, 1999 178,000 159,580 10,000/-- 3,200
President, Outpatient Division 1998 166,667 141,883 19,395/-- 3,200
1997 158,333 46,161 --/-- 1,067
<FN>
(1) 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.
(2) Totals include amounts contributed by RehabCare pursuant to the matching
portion of RehabCare's 401(k) Plan.
(3) Mr. Davis became an executive officer of RehabCare effective as of January
1, 1998.
</FN>
</TABLE>
Employment Arrangements
RehabCare currently has employment agreements with each of Alan C.
Henderson, President and Chief Executive Officer and Alfred J. Howard, President
of the Outpatient Division. Mr. Henderson's Employment Agreement will continue
to be automatically renewed for successive one-year terms unless terminated by
either party and 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. Mr.
Howard's Employment Agreement expires April 30, 2002 and will continue to be
automatically renewed for successive one-year terms unless terminated by either
party and provides for a minimum annual base salary and annual bonuses under a
bonus plan consistent with bonus plans of other division presidents.
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<PAGE> 11
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. In addition, in the
case of termination without cause or for good cause prior to or following a
"change in control" of RehabCare, Mr. Howard's Employment Agreement provides for
a severance benefit equal to Mr. Howard's then-current annual salary.
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 in Messrs. Henderson's and
Waguespack's agreements as (i) the acquisition by any person of beneficial
ownership of 20% or more of the outstanding shares of RehabCare Common Stock or
of the combined voting power in the election of directors; (ii) the replacement
of the majority of the existing directors or persons nominated for election as
directors by the incumbent Board of Directors; (iii) approval by the
stockholders of RehabCare of a reorganization, merger or consolidation unless
following such transaction control of the surviving company does not change
through changes in the beneficial ownership of the securities or membership on
the Board of the surviving corporation; or (iv) approval by the stockholders of
RehabCare of a complete liquidation or dissolution of RehabCare or the sale of
substantially all of the assets of RehabCare. "Termination" generally includes
any event which ends the executive officer's employment relationship with
RehabCare, other than a termination due to the death, disability or retirement
of the executive officer, a termination by RehabCare for "cause" or a
termination by the executive officer for other than "good reason." "Cause" is
generally defined as (i) the willful and continued failure (after demand by
RehabCare) to substantially perform the duties of the office other than due to
physical or mental incapacity of the executive officer or (ii) the willful
engagement in misconduct by the executive officer that is materially injurious
to RehabCare. "Good reason" is generally defined as (i) the assignment of duties
inconsistent with the executive officer's position, duties, responsibilities and
status immediately prior to a "change in control"; (ii) a reduction in the
executive officer's current base salary; (iii) failure to continue the executive
officer's then-current participation level in RehabCare's bonus, compensation or
other benefit plans; (iv) the geographic relocation of the executive officer; or
(v) any breach of the agreement. "Change of control" is generally defined in Mr.
Howard's Employment Agreement as (i) a consolidation, merger or other business
combination (whereby RehabCare is not the surviving entity in the consolidation,
merger or combination); or (ii) a transaction involving the acquisition by an
unaffiliated third party of the outstanding stock or assets of RehabCare (in
excess of 50% of the number of shares of RehabCare Common Stock outstanding
immediately prior to such transaction or 50% of the value of the assets of the
Outpatient Division of RehabCare).
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<PAGE> 12
Each of the named executive officers other than Messrs. Henderson and
Howard 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, 1999, as well as the
value of such stock options having an exercise price lower than the last
reported trading price on December 31, 1999 ("in-the-money" options) held by the
executive officers named in the Summary Compensation Table. During the year
ended December 31, 1999, options were exercised by Messrs. Waguespack, Goding
and Howard.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal In-The-Money Options at
Shares Period-End (#) FiscalPeriod-End ($)(1)
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
---- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Alan C. Henderson.......... -- -- 145,500/170,232 1,767,315/586,381
Tom E. Davis............... -- -- 12,607/50,320 48,693/149,750
Hickley M. Waguespack...... 25,017 254,816 83,061/8,250 1,051,450/40,665
Keith L. Goding............ 1,500 15,625 82,314/16,444 988,615/64,800
16,000 162,538
Alfred J. Howard........... 22,500 240,938 16,098/35,797 125,520/177,863
<FN>
(1) Based on a price per share of $21.25, the last reported transaction price of
RehabCare Common Stock on December 31, 1999.
</FN>
</TABLE>
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<PAGE> 13
Option Grants In Last Year
The following table sets forth information concerning stock option grants
made in the year ended December 31, 1999 to the executive officers named in the
Summary Compensation Table. No SARs were granted to the named executive officers
in 1999.
<TABLE>
<CAPTION>
Potential Realizable
Individual Grant Value At Assumed
------------------------------------------------------- Annual Rates of Stock
Percent of Total Price Appreciation
Number of Securities Options Granted to for Option Term(3)
Name Underlying Options Employees in Exercise or Market Price on Expiration ------------------
Granted (#) (1) Fiscal Year Base Price ($/Sh) Date of Grant ($) Date (2) 5% ($) 10% ($)
- ---- -------------------- ------------------ ----------------- ---------------- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Alan C. Henderson 30,000 7.1 18.44 18.44 6/30/2009 347,905 881,658
Tom E. Davis 20,000 4.7 18.44 18.44 6/30/2009 231,936 587,772
Hickley M. Waguespack 6,000 1.4 18.44 18.44 6/30/2009 69,580 176,332
Keith L. Goding 8,000 1.9 18.44 18.44 6/30/2009 92,775 235,109
Alfred J. Howard 10,000 2.4 18.44 18.44 6/30/2009 115,968 293,886
<FN>
(1) Each 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.
(2) 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.
(3) 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>
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<PAGE> 14
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, the NYSE Market Index and the Dow Jones Industry
Group Index of Health-Care Providers ("HEA") for the period beginning January 1,
1995 and ending December 31, 1999:
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN* AMONG REHABCARE GROUP, INC.,
NASDAQ MARKET INDEX, NYSE MARKET INDEX AND DOW JONES INDUSTRY GROUP HEA INDEX
[GRAPH]
ASSUMES $100 INVESTED ON JANUARY 1, 1995 IN REHABCARE GROUP INC. COMMON STOCK,
NASDAQ MARKET INDEX, NYSE MARKET INDEX & DOW JONES INDUSTRY GROUP HEA INDEX
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
REHABCARE GROUP, INC 100 148.08 154.81 305.62 215.52 245.07
NASDAQ MARKET INDEX 100 129.71 161.18 197.16 278.08 490.46
NYSE MARKET INDEX 100 129.66 156.20 205.49 244.52 267.75
DOW JONES INDUSTRY HEA INDEX 100 137.56 147.05 151.14 151.33 132.64
<FN>
*TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS
</FN>
</TABLE>
On December 9, 1998, RehabCare's Common Stock began trading on the New York
Stock Exchange. Accordingly, to allow for more accurate comparison to a broad
equity market index that includes companies with equity securities listed on the
New York Stock Exchange, the NYSE Market Index will replace the Nasdaq Market
Index in RehabCare's future stockholder return performance graphs.
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<PAGE> 15
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.
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG LLP served as RehabCare's independent public accountants for the year
ended December 31, 1999. 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 2001 Annual
Meeting of Stockholders must be received by the Secretary of RehabCare by not
later than December 1, 2000 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.
John R. Finkenkeller
Secretary
March 30, 2000
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